Toyota Motor Corp. Annual Report 2012

Plain-text annual report

A02 案 0601 Annual Report 2012 Our aim: Ever - better cars Year ended March 31, 2012 0821 Toyota Global Vision The“Toyota Global Vision ”announced in March 2011, is an articulation of what kind of company we want to be — what kind of company we ought to be. It clarifies our value, “we want Toyota to be a company that customers choose and brings a smile to every customer who chooses it.” The‘ Toyota Global Vision’is a distillation of our resolve at Toyota for the future. Rewarded with a smile by exceeding your expectations Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile. We will meet challenging goals by engaging the talent and passion of people, who believe there is always a better way. Backdrop and Progress In the backdrop of this vision, there is our fall into the red after the Lehman Brothers collapse, as well as our reﬂection over a series of quality problems. To unite all Toyota together to advance our efforts for the recovery of business performance, we came to realize the necessity of having a dream or a path that we should take that all people who work for Toyota could have in common, one that would define what kind of company we want to be ̶ what kind of company we should be. We also keenly felt the importance of making what kind of company we are and what kind of values we hold known to all our customers. Based on our ideal for Toyota, the members of our team gathered to discuss and finalize the vision. This is a distillation of our resolve at Toyota. Toyota Visionary Management The image of a tree has been chosen to symbolize the Toyota Global vision ̶ its“roots to fruits”. The roots of the tree are the shared values that have steered Toyota from the beginning and that have underlain our monozukuri. They are values expressed in the Toyoda Precepts, in the Guiding Principles at Toyota, and in the Toyota Way, which are the basis of our business. The“fruit”that Toyota provides for customers is creating“always better cars”and enriching lives in communities. Through the efforts, we aim to become an admired and trusted company in the various regions where we conduct businesses. The“trunk”of the tree, the underlying support for Toyota’s creating of products that earn smiles from our customers, is the stable base of business. Toyota’s business activities are based on the concept, ensure sustainable growth by fostering the virtuous circle, Always better cars → Enriching lives of communities → Stable base of business. Fr u i t Always better cars Develop vehicles which exceed customer expectations Fr u i t Enriching lives of communities Contribute to communities Contribute to the future of mobility Sustainable growth Constantly drive “always better cars” and “enriching lives of communities” by ensuring sustainable profitability under long-range perspective Tr u n k Stable base of business Toyota values Ro ot s The Toyoda Precepts The Guiding Principles at Toyota The Toyota Way ▼Additional details available at Click HERE Changes for Making Ever-Better Cars New Hybrid Boasting the World’s Best Fuel Economy *1 0821 Aqua (Japan) Powered by a small, light, efficient new 1.5-liter gasoline-electric hybrid system, the Aqua is top of its class worldwide in fuel economy*1 (as tested on the JC08 Japanese cycle). Although a compact, the Aqua’s spacious interior has been rated highly. By the end of January 2012, only one month after the vehicle’s launch, the number of orders for the Aqua in Japan had reached an impressive 120,000. The Aqua is made in Tohoku, a region in Japan positioned by Toyota as a compact car production base. *1 Of all compacts except plug-in EVs; as of July 2012 Click here for more on Toyota’s Medium- to Long-Term Growth Initiatives II Changes for Making Ever-Better Cars New Model Sets the Benchmarks for Function and Design 0821 LEXUS GS The Lexus GS, which stands for “grand touring sedan,” is built to transport four adults comfortably over long distances at speed. The new GS offers a refined design that stirs the emotions. By presenting broad advances in environmental and driving performance, with an even stronger and lighter body achieved through state-of-the-art production technology, the GS takes the Lexus brand to new heights. Click here for more on Toyota’s Medium- to Long-Term Growth Initiatives I Changes for Making Ever-Better Cars Embraced in India, where sales have topped 100,000 units 0821 Etios The Etios was born in 2010 in India of the concept of creating a car to please emerging market consumers. Toyota developed the Etios over a five-year period through the efforts, based on opinions taken directly from consumers in India, of a team mostly composed of Indian engineers. Toyota launched the Etios in the South Africa market in April 2012 and total Etios sales in India reached 100,000 units as of the end of May. Toyota is pursuing initiatives so that consumers in emerging markets worldwide can embrace the Etios. The Etios will be made in two countries beginning in the second half of this year, with production planned to commence in Brazil. Toyota will continue to listen closely to consumer feedback and input in emerging markets as well as other countries in our drive to build ever-better cars. Click here for the Special Feature: Toyota’s Efforts in Emerging Markets Changes for Making Ever-Better Cars Born of an alliance, the 86 makes driving fun 0821 86 (Japan) The 86, jointly developed by Toyota and Subaru, brings together the sports car development know-how and core technologies cultivated by both brands. The 86 adds a horizontal D-4S* engine and an ultra-low center of gravity (460 mm above the road) to the intuitive rear-wheel-drive concept, creating fun handling that makes the driver feel at one with the car. The 86 offers a dimension of driving fun not found in other sports cars. * Direct injection four-stroke gasoline engine, superior version Click here for more on Toyota’s Medium- to Long-Term Growth Initiatives/Cover page 0821 Toyota’s Unchanging Corporate Stance Continuing to offer consumers products that exceed expectations Since our founding, Toyota has continuously strived to contribute to sustainable development at both the community and global level by providing innovative, high-quality products and services. The Toyota Global Vision represents the commitment to continuous growth through a cycle, founded upon the spirit of monozukuri (conscientious manufacturing) maintained throughout our history, that consists of making better cars, building better communities and a better society, and establishing a stable business base. We believe that our theme—“Taking on Change”—represents an evolutionary process for Toyota that is anchored in our unceasing commitment to our core business policies and practices such as “the customer is No. 1” and genchi genbutsu (onsite, hands-on experience). Click here for more information about Toyota Global Vision Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 8 Next Contents Click any title to link to that section Toyota Global Vision Special Feature: Toyota's Efforts in Emerging Markets Management and Corporate Information 経営・会社情報 Changes for Making Ever-Better Cars President's Message We continued, during a difﬁcult management environment, to work to make cars that would bring smiles to people who choose Toyota. Management centered on the “better cars” as described in our Global Vision brings the proﬁtability and production output that starts a cycle leading to investment in “ever-better cars.” We shall continue to forge ahead, without ever turning back. Toyota's Medium- to Long-Term Growth Initiatives We will strengthen our management based on the Global Vision as well as strengthen our efforts to make better cars. We aim to quickly build a strong revenue base in the short term by enhancing our ability to counteract the strong yen. At the same time, as our medium- to long-term efforts we will push forward with the reforming of our corporate culture and the progress of our development, design, procurement and production technologies, as well as with the development of our emerging market business. We are strengthening our global supply system in emerging markets so as to achieve an overall emerging market sales ratio for TMC of 50% by 2015, to achieve a system that will enable the output of three-million vehicles (the same level as that in Japan) by 2013. We will proceed with carmaking responsive to local needs and expand sales by actively releasing IMVs, global vehicles and compact for vehicles speciﬁcally designed emerging markets. Business and Performance Review Consolidated Performance Highlights Automotive Operations Financial Services Operations Non-automotive Business Operations Impact of the Disasters and Recovery Efforts 21 24 26 27 30 2011 was witness to major natural disasters in the form of the Great East Japan Earthquake and the Thailand ﬂoods. All Group companies, suppliers and dealers afﬁliated with Toyota worked as one toward recovery and production normalization, so as to deliver vehicles to our customers as promptly as possible. R&D and Intellectual Property Corporate Philosophy Management Team Corporate Governance Risk Factors Other Management and Corporate Data 32 34 35 36 38 42 Financial Section and Investor Information Message from the Executive Vice President Responsible for Accounting 43 Reduced output due to Japanese Earthquake and Thailand ﬂoods as well as a stronger yen resulted in lower revenues and proﬁts in the year ended March 31, 2012, but through cost-reduction efforts, including ﬁxed cost reduction, we continued to make structural improvements. We will continue to engage in marketing efforts and earnings improvements, and will work to realize a strong revenue base capable of accommodating changes in the environment. Selected Financial Summary (U.S. GAAP) Consolidated Segment Information Consolidated Quarterly Financial Summary Management's Discussion and Analysis of Financial Condition and Results of Operations 45 47 48 49 Consolidated Financial Statements 77 82 Notes to Consolidated Financial Statements Management's Annual Report on Internal Control over Financial Reporting 124 Report of Independent Registered Public Accounting Firm 125 126 Investor Information Cautionary Statement with Respect to Forward-Looking Statements This document contains forward-looking statements that reﬂect Toyota's plans and expectations. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause Toyota's actual results, performance, achievements or ﬁnancial position to be materially different from any future results, performance, achievements or ﬁnancial position expressed or implied by these forward-looking statements. These factors include, but are not limited to: (i) the impact of natural calamities including the negative effect on Toyota's vehicle production and sales; (ii) changes in economic conditions and market demand affecting, and the competitive environment in, the automotive markets in Japan, North America, Europe, Asia and other markets in which Toyota operates; (iii) ﬂuctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar, the euro, the Australian dollar, the Canadian dollar and the British pound, and interest rates ﬂuctuations; (iv) changes in funding environment in ﬁnancial markets and increased competition in the ﬁnancial services industry; (v) Toyota's ability to market and distribute effectively; (vi) Toyota's ability to realize production efﬁciencies and to implement capital expenditures at the levels and times planned by management; (vii) changes in the laws, regulations and government policies in the markets in which Toyota operates that affect Toyota's automotive operations, particularly laws, regulations and government policies relating to vehicle safety including remedial measures such as recalls, trade, environmental protection, vehicle emissions and vehicle fuel economy, as well as changes in laws, regulations and government policies that affect Toyota's other operations, including the outcome of current and future litigation and other legal proceedings, government proceedings and investigations; (viii) political and economic instability in the markets in which Toyota operates; (ix) Toyota's ability to timely develop and achieve market acceptance of new products that meet customer demand; (x) any damage to Toyota's brand image; (xi) Toyota's reliance on various suppliers for the provision of supplies; (xii) increases in prices of raw materials; (xiii) Toyota's reliance on various digital and information technologies; and (xiv) fuel shortages or interruptions in electricity, transportation systems, labor strikes, work stoppages or other interruptions to, or difﬁculties in, the employment of labor in the major markets where Toyota purchases materials, components and supplies for the production of its products or where its products are produced, distributed or sold. A discussion of these and other factors which may affect Toyota's actual results, performance, achievements or ﬁnancial position is contained in Toyota's annual report on Form 20-F, which is on ﬁle with the United States Securities and Exchange Commission. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 9 Next President's Message Making Ever-Better Cars that Exceed Expectations I ﬁrst would like to express my sincere gratitude for your ongoing support and understanding of our company. No matter how harsh the business environment becomes, Toyota has always strived to make ever-better cars that exceed expectations and bring smiles to those who choose them. Despite the impact of the very strong yen in FY2012, thanks to concerted efforts throughout the whole Toyota group of companies, we have made much progress in our efforts to improve our proﬁt structure and establish a robust proﬁt foundation through activities such as cost improvement. We are also fulﬁlling our social responsibilities by making cars in ways that meet strict environmental and safety standards and also meet societyʼs expectations. As stated in the Toyota Global Vision announced last year, making ever-better cars and contributing to the betterment of towns and communities leads to a stable business base. This is the Toyota approach to business: Achieving sustainable growth through a virtuous cycle. I believe the new cars we launched this year show the direction we are headed in. It is likely that the very difﬁcult business environment the world is facing now will continue. All 320,000 of us at Toyota around the world will work as one, to be a company that can realize sustainable growth. Toyota will move forward, never turning back. I, and everyone at Toyota, request your continued and ongoing support. July 2012 Akio Toyoda President The virtuous cycle described in our Global Vision is gradually taking shapeAll 320,000 of us at Toyota around the world work together as one to make ever-better cars and achieve sustainable growthWe want to bring smiles to everyone who chooses ToyotaA healthy auto industry, a healthy JapanA new mind-set for making ever-better carsThankful for our customers, supportive even during tough times Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 10 Next Toyota’s Medium- to Long-Term Growth Initiatives Dynamic Growth Based on Making Ever-Better Cars The Toyota Global Vision announced in March 2011 describes our values and the kind of at building better cars. In addition, we are strengthening supply chains to minimize parts company we aspire to be. We believe that focusing on building ever-better cars will bring procurement risk, and in the area of production we are also reforming our monozukuri about dynamic growth, so we are engaging in revolutionizing our carmaking to bring more (conscientious manufacturing) structure as the basis for production technology and structure substance to our efforts. innovation. By introducing cars that meet local needs in rapidly growing emerging markets, The first of our medium- to long-term initiatives is reforming our corporate culture. We we seek an increase in the share of our global sales made up by emerging markets, from seek to revitalize our venture spirit by reforming our consciousness in light of the Global 40% to 50%. We will bring all our strengths to bear to quickly achieve a resilient revenue Vision, and through other efforts such as joint ventures with other companies. We are also base by decreasing our susceptibility to the impact of the strong yen. One way to do so focusing on the areas of development, design, and procurement, for example by creating is to increase local procurement and manufacturing. In this way we will forge a path to an innovative synthesis of development and design through a new carmaking policy aimed continuous growth based on the Global Vision. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 11 Next More effective and attractive Toyota’s Medium- to Long-Term Growth Initiatives Ⅰ: Innovation in development, design and procurement-1 Synthesizing Design and Planning for Better Basic Performance and Improved Products We are reforming our development structure so as to make better cars. We thoroughly research the factors that go into making a better car, and have divided our carmaking into four zones: cars specialized to meet tastes and car sense (especially sports cars); fleet and personal transportation vehicles; trucks, buses, and other vehicles with a social purpose; and finally, next-generation vehicles, such as green vehicles and concepts. We try to come up with better cars for each zone by incorporating the design and performance features our customers have in mind so as to meet their expectations. Toyota’s ultimate goal is ever-better products. vehicle development framework through the blending Initiatives Overview of planning and design. While of course seeking to boost basic vehicle We are reforming our developmental structure by performance, we are also establishing new platforms engaging in design and development improvement, based on the TNGA that optimize design freedom localized carmaking, and organizational/structural and ergonomics, such as driving position. The TNGA improvements. We are reorganizing our organiza- provides a foundation for grouping development, which tional structures around the chief engineers, who are in enables the standardization of parts and components closest proximity to consumers, by strengthening their across different models, improving the efficiency of the authority within the decision-making process in design development process while reducing costs. and other areas in their capacity as general development The introduction of the TNGA and subsequent coordinators. Also, we are making steady progress parts standardization results in manpower and cost in reforming the development structure through the reductions, which leads to the making of better cars introduction of our new framework for developing through efforts that span activities such as technology, better cars, called the Toyota New Global Architecture sales, procurement and production technology by (TNGA). The TNGA provides the foundation for the freeing up manpower for use in development. This growth that will propel the opening up of the next leads to product improvements in areas such as generation by strengthening Toyota’s international basic performance and design improvement, cost- To achieve our goal we design parts with good features, competitiveness. and standardize these for each region, Current R&D Efforts spanning different platforms. This provides better efficiency and cost reduction, with the resulting savings used to improve products further. This virtuous cycle for building better cars leads to sustained growth. 1 2 3 4 Enhancing design Enhancing development Localized carmaking Organizational and structural improvements Toyota New Global Architecture (TNGA) One facet of Toyota’s efforts to build ever-better cars is the introduction of TNGA, which revolutionizes the competitiveness, and quality assurance. The TNGA will be implemented over the coming years as we successively introduce new vehicle models. Toyotaʼs New Approach to Carmaking Boost basic vehicle performance Improve product presentation (equipment, quality) Grouping development to enable standardization of parts and components across different models Working with suppliers to reduce unit costs Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 12 Next More effective and attractive Toyota’s Medium- to Long-Term Growth Initiatives Ⅰ: Innovation in development, design and procurement-2 Enhance Development Capability and Supply Chains to Improve International Competitiveness Enhancing the Development Structure Toyota is moving forward with improving development capacity, localized carmaking, and organizational/ structural improvements so as to improve our structure for continuously producing better cars. To improve development capacity we have set design evaluation and testing conducted in-house. *R&D staff members x hours The New Avalon - Developed in North America - Supply-chain Enhancement to Diversify Risk and Improve International Competitiveness a target of 30% improvement in development Conducting “grouping development” on the platforms capacity* for the end of 2012 compared to 2009 by for economies of scale established through the TNGA improving all the factors involved in development, such provides for part and unit standardization for better as development tools (design, prototypes, testing), efficiency and lower costs in development. It is up processes, and human resources/ability. We are also to the manufacturing technology units to adopt this improving development efficiency by increasing the approach and bring the technologies together to authority of the chief engineers (CEs), who are in closest develop blueprints and manufacturing processes with proximity to consumers and who coordinate model the highest possible performance and functionality so development. This will improve development efficiency as to develop parts that are standardized for sharing by speeding up the decision-making process. among a number of models. Adopting a similar Toyota is placing regional general managers in approach in the procurement field means continuing to charge of localizing carmaking in each region, and, by gain the benefits of an economy of scale by conducting developing ties with local sales and R&D units, Toyota parts ordering that straddles regions, models and can ascertain the needs of each market and improve launch periods. From the twin perspectives of quality both quality and product appeal. assurance and improving international competitiveness, Our organizational structure improvements center parts standardization must be conducted jointly with on making the CE the overall coordinator in vehicle suppliers. Parts standardization also leads to increases development, with responsibility for each area of technical in the production volume of each part, making it development, so as to foster specialized technologies possible to diversify suppliers and production sites and long-term development leading to the ever-better without losing efficiency. This enables stable supplies cars envisioned by the CEs. As the overall coordinator of even during emergencies, thereby strengthening the vehicle development, the CE also has a say in the vehicle supply chain. The top-of-the-line Toyota Avalon debuted in the US in 1994, and Toyota revealed the fourth-generation 2013 Avalon in April 2012, at the New York International Auto Show. The new 2013 Avalon is the result of a North American-focused design and engineering effort led by a youthful and talented team at the Calty Design Research Inc. facilities in southern California. It is a true example of the regionally-led management aimed for in the Global Vision. Made-in-China Hybrid - Hybrid Technology to Make Chinese Customers Smile - Making their world premieres at the 12th Beijing International Automotive Exhibition in April 2012 were the “Yundong Shuangqing,” a China-only concept hybrid equipped with a hybrid system developed primarily at the Toyota Motor Engineering & Manufacturing (China) Co., Ltd. R&D Center in Changshu, China, and the compact-sized “Toyota Dear Qin,” which is a global-strategic concept (sedan and hatchback) featuring a design aimed at attracting more people to the user base. Toyota will continue to make ever-better cars, from eco-cars through specially adapted vehicles and sports cars, that will make our customers smile by contributing to richer lives and better communities in China. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 13 Next Toyota’s Medium- to Long-Term Growth Initiatives Ⅱ: Innovation in production technology More competitive and flexible Reforming the Monozukuri Structure for Making Better Cars Toyota’s DNA: Toyota Production System Toyota is undertaking monozukuri (conscientious manufacturing) structure reforms in the field of production technology. We work to make better cars and to deliver good quality, affordably priced vehicles that are both exciting and environment-friendly. By providing safety and security we bring smiles to faces. Our efforts are based on the twin perspectives of good carmaking and competitive manufacturing. Our primary effort, “making ever-better cars”, means overcoming the technical hurdles faced by products conceived by technology departments in areas such as attractive design, performance, and environmental technology. Next, competitive manufacturing depends on making from these approaches. better cars that provide good quality at an affordable price, and ensuring cost-competitiveness that can withstand the rising value of the yen. The foundation of our reforms of the monozukuri structure is the Toyota Production System, which is in our corporate DNA. This can be summed up by automation and Just-in-Time. Automation originally meant being able to stop equipment the instant a problem is detected, and then restarting production Three Pillars of Monozukuri Structure Reform 1 2 3 One-by-one production Produce at the optimum speed for sale Small-scale production Low-Cost, Small-Volume Production once the abnormality had been dealt with. We are taking “One-by-one production” is based on our longtime this a step further by aiming for manufacturing in which policy at Toyota of building based on the customer’s no problems arise and only perfect goods are made. order for individual output production. “Produce at the Just-in-Time means making only what is needed, when optimum speed for sale” is based on placing importance it is needed, and in the amount needed. This cuts lead on correlating production with demand. “Small-scale times and is effective in dealing with supply chain risk. production” means producing via a small structure when Just-in-Time requires production leveling, which in turn demand is low, and responding rapidly to increases in requires takt time and standardized work approaches demand. To accomplish this we created a small, simple to achieve uniformity in production process timing. Our and scalable line. The goal is low-cost, small-volume reforms of the monozukuri structure are proceeding production, and reaching that goal requires raising the net yield rate* and the net operation rate. *Net yield rate: The rate of final output efficiency, including items such as stock utilization, when adding value Three Pillars of Monozukuri Structure Reform The three pillars of monozukuri structure reform are Keywords for Technological Innovation “one-by-one production,” “produce at the optimum Reforming our monozukuri (conscientious manufac- speed for sale,” and “small-scale production.” These are turing) structure requires technological innovation vital principles of the Toyota Production System. unbound by general notions of what is possible. The four keys to technological innovation are “simple and slim,” “variable models in variable volume,” “net shaping” (of the TPS 7 muda, helps eliminate waste from over- processing), and “high added value.“ Note: The TPS 7 muda (wastes): over-processing, inventory, over- production, waiting, motion, transportation and defects Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 14 Next Keywords for Technological Innovation “High added value” means more compact, higher- 1 Simple and slim - Simple equipment Break-resistant, easy to repair - Capital investment reduction Depreciation cost reduction performance, and more affordable components, Production Topics including hybrids, and the development of production technologies that enable the making of high- performance cars. This innovation requires the digitization and quan- Integrating Production in Tohoku and Building a Trilateral Domestic Production Structure The Aqua and New Corolla, Featuring World-Class Fuel Economy* -Making Tohoku the compact monozukuri base. 2 Variable models in variable volume tification of the experience and craftsmanship that have Kanto Auto Works, Central Motor Co. and Toyota been passed down, and the adoption of it in innovative Motor Tohoku Corporation merged (as of July technologies. Then, further honing these skills and 1, 2012); creating Toyota Motor East Japan, techniques and adopting them in innovative technolo- Inc. (TMEJ). Tohoku will be our third vehicle gies leads to greater innovation, producing a virtuous manufacturing hub in Japan after the Chubu and cycle of craftsmanship-skill and innovative technology. Kyushu regions. We aim through this integration - High-volume production line Small-scale production line (Eliminate waste of production capacity) - Simple set-up changeovers to new/different models 3 Net shaping (of the TPS 7 muda, helps eliminate waste from over-processing) - Process reduction (reduce stock removal) - Craftsmanship 4 High added value - More compact, higher performance, more stylish, more reasonably priced Domestic Output of 3 Million Vehicles — For Competitive Strength The Toyota Production System as well as the new “Simple and slim” means durable equipment that is easy technology and product development and production to repair and is kept as simple as possible. This leads that support it were created in Japan. The advanced to less capital investment and minimizes depreciation. technologies created through the joint efforts of our A real-world example of this simplification by going strong Japanese production centers and our suppliers, from a 2:1 to a 10:1 volume ratio for press, casting and and the high-value-added monozukuri represented forging molds. Other equipment and lines are also by the development of our hybrids will remain in slimmed down and simplified as much as possible, right Japan, where it is important that we continue to hone down to the plant building itself. monozukuri. When Toyota first achieved output of 3 “Variable models in variable volume” means taking million vehicles in 1980, our output outside Japan was a flexible approach to model and volume changes. This a mere 200 thousand, but it has since increased greatly, requires a scalable-length final assembly processing reaching our current level of 5 million cars produced line, as well as engine and transmission lines that enable overseas. The foundation that has enabled that simple equipment changeovers. achievement is our domestic production structure of 3 “Net shaping” means bringing the shape of the million units. Toyota will maintain this 3 million domestic product, especially at the post-rough-shape processing production structure, maximizing the competitive stage, closer to the final shape. A real-world example superiority of high-tech Japanese monozukuri. Quickly of this is the application of craftsmanship know-how to spreading the innovative technologies developed automation equipment to achieve reduction in material and nurtured in Japan will in turn improve Toyota’s loss rates from 80% to 90%. competitive advantage outside Japan. to establish a comprehensive automobile manufacturer that plans, develops and produces compact cars and also manufactures components and supports overseas Toyota operations. Under the trilateral system, Chubu will be the Toyota put our 17 years of mass-produced HV core of domestic production and the development development know-how and experience into making hub for new technology and new manufacturing components such as the compact, light, efﬁcient HV methods. Kyushu will be the hub for mid-sized system that powers the Aqua, which is top in its class and Lexus brand vehicle production, and Tohoku worldwide in fuel economy.* Toyota is producing an will specialize in compact cars. entirely new class of compact hybrid. We also have We believe that establishing the technologies launched a new version of our popular Corolla, a for specialized mass production of certain vehicle compact car that is perfect for Japanese roads and our models by each regional company will accelerate customers, and for which global sales have reached the advance of Japanese monozukuri, and to 39 million units. that purpose we will maintain a 3 million vehicle The Aqua went into production at the Kanto Auto production capacity in Japan. We will reach a new Works (currently Toyota Motor East Japan) Iwate plant, level of international competitiveness by creating while the Central Motor Co. (also currently Toyota an environment for producing innovation through Motor East Japan) Miyagi plant was chosen to produce the interaction of the technology development the new Corolla. Both plants are in Tohoku, and the and product planning units with the frontline selection of these plants marks an important step production and sales units. This will strengthen toward improving manufacturing competitiveness in the autonomy of each hub as well as the trilateral Tohoku. Toyota wants to be a force for the revitalization system itself. of Japan, and we are moving forward with monozukuri that has strong regional roots. *As of July 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 15 Next Toyota’s Medium- to Long-Term Growth Initiatives Ⅲ: Expanding into Emerging Markets Deeper and closer Making High-Quality, Affordable Cars Attuned to Regional Needs The Toyota Global Vision calls for us to increase the ratio of total global sales taken up by emerging markets to 50%, up from 40% in 2010. Therefore, emerging markets have become one of our primary areas of focus, and along with strengthening locally conducted R&D functions, Toyota’s Overseas Business and Emerging Market Initiatives Making New Compact Cars Our Global Strategic Vehicles Launched in 2004, Toyota’s IMV (Innovative internation- Henceforth, as we continue to develop the IMV Project al Multi-purpose Vehicle) Project is aimed at creating an actively in emerging markets, we will also pursue our efficient production and distribution structure for IMVs. new compact car strategy for selling compacts that The project involves developing products best suited retail for around ¥1 million in more than 100 countries to emerging markets and converting to a global supply worldwide, with the rapidly growing middle class structure based on concentrating output for exports at making up the customer base for these cars. We will four plants, including those in Thailand and Indonesia, launch eight such models based on the Etios, and to we are striving for regionally focused better carmaking for the timely provision of high-quality, so as to achieve growth in a tough business environment follow up on the success of the IMVs we are targeting affordable cars suited to regional markets and needs. marked by a strong yen and fierce competition. We aim sales of upwards of one million specialized compacts in New Strategy for Emerging Market Compact Cars 8 Models Sales of one million annually in more than 100 countries for 100% local procurement, rather than procurement emerging markets. from Japan, so as to strengthen our responsiveness to Toyota aims to develop and expand the IMV Project foreign exchange fluctuations. concept of offering attractive vehicles to our global The growth of the emerging markets is driving customers through our new compact car strategy, and the annual growth of IMVs, and we have launched five to increase our market share in emerging markets by models, such as a pickup truck, multipurpose sports car, promoting the establishment of local businesses and etc., worldwide except for Japan, China and the US, with by building local parts distribution networks and supply sales topping 5 million vehicles. In 2010, we made further chains. advances with global IMV models in each region, such as launching the Etios to meet local needs in India, and as of May 2012 sales had topped one million vehicles. IMV（2004〜） - Leaner development processes based on a common platform - Five models in ﬁve countries, with no production in Japan, simultaneous worldwide launch - Higher-quality global blueprints - Local procurement Etios（2010） - Exclusive models for emerging markets - Tailored to needs of the market - Stronger emphasis on a good product at an affordable price - Greater independence and autonomy for afﬁliates outside Japan - Set up local parts distribution network and supply chain 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 16 Next Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Special Feature: Toyota’s Efforts in Emerging Markets Aiming at Making Ever-Better Cars through New Strategies In 2011, emerging markets accounted for 45％ of Toyota’s global vehicle sales We will conduct business that is strongly rooted in the countries in which we operate by adapting to local needs and pushing for 100% localization. Toyota Vehicle Sales Thousands of units 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Toyota’s emerging market sales ratio reached 45% in 2011, an increase of 10% in the three years since we achieved 35% in 2008. The Toyota Global Vision calls for an emerging-market sales ratio of 50% by 2015, and we are striving to hit this target ahead of schedule by strengthening our global supply system in emerging markets and increasing localization, with Asia as an important base. In addition, we will actively release compact vehicles specifically designed for emerging markets. Global 5,154 5,262 5,519 6,070 6,708 7,268 7,922 8,429 7,996 6,980 7,528 7,097 Emerging Markets Composition Ratio 960 987 1,142 1,417 1,695 2,027 2,246 2,658 2,849 2,646 3,145 3,193 18.6% 18.8% 20.7% 23.3% 25.3% 27.9% 28.4% 31.5% 35.6% 37.9% 41.8% 45.0% 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 17 Next Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Special Feature: Toyota’s Efforts in Emerging Markets 1 Toyota’s History in Emerging Markets Toyota’s Basic Global Expansion Policy Relationship and activities associated with ASEAN to make less expensive vehicles. We cultivated staff and suppliers and developed new products locally. Our goal was to prepare infrastructure for the auto Development Period Overcoming the currency crisis and moving toward global production Toyota’s basic philosophy on operations in Toyota has a long history of efforts in emerging industry, and find and develop local suppliers. The Asian currency crisis of 1997 that took place emerging markets is to be contributive to the markets, particularly in the ASEAN nations, development and welfare of the country. This where we have been promoting exports and local philosophy calls on us to contribute through the auto production since the 1960s. Period of Growth Growing the parts-supply industry through mutual complementation of production amidst these developments was a direct blow to ASEAN and had a great impact on the automobile market, but that experience provided the foundation industry to the development of the economy, employment, transportation infrastructure, etc., of the countries in which we operate by cultivating and Period of Foundation Preparing the automobile industry infrastructure and finding/growing suppliers During the growth period of 1990 through for the later development of the IMV Project and other 2000, the ASEAN countries were transitioning global vehicles. The volume of parts imported from from country-based production to mutually Japan was broadly cut in response to the collapse developing the supporting industries and engaging From 1970 through 1990 was a period of foundation complementary regional production, due to the of the ASEAN currencies, with a concurrent rise in in operations that are based locally. in which we sought to deliver vehicles that would gradual materialization of the ASEAN Free Trade the ratio of local procurement and the establishment When Toyota sets up operations in a country we please local consumers. We introduced the Tamaraw Agreement as well as the difficulties in achieving of an export structure that exploited low-priced become a corporate citizen there, and through the in the Philippines in 1976, and the following year mass production and cost reduction at the single- currencies. Quality was also improved to bolster auto industry we contribute to society via foundation brought the Kijang to Indonesia. The Philippines country-market scale. The Memorandum of exports, and cost-reduction efforts were made. The activities, environmental conservation, and human and Indonesia are places where families tend to Understanding on Brand-to-Brand Complementation cooperation and support of governments and local resources training. We emphasize dialogue with local be large, so it was necessary to provide dual-use on the Automotive Industry and other tariff communities, as well as the strengthening of after- communities for sustainable growth in every country vehicles that could be used for business and family exemptions on parts provided the impetus for each sales service and the parts business, enabled the in which we do business. transport. Unpaved roads were common, so van- country to mass produce parts in its area of creation of a profitable structure without impacting type multi-purpose vehicles were favored. We opted expertise, making for efficient plant investment sales. This ushered in the development period from to make bodies by bending and welding sheet through expansion of scale and volume efficiency and 2000 through 2010, during which the foundation of rather than importing stamping equipment, so as leading to the growth of the parts-supply industry. the Asian auto industry grew markedly. Toyota’s History in Emerging Markets Progress of the Automotive Industry in the ASEAN Emerging Markets Russia 1960s 2007 “Camry” India 1985 1999 “Qualis” Egypt 1979 2012 “Fortuner” South Africa 1962 1962 “Stout” China 1964 1999 “Coaster” Thailand 1962 1964 “Hilux” Taiwan 1949 1986 “Dyna” Philippines 1962 1976 “Tamaraw” Malaysia 1967 1982 “Corolla” Indonesia 1971 1977 “Kijang” Market Upper: Year sales started Middle: Year production started Low: First model produced locally Brazil 1958 1959 “Bandeirante” (Thousands of units) 3,000 ASEAN Market Foundation period “Tamaraw” “Kijang” 2,500 2,000 U n i t 1,500 1,000 500 0 1970 Before 1970 n o i t c u d o r p l a u t u m f o t r a t S N A E S A n i s t r a p f o t r o p p u s Growth period “Soluna” y c n e r r u c n a i s A s i s i r c Development period “Vios” “IMV” “Avanza” 1980 1985 1990 1995 2000 2005 2010 Year 1988 - Establishment of automotive industry infrastructure - Scouting for suppliers 1998 Shift from country-based production to region-based production Global production structure - IMV introduction - Global exports 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 18 Next Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Special Feature: Toyota’s Efforts in Emerging Markets 2 The Shift to Emerging Markets and Toyota’s Strategy Making Cars that Meet National and Local Needs Expanding Production in Emerging Markets - 3.1 million vehicles by 2013 Sales Strategies in Emerging Markets - The IMV* Project Toyota’s overseas business has evolved through The IMV Project constitutes an important sales three stages, from making in Japan and exporting, strategy in emerging markets. Launched in 2004, to producing in regions where demand exists and the IMV series consists of five vehicles̶three then to the current stage whereby Toyota has an pickup trucks, a minivan and an SUV̶specially efficient global production and supply. developed in 2004 for introduction in over 140 Global production and supply are supported in the countries. Currently, the IMV series is manufactured emerging markets, where we have been increasing in 11 locations, with sales of locally manufactured investment so as to boost production capacity. We vehicles underway in approximately 170 countries. began production of the Fortuna in India in 2009, Toyota applied the genchi genbutsu (onsite, followed by the diesel Corolla and the Etios in 2010, hands-on experience) approach to observing and and expanded investment in factories accordingly. In analyzing the kinds of vehicles used in various parts Brazil, production of the Corolla FFV began in 2007, of the world, and developed and introduced IMVs and sales have steadily increased since then. We to meet the needs of each region. Thorough after- plan to start production at a new compact vehicle sales service programs for IMVs have gained the plant in Brazil in the latter half of 2012. trust of customers around the world. As a result of such efforts, production capacity in The scale of the market will continue to grow, and emerging markets is forecast to reach approximately Toyota plans to increase capacity in Thailand, where 3.1 million vehicles in 2013, which is the same level the auto parts supply industry is concentrated, as the as that in Japan and represents a great increase global supply base. Increases in new investment to over the 540,000 vehicles output in 2000. strengthen other supply bases, including Indonesia, Production Capacity Expansion in Emerging Markets and sequential production bases, are planned. Production results ( Thousands of units) 2000 2005 540 1,350 2010 2,380 Production capacity 2013 3,100 IMV Series Annual Sales Volume Sales volume is on a steady growth trend, lifted by growth in emerging markets. Sold 770,000 units in 2011 despite supply shortages caused by the Japanese earthquake and Thailand ﬂoods. TSAM (South Africa) (Thousands of units) 700 710 630 600 810 770 430 460 TASA (Argentina) 2003 （Previous model） 2005 2006 2007 2008 2009 2010 2011 2012 (Projected) IMV Series Vehicle Sales by Region IMV’s Global Supply Structure Performed well in all emerging and resource-rich nations, not just in Asia 2011 Sales 770,000 units Europe 30,000（4%） Central & South America 110,000 （14%） Africa 100,000（13%） Asia 360,000 （46%） Middle East 130,000 （17%） Australia 40,000（5%） Exports (main supply) Exports (backup supply) Europe Middle East Africa TMT (Thailand) Asia TMMIN (Indonesia) Oceania TSAM (South Africa) Cumulative IMV sales volume reaches 5 million (March 2012) Central and South America TASA (Argentina) * IMV stands for “Innovative International Multipurpose Vehicle”. The name is based on our intention to create multipurpose vehicles that will meet the needs of consumers worldwide. Strengths of the IMV Project The aims of the IMV Project are product appeal, low cost and efficiency, followed by exchange-rate-fluctuation response capability. Toyota aims to enhance product value by developing specialized models optimized to the tastes and environments of consumers in emerging markets. We have also sought to reduce costs and gain efficiency by consolidating production, transitioning from small- scale production at 11 companies to large-scale production at four global supply bases. We are coping with the ever-strengthening yen by creating a structure that maximizes local procurement. The IMV Project is currently accelerating the process of globalizing production and supply. Among the four global supply bases, Thailand serves as the base for Asia, with the other global sites handling exports throughout the rest of the world, such as to Oceania, Europe, the Middle East, and Central/South America, developing into centralized bases. Localized procurement is also evolving, so that parts procurement is not handled within individual countries, but rather through a globally optimized procurement structure for parts. Asia makes up half of the sales of the IMV series, but sales in the Middle East, Africa, and Central/South America are also solid, with sales structures based on locally made core models. Production capacity recovered comparatively quickly amidst the supply shortages caused by the Japan Earthquake and Thailand floods in 2011, with the number of vehicles sold increasing greatly. As a result, sales improved from 460,000 in 2005 in the immediate aftermath of the IMV Project launch to 770,000 in 2011, and with markets predicted to grow from 2012 on, sales are also expected to increase. Hilux From basic to luxury models for personal or business use Fortuna This high-end SUV garners much attention from consumers in the Middle East and India Innova Popular with big families in India and Indonesia, as well as taxi companies Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 19 Next Special Feature: Toyota’s Efforts in Emerging Markets 3 Future Efforts in Emerging Markets 1) New Strategies for Growing Emerging Markets A Second Home in Asia Toyota’s basic attitude toward our efforts in emerging markets henceforth can be summed up as “Asia is our second mother base.” What this means in practical terms is that we will follow on from the IMV Project by strengthening our production and supply bases for compact compact vehicle strategy that emphasizes the compact vehicle lineup and seeks to meet the needs of consumers in emerging markets. Efforts we are making include the launch of eight compact vehicle models specifically designed for emerging markets, starting with the Etios in India in December 2012. There are plans to produce compact vehicles in emerging markets and deliver a total of more than 1 million vehicles a Localization Initiatives Toyota believes that ensuring cost competitiveness by achieving thorough localization is necessary to making further progress in intra- and extra- regional exports. We therefore are maximizing local R&D functions, and seek to achieve local/ regional procurement rates of 100% at the earliest vehicles in Asia, move toward thorough localized year to customers in over 100 countries. Delivery of possible stage. procurement, and ensure and enhance our cost competitiveness. Direction of Future Efforts Asia as Toyota’s Second Mother Base and as a Production Base - Production and supply base for compact vehicles, following on the success of the IMV Project - Localization, including R&D New Compact Vehicle Strategy The automobile market in emerging markets is growing each year in tandem with the economic growth of each country. Within those markets, there has been marked growth in the sales of compact vehicles, so Toyota is promoting a new the compact Etios sedan and Etios Liva hatchback models to South Africa via Toyota Kirloskar Motors (TKM) of India began in April 2012. Local Content Rate (IMV) Country of production Domestic content Regional content Thailand (TMT) Indonesia （TMMIN) 81% 75% 13% 20% Total 94% 95% Continue efforts to reach 100% April 2012: Ceremony for launch of Etios exports from India to South Africa Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 20 Next Special Feature: Toyota’s Efforts in Emerging Markets 3 Future Efforts in Emerging Markets 2) Future Efforts in Each Market Russia Russia is among the markets with the greatest potential, not only in Europe, but in the world. Toyota has gained experience and acclaim from Russian customers for our core models, such as the Camry and Land Cruiser Prado, and we are making steady progress in localization. We plan to contribute to the growth of the Russian auto industry by increasing production of the Camry by Toyota Motors Manufacturing Russia (TMMR), and also by starting local assembly of the Land Cruiser Prado in the Russian far east city of Vladivostok at the end of this year. India Asia India’s auto market is expected to Toyota’s definition of“Asia”(for business purposes) does keep pace with India’s growing economy. Toyota will continue to not include China, India, Pakistan, Bangladesh and Japan. In 2012, this market is expected to recover from the impact develop products that meet the needs of the region’s growing consumer of the Thailand floods, with demand rising above that of 2011. This market is expected to grow in tandem with the base, as we did with the Etios. In expansion of the regional economy in the medium- to long- addition, TKM established the Toyota Technical Training Institute in 2007 term, and we are aiming to increase sales from the current 1.6 million-1.7 million annually to 2 million in the future. Africa Africa, where economies and populations are steadily growing, is seen as a market with the goal of providing specialized Hitting that target will require an expansion in production that will continue to grow. From our base technical training for manufacturing, facilities in Thailand, Indonesia and elsewhere. in the Republic of South Africa, Toyota is and we intend to continue to engage looking into building a vehicle supply system in human resources development that can meet the special characteristics and job creation so as to contribute of each African nation. We aim to open to the development of the Indian and penetrate new markets through sales economy. measures closely aligned to each region. Also, in April 2012, we started contract assembly production of the Fortuna IMV model in Egypt. Brazil We have established a new plant in Sorocaba, in the state of São Paulo, Brazil, and beginning in the second half of 2012, we will produce and sell the Etios, a new compact model. In the future we will offer products that meet the needs of a broad array of consumers. Our goal is to steadily expand and cultivate the Brazilian market through corporate activities deeply rooted in the region, such as localized production. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 21 Next Consolidated Performance Highlights Consolidated Performance (U.S. GAAP) For the years ended March 31 Net Revenues: Automotive Financial Services All Other Inter-Segment Elimination Operating Income (Loss): Automotive Financial Services All Other Inter-Segment Elimination Net Income (Loss) attributable to Toyota Motor Corporation*2 ROE As of March 31 Total Assets Shareholders' Equity Short-Term Debt, including Current Portion of Long-Term Debt Long-Term Debt, less Current Portion 2008 2009 ¥ 26,289,240 24,177,306 1,498,354 1,346,955 （733,375） 2,270,375 2,171,905 86,494 33,080 （21,104） 1,717,879 14.5% ¥ 32,458,320 11,869,527 6,228,152 5,981,931 ¥ 20,529,570 18,564,723 1,377,548 1,184,947 （597,648）（461,011）（394,876）（71,947） 9,913 （4,101）（436,937） -4.0% ¥ 29,062,037 10,061,207 6,317,184 6,301,469 Per Share Data: Net Income (Loss) attributable to Toyota Motor Corporation*2 Annual Cash Dividends Shareholders' Equity Stock Information (March 31) Stock Price Market Capitalization 2008 2009 ¥ ¥ 540.65 140.00 3,768.97 ¥ （139.13） 100.00 3,208.41 4,970 ¥ 3,120 Yen in millions 2010 ¥ 18,950,973 17,197,428 1,245,407 947,615 （439,477） 147,516 （86,370） 246,927 （8,860）（4,181） 209,456 2.1% ¥ 30,349,287 10,359,723 5,497,997 7,015,409 Yen in millions 2010 ¥ ¥ 66.79 45.00 3,303.49 3,745 2011 2012 U.S. dollars*1 in millions 2012 % change 2012 vs. 2011 ¥ 18,993,688 17,337,320 1,192,205 972,252 （508,089） 468,279 85,973 358,280 35,242 （11,216） 408,183 3.9% ¥ 29,818,166 10,332,371 5,951,836 6,449,220 ¥18,583,653 16,994,546 1,100,324 1,048,915 （560,132） 355,627 21,683 306,438 42,062 （14,556） 283,559 2.7% ¥30,650,965 10,550,261 5,963,269 6,042,277 $226,106 206,771 13,388 12,762 （6,815） 4,327 264 3,728 512 （177） 3,450 ― $372,928 128,364 72,555 73,516 -2.2 -2.0 -7.7 +7.9 ― -24.1 -74.8 -14.5 +19.4 ― -30.5 ― +2.8 +2.1 +0.2 -6.3 2011 2012 U.S. dollars*1 in millions 2012 % change 2012 vs. 2011 ¥ ¥ 130.17 50.00 3,295.08 ¥ 90.21 50.00 3,331.51 3,350 ¥ 3,570 $ 1.10 0.61 40.53 $ 43.44 $ 149,767 -30.7 ― +1.1 +6.6 +6.6 (Yen in millions, U.S. dollars in millions) ¥ 17,136,548 ¥ 10,757,752 ¥ 12,912,751 ¥ 11,550,792 *1: U.S. dollar amounts have been translated at the rate of ¥82.19=US$1, the approximate current exchange rate at March 31, 2012. *2: “Net Income attributable to Toyota Motor Corporation”, equivalent to “Net Income” up to 2009. ¥ 12,309,351 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations Consolidated Performance Highlights Consolidated Performance (U.S. GAAP) Analysis of Consolidated Net Income* 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 22 Next Net Revenues （¥ Billion） 30,000 25,000 20,000 15,000 10,000 5,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 - Operating Income (Loss) - Operating Income Ratio - Net Income (Loss) attributable to Toyota Motor Corporation - ROE （¥ Billion） Net Income （%） 50 （¥ Billion） 2,500 2,000 1,500 1,000 500 0 -500 FY Operating Income Operating Income Ratio （%） 15 12 9 6 3 0 -3 ‘08 ‘09 ‘10 ‘11 ‘12 （¥ Billion） 2,500 2,000 1,500 1,000 500 0 -500 FY ROE ‘08 ‘09 ‘10 ‘11 ‘12 40 30 20 10 0 -10 408.1 - R&D Expenses - Capital Expenditures for Property, Plant and Equipment (excluding vehicles and equipment of operating leases) （¥ Billion） R&D Expenses 1,500 1,200 900 600 300 0 FY Capital Expenditures for Property, Plant and Equipment ‘08 ‘09 ‘10 ‘11 ‘12 Total Assets （¥ Billion） 35,000 28,000 21,000 14,000 7,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 Note: “Net Income attributable to Toyota Motor Corporation”, equivalent to “Net Income” up to 2009. - Shareholders' Equity - Shareholders' Equity to Total Assets （¥ Billion） 15,000 12,000 9,000 6,000 3,000 0 FY Shareholders’ Equity Shareholders' Equity to Total Assets （%） 50 40 30 20 10 0 ‘08 ‘09 ‘10 ‘11 ‘12 Net Revenues by Region （¥ Billion） 16,000 Japan North America Europe Asia Other Regions 12,000 8,000 4,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 Note: FY represents ﬁscal years ended March 31. * Net income attributable to Toyota Motor Corporation Net Income* (-124.6) Operating Income (-112.6) Excluding Valuation Gains/Losses from Interest Rate Swaps (-91.8) Increase in Expenses, etc. -100.0 Cost- Reduction Efforts +150.0 283.5 Other -62.6 Non- Operating Income -17.7 Equity in Earnings of Afﬁliated Companies -17.3 Income Tax, etc. +23.0 Effects of FOREX Rates -250.0 Marketing Efforts +150.0 ‘10/4 〜‘11/3 ‘11/4 〜‘12/3 Consolidated Financial Results Consolidated vehicle sales in Japan and overseas increased by 44 thousand units, or 0.6%, to 7,352 thousand units compared to the previous ﬁscal year. Vehicle sales in Japan increased by 158 thousand units, or 8.2% year-on-year, due to aggressive new product launches and the efforts of dealers nationwide. Market share, including mini-vehicles, retained a high level at 43.2%. Meanwhile, despite an expansion of sales in Asia, lower sales in North America and other regions resulted in a decrease in overseas vehicle sales of 114 thousand units, or 2.1% year-on-year. As for the results of operations, net revenues decreased by 2.2%, to ¥18,583.6 billion for the ﬁscal year compared to the previous year, and operating income decreased by 24.1%, to ¥355.6 billion. Net income attributable to Toyota Motor Corporation decreased by 30.5%, to ¥283.5 billion. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 23 Next Consolidated Performance Highlights Consolidated Vehicle Production and Sales For the years ended March 31 Vehicle Production by Region: Japan Overseas Total North America Europe Asia Central and South America Oceania Africa Consolidated Total Vehicle Sales by Region: Japan Overseas Total North America Europe Asia Central and South America Oceania Africa Middle East Other Consolidated Total 2008 5,160 3,387 1,268 711 961 150 149 148 8,547 2,188 6,725 2,958 1,284 956 320 289 314 597 7 8,913 2009 4,255 2,796 919 482 947 151 130 167 7,051 1,945 5,622 2,212 1,062 905 279 261 289 606 8 7,567 Thousands of units 2010 3,956 2,853 1,042 433 1,021 146 106 105 6,809 2,163 5,074 2,098 858 979 231 251 184 466 7 7,237 2011 3,721 3,448 1,338 372 1,344 148 113 133 7,169 1,913 5,395 2,031 796 1,255 281 248 209 569 6 7,308 2012 3,940 3,495 1,275 383 1,441 152 93 151 7,435 2,071 5,281 1,872 798 1,327 289 223 214 550 8 7,352 % change 2012 vs. 2011 +5.9 +1.4 -4.7 +3.0 +7.2 +2.7 -17.7 +13.5 +3.7 +8.3 -2.1 -7.8 +0.3 +5.7 +2.8 -10.1 +2.4 -3.3 +33.3 +0.6 Principal Market Data: Automotive Market (Sales) （Thousands of units） United States Japan Europe Asia China 20,000 15,000 10,000 5,000 0 CY ‘07 ‘08 ‘09 ‘10 ‘11 ‘07 ‘08 ‘09 ‘10 ‘11 ‘07 ‘08 ‘09 ‘10 ‘11 ‘07 ‘08 ‘09 ‘10 ‘11 ‘07 ‘08 ‘09 ‘10 ‘11 Vehicle Production (Japan) （Thousands of units） Vehicle Production (Overseas) （Thousands of units） 6,000 5,000 4,000 3,000 2,000 1,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 6,000 5,000 4,000 3,000 2,000 1,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 Vehicle Sales (Japan) （Thousands of units） Vehicle Sales (Overseas) （Thousands of units） 8,000 6,000 4,000 2,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 8,000 6,000 4,000 2,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 Share of Vehicle Sales by Markets （%） 50 40 30 20 10 0 FY Japan North America Europe Source: Toyota Motor Corporation Note: Market deﬁnitions are as follows: Europe: Germany, France, the United Kingdom, Italy, Spain, the Netherlands, Belgium, Portugal, Denmark, Greece, Ireland, Sweden, Austria, Finland, Switzerland, Norway, Poland, Hungary, and the Czech Republic Asia: Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Taiwan, South Korea and Brunei Darussalam ‘08 ‘09 ‘10 ‘11 ‘12 Japan: Minivehicles included Note: FY represents ﬁscal years ended March 31. 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 24 Next Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations Automotive Operations Toyota was heavily impacted by the Great East Japan Earthquake and the Thailand floods, but through combined efforts with our group companies, we were able to return to normal operations quicker than originally expected. Toyota remained able to build better cars that exceed expectations, even under such harsh conditions. Net Revenues (¥ Billion) 25,000 20,000 15,000 10,000 5,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 Operating Income （¥ Billion） 2,200 2,000 1,800 1,600 200 0 -200 -400 FY ‘08 ‘09 ‘10 ‘11 ‘12 Note: Fiscal years ended March 31 Market Environment and Performance Summary year-on-year, to ¥21.6 billion. Performance by geographic segment was Despite bullish automotive markets in the U.S. and emerging markets in Asia and elsewhere during the ﬁscal year under review, the majority of Japanese automakers, including Toyota, suffered the twin impact of the Great East Japan Earthquake and the Thailand ﬂoods. These events caused supply limitations and made production adjustments and temporary halts unavoidable. Despite the difﬁcult conditions, Toyota launched new products that clearly speak to the needs of consumers in Japan and around the world. One such new model was a compact- class dedicated hybrid vehicle that achieves world-class fuel economy. We also launched a next-generation sports car that pursues pure driving enjoyment. In addition, Toyota worked with dealers throughout the world to actively develop sales initiatives. As a result, consolidated vehicle sales both in Japan and overseas (including Daihatsu and Hino) reached 7,352 thousand units, an increase of 44 thousand units, or 0.6%, over the previous ﬁscal year. Consolidated vehicle production also increased, rising by 266 thousand units, or 3.7% year-on-year, to 7,435 thousand units. Net revenues decreased ¥342.7 billion, or 2.0% year-on-year, to ¥16,994.5 billion. Despite cost-reduction efforts, due to the impact of currency exchange ﬂuctuations operating income was down ¥64.3 billion or 74.8% as follows. Japan In ﬁscal 2012, due to active new product campaigns and the efforts of dealers nationwide, consolidated vehicle sales in Japan increased by 158 thousand units, or 8.2%, to 2,071 thousand units. Market share for Toyota and Lexus brands, excluding mini-vehicles, was 45.5%, while the share including mini-vehicles (including Daihatsu and Hino) was 43.2%, indicating a strong market share continuing from the previous ﬁscal year. Sales of the Lexus brand were approximately 45 thousand units. Consolidated vehicle production was up 219 thousand units, or 5.9% year-on-year, to 3,940 thousand units. As a result, net revenues were ¥11,167.3 billion, an increase of ¥181.0 billion or 1.6% year-on-year. The operating loss of ¥207.0 billion represents a ¥155.3 billion improvement over the previous ﬁscal year. Despite the impact of currency exchange ﬂuctuations, cost-reduction efforts and increases in production and units sold resulted in the decrease in operating losses. North America Consolidated vehicle sales in North America in ﬁscal 2012 decreased by 159 thousand units, or 7.8% year-on-year, to 1,872 thousand units, with supply shortages caused by the Great East Japan Earthquake in the ﬁrst half having a major impact. 2011 market share in the United States was 12.9%. Sales of the Lexus brand in North America were at approximately 214 thousand units. Consolidated vehicle production was 1,275 thousand units, a 63 thousand-unit or 4.8% decrease year-on-year. As a result, net revenues were ¥4,751.8 billion, a decrease of ¥677.2 billion or 12.5% year-on-year. Due to decreases in production and units sold, as well as the impact of gains or losses on doubtful accounts of our dealer ﬁnance subsidiary the United States, in operating income was down ¥153.0 billion, or 45.1% year-on-year. Europe Consolidated vehicle sales in Europe in ﬁscal 2012 rose 2 thousand units, or 0.3% year-on- year, to 798 thousand units. Toyotaʼs European market share (2011; about 40 countries) was 4.2%. Lexus sales totaled approximately 47 thousand units. Consolidated vehicle production increased 11 thousand units, or 3.2% year-on- year, to 383 thousand units. As a result, net revenues increased ¥12.4 billion, or 0.6% year-on-year, to ¥1,993.9 billion. Operating income was ¥17.7 billion, an increase of ¥4.6 billion, or 35.4% year-on-year. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 25 Next Automotive Operations Asia Despite a decrease in sales (mainly of IMVs) caused by supply shortages resulting from the Thailand ﬂoods, consolidated vehicle sales in Asia in ﬁscal 2012 rose 72 thousand units, or 5.7% year-on-year, to 1,327 thousand units, setting a new record. This was due in part to strong sales of the Etios in India. Consolidated vehicle production was up 97 thousand units, or 7.2% year-on-year, to 1,441 thousand units. As a result, net revenues were ¥3,334.2 billion, a decline of ¥40.3 billion or 1.2% year-on- year. Operating income was also down ¥56.2 billion, or 18.0% year-on-year, due to increased expenses. Sales in China, which continues to experience strong economic growth, reached 883 thousand units in 2011, a year-on-year increase of 4.4%. Note: Unit sales figures for China include domestically produced units as well as units imported from Japan. Other Regions (such as Central and South America, Oceania, Africa, the Middle East) Consolidated sales for these regions in ﬁscal 2012 totaled 1,284 thousand units, a decrease of 29 thousand or 2.2% year-on-year. Consolidated vehicle production was 396 thousand units, an increase of 2 thousand or 0.4% compared with the previous year. As a result, net revenue was ¥1,760.1 billion, a year-on-year decrease of 2.7% or ¥48.9 billion, while operating income was also lower by ¥51.3 billion or 32.0% year-on-year, to ¥108.8 billion. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 26 Next Financial Services Operations Organization Toyota Motor Corporation Toyota Financial Services Corporation Overseas Sales Finance Companies Toyota Finance Corporation Toyota Asset Management Co., Ltd. Financial Services Operations Toyota offers automotive ﬁnancing and a variety of other ﬁnancial services for total support of customer lifestyles. Market Environment and Performance Summary Net Revenues (¥ Billion) 1,500 1,250 1,000 750 500 250 0 F Y ‘08 ‘09 ‘10 ‘11 ‘12 Operating Income (¥ Billion) 400 300 200 100 0 -100 F Y ‘08 ‘09 ‘10 ‘11 ‘12 Note: Fiscal years ended March 31 In ﬁscal 2012, our ﬁnancial services operations generated operating income of ¥306.4 billion. This was primarily due to an increase in ﬁnancing volume and broad improvement in expenses related to loan losses and residual value. Toyota's ﬁnancial services operations are primarily handled by Toyota Financial Services Corporation (TFS), which has overall control of ﬁnancial services subsidiaries worldwide. TFS provides ﬁnancial services primarily for vehicle purchases and leases to approximately 8.6 million customers in 34 countries and regions worldwide. During the period under review, we continued with last year's efforts to strengthen regional strategies by enhancing our relationships with distributors through the provision of ﬁnancial products and services meeting various national and regional customer characteristics. We continued to broaden our connections with customers in Japan, responding to their needs by offering ready access to sound ﬁnancial services such as credit cards and housing loans in addition to automotive ﬁnancing. TFS's overseas efforts include active development of emerging markets. In India, TFS established a local subsidiary in India in May 2011. TFS increased its number of sales bases in China to 196 cities, progressing inland from coastal cities to the interior of the country. 　 In such major markets as Europe and the United States, TFS aims to ensure stable earnings by working to secure margins and achieve thorough low-cost operations with consideration for vehicle sales support and the balancing of business risks. To respond to dramatic changes in the business environment, TFS will strengthen group-wide compliance and risk management structures while focusing on enhancements to its business platform, such as IT platform development and human resource cultivation in management. Overview of Toyotaʼs Financial Services Operations Total assets Net revenues ¥13.2 trillion ¥1.1 trillion Operating income ¥306.4 billion Operating areas 34 countries and regions worldwide No. of employees approx. 8,000 (As of March 31, 2012) Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations Non-automotive Business Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 27 Next Toyota uses technologies and expertise gained from automotive operations to operate a variety of business that help people lead more fulﬁlling and enjoyable lives. Net Revenues (¥ Billion) 1,400 1,300 1,200 1,100 1,000 0 F Y ‘08 ‘09 ‘10 ‘11 ‘12 Operating Income (¥ Billion) 40 30 20 10 0 -10 F Y ‘08 ‘09 ‘10 ‘11 ‘12 Note: Fiscal years ended March 31 Market Environment and Performance Summary Net revenues for non-automotive business operations rose ¥76.6 billion, or 7.9% year on year, to ¥1,489 billion, whereas operating income improved to ¥42 billion, an increase of ¥6.8 billion, or 19.4%, compared with the previous ﬁscal year. Non-automotive business operations include Intelligent Transport Systems (ITS), information technology and telecommunications, e-TOYOTA, housing, marine, and biotechnology and afforestation businesses. In each of these operations we are fostering a workplace culture that encourages creativity and entrepreneurship. Also, we are seeking ideas for new businesses outside the Toyota group of companies as another key aspect in the creation of future core businesses. In 2009, we helped create a practical vehicle-infrastructure cooperative system for safe driving that prevents trafﬁc accidents more effectively than current safety technologies. In conjunction with this, Toyota developed an onboard communications device, mainly for expressway use, compatible with the ITS Spot Service. Also, in 2011 Toyota commercialized the Driving Safety Support System (DSSS), an onboard navigation system for public highways. We will continue to increase the number of models equipped with this device. Toyota is also engaging in R&D for vehicle- infrastructure cooperative systems, such as actively participating in public and private sector ﬁeld trials, so as to bring them into use as soon as possible. ▼Additional details available at Click HERE Intelligent Transport Systems Information Technology and Telecommunications is involved Toyota in the planning and development of products and services for Intelligent Transport Systems (ITS). We view this technology as a valuable way to link motor vehicles and transportation infrastructures, thereby contributing to sustainable economic development. Toyota dealers also serve as sales points for mobile phones and point-to-point telecommunications services provided by KDDI Corporation at more than 7,000 sales outlets (vehicle dealers, parts dealers, rental ofﬁces, and L&F ofﬁces) throughout Japan. Toyota is has also been engaged in the promotion of functions and services that link cars and mobile phones, such as hands-free telephones and G-BOOK services, and in 2012 we launched the eCONNECT for the new Prius PHV and the Toyota Friend service. Toyotaʼs information technology and telecommunications business will come to play an even more important role as we develop smart grids that link people, cars and homes. e-TOYOTA Toyota is developing e-TOYOTA business operations to facilitate the integration of IT services and automobiles. We designed and developed the GAZOO members-only automobile portal site, a three-dimensional virtual city called METAPOLIS and other services. In the ﬁeld of telematics, we are developing G-BOOK/G-Link, an information service for onboard terminals, with other telematics services planned for China and other countries. ▼Additional details available at Click HERE Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 28 Next Non-automotive Business Operations T O P I C S “Linked” Cars Housing Marine eConnect Toyota Friend Toyota is developing a proprietary telematics service for linking people, vehicles and the information/telecommunications infrastructure, and we are also launching a “linking service” that works through social networks and the latest in portable handsets. In January 2012, we began offering two new smartphone connection services to owners of the new Prius PHV. Toyota Friend is a social networking service that provides charging and service reminders via "tweet"-like alerts, and also enables sharing of environment-friendly driving data among Prius PHV users. The other service, eConnect, allows users to check vehicle status (battery power and EV range) and locations of nearby charging stations. Toyota will continue to offer communications services that link people and cars, so as to bring about a new “mobility society.” Since Toyota entered the housing business in 1975, Toyota Housing Corporation has expanded to provide homes under the name Toyota Home, offering high durability and earthquake resistance, as well as excellent security, health and environmental features. Toyota Housing Corporation offers environment-friendly homes that conserve and create energy while having the durability to last for many years, and in November 2011, we began selling “smart houses,” comfortable and economical homes that combine Toyota technologies to link homes and cars. At the same time, Toyota is engaging in leading-edge development in a variety of ﬁelds, such as the operational testing of smart grids. Note: Effective October 1, 2010, all housing operation production and technical development functions were transferred from Toyota Motor Corporation to Toyota Housing Corporation. ▼Additional details available at Click HERE through our afforestation activities, as well as our horticultural, environmental greening and agricultural biomass operations. Following previous afforestation and forestry development projects in Australia and the Philippines, we are engaging in a forest restoration model project in the town of Odaicho, located in Japanʼs Mie Prefecture. In our Greeniﬁcation Business, to counteract the urban heat-island phenomenon we offer Smart Green Parking, which provides greening in parking areas, and Smart Green Wall for wall greening. We have established a sales subsidiary in China for this business. In our agricultural biomass operations, we added to our lineup of ResQ Series manure composting facility deodorizers. Toyota manufactures and sells pleasure boats, marine engines and a variety of marine components. All products take full advantage of our engine technologies and other advanced technologies cultivated during years of automotive manufacturing. The PONAM-35, which was launched in September 2011, was voted Japanʼs 2011 Boat of the Year, and won the 2011 Good Design Award. ▼Additional details available at Click HERE ▼Additional details available at Click HERE Biotechnology and Afforestation For more information on Philippine and Mie Prefecture afforestation projects, Click HERE Toyota is making every effort to contribute to the creation of a resource recycling society Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 29 Next Non-automotive Business Operations T O P I C S Promoting the Fun of Automobiles Toyota is developing a range of activities to make cars more fun, for serious motorsports fans as well as for an even broader range of car enthusiasts. Activities for serious motorsports fans Toyota promotes motorsports in countries and regions around the globe to bring excitement to people and to help make their dreams come true. Our motorsports programs in 2011 revolved around the SUPER GT and Formula Nippon events in Japan and our participation in NASCAR in the US. We added hybrid endurance championships to our racing lineup in 2012, so that even more people would have an opportunity to enjoy motorsports. SUPER GT Formula Nippon NASCAR ▼Additional details available at Click HERE Activities for a broad range of car enthusiasts Aimed at broadening the appeal of car racing and fostering more car enthusiasts, Toyota is striving through GAZOO Racing* to make ever-better cars that satisfy drivers and promote the joy of cars in ways that transcend the role of a typical car manufacturer. As part of initiatives to develop ever-better cars, the GAZOO Racing team has been competing in the 24 Hours Nürburgring Endurance Race in Germany every year. The participation of Toyota drivers and mechanics helps cultivate personnel who can make better cars. Also, GAZOO Racing enables those with no racing experience to comfortably and safely experience the thrills of circuit driving firsthand. It also provides more opportunities for car enthusiasts to get together. 24 Hours Nürburgring Endurance Race * A vehicle-development and motor-sports support program created by GAZOO for people to experience the fun of cars. GAZOO gives Toyota test drivers chances to race, and helps in our goal of making ever-better cars through vehicle development, while promoting the allure of cars through grass-roots motor sports. GAZOO operates GAZOO.com, a user-participation automobile portal site created in 1998, as well as the GAZOO Mura driving experience and the virtual community GAZOO Metapolis. ▼Additional details available at Click HERE Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations Impact of the Disasters and Recovery Efforts 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 30 Next The Japanese automobile industry faced two major natural disasters in 2011: the Great East Japan Earthquake and the Thailand ﬂoods. Toyota overcame these crises through uniﬁed efforts with its group companies, suppliers, and dealers, all engaging in a variety of efforts to restore operations so as to achieve even more prompt delivery of vehicles to customers. Impact of the Disasters and Subsequent Efforts The Great East Japan Earthquake The Great East Japan Earthquake of March 2011 caused massive damage in Tohoku and other regions, and had an impact on many Japanese companies. Many of Toyotaʼs suppliers are located in Tohoku and eastern Kanto, and this resulted in a temporary halt of production at its domestic vehicle-production plants in the immediate aftermath of the disaster. The disaster delayed output through June 2011 by approximately 760 thousand vehicles globally, but enlisting the entire company in efforts to restore the supply network enabled us to recover output of about 600 thousand units from July on. Therefore, the total impact of the disaster in ﬁscal 2012 was a decrease in output of about 150 thousand vehicles. Floods in Thailand The Thailand ﬂoods that began in July 2011 caused damage to Toyotaʼs suppliers there and had an impact on global production. By adjusting the operational levels of each production line according to the parts situation, we were able to return to normal operations in North America by the ﬁrst half of December 2011, and in Thailand by the beginning of the from these impact 2012. As a result, the Thailand ﬂoods caused a decrease in output of about 240 thousand vehicles in ﬁscal 2012. two While disasters was initially estimated to decrease output globally by approximately 1 million vehicles, output of 600 thousand vehicles was recovered through a uniﬁed, companywide effort that held the drop in output to only about 390 thousand vehicles (actual vehicle output: 7.52 million). Disaster Response Toyota is revising its Business Continuity Plan (BCP) as needed to strengthen measures to protect lives and maintain production in the event of a natural disaster. Drawing upon lessons learned from the supply chain disruptions we experienced due to the Great East Japan Earthquake and Thailand ﬂoods, we conducted a “visualization” analysis of the supply chain, including tertiary and 4th-tier launched measures suppliers. We then such as decentralizing sources for at-risk parts and converting to generalized designs. Our work to further strengthen our disaster countermeasures is proceeding from the twin perspectives of strengthening our everyday competitiveness and building a business structure able to withstand disasters. The Great East Japan Earthquake: Production Recovery Efforts At Toyota, we believe that recovering production is impossible without revitalizing communities. Therefore, our production recovery-effort priorities were in the following order of priority: 1) Human life; 2) Quickly restoring stricken communities; 3) Restoring production. Our core measures for post- quake production restoration were as follows: (1) Status assessment (mainly conducted by the Purchasing Group) - We conducted an investigation of all primary suppliers, including the impact of issues at secondary and tertiary suppliers. - Dispatched onsite investigation teams to confirm production items and inventory. - Examined the impact on overseas production. The purchasing units within the operations confirmed the availability of supplies via the primary suppliers. (2) Support for suppliers - Provided support for the 200 supply bases visited by the onsite investigation teams. Support for prompt restoration was provided under our policy of immediately doing what is truly necessary onsite. (3) Look into finding substitutes - Look into finding substitute products, but only when restoring onsite production is problematic. - Evaluate substitutes. All Toyota companies, from suppliers through dealers and overseas operations, came together to provide support and to restore, applying genchi genbutsu (on-site verification) and the power of the workplace for swift decision-making, immediate action plus teamwork. This brought about a normalization of operations far in advance of predictions, with domestic production at almost normal levels by July 2011 and fully restored by September. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Performance Highlights Non-automotive Business Operations Automotive Operations Impact of the Disasters and Recovery Efforts Financial Services Operations Impact of the Disasters and Recovery Efforts 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 31 Next Toyotaʼs Efforts to Drive the Recovery of the Tohoku Region Toyota is committed to helping the people of Tohoku build a bright future by focusing on revitalizing the auto industry, creating new businesses and making social contributions. Revitalizing the auto industry We established Toyota Motor East Japan, Inc. in July 2012 as our third major production base in Japan. It will contribute to global growth by building compact vehicles, and join with the Tohoku region in revitalizing the economy through manufacturing. In January 2013, we will establish the Tohoku Local Procurement Promotion Center to join with the region in promoting manufacturing and increase procurement from within the region by finding and cultivating parts makers. In April 2013, we will open the Toyota East Japan Technical Skills Academy for medium- to long-term human resource development for manufacturing. Creating new businesses Toyota is looking into new businesses to promote revitalization. One example of this is the F-Grid Concept for comprehensive energy management. Rather than managing the energy use of individual factories, the F-Grid covers energy usage among regional plants as well as coordinating the use of energy among plants and communities. The goal of the F-Grid is to contribute to post-disaster regional restoration by creating actual “smart communities” focused on industrial areas, so as to promote higher levels of energy conservation and use of renewables. This will revitalize local industry by enhancing the value, competitiveness, and appeal of industrial areas and surrounding communities. Making social contributions to Not only will we continue to provide supplies and personnel the Tohoku region, but through the Kokoro Hakobu* Project, Toyota will also sponsor charity concerts and cultural events, and promote food and produce from the stricken areas. Revitalizing the auto industry Economic revitalization by uniting with Tohoku for manufacturing Developing new businesses that will promote restoration Creating new businesses Continuous restoration support Making social contributions * The Japanese words "kokoro hakobu", mean "to carry (or deliver) one's heart" Toyota's efforts to drive the recovery of the Tohoku region Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 32 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data R&D and Intellectual Property Toyota R&D is dedicated to the development of attractive, affordable, high-quality products for customers worldwide. The intellectual property that R&D generates is a vital management resource that Toyota utilizes and protects to maximize its corporate value. R&D Guiding Principles ● Providing clean and safe products and enhancing the quality of life of people everywhere through all our activities. ● Pursuing advanced technological development in a wide range of fields, we pledge to provide attractive products and services that respond to the needs of customers worldwide. R&D Activities The overriding goal of Toyotaʼs technology and product development activities is to minimize the negative aspects of driving, such as trafﬁc accidents and the burden that automobiles have on the environment, and maximize the positive aspects, such as driving pleasure, comfort, and convenience. By achieving these sometimes conﬂicting goals to a high degree, we want to open the door to the automobile society of the future. To ensure efﬁcient progress in R&D activities, we coordinate and integrate all phases, from basic research to forward-looking technology and product development. With respect to such basic research issues as energy, the environment, telecommunications, information and materials, projects are regularly reviewed in consultation with outside and evaluated experts to achieve efﬁcient R&D cost control. technology, And with respect to forward-looking, leading- edge technology and product development, we establish cost-performance benchmarks on a project-by-project basis to ensure efﬁcient development investment. Basic research Development theme discovery Research on basic vehicle-related technology Forward-looking and leading-edge technology development Technological breakthroughs related to components and systems Development of leading-edge components and systems ahead of competitors Product development Primary responsibility for new model development Development of all-new models and existing-model upgrades R&D Expenditures In ﬁscal 2012, R&D expenses totaled ¥779.8 billion, up 6.8% from the previous ﬁscal year, representing 4.2% of consolidated net revenues. We worked closely with suppliers to develop components and products more efﬁciently and took steps to reduce our own R&D expenses. At the same time, we plan to continue making substantial investments in R&D involving forward-looking, leading-edge technologies and the development of products associated with the environment, energy, and investments are essential to safety. These preserving our competitive edge in terms of technologies and products. ■ R&D Expenses (¥ Billion) 1,000 800 600 400 200 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 R&D Organization Toyota operates a global R&D organization with the primary goal of building automobiles that precisely meet the needs of customers in every region of the world. In Japan, R&D operations are led by Toyota Central Research & Development Laboratories, Inc., which works closely with Daihatsu Motor Co., Ltd., Hino Motors, Ltd., Toyota Auto Body Co., Ltd., Toyota Motor East Japan, Inc., and many other Toyota Group companies. Overseas, we have a worldwide network of technical centers as well as design and motorsports R&D centers. Domestic and Overseas R&D Bases Facility Name Japan Activities Location Head Office Toyota Technical Center Product Planning, Design, Vehicle Engineering and Evaluation Toyota City, Aichi Prefecture Higashi-Fuji Technical Center Advanced Engineering Mishuku, Susono City, Shizuoka Prefecture Tokyo Design Research & Laboratory Research of Advanced Styling Designs Hachioji City, Tokyo Shibetsu Proving Ground Vehicle Testing and Evaluation Onnebetsu, Shibetsu City, Hokkaido Toyota Central Research & Development Laboratories, Inc. Basic Research Nagakute City, Aichi Prefecture Head Office Toyota Technical Center Higashi-Fuji Technical Center Tokyo Design Research & Laboratory Shibetsu Proving Ground Toyota Central Research & Development Laboratories, Inc. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 33 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data R&D and Intellectual Property Facility Name Activities Location USA Toyota Motor Engineering & Manufacturing North America, Inc. Product Planning, Vehicle Engineering and Evaluation, Basic Research Ann Arbor, Michigan Torrance, California Wittman, Arizona Calty Design Research, Inc. Design Newport Beach, California Ann Arbor, Michigan Toyota Motor Engineering & Manufacturing North America, Inc. Calty Design Research, Inc. Europe Toyota Motor Europe NV/SA Vehicle Engineering and Evaluation Brussels, Belgium Derby, U.K Toyota Europe Design Development Design Toyota Motorsport GmbH (TMG) Development for Motorsport Vehicles, Advanced Engineering Nice, France Germany Toyota Motor Europe NV/SA Toyota Europe Design Development Toyota Motorsport GmbH (TMG) Asia Pacific Toyota Motor Asia Pacific Engineering and Manufacturing Co., Ltd. Toyota Technical Center Asia Pacific Australia Pty., Ltd. Vehicle Engineering and Evaluation Samutprakarn Province, Thailand Vehicle Engineering and Evaluation Melbourne, Australia Toyota Motor Engineering and Manufacturing (China) Co., Ltd. Basic Research, Technical Research and Vehicle Evaluation China （Image Figure） Toyota Motor Asia Pacific Engineering and Manufacturing Co., Ltd. Toyota Technical Center Asia Pacific Australia Pty., Ltd. Toyota Motor Engineering and Manufacturing (China) Co., Ltd. ▼Additional details available at Click HERE Intellectual Property Guiding Principle ● Securing greater corporate flexibility and maximizing corporate value through the appropriate acquisition and utilization of intellectual property. Intellectual Property Activities Toyotaʼs competitiveness springs from the forward-looking R&D stance that is instrumental to core strengths associated with products and technologies. Underlying each new product that emerges from R&D, there are always intellectual properties such as inventions and expertise that we value as important management resources. Intellectual Property Systems R&D and intellectual property activities are organizationally linked to enable us to focus on selected development themes and build a strong patent portfolio. We have established an Intellectual Property Committee made up of individuals involved with management, R&D, and intellectual property. This committee acquires and utilizes important intellectual property that contributes to business operations and helps determine policies for management risks associated with intellectual property. Intellectual Property Strategies Toyota carefully analyzes patents and the need for patents in each area of research to formulate more effective R&D strategies. We identify R&D projects in which Toyota should acquire patents, and ﬁle relevant applications as necessary to help build a strong global patent portfolio. In addition, we want to contribute to sustainable mobility by promoting the spread of technologies with environmental and safety beneﬁts. This is why we take an open stance to patent licensing, and grant licenses when appropriate terms are met. A good example of this policy is the licensing to other companies of patents in the area of hybrid technology, which is one of our core technologies involving environmental energy. Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 34 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Corporate Philosophy Seeking Harmony between People, Society and the Global Environment, and Sustainable Development of Society through Manufacturing Since its foundation, Toyota has continuously strived to contribute to the sustainable development of society through the manufacturing and provision of innovative, high-quality products and services that lead the times. The automobile is a wonderful machine that provides freedom of movement. Nevertheless, automobiles have an impact on the environment and society. This is something we at Toyota always keep in mind, and we try to create harmony among people, societies and the environment by listening to what our customers and local communities have to say. Our operations are aimed at creating a sustainable society through monozukuri (conscientious manufacturing). Toyota develops and produces environment- friendly vehicles such as hybrid vehicles, and we also offer superior accident prevention and collision safety features. In addition, Toyota is involved in new businesses, such as biotech, afforestation and renewable energy. The pillars of our social contribution are “environment,” “trafﬁc safety”, and “human resources development.” Toyota seeks to be of value to communities and to society through our main lines of business, and to bring smiles to peopleʼs faces. Overview of Toyotaʼs CSR Activities Safety Safety Toyota’s New Businesses Toyota’s Automotive Businesses Environment Social Aspect Environmental Aspect Environment Compliance Economic Aspect Society Comfort and and Cultures 　　　　　　Convenience Resources /Energy　　 Sources　　　　 Toyota’s Social Contribution Activities Societal Issues Education The Spirit of the Toyoda Precepts, Passed down since Toyota's Founding: Contribute to the Sustainable Development of Society the essential The Toyoda Precepts represent philosophy of the founder of the Toyota group of companies, Sakichi Toyoda, and are a source of spiritual support for Toyota employees. The spirit of the Toyoda Precepts is carried on in the Toyota Guiding Principles (adopted in 1992 and revised in 1997). Toyotaʼs basic Corporate Social Responsibility (CSR) policy, which guides us in our relations with stakeholders, is to contribute to the sustainable development of society. This phrase embodies the spirit of the Toyota Guiding Principles, and clariﬁes our CSR stance for our stakeholders, both within and outside the company. Toyota subsidiaries and suppliers share this CSR policy, and we expect them to adhere to the spirit of the policy in their operations. Toyota also participated in the formulation of the Charter of Corporate Behavior of the Nippon Keidanren (Japan Business Federation), which is an alliance of Japanese leading corporations, and observes the standards outlined therein. Positioning of the CSR Policy The Toyoda Precepts Guiding Principles at Toyota "CSR Policy: Contribution towards Sustainable Development" 1 0 0 2 y a W a t o y o T Toyota Global Vision Global Vision for Those We Serve Medium- to long-term management plans Company policies, annual policies, regional policies, head office and divisional policies Regular business activities t c u d n o C f o e d o C a t o y o T e h T • Always be faithful to your duties, thereby contributing to the company and to the overall good. • Always be studious and creative, striving to stay ahead of the times. • Always be practical and avoid frivolousness. • Always strive to build a homelike atmosphere at work that is warm and friendly. • Always have respect for spiritual matters, and remember to be grateful at all times. Toyota Guiding Principles The Toyota Guiding Principles (adopted in 1992 and revised in 1997) reﬂect the kind of company that Toyota seeks to be in light of the unique management philosophy, values, and methods that it has embraced since its foundation. Toyota, along with its consolidated subsidiaries, seeks to contribute to the continuous development of human society and of the planet through its businesses based on understanding and sharing the Toyota Guiding Principles. 1. Honor the language and spirit of the law of every nation and undertake open and fair business activities to be a good corporate citizen of the world. 2. Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in their respective communities. 3. Dedicate our business to providing clean and safe products and to enhancing the quality of life everywhere through all of our activities. 4. Create and develop advanced technologies and provide outstanding products and services that fulfill the needs of customers worldwide. 5. Foster a corporate culture that enhances both individual creativity and the value of teamwork, while honoring mutual trust and respect between labor and management. 6. Pursue growth through harmony with the global community via innovative management. 7. Work with business partners in research and manufacture to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships. ▼Additional details available at Click HERE Toyota Global Vision Toyota Global Vision Changes for Making Changes for Making Ever-Better Cars Ever-Better Cars Presidentʼs Message Presidentʼs Message Medium- to Long-Term Medium- to Long-Term Growth Initiatives Growth Initiatives Special Feature Special Feature Business and Business and Performance Review Performance Review Management and Corporate Information Financial Section Financial Section Investor Information Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 35 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Management Team （As of June 15, 2012） Board of Directors Chairman of the Board Vice Chairman of the Board President, Member of the Board Fujio Cho Takeshi Uchiyamada Akio Toyoda Executive Vice Presidents, Members of the Board （Main operational responsibilities） Yukitoshi Funo Atsushi Niimi Shinichi Sasaki Satoshi Ozawa Nobuyori Kodaira Mitsuhisa Kato Masamoto Maekawa - Asia & Oceania Operations - Middle East, Africa and Latin America Operations - Operation Planning & Support - North America Operations - China Operations - Production Control - Production Engineering - Manufacturing - Business Development - IT & ITS - Purchasing - Customer First Promotion - Europe Operations - General Administration & Human Resources - Accounting External Affairs* Research & Development Japan Sales Business Senior Managing Officers, Members of the Board （Chief ofﬁcer, Deputy chief ofﬁcer, General manager or Overseas subsidiary of residence） Mamoru Furuhashi Takahiko Ijichi Yasumori Ihara External Affairs Group Accounting Group - Corporate Planning Div. - Purchasing Group Corporate Auditors Full-Time Corporate Auditors Yoichiro Ichimaru Masaki Nakatsugawa Masahiro Kato *Also includes responsibility for external affairs of other fields, such as technology, environment, ITS, domestic and overseas sales, and others Corporate Auditors Yoichi Morishita Akishige Okada Kunihiro Matsuo Yoko Wake Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 36 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Corporate Governance Toyotaʼs Basic Policy on Corporate Governance that issue. We believe Toyota has positioned the stable long-term growth of corporate value as a top-priority management in carrying this out, it is essential that we achieve long-term and stable growth by building positive relationships with all stakeholders, including shareholders and customers as well as business partners, local communities and employees, and by supplying products that will satisfy our customers. This position is reﬂected in the “Guiding Principles at Toyota,” which is a statement of Toyotaʼs fundamental business policies. Also, Toyota adopted and presented the CSR Policy “Contribution toward Sustainable Development,” an interpretation of the “Guiding Principles at Toyota” that organizes the relationships with its stakeholders. We are working to enhance corporate governance through a variety of measures designed to further increase our competitiveness as a global company. Toyotaʼs Corporate Governance System Toyota formulated and announced the Toyota Global Vision in March 2011, based on what it has learned from the deterioration of the business environment following the Lehman Shock and a series of quality problems. The Toyota Global Vision, based on Toyotaʼs values that have guided Toyota since its founding, such as “Guiding Principles of Toyota” and “Toyota Way,” aims to exceed customer expectations by the development of ever-better cars and enriching lives of societies, and to be rewarded with a smile which ultimately leads to the stable base of business. Toyota is to keep this virtuous cycle by focusing on making ever-better cars. To fulﬁll the Toyota Global Vision, Toyota its management made some changes to structure such as reducing the Board of Directors and decision-making layers. Toyota will continue to offer products and services that will satisfy evolving needs in every region. Toyota headquarters will provide overall direction and furnish support for the initiatives undertaken by the regional operations. Speciﬁcally, with the aim of faster decision- making, Toyota drastically reduced the number of Directors and abolished the position of Senior Managing Director. Furthermore, Toyota will replace the current three-layer arrangement — Executive Vice President, Chief Ofﬁcer, and Executive responsible for the operations involved — with two layers, eliminating the executive immediately below the Chief Ofﬁcer. Moving forward with this new structure will support a swifter ﬂow of information from the divisional general managers, who are intimately familiar with their operations, to senior management. Toyota is to enhance clarity in organizational responsibilities: the Board of Directors decides what Toyota will do as global Toyota, and Chief Ofﬁcers decide how to implement that decision as chief executives for day-to-day operations, etc. The post of Chief Ofﬁcer will be ﬁlled either by a “Senior Managing Ofﬁcer” or “Managing Ofﬁcer” in a ﬂexible manner. Chief Ofﬁcers responsible for the region or function conduct local operations basically at respective sites under the Executive Vice President responsible for each operational sector to vigorously reﬂect the voices of local customers in functions of R&D, production, and sales. Systems for Ensuring Appropriate Management Toyota has an “International Advisory Board” consisting of advisers from each region overseas, and, as appropriate, receives advice on a wide range of management issues from a global perspective. In addition, Toyota has a wide variety of conferences and committees for deliberations and the monitoring of management and corporate activities that reﬂect the views of various stakeholders, including the “Labor-Management Council, the Joint Labor-Management Round Table Conference”, and the “Toyota Environment Committee.” Accountability fair, and Toyota has engaged in timely and fair disclosure of corporate and ﬁnancial information as stated in the CSR Policy “Contribution towards Sustainable Development.” In order to ensure the accurate, timely disclosure information, Toyota has established the of Disclosure Committee chaired by an ofﬁcer of the Accounting Division. The Committee holds regular meetings for the purpose of preparation, reporting and assessment of its annual securities report, quarterly report under the Financial Instruments and Exchange Law of Japan and Form 20-F under the U.S. Securities Exchange Act, and also holds extraordinary committee meetings from time to time whenever necessary. Compliance In order to manage and implement important activities for fulﬁlling social responsibilities, Toyota has established the CSR Committee consisting of directors at the executive vice president level and above as well as representatives of corporate auditors, to review important issues relating to corporate ethics, legal compliance, risk management and social contribution, and also to develop action plans concerning these issues. Toyota has also created a number of facilities for employees to make inquiries concerning compliance matters, Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 37 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Corporate Governance including the Compliance Hotline, which enables them to consult with an outside attorney, and takes measures to ensure that Toyota is aware of signiﬁcant information concerning legal compliance as quickly as possible. Toyota will continue to promote the “Toyota Code of Conduct” which is a guideline for employeesʼ behavior and conduct for employees of Toyota and its consolidated subsidiaries (together “Toyota”) all around the world. Toyota will work to advance corporate ethics through training and education at all levels and in all departments. Toyota has adopted an auditor system. Seven Corporate Auditors including four Outside Corporate Auditors play a role in Toyotaʼs corporate governance efforts by undertaking audits in accordance with the audit policies and plans determined by the Board of Corporate Auditors. In addition, Toyota has secured the personnel and framework supporting the audit by Corporate Auditors. The Outside Corporate Auditors advise Toyota from a fair and neutral perspective, based on their broad experiences and insight in their respective ﬁelds of expertise. The state of internal controls and internal audits are reported to Corporate Auditors (including Outside Corporate Auditors) through the Board of Corporate Auditors and the “CSR Committee,” and the status of accounting audits is reported by independent External Auditors to the Corporate Auditors (including Outside Corporate Auditors) through Toyotaʼs Corporate Governance Emphasizing Frontline Operation + Mulitidirectional Monitoring Appointment Shareholders Board of Corporate Auditors Majority are Outside Corporate Auditors External Accounting Auditor Audit for consolidated financial statements and internal control over financial reporting Board of Directors Senior Managing Officers or Managing Officers International Advisory Board Labor-Management Council Joint Labor-Management Round Table Conference CSR Committee* Toyota Environment Committee Disclosure Committee Internal Auditing Department Internal control systems * The CSR Committee deliberates on and makes decisions concerning new CSR related, plans corporate ethics, legal compliance, risk management, social contribution activities. the Board of Corporate Auditors. To enhance the system for internal audits, a specialized organization made independent of direct control by the management evaluates the effectiveness of the system to secure the appropriateness of documents regarding ﬁnancial calculation and other information in accordance with Section 404 of the U.S. Sarbanes- Oxley Act and Article 24-4-4 (1) of the Financial Instruments and Exchange Law of Japan. In order to enhance the reliability of the ﬁnancial reporting of Toyota, the three auditing functions — audit by Corporate Auditors, internal audit, and accounting audit by Independent External Auditors — aid in conducting an effective and efﬁcient audit through meetings held periodically and as necessary to share information and come to understandings through discussion on audit plans and results. Basic Approach to Internal Control System and Its Development Toyota, together with its subsidiaries, has created and maintained a sound corporate climate based on the “Guiding Principles at Toyota” and the “Toyota Code of Conduct.” Toyota integrates the principles of problem identiﬁcation and continuous its business operation process and makes continuous efforts to train employees who will put these principles into practice. Under following basic policies improvement into the established in May 2006, Toyota implements an internal control system while conducting necessary enhancements. ▼Additional details for Corporate Governance Click HERE Basic Approach to Internal Controls Fundamental Approach • Draw out the goodwill, enthusiasm, and autonomous decision making abilities of the people who perform work, based on the idea of “respect for people”; • Establish structures within the work performance processes carried out by people and organizations that incorporate internal controls and make possible checks and balances as well as management and oversight by directors; • Establish inter-departmental organizations to supplement internal controls. Basic Policy (1) Legal compliance by Directors (2) Retention and management of information relating to the execution of responsibilities by Directors (3) Regulations and other systems related to the management of risk of losses (4) Efficiency of execution of responsibilities by Directors (5) Legal compliance by employees (6) Appropriateness of the business operations of the group (7) Employees assisting the Corporate Auditors (8) Independence of employees described in the preceding item (7) (9) Report to Corporate Auditors (10) Ensure the efficient execution of audits by the Auditors Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 38 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Risk Factors Operational and other risks faced by Toyota that could signiﬁcantly inﬂuence the decisions of investors are set out below. However, the following does not encompass all risks related to the operations of Toyota. There are risk factors other than those given below. Any such risk factors could inﬂuence the decisions of investors. The forward- looking statements included below are based on information available as of June 25, 2012, the ﬁling date of Form 20-F. Risks Relating to the Great East Japan Earthquake Toyota may be adversely affected by the continuing effects of the Great East Japan Earthquake and ensuing events. The Japanese economy as a whole suffered signiﬁcant damage as a result of the Great East Japan Earthquake that occurred on March 11, 2011 and the ensuing tsunami and accidents in Fukushima at nuclear power plants Prefecture (collectively, the “Great East Japan Earthquake”). The Japanese economy has been negatively impacted by damage caused by the Great East Japan Earthquake, costs associated to rebuild the affected areas and interrupted infrastructure, including energy shortages as a result of suspended operations at nuclear power plants throughout Japan. The duration and impact on the Japanese economy are unclear. In addition, the nuclear power plants in Fukushima Prefecture are not yet fully under control and the resolution of the situation at these plants, including timing, remains unclear. Continuing radiation further aggravation of the nuclear power plants are possible. These various issues in connection with the Great East Japan Earthquake may cause signiﬁcant and unforeseeable adverse effects on the Japanese economy, Toyotaʼs operations, and demand for Toyotaʼs products. leakage and Industry and Business Risks The worldwide automotive market is highly competitive. The worldwide automotive market is highly competitive. Toyota faces intense competition from automotive manufacturers in the markets in which it operates. Although the global economy is gradually recovering, competition in the automotive industry has further intensiﬁed amidst difﬁcult overall market conditions. In addition, competition is likely to further intensify in light of further continuing globalization in the worldwide automotive industry, possibly resulting in further