Toyota Motor Corp.
Annual Report 2014

Plain-text annual report

Annual Report Year ended March 31, 2014 Aiming to Achieve Sustainable Growth and to Bring Smiles ANNUAL REPORT 2014 Prev Print Search Contents P age 2 Next 3 President’s Message Aiming to Achieve Sustainable Growth and to Bring Smiles 5 Overview of Four Business Units 5 Lexus International Lexus International: Becoming a Truly Global Luxury Brand 6 Toyota No. 1 Improving Our Earnings Structure and Offering Advanced Technologies in Developed Markets 7 Toyota No. 2 Supporting Toyota in Future Growth Markets 8 Unit Center 9 Special Feature Toyota’s DNA Will Endure for the Next 100 Years 10 Toyota in 10 Years and 100 Years 16 Our DNA is Creating Ever-Better Cars 19 Enriching Lives and Building Tomorrow’s Toyota through Innovation 24 Message from the Executive Vice Developing and Commercializing Major Components with Best-in-World Competitiveness President Responsible for Accounting 26 29 Consolidated Performance Highlights 34 Management and Corporate Information 44 Financial Section Review of Operations 29 Automotive Operations 30 Financial Services Operations 31 Non-Automotive Business Operations 34 R&D and Intellectual Property 36 Corporate Philosophy 37 Corporate Governance 39 Management Team 41 Risk Factors 44 Selected Financial Summary (U.S. GAAP) 46 Consolidated Segment Information 47 Consolidated Quarterly Financial Summary 48 Management’s Discussion and Analysis of Financial Condition and Results of Operations 62 Consolidated Balance Sheets 63 Consolidated Statements of Income 64 Consolidated Statements of Comprehensive Income 65 Consolidated Statements of Shareholders’ Equity 66 Consolidated Statements of Cash Flows 67 Report of Independent Registered Public Accounting Firm 68 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 perfor- mance 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 finan- cial position expressed or implied by these forward-looking statements. These factors include, but are not limited to: (i) changes in economic conditions, market demand, and the competitive environ- ment affecting the automotive markets in Japan, North America, Europe, Asia and other markets in which Toyota operates; (ii) 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 Russian ruble, the Canadian dollar and the British pound, and interest rates fluctuations; (iii) changes in funding environment in financial markets and increased competition in the financial services industry; (iv) Toyota’s ability to market and distribute effectively; (v) Toyota’s ability to realize production efficiencies and to implement capital expendi- tures at the levels and times planned by management; (vi) 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 econ- omy, 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; (vii) political and economic instability in the markets in which Toyota operates; (viii) Toyota’s ability to timely develop and achieve market acceptance of new prod- ucts that meet customer demand; (ix) any damage to Toyota’s brand image; (x) Toyota’s reliance on various suppliers for the provision of supplies; (xi) increases in prices of raw materials; (xii) Toyota’s reliance on various digital and information technologies; (xiii) 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; and (xiv) the impact of natural calamities including the negative effect on Toyota’s vehicle production and sales. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 3 Next Aiming to Achieve Sustainable Growth and to Bring Smiles First, I would like to extend my sincere gratitude for your continued management structure enables each unit leader to adopt a self- support and understanding. sustaining approach that makes the most of on-site, hands-on Since 2009, Toyota has encountered a multitude of challenges. experience, thereby facilitating quick decision making. This ability Thanks to the tireless efforts of all concerned, today we can take to address individual requirements on a more detailed basis is all pride in the strengths of our management practices and culture. I the more important when considering the varying scales and stages am convinced that we are now in a position to take a definitive of motorization in each market. In 2014, we are taking this concept step forward toward sustainable growth. of self-sustaining operations one step further by making better cars Just as a tree’s growth rings testify to its survival and growth, on an individual platform basis. For example, “Team K” will assume I believe that Toyota’s ongoing growth rests entirely on its ability comprehensive responsibility for the development, procurement, and to grow in the face of any adversity. Having recently achieved the production for models that employ the K platform, including the unprecedented milestone of 10 million vehicles in global Group sales, Camry and Avalon. This greatly broadens the scope of the develop- we are now advancing into uncharted territory. If we are to achieve ment process, which had tended to focus on individual models, and sustainable growth, it is vital that we nurture our human resources allows whole platform teams to channel their energies toward making while building on each growth ring. It is equally important, however, better cars. that we maintain self-restraint and avoid overextension. Balancing In North America, the decision has been made to unify and relo- these concerns and directing management resources to areas that cate the manufacturing, sales and marketing, corporate, and finan- offer the potential for growth, we will pursue bold innovation and cial services headquarters at a new shared campus in Plano, Texas, make aggressive forward-looking investments. from the latter half of 2016. This will allow our North American opera- For example, Toyota reorganized its automotive operations into tions to address the needs of customers in a timelier manner, and to four business units in April 2013. This more agile and autonomous produce ever-better cars that exceed expectations. With a history President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 4 Next spanning more than five decades, Toyota believes that its operations Toyota marked its 75th anniversary in 2012. It is important to however, tasks that were once routine may become increasingly diffi- in North America will benefit through this “One Toyota” concept. By remember that the many fruits that we are able to harvest today cult to perform. We also have to remember that actions taken during undertaking a thorough review of its business structure and working were sown and cultivated by our hard working predecessors. It is a crisis may not be practicable at other times. beyond the boundaries of established manufacturing, sales and imperative that we, too, place similar importance on our responsibili- As I see it, Toyota’s current situation is particularly critical as we marketing, and corporate and financial services, we are better placed ties to plow, plant, and cultivate the seeds of the future. In this are now entering another expansion phase. This is why I believe it is to pursue sustainable growth. manner, future generations can benefit from the work we do today. important to put in place independent business units to carry out all Toyota is equally committed to innovation, the wellspring for new Early in April 2014, we articulated a new internal slogan: “Work appropriate activities on the front line. technologies and future growth. Moving forward, we will maintain our Today, Smile Tomorrow: in Pursuit of True Competitiveness and All 330,000 Toyota employees around the world are doing their commitment to the environment by strengthening and developing our Innovation.” This new slogan encapsulates my strong belief that our best to bring happiness, safety, and peace of mind to customers and hybrid technologies. In addition to efficient gasoline engines and fuel continued growth must be informed by a strong sense of history. At communities. As we work to achieve these goals, I would very much cell vehicles, we will endeavor to develop and commercialize safety the same time, it is a forward-looking statement that paints a picture appreciate your continued support. technologies that offer safe and responsible ways of moving people. of how Toyota should look both a decade and century from now. Taking each of these factors into consideration, Toyota will actively What is the engine for sustainable growth? We have learned from July 2014 direct resources toward next-generation mobility and IT infrastructure experience that we can achieve sustainable growth only if we create innovation. attractive and appealing cars that bring smiles and if we foster the As I have already mentioned, my goal is to ensure that Toyota human resources needed to make this a reality. At the same time, evolves into a company that is capable of sustainable growth. Even in ever-better cars can be produced only through efforts made by the face of a situation like the recent global financial crisis, Toyota employees on the front line. Individuals must take ownership of their must not only be resilient, but also be well-equipped to succeed work and place the utmost emphasis on local manufacturing, swift against adversity. decision making, and immediate action. As we continue to grow, Akio Toyoda President President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev [1 of 4] Overview of Four Business Units: Lexus International Toyota No. 1 Toyota No. 2 Unit Center Lexus: Becoming a Truly Global Luxury Brand Print Search Contents P age 5 Next Lexus NX Lexus RC “Strobe,” the third installment of the global Amazing in Motion advertising campaign, featured a storyline in which a single person cloaked in light ran and flew freely through the city night. Our aim is for Lexus—a Japanese original—to become a truly global luxury brand. Worldwide, we are pushing forward to offer value that is different from other luxury brands. The Lexus International business unit is under the direct supervision of the president and acts as the global head office for Lexus brand develop- ment, sales, marketing and advertising. Successful overhauls lead from a decline to record sales In 2013, 523,000 Lexus vehicles were sold, exceeding the 518,000 vehicles sold in 2007 just prior to the start of the global financial crisis. This increase was largely attributable to the successes of the redesigned GS launched in 2012 and the redesigned IS launched in 2013. In 2014, Lexus plans to continue introducing new vehicles and is predicting yet another year-on-year sales increase. Looking to deliver an exhilarating driving experi- ence that exceeds expectations, Lexus is focusing on enhancing the product lineup in the current fiscal year. For example, we are striking out with innovative designs, including a distinctive spindle grille that will make Lexus cars instantly identifiable. We will also work to differentiate the Lexus brand by taking the lead in adopting environmental and advanced tech- nologies centered on hybrid vehicles. In July 2014, Lexus introduced the NX compact crossover SUV in Japan as the spring- board for its launch in other parts of the globe. Powered by a newly developed 2.0-liter turbo engine—a first for Lexus—the NX 200t offers both excellent driving and environmental performance, while the NX 300h features a 2.5-liter hybrid system for best-in-class environmental performance. These additions have rounded out our lineup of SUVs that are well suited for urban use in an era of environmental awareness. Slated for release in late 2014, the new RC sports coupe is an expression of the pure exhila- ration felt while driving a Lexus. In addition, the RC F version will act as the core model of Lexus’ F series of sports cars, which embody the relent- less pursuit of exhilaration. Lexus branding activities Beyond improvements to the vehicle lineup, Lexus is aiming to link the brand with a new luxury concept through a variety of lifestyle- focused branding activities. With the aim of enhancing the Lexus brand image while reaching out to a broader range of customers, we have launched a coordinated series of TV commercials worldwide featuring our new global brand campaign slogan “Amazing in Motion.” We are taking these branding activities one step further through the Lexus Design Awards and Lexus Short Films contests that encourage young, talented creators; the Lexus Amazing Experience test drive event held at Fuji Speedway, which provides opportunities to experience the thrill of driving, and the establishment of the Intersect by Lexus event and lifestyle space. Furthermore, this year Lexus has signed professional golfer Hideki Matsuyama as Lexus brand ambassador to emphasize the Japanese origins of Lexus as it takes on the best from around the world. Lexus will also participate more actively in motorsports with race cars based on the RC F in a bid to enhance the exhilarating image of Lexus. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev [2 of 4] Print Search Contents P age 6 Next Overview of Four Business Units: Lexus International Toyota No. 1 Toyota No. 2 Unit Center Improving Our Earnings Structure and Offering Advanced Technologies in Developed Markets Toyota Vehicle Production in Japan by Year (1935-2013) Dec. 2013: 150 Million Milestone Jan. 1986: 50 Million Milestone Oct. 1999: 100 Million Milestone Jan. 1972: 10 Million Milestone Yaris Hybrid Tundra (Million) 5 4 3 2 1 0 1935 ’40 ’45 ’50 ’55 ’60 ’65 ’70 ’75 ’80 ’85 ’90 ’95 2000 ’05 ’10 ’13 Voxy Noah The Toyota No. 1 business unit (in charge of North America, Europe, and Japan) has three goals: continue creating ever-better cars through local development, procurement, and production; establish an earnings structure able to sustain growth; and maintain annual production in Japan at three million vehicles. In line with its aim for sustainable growth in the North American market, Toyota is prepar- ing to consolidate all headquarters functions for the region in Plano, Texas, from 2016, ahead of the 60th anniversary of Toyota exports to the U.S. in 2017 (see page 13 for more details). Over 150 million vehicles produced in Japan In Japan, cumulative production of Toyota vehi- cles crossed the 150 million mark on December 5, 2013. This feat took over 78 years to achieve, starting in August 1935 with the first Model G1 Truck manufactured by the Automotive Production Division of Toyoda Automatic Loom Works, Ltd. (now Toyota Industries Corporation). Production in Japan has accounted for roughly 70% of the 210 million vehicles manufactured globally to date. The highest-volume model is the Corolla, with a total of about 25,450,000 vehicles built in Japan as of the end of December 2013. In Japan, Toyota boasts a robust manufacturing foundation replete with advanced technologies, manufacturing expertise, talented human resources, and a multilayered supply network. This foundation has allowed Toyota to pursue its global ambitions, and remains the source of many innovative technologies and high-value-added cars. We believe our manufacturing facilities in Japan are a base from which we can strengthen our global competitiveness. We have always believed in contributing to society through manu- facturing, and we will keep doing our utmost to make ever-better cars. Vehicle sales remain strong in Japan, the United States, and Europe in 2014 Our efforts to make ever-better cars are paying off; in 2014, Toyota once again enjoyed strong sales in Japan, the United States, and Europe. In Japan, sales have been robust for the Voxy and Noah compact minivans as well as for the Harrier luxury crossover SUV. In the United States, sales increased for our mainstay Camry and Corolla models, as well as for larger vehicles, COMS (left), Toyota i-ROAD On October 1, 2014, “Cité lib by Ha:mo,” a new type of urban mobility based on ultra-compact electric vehicles connected to public transport, launches in Grenoble, France. including the Highlander, Tundra and RAV4. In Europe, Toyota saw firm sales of the Auris Hybrid Touring Sports and Yaris Hybrid. Car sharing trial in France Starting in October 2014, Toyota will participate in a three-year car-sharing experiment in Grenoble, France. The project will be run in partnership with the City of Grenoble, Grenoble-Alpes Métropole, Citélib and the EDF Group, and will use 27 recharging stations around the city. We will provide 70 ultra-compact Toyota i-ROAD and COMS electric vehicles. The eventual aim of these projects is to reduce traffic congestion and improve air quality in city centers by enabling the smart movement of people from the closest public transportation station to their final destina- tion (see pages 22 and 31 for more details). President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev [3 of 4] Overview of Four Business Units: Lexus International Toyota No. 1 Toyota No. 2 Unit Center Supporting Toyota in Future Growth Markets Print Search Contents P age 7 Next Ceremony to commemorate the start of Vios exports to the Middle East Vios Toyota Motor Engineering & Manufacturing (China) Co., Ltd. Growth in emerging markets has been quite volatile recently, but there is still huge poten- tial for further growth. We need to take advan- tage of this potential by introducing products attuned to market needs in a timely way. Meanwhile, governments in emerging markets are moving to tighten fuel economy and safety regulations, bringing them on par with advanced economies. At Toyota, we must identify and address the true needs of consum- ers based on the situation and economic condition of each country to promote motoriza- tion and create ever-better cars. Indonesia: a global production and supply base Toyota positions Indonesia as one of its major global production and supply bases, and has expanded annual production capacity there from 110,000 vehicles in 2012 to 250,000 vehicles in 2014. Toyota has begun exporting the Vios, its first Indonesian-made sedan model designed for export, to Singapore and Brunei followed by nine countries in the Middle East. Last year, Toyota exported 118,000 Indonesian-made vehicles to more than 70 countries in Asia, Africa, Latin America, and the Middle East. Toyota accounted for more than 70% of the vehicles made in and exported from Indonesia. Indonesia is also an important engine produc- tion and supply base for Toyota. Our bases in Indonesia produce engines for the IMV* series of vehicles: the Hilux pickup truck, Innova minivan, and Fortuner. About 40% are exported to vehicle factories in Asia, Latin America, and Africa. Toyota recently began construction on a new engine plant for standard passenger cars with the capac- ity to manufacture 216,000 engines annually, and plans to begin operations in 2016. At the end of February 2014, Toyota also began exporting Toyota-brand compact cars manufac- tured at an Indonesian subsidiary of Daihatsu Motor Co., Ltd., to the Philippines. This was the first export model to receive certification under the Indonesian government’s LCGC** program. To address worsening traffic congestion in Indonesia, 23 Toyota Group companies in Indonesia worked with the Jakarta government, the Embassy of Japan, and the Japan International Cooperation Agency (JICA) on a project in November 2013 to alleviate the traffic jams plagu- ing Jakarta’s busy Mampang intersection. Road work and construction was undertaken that resulted in the length of the worst traffic jams being cut about 77% (Source: Toyota Astra Foundation). * IMV: Innovative International Multi-purpose Vehicle. ** LCGC: Low Cost Green Car, a government program to promote the use of low-cost, high-fuel efficiency vehicles. Vehicles certified under the program receive preferential tax treatment. Starting to produce hybrid powertrain units in China To deliver hybrid vehicles to more customers in China, Toyota has been working to produce hybrid units overseas—a first for Toyota—mainly at Toyota Motor Engineering & Manufacturing (China) Co., Ltd., which was completed in November 2013. As a part of this initiative, Toyota established a company to produce batteries and another company to manufacture hybrid vehicle transaxles, with plans to begin operations in 2015. In addition, Toyota is working to create a production structure for major components, such as inverters. Starting in 2015, we plan to use these Chinese-made hybrid units in the Corolla and Levin models produced and sold through joint ventures with FAW Group Corporation and Guangzhou Automobile Group Co., Ltd. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev [1 of 4] Print Search Contents P age 8 Next Overview of Four Business Units: Lexus International Toyota No. 1 Toyota No. 2 Unit Center Developing and Commercializing Major Components with Best-in-World Competitiveness 1.3-liter gasoline engine offers 38% maximum thermal efficiency 1.0-liter gasoline engine offers 37% maximum thermal efficiency How to Improve Thermal Efficiency Improved combustion Fuel Engine work (thermal efficiency) Pump Exhaust Cooling Friction Loss reduction Improved combustion and loss reduction lead to engines with high thermal efficiency, low fuel consumption Powertrain Development and Production Engineering Building The Unit Center was established in March 2013 to handle Toyota’s unit-related techno- logical development, manufacturing technol- ogy development and production. The Center aims to develop and rapidly commercialize major powertrain components with best-in- world competitiveness. As a part of these efforts, Toyota opened a new facility, the Powertrain Development and Production Engineering Building, to facilitate the development of next-generation powertrains as the core of ever-better cars. R&D and manufacturing technology staff at this facility work on everything from the devel- opment of basic technologies, such as materi- als and processes, to entire vehicles and major components. While maximizing devel- opment efficiency, we aim to develop new technologies with unprecedented speed. Further innovation in the conventional engine field Toyota aims to further increase the environmental performance of its vehicles with a series of newly developed, highly fuel-efficient conventional gaso- line engines that offer outstanding thermal effi- ciency. The new engines leverage Toyota’s sophisticated conventional engine technologies as well as combustion and loss-reduction tech- nologies accumulated through the development of dedicated hybrid engines. The key to improving the fuel economy of engines is finding ways to use the thermal energy stored in fuel to produce more “work” in an engine. This is done by maximizing thermal effi- ciency. Gasoline engines in hybrid vehicles already boast high thermal efficiencies on par with those of diesel engines. Toyota has achieved a series of highly fuel-efficient conventional engines with the same level of thermal efficiency without assistance from a hybrid system. The engines’ maximum thermal efficiency is world- class, potentially improving fuel efficiency more than 10%* compared with previous engines. For example, the 1.3-liter gasoline engine in the series offers 38% maximum thermal efficiency (Toyota measurement) putting it on a world-class level for a mass-produced gasoline engine. The new Vitz model launched in April 2014 features this 1.3-liter gasoline engine and idling stop as stan- dard, giving it an excellent fuel economy of 25.0 kilometers per liter*. By 2015, Toyota plans to launch 14 high ther- mal efficiency, fuel-efficient engines around the world. The development of these engines was made possible by the Unit Center, where an inte- grated approach is taken to the creation of product technologies and manufacturing technol- ogies. Integrated development at the Unit Center is a major force behind the move toward mass production of Toyota’s fuel cell vehicle, what we view as an ideal eco car. As the eco car pioneer that brought the world the hybrid vehicle, Toyota is working to improve the environmental performance of all its cars. * Under the Japanese Ministry of Land, Infrastructure, Transport and Tourism’s (MLIT) JC08 test cycle President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 9 Next Toyota’s DNA Will Endure for the Next 100 Years As part of our efforts to achieve our Global Vision, we adopted “Work Today, Smile Tomorrow: In Pursuit of True Competitiveness and Innovation” as our internal global corporate policy slogan for the current fiscal year. This policy paints a picture of how Toyota should look 10 years and 100 years from now, while making it clear that we must not lose our sense of history. Over its 75-year history, Toyota has faced many hardships, and the beacon that has guided the Company through all difficulties has been its steadfast determination—inspired, as always, by the smiles of customers around the world—to contribute to society by making cars. With pride and responsibility, Toyota’s many leaders since its foundation have inherited and continued this determination, steer- ing the Company through each setback with the help of countless others, and passing on the spirit of innovation in our corporate DNA. The number and variety of obstacles that Toyota can expect to confront over the next century cannot be fathomed. Drawing on our corporate DNA, we will continue to innovate and ensure that tomorrow’s Toyota is even better than today’s. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 10 Next Toyota in 10 Years and 100 Years [1 of 6] Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Toyota in 10 Years and 100 Years With the goal of making ever-better cars, the Toyota Global Vision is an articulation of the kind of company we want to be. It is based on shared values and a spirit of monozukuri (conscientious manufactur- ing) passed down since our foundation and embodied in the core values of Sakichi Toyoda, the Guiding Principles at Toyota, and the Toyota Way. We use the image of a tree to illustrate our vision: the roots are our shared values; the ongoing upward growth of its branches represents our efforts to expand business; the fruit represents making ever-better cars and enriching lives and local communities; and the trunk is our stable base of business. As the trunk of the tree grows bigger and stronger, it is able to support more branches—the creation of ever-better cars. This is the trajectory that puts Toyota on the path toward sustainable growth. Of all the components of our vision, building ever-better cars takes priority. We want to deliver products and services that surprise and excite our customers. We want to be a company that puts smiles on faces—and keeps them there. A1 prototype passenger car Toyota’s DNA On September 1, 1923, Japan’s rail system was devastated by the Great Kanto Earthquake. Automobiles ventures to produce vehicles domestically were unable to compete with the U.S. automakers that set up played a key role in helping save lives and facilitating reconstruction in the aftermath. For many people, this automobile assembly plants in Japan immediately after the earthquake. However, 10 years later, on event demonstrated not only the practical public role that automobiles could play but the convenience such September 1, 1933, Kiichiro Toyoda established the Automotive Production Division (which would later vehicles, previously regarded only as luxury items, could offer. The surge in demand for automobiles follow- become the Automotive Department) within Toyoda Automatic Loom Works, Ltd., and began preparing to ing the earthquake was met by U.S. automakers, whose mass production structure gave them an advan- build prototypes. While declaring lofty goals, Toyoda, like his father Sakichi, took a hands-on approach to tage in both supply capability and cost. Efforts were made to produce vehicles in Japan from around 1910 learning and was often heard saying, “an engineer who does not have to wash his hands at least three The Japanese Auto Industry in the Early Twentieth Century onwards. However, as Japanese industry at the time was for the most part technologically underdeveloped, times a day is not doing a good job.” business conditions were not conducive to the establishment of a full-blown automotive industry, and Toyota is a company born from the passions of its founders, who wanted nothing less than to establish a globally competitive automobile industry in Japan. