Annual Report & Accounts Pt 3
Toyota Motor Corporation
23 August 2002
17. Stock-based compensation:
In June 1997, the parent company's shareholders approved a stock option plan for
board members. In June 2001, the shareholders approved the amendment of the
plan to include certain employees in addition. Each year, since the plans
inception, the shareholders have approved the authorization for grant of options
for the purchase of Toyota's common stock. Authorized shares for each year that
remain ungranted are unavailable for grant in future years. Stock options with
a term of four years are granted with an exercise price equal to 1.025 times the
closing price of Toyota's common stock on the date of grant and generally vest
two years from the date of grant.
Subsequent to March 31, 2002, the shareholders approved the authorization of an
additional 2,200,000 shares for issuance under the Toyota's stock option plan
for board members and key employees.
The following table summarizes stock option activity:
Yen
Weighted- Weighted-average
Number average remaining contractual
of options exercise price life in years
Balance at March 31, 1999 845,000 JPY3,620 2.87
Granted 465,000 4,141
Exercised (141,000) 3,598
Canceled (182,000) 3,622
Balance at March 31, 2000 987,000 3,868 2.63
Granted 455,000 4,838
Exercised (84,000) 3,623
Canceled (35,000) 4,141
Balance at March 31, 2001 1,323,000 4,210 2.24
Granted 1,361,000 4,203
Exercised (166,100) 3,610
Canceled (236,100) 4,320
Balance at March 31, 2002 2,281,800 JPY4,238 2.59
Exercisable at March 31, 2002 560,800 JPY3,939 0.93
The following table summarizes information for options outstanding and
exercisable at March 31, 2002:
Outstanding Exercisable
Exercise Number of Weighted- Weighted- Weighted- Number Weighted- Weighted-
Price shares average average average of average average
range exercise exercise remaining shares exercise exercise
price price life price price
Yen Yen Dollars Years Yen Dollars
JPY3,639 2,281,800 JPY4,238 $32 2.59 560,800 JPY3,939 $30
- 4,838
Toyota has measured compensation for the stock-based compensation plan using the
intrinsic value method, which requires compensation expense for options to be
recognized when the market price of the underlying stock exceeds the exercise
price on the date of grant. Had Toyota recognized stock-based compensation
expense based on the fair value of granted options at the grant date, net income
and diluted net income per share for the years ended March 31, 2000, 2001 and
2002 would have been as follows:
U.S. dollars
in millions
Yen in millions For the year
ended
For the year ended March 31 March 31,
2000 2001 2002 2002
Net income As reported JPY481,936 JPY674,898 JPY556,567 $4,177
Pro forma 481,444 674,252 555,846 4,171
Net income per share:
- Basic As reported JPY128.27 JPY180.65 JPY152.26 $1.14
Pro forma 128.14 180.48 152.07 1.14
- Diluted As reported JPY128.27 JPY180.65 JPY152.26 $1.14
Pro forma 128.14 180.48 152.07 1.14
The weighted-average fair value per option at the date of grant for options
granted during the year ended March 31, 2000, 2001 and 2002 was JPY857, JPY1,327
and JPY1,046 ($8), respectively. The fair value of options granted, which is
amortized to expense over the option vesting period in determining the pro forma
impact, is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
2000 2001 2002
Dividend rate 0.6% 0.5% 0.8%
Risk-free interest rate 1.9% 1.7% 1.3%
Expected volatility 26% 36% 33%
Expected holding period (years) 4 4 4
18. Employee benefit plans:
Pension and severance plans -
On terminating employment, employees of the parent company and subsidiaries in
Japan are entitled, under most circumstances, to lump-sum indemnities or pension
payments as described below, based on current rates of pay and lengths of
service. Under normal circumstances, the minimum payment prior to retirement
age is an amount based on voluntary retirement. Employees receive additional
benefits on involuntary retirement, including retirement at the age limit. With
respect to directors' resignations, lump-sum severance indemnities calculated by
using a similar formula are normally paid subject to approval of the
shareholders.