industry reorganization. Factors affecting competition include product quality and features, safety, reliability, fuel economy, the amount of time required for innovation and development, pricing, customer terms. service and ﬁnancing Increased competition may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyotaʼs ﬁnancial condition and results of operations. Toyotaʼs ability to adequately respond to the recent rapid changes in the automotive market and to maintain its competitiveness will be fundamental to its future success in existing and new markets and to maintain its market share. There can be no assurances that Toyota will be able to compete successfully in the future. The worldwide automotive industry is highly volatile. Each of the markets in which Toyota competes has been subject to considerable volatility in demand. Demand for vehicles depends to a large extent on social, political and economic conditions in a given market and the introduction of new vehicles and technologies. As Toyotaʼs revenues are derived from sales in markets worldwide, economic conditions in such markets are particularly important to Toyota. During ﬁscal 2012, in Japan, despite continuing harsh business conditions due to the impact of the Great East Japan Earthquake, the economic environment is gradually recovering as a result of various government policies aimed at economic revival following the disaster. In the United States, there has been a gradual recovery in economic conditions, but in Europe, the economic environment is at a standstill, due to the ongoing sovereign debt crisis, which has also slowed economic development in numerous emerging economies throughout the world. Toyota was adversely affected by changes in the market structures of each region with further shifts in consumer demand to compact and low-priced vehicles. Such weakness in demand for automobiles and changes in market structure is continuing, and it is unclear how this situation will transition in the future. Toyotaʼs ﬁnancial condition and results of operations may be adversely affected if the weakness in demand for automobiles and changes in market structure continue or progress further. Demand may also be affected by factors directly impacting vehicle price or the cost of purchasing and operating vehicles such as sales and ﬁnancing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations (including tariffs, import regulation and other taxes). Volatility in demand may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyotaʼs ﬁnancial condition and results of operations. Toyota's future success depends on its ability to offer new innovative competitively priced products that meet customer demand on a timely basis. introducing Meeting customer demand by attractive new vehicles and reducing the amount Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 39 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Risk Factors of time required for product development are critical to automotive manufacturers. In particular, it is critical to meet customer demand with respect to quality, safety and reliability. The timely introduction of new vehicle models, at competitive prices, meeting rapidly changing customer preferences and demand is more fundamental to Toyotaʼs success than ever, as the automotive market is rapidly transforming in light of the changing global economy. There is no assurance, however, that Toyota will adequately and appropriately respond to changing customer preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner. Even if Toyota succeeds in perceiving customer preferences and demand, there is no assurance that Toyota will be capable of developing and manufacturing new, price competitive products in a timely manner with intellectual property, sources of raw materials and parts and components, and production capacity, including cost reduction capacity. Further, there is no assurance that Toyota will be able to implement capital expenditures at the level and times planned by management. Toyotaʼs inability to develop and offer products that meet customersʼ preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner could result in a lower market share and reduced sales volumes and margins, and may its available technology, adversely affect Toyotaʼs ﬁnancial condition and results of operations. Toyota's ability to market and distribute effectively is an integral part of Toyotaʼs successful sales. Toyotaʼs success in the sale of vehicles depends on its ability to market and distribute effectively based on distribution networks and sales techniques tailored to the needs of its customers. There is no assurance that Toyota will be able to develop sales techniques and distribution networks that effectively adapt to changing customer preferences or changes in the regulatory environment in the major markets in which it operates. Toyotaʼs inability to maintain well-developed sales techniques and distribution networks may result in decreased sales and market share and may adversely affect its ﬁnancial condition and results of operations. Toyota's success is signiﬁcantly impacted by its ability to maintain and develop its brand image. In the highly competitive automotive industry, it is critical to maintain and develop a brand image. In order to maintain and develop a brand image, it is necessary to further increase customersʼ conﬁdence by providing safe, high-quality products that meet customer preferences and demand. If Toyota is unable to effectively maintain and develop its brand image as a result of its inability to provide safe, high-quality products or as a result of the failure to promptly implement safety measures such as recalls when necessary, vehicle unit sales and/or sale prices may decrease, and as a result revenues and proﬁts may not increase as expected or may decrease, adversely affecting its ﬁnancial condition and results of operations. Toyota relies on suppliers for the provision of certain supplies including parts, components and raw materials. Toyota purchases supplies including parts, components and raw materials from a number of external suppliers located around the world. For some supplies, Toyota relies on a single supplier or a limited number of suppliers, whose replacement with another supplier may be difﬁcult. Inability to obtain supplies from a single or limited source supplier may result in difﬁculty obtaining supplies and may restrict Toyotaʼs ability to produce vehicles. Furthermore, even if Toyota were to rely on a large number of suppliers, ﬁrst-tier suppliers with whom Toyota directly transacts may in turn rely on a single second-tier supplier or limited second-tier suppliers. Toyotaʼs ability to continue to obtain supplies from its suppliers in a timely and cost-effective manner is subject to a number of factors, some of which are not within Toyotaʼs control. These factors include the ability of Toyotaʼs suppliers to provide a continued source of supply, and Toyotaʼs ability to effectively compete and obtain competitive prices from suppliers. A loss of any single or limited source supplier or inability to obtain in a timely and supplies from suppliers cost-effective manner could lead to increased costs or delays or suspensions in Toyotaʼs production and deliveries, which could have an adverse effect on Toyotaʼs ﬁnancial condition and results of operations. The worldwide ﬁnancial services industry is highly competitive. The worldwide ﬁnancial services industry is highly competitive. Increased competition in automobile ﬁnancing may lead to decreased margins. A decline in Toyotaʼs vehicle unit sales, an increase in residual value risk due to lower used vehicle price, an increase in the ratio of credit losses and increased funding costs are factors which may impact Toyotaʼs ﬁnancial services operations. If Toyota is unable to adequately respond to the changes and competition in automobile ﬁnancing, Toyotaʼs ﬁnancial services operations may adversely affect its ﬁnancial condition and results of operations. Toyotaʼs operations and vehicles rely on various digital and information technologies. various information Toyota depends on technology networks and systems, some of which are managed by third parties, to process, information, transmit and store electronic Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 40 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Risk Factors including sensitive data, and to manage or support a variety of business processes and activities, including manufacturing, research and development, supply chain management, sales and accounting. In addition, Toyotaʼs vehicles may rely on various digital and information technologies, including information functions. service and driving assistance Despite security measures, Toyotaʼs digital and information technology networks and systems may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers, computer viruses, breaches due to unauthorized use, errors or malfeasance by employees and others who have or gain access to the networks and systems Toyota depends on, service failures or bankruptcy of third parties such as software development or cloud computing vendors, power shortages and outages, and utility failures or other catastrophic events like natural disasters. Such incidents could materially disrupt critical operations, disclose sensitive data, interfere with information services and driving assistance functions in Toyotaʼs vehicles, and/or give rise to legal claims or proceedings, liability or regulatory penalties under applicable laws, which could have an adverse effect on Toyotaʼs brand image and its ﬁnancial condition and results of operations. Financial Market and Economic Risks Toyota's operations are subject to currency and interest rate ﬂuctuations. Toyota is sensitive to ﬂuctuations in foreign currency exchange rates and is principally exposed to ﬂuctuations in the value of the Japanese yen, the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Canadian dollar and the British pound. Toyotaʼs consolidated ﬁnancial statements, which are presented in Japanese yen, are affected by foreign currency exchange ﬂuctuations through both translation risk and transaction risk. Changes in foreign currency exchange rates may affect Toyotaʼs pricing of products sold and materials purchased in foreign currencies. In particular, strengthening of the Japanese yen against the U.S. dollar can have an adverse effect on Toyotaʼs operating results. The Japanese yen has been appreciating against major currencies including the U.S. dollar in the past year. If the Japanese yen continues to appreciate against major currencies, including the U.S. dollar, Toyotaʼs ﬁnancial condition and results of operations may be adversely affected. Toyota believes that its use of certain derivative ﬁnancial including interest rate swaps and increased localized production of its products have reduced, but not eliminated, the effects of interest rate and foreign currency exchange rate ﬂuctuations. Nonetheless, a negative impact resulting from instruments ﬂuctuations in foreign currency exchange rates and changes in interest rates may adversely affect Toyotaʼs ﬁnancial condition and results of operations. High prices of raw materials and strong pressure on Toyota's suppliers could negatively impact Toyotaʼs proﬁtability. Increases in prices for raw materials that Toyota and Toyotaʼs suppliers use in manufacturing their products or parts and components such as steel, precious metals, non-ferrous alloys including aluminum, and plastic parts, may lead to higher production costs for parts and components. This could, in turn, negatively impact Toyotaʼs future proﬁtability because Toyota may not be able to pass all those costs on to its customers or require its suppliers to absorb such costs. The downturn in the ﬁnancial markets could adversely affect Toyotaʼs ability to raise capital. Should the world economy suddenly deteriorate, a number of ﬁnancial institutions and investors will face difﬁculties in providing capital to the ﬁnancial markets at levels corresponding to their own ﬁnancial capacity, and, as a result, there is a risk that companies may not be able to raise capital under terms that they would expect to receive with their creditworthiness. If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, Toyotaʼs ﬁnancial condition and results of operations may be adversely affected. Political, Regulatory, Legal and Other Risks The automotive industry is subject to various governmental regulations. The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. In particular, automotive manufacturers such as Toyota are required to implement safety measures such as recalls for vehicles that do not or may not comply with the safety standards of laws and governmental regulations. In addition, Toyota may, in order to reassure its customers of the safety of Toyotaʼs vehicles, decide to voluntarily implement recalls or other safety measures even if the vehicle complies with the safety standards of relevant laws and governmental regulations. Many governments also impose tariffs and other trade barriers, taxes and levies, or enact price or exchange controls. Toyota has incurred, and expects to incur in the future, signiﬁcant costs in complying with these regulations. If Toyota launches products that result in safety measures such as recalls, Toyota may including signiﬁcant costs for free repairs. Furthermore, new legislation or changes in existing legislation incur various costs Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 41 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data energy supply, transportation systems, gas, water, or communication systems resulting technological from natural hazards or hazards; wars; terrorism; labor strikes and work stoppages. Should the major markets in which Toyota purchases materials, parts and components and supplies for the manufacture of Toyota products or in which Toyotaʼs products are produced, distributed or sold be affected by any of these events, it may result in disruptions and delays in the operations of Toyotaʼs business. Should signiﬁcant or prolonged disruptions or delays related to Toyotaʼs business operations occur, it may adversely affect Toyotaʼs ﬁnancial condition and results of operations. Risk Factors may also subject Toyota to additional expenses in the future. If Toyota incurs signiﬁcant costs related to implementing safety measures or meeting laws and governmental regulations, Toyotaʼs ﬁnancial condition and results of operations may be adversely affected. Toyota may become subject to various legal proceedings. As an automotive manufacturer, Toyota may become subject to legal proceedings in respect of various issues, including product liability and infringement of intellectual property. Toyota may also be subject to legal proceedings brought by its shareholders and governmental proceedings and investigations. Toyota is in fact currently subject to a number of pending legal proceedings and government investigations. A negative outcome in one or more of these pending legal proceedings could adversely affect Toyotaʼs ﬁnancial condition and results of operations. Toyota may be adversely affected by natural calamities, political and economic instability, fuel shortages or interruptions in social infrastructure, wars, terrorism and labor strikes. Toyota is subject to various risks associated with conducting business worldwide. These include natural calamities; political risks fuel shortages; instability; and economic interruption in social infrastructure including Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0821 0518 TOYOTA ANNUAL REPORT 2012 Search Contents Prev page 42 Next R&D and Intellectual Property Corporate Governance Corporate Philosophy Management Team Risk Factors Other Management and Corporate Data Other Management and Corporate Data Please Click below to access the contents. Chronology Research & Development Operations in Japan Worldwide Operations History of Toyota Domestic and Overseas R&D Sites Toyota Group Organizations Overseas Manufacturing Companies Product Lineup Technological Development Number of Vehicles Produced in Japan by Model Europe/Africa: Market /Toyota Sales and Production Product Lineup History of Technological Development from 1990 Number of Vehicles Registered in Japan by Model Asia: Market /Toyota Sales and Production Japanese Production and Dealer Sites North America/Latin America: Market /Toyota Sales and Production Oceania & Middle East: Market /Toyota Sales and Production Vehicle Production, Sales and Exports by Region Overseas Model Lineup by Country & Region Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Message from the Executive Vice President Responsible for Accounting We will continue to implement proﬁt improvement activities and aim to develop a strong earnings base that can handle environmental changes. 0820 Search Contents Prev page 43 Next Fiscal 2012 Business Results Consolidated Financial Forecasts for Fiscal 2013 On a consolidated basis for the ﬁscal year ended March 31, 2012, year-on-year vehicle sales improved 44 thousand units to 7.352 million units. However, net revenues decreased 2.2% to ¥18,583.6 billion, operating income decreased ¥112.6 billion to ¥355.6 billion, and net income decreased ¥124.6 billion to ¥283.5 billion. For the ﬁscal year ending March 31, 2013, we forecast vehicle sales of 8.7 million units, net revenues of ¥22 trillion, operating income of ¥1 trillion and net income of ¥760.0 billion on a consolidated basis. The exchange rates assumed for this forecast are ¥80 per US$1 and ¥105 per €1. Factors contributing to the decrease in operating income included ¥250.0 billion due to exchange rate ﬂuctuations, ¥100.0 billion due to an increase in expenses including labor cost, etc. and ¥62.6 billion due to other factors. Factors contributing to the increase in operating income included ¥150.0 billion from marketing efforts and ¥150.0 billion from our continuous cost-reduction efforts, including companywide VA (Value Analysis) activities. The further appreciation of the Japanese yen against the U.S. dollar, the euro and other currencies reduced the proﬁtability of exports. And for marketing efforts, although vehicle sales in North America decreased due mainly to a lack of vehicle supply caused by the Great East Japan Earthquake in March 2011, vehicle sales in Japan increased as in the second half, we experienced a strong recovery of lost opportunities due to the Japan earthquake. And in Asia, although IMVs sales were particularly affected by the supply disruption due to the Thailand ﬂoods, Etios sales in India were strong, and as a result, sales marked a new record, and contributed to higher income. The business environment in ﬁscal 2012 was extremely challenging due to losses in production following the Japan earthquake and the Thailand ﬂoods, in addition to yen appreciation. Nevertheless, we achieved operating income of ¥355.6 billion thanks to the concerted efforts of our employees, suppliers and dealers to recover production and sales. Through the concerted efforts of the whole Toyota group to implement cost reductions and ﬁxed cost reductions, we made improvements to our structure for developing a strong earnings base. Also, from ﬁscal 2013 onward, we will make further improvements to our structure by continuing proﬁt improvement activities. Factors that are expected to increase income include marketing efforts amounting to ¥550.0 billion and cost-reduction efforts amounting to ¥240.0 billion. Factors that are expected to decrease income include an increase in expenses, etc., reaching ¥145.6 billion. With regard to marketing efforts, we expect a signiﬁcant increase, particularly in North America and Asia, as we recover from the supply shortage in the last ﬁscal year. In ﬁscal 2013, we are aiming to achieve operating income of ¥1 trillion by actively promoting vehicle sales utilizing our new products as well as our competitive lineup of hybrid vehicles and IMVs etc., and strongly pursuing cost reduction together with our suppliers. We have been aiming to establish a cycle of developing “better cars” that are accepted by our customers and society, and should increase sales and consequently proﬁts to reinvest in developing even “better cars.” This cycle is supported by the strong earnings base described in Toyota Global Vision. We believe that the results of our efforts to develop “better cars” will be evident in our numbers in ﬁscal 2013, and our business foundation is now steadily improving towards the earnings structure described in Toyota Global Vision. We will continue to establish a cycle of developing “better cars” and aim to build a strong earnings base that can handle environmental changes such as ﬂuctuations in exchange rates and the number of vehicles sold, with further marketing efforts and holding down ﬁxed costs, thorough cost reductions, localization of production and procurement, and similar efforts. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 44 Next Message from the Executive Vice President Responsible for Accounting Financial Strategy The three key components of our ﬁnancial strategy are growth, efﬁciency and stability. We believe that the balanced pursuit of these three priorities over the medium to long term will allow us to achieve steady and sustainable growth, as well as increase corporate value. 1. Growth: Sustainable growth through continuous forward-looking investments We believe that automotive markets worldwide will grow over the medium to long-term. As they expand, the center of market growth will shift toward fuel-efﬁcient vehicles, such as hybrid vehicles and compact vehicles, and toward resource-rich and emerging markets. We plan to invest efﬁciently and actively in these areas to respond to structural shifts in demand and ensure long-term sustainable growth. We will expand our lineup of hybrids and other eco-cars and develop it globally, while making efforts to increase sales in emerging markets by working to strengthen locally-produced core models, such as IMVs and newly developed subcompact models. I believe we should work to realize a geographically balanced business structure, i.e., the “50:50 sales ratio between Japan/U.S./Europe and emerging markets” deﬁned in Toyota Global Vision. 2. Efﬁciency: Improving proﬁtability and capital efﬁciency To meet ongoing demand for hybrid and compact vehicles, we aim to provide high-quality vehicles at affordable prices and to improve proﬁtability through further cost reductions. The introduction of our new framework for developing “better cars,” called the Toyota New Global Architecture (TNGA), will enable us to achieve sweeping advances in product appeal with cost reductions, in addition to strengthening design and development. We can invest efﬁciently and achieve the same equipment investment beneﬁt with lower capital expenditure. Through such efforts, we will strive for efﬁcient investment that emphasizes the areas where we want to advance, such as eco-cars, including hybrids, and emerging markets, which are expected to grow, while improving our income structure. 3. Stability: Maintaining a solid financial base We preserve a solid ﬁnancial base by ensuring sufﬁcient liquidity and stable shareholdersʼ equity. Such a sound ﬁnancial position enables us to maintain a level of capital expenditures and investment in research and development geared towards future growth as well as to maintain the necessary level of working capital, even during difﬁcult business environments such as steep price increases in raw materials or drastic foreign exchange rate ﬂuctuations, not to mention such unexpected crises as last yearʼs earthquake and the Thailand ﬂoods. Although the business environments surrounding us remain unclear due to factors such as the European sovereign debt crisis, we anticipate medium- to long-term growth in automotive markets worldwide. We believe that maintaining adequate liquidity is essential to the implementation of forward- looking investment to improve product appeal and develop next-generation technologies, as well as to establish a structure for production and sales in both the Japanese and overseas markets in addition to the crisis measures. We will continue to pursue further capital efﬁciency and improved cash ﬂows. Dividends and Share Acquisitions We deem the beneﬁt of its shareholders as one of its priority management policies, and it is working to improve corporate structure towards the realization of sustainable growth in order to enhance its corporate value. We will strive to continue to pay stable dividends while giving due consideration to factors such as business results for each term, investment plans and its cash reserves. In order to succeed in this highly competitive industry, we plan to utilize its internal funds for the early commercialization of technologies for next-generation environment and safety, giving priority to customer safety and sense of security. Considering these factors, we declared an annual dividend payment of ¥50 per share for the ﬁscal year ended March 31, 2012. Given the uncertain outlook for the present business environment, we will prioritize securing cash reserves. Accordingly, we did not repurchase our own shares in the ﬁscal year ended March 31, 2012, and we plan to forgo such repurchases for the foreseeable future. We will continue striving to further improve proﬁts and meet the expectations of our shareholders. July 2012 Satoshi Ozawa, Executive Vice President Quarterly Operating Income Consolidated Vehicle Sales (Thousands of units) 1,820 1,895 1,802 1,791 1,805 2,357 1,969 1,221 Operating Income (¥ Billion) Operating Income Ratio 211.6 （4.3%） 111.5 （2.3%） 99.0 （2.1%） 46.1 （1.0%） -108.0 （-3.1%） 75.4 （1.6%） 238.5 （4,2%） 149.6 （3.1%） FY2011 2Q 86 111 3Q 83 112 4Q 82 113 1Q 82 117 FY2012 2Q 78 110 3Q 77 104 4Q 79 104 1Q 92 117 Exchange Rates 〈Yen/U.S. $〉〈Yen/€〉 FY2013 Consolidated Financial Forecasts FY2013 Forecasts April 1, 2012- March 31, 2013 FY2012 Results April 1, 2011- March 31, 2012 Change (¥ Billion) Net Revenues 22,000.0 18,583.6 3,416.4 Operating Income Income before Income Taxes and Equity in Earnings of Afﬁliated Companies Net Income＊ Capital Expenditures R&D Expenses Exchange Rates Yen/U.S. $ Yen/€ 1,000.0 355.6 644.4 1,160.0 432.8 727.2 760.0 820.0 810.0 80 105 283.5 706.7 779.8 79 109 476.5 113.3 30.2 +1 -4 * Net income attributable to Toyota Motor Corporation Vehicle Sales by Region 28.2% Japan North America 25.5% 10.8% 18.0% 17.5% Europe Other Asia TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 45 Next Selected Financial Summary (U.S. GAAP) Toyota Motor Corporation Fiscal years ended March 31 For the Year: Net Revenues: Sales of Products Financing Operations Total Costs and Expenses: Cost of Products Sold Cost of Financing Operations Selling, General and Administrative Total Operating Income (Loss) % of Net Revenues Income (Loss) before Income Taxes and Equity in Earnings of Afﬁliated Companies Provision for Income Taxes Net Income (Loss) attributable to Toyota Motor Corporation ROE Net Cash Provided by Operating Activities Net Cash Used in Investing Activities Net Cash Provided by (Used in) Financing Activities R&D Expenses Capital Expenditures for Property, Plant and Equipment* Depreciation At Year-End: Toyota Motor Corporation Shareholdersʼ Equity Total Assets Long-Term Debt Cash and Cash Equivalents Ratio of Toyota Motor Corporation Shareholdersʼ Equity 2003 2004 ¥14,793,973 707,580 ¥15,501,553 ¥11,914,245 423,885 1,891,777 ¥14,229,907 ¥ 1,271,646 8.2% 1,226,652 517,014 750,942 10.4% ¥ 1,940,088 (2,001,448) 37,675 668,404 1,005,931 870,636 ¥ 7,121,000 20,152,974 4,137,528 1,592,028 35.3% ¥16,578,033 716,727 ¥17,294,760 ¥13,506,337 364,177 1,757,356 ¥15,627,870 ¥ 1,666,890 9.6% 1,765,793 681,304 1,162,098 15.2% ¥ 2,186,734 (2,216,495) 242,223 682,279 945,803 969,904 ¥ 8,178,567 22,040,228 4,247,266 1,729,776 37.1% Per Share Data: Net Income (Loss) attributable to Toyota Motor Corporation (Basic) Annual Cash Dividends Toyota Motor Corporation Shareholdersʼ Equity Stock Information (March 31): Stock Price Market Capitalization (Yen in millions) Number of Shares Issued (shares) * Excluding vehicles and equipment of operating leases 2003 2004 ¥ 211.32 36 2,063.43 ¥ 2,635 ¥ 9,512,343 3,609,997,492 ¥ 342.90 45 2,456.08 ¥ 3,880 ¥14,006,790 3,609,997,492 Yen in millions 2005 ¥17,790,862 760,664 ¥18,551,526 ¥14,500,282 369,844 2,009,213 ¥16,879,339 ¥ 1,672,187 9.0% 1,754,637 657,910 1,171,260 13.6% ¥ 2,370,940 (3,061,196) 419,384 755,147 1,068,287 997,713 ¥ 9,044,950 24,335,011 5,014,925 1,483,753 37.2% Yen 2005 ¥ 355.35 65 2,767.67 ¥ 3,990 ¥14,403,890 3,609,997,492 2006 2007 ¥20,059,493 977,416 ¥21,036,909 ¥16,335,312 609,632 2,213,623 ¥19,158,567 ¥ 1,878,342 8.9% 2,087,360 795,153 1,372,180 14.0% ¥ 2,515,480 (3,375,500) 876,911 812,648 1,523,459 1,211,178 ¥10,560,449 28,731,595 5,640,490 1,569,387 36.8% ¥22,670,097 1,277,994 ¥23,948,091 ¥18,356,255 872,138 2,481,015 ¥21,709,408 ¥ 2,238,683 9.3% 2,382,516 898,312 1,644,032 14.7% ¥ 3,238,173 (3,814,378) 881,768 890,782 1,425,814 1,382,594 ¥11,836,092 32,574,779 6,263,585 1,900,379 36.3% 2006 2007 ¥ 421.76 90 3,257.63 ¥ 6,430 ¥23,212,284 3,609,997,492 ¥ 512.09 120 3,701.17 ¥ 7,550 ¥27,255,481 3,609,997,492 TOYOTA ANNUAL REPORT 2012Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 46 Next Selected Financial Summary (U.S. GAAP) Toyota Motor Corporation Fiscal years ended March 31 For the Year: Net Revenues: Sales of Products Financing Operations Total Costs and Expenses: Cost of Products Sold Cost of Financing Operations Selling, General and Administrative Total Operating Income (Loss) % of Net Revenues Income (Loss) before Income Taxes and Equity in Earnings of Afﬁliated Companies Provision for Income Taxes Net Income (Loss) attributable to Toyota Motor Corporation ROE Net Cash Provided by Operating Activities Net Cash Used in Investing Activities Net Cash Provided by (Used in) Financing Activities R&D Expenses Capital Expenditures for Property, Plant and Equipment* Depreciation At Year-End: Toyota Motor Corporation Shareholdersʼ Equity Total Assets Long-Term Debt Cash and Cash Equivalents Ratio of Toyota Motor Corporation Shareholdersʼ Equity 2008 2009 ¥24,820,510 1,468,730 ¥26,289,240 ¥20,452,338 1,068,015 2,498,512 ¥24,018,865 ¥ 2,270,375 8.6% 2,437,222 911,495 1,717,879 14.5% ¥ 2,981,624 (3,874,886) 706,189 958,882 1,480,570 1,491,135 ¥11,869,527 32,458,320 5,981,931 1,628,547 36.6% ¥19,173,720 1,355,850 ¥20,529,570 ¥17,468,416 987,384 2,534,781 ¥20,990,581 (461,011) ¥ −2.2% （560,381) （56,442) （436,937) −4.0% ¥ 1,476,905 (1,230,220) 698,841 904,075 1,364,582 1,495,170 ¥10,061,207 29,062,037 6,301,469 2,444,280 34.6% Per Share Data: Net Income (Loss) attributable to Toyota Motor Corporation (Basic) Annual Cash Dividends Toyota Motor Corporation Shareholdersʼ Equity Stock Information (March 31): Stock Price Market Capitalization (Yen in millions) Number of Shares Issued (shares) * Excluding vehicles and equipment of operating leases 2008 2009 ¥ 540.65 140 3,768.97 ¥ 4,970 ¥17,136,548 3,447,997,492 ¥ (139.13) 100 3,208.41 ¥ 3,120 ¥10,757,752 3,447,997,492 Yen in millions 2010 ¥17,724,729 1,226,244 ¥18,950,973 ¥15,971,496 712,301 2,119,660 ¥18,803,457 147,516 ¥ 0.8% 291,468 92,664 209,456 2.1% ¥ 2,558,530 (2,850,184) （277,982) 725,345 604,536 1,414,569 ¥10,359,723 30,349,287 7,015,409 1,865,746 34.1% Yen 2010 ¥ 66.79 45 3,303.49 ¥ 3,745 ¥12,912,751 3,447,997,492 2011 2012 % change 2012 vs. 2011 ¥17,820,520 1,173,168 ¥18,993,688 ¥15,985,783 629,543 1,910,083 ¥18,525,409 468,279 ¥ 2.5% 563,290 312,821 408,183 3.9% ¥ 2,024,009 (2,116,344) 434,327 730,340 629,326 1,175,573 ¥10,332,371 29,818,166 6,449,220 2,080,709 34.7% ¥17,511,916 1,071,737 ¥18,583,653 ¥15,795,918 592,646 1,839,462 ¥18,228,026 355,627 ¥ 1.9% 432,873 262,272 283,559 2.7% ¥ 1,452,435 (1,442,658) (355,347) 779,806 723,537 1,067,830 ¥10,550,261 30,650,965 6,042,277 1,679,200 34.4% -1.7 -8.6 -2.2 -1.2 -5.9 -3.7 -1.6 -24.1 ― -23.2 -16.2 -30.5 ― -28.2 ― ― +6.8 +15.0 -9.2 +2.1 +2.8 -6.3 -19.3 ― 2011 2012 % change 2012 vs. 2011 ¥ 130.17 50 3,295.08 ¥ 3,350 ¥11,550,792 3,447,997,492 ¥ 90.21 50 3,331.51 3,570 ¥ ¥12,309,351 3,447,997,492 -30.7 ― +1.1 +6.6 +6.6 ― TOYOTA ANNUAL REPORT 2012Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Consolidated Segment Information 0820 Search Contents Prev page 47 Next Toyota Motor Corporation Fiscal years ended March 31 Business Segment: Net Revenues: Automotive Financial Services All Other Intersegment Elimination Consolidated Operating Income (Loss): Automotive Financial Services All Other Intersegment Elimination Consolidated Geographic Segment: Net Revenues: Japan North America Europe Asia Other Intersegment Elimination Consolidated Operating Income (Loss): Japan North America Europe Asia Other Intersegment Elimination Consolidated 2007 2008 2009 2010 2011 2012 Yen in millions % change 2012 vs. 2011 ¥21,928,006 1,300,548 1,323,731 (604,194) ¥23,948,091 ¥ 2,038,828 158,495 39,679 1,681 ¥ 2,238,683 ¥14,815,282 9,029,773 3,542,193 2,225,528 1,922,742 (7,587,427) ¥23,948,091 ¥ 1,457,246 449,633 137,383 117,595 83,497 (6,671) ¥ 2,238,683 ¥24,177,306 1,498,354 1,346,955 (733,375) ¥26,289,240 ¥ 2,171,905 86,494 33,080 (21,104) ¥ 2,270,375 ¥15,315,812 9,423,258 3,993,434 3,120,826 2,294,137 (7,858,227) ¥26,289,240 ¥ 1,440,286 305,352 141,571 256,356 143,978 (17,168) ¥ 2,270,375 ¥18,564,723 1,377,548 1,184,947 (597,648) ¥20,529,570 ¥ ¥ (394,876) （71,947) 9,913 (4,101) (461,011) ¥12,186,737 6,222,914 3,013,128 2,719,329 1,882,900 (5,495,438) ¥20,529,570 ¥ ¥ (237,531) (390,192) (143,233) 176,060 87,648 46,237 (461,011) ¥17,197,428 1,245,407 947,615 (439,477) ¥18,950,973 ¥ ¥ (86,370) 246,927 （8,860) (4,181) 147,516 ¥11,220,303 5,670,526 2,147,049 2,655,327 1,673,861 (4,416,093) ¥18,950,973 ¥ ¥ (225,242) 85,490 (32,955) 203,527 115,574 1,122 147,516 ¥17,337,320 1,192,205 972,252 (508,089) ¥18,993,688 ¥ ¥ 85,973 358,280 35,242 (11,216) 468,279 ¥10,986,246 5,429,136 1,981,497 3,374,534 1,809,116 (4,586,841) ¥18,993,688 ¥ ¥ (362,396) 339,503 13,148 312,977 160,129 4,918 468,279 ¥16,994,546 1,100,324 1,048,915 (560,132) ¥18,583,653 ¥ ¥ 21,683 306,438 42,062 (14,556) 355,627 ¥11,167,319 4,751,886 1,993,946 3,334,274 1,760,175 (4,423,947) ¥18,583,653 ¥ (207,040) 186,409 17,796 256,790 108,814 (7,142) 355,627 ¥ -2.0 -7.7 +7.9 ― -2.2 -74.8 -14.5 +19.4 ― -24.1 +1.6 -12.5 +0.6 -1.2 -2.7 ― -2.2 ― -45.1 +35.4 -18.0 -32.0 ― -24.1 TOYOTA ANNUAL REPORT 2012Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 48 Next Consolidated Quarterly Financial Summary Toyota Motor Corporation Fiscal years ended March 31 Net Revenues % Change Operating Income (Loss) % Change Operating Income Margin Income (Loss) before Income Taxes and Equity in Earnings of Afﬁliated Companies % Change Net Income (Loss) attributable to Toyota Motor Corporation % Change Business Segment: Net Revenues: Automotive Financial Services All Other Intersegment Elimination Consolidated Operating Income (Loss): Automotive Financial Services All Other Intersegment Elimination Consolidated Geographic Segment: Net Revenues: Japan North America Europe Asia Other Intersegment Elimination Consolidated Operating Income (Loss): Japan North America Europe Asia Other Intersegment Elimination Consolidated First Quarter ¥ 4,871.8 27.0% 211.6 ― % 4.3% 2011 Second Quarter ¥ 4,806.7 5.8% 111.5 92.2% 2.3% Third Quarter ¥ 4,673.1 -11.7% 99.0 -47.6% 2.1% Yen in billions Fourth Quarter ¥ 4,642.0 -12.1% 46.1 -51.6% 1.0% First Quarter ¥3,441.0 -29.4% (108.0) ― % -3.1% 2012 Second Quarter ¥ 4,574.9 -4.8% 75.4 -32.4% 1.6% Third Quarter ¥ 4,865.2 4.1% 149.6 51.1% 3.1% Fourth Quarter ¥ 5,702.5 22.8% 238.5 417.5% 4.2% 263.0 ― % 190.4 ― % ¥ 4,467.8 307.6 212.9 (116.5) ¥ 4,871.8 ¥ 96.7 115.1 4.0 (4.2) ¥ 211.6 ¥ 2,806.6 1,483.6 459.8 834.9 453.7 (1,166.8) ¥ 4,871.8 ¥ (27.5) 109.7 (6.8) 90.2 41.0 5.0 ¥ 211.6 129.1 70.9% 98.7 352.0% ¥ 4,395.8 296.3 233.5 (118.9) ¥ 4,806.7 ¥ 33.0 68.6 10.7 (0.8) ¥ 111.5 ¥ 2,919.6 1,337.6 465.3 794.2 408.0 (1,118.0) ¥ 4,806.7 ¥ (24.5) 36.1 (2.1) 74.0 31.9 (3.9) ¥ 111.5 129.6 -42.3% 93.6 -38.9% ¥ 4,255.1 297.5 238.0 (117.5) ¥ 4,673.1 ¥ ¥ (27.5) 116.4 13.4 (3.3) 99.0 ¥ 2,686.1 1,333.3 524.2 835.1 489.7 (1,195.3) ¥ 4,673.1 ¥ (122.4) 105.2 2.2 68.6 44.3 1.1 99.0 ¥ 41.5 -67.9% 25.4 -77.4% ¥ 4,218.5 290.8 287.8 (155.1) ¥ 4,642.0 ¥ ¥ (16.2) 58.1 7.1 (2.9) 46.1 ¥ 2,573.9 1,274.5 532.1 910.5 457.7 (1,106.7) ¥ 4,642.0 ¥ (188.0) 88.4 19.8 80.2 42.9 2.8 46.1 ¥ (80.5) ― % 1.1 -99.4% ¥3,060.8 285.8 190.5 (96.1) ¥3,441.0 ¥ (202.5) 94.6 (2.0) 1.9 ¥ (108.0) ¥1,784.5 853.5 459.9 700.0 368.8 (725.7) ¥3,441.0 ¥ (206.6) 28.9 (7.5) 60.1 21.0 (3.9) ¥ (108.0) 79.1 -38.7% 80.4 -18.5% ¥ 4,183.1 271.0 255.2 (134.4) ¥ 4,574.9 ¥ ¥ (7.5) 76.4 9.9 (3.4) 75.4 ¥ 2,869.0 1,085.7 499.2 827.3 455.3 (1,161.6) ¥ 4,574.9 ¥ ¥ (69.3) 32.5 5.6 70.4 37.1 (0.9) 75.4 198.6 53.2% 80.9 -13.5% ¥ 4,471.4 271.5 272.2 (149.9) ¥ 4,865.2 ¥ 57.1 83.5 15.3 (6.3) ¥ 149.6 ¥ 3,024.2 1,379.5 527.0 704.2 460.2 (1,229.9) ¥ 4,865.2 ¥ (30.5) 90.3 10.4 40.5 37.9 1.0 ¥ 149.6 235.6 467.2% 121.0 376.5% ¥ 5,279.0 272.0 331.0 (179.6) ¥ 5,702.5 ¥ 175.4 51.9 18.8 (6.7) ¥ 238.5 ¥ 3,489.6 1,432.9 507.8 1,102.9 475.9 (1,306.7) ¥ 5,702.5 ¥ 99.4 34.5 9.2 85.7 12.8 (3.3) ¥ 238.5 TOYOTA ANNUAL REPORT 2012Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 49 Next Management's Discussion and Analysis of Financial Condition and Results of Operations All ﬁnancial information discussed in this section is derived from Toyotaʼs consolidated ﬁnancial statements that appear elsewhere in this annual report. The ﬁnancial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Overview ﬁnancial include The business segments of Toyota automotive services operations, operations and all other operations. Automotive operations are Toyotaʼs most signiﬁcant business segment, accounting for 89% of Toyotaʼs total revenues before the elimination of intersegment revenues for ﬁscal 2012. Toyotaʼs primary markets based on vehicle unit sales for ﬁscal 2012 were: Japan (28%), North America (25%), Europe (11%) and Asia (18%). Japanʼs economy suffered from the effects of the Great East Japan Earthquake and its aftermath (collectively, the “Great East Japan Earthquake”). As a result, in Japan and other regions, Toyota experienced negative impacts on its production in the ﬁrst half of ﬁscal year 2012. See “Information on the Company — Business Overview —” for more detailed information of the Great East Japan Earthquake in Toyotaʼs annual report on Form 20-F. ■ Automotive Market Environment The worldwide automotive market is highly competitive and volatile. The demand for automobiles is affected by a number of factors including social, political and general economic conditions; introduction of new vehicles and technologies; and costs incurred by customers to purchase or operate vehicles. These factors can cause consumer demand to vary substantially in different geographic markets and for different types of automobiles. During ﬁscal 2012, automotive markets developed steadily in the U.S. and emerging countries such as Asia. However, many Japanese manufacturers, including Toyota, were forced to adjust or stop productions due to shortages of parts supplies caused by the Great East Japan Earthquake and by the ﬂood in Thailand that occurred in October 2011. Toyota and its group companies together exerted every effort to normalize production, and Toyota was able to achieve full normalization of production and begin its recovery from the disaster sooner than initially anticipated. The following table sets forth Toyotaʼs consolidated vehicle unit sales by geographic market based on location of customers for the past three ﬁscal years. Japan North America Europe Asia Other* Overseas total Total Thousands of units Year Ended March 31, 2011 1,913 2,031 796 1,255 1,313 5,395 7,308 2010 2,163 2,098 858 979 1,139 5,074 7,237 2012 2,071 1,872 798 1,327 1,284 5,281 7,352 * “Other” consists of Central and South America, Oceania, Africa and the Middle East, etc. Consolidated Vehicle Sales (Thousands of units) 10,000 8,000 6,000 4,000 2,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 During ﬁscal 2011, Toyotaʼs consolidated vehicle unit sales in Japan decreased as compared with the prior ﬁscal year because market conditions in Japan deteriorated as compared with the prior ﬁscal year. During ﬁscal 2012, Toyotaʼs consolidated vehicle unit sales in Japan increased as compared with the prior ﬁscal year reﬂecting frequent introduction of new products and sales efforts of domestic dealers. Toyota and Lexus brandsʼ market share in Japan excluding mini-vehicles was 45.5%, and Toyotaʼs market share (including Daihatsu and Hino brands) in Japan including mini-vehicles was 43.2%, both maintaining the high level of market share in Japan from the prior ﬁscal year. Overseas consolidated vehicle unit sales increased during ﬁscal 2011, whereas they decreased during ﬁscal 2012. During ﬁscal 2011, total overseas vehicle unit sales increased in Asia and Other. During ﬁscal 2012, total overseas vehicle unit sales decreased, particularly in North America due to impact of the Great East Japan Earthquake and the ﬂood in Thailand, although an increase in Asia resulted from steady demand in spite of the ﬂood in Thailand. Toyotaʼs share of total vehicle unit sales in each market is inﬂuenced by the quality, safety, reliability, price, design, performance, economy and utility of Toyotaʼs vehicles compared with TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 50 Next Management's Discussion and Analysis of Financial Condition and Results of Operations those offered by other manufacturers. The timely introduction of new or redesigned vehicles is also an important factor in satisfying customer needs. Toyotaʼs ability to satisfy changing customer preferences can affect its revenues and earnings signiﬁcantly. The proﬁtability of Toyotaʼs automotive operations is affected by many factors. These factors include: • vehicle unit sales volumes, • the mix of vehicle models and options sold, • the level of parts and service sales, • the levels of price discounts and other sales incentives and marketing costs, • the cost of customer warranty claims and other customer satisfaction actions, • the cost of research and development and other ﬁxed costs, • the prices of raw materials, • the ability to control costs, • the efﬁcient use of production capacity, • the adverse effect on production due to the reliance on various suppliers for the provision of supplies, • the adverse effect on market, sales and productions of natural calamities and interruptions of social infrastructure, and • changes in the value of the Japanese yen in which Toyota and other currencies conducts business. Changes in laws, regulations, policies and other governmental actions can also materially impact the proﬁtability of Toyotaʼs automotive operations. These laws, regulations and policies include those attributed to environmental matters, vehicle safety, fuel economy and emissions that can add signiﬁcantly to the cost of vehicles. The European Union has enforced a directive that requires manufacturers to be ﬁnancially responsible for taking back end-of-life vehicles and to take measures to ensure that adequate used vehicle disposal facilities are established and those hazardous materials and recyclable parts are removed from vehicles prior to scrapping. See “Legislation Regarding End-of-Life Vehicles”, “Information on the Company — Business Overview — Governmental Regulation, Environmental and Safety Standards” in Toyotaʼs annual report on Form 20-F and note 23 to the consolidated ﬁnancial statements for a more detailed discussion of these laws, regulations and policies. Many governments also regulate local content, impose tariffs and other trade barriers, and enact price or exchange controls that can limit an automakerʼs operations and can make the repatriation of proﬁts unpredictable. Changes in these laws, regulations, policies and other governmental actions may affect the production, licensing, distribution or sale of Toyotaʼs products, cost of products or applicable tax rates. In February 2003, Toyota was named as one of the defendants in purported national class actions alleging violations of the U.S. Sherman Antitrust Act. Toyota believes that its actions have been lawful. In order to avoid a protracted dispute, however, Toyota entered into a settlement agreement with the plaintiffs at the end of February 2006. The federal court approved the settlement agreement, and all related actions were dismissed. From time-to- time when potential safety problems arise, Toyota issues vehicle recalls and takes other safety measures including safety campaigns with respect to its vehicles. In November 2009, Toyota announced a safety campaign in North America for certain models of Toyota and Lexus brandsʼ vehicles related to ﬂoor mat entrapment of accelerator pedals, and later expanded it to include additional models. In January 2010, Toyota announced a recall in North America for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals. Also in January 2010, Toyota recalled in Europe and China certain models of Toyota vehicles related to sticking accelerator pedals. In February 2010, Toyota announced a recall in markets including Japan, North America and Europe related to the braking control system in certain vehicle models including the Prius. The recalls and other safety measures described above have led to a number of claims, lawsuits and government investigations against Toyota in the United States. For a more detailed description of these claims, lawsuits and government investigations, see note 23 to the consolidated ﬁnancial statements. The worldwide automotive industry is in a period of global competition which may continue in general for the foreseeable future, and the competitive environment in which Toyota operates is likely to intensify. Toyota believes it has the resources, strategies and technologies in place to compete effectively in the industry as an independent company for the foreseeable future. ■ Financial Services Operations The competition of worldwide automobile ﬁnancial services industry is intensifying despite the recovery trend in the automotive markets. As competition increases, margins on ﬁnancing transactions may decrease and market share may also decline as customers obtain ﬁnancing for Toyota vehicles from alternative sources. Toyotaʼs ﬁnancial services operations mainly include loans and leasing programs for customers and dealers. Toyota believes that its ability to provide ﬁnancing to its customers is an important value added service. Therefore, Toyota has expanded its network of ﬁnance subsidiaries in order to offer ﬁnancial services in many countries. Toyotaʼs competitors for retail ﬁnancing and retail leasing include commercial banks, credit unions and other ﬁnance companies. Meanwhile, commercial banks and other captive automobile ﬁnance companies also compete against Toyotaʼs wholesale ﬁnancing activities. Although Toyotaʼs total ﬁnance receivables, net was affected by the unfavorable impact of ﬂuctuations in foreign currency translation rates, the total ﬁnance receivables, net increased during ﬁscal 2012 mainly due to an decrease in allowance for credit losses. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 51 Next Total Assets by Financial Services Operations (¥ Billion) 16,000 12,000 8,000 4,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 The following table provides information regarding Toyotaʼs ﬁnance receivables and operating leases in the past two ﬁscal years. Finance Receivables Retail Finance leases Wholesale and other dealer loans Deferred origination costs Unearned income Allowance for credit losses Retail Finance leases Wholesale and other dealer loans Total ﬁnance receivables, net Less – Current portion Noncurrent ﬁnance receivables, net Operating Leases Vehicles Equipment Less – Accumulated depreciation Less – Allowance for credit losses Vehicles and equipment on operating leases, net Yen in millions March 31, 2011 2012 ¥ 7,128,453 1,123,188 1,990,557 10,242,198 104,391 (496,235) (92,199) (36,024) (28,580) (156,803) 9,693,551 (4,136,805) ¥ 5,556,746 ¥ 2,404,032 87,914 2,491,946 (651,443) (10,812) ¥ 1,829,691 ¥ 7,248,793 955,430 2,033,954 10,238,177 105,533 (494,123) (77,353) (30,637) (24,238) (132,228) 9,717,359 (4,114,897) ¥ 5,602,462 ¥ 2,487,721 87,632 2,575,353 (667,406) (8,135) ¥ 1,899,812 Toyotaʼs ﬁnance receivables are subject to collectability risks. These risks include consumer and dealer insolvencies and insufﬁcient collateral values (less costs to sell) to realize the full carrying values of these receivables. See discussion in “Critical Accounting Estimates — Allowance for Doubtful Accounts and Credit Losses” and note 11 to the consolidated ﬁnancial statements. Toyota continues to originate leases to ﬁnance new Toyota vehicles. These leasing activities are subject to residual value risk. Residual value losses could be incurred when the lessee of a vehicle does not exercise the option to purchase the vehicle at the end of the lease term. See discussion in “Critical Accounting Estimates — Investment in Operating Leases” and note 2 to the consolidated ﬁnancial statements. into Toyota enters interest rate swap agreements and cross currency interest rate swap agreements to convert its ﬁxed-rate debt to variable-rate functional currency debt. A portion of the derivative instruments are entered into to hedge interest rate risk from an economic perspective and are not designated as a hedge of speciﬁc assets or liabilities on Toyotaʼs consolidated balance sheet and accordingly, unrealized gains or losses related to derivatives that are not designated as a hedge are recognized currently in operations. See discussion in “Critical Accounting Estimates — Derivatives and Other Contracts at Fair Value” and “Quantitative and Qualitative Disclosures about Market Risk” and note 20 to the consolidated ﬁnancial statements. The ﬂuctuations in funding costs can affect the proﬁtability of Toyotaʼs ﬁnancial services operations. Funding costs are affected by a number of factors, some of which are not in Toyotaʼs control. These factors include general economic conditions, prevailing interest rates and Toyotaʼs ﬁnancial strength. Funding costs decreased during ﬁscal 2011 and 2012, mainly as a result of lower interest rates. Toyota launched its credit card business in Japan in April 2001. As of March 31, 2011, Toyota had 8.9 million cardholders, an increase of 1.2 million cardholders compared with March 31, 2010. As of March 31, 2012, Toyota had 10.9 million cardholders, an increase of 2.0 million cardholders compared with March 31, 2011. The credit card receivables at March 31, 2011 increased by ¥8.1 billion from March 31, 2010 to ¥263.5 billion. The credit card receivables at March 31, 2012 increased by ¥44.0 billion from March 31, 2011 to ¥307.5 billion. ■ Other Business Operations Toyotaʼs other business operations consist of housing including the manufacture and sale of information technology prefabricated homes, information including businesses related technology and telecommunications, intelligent transport systems and GAZOO, and other businesses. Toyota does not expect its other business operations to materially contribute to Toyotaʼs consolidated results of operations. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 52 Next ■ Currency Fluctuations Toyota is affected by ﬂuctuations in foreign currency exchange rates. In addition to the Japanese yen, Toyota is exposed to ﬂuctuations in the value of the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Canadian dollar, the British pound, and others. Toyotaʼs consolidated ﬁnancial statements, which are presented in Japanese yen, are affected by foreign currency exchange ﬂuctuations through both translation risk and transaction risk. Translation risk is the risk that Toyotaʼs consolidated ﬁnancial statements for a particular period or for a particular date will be affected by changes in the prevailing exchange rates of the currencies in those countries in which Toyota does business compared with the Japanese yen. Even though the ﬂuctuations of currency exchange rates to the Japanese yen can be substantial, and, therefore, signiﬁcantly impact comparisons with prior periods and among the various geographic markets, the translation risk is a reporting consideration and does not reﬂect Toyotaʼs underlying results of operations. Toyota does not hedge against translation risk. Transaction risk is the risk that the currency structure of Toyotaʼs costs and liabilities will deviate from the currency structure of sales proceeds and assets. Transaction risk relates from Toyotaʼs primarily to sales proceeds non-domestic operations from vehicles produced in Japan. Toyota believes that the location of its production facilities in different parts of the world has signiﬁcantly reduced the level of transaction its globalization strategy, risk. As part of Toyota has continued to localize production by constructing production facilities in the major markets in which it sells its vehicles. In calendar 2010 and 2011, Toyota produced 73.4% and 71.3% of its non-domestic sales outside Japan, In North America, 72.6% and respectively. 66.8% of vehicles sold in calendar 2010 and 2011 respectively were produced locally. In Europe, 59.0% and 57.7% of vehicles sold in calendar 2010 and 2011 respectively were produced locally. Localizing production enables Toyota to locally purchase many of the supplies and resources used in the production process, which allows for a better match of local currency revenues with local currency expenses. Toyota also enters into foreign currency transactions and other hedging instruments to address a portion of its transaction risk. This has reduced, but not eliminated, the effects of foreign currency exchange rate ﬂuctuations, which in some years can be signiﬁcant. See notes 20 and 21 to the consolidated ﬁnancial statements for additional information. Generally, a weakening of the Japanese yen against other currencies has a positive effect on Toyotaʼs revenues, operating income and net income attributable to Toyota Motor Corporation. A strengthening of the Japanese yen against other currencies has the opposite effect. In ﬁscal 2011 and 2012, the Japanese yen was on average and at the end of each ﬁscal year stronger against the U.S. dollar and the euro in comparison to the prior ﬁscal year. See further discussion in “Quantitative and Qualitative Disclosures about Market Risk — Market Risk Disclosures — Foreign Currency Exchange Rate Risk”. During ﬁscal 2011 and 2012, the average exchange rate of the Japanese yen strengthened against the major currencies including the U.S. dollar and the euro compared with the average exchange rate of the prior ﬁscal year. The operating results excluding the impact of currency ﬂuctuations described in “Results of Operations — Fiscal 2012 Compared with Fiscal 2011” and “Results of Operations — Fiscal 2011 Compared with Fiscal 2010” show results of net revenues obtained by applying the Japanese yenʼs average exchange rate in the previous ﬁscal year to the local currency-denominated net revenues for ﬁscal 2011 and 2012, respectively, as if the value of the Japanese yen had remained constant for the comparable periods. Results excluding the impact of currency ﬂuctuations year-on-year are not on the same basis as Toyotaʼs consolidated ﬁnancial statements and do not conform with U.S. GAAP. Furthermore, Toyota does not believe that these measures are a substitute for U.S. GAAP measures. However, Toyota believes that such results excluding the impact of currency ﬂuctuations year-on-year provide additional useful information to investors regarding the operating performance on a local currency basis. ■ Segmentation Toyotaʼs most signiﬁcant business segment is its automotive operations. Toyota carries out its automotive operations as a global competitor in the worldwide automotive market. Management allocates resources the performance of, its automotive operations as a single business segment on a worldwide basis. Toyota does not manage any subset of its automotive operations, such as domestic or overseas operations or parts, as separate management units. to, and assesses functions within The management of the automotive operations is aligned on a functional basis with managers having oversight responsibility for the major the segment. operating Management assesses ﬁnancial and non-ﬁnancial data such as vehicle unit sales, production volume, market share information, vehicle model plans and plant location costs to allocate resources within the automotive operations. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations Geographic Breakdown Results of Operations ̶ Fiscal 2012 Compared with Fiscal 2011 0820 Search Contents Prev page 53 Next The following table sets forth Toyotaʼs net revenues in each geographic market based on the country location of the parent company or the subsidiaries that transacted the sale with the external customer for the past three ﬁscal years. Revenues by Market FY2012 Yen in millions Year ended March 31, 2010 ¥7,314,813 5,583,228 2,082,671 2,431,648 1,538,613 2011 ¥6,966,929 5,327,809 1,920,416 3,138,112 1,640,422 2012 ¥7,293,804 4,644,348 1,917,408 3,116,849 1,611,244 Japan North America Europe Asia Other* * “Other” consists of Central and South America, Oceania and Africa. Japan North America Europe Asia All Other Markets 39.2% 25.0% 10.3% 16.8% 8.7% Net revenues: Japan North America Europe Asia Other* Intersegment elimination/ unallocated amount Total Operating income (loss): Japan North America Europe Asia Other* Intersegment elimination/ unallocated amount Total Operating margin Income before income taxes and equity in earnings of afﬁliated companies Net margin from income before income taxes and equity in earnings of afﬁliated companies Equity in earnings of afﬁliated companies Net income attributable to Toyota Motor Corporation Net margin attributable to Toyota Motor Corporation Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥ 10,986,246 5,429,136 1,981,497 3,374,534 1,809,116 ¥ 11,167,319 4,751,886 1,993,946 3,334,274 1,760,175 ¥ 181,073 (677,250) 12,449 (40,260) (48,941) (4,586,841) ¥ 18,993,688 (4,423,947) ¥ 18,583,653 162,894 ¥(410,035) ¥ ¥ (362,396) 339,503 13,148 312,977 160,129 4,918 468,279 2.5% ¥ ¥ (207,040) 186,409 17,796 256,790 108,814 (7,142) 355,627 1.9% ¥ 155,356 (153,094) 4,648 (56,187) (51,315) (12,060) ¥(112,652) -0.6% +1.6% -12.5% +0.6% -1.2% -2.7% — -2.2% — -45.1% +35.4% -18.0% -32.0% — -24.1% 563,290 432,873 (130,417) -23.2% 3.0% 2.3% -0.7% 215,016 197,701 (17,315) -8.1% 408,183 283,559 (124,624) -30.5% 2.1% 1.5% -0.6% * “Other” consists of Central and South America, Oceania and Africa. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 54 Next Management's Discussion and Analysis of Financial Condition and Results of Operations ■ Net Revenues Toyota had net revenues for ﬁscal 2012 of ¥18,583.6 billion, a decrease of ¥410.0 billion, or 2.2%, compared with the prior ﬁscal year. This decrease reﬂects unfavorable impact of ﬂuctuations in foreign currency translation rates and others of ¥717.7 billion, partially offset by changes in numbers of the vehicle unit sales and sales mix of approximately ¥320.0 billion and other factors. Excluding the difference in the Japanese yen value used for translation purposes of ¥717.7 billion, net revenues would have been approximately ¥19,301.3 billion during ﬁscal 2012, a 1.6% increase compared with the prior ﬁscal year. The automotive market in ﬁscal 2012 increased by 9.7% in North America and 3.9% in Asia compared with the prior ﬁscal year due to that market in the U.S. and emerging countries Net Revenues (¥ Billion) 25,000 20,000 15,000 10,000 5,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 such as Asia have developed in a steady manner. Under these automotive market conditions, despite the Great East Japan Earthquake and the ﬂood in Thailand, Toyotaʼs consolidated vehicle unit sales increased to 7,352 thousand vehicles by 0.6% compared with the prior ﬁscal year. The table below shows Toyotaʼs net revenues from external customers by product category and by business. Vehicles Parts and components for overseas production Parts and components for after service Other Total Automotive All Other Total sales of products Financial services Total Year ended March 31, 2012 vs. 2011 Change Yen in millions 2011 ¥ 14,507,479 335,366 1,553,497 926,411 17,322,753 497,767 17,820,520 1,173,168 ¥ 18,993,688 2012 ¥ 14,164,940 338,000 1,532,219 929,219 16,964,378 547,538 17,511,916 1,071,737 ¥ 18,583,653 Amount ¥(342,539) 2,634 (21,278) 2,808 (358,375) 49,771 (308,604) (101,431) ¥(410,035) Percentage -2.4% +0.8% -1.4% +0.3% -2.1% +10.0% -1.7% -8.6% -2.2% Toyotaʼs net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, which decreased by 1.7% during ﬁscal 2012 compared with the prior ﬁscal year to ¥17,511.9 billion, and net revenues from ﬁnancial services operations which decreased by 8.6% during ﬁscal 2012 compared with the prior ﬁscal year to ¥1,071.7 billion. Excluding the difference in the Japanese yen value used for translation purposes of ¥650.8 billion, net revenues from sales of products would have been ¥18,162.7 billion, a 1.9% increase during ﬁscal 2012 compared with the prior ﬁscal year. The increase in net revenues from sales of products is due to an increase in Toyota vehicle unit sales by 44 thousand vehicles. Excluding the difference in the Japanese yen value used for translation purposes of ¥66.9 billion, net revenues from ﬁnancial services operations would have been approximately ¥1,138.6 billion, a 2.9% decrease during ﬁscal 2012 compared with the prior ﬁscal year. This decrease was mainly due to the decrease of ¥18.3 billion rental revenue generated by vehicles and equipment on operating lease. The following table shows the number of ﬁnancing contracts by geographic region at the end of the ﬁscal 2012 and 2011, respectively. Japan North America Europe Asia Other* Total Number of ﬁnancing contracts in thousands Year ended March 31, 2012 vs. 2011 Change 2011 1,709 4,654 790 522 527 8,202 2012 1,697 4,535 796 649 552 8,229 Amount (12) (119) 6 127 25 27 Percentage -0.7% -2.6% +0.7% +24.3% +4.9% +0.3% * “Other” consists of Central and South America, Oceania and Africa. Geographically, net revenues (before the elimination of intersegment revenues) for ﬁscal 2012 decreased by 12.5% in North America, 1.2% in Asia, and 2.7% in Other, whereas net revenues increased by 1.6% in Japan and 0.6% in Europe compared with the prior ﬁscal year. Excluding the difference in the Japanese yen value used for translation purposes of ¥717.7 billion, net revenues in ﬁscal 2012 would have decreased by 5.1% in North America, and would have increased by 1.6% in Japan, 5.3% in Europe, 3.8% in Asia and 1.7% in Other compared with the prior ﬁscal year. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 55 Next The following is a discussion of net revenues in each geographic market (before the elimination of intersegment revenues). Japan Toyotaʼs consolidated vehicle unit sales* * including number of exported vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2012 vs. 2011 Change 2011 3,611 2012 3,741 Amount 130 Percentage +3.6% Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥ 10,864,329 121,917 ¥ 10,986,246 ¥ 11,040,964 126,355 ¥ 11,167,319 ¥176,635 4,438 ¥181,073 +1.6% +3.6% +1.6% Although Toyotaʼs domestic and exported vehicle unit sales decreased due to the impact of the Great East Japan Earthquake in the ﬁrst half of ﬁscal 2012, Toyotaʼs domestic and exported vehicle unit sales over the ﬁscal year increased North America by 130 thousand vehicles compared with the prior ﬁscal year. The increase in vehicle unit sales resulted primarily from introduction of new products such as Prius α and Aqua. Net revenues: Sales of products Financial services Total Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2012 vs. 2011 Change 2011 2,031 2012 1,872 Amount (159) Percentage -7.8% Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥4,603,192 825,944 ¥5,429,136 ¥ 4,048,532 703,354 ¥ 4,751,886 ¥(554,660) (122,590) ¥(677,250) -12.0% -14.8% -12.5% In North America, the vehicle unit sales decreased by 159 thousand vehicles compared with the prior ﬁscal year due to decreased production as a result of shortages of parts supplies caused by the Great East Japan Earthquake and the ﬂood in Thailand, consisting of a 67 thousand vehicles, or 30.7%, decrease in RAV4 sales, a 26 thousand vehicles, or 22.4%, decrease in Tundra sales, and a 21 thousand vehicles, or 7.3%, decrease in Corolla sales. Net revenues in North America decreased compared with the prior ﬁscal year due to the decrease in vehicle unit sales and the unfavorable impact of ﬂuctuations in foreign currency translation rates of ¥398.9 billion. Europe Toyotaʼs consolidated vehicle unit sales Thousands of units Year ended March 31, 2012 vs. 2011 Change 2011 796 2012 798 Amount 2 Percentage +0.3% Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥1,910,336 71,161 ¥1,981,497 ¥ 1,925,670 68,276 ¥ 1,993,946 ¥15,334 (2,885) ¥12,449 +0.8% -4.1% +0.6% Net revenues in Europe as a whole increased due primarily to the 2 thousand vehicles increase in vehicle unit sales compared with the prior ﬁscal year, such as a 49 thousand vehicles increase in Russia, where the economy has been strong, although sales of Toyota brandsʼ vehicles decreased in some European countries compared with the prior ﬁscal year, such as a 18 thousand vehicles decrease in Italy and a 7 thousand vehicles decrease in Portugal, both of which mainly due to the European credit crisis. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 56 Next Management's Discussion and Analysis of Financial Condition and Results of Operations Asia ■ Operating Costs and Expenses Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2012 vs. 2011 Change 2011 1,255 2012 1,327 Amount 72 Percentage +5.7% Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥3,325,466 49,068 ¥3,374,534 ¥ 3,275,871 58,403 ¥ 3,334,274 ¥(49,595) 9,335 ¥(40,260) -1.5% +19.0% -1.2% Despite the ﬂood in Thailand, Toyotaʼs vehicle unit sales in Asia increased by 72 thousand vehicles compared with the prior ﬁscal year due to steady growth in automotive markets. Although Toyotaʼs vehicle unit sales in Asia increased, net revenues in Asia decreased compared with the prior ﬁscal year mainly due to the unfavorable impact of ﬂuctuations in foreign currency translation rates of ¥168.8 billion and others. Other Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2012 vs. 2011 Change 2011 1,313 2012 1,284 Amount (29) Percentage -2.2% Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥1,694,680 114,436 ¥1,809,116 ¥ 1,636,043 124,132 ¥ 1,760,175 ¥(58,637) 9,696 ¥(48,941) -3.5% +8.5% -2.7% in Other decreased due to Net revenues decreases in Toyotaʼs vehicle unit sales primarily as a result of shortages of parts supplies caused by the Great East Japan Earthquake and the ﬂood in Thailand. Toyotaʼs vehicle unit sales decreased by 25 thousand vehicles in Oceania, and by 19 thousand vehicles in the Middle East, respectively, compared with the prior ﬁscal year. Operating costs and expenses Cost of products sold Cost of ﬁnancing operations Selling, general and administrative Total Yen in millions Year ended March 31, 2012 vs. 2011 Change 2011 2012 Amount Percentage ¥ 15,985,783 629,543 1,910,083 ¥ 18,525,409 ¥ 15,795,918 592,646 1,839,462 ¥ 18,228,026 ¥(189,865) (36,897) (70,621) ¥(297,383) -1.2% -5.9% -3.7% -1.6% Changes in operating costs and expenses: Effect of changes in vehicle unit sales and sales mix and other operational factors Effect of ﬂuctuation in foreign currency translation rates and others Effect of cost reduction efforts Effect of increase in miscellaneous costs and others Total Yen in millions 2012 vs. 2011 Change ¥ 150,000 (432,300) (150,000) 134,917 ¥(297,383) Operating costs and expenses decreased by ¥297.3 billion, or 1.6%, to ¥18,228.0 billion during ﬁscal 2012 compared with the prior ﬁscal year. This decrease resulted from the ¥432.3 billion favorable in foreign impact of ﬂuctuations currency translation rates and others, and the ¥150.0 billion impact of cost reduction efforts, partially offset by the ¥150.0 billion impact of changes in vehicle unit sales and sales mix and other operational factors and the ¥134.9 billion increase in miscellaneous costs and others. The increase in miscellaneous costs and others was due mainly to a ¥100.0 billion increase in labor costs, a ¥50.0 billion increase in research and development expenses and the ¥104.9 billion increase in other various costs, partially offset by the ¥120.0 billion impact of decrease in product quality related expenses and others. This cost decreased because costs related to recalls and other safety measures occurred at a high level during the prior ﬁscal year. See note 14 to the consolidated ﬁnancial statements. During ﬁscal 2012, Toyota announced recalls and other safety measures including the following: In June 2011, Toyota announced in Japan and other regions a voluntary safety recall of certain models of Toyota and Lexus brandsʼ vehicles in relation to damage to elements of the substrate and potential shutdown of the hybrid system that may have resulted from improper manufacturing of electronic converter control substrate. The affected vehicle models included Harrier Hybrid, Kluger Hybrid, RX400h, and Highlander Hybrid, 111 thousand vehicles were included in this recall. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 57 Next Management's Discussion and Analysis of Financial Condition and Results of Operations In September 2011, Toyota announced in Japan the service campaign of certain models of Toyota in relation to abnormal noise and oil leakage that may have resulted from slack of bolts in the sub transmission and the rear wheel differential. The affected vehicle models included EstimaL, EstimaT and Wish, 181 thousand vehicles were included in this service campaign. In November 2011, Toyota announced in Japan and other regions the voluntary safety recall of certain models of Toyota and Lexus brandsʼ vehicles in relation to abnormal noise, charge warning light indicators, and increasing of handle operation force resulted from peeling of a bonded part of the engine crankshaft pulley. The affected included AlphardG, AlphardV, vehicle models EstimaL, EstimaT, KlugerV, KlugerL, Kluger Hybrid, Harrier, Harrier Hybrid, Windom, RX300, RX330, RX400h, ES300, ES330, Solara, Camry, Avalon, Sienna, Highlander, and Highlander Hybrid, 549 thousand vehicles were included in this recall. Cost Reduction Efforts During ﬁscal 2012, Toyotaʼs continued cost reduction efforts reduced operating costs and expenses by ¥150.0 billion. The amount of effect of cost reduction efforts includes the impact of ﬂuctuation in the price of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts. In ﬁscal 2012, raw materials prices were on an increasing trend; however, continued cost reduction efforts together with suppliers contributed to the improvement in earnings by more than offsetting the effects from raw materials price increase. These cost reduction efforts related to ongoing value engineering and value analysis activities, the use of common parts resulting in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production. Cost of Products Sold Cost of products sold decreased by ¥189.8 billion, or 1.2%, to ¥15,795.9 billion during ﬁscal 2012 compared with the prior ﬁscal year. The decrease resulted from the ¥343.6 billion favorable impact of ﬂuctuations in foreign currency translation rates and others, and the ¥150.0 billion impact of cost reduction efforts, partially offset by the ¥135.0 billion impact of changes in vehicle unit sales and sales mix and other operational factors, and ¥110.0 billion increase in miscellaneous costs and others. The increase in miscellaneous costs was due mainly to the ¥50.0 billion increase in research and development expenses and the ¥80.0 billion increase in labor costs. Cost of Products Sold (¥ Billion) 20,000 16,000 12,000 8,000 4,000 0 FY % of net revenues (Right scale) (%) 100 80 60 40 20 0 ‘08 ‘09 ‘10 ‘11 ‘12 Cost of Financing Operations ■ Operating Income Cost of ﬁnancing operations decreased by ¥36.8 billion, or 5.9%, to ¥592.6 billion during ﬁscal 2012 compared with the prior ﬁscal year. The decrease resulted from the ¥35.7 billion favorable impact of ﬂuctuations in foreign currency translation rates and others, partially offset by the ¥20.8 billion recording of valuation losses on interest rate swaps stated at fair value. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by ¥70.6 billion, or 3.7%, to ¥1,839.4 billion during ﬁscal 2012 compared with the prior ﬁscal year. This decrease reﬂects the ¥53.0 billion favorable impact of ﬂuctuations in foreign currency translation rates and others, and the ¥19.2 billion decrease for the ﬁnancial services operations. R&D Expenses (¥ Billion) 1,000 % of net revenues (Right scale) (%) 12 750 500 250 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 9 6 3 0 Yen in millions 2012 vs. 2011 Change Changes in operating income and loss: Effect of changes in vehicle unit sales and sales mix and other operational factors ¥ 170,000 Effect of ﬂuctuation in foreign currency translation rates and others Effect of increase in miscellaneous costs and others Effect of cost reduction efforts, ﬁnancial services operations, and others Total (285,400) (100,000) 102,748 ¥(112,652) Toyotaʼs operating income decreased by ¥112.6 billion, or 24.1%, to ¥355.6 billion during ﬁscal 2012 compared with the prior ﬁscal year. This decrease was due mainly to the ¥285.4 billion unfavorable impact of ﬂuctuations in foreign currency translation rates and others, and the ¥100.0 billion increase in miscellaneous costs and others, partially offset by the ¥170.0 billion of favorable impact by changes in vehicle unit sales and sales mix and other operational factors and the ¥102.7 billion increase of cost reduction efforts, ﬁnancial services operations, and others. The unfavorable impact of ﬂuctuations in foreign currency translation rates and others included ¥250.0 billion unfavorable impact of ﬂuctuations in foreign currency transaction rates. The ¥102.7 billion increase of cost reduction efforts, ﬁnancial services operations, and others reﬂects the ¥150.0 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 58 Next billion impact of cost reduction efforts, partially offset by the ¥10.0 billion decrease in operating income in the ﬁnancial services operations. During ﬁscal 2012, operating loss (before elimination of intersegment proﬁts), decreased by ¥155.3 billion in Japan compared with the prior ﬁscal year. During ﬁscal 2012, operating income intersegment proﬁts), (before elimination of increased by ¥4.6 billion, or 35.4%, in Europe compared with the prior ﬁscal year, whereas it decreased by ¥153.0 billion, or 45.1%, in North America, decreased by ¥56.2 billion, or 18.0%, in Asia, and decreased by ¥51.3 billion, or 32.0%, in Other. The following is a description of operating North America income and loss in each geographic market. Japan Changes in operating income and loss: Effect of changes in vehicle unit sales and sales mix and other operational factors Effect of ﬂuctuation in foreign currency translation rates and others Effect of cost reduction efforts, decrease in miscellaneous costs and others Total 235,356 ¥ 155,356 Yen in millions 2012 vs. 2011 Change ¥ 195,000 Changes in operating income and loss: Effect of changes in vehicle unit sales and sales mix and other operational factors Effect of ﬂuctuation in foreign currency translation rates and others Effect of cost reduction efforts, increase in miscellaneous costs and others (275,000) Total Yen in millions 2012 vs. 2011 Change ¥ (5,000) (7,500) The increase in operating income in Europe was due to the ¥10.0 billion impact of cost reduction efforts and the ¥5.0 billion increase in operating income in the ﬁnancial services operations, partially offset by ¥15.0 billion negative impact of changes in vehicle unit sales and sales mix and other operational factors and the ¥1.2 billion unfavorable impact of ﬂuctuations in foreign currency translation rates and others. (140,594) ¥(153,094) Asia % of net revenues (Right scale) Operating Income (Loss) (¥ Billion) 2,500 2,000 1,500 1,000 500 0 -500 FY ‘08 ‘09 ‘10 ‘11 ‘12 (%) 20 16 12 8 4 0 -4 The decrease in operating losses in Japan reﬂects the ¥195.0 billion of favorable impact by changes in vehicle unit sales and sales mix and other operational factors and ¥235.3 billion impact of the cost reduction efforts, and decrease in miscellaneous costs and others, partially offset by the ¥275.0 billion unfavorable impact of effect of ﬂuctuation in foreign currency transaction rates and others. The cost reduction efforts, decrease in miscellaneous costs and others mainly reﬂect the ¥130.0 billion impact of the cost reduction efforts and ¥40.0 billion decrease in miscellaneous costs and others. The increase in vehicle unit sales was mainly due to introduction of new products such as Prius α and Aqua. The decrease in operating income in North America was due to the ¥55.0 billion decrease in operating income in the ﬁnancial services operations, the ¥7.5 billion unfavorable impact of the ﬂuctuations in foreign currency translation rates and others, the ¥5.0 billion negative impact of changes in vehicle unit sales and sales mix and other operational factors and the ¥90.0 billion increase in miscellaneous costs and others. Europe Changes in operating income and loss: Effect of changes in vehicle unit sales and sales mix and other operational factors Effect of ﬂuctuation in foreign currency translation rates and others Effect of cost reduction efforts, decrease in miscellaneous costs and others Total Yen in millions 2012 vs. 2011 Change ¥(15,000) (1,200) 20,848 ¥ 4,648 Changes in operating income and loss: Effect of changes in vehicle unit sales and sales mix and other operational factors Effect of ﬂuctuation in foreign currency translation rates and others Effect of cost reduction efforts, increase in miscellaneous costs and others Total Yen in millions 2012 vs. 2011 Change ¥(10,000) 11,600 (57,787) ¥(56,187) income The decrease in Asia in operating was due to the ¥10.0 billion negative impact of changes in vehicle unit sales and sales mix and other operational factors and others and the ¥35.0 billion increase in miscellaneous costs and others, partially offset by the ¥11.6 billion favorable impact of the ﬂuctuation in foreign currency translation rates and others. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 59 Next ■ Other Income and Expenses Interest and dividend income increased by ¥9.0 billion, or 10.0%, to ¥99.8 billion during ﬁscal 2012 compared with the prior ﬁscal year. Interest expense decreased by ¥6.3 billion, or 21.8%, to ¥22.9 billion during ﬁscal 2012 compared with the prior ﬁscal year. Foreign exchange gain, net increased by ¥22.8 billion, or 159.4%, to ¥37.1 billion during ﬁscal 2012 compared with the prior ﬁscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated sales translated at prevailing exchange rates and the value of the sales amounts settled during the ﬁscal year, including those settled using forward foreign currency exchange contracts. Other loss, net decreased by ¥56.0 billion to ¥36.8 billion during ﬁscal 2012 compared with the prior ﬁscal year. This was due to the recognition of impairment losses on available-for-sale securities. ■ Income Taxes The provision for income taxes decreased by ¥50.5 billion, or 16.2%, to ¥262.2 billion during ﬁscal 2012 compared with the prior ﬁscal year due to the decrease in income before income taxes. The effective tax rate for ﬁscal 2012 was 60.6%, which was higher than the statutory tax rate in Japan. This was due to recurring items such as the valuation allowance and deferred tax liabilities relating to undistributed earnings in afﬁliated companies accounted for by the equity method. ■ Net Income and Loss attributable to Noncontrolling Interests and Equity in Earnings of Afﬁliated Companies Net income attributable to noncontrolling interests increased by ¥27.4 billion, or 47.9%, to ¥84.7 billion during ﬁscal 2012 compared with the prior ﬁscal year. This increase was due to an increase during ﬁscal 2012 in net income attributable to the shareholders of consolidated subsidiaries. Equity in earnings of afﬁliated companies during ﬁscal 2012 decreased by ¥17.3 billion, or 8.1%, to ¥197.7 billion compared with the prior ﬁscal year. This decrease was due to a decrease during ﬁscal 2012 in net income attributable to the shareholders of afﬁliated companies accounted for by the equity method. ■ Net Income attributable to Toyota Motor Corporation Net income attributable to the shareholders of Toyota Motor Corporation decreased by ¥124.6 billion, or 30.5%, to ¥283.5 billion during ﬁscal 2012 compared with the prior ﬁscal year. ■ Other Comprehensive Income and Loss Other comprehensive loss decreased by ¥263.8 billion to ¥34.1 billion for ﬁscal 2012 compared with the prior ﬁscal year. This decrease resulted from unfavorable foreign currency translation adjustments losses of ¥87.7 billion in ﬁscal 2012 compared with losses of ¥287.6 billion in the prior ﬁscal year, and from unrealized holding gains on securities in ﬁscal 2012 of ¥129.3 billion compared with losses of ¥26.1 billion in the prior ﬁscal year. The increase in unrealized holding gains on securities was due to changes in stock prices. Net Income (Loss) and ROE (¥ Billion) 2,000 ROE (Right scale) 1,500 1,000 500 0 -500 (%) 20 15 10 5 0 -5 FY ‘08 ‘09 ‘10 ‘11 ‘12 ■ Segment Information The following is a discussion of results of operations for each of Toyotaʼs operating segments. The amounts presented are prior to intersegment elimination. Year ended March 31, 2012 vs. 2011 Change Yen in millions Automotive: Financial Services: All Other: Intersegment elimination/ unallocated amount: Net revenues Operating income Net revenues Operating income Net revenues Operating income Net revenues Operating income 2011 ¥17,337,320 85,973 ¥ 1,192,205 358,280 972,252 35,242 (508,089) (11,216) ¥ ¥ 2012 ¥16,994,546 21,683 ¥ 1,100,324 306,438 ¥ 1,048,915 42,062 ¥ (560,132) (14,556) Amount ¥ (342,774) (64,290) ¥ (91,881) (51,842) ¥ 76,663 6,820 ¥ (52,043) (3,340) Percentage -2.0% -74.8% -7.7% -14.5% +7.9% +19.4% — — Automotive Operations Segment The automotive operations segment is Toyotaʼs largest operating segment by net revenues. Net revenues for the automotive segment decreased during ﬁscal 2012 by ¥342.7 billion, or 2.0%, compared with the prior ﬁscal year to ¥16,994.5 billion. The decrease reﬂects the ¥649.2 billion unfavorable impact of ﬂuctuations in foreign currency translation rates and others, partially offset by the ¥320.0 billion of favorable impact by changes in vehicle unit sales and sales mix, and other operational factors. Operating the automotive operations decreased by ¥64.3 billion during income from TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 60 Next Management's Discussion and Analysis of Financial Condition and Results of Operations ﬁscal 2012 compared with the prior ﬁscal year to ¥21.6 billion. This decrease in operating income was due to the ¥250.0 billion unfavorable impact of ﬂuctuations in foreign currency rates and the ¥100.0 billion increase in miscellaneous costs and others, partially offset by the ¥170.0 billion effect of cost reduction efforts, and the ¥150.0 billion of favorable impact by changes in vehicle unit sales and sales mix. The changes in vehicle unit sales and changes in sales mix was due primarily to an increase in Toyotaʼs vehicle unit sales by 44 thousand vehicles compared with the prior ﬁscal year resulting from the introduction of new products in spite of the impact of the Great East Japan Earthquake and the ﬂood in Thailand. The increase in miscellaneous costs and others was due primarily to the ¥100.0 billion increase in labor costs and the ¥50.0 billion increase in research and development expenses. Financial Services Operations Segment Net revenues for the ﬁnancial services operations decreased during ﬁscal 2012 by ¥91.8 billion, or 7.7%, compared with the prior ﬁscal year to ¥1,100.3 billion. This decrease was primarily due to the unfavorable impact of ﬂuctuations in foreign currency translation rates and others of ¥66.9 billion and the ¥18.3 billion decrease in rental income from vehicles and equipment on operating leases. Operating income from ﬁnancial services operations decreased by ¥51.8 billion, or 14.5%, to ¥306.4 billion during ﬁscal 2012 compared with the prior ﬁscal year. This decrease was due primarily to the recording of ¥20.8 billion of valuation losses on interest rate swaps stated at fair value. Ratio of credit loss experience in the United States is as follows: Net charge-offs as a percentage of average gross earning assets: Finance receivables Operating lease Total Year ended March 31, 2011 0.61% 0.22% 0.52% 2012 0.24% 0.11% 0.21% Results of Operations ̶ Fiscal 2011 Compared with Fiscal 2010 Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage Net revenues: Japan North America Europe Asia Other* Intersegment elimination/unallocated amount Total Operating income (loss): Japan North America Europe Asia Other* Intersegment elimination/unallocated amount Total Operating margin Income before income taxes and equity in earnings of afﬁliated companies Net margin from income before income taxes and equity in earnings of afﬁliated companies Equity in earnings of afﬁliated companies Net income attributable to Toyota Motor Corporation Net margin attributable to Toyota Motor Corporation ¥ 11,220,303 5,670,526 2,147,049 2,655,327 1,673,861 (4,416,093) ¥ 18,950,973 ¥ ¥ (225,242) 85,490 (32,955) 203,527 115,574 1,122 147,516 0.8% ¥10,986,246 5,429,136 1,981,497 3,374,534 1,809,116 (4,586,841) ¥18,993,688 ¥ (362,396) 339,503 13,148 312,977 160,129 4,918 468,279 2.5% ¥ ¥(234,057) (241,390) (165,552) 719,207 135,255 (170,748) ¥ 42,715 ¥(137,154) 254,013 46,103 109,450 44,555 3,796 ¥ 320,763 1.7% -2.1% -4.3% -7.7% +27.1% +8.1% — +0.2% — +297.1% — +53.8% +38.6% +338.3% +217.4% 291,468 563,290 271,822 +93.3% 1.5% 45,408 3.0% 215,016 1.5% 169,608 +373.5% 209,456 408,183 198,727 +94.9% 1.1% 2.1% 1.0% * “Other” consists of Central and South America, Oceania and Africa. All Other Operations Segment Net revenues for Toyotaʼs other operations segments increased by ¥76.6 billion, or 7.9%, to ¥1,048.9 billion during ﬁscal 2012 compared with the prior ﬁscal year. income Operating from Toyotaʼs other operations segments increased by ¥6.8 billion, or 19.4%, to ¥42.0 billion during ﬁscal 2012 compared with the prior ﬁscal year. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 61 Next Management's Discussion and Analysis of Financial Condition and Results of Operations ■ Net Revenues Toyota had net revenues for ﬁscal 2011 of ¥18,993.6 billion, an increase of ¥42.7 billion, or 0.2%, compared with the prior ﬁscal year. This increase reﬂects the impact of increased vehicle unit sales and changes in sales mix of approximately ¥740.0 billion, as well as increased parts sales of ¥69.8 billion, partially offset by unfavorable impact of ﬂuctuations in foreign currency translation rates of ¥801.3 billion. Excluding the difference in the Japanese yen value used for translation purposes of ¥801.3 billion, net revenues would have been approximately ¥19,794.9 billion during ﬁscal 2011, a 4.5% increase compared with the prior ﬁscal year. The automotive market in ﬁscal 2011 contracted by 6.6% in Japan compared with the prior ﬁscal year due to the decline in demand following the conclusion of subsidies for environmentally-friendly vehicles (“eco-car”) offered by the government as a part of its stimulus packages, as well as the impact of the Great East Japan Earthquake. However, the Asian automotive market marked a signiﬁcant increase of 27.6% compared with the prior calendar year, reﬂecting the recovery trend of the Asian economy. Under these automotive market conditions, Toyotaʼs consolidated vehicle unit sales increased to 7,308 thousand vehicles, a 1.0% increase compared with the prior ﬁscal year. The table below shows Toyotaʼs net revenues from external customers by product category and by business. Vehicles Parts and components for overseas production Parts and components for after service Other Total Automotive All Other Total sales of products Financial services Total Year ended March 31, 2011 vs. 2010 Change Yen in millions 2010 ¥ 14,309,595 355,273 1,543,941 978,499 17,187,308 537,421 17,724,729 1,226,244 ¥ 18,950,973 2011 ¥ 14,507,479 335,366 1,553,497 926,411 17,322,753 497,767 17,820,520 1,173,168 ¥ 18,993,688 Amount ¥ 197,884 (19,907) 9,556 (52,088) 135,445 (39,654) 95,791 (53,076) ¥ 42,715 Percentage +1.4% -5.6% +0.6% -5.3% +0.8% -7.4% +0.5% -4.3% +0.2% Toyotaʼs net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, that increased by 0.5% during ﬁscal 2011 compared with the prior ﬁscal year to ¥17,820.5 billion, and net revenues from ﬁnancial services operations that decreased by 4.3% during ﬁscal 2011 compared with the prior ﬁscal year to ¥1,173.1 billion. Excluding the difference in the Japanese yen value used for translation purposes of ¥724.1 billion, net revenues from sales of products would have been ¥18,544.6 billion, a 4.6% increase during ﬁscal 2011 compared with the prior ﬁscal year. The increase in net revenues from sales of products is due to an increase in Toyota vehicle unit sales by 71 thousand vehicles. Excluding the difference in the Japanese yen value used for translation purposes of ¥77.2 billion, net revenues from ﬁnancial services operations would have been approximately ¥1,250.3 billion, a 2.0% increase during ﬁscal 2011 compared with the prior ﬁscal year. This increase was mainly due to the increase of ¥13.1 billion rental revenue generated by vehicles and equipment on operating lease. The following table shows the number of ﬁnancing contracts by geographic region at the end of the ﬁscal 2011 and 2010, respectively. Japan North America Europe Asia Other* Total Number of ﬁnancing contracts in thousands Year ended March 31, 2011 vs. 2010 Change 2010 1,684 4,488 774 428 476 7,850 2011 1,709 4,654 790 522 527 8,202 Amount 25 166 16 94 51 352 Percentage +1.5% +3.7% +2.0% +22.1% +10.7% +4.5% * “Other” consists of Central and South America, Oceania and Africa. Geographically, net revenues (before the elimination of intersegment revenues) for ﬁscal 2011 decreased by 2.1% in Japan, 4.3% in North America, and 7.7% in Europe, whereas net revenues increased by 27.1% in Asia and 8.1% in Other compared with the prior ﬁscal year. Excluding the difference in the Japanese yen value used for translation purposes of ¥801.3 billion, net revenues in ﬁscal 2011 would have decreased by 2.1% in Japan, and would have increased by 3.6% in North America, 4.1% in Europe, 29.7% in Asia and 11.0% in Other compared with the prior ﬁscal year. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 62 Next Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of net revenues in each geographic market (before the elimination of intersegment revenues). Japan Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2011 vs. 2010 Change 2010 2,163 2011 1,913 Amount (250) Percentage -11.5% Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage ¥ 11,095,044 125,259 ¥ 11,220,303 ¥ 10,864,329 121,917 ¥ 10,986,246 ¥(230,715) (3,342) ¥(234,057) -2.1% -2.7% -2.1% Due to the decline in demand following the conclusion of subsidies for eco-car offered by the government as a part of its stimulus packages, as well as the impact of the Great East Japan Earthquake, Toyotaʼs domestic vehicle unit sales decreased by 250 thousand vehicles compared with the prior ﬁscal year. The decrease in vehicle unit sales resulted primarily from a 30 thousand vehicles, or 31.1%, decrease in Passo sales and a 29 thousand vehicles, or 38.4%, decrease in WISH sales. On the other hand, the decrease in net revenues from domestic vehicle unit sales was partially offset by the increase in the number of exported vehicles for the overseas markets of 190 thousand vehicles, or 8.6%. North America Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2011 vs. 2010 Change 2010 2,098 2011 2,031 Amount (67) Percentage -3.2% Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage ¥4,782,379 888,147 ¥5,670,526 ¥ 4,603,192 825,944 ¥ 5,429,136 ¥(179,187) (62,203) ¥(241,390) -3.7% -7.0% -4.3% In North America, the vehicle unit sales of speciﬁed vehicle models increased due to the recovering trends of the automobile market and improvements to the overall economy. The increase in vehicle unit sales and this impact on sales trends were mainly represented by a 48 thousand vehicles, or 54.5%, increase in Sienna sales, a 30 thousand vehicles, or 39.2%, increase in Highlander sales, a 29 thousand vehicles, or 123.7%, increase in 4Runner sales, and a 27 thousand vehicles, or 14.1%, increase in RAV4 sales. Despite the improvements including a favorable effect of changes in sales mix, net revenues decreased compared with the prior ﬁscal year due to the decrease in vehicle unit sales by an intense competitive environment that introduced new vehicle models to the market and the unfavorable impact of ﬂuctuations in foreign currency translation rates of ¥448.0 billion. The decrease in vehicle unit sales resulted primarily from an 84 thousand vehicles, or 23.0%, decrease in Corolla sales and a 28 thousand vehicles, or 7.9%, decrease in Camry sales, partially offset by the increase in vehicle unit sales of the aforementioned speciﬁed vehicle models. Europe Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2011 vs. 2010 Change 2010 858 2011 796 Amount (62) Percentage -7.3% Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage ¥2,065,768 81,281 ¥2,147,049 ¥ 1,910,336 71,161 ¥ 1,981,497 ¥(155,432) (10,120) ¥(165,552) -7.5% -12.5% -7.7% Although retail sales of Toyota and Lexus brandsʼ vehicles increased in some European countries compared with the prior ﬁscal year, such as 36 thousand vehicles, or 52.5%, increase in Russia and 20 thousand vehicles, or 82.6%, increase in Turkey, net revenues in Europe generally decreased due primarily to the 62 thousand vehicles decrease in Toyotaʼs vehicle unit sales compared with the prior ﬁscal year resulting from a decrease in demand following the conclusion of government stimulus packages in Western Europe, and the unfavorable impact of ﬂuctuations in foreign currency translation rates of ¥253.2 billion. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 63 Next Management's Discussion and Analysis of Financial Condition and Results of Operations Asia ■ Operating Costs and Expenses Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2011 vs. 2010 Change 2010 979 2011 1,255 Amount 276 Percentage +28.1% Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage ¥2,612,595 42,732 ¥2,655,327 ¥ 3,325,466 49,068 ¥ 3,374,534 ¥712,871 6,336 ¥719,207 +27.3% +14.8% +27.1% Toyotaʼs vehicle unit sales in Asia increased by 276 thousand vehicles compared with the prior ﬁscal year and represented a record high unit sales. This increase in net revenues was due to the overall recovery of Asian automotive markets which was supported by the recovery trend of the Asian economy, particularly in Thailand and Indonesia. Excluding the difference of ¥70.7 billion in the Japanese yen value used for translation purposes, net revenues would have increased by ¥789.9 billion. Other Toyotaʼs consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Year ended March 31, 2011 vs. 2010 Change 2010 1,139 2011 1,313 Amount 174 Percentage +15.3% Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage ¥1,571,846 102,015 ¥1,673,861 ¥ 1,694,680 114,436 ¥ 1,809,116 ¥122,834 12,421 ¥135,255 +7.8% +12.2% +8.1% Net revenues in Other increased due to increases in Toyotaʼs vehicle unit sales as a result of economic recovery in certain of these markets. Toyotaʼs vehicle unit sales increased by 103 thousand vehicles in the Middle East, by 50 thousand vehicles in Central and South America, and by 25 thousand vehicles in Africa, respectively, compared with the prior ﬁscal year. Operating costs and expenses Cost of products sold Cost of ﬁnancing operations Selling, general and administrative Total Yen in millions Year ended March 31, 2011 vs. 2010 Change 2010 2011 Amount Percentage ¥ 15,971,496 712,301 2,119,660 ¥ 18,803,457 ¥ 15,985,783 629,543 1,910,083 ¥ 18,525,409 ¥ 14,287 (82,758) (209,577) ¥(278,048) +0.1% -11.6% -9.9% -1.5% Changes in operating costs and expenses: Effect of increase in vehicle unit sales and changes in sales mix Effect of ﬂuctuation in foreign currency translation rates Effect of increase in parts sales Effect of cost reduction efforts Effect of increase in miscellaneous costs and others Total Yen in millions 2011 vs. 2010 Change ¥ 580,000 (765,100) 15,400 (180,000) 71,652 ¥(278,048) Operating costs and expenses decreased by ¥278.0 billion, or 1.5%, to ¥18,525.4 billion during ﬁscal 2011 compared with the prior ﬁscal year. This decrease resulted from the ¥765.1 billion in foreign impact of ﬂuctuations favorable currency translation rates, and the ¥180.0 billion impact of cost reduction efforts, partially offset by the ¥580.0 billion impact of increase in vehicle unit sales and change in sales mix and the ¥71.7 billion increase in the miscellaneous costs and others including ¥20.0 billion increase in costs related to the Great East Japan Earthquake, and the ¥15.4 billion impact of increase in parts sales. The ¥71.7 billion increase in miscellaneous costs and others includes ¥30.0 billion increase in product quality related expenses. This cost increased compared with the prior ﬁscal year due to the approximately ¥100.0 billion increase in costs related to recalls and other safety measures conducted to heighten the level of for customers, partially offset reassurance by the approximately ¥70.0 billion decrease in product warranty costs due to the decrease in payments to repair or replace defects of vehicles based on warranty contracts. See note 14 to the consolidated ﬁnancial statements for further information. In ﬁscal 2011, Toyota announced recalls and other safety measures including the following: In July 2010, Toyota announced in Japan and other regions the voluntary safety recall of certain models of Toyota and Lexus brandsʼ TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 64 Next Management's Discussion and Analysis of Financial Condition and Results of Operations vehicles in relation to abnormal engine noise or idling due to engine valve springs that contained some foreign materials. The affected vehicle models included Crown, GS350/450h/460, IS350, and LS460/600h/600hL, 275 thousand vehicles were included in this recall. In August 2010, Toyota announced in North America the voluntary safety recall of certain models of Toyota vehicles to address the check engine illuminations and harsh shifting that may result from improper manufacturing of some Electronic Control Modules (ECMs). The affected vehicle models included Corolla and Matrix, 1,360 thousand vehicles were included in this recall. In October 2010, Toyota announced in Japan and other regions the voluntary safety recall of certain models of Toyota and Lexus brandsʼ vehicles in relation to the connector terminal that may fail due to the inﬂexibility of the material of the fuel pump wiring harness and braking performance that may gradually decline by brake ﬂuid leakage from the brake master cylinder. The affected vehicle models included Crown, Crown Majesta, Mark X, KlugerL, KlugerV, Harrier, AlphardG, AlphardV, Avalon, Highlander, RX330, GS300, GS350, IS250, IS350, and IS220D, 1,470 thousand vehicles were included in this recall. In January 2011, Toyota announced in Japan and other regions the voluntary safety recall of certain models of Toyota and Lexus brandsʼ vehicles to address fuel leakage that may result from improper manufacturing of engine fuel pipe and fuel pump. The affected vehicle models included Noah, Voxy, RAV4L, RAV4J, Caldina, Isis, Vista, Vista Ardeo, Opa, Premio, Allion, Gaia, Nadia, WISH, Avensis, and Avensis Wagon, 1,343 thousand vehicles were included in this recall. The net changes in ﬁscal 2010 and 2011 in the accrual for the four recalls and other safety measures that occurred in ﬁscal 2010 are shown below. Toyota expanded the coverage of a safety campaign in North America for certain models of Toyota and Lexus brandsʼ vehicles in relation to ﬂoor mat entrapment of accelerator pedals to include additional models, which was initially announced in November 2009. In March 2011, Toyota also expanded the safety campaign coverage to include more models to heighten the level of reassurance for customers. The vehicle models involved were LX570, RAV4, and 4Runner. Yen in millions Year ended March 31, 2010 2011 2012 — 89,000 (32,400) ¥ 56,600 13,100 (51,700) ¥ 18,000 (1,500) (14,600) Balance at the beginning of year ¥ Accrual Amounts paid Balance at the end of year ¥ 56,600 ¥ 18,000 ¥ 1,900 Cost Reduction Efforts During ﬁscal 2011, continued cost reduction efforts reduced operating costs and expenses by ¥180.0 billion. The effect of cost reduction efforts include the impact of ﬂuctuation in the price of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts. In ﬁscal 2011, raw materials prices were on an increasing trend; however, continued cost reduction efforts, by working closely with suppliers, contributed to the improvement in earnings by offsetting the effects from price increase. These cost reduction efforts related to ongoing value engineering and value analysis activities, the use of common parts resulting in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production. Cost of Products Sold increased by ¥14.3 Cost of products sold billion, or 0.1%, to ¥15,985.8 billion during ﬁscal 2011 compared with the prior ﬁscal year. The increase resulted from the ¥520.0 billion impact of increase in vehicle unit sales and changes in sales mix, ¥90.0 billion increase in miscellaneous costs, and the ¥13.9 billion impact of increases in parts sales, partially offset by the ¥584.9 billion favorable impact of ﬂuctuations in foreign currency translation rates, and the ¥180.0 billion impact of cost reduction efforts. The increase in miscellaneous costs was due mainly to the ¥30.0 billion increase in costs related to quality initiatives, the ¥25.0 billion increase in research and development expenses and the ¥5.2 billion increase in labor costs. The increase in vehicle unit sales and the changes in sales mix was due to the automotive market recovery associated with global economic turnaround. Cost of Financing Operations Changes in cost of ﬁnancing operations: Effect of ﬂuctuation in foreign currency translation rates Effect of increase in valuation gains on interest rate swaps stated at fair value Effect of decrease in provision for residual value losses Other Total Yen in millions 2011 vs. 2010 Change ¥(64,700) (6,400) (30,000) 18,342 ¥(82,758) Cost of ﬁnancing operations decreased by ¥82.8 billion, or 11.6%, to ¥629.5 billion during ﬁscal 2011 compared with the prior ﬁscal year. The decrease resulted from the ¥64.7 billion favorable impact of ﬂuctuations in foreign currency translation rates, the ¥30.0 billion decrease in the provision for residual value losses and the ¥6.4 billion recognition of valuation gains on interest rate swaps stated at fair value. The decrease in the provision for residual value losses is attributable to prices in the used vehicles markets remaining at an unprecedented high level particularly in the United States. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased by ¥209.5 billion, or 9.9%, to ¥1,910.1 billion during ﬁscal 2011 compared with the prior TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 65 Next for ﬁscal year. This decrease reﬂects the ¥115.5 billion favorable impact of ﬂuctuations in foreign currency translation rates and the ¥83.9 billion decrease for the ﬁnancial services operations. the ﬁnancial services This decrease operations includes the ¥100.0 billion decrease in the provision for credit losses and net charge- offs, which is attributable to the prices of used vehicles remaining at an unprecedented high level mainly in the United States and the prices of used Toyota and Lexus brandsʼ vehicles also remaining at a high level, partially offset by the ¥15.0 billion increase in provision for credit losses and charge-offs in relation to the Great East Japan Earthquake. ■ Operating Income Yen in millions 2011 vs. 2010 Change Changes in operating income and loss: Effect of increase in vehicle unit sales and changes in sales mix and other operational factors Effect of increase in parts sales Effect of ﬂuctuation in foreign currency translation rates Effect of increase in miscellaneous costs and others Effect of cost reduction efforts, ﬁnancial services operations, and others Total ¥300,000 54,400 (36,200) (30,000) 32,563 ¥320,763 Toyotaʼs operating income increased by ¥320.7 billion, or 217.4%, to ¥468.2 billion during ﬁscal 2011 compared with the prior ﬁscal year. This increase was favorably impacted by the ¥300.0 billion increase in vehicle unit sales and changes in sales mix and other operational factors, the ¥54.4 billion increase in parts sales, the ¥32.6 billion impact of cost reduction efforts, ﬁnancial services operations, and others, partially offset by the ¥36.2 billion unfavorable impact of ﬂuctuations in foreign currency translation rates, and the ¥30.0 billion increase in miscellaneous costs and others including ¥20.0 billion impact of increase in expenses related to the Great East Japan Earthquake. The ¥32.6 billion increase of cost reduction efforts, ﬁnancial services operations, and others were due to the ¥180.0 billion impact of cost reduction efforts and the ¥130.0 billion impact of ﬁnancial services operations, partially offset by the ¥290.0 billion unfavorable impact of ﬂuctuations in foreign currency translation rates. During ﬁscal 2011, operating income (before elimination of intersegment proﬁts), increased by ¥254.1 billion, or 297.1%, in North America, increased by ¥46.1 billion in Europe, increased by ¥109.4 billion, or 53.8%, in Asia, and increased by ¥44.6 billion, or 38.6%, in Other compared with the prior ﬁscal year, whereas it decreased by ¥137.2 billion in Japan. The following is a description of operating income and loss in each geographic market. Japan North America Changes in operating income and loss: Changes in operating income and loss: Yen in millions 2011 vs. 2010 Change Yen in millions 2011 vs. 2010 Change Effect of increase in the number of exported vehicles for the overseas market and other operational factors Effect of cost reduction efforts, increase in miscellaneous costs and others Total (252,154) ¥(137,154) Effect of increase in production volume and other operational factors ¥105,000 ¥ 115,000 Effect of ﬂuctuation in foreign currency translation rates Effect of ﬁnancial services operations, cost reduction efforts, decrease in miscellaneous costs and others Total (23,800) 172,813 ¥254,013 The increase in operating losses in Japan was due to the ¥252.2 billion increase in cost reduction efforts, increase in miscellaneous costs and others, partially offset by the ¥115.0 billion impact of increase in the number of exported vehicles for the overseas market. The cost reduction efforts, increase in miscellaneous costs and others were mainly due to the ¥330.0 billion unfavorable impact of ﬂuctuations in foreign currency translation rates and the ¥50.0 billion increase in miscellaneous costs and others, partially offset by the ¥140.0 billion impact of cost reduction efforts in automotive operations. The ¥50.0 billion increase in miscellaneous costs and others includes the ¥20.0 billion increase in costs related to the Great East Japan Earthquake. The increase in operating income in North America was due to the ¥130.0 billion increase in operating income in the ﬁnancial services operations including impacts of the ¥100.0 billion decrease in the provision for credit losses and net charge-offs and the ¥30.0 billion decrease in the provision for residual value losses primarily for sales ﬁnance subsidiaries in the United States, the ¥105.0 billion impact of increase in production volume, the ¥30.0 billion impact of cost reduction efforts, and the ¥15.0 decrease in miscellaneous costs and others, partially offset by the ¥23.8 billion unfavorable impact of the ﬂuctuations in foreign currency translation rates. The increase in production volume in North America is attributable to the increase in local vehicle production by 296 thousands of RAV4, Highlander and other models. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 66 Next Europe Yen in millions 2011 vs. 2010 Change Changes in operating income and loss: Effect of ﬂuctuation in foreign currency translation rates ¥ 1,400 Effect of cost reduction efforts, decrease in miscellaneous costs and others 44,703 ¥46,103 Total The increase in operating income in Europe was due to the ¥30.0 billion decrease in miscellaneous costs in automotive operations, the ¥5.0 billion effect of cost reduction efforts, the ¥5.0 billion increase in operating income in the ﬁnancial services operations, and the ¥1.4 billion favorable foreign currency impact of ﬂuctuations translation rates. in Asia Yen in millions 2011 vs. 2010 Change Changes in operating income and loss: Effect of increase in production volume and vehicle unit sales and other operational factors Effect of ﬂuctuation in foreign currency translation rates Effect of cost reduction efforts, decrease in miscellaneous costs and others Total ¥105,000 (5,900) 10,350 ¥109,450 The increase in operating income in Asia was due to the ¥105.0 billion impact of increases in both production volume and vehicle unit sales and other operational factors, partially offset by the billion, or 94.9%, to ¥408.1 billion during ﬁscal 2011 compared with the prior ﬁscal year. ■ Other Comprehensive Income and Loss income decreased by Other comprehensive ¥558.8 billion to a loss of ¥297.9 billion for ﬁscal 2011 compared with the prior ﬁscal year. This decrease resulted from unfavorable foreign currency translation adjustments losses of ¥287.6 billion in ﬁscal 2011 compared with gains of ¥9.8 billion in the prior ﬁscal year, and from unrealized holding losses on securities in ﬁscal 2011 of ¥26.1 billion compared with gains of ¥176.4 billion in the prior ﬁscal year. The decrease in unrealized holding gains on securities was due to changes in stock prices. ¥5.9 billion unfavorable impact of ﬂuctuations in foreign currency translation rates. The increases in both production volume and vehicle unit sales in Asia were primarily attributable to the increase in Toyotaʼs vehicle unit sales by 276 thousand vehicles supported by the recovery of Asian automotive markets, particularly in Thailand and Indonesia, as the Asian economy is generally in the recovery trend. ■ Other Income and Expenses Interest and dividend income increased by ¥12.6 billion, or 16.0%, to ¥90.8 billion during ﬁscal 2011 compared with the prior ﬁscal year due to the ¥10.5 billion increase of dividend income. Interest expense decreased by ¥4.1 billion, or 12.2%, to ¥29.3 billion during ﬁscal 2011 compared with the prior ﬁscal year. Foreign exchange gain, net decreased by ¥53.9 billion, or 79.0%, to ¥14.3 billion during ﬁscal 2011 compared with the prior ﬁscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated sales translated at prevailing exchange rates and the value of the sales amounts settled during the year, including those settled using forward foreign currency exchange contracts. Other income, net decreased by ¥11.7 billion, or 37.7%, to ¥19.2 billion during ﬁscal 2011 compared with the prior ﬁscal year. ■ Income Taxes The provision for income taxes increased by ¥220.2 billion, or 237.6%, to ¥312.8 billion during ﬁscal 2011 compared with the prior ﬁscal year due to the increase in income before income taxes. The effective tax rate for ﬁscal 2011 was 55.5%, which was higher than the statutory tax rate in Japan. This was due to the increase in deferred tax liabilities relating to undistributed earnings in afﬁliated companies accounted for by the equity method. ■ Net Income and Loss attributable to Noncontrolling Interests and Equity in Earnings of Afﬁliated Companies Net income attributable to noncontrolling interests increased by ¥22.5 billion, or 64.9%, to ¥57.3 billion during ﬁscal 2011 compared with the prior ﬁscal year. This increase was due to an increase during ﬁscal 2011 in net income attributable to the shareholders of consolidated subsidiaries. Equity in earnings of afﬁliated companies during ﬁscal 2011 increased by ¥169.6 billion, or 373.5%, to ¥215.0 billion compared with the prior ﬁscal year. This increase was due to an increase during ﬁscal 2011 in net income attributable to the shareholders of afﬁliated companies accounted for by the equity method. ■ Net Income attributable to Toyota Motor Corporation Net income attributable to the shareholders of Toyota Motor Corporation increased by ¥198.7 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 67 Next ■ Segment Information The following is a discussion of results of operations for each of Toyotaʼs operating segments. The amounts presented are prior to intersegment elimination. Yen in millions Year ended March 31, 2011 vs. 2010 Change Automotive: Financial Services: All Other: Intersegment elimination/ unallocated amount: Net revenues Operating income (loss) Net revenues Operating income Net revenues Operating income (loss) Net revenues Operating income (loss) 2010 ¥ 17,197,428 (86,370) ¥ 1,245,407 246,927 947,615 (8,860) (439,477) (4,181) ¥ ¥ 2011 ¥17,337,320 85,973 ¥ 1,192,205 358,280 972,252 35,242 ¥ (508,089) (11,216) ¥ Amount ¥ 139,892 172,343 ¥ (53,202) 111,353 ¥ 24,637 44,102 ¥ (68,612) (7,035) Percentage +0.8% — -4.3% +45.1% +2.6% — — — Automotive Operations Segment The automotive operations segment is Toyotaʼs largest operating segment by net revenues. Net revenues for the automotive segment increased during ﬁscal 2011 by ¥139.9 billion, or 0.8%, compared with the prior ﬁscal year to ¥17,337.3 billion. The increase was due to the ¥740.0 billion impact of increased vehicle unit sales and the changes in sales mix and the ¥69.8 billion increase in parts sales, partially offset by the ¥722.5 billion unfavorable impact of ﬂuctuations in foreign currency translation rates. income the automotive operations increased by ¥172.3 billion during ﬁscal 2011 compared with the prior ﬁscal year to ¥86.0 billion. This increase in operating income was due to the ¥300.0 billion impact of increased vehicle unit sales and the changes in sales mix, the ¥180.0 billion effect of cost reduction efforts Operating from and the ¥54.4 billion impact of increase in parts sales, partially offset by the ¥30.0 billion increase in miscellaneous costs and others and the ¥290.0 billion unfavorable impact of ﬂuctuations in foreign currency rates. The increase in vehicle unit sales and changes in sales mix was due primarily to an increase in Toyotaʼs vehicle unit sales by 71 thousand vehicles compared with the prior ﬁscal year, favored by the automotive market recovery during ﬁscal 2011. The increase in miscellaneous costs and others includes the ¥30.0 billion increase in costs related to quality initiatives and the ¥5.0 billion impact of damages in inventories and other assets resulting from the Great East Japan Earthquake. or 4.3%, compared with the prior ﬁscal year to ¥1,192.2 billion. This decrease was primarily due to the unfavorable impact of ﬂuctuations in foreign currency translation rates of ¥77.5 billion, partially offset by the ¥13.1 billion increase in rental income from vehicles and equipment on operating leases. Operating income from ﬁnancial services operations increased by ¥111.3 billion, or 45.1%, to ¥358.2 billion during ﬁscal 2011 compared with the prior ﬁscal year. This increase was due to the ¥100.0 billion decrease in provision for credit losses and net charge-offs, and the ¥30.0 billion decrease in provision for residual value losses, while the provision for credit losses and net charge-offs include the ¥15.0 billion increase in provision for credit losses and net charge-offs related to the Great East Japan Earthquake. The decrease in provisions for credit losses, net of charge-offs and residual value losses are primarily attributable to used car prices rising to an unprecedented high level in the United States and the prices of used Toyota and Lexus brandsʼ vehicles also remaining at a high level. Ratio of credit loss experience in the United States is as follows: Net charge-offs as a percentage of average gross earning assets: Finance receivables Operating lease Total Year ended March 31, 2010 1.15% 0.63% 1.03% 2011 0.61% 0.22% 0.52% All Other Operations Segment Net revenues for Toyotaʼs other operations segments increased by ¥24.6 billion, or 2.6%, to ¥972.2 billion during ﬁscal 2011 compared with the prior ﬁscal year. Outlook income Operating from Toyotaʼs other operations segments increased by ¥44.1 billion to ¥35.2 billion during ﬁscal 2011 compared with the prior ﬁscal year. Financial Services Operations Segment Net revenues for the ﬁnancial services operations decreased during ﬁscal 2011 by ¥53.2 billion, While Toyota is subject to downside global economic risks due to the European sovereign debt crisis, oil price increase, and other factors, Toyota expects the world economy will continue to see gradual recovery in ﬁscal 2013. Although in the automotive market has competition TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 68 Next Management's Discussion and Analysis of Financial Condition and Results of Operations intensiﬁed all over the world, as shown in the small and low-price vehicles market, Toyota expects the automotive market to expand mainly in emerging countries in the future. In addition, heightened global awareness of the environment is leading to growing demand and diversiﬁcation for the environmentally-friendly vehicles. With the foregoing external factors in mind, Toyota expects that net revenues for ﬁscal 2013 will increase compared with ﬁscal 2012 as a result of an increase in vehicle unit sales. With respect to operating income, factors expected to contribute to an increase in operating income include increased vehicle unit sales through marketing efforts, and cost reduction efforts. On the other hand, factors expected to contribute to a decrease in operating income include increase in miscellaneous costs and others. As a result, Toyota expects that operating income will increase in ﬁscal 2013 compared with ﬁscal 2012. Also, Toyota expects that income before income taxes and equity in earnings of afﬁliated companies and net income attributable to Toyota Motor Corporation will increase in ﬁscal 2013. For the purposes of this outlook discussion, Toyota is assuming an average exchange rate of ¥80 to the U.S. dollar and ¥105 to the euro. Exchange rate ﬂuctuations can materially affect Toyotaʼs operating results. In particular, a strengthening of the Japanese yen against the U.S. dollar can have a material adverse effect on Toyotaʼs operating results. See “Operating and Financial Review and Prospects — Operating Results — Overview — Currency Fluctuations” for further discussion. The foregoing statements are forward-looking statements based upon Toyotaʼs managementʼs assumptions and beliefs regarding exchange rates, market demand for Toyotaʼs products, economic conditions and others. See “Cautionary Statement Concerning Forward-Looking Statements”. Toyotaʼs actual results of operations could vary signiﬁcantly from those described above as a result of unanticipated changes in the factors described above or other factors, including those described in “Risk Factors.” Liquidity And Capital Resources funded its capital Historically, Toyota has expenditures and research and development activities through cash generated by operations. However, in the interest of preserving a stable and healthy business environment and a strong ﬁnancial position going forward, Toyota raised certain funds from debt during ﬁscal 2012. In ﬁscal 2013, Toyota expects to sufﬁciently fund its capital expenditures and research and development activities through cash and cash equivalents on hand, and cash generated by operations. Toyota will use its funds for the technologies, development of environment maintenance and replacement of manufacturing Net Cash Provided by Operating Activities and Free Cash Flow* Capital Expenditures for Property, Plant and Equipment* and Depreciation Cash and Cash Equivalents at End of Year Net cash provided by operating activities Free cash flow (¥ Billion) 1,500 Capital expenditures Depreciation 1,000 500 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 (¥ Billion) 4,000 3,000 2,000 1,000 0 FY (¥ Billion) 2,500 2,000 1,500 1,000 500 0 FY * (Net cash provided by operating activities)- * Excluding vehicles and equipment on (Capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases) operating leases ‘08 ‘09 ‘10 ‘11 ‘12 facilities, and the introduction of new products. See “Information on the Company — Business and Overview — Capital Expenditures Divestitures” in Toyotaʼs annual report on Form 20-F for information regarding Toyotaʼs material capital expenditures and divestitures for ﬁscal 2010, 2011 and 2012, and information concerning Toyotaʼs principal capital expenditures and divestitures currently in progress. Toyota funds its ﬁnancing programs for customers and dealers, including loans and leasing programs, from both cash generated by operations and borrowings by its sales ﬁnance subsidiaries. Toyota seeks to expand its ability to raise funds locally in markets throughout the world by expanding its network of ﬁnance subsidiaries. Toyota refrained from repurchasing of its own shares for ﬁscal 2010, 2011 and 2012. Toyota has decided, for the time being, to refrain from repurchasing its own shares, in order to prioritize retention of cash reserves given the continued uncertainties surrounding future global economy. Net cash provided by operating activities was ¥1,452.4 billion for ﬁscal 2012, compared with ¥2,024.0 billion for the prior ﬁscal year. The decrease was due to a reduction in cash collection received from sale of products due to a decrease in net revenue for the automotive operations, partially offset by operating activities resulted from a decrease in cash payment to suppliers attributable to a decrease in cost of products sold in the automotive operations. Net cash used in investing activities was TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 69 Next Management's Discussion and Analysis of Financial Condition and Results of Operations ¥1,442.6 billion for ﬁscal 2012, compared with ¥2,116.3 billion for the prior ﬁscal year. The decrease in net cash used in investing activities resulted from a decrease in purchases of marketable securities and security investments, partially offset by a decrease in sales and maturity of marketable securities and security investments. Net cash provided by or used in ﬁnancing activities was a ¥355.3 billion decrease for ﬁscal 2012, compared with a ¥434.3 billion increase for the prior ﬁscal year. The decrease in net cash provided by or used in ﬁnancing activities resulted from decreased proceeds from issuance of long-term debt and increased payments of long-term debt. Total capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases, were ¥723.5 billion during ﬁscal 2012, an increase of 15.0% over the ¥629.3 billion in total capital expenditures during the prior ﬁscal year. This increase was due to an increase of investments in Asia. Total capital expenditures for vehicles and equipment on operating leases were ¥808.5 billion during ﬁscal 2012, a decrease of 23.9% over the ¥1,061.8 billion in expenditures from the prior ﬁscal year. This decrease was due to a decrease in investments in the ﬁnancial services operations. Toyota expects investments in property, plant and equipment, excluding vehicles and equipment on operating leases, to be approximately ¥820.0 billion during ﬁscal 2013. Based on current available information, Toyota does not expect environmental matters to have a material impact on its ﬁnancial position, results of operations, liquidity or cash ﬂows during ﬁscal 2013. However, uncertainty exists with respect to Toyotaʼs obligations under Liquid Assets* (¥ Billion) 6,000 5,000 4,000 3,000 2,000 1,000 0 FY ‘08 ‘09 ‘10 ‘11 ‘12 * Cash and cash equivalents, time deposits, marketable debt securities and investment in monetary trust funds Shareholdersʼ Equity and Equity Ratio (¥ Billion) 15,000 12,000 9,000 6,000 3,000 0 FY Equity ratio (Right scale) (%) 100 80 60 40 20 0 ‘08 ‘09 ‘10 ‘11 ‘12 current and future environment regulations as described in “Information on the Company — Business Overview — Governmental Regulation, Environmental and Safety Standards” in Toyotaʼs annual report on Form 20-F. Cash and cash equivalents were ¥1,679.2 billion as of March 31, 2012. Most of Toyotaʼs cash and cash equivalents are held in Japanese yen and in U.S. dollars. In addition, time deposits were ¥80.3 billion and marketable securities were ¥1,181.0 billion as of March 31, 2012. Liquid assets, which Toyota deﬁnes as cash and cash equivalents, time deposits, marketable debt securities and its investment in monetary trust funds, decreased during ﬁscal 2012 by ¥201.7 billion, or 3.4%, to ¥5,761.4 billion. Trade accounts and notes receivable, less allowance for doubtful accounts increased during ﬁscal 2012 by ¥550.6 billion, or 38.0%, to ¥1,999.8 billion. This increase was due to an increase in the volume of sales in ﬁscal 2012. Inventories increased during ﬁscal 2012 by ¥318.0 billion, or 24.4%, to ¥1,622.2 billion. This increase was due to an increase in trading volume. Total ﬁnance receivables, net increased during ﬁscal 2012 by ¥23.8 billion, or 0.2%, to ¥9,717.3 billion. This increase was due to an increase in the number of ﬁnancing contracts, partially offset by ﬂuctuations in foreign currency translation rates. As of March 31, 2012, ﬁnance receivables were geographically distributed as follows: in North America 58.1%, in Japan 12.0%, in Europe 10.3%, in Asia 7.1% and in Other 12.5%. Marketable securities and other securities investments, including those included in current assets, increased during ﬁscal 2012 by ¥438.0 billion, or 9.1%, reﬂecting purchase of marketable securities and security investments, and an increase in the fair values of common stocks. Property, plant and equipment decreased during ﬁscal 2012 by ¥73.7 billion, or 1.2%, primarily reﬂecting the impacts of depreciation charges during the year and ﬂuctuations in foreign currency translation rates, partially offset by the capital expenditures. Accounts and notes payable increased during ﬁscal 2012 by ¥739.5 billion, or 49.2%. This increase was due to an increase in production volume in ﬁscal 2012. Accrued expenses increased during ﬁscal 2012 by ¥55.2 billion, or 3.1%. Income taxes payable increased during ﬁscal 2012 by ¥20.9 billion, or 18.6%, as a result of an increase of income taxes payable at automotive operations. Toyotaʼs total borrowings decreased during ﬁscal 2012 by ¥395.5 billion, or 3.2%. Toyotaʼs short-term borrowings consist of loans with a weighted-average interest rate of 1.93% and commercial paper with a weighted-average interest rate of 0.72%. Short-term borrowings increased during ﬁscal 2012 by ¥271.6 billion, or 8.5%, to ¥3,450.6 billion. Toyotaʼs long-term debt consists of unsecured and secured loans, medium-term notes, unsecured notes and TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 70 Next long-term capital lease obligations with interest rates ranging from 0.00% to 32.00%, and maturity dates ranging from 2012 to 2050. The current portion of long-term debt decreased during ﬁscal 2012 by ¥260.2 billion, or 9.4%, to ¥2,512.6 billion and the non-current portion decreased by ¥406.9 billion, or 6.3%, to ¥6,042.2 billion. The decrease in total borrowings resulted from a decrease in bonds and medium-term notes, partially offset by an increase in commercial paper. As of March 31, 2012, approximately 34% of long-term debt was denominated in U.S. dollars, 26% in Japanese yen, 11% in Australia dollars, and 29% in other currencies. Toyota hedges interest rate risk exposure of ﬁxed-rate borrowings by entering into interest rate swaps. There are no material in Toyotaʼs borrowings seasonal variations requirements. As of March 31, 2012, Toyotaʼs total interest bearing debt was 113.8% of Toyota Motor Corporation shareholdersʼ equity, compared with 120.0% as of March 31, 2011. The following table provides information for credit rating of Toyotaʼs short-term borrowing and long-term debt from rating agencies, Standard & Poorʼs Ratings Group(S&P), Moodyʼs Investors Services(Moodyʼs), and Rating and Investment Information, Inc.(R&I), as of May 31, 2012. A credit rating is not a recommendation to buy, sell or hold securities. A credit rating may be subject to withdrawal or revision at any time. Each rating should be evaluated separately of any other rating. Short-term borrowing Long-term debt S&P Moodyʼs R&I A-1+ — P-1 AA+ Aa3 AA- pension Toyotaʼs unfunded liabilities increased during ﬁscal 2012 by ¥130.8 billion, or 24.0%, to ¥676.6 billion. The unfunded pension liabilities relate to the parent company and its Japanese subsidiaries. The unfunded amounts will be funded through future cash contributions by Toyota or in some cases will be settled on the retirement date of each covered employee. The unfunded pension liabilities increased in ﬁscal 2012 compared with the prior ﬁscal year due to an increase in pension beneﬁt obligations resulted from a decrease in discount rate. See note 19 to the consolidated ﬁnancial statements for further discussion. Toyotaʼs treasury policy is to maintain controls on all exposures, to adhere to stringent counterparty credit standards, and to actively monitor marketplace exposures. Toyota remains centralized, and is pursuing global efﬁciency of its ﬁnancial services operations through Toyota Financial Services Corporation. The key element of Toyotaʼs ﬁnancial strategy is maintaining a strong ﬁnancial position that will allow Toyota to fund its research and development initiatives, capital expenditures and ﬁnancial services operations efﬁciently even if earnings are subject to short-term ﬂuctuations. Toyota believes that it maintains sufﬁcient liquidity for its present requirements and that by maintaining its high credit ratings, it will continue to be able to access funds from external sources in large amounts and at relatively low costs. Toyotaʼs ability to maintain its high credit ratings is subject to a number of factors, some of which are not within Toyotaʼs control. These factors include general economic conditions in Japan and the other major markets in which Toyota does business, as well as Toyotaʼs successful implementation of its business strategy. Off-Balance Sheet Arrangements Toyota uses its securitization program as part of its funding through special purpose entities for its ﬁnancial services operations. Toyota is considered the primary beneﬁciary of these special purpose Lending Commitments entities and therefore consolidates them. Toyota has not entered into any off-balance sheet securitization transactions during ﬁscal 2012. ■ Credit Facilities with Credit Card Holders Toyotaʼs ﬁnancial services operations issue credit cards to customers. As customary for credit card businesses, Toyota maintains credit facilities with holders of credit cards issued by Toyota. These facilities are used upon each holderʼs requests up to the limits established on an individual holderʼs basis. Although loans made to customers through these facilities are not secured, for the purposes of minimizing credit risks and of appropriately establishing credit limits for each individual credit card holder, Toyota employs its own risk management policy which includes an analysis of information provided by ﬁnancial institutions in alliance with Toyota. Toyota periodically reviews and revises, as appropriate, these credit limits. Outstanding credit facilities with credit card holders were ¥256.2 billion as of March 31, 2012. ■ Credit Facilities with Dealers Toyotaʼs ﬁnancial services operations maintain credit facilities with dealers. These credit facilities may be used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. Toyota obtains a personal guarantee from the dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 71 Next Management's Discussion and Analysis of Financial Condition and Results of Operations collateral or guarantees may not be sufﬁcient to cover Toyotaʼs exposure under such agreements. Toyota prices the credit facilities according to the risks assumed in entering into the credit facility. Toyotaʼs ﬁnancial services operations also provide ﬁnancing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of a lending consortium, for wholesale inventory ﬁnancing, business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. Toyotaʼs outstanding credit facilities with dealers totaled ¥1,615.7 billion as of March 31, 2012. ■ Guarantees Toyota enters into certain guarantee contracts to guarantee customersʼ with payments of their installment payables that arise its dealers from installment contracts between customers and Toyota dealers, as and when requested by Toyota dealers. Guarantee periods are set to match the maturity of installment payments, and as of March 31, 2012, ranged from one month to 35 years. However, they are generally shorter than the useful lives of products sold. Toyota is required to execute its guarantee primarily when customers are unable to make required payments. The maximum potential amount of future payments as of March 31, 2012 is ¥1,695.1 billion. Liabilities for these guarantees of ¥13.9 billion have been provided as of March 31, 2012. Under these guarantee contracts, Toyota is entitled to recover any amounts paid by it from the customers whose obligations it guaranteed. Contractual Obligations and Commitments For information regarding debt obligations, capital lease obligations, operating lease obligations and other obligations, including amounts maturing in each of the next ﬁve years, see notes 13, 22 and 23 to the consolidated ﬁnancial statements. In addition, as part of Toyotaʼs normal business long-term enters practices, Toyota into arrangements with suppliers for purchases of certain raw materials, components and services. These arrangements may contain ﬁxed/minimum quantity purchase requirements. Toyota enters into such arrangements to facilitate an adequate supply of these materials and services. The following tables summarize Toyotaʼs contractual obligations and commercial commitments as of March 31, 2012. Contractual Obligations： Short-term borrowings (note 13) Loans Commercial paper Long-term debt* (note 13) Capital lease obligations (note 13) Non-cancelable operating lease obligations (note 22) Yen in millions Payments Due by Period Total Less than 1 year 1 to 3 years 3 to 5 years 5 years and after ¥ 1,158,556 2,292,093 8,533,549 21,348 ¥1,158,556 2,292,093 2,508,445 4,175 ¥ — — 2,953,108 4,661 ¥ — — 2,028,170 3,356 ¥ — — 1,043,826 9,156 56,365 10,375 14,498 10,839 20,653 Commitments for the purchase of property, plant and other assets (note 23) Total 73,004 ¥12,134,915 54,607 ¥6,028,251 2,945 ¥2,975,212 6,326 ¥2,048,691 9,126 ¥1,082,761 * “Long-term debt” represents future principal payments. Toyota is unable to make reasonable estimates of the period of cash settlement with respect to liabilities recognized for uncertain tax beneﬁts, and accordingly such liabilities are excluded from the table above. See note 16 to the consolidated ﬁnancial statements for further discussion. Toyota expects to contribute ¥104,943 million to its pension plans in ﬁscal 2013. Yen in millions Total Amounts Committed Amount of Commitment Expiration Per Period Less than 1 year 1 to 3 years 3 to 5 years 5 years and after Commercial Commitments (note 23)： Maximum potential exposure to guarantees given in the ordinary course of business Total Commercial Commitments ¥1,695,140 ¥1,695,140 ¥ 473,844 ¥ 473,844 ¥ 752,482 ¥ 752,482 ¥ 334,764 ¥ 334,764 ¥ 134,050 ¥ 134,050 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 72 Next Management's Discussion and Analysis of Financial Condition and Results of Operations Related Party Transactions Toyota does not have any signiﬁcant related party transactions other than transactions with afﬁliated companies in the ordinary course of business. See note 12 to the consolidated ﬁnancial statements for further discussion. Legislation Regarding End-of-Life Vehicles In October 2000, the European Union enforced a directive that requires member states to promulgate regulations the following: implementing • manufacturers shall bear all or a signiﬁcant part of the costs for taking back end-of- life vehicles put on the market after July 1, 2002 and dismantling and recycling those vehicles. Beginning January 1, 2007, this requirement will also be applicable to vehicles put on the market before July 1, 2002; • manufacturers may not use certain hazardous materials in vehicles sold after July 2003; • vehicles type-approved and put on the market after December 15, 2008 shall be re-usable and/or recyclable to a minimum of 85% by weight per vehicle and shall be re-usable and/or recoverable to a minimum of 95% by weight per vehicle; and • end-of-life vehicles must meet actual re-use of 80% and re-use as material or energy of 85%, respectively, of vehicle weight by 2006, rising to 85% and 95%, respectively, by 2015. See note 23 to the consolidated ﬁnancial statements for further discussion. Recent Accounting Pronouncements in the United States In June 2011, FASB issued updated guidance of presentation of comprehensive income. This guidance requires to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive in two separate but consecutive income or statements. This guidance is effective for ﬁscal year, and interim period within the ﬁscal year, beginning after December 15, 2011. Management does not expect this guidance to have a material impact on Toyotaʼs consolidated ﬁnancial statements. In December 2011, FASB issued updated guidance of disclosures about offsetting assets and liabilities. This guidance requires additional disclosures about gross and net information for assets and liabilities including ﬁnancial instruments eligible for offset in the balance Critical Accounting Estimates The consolidated ﬁnancial statements of Toyota are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these ﬁnancial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the ﬁnancial statements and the reported amounts of revenues and expenses during the periods presented. Toyota believes that of its signiﬁcant accounting policies, the following may involve a higher degree of judgments, estimates and assumptions: ■ Product Warranties and Recalls and Other Safety Measures Toyota generally warrants its products against certain manufacturing and other defects. Provisions for product warranties are provided for speciﬁc periods of time and/or usage of the product and vary depending upon the nature of the product, the geographic location of the sale and sheets. This guidance is effective for ﬁscal year beginning on or after January 1, 2013, and for interim period within the ﬁscal year. Management does not expect this guidance to have a material impact on Toyotaʼs consolidated ﬁnancial statements. other factors. All product warranties are consistent with commercial practices. Toyota includes a provision for estimated product warranty costs as a component of cost of sales at the time the related sale is recognized. The accrued warranty costs represent managementʼs best estimate at the time of sale of the total costs that Toyota will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience of product failures as well as current information on repair costs. The amount of warranty costs accrued also contains an estimate of warranty claim recoveries to be received from suppliers. The foregoing evaluations are inherently uncertain, as they require material estimates and some productsʼ warranties extend for several years. Consequently, actual warranty costs may differ from the estimated amounts and could require additional warranty provisions. If these factors require a signiﬁcant increase in TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 73 Next Management's Discussion and Analysis of Financial Condition and Results of Operations Toyotaʼs accrued estimated warranty costs, it would negatively affect future operating results of the automotive operations. An estimate of warranty claim accrued for each ﬁscal year is calculated based on the estimate of warranty claim per unit. The estimate of warranty claim per unit is calculated by dividing the actual amounts of warranty claim, net of claim recovery cost received from suppliers, by the number of sales units for the ﬁscal year. As the historical recovery amounts received from suppliers is used as a factor in Toyotaʼs calculation of estimated accrued warranty cost, the estimated accrued warranty cost may change depending on the average recovery amounts received from suppliers in the past. However, Toyota believes that there is not a signiﬁcant uncertainty of estimated amounts based on historical experience regarding recoveries received from suppliers. Toyota may seek recovery to suppliers over the life of the warranty, and there are no other signiﬁcant special terms and conditions including cap on amounts that can be recovered. Toyota accrues for costs of recalls and other safety measures, as well as product warranty cost described above, included as a component of cost of sales, at the time of vehicle sale based on the amount estimated from historical experience with consideration of individual occurrences of recalls and other safety measures. Below are the important factors, judgments and assumptions taken into account for estimating costs of recalls and other safety measures. Toyota accrues for cost of recalls and other safety measures based on the average repair cost per unit and pattern of payment occurrence in the past at the time of product sale. The average repair cost per unit is calculated based on historical expenses incurred in relation of recalls and other safety measures. Factors that may bring material uncertainties to the estimated or actual amount include the important changes in the average repair cost for products. ■ Allowance for Doubtful Accounts and Credit Losses Natures of estimates and assumptions Retail receivables and ﬁnance lease receivables consist of retail installment sales contracts secured by passenger cars and commercial vehicles. Collectability risks include consumer and dealer insolvencies and insufﬁcient collateral values (less costs to sell) to realize the full carrying values of these receivables. As a matter of policy, Toyota maintains an allowance for doubtful accounts and credit losses representing managementʼs estimate of the amount of asset impairment in the portfolios of ﬁnance, trade and other receivables. Toyota determines the allowance for doubtful accounts and credit losses based on a systematic, ongoing review and evaluation performed as part of the credit-risk evaluation process, historical loss experience, the size and composition of the portfolios, current economic events and conditions, the estimated fair value and adequacy of collateral, and other pertinent factors. This evaluation is inherently judgmental and requires material estimates, including the amounts and timing of future cash ﬂows expected to be received, which may be susceptible to signiﬁcant change. Although management considers the allowance for doubtful accounts and credit losses to be adequate based on information currently available, additional provisions may be necessary due to (i) changes in management estimates and assumptions about asset impairments, (ii) information that indicates changes in expected future cash ﬂows, or (iii) changes in economic and other events and conditions. To the extent that sales incentives remain an integral part of sales promotion with the effect of reducing new vehicle prices, resale prices of used vehicles and, correspondingly, the collateral value of Toyotaʼs retail receivables and ﬁnance lease receivables could experience further downward pressure. If these factors require a signiﬁcant increase in Toyotaʼs allowance for doubtful accounts and credit losses, it could negatively affect future operating results of the ﬁnancial services operations. The level of credit losses, which has a greater impact on Toyotaʼs results of operations, is inﬂuenced by two factors: frequency of occurrence and expected severity of loss. For evaluation purposes, exposures to credit losses are segmented into the two primary categories of “consumer” and “dealer”. Toyotaʼs “consumer” category consists of smaller balances that are homogenous retail receivables and ﬁnance lease receivables. The “dealer” category consists of wholesale and other dealer loan receivables. The overall allowance for credit losses is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable losses. Sensitivity analysis The level of credit losses, which could signiﬁcantly impact Toyotaʼs results of operations, is inﬂuenced by two factors: frequency of occurrence and expected severity of loss. The overall allowance for credit losses is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable losses. The following table illustrates the effect of an assumed change in frequency of occurrence or expected severity of loss mainly in the United States, assuming all other assumptions are held consistent respectively. The table below represents the impact on the allowance for credit losses in Toyotaʼs ﬁnancial services operations of the change in frequency of occurrence or expected severity of loss as any change impacts most signiﬁcantly on the ﬁnancial services operations. Yen in millions Effect on the allowance for credit losses as of March 31, 2012 10 percent change in frequency of occurrence or expected severity of loss ¥4,110 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 74 Next Management's Discussion and Analysis of Financial Condition and Results of Operations ■ Investment in Operating Leases Natures of estimates and assumptions Vehicles on operating leases, where Toyota is the lessor, are valued at cost and depreciated over their estimated useful lives using the straight- line method to their estimated residual values. Toyota utilizes industry published information and its own historical experience to determine estimated residual values for these vehicles. Toyota evaluates the recoverability of the carrying values of its leased vehicles for impairment when there are indications of declines in residual values, and if impaired, Toyota recognizes an allowance for losses on its residual values. Throughout the life of the lease, management performs periodic evaluations of estimated end-of-term fair values to determine whether estimates used in the determination of the contractual residual value are still considered reasonable. Factors affecting the estimated residual value at lease maturity include, but are not limited to, new vehicle incentive programs, new vehicle pricing, used vehicle supply, projected vehicle return rates, and projected loss severity. The vehicle return rate represents the number of leased vehicles returned at contract maturity and sold by Toyota during the period as a percentage of the number of lease contracts that, as of their origination dates, were scheduled to mature in the same period. A higher rate of vehicle returns exposes Toyota to higher potential losses incurred at lease termination. Severity of loss is the extent to which the end-of-term fair value of a lease is less than its carrying value at lease end. To the extent that sales incentives remain an integral part of sales promotion, resale prices of used vehicles and, correspondingly, the fair value of Toyotaʼs leased vehicles could be subject to downward pressure. The extent of the impact this will have on the end of term residual value depends on the signiﬁcance of the incentive programs and whether they are sustained over a number of periods. This in turn can impact the projection of future used vehicle values, adversely impacting the expected residual value of the current operating lease portfolio and increasing the provision for residual value losses. However, various other factors impact used vehicle values and the projection of future residual values, including the supply of and demand for used vehicles, interest rates, inﬂation, the actual or perceived quality, safety and reliability of vehicles, the general economic outlook, new vehicle pricing, projected vehicle return rates and projected loss severity, which may offset this effect. Such factors are highly likely to adversely affect the results of operations for ﬁnancial services due to signiﬁcant charges reducing the estimated residual value. Sensitivity analysis The following table illustrates the effect of an assumed change in the vehicle return rate and end-of-term market values mainly in the United States, which Toyota believes are the critical estimates, in determining the residual value losses, holding all other assumptions constant. The following table represents the impact on the residual value losses in Toyotaʼs ﬁnancial services operations of the change in vehicle return rate and end-of-term market values as those changes have a signiﬁcant impact on ﬁnancial services operations. Yen in millions Effect on the residual value losses over the remaining terms of the operating leases on and after April 1, 2012 1 percent increase in vehicle return rate 1 percent increase in end-of-term market values ¥1,233 ¥4,356 ■ Impairment of Long-Lived Assets Toyota periodically reviews the carrying value of its long-lived assets held and used and assets to be disposed of, including intangible assets, when events and circumstances warrant such a review. This review is performed using estimates of future cash ﬂows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Management believes that the estimates of future cash ﬂows and fair values are reasonable. However, changes in estimates of such cash ﬂows and fair values would affect the evaluations and negatively affect future operating results of the automotive operations. ■ Pension Costs and Obligations Natures of estimates and assumptions Pension costs and obligations are dependent on assumptions used in calculating such amounts. include discount rates, These assumptions beneﬁts earned, interest costs, expected rate of return on plan assets, mortality rates and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Toyotaʼs pension costs and obligations. The two most critical assumptions impacting the calculation of pension costs and obligations are the discount rates and the expected rates of returns on plan assets. Toyota determines the discount rates mainly based on the rates of high quality ﬁxed income bonds or ﬁxed income governmental bonds currently available and expected to be available during the period to maturity of the deﬁned beneﬁt pension plans. Toyota determines the expected rates of return for pension assets after considering several including, the composition applicable factors of plan assets held, assumed risks of asset management, historical results of the returns on plan assets, Toyotaʼs principal policy for plan asset management, and forecasted market conditions. A weighted-average discount rate of 2.8% and a weighted-average expected rate of return on plan TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 75 Next assets of 3.9% are the results of assumptions used for the various pension plans in calculating Toyotaʼs consolidated pension costs for ﬁscal 2012. Also, a weighted-average discount rate of 2.6% is the result of assumption used for the various pension plans in calculating Toyotaʼs consolidated pension obligations for ﬁscal 2012. Sensitivity analysis The following table illustrates the effects of assumed changes in weighted-average discount rates and the weighted-average expected rate of return on plan assets, which Toyota believes are critical estimates in determining pension costs and obligations, assuming all other assumptions are consistent. Discount rates 0.5% decrease 0.5% increase Expected rate of return on plan assets 0.5% decrease 0.5% increase Yen in millions Effect on pre-tax income for the year ended March 31, 2013 Effect on PBO as of March 31, 2012 ¥(10,019) 9,625 ¥ (6,354) 6,354 ¥ 203,889 (178,641) ■ Derivatives and Other Contracts at Fair Value for derivatives Toyota uses derivatives in the normal course of business to manage its exposure to foreign currency exchange rates and interest rates. is complex The accounting and continues to evolve. In addition, there are signiﬁcant judgments and estimates involved, using information from counterparties or market, in estimating fair value in the absence of quoted market values. These estimates are based upon valuation methodologies deemed appropriate under the circumstances. However, the use of different assumptions may have a material effect on the estimated fair value amounts. ■ Marketable Securities and Investments in Afﬁliated Companies is is other-than-temporary. Toyotaʼs accounting policy to record a write-down of such investments to net realizable value when a decline in fair value below the In carrying value determining if a decline in value is other-than- temporary, Toyota considers the length of time and the extent to which the fair value has been less than the carrying value, the ﬁnancial condition and prospects of the company and Toyotaʼs ability and intent to retain its investment in the company for a period of time sufﬁcient to allow for any anticipated recovery in fair value. ■ Deferred Tax Assets The factors used to assess the likelihood of realization of the deferred tax assets are the future reversal of existing taxable temporary income and differences, the future taxable available tax planning strategies that are prudent and feasible. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for deferred tax assets which are not more-likely-than-not to be realized. As of March 31, 2012, the parent company and its national tax ﬁling group in Japan are in a cumulative pre-tax loss position in recent years. Meanwhile, Toyota has concluded that there is sufﬁcient positive evidence to overcome the negative evidence of this cumulative pre-tax loss as operating results from the parent company and its national tax ﬁling group in Japan recovered in the second half of this ﬁscal year as a results of increased production volume, vehicle unit sales and cost reduction from the ﬁrst half of the ﬁscal year. Other positive evidence considered includes future forecasted taxable income in the ﬁscal year 2013 and beyond and effective tax planning strategies, inclusive of sales of appreciated assets. This forecasted taxable income is expected to be generated mainly from an increase in worldwide automotive industry demand and continuous cost reduction efforts and is anticipated to be sufﬁcient, over a number of years, to realize the deferred tax assets prior to expiration of operating loss carryforwards in 2021. If the sufﬁcient taxable income for the ﬁscal year 2013 or future years is not achieved due to the factors which cannot be anticipated such as high competition and volatility of worldwide automotive market, steep strengthening of Japanese yen and increase in prices for raw materials, or if tax planning strategies are no longer viable, it could affect the realization of deferred tax assets of the parent company and its national tax ﬁling group in Japan. Quantitative and Qualitative Disclosures about Market Risk Toyota is exposed to market risk from changes in foreign currency exchange rates, interest rates, certain commodity and equity security prices. In order to manage the risk arising from changes in foreign currency exchange rates and interest rates, Toyota enters into a variety of derivative ﬁnancial instruments. A description of Toyotaʼs accounting policies for derivative instruments is included in note 2 to the consolidated ﬁnancial statements and further disclosure is provided in notes 20 and 21 to the consolidated ﬁnancial statements. Toyota monitors and manages these ﬁnancial exposures as an integral part of its overall risk TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Discussion and Analysis of Financial Condition and Results of Operations 0820 Search Contents Prev page 76 Next management program, which recognizes the unpredictability of ﬁnancial markets and seeks to reduce the potentially adverse effects on Toyotaʼs operating results. The ﬁnancial instruments included in the market risk analysis consist of all of Toyotaʼs cash and cash equivalents, marketable securities, investments, ﬁnance receivables, securities long-term and short-term debt and all derivative instruments. Toyotaʼs portfolio of ﬁnancial instruments consists of derivative ﬁnancial forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options. Anticipated transactions in foreign currencies that are denominated covered by Toyotaʼs derivative hedging are not included in the market risk analysis. Although operating leases are not required to be included, Toyota has in these determining interest rate risk. instruments included ■ Foreign Currency Exchange Rate Risk Toyota has foreign currency exposures related to buying, selling and ﬁnancing in currencies other than the local currencies in which it operates. Toyota is exposed to foreign currency risk related to future earnings or assets and liabilities that are exposed due to operating cash ﬂows and various ﬁnancial instruments that are denominated in foreign currencies. Toyotaʼs most signiﬁcant foreign currency exposures relate to the U.S. dollar and the euro. for-sale equity securities that are subject to price risk. The fair value of available-for-sale equity securities was ¥960.2 billion as of March 31, 2011 and ¥1,034.3 billion as of March 31, 2012. The potential change in the fair value of these investments, assuming a 10% change in prices, would be approximately ¥96.0 billion as of March 31, 2011 and ¥103.4 billion as of March 31, 2012. Toyota uses a value-at-risk analysis (“VAR”) to evaluate its exposure to changes in foreign currency exchange rates. The VAR of the combined foreign exchange position represents a potential loss in pre-tax earnings that was estimated to be ¥107.6 billion and ¥87.9 billion at March 31, 2011 and 2012, respectively. Based on Toyotaʼs overall currency exposure (including derivative positions), the risk during ﬁscal 2012 to pre-tax cash ﬂow from currency movements was on average ¥87.9 billion, with a high of ¥95.6 billion and a low of ¥82.5 billion. The VAR was estimated by using a Monte Carlo Simulation Method and assumed 95% conﬁdence level on the realization date and a 10-day holding period. ■ Interest Rate Risk in Toyota is subject to market risk from exposures to changes its interest rates based on ﬁnancing, investing and cash management activities. Toyota enters into various ﬁnancial instrument transactions to maintain the desired level of exposure to the risk of interest rate ﬂuctuations and to minimize interest expense. The potential decrease in fair value resulting from a hypothetical 100 basis point upward shift in interest rates would be approximately ¥139.6 billion as of March 31, 2011 and ¥144.2 billion as of March 31, 2012. There are certain shortcomings inherent to the sensitivity analyses presented. The interest rate changes model assumes that are instantaneous parallel shifts in the yield curve. However, in reality, changes are rarely instantaneous. Although certain assets and liabilities may have similar maturities or periods to repricing, they may not react correspondingly to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may ﬂuctuate with changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Finance receivables are less susceptible to prepayments when interest rates change and, as a result, Toyotaʼs model does not address prepayment risk for automotive related ﬁnance receivables. However, in the event of a change in interest rates, actual loan prepayments may deviate signiﬁcantly from the assumptions used in the model. ■ Commodity Price Risk Commodity price risk is the possibility of higher or lower costs due to changes in the prices of commodities, such as non-ferrous alloys (e.g., aluminum), precious metals (e.g., palladium, platinum and rhodium) and ferrous alloys, which Toyota uses in the production of motor vehicles. Toyota does not use derivative instruments to hedge the price risk associated with the purchase of those commodities and controls its commodity price risk by holding minimum stock levels. ■ Equity Price Risk Toyota holds investments in various available- TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 77 Next Consolidated Balance Sheets Toyota Motor Corporation March 31, 2011 and 2012 ASSETS Current assets Cash and cash equivalents Time deposits Marketable securities Trade accounts and notes receivable, less allowance for doubtful accounts of ¥11,856 million in 2011 and ¥13,004 million ($158 million) in 2012 Finance receivables, net Other receivables Inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Yen in millions 2011 2012 U.S. dollars in millions 2012 ¥ 2,080,709 203,874 1,225,435 ¥ 1,679,200 80,301 1,181,070 $ 20,431 977 14,370 1,449,151 4,136,805 306,201 1,304,242 605,884 517,454 11,829,755 1,999,827 4,114,897 408,547 1,622,282 718,687 516,378 12,321,189 24,332 50,065 4,971 19,738 8,744 6,283 149,911 Noncurrent ﬁnance receivables, net 5,556,746 5,602,462 68,165 Investments and other assets Marketable securities and other securities investments Afﬁliated companies Employees receivables Other Total investments and other assets 3,571,187 1,827,331 62,158 661,829 6,122,505 4,053,572 1,920,987 56,524 460,851 6,491,934 Property, plant and equipment Land Buildings Machinery and equipment Vehicles and equipment on operating leases Construction in progress Total property, plant and equipment, at cost Less - Accumulated depreciation Total property, plant and equipment, net Total assets 1,237,620 3,635,605 8,947,350 2,491,946 298,828 16,611,349 (10,302,189) 6,309,160 ¥ 29,818,166 1,243,261 3,660,912 9,094,399 2,575,353 275,357 16,849,282 (10,613,902) 6,235,380 ¥ 30,650,965 The accompanying notes are an integral part of these consolidated ﬁnancial statements. 49,320 23,372 688 5,607 78,987 15,127 44,542 110,651 31,334 3,350 205,004 (129,139) 75,865 $ 372,928 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings Current portion of long-term debt Accounts payable Other payables Accrued expenses Income taxes payable Other current liabilities Total current liabilities Long-term liabilities Long-term debt Accrued pension and severance costs Deferred income taxes Other long-term liabilities Total long-term liabilities Yen in millions 2011 2012 U.S. dollars in millions 2012 ¥ 3,179,009 2,772,827 1,503,072 579,326 1,773,233 112,801 870,722 10,790,990 ¥ 3,450,649 2,512,620 2,242,583 629,093 1,828,523 133,778 984,328 11,781,574 6,449,220 668,022 810,127 179,783 8,107,152 6,042,277 708,402 908,883 143,351 7,802,913 $ 41,984 30,571 27,285 7,654 22,248 1,628 11,976 143,346 73,516 8,619 11,058 1,744 94,937 Shareholdersʼ equity Toyota Motor Corporation shareholdersʼ equity Common stock, no par value, authorized: 10,000,000,000 shares in 2011 and 2012; issued: 3,447,997,492 shares in 2011 and 2012 Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost, 312,298,805 shares in 2011 and 281,187,739 shares in 2012 Total Toyota Motor Corporation shareholdersʼ equity Noncontrolling interests Total shareholdersʼ equity Commitments and contingencies 397,050 505,760 11,835,665 (1,144,721) (1,261,383) 10,332,371 587,653 10,920,024 397,050 550,650 11,917,074 (1,178,833) (1,135,680) 10,550,261 516,217 11,066,478 4,831 6,700 144,994 (14,343) (13,818) 128,364 6,281 134,645 Total liabilities and shareholdersʼ equity ¥ 29,818,166 ¥ 30,650,965 $372,928 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 78 Next Consolidated Statements of Income Toyota Motor Corporation　 For the years ended March 31, 2010, 2011 and 2012 Net revenues Sales of products Financing operations Total net revenues Costs and expenses Cost of products sold Cost of ﬁnancing operations Selling, general and administrative Total costs and expenses Operating income Other income (expense) Interest and dividend income Interest expense Foreign exchange gain, net Other income (loss), net Total other income (expense) Income before income taxes and equity in earnings of afﬁliated companies Provision for income taxes Equity in earnings of afﬁliated companies Net income 2010 ¥ 17,724,729 1,226,244 18,950,973 15,971,496 712,301 2,119,660 18,803,457 Yen in millions 2011 ¥ 17,820,520 1,173,168 18,993,688 15,985,783 629,543 1,910,083 18,525,409 2012 ¥ 17,511,916 1,071,737 18,583,653 15,795,918 592,646 1,839,462 18,228,026 147,516 468,279 355,627 78,224 (33,409) 68,251 30,886 143,952 291,468 92,664 45,408 244,212 90,771 (29,318) 14,305 19,253 95,011 563,290 312,821 215,016 465,485 99,865 (22,922) 37,105 (36,802) 77,246 432,873 262,272 197,701 368,302 (84,743) Less: Net income attributable to noncontrolling interests (34,756) (57,302) Net income attributable to Toyota Motor Corporation ¥ 209,456 ¥ 408,183 ¥ 283,559 Net income attributable to Toyota Motor Corporation per share ー Basic ー Diluted Cash dividends per share The accompanying notes are an integral part of these consolidated ﬁnancial statements. ¥ ¥ ¥ 66.79 66.79 45.00 Yen 130.17 130.16 50.00 ¥ ¥ ¥ ¥ ¥ ¥ 90.21 90.20 50.00 U.S. dollars in millions 2012 $ 213,066 13,040 226,106 192,188 7,211 22,380 221,779 4,327 1,215 (279) 452 (448) 940 5,267 3,191 2,405 4,481 (1,031) $ 3,450 U.S. dollars $ $ $ 1.10 1.10 0.61 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 79 Next Consolidated Statements of Shareholders' Equity Toyota Motor Corporation　 For the years ended March 31, 2010, 2011 and 2012 Balances at March 31, 2009 Equity transaction with noncontrolling interests and other Issuance during the year Comprehensive income Net income Other comprehensive income Foreign currency translation adjustments Unrealized gains or (losses) on securities, net of reclassiﬁcation adjustments Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Purchase and reissuance of common stock Balances at March 31, 2010 Equity transaction with noncontrolling interests and other Issuance during the year Comprehensive income Net income Other comprehensive income (loss) Foreign currency translation adjustments Unrealized gains or (losses) on securities, net of reclassiﬁcation adjustments Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Purchase and reissuance of common stock Balances at March 31, 2011 Equity transaction with noncontrolling interests and other Issuance during the year Comprehensive income Net income Other comprehensive income (loss) Foreign currency translation adjustments Unrealized gains or (losses) on securities, net of reclassiﬁcation adjustments Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Purchase and reissuance of common stock Balances at March 31, 2012 The accompanying notes are an integral part of these consolidated ﬁnancial statements. Common stock ¥ 397,050 Additional paid-in capital ¥ 501,211 (2,116) 2,236 Retained earnings ¥ 11,531,622 Yen in millions Accumulated other comprehensive income (loss) ¥ (1,107,781) Treasury stock, at cost ¥ (1,260,895) Total Toyota Motor Corporation shareholdersʼ equity ¥ 10,061,207 (2,116) 2,236 Noncontrolling interests ¥ 539,530 (2,748) Total shareholdersʼ equity ¥ 10,600,737 (4,864) 2,236 209,456 (172,476) 9,894 176,407 74,645 397,050 501,331 2,310 2,119 11,568,602 (846,835) 470 (1,260,425) 408,183 (141,120) (287,613) (26,058) 15,785 397,050 505,760 43,311 1,483 11,835,665 (45,365) (1,144,721) (6,503) (958) (1,261,383) 125,819 209,456 9,894 176,407 74,645 470,402 (172,476) 470 10,359,723 2,310 2,119 408,183 (287,613) (26,058) 15,785 110,297 (141,120) (958) 10,332,371 117,262 1,483 34,756 5,721 4,095 98 44,670 (10,732) 570,720 5,183 57,302 (11,965) (1,599) (4,331) 39,407 (27,657) 587,653 (119,824) 244,212 15,615 180,502 74,743 515,072 (172,476) (10,732) 470 10,930,443 7,493 2,119 465,485 (299,578) (27,657) 11,454 149,704 (141,120) (27,657) (958) 10,920,024 (2,562) 1,483 283,559 283,559 84,743 368,302 (87,729) 129,328 (69,208) (156,785) (87,729) 129,328 (69,208) 255,950 (156,785) ¥397,050 96 ¥550,650 ¥ 11,917,074 ¥(1,178,833) (116) ¥(1,135,680) (20) ¥ 10,550,261 (5,563) 2,466 4,098 85,744 (37,356) ¥ 516,217 (93,292) 131,794 (65,110) 341,694 (156,785) (37,356) (20) ¥ 11,066,478 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 80 Next Consolidated Statements of Shareholders' Equity Toyota Motor Corporation　 For the years ended March 31, 2010, 2011 and 2012 Balances at March 31, 2011 Equity transaction with noncontrolling interests and other Issuance during the year Comprehensive income Net income Other comprehensive income (loss) Foreign currency translation adjustments Unrealized gains or (losses) on securities, net of reclassiﬁcation adjustments Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Purchase and reissuance of common stock Balances at March 31, 2012 The accompanying notes are an integral part of these consolidated ﬁnancial statements. Common stock $ 4,831 Additional paid-in capital $ 6,154 527 18 Retained earnings $144,004 (552) 3,450 (1,908) U.S. dollars in millions Accumulated other comprehensive income (loss) $(13,928) (79) Treasury stock, at cost $(15,348) 1,531 Total Toyota Motor Corporation shareholdersʼ equity $125,713 1,427 18 Noncontrolling interests $ 7,150 (1,458) Total shareholdersʼ equity $132,863 (31) 18 (1,067) 1,573 (842) 3,450 (1,067) 1,573 (842) 3,114 (1,908) 1,031 (68) 30 50 1,043 (454) $ 6,281 4,481 (1,135) 1,603 (792) 4,157 (1,908) (454) (0) $134,645 $ 4,831 1 $ 6,700 $144,994 $(14,343) (1) $(13,818) (0) $128,364 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 81 Next Consolidated Statements of Cash Flows Toyota Motor Corporation　 For the years ended March 31, 2010, 2011 and 2012 Cash ﬂows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Provision for doubtful accounts and credit losses Pension and severance costs, less payments Losses on disposal of ﬁxed assets Unrealized losses on available-for-sale securities, net Deferred income taxes Equity in earnings of afﬁliated companies Changes in operating assets and liabilities, and other (Increase) decrease in accounts and notes receivable (Increase) decrease in inventories (Increase) decrease in other current assets Increase (decrease) in accounts payable Increase (decrease) in accrued income taxes Increase in other current liabilities Other Net cash provided by operating activities 2010 Yen in millions 2011 2012 U.S. dollars in millions 2012 ¥ 244,212 ¥ 465,485 ¥ 368,302 $ 4,481 1,414,569 1,175,573 1,067,830 12,992 100,775 4,140 1,254 46,937 2,486 25,537 (45,408) (576,711) 56,059 97,494 649,214 (23,414) 36,214 7,915 85,710 (215,016) 421,423 51,808 38,307 (406,210) 9,623 16,711 33,528 53,831 6,395 (197,701) (585,464) (344,923) (180,529) 756,363 117 203 408 655 78 (2,405) (7,123) (4,197) (2,196) 9,203 102,207 213,341 226,564 ¥ 2,558,530 (40,629) 239,319 183,384 ¥ 2,024,009 20,943 316,366 111,160 ¥ 1,452,435 255 3,849 1,352 $ 17,672 Cash ﬂows from investing activities Additions to ﬁnance receivables Collection of ﬁnance receivables Proceeds from sales of ﬁnance receivables Additions to ﬁxed assets excluding equipment leased to others Additions to equipment leased to others Proceeds from sales of ﬁxed assets excluding equipment leased to others Proceeds from sales of equipment leased to others Purchases of marketable securities and security investments Proceeds from sales of marketable securities and security investments Proceeds upon maturity of marketable securities and security investments Payment for additional investments in afﬁliated companies, net of cash acquired Changes in investments and other assets, and other Net cash used in investing activities Cash ﬂows from ﬁnancing activities 2010 Yen in millions 2011 2012 U.S. dollars in millions 2012 ¥(7,806,201) 7,509,578 8,390 ¥(8,438,785) 7,934,364 69,576 ¥(8,333,248) 8,007,711 53,999 $(101,390) 97,429 657 (604,536) (833,065) (629,326) (1,061,865) (723,537) (808,545) 52,473 51,342 36,633 465,092 486,695 431,313 (8,803) (9,838) 446 5,248 (2,412,182) (4,421,807) (3,173,634) (38,614) 77,025 189,037 162,160 1,973 1,031,716 3,527,119 2,694,665 32,786 (1,020) (299) (147) (2) (337,454) ¥(2,850,184) 177,605 ¥(2,116,344) 209,972 ¥(1,442,658) 2,555 $ (17,553) Proceeds from issuance of long-term debt Payments of long-term debt Increase (decrease) in short-term borrowings Dividends paid Purchase of common stock, and other ¥ 3,178,310 (2,938,202) (335,363) (172,476) (10,251) ¥ 2,931,436 (2,489,632) 162,260 (141,120) (28,617) ¥ 2,394,807 (2,867,572) 311,651 (156,785) (37,448) $ 29,138 (34,889) 3,792 (1,908) (456) Net cash provided by (used in) ﬁnancing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (277,982) 434,327 (355,347) (4,323) (8,898) (127,029) (55,939) (681) (578,534) 2,444,280 ¥ 1,865,746 214,963 1,865,746 ¥ 2,080,709 (401,509) 2,080,709 ¥ 1,679,200 (4,885) 25,316 $ 20,431 The accompanying notes are an integral part of these consolidated ﬁnancial statements. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 82 Next Notes to Consolidated Financial Statements 1 Nature of operations: is primarily engaged in the design, Toyota manufacture, and sale of sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories throughout the world. In addition, Toyota provides ﬁnancing, vehicle and equipment leasing and certain other ﬁnancial services primarily to its dealers and their customers to support the sales of vehicles and other products manufactured by Toyota. 2 Summary of signiﬁcant accounting policies: The parent company and its subsidiaries in Japan and its foreign subsidiaries maintain their records and prepare their ﬁnancial statements in accordance with accounting principles generally accepted in Japan and those of their countries of domicile. Certain adjustments and reclassiﬁcations have been incorporated in the accompanying consolidated ﬁnancial statements to conform to U.S.GAAP. Signiﬁcant accounting policies after reﬂecting adjustments for the above are as follows: ■ Basis of consolidation and accounting for investments in afﬁliated companies The consolidated ﬁnancial statements include the accounts of the parent company and those of its majority-owned subsidiary companies. All signiﬁcant intercompany transactions and accounts have been eliminated. Investments in afﬁliated companies in which Toyota exercises signiﬁcant inﬂuence, but which it does not in control, are stated at cost plus equity Investments undistributed earnings. Consolidated net income includes Toyotaʼs equity in current earnings of such companies, after elimination of unrealized intercompany proﬁts. in such companies are reduced to net realizable value if a decline in market value is determined other-than- temporary. Investments in non-public companies in which Toyota does not exercise signiﬁcant inﬂuence (generally less than a 20% ownership interest ) are stated at cost. The accounts of variable interest entities as deﬁned by U.S.GAAP are the consolidated ﬁnancial statements, if applicable. included in ■ Estimates The preparation of Toyotaʼs consolidated ﬁnancial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated ﬁnancial statements and accompanying notes. Actual results could differ from those estimates. The more signiﬁcant estimates include: product warranties, liabilities accrued for recalls and other safety measures, allowance for doubtful accounts and credit losses, residual values leased assets, impairment of long-lived assets, pension costs and obligations, fair value of derivative ﬁnancial instruments, other-than-temporary losses on marketable securities, litigation liabilities and valuation allowance for deferred tax assets. for ■ Translation of foreign currencies All asset and liability accounts of foreign subsidiaries and afﬁliates are translated into Japanese yen at appropriate year-end current exchange rates and all income and expense accounts of those subsidiaries are translated at the average exchange rates for each period. The foreign currency translation adjustments are included as a component of accumulated other comprehensive income. Foreign currency receivables and payables are translated at appropriate year-end current exchange rates and the resulting transaction gains or losses are recorded in operations currently. ■ Revenue recognition Revenues from sales of vehicles and parts are generally recognized upon delivery which is considered to have occurred when the dealer has taken title to the product and the risk and reward of ownership have been substantively transferred, except as described below. Toyotaʼs sales incentive programs principally consist of cash payments to dealers calculated based on vehicle volume or a model sold by a dealer during a certain period of time. Toyota accrues these incentives as revenue reductions upon the sale of a vehicle corresponding to the program by the amount determined in the related incentive program. Revenues from the sales of vehicles under which Toyota conditionally guarantees the minimum resale value are recognized on a pro rata basis from the date of sale to the ﬁrst exercise date of the guarantee in a manner similar to operating lease accounting. The underlying vehicles of these transactions are recorded as assets and are depreciated in accordance with Toyotaʼs depreciation policy. Revenues from retail ﬁnancing contracts and ﬁnance leases are recognized using the effective yield method. Revenues from operating leases are recognized on a straight-line basis over the lease term. The sale of certain vehicles includes a determinable amount for the contract, which entitles customers to free vehicle maintenance. Such revenues from free maintenance contracts are deferred and recognized as revenue over the period of the contract, which approximates the pattern of the related costs. ■ Other costs Advertising and sales promotion costs are expensed as incurred. Advertising costs were TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 83 Next Notes to Consolidated Financial Statements ¥304,375 million, ¥308,903 million and ¥304,713 million ($3,707 million) for the years ended March 31, 2010, 2011 and 2012, respectively. Toyota generally warrants its products against certain manufacturing and other defects. Provisions for product warranties are provided for speciﬁc periods of time and/or usage of the product and vary depending upon the nature of the product, the geographic location of the sale and other factors. Toyota records a provision for estimated product warranty costs at the time the related sale is recognized based on estimates that Toyota will incur to repair or replace product parts that fail while under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on repair costs. The amount of warranty costs accrued also contains an estimate of warranty claim recoveries to be received from suppliers. In addition to product warranties above, Toyota accrues for costs of recalls and other safety measures based on managementʼs estimates when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Prior to the fourth quarter of ﬁscal 2010, amounts were accrued based on individual occurrences of recalls and other safety measures. During the fourth quarter of ﬁscal 2010, as a result of signiﬁcant changes in facts and circumstances, Toyota has employed an estimation model, to accrue at the time of vehicle sale, an amount that represents managementʼs best estimate of expenses related to future recalls and other safety measures. The estimation model for recalls and other safety measures takes into account Toyotaʼs historical experience and individual occurrences of recalls and other safety measures. This change resulted from Toyotaʼs ﬁscal 2010 experience with recalls and other safety measures changes in the operating processes such as the establishment of the Special Committee for Global Quality to address quality-related matters, as well as the broadening of the number of vehicles subject to recalls and other safety measures. Litigation liabilities are established to cover probable losses on various lawsuits based on the information currently available. Attorneysʼ fees are expensed as incurred. Research and development costs are expensed as incurred. Research and development costs were ¥725,345 million, ¥730,340 million and ¥779,806 million ($9,488 million) for the years ended March 31, 2010, 2011 and 2012, respectively. ■ Cash and cash equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and are so near maturity that they present insigniﬁcant risk of changes in value because of changes in interest rates. ■ Marketable securities Marketable securities consist of debt and equity securities. Debt and equity securities designated as available-for-sale are carried at fair value with unrealized gains or losses included as a component of accumulated other comprehensive income in shareholdersʼ equity, net of applicable taxes. Individual securities classiﬁed as available- for-sale are reduced to net realizable value for other-than-temporary declines in market value. In determining if a decline in value is other-than- temporary, Toyota considers the length of time and the extent to which the fair value has been less than the carrying value, the ﬁnancial condition and prospects of the company and Toyotaʼs ability and intent to retain its investment in the company for a period of time sufﬁcient to allow for any anticipated recovery in market value. Realized gains and losses, which are determined on the average-cost method, are reﬂected in the statement of income when realized. ■ Security investments in non-public companies Security investments in non-public companies are carried at cost as fair value is not readily determinable. If the value of a non-public security investment is estimated to have declined and such decline is judged to be other-than- temporary, Toyota recognizes the impairment of the investment and the carrying value is reduced to its fair value. Determination of impairment is based on the consideration of such factors as operating results, business plans and estimated future cash ﬂows. Fair value is determined principally through the use of the latest ﬁnancial information. ■ Finance receivables Finance receivables recorded on Toyotaʼs balance sheet are comprised of the unpaid principal balance, plus accrued interest, less charge- offs, net of any unearned income and deferred origination costs and the allowance for credit losses. Deferred origination costs are amortized so as to approximate a level rate of return over the term of the related contracts. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of Toyotaʼs business operations and ﬁnance receivables. The three portfolio segments within ﬁnance receivables are as follows: Retail receivables portfolio segment The retail receivables portfolio segment consists of retail installment sales contracts acquired mainly from dealers (“auto loans”) including credit card loans. These contracts acquired must ﬁrst meet speciﬁed credit standards. Thereafter, for contract responsibility Toyota collection and administration. retains The contract periods of auto loans primarily range from 2 to 7 years. Toyota acquires security interests in the vehicles ﬁnanced and has the right to repossess vehicles if customers fail to meet their contractual obligations. Almost all auto loans are non-recourse, which relieves the dealers from ﬁnancial responsibility in the event of repossession. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements 0820 Search Contents Prev page 84 Next Toyota classiﬁes retail receivables portfolio segment into one class based on common risk characteristics associated with the underlying ﬁnance receivables, the similarity of the credit risks, and the quantitative materiality. Finance lease receivables portfolio segment Toyota acquires new vehicle lease contracts originated primarily through dealers. The contract periods of these primarily range from 2 to 5 years. Lease contracts acquired must ﬁrst meet speciﬁed credit standards after which Toyota assumes ownership of the leased vehicle. Toyota is responsible for contract collection and administration during the lease period. take is generally permitted possession of the vehicle upon a default by the lessee. The residual value is estimated at the time the vehicle is ﬁrst leased. Vehicles returned to Toyota at the end of their leases are sold by auction. Toyota to Toyota classiﬁes ﬁnance lease receivables portfolio segment into one class based on common risk characteristics associated with the underlying ﬁnance receivables and the similarity of the credit risks. Wholesale and other dealer loan receivables portfolio segment Toyota provides wholesale ﬁnancing to qualiﬁed dealers to ﬁnance inventories. Toyota acquires in vehicles ﬁnanced at security wholesale. In cases where additional security interests interests would be required, Toyota takes dealership assets or personal assets, or both, as additional security. If a dealer defaults, Toyota has the right to liquidate any assets acquired and seek legal remedies. Toyota also makes term loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, other dealership assets and/or personal assets of the dealers. Toyota classiﬁes wholesale and other dealer loan receivables portfolio segment into three classes of wholesale, real estate and working capital, based on the risk characteristics associated with the underlying ﬁnance receivables. A receivable account balance is considered impaired when, based on current information and events, it is probable that Toyota will be unable to collect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying loan agreement and other subjective factors related to the ﬁnancial stability of the borrower are considered when determining whether a loan is impaired. Impaired ﬁnance receivables include certain nonaccrual receivables for which a speciﬁc reserve has been assessed. An account modiﬁed as a troubled debt restructuring is considered to be impaired. A troubled debt restructuring occurs when an account is modiﬁed through a concession to a borrower experiencing ﬁnancial difﬁculty. All classes of wholesale and other dealer loan receivables portfolio segment are placed on nonaccrual status when full payment of principal or interest is in doubt, or when principal or interest is 90 days or more contractually past due, whichever occurs ﬁrst. Collateral dependent loans are placed on nonaccrual status if collateral is insufﬁcient to cover principal and interest. Interest accrued but not collected at the date a receivable is placed on nonaccrual status is reversed against interest income. In addition, the amortization of net deferred fees is suspended. Interest income on nonaccrual receivables is recognized only to the extent it is received in cash. Accounts are restored to accrual status only when interest and principal payments are brought current and future payments are reasonably assured. Receivable balances are written-off against the allowance for credit losses when it is probable that a loss has been realized. Retail receivables class and ﬁnance lease receivables class are not placed generally on nonaccrual status when principal or interest is 90 days or more past due. However, these receivables are generally written-off against the allowance for credit losses when payments due are no longer expected to be received or the account is 120 days contractually past due, whichever occurs ﬁrst. As of March 31, 2011 and 2012, ﬁnance receivables on nonaccrual status were as follows: Retail Finance leases Wholesale Real estate Working capital Yen in millions March 31, 2011 ¥ 2,633 1,136 6,722 14,437 272 ¥ 25,200 2012 ¥ 2,822 958 5,485 11,736 37 ¥ 21,038 U.S. dollars in millions March 31, 2012 $ 34 12 67 143 0 $ 256 As of March 31, 2011 and 2012, ﬁnance receivables past due over 90 days and still accruing were as follows: Retail Finance leases Yen in millions March 31, 2011 ¥ 23,734 4,484 ¥ 28,218 2012 ¥24,263 7,674 ¥ 31,937 U.S. dollars in millions March 31, 2012 $ 295 94 $ 389 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 85 Next Notes to Consolidated Financial Statements ■ Allowance for credit losses Allowance for credit losses is established to cover probable losses on ﬁnance receivables and vehicles and equipment on operating leases, resulting from the inability of customers to make required payments. Provision for credit losses is included in selling, general and administrative expenses. The allowance for credit losses is based on a systematic, ongoing review and evaluation performed as part of the credit-risk evaluation process, historical loss experience, the size and composition of the portfolios, current economic events and conditions, the estimated fair value and adequacy of collateral and other pertinent factors. Vehicles and equipment on operating leases are not within the scope of accounting guidance governing the disclosure of portfolio segments. Retail receivables portfolio segment Toyota calculates allowance for credit losses to cover probable losses on retail receivables by applying reserve rates to such receivables. Reserve rates are calculated mainly by historical loss experience, current economic events and conditions and other pertinent factors. Finance lease receivables portfolio segment Toyota calculates allowance for credit losses to cover probable losses on ﬁnance lease receivables by applying reserve rates to such receivables. Reserve rates are calculated mainly by historical loss experience, current economic events and conditions and other pertinent factors such as used car markets. Wholesale and other dealer loan receivables portfolio segment Toyota calculates allowance for credit losses to cover probable losses on wholesale and other dealer loan receivables by applying reserve rates to such receivables. Reserve rates are calculated mainly by ﬁnancial conditions of the dealers, terms of collateral setting, current economic events and conditions and other pertinent factors. Toyota establishes speciﬁc reserves to cover the estimated losses on individually impaired receivables within the wholesale and other dealer loan receivables portfolio segment. Speciﬁc reserves on impaired receivables are determined by the present value of expected future cash ﬂows or the fair value of collateral when it is probable that such receivables will be unable to be fully collected. The fair value of the underlying collateral is used if the receivable is collateral-dependent. The receivable is determined collateral-dependent if the repayment of the loan is expected to be provided by the underlying collateral. For the receivables in which the fair value of the underlying collateral was in excess of the outstanding balance, no allowance was provided. Troubled debt restructurings in the retail lease receivables receivables and ﬁnance portfolio segments are speciﬁcally identiﬁed as impaired and aggregated with their respective portfolio segments when determining the allowance for credit losses. Impaired loans in the retail receivables and ﬁnance lease receivables portfolio segments are insigniﬁcant for individual evaluation and Toyota has determined that allowance for credit losses for each of the retail receivables and ﬁnance lease receivables portfolio segments would not be materially different if they had been individually evaluated for impairment. Speciﬁc reserves on impaired receivables within the wholesale and other dealer loan receivables portfolio segment are recorded by an increase to the allowance for credit losses based on the related measurement of impairment. Related collateral, if recoverable, is repossessed and sold and the account balance is written-off. Any shortfall between proceeds received and the carrying cost of repossessed collateral is charged to the allowance. Recoveries are reversed from the allowance for credit losses. ■ Allowance for residual value losses Toyota is exposed to risk of loss on the disposition of off-lease vehicles to the extent that sales proceeds are not sufﬁcient to cover the carrying value of the leased asset at lease termination. Toyota maintains an allowance to cover probable to unguaranteed estimated residual values on its owned portfolio. The allowance is evaluated considering projected vehicle return rates and projected loss severity. losses related Factors considered in the determination of projected return rates and loss severity include information on used historical and market vehicle sales, trends in lease returns and new car markets, and general economic conditions. Management evaluates the foregoing factors, develops several potential loss scenarios, and reviews allowance levels to determine whether reserves are considered adequate to cover the probable range of losses. The allowance for residual value losses is maintained in amounts considered by Toyota to be appropriate in relation to the estimated losses on its owned portfolio. Upon disposal of the assets, the allowance for residual losses is adjusted for the difference between the net book value and the proceeds from sale. ■ Inventories Inventories are valued at cost, not in excess of market, cost being determined on the “average- cost” basis, except for the cost of ﬁnished products carried by certain subsidiary companies which is determined on the “speciﬁc identiﬁcation” basis or “last-in, ﬁrst-out” (“LIFO”) basis. Inventories valued on the LIFO basis totaled ¥151,183 million and ¥220,582 million ($2,684 million) at March 31, 2011 and 2012, respectively. Had the “ﬁrst-in, ﬁrst-out” basis been used for those companies using the LIFO basis, inventories would have been ¥57,943 million and ¥56,799 million ($691 million) higher than reported at March 31, 2011 and 2012, respectively. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 86 Next Notes to Consolidated Financial Statements ■ Property, plant and equipment Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are charged to current operations. Depreciation of property, plant and equipment is mainly computed on the declining-balance method for the parent company and Japanese subsidiaries and on the straight-line method for foreign subsidiary companies at rates based on estimated useful lives of the respective assets according to general class, type of construction and use. The estimated useful lives range from 2 to 65 years for buildings and from 2 to 20 years for machinery and equipment. Vehicles and equipment on operating leases to third parties are originated by dealers and acquired by certain consolidated subsidiaries. Such subsidiaries are also the lessors of certain property that they acquire directly. Vehicles and equipment on operating leases are depreciated primarily on a straight-line method over the lease term, generally from 2 to 5 years, to the estimated residual value. Incremental direct costs incurred in connection with the acquisition of operating lease contracts are capitalized and amortized on a straight-line method over the lease term. ■ Long-lived assets impairment loss would be recognized when the carrying amount of an asset group exceeds the estimated undiscounted cash ﬂows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the carrying value of the asset group over its fair value. Fair value is determined mainly using a discounted cash ﬂow valuation method. ■ Goodwill and intangible assets Goodwill is not material to Toyotaʼs consolidated balance sheets. Intangible assets consist mainly of software. Intangible assets with a deﬁnite life are amortized on a straight-line basis with estimated useful lives mainly of 5 years. Intangible assets with an indeﬁnite life are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash ﬂows used in determining the fair value of the asset. The amount of the impairment loss to be recorded is generally determined by the difference between the fair value of the asset using a discounted cash ﬂow valuation method and the current book value. beneﬁts. Retirement beneﬁt obligations are measured by actuarial calculations in accordance with U.S.GAAP. The funded status of the deﬁned beneﬁt postretirement plans is recognized on the consolidated balance sheets as prepaid pension and severance costs or accrued pension and severance costs, and the funded status change is recognized in the year in which it occurs through other comprehensive income. ■ Environmental matters Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Liabilities for remediation costs are recorded when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or Toyotaʼs commitment to a plan of action. The cost of each environmental liability is estimated by using current technology available and various engineering, ﬁnancial and legal specialists within Toyota based on current law. Such liabilities do not reﬂect any offset for possible recoveries from insurance companies and are not discounted. There were no material changes in these liabilities for all periods presented. its reviews long-lived assets for Toyota impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An ■ Employee beneﬁt obligations ■ Income taxes Toyota has both deﬁned beneﬁt and deﬁned contribution plans for employeesʼ retirement The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax beneﬁt will not be realized. ■ Derivative ﬁnancial instruments Toyota employs derivative ﬁnancial instruments, including forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage its exposure to ﬂuctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives for speculation or trading purposes. Changes in the fair value of derivatives are recorded each period in current earnings or through other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges is recognized currently in operations. ■ Net income attributable to Toyota Motor Corporation per share Basic net income attributable to Toyota Motor Corporation per common share is calculated by dividing net income attributable to Toyota Motor Corporation by the weighted-average number of shares outstanding during the reported period. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 87 Next Notes to Consolidated Financial Statements The calculation of diluted net income attributable to Toyota Motor Corporation per common share is similar to the calculation of basic net income attributable to Toyota Motor Corporation per share, except that the weighted-average number of shares outstanding includes the additional dilution from the assumed exercise of dilutive stock options. ■ Stock-based compensation Toyota measures compensation expense for its stock-based compensation plan based on the grant-date fair value of the award, and accounts for the award. ■ Other comprehensive income Other comprehensive income refers to revenues, expenses, gains and losses that, under U.S.GAAP are included in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to shareholdersʼ equity. Toyotaʼs other comprehensive income is primarily comprised of unrealized gains/losses on marketable securities designated as available- for-sale, foreign currency translation adjustments and adjustments attributed to pension liabilities or minimum pension liabilities associated with Toyotaʼs deﬁned beneﬁt pension plans. ■ Accounting changes In October 2009, FASB issued updated guidance of accounting for and disclosure of revenue recognition with multiple deliverables. This guidance allows the use of estimated selling price for determining the selling price of deliverables, eliminates the residual method of allocation and expands the disclosures related to a vendorʼs multiple-deliverable revenue arrangements. Toyota adopted this guidance for revenue arrangements entered into or materially modiﬁed in the ﬁscal year begun on or after June 15, 2010. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated ﬁnancial statements. In April 2011, FASB issued updated guidance to clarify the accounting for and disclosures about troubled debt restructurings by creditors. This guidance provides the criteria as to whether a loan modiﬁcation constitutes a troubled debt restructuring and requires additional disclosures about troubled debt restructurings. Toyota adopted this guidance from the ﬁscal year ended March 31, 2012. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated ﬁnancial statements. For a further discussion of additional disclosures by adoption of this guidance, please see note 7 to Toyotaʼs consolidated ﬁnancial statements. In May 2011, FASB issued updated guidance on fair value measurement and disclosure requirements. This guidance is the amendment to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. Consequently, this guidance changes some fair value measurement principles and enhances the disclosure requirements. Toyota adopted this guidance from the ﬁscal year ended March 31, 2012. The adoption of this guidance did not have a material impact on Toyotaʼs consolidated ﬁnancial statements. For a further discussion of additional disclosures by adoption of this guidance, please see notes 21 and 26 to Toyotaʼs consolidated ﬁnancial statements. ■ Recent pronouncements to be adopted in future periods In June 2011, FASB issued updated guidance income. of presentation of comprehensive This guidance requires to present the total of comprehensive income, the components of net income, and the components of other comprehensive in a single income either continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for ﬁscal year, and interim period within the ﬁscal year, beginning after December 15, 2011. Management does not expect this guidance to have a material impact on Toyotaʼs consolidated ﬁnancial statements. In December 2011, FASB issued updated guidance of disclosures about offsetting assets and liabilities. This guidance requires additional disclosures about gross and net information including ﬁnancial for assets and liabilities instruments eligible for offset in the balance sheets. This guidance is effective for ﬁscal year beginning on or after January 1, 2013, and for interim period within the ﬁscal year. Management does not expect this guidance to have a material impact on Toyotaʼs consolidated ﬁnancial statements. ■ Reclassiﬁcations Certain prior year amounts have been reclassiﬁed to conform to the presentations as of and for the year ended March 31, 2012. 3 U.S. dollar amounts: U.S. dollar amounts presented in the consolidated ﬁnancial statements and related notes are included solely for the convenience of the reader and are unaudited. These translations should not be construed as representations that the yen amounts actually represent, or have been or could be converted into, U.S. dollars. For this purpose, the rate of ¥82.19 = U.S. $1, the approximate current exchange rate at March 31, 2012, was used for the translation of the accompanying consolidated ﬁnancial amounts of Toyota as of and for the year ended March 31, 2012. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 88 Next Notes to Consolidated Financial Statements 4 Supplemental cash ﬂow information: Cash payments for income taxes were ¥(207,278) million, ¥211,487 million and ¥282,440 million ($3,436 million) for the years ended March 31, 2010, 2011 and 2012, respectively. Interest payments during the years ended March 31, 2010, 2011 and 2012 were ¥445,049 million, ¥382,903 million and ¥365,109 million ($4,442 million), respectively. Capital lease obligations of ¥3,400 million, ¥10,478 million and ¥5,847 million ($71 million) were incurred for the years ended March 31, 2010, 2011 and 2012, respectively. 5 Acquisitions and dispositions: During the years ended March 31, 2010, 2011 and 2012, Toyota made several acquisitions and dispositions, however the assets and liabilities acquired or transferred were not material. 6 Marketable securities and other securities investments: Marketable securities and other securities investments include government bonds and common stocks for which the aggregate cost, gross unrealized gains and losses and fair value are as follows: Yen in millions March 31, 2011 Gross unrealized gains Gross unrealized losses ¥ 21,712 336,598 15,940 ¥374,250 ¥ 68,778 46,774 376 ¥115,928 Fair value ¥3,127,170 960,229 576,951 ¥4,664,350 Available-for-sale Government bonds Common stocks Other Total Securities not practicable to determine fair value Common stocks Other Total Cost ¥3,174,236 670,405 561,387 ¥4,406,028 ¥ 109,203 23,069 ¥ 132,272 Yen in millions March 31, 2012 Gross unrealized gains Gross unrealized losses ¥ 72,485 444,073 21,846 ¥ 538,404 ¥ 51,147 15,643 11 ¥ 66,801 Fair value ¥ 3,601,912 1,034,319 496,944 ¥ 5,133,175 U.S. dollars in millions March 31, 2012 Gross unrealized gains Gross unrealized losses $ 882 5,403 266 $ 6,551 $ 622 191 0 $ 813 Fair value $ 43,824 12,584 6,047 $ 62,455 Available-for-sale Government bonds Common stocks Other Total Securities not practicable to determine fair value Common stocks Other Total Available-for-sale Government bonds Common stocks Other Total Securities not practicable to determine fair value Common stocks Other Total Cost ¥ 3,580,574 605,889 475,109 ¥ 4,661,572 ¥ 79,420 22,047 ¥ 101,467 Cost $ 43,564 7,372 5,781 $ 56,717 $ 967 268 $ 1,235 The amount of unrealized gains and losses that were originally reported for 2011 were corrected. There was no effect on the disclosed carrying values or market values and the information included in the table above reﬂects the adjustments made. Government bonds include 77% of Japanese government bonds, and 23% of U.S. and European government bonds as of March 31, 2011, and 60% of Japanese government bonds, and 40% of U.S., European and other government bonds as of March 31, 2012. Listed stocks on the Japanese stock markets represent 86% and 83% of common stocks which are included in available-for-sale as of March 31, 2011 and 2012, respectively. “Other” includes primarily commercial paper. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 89 Next Notes to Consolidated Financial Statements Unrealized losses continuing over a 12 month period or more in the aggregate were not material at March 31, 2011 and 2012. Proceeds As of March 31, 2011 and 2012, maturities of government bonds and other included in available-for-sale are mainly from 1 to 10 years. from sales of available-for- sale securities were ¥77,025 million, ¥189,037 million and ¥162,160 million ($1,973 million) for the years ended March 31, 2010, 2011 and 2012, respectively. On those sales, gross realized gains were ¥3,186 million, ¥8,974 million and ¥4,822 million ($59 million) and gross realized losses were ¥7 million, ¥87 million and ¥15 million ($0 million), respectively. During the years ended March 31, 2010, 2011 and 2012, Toyota recognized impairment losses on available-for-sale securities of ¥2,486 million, ¥7,915 million and ¥53,831 million ($655 million), respectively, which are included in “Other income (loss), net” in the accompanying consolidated statements of income. long-term In the ordinary course of business, Toyota maintains investment securities, included in “Marketable securities and other securities investments” and issued by a number of non-public companies which are recorded at cost, as their fair values were not readily determinable. Management employs a systematic methodology to assess the recoverability of such investments by reviewing the ﬁnancial viability of the underlying companies and the prevailing market conditions in which these companies operate to determine if Toyotaʼs investment in each individual company is impaired and whether the impairment is other-than-temporary. Toyota periodically performs this impairment test for signiﬁcant investments recorded at cost. If the impairment is determined to be other-than- temporary, the carrying value of the investment is written-down by the impaired amount and the losses are recognized currently in operations. 7 Finance receivables: Finance receivables consist of the following: Retail Finance leases Wholesale and other dealer loans Deferred origination costs Unearned income Allowance for credit losses Retail Finance leases Wholesale and other dealer loans Total allowance for credit losses Total ﬁnance receivables, net Less - Current portion Noncurrent ﬁnance receivables, net Yen in millions March 31, 2011 ¥ 7,128,453 1,123,188 1,990,557 10,242,198 104,391 (496,235) (92,199) (36,024) (28,580) (156,803) 9,693,551 (4,136,805) ¥ 5,556,746 2012 ¥ 7,248,793 955,430 2,033,954 10,238,177 105,533 (494,123) (77,353) (30,637) (24,238) (132,228) 9,717,359 (4,114,897) ¥ 5,602,462 U.S. dollars in millions March 31, 2012 $ 88,195 11,625 24,747 124,567 1,284 (6,012) (941) (373) (295) (1,609) 118,230 (50,065) $ 68,165 Finance receivables were geographically distributed as follows: in North America 59.0%, in Japan 12.7%, in Europe 10.4%, in Asia 5.8% and in Other 12.1% as of March 31, 2011, and in North America 58.1%, in Japan 12.0%, in Europe 10.3%, in Asia 7.1% and in Other 12.5% as of March 31, 2012. The contractual maturities of retail receivables, the future minimum lease payments on ﬁnance leases and wholesale and other dealer loans at March 31, 2012 are summarized as follows: Years ending March 31, 2013 2014 2015 2016 2017 Thereafter Retail ¥ 2,528,895 1,774,195 1,380,910 881,267 427,490 256,036 ¥ 7,248,793 Yen in millions Finance leases ¥ 276,630 182,404 117,854 80,239 19,546 11,969 ¥ 688,642 Wholesale and other dealer loans ¥ 1,490,687 209,151 78,369 71,637 98,111 85,999 ¥ 2,033,954 U.S. dollars in millions Finance leases $ 3,366 2,219 1,434 976 238 146 $ 8,379 Wholesale and other dealer loans $ 18,137 2,545 953 872 1,194 1,046 $ 24,747 Retail $ 30,769 21,586 16,802 10,722 5,201 3,115 $ 88,195 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 90 Next Notes to Consolidated Financial Statements Finance leases consist of the following: Minimum lease payments Estimated unguaranteed residual values Deferred origination costs Less - Unearned income Less - Allowance for credit losses Finance leases, net Yen in millions March 31, 2011 ¥ 804,871 318,317 1,123,188 5,406 (104,419) (36,024) ¥ 988,151 2012 ¥ 688,642 266,788 955,430 3,722 (90,887) (30,637) ¥ 837,628 U.S. dollars in millions March 31, 2012 $ 8,379 3,246 11,625 45 (1,106) (373) $10,191 Current 31-60 days past due 61-90 days past due Over 90 days past due Total U.S. dollars in millions March 31, 2012 Retail $ 86,949 782 169 295 $ 88,195 Finance leases Wholesale Real estate Working capital $ 11,429 70 32 94 $ 11,625 $ 11,238 0 ̶ 1 $ 11,239 $ 6,513 ̶ ̶ 1 $ 6,514 $ 6,992 1 ̶ 1 $ 6,994 The tables below show the recorded investment for each credit quality of the ﬁnance receivable within the wholesale and other dealer loan receivables portfolio segment in the United States and other regions as of March 31, 2011 and 2012: Toyota is exposed to credit risk on Toyotaʼs ﬁnance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with Toyota or otherwise fail to perform as agreed. Toyota estimates allowance for credit losses by variety of credit-risk evaluation process to cover probable and estimable losses above. United States The wholesale and other dealer loan receivables portfolio segment is primarily segregated into credit qualities below based on internal risk assessments by dealers. The table below shows the amount of the ﬁnance receivables segregated into aging categories based on the number of days outstanding as of March 31, 2011 and 2012: Current 31-60 days past due 61-90 days past due Over 90 days past due Total Current 31-60 days past due 61-90 days past due Over 90 days past due Total Yen in millions March 31, 2011 Retail ¥ 7,017,171 72,082 15,466 23,734 ¥ 7,128,453 Finance leases Wholesale ¥ 897,971 2,260 355 74 ¥ 900,660 ¥ 1,111,453 5,968 1,283 4,484 ¥ 1,123,188 Real estate Working capital ¥ 494,700 404 34 621 ¥ 495,759 ¥ 593,516 44 0 578 ¥ 594,138 Yen in millions March 31, 2012 Retail ¥ 7,146,365 64,314 13,851 24,263 ¥ 7,248,793 Finance leases Wholesale ¥ 923,642 3 ̶ 53 ¥ 923,698 ¥ 939,345 5,766 2,645 7,674 ¥ 955,430 Real estate Working capital ¥ 535,296 ̶ ̶ 98 ¥ 535,394 ¥ 574,671 70 ̶ 121 ¥ 574,862 Default: Performing Credit Watch At Risk Default Total Performing: Account not classiﬁed as either Credit Watch, At Risk or Default Credit Watch: Account designated for elevated attention At Risk: Account where there is a probability that default exists based on qualitative and quantitative factors Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements Yen in millions March 31, 2011 Wholesale ¥504,960 58,106 6,494 803 ¥570,363 Real estate Working capital ¥283,450 41,967 12,344 931 ¥338,692 ¥ 90,545 12,198 1,066 655 ¥104,464 Total ¥ 878,955 112,271 19,904 2,389 ¥1,013,519 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements 0820 Search Contents Prev page 91 Next Performing Credit Watch At Risk Default Total Performing Credit Watch At Risk Default Total Other regions Yen in millions March 31, 2012 Real estate Working capital ¥ 307,867 38,382 12,157 30 ¥ 358,436 ¥ 116,871 5,014 618 423 ¥ 122,926 Total ¥ 938,370 98,909 19,169 919 ¥ 1,057,367 U.S. dollars in millions March 31, 2012 Real estate Working capital $ 3,746 467 148 0 $ 4,361 $ 1,422 61 7 5 $ 1,495 Total $ 11,417 1,204 233 11 $ 12,865 Wholesale ¥ 513,632 55,513 6,394 466 ¥ 576,005 Wholesale $ 6,249 676 78 6 $ 7,009 Performing Default Total Performing Default Total Yen in millions Wholesale ¥ 330,264 17,429 ¥ 347,693 March 31, 2012 Real estate Working capital ¥ 170,886 6,072 ¥ 176,958 ¥ 451,505 431 ¥ 451,936 Total ¥ 952,655 23,932 ¥ 976,587 U.S. dollars in millions March 31, 2012 Real estate Working capital $ 2,079 74 $ 2,153 $ 5,494 5 $ 5,499 Total $ 11,591 291 $ 11,882 Wholesale $ 4,018 212 $ 4,230 The tables below summarize information about impaired ﬁnance receivables: Recorded investment Unpaid principal balance Individually evaluated allowance Yen in millions Credit qualities of the wholesale and other dealer loan receivables portfolio segment in other regions are also monitored based on internal risk assessments by dealers on a consistent basis as in the United States. These accounts classiﬁed as “Credit Watch” or “At Risk” were not signiﬁcant in other regions, and consequently the tables below summarize information for two categories, “Performing” and “Default”. Performing Default Total Yen in millions March 31, 2011 Real estate Working capital ¥151,020 6,047 ¥157,067 ¥485,974 3,700 ¥489,674 Total ¥952,738 24,300 ¥977,038 Wholesale ¥315,744 14,553 ¥330,297 March 31, 2011 2012 ¥ 896 6,553 3,436 ¥10,885 ¥ 2,716 4,252 573 ¥ 7,541 March 31, March 31, 2011 2011 2012 ¥ 7,192 18,173 4,841 ¥30,206 Wholesale Real estate Working capital 2012 Impaired account balances individually evaluated for impairment with an allowance: ¥ 8,105 16,429 995 ¥ 25,529 ¥ 8,105 16,429 995 ¥ 25,529 Impaired account balances individually evaluated for impairment without an allowance: ¥ 14,015 15 38 ¥ 14,068 Wholesale Real estate Working capital ¥ 14,015 15 38 ¥ 14,068 ¥12,745 — 272 ¥13,017 ¥12,745 — 272 ¥13,017 ¥ 7,192 18,173 4,841 ¥30,206 Total Total Impaired account balances aggregated and evaluated for impairment: Retail Finance leases Total ¥48,376 433 ¥48,809 Total impaired account balances: Retail Finance leases Wholesale Real estate Working capital Total ¥48,376 433 19,937 18,173 5,113 ¥92,032 ¥ 42,438 325 ¥ 42,763 ¥ 42,438 325 22,120 16,444 1,033 ¥ 82,360 ¥47,640 378 ¥48,018 ¥47,640 378 19,937 18,173 5,113 ¥91,241 ¥ 41,790 180 ¥ 41,970 ¥ 41,790 180 22,120 16,444 1,033 ¥ 81,567 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 92 Next Notes to Consolidated Financial Statements Total impaired account balances: Retail Finance leases Wholesale Real estate Working capital Total Yen in millions Average impaired ﬁnance receivables Interest income recognized For the years ended March 31, For the years ended March 31, 2011 2012 2011 2012 ¥48,898 480 16,231 19,545 4,979 ¥90,133 ¥ 44,362 279 18,734 16,137 2,592 ¥ 82,104 ¥ 4,373 30 171 514 86 ¥ 5,174 ¥ 3,700 7 79 395 79 ¥ 4,260 Total impaired account balances: Retail Finance leases Wholesale Real estate Working capital Total U.S. dollars in millions For the year ended March 31, 2012 Average impaired ﬁnance receivables Interest income recognized $ 540 3 228 196 32 $ 999 $ 45 0 1 5 1 $ 52 U.S. dollars in millions March 31, 2012 Impaired account balances individually evaluated for impairment with an allowance: Recorded investment Unpaid principal balance Individually evaluated allowance Wholesale Real estate Working capital Total $ 99 200 12 $ 311 $ 99 200 12 $ 311 Impaired account balances individually evaluated for impairment without an allowance: $ 33 52 7 $ 92 Wholesale Real estate Working capital Total $ 170 0 1 $ 171 $ 170 0 1 $ 171 Impaired account balances aggregated and evaluated for impairment: Retail Finance leases Total $ 516 4 $ 520 Total impaired account balances: Retail Finance leases Wholesale Real estate Working capital Total $ 516 4 269 200 13 $ 1,002 $ 508 2 $ 510 $ 508 2 269 200 13 $ 992 The amount of ﬁnance receivables modiﬁed as a troubled debt restructuring for the year ended March 31, 2012 was not signiﬁcant for all classes of ﬁnance receivables. Finance receivables modiﬁed as troubled debt restructurings for the year ended March 31, 2012 and for which there was a payment default were not signiﬁcant for all classes of such receivables. 8 Other receivables: Other receivables relate to arrangements with certain component manufacturers whereby Toyota procures inventory for these component manufactures and is reimbursed for the related purchases. 9 Inventories: Inventories consist of the following: Finished goods Raw materials Work in process Supplies and other Total Yen in millions March 31, 2011 ¥ 715,272 299,755 218,335 70,880 ¥1,304,242 2012 ¥ 981,612 347,878 221,036 71,756 ¥ 1,622,282 U.S. dollars in millions March 31, 2012 $11,943 4,233 2,689 873 $19,738 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements 10 Vehicles and equipment on operating leases: 11 Allowance for doubtful accounts and credit losses: Vehicles and equipment on operating leases consist of the following: An analysis of activity within the allowance for doubtful accounts relating to trade accounts and notes receivable for the years ended March 31, 2010, 2011 and 2012 is as follows: 0820 Search Contents Prev page 93 Next Vehicles Equipment Less - Accumulated depreciation Less - Allowance for credit losses Vehicles and equipment on operating leases, net Yen in millions March 31, 2011 ¥2,404,032 87,914 2,491,946 (651,443) (10,812) ¥1,829,691 2012 ¥ 2,487,721 87,632 2,575,353 (667,406) (8,135) ¥ 1,899,812 U.S. dollars in millions March 31, 2012 $30,268 1,066 31,334 (8,120) (99) $23,115 Rental income from vehicles and equipment on operating leases was ¥496,729 million, ¥475,472 million and ¥451,361 million ($5,492 million) for the years ended March 31, 2010, 2011 and 2012, respectively. Future minimum rentals from vehicles and equipment on operating leases are due in installments as follows: Years ending March 31, 2013 2014 2015 2016 2017 Thereafter Total minimum future rentals Yen in millions ¥ 375,082 227,597 105,031 30,358 9,878 4,812 ¥ 752,758 U.S. dollars in millions $ 4,564 2,769 1,278 369 120 59 $ 9,159 The future minimum rentals as shown above should not be considered indicative of future cash collections. Allowance for doubtful accounts at beginning of year Provision for doubtful accounts, net of reversal Write-offs Other Allowance for doubtful accounts at end of year Yen in millions 2010 ¥ 48,006 1,905 (1,357) (1,848) ¥ 46,706 For the years ended March 31, 2011 ¥ 46,706 1,806 (2,690) (1,775) ¥ 44,047 2012 ¥ 44,047 5,843 (699) (5,094) ¥ 44,097 U.S. dollars in millions For the year ended March 31, 2012 $536 71 (9) (62) $536 The other amount includes the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest and currency translation adjustments for the years ended March 31, 2010, 2011 and 2012. A portion of the allowance for doubtful accounts balance at March 31, 2011 and 2012 totaling ¥32,191 million and ¥31,093 million ($378 million), respectively, is attributed to certain non-current receivable balances which are reported as other assets in the consolidated balance sheets. An analysis of the allowance for credit losses relating to ﬁnance receivables and vehicles and equipment on operating leases for the years ended March 31, 2010, 2011 and 2012 is as follows: Allowance for credit losses at beginning of year Provision for credit losses, net of reversal Charge-offs Recoveries Other Allowance for credit losses at end of year Yen in millions 2010 ¥ 238,932 98,870 (118,333) 16,137 (3,127) ¥ 232,479 For the years ended March 31, 2011 ¥ 232,479 2,334 (86,115) 18,268 649 ¥ 167,615 2012 ¥167,615 3,780 (51,578) 16,415 4,131 ¥140,363 U.S. dollars in millions For the year ended March 31, 2012 $ 2,039 46 (627) 200 50 $ 1,708 The other amount primarily includes the impact of currency translation adjustments for the years ended March 31, 2010, 2011 and 2012. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 94 Next Notes to Consolidated Financial Statements An analysis of the allowance for credit losses above relating to retail receivables portfolio segment, ﬁnance lease receivables portfolio segment and wholesale and other dealer loan receivables portfolio segment for the years ended March 31, 2011 and 2012 are as follows: Allowance for credit losses at beginning of year Provision for credit losses, net of reversal Charge-offs Recoveries Other Allowance for credit losses at end of year Allowance for credit losses at beginning of year Provision for credit losses, net of reversal Charge-offs Recoveries Other Allowance for credit losses at end of year Allowance for credit losses at beginning of year Provision for credit losses, net of reversal Charge-offs Recoveries Other Allowance for credit losses at end of year Yen in millions For the year ended March 31, 2011 Retail ¥ 160,350 (2,660) (68,122) 14,159 (11,528) ¥ 92,199 Finance leases ¥36,918 6,023 (2,820) 288 (4,385) ¥36,024 Wholesale and Other dealer loans ¥35,211 2,098 (5,885) 636 (3,480) ¥28,580 Yen in millions For the year ended March 31, 2012 Retail ¥92,199 13,569 (44,742) 14,051 2,276 ¥77,353 Finance leases ¥36,024 (4,508) (2,499) 718 902 ¥30,637 Wholesale and Other dealer loans ¥28,580 (4,767) (305) 16 714 ¥24,238 U.S. dollars in millions For the year ended March 31, 2012 Retail $1,122 165 (545) 171 28 $ 941 Finance leases $438 (55) (30) 9 11 $373 Wholesale and Other dealer loans $348 (58) (4) 0 9 $295 12 Afﬁliated companies and variable interest entities: ■ Investments in and transactions with afﬁliated companies Summarized ﬁnancial information for afﬁliated companies accounted for by the equity method is shown below: Current assets Noncurrent assets Total assets Current liabilities Long-term liabilities and noncontrolling interests Afﬁliated companies accounted for by the equity method shareholdersʼ equity Total liabilities and shareholdersʼ equity Toyotaʼs share of afﬁliated companies accounted for by the equity method shareholdersʼ equity Number of afﬁliated companies accounted for by the equity method at end of period Yen in millions March 31, 2011 ¥ 7,973,712 6,815,361 ¥ 14,789,073 ¥ 5,141,461 3,726,952 2012 ¥ 9,112,895 6,914,208 ¥ 16,027,103 ¥ 5,847,495 4,032,045 5,920,660 ¥ 14,789,073 6,147,563 ¥ 16,027,103 U.S. dollars in millions March 31, 2012 $110,876 84,125 $195,001 $ 71,146 49,058 74,797 $195,001 ¥ 1,817,988 ¥ 1,914,129 $ 23,289 56 57 Yen in millions 2010 ¥ 20,599,586 ¥ 2,269,109 For the years ended March 31, 2011 ¥ 21,874,143 ¥ 2,342,706 2012 ¥ 22,211,233 ¥ 2,297,660 U.S. dollars in millions For the year ended March 31, 2012 $270,243 $ 27,955 ¥ 317,017 ¥ 641,771 ¥ 554,983 $ 6,752 Net revenues Gross proﬁt Net income attributable to afﬁliated companies accounted for by the equity method Entities comprising a signiﬁcant portion of Toyotaʼs investment in afﬁliated companies and percentage of ownership are presented below: Name of afﬁliated companies Denso Corporation Toyota Industries Corporation Aisin Seiki Co., Ltd. Toyota Tsusho Corporation Toyoda Gosei Co., Ltd. Percentage of ownership March 31, 2011 24.7% 24.8% 23.1% 21.8% 43.1% 2012 24.9% 24.8% 23.4% 22.1% 43.1% TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 95 Next Notes to Consolidated Financial Statements Certain afﬁliated companies accounted for by the equity method with carrying amounts of ¥1,384,159 million and ¥1,467,575 million ($17,856 million) at March 31, 2011 and 2012, respectively, were quoted on various established markets at an aggregate value of ¥1,475,352 million and ¥1,477,413 million ($17,976 million), respectively. For the year ended March 31, 2010, Toyota recognized an impairment loss on a certain investment in afﬁliated company accounted for by the equity method of ¥63,575 million, which is included in “Equity in earnings of afﬁliated income. Toyota evaluated companies” in the accompanying consolidated statements of its investments in afﬁliated companies, considering the length of time and the extent to which the quoted market prices have been less than the carrying amounts, the ﬁnancial condition and near-term prospects of the afﬁliated companies and Toyotaʼs ability and intent to retain those investments in the companies for a period of time. Toyota did not recognize any impairment loss for the years ended March 31, 2011 and 2012. Account balances and transactions with afﬁliated companies are presented below: Although the ﬁnance receivables related to securitization transactions have been legally sold to the VIEs, Toyota has both the power to direct the activities of the VIEs that most signiﬁcantly impact the VIEsʼ economic performance and the obligation to absorb losses of the VIEs or the right to receive beneﬁts from the VIEs that could potentially be signiﬁcant to the VIEs. As a result, Toyota is considered the primary beneﬁciary of the VIEs and therefore consolidates the VIEs. The consolidated securitization VIEs have ¥1,111,212 million and ¥1,208,136 million ($14,699 million) in retail ﬁnance receivables, ¥64,502 million and ¥65,541 million ($797 million) in restricted cash and ¥941,613 million and ¥1,040,816 million ($12,664 million) in secured debt as of March 31, 2011 and 2012, respectively. Risks to which Toyota is exposed including credit, interest rate, and/or prepayment risks are not incremental compared with the situation before Toyota enters into securitization transactions. As for VIEs other than those speciﬁed above, neither the aggregate size of these VIEs nor Toyotaʼs involvements in these VIEs are material to Toyotaʼs consolidated ﬁnancial statements. Trade accounts and notes receivable, and other receivables Accounts payable and other payables Yen in millions March 31, 2011 ¥204,447 352,538 2012 ¥ 283,497 707,955 U.S. dollars in millions March 31, 2012 $3,449 8,614 13 Short-term borrowings and long-term debt: Short-term borrowings at March 31, 2011 and 2012 consist of the following: Net revenues Purchases Yen in millions 2010 ¥1,600,365 3,943,648 For the years ended March 31, 2011 ¥1,612,397 3,655,185 2012 ¥ 1,536,326 3,785,284 U.S. dollars in millions For the year ended March 31, 2012 $18,692 46,055 Loans, principally from banks, with a weighted-average interest at March 31, 2011 and March 31, 2012 of 1.57% and of 1.93% per annum, respectively Commercial paper with a weighted-average interest at March 31, 2011 and March 31, 2012 of 0.67% and of 0.72% per annum, respectively Yen in millions March 31, 2011 2012 U.S. dollars in millions March 31, 2012 ¥1,140,066 ¥ 1,158,556 $14,096 2,038,943 ¥3,179,009 2,292,093 ¥ 3,450,649 27,888 $41,984 Dividends from afﬁliated companies accounted for by the equity method for the years ended March 31, 2010, 2011 and 2012 were ¥82,149 million, ¥103,169 million and ¥122,950 million ($1,496 million), respectively. Toyota does not have any signiﬁcant related party transactions other than transactions with afﬁliated companies in the ordinary course of business. ■ Variable Interest Entities Toyota enters into securitization transactions that are using considered variable interest entities (“VIEs”). special-purpose entities, As of March 31, 2012, “Loans, principally from banks” amount includes secured loans by ﬁnance receivables securitization of ¥194,571 million ($2,367 million). As of March 31, 2012, Toyota has unused short-term lines of credit amounting to ¥2,465,882 million ($30,002 million) of which ¥332,896 million ($4,050 million) related to commercial paper programs. Under these programs, Toyota is authorized to obtain short-term ﬁnancing at prevailing interest rates for periods not in excess of 360 days. TOYOTA ANNUAL REPORT 2012 0820 Search Contents Prev page 96 Next Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Long-term debt at March 31, 2011 and 2012 comprises the following: The aggregate amounts of annual maturities of long-term debt during the next ﬁve years are as Unsecured loans, representing obligations principally to banks, due 2011 to 2029 in 2011 and due 2012 to 2029 in 2012 with interest ranging from 0.00% to 29.00% per annum in 2011 and from 0.00% to 32.00% per annum in 2012 Secured loans, representing obligations principally to ﬁnance receivables securitization due 2011 to 2050 in 2011 and due 2012 to 2050 in 2012 with interest ranging from 0.37% to 5.35% per annum in 2011 and from 0.37% to 11.23% per annum in 2012 Medium-term notes of consolidated subsidiaries, due 2011 to 2047 in 2011 and due 2012 to 2047 in 2012 with interest ranging from 0.01% to 15.25% per annum in 2011 and from 0.13% to 8.50% per annum in 2012 Unsecured notes of parent company, due 2012 to 2019 in 2011 and due 2012 to 2019 in 2012 with interest ranging from 1.07% to 3.00% per annum in 2011 and from 1.07% to 3.00% per annum in 2012 Unsecured notes of consolidated subsidiaries, due 2011 to 2031 in 2011 and due 2012 to 2031 in 2012 with interest ranging from 0.27% to 15.48% per annum in 2011 and from 0.17% to 24.90% per annum in 2012 Long-term capital lease obligations, due 2011 to 2028 in 2011 and due 2012 to 2030 in 2012 with interest ranging from 0.38% to 14.40% per annum in 2011 and from 0.38% to 14.40% per annum in 2012 Less - Current portion due within one year Yen in millions March 31, 2011 2012 U.S. dollars in millions March 31, 2012 ¥3,386,854 ¥ 3,064,785 $ 37,289 619,380 855,015 10,403 3,314,589 3,137,289 38,171 530,000 530,000 6,448 1,349,307 946,460 11,516 21,917 9,222,047 (2,772,827) ¥6,449,220 21,348 8,554,897 (2,512,620) ¥ 6,042,277 260 104,087 (30,571) $ 73,516 As of March 31, 2012, approximately 34%, 26%, 11% and 29% of long-term debt are denominated in U.S. dollars, Japanese yen, Australian dollars and other currencies, respectively. As of March 31, 2012, property, plant and equipment with a book value of ¥52,888 million ($643 million) and in addition, other assets aggregating ¥1,225,344 million ($14,909 million) were pledged as collateral mainly for certain debt obligations of subsidiaries. These other assets principally consist of securitized ﬁnance receivables. follows: Years ending March 31, 2013 2014 2015 2016 2017 Yen in millions ¥ 2,512,620 1,632,093 1,325,676 1,281,176 750,350 U.S. dollars in millions $30,571 19,858 16,129 15,588 9,129 Standard agreements with certain banks in Japan include provisions that collateral (including sums on deposit with such banks) or guarantees will be furnished upon the banksʼ request and that any collateral furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks. During the year ended March 31, 2012, Toyota has not received any signiﬁcant such requests from these banks. As of March 31, 2012, Toyota has unused long-term lines of credit amounting to ¥7,606,520 million ($92,548 million). 14 Product warranties and recalls and other safety measures: Toyota provides product warranties for certain defects mainly resulting from manufacturing based on warranty contracts with its customers at the time of sale of products. Toyota accrues estimated warranty costs to be incurred in the future in accordance with the warranty contracts. In addition to product warranties, Toyota initiates recalls and other safety measures to repair or to replace parts which might be expected to fail from products safety perspectives or customer satisfaction standpoints. Toyota accrues for costs of recalls and other safety measures at the time of vehicle sale based on the amount estimated from historical experience. Liabilities for product warranties and liabilities for recalls and other safety measures have been combined into a single table showing an aggregate liability for quality assurances due to the fact that both are liabilities for costs to repair or replace defects of vehicles and the amounts incurred for recalls and other safety measures may affect the amounts incurred for product warranties and vice versa. Liabilities for quality assurances are included in “Accrued expenses” in the consolidated balance sheets. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 97 Next Notes to Consolidated Financial Statements The net changes in liabilities for quality assurances above for the years ended March 31, 2010, 2011 15 Other payables: and 2012 consist of the following: Yen in millions For the years ended March 31, 2011 2012 2010 U.S. dollars in millions For the year ended March 31, 2012 Liabilities for quality assurances at beginning of year Payments made during year Provision for quality assurances Changes relating to pre-existing quality assurances Other Liabilities for quality assurances at end of year ¥ 568,834 (425,976) 558,190 (21,606) 966 ¥ 680,408 ¥ 680,408 (476,771) 588,224 (1,701) (25,791) ¥ 764,369 ¥764,369 (348,214) 436,891 (7,827) (5,385) ¥839,834 $ 9,300 (4,237) 5,316 (95) (66) $10,218 Other payables are mainly related to purchases of property, plant and equipment and non-manufacturing purchases. 16 Income taxes: The components of income (loss) before income taxes comprise the following: Yen in millions For the years ended March 31, 2011 2012 2010 U.S. dollars in millions For the year ended March 31, 2012 ¥ (114,569) 406,037 ¥ 291,468 ¥ (278,229) 841,519 ¥ 563,290 ¥(177,852) 610,725 ¥ 432,873 $(2,164) 7,431 $ 5,267 The other amount primarily includes the impact of currency translation adjustments and the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest. Income (loss) before income taxes: Parent company and domestic subsidiaries Foreign subsidiaries The table below shows the net changes in liabilities for recalls and other safety measures which are comprised in liabilities for quality assurances above for the years ended March 31, 2010, 2011 and 2012. The provision for income taxes consists of the following: Liabilities for recalls and other safety measures at beginning of year Payments made during year Provision for recalls and other safety measures Other Liabilities for recalls and other safety measures at end of year Yen in millions For the years ended March 31, 2011 2012 2010 U.S. dollars in millions For the year ended March 31, 2012 ¥ 139,577 (89,796) 256,981* (5,340) ¥ 301,422 (263,096) 356,749 (5,576) ¥389,499 (159,344) 237,907 635 $ 4,739 (1,939) 2,895 8 ¥ 301,422 ¥ 389,499 ¥468,697 $ 5,703 * Toyota has employed an estimation model to accrue expenses for future recalls and other safety measures at the time of vehicle sale based on the amount estimated from historical experience from the fourth quarter of the ﬁscal year ended March 31, 2010. This change has resulted in an increase in provision for recalls and other safety measures in this table by ¥105,698 million. Yen in millions For the years ended March 31, 2011 2012 2010 U.S. dollars in millions For the year ended March 31, 2012 Current income tax expense: Parent company and domestic subsidiaries Foreign subsidiaries Total current Deferred income tax expense (beneﬁt): Parent company and domestic subsidiaries Foreign subsidiaries Total deferred Total provision ¥ 65,971 1,156 67,127 (126,716) 152,253 25,537 ¥ 92,664 ¥ 85,290 141,821 227,111 (44,268) 129,978 85,710 ¥ 312,821 ¥ 111,363 144,514 255,877 (57,940) 64,335 6,395 ¥ 262,272 $ 1,355 1,758 3,113 (705) 783 78 $ 3,191 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 98 Next Notes to Consolidated Financial Statements Toyota is subject to a number of different income taxes which, in the aggregate, indicate a statutory rate in Japan of approximately 40.2% for the years ended March 31, 2010, 2011 and 2012. The statutory tax rates in effect for the year in which the temporary differences are expected to reverse are used to calculate the tax effects of temporary differences which are expected to reverse in the future years. Reconciliation of the differences between the statutory tax rate and the effective income tax rate is as follows: Statutory tax rate Increase (reduction) in taxes resulting from: Non-deductible expenses Deferred tax liabilities on undistributed earnings of foreign subsidiaries Deferred tax liabilities on undistributed earnings of afﬁliates accounted for by the equity method Valuation allowance Tax credits The difference between the statutory tax rate in Japan and that of foreign subsidiaries Unrecognized tax beneﬁts adjustments Other Effective income tax rate For the years ended March 31, 2011 40.2% 2010 40.2% 2012 40.2% 1.9 4.4 (0.6) 11.2 (11.8) (10.7) 2.3 (5.1) 31.8% 2.2 4.8 12.6 8.1 (2.6) (9.3) (0.6) 0.1 55.5% 1.7 4.7 9.2 14.9 (1.8) (9.6) 2.5 (1.2) 60.6% Signiﬁcant components of deferred tax assets and liabilities are as follows: Deferred tax assets Accrued pension and severance costs Accrued expenses and liabilities for quality assurances Other accrued employeesʼ compensation Operating loss carryforwards for tax purposes Tax credit carryforwards Property, plant and equipment and other assets Other Gross deferred tax assets Less - Valuation allowance Total deferred tax assets Deferred tax liabilities Unrealized gains on securities Undistributed earnings of foreign subsidiaries Undistributed earnings of afﬁliates accounted for by the equity method Basis difference of acquired assets Lease transactions Other Gross deferred tax liabilities Net deferred tax liability Yen in millions March 31, 2011 2012 ¥ 226,093 395,513 103,020 296,731 127,289 176,229 277,449 1,602,324 (280,685) ¥ 1,321,639 ¥ 236,978 369,985 106,265 337,992 108,426 147,906 296,934 1,604,486 (309,268) ¥ 1,295,218 (146,874) (26,783) (210,475) (27,581) (578,756) (38,351) (556,349) (74,839) (1,421,952) ¥ (100,313) (504,776) (34,120) (576,809) (54,749) (1,408,510) ¥ (113,292) U.S. dollars in millions March 31, 2012 $ 2,883 4,502 1,293 4,112 1,319 1,800 3,613 19,522 (3,763) $ 15,759 (2,561) (336) (6,141) (415) (7,018) (666) (17,137) $ (1,378) The deferred tax assets and liabilities above that comprise the net deferred tax liability are included in the consolidated balance sheets as follows: Deferred tax assets Deferred income taxes (Current assets) Investments and other assets - Other Deferred tax liabilities Other current liabilities Deferred income taxes (Long-term liabilities) Net deferred tax liability Yen in millions March 31, 2011 2012 ¥ 605,884 118,849 ¥ 718,687 91,857 (14,919) (810,127) ¥ (100,313) (14,953) (908,883) ¥(113,292) U.S. dollars in millions March 31, 2012 $ 8,744 1,118 (182) (11,058) $ (1,378) TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 99 Next Notes to Consolidated Financial Statements The factors used to assess the likelihood of realization of the deferred tax assets are the future reversal of existing taxable temporary differences, the future taxable income and available tax planning strategies that are prudent and feasible. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for deferred tax assets which are not more-likely-than-not to be realized. As of March 31, 2012, the parent company and its national tax ﬁling group in Japan are in a cumulative pre-tax loss position in recent years. Meanwhile, Toyota has concluded that there is sufﬁcient positive evidence to overcome the negative evidence of this cumulative pre-tax loss as operating results from the parent company and its national tax ﬁling group in Japan recovered in the second half of this ﬁscal year as a results of increased production volume, vehicle unit sales and cost reduction from the ﬁrst half of the ﬁscal year. Other positive evidence considered includes future forecasted taxable income in the ﬁscal year 2013 and beyond and effective tax planning strategies, inclusive of sales of appreciated assets. This forecasted taxable income is expected to be generated mainly from an increase in worldwide automotive industry demand and continuous cost reduction efforts and is anticipated to be sufﬁcient, over a number of years, to realize the deferred tax assets prior to expiration of operating loss carryforwards in 2021. If the sufﬁcient taxable income for the ﬁscal year 2013 or future years is not achieved due to the factors which cannot be anticipated such as high competition and volatility of worldwide automotive market, steep strengthening of Japanese yen and increase in prices for raw materials, or if tax planning strategies are no longer viable, it could affect the realization of deferred tax assets of the parent company and its national tax ﬁling group in Japan. Operating loss carryforwards for tax purposes as of March 31, 2012 in Japan and foreign countries ($6,036 million) and were ¥496,104 million ¥643,190 million ($7,826 million), respectively, and are available as an offset against future taxable income. The majority of these carryforwards in Japan and foreign countries expire in years 2013 to 2021 and expire in years 2013 to 2031, respectively. Tax credit carryforwards as of March 31, 2012 in Japan and foreign countries were ¥99,423 million ($1,210 million) and ¥9,003 million ($110 million), respectively, and the majority of these carryforwards in Japan and foreign countries expire in years 2013 to 2015 and expire in years 2014 to 2023, respectively. The valuation allowance mainly relates to deferred tax assets of operating loss and foreign tax credit carryforwards for tax purposes that are not expected to be realized. The net changes in the total valuation allowance for deferred tax assets for the years ended March 31, 2010, 2011 and 2012 consist of the following: Valuation allowance at beginning of year Additions Deductions Other Valuation allowance at end of year Yen in millions 2010 ¥ 208,627 46,704 (14,066) (1,996) ¥ 239,269 For the years ended March 31, 2011 ¥ 239,269 55,791 (10,077) (4,298) ¥ 280,685 2012 ¥280,685 96,754 (65,566) (2,605) ¥309,268 U.S. dollars in millions For the year ended March 31, 2012 $ 3,415 1,177 (798) (31) $ 3,763 The other amount includes the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest and currency translation adjustments during the years ended March 31, 2010, 2011 and 2012. Because management intends to reinvest undistributed earnings of foreign subsidiaries to the extent not expected to be remitted in the foreseeable future, management has made no provision for income taxes on those undistributed earnings aggregating ¥2,690,416 million ($32,734 million) as of March 31, 2012. Toyota estimates an additional tax provision of ¥96,320 million ($1,172 million) would be required if the full amount of those undistributed earnings were remitted. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 100 Next Notes to Consolidated Financial Statements A summary of the gross unrecognized tax beneﬁts changes for the years ended March 31, 2010, 17 Shareholders' equity: 2011 and 2012 is as follows: Balance at beginning of year Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions for tax positions of prior years Reductions for tax positions related to lapse of statute of limitations Reductions for settlements Other Balance at end of year Yen in millions 2010 ¥ 46,803 For the years ended March 31, 2011 ¥ 23,965 2012 ¥ 15,453 U.S. dollars in millions For the year ended March 31, 2012 $ 188 2,702 6,750 (2,802) (106) (27,409) (1,973) ¥ 23,965 213 12,564 (16,133) — (2,794) (2,362) ¥ 15,453 4,187 10,801 (363) ̶ (12,820) (357) ¥ 16,901 51 131 (4) ̶ (156) (4) $ 206 The amount of unrecognized tax beneﬁts that, if recognized, would affect the effective tax rate was not material at March 31, 2010, 2011 and 2012, respectively. Toyota does not believe it is reasonably possible that the total amounts of unrecognized tax beneﬁts will signiﬁcantly increase or decrease within the next twelve months. Interest and penalties related to income tax liabilities are included in “Other income (loss), net”. The amounts of interest and penalties accrued as of and recognized for the years ended March 31, 2010, 2011 and 2012, respectively, were not material. to income Toyota remains subject tax examination for the tax returns related to the years beginning on and after April 1, 2005 and January 1, 2000, with various tax jurisdictions in Japan and foreign countries, respectively. Changes in the number of shares of common stock issued have resulted from the following: Common stock issued Balance at beginning of year Issuance during the year Purchase and retirement Balance at end of year The Companies Act provides that an amount equal to 10% of distributions from surplus paid by the parent company and its Japanese subsidiaries be appropriated as a capital reserve or a retained earnings reserve. No further appropriations are required when the total amount of the capital reserve and the retained earnings reserve reaches 25% of stated capital. The retained earnings reserve included in retained earnings as of March 31, 2011 and 2012 was ¥171,062 million and ¥173,711 million ($2,114 million), respectively. The Companies Act provides that the retained earnings reserve of the parent company and its Japanese subsidiaries is restricted and unable to be used for dividend payments, and is excluded from the calculation of the proﬁt available for dividend. The amounts of statutory retained earnings of the parent company available for dividend payments to shareholders were ¥5,389,432 million and ¥5,348,279 million ($65,072 million) as of March 31, 2011 and 2012, respectively. In accordance with customary practice in Japan, 2010 For the years ended March 31, 2011 2012 3,447,997,492 — — 3,447,997,492 3,447,997,492 — — 3,447,997,492 3,447,997,492 ̶ ̶ 3,447,997,492 the distributions from surplus are not accrued in the ﬁnancial statements for the corresponding period, but are recorded in the subsequent accounting period after shareholdersʼ approval has been obtained. Retained earnings at March 31, 2012 include amounts representing year-end cash dividends of ¥95,004 million ($1,156 million), ¥30 ($0.37) per share, which were approved at the Ordinary General Shareholdersʼ Meeting, held on June 15, 2012. Retained earnings at March 31, 2012 include ¥1,477,165 million ($17,973 million) relating to equity in undistributed earnings of companies accounted for by the equity method. On June 24, 2008, at the Ordinary General Shareholdersʼ Meeting, the shareholders of the parent company approved to purchase up to 30 million shares of its common stock at a cost up to ¥200,000 million during the purchase period of one year from the following day. As a result, the parent company repurchased approximately 14 million shares during the approved period of time. These approvals by the shareholders are TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 101 Next Notes to Consolidated Financial Statements not required under the current regulation. On January 1, 2012, the parent company implemented share exchanges as a result of which the parent company became a wholly- owned parent company and each of Toyota Auto Body Co., Ltd. and Kanto Auto Works, Ltd. became a wholly-owned subsidiary, and the parent company acquired additional shares of each subsidiary. As a result of these share exchanges, the parent company issued 31,151,148 shares of treasury stock, and treasury stock decreased by ¥125,819 million ($1,531 million) and losses on disposal of treasury stock occurred in the amount of ¥45,916 million ($559 million). As a result, additional paid-in capital decreased by ¥551 million ($7 million) and retained earnings decreased by ¥45,365 million ($552 million), respectively. As a result of acquiring additional shares of each subsidiary, noncontrolling interests decreased by ¥117,881 million ($1,434 million), accumulated other comprehensive income (loss) decreased by ¥6,503 million ($79 million) and additional paid-in capital increased by ¥44,481 million ($541 million). Detailed components of accumulated other comprehensive income (loss) in Toyota Motor Corporation shareholdersʼ equity at March 31, 2011 and 2012 and the related changes, net of taxes for the years ended March 31, 2010, 2011 and 2012 consist of the following: Balances at March 31, 2009 Other comprehensive income Balances at March 31, 2010 Other comprehensive income (loss) Balances at March 31, 2011 Equity transaction with noncontrolling interests and other Other comprehensive income (loss) Balances at March 31, 2012 Balances at March 31, 2011 Equity transaction with noncontrolling interests and other Other comprehensive income (loss) Balances at March 31, 2012 Yen in millions Foreign currency translation adjustments (882,670) ¥ 9,894 (872,776) (287,613) (1,160,389) Unrealized gains or (losses) on securities ¥ 17,878 176,407 194,285 (26,058) 168,227 — (87,729) ¥(1,248,118) 751 129,328 ¥ 298,306 Pension liability adjustments (242,989) ¥ 74,645 (168,344) 15,785 (152,559) (7,254) (69,208) ¥ (229,021) Accumulated other comprehensive income (loss) ¥ (1,107,781) 260,946 (846,835) (297,886) (1,144,721) (6,503) (27,609) ¥(1,178,833) U.S. dollars in millions Foreign currency translation adjustments $ (14,119) Unrealized gains or (losses) on securities $ 2,047 Pension liability adjustments $ (1,856) Accumulated other comprehensive income (loss) $ (13,928) — (1,067) $(15,186) 9 1,573 $ 3,629 (88) (842) $(2,786) (79) (336) $(14,343) Tax effects allocated to each component of other comprehensive income (loss) for the years ended March 31, 2010, 2011 and 2012 are as follows: Pre-tax amount Yen in millions Tax amount Net-of-tax amount For the year ended March 31, 2010 Foreign currency translation adjustments Unrealized gains or (losses) on securities: Unrealized net holding gains or (losses) arising for the year Less: reclassiﬁcation adjustments for (gains) or losses included in net income attributable to Toyota Motor Corporation Pension liability adjustments Other comprehensive income For the year ended March 31, 2011 Foreign currency translation adjustments Unrealized gains or (losses) on securities: Unrealized net holding gains or (losses) arising for the year Less: reclassiﬁcation adjustments for (gains) or losses included in net income attributable to Toyota Motor Corporation Pension liability adjustments Other comprehensive income (loss) For the year ended March 31, 2012 Equity transaction with noncontrolling interests and other Foreign currency translation adjustments Unrealized gains or (losses) on securities: Unrealized net holding gains or (losses) arising for the year Less: reclassiﬁcation adjustments for (gains) or losses included in net income attributable to Toyota Motor Corporation Pension liability adjustments Other comprehensive income (loss) ¥ 10,809 ¥ (915) ¥ 9,894 277,838 (102,538) 175,300 1,852 124,526 ¥ 415,025 (745) (49,881) ¥ (154,079) 1,107 74,645 ¥ 260,946 ¥ (294,279) ¥ 6,666 ¥ (287,613) (31,899) 9,643 (22,256) (6,358) 26,681 ¥ (305,855) ¥ (10,874) (95,677) 2,556 (10,896) 7,969 (3,802) 15,785 ¥ (297,886) 4,371 7,948 ¥ (6,503) (87,729) ¥ ¥ 164,872 (65,642) 99,230 50,332 (111,722) (3,069) ¥ (20,234) 42,514 ¥ (31,043) 30,098 (69,208) ¥ (34,112) U.S. dollars in millions Pre-tax amount Tax amount Net-of-tax amount For the year ended March 31, 2012 Equity transaction with noncontrolling interests and other Foreign currency translation adjustments Unrealized gains or (losses) on securities: Unrealized net holding gains or (losses) arising for the year Less: reclassiﬁcation adjustments for (gains) or losses included in net income attributable to Toyota Motor Corporation Pension liability adjustments Other comprehensive income (loss) $ (132) (1,164) 2,006 612 (1,359) (37) $ $ 53 97 $ (79) (1,067) (799) 1,207 (246) 517 $ (378) 366 (842) $ (415) TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 102 Next Notes to Consolidated Financial Statements 18 Stock-based compensation: In June 1997, the parent companyʼs shareholders approved a stock option plan for board members. In June 2001, the shareholders approved an amendment of the plan to include both board members and key employees. Each year until inception, the June 2010, since the plansʼ shareholders have approved the authorization for the grant of options for the purchase of Toyotaʼs common stock. Authorized shares for each year that remain ungranted are unavailable for grant in future years. Stock options granted in and after August 2006 have terms of 8 years and an exercise price equal to 1.025 times the closing price of Toyotaʼs common stock on the date of grant. These options generally vest 2 years from the date of grant. Dividend rate Risk-free interest rate Expected volatility Expected holding period (years) For the years ended March 31, 2010, 2011 and 2012, Toyota recognized stock-based compensation expenses for stock options of ¥2,446 million, ¥2,522 million and ¥1,539 million ($19 million) as selling, general and administrative expenses. The weighted-average grant-date fair value of options granted during the years ended March 31, 2010 and 2011 was ¥803 and ¥724, respectively per share. The fair value of options granted is amortized over the option vesting period in determining net income attributable to Toyota Motor Corporation in the consolidated statements of income. The grant-date fair value of options granted is estimated using the Black-Scholes option pricing model with the following weighted- average assumptions: 2010 2.4% 0.7% 30% 5.0 2011 1.5% 0.3% 32% 5.0 The following table summarizes Toyotaʼs stock option activity: Options outstanding at March 31, 2009 Granted Exercised Canceled Options outstanding at March 31, 2010 Granted Exercised Canceled Options outstanding at March 31, 2011 Granted Exercised Canceled Options outstanding at March 31, 2012 Options exercisable at March 31, 2010 Options exercisable at March 31, 2011 Options exercisable at March 31, 2012 Number of shares 11,340,700 3,492,000 (157,800) (958,200) 13,716,700 3,435,000 — (1,364,900) 15,786,800 — — (3,256,800) 12,530,000 7,515,700 9,347,800 9,778,000 Yen Weighted-average exercise price ¥ 5,631 4,193 3,116 4,646 5,363 3,183 — 4,759 4,941 — — 5,059 ¥ 4,910 ¥ 6,132 ¥ 5,821 ¥ 5,396 Weighted-average remaining contractual life in years 5.51 Yen in millions Aggregate intrinsic value ¥ 1 5.23 ¥ — 5.04 ¥ 565 4.55 3.86 3.79 4.05 ¥ 1,065 ¥ — ¥ — ¥ — The total intrinsic value of options exercised for the year ended March 31, 2010 was ¥113 million. No options were exercised for the years ended March 31, 2011 and 2012. As of March 31, 2012, there were unrecognized compensation expenses of ¥264 million ($3 million) for stock options granted. Those expenses are expected to be recognized over a weighted- average period of 0.3 years. Cash received from the exercise of stock options for the year ended March 31, 2010 was ¥492 million. No cash was received from the exercise of stock options for the years ended March 31, 2011 and 2012. The following table summarizes information for options outstanding and options exercisable at March 31, 2012: Exercise price range Yen ¥3,183–5,000 5,001–7,278 3,183–7,278 Number of shares 8,526,000 4,004,000 12,530,000 Outstanding Weighted-average exercise price Yen ¥ 4,038 6,766 4,910 U.S. dollars $49 82 60 Exercisable Weighted-average remaining life Years 5.34 2.88 4.55 Number of shares 5,774,000 4,004,000 9,778,000 Weighted-average exercise price Yen ¥ 4,445 6,766 5,396 U.S. dollars $54 82 66 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 103 Next Notes to Consolidated Financial Statements 19 Employee beneﬁt plans: ■ Pension and severance plans Upon terminations of employment, employees of the parent company and subsidiaries in Japan are entitled, under the retirement plans of each company, to lump-sum indemnities or pension payments, based on current rates of pay and lengths of service or the number of “points” mainly determined by those. Under normal circumstances, the minimum payment prior to retirement age is an amount based on voluntary retirement. Employees receive additional beneﬁts on involuntary retirement, including retirement at the age limit. Effective October 1, 2004, the parent company amended its retirement plan to introduce a “point” based retirement beneﬁt plan. Under the new plan, employees are entitled to lump-sum or pension payments determined based on accumulated “points” vested in each year of service. There are three types of “points” that vest in each year of service consisting of “service period points” which are attributed to the length of service, “job title points” which are attributed to the job title of each employee, and “performance points” which are attributed to the annual performance evaluation of each employee. Under normal circumstances, the minimum payment prior to retirement age is an amount reﬂecting an adjustment rate applied to represent voluntary additional retirement. Employees beneﬁts upon involuntary retirement, including retirement at the age limit. receive Effective October 1, 2005, the parent company partly amended its retirement plan and introduced the quasi cash-balance plan under which beneﬁts are determined based on the variable-interest crediting rate rather than the ﬁxed-interest crediting rate as was in the pre-amended plan. The parent company and most subsidiaries in Japan have contributory funded deﬁned beneﬁt pension plans, which are pursuant to the Corporate Deﬁned Beneﬁt Pension Plan Law (CDBPPL). The contributions to the plans are funded with several ﬁnancial institutions in accordance with the applicable laws and regulations. These pension plan assets consist principally of common stocks, government bonds and insurance contracts. Most foreign subsidiaries have pension plans or severance indemnity plans covering substantially all of their employees under which the cost of beneﬁts are currently invested or accrued. The beneﬁts for these plans are based primarily on lengths of service and current rates of pay. Toyota uses a March 31 measurement date for its beneﬁt plans. Information regarding Toyotaʼs deﬁned beneﬁt plans is as follows: Change in beneﬁt obligation Beneﬁt obligation at beginning of year Service cost Interest cost Plan participantsʼ contributions Plan amendments Net actuarial loss Acquisition and other Beneﬁts paid Beneﬁt obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Acquisition and other Employer contributions Plan participantsʼ contributions Beneﬁts paid Fair value of plan assets at end of year Funded status Yen in millions March 31, 2011 2012 ¥1,726,747 82,422 52,502 1,046 (1,429) 3,830 (57,928) (78,012) 1,729,178 1,179,051 24,216 (39,374) 96,458 1,046 (78,012) 1,183,385 ¥ 545,793 ¥ 1,729,178 78,539 52,399 1,055 740 117,320 40,496 (72,340) 1,947,387 1,183,385 16,309 47,547 94,815 1,055 (72,340) 1,270,771 ¥ 676,616 U.S. dollars in millions March 31, 2012 $21,039 956 637 13 9 1,427 492 (880) 23,693 14,398 198 578 1,154 13 (880) 15,461 $ 8,232 Amounts recognized in the consolidated balance sheet as of March 31, 2011 and 2012 are comprised of the following: Accrued expenses (Accrued pension and severance costs) Accrued pension and severance costs Investments and other assets - Other (Prepaid pension and severance costs) Net amount recognized Yen in millions March 31, 2011 ¥ 24,677 668,022 (146,906) ¥ 545,793 2012 ¥ 21,076 708,402 (52,862) ¥676,616 U.S. dollars in millions March 31, 2012 $ 256 8,619 (643) $ 8,232 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Amounts recognized in accumulated other comprehensive income (loss) as of March 31, 2011 and Other changes in plan assets and beneﬁt obligations recognized in other comprehensive income 2012 are comprised of the following: (loss) are as follows: 0820 Search Contents Prev page 104 Next U.S. dollars in millions Yen in millions Net actuarial loss Prior service costs Net transition obligation Net amount recognized Yen in millions March 31, 2011 ¥(347,494) 72,324 (1,626) ¥(276,796) 2012 ¥(456,839) 55,597 ̶ ¥(401,242) March 31, 2012 $(5,558) 676 ̶ $(4,882) The accumulated beneﬁt obligation for all deﬁned beneﬁt pension plans was ¥1,584,627 million and ¥1,764,721 million ($21,471 million) at March 31, 2011 and 2012, respectively. The projected beneﬁt obligation, accumulated beneﬁt obligation and fair value of plan assets for which the accumulated beneﬁt obligations exceed plan assets are as follows: Projected beneﬁt obligation Accumulated beneﬁt obligation Fair value of plan assets Yen in millions March 31, 2011 ¥ 500,046 453,111 72,359 2012 ¥ 535,503 481,484 80,752 U.S. dollars in millions March 31, 2012 $ 6,515 5,858 983 Components of the net periodic pension cost are as follows: Service cost Interest cost Expected return on plan assets Amortization of prior service costs Recognized net actuarial loss Amortization of net transition obligation Net periodic pension cost Yen in millions 2010 ¥ 75,558 50,559 (32,251) (15,063) 27,246 1,944 ¥ 107,993 For the years ended March 31, 2011 ¥ 82,422 52,502 (42,364) (24,032) 16,095 1,944 ¥ 86,567 2012 ¥ 78,539 52,399 (44,422) (15,975) 30,125 1,626 ¥102,292 U.S. dollars in millions For the year ended March 31, 2012 $ 956 637 (541) (194) 366 20 $1,244 Net actuarial gain (loss) Recognized net actuarial loss Prior service costs Amortization of prior service costs Amortization of net transition obligation Other Total recognized in other comprehensive income (loss) 2010 ¥ 81,949 27,246 3,080 (15,063) 1,944 2,594 For the years ended March 31, 2011 ¥(21,978) 16,095 1,429 (24,032) 1,944 40,995 2012 ¥(145,433) 30,125 (740) (15,975) 1,626 5,951 U.S. dollars in millions For the year ended March 31, 2012 $(1,770) 366 (9) (194) 20 73 ¥ 101,750 ¥ 14,453 ¥(124,446) $(1,514) The other amount includes the impact of transition to deﬁned contribution pension plans, consolidation and deconsolidation of certain entities due to changes in ownership interest and currency translation adjustments during the years ended March 31, 2010, 2011 and 2012. The estimated prior service costs and net actuarial loss that will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost during the year ending March 31, 2013 are ¥(5,800) million ($(71) million) and ¥20,600 million ($251 million), respectively. Weighted-average assumptions used to determine beneﬁt obligations as of March 31, 2011 and 2012 are as follows: Discount rate Rate of compensation increase March 31, 2011 2.8% 2.6% 2012 2.6% 2.8% As of March 31, 2011 and 2012, the parent company and certain subsidiaries in Japan employ “point” based retirement beneﬁt plans and do not use the rates of compensation increase to determine beneﬁt obligations. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements Weighted-average assumptions used to determine net periodic pension cost for the years ended March 31, 2010, 2011 and 2012 are as follows: The following table summarizes the fair value of classes of plan assets as of March 31, 2011 and 2012. See note 26 to the consolidated ﬁnancial statements for three levels of input which are used to measure fair value. 0820 Search Contents Prev page 105 Next Discount rate Expected return on plan assets Rate of compensation increase During the years ended March 31, 2010, 2011 and 2012, the parent company and certain in Japan employ “point” based subsidiaries retirement beneﬁt plans and do not use the rates of compensation increase to determine net periodic pension cost. Toyotaʼs policy and objective The expected rate of return on plan assets is determined after considering several applicable factors including, the composition of plan assets held, assumed risks of asset management, the returns on plan historical results of assets, Toyotaʼs principal policy for plan asset management, and forecasted market conditions. for plan asset management is to maximize returns on plan assets to meet future beneﬁt payment requirements under risks which Toyota considers permissible. Asset allocations under the plan asset management are determined based on plan asset management policies of each plan which are established to achieve the optimized asset compositions in terms of the long-term overall plan asset management. Excepting equity For the years ended March 31, 2011 2.8% 3.8% 2.6% 2012 2.8% 3.9% 2.6% 2010 2.8% 3.6% 2.6% securities contributed by Toyota, approximately 50% of the plan assets is invested in equity securities, approximately 30% is invested in debt securities, and the rest of them is invested in insurance contracts and other products. When actual allocations are not in line with target allocations, Toyota rebalances its investments in accordance with the policies. Prior to making individual investments, Toyota performs in-depth assessments of corresponding factors including category of products, industry type, currencies and liquidity of each potential investment under consideration to mitigate concentrations of risks such as market risk and foreign currency exchange rate risk. To assess performance of the investments, Toyota establishes bench mark return rates for each individual investment, combines these individual bench mark rates based on the asset composition ratios within each asset category, and compares the combined rates with the corresponding actual return rates on each asset category. Equity securities Common stocks Commingled funds Debt securities Government bonds Commingled funds Other Insurance contracts Other Total Equity securities Common stocks Commingled funds Debt securities Government bonds Commingled funds Other Insurance contracts Other Total Yen in millions March 31, 2011 Level 1 Level 2 Level 3 Total ¥ 489,759 — 489,759 82,685 — 29,217 111,902 — 19,610 ¥ 621,271 ¥ — 180,901 180,901 — 159,232 44,994 204,226 90,972 26,418 ¥ 502,517 ¥ — — — — — 746 746 — 58,851 ¥ 59,597 ¥ 489,759 180,901 670,660 82,685 159,232 74,957 316,874 90,972 104,879 ¥1,183,385 Yen in millions March 31, 2012 U.S. dollars in millions March 31, 2012 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total ¥ 468,237 ¥ ̶ ¥ ̶ 468,237 232,842 232,842 ̶ ¥ 468,237 232,842 ̶ 701,079 ̶ $ 5,697 ̶ 5,697 $ ̶ 2,833 2,833 88,411 ̶ ̶ 88,411 ̶ 48,190 88,411 219,658 50,024 358,093 83,993 127,606 ¥ 604,838 ¥ 593,900 ¥ 72,033 ¥ 1,270,771 ̶ 219,658 49,433 269,091 83,993 7,974 ̶ ̶ 591 591 ̶ 71,442 1,076 ̶ ̶ 1,076 ̶ 586 $ 7,359 ̶ 2,673 601 3,274 1,022 97 $ 7,226 $ ̶ ̶ ̶ ̶ ̶ 7 7 ̶ 869 $ 876 $ 5,697 2,833 8,530 1,076 2,673 608 4,357 1,022 1,552 $ 15,461 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 106 Next Notes to Consolidated Financial Statements The following is description of the assets, information about the valuation techniques used to measure fair value, key inputs and signiﬁcant assumptions: Quoted market prices for identical securities are used to measure fair value of common stocks. Common stocks include 51% of Japanese stocks and 49% of foreign stocks as of March 31, 2011, and 52% of Japanese stocks and 48% of foreign stocks as of March 31, 2012. Quoted market prices for identical securities are used to measure fair value of government include 25% of bonds. Government bonds Japanese government bonds and 75% of foreign government bonds as of March 31, 2011, and 25% of Japanese government bonds and 75% of foreign government bonds as of March 31, 2012. Commingled funds are beneﬁcial interests of collective trust, which are mainly invested by the parent company and Japanese subsidiaries. The fair values of commingled funds are measured using the net asset value (“NAV”) provided by the administrator of the fund, and are categorized by the ability to redeem investments at the measurement day. The fair values of insurance contracts are measured using contracted amount with accrued interest. Other consists of cash equivalents, other private placement investment funds and other assets. The fair values of other private placement investment funds are measured using the NAV provided by the administrator of the fund, and are categorized by the ability to redeem investments at the measurement day. The following tables summarize the changes in Level 3 plan assets measured at fair value for the years ended March 31, 2010, 2011 and 2012: Yen in millions Balance at beginning of year Actual return on plan assets Purchases, sales and settlements Other Balance at end of year Debt securities ¥ 5,242 818 (2,233) (236) ¥ 3,591 For the year ended March 31, 2010 Other ¥ 45,825 (2,206) 3,467 (568) ¥ 46,518 Total ¥ 51,067 (1,388) 1,234 (804) ¥ 50,109 Balance at beginning of year Actual return on plan assets Purchases, sales and settlements Other Balance at end of year Balance at beginning of year Actual return on plan assets Purchases, sales and settlements Other Balance at end of year Balance at beginning of year Actual return on plan assets Purchases, sales and settlements Other Balance at end of year Yen in millions Debt securities ¥3,591 312 (2,948) (209) ¥ 746 For the year ended March 31, 2011 Other ¥ 46,518 1,908 11,490 (1,065) ¥ 58,851 Total ¥ 50,109 2,220 8,542 (1,274) ¥ 59,597 Yen in millions Debt securities ¥ 746 5 (160) ̶ ¥ 591 For the year ended March 31, 2012 Other ¥ 58,851 (519) 12,967 143 ¥ 71,442 Total ¥ 59,597 (514) 12,807 143 ¥ 72,033 U.S. dollars in millions Debt securities $ 9 0 (2) ̶ $ 7 For the year ended March 31, 2012 Other $ 716 (6) 158 1 $ 869 Total $ 725 (6) 156 1 $ 876 Toyota expects to contribute ¥104,943 million ($1,277 million) to its pension plans in the year ending March 31, 2013. The following pension beneﬁt payments, which reﬂect expected future service, as appropriate, are expected to be paid: Years ending March 31, 2013 2014 2015 2016 2017 from 2018 to 2022 Total Yen in millions ¥ 69,352 71,472 74,696 77,750 78,823 447,995 ¥ 820,088 U.S. dollars in millions $ 844 869 909 946 959 5,451 $ 9,978 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 107 Next Notes to Consolidated Financial Statements ■ Postretirement beneﬁts other than pensions and postemployment beneﬁts Toyotaʼs U.S. subsidiaries provide certain health care and life insurance beneﬁts to eligible retired employees. In addition, Toyota provides beneﬁts to certain former or inactive employees after employment, but before retirement. These beneﬁts are currently unfunded and provided through various insurance companies and health care providers. The costs of these beneﬁts are recognized over the period the employee provides credited service to Toyota. Toyotaʼs obligations under these arrangements are not material. 20 Derivative ﬁnancial instruments: Toyota employs derivative ﬁnancial instruments, including foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage its exposure to ﬂuctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives for speculation or trading. ■ Fair value hedges Toyota enters into interest rate swaps and interest rate currency swap agreements mainly to convert its ﬁxed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing interest rate risk exposure. Interest rate swap agreements are executed as either an integral part of speciﬁc debt transactions or on a portfolio basis. Toyota uses interest rate currency swap agreements to hedge exposure to currency exchange rate ﬂuctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executing interest rate currency swap agreements, which involve the exchange of foreign currency principal and interest obligations for each functional currency obligations at agreed- upon currency exchange and interest rates. For the years ended March 31, 2010, 2011 and 2012, the ineffective portion of Toyotaʼs fair value hedge relationships was not material. For fair value hedging relationships, the components of each derivativeʼs gain or loss are included in the assessment of hedge effectiveness. ■ Undesignated derivative ﬁnancial instruments Toyota uses foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements, and interest rate options, to manage its exposure to foreign currency exchange rate ﬂuctuations and interest rate ﬂuctuations from an economic perspective, and for which Toyota is unable or has elected not to apply hedge accounting. ■ Fair value and gains or losses on derivative ﬁnancial instruments The following table summarizes the fair values of derivative ﬁnancial instruments as of March 31, 2011 and 2012: Yen in millions March 31, 2011 2012 U.S. dollars in millions March 31, 2012 Derivative ﬁnancial instruments designated as hedging instruments Interest rate and currency swap agreements Prepaid expenses and other current assets Investments and other assets - Other Total Other current liabilities Other long-term liabilities Total Undesignated derivative ﬁnancial instruments Interest rate and currency swap agreements Prepaid expenses and other current assets Investments and other assets - Other Total Other current liabilities Other long-term liabilities Total Foreign exchange forward and option contracts Prepaid expenses and other current assets Investments and other assets - Other Total Other current liabilities Other long-term liabilities Total ¥ 55,794 74,528 ¥ 130,322 ¥ (7,410) (1,188) (8,598) ¥ ¥ 99,093 185,272 ¥ 284,365 ¥ (64,611) (132,785) ¥(197,396) ¥ 2,619 — ¥ 2,619 ¥ (14,202) (75) ¥ (14,277) ¥ 7,166 61,174 ¥ 68,340 ¥ (2,060) (303) ¥ (2,363) ¥ 61,983 157,642 ¥ 219,625 ¥ (38,338) (120,666) ¥(159,004) ¥ 9,531 ̶ ¥ 9,531 ¥ (21,736) (70) ¥ (21,806) $ 87 744 $ 831 (25) $ (4) (29) $ $ 754 1,918 $ 2,672 $ (467) (1,468) $(1,935) $ 116 ̶ $ 116 $ (264) (1) $ (265) TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 108 Next Notes to Consolidated Financial Statements The following table summarizes the notional amounts of derivative ﬁnancial instruments as of March 31, 2011 and 2012: Yen in millions March 31, 2011 2012 U.S. dollars in millions March 31, 2012 Designated derivative ﬁnancial instruments Undesignated derivative ﬁnancial instruments Designated derivative ﬁnancial instruments Undesignated derivative ﬁnancial instruments Designated derivative ﬁnancial instruments Undesignated derivative ﬁnancial instruments Interest rate and currency swap agreements Foreign exchange forward and option contracts Total ¥ 617,472 ¥ 11,460,275 ¥ 344,623 ¥ 10,607,666 $ 4,193 $ 129,063 — ¥ 617,472 1,176,955 ¥ 12,637,230 ̶ ¥ 344,623 2,199,627 ¥ 12,807,293 ̶ $ 4,193 26,762 $ 155,825 The following table summarizes the gains and losses on derivative ﬁnancial instruments and hedged items reported in the consolidated statement of income for the years ended March 31, 2010, 2011 and 2012: Yen in millions For the years ended March 31, 2010 2011 Gains or (losses) on derivative ﬁnancial instruments Gains or (losses) on hedged items Gains or (losses) on derivative ﬁnancial instruments Gains or (losses) on hedged items Derivative ﬁnancial instruments designated as hedging instruments - Fair value hedge Interest rate and currency swap agreements Cost of ﬁnancing operations Interest expense ¥ 138,677 (265) ¥ (135,163) 265 ¥ 71,491 (166) ¥(68,741) 166 Undesignated derivative ﬁnancial instruments Interest rate and currency swap agreements Cost of ﬁnancing operations Foreign exchange gain (loss), net ¥ 77,939 (2,819) ¥ Foreign exchange forward and option contracts Cost of ﬁnancing operations Foreign exchange gain (loss), net (21,841) 60,599 — — — — ¥ 72,082 (1,393) ¥ (2,693) 110,211 — — — — Yen in millions U.S. dollars in millions For the year ended March 31, For the year ended March 31, 2012 2012 Gains or (losses) on derivative ﬁnancial instruments Gains or (losses) on hedged items Gains or (losses) on derivative ﬁnancial instruments Gains or (losses) on hedged items Derivative ﬁnancial instruments designated as hedging instruments - Fair value hedge Interest rate and currency swap agreements Cost of ﬁnancing operations Interest expense ¥ (1,354) ̶ ¥ 2,999 ̶ Undesignated derivative ﬁnancial instruments Interest rate and currency swap agreements Cost of ﬁnancing operations Foreign exchange gain (loss), net Foreign exchange forward and option contracts Cost of ﬁnancing operations Foreign exchange gain (loss), net ¥ 35,834 (28) ¥ ̶ ̶ (3,815) 53,272 ̶ ̶ $ (16) ̶ $ 436 (0) (46) 648 $ 36 ̶ $ ̶ ̶ ̶ ̶ Undesignated derivative ﬁnancial instruments are used to manage risks of ﬂuctuations in interest rates to certain borrowing transactions and in foreign currency exchange rates of certain currency receivables and payables. Toyota accounts for these derivative ﬁnancial instruments as economic hedges with changes in the fair value recorded directly into current period earnings. instruments reported Unrealized gains or (losses) on undesignated derivative ﬁnancial in the cost of ﬁnancing operations for the years ended March 31, 2010, 2011 and 2012 were ¥71,538 million, ¥93,370 million and ¥(14,934) million ($(182) million) those reported in foreign exchange gain (loss), net were ¥(26,476) million, ¥(240) million and ¥(5,543) million ($(67) million), respectively. Cash ﬂows from transactions of derivative ﬁnancial instruments are included in cash ﬂows from operating activities in the consolidated statements of cash ﬂows. ■ Credit risk related contingent features Toyota enters into International Swaps and Derivatives Association Master Agreements with counterparties. These Master Agreements contain a provision requiring either Toyota or the counterparty to settle the contract or to post assets to the other party in the event of a ratings downgrade below a speciﬁed threshold. The aggregate fair value amount of derivative TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 109 Next Notes to Consolidated Financial Statements ﬁnancial instruments that contain credit risk related contingent features that are in a net liability position after being offset by collateral as of March 31, 2012 is ¥9,987 million ($122 million). The aggregate fair value amount of assets that are already posted as collateral as of March 31, 2012 is ¥16,109 million ($196 million). If the ratings of Toyota decline below speciﬁed thresholds, the maximum amount of assets to be posted or for which Toyota could be required to settle the contracts is ¥9,987 million ($122 million) as of March 31, 2012. 21 Other ﬁnancial instruments: instruments, Toyota has certain ﬁnancial including ﬁnancial assets and liabilities which in the normal course of business. arose These ﬁnancial instruments are executed with creditworthy ﬁnancial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major industrialized countries. Financial instruments involve, to varying degrees, market risk as instruments are subject to price ﬂuctuations, and elements of credit risk in the event a counterparty should default. In the unlikely event the counterparties fail to meet the contractual terms of a foreign currency or an interest rate instrument, Toyotaʼs risk is limited to the fair value of the instrument. Although Toyota may be exposed to losses in the event of non-performance by counterparties on ﬁnancial instruments, it does not anticipate signiﬁcant losses due to the its counterparties. Counterparties nature of to Toyotaʼs ﬁnancial instruments represent, in general, international ﬁnancial institutions. Additionally, Toyota does not have a signiﬁcant exposure to any individual counterparty. Toyota believes that the overall credit risk related to its ﬁnancial instruments is not signiﬁcant. The following table summarizes the estimated fair values of Toyotaʼs ﬁnancial instruments, excluding marketable securities and other securities investments and afﬁliated companies and derivative ﬁnancial instruments. See note 26 to the consolidated ﬁnancial statements for three levels of input which are used to measure fair value. Assets (Liabilities) Cash and cash equivalents Time deposits Total ﬁnance receivables, net Other receivables Short-term borrowings Long-term debt including the current portion Yen in millions March 31, 2011 Carrying amount ¥2,080,709 203,874 8,680,882 306,201 (3,179,009) (9,200,130) Estimated fair value ¥2,080,709 203,874 8,971,523 306,201 (3,179,009) (9,274,881) Assets (Liabilities) Cash and cash equivalents Time deposits Total ﬁnance receivables, net Other receivables Short-term borrowings Long-term debt including the current portion Carrying amount ¥1,679,200 80,301 8,879,731 408,547 (3,450,649) (8,533,549) Assets (Liabilities) Cash and cash equivalents Time deposits Total ﬁnance receivables, net Other receivables Short-term borrowings Long-term debt including the current portion Carrying amount $ 20,431 977 108,039 4,971 (41,984) (103,827) Yen in millions March 31, 2012 Estimated fair value Level 1 ¥1,444,276 ̶ ̶ ̶ ̶ ̶ Level 2 ¥ 234,924 80,301 ̶ ̶ (3,256,078) (7,835,970) Level 3 Total ¥ ̶ ¥1,679,200 80,301 ̶ 9,137,936 9,137,936 408,547 408,547 (3,450,649) (194,571) (8,683,193) (847,223) U.S. dollars in millions March 31, 2012 Estimated fair value Level 1 $17,573 ̶ ̶ ̶ ̶ ̶ Level 2 $ 2,858 977 ̶ ̶ (39,617) (95,340) Level 3 $ ̶ ̶ 111,181 4,971 (2,367) (10,308) Total $ 20,431 977 111,181 4,971 (41,984) (105,648) TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 110 Next Notes to Consolidated Financial Statements ■ Cash and cash equivalents and ■ Other receivables time deposits In the normal course of business, substantially all cash and cash equivalents and time deposits are highly liquid and are carried at amounts which approximate fair value due to its short duration. Cash equivalents and time deposits include negotiable certiﬁcate of deposit measured at fair value on a recurring basis. Where money market funds produce a daily net asset value in an active market, this value is used to determine the fair value of the fund investment, and the investment is classiﬁed in Level 1. All other types of cash and cash equivalents and time deposits are classiﬁed in Level 2. ■ Finance receivables, net The fair values of ﬁnance receivables are estimated by discounting expected cash ﬂows to present value using internal assumptions, including prepayment speeds, expected credit losses and collateral value. Certain impaired ﬁnance receivables are measured at fair value on a nonrecurring basis based on collateral values. As unobservable inputs are utilized, ﬁnance receivables are classiﬁed in Level 3. Other receivables are short-term receivables. Other receivables are carried at amounts which approximate fair value, and the difference between the carrying amount and the fair value is not material. Other receivables are classiﬁed in Level 3. ■ Short-term borrowings and long-term debt long-term debt The fair values of short-term borrowings and total including the current portion, except for secured loans provided by securitization transactions using special- purpose entities, are estimated based on the discounted amounts of future cash ﬂows using Toyotaʼs current borrowing rates for similar liabilities. As these inputs are observable, these loans are classiﬁed in Level 2. The fair values of the secured loans provided by securitization transactions are estimated based on current market rates and credit spreads for debt with similar maturities. Internal assumptions including prepayment speeds and expected credit losses are used to estimate the timing of cash ﬂows to be paid on the underlying securitized assets. As these valuations utilize unobservable loans are classiﬁed in Level 3. See note 12 to the consolidated ﬁnancial statements for information regarding the secured loans. the secured inputs, 22 Lease commitments: Toyota leases certain assets under capital lease and operating lease arrangements. An analysis of leased assets under capital leases is as follows: Class of property Building Machinery and equipment Less - Accumulated depreciation Yen in millions March 31, U.S. dollars in millions March 31, 2011 ¥ 13,412 30,283 (18,590) ¥ 25,105 2012 ¥12,230 31,698 (20,284) ¥23,644 2012 $ 149 386 (247) $ 288 Amortization expenses under capital leases for the years ended March 31, 2010, 2011 and 2012 were ¥7,587 million, ¥5,966 million and ¥5,572 million ($68 million), respectively. Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2012 are as follows: Years ending March 31, 2013 2014 2015 2016 2017 Thereafter Total minimum lease payments Less - Amount representing interest Present value of net minimum lease payments Less - Current obligations Long-term capital lease obligations Yen in millions ¥ 5,023 3,431 2,601 2,415 2,077 12,636 28,183 (6,835) 21,348 (4,175) ¥ 17,173 U.S. dollars in millions $ 61 42 32 29 25 154 343 (83) 260 (51) $ 209 Rental expenses under operating leases for the years ended March 31, 2010, 2011 and 2012 were ¥93,994 million, ¥89,029 million and ¥91,052 million ($1,108 million), respectively. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 111 Next Notes to Consolidated Financial Statements The minimum rental payments required under operating leases relating primarily to land, buildings and equipment having initial or remaining non-cancelable lease terms in excess of one year at March 31, 2012 are as follows: Years ending March 31, 2013 2014 2015 2016 2017 Thereafter Total minimum future rentals Yen in millions ¥ 10,375 7,988 6,510 5,745 5,094 20,653 ¥ 56,365 U.S. dollars in millions $ 126 97 79 70 62 252 $ 686 23 Other commitments and contingencies, concentrations and factors that may affect future operations: ■ Commitments to make required payments. Commitments outstanding at March 31, 2012 for the purchase of property, plant and equipment and other assets totaled ¥73,004 million ($888 million). ■ Guarantees Toyota enters into contracts with Toyota dealers to guarantee customersʼ payments of their installment payables that arise from installment contracts between customers and Toyota dealers, as and when requested by Toyota dealers. Guarantee periods are set to match maturity of installment payments, and at March 31, 2012, range from 1 month to 35 years; however, they are generally shorter than the useful lives of products sold. Toyota is required to execute its guarantee primarily when customers are unable ($20,625 million). Liabilities The maximum potential amount of future payments as of March 31, 2012 is ¥1,695,140 for million guarantees totaling ¥13,981 million ($170 million) have been provided as of March 31, 2012. Under these guarantee contracts, Toyota is entitled to recover any amount paid by Toyota from the customers whose original obligations Toyota has guaranteed. ■ Legal Proceedings Product Recalls From time-to-time, Toyota issues vehicle recalls and takes other safety measures including safety campaigns relating to its vehicles. In November 2009, Toyota announced a safety campaign in North America for certain models of Toyota and Lexus vehicles related to ﬂoor mat entrapment of accelerator pedals, and later expanded it to include additional models. In January 2010, Toyota announced a recall in North America for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals. Also in January 2010, Toyota recalled in Europe and China certain models of Toyota vehicles related to sticking accelerator pedals. In February 2010, Toyota announced a worldwide recall related to the software program that controls the antilock braking system “ABS” in certain vehicle models including the Prius. Set forth below is a description of various claims, lawsuits and government investigations involving Toyota in the United States relating to these recalls and other safety measures. Class Action and Consolidated Litigation There are approximately 200 putative class actions that have been ﬁled since November 2009 alleging that certain Toyota, Lexus and Scion vehicles contain defects that lead to unintended acceleration. Many of the putative class actions allege that malfunctions involving the ﬂoor mats and accelerator pedals do not cover the full scope of possible defects related to unintended acceleration. Rather, they allege that Electronic Throttle Control System-intelligent “ETCS-i” is the true cause and that Toyota has failed to inform consumers despite its awareness of the problem. In general, these cases seek recovery for the alleged diminution in value of the vehicles, injunctive and other relief. In April 2010, the approximately 190 federal cases were consolidated for pretrial proceedings into a single multi-district litigation in the United States District Court for the Central District of California. In addition, of more than 300 individual product liability personal injury cases relating to unintended acceleration pending against Toyota, the federal cases have been consolidated into the multi-district litigation. This consolidated federal included document production, action has depositions and various motions. The remaining individual product liability personal injury cases relating to unintended acceleration remain pending in various state courts in the United States. Additionally, there were approximately 10 putative class actions in various state courts, including California. All cases except the California case have been consolidated into the multi-district litigation. The claims are similar to the class actions in federal court. One of the putative California class actions was ﬁled by the Orange County District Attorney and, among other things, seeks statutory penalties alleging that Toyota sold and marketed defective vehicles and that consumers have been harmed as a result of diminution in value of their vehicles. Beginning in February 2010, Toyota has also been sued in approximately 20 putative class actions alleging defects in the antilock braking systems in various hybrid vehicles that cause the vehicles to fail to stop in a timely manner when driving in certain road conditions. The plaintiffs TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 112 Next Notes to Consolidated Financial Statements seek an order requiring Toyota to repair the vehicles and claim that all owners and lessees of vehicles, including those for which recalls have been implemented, should be compensated for the defects related to the antilock braking systems. These cases have been consolidated into 2 actions, one in federal court in the United States District Court for the Central District of California and one in state court in the Los Angeles County Superior Court. From February through March 2010, Toyota was sued in 6 putative shareholder class actions on behalf of investors in Toyota ADRs and common stock. The cases have been consolidated into a single action in the United States District Court for the Central District of California, and a lead plaintiff has been appointed. The consolidated complaint, ﬁled October 4, 2010, alleges violations of the Securities Exchange Act of 1934 and Japanʼs Financial Instruments and Exchange Act on the basis that defendants made statements that were false or misleading in that they failed to disclose problems with, or the causes of, unintended acceleration in a number of vehicle models. The plaintiffs seek monetary damages in an amount to be proven at trial, interest and attorneysʼ fees and costs. The judge dismissed with prejudice the claims based on Japanʼs Financial Instruments and Exchange Act. The lead plaintiff has moved for certiﬁcation of a class of purchasers of Toyotaʼs ADRs from April 7, 2008 through February 2, 2010. A hearing on the motion is set for July 23, 2012. Toyota believes that it has meritorious defenses to all of these cases and claims, and will vigorously defend against them. Government Investigations In February 2010, Toyota received a subpoena from the U.S. Attorney for the Southern District of New York and a voluntary request and subpoena from the SEC. The subpoenas and the voluntary request primarily seek documents related to unintended acceleration and certain ﬁnancial records. This is a coordinated investigation and has included interviews of Toyota and non-Toyota witnesses, as well as production of documents. In June 2010, Toyota received a second voluntary request and subpoena from the SEC and a subpoena from the U.S. Attorney for the Southern District of New York. The subpoenas and the voluntary request primarily seek production of documents related to the recalls of the steering relay rod. In February 2012, the NHTSA initiated a preliminary investigation of a potentially faulty power window master switch in the driver-side doors in model year 2007 Camry and RAV4 vehicles. In June 2012, the NHTSA upgraded the preliminary investigation to an engineering analysis and expanded the scope to include model year 2007 through 2009 Camry, Camry hybrid, RAV4 and Yaris as well as model year 2008 Highlander hybrid. Toyota has also received subpoenas and formal and informal requests from various statesʼ attorneys general, including the Executive Committee for a group of 30 statesʼ plus one territoryʼs attorney general, and certain local governmental agencies various recalls, the facts underlying its recent recalls and customer handling related to those recalls. Toyota is cooperating with the government investigations, which are regarding in their agencies on-going. The recalls and other safety measures described above have led to a number of claims, lawsuits and government investigations against Toyota in the United States as set forth in the preceding paragraphs. Amounts accrued as of March 31, 2012 related to these legal proceedings and governmental investigations are not material to Toyotaʼs ﬁnancial position, results of operations or cash ﬂow. Beyond the amounts accrued, Toyota is unable to estimate a range of reasonably possible loss, if any, for the cases described above because (i) many of the proceedings are in evidence gathering stages, (ii) the likelihood of classes being certiﬁed or the ultimate size of the classes, if any, is uncertain, (iii) the outcome of pending or future appeals or motions is unknown, (iv) signiﬁcant factual issues need to be resolved, (v) in some cases, novel legal issues are presented, and/or (vi) the differences between the matters as well as their interrelations further complicate the prediction of outcomes. In reaching this conclusion, Toyota considers the stages of these matters, the discovery in and information available about these matters, Toyotaʼs experience with similar matters and Toyotaʼs assessment of the matters. Although an estimation is not possible based on current information, the resolution of these matters could have an adverse effect on Toyotaʼs ﬁnancial position, results of operations or cash ﬂows. United States Antitrust Proceedings In February 2003, Toyota, GM, Ford, Daimler Chrysler, Honda, Nissan, BMW and their sales subsidiaries in the United States and Canada, as well as the National Automobile Dealers the Canadian Automobile Association and Dealers Association were named as defendants in approximately 85 purported federal and state class action lawsuits on behalf of all purchasers of new motor vehicles who purchased their vehicles in the United States on or after January 1, 2001. As of April 1, 2005, the federal lawsuits were consolidated in the State of Maine, and lawsuits in the State of California and the State of New Jersey were also consolidated within the respective states. The complaints allege that the defendants violated the Sherman Antitrust Act or state anti-trust law by conspiring among themselves and with their dealers to prevent the sale to United States citizens of vehicles produced for the Canadian market, resulting in higher prices to United States consumers. Toyota believes that its actions have been lawful. In the interest of resolving these legal actions, however, Toyota entered into a settlement agreement with the plaintiffs in February 2006. The settlement TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 113 Next Notes to Consolidated Financial Statements agreement has been approved by the federal court and all state cases have been dismissed. Other Proceedings it, Toyota has various other legal actions, other governmental proceedings and other claims pending against including other product liability claims in the United States. For the same reasons discussed above relating to the recall- related legal proceedings, Toyota is unable to estimate a range of reasonably possible loss, if any, beyond the amounts accrued, with respect to these claims. However, based upon information currently available to Toyota, Toyota believes that its losses from these matters, if any, would not have a material adverse effect on Toyotaʼs ﬁnancial position, results of operations or cash ﬂows. Environmental Matters and Others In October 2000, the European Union brought into effect a directive that requires member states to promulgate regulations implementing the following: (i) manufacturers shall bear all or a signiﬁcant part of the costs for taking back end-of- life vehicles put on the market after July 1, 2002 and dismantling and recycling those vehicles. Beginning January 1, 2007, this requirement became applicable to vehicles put on the market before July 1, 2002; (ii) manufacturers may not use certain hazardous materials in vehicles to be sold after July 2003; (iii) vehicles type-approved and put on the market after December 15, 2008, shall be re-usable and/or recyclable to a minimum of 85% by weight per vehicle and shall be re-usable and/or recoverable to a minimum of 95% by weight per vehicle; and (iv) end-of-life vehicles must meet actual re-use of 80% and re-use as material or energy of 85%, respectively, of vehicle weight by 2006, rising respectively to 85% and 95% by 2015. A law to implement the directive came into effect in all member states including Bulgaria, Romania that joined the European Union in January 2007. Currently, there are uncertainties surrounding the implementation of the applicable regulations in different European Union member states, particularly regarding manufacturer responsibilities and resultant expenses that may be incurred. In addition, under this directive member states must take measures to ensure that car manufacturers, distributors and other auto-related economic operators establish adequate used vehicle collection and treatment facilities and to ensure that hazardous materials and recyclable parts are removed from vehicles prior to shredding. This directive impacts Toyotaʼs vehicles sold in the European Union and Toyota is introducing vehicles that are in compliance with such measures taken by the member states pursuant to the directive. Based on the legislation that has been enacted to date, Toyota has provided for its estimated liability related to covered vehicles in existence as of March 31, 2012. Depending on the legislation that will be enacted subject to other circumstances, Toyota may be required to revise the accruals for the expected costs. Although Toyota does not expect its compliance with the directive to result in signiﬁcant cash expenditures, Toyota is continuing to assess the impact of this future legislation on its results of operations, cash ﬂows and ﬁnancial position. Toyota purchases materials that are equivalent to approximately 10% of material costs from a supplier which is an afﬁliated company. The parent company has a concentration of labor supply in employees working under collective bargaining agreements and a substantial portion of these employees are working under the agreement that will expire on December 31, 2014. 24 Segment data: The operating segments reported below are the segments of Toyota for which separate ﬁnancial information is available and for which operating income/loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. The major portions of Toyotaʼs operations on a worldwide basis are derived from the Automotive and Financial Services business segments. The Automotive segment designs, manufactures and distributes sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories. The Financial Services segment consists primarily of ﬁnancing, and vehicle and equipment leasing operations to assist in the merchandising of the parent company and its afﬁliate companies products as well as other products. The All Other segment includes the design, manufacturing and sales of housing, telecommunications and other business. The following tables present certain information regarding Toyotaʼs industry segments and operations by geographic areas and overseas revenues by destination as of and for the years ended March 31, 2010, 2011 and 2012. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements ■ Segment operating results and assets As of and for the year ended March 31, 2010: As of and for the year ended March 31, 2012: 0820 Search Contents Prev page 114 Next Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated Net revenues Net revenues Sales to external customers Inter-segment sales and transfers Total Operating expenses Operating income (loss) Assets Investment in equity method investees Depreciation expense Capital expenditure ¥ 17,187,308 10,120 17,197,428 17,283,798 ¥ (86,370) ¥ 12,359,404 1,692,702 1,018,935 616,216 ¥ 1,226,244 19,163 1,245,407 998,480 ¥ 246,927 ¥ 13,274,953 129,745 348,820 774,102 ¥ 537,421 410,194 947,615 956,475 ¥ (8,860) ¥1,119,635 — 46,814 21,751 ¥ — (439,477) (439,477) (435,296) ¥ (4,181) ¥3,595,295 44,993 — 25,532 ¥ 18,950,973 — 18,950,973 18,803,457 ¥ 147,516 ¥ 30,349,287 1,867,440 1,414,569 1,437,601 Sales to external customers Inter-segment sales and transfers Total Operating expenses Operating income Assets Investment in equity method investees Depreciation expense Capital expenditure Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated 30,168 16,994,546 16,972,863 ¥ 16,964,378 ¥ 1,071,737 28,587 1,100,324 793,886 ¥ 306,438 ¥ 12,261,814 ¥ 13,172,548 3,887 298,757 683,161 1,877,720 744,067 796,839 21,683 ¥ ¥ 547,538 501,377 1,048,915 1,006,853 42,062 ¥ ¥ 1,161,224 4,765 25,006 35,340 ¥ (560,132) (560,132) (545,576) (14,556) ¥ ̶ ¥ 18,583,653 ̶ 18,583,653 18,228,026 355,627 ¥ 30,650,965 1,914,129 1,067,830 1,532,082 ¥ ¥ 4,055,379 27,757 ̶ 16,742 As of and for the year ended March 31, 2011: Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Net revenues Sales to external customers Inter-segment sales and transfers Total Operating expenses Operating income Assets Investment in equity method investees Depreciation expense Capital expenditure ¥ 17,322,753 14,567 17,337,320 17,251,347 ¥ 85,973 ¥ 11,341,558 1,784,539 819,075 691,867 ¥ 1,173,168 19,037 1,192,205 833,925 ¥ 358,280 ¥ 13,365,394 3,519 330,865 991,330 ¥ 497,767 474,485 972,252 937,010 35,242 ¥ ¥1,146,720 3,045 25,633 21,058 ¥ — (508,089) (508,089) (496,873) ¥ (11,216) ¥3,964,494 26,885 — (13,064) Consolidated ¥ 18,993,688 — 18,993,688 18,525,409 ¥ 468,279 ¥ 29,818,166 1,817,988 1,175,573 1,691,191 U.S. dollars in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated $ 206,404 367 206,771 206,507 $ 264 $ 149,189 22,846 9,053 9,695 $ 13,040 348 13,388 9,660 $ 3,728 $ 160,269 47 3,635 8,312 $ 6,662 6,100 12,762 12,250 $ 512 $ 14,129 58 304 430 $ ̶ (6,815) (6,815) (6,638) $ (177) $ 49,341 338 ̶ 204 $ 226,106 ̶ 226,106 221,779 $ 4,327 $ 372,928 23,289 12,992 18,641 Net revenues Sales to external customers Inter-segment sales and transfers Total Operating expenses Operating income Assets Investment in equity method investees Depreciation expense Capital expenditure TOYOTA ANNUAL REPORT 2012 0820 Search Contents Prev page 115 Next Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements ■ Geographic Information As of and for the year ended March 31, 2010: As of and for the year ended March 31, 2012: Japan North America Yen in millions Inter-segment Elimination/ Unallocated Europe Asia Other Amount Consolidated Net revenues Japan North America Yen in millions Inter-segment Elimination/ Unallocated Europe Asia Other Amount Consolidated Net revenues Total Sales to external customers ¥ 7,314,813 3,905,490 Inter-segment sales and transfers 11,220,303 11,445,545 ¥ (225,242) ¥12,465,677 3,347,896 Operating expenses Operating income (loss) Assets Long-lived assets ¥ 5,583,228 87,298 5,670,526 5,585,036 ¥ 85,490 ¥10,223,903 2,401,172 ¥ 2,082,671 64,378 2,147,049 2,180,004 ¥ (32,955) ¥ 2,060,962 351,037 ¥2,431,648 223,679 2,655,327 2,451,800 ¥ 203,527 ¥1,925,126 361,296 ¥ 1,538,613 135,248 1,673,861 1,558,287 ¥ 115,574 ¥ 1,803,703 249,500 ¥ — (4,416,093) (4,416,093) (4,417,215) ¥ 1,122 ¥ 1,869,916 — ¥ 18,950,973 — 18,950,973 18,803,457 ¥ 147,516 ¥ 30,349,287 6,710,901 Total Sales to external customers ¥ 7,293,804 3,873,515 Inter-segment sales and transfers 11,167,319 11,374,359 ¥ (207,040) ¥12,034,423 2,981,985 Operating expenses Operating income (loss) Assets Long-lived assets ¥4,644,348 107,538 4,751,886 4,565,477 ¥ 186,409 ¥9,693,232 2,197,197 ¥1,917,408 76,538 1,993,946 1,976,150 ¥ 17,796 ¥1,960,532 263,070 ¥3,116,849 217,425 3,334,274 3,077,484 ¥ 256,790 ¥2,433,312 412,959 ¥1,611,244 148,931 1,760,175 1,651,361 ¥ 108,814 ¥2,175,493 380,169 ¥ ̶ (4,423,947) (4,423,947) (4,416,805) ¥ (7,142) ¥ 2,353,973 ̶ ¥18,583,653 ̶ 18,583,653 18,228,026 ¥ 355,627 ¥30,650,965 6,235,380 As of and for the year ended March 31, 2011: Japan North America Yen in millions Inter-segment Elimination/ Unallocated Europe Asia Other Amount Consolidated Net revenues Total Sales to external customers ¥ 6,966,929 4,019,317 Inter-segment sales and transfers 10,986,246 11,348,642 (362,396) ¥ ¥11,285,864 3,123,042 Operating expenses Operating income (loss) Assets Long-lived assets ¥5,327,809 101,327 5,429,136 5,089,633 ¥ 339,503 ¥ 9,910,828 2,276,332 ¥1,920,416 61,081 1,981,497 1,968,349 13,148 ¥ ¥1,931,231 305,627 ¥3,138,112 236,422 3,374,534 3,061,557 ¥ 312,977 ¥2,138,499 344,304 ¥ 1,640,422 168,694 1,809,116 1,648,987 ¥ 160,129 ¥ 2,044,379 259,855 ¥ — (4,586,841) (4,586,841) (4,591,759) 4,918 ¥ ¥ 2,507,365 — ¥ 18,993,688 — 18,993,688 18,525,409 468,279 ¥ ¥ 29,818,166 6,309,160 Net revenues Sales to external customers Inter-segment sales and transfers Total Operating expenses Operating income (loss) Assets Long-lived assets Japan North America $ 88,743 47,129 135,872 138,391 $ (2,519) $146,422 36,282 $ 56,507 1,309 57,816 55,548 $ 2,268 $ 117,937 26,733 “Other” consists of Central and South America, Oceania and Africa. U.S. dollars in millions Inter-segment Elimination/ Unallocated Europe Asia Other Amount Consolidated $23,329 931 24,260 24,043 217 $ $23,854 3,201 $37,923 2,645 40,568 37,444 $ 3,124 $29,606 5,024 $19,604 1,812 21,416 20,092 $ 1,324 $26,469 4,625 $ ̶ (53,826) (53,826) (53,739) (87) $ $ 28,640 ̶ $ 226,106 ̶ 226,106 221,779 $ 4,327 $ 372,928 75,865 Revenues are attributed to geographies based on the country location of the parent company or the subsidiary that transacted the sale with the external customer. There are no any individually material countries with respect to revenues, and long-lived assets included in other foreign countries. Unallocated amounts included in assets represent assets held for corporate purposes, which mainly consist of cash and cash equivalents and marketable securities. Such corporate assets were ¥4,205,402 million, ¥4,613,672 million and ¥4,749,259 million ($57,784 million), as of March 31, 2010, 2011 and 2012, respectively. Transfers between industries or geographic segments are made at amounts which Toyotaʼs TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 116 Next Notes to Consolidated Financial Statements management believes approximate armʼs-length the reportable transactions. In measuring segmentsʼ income or losses, operating income consists of revenue less operating expenses. Balance sheets ■ Overseas Revenues by destination The following information shows revenues that are attributed to countries based on location of customers, excluding customers in Japan. In addition to the disclosure requirements under U.S.GAAP, Toyota discloses this information in order to provide ﬁnancial statement users with valuable information. Yen in millions U.S. dollars in millions North America Europe Asia Other 2010 ¥5,718,381 2,023,280 2,641,471 2,838,671 For the years ended March 31, 2011 ¥5,398,278 1,793,932 3,280,384 3,196,114 2012 ¥ 4,715,804 1,817,944 3,284,392 3,103,383 For the year ended March 31, 2012 $ 57,377 22,119 39,961 37,759 “Other” consists of Central and South America, Oceania, Africa and the Middle East, etc. ■ Certain ﬁnancial statement data on non-ﬁnancial services and ﬁnancial services businesses The ﬁnancial data below presents separately Toyotaʼs non-ﬁnancial services and ﬁnancial services businesses. Non-Financial Services Businesses Current assets Cash and cash equivalents Marketable securities Trade accounts and notes receivable, less allowance for doubtful accounts Inventories Prepaid expenses and other current assets Total current assets Investments and other assets Property, plant and equipment Total Non-Financial Services Businesses assets Financial Services Businesses Current assets Cash and cash equivalents Marketable securities Finance receivables, net Prepaid expenses and other current assets Total current assets Noncurrent ﬁnance receivables, net Investments and other assets Property, plant and equipment Total Financial Services Businesses assets Eliminations Total assets Yen in millions March 31, 2011 2012 U.S. dollars in millions March 31, 2012 ¥ 1,300,553 1,036,555 ¥ 1,104,636 1,015,626 $ 13,440 12,357 1,483,551 1,304,128 1,383,616 6,508,403 5,825,966 4,608,309 16,942,678 780,156 188,880 4,136,805 636,249 5,742,090 5,556,746 365,707 1,700,851 13,365,394 (489,906) ¥ 29,818,166 2,031,472 1,622,154 1,464,124 7,238,012 6,218,377 4,510,716 17,967,105 574,564 165,444 4,114,897 685,611 5,540,516 5,602,462 304,906 1,724,664 13,172,548 (488,688) ¥ 30,650,965 24,717 19,737 17,814 88,065 75,659 54,881 218,605 6,991 2,013 50,065 8,342 67,411 68,165 3,709 20,984 160,269 (5,946) $ 372,928 Assets in the non-ﬁnancial services include unallocated corporate assets. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 117 Next Notes to Consolidated Financial Statements Yen in millions March 31, 2011 2012 U.S. dollars in millions March 31, 2012 Statements of income Non-Financial Services Businesses Current liabilities Short-term borrowings Current portion of long-term debt Accounts payable Accrued expenses Income taxes payable Other current liabilities Total current liabilities Long-term liabilities Long-term debt Accrued pension and severance costs Other long-term liabilities Total long-term liabilities Total Non-Financial Services Businesses liabilities Financial Services Businesses Current liabilities Short-term borrowings Current portion of long-term debt Accounts payable Accrued expenses Income taxes payable Other current liabilities Total current liabilities Long-term liabilities Long-term debt Accrued pension and severance costs Other long-term liabilities Total long-term liabilities Total Financial Services Businesses liabilities Eliminations Total liabilities Total Toyota Motor Corporation shareholdersʼ equity Noncontrolling interests Total shareholdersʼ equity Total liabilities and shareholdersʼ equity ¥ 478,646 243,817 1,497,253 1,666,748 104,392 1,024,662 5,015,518 839,611 660,918 554,402 2,054,931 7,070,449 2,986,700 2,541,479 19,472 110,348 9,555 538,026 6,205,580 ¥ 715,019 339,441 2,234,316 1,737,490 123,344 1,175,801 6,325,411 503,070 700,211 531,982 1,735,263 8,060,674 3,040,373 2,218,526 27,095 96,247 10,434 536,291 5,928,966 5,669,456 7,104 435,508 6,112,068 12,317,648 (489,955) 18,898,142 10,332,371 587,653 10,920,024 ¥ 29,818,166 5,555,112 8,191 520,252 6,083,555 12,012,521 (488,708) 19,584,487 10,550,261 516,217 11,066,478 ¥ 30,650,965 $ 8,699 4,130 27,185 21,140 1,501 14,306 76,961 6,121 8,519 6,473 21,113 98,074 36,992 26,992 330 1,171 127 6,525 72,137 67,588 100 6,330 74,018 146,155 (5,946) 238,283 128,364 6,281 134,645 $ 372,928 Non-Financial Services Businesses Net revenues Costs and expenses Cost of revenues Selling, general and administrative Total costs and expenses Operating income (loss) Other income, net Income before income taxes and equity in earnings of afﬁliated companies Provision for income taxes Equity in earnings of afﬁliated companies Net income Less: Net income attributable to noncontrolling interests Net income attributable to Toyota Motor Corporation- Non-Financial Services Businesses Financial Services Businesses Net revenues Costs and expenses Cost of revenues Selling, general and administrative Total costs and expenses Operating income Other income (expense), net Income before income taxes and equity in earnings of afﬁliated companies Provision for income taxes Equity in earnings (losses) of afﬁliated companies Net income Less: Net income attributable to noncontrolling interests Net income attributable to Toyota Motor Corporation - Financial Services Businesses Eliminations Net income attributable to Toyota Motor Corporation Yen in millions For the years ended March 31, 2010 2011 2012 U.S. dollars in millions For the year ended March 31, 2012 ¥ 17,732,143 ¥ 17,826,986 ¥ 17,534,872 $ 213,345 15,973,442 1,854,710 17,828,152 (96,009) 144,625 48,616 42,342 109,944 116,218 15,986,741 1,723,071 17,709,812 117,174 88,840 206,014 178,795 214,229 241,448 15,796,635 1,676,999 17,473,634 61,238 69,935 131,173 141,558 196,544 186,159 192,196 20,404 212,600 745 851 1,596 1,722 2,391 2,265 (32,103) (54,055) (82,181) (1,000) 84,115 187,393 103,978 1,265 1,245,407 1,192,205 1,100,324 13,388 716,997 281,483 998,480 246,927 (3,923) 243,004 50,362 (64,536) 128,106 636,374 197,551 833,925 358,280 1,349 359,629 134,094 787 226,322 (2,653) (3,251) 125,453 (112) 223,071 (2,281) 615,563 178,323 793,886 306,438 (4,679) 301,759 120,725 1,157 182,191 (2,566) 179,625 (44) 7,490 2,170 9,660 3,728 (57) 3,671 1,468 14 2,217 (32) 2,185 (0) ¥ 209,456 ¥ 408,183 ¥ 283,559 $ 3,450 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 118 Next Notes to Consolidated Financial Statements Statement of cash ﬂows Cash ﬂows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Provision for doubtful accounts and credit losses Pension and severance costs, less payments Losses on disposal of ﬁxed assets Unrealized losses on available-for-sale securities, net Deferred income taxes Equity in (earnings) losses of afﬁliated companies Changes in operating assets and liabilities, and other Net cash provided by operating activities Cash ﬂows from investing activities Additions to ﬁnance receivables Collection of and proceeds from sales of ﬁnance receivables Additions to ﬁxed assets excluding equipment leased to others Additions to equipment leased to others Proceeds from sales of ﬁxed assets excluding equipment leased to others Proceeds from sales of equipment leased to others Purchases of marketable securities and security investments Proceeds from sales of and maturity of marketable securities and security investments Payment for additional investments in afﬁliated companies, net of cash acquired Changes in investments and other assets, and other Net cash used in investing activities Cash ﬂows from ﬁnancing activities Proceeds from issuance of long-term debt Payments of long-term debt Increase (decrease) in short-term borrowings Dividends paid Purchase of common stock, and other Net cash provided by (used in) ﬁnancing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Yen in millions For the year ended March 31, 2010 Yen in millions For the year ended March 31, 2011 Non-Financial Services Businesses Financial Services Businesses Consolidated Non-Financial Services Businesses Financial Services Businesses Consolidated ¥ 116,218 ¥ 128,106 ¥ 244,212 ¥ 241,448 ¥ 226,322 ¥ 465,485 1,065,749 1,905 55 46,661 2,486 (14,183) (109,944) 733,338 1,842,285 — — (599,154) (64,345) 46,070 36,668 (2,310,912) 1,012,781 (1,020) (259,089) (2,139,001) 492,300 (77,033) (249,238) (172,476) (10,251) (16,698) 4,092 (309,322) 1,648,143 ¥1,338,821 348,820 98,870 1,199 276 — 39,759 64,536 133,275 814,841 (13,492,119) 13,107,531 (5,382) (768,720) 6,403 428,424 (101,270) 95,960 — 102,497 (626,676) 2,733,465 (2,926,308) (251,544) — — (444,387) (12,990) (269,212) 796,137 526,925 ¥ 1,414,569 100,775 1,254 46,937 2,486 25,537 (45,408) 768,168 2,558,530 (7,806,201) 7,517,968 (604,536) (833,065) 52,473 465,092 (2,412,182) 1,108,741 (1,020) (337,454) (2,850,184) 3,178,310 (2,938,202) (335,363) (172,476) (10,251) (277,982) (8,898) (578,534) 2,444,280 ¥1,865,746 844,708 1,806 (24,867) 36,076 7,915 (17,258) (214,229) 591,378 1,466,977 — — (621,302) (78,559) 50,742 17,700 (4,063,499) 3,423,618 (299) 394,479 (877,120) 15,318 (309,862) (86,884) (141,120) (28,617) (551,165) (76,960) (38,268) 1,338,821 ¥1,300,553 330,865 2,334 1,453 138 — 103,035 (787) (106,416) 556,944 (14,323,261) 13,887,751 (8,024) (983,306) 600 468,995 (358,308) 292,538 — 18,303 (1,004,712) 2,934,588 (2,306,139) 122,619 — — 751,068 (50,069) 253,231 526,925 780,156 ¥ 1,175,573 4,140 (23,414) 36,214 7,915 85,710 (215,016) 487,402 2,024,009 (8,438,785) 8,003,940 (629,326) (1,061,865) 51,342 486,695 (4,421,807) 3,716,156 (299) 177,605 (2,116,344) 2,931,436 (2,489,632) 162,260 (141,120) (28,617) 434,327 (127,029) 214,963 1,865,746 ¥2,080,709 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 119 Next Notes to Consolidated Financial Statements Statement of cash ﬂows Cash ﬂows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Provision for doubtful accounts and credit losses Pension and severance costs, less payments Losses on disposal of ﬁxed assets Unrealized losses on available-for-sale securities, net Deferred income taxes Equity in earnings of afﬁliated companies Changes in operating assets and liabilities, and other Net cash provided by operating activities Cash ﬂows from investing activities Additions to ﬁnance receivables Collection of and proceeds from sales of ﬁnance receivables Additions to ﬁxed assets excluding equipment leased to others Additions to equipment leased to others Proceeds from sales of ﬁxed assets excluding equipment leased to others Proceeds from sales of equipment leased to others Purchases of marketable securities and security investments Proceeds from sales of and maturity of marketable securities and security investments Payment for additional investments in afﬁliated companies, net of cash acquired Changes in investments and other assets, and other Net cash used in investing activities Cash ﬂows from ﬁnancing activities Proceeds from issuance of long-term debt Payments of long-term debt Increase in short-term borrowings Dividends paid Purchase of common stock, and other Net cash used in ﬁnancing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Yen in millions For the year ended March 31, 2012 U.S. dollars in millions For the year ended March 31, 2012 Non-Financial Services Businesses Financial Services Businesses Consolidated Non-Financial Services Businesses Financial Services Businesses Consolidated ¥ 186,159 ¥ 182,191 ¥ 368,302 $ 2,265 $ 2,217 $ 4,481 769,073 5,843 15,410 33,448 53,831 (82,792) (196,544) 182,931 967,359 ̶ ̶ (713,867) (135,054) 36,203 20,689 (2,565,772) 2,227,812 (147) 213,957 (916,179) 39,803 (294,646) 238,072 (156,785) (37,448) (211,004) (36,093) (195,917) 1,300,553 ¥ 1,104,636 298,757 3,780 1,301 80 ̶ 89,199 (1,157) (73,020) 501,131 (13,455,792) 13,168,058 (9,670) (673,491) 430 410,624 (607,862) 629,013 ̶ (12,206) (550,896) 2,379,152 (2,608,135) 93,002 ̶ ̶ (135,981) (19,846) (205,592) 780,156 574,564 ¥ 1,067,830 9,623 16,711 33,528 53,831 6,395 (197,701) 93,916 1,452,435 (8,333,248) 8,061,710 (723,537) (808,545) 36,633 431,313 (3,173,634) 2,856,825 (147) 209,972 (1,442,658) 2,394,807 (2,867,572) 311,651 (156,785) (37,448) (355,347) (55,939) (401,509) 2,080,709 ¥ 1,679,200 9,357 71 187 407 655 (1,007) (2,391) 2,226 11,770 ̶ ̶ (8,685) (1,644) 441 252 (31,218) 27,106 (2) 2,603 (11,147) 484 (3,585) 2,897 (1,908) (456) (2,568) (439) (2,384) 15,824 $ 13,440 3,635 46 16 1 ̶ 1,085 (14) (889) 6,097 (163,715) 160,215 (118) (8,194) 5 4,996 (7,396) 7,653 ̶ (148) (6,702) 28,947 (31,733) 1,132 ̶ ̶ (1,654) (242) (2,501) 9,492 $ 6,991 12,992 117 203 408 655 78 (2,405) 1,143 17,672 (101,390) 98,086 (8,803) (9,838) 446 5,248 (38,614) 34,759 (2) 2,555 (17,553) 29,138 (34,889) 3,792 (1,908) (456) (4,323) (681) (4,885) 25,316 $ 20,431 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 120 Next Notes to Consolidated Financial Statements 25 Per share amounts: Reconciliations of the differences between basic and diluted net income attributable to Toyota Motor Corporation per share for the years ended March 31, 2010, 2011 and 2012 are as follows: Yen in millions Thousands of shares Net income attributable to Toyota Motor Corporation Weighted- average shares Yen Net income attributable to Toyota Motor Corporation per share U.S. dollars in millions Net income attributable to Toyota Motor Corporation U.S. dollars Net income attributable to Toyota Motor Corporation per share For the year ended March 31, 2010 Basic net income attributable to Toyota Motor Corporation per common share Effect of dilutive securities Assumed exercise of dilutive stock options Diluted net income attributable to Toyota Motor Corporation per common share For the year ended March 31, 2011 Basic net income attributable to Toyota Motor Corporation per common share Effect of dilutive securities Assumed exercise of dilutive stock options Diluted net income attributable to Toyota Motor Corporation per common share For the year ended March 31, 2012 Basic net income attributable to Toyota Motor Corporation per common share Effect of dilutive securities Assumed exercise of dilutive stock options Diluted net income attributable to Toyota Motor Corporation per common share ¥ 209,456 3,135,986 ¥ 66.79 — 12 ¥ 209,456 3,135,998 ¥ 66.79 ¥ 408,183 3,135,881 ¥ 130.17 (0) 34 ¥ 408,183 3,135,915 ¥ 130.16 ¥ 283,559 3,143,470 ¥ 90.21 $ 3,450 $ 1.10 (3) 0 (0) ¥ 283,556 3,143,470 ¥ 90.20 $ 3,450 $ 1.10 Certain stock options were not included in the computation of diluted net income attributable to Toyota Motor Corporation per share for the years ended March 31, 2010, 2011 and 2012 because the optionsʼ exercise prices were greater than the average market price per common share during the period. In addition to the disclosure requirements under U.S.GAAP, Toyota discloses the information below in order to provide ﬁnancial statement users with valuable information. The following table shows Toyota Motor Corporation shareholdersʼ equity per share as of March 31, 2011 and 2012. Toyota Motor Corporation shareholdersʼ equity per share amounts are calculated by dividing Toyota Motor Corporation shareholdersʼ equitiesʼ amount at the end of each period by the number of shares issued and outstanding, excluding treasury stock at the end of the corresponding period. Yen in millions Toyota Motor Corporation Shareholdersʼ equity ¥ 10,332,371 10,550,261 Thousands of shares Shares issued and outstanding at the end of the year (excluding treasury stock) 3,135,699 3,166,810 Yen Toyota Motor Corporation Shareholdersʼ equity per share ¥ 3,295.08 3,331.51 U.S. dollars in millions Toyota Motor Corporation Shareholdersʼ equity U.S. dollars Toyota Motor Corporation Shareholdersʼ equity per share $ 128,364 $ 40.53 As of March 31, 2011 As of March 31, 2012 26 Fair value measurements: In accordance with U.S.GAAP, Toyota classiﬁes fair value into three levels of input as follows which are used to measure it. Level 1: Quoted prices in active markets for identical assets or liabilities Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the assets or liabilities Level 3: Unobservable inputs for assets or liabilities TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 121 Next Notes to Consolidated Financial Statements The following table summarizes the fair values of the assets and liabilities measured at fair value on a recurring basis at March 31, 2011 and 2012: Assets Cash equivalents Time deposits Marketable securities and other securities investments Government bonds Common stocks Other Derivative ﬁnancial instruments Total Liabilities Yen in millions March 31, 2011 Level 1 Level 2 Level 3 Total ¥ 729,569 — ¥ 58,281 120,000 ¥ — — ¥ 787,850 120,000 3,127,170 960,229 37,842 — ¥4,854,810 — — 539,109 405,524 ¥1,122,914 — — — 11,782 ¥11,782 3,127,170 960,229 576,951 417,306 ¥5,989,506 Assets Cash equivalents Time deposits Marketable securities and other securities investments Government bonds Common stocks Other Derivative ﬁnancial instruments Total Liabilities Derivative ﬁnancial instruments Total U.S. dollars in millions March 31, 2012 Level 1 Level 2 Level 3 Total $ 5,902 ̶ $ 2,718 609 43,760 12,584 496 ̶ $ 62,742 64 ̶ 5,530 3,527 $ 12,448 $ $ ̶ ̶ $ (2,194) $ (2,194) $ ̶ ̶ ̶ ̶ 21 92 $ 113 $ (35) $ (35) $ 8,620 609 43,824 12,584 6,047 3,619 $ 75,303 $ (2,229) $ (2,229) Derivative ﬁnancial instruments Total ¥ ¥ — — ¥ (215,283) ¥ (215,283) ¥ (4,988) ¥ (4,988) ¥ (220,271) ¥ (220,271) Assets Cash equivalents Time deposits Marketable securities and other securities investments Government bonds Common stocks Other Derivative ﬁnancial instruments Total Liabilities Yen in millions March 31, 2012 Level 1 Level 2 Level 3 Total ¥ 485,119 ̶ ¥ 223,385 50,000 ¥ ̶ ̶ ¥ 708,504 50,000 3,596,625 1,034,319 40,711 ̶ ¥5,156,774 5,287 ̶ 454,549 289,931 ¥1,023,152 ̶ ̶ 1,684 7,565 ¥ 9,249 3,601,912 1,034,319 496,944 297,496 ¥6,189,175 Derivative ﬁnancial instruments Total ¥ ¥ ̶ ¥ (180,347) ̶ ¥ (180,347) ¥(2,826) ¥(2,826) ¥ (183,173) ¥ (183,173) The following is description of the assets and liabilities measured at fair value, information about the valuation techniques used to measure fair value, key inputs and signiﬁcant assumption: ■ Cash equivalents and time deposits Cash equivalents include money market funds and other investments with original maturities of three months or less. Cash equivalents classiﬁed in Level 2 include primarily negotiable certiﬁcate of deposit with original maturities of three months or less. These are measured at fair value using observable interest rates in the market. Time deposits include negotiable certiﬁcate of deposit with original maturities over three months. These are measured at fair value using observable interest rates in the market. ■ Marketable securities and other securities investments Marketable securities and other securities investments include government bonds, common stocks and other investments. Government bonds include 77% of Japanese government bonds, and 23% of U.S. and European government bonds as of March 31, 2011, and 60% of Japanese government bonds, and 40% of U.S., European and other government bonds as of March 31, 2012. Listed stocks on the Japanese stock markets represent 86% and 83% of common stocks as of March 31, 2011 and 2012, respectively. Toyota uses quoted market prices for identical assets to measure fair value of these securities. “Other” includes primarily commercial paper. Generally, Toyota uses quoted market prices for similar assets or quoted non-active market prices for identical assets to measure fair value of these securities. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0820 Search Contents Prev page 122 Next Notes to Consolidated Financial Statements These assets are classiﬁed in Level 2. During the year ended March 31, 2012, certain government bonds were transferred from in Level 1 to Level 2 due to the lack of quoted prices for identical assets traded in an active market. ■ Derivative ﬁnancial instruments See note 20 to the consolidated ﬁnancial statements about derivative ﬁnancial instruments. Toyota estimates the fair value of derivative ﬁnancial instruments using industry-standard valuation models that require observable inputs including interest rates and foreign exchange rates, and the contractual terms. The usage of these models does not require signiﬁcant judgment to be applied. These derivative ﬁnancial instruments are classiﬁed in Level 2. In other certain cases when market data is not available, key inputs to the fair value measurement include quotes from counterparties, and other market data. Toyota assesses the reasonableness of changes of the quotes using observable market data. These derivative ﬁnancial instruments are classiﬁed in Level 3. Toyotaʼs derivative fair value measurements consider assumptions about counterparty and our own non-performance risk, using such as credit default probabilities. The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the periods ended March 31, 2010, 2011 and 2012: Balance at beginning of year Total gains (losses) Included in earnings Included in other comprehensive income (loss) Purchases, issuances and settlements Other Balance at end of year Yen in millions For the year ended March 31, 2010 Marketable securities and other securities investments ¥ 19,581 Derivative ﬁnancial instruments ¥ (5,734) (641) (99) (6,376) 669 ¥ 13,134 25,057 — (13,582) 151 ¥ 5,892 Total ¥ 13,847 24,416 (99) (19,958) 820 ¥ 19,026 Balance at beginning of year Total gains (losses) Included in earnings Included in other comprehensive income Purchases, issuances and settlements Other Balance at end of year Balance at beginning of year Total gains (losses) Included in earnings Included in other comprehensive income (loss) Purchases and issuances Settlements Other Balance at end of year Balance at beginning of year Total gains (losses) Included in earnings Included in other comprehensive income (loss) Purchases and issuances Settlements Other Balance at end of year Yen in millions For the year ended March 31, 2011 Marketable securities and other securities investments ¥ 13,134 Derivative ﬁnancial instruments ¥ 5,892 433 779 (810) (13,536) — ¥ 31,338 — (8,381) (22,055) ¥ 6,794 Total ¥ 19,026 31,771 779 (9,191) (35,591) ¥ 6,794 Yen in millions For the year ended March 31, 2012 Marketable securities and other securities investments ¥ ̶ Derivative ﬁnancial instruments ¥ 6,794 ̶ ̶ ̶ ̶ 1,684 ¥ 1,684 6,476 ̶ ̶ (3,832) (4,699) ¥ 4,739 Total ¥ 6,794 6,476 ̶ ̶ (3,832) (3,015) ¥ 6,423 U.S. dollars in millions For the year ended March 31, 2012 Marketable securities and other securities investments Derivative ﬁnancial instruments $ ̶ ̶ ̶ ̶ ̶ 21 $ 21 $ 83 78 ̶ ̶ (47) (57) $ 57 Total $ 83 78 ̶ ̶ (47) (36) $ 78 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Notes to Consolidated Financial Statements 0820 Search Contents Prev page 123 Next “Included in earnings” in marketable securities and other securities investments and derivative ﬁnancial instruments are included in “Other income (loss), net” and “Cost of ﬁnancing operations” in the accompanying consolidated statements of income, respectively. In the reconciliation table above, derivative ﬁnancial instruments are presented net of assets and liabilities. The other amount primarily includes the impact of currency translation adjustments for the year ended March 31, 2010 and includes consolidated retained interests in securitized ﬁnancial receivables of ¥(13,165) million, certain derivative ﬁnancial instruments transferred into Level 2 due to be measured at observable inputs of ¥(21,413) million and the impact of currency translation adjustments for the year ended March 31, 2011, and includes the impacts of level transfers and currency translation adjustments for the year ended March 31, 2012. As of March 31, 2012, the Level 3 assets and liabilities measured at fair value on a recurring basis are not signiﬁcant. Certain assets and liabilities are measured at fair value on a nonrecurring basis. During the years ended March 31, 2011 and 2012, Toyota measured certain ﬁnance receivables at fair value of ¥32,338 million and ¥32,056 million ($390 million) based on the collateral value, resulting in gains of ¥2,083 million and ¥1,736 million ($21 million). This fair value measurement on a nonrecurring basis is classiﬁed in Level 3. See note 21 to the consolidated ﬁnancial statements for the fair value measurement. These Level 3 ﬁnancial assets are not signiﬁcant. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Management's Annual Report on Internal Control over Financial Reporting 0808 Search Contents Prev page 124 Next is responsible Toyotaʼs management for establishing and maintaining effective internal control over ﬁnancial reporting. Internal control over ﬁnancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with U.S. GAAP. Toyotaʼs internal control over ﬁnancial reporting includes those policies and procedures that: 1) pertain to the maintenance of records in reasonable detail, accurately that and fairly reﬂect the transactions and dispositions of Toyotaʼs assets; 2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial in accordance with U.S. statements GAAP, and that Toyotaʼs receipts and expenditures are being made only in accordance with authorizations of Toyotaʼs management and directors; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Toyotaʼs assets that could have a material effect on the ﬁnancial statements. Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. conducted Toyotaʼs management an evaluation of the effectiveness of internal control over ﬁnancial reporting based on the framework in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Toyotaʼs internal control over ﬁnancial reporting was effective as of March 31, 2012. Aarata, PricewaterhouseCoopers an registered public accounting independent ﬁrm that audited the consolidated ﬁnancial statements included in this report, has also audited the effectiveness of Toyotaʼs internal control over ﬁnancial reporting as of March 31, 2012, as stated in its report included herein. TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information 0807 Search Contents Prev page 125 Next Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Toyota Jidosha Kabushiki Kaisha (“Toyota Motor Corporation”) In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholdersʼ equity and cash ﬂows present fairly, in all material respects, the ﬁnancial position of Toyota Motor Corporation and its subsidiaries at March 31, 2011 and 2012, and the results of their operations and their cash ﬂows for each of the three years in the period ended March 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over ﬁnancial reporting as of March 31, 2012, Internal based on criteria established Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companyʼs management is responsible for these ﬁnancial statements, for maintaining effective internal control over ﬁnancial reporting and for its assessment of the effectiveness of internal control over ﬁnancial reporting, included in the accompanying Managementʼs Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these in ﬁnancial statements and on the Companyʼs internal control over ﬁnancial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight (United States). Those standards Board require that we plan and perform the audits to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement and whether effective internal control over ﬁnancial reporting was maintained in all material respects. Our audits of the ﬁnancial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements, assessing the accounting principles used and signiﬁcant estimates made by management, and evaluating the overall ﬁnancial statement presentation. Our audit of internal control over ﬁnancial reporting included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A companyʼs internal control over ﬁnancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with generally accepted accounting principles. A companyʼs internal control over ﬁnancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companyʼs assets that fairly reﬂect could have a material effect on the ﬁnancial statements. its inherent Because of limitations, internal control over ﬁnancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Nagoya, Japan June 25, 2012 TOYOTA ANNUAL REPORT 2012 Toyota Global Vision Changes for Making Ever-Better Cars Presidentʼs Message Medium- to Long-Term Growth Initiatives Special Feature Business and Performance Review Management and Corporate Information Financial Section Investor Information Investor Information (As of March 31, 2012) 0727 Search Contents Prev page 126 Next Corporate Data Company Name: Established: Common Stock: Fiscal Year-End: Public Accounting Firm: Toyota Motor Corporation August 28, 1937 ¥397,049 million March 31 PricewaterhouseCoopers Aarata Major Shareholders (Top 10) Ownership Breakdown Number of Afﬁliates: [Consolidated Subsidiaries] 507 [Afﬁliates Accounted for by the Equity Method] 57 Number of Employees: Corporate Web Site: 69,148 (Consolidated: 325,905) [Corporate Information] http://www.toyota-global.com [IR Information] http://www.toyota-global.com/investors Name Japan Trustee Services Bank, Ltd. Toyota Industries Corporation The Master Trust Bank of Japan, Ltd. Nippon Life Insurance Company State Street Bank and Trust Company Trust & Custody Services Bank, Ltd. Number of Shares Held (Thousands) 354,972 218,515 188,457 129,915 119,380 85,905 81,289 66,063 63,825 58,903 33.14% Financial institutions, Brokerages Foreign corporate entities and others 26.35% 22.44% 18.07% Other corporate entities Individuals, etc. Note: Individuals, etc, include shares of 281 million treasury stock. The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders Mitsui Sumitomo Insurance Company, Limited SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS DENSO CORPORATION Stock Data Number of Shares Authorized: Number of Shares Issued: Number of Treasury Stock: Number of Shareholders: Number of Shares per Trading Unit: Stock Listings: Securities Code: American Depositary Receipts (ADR): Transfer Agent in Japan: Depositary and Transfer Agent for ADR: 10,000,000,000 shares 3,447,997,492 shares 281,187,739 shares 668,186 100 shares [Japan] Tokyo, Nagoya, Osaka, Fukuoka, Sapporo [Overseas] New York, London [Japan] 7203 [Ratio] 1 ADR=2 common stocks [Symbol] TM Mitsubishi UFJ Trust and Banking Corporation 10-11, Higashisuna, 7-chome, Koutou-ku, Tokyo 137-8081, Japan Japan Toll-Free: (0120)232-711 The Bank of New York Mellon 101 Barclay Street, New York, NY 10286, U.S.A. Tel: (866)238-8978　　U.S. Toll-Free: (888)269-2377, (888) BNY-ADRS [Depositary Receipts] http://www.adrbnymellon.com [Transfer Agent] http://www.bnymellon.com/shareowner Contact Points for Investors Japan U.S.A. U.K. Toyota City Head Ofﬁce 1, Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan Tel: (0565)28-2121　 Fax: (0565)23-5721 Tokyo Head Ofﬁce 4-18, Koraku 1-chome, Bunkyo-ku, Tokyo 112-8701, Japan Tel: (03)3817-7111　 Fax: (03)3817-9092 Toyota Motor North America, Inc. 601 Lexington Avenue, 49th Floor, New York, NY 10022, U.S.A. Tel: (212)223-0303　 Fax: (212)759-7670 Toyota Motor Europe NV/SA Curzon Square, 25 Park Lane, London W1K 1RA, U.K. Tel: (207)290-8513 　 Fax: (207)290-8502 Toyotaʼs Stock Price and Trading Volume on the Tokyo Stock Exchange Stock price(¥) 10,000 8,000 6,000 4,000 2,000 0 FY2008 FY2009 FY2010 FY2011 FY2012 High (¥) Low (¥) At Year-End (¥) 7,880 4,810 4,970 5,710 2,585 3,120 4,235 3,140 3,745 3,955 2,800 3,350 3,635 2,330 3,570 Trading volume (Million shares) 400 300 200 100 0 TOYOTA ANNUAL REPORT 2012http://www.toyota-global.com

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