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 11 Next Toyota in 10 Years and 100 Years [2 of 6] Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Innovating, Building Tomorrow’s Toyota, and Making Ever-Better Cars Popularizing environment-friendly cars Diversification of Automotive Fuels and Powertrains Worldwide Sales of Toyota Hybrids 6 million Environmental concerns must be taken into account when we think about creating a “mobility society” (that is, a highly mobile society reliant on automobiles as its major means of transporta- tion). The Guiding Principles at Toyota, set forth in January 1992, declared that we will “dedicate our business to providing clean and safe products and to enhancing quality of life everywhere through all of our activities.” In line with this principle, in December 1997, Toyota launched the world’s first mass-produced hybrid vehicle, the Prius. The environment is still a top-priority manage- ment issue. In addition to hybrid vehicles, Toyota has been developing next-generation eco cars, including plug-in hybrid vehicles, electric vehicles, and fuel cell vehicles. Believing that the spread of eco cars is in itself good for the environment, Toyota has focused on hybrid vehicles, selling more than six million in total as of December 2013. Although it took nine years and nine months for cumulative sales to reach the one million mark in May 2007, strengthening demand has accelerated the popularization of hybrids. After passing the four million mark in April 2012, it Primary energy source Automotive fuel Powertrain Oil Natural gas Coal Plants Uranium Hydro, solar, geothermal electricity generation Gasoline Diesel Gaseous fuels Synthetic fuels Biofuels Electricity Hydrogen Conventional and hybrid vehicles PHVs EVs FCVs i c s a B n o i t a r e n e g - t x e N While working to reduce energy use, we must also diversify fuels l i s e g o o n h c e t l i s e g o o n h c e t e v r e s n o C y f i s r e v D i (Thousands of units) 1,800 1,500 1,200 900 600 300 0 117 months 27 months 18 months 14 months 11 months 9 months (Millions of units) HV global sales • 2012: Achieved 1 million annual units sales for the first time • Mar. 2013: Cumulative sales passed 5 million units • Dec. 2013: Cumulative sales passed 6 million units 1 million 3 million 2 million 5 million 4 million 6 5 4 3 2 1 0 (CY) 2001 (cid:31) Annual sales (cid:30) Cumulative sales (right scale) 1997 1999 2003 2005 2007 2009 2011 2013 took only 11 months for cumulative sales to break five million in March 2013, and another nine months to hit six million in December 2013. Based on the concept of producing the optimal vehicle in the optimal location at the optimal time, Toyota has broadened its hybrid lineup and now offers at least one in each automobile category. We believe hybrids have finally entered a full-scale growth phase and are no longer niche products. Toyota calculates that as of December 31, 2013, use of Toyota hybrids* had resulted in approxi- mately 41 million fewer tons of CO2 emissions** than would have been emitted by gasoline-powered vehicles of similar size and driving performance. Toyota also estimates that the use of its hybrid vehicles has saved approximately 15 million kiloli- ters of gasoline compared with the amount that would have been used by gasoline-powered vehi- cles of similar size. Hybrid vehicles offer lower CO2 emissions and lower fossil fuel consumption. As of the end of August 2014, Toyota has 27 hybrid models and one plug-in hybrid model on the market in about 80 countries and regions. Furthermore, within the next two years (2014 and 2015), we plan to launch a total of 15 new hybrid models worldwide. Taking advantage of our pioneer status, we will continue adding to this lineup and increasing the number of countries and regions where we sell hybrids, with the ultimate aim of popularizing eco cars around the world. * Excludes the Coaster hybrid electric vehicle and the Quick Delivery 200 model. ** Number of registered vehicles × distance traveled × fuel efficiency (actual fuel efficiency in each country) × CO2 conversion factor Toyota’s DNA Kiichiro Toyoda’s passion and commitment to developing an automobile industry in Japan were tested 1935, the year Toyoda began to produce automobiles, was also the year that he laid down his vision for the repeatedly. When he began, there were no steelmakers in Japan developing the sheet steel needed for future, which led to today’s Toyota Global Vision. On October 30, 1935, the fifth anniversary of the death of his automobiles. Toyoda found himself having to establish new business units, such as the Steel Production father, Sakichi Toyoda (1867-1930), Kiichiro Toyoda set down in writing some of his father’s core values before Department (which later became Aichi Steel Corporation) alongside the Automotive Department. announcing the Model G1 Truck. Sakichi Toyoda was the founder of today’s Toyota Group as well as an inven- After numerous failures, Toyoda finished building the first prototype Model G1 Truck on August 25, 1935, tor in his own right with numerous patents and new practical designs in his name, both in Japan and abroad. and the truck launched in December of that year. Over the following year, a total of 14 Model G1 Trucks On August 28, 1937, the Automotive Department was spun off into Toyota Motor Co., Ltd. In 1940, were sold. At the behest of the government, truck development took priority, but Toyoda had also annual automobile output was 46,000 vehicles in Japan, compared with 4,470,000 vehicles in the United completed a prototype Model A1 passenger car in May 1935, and was able to put it on the market in 1936 States, an enormous difference in scale and capability. Entering the Automotive Business as the improved Model AA—its first mass-produced passenger car. Only two years after establishing the Automotive Department, Toyoda had launched an automobile business in line with his conviction, “once you start a new business, moving quickly makes the most economic sense.” Model AA The endeavor to make a Japanese automobile from nothing to a finished product was an ordeal, involving identifying defects and solving problems one by one. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 12 Next Toyota in 10 Years and 100 Years [3 of 6] Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Further advances in key technologies for hybrid technology Hybrid technology can be applied to the develop- ment of all sorts of environment-friendly vehicles and can be found in a wide variety of powertrains. Toyota has positioned hybrid technology as a core environmental technology for the 21st century. As a pioneer in the mass production of hybrid vehicles, we are continuing to improve this technology. Power semiconductors have a big impact on the effectiveness of hybrid technology. Hybrid systems offer excellent fuel economy through the efficient use of two power sources: gasoline engines and electric motors. A large number of power semiconductors are used in the power control unit (PCU), a device situated between the motor, power generator and batteries. The PCU controls the output of the motor. Some of the electrical current that flows through the power semiconductors in the PCU is lost as heat; in fact, approximately 20% of a hybrid vehicle’s overall electricity loss is from the power semiconductors. PCU volume: 1/5 PCU with silicon power semiconductors (Production model) The PCU plays a vital role in controlling electricity usage, recharging batteries with electricity generated when the vehicle decelerates and accelerating the vehicle by supply- ing electricity to motors from the battery bank while driving. PCU with SiC power semiconductors (Future target) For this reason, making power semiconductors more efficient will improve fuel economy. Toyota has been developing its own power semiconduc- tors as a key technology for improving fuel econ- omy since the launch of its first-generation Prius in 1997. In the latest, third-generation Prius, elec- tricity loss has been reduced to a quarter of that of the first-generation Prius. Aiming to make tomorrow’s Toyota better than today’s, we are developing power semiconductors that use next-generation silicon technology, namely, silicon carbide (SiC), a material that is a compound of silicon and carbon. We have already improved fuel economy more than 5%* in a prototype featuring the new SiC power semiconductors. As early as possible, Toyota aims to commercialize SiC power semiconductors that offer a 10%* improvement in fuel economy through greater efficiency. In addition, we aim to shrink the PCU to one-fifth the size of current PCUs through the use of SiC power semiconductors. * Toyota estimate based on a prototype driven under the Japanese Ministry of Land, Infrastructure, Transport and Tourism’s JC08 test cycle parameters. Toyota’s DNA The Crown On September 25, 1945, soon after the end of World War II, the Allied Power’s General Headquarters in Crown, which featured cutting-edge technologies, including a front-axle double wishbone suspension. Japan authorized the production of trucks and in principle allowed any company to produce and sell auto- Fulfilling Kiichiro Toyoda’s dying wish, the Toyopet Crown was finished in 1955 and launched as Japan’s first mobiles from October 25, 1949. The industry, however, was still in disarray. full-fledged passenger car. In the 1950s, Japanese automakers were forging technological alliances with foreign automakers for the By October 1956, sales of the Toyopet Crown exceeded 1,000 vehicles per month, becoming a hit production of passenger cars. Kiichiro Toyoda chose a different path in line with his father Sakichi’s admon- among drivers enamored with its proprietary design featuring rear-hinged doors and a front-wheel indepen- ishment, “Before you say you can’t do something, try it.” Aiming to research and innovate on his own, dent suspension for a smooth ride. With the popularity of the Crown, Toyota completed construction on the Toyoda embarked on the full-fledged development of a passenger car using home-grown technology. When Motomachi Plant in Aichi Prefecture in July 1959, only eleven months after the groundbreaking ceremony. development began, Toyoda decided to name this new passenger car the Crown, feeling that this might be The plant was to produce 60,000 passenger cars per year. his crowning achievement. However, he passed away suddenly in March 1952, before the completion of the Kiichiro Toyoda’s dream of mass producing a home-grown passenger car and sparking the development of Japan’s automotive industry had finally come true. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 13 Next Toyota in 10 Years and 100 Years [4 of 6] Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Building the right cars in the right places Over half a century has passed since Toyota exported its first two Crowns to North America in 1957, and it has been almost 30 years since Toyota started building cars in North America, beginning with New United Motor Manufacturing, Inc., in 1986. Through the 1980s, Toyota was well known as a maker of mid-sized and compact passenger cars, such as the Camry and Corolla, as well as the Hilux small pickup truck. In 1989, Toyota launched the Lexus brand as its entry into the luxury passenger car market. From that point onward, it expanded its lineups of luxury vehicles and cars for young drivers as well as light-duty trucks, and introduced hybrid models, changing its image as a carmaker and increasing its pres- ence in the U.S. market. Cumulative production volume in North America reached 10 million vehicles in 2001, 20 million vehicles at the end of 2008, and 25 million vehicles in October 2012. In May 2014, Toyota’s plant in Kentucky, which started production in May 1988, became the first Toyota plant outside Japan to have produced 10 million vehicles. Today, in the United States and Canada, Toyota has 11* manufacturing companies, three distribu- tors, and a network of more than 1,750 dealers that sell more than two million Toyota and Lexus vehicles annually. In our quest to innovate and make tomorrow’s Toyota even better than today’s, we have decided to establish a new North American headquarters, moving our regional manufacturing, sales and marketing, corporate, and financial services head- quarters to a single location in Plano, Texas. The move is intended to increase efficiency and collaboration throughout the organization, with the ultimate aim of ensuring sustained growth in North America by creating a business structure that allows us to deliver ever-better cars to customers. Ahead of this strengthening of our business foundation and in line with our principle of build- ing the right cars in the right places, we have assigned an American as the chief engineer over- seeing the redesign of the flagship Camry model. Cumulative production volume at Toyota Motor Manufacturing, Kentucky has reached 10 million vehicles. Under his guidance, and based on intricate market research, the Camry has evolved into a car with bold form and solid handling. * Excluding Subaru of Indiana Automotive, Inc., which produces vehicles on a commissioned basis Toyota’s DNA The Corolla In November 1966, the first-generation Corolla was launched in anticipation of the arrival of mass motori- 2013, global cumulative sales of the Corolla crossed the 40 million vehicle mark. One in every five cars sold zation. The car’s sales gained momentum in 1966, with the start of production at the newly constructed over the last 76 years has been a Corolla. Always staying ahead of the times and paying attention to the Takaoka Plant in Aichi Prefecture and exports to Australia. In 1968 exports to North America began to needs of our customers and society, Toyota has worked relentlessly to improve the technologies and quality expand. As a result, total automobile output at Toyota, which was around 480,000 vehicles in 1965, more of the Corolla. Today, the Corolla is marketed in more than 150 countries and regions around the world, and than doubled to roughly 1,100,000 vehicles by 1968, increasing in line with sales of the first-generation it is manufactured in 15 locations around the world, including two in Japan. Corolla. In 1970, four years after the Corolla’s launch, cumulative worldwide sales of the car surpassed one This is in line with a sentiment Sakichi Toyoda expressed at the construction of an automatic loom plant in million, and the concept of building the right cars in the right places led to rave reviews around the globe. 1921 in Shanghai, China, namely, “open your door, and look outside,” an apt reminder that we should keep The Corolla became the world’s best-selling car, reaching in 22.65 million cumulative sales in 1997. In July our eye on the world and cultivate the courage to take on any challenge. The Corolla, adored by so many drivers around the world, is one car that laid the cornerstone for making ever-better cars. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 14 Next Toyota in 10 Years and 100 Years [5 of 6] Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Comprehensive Development of Next-Generation Eco Cars from a Hybrid Technology Core Breakdown of Mobility in the Future HV Motor PCU Battery Generator Engine Fuel tank EV Motor PCU Battery i e n g n E Fuel tank PHV Motor PCU Generator Battery Engine Fuel tank FCV Motor PCU Battery FC stack Hydrogen tank Electric vehicles: short-distance applications Hybrid vehicle and plug-in hybrid vehicles: passenger cars Fuel cell vehicles: medium and long-distance applications Hybrid and plug-in hybrid vehicles Large trucks Fuel cell vehicles Electric vehicles Passenger Metropolitan buses Vehicle size Compact delivery vehicles Short-distance applications HV EV Delivery trucks FCV (bus) FCV PHV Motorcycles Travel distance HV: Hybrid vehicle EV: Electric vehicle PHV: Plug-in hybrid vehicle FCV: Fuel cell vehicle Energy source Electricity Gasoline, diesel, biofuel, CNG, synthetic fuel, etc. Hydrogen Fuel cell vehicles: ideal eco cars Automobiles can be powered by a wide range of energy sources, including gasoline, diesel, natural gas, synthetic liquid fuel, biofuel, electricity, and hydrogen. Two strategies are being taken to address environmental problems caused by the mass consumption of fossil fuels: using less petroleum and diversifying energy sources. Combining high thermal efficiency, low fuel consumption engines and a host of advanced pollution. In addition to producing zero emissions when driven, fuel cell vehicles are also highly prac- tical. Their defining characteristic is their long cruis- ing range. They can also be refueled very quickly. As a source of electrical power during emer- gencies, a fuel cell vehicle is capable of powering a typical home for roughly a week. Because of their simultaneous achievement of zero emissions and high practicality, Toyota positions these vehi- cles as the ultimate eco-car. However, one barrier to the proliferation of fuel cell vehicles is the need to create a refueling infrastructure in the form of hydrogen stations. To ensure that our customers are able to operate fuel cell vehicles reliably, Toyota is cooperating in the establishment and operation of a hydrogen supply infrastructure in numerous countries and regions around the world. We have more than two decades of experience with fuel cell vehicles; we started development in 1992 and launched the Toyota FCHV, the world’s first fuel cell SUV, in December 2002 on a limited basis in Japan and the United States. Toyota has developed a proprietary fuel cell stack and President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Sectiontechnologies, hybrid vehicles are a textbook example of how to use less petroleum. Energy diversification is a broad field, and Toyota is confi-dent that hydrogen represents the next promising energy source of the future. Fuel cell vehicles run on a motor powered by electricity generated by a chemical reaction between hydrogen and oxygen in a fuel cell. The only byproduct of a fuel cell vehicle in operation is water vapor. It does not emit any harmful substances such as CO2, a cause of global warm-ing, or SO2 and NOx, causes of atmospheric ANNUAL REPORT 2014 Prev Print Search Contents P age 15 Next Toyota in 10 Years and 100 Years [6 of 6] Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting high-pressure hydrogen tank—critical compo- nents of a fuel cell vehicle—that perform at world- leading levels. Toyota plans to start selling a fuel cell sedan in Japan before March 2015. At first, the new vehi- cle will be sold only in major cities that plan to build hydrogen station networks. We are also preparing to launch the sedan in the United States and Europe around summer 2015. From the 2020s onward, we expect the market for fuel cell vehicles to increase significantly, with several tens of thousands of vehicles sold per year. Over the next 100 years, we believe electrified powertrains will hold the key to the future of the automobile. The first-generation Prius opened the door to this future in 1997, and a new era of transportation emerged once major challenges were overcome. Similarly, fuel cell vehicles repre- sent the next stage in the development of a future “mobility society.” Toyota has embarked on a long journey toward making hydrogen an everyday fuel and fuel cell vehicles the norm. Toyota’s DNA Fuel Cell System Development Hydrogen tank Boost converter Battery Fuel cell stack Motor Power control unit Nippon Charge Service Established to Promote the Development of Infrastructure for Electric-Powered Vehicles Toyota Motor Corporation, Nissan Motor Co., Ltd., Honda Motor Co., Ltd., and Mitsubishi Motors Corporation jointly established a new company, Nippon Charge Service, LLC (NCS), to promote the installation of chargers and development of a highly convenient infrastructure network for electric-powered vehicles (PHVs, PHEVs, and EVs) in Japan. Through NCS, the companies will provide financial support to help cover the cost of charger installation and maintenance to businesses and municipalities that install them, helping to accelerate the advance of charging infrastructure. The speedy creation of this infrastructure will dramatically improve customer convenience, helping society maximize the possibilities of electric vehicles. The development of the first-generation Prius was a major turning point for Toyota. At the time, Chairman at the Tokyo Motor Show to great fanfare. Encouraged by this reception, Toyota moved up the launch date Eiji Toyoda stated that Toyota must be in a position to help its customers and society more. The Prius was for the Prius to December 1997, from the original 1999, to coincide with the Kyoto Conference on Climate conceived with this goal in mind. Change (COP3). What should cars look like in the 21st century? To answer this question, the G21 Project was launched in The first-generation Prius was the result of a cross-organizational companywide effort to accelerate the September 1993 with 10 staff assembled from divisions across the Company, including engine, chassis, development of the hybrid system that included the integration of the development departments for system and body engineering, as well as production technology. With “G” standing for Globe and “21” for 21st control and electronic units. The Prius project was exceptional; in the extremely short time frame of two century, the ambitious goal of the G21 Project was to double the fuel economy of existing engines. years, completely new technologies were developed and put into mass production. The first-generation The hybrid system was developed from scratch, and many obstacles were encountered along the way. Prius debuted with the slogan, “Just in time for the 21st century.” The core hybrid technologies developed For example, the first prototype, completed in November 1995, simply stopped working after 49 days of then can be applied to any type of eco car. operation, and the engineers could not figure out why. That same year, the Prius concept car was displayed As long as innovation continues in hybrid technology, we can work toward a “mobility society” with more options for customers. Staying ahead of the Times President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 16 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars [1 of 2] What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Our DNA is Creating Ever-Better Cars Toyota aims to deliver cars that open up new lifestyles for consumers, cars that change lives for the better and bring new discoveries. As we strive to do this, our ideals and pride in manufacturing are evident at every stage, from development through production and sales, and ensuring the performance and quality of every car we make. Toyota believes that cars are more than a means of transportation, being a source of excitement and exhilaration. At Toyota, we foster human resources to ensure that our DNA is passed on to future generations so that we can continue to sustainably create truly great cars. Inherited expertise in manufacturing put to the test at world-class contests Toyota’s competitiveness is derived from its manufacturing expertise and the passing on of this expertise to the next generation. Toyota participates in the WorldSkills Competition, which tests the competence of young employees (the under 22s), to create opportunities for the voca- tional workers at the core of our operations to build on their abilities and learn advanced tech- niques. Held once every two years since 1950, this international contest aims to encourage voca- tional mastery, foster exchange among people of various nationalities, and nurture appreciation for technical workmanship. At the 42nd WorldSkills Competition held in Leipzig, Germany, in July 2013, 1,007 competitors represented 53 coun- tries and regions in 46 vocational skills. Eight employees from Toyota competed in seven voca- tions, with two being awarded gold medals and all eight contestants receiving prizes. Toyota was responsible for two of the five gold medals won by Japan. Over the years, Toyota has won a total of 25 gold medals, 13 silver medals, and 9 bronze medals at this international contest. In addition, four employees of Toyota in Thailand and Indonesia participated in two voca- tional fields, taking home one gold medal and two silver medals. A culture emphasizing vocational skills has taken hold at our bases overseas. The Next WorldSkills Competition is slated for São Paulo, Brazil, in August 2015. The National Skills Competition has been held in Japan annually since 1963. Toyota has partici- pated since 1966, and currently enters the competition in 10 vocational fields related to auto- motive manufacturing. The 52nd National Skills Competition will be held in November 2014 in Toyota’s home prefecture of Aichi, with more than 1,200 participants from across the country, including 43 young Toyota technicians, compet- ing for the distinction of best technique in the country. The gold medalists will represent Japan at the next international competition in Brazil. Creative skill use to make ever-better cars At Toyota’s Takaoka Plant, production lines are occasionally referred to as “skill inheritance lines.” The production floor is a place where younger workers can learn craftsmanship as well as the rules and principles of manufacturing. These production lines were created with a sense of urgency, because we thought that opportunities President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 17 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars [2 of 2] What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting were being lost to pass vocational skills onward due to automation in plants limiting the ability of veteran technicians to ply their trade. The body remembers the experience of build- ing something. When an issue arises, the experi- ence can be drawn on to quickly get to the root of the problem through a cyclical process of hypothesis and verification. These advanced, hard-earned skills are reflected in production technologies, and through a constant evolution and sharpening of skills and technologies, a spiral of improvement leads to innovation. To reinforce its foundation for creating ever- better cars, Toyota launched an initiative last year wherein young workers come into direct contact with how customers around the world use Toyota vehicles in various transportation environments. These young engineers, who were mostly dispatched to our overseas R&D centers, conducted surveys of market conditions, evalu- ated local conditions, and participated in develop- ment. The knowledge they gained through these experiences will help us create the ever-better cars of the future. Knowledge and skills from the grueling world of motorsport go into making ever-better cars For many years, Toyota has tested its vehicles on the race circuit in Nürburgring, Germany, which is regarded as the world’s most grueling course. With the aim of fostering human resources able to make ever-better cars, Toyota has taken this a step further and has participated in the 24 Hours of Nürburgring endurance race since 2007. The over-25-kilometer course combines the Nürburgring (North Loop) and the GP Course used by the F1 Grand Prix. Since 2012, Toyota has sent its “skill inheritance team” of mechanics comprising young employees with expertise in a variety of fields. Nürburgring features intense elevation changes of up to 300 meters on a course laid out like European public roads, complete with rough patches. During the race, the car design is tested and seasoned as the team members address unexpected problems that arise, with the group becoming closely attuned to the car and group cohesion strengthening. In an intense and short period, participants gain a profound appreciation of automobiles and a level of know-how and skill- fulness that transcends their daily work. At our eighth appearance at the competition, 14 mechanics from Toyota participated. Toyota won in the SP3 class, SP8 class, and the SP-PRO class, and the Toyota team finished in the best position with the highest number of laps it has ever accomplished. As Toyota manufacturing spreads globally, as the spirit of innovation is passed along at work- places around the world, and as technologies and skills evolve, our DNA will continue to be passed on for not only the next 10 years but the next 100 years. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 18 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting What Sets Toyota Apart > The improvement process is infinite, and Kaizen (continuous improvement) Toyota has grown from a single core concept that is still shared by the entire Group: contrib- uting to society by making ever-better cars. Some of the values and ideas that have defined Toyota over its 75-year history are listed below. The Toyota Production System (TPS) TPS encourages the complete elimination of waste, irregularities, and overburdening from the production process. The system, originally employed in the textile industry, is based on two fundamental concepts: jidoka, which can be loosely translated as “automation with a human touch,” and the Just-in-Time (JIT) principle. Under these concepts, if a problem occurs, the equip- ment immediately stops running, preventing the manufacture of defective products, and at each stage production is limited to only what is needed, when it is needed, and in the amount needed. > Establish the facts through genchi genbutsu (on-site, hands-on experience) > Stop production lines when a problem occurs and implement corrective and improvement measures The Nature of the Toyota Production System after-the-fact improvements are in essence forward-looking improvements These directives, which form part of Toyota’s management philosophy, are by no means limited to the production front-line. They apply universally to all endeavors. In effect, TPS represents the building blocks of Toyota’s human resource development endeavors. Genchi Genbutsu (on-site, hands-on experience) The genchi genbutsu principle refers to much more than merely visiting a site to examine some- thing in situ. It entails understanding and respect- fully considering the opinions of on-site individuals as well as of individuals who have extensive rele- vant knowledge. Genchi genbustu is thus a key concept in the improvement process. Furthermore, the notion of “respect for people” is consistent with Toyota’s founding philosophy, and is under- pinned by the concept of thoroughgoing and direct communication. Kaizen (continuous improvement) Take a close look at each site Consistently uncover issues The “Five Whys” Improve each issue Raise management standards l D e v e o p h u m a n r e s o u r c e s o v e r a l l c o n s t i t u t i o n / S t r e n g t h e n t h e C o m p a n y ’ s Building “true competitiveness” To consistently deliver a higher level of quality and competitive products to its customers, Toyota must continue to nurture a corporate culture that places the utmost value on quality, productivity, and cost efficiency. In addition to an unwavering commitment to JIT that underscores our commit- ment to the development of a short and efficient supply chain, we realize that we must also provide customers with a wide-ranging, compre- hensive, and well-organized after-sales service network. From a long-term perspective, we can only stay competitive if we continue to focus on developing human resources, fostering relation- ships of trust between management and labor, and ensuring that each employee remains committed to conscientious manufacturing. For its part, Toyota will continue to hone its true competitiveness, which provides the underlying strength for its manufacturing platform over the medium to long term. By doing so, we hope to ensure sustainable growth. Representing a never-ending cycle of progress, the word kaizen encapsulates a spirit of striving for continuous improvement and a refusal to accept the idea that something cannot be made better. Toyota believes that acknowledging the possibility of contin- uous improvement can make tasks easier and more enjoyable. From an organizational standpoint, kaizen involves the entire workforce while relying on the extensive knowledge, skills, and experience of the people working directly on the process. The concept is based on individuals taking ownership of their work and focusing on what should be done rather than on what can be done. At the same time, the kaizen process is underpinned by thoroughgoing and direct communication. It is essential to follow through once a decision has been made upon thorough deliberation with the participation of all. We consider this a valuable part of our corporate culture. Taiichi Ohno (1912-1990), a former Toyota executive vice president and founder of the Toyota Production System, once commented that while the wisdom of humankind was infinite, that wisdom tended to emerge only during periods of adversity. When things are not going well and a better method is discovered, it is critical that suggestions be made openly, discussed, and put into practice to ensure continuous improvement. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 19 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation [1 of 4] New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Enriching Lives and Building Tomorrow’s Toyota through Innovation Toyota aims to enrich lives and communities through innovations that make cars safer, more comfortable and more convenient. This will help create a future “Smart Mobility Society” in which cars are highly economical and energy efficient. Safety in a “Smart Mobility Society” To realize a safe and responsible automobile soci- ety, Toyota has been developing safety technolo- gies based on an “Integrated Safety Management Concept,” that involves a three-pronged, compre- hensive approach to passengers, cars and trans- portation systems, in pursuit of a practical safety strategy with the ultimate aim of zero traffic fatali- ties and injuries. For Toyota, the “Integrated Safety Management Concept” is synonymous with vehi- cle safety. To make cars safer, we concentrate on integrating safety systems, instead of having them function independently of each other. Vehicle-infrastructure cooperative systems use ITS (Intelligent Transport Systems) technology to establish car-to-car, car-to-pedestrian, and car-to- road connections. These systems help prevent accidents and support safe driving environments by alerting drivers to pertinent information provided by roadside sensors and other vehi- cles—information that is unobtainable using a single vehicle’s sensors alone. Toyota aims to make vehicle-infrastructure cooperative systems a reality as soon as possible, and has been working with government institutions to create standards for smart road infrastructure to upgrade the trans- portation environment. We have been conducting field tests on public roads since 2006 in collabora- tion with government agencies and other private- sector companies. Moreover, by the mid-2010s, we intend to be the first company in the world to commercialize systems that use the 700 MHz band to establish connections between people and cars to support safe driving environments. We aim to create advanced driving safety systems by linking the automated safety systems of vehicles. “Integrated Safety Management Concept” Vehicle-Infrastructure Cooperative Systems That Support Driving Vehicle-to-Infrastructure Communication Optimal Safety Technology for Each Situation Safety System Coordination Avoid Dangerous Incidents Collision Mitigate Accident Damage Parking Active Safety Pre-Collision Safety Providing Information & Support Accident Warning & Avoidance Damage Mitigation Passive Safety Passenger & Pedestrian Protection Emergency Response Rescue Panoramic View Monitor Radar Cruise Control Blind Spot Monitor (BSM) Pre-Collision System (PCS) GOA Automatic Collision Notification (ACN) 4 Display inside vehicle Notifies the driver by displaying the information received from with beeps 1 Vehicle detection sensor Detects oncoming vehicles at intersections with poor visibility when turning right 2 Pedestrian detection sensor Detects pedestrians at the crosswalk ahead when turning right 3 700MHz transceiver Transmits information regarding and the on-board unit in the vehicle turning right (cid:31) Right-turn collision prevention system ((cid:31)(cid:30)(cid:29)) (cid:31) Crossing pedestrian recognition enhancement system ((cid:28)(cid:30)(cid:29)) This service uses roadside infrastructure to detect in real time and notify the drivers of oncoming vehicles and pedestrians at the crosswalk ahead when turning right. Vehicle-to-Vehicle Communication (cid:31) Crossing collision prevention system This service uses direct communication between vehicles to exchange information about position and speed. Back Guide Monitor Lane Keeping Assist (LKA) Lane Departure Alert (LDA) Vehicle Dynamics Integrated Management BA ABS TRC VSC Basic Functions Intelligent Parking Assist (IPA) Intelligent Adaptive Front-Lighting System (AFS) Adaptive High-Beam System (AHS) Brake Assist (BA) Automatic High Beam (AHB) Anti-lock Braking System (ABS) Intelligent Clearance Sonar (ICS) Drive-Start Control Night View Navigation Coordination System Cooperative ITS Traction Control (TRC) Vehicle Stability Control System (VSC) Alert Pre-Collision Brake Assist Pre-Collision Braking Types Regular Type: PCS to help prevent rear-end collision Advanced Type: PCS to help prevent collision with pedestrians Collision- Resistant Body Structure Seatbelts Airbags Seats Pop-Up Hood Example of Vehicle-Infrastructure Cooperative ITS (created in December 2013) n o i t c u d e r t n e d c c A i Autonomous systems Cooperative ITS Increased awareness of people 20XX (Present–Future) s e i r u n j i d n a s h t a e d f o n o i t c u d e R (cid:31) Autonomous systems (cid:31) Cooperative ITS Vehicle-to-Pedestrian Communication Transmitter (cid:31) Pedestrian existence advisory system The vehicle communicates with terminals (transmitters) which are carried by pedestrians to notify the driver of pedestrians, including children, elderly persons, and other road users in support of safe driving. Frontal collisions Rear-end collisions Solo vehicle accidents Accidents at intersections Accidents involving motorcycles/ motorbikes Accidents involving bicycles Accidents involving pedestrians President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 20 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation [2 of 4] New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting drive. Toyota plans to commercialize the newly developed AHDA in the mid-2010s. Toyota aims to develop systems that promote safer driving, so that drivers can handle their cars in all kinds of driving conditions like a highly experienced driver. By pairing these advanced driving assistance systems with drivers, we hope to raise the bar for safety and move one step closer to our vision of a “Smart Mobility Society” with zero traffic fatalities or injuries. Automated driving technology While respecting the intentions of drivers and preserving the enjoyment of driving, Toyota aims to create advanced driving assistance systems that improve the safety of its cars. Since the late 1990s, Toyota has been researching automated driving technology, and has tested this technol- ogy on public roads in the United States for several years with top priority on safety. In Japan, we have been testing advanced driving assis- tance systems on public roads since 2011. The result of this research and testing was the development of “Automated Highway Driving Assist” (AHDA), an advanced driving assistance system for expressways that uses automated driving technology. AHDA features Cooperative- Adaptive Cruise Control, which maintains a safe distance from the car in front while communicat- ing with it wirelessly, as well as Lane Trace Control, which helps drivers steer their cars along optimal paths calculated using data from sensors that detect white lines on the road at all speeds. The integration of these two features supports safer driving conditions and makes cars easier to Enriching Lives of Communities Toyota has conducted traffic safety education in Japan since the 1960s. teenagers and their parents in the United States; the White Road Campaign We continue to educate the public through a wide range of programs, with the “Milky Way & the Gang” characters teach elementary school children Teen Drive365 teaches defensive driving to teenagers. such as safe driving classes for adults and traffic safety classes for chil- in Thailand about traffic safety; and other educational programs that teach dren. We also distribute picture books about traffic safety to children. traffic safety in India, Argentina, China, and many other places. Since we began to distribute traffic safety educational materials in 1969, Toyota’s Collaborative Safety Research Center in the United States we have issued almost 134 million copies of traffic safety picture books engages in joint projects with more than 16 universities and research to preschool and kindergarten children around Japan, as well as almost institutions in North America. Our research results are open to the public 1.5 million copies of traffic safety picture-card sets. Outside Japan, we and we are contributing to the U.S. government’s policy planning. offer similar programs: the TeenDrive365 teaches defensive driving to Traffic Safety Education Traffic safety picture books and picture-card sets White Road Campaign in Thailand President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 21 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation [3 of 4] New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Comfort in a “Smart Mobility Society” Technology can connect people, cars, families and society. Toyota develops and offers telemat- ics services, including a communications service that brings a new level of convenience and comfort to the car ownership experience. Toyota is developing new system technologies and build- ing platforms that leverage Big Data, such as a car’s position, speed, and driving conditions, to create new value, enhance safety and improve quality. These systems combine highly accurate maps and navigation to support advanced driving with communications interfaces for controlling vehicles. We plan to create a system open to any company wishing to offer clients information, entertainment systems and content. Our “T-Connect” service features software agents that control car electronics, search for information, and display pertinent information for a safe and comfortable driving experience. These agents connect with the voice communications system of the Toyota “Smart Center” to set desti- nations, search for news and other information, and transmit data from onboard electronics that manage driving conditions. Based on this data, drivers are provided with optimal driving routes based on the latest traffic and weather informa- tion. T-Connect can also connect the driver with a human operator when necessary, including during emergencies, when help is needed using the system, or when information is needed from the car manual. T-Connect lets drivers download and enjoy T-Connect apps designed by third parties. For example, “Brake Master” is an app that plots braking speed on a graph, making a game out of improving the braking skills of drivers. In addition, T-Connect apps can be downloaded to smart- phones and tablets for managing vehicle data and accessing maps to guide users in walking the “last mile” after parking. Traffic information and statistical data based on the Big Data sent via telematics services (such as car position, speed, and driving conditions) is also Toyota’s Approach to Telematics How T-Connect Works used to improve traffic flow, provide map data, and help in emergency response scenarios. Toyota has been working with Panasonic Corporation in the joint development of services that connect cars with home appliances, with the aim of creating a “Smart Mobility Society” offering convenience and comfort. This service enables T-Connect to send real-time vehicle position infor- mation to Panasonic’s cloud services to turn on/ off air conditioners at home. This preps homes for the arrival of their owners and also helps people who forget to turn off appliances when they leave. Considering the rate at which many developed societies are aging, Toyota is developing technol- ogies that will augment elderly drivers’ awareness of driving conditions while helping them make good driving decisions. These technologies will help create a “Mobility Society” where the elderly can pursue more fulfilling, mobile lives. a e r a e r o C a e r a l a r e h p i r e P Services Interactive voice response Agent Additional apps for navigation Apps Safety/help service Online Care Toyota Smart Center Connection methods Wi-Fi Smartphone* (via tethering) “au” Wi-Fi spots DCM Blue tooth** T-Connect-enabled navigation systems Mobile devices Devices *Requires tethering-enabled smartphone; **Requires Bluetooth-enabled device Panasonic’s Cloud Toyota Smart Center • Remotely operate home appliances • Check status of home appliances Panasonic home appliance control app President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionTelematics serviceToyota’s approach• Interactive interfaces linked to vehicle• High-precision maps and navigation for advanced driving assistance• Services using big dataIndependently develop technologies and establish platforms• Multimedia/information servicesEstablish open systems that third parties can contribute to• Third-party software enabling smartphone use while drivingConsider using after carefully assessing safety and data security ANNUAL REPORT 2014 Prev Print Search Contents P age 22 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation [4 of 4] New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting Convenience and the “Smart Mobility Society” of the future Urban transportation systems that incorporate cars into communities will play a key role in creat- ing a future “Smart Mobility Society” where low- carbon, efficient transportation is a reality. For example, the Toyota City Verification Project in Japan is a prototype of a low-carbon city. In collaboration with local governments, Toyota also provides next-generation vehicles, such as plug- in hybrid vehicles, electric vehicles, and fuel cell vehicles, installs charging stations with solar panels, and conducts personal mobility experi- ments. In addition, to achieve low carbon trans- portation, we aim to optimize the movement of people by building transportation systems that encompass private and public transportation systems, promoting environment-friendly driving practices, and alleviating traffic jams using ITS. Enriching Lives of Communities Toyota Mobility Foundation business activities, with a high likelihood of enriching lives in communities and building ever-better cars that expect the foundation to provide grants amounting from ¥3 billion to ¥4.5 billion per year. In August 2014, Toyota established the Toyota Mobility Foundation to provide global assistance to NPOs exceed customer expectations. In emerging markets, the foundation will search for solutions to social prob- and research organizations that are helping to build a better society through mobility. The foundation will lems by helping to close the mobility gap and promoting the development of the automotive industry on a local support businesses and activities focused on enhancing mobility and that have a strong correlation to Toyota’s basis. In advanced countries, the foundation will focus on developing next-generation mobility solutions. We President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section Activities towards SMART MOBILITY SOCIETYToyota aims to create a smart mobility society where people feel secure and happy in transport and everyday life.• The vehicle complies with the driver’s verbal and nonverbal commands.• The vehicle predicts the driver’s actions in order to provide services. The vehicle will become a trusted partnerthrough close communication with the driver.• Vehicles exchange their locations and speeds at all times. • Vehicles receive useful information from roadside infrastructure.Toward the realization of Toyota’s ultimate goal:zero casualties from traffic accidents.Connected with vehicles and roads• Actualizing a low-carbon society where homes and vehicles share energy with each other. • Promoting local energy production/consumption. • Creating communities that are strong enough to withstand natural disasters.Optimizing the energy use of the entire community.Achieving eco-friendly lifestyles with a high quality of life.FutureAround 2020• Utilizing big data generated from vehicles to improve traffic control and disaster-related measures.• Implementing an ultra-micro EV sharing service integrated with public transportation. Building a stress-free traffic environment whereeveryone can move around as they wish.PresentPast(cid:31) Vehicle Information and Communication System(cid:31) Japan Mayday Service(cid:31) Electronic Toll Collection(cid:31) G-BOOK ServiceWhat can I do for you?Centralized voice recognition system:AgentPush-style notifications based on behavioral prediction:Agent +Your usual route is congested. Shall we take a detour?Social networking servicelinking people and vehicles:TOYOTA friendIndustrial Energy Management:F-GridHome and VehicleEnergy Management:Smart House & HEMSVegetable greenhouseControlling home electrical appliances from vehicles:H2V eneliV2HRebuilt/Reused batteriesHigh-efficiency powergeneration systemWireless power transmissionEnergy management for the entire community:EDMSMultimodal route guidance:Ha:moHigh-performanceautomatic parking system:Smart parkingNext generation ultra-micro EV:TOYOTA i-ROADBig Data information service EDMSEnergy Data Management SystemSmart Mobility ParkPlease charge my batterybecause I am almost empty.Next-generation dealer management system:e-CRB (Customer Relationship Building)ITS spotAdvanced automaticcollision notificationGreen wave driving assistanceV2P cooperative system:Vehicle to PedestrianV2V cooperative system:Vehicle to VehicleIntelligent Driver-Support SystemV2I cooperative system:Vehicle to InfrastructureUltra-micro EV sharing system:Ha:mo RIDEANNUAL REPORT 2014 Prev Print Search Contents P age 23 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting New Values for the Next Hundred Years The willingness to take on new challenges has been in Toyota’s DNA since its founding. Toyota has embarked on a path of embracing new values and achieving sustainable growth over the next 10 years and 100 years. In making tomorrow’s Toyota even better than today’s, we are focusing on the following three areas. The first is initiatives for the future that focus on pursuing innovation. We aim to embrace new values centered on the future and people. This is a departure from our previous approach, which centered on cars. Toyota hopes that its products and services will change people’s lives for the better. The second is to cultivate an adventurous spirit as we enter new fields. Leaving our comfort zone, we aim to create new industries and businesses by taking in the best ideas and knowledge around the world. The third is to ensure that Toyota plays an ever more essential role in society through its efforts to find solutions to social problems. We aim to build a win-win relationship between Toyota and society, and to deepen this relationship as we create shared values together. We will use innovation to create the future. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 24 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting [1 of 2] Message from the Executive Vice President Responsible for Accounting Fiscal 2014 Business Results On a consolidated basis for the fiscal year ended March 31, 2014, the Toyota Group reported an increase in both revenue and earnings. Vehicle sales increased 0.245 million units to 9.116 million units compared with the previous fiscal year. Net revenues expanded ¥3.6277 trillion to ¥25.6919 trillion, operating income grew ¥971.2 billion to ¥2,292.1 billion, and net income rose ¥860.9 billion to ¥1,823.1 billion. Factors that contributed to the increase in operating income included a ¥900.0 billion boost due to exchange-rate fluctuations as well as ¥290.0 billion contributed by cost reduction efforts, ¥180.0 billion by marketing efforts, and ¥81.2 billion by other factors. Factors that were detrimental to operating income included a ¥480.0 billion rise in expenses. The increase in miscellaneous costs and others was largely attributable to non-recurring expenses incurred as a result of an agreement reached with the U.S. Attorney’s Office. In contrast, the Company’s earnings for the fiscal year under review benefitted from movements in foreign currency exchange rates, most notably the weakening of the yen against both the U.S. dollar and the euro, the improving profitability of exports, the success of cost reductions undertaken together with suppliers, and aggressive marketing efforts. From a marketing perspective, the active release of fully remodeled cars, including the Harrier, Voxy, and Noah, together with the efforts of dealers nationwide helped boost sales in Japan. On a global basis, the Group’s performance was mixed. Sales stalled in Thailand and India due mainly to market contraction and increasingly fierce competition. In contrast, the continued recovery in North America, coupled with the release of remod- eled cars, including the RAV4, Lexus IS, and Tundra, served to drive sales forward. We thus saw vehicle sales grow mainly in North America, Europe, and the Middle East. The sales increase in Japan and across many coun- tries and regions worldwide reflects the introduction of new car models that accurately address the needs of domestic and overseas customers as well as the intense efforts of the Group’s global dealers. I strongly believe that the revitalization of the Group’s operations and management is attributable to the hard work of dealers and suppliers along with the concerted efforts of the entire Toyota Group of companies to improve profitability. Consolidated Financial Forecasts for Fiscal 2015 For the fiscal year ending March 31, 2015, we forecast vehicle sales of 9.1 million units, net revenues of ¥25.7 trillion, operating income of ¥2.3 trillion, and net income of ¥1.78 trillion on a consolidated basis. Our exchange rate assumptions are ¥100 per US$1 and ¥140 per a1. In our forecast for consolidate operating income we expect cost reduc- tion efforts (¥165 billion) to be a contributing factor. We also expect exchange-rate fluctuations (¥95 billion), marketing efforts (¥45 billion), and an increase in expenses (¥17.1 billion) to negatively impact operating income. While the aforementioned cost reduction efforts and the absence of the one-off expense incurred in the fiscal year ended March 31, 2014, will help boost earnings, the anticipated deterioration in model composition, impact of low-priced currencies in emerging markets, and aggressive forward-looking expenditures aimed at securing sustainable growth on the back of increased competitiveness are projected to hold operating income at its current level. We will be looking to build a foundation that is capable of generating sustainable growth by implementing a wide range of measures. As we work to enhance our competitiveness by developing human resources, under- taking capital investments, and implementing our new management struc- ture, we will take care not to be overly influenced by short-term financial results. Meanwhile, in order to absorb the increase in fixed costs associ- ated with forward-looking investments, we will not let up in our efforts to reduce costs through Companywide value analysis (VA) activities, or to improve profitability by efficiently promoting sales. We have been aiming to establish a cycle of developing ever-better cars that delight our customers and benefit society while fulfilling our duty to increase sales and profits that are, of course, reinvested in development. To support this cycle, we will endeavor to maintain and build on our strong earnings base and to steadfastly engage in activities that improve our profit structure. To this end, we will continue to increase the gross profit margin per unit and place suitable controls on fixed costs. Financial Strategy The three key priorities 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 The structure of the automotive market is undergoing dramatic change. Along with burgeoning environmental awareness, we are witnessing rising demand for diverse types of eco cars as well as the rapid development of information technology and telecommunications. At the same time, global competition is becoming increasingly fierce. Focusing on environmental and safety as well as information and telecommunications technology develop- ment and investing capital in areas aimed at enhancing productivity, Toyota will actively undertake all necessary expenditure to remain at the forefront. This will include the development of human resources, which we recognize is key to maximizing conscientious manufacturing and investment in IT Our goal is to achieve sustainable growth by undertaking strategic and efficient forward-looking investments that build on our robust earnings base. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 25 Next Toyota in 10 Years and 100 Years Our DNA is Creating Ever-Better Cars What Sets Toyota Apart Enriching Lives and Building Tomorrow’s Toyota through Innovation New Values for the Next Hundred Years Message from the Executive Vice President Responsible for Accounting [2 of 2] Message from the Executive Vice President Responsible for Accounting FY2015 Forecast: Consolidated Vehicle Sales (Thousands of units) 10,000 8,000 6,000 4,000 2,000 0 9,116 2,365 2,529 844 1,609 1,769 9,100 2,210 2,620 850 1,630 1,790 –16 –155 +91 +6 +21 +21 FY2014 Results FY2015 Forecasts Change (cid:31) Japan (cid:31) North America (cid:31) Europe (cid:31) Asia (cid:31) Other FY2015 Forecasts: Consolidated Financial Summary (Billions of yen) Net Revenues Operating Income Operating Margin 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 FOREX Rates Yen/US$ Yen/Euro FY2015 Forecasts (Apr. 1, 2014– Mar. 31, 2015) FY2014 Results (Apr. 1, 2013– Mar. 31, 2014) ¥25,700.0 ¥25,691.9 2,300.0 8.9% 2,292.1 8.9% 2,390.0 2,441.0 300.0 1,780.0 6.9% ¥100 140 318.3 1,823.1 7.1% ¥100 134 Analysis of FY2015 Forecast: Consolidated Operating Income (Billions of yen) Effects of FOREX Rates 2,292.1 Profit Improvement Activities +40.0 Cost Reduction Effort Increase in Expenses* Change +8.1 +7.9 — –51.0 –18.3 –43.1 — +– 0 –6 2,300.0 –95.0 Volume/ Model Mix –120.0 Other Marketing Efforts +75.0 +165.0 –200.0 +182.9 Effects of Marketing Activities –45.0 * Details: Investment for strengthening competitiveness R&D Expenses Depreciation and CAPEX-related Costs Labor Costs Expenses, etc. Non-recurring Expenses for FY2014, etc. –50.0 –35.0 –65.0 –50.0 FY2014 Results Operating Income (+7.9) FY2015 Forecasts systems that support efficient workplace practices. We will place consider- able weight on investments that accurately reflect market trends and lead toward sustainable growth over the long term. For example, and as a part of the Company’s environmental activities, Toyota is working diligently to improve the fuel economy of conventional engines and is actively engaging in the development of a wide range of technologies, including hybrid technologies for plug-in hybrid, electric, and fuel cell vehicles (FCVs). The Company is placing particular emphasis on FCVs, which are being designed as part of efforts to respond to the grow- ing diversity of automotive fuels. Boasting zero CO2 or environmentally hazardous substance emissions while running as well as a level of conve- nience that is comparable to current gasoline vehicles, FCVs are the ulti- mate in eco cars. In a bid to promote their widespread use, Toyota plans to launch a sedan-type FCV in Japan before March 2015 and some time in summer 2015 in the United States and Europe. From the perspective of safety, Toyota is drawing on the integrated safety concept, which pursues connectivity between a wide variety of safety systems while providing optimal driver support across all driving scenarios, to vigorously develop safety technologies, including the practical applica- tion of advanced driver assistance systems. In the area of information and telecommunications technology, Toyota is active across a broad spectrum of fields. In addition to an interactive inter- face that links directly to a vehicle’s operations, sophisticated navigation systems, and big data analysis, the Company has begun developing technol- ogies that deliver new value both in terms of vehicle safety and performance. For example, Toyota is rolling out T-Connect, an innovative new telematics service. T-Connect features an interactive voice response service that handles queries about locations and news, as well as a predictive information service that draws on data from user route histories to predict a car’s desti- nation. Based on the predicated destination, T-Connect provides voice guid- ance on relevant traffic accidents, congestion, and road surface conditions. 