The parent company and most subsidiaries in Japan have contributory funded
defined benefit pension plans, which are pursuant to the Japanese Welfare
Pension Insurance Law. The contributory pension plans cover a portion of the
governmental welfare pension program ('substituted portion'), under which the
contributions are made by the companies and their employees, and an additional
portion representing the noncontributory pension plans. The defined benefits
under the noncontributory portion of the plans, in general, cover more than
fifty percent of the indemnities under the existing regulations to employees.
The remaining portion of the indemnities is covered by severance payments by the
companies. The pension benefits are determined based on years of service and
the compensation amounts as stipulated in the aforementioned regulations, and
are payable, at the option of the retiring employee, as a monthly pension
payment or in a lump-sum amount. The contributions to the plans are funded with
several financial institutions in accordance with the applicable laws and
regulations. These pension plan assets consist principally of investments in
government obligations, equity and fixed income securities, and insurance
contracts. Toyota revised its pension plan for the years ended March 31, 2001
and 2002, which reduced the projected benefit obligation. These effects of the
reductions in the projected benefit obligations have been reflected as an
unrecognized prior service cost.
Most foreign subsidiaries have defined benefit pension plans or severance
indemnity plans covering substantially all of their employees under which the
cost of benefits is currently invested or accrued. The benefits for these plans
are based primarily on current rate of pay and lengths of service.
Toyota recorded an additional minimum liability totaling JPY39,513 million and
JPY222,997 million ($1,674 million) at March 31, 2001 and 2002, respectively,
for plans where the accumulated benefit obligation exceeded the fair market
value of plan assets and accrued pension and severance costs. The projected
benefit obligation, accumulated benefit obligation and fair value of plan assets
for which the accumulated benefit obligations exceed plan assets and accrued
pension and severance costs are as follows:
U.S. dollars
Yen in millions in millions
March 31 March 31,
2001 2002 2002
Projected benefit obligation JPY291,524 JPY1,688,348 $12,671
Accumulated benefit obligation 267,705 1,437,233 10,786
Fair value of plan assets 162,088 859,464 6,450
Information regarding Toyota's defined benefit plans is as follows:
U.S. dollars
Yen in millions in millions
March 31 March 31,
2001 2002 2002
Change in benefit obligation:
Benefit obligation at beginning JPY1,731,045 JPY1,880,582 $14,113
of year
Service cost 68,084 74,926 562
Interest cost 53,118 58,149 436
Plan participants' 8,818 12,515 94
contributions
Actuarial loss 78,961 205,345 1,541
Acquisition and other 38,341 80,192 602
Benefits paid (54,427) (62,633) (470)
Plan amendment (43,358) (10,678) (80)
Benefit obligation at end of 1,880,582 2,238,398 16,798
year
Change in plan assets:
Fair value of plan assets at 932,896 1,123,899 8,435
beginning of year
Actual return on plan assets (125,078) (87,984) (660)
Employer contribution 303,589 41,352 310
Acquisition and other 28,584 37,178 279
Plan participants' 8,818 12,515 94
contributions
Benefits paid (24,910) (29,925) (225)
Fair value of plan assets at 1,123,899 1,097,035 8,233
end of year
Funded status 756,683 1,141,363 8,565
Unrecognized actuarial loss (386,216) (693,143) (5,202)
Unrecognized prior service cost 136,877 135,129 1,014
Unrecognized net transition (84,212) (65,127) (488)
obligation
Net amount recognized JPY 423,132 JPY 518,222 $ 3,889
Amounts included in the
consolidated balance sheets are
comprised of:
Accrued pension and severance JPY505,150 JPY 754,403 $ 5,662
costs
Prepaid pension and severance (42,505) (13,184) (99)
costs
Investments and other assets (16,644) (5,401) (41)
Accumulated other comprehensive (22,869) (217,596) (1,633)
income
Net amount recognized JPY423,132 JPY 518,222 $ 3,889
U.S. dollars
in millions
Yen in millions For the year
ended
For the year ended March 31 March 31,
2000 2001 2002 2002
Weighted-average assumptions as of
March 31, 2000, 2001 and 2002:
Discount rate 3.0 - 8.5% 2.5 - 8.7% 2.5 - 7.2%
Expected return on plan assets 3.0 - 9.0% 1.5 - 9.0% 1.5 - 9.0%
Rate of compensation increase 2.0 - 7.5% 2.0 - 6.5% 1.5 - 6.0%
Components of net periodic
(benefit) cost:
Service cost JPY 58,495 JPY 68,084 JPY 74,926 $ 562
Interest cost 52,073 53,118 58,149 436
Expected return on plan assets (24,971) (29,184) (29,465) (221)
Amortization of prior service - (8,867) (12,723) (95)
cost
Recognized net actuarial loss 5,955 2,184 17,228 129
Amortization of net transition 18,878 18,960 19,055 143
obligation
Net periodic pension cost JPY110,430 JPY104,295 JPY127,170 $ 954
The parent company and its Japanese subsidiaries represent substantially all of
the pension obligation at March 31, 2001 and 2002. The weighted-average
assumptions used for the discount rate and expected return on plan assets to
determine the pension obligation for the parent company and the Japanese
subsidiaries were 3.0% and 3.0% for the year ended March 31, 2001, and 2.5% and
2.5% for the year ended March 31, 2002, respectively.
Amounts arising from the actuarial loss for the year ended March 31, 2002 were
primarily due to changes in estimates made for actuarial assumptions in 2002 as
compared to 2001.
As discussed in Note 6, during the year ended March 31, 2001, Toyota contributed
certain marketable equity securities having a fair value of JPY269,700 million
at the date of contribution to an employee retirement trust, which is included
in plan assets and reflected as an employer contribution.
Return of the substituted portion of the Employee Pension Fund
to the government -
Originally, the Japanese government pension plan consisted of two tiers, 'Basic
National Pension' and 'Welfare Pension Insurance Relating to Salaries'. 'Basic
National Pension' is funded by the company to the government and 'Welfare
Pension Insurance Relating to Salaries' is funded by the contributions both by
the employer and employees to the government. Companies are allowed to
establish private pension plans in lieu of participating in the 'Welfare Pension
Insurance Relating to Salaries.' In order to give more benefits to its
employees, Toyota established such a private employee pension fund which
consists of the portion substituting 'Welfare Pension Insurance Relating to
Salaries' (the 'Substituted Portion'), and the portion of additional employee
pension fund (the 'Additional Portion').
In June 2001, the Contributed Benefit Pension Plan Law was enacted and allows a
company to return the Substituted Portion to the government thereby eliminating
the company's responsibility for future benefits. In order to return the
Substituted Portion, a company must obtain approval from the Minister of Health,
Labor and Welfare for the exemption from the payment of future benefits. In
addition, a company must obtain approval from the same body to return the
Substituted Portion to the government. Once a company receives approvals, the
company will be released from any obligations relating to the Substituted
Portion of plan assets transferred to the government. The amount of the
transfer is based on amounts determined by the government.
The parent company applied for exemption from the payment of future benefits and
subsequent to March 31, 2002, received approval from the Minister of Health,
Labor and Welfare. It expects to apply for return of the Substituted Portion
and receives approvals by December 31, 2003.
The projected benefit obligation of the Substituted Portion that the parent
company received approval to exempt from the payment of future benefits was
JPY611,354 million ($4,588 million) as at March 31, 2002.
The return of the substituted portion is expected to occur during the year
ending March 31, 2004. The financial effect on Toyota, if any, as a result of
the return of the substituted portion can not be determined at this present time
due to, among other matters, possible changes in the unrecognized actuarial gain
or loss for the period up to the date of the actual return of Substituted
Portion and the determination of the actual amount of the related plan assets to
be transferred to the government.
Postretirement benefits other than pensions
and postemployment benefits -
Toyota's U.S. subsidiaries provide certain health care and life insurance
benefits to eligible retired employees. In addition, Toyota provides benefits
to certain former or inactive employees after employment, but before retirement.