2. Efficiency: Improving profitability and capital efficiency Toyota will continue its push forward with the Toyota New Global Architecture (TNGA), an initiative to overhaul the way we work with the goal of facilitating the timely launch of appealing products globally. Under TNGA, we are improving development efficiency and making ever-better cars by standardizing parts and components through grouped development. In addition to actively investing in the development of new technologies, we are carrying out “simple and slim” activities that facilitate the effective use of existing equipment. Looking ahead, we will strive to further improve our earnings structure through efficient investment that emphasizes the areas in which we want to advance, including hybrids, other eco-cars, and emerging markets. 3. Stability: Maintaining a solid financial base To ensure a solid financial base, we secure sufficient liquidity and stable shareholders’ equity. This allows us to maintain capital expenditure and R&D investment at levels conducive to future growth as well as to maintain working capital at a level sufficient for operations, even when business conditions are difficult due to such factors as steep increases in raw materi- als prices or volatility in foreign exchange rates. We plan to refine and implement measures to improve business continuity planning in the event of a major disaster. Amid expectations that the global automotive market will expand over the medium to long term, we believe that, in addition to putting crisis measures into place, maintaining adequate liquidity is essen- tial to the implementation of forward-looking investment aimed at improving product appeal and the development of next-generation technologies as well as to the establishment of global production and sales structures. We will continue to pursue improvements in capital efficiency and cash flow. Dividends and Share Acquisitions Toyota considers the enhancement of shareholder value a priority manage- ment policy and to this end is aiming for sustainable growth through corpo- rate reorganization to increase corporate value. We aim to pay stable, ongoing dividends, targeting a consolidated payout ratio of 30%, while giving due consideration to such factors as performance each term, invest- ment plans, and cash and cash equivalents. To succeed in this highly competitive industry, we plan to use retained earn- ings to quickly commercialize environment- and safety-related next-generation technologies, with emphasis on customer safety and peace of mind. Within this context, Toyota declared an annual dividend payment of ¥165 per share for the fiscal year ended March 31, 2014. At the Company’s 110th General Meeting of Shareholders, Toyota received approval to dispose of 30 million common shares of treasury stock in order to establish the Toyota Mobility Fund. The Company also plans to repurchase up to 60,000,000 shares of its common stock at a total purchase price of up to ¥360 billion during the fiscal year ending March 31, 2015. Taking the aforementioned into consideration, we cancelled 30 million shares of our treasury stock on June 30, 2014. With an eye to long-term capital efficiency, Toyota will adopt a flexible approach toward the future acquisition of its own shares. Moving forward, we will continue striving to further improve profits and meet the expectations of our shareholders. July 2014 Nobuyori Kodaira Executive Vice President President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Consolidated Performance Highlights Consolidated Performance (U.S. GAAP) [1 of 3] Print Search Contents P age 26 Next Fiscal years ended March 31 Net Revenues: Automotive Financial Services All Other Inter-Segment Elimination Operating Income: Automotive Financial Services All Other Inter-Segment Elimination Net Income Attributable to Toyota Motor Corporation*2 ROE ROA As of March 31 Total Assets Toyota Motor Corporation Shareholders’ Equity Short-Term Debt, Including Current Portion of Long-Term Debt Long-Term Debt, less Current Portion 2010 2011 Millions of yen 2012 2013 2014 % change 2014 vs. 2013 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% 0.7% 30,349,287 10,359,723 5,497,997 7,015,409 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% 1.4% 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% 0.9% 30,650,965 10,550,261 5,963,269 6,042,277 22,064,192 20,419,100 1,170,670 1,066,461 (592,039) 1,320,888 944,704 315,820 53,616 6,748 962,163 8.5% 2.9% 35,483,317 12,148,035 6,793,956 7,337,824 25,691,911 23,781,404 1,421,047 1,151,280 (661,820) 2,292,112 1,938,778 294,891 64,270 (5,827) 1,823,119 13.7% 4.7% 41,437,473 14,469,148 7,780,483 8,546,910 +16.4 +16.5 +21.4 +8.0 — +73.5 +105.2 –6.6 +19.9 — +89.5 — — +16.8 +19.1 +14.5 +16.5 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Consolidated Performance Highlights Consolidated Performance (U.S. GAAP) [2 of 3] Net Revenues (¥ Billion) 30,000 25,000 20,000 15,000 10,000 5,000 0 Operating Income / Operating Income Ratio (cid:31)(cid:31) Operating Income (cid:30)(cid:30) Operating Income Ratio (¥ Billion) 2,500 2,000 1,500 1,000 500 0 (%) 10 8 6 4 2 0 Net Income Attributable to Toyota Motor Corporation/ROE (cid:31)(cid:31) Net Income Attributable to Toyota Motor Corporation (cid:30)(cid:30) ROE (¥ Billion) 2,000 1,500 1,000 500 0 (%) 20 15 10 5 0 FY ’10 ’11 ’12 ’13 ’14 FY ’10 ’11 ’12 ’13 ’14 FY ’10 ’11 ’12 ’13 ’14 Print Search Contents P age 27 Next P Net Revenues: P Operating Income ¥25,691.9 billion ( +16.4%) 2,292.1 billion (+73.5%) P Net Income Attributable to Toyota Motor Corporation 1,823.1 billion (+89.5%) Analysis of Operating Income (¥ Billion) Operating Income +971.2 R&D Expenses/Capital Expenditures for Property, Plant and Equipment (excluding vehicles and equipment on operating leases) (cid:31)(cid:31) R&D Expenses (cid:31)(cid:31) Capital Expenditures for Property, Plant and Equipment (¥ Billion) 1,000 800 600 400 200 0 FY Total Assets/ROA (cid:31)(cid:31) Total Assets (cid:30)(cid:30) ROA (¥ Billion) 50,000 40,000 30,000 20,000 10,000 0 (%) 5 4 3 2 1 0 Note: “Net Income Attributable to Toyota Motor Corporation,” equivalent to “Net Income” up to 2009. Toyota Motor Corporation Shareholders’ Equity/ Shareholders’ Equity to Total Assets (cid:31)(cid:31) Toyota Motor Corporation Shareholders’ Equity (cid:30)(cid:30) Shareholders’ Equity to Total Assets (¥ Billion) 15,000 (%) 50 12,000 9,000 6,000 3,000 0 40 30 20 10 0 1,320.8 0 FY2013 Effects of FOREX Rates ＋900.0 Cost Reduction Efforts ＋290.0 Marketing Efforts ＋180.0 Increase in Expenses, etc. –480.0 Valuation Gain/Losses from Interest Rate Swaps –51.6 Other ＋132.8 2,292.1 FY2014 ’10 ’11 ’12 ’13 ’14 FY ’10 ’11 ’12 ’13 ’14 FY ’10 ’11 ’12 ’13 ’14 Net Revenues by Region Operating Income by Region (¥ Billion) 1,510.1 * Figures for North America exclude valuation gains/losses from interest rate swaps. (¥ Billion) 15,000 12,000 9,000 6,000 3,000 0 FY Japan North America Europe Asia Other Regions ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 ’10 ’11 ’12 ’13 ’14 Note: Fiscal years ended March 31 +933.8 576.3 ’13 ’14 Japan +152.7 +31.7 +19.6 –91.1 341.5* 188.9* ’13 ’14 North America 26.4 ’13 58.2 ’14 Europe 376.0 395.7 ’13 ’14 Asia 133.7 ’13 42.5 ’14 Central and South America, Oceania, Africa and The Middle East President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Consolidated Performance Highlights Consolidated Vehicle Production and Sales Thousands of units [3 of 3] Fiscal 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 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 2013 4,276 4,422 1,677 368 1,924 205 100 148 8,698 2,279 6,592 2,469 799 1,684 364 271 259 741 5 8,871 [Reference] Vehicle Sales > Consolidated vehicle unit sales in Japan and overseas came to 9,116,000 in the fiscal year ended March 31, 2014, up 245,000, or 2.8%, compared with the previous fiscal year. > Consolidated vehicle unit sales in Japan were 2,365,000, an increase of 86,000, or 3.8%, year on year. Excluding mini-vehicles, Toyota and Lexus vehicle unit sales (retail) was 1,648,000, up 36,000, or 2.2%, representing a record market share of 46.7%. > Total vehicle unit sales (retail), including the Daihatsu and Hino brands, was also a historic high, reaching 10,133,000, a year-on-year increase of 441,000, or 4.6%. > Consolidated Lexus vehicle unit sales came to approximately 540,000, around 44,000, or 8.8%, higher than the previous fiscal year. By geographic region, Lexus vehicle unit sales in Japan, North America, Europe, Asia, and other were about 48,000, 300,000, 45,000, 92,000, and 55,000, respectively. Vehicle Sales Number of vehicles produced for wholesale by Toyota Motor Corporation and its consolidated subsidiaries Number of vehicles produced for wholesale by Toyota’s affiliates outside consolidation (e.g. JV affiliates in China) Print Search Contents P age 28 Next % change 2014 vs. 2013 Vehicle Production by Region (cid:31) Japan (cid:31) Overseas Total (Thousands of units) 10,000 8,000 6,000 4,000 2,000 0 FY ’10 ’11 ’12 ’13 ’14 Breakdown of Vehicle Production by Region (cid:31) Japan (cid:31) North America (cid:31) Europe (cid:31) Asia (cid:31) Other Regions Consolidated Total: 9,032 thousand units 5.3% 21.5% 5.6% FY2014 48.1% 19.5% Vehicle Sales by Region (cid:31) Japan (cid:31) Overseas Total (Thousands of units) 10,000 Breakdown of Vehicle Sales by Region (cid:31) Japan (cid:31) North America (cid:31) Europe (cid:31) Asia (cid:31) Other Regions Consolidated Total: 9,116 thousand units 8,000 6,000 4,000 2,000 0 FY ’10 ’11 ’12 ’13 ’14 19.4% 25.9% FY2014 17.7% 27.7% 9.3% C u s t o m e r s 2014 4,345 4,687 1,759 506 1,939 242 103 138 9,032 2,365 6,751 2,529 844 1,609 413 259 267 824 6 9,116 C o n s o l i d a t e d V e h c e S a e s l i l i D s t r i b u t o r s o r l D e a e r s o u t s d e i c o n s o l i d a t i o n T o y o t a a n d L e x u s V e h c e S a e s l l i +1.6 +6.0 +4.9 +37.5 +0.8 +18.0 +3.0 –6.8 +3.8 +3.8 +2.4 +2.4 +5.6 –4.5 +13.5 –4.4 +3.1 +11.2 +20.0 +2.8 T o y o t a R e t a i l i l V e h c e S a e s l * There are a limited number of exceptional cases where sales are made other than in accordance with the flowchart above. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionDaihatsu- and Hino-Brand VehiclesToyota- and Lexus-Brand Vehicles ANNUAL REPORT 2014 Prev Automotive Operations The Company works diligently to produce ever- better cars that exceed expectations in order to deliver products that bring smiles to the faces of people who choose Toyota. In the fiscal year under review, net revenues from automotive operations totaled ¥23,781.4 billion, an increase of ¥3,362.3 billion, or 16.5%, compared with the previous fiscal year. On the earnings front, operating income jumped by ¥994.0 billion, or 105.2%, year on year, to ¥1,938.7 billion. Net Revenues (¥ Billion) 25,000 20,000 15,000 10,000 5,000 0 FY ’10 ’11 ’12 ’13 ’14 Operating Income (Loss) (¥ Billion) 2,000 1,500 1,000 500 0 -500 FY ’10 ’11 ’12 ’13 ’14 Looking at conditions in the automotive market, trends mainly in the United States were firm. Certain emerg- ing markets, on the other hand, showed signs of slow- ing down. Against this backdrop, Toyota aggressively introduced new products in Japan and successfully expanded sales thanks to the efforts of dealers nation- wide. Outside Japan, the Company boosted vehicle sales in North America, Europe, and other regions. Since introducing the world’s first mass-produced car under the Prius brand name in December 1997, Toyota has placed considerable emphasis on promot- ing the widespread use of hybrid vehicles. With sales having passed the four million mark in April 2012, demand continued to gather momentum and, within the relatively short space of approximately nine months, we saw cumulative hybrid sales of five million break through the six million mark in January 2014. Thus, we can confidently say that hybrid vehicles have now achieved full-fledged market penetration. Source: Toyota Motor Corp. 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 Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Taiwan, South Korea, and Brunei Darussalam Mini-vehicles excluded Asia: Japan: Consolidated Vehicle Sales (Thousands of units) 10,000 8,000 6,000 4,000 2,000 0 FY 8,871 2,279 2,469 799 1,684 1,640 ’13 9,116 +245 2,365 +86 2,529 +60 844 1,609 +45 –75 1,769 +129 ’14 Change Print Search Contents P age 29 Next Automotive Operations Financial Services Operations Non-Automotive Business Operations Vehicle Sales by Principal Markets Japan (Thousands of units) (cid:31)(cid:31) Total market sales (excluding mini-vehicles) (cid:29)(cid:29) Toyota market share (%) 60 North America (Thousands of units) 20,000 (cid:31)(cid:31) Total market sales (cid:29)(cid:29) Toyota market share 4,000 3,000 2,000 1,000 0 FY ’10 ’11 ’12 ’13 ’14 Europe (Thousands of units) 25,000 (cid:31)(cid:31) Total market sales (cid:29)(cid:29) Toyota market share 20,000 15,000 10,000 5,000 0 CY ’09 ’10 ’11 ’12 ’13 15,000 10,000 5,000 0 CY ’09 ’10 ’11 ’12 ’13 Asia (Thousands of units) 10,000 (cid:31)(cid:31) Total market sales (cid:29)(cid:29) Toyota market share 45 30 15 0 (%) 10 8 6 4 2 0 8,000 6,000 4,000 2,000 0 CY Millions of yen (%) 40 30 20 10 0 (%) 25 20 15 10 5 0 ’09 ’10 ’11 ’12 ’13 2010 For the years ended March 31 Net Revenues by Region: Japan North America Europe Asia Other* Intersegment elimination/ unallocated amount 11,220,303 5,670,526 2,147,049 2,655,327 1,673,861 (4,416,093) 2011 2012 2013 2014 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 12,821,018 6,284,425 2,083,113 4,385,476 2,094,265 14,297,470 8,117,099 2,724,959 4,877,672 2,336,641 (4,586,841) (4,423,947) (5,604,105) (6,661,930) % change 2014 vs. 2013 +11.5 +29.2 +30.8 +11.2 +11.6 — Operating income (loss): Japan North America Europe Asia Other* Intersegment elimination/ unallocated amount (225,242) 85,490 (32,955) 203,527 115,574 (362,396) 339,503 13,148 312,977 160,129 (207,040) 186,409 17,796 256,790 108,814 576,335 221,925 26,462 376,055 133,744 1,510,165 326,052 58,228 395,737 42,568 +162.0 +46.9 +110.0 +5.2 –68.2 1,122 4,918 (7,142) (13,633) (40,638) — Note: Fiscal years ended March 31 (cid:31) Japan (cid:31) North America (cid:31) Europe (cid:31) Asia (cid:31) Other* * Central and South America, Oceania, Africa and the Middle East, etc. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Financial Services Operations Toyota offers automotive financing and a variety of other financial services for total support of customer lifestyles. In the fiscal year ended March 31, 2014, net revenues from financial service operations amounted to ¥1,421.0 billion, up ¥250.3 billion, or 21.4%, compared with the previous fiscal year. In contrast, operating income declined ¥20.9 billion, or 6.6%, year on year, to ¥294.8 billion. The decrease in operating income was mainly due to the recording by sales finance subsidiaries of valuation losses on interest rate swaps stated at fair value. Net Revenues (¥ Billion) 1,500 1,200 900 600 300 0 FY ’10 ’11 ’12 ’13 ’14 Print Search Contents P age 30 Next Automotive Operations Financial Services Operations Non-Automotive Business Operations 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 approxi- mately 9.6 million customers in 35 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 vari- ous national and regional customer characteristics. TFS continued to broaden its 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 auto- motive financing. On the global front, the Toyota Group is aggressively expanding its business in emerging markets. In January 2013, the Company established Toyota Motor Leasing (China) Co., Ltd., which opened its doors for business in April 2013. In the same month, Toyota established the financial services company, Toyota Financial Services Kazakhstan MFO LLP, which commenced business in January 2014. 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 groupwide compli- ance 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 Toyota’s Financial Services Operations Total assets Net revenues Operating income Operating areas ¥18,943.5 billion ¥1,421.0 billion ¥294.8 billion 34 countries and regions worldwide Number of employees approx. 9,000 (As of March 31, 2014) Operating Income (¥ Billion) 400 Financial Services Operations Organization Toyota Motor Corporation Total Assets (cid:31)(cid:31) Toyota (Consolidated)　(cid:31)(cid:31) TFS (¥ Trillion) 50 300 200 100 0 FY ’10 ’11 ’12 ’13 ’14 Toyota Financial Services Corporation Overseas Sales Finance Companies Toyota Finance Corporation 40 30 20 10 0 FY ’10 ’11 ’12 ’13 ’14 Note: Fiscal years ended March 31 Note: Fiscal years ended March 31 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 31 Next Automotive Operations Financial Services Operations Non-Automotive Business Operations [1 of 3] Non-Automotive Business Operations Non-automotive business operations include Intelligent Transport Systems (ITS), information technology and telecommunications, e-TOYOTA, housing, marine, and biotechnology and affores- tation 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 the fiscal year under review, net revenues from non-automotive business operations were ¥1,151.2 billion, ¥84.8 billion, or 8.0%, higher than the previous fiscal year. Operating income also improved ¥10.6 billion, or 19.9%, year on year to ¥64.2 billion. Net Revenues (¥ Billion) 1,200 1,000 800 600 400 200 0 FY ’10 ’11 ’12 ’13 ’14 Operating Income (¥ Billion) 70 60 50 40 30 20 10 0 -10 FY ’10 ’11 ’12 ’13 ’14 Note: Fiscal years ended March 31 Intelligent Transport Systems e-TOYOTA Toyota is involved 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. 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 infrastruc- ture cooperative systems, such as actively participat- ing in public and private sector field trials, so as to bring them into use as soon as possible. Verification testing of the Harmonious Mobility Network (Ha:mo) began in October 2012. Ha:mo is a transportation support system aimed at realizing comfortable mobility for people, cities, and society by optimally and efficiently combining private car and public transportation. Ha:mo offers two core services. The first, Ha:mo NAVI, is an route guidance system that supports opti- mal mobility, based on road and traffic conditions as well as on the availability of public transportation, while addressing the need to reduce CO2 emissions and ensure increased transportation comfort. The other core service, Ha:mo RIDE, is a car-sharing system that offers ultra-compact electric vehicles for urban short- distance transport. The Toyota i-ROAD, a (twin-seater EV) personal mobility concept car, has been added to the Ha:mo RIDE service lineup from this year. It provides a fresh and enjoyable motoring experience together with a level of convenience that rivals motorcycles. The Ha:mo RIDE service lineup also includes the COMS, an ultracompact electric vehicle manufactured by Toyota Auto Body Co., Ltd., and electric bicycles featuring Yamaha Motor Co., Ltd.’s Power Assist System. In this manner, every effort is being made to address the diverse needs of users. D Read more Toyota is developing e-TOYOTA business operations to facilitate the integration of IT services and automo- biles. Toyota continues to plan and develop a variety of Internet services. Chief among these are the TOYOTA Web Passport, a secure membership system for accessing Toyota’s online services, and GAZOO, a web portal for automobile information. Moreover, the Company is planning and developing telematics services for in-vehicle terminals and smartphones, including T-Connect, G-BOOK, and G-Link. Plans are in place for developing these services overseas in such countries and regions as China, Thailand, and the Middle East. D Read more TOPICS New “Big Data Traffic Information Service” Toyota developed and provided its “Big Data Traffic Information Service,” a new kind of traffic-information service utilizing big data—including vehicle location and speed, road conditions, and other parameters—that is collected and stored via telematics services. Based on such data, traffic information, statistics, and other related information can be provided to local governments and businesses to improve traffic flow, augment map information services, and support disaster prevention measures. Steps are also being taken to provide online “T-Connect smartphone app” services to private smartphone users. At the same time Toyota provides the T-Probe traffic information and navigation service, which users can access while driving or on foot. Determining the best possible route given traffic congestion and conditions, T-Probe is the first technology that is purely stand-alone and not part of the Toyota onboard navigation system. The service is accessible around the clock, providing road map and pertinent disaster counter- measure information, including details of emergency facilities. With the increasingly widespread use of the Big Data Transportation System together with related smartphone T-Connect smartphone app services, Toyota is working to provide more convenient and comfortable total life services while contributing to the development of cities that are resil- ient to disaster through increased safety. D Read more President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Hands-free conversation What time will you get here? Maybe around 5. Information Technology and Telecommunications 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 2014 newly launched the T-Connect service. Toyota’s information technology and telecommuni- cations business will come to play an even more important role as we develop smart grids that link people, cars and homes. D Read more Print Search Contents P age 32 Next Automotive Operations Financial Services Operations Non-Automotive Business Operations [2 of 3] Housing Marine Biotechnology and Afforestation Drawing on the advanced engine, electronic control, and other technologies developed through its auto- motive operations, the Toyota Group is engaged in the development, manufacture, and sale of high- performance, high-quality pleasure boats. Every effort is being made to contribute to the development of an affluent society in the marine field by providing safe, comfortable, and environment-friendly products. D Read more Toyota is working diligently to help create a resource recycling society through its biotechnology and affor- estation activities. In Australia, the Group is actively involved in affor- estation, while in Japan activities include environmen- tal greening, horticultural, and agricultural biomass operations. Moreover, the Group has launched Housaku Keikaku, an agricultural IT management tool for commercial rice growers, as a part of its efforts to support agriculture. By providing this tool, Toyota strives to enhance the competitiveness of agriculture in Japan. D Read more Toyota entered the housing business in 1975. As a part of its endeavors in this field, the Toyota Group provides housing under the brand name Toyota Home. Toyota Home brings together the strengths of the Toyota Group’s intellectual capital and its technological capabilities. Housing products include “Eco Mirai Homes,” which offer comfortable, economical, and environmentally friendly living, and smart houses that focus on safety, security, sound health, and comfort. The Company’s “SINCE feelas” lineup of smart houses received the 2013 Good Design Award in recognition of its outstanding design. The Toyota Group engages in a wide range of activi- ties in this field encompassing sales of condominiums, rental housing, and homes for the elderly as well as renovation services. Note: Effective October 1, 2010, all housing operation produc- tion and technical development functions were transferred from Toyota Motor Corporation to Toyota Housing Corporation. D Read more President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev TOPICS Promoting the Fun of Automobiles Print Search Contents P age 33 Next Automotive Operations Financial Services Operations Non-Automotive Business Operations [3 of 3] Toyota continues to push boundaries in motorsports, driven by the desire to make ever-better cars and satisfy new car enthusiasts Inspiring customers through motorsports Activities for car fans and enthusiasts WEC NASCAR 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 a part of its unwavering commitment to making ever- better cars, every year Toyota participates in the ADAC 24h Rennen Nürburgring, a 24-hour endurance race in Germany. Employees take part both as drivers and mechanics. In addition to helping develop human resources well-versed in the making of cars, Toyota places consider- able emphasis on promoting efforts aimed at commercializ- ing models that deliver the fun of driving in the GRMN (GAZOO Racing tuned by MN) and G (G Sports) categories. Furthermore, in striving to promote the joy of cars, the Company holds circuit driving programs throughout Japan to allow individuals with no racing experience to easily enjoy the thrills of circuit driving in a safe environment. The TOYOTA GAZOO Racing FESTIVAL is one initiative that strives to broaden opportunities in which car fans and enthusiasts can interact. * GAZOO Racing: A part of activities aimed at increasing car enthusi- asts. 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 grassroots motor sports. D Read more SUPER GT SUPER FORMULA The TS040 HYBRID, equipped with a racing hybrid system, took part in the FIA World Endurance Championship, including the traditional 24 Hours of Le Mans. In addition to participating in NASCAR in the U.S. and SUPER GT and SUPER FORMULA, top-of-category levels of racing in Japan, we support TOYOTA AUTO BODY CO.,LTD., which participates in the Dakar Rally. D Read more 24 Hours Nürburgring endurance racing event held in June 2014 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 34 Next R&D and Intellectual Property [1 of 2] Corporate Philosophy Corporate Governance Management Team Risk Factors R&D and Intellectual Property Toyota’s 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 P Providing clean and safe products and enhancing the quality of life of people every- where through all our activities. P Pursuing advanced technological develop- ment 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 goals of Toyota’s technology and product development activities are 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 develop- ment. With respect to such basic research issues as energy, the environment, information technology, tele- communications, and materials, projects are regularly reviewed and evaluated in consultation with outside experts to achieve efficient R&D cost control. 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. 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 environ- ment, energy, and safety. These investments are essen- tial to preserving our competitive edge in terms of technologies and products. 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. 