These benefits are currently unfunded and provided through various insurance
companies and health care providers. The cost of these benefits are recognized
over the period the employee provides credited service to Toyota. Toyota's
obligations under these arrangements are not material.
19. Derivative financial instruments:
Toyota employs derivative financial instruments, including foreign exchange
forward contracts, foreign currency options, interest rate swaps and interest
rate currency swap agreements to manage its exposure to fluctuations in interest
rates and foreign currency exchange rates. Toyota does not use derivatives for
speculation or trading.
Toyota adopted FAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, on April 1, 2001. Upon adoption of this statement,
Toyota recorded a net transition adjustment gain of JPY8,986 million ($67
million), net of income tax expense of JPY4,967 million ($37 million), in net
income, and a net transition adjustment loss of JPY2,451 million ($18 million),
net of income tax benefit of JPY1,453 million ($11 million), in accumulated
other comprehensive loss.
Fair value hedges -
Toyota enters into interest rate swaps, and interest rate currency swap
agreements mainly to convert its fixed-rate debt to variable-rate debt. Toyota
uses interest rate swap agreements in managing its exposure to interest rate
fluctuations. Interest rate swap agreements are executed as either an integral
part of specific debt transactions or on a portfolio basis. Toyota uses
interest rate currency swap agreements to entirely hedge exposure to exchange
rate fluctuations on principal and interest payments for borrowings denominated
in foreign currencies. Notes and loans payable issued in foreign currencies are
hedged by concurrently executing interest rate currency swap agreements which
involve the exchange of foreign currency principal and interest obligations for
each functional currency obligations at agreed-upon currency exchange and
interest rates.
For the year ended March 31, 2002, Toyota reported JPY625 million ($5 million)
of loss related to the ineffective portion of Toyota's fair value hedges which
is included in cost of financing operation, together with net gain of JPY4,749
million ($36 million) resulting from fair value hedges. For fair value hedging
relationships, the components of each derivative's gain or loss are included in
the assessment of hedge effectiveness.
Cash flow hedges -
Toyota enters into interest rate swaps, and interest rate currency swap
agreements to manage its exposure to interest rate risk, and foreign currency
exchange risk mainly associated with financing in currencies in which it
operates.
Interest rate swap agreements are used in managing Toyota's exposure to the
variability of interest payments due to the change in interest rate arising
principally in variable-rate debts issued by Toyota. Interest rate swap
agreements, which are designated as, and qualify as cash flow hedges are
executed as an integral part of specific debt transactions and the critical
terms of the interest rate swaps and the hedged debt transactions are the same.
Toyota uses interest rate currency swap agreements to manage the
foreign-currency exposure to variability in functional-currency-equivalent cash
flows principally from debts or borrowings denominated in currencies other than
functional currencies.
Net derivative gains and losses included in other comprehensive income are
reclassified into earnings at the time that the associated hedged transactions
impact the income statement. For the year ended March 31, 2002, net derivative
gains of JPY4,762 million ($36 million) were reclassified to foreign currency
exchange gains. These net gains were offset by net losses from transactions
being hedged. The components of each derivative's gain or loss are included in
the assessment of hedge effectiveness, and no hedge ineffectiveness was reported
because all critical terms of derivative financial instruments designated as,
and qualify as, cash flow hedging instruments are same as those of hedged debt
transactions. Toyota expects to reclassify JPY790 million ($6 million) of
losses included in other comprehensive income as at March 31, 2002, into
earnings in next twelve months.
Undesignated derivative financial instruments -
Toyota uses foreign exchange forward contracts, foreign currency options,
interest rate swaps, interest rate currency swap agreements, and interest rate
options, which manage its exposure to foreign currency exchange fluctuation and
interest rate fluctuation from an economic perspective, and which Toyota is
unable or has elected not to apply hedge accounting. Unrealized gains or losses
on these derivative instruments are reported in cost of financing operation and
foreign currency exchange gains or losses.