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. Domestic and Overseas R&D Bases Facility Name Japan Head Office Toyota Technical Center Higashi-Fuji Technical Center Tokyo Design Research & Laboratory Shibetsu Proving Ground Toyota Central Research & Development Laboratories, Inc. Activities Location Product Planning, Design, Vehicle Engineering and Evaluation Advanced Engineering Research of Advanced Styling Designs Vehicle Testing and Evaluation Toyota City, Aichi Prefecture Susono City, Shizuoka Prefecture Hachioji City, Tokyo Shibetsu City, Hokkaido Basic Research Nagakute City, Aichi Prefecture Basic research Technological breakthroughs related to components and systems Product development Development theme discovery Research on basic vehicle-related technology Forward-looking and leading-edge technology development Development of leading-edge components and systems ahead of competitors Head Office Toyota Technical Center Higashi-Fuji Technical Center Tokyo Design Research & Laboratory Shibetsu Proving Ground Toyota Central Research & Development Laboratories, Inc. Primary responsibility for new model development Development of all-new models and existing-model upgrades Facility Name USA Activities Location Toyota Motor Engineering & Manufacturing North America, Inc. Product Planning, Vehicle Engineering and Evaluation, Basic Research Michigan, California, Arizona, Washington DC Calty Design Research, Inc. Design Newport Beach, California Ann Arbor, Michigan ’10 ’11 ’12 ’13 ’14 R&D Expenditures In fiscal 2014, R&D expenses totaled ¥910.5 billion, up 12.8% from the previous fiscal year, representing 3.5% 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 Toyota Motor Engineering & Manufacturing North America, Inc. Calty Design Research, Inc. R&D Expenses (¥ Billion) 1,000 800 600 400 200 0 FY President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev R&D and Intellectual Property Print Search Contents P age 35 Next R&D and Intellectual Property [2 of 2] Corporate Philosophy Corporate Governance Management Team Risk Factors Facility Name Europe Toyota Motor Europe NV/SA Toyota Europe Design Development Toyota Motorsport GmbH (TMG) Vehicle Engineering and Evaluation Design Development for Motorsport Vehicles, Advanced Engineering Brussels, Belgium; Derby, U.K. Nice, France Cologne, Germany Activities Location 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 tech- nologies 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 compa- nies of patents in the area of hybrid technology, which is one of our core technologies involving environmental energy. Intellectual Property Guiding Principle P Securing greater corporate flexibility and maximizing corporate value through the appropriate acquisition and utilization of intel- lectual property. Intellectual Property Activities Toyota’s competitiveness springs from a 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 inven- tions and expertise, that we value as important management resources. Intellectual Property Systems R&D and intellectual property activities are organization- ally linked to enable us to focus on selected develop- ment 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 contrib- utes to business operations and helps determine poli- cies for management risks associated with intellectual property. Toyota Motor Europe NV/SA Toyota Europe Design Development Toyota Motorsport GmbH (TMG) Facility Name China Activities Location Toyota Motor Engineering and Manufacturing (China) Co., Ltd. Tianjin FAN Toyota Motor Co., Ltd. FAW Toyota R&D Center GAC Toyota Motor Co., Ltd. R&D Center Basic Research, Technical Research and Vehicle Evaluation Jiangsu Vehicle Engineering and Evaluation Tianjin Vehicle Engineering and Evaluation Guangdong Toyota Motor Engineering and Manufacturing (China) Co., Ltd. Tianjin FAN Toyota Motor Co., Ltd. FAW Toyota R&D Center GAC Toyota Motor Co., Ltd. R&D Center Facility Name Asia Pacific Activities Location 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 Asia Pacific Engineering and Manufacturing Co., Ltd. Toyota Technical Center Asia Pacific Australia Pty., Ltd. D See Domestic and Overseas R&D Bases President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Corporate Philosophy Print Search Contents P age 36 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance Management Team Risk Factors N Seeking Harmony between People, Society and the Global Environment as well as the Sustainable Development of Society through Manufacturing N The Spirit of the Toyoda Precepts, Passed down since Toyota’s Founding Since its foundation, Toyota has continuously strived energy. The pillars of our social contribution are The Toyoda Precepts represent the essential philosophy of the founder of the Toyota group of companies, Sakichi to contribute to the sustainable development of soci- “environment,” “traffic safety,” and “human resources Toyoda, and are a source of spiritual support for Toyota employees. ety through the manufacturing and provision of innova- development.” Toyota seeks to be of value to commu- tive, high-quality products and services that lead the nities and to society through our main lines of busi- times. The automobile is a wonderful machine that ness, and to bring smiles to people’s faces. Toyota’s provides freedom of movement. Nevertheless, auto- basic Corporate Social Responsibility (CSR) policy is The Toyoda Precepts • Always be faithful to your duties, thereby contributing to the company and to the overall good. mobiles have an impact on the environment and soci- to contribute to the sustainable development of soci- • Always be studious and creative, striving to stay ahead of the times. ety. This is something we at Toyota always keep in ety. This phrase embodies the spirit of the Toyota mind, and we try to create harmony among people, Guiding Principles, and clarifies our CSR stance for societies and the environment by listening to what our our stakeholders, both within and outside the Com - customers and local communities have to say. Our pany. Toyota subsidiaries and suppliers share this CSR operations are aimed at creating a sustainable society policy, and we expect them to adhere to the spirit of through monozukuri (conscientious manufacturing). the policy in their operations. • 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 develops and produces environment-friendly Toyota also participated in the formulation of vehicles such as hybrid vehicles, and we also offer the Charter of Corporate Behavior of the Nippon N Toyota Guiding Principles superior accident prevention and collision safety Keidanren (Japan Business Federation), which is an The Toyota Guiding Principles (adopted in 1992 and revised in 1997) reflect the kind of company that Toyota seeks to features. In addition, Toyota is involved in new busi- alliance of Japanese leading corporations, and be in light of the unique management philosophy, values, and methods that it has embraced since its foundation. nesses, such as biotech, afforestation and renewable observes the standards outlined therein. 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. Positioning of the CSR Policy Overview of Toyota’s CSR Activities Guiding Principles at Toyota CSR Policy: “Contribute to Sustainable Development” Toyota Global Vision 1 0 0 2 y a W a t o y o T Medium- to long-term management plans Company policies, annual policies, regional policies, head office and divisional policies T h e T o y o t a C o d e o f C o n d u c t Regular business activities Safety Environment 2. Respect the culture and customs of every nation and contribute to economic and social development Safety Environment through corporate activities in their respective communities. 3. Dedicate our business to providing clean and safe products and to enhancing the quality of life every- 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. Social Aspect Environmental Aspect where through all of our activities. Society and Cultures Comfort and Convenience Economic Aspect Resources/ Energy Sources 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 Education mutual benefits, while keeping ourselves open to new partnerships. Toyota’s Social Contribution Activities Societal Issues D Read more President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionCompliance ANNUAL REPORT 2014 Prev Corporate Governance Print Search Contents P age 37 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance [1 of 2] Management Team Risk Factors N Toyota’s Basic Policy on Corporate Governance N Corporate Governance System Additionally, in order to achieve sustainable growth Toyota has an “International Advisory Board” through the continuous development of even-better consisting of advisors from each region overseas, and, cars that exceed customer expectations around the as appropriate, receives advice on a wide range of Toyota has positioned the stable long-term growth of In March 2011, Toyota announced the “Toyota Global world, and realize the Toyota Global Vision, the TNGA management issues from a global perspective. In corporate value as a top-priority management issue. Vision” and commenced “Visionary Management.” Planning Division, an organization directly under addition, the Company has a wide variety of confer- We believe that in carrying this out, it is essential that This is based on values that have guided Toyota since Toyota’s top management, was established in order to ences and committees for deliberations and the moni- we achieve long-term and stable growth by building its founding, such as the “Guiding Principles at Toyota” rapidly promote the implementation of the “Toyota toring of management and corporate activities that positive relationships with all stakeholders, including and the “Toyota Way,” which aim to exceed customer New Global Architecture (TNGA).” reflect the views of various stakeholders, including the shareholders and customers as well as business part- expectations by the development of ever-better cars ners, local communities, and employees, and by and enriching the lives of societies, and to be supplying products that will satisfy our customers. This rewarded with a smile that ultimately leads to a stable N Management Transparency “Labor-Management Council, the Joint Labor- Management Round Table Conference,” and the “CSR Committee.” position is reflected in the “Guiding Principles at base of business. Toyota,” which is a statement of Toyota’s fundamental Toyota’s current management structure is based on business policies. Also, Toyota adopted and presented the structure introduced in April 2011. In order to fulfill the CSR Policy “Contribution towards Sustainable the Toyota Global Vision, Toyota reduced the Board of Development,” an interpretation of the “Guiding Directors and decision-making layers, and has With respect to our system regarding directors, we believe that it is important to elect individuals that comprehend and engage in our strengths, including commitment to manufacturing, with an emphasis on Principles at Toyota” that organizes the relationships endeavored to swiftly communicate the views of front-line operations and problem solving based on the with its stakeholders. We are working to enhance customers and information from operations on-ground actual on-site situation (genchi genbutsu). At the corporate governance through a variety of measures to management and facilitate rapid management deci- designed to further increase our competitiveness as a sion making. 109th Ordinary General Shareholders’ Meeting held in June 2013, three Outside Directors were appointed in global company. In April 2013, Toyota made organizational changes order to further reflect the opinions of those from We believe it is important to put in place a system with the aim of further increasing the speed of decision outside the Company in management’s decision- that enables customer opinions and on-site informa- making by clarifying responsibilities for operations and making process. While Toyota currently does not have tion to be swiftly communicated to management in earnings, specifically by dividing the automotive busi- its own standard or policy on independence in order to make a prompt management decision, and ness into the following four units—Lexus International enables us to review whether such management deci- (Lexus business); Toyota No. 1 (North America, Europe sions are accepted by our customers and society. We and Japan); Toyota No. 2 (China, Asia & the Middle appointing Outside Directors, the Company believes that such appointments are appropriate since various rules on independence, such as stock exchange regu- believe that our current system, involving the supervi- East, East Asia & Oceania; Africa, Latin America & the lations, are used as references in making such sion and auditing of the execution of business by our Caribbean); and Unit Center (engine, transmission, appointments. We believe our Outside Directors will Board of Directors (including Outside Directors) and and other “unit”-related operations)—and an Executive advise us in our management decision-making Audit & Supervisory Board Members (including Vice President was put in charge of the operations of process based on their broad experience and insight Outside Audit & Supervisory Board Members), is the each unit in order to realize organizational change that in their respective fields of expertise. most appropriate system for us. supports operations and earnings responsibility. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Corporate Governance N Compliance Print Search Contents P age 38 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance [2 of 2] Management Team Risk Factors lations, are used as references in making such appointments. The state of internal controls and inter- nal audits are reported to Audit & Supervisory Board N Accountability extraordinary committee meetings from time to time whenever necessary. The CSR Committee comprises mainly the directors at Members (including Outside Audit & Supervisory Toyota has engaged in timely and fair disclosure of the executive vice president level and above as well as Board Members) through the Audit & Supervisory corporate and financial information as stated in the N Basic Policy Regarding the System to Secure the Appropriateness of Business representatives of the Audit & Supervisory Board. To Board and the “CSR Committee,” and the status of CSR Policy “Contribution towards Sustainable manage and promote activities that are important to accounting audits is reported by independent External Development.” In order to ensure the accurate, fair, Toyota, together with its subsidiaries, has created and fulfilling the Company’s social responsibility, the Auditors to the Audit & Supervisory Board Members and timely disclosure of information, Toyota has estab- maintained a sound corporate climate based on the committee reviews important issues related to basic (including Outside Audit & Supervisory Board lished the Disclosure Committee chaired by an officer “Guiding Principles at Toyota” and the “Toyota Code of corporate policy, overall CSR (including environmental Members) through the Audit & Supervisory Board. To of the Accounting Division. The Committee holds Conduct.” Toyota integrates the principles of problem and social contribution initiatives), overall corporate enhance the system for internal audits, a specialized regular meetings for the purpose of preparing, report- identification and continuous improvement into its governance (including corporate ethics and compli- organization made independent of direct control by ing, and assessing its annual securities report, quar- business operation process and makes continuous ance) and risk management, and discusses measures the management evaluates the effectiveness of the terly report under the Financial Instruments and efforts to train employees who will put these principles to address such issues. system to secure the appropriateness of documents Exchange Law of Japan, and Form 20-F under the into practice. Toyota has adopted an auditor system. Seven Audit regarding financial calculation and other information in U.S. Securities Exchange Act, and also holds & Supervisory Board Members (including four Outside accordance with Section 404 of the U.S. Sarbanes- Audit & Supervisory Board Members) play a role in Oxley Act and Article 24-4-4 (1) of the Financial Toyota’s corporate governance efforts by undertaking Instruments and Exchange Law of Japan. In order to audits in accordance with the audit policies and plans enhance the reliability of the financial reporting of determined by the Audit & Supervisory Board. In Toyota, the three auditing functions—audit by Audit & addition, Toyota has secured the personnel and frame- Supervisory Board Members, internal audit, and work supporting the audit by Audit & Supervisory accounting audit by Independent External Auditors— Board Members. The Outside Audit & Supervisory aid in conducting an effective and efficient audit Board Members advise Toyota from a fair and neutral through meetings held periodically and as necessary perspective, based on their broad experience and to share information and come to understanding insight in their respective fields of expertise. While through discussion on audit plans and results. Toyota currently does not have its own standard or policy on independence in appointing Outside Audit & Supervisory Board Members, the Company believes that such appointments are appropriate since various rules on independence, such as stock exchange regu- D Read more Toyota’s Corporate Governance Emphasizing Front-line Operations + Multidirectional Monitoring Shareholders Audit & Supervisory Board (More than half of the members are outside Audit & Supervisory Board members) Board of Directors (including Outside Directors) External Accounting Auditor (Audit of consolidated financial statements and internal control over financial reporting) Officers Responsible for Business Operations (by center, region, function and process) International Advisory Board Labor-Management Council Joint Labor-Management Round Table Conference CSR Committee • CSR/Environment Council • Corporate Governance Council • Risk Management Council Disclosure Committee Internal Auditing Department (Internal control systems) President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 39 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance Management Team [1 of 2] Risk Factors Management Team (As of June 20, 2014) Board of Directors Chairman of the Board President, Member of the Board Executive Vice President, Member of the Board Takeshi Uchiyamada ’69 Joined Toyota Motor Corporation (“TMC”) ’98 Director ’01 Managing Director ’03 Senior Managing Director ’05 Executive Vice President ’12 Vice Chairman ’13 Chairman of the Board Executive Vice President, Member of the Board Mitsuhisa Kato ’75 Joined TMC ’04 Managing Officer ’06 Advisor ’10 Senior Managing Director ’11 Senior Managing Officer ’12 Executive Vice President Akio Toyoda ’84 Joined TMC ’00 Director ’02 Managing Director ’03 Senior Managing Director ’05 Executive Vice President ’09 President Satoshi Ozawa ’74 Joined Toyota Motor Sales Co., Ltd. ’03 Managing Officer ’07 Senior Managing Director ’10 Executive Vice President Masamoto Maekawa ’73 Joined Toyota Motor Sales Co., Ltd. ’03 Managing Officer of TMC ’07 Advisor to TMC ’09 Senior Managing Director ’11 Senior Managing Officer ’12 Executive Vice President Yasumori Ihara ’75 Joined Toyota Motor Sales Co., Ltd. ’04 Managing Officer ’07 Advisor ’09 Senior Managing Director ’11 Director and Senior Managing Officer ’13 Executive Vice President Senior Managing Officer, Member of the Board Member of the Board Koei Saga ’77 Joined TMC ’08 Managing Officer ’12 Senior Managing Officer ’13 Director Tokuo Fukuichi ’74 Joined TMC ’11 Managing Officer ’13 Senior Managing Officer ’14 Director Shigeki Terashi ’80 Joined TMC ’08 Managing Officer ’13 Senior Managing Officer ’13 Director Member of the Board Ikuo Uno* ’59 Joined Nippon Life Insurance Company ’97 President and Representative Director of the same ’05 Chairman and Representative Director of the same ’11 Advisor to the same ’13 Director Haruhiko Kato* ’75 Joined Ministry of Finance (Japan) ’09 Director-General of National Tax Administration Agency ’11 President and CEO of Japan Securities Depository Center, Inc. ’13 Director Mark. T. Hogan* ’73 Joined General Motors Corporation ’02 Vice President of General Motors Group ’04 President of Magna International Inc. ’08 President and CEO of The Vehicle Production Group LLC ’10 President of Dewey Investments LLC ’13 Director * Outside Director Nobuyori Kodaira ’72 Joined Ministry of International Trade and Industry ’04 Director-General, Agency for Natural Resources and Energy ’06 Retired from the same ’08 Advisor to TMC ’09 Managing Officer ’10 Senior Managing Director ’11 Director and Senior Managing Officer ’12 Executive Vice President Seiichi Sudo ’74 Joined TMC ’03 Managing Officer ’08 Advisor ’12 Senior Managing Officer ’13 Executive Vice President Yoshimasa Ishii ’76 Joined Toyota Motor Sales Co., Ltd. ’05 Managing Officer of TMC ’09 Senior Managing Director ’11 Senior Managing Officer ’13 Director President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Management Team (As of June 20, 2014) Outside Audit & Supervisory Board Members Full-Time Audit & Supervisory Board Member Yoichiro Ichimaru ’71 Joined Toyota Motor Sales Co., Ltd. ’01 Director of TMC ’03 Managing Officer ’05 Senior Managing Director ’09 Executive Vice President ’11 Audit & Supervisory Board Member Print Search Contents P age 40 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance Management Team [2 of 2] Risk Factors Masaki Nakatsugawa ’76 Joined Toyota Motor Sales Co., Ltd. ’06 Audit & Supervisory Board Member of TMC Masahiro Kato ’75 Joined TMC ’09 Managing Officer ’11 Audit & Supervisory Board Member Outside Audit & Supervisory Board Member Kunihiro Matsuo ’68 Prosecutor of Tokyo District Public Prosecutors Office ’04 Prosecutor General of Supreme Public Prosecutors Office ’06 Registered as attorney ’07 Outside Audit & Supervisory Board Member of TMC Yoko Wake ’70 Joined The Fuji Bank, Limited ’93 Professor of Faculty of Business and Commerce of Keio University ’11 Outside Audit & Supervisory Board Member of TMC Teisuke Kitayama ‘69 Joined Mitsui Bank ‘00 Managing Executive Officer of The Sakura Bank, Limited ‘05 President and Director of Sumitomo Mitsui Financial Group, Inc. ‘05 Chairman and Director of Sumitomo Mitsui Banking Corporation ‘14 ,Outside Audit & Supervisory Board Member of TMC President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Risk Factors Print Search Contents P age 41 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance Management Team Risk Factors [1 of 3] Operational and other risks faced by Toyota that required for innovation and development, pricing, recovery. Meanwhile, growth in emerging markets customer demand with respect to quality, safety and could significantly influence the decisions of inves- customer service and financing terms. Increased slowed down due to weakening currencies of emerg- reliability. The timely introduction of new vehicle tors are set out below. However, the following competition may lead to lower vehicle unit sales, ing markets stemming from U.S. monetary easing models, at competitive prices, meeting rapidly chang- does not encompass all risks related to the opera- which may result in a further downward price pressure beginning to be curtailed, increases in interest rates of ing customer preferences and demand is more funda- tions of Toyota. There are risk factors other than and adversely affect Toyota’s financial condition and emerging markets to protect the local currency, and mental to Toyota’s success than ever, as the those given below. Any such risk factors could results of operations. Toyota’s ability to adequately political instability in some nations. The shifts in automotive market is rapidly transforming in light of the influence the decisions of investors. The forward- respond to the recent rapid changes in the automotive demand for automobiles is continuing, and it is unclear changing global economy. There is no assurance, looking statements included below are based on market and to maintain its competitiveness will be how this situation will transition in the future. Toyota’s however, that Toyota will adequately and appropriately information available as of June 24, 2014, the filing fundamental to its future success in existing and new financial condition and results of operations may be respond to changing customer preferences and date of Form 20-F. markets and to maintain its market share. There can adversely affected if the shifts in demand for automo- demand with respect to quality, safety, reliability, styling N Industry and Business Risks be no assurances that Toyota will be able to compete biles continues or progresses further. Demand may and other features in a timely manner. Even if Toyota successfully in the future. also be affected by factors directly impacting vehicle succeeds in perceiving customer preferences and price or the cost of purchasing and operating vehicles demand, there is no assurance that Toyota will be The worldwide automotive industry is highly volatile. such as sales and financing incentives, prices of raw capable of developing and manufacturing new, price The worldwide automotive market is Each of the markets in which Toyota competes has materials and parts and components, cost of fuel and competitive products in a timely manner with its avail- highly competitive. been subject to considerable volatility in demand. governmental regulations (including tariffs, import able technology, intellectual property, sources of raw The worldwide automotive market is highly competi- Demand for vehicles depends to a large extent on regulation and other taxes). Volatility in demand may materials and parts and components, and production tive. Toyota faces intense competition from automotive social, political and economic conditions in a given lead to lower vehicle unit sales, which may result in capacity, including cost reduction capacity. Further, manufacturers in the markets in which it operates. market and the introduction of new vehicles and tech- downward price pressure and adversely affect there is no assurance that Toyota will be able to imple- Although the global economy continues to recover nologies. As Toyota’s revenues are derived from sales Toyota’s financial condition and results of operations. ment capital expenditures at the level and times gradually, competition in the automotive industry has in markets worldwide, economic conditions in such planned by management. Toyota’s inability to develop further intensified amidst difficult overall market condi- markets are particularly important to Toyota. In Japan, Toyota’s future success depends on its ability to and offer products that meet customers’ preferences tions. In addition, competition is likely to further inten- the economy gradually recovered due to increasing offer new innovative competitively priced products and demand with respect to quality, safety, reliability, sify in light of further continuing globalization in the personal consumption and last-minute demand that meet customer demand on a timely basis. styling and other features in a timely manner could worldwide automotive industry, possibly resulting in spurred by the increase of the consumption tax. In the Meeting customer demand by introducing attractive result in a lower market share and reduced sales further industry reorganization. Factors affecting United States, the economy has seen ongoing gradual new vehicles and reducing the amount of time volumes and margins, and may adversely affect competition include product quality and features, recovery mainly due to increasing personal consump- required for product development are critical to auto- Toyota’s financial condition and results of operations. safety, reliability, fuel economy, the amount of time tion and the European economy has shown signs of motive manufacturers. In particular, it is critical to meet President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Risk Factors Print Search Contents P age 42 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance Management Team Risk Factors [2 of 3] Toyota’s ability to market and distribute effectively may decrease, adversely affecting its financial condi- Toyota’s production and deliveries, which could have various digital and information technologies, including is an integral part of Toyota’s successful sales. tion and results of operations. an adverse effect on Toyota’s financial condition and information service and driving assistance functions. Toyota’s success in the sale of vehicles depends on its results of operations. Despite security measures, Toyota’s digital and infor- ability to market and distribute effectively based on Toyota relies on suppliers for the provision of mation technology networks and systems may be distribution networks and sales techniques tailored to certain supplies including parts, components and The worldwide financial services industry is highly vulnerable to damage, disruptions or shutdowns due the needs of its customers. There is no assurance that raw materials. competitive. to attacks by hackers, computer viruses, breaches Toyota will be able to develop sales techniques and Toyota purchases supplies including parts, compo- The worldwide financial services industry is highly due to unauthorized use, errors or malfeasance by distribution networks that effectively adapt to changing nents and raw materials from a number of external competitive. Increased competition in automobile employees and others who have or gain access to the customer preferences or changes in the regulatory suppliers located around the world. For some financing may lead to decreased margins. A decline in networks and systems Toyota depends on, service environment in the major markets in which it operates. supplies, Toyota relies on a single supplier or a limited Toyota’s vehicle unit sales, an increase in residual failures or bankruptcy of third parties such as software Toyota’s inability to maintain well-developed sales number of suppliers, whose replacement with another value risk due to lower used vehicle price, an increase development or cloud computing vendors, power techniques and distribution networks may result in supplier may be difficult. Inability to obtain supplies in the ratio of credit losses and increased funding shortages and outages, and utility failures or other decreased sales and market share and may adversely from a single or limited source supplier may result in costs are factors which may impact Toyota’s financial catastrophic events like natural disasters. Such affect its financial condition and results of operations. difficulty obtaining supplies and may restrict Toyota’s services operations. If Toyota is unable to adequately incidents could materially disrupt critical operations, ability to produce vehicles. Furthermore, even if Toyota respond to the changes and competition in automo- disclose sensitive data, interfere with information Toyota’s success is significantly impacted by its were to rely on a large number of suppliers, first-tier bile financing, Toyota’s financial services operations services and driving assistance functions in Toyota’s ability to maintain and develop its brand image. suppliers with whom Toyota directly transacts may in may adversely affect its financial condition and results vehicles, and/or give rise to legal claims or proceed- In the highly competitive automotive industry, it is criti- turn rely on a single second-tier supplier or limited of operations. ings, liability or regulatory penalties under applicable cal to maintain and develop a brand image. In order to second-tier suppliers. Toyota’s ability to continue to laws, which could have an adverse effect on Toyota’s maintain and develop a brand image, it is necessary to obtain supplies from its suppliers in a timely and cost- Toyota’s operations and vehicles rely on various brand image and its financial condition and results of further increase customers’ confidence by providing effective manner is subject to a number of factors, digital and information technologies. operations. safe, high-quality products that meet customer prefer- some of which are not within Toyota’s control. These Toyota depends on various information technology ences and demand. If Toyota is unable to effectively factors include the ability of Toyota’s suppliers to networks and systems, some of which are managed N Financial Market and Economic Risks maintain and develop its brand image as a result of its provide a continued source of supply, and Toyota’s by third parties, to process, transmit and store elec- inability to provide safe, high-quality products or as a ability to effectively compete and obtain competitive tronic information, including sensitive data, and to Toyota’s operations are subject to currency and result of the failure to promptly implement safety prices from suppliers. A loss of any single or limited manage or support a variety of business processes interest rate fluctuations. measures such as recalls when necessary, vehicle unit source supplier or inability to obtain supplies from and activities, including manufacturing, research and Toyota is sensitive to fluctuations in foreign currency sales and/or sale prices may decrease, and as a result suppliers in a timely and cost-effective manner could development, supply chain management, sales and exchange rates and is principally exposed to fluctua- revenues and profits may not increase as expected or lead to increased costs or delays or suspensions in accounting. In addition, Toyota’s vehicles may rely on tions in the value of the Japanese yen, the U.S. dollar President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Risk Factors Print Search Contents P age 43 Next R&D and Intellectual Property Corporate Philosophy Corporate Governance Management Team Risk Factors [3 of 3] and the euro and, to a lesser extent, the Australian metals, non-ferrous alloys including aluminum, and such as Toyota are required to implement safety legal proceedings brought by its shareholders and dollar, the Russian ruble, the Canadian dollar and the plastic parts, may lead to higher production costs for measures such as recalls for vehicles that do not or governmental proceedings and investigations. Toyota British pound. Toyota’s consolidated financial state- parts and components. This could, in turn, negatively may not comply with the safety standards of laws and is in fact currently subject to a number of pending legal ments, which are presented in Japanese yen, are impact Toyota’s future profitability because Toyota may governmental regulations. In addition, Toyota may, in proceedings and government investigations. A nega- affected by foreign currency exchange fluctuations not be able to pass all those costs on to its customers order to reassure its customers of the safety of tive outcome in one or more of these pending legal through translation risk, and changes in foreign or require its suppliers to absorb such costs. Toyota’s vehicles, decide to voluntarily implement proceedings could adversely affect Toyota’s financial currency exchange rates may also affect the price of recalls or other safety measures even if the vehicle condition and results of operations. products sold and materials purchased by Toyota in The downturn in the financial markets could complies with the safety standards of relevant laws foreign currencies through transaction risk. In particu- adversely affect Toyota’s ability to raise capital. and governmental regulations. Many governments Toyota may be adversely affected by natural lar, strengthening of the Japanese yen against the U.S. Should the world economy suddenly deteriorate, a also impose tariffs and other trade barriers, taxes and calamities, political and economic instability, fuel dollar can have an adverse effect on Toyota’s operat- number of financial institutions and investors will face levies, or enact price or exchange controls. Toyota has shortages or interruptions in social infrastructure, ing results. difficulties in providing capital to the financial markets at incurred, and expects to incur in the future, significant wars, terrorism and labor strikes. Toyota believes that its use of certain derivative finan- levels corresponding to their own financial capacity, costs in complying with these regulations. If Toyota Toyota is subject to various risks associated with cial instruments including foreign exchange forward and, as a result, there is a risk that companies may not launches products that result in safety measures such conducting business worldwide. These risks include contracts and interest rate swaps and increased local- be able to raise capital under terms that they would as recalls, Toyota may incur various costs including natural calamities; political and economic instability; ized production of its products have reduced, but not expect to receive with their creditworthiness. If Toyota is significant costs for free repairs. Furthermore, new fuel shortages; interruption in social infrastructure eliminated, the effects of interest rate and foreign unable to raise the necessary capital under appropriate legislation or changes in existing legislation may also including energy supply, transportation systems, gas, currency exchange rate fluctuations. Nonetheless, a conditions on a timely basis, Toyota’s financial condition subject Toyota to additional expenses in the future. If water, or communication systems resulting from natu- negative impact resulting from fluctuations in foreign and results of operations may be adversely affected. Toyota incurs significant costs related to implementing ral hazards or technological hazards; wars; terrorism; currency exchange rates and changes in interest rates may adversely affect Toyota’s financial condition and results of operations N Political, Regulatory, Legal and Other Risks safety measures or meeting laws and governmental labor strikes and work stoppages. Should the major regulations, Toyota’s financial condition and results of markets in which Toyota purchases materials, parts operations may be adversely affected. and components and supplies for the manufacture of The automotive industry is subject to various Toyota products or in which Toyota’s products are High prices of raw materials and strong pressure governmental regulations. Toyota may become subject to various legal produced, distributed or sold be affected by any of on Toyota’s suppliers could negatively impact The worldwide automotive industry is subject to vari- proceedings. these events, it may result in disruptions and delays in Toyota’s profitability. ous laws and governmental regulations including As an automotive manufacturer, Toyota may become the operations of Toyota’s business. Should significant Increases in prices for raw materials that Toyota and those related to vehicle safety and environmental subject to legal proceedings in respect of various or prolonged disruptions or delays related to Toyota’s Toyota’s suppliers use in manufacturing their products matters such as emission levels, fuel economy, noise issues, including product liability and infringement of business operations occur, it may adversely affect or parts and components such as steel, precious and pollution. In particular, automotive manufacturers intellectual property. Toyota may also be subject to Toyota’s financial condition and results of operations. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 44 Next Selected Financial Summary (U.S. GAAP) [1 of 2] Consolidated Segment Information Consolidated Quarterly Financial Summary Management’s Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Statements 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 Shareholders’ Equity Total Assets Long-Term Debt Cash and Cash Equivalents Ratio of Toyota Motor Corporation Shareholders’ Equity Per Share Data: Net Income (Loss) Attributable to Toyota Motor Corporation (Basic) Annual Cash Dividends Toyota Motor Corporation Shareholders’ Equity Stock Information (March 31): Stock Price Market Capitalization (Yen in millions) Number of Shares Issued (shares) * Excluding vehicles and equipment of operating leases 2005 2006 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% 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% 2005 2006 355.35 65 2,767.67 3,990 14,403,890 3,609,997,492 421.76 90 3,257.63 6,430 23,212,284 3,609,997,492 Yen in millions 2007 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% Yen 2007 512.09 120 3,701.17 7,550 27,255,481 3,609,997,492 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% 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 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 45 Next Selected Financial Summary (U.S. GAAP) [2 of 2] Consolidated Segment Information Consolidated Quarterly Financial Summary Management’s Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Statements 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 Shareholders’ Equity Total Assets Long-Term Debt Cash and Cash Equivalents Ratio of Toyota Motor Corporation Shareholders’ Equity Per Share Data: Net Income (Loss) Attributable to Toyota Motor Corporation (Basic) Annual Cash Dividends Toyota Motor Corporation Shareholders’ Equity Stock Information (March 31): Stock Price Market Capitalization (Yen in millions) Number of Shares Issued (shares) * Excluding vehicles and equipment of operating leases 2010 2011 Yen in millions 2012 2013 2014 % change 2014 vs. 2013 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% 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% 2010 2011 66.79 45 3,303.49 130.17 50 3,295.08 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% Yen 2012 90.21 50 3,331.51 20,914,150 1,150,042 22,064,192 18,010,569 630,426 2,102,309 20,743,304 1,320,888 6.0% 1,403,649 551,686 962,163 8.5% 2,451,316 (3,027,312) 477,242 807,454 854,561 1,105,109 12,148,035 35,483,317 7,337,824 1,718,297 34.2% 24,312,644 1,379,267 25,691,911 19,988,245 812,894 2,598,660 23,399,799 2,292,112 8.9% 2,441,080 767,808 1,823,119 13.7% 3,646,035 (4,336,248) 919,480 910,517 970,021 1,250,853 14,469,148 41,437,473 8,546,910 2,041,170 34.9% +16.2 +19.9 +16.4 +11.0 +28.9 +23.6 +12.8 +73.5 — +73.9 +39.2 +89.5 — +48.7 — +92.7 +12.8 +13.5 +13.2 +19.1 +16.8 +16.5 +18.8 — 2013 2014 % change 2014 vs. 2013 303.82 90 3,835.30 575.30 165 4,564.74 +89.4 +83.3 +19.0 +19.9 +19.9 — 3,745 12,912,751 3,447,997,492 3,350 11,550,792 3,447,997,492 3,570 12,309,351 3,447,997,492 4,860 16,757,268 3,447,997,492 5,826 20,088,033 3,447,997,492 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 46 Next 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 Consolidated Financial Statements Consolidated Segment Information 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 Information: Net Revenues: Japan North America Europe Asia Other Intersegment Elimination Consolidated Operating Income (Loss): Japan North America Europe Asia Other Intersegment Elimination Consolidated 2009 2010 2011 2012 2013 2014 Yen in millions % change 2014 vs. 2013 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 20,419,100 1,170,670 1,066,461 (592,039) 22,064,192 944,704 315,820 53,616 6,748 1,320,888 12,821,018 6,284,425 2,083,113 4,385,476 2,094,265 (5,604,105) 22,064,192 576,335 221,925 26,462 376,055 133,744 (13,633) 1,320,888 23,781,404 1,421,047 1,151,280 (661,820) 25,691,911 1,938,778 294,891 64,270 (5,827) 2,292,112 14,297,470 8,117,099 2,724,959 4,877,672 2,336,641 (6,661,930) 25,691,911 1,510,165 326,052 58,228 395,737 42,568 (40,638) 2,292,112 +16.5 +21.4 +8.0 — +16.4 +105.2 –6.6 +19.9 — +73.5 +11.5 +29.2 +30.8 +11.2 +11.6 — +16.4 +162.0 +46.9 +120.0 +5.2 –68.2 — +73.5 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 47 Next 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 Consolidated Financial Statements Consolidated Quarterly Financial Summary Toyota Motor Corporation Fiscal years ended March 31 Net Revenues % Change Operating Income % Change Operating Income Margin Income before Income Taxes and Equity in Earnings of Affiliated Companies % Change Net Income Attributable to Toyota Motor Corporation % Change Business Segment: Net Revenues: Automotive Financial Services All Other Intersegment Elimination Consolidated Operating Income: Automotive Financial Services All Other Intersegment Elimination Consolidated Geographic Information: Net Revenues: Japan North America Europe Asia Other Intersegment Elimination Consolidated Operating Income (Loss): Japan North America Europe Asia Other Intersegment Elimination Consolidated 2013 2014 Yen in billions First Quarter 5,501.5 59.9% 353.1 —% 6.4% 415.2 —% 290.3 24,929.9% Second Quarter 5,406.7 18.2% 340.6 351.8% 6.3% 379.3 379.4% 257.9 220.7% Third Quarter 5,318.7 9.3% 124.7 –16.7% 2.3% 131.2 –33.9% 99.9 23.4% Fourth Quarter 5,837.0 2.4% 502.3 110.6% 8.6% 477.8 102.8% 313.9 159.4% First Quarter 6,255.3 13.7% 663.3 87.9% 10.6% 724.1 74.4% 562.1 93.6% Second Quarter 6,282.1 16.2% 592.0 73.8% 9.4% 619.3 63.3% 438.4 70.0% Third Quarter 6,585.0 23.8% 600.5 381.6% 9.1% 678.9 417.5% 525.4 425.9% Fourth Quarter 6,569.3 12.5% 436.1 –13.2% 6.6% 418.5 –12.4% 297.0 –5.4% 5,120.1 274.4 243.2 (136.2) 5,501.5 258.6 86.7 9.3 (1.6) 353.1 3,242.2 1,592.8 512.0 1,073.6 483.4 (1,402.7) 5,501.5 107.1 117.6 3.4 101.5 27.1 (3.7) 353.1 5,008.7 272.0 252.6 (126.6) 5,406.7 239.3 87.7 13.1 0.3 340.6 3,163.9 1,450.9 497.5 1,088.2 500.8 (1,294.8) 5,406.7 143.7 64.9 8.6 92.9 31.5 (1.2) 340.6 4,889.2 301.3 262.0 (133.8) 5,318.7 43.7 69.0 15.4 (3.4) 124.7 2,976.2 1,525.0 508.3 1,112.5 530.3 (1,333.8) 5,318.7 15.6 (17.1) 9.2 91.7 32.3 (7.1) 124.7 5,401.0 322.8 308.4 (195.2) 5,837.0 402.9 72.2 15.7 11.4 502.3 3,438.5 1,715.6 565.1 1,110.9 579.5 (1,572.7) 5,837.0 309.8 56.4 5.1 89.7 42.6 (1.4) 502.3 5,818.0 339.8 234.4 (137.0) 6,255.3 608.4 51.2 7.1 (3.5) 663.3 3,456.2 2,105.1 595.9 1,218.0 609.0 (1,729.1) 6,255.3 456.0 82.6 5.2 104.1 42.5 (27.3) 663.3 5,815.2 347.7 273.5 (154.4) 6,282.1 499.5 82.0 13.1 (2.6) 592.0 3,487.5 1,962.8 707.0 1,181.8 583.1 (1,640.2) 6,282.1 373.9 79.6 20.1 91.4 33.6 (6.7) 592.0 6,096.5 364.9 278.4 (154.8) 6,585.0 515.5 67.3 20.6 (3.0) 600.5 3,544.0 2,136.8 726.2 1,252.6 603.4 (1,678.2) 6,585.0 331.3 112.5 17.7 110.0 32.2 (3.4) 600.5 6,051.5 368.5 364.8 (215.4) 6,569.3 315.1 94.2 23.2 3.3 436.1 3,809.6 1,912.2 695.6 1,225.1 540.9 (1,614.3) 6,569.3 348.7 51.2 15.1 90.0 (65.7) (3.1) 436.1 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 48 Next 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 [1 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations All financial information discussed in this section is derived from Toyota’s consolidated Consolidated Vehicle Sales financial statements that appear elsewhere in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles in the (Thousands of units) 10,000 United States of America. M Overview The business segments of Toyota include automo- political and general economic conditions; introduc- tive operations, financial services operations and all tion of new vehicles and technologies; and costs 8,000 6,000 4,000 2,000 0 Toyota’s vehicles compared with those offered by other manufacturers. The timely introduction of new or redesigned vehicles is also an important factor in satisfying customer needs. Toyota’s ability to satisfy changing customer preferences can affect its reve- nues and earnings significantly. The profitability of Toyota’s automotive operations is affected by many factors. These factors include:   • vehicle unit sales volumes,   • the mix of vehicle models and options sold, other operations. Automotive operations are incurred by customers to purchase or operate vehi- FY ’10 ’11 ’12 ’13 ’14   • the level of parts and service sales, Toyota’s most significant business segment, cles. These factors can cause consumer demand to   • the levels of price discounts and other sales accounting for 90% of Toyota’s total revenues vary substantially in different geographic markets During fiscal 2014 and 2013, Toyota’s consolidat- incentives and marketing costs, before the elimination of intersegment revenues for and for different types of automobiles. ed vehicle unit sales in Japan increased as com-   • the cost of customer warranty claims and other fiscal 2014. Toyota’s primary markets based on During fiscal 2014, automotive markets pro- pared with each prior fiscal year, primarily as a result customer satisfaction actions, vehicle unit sales for fiscal 2014 were: Japan (26%), gressed in a steady manner, especially in the U.S., of the active introduction of new products and the   • the cost of research and development and North America (28%), Europe (9%) and Asia (18 %). although some markets in emerging countries have efforts of dealers nationwide. For fiscal 2014, Toyota other fixed costs, Automotive Market Environment slowed down. Efforts toward building a low-carbon and Lexus brands’ market share excluding mini-   • the prices of raw materials, society and improvements in safety, such as the vehicles was 46.7%, and market share (including   • the ability to control costs, The worldwide automotive market is highly competi- technical development of eco-cars and automated- Daihatsu and Hino brands) including mini-vehicles   • the efficient use of production capacity, tive and volatile. The demand for automobiles is driving, were promoted worldwide. was 42.2%, each remaining at a high level continu-   • the adverse effect on production due to the affected by a number of factors including social, ing from the prior fiscal year. Overseas consolidated reliance on various suppliers for the provision of The following table sets forth Toyota’s consolidated vehicle unit sales by geographic market based on loca- 2014. During fiscal 2013, total overseas vehicle unit   • the adverse effect on market, sales and pro- tion of customers for the past three fiscal years. sales increased in every region. During fiscal 2014, ductions of natural calamities and interruptions vehicle unit sales increased during fiscal 2013 and supplies, Japan North America Europe Asia Other* Overseas total Total Thousands of units Years Ended March 31, 2013 2,279 2,469 799 1,684 1,640 6,592 8,871 2014 2,365 2,529 844 1,609 1,769 6,751 9,116 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. total overseas vehicle unit sales increased as a of social infrastructure, and whole, due to increased sales in North America,   • changes in the value of the Japanese yen and Europe and other regions. other currencies in which Toyota conducts Toyota’s share of total vehicle unit sales in each business. market is influenced by the quality, safety, reliability, Changes in laws, regulations, policies and other price, design, performance, economy and utility of governmental actions can also materially impact the President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 49 Next 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 [2 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations profitability of Toyota’s automotive operations. slow-to-return accelerator pedals. Also in January and dealers. Toyota believes that its ability to pro- These laws, regulations and policies include those 2010, Toyota recalled in Europe, China and other vide financing to its customers is an important value attributed to environmental matters, vehicle safety, regions certain models of Toyota vehicles related to added service. Therefore, Toyota has expanded its fuel economy and emissions that can add signifi- sticking accelerator pedals. In February 2010, network of finance subsidiaries in order to offer cantly to the cost of vehicles. The European Union Toyota announced a worldwide recall related to the financial services in many countries. has enforced a directive on end-of-life vehicles. See software program that controls the antilock braking Toyota’s competitors for retail financing and retail “Legislation Regarding End-of-Life Vehicles”, system in certain vehicle models including the Prius. leasing include commercial banks, credit unions “Information on the Company — Business Overview The recalls and other safety measures described and other finance companies. Meanwhile, commer- — Governmental Regulation, Environmental and above have led to a number of claims and lawsuits cial banks and other captive automobile finance Safety Standards” and note 23 to the consolidated against Toyota. For a more detailed description of companies also compete against Toyota’s whole- financial statements in Toyota’s annual report on these claims and lawsuits, see “Information on the sale financing activities. Form 20-F for a more detailed discussion of these Company — Business Overview — Legal Proceedings” Toyota’s total finance receivables increased dur- laws, regulations and policies. and note 23 to the consolidated financial state- ing fiscal 2014 mainly due to the favorable impact of Many governments also impose local content ments in Toyota’s annual report on Form 20-F. fluctuations in foreign currency translation rates and requirements, impose tariffs and other trade barri- The worldwide automotive industry is in a period an increase in retail receivables. ers, and enact price or exchange controls that can of global competition which may continue for the limit an automaker’s operations and can make the foreseeable future, and in general the competitive Total Assets by Financial Services Operations repatriation of profits unpredictable. Changes in environment in which Toyota operates is likely to these laws, regulations, policies and other govern- intensify. Toyota believes it has the resources, strat- mental actions may affect the production, licensing, egies and technologies in place to compete effec- distribution or sale of Toyota’s products, cost of tively in the industry as an independent company for products or applicable tax rates. From time-to-time the foreseeable future. when potential safety problems arise, Toyota issues vehicle recalls and takes other safety measures Financial Services Operations including safety campaigns relating to its vehicles. In The competition in the worldwide automobile finan- November 2009, Toyota announced a safety cam- cial services industry is intensifying. As competition (¥ Billion) 20,000 15,000 10,000 5,000 0 paign in North America for certain models of Toyota increases, margins on financing transactions may FY ’10 ’11 ’12 ’13 ’14 and Lexus vehicles related to floor mat entrapment decrease and market share may also decline as of accelerator pedals, and later expanded it to customers obtain financing for Toyota vehicles from include additional models. In January 2010, Toyota alternative sources. announced a recall in North America for certain Toyota’s financial services operations mainly models of Toyota vehicles related to sticking and include loans and leasing programs for customers President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 50 Next 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 [3 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations The following table provides information regarding Toyota’s finance receivables and operating leases in the the end of the lease term. See discussion in “Critical card receivables as of March 31, 2014 increased by past two fiscal years. Accounting Estimates — Investment in Operating ¥42.8 billion from March 31, 2013 to ¥380.9 billion. 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—Deferred income and other Less—Accumulated depreciation Less—Allowance for credit losses Vehicles and equipment on operating leases, net Yen in millions March 31, 2013 2014 9,047,782 1,029,887 2,615,728 12,693,397 135,398 (628,340) (83,858) (28,928) (26,243) (139,029) 12,061,426 (5,117,660) 6,943,766 2,999,294 104,351 (65,634) 3,038,011 (749,238) (8,020) 2,280,753 10,523,364 1,071,179 2,875,650 14,470,193 161,956 (754,539) (89,439) (30,585) (26,358) (146,382) 13,731,228 (5,628,934) 8,102,294 3,674,969 129,029 (94,438) 3,709,560 (808,764) (7,220) 2,893,576 Leases” and note 2 to the consolidated financial statements in Toyota’s annual report on Form 20-F. Other Business Operations Toyota enters into interest rate swap agreements Toyota’s other business operations consist of hous- and cross currency interest rate swap agreements ing (including the manufacture and sale of prefabri- to convert its fixed-rate debt to variable-rate func- cated homes), information technology related tional currency debt. A portion of the derivative businesses (including information technology and instruments are entered into to hedge interest rate telecommunications, intelligent transport systems risk from an economic perspective and are not des- and GAZOO) and other businesses. ignated as a hedge of specific assets or liabilities on Toyota does not expect its other business opera- Toyota’s consolidated balance sheet and according- tions to materially contribute to Toyota’s consolidat- ly, unrealized gains or losses related to derivatives ed results of operations. that are not designated as a hedge are recognized currently in operations. See discussion in “Critical Currency Fluctuations Accounting Estimates — Derivatives and Other Toyota is affected by fluctuations in foreign currency Contracts at Fair Value” and “Quantitative and exchange rates. Toyota is exposed to fluctuations in Qualitative Disclosures about Market Risk” and notes the value of the Japanese yen against the U.S. dol- 20 and 26 to the consolidated financial statements lar and the euro and, to a lesser extent, the in Toyota’s annual report on Form 20-F. Australian dollar, the Russian ruble, the Canadian The fluctuations in funding costs can affect the dollar, the British pound, and others. Toyota’s con- profitability of Toyota’s financial services operations. solidated financial statements, which are presented Funding costs are affected by a number of factors, in Japanese yen, are affected by foreign currency some of which are not in Toyota’s control. These exchange fluctuations through both translation risk factors include general economic conditions, pre- and transaction risk. Toyota’s finance receivables are subject to col- consolidated financial statements in Toyota’s annual vailing interest rates and Toyota’s financial strength. Translation risk is the risk that Toyota’s consoli- lectability risks. These risks include consumer and report on Form 20-F. Funding costs decreased during fiscal 2013 and dated financial statements for a particular period or dealer insolvencies and insufficient collateral values Toyota continues to originate leases to finance 2014, mainly as a result of lower interest rates. for a particular date will be affected by changes in (less costs to sell) to realize the full carrying values new Toyota vehicles. These leasing activities are Toyota launched its credit card business in Japan the prevailing exchange rates of the currencies in of these receivables. See discussion in “Critical subject to residual value risk. Residual value losses in April 2001. As of March 31, 2014, Toyota had those countries in which Toyota does business Accounting Estimates — Allowance for Doubtful could be incurred when the lessee of a vehicle does 12.7 million cardholders, an increase of 0.9 million compared with the Japanese yen. Even though the Accounts and Credit Losses” and note 10 to the not exercise the option to purchase the vehicle at cardholders compared with March 31, 2013. Credit fluctuations of currency exchange rates to the President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 51 Next 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 [4 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Japanese yen can be substantial, and, therefore, but not eliminated, the effects of foreign currency statements and do not conform with U.S. GAAP. Management allocates resources to, and assesses significantly impact comparisons with prior periods exchange rate fluctuations, which in some years Furthermore, Toyota does not believe that these the performance of, its automotive operations as a and among the various geographic markets, the can be significant. See notes 20 and 26 to the con- measures are a substitute for U.S. GAAP measures. single business segment on a worldwide basis. translation risk is a reporting consideration and does solidated financial statements in Toyota’s annual However, Toyota believes that such results excluding Toyota does not manage any subset of its automo- not reflect Toyota’s underlying results of operations. report on Form 20-F for additional information. the impact of currency fluctuations year-on-year pro- tive operations, such as domestic or overseas oper- Toyota does not hedge against translation risk. Generally, a weakening of the Japanese yen vide additional useful information to investors ations or parts, as separate management units. Transaction risk is the risk that the currency struc- against other currencies has a positive effect on regarding the operating performance on a local cur- The management of the automotive operations is ture of Toyota’s costs and liabilities will deviate from Toyota’s revenues, operating income and net rency basis. the currency structure of sales proceeds and income attributable to Toyota Motor Corporation. assets. Transaction risk relates primarily to sales A strengthening of the