20. Other financial instruments:
Toyota has certain financial instruments, including financial assets and
liabilities and off-balance sheet financial instruments incurred in the normal
course of business. These financial instruments are executed with creditworthy
financial institutions, and virtually all foreign currency contracts are
denominated in U.S. dollars, euros and other currencies of major industrialized
countries. Financial instruments involve, to varying degrees, market risk as
instruments are subject to price fluctuations, and elements of credit risk in
the event a counterparty should default. In the unlikely event the
counterparties fail to meet the contractual terms of a foreign currency or an
interest rate instrument, Toyota's risk is limited to the fair value of the
instrument. Although Toyota may be exposed to losses in the event of
non-performance by counterparties on financial instruments, it does not
anticipate significant losses due to the nature of its counterparties.
Counterparties to Toyota's financial instruments represent, in general,
international financial institutions. Additionally, Toyota does not have a
significant exposure to any individual counterparty, based on the
creditworthiness of these financial institutions. Collateral is generally not
required of the counterparties or of Toyota. Toyota believes that the overall
credit risk related to its financial instruments is insignificant.
The estimated fair values of Toyota's financial instruments, excluding
marketable securities and other securities investments and affiliated companies,
are summarized as follows:
Yen in millions
Carrying amount Estimated
fair value
Asset (Liability)
At March 31, 2001
Cash and cash equivalents JPY 1,510,892 JPY 1,510,892
Time deposits 48,917 48,917
Total finance receivables, net 2,726,089 2,655,063
Other receivables 357,380 357,380
Short-term borrowings (1,469,007) (1,469,007)
Long-term debt including the current portion (3,653,267) (3,695,957)
Foreign exchange forward contracts (14,582) (14,614)
Interest rate and currency swap agreements (121,955) (33,914)
Option contracts purchased 4,690 1,529
Option contracts written 11,978 11,978
Yen in millions U.S. dollars in millions
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Asset (Liability)
At March 31, 2002
Cash and cash equivalents JPY1,657,160 JPY1,657,160 $ 12,436 $ 12,436
Time deposits 19,977 19,977 150 150
Total finance receivables, net 3,499,333 3,514,838 26,261 26,378
Other receivables 508,970 508,970 3,821 3,821
Short-term borrowings (1,825,564) (1,825,564) (13,700) (13,700)
Long-term debt including the current portion (4,793,147) (4,808,126) (35,971) (36,083)
Foreign exchange forward contracts 953 953 7 7
Interest rate and currency swap agreements (58,416) (58,416) 438 438
Option contracts purchased 13,393 13,393 101 101
Option contracts written 6,447 6,447 48 48
Following are explanatory notes regarding the financial assets and liabilities
other than derivative financial instruments.
Cash and cash equivalents, time deposits and other receivables -
In the normal course of business, substantially all cash and cash equivalents,
time deposits and other receivables are highly liquid and are carried at amounts
which approximate fair value.
Finance receivables, net -
The carrying value of variable rate finance receivables was assumed to
approximate fair value as they were repriced at prevailing market rates at March
31, 2001 and 2002. The fair value of fixed rate finance receivables was
estimated by discounting expected cash flows using the rates at which loans of
similar credit quality and maturity would be made as of March 31, 2001 and 2002.
Short-term borrowings and long-term debt -
The fair values of short-term borrowings and total long-term debt including the
current portion were estimated based on the discounted amounts of future cash
flows using Toyota's current incremental borrowing rates for similar
liabilities.
21. Lease commitments:
Toyota leases certain assets under capital lease and operating lease
arrangements.
An analysis of leased assets under capital leases is as follows:
U.S. dollars
in millions
Yen in millions
March 31 March 31,
Class of property 2001 2002 2002
Building JPY 9,049 JPY 9,836 $ 74
Machinery and equipment 131,841 155,455 1,166
Less - Accumulated depreciation (76,373) (101,169) (759)
JPY 64,517 JPY 64,122 $ 481
Amortization expense under capital leases for the years ended March 31, 2000,
2001 and 2002 were JPY27,991 million, JPY17,355 million and JPY18,361 million
($138 million), respectively.
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of March 31, 2002 are as follows:
U.S. dollars
in millions
Yen in millions
Year ending March 31:
2003 JPY 17,459 $131
2004 13,853 104
2005 12,393 93
2006 11,560 87
2007 8,116 61
Thereafter 39,923 299
Total minimum lease payments 103,304 775
Less - Amount representing interest 14,931 112
Present value of net minimum lease payments 88,373 663
Less - Current obligations 14,535 109
Long-term capital lease obligations JPY 73,838 $554
Rental expense under operating leases for the years ended March 31, 2000, 2001
and 2002 were JPY74,500 million, JPY64,744 million and JPY72,989 million ($548
million), respectively.
The minimum rental payments required under operating leases relating primarily
to land, buildings and equipment having initial or remaining non-cancelable
lease terms in excess of one year at March 31, 2002 are as follows:
Yen in U.S. dollars
millions in millions
Year ending March 31:
2003 JPY10,324 $ 77
2004 8,126 61
2005 6,081 45
2006 5,355 40
2007 4,007 31
Thereafter 10,801 81
Total minimum future rentals JPY44,694 $335
22. Other commitments and contingencies, concentrations
and factors that may affect future operations:
Commitments outstanding at March 31, 2002 for the purchase of property, plant
and equipment and other assets approximated JPY54,822 million ($411 million).
Contingent liabilities for guarantees given in the ordinary course of business
amounted to approximately JPY806,899 million ($6,056 million) at March 31, 2002.
These contingent liabilities primarily relate to Toyota's guarantee of
customers' performance under certain lease arrangements originated by certain of
Toyota's dealers. The guarantees are secured by the related vehicles and Toyota
makes provision for estimated losses which may occur.
In September 1998, the California Air Resources Board issued a recall order
against Toyota and its U.S. subsidiary, Toyota Technical Center, U.S.A., Inc.,
seeking the recall of approximately 337,000 Toyota and Lexus vehicles in the
1996, 1997 and 1998 model years sold in California. The California Air
Resources Board claims that the on-board diagnostic systems installed in these
vehicles do not properly detect gas vapor leaks within the vehicles and
illuminate warning lights when required by evaporative emissions regulatory
requirements. In October 1998, Toyota filed a petition contesting the recall
order under California administrative hearing procedures. After a full hearing
on the claims, an administrative law judge in February 2000 the administrative
law judge issued a recommended decision concluding that (i) the Toyota vehicles
meet the applicable standard for evaporative emissions monitoring, (ii) Toyota
did not timely inform the California Air Resources Board of certain enabling
conditions programmed into the operation of the evaporative emissions monitoring
system, and (iii) the recall order should be dismissed. In February 2002,
Toyota and the California Air Resources Board executed a settlement under which
Toyota will contribute funds to the state Air Pollution Control Fund and to
selected projects proposed by the Air Resources Board staff. In addition,
Toyota will extend warranties for the evaporative emission control system of
relevant Toyota models from 3 years or 50,000 miles to 14 years or 150,000 miles
and also accelerate introduction of near-zero-emission cars. The estimated cost
of the settlement to Toyota has been agreed to be JPY1,053 million ($8 million).
In July 1999, the U.S. Environmental Protection Agency, represented by the U.S.
Department of Justice, filed a federal lawsuit against Toyota's U.S. subsidiary,
Toyota Motor Sales U.S.A., Inc., in the United States District Court for the
District of Columbia. This lawsuit relates to approximately 2.2 million Toyota
and Lexus vehicles in the 1996, 1997 and 1998 model years sold in the United
States (including the vehicles subject to the California proceeding). This
lawsuit alleges that Toyota violated the U.S. Clean Air Act as a result of
similar claims of noncompliance with on-board diagnostic systems as were raised
in the California proceeding. The complaint seeks a judgment enjoining Toyota
from selling in the United States any new vehicle between the 1996