Japanese yen against other Segmentation organized by function, with a manager having over- sight responsibility for each function within the seg- ment. Management assesses financial and proceeds from Toyota’s non-domestic operations currencies has the opposite effect. In fiscal 2014, Toyota’s most significant business segment is its non-financial data such as vehicle unit sales, pro- from vehicles produced in Japan. the Japanese yen was on average and at the end of automotive operations. Toyota carries out its auto- duction volume, market share information, vehicle Toyota believes that the location of its production the fiscal year weaker against the U.S. dollar and motive operations as a global competitor in the model plans and plant location costs to allocate facilities in different parts of the world has signifi- the euro in comparison to fiscal 2013. See further worldwide automotive market. resources within the automotive operations. cantly reduced the level of transaction risk. As part discussion in “Quantitative and Qualitative of its globalization strategy, Toyota has continued to Disclosures about Market Risk — Market Risk localize production by constructing production facili- Disclosures — Foreign Currency Exchange Rate M Geographic Breakdown ties in the major markets in which it sells its vehi- Risk” in Toyota’s annual report on Form 20-F. cles. In calendar 2012 and 2013, Toyota produced During 2014, the average exchange rate of the 75.4% and 76.3%, respectively, of its non-domestic Japanese yen against the U.S. dollar and the euro sales outside Japan. In North America, 75.3% and compared to the prior fiscal year fluctuated as 73.7% of vehicles sold in calendar 2012 and 2013, described above. The operating results excluding respectively, were produced locally. In Europe, the impact of currency fluctuations described in 58.5% and 69.4% of vehicles sold in calendar 2012 “Results of Operations — Fiscal 2014 Compared and 2013, respectively, were produced locally. with Fiscal 2013” show results of net revenues Localizing production enables Toyota to locally pur- obtained by applying the Japanese yen’s average chase many of the supplies and resources used in exchange rate in the previous fiscal year to the local the production process, which allows for a better currency-denominated net revenues for fiscal 2013 The following table sets forth Toyota’s net revenues in each geographic market based on the country of location of the parent company or the subsidiaries that transacted the sale with the external customer for the Revenues by Market FY2014 (cid:31) Japan　(cid:31) North America　(cid:31) Europe　 (cid:31) Asia　(cid:31) All Other Markets past three fiscal years. Yen in millions Years Ended March 31, 2013 7,910,456 6,167,821 2,003,113 4,058,629 1,924,173 2012 7,293,804 4,644,348 1,917,408 3,116,849 1,611,244 2014 8,532,875 7,938,615 2,614,070 4,475,382 2,130,969 Japan North America Europe Asia Other* 8.3% 17.4% 33.2% 10.2% 30.9% match of local currency revenues with local curren- and 2014, respectively, as if the value of the * “Other” consists of Central and South America, Oceania, Africa and the Middle East. cy expenses. Japanese yen had remained constant for the com- Toyota also enters into foreign currency transac- parable periods. Results excluding the impact of tions and other hedging instruments to address currency fluctuations year-on-year are not on the a portion of its transaction risk. This has reduced, same basis as Toyota’s consolidated financial President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 52 Next 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 [5 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations M Results of Operations — Fiscal 2014 Compared with Fiscal 2013 Net revenues: Japan North America Europe Asia Other* Intersegment elimination/unallocated amount Total Operating income: 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 Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 12,821,018 14,297,470 6,284,425 8,117,099 2,083,113 2,724,959 4,385,476 4,877,672 2,094,265 2,336,641 (5,604,105) (6,661,930) 22,064,192 25,691,911 576,335 221,925 26,462 376,055 133,744 (13,633) 1,320,888 6.0% 1,510,165 326,052 58,228 395,737 42,568 (40,638) 2,292,112 8.9% 1,476,452 1,832,674 641,846 492,196 242,376 (1,057,825) 3,627,719 933,830 104,127 31,766 19,682 (91,176) (27,005) 971,224 2.9% +11.5 +29.2 +30.8 +11.2 +11.6 — +16.4 +162.0 +46.9 +120.0 +5.2 –68.2 — +73.5 1,403,649 2,441,080 1,037,431 +73.9 6.4% 231,519 9.5% 318,376 3.1% 86,857 +37.5 962,163 1,823,119 860,956 +89.5 4.4% 7.1% 2.7% * “Other” consists of Central and South America, Oceania, Africa and Middle East. Net Revenues automotive market conditions, Toyota’s consolidat- Toyota had net revenues for fiscal 2014 of ed vehicle unit sales increased by 2.8% compared ¥25,691.9 billion, an increase of ¥3,627.7 billion, or with the prior fiscal year to 9,116 thousand vehicles. 16.4%, compared with the prior fiscal year. This increase mainly reflected the favorable impact of fluctuations in foreign currency translation rates of Net Revenues ¥2,510.4 billion and changes in vehicle unit sales and sales mix of ¥300.0 billion. Excluding the impact of changes in the Japanese yen values used for translation purposes of ¥2,510.4 billion, net rev- enues would have been ¥23,181.4 billion during fis- cal 2014, a 5.1% increase compared with the prior fiscal year. The automotive market in calendar year 2013 increased by 7.9% in North America and in fiscal 2014 increased by 5.9% in Japan compared with the prior year due to the market in the U.S. and Japan progressing in a steady manner. Under these (¥ Billion) 30,000 25,000 20,000 15,000 10,000 5,000 0 FY ’10 ’11 ’12 ’13 ’14 The table below shows Toyota’s 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 Yen in millions Years ended March 31, 2013 2014 17,446,473 20,353,340 356,756 431,760 1,577,690 1,843,478 997,843 1,105,277 20,378,762 23,733,855 535,388 578,789 20,914,150 24,312,644 1,150,042 1,379,267 22,064,192 25,691,911 2014 vs. 2013 Change Amount 2,906,867 75,004 265,788 107,434 3,355,093 43,401 3,398,494 229,225 3,627,719 Percentage (%) +16.7 +21.0 +16.8 +10.8 +16.5 +8.1 +16.2 +19.9 +16.4 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 53 Next 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 [6 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Toyota’s net revenues include net revenues from products would have been ¥22,000.6 billion during The following is a discussion of net revenues in each geographic market (before the elimination of sales of products, consisting of net revenues from fiscal 2014, a 5.2% increase compared with the intersegment revenues). automotive operations and all other operations, prior fiscal year. The increase in net revenues from Japan which increased by 16.2% during fiscal 2014 com- sales of products is mainly due to an increase in pared with the prior fiscal year to ¥24,312.6 billion, Toyota vehicle unit sales of 245 thousand vehicles. and net revenues from financial services operations Excluding the impact of changes in the Japanese which increased by 19.9% during fiscal 2014 com- yen values used for translation purposes of ¥198.5 pared with the prior fiscal year to ¥1,379.2 billion. billion, net revenues from financial services opera- Excluding the impact of changes in the Japanese tions would have been ¥1,180.7 billion during fiscal yen values used for translation purposes of 2014, a 2.7% increase compared with the prior fis- ¥2,311.9 billion, net revenues from sales of cal year. The following table shows the number of financing contracts by geographic region at the end of fiscal 2014 and 2013, respectively. Toyota’s consolidated vehicle unit sales* * including number of exported vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Years ended March 31, 2013 2014 4,202 4,220 2014 vs. 2013 Change Amount 18 Percentage (%) +0.4 Yen in millions Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 12,687,092 133,926 12,821,018 14,179,710 117,760 14,297,470 1,492,618 (16,166) 1,476,452 +11.8 –12.1 +11.5 Number of financing contracts in thousands Toyota’s domestic and exported vehicle unit sales the prior fiscal year due primarily to favorable mar- 2014 vs. 2013 Change increased by 18 thousand vehicles compared with ket conditions. Japan North America Europe Asia Other* Total Years ended March 31, 2013 2014 1,765 1,813 4,596 4,791 825 879 868 1,167 618 688 8,672 9,338 Amount 48 195 54 299 70 666 Percentage (%) +2.7 +4.3 +6.5 +34.5 +11.3 +7.7 North America Toyota’s consolidated vehicle unit sales * “Other” consists of Central and South America, Oceania and Africa. Geographically, net revenues (before the elimina- ¥2,510.4 billion, net revenues in fiscal 2014 would tion of intersegment revenues) for fiscal 2014 have increased by 11.5% in Japan, 8.4% in North increased by 11.5% in Japan, 29.2% in North America, 6.5% in Europe and 5.9% in Other com- America, 30.8% in Europe, 11.2% in Asia, and pared with the prior fiscal year, and would have 11.6% in Other compared with the prior fiscal year. decreased by 4.9% in Asia compared with the prior Excluding the impact of changes in the Japanese fiscal year. yen values used for translation purposes of Net revenues: Sales of products Financial services Total Thousands of units Years ended March 31, 2013 2014 2,469 2,529 2014 vs. 2013 Change Amount 60 Percentage (%) +2.5 Yen in millions Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 5,564,183 720,242 6,284,425 7,234,376 882,723 8,117,099 1,670,193 162,481 1,832,674 +30.0 +22.6 +29.2 Net revenues in North America increased due pri- The vehicle unit sales increased due mainly to the marily to the 60 thousand vehicles increase in vehi- market progressing in a steady manner and strong cle unit sales compared with the prior fiscal year. sales of the RAV4, IS and other new car models. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 54 Next 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 [7 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Europe Other Toyota’s consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Years ended March 31, 2013 2014 799 844 2014 vs. 2013 Change Amount 45 Percentage (%) +5.6 Yen in millions Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 2,007,207 75,906 2,083,113 2,630,408 94,551 2,724,959 623,201 18,645 641,846 +31.0 +24.6 +30.8 Toyota’s consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Years ended March 31, 2013 2014 1,640 1,769 2014 vs. 2013 Change Amount 129 Percentage (%) +7.8 Yen in millions Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 1,942,215 152,050 2,094,265 2,162,505 174,136 2,336,641 220,290 22,086 242,376 +11.3 +14.5 +11.6 Net revenues in Europe increased due primarily to vehicle unit sales increased due mainly to the strong Net revenues in Other increased due primarily to the sales increased due mainly to the strong sales of the 45 thousand vehicles increase in vehicle unit sales of the RAV4, Corolla and other car models. 129 thousand vehicles increase in vehicle unit sales the Etios in Central and South America. sales compared with the prior fiscal year. The compared with the prior fiscal year. The vehicle unit Asia Toyota’s consolidated vehicle unit sales Net revenues: Sales of products Financial services Total Thousands of units Years ended March 31, 2013 2014 1,684 1,609 2014 vs. 2013 Change Amount (75) Percentage (%) –4.5 Yen in millions Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 4,307,943 77,533 4,385,476 4,755,114 122,558 4,877,672 447,171 45,025 492,196 +10.4 +58.1 +11.2 Excluding the favorable impact of fluctuations in for- vehicle unit sales was due mainly to decreased eign currency translation rates, net revenues in Asia sales in Thailand and India, which in turn was due would have decreased due primarily to the 75 thou- mainly to the shrinking of the market and competi- sand vehicles decrease in vehicle unit sales com- tive market conditions. pared with the prior fiscal year. The decrease in Operating Costs and Expenses Operating costs and expenses: Cost of products sold Cost of financing operations Selling, general and administrative Total Yen in millions Years ended March 31, 2013 2014 2014 vs. 2013 Change Amount Percentage (%) 18,010,569 630,426 2,102,309 20,743,304 19,988,245 812,894 2,598,660 23,399,799 1,977,676 182,468 496,351 2,656,495 +11.0 +28.9 +23.6 +12.8 Changes in operating costs and expenses: Effect of changes in vehicle unit sales and sales mix Effect of fluctuation in foreign currency translation rates Effect of cost reduction efforts Effect of increase in miscellaneous costs and others Total Yen in millions 2014 vs. 2013 Change 120,000 2,378,900 (290,000) 447,595 2,656,495 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 55 Next 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 [8 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Operating costs and expenses increased by 2014, continued cost reduction efforts together with Cost of Financing Operations Southern District of New York to resolve its investi- ¥2,656.4 billion, or 12.8%, to ¥23,399.7 billion dur- suppliers contributed to the improvement in earn- Cost of financing operations increased by ¥182.4 gation, partially offset by the ¥90.0 billion charge for ing fiscal 2014 compared with the prior fiscal year. ings. These cost reduction efforts related to ongoing billion, or 28.9%, to ¥812.8 billion during fiscal 2014 costs related to the settlement of the economic loss This increase resulted mainly from the ¥2,378.9 bil- value engineering and value analysis activities, the compared with the prior fiscal year. The increase claims in the consolidated federal action in the U.S. lion unfavorable impact of fluctuations in foreign use of common parts resulting in a reduction of part resulted mainly from the ¥183.0 billion unfavorable recorded in the prior fiscal year. currency translation rates, the ¥447.5 billion types and other manufacturing initiatives designed impact of fluctuations in foreign currency translation increase in miscellaneous costs and others, and the to reduce the costs of vehicle production. rates. ¥120.0 billion impact of changes in vehicle unit sales and sales mix, partially offset by the ¥290.0 Cost of Products Sold Selling, General and Administrative Expenses billion impact of cost reduction efforts. Cost of products sold increased by ¥1,977.6 billion, Selling, general and administrative expenses The increase in miscellaneous costs and others or 11.0%, to ¥19,988.2 billion during fiscal 2014 increased by ¥496.3 billion, or 23.6%, to ¥2,598.6 was due mainly to the ¥125.0 billion payment to the compared with the prior fiscal year. The increase billion during fiscal 2014 compared with the prior U.S. government based on the agreement with the resulted mainly from the ¥1,866.5 billion unfavorable fiscal year. This increase mainly reflected the ¥329.3 U.S. Attorney’s Office for the Southern District of impact of fluctuations in foreign currency translation billion unfavorable impact of fluctuations in foreign New York to resolve its investigation, the ¥100.0 bil- rates, the ¥105.0 billion impact of changes in vehi- currency translation rates, and the ¥125.0 billion lion increase in labor costs, the ¥100.0 billion cle unit sales and sales mix, the ¥100.0 billion payment to the U.S. government based on the R&D Expenses (cid:31)(cid:31) R&D expenses (cid:30)(cid:30) % of net revenues (Right scale) (¥ Billion) 1,000 800 600 400 200 0 (%) 5 4 3 2 1 0 increase in research and development expenses, increase in research and development expenses, agreement with the U.S. Attorney’s Office for the FY ’10 ’11 ’12 ’13 ’14 and the ¥83.0 billion increase in costs related to and the ¥80.0 billion increase in costs related to ending the vehicle and engine production in ending the vehicle and engine production in Operating Income Australia, partially offset by the ¥90.0 billion charge Australia, partially offset by the ¥290.0 billion impact for costs related to the settlement of the economic of cost reduction efforts. loss claims in the consolidated federal action in the U.S. recorded in the prior fiscal year. Cost Reduction Efforts During fiscal 2014, Toyota’s continued cost reduc- tion efforts reduced operating costs and expenses by ¥290.0 billion. The amount of the 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 Cost of Products Sold (cid:31)(cid:31) Cost of products sold (cid:30)(cid:30) % of net revenues (Right scale) (¥ Billion) 20,000 15,000 10,000 5,000 0 FY ’10 ’11 ’12 ’13 ’14 (%) 100 75 50 25 0 Changes in operating income and loss: Effect of changes in exchange rates Effect of cost reduction efforts Effect of marketing efforts Effect of increase of miscellaneous costs and others Other Total Yen in millions 2014 vs. 2013 Change 900,000 290,000 180,000 (480,000) 81,224 971,224 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 56 Next 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 [9 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Toyota’s operating income increased by ¥971.2 bil- During fiscal 2014, operating income (before North America lion, or 73.5%, to ¥2,292.1 billion during fiscal 2014 elimination of intersegment profits), compared with compared with the prior fiscal year. This increase the prior fiscal year increased by ¥933.8 billion, or was due mainly to the ¥900.0 billion favorable 162.0%, in Japan, ¥104.1 billion, or 46.9%, in impact of changes in exchange rates, ¥290.0 billion North America, ¥31.7 billion, or 120.0%, in Europe, impact of cost reduction efforts, and ¥180.0 billion ¥19.6 billion, or 5.2%, in Asia, and decreased by impact of marketing efforts, partially offset by the ¥91.1 billion, or 68.2%, in Other. ¥480.0 billion increase in miscellaneous costs and others. The increase in miscellaneous costs and others was due mainly to the ¥125.0 billion pay- ment to the U.S. government based on the agree- ment with the U.S. Attorney’s Office for the Southern District of New York to resolve its investi- gation, the ¥100.0 billion increase in labor costs, the ¥100.0 billion increase in research and development expenses, and the ¥83.0 billion increase in costs related to ending the vehicle and engine production in Australia, partially offset by the ¥90.0 billion charge for costs related to the settlement of the economic loss claims in the consolidated federal action in the U.S. recorded in the prior fiscal year. Operating Income (cid:31)(cid:31) Operating income (cid:30)(cid:30) % of net revenues (Right scale) (¥ Billion) 2,500 2,000 1,500 1,000 500 0 FY ’10 ’11 ’12 ’13 ’14 (%) 10 8 6 4 2 0 The following is a description of operating income in each geographic market. Japan Changes in operating income and loss: Effect of changes in exchange rates Effect of cost reduction efforts Effect of marketing efforts Effect of increase of miscellaneous costs and others Other Total Yen in millions 2014 vs. 2013 Change 940,000 175,000 180,000 (370,000) 8,830 933,830 Changes in operating income and loss: Effect of cost reduction efforts Effect of marketing activities Effect of decrease of miscellaneous costs and others Other Total Europe Changes in operating income and loss: Effect of cost reduction efforts Effect of marketing efforts Effect of increase of miscellaneous costs and others Other Total Asia Changes in operating income and loss: Effect of changes in exchange rates Effect of cost reduction efforts Effect of marketing activities Effect of increase of miscellaneous costs and others Other Total Other Changes in operating income and loss: Effect of cost reduction efforts Effect of marketing efforts Effect of increase of miscellaneous costs and others Other Total Yen in millions 2014 vs. 2013 Change 75,000 (25,000) 50,000 4,127 104,127 Yen in millions 2014 vs. 2013 Change 15,000 25,000 (10,000) 1,766 31,766 Yen in millions 2014 vs. 2013 Change 25,000 35,000 (40,000) (50,000) 49,682 19,682 Yen in millions 2014 vs. 2013 Change (10,000) 40,000 (100,000) (21,176) (91,176) President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 57 Next 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 [10 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Other Income and Expenses the increase in income before income taxes and Other Comprehensive Income and Loss Interest and dividend income increased by ¥16.7 equity in earnings of affiliated companies. The effec- Other comprehensive income increased by ¥61.5 billion, or 17.0%, to ¥115.4 billion during fiscal 2014 tive tax rate for fiscal 2014 was 31.5%, which was billion to ¥884.2 billion for fiscal 2014 compared compared with the prior fiscal year. lower than the statutory tax rate in Japan. This was with the prior fiscal year. This increase resulted from Interest expense decreased by ¥3.3 billion, or due mainly to the increase in tax credits and income unrealized holding gains on securities in fiscal 2014 Net Income Attributable to Toyota Motor Corporation and ROE (cid:31)(cid:31) Net income attributable to Toyota Motor Corporation (cid:30)(cid:30) ROE (Right scale) (¥ Billion) 2,000 14.5%, to ¥19.6 billion during fiscal 2014 compared before income taxes and equity in earnings of affili- of ¥493.7 billion compared with gains of ¥368.5 bil- 1,500 with the prior fiscal year. ated companies from foreign subsidiaries where lion in the prior fiscal year, and from pension liability Foreign exchange gain, net increased by ¥44.7 statutory tax rates are lower than that of Japan. adjustments in fiscal 2014 of ¥93.5 billion com- billion, or 805.4%, to ¥50.2 billion during fiscal 2014 compared with the prior fiscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated Net Income Attributable to Noncontrolling Interests and Equity in Earnings of Affiliated Companies pared with gains of ¥19.5 billion in the prior fiscal year, partially offset by unfavorable foreign currency translation adjustments gains of ¥296.9 billion in fis- cal 2014 compared with gains of ¥434.6 billion in 1,000 500 0 assets and liabilities recognized through transac- Net income attributable to noncontrolling interests the prior fiscal year. tions in foreign currencies translated at prevailing increased by ¥47.2 billion, or 38.9%, to ¥168.5 bil- exchange rates and the value at the date the trans- lion during fiscal 2014 compared with the prior fiscal Segment Information FY ’10 ’11 ’12 ’13 ’14 action settled during the fiscal year, including those year. This was due mainly to an increase during fis- The following is a discussion of the results of operations for each of Toyota’s operating segments. The settled using forward foreign currency exchange cal 2014 in net income attributable to the share- amounts presented are prior to intersegment elimination. (%) 20 15 10 5 0 contracts, or the value translated by appropriate holders of consolidated subsidiaries. year-end exchange rates. The ¥44.7 billion increase Equity in earnings of affiliated companies during in foreign exchange gain, net was due mainly to the fiscal 2014 increased by ¥86.8 billion, or 37.5%, to losses recorded in fiscal 2013 resulting from the ¥318.3 billion compared with the prior fiscal year. Japanese yen being stronger against foreign cur- This increase was due mainly to an increase during rencies at the time foreign currency bonds were fiscal 2014 in net income attributable to the share- redeemed during that fiscal year than the Japanese holders of affiliated companies accounted for by the yen at the time of purchase. equity method. Other loss, net increased by ¥1.4 billion, or 94.7%, to ¥2.9 billion during fiscal 2014 compared with the prior fiscal year. Income Taxes Net Income Attributable to Toyota Motor Corporation 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 Yen in millions Years ended March 31, 2013 2014 20,419,100 23,781,404 944,704 1,938,778 1,170,670 1,421,047 315,820 294,891 1,066,461 1,151,280 53,616 64,270 (592,039) (661,820) 6,748 (5,827) 2014 vs. 2013 Change Amount 3,362,304 994,074 250,377 (20,929) 84,819 10,654 (69,781) (12,575) Percentage (%) +16.5 +105.2 +21.4 –6.6 +8.0 +19.9 — — Automotive Operations Segment favorable impact of fluctuations in foreign currency Net income attributable to the shareholders of The automotive operations segment is Toyota’s translation rates and the ¥300.0 billion favorable Toyota Motor Corporation increased by ¥860.9 bil- largest operating segment by net revenues. Net rev- impact of changes in vehicle unit sales and The provision for income taxes increased by ¥216.1 lion, or 89.5%, to ¥1,823.1 billion during fiscal 2014 enues for the automotive segment increased during sales mix. billion, or 39.2%, to ¥767.8 billion during fiscal 2014 compared with the prior fiscal year. fiscal 2014 by ¥3,362.3 billion, or 16.5%, to Operating income from the automotive operations compared with the prior fiscal year due mainly to ¥23,781.4 billion compared with the prior fiscal year. increased by ¥994.0 billion, or 105.2%, to ¥1,938.7 The increase mainly reflects the ¥2,304.9 billion billion during fiscal 2014 compared with the prior President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 58 Next 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 [11 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations fiscal year. This increase in operating income was Financial Services Operations Segment due mainly to the ¥900.0 billion favorable impact of Net revenues for the financial services operations changes in exchange rates, the ¥290.0 billion increased during fiscal 2014 by ¥250.3 billion, or impact of cost reduction efforts, and the ¥190.0 bil- 21.4%, to ¥1,421.0 billion compared with the prior lion of favorable impact of changes in vehicle unit fiscal year. This increase was primarily due to the sales and sales mix, partially offset by the ¥480.0 ¥199.8 billion favorable impact of fluctuations in for- billion increase in miscellaneous costs and others. eign currency translation rates. The changes in vehicle unit sales and changes in Operating income from financial services opera- sales mix were due primarily to the increase in tions decreased by ¥20.9 billion, or 6.6%, to ¥294.8 Toyota’s vehicle unit sales by 245 thousand vehicles billion during fiscal 2014 compared with the prior compared with the prior fiscal year resulting from fiscal year. This decrease was due primarily to the the increase in vehicle unit sales in North America, recording of ¥22.0 billion of valuation losses on Europe and Other. The increase in miscellaneous interest rate swaps stated at fair value. costs and others was due mainly to the ¥125.0 bil- lion payment to the U.S. government based on the All Other Operations Segment agreement with the U.S. Attorney’s Office for the Net revenues for Toyota’s other operations seg- Southern District of New York to resolve its investi- ments increased by ¥84.8 billion, or 8.0%, to gation, the ¥100.0 billion increase in labor costs, the ¥1,151.2 billion during fiscal 2014 compared with ¥100.0 billion increase in research and development the prior fiscal year. expenses, and the ¥83.0 billion increase in costs Operating income from Toyota’s other operations related to ending the vehicle and engine production segments increased by ¥10.6 billion, or 19.9%, to in Australia, partially offset by the ¥90.0 billion ¥64.2 billion during fiscal 2014 compared with the charge for costs related to the settlement of the prior fiscal year. economic loss claims in the consolidated federal action in the U.S. recorded in the prior fiscal year. M Outlook As for our future business environment, the world efforts and marketing efforts, partially offset by an economy is expected to benefit from ongoing mod- increase in miscellaneous costs, decrease in vehicle erate recovery in the U.S. and a gradual move unit sales and changes in sales mix and the unfa- toward recovery in Europe, meanwhile, some vorable impact of fluctuations in foreign currency emerging countries show signs of uncertainty. The rates. Toyota expects that income before income Japanese economy is expected to remain on a taxes and equity in earnings of affiliated companies recovery trend, backed by an improved environment and net income attributable to Toyota Motor for exports and the effects of various policy mea- Corporation will decrease in fiscal 2015 due to for- sures. Due attention should be paid, however, to eign exchange gains and losses and other factors. downside risks mainly from the continuing uncer- For the purposes of this outlook discussion, tainty of overseas economies, especially in emerg- Toyota is assuming an average exchange rate of ing countries, and the downturn in consumption ¥100 to the U.S. dollar and ¥140 to the euro. following a surge in last-minute demand spurred by Exchange rate fluctuations can materially affect the consumption tax increase in Japan. Toyota’s operating results. In particular, a strength- The automotive market is expected to see expan- ening of the Japanese yen against the U.S. dollar sion mainly in the U.S.; however, amid the change in can have a material adverse effect on Toyota’s oper- market structure, as seen in the expansion and ating results. See “Operating and Financial Review diversification of demand for eco-cars backed by and Prospects — Operating Results — Overview — rising environmental consciousness and rapid Currency Fluctuations” for further discussion in advances in information and communications tech- Toyota’s annual report on Form 20-F. nology, fierce competition exists on a global scale. The foregoing statements are forward-looking state- In light of the foregoing external factors, Toyota ments based upon Toyota’s management’s assump- expects that net revenues for fiscal 2015 will tions and beliefs regarding exchange rates, market increase compared with fiscal 2014 due to price demand for Toyota’s products, economic conditions revisions and other factors, partially offset by the and others. See “Cautionary Statement Concerning unfavorable impact of fluctuations in foreign curren- Forward-Looking Statements”. Toyota’s actual results cy translation rates and a decrease in vehicle unit of operations could vary significantly from those sales. Toyota expects that operating income will described above as a result of unanticipated changes increase in fiscal 2015 compared with fiscal 2014 in the factors described above or other factors, includ- due mainly to the favorable impact of cost reduction ing those described in “Risk Factors”. President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 59 Next 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 [12 of 14] Consolidated Financial Statements M Liquidity and Capital Resources Historically, Toyota has funded its capital expenditures and research and development activities through cash generated by operations. Net Cash Provided by Operating Activities and Free Cash Flow* (cid:31)(cid:31) Net cash provided by operating activities (cid:31)(cid:31) Free cash flow (¥ Billion) 4,000 3,000 2,000 1,000 0 Capital Expenditures for Property, Plant and Equipment* and Depreciation (cid:31)(cid:31) Capital expenditures (cid:31)(cid:31) Depreciation Cash and Cash Equivalents at End of Year (¥ Billion) 1,500 1,200 900 600 300 0 (¥ Billion) 2,500 2,000 1,500 1,000 500 0 ’12 FY ’10 ’13 ’11 * (Net cash provided by operating activities)- (Capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases) ’14 FY ’10 ’11 ’12 ’13 ’14 FY ’10 ’11 ’12 ’13 ’14 * Excluding vehicles and equipment on operating leases fiscal 2014, compared with ¥2,451.3 billion for fiscal Net cash provided by financing activities 2013. The increase was primarily attributable to the increased by ¥442.2 billion to ¥919.4 billion for fis- ¥971.2 billion increase in operating income. This cal 2014, compared with ¥477.2 billion for fiscal increase in operating income was due mainly to the 2013. The increase was primarily attributable to the ¥900.0 billion favorable impact of changes in ¥699.0 billion increase in proceeds from issuance of exchange rates, the ¥290.0 billion impact of cost long-term debt, partially offset by the ¥306.7 billion reduction efforts and the ¥180.0 billion impact of increase in payments of long-term debt. marketing efforts, partially offset by the ¥480.0 bil- Total capital expenditures for property, plant and lion increase in miscellaneous costs and others. equipment, excluding vehicles and equipment on Results of operations are recorded on an accrual operating leases, were ¥970.0 billion during fiscal basis and are therefore different from cash provided 2014, an increase of 13.5% from the ¥854.5 billion or used in operating activities. Other than operating in total capital expenditures during the prior fiscal income, the increase of net cash provided by oper- year. This increase was due primarily to an increase ating activities was primarily attributable to the in investments in Japan and Asia. ¥438.5 billion increase in “accrued income taxes” Total capital expenditures for vehicles and equip- resulting from the increase in income before income ment on operating leases were ¥1,708.6 billion dur- taxes and equity in earnings of affiliated companies, ing fiscal 2014, an increase of 52.6% from the compared with an increase of ¥22.1 billion for fiscal ¥1,119.5 billion in total capital expenditures during 2013 resulting from the increase in operating the prior fiscal year. This increase was due primarily income that was partially offset by the usage of to an increase in investments in the financial servic- In fiscal 2015, Toyota expects to sufficiently fund and 2014, and information concerning Toyota’s operating loss carryforwards. The increases in es operations. its capital expenditures and research and develop- principal capital expenditures and divestitures cur- “operating income” and “accrued income taxes” in Toyota expects investments in property, plant and ment activities through cash and cash equivalents rently in progress. fiscal 2014 were partially offset by the ¥160.0 billion equipment, excluding vehicles and equipment on on hand, and cash generated by operations. Toyota Toyota funds its financing programs for custom- in “deferred income taxes” for fiscal 2013 mainly operating leases, to be approximately ¥1,020.0 bil- will use its funds for the development of environ- ers and dealers, including loans and leasing pro- due to the usage of operating loss carryforwards. lion during fiscal 2015. ment technologies, maintenance and replacement grams, from both cash generated by operations Net cash used in investing activities increased by Based on currently available information, Toyota of manufacturing facilities, and the introduction of and borrowings by its sales finance subsidiaries. ¥1,308.9 billion to ¥4,336.2 billion for fiscal 2014, does not expect environmental matters to have a new products. See “Information on the Company — Toyota seeks to expand its ability to raise funds compared with ¥3,027.3 billion for fiscal 2013. The material impact on its financial position, results of Business Overview — Capital Expenditures and locally in markets throughout the world by expand- increase was primarily attributable to the ¥675.6 bil- operations, liquidity or cash flows during fiscal 2015. Divestitures” in Toyota’s annual report on Form-20F ing its network of finance subsidiaries. for information regarding Toyota’s material capital Net cash provided by operating activities lion increase in purchases of marketable securities However, uncertainty exists with respect to and security investments and to the ¥589.0 billion Toyota’s obligations under current and future envi- expenditures and divestitures for fiscal 2012, 2013 increased by ¥1,194.7 billion to ¥3,646.0 billion for increase in purchases of equipment leased to others. ronment regulations as described in “Information on President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 60 Next 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 [13 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquid Assets* (¥ Billion) 10,000 8,000 6,000 4,000 2,000 0 Shareholders’ Equity and Equity Ratio (cid:31)(cid:31) Shareholders’ equity (cid:30)(cid:30) Equity ratio (Right scale) (¥ Billion) 15,000 12,500 10,000 7,500 5,000 2,500 0 common stocks and purchase of marketable secu- 41.79%, and maturity dates ranging from 2014 to rities and security investments. 2047. The current portion of long-term debt Property, plant and equipment increased during increased during fiscal 2014 by ¥245.2 billion, or fiscal 2014 by ¥790.0 billion, or 11.5%, primarily 9.1%, to ¥2,949.6 billion and the non-current por- reflecting fluctuations in foreign currency translation tion increased by ¥1,209.0 billion, or 16.5%, to rates and the increase in the capital expenditures, ¥8,546.9 billion. The increase in total borrowings partially offset by the impacts of depreciation charg- resulted mainly from an increase in medium-term es during the year. notes. As of March 31, 2014, approximately 43% of Accounts and notes payable increased during long-term debt was denominated in U.S. dollars, fiscal 2014 by ¥99.4 billion, or 4.7%. This increase 14% in Japanese yen, 11% in Australian dollars, (%) 60 50 40 30 20 10 0 FY ’10 ’11 ’12 ’13 ’14 FY ’10 ’11 ’12 ’13 ’14 was due mainly to the increase in production vol- and 32% in other currencies. Toyota hedges interest * Cash and cash equivalents, time deposits, marketable debt securities and investment in monetary trust funds ume in the fourth quarter of fiscal 2014. rate risk exposure of fixed-rate borrowings by enter- Accrued expenses increased during fiscal 2014 ing into interest rate swaps. There are no material by ¥127.6 billion, or 5.8%. This increase was due seasonal variations in Toyota’s borrowings the Company — Business Overview — Governmental foreign currency translation rates. mainly to the increase in product quality related requirements. Regulation, Environmental and Safety Standards” in Inventories increased during fiscal 2014 by expenses. As of March 31, 2014, Toyota’s total interest Toyota’s annual report on Form 20-F. ¥178.9 billion, or 10.4%, to ¥1,894.7 billion. This Income taxes payable increased during fiscal bearing debt was 112.8% of Toyota Motor Cash and cash equivalents were ¥2,041.1 billion increase was due mainly to the fluctuations in 2014 by ¥438.5 billion, or 280.7%. This increase Corporation shareholders’ equity, compared with as of March 31, 2014. Most of Toyota’s cash and foreign currency translation rates. was due mainly to the increase in income before 116.3% as of March 31, 2013. cash equivalents are held in Japanese yen or in Total finance receivables, net increased during income taxes and equity in earnings of affiliated The following table provides information for credit U.S. dollars. In addition, time deposits were ¥180.2 fiscal 2014 by ¥1,669.8 billion, or 13.8%, to companies. rating of Toyota’s short-term borrowing and long- billion and marketable securities were ¥2,046.8 bil- ¥13,731.2 billion. This increase was due mainly to Toyota’s total borrowings increased during fiscal term debt from rating agencies, Standard & Poor’s lion as of March 31, 2014. the fluctuations in foreign currency translation rates 2014 by ¥2,195.6 billion, or 15.5%. Toyota’s short- Ratings Group (S&P), Moody’s Investors Services Liquid assets, which Toyota defines as cash and and an increase in the number of financing con- term borrowings consist of loans with a weighted- (Moody’s), and Rating and Investment Information, cash equivalents, time deposits, marketable debt tracts. As of March 31, 2014, finance receivables average interest rate of 2.57% and commercial Inc. (R&I), as of May 31, 2014. A credit rating is not securities and its investment in monetary trust were geographically distributed as follows: in North paper with a weighted-average interest rate of a recommendation to buy, sell or hold securities. A funds, increased during fiscal 2014 by ¥1,954.5 bil- America 57.1%, in Asia 11.4%, in Europe 10.8%, in 0.49%. Short-term borrowings increased during fis- credit rating may be subject to withdrawal or revi- lion, or 28.7%, to ¥8,759.0 billion. Japan 8.9% and in Other 11.8%. cal 2014 by ¥741.2 billion, or 18.1%, to ¥4,830.8 sion at any time. Each rating should be evaluated Trade accounts and notes receivable, less allow- Marketable securities and other securities invest- billion. Toyota’s long-term debt consists of unse- separately of any other rating. ance for doubtful accounts increased during fiscal ments, including those included in current assets, cured and secured loans, medium-term notes, 2014 by ¥64.5 billion, or 3.3%, to ¥2,036.2 billion. increased during fiscal 2014 by ¥2,189.6 billion, or unsecured notes and long-term capital lease obliga- This increase was due mainly to the fluctuations in 33.1%, reflecting an increase in the fair values of tions with interest rates ranging from 0.00% to Short-term borrowing Long-term debt S&P A-1+ AA- Moody’s P-1 Aa3 R&I — AA+ President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 61 Next 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 [14 of 14] Consolidated Financial Statements Management’s Discussion and Analysis of Financial Condition and Results of Operations Toyota’s unfunded pension liabilities of Japanese short-term fluctuations. Toyota believes that it main- plans decreased during fiscal 2014 by ¥91.0 billion, tains sufficient liquidity for its present requirements or 18.1%, to ¥413.0 billion. The liabilities of foreign and that by maintaining its high credit ratings, it will plans also decreased during fiscal 2014 by ¥29.3 continue to be able to access funds from external billion, or 19.0%, to ¥124.6 billion. The unfunded sources in large amounts and at relatively low costs. amounts will be funded through future cash contri- Toyota’s ability to maintain its high credit ratings is butions by Toyota or in some cases will be settled subject to a number of factors, some of which are on the retirement date of each covered employee. not within Toyota’s control. These factors include The decrease in unfunded pension liabilities of the general economic conditions in Japan and the other Japanese plans as of the end of fiscal 2014 com- major markets in which Toyota does business, as pared with the prior fiscal year end reflects mainly well as Toyota’s successful implementation of its an increase in pension assets due to an increase in business strategy. equity security prices, despite an increase in pen- sion benefit obligations that resulted from a decline in discount rate. The decrease in unfunded pension liabilities of foreign plans also reflects the increase in pension assets resulting mainly from an increase in equity security prices. See note 19 to the consoli- dated financial statements in Toyota’s annual report on Form 20-F. Toyota’s treasury policy is to maintain controls on all exposures, to adhere to stringent counterparty credit standards, and to actively monitor market- place exposures. Toyota remains centralized, and is pursuing global efficiency of its financial services operations through Toyota Financial Services Corporation. The key element of Toyota’s financial strategy is maintaining a strong financial position that will allow Toyota to fund its research and development initia- tives, capital expenditures and financial services operations efficiently even if earnings are subject to President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 62 Next 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 Consolidated Financial Statements [1 of 5] Consolidated Balance Sheets Toyota Motor Corporation March 31, 2013 and 2014 ASSETS Current assets Cash and cash equivalents Time deposits Marketable securities Trade accounts and notes receivable, less allowance for doubtful accounts of ¥15,875 million in 2013 and ¥18,780 million in 2014 Finance receivables, net Other receivables Inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Yen in millions 2013 2014 1,718,297 106,700 1,445,663 2,041,170 180,207 2,046,877 1,971,659 5,117,660 432,693 1,715,786 749,398 527,034 13,784,890 2,036,232 5,628,934 351,182 1,894,704 866,386 672,014 15,717,706 Noncurrent finance receivables, net 6,943,766 8,102,294 Investments and other assets Marketable securities and other securities investments Affiliated companies Employees receivables Other Total investments and other assets 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 5,176,582 2,103,283 53,741 569,816 7,903,422 6,765,043 2,429,778 44,966 736,388 9,976,175 1,303,611 3,874,279 9,716,180 3,038,011 291,539 18,223,620 (11,372,381) 6,851,239 35,483,317 1,314,040 4,073,335 10,381,285 3,709,560 286,571 19,764,791 (12,123,493) 7,641,298 41,437,473 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 Shareholders’ equity Toyota Motor Corporation shareholders’ equity Common stock, no par value, authorized: 10,000,000,000 shares in 2013 and 2014; issued: 3,447,997,492 shares in 2013 and 2014 Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost, 280,568,824 shares in 2013 and 278,231,473 shares in 2014 Total Toyota Motor Corporation shareholders’ equity Noncontrolling interests Total shareholders’ equity Commitments and contingencies Yen in millions 2013 2014 4,089,528 2,704,428 2,113,778 721,065 2,185,537 156,266 941,918 12,912,520 4,830,820 2,949,663 2,213,218 845,426 2,313,160 594,829 933,569 14,680,685 7,337,824 766,112 1,385,927 308,078 9,797,941 8,546,910 767,618 1,811,846 411,427 11,537,801 397,050 551,040 12,689,206 (356,123) (1,133,138) 12,148,035 624,821 12,772,856 397,050 551,308 14,116,295 528,161 (1,123,666) 14,469,148 749,839 15,218,987 Total liabilities and shareholders’ equity 35,483,317 41,437,473 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 63 Next 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 Consolidated Financial Statements [2 of 5] Consolidated Statements of Income Toyota Motor Corporation For the years ended March 31, 2012, 2013 and 2014 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 Less: Net income attributable to noncontrolling interests 2012 17,511,916 1,071,737 18,583,653 15,795,918 592,646 1,839,462 18,228,026 Yen in millions 2013 20,914,150 1,150,042 22,064,192 18,010,569 630,426 2,102,309 20,743,304 2014 24,312,644 1,379,267 25,691,911 19,988,245 812,894 2,598,660 23,399,799 355,627 1,320,888 2,292,112 99,865 (22,922) 37,105 (36,802) 77,246 432,873 262,272 197,701 368,302 (84,743) 98,673 (22,967) 5,551 1,504 82,761 1,403,649 551,686 231,519 1,083,482 115,410 (19,630) 50,260 2,928 148,968 2,441,080 767,808 318,376 1,991,648 (121,319) (168,529) Net income attributable to Toyota Motor Corporation 283,559 962,163 1,823,119 Net income attributable to Toyota Motor Corporation per share — Basic — Diluted 90.21 90.20 Yen 303.82 303.78 575.30 574.92 Cash dividends per share 50.00 90.00 165.00 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 64 Next 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 Consolidated Financial Statements [3 of 5] Consolidated Statements of Comprehensive Income Toyota Motor Corporation For the years ended March 31, 2012, 2013 and 2014 Net income Other comprehensive income (loss), net of tax Foreign currency translation adjustments Unrealized gains (losses) on securities Pension liability adjustments Total other comprehensive income (loss) Comprehensive income Less: Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to Toyota Motor Corporation 2012 368,302 (93,292) 131,794 (65,110) (26,608) 341,694 (85,744) 255,950 Yen in millions 2013 1,083,482 461,754 374,209 14,711 850,674 1,934,156 (149,283) 1,784,873 2014 1,991,648 301,889 499,560 99,404 900,853 2,892,501 (185,098) 2,707,403 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 65 Next 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 Consolidated Financial Statements [4 of 5] Consolidated Statements of Shareholders’ Equity Toyota Motor Corporation For the years ended March 31, 2012, 2013 and 2014 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 (losses) on securities Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Repurchase and reissuance of treasury stock Balances at March 31, 2012 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 (losses) on securities Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Repurchase and reissuance of treasury stock Balances at March 31, 2013 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 (losses) on securities Pension liability adjustments Total comprehensive income Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Repurchase and reissuance of treasury stock Balances at March 31, 2013 Yen in millions Accumulated other comprehensive income (loss) (1,144,721) (6,503) Treasury stock, at cost (1,261,383) 125,819 Total Toyota Motor Corporation shareholders’ equity 10,332,371 117,262 1,483 Noncontrolling interests 587,653 (119,824) Total shareholders’ equity 10,920,024 (2,562) 1,483 Common stock 397,050 Additional paid-in capital 505,760 43,311 1,483 Retained earnings 11,835,665 (45,365) 283,559 (156,785) (87,729) 129,328 (69,208) 397,050 96 550,650 675 11,917,074 (1,178,833) (116) (1,135,680) 283,559 84,743 368,302 (87,729) 129,328 (69,208) 255,950 (156,785) (20) 10,550,261 675 (5,563) 2,466 4,098 85,744 (37,356) 516,217 4,961 (93,292) 131,794 (65,110) 341,694 (156,785) (37,356) (20) 11,066,478 5,636 962,163 962,163 121,319 1,083,482 434,638 368,507 19,565 397,050 (285) 551,040 528 (190,008) (23) 12,689,206 (356,123) 2,542 (1,133,138) 434,638 368,507 19,565 1,784,873 (190,008) 2,234 12,148,035 528 27,116 5,702 (4,854) 149,283 (45,640) 624,821 2,985 461,754 374,209 14,711 1,934,156 (190,008) (45,640) 2,234 12,772,856 3,513 1,823,119 1,823,119 168,529 1,991,648 296,942 493,750 93,592 (396,030) 296,942 493,750 93,592 2,707,403 (396,030) 397,050 (260) 551,308 14,116,295 528,161 9,472 (1,123,666) 9,212 14,469,148 4,947 5,810 5,812 185,098 (63,065) 749,839 301,889 499,560 99,404 2,892,501 (396,030) (63,065) 9,212 15,218,987 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 66 Next 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 Consolidated Financial Statements [5 of 6] Consolidated Statements of Cash Flows Toyota Motor Corporation For the years ended March 31, 2012, 2013 and 2014 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 in accounts and notes receivable (Increase) decrease in inventories Increase in other current assets Increase (decrease) in accounts payable Increase in accrued income taxes Increase in other current liabilities Other Net cash provided by operating activities 2012 Yen in millions 2013 2014 368,302 1,083,482 1,991,648 1,067,830 1,105,109 1,250,853 9,623 16,711 33,528 53,831 27,367 (20,429) 32,221 2,104 49,718 20,654 28,657 6,197 6,395 (197,701) 160,008 (231,519) (56,279) (318,376) (585,464) (344,923) (180,529) 756,363 20,943 316,366 111,160 1,452,435 (168,260) 50,483 (47,033) (209,284) 22,127 280,083 364,857 2,451,316 (121,926) (110,819) (77,645) 65,312 438,527 277,659 201,855 3,646,035 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 2012 Yen in millions 2013 2014 (8,333,248) 8,007,711 53,999 (10,004,928) 9,063,011 39,845 (11,953,064) 10,990,546 34,807 (723,537) (854,561) (970,021) Additions to equipment leased to others (808,545) (1,119,591) (1,708,670) 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 36,633 39,191 39,191 431,313 533,441 744,339 (3,173,634) (3,412,423) (4,738,278) 162,160 35,178 538,894 2,694,665 2,633,913 2,780,433 (147) 16,216 6,603 209,972 3,396 (101,028) Net cash used in investing activities (1,442,658) (3,027,312) (4,336,248) Cash flows from financing activities Proceeds from issuance of long-term debt Payments of long-term debt Increase in short-term borrowings Dividends paid to Toyota Motor Corporation shareholders Dividends paid to noncontrolling interests Reissuance (repurchase) of treasury stock 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 2,394,807 (2,867,572) 311,651 3,191,223 (2,682,136) 201,261 3,890,310 (2,988,923) 467,976 (156,785) (190,008) (396,030) (37,356) (92) (45,640) 2,542 (63,065) 9,212 (355,347) 477,242 919,480 (55,939) 137,851 93,606 (401,509) 39,097 322,873 2,080,709 1,679,200 1,679,200 1,718,297 1,718,297 2,041,170 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section ANNUAL REPORT 2014 Prev Print Search Contents P age 67 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 responsibility is to express opinions on these included performing such other procedures as we acquisition, use, or disposition of the company’s balance sheets and the related consolidated financial statements and on the Company’s internal considered necessary in the circumstances. We assets that could have a material effect on the statements of income, comprehensive income, control over financial reporting based on our believe that our audits provide a reasonable basis financial statements. shareholders’ equity and cash flows present fairly, in integrated audits. We conducted our audits in for our opinions. Because of its inherent limitations, internal control all material respects, the financial position of Toyota accordance with the standards of the Public A company’s internal control over financial over financial reporting may not prevent or detect Motor Corporation and its subsidiaries at March 31, Company Accounting Oversight Board (United reporting is a process designed to provide misstatements. Also, projections of any evaluation 2013 and 2014, and the results of their operations States). Those standards require that we plan and reasonable assurance regarding the reliability of of effectiveness to future periods are subject to the and their cash flows for each of the three years in perform the audits to obtain reasonable assurance financial reporting and the preparation of financial risk that controls may become inadequate because the period ended March 31, 2014 in conformity with about whether the financial statements are free of statements for external purposes in accordance of changes in conditions, or that the degree of accounting principles generally accepted in the material misstatement and whether effective internal with generally accepted accounting principles. A compliance with the policies or procedures may United States of America. Also in our opinion, the control over financial reporting was maintained in all company’s internal control over financial reporting deteriorate. Company maintained, in all material respects, material respects. Our audits of the financial includes those policies and procedures that (i) effective internal control over financial reporting as statements included examining, on a test basis, pertain to the maintenance of records that, in of March 31, 2014, based on criteria established in evidence supporting the amounts and disclosures in reasonable detail, accurately and fairly reflect the Internal Control - Integrated Framework (1992) the financial statements, assessing the accounting transactions and dispositions of the assets of the issued by the Committee of Sponsoring principles used and significant estimates made by company; (ii) provide reasonable assurance that Organizations of the Treadway Commission management, and evaluating the overall financial transactions are recorded as necessary to permit (COSO). The Company’s management is statement presentation. Our audit of internal control preparation of financial statements in accordance responsible for these financial statements, for over financial reporting included obtaining an with generally accepted accounting principles, and maintaining effective internal control over financial understanding of internal control over financial that receipts and expenditures of the company are reporting and for its assessment of the effectiveness reporting, assessing the risk that a material being made only in accordance with authorizations of internal control over financial reporting, included weakness exists, and testing and evaluating the of management and directors of the company; and in the accompanying Management’s Annual Report design and operating effectiveness of internal (iii) provide reasonable assurance regarding Nagoya, Japan on Internal Control Over Financial Reporting. Our control based on the assessed risk. Our audits also prevention or timely detection of unauthorized June 24, 2014 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial SectionANNUAL REPORT 2014 Prev Print Search Contents P age 68 Next Investor Information (As of March 31, 2014) Corporate Data Company Name: Toyota Motor Corporation Established: August 28, 1937 Common Stock: ¥397,049 million Fiscal Year-End: March 31 Public Accounting Firm: PricewaterhouseCoopers Aarata Number of Affiliates: [Consolidated Subsidiaries] 509 [Affiliates Accounted for by the Equity Method] 56 Number of Employees: 68,240 (Consolidated: 338,875) Corporate Web Site: [Corporate Information] http://www.toyota-global.com [IR Information] http://www.toyota-global.com/investors Stock Data Number of Shares Authorized: 10,000,000,000 shares Number of Shares Issued: 3,447,997,492 shares Number of Treasury Stock: 278,231,473 shares Number of Shareholders: 613,648 Number of Shares per Trading Unit: 100 shares Stock Listings: [Japan] Tokyo, Nagoya, Osaka, Fukuoka, Sapporo [Overseas] New York, London Securities Code: [Japan] 7203 American Depositary Receipts (ADR): [Ratio] 1 ADR=2 common stocks [Symbol] TM Transfer Agent in Japan: Mitsubishi UFJ Trust and Banking Corporation 10-11, Higashisuna, 7-chome, Koutou-ku, Tokyo 137-8081, Japan Japan Toll-Free: (0120)232-711 Depositary and Transfer Agent for ADR: 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 Toyota City Head Office Tokyo Head Office 1, Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan Tel: (0565)28-2121 Fax: (0565)23-5721 4-18, Koraku 1-chome, Bunkyo-ku Tokyo 112-8701, Japan Tel: (03)3817-7111 Fax: (03)3817-9092 U.S.A. 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 U.K. Toyota Motor Europe NV/SA Curzon Square, 25 Park Lane, London W1K 1RA, U.K. Tel: (207)290-8513 Fax: (207)290-8502 Major Shareholders (Top 10) Ownership Breakdown Name Number of Shares Held (Thousands) Japan Trustee Services Bank, Ltd. Toyota Industries Corporation The Master Trust Bank of Japan, Ltd. State Street Bank and Trust Company (Standing proxy: Settlement & Clearing Service Division, Mizuho Bank, Ltd.) Nippon Life Insurance Company The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders Trust & Custody Services Bank, Ltd. DENSO CORPORATION Mitsui Sumitomo Insurance Company, Limited State Street Bank and Trust Company (Standing proxy: The Hong Kong and Shanghai Banking Corporation Limited, Tokyo Branch) 331,408 223,515 181,754 128,118 122,323 83,412 70,824 69,533 66,063 55,260 Other corporate entities 17.86% Financial institutions, Brokerages 31.11% Individuals, etc. 20.67% Foreign corporate entities and others 30.36% Note: Individuals, etc, include shares of 278 million treasury stock. Toyota’s Stock Price and Trading Volume on the Tokyo Stock Exchange Stock price (¥) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Trading volume (Million shares) 400 300 200 100 0 FY2010 4,235 3,140 3,745 High (¥) Low (¥) At Year-End (¥) FY2011 3,955 2,800 3,350 FY2012 3,635 2,330 3,570 FY2013 5,050 2,795 4,860 FY2014 6,760 4,610 5,826 President’s MessageOverview of Four Business Units Special FeatureReview of OperationsConsolidated Performance HighlightsManagement and Corporate InformationInvestor InformationFinancial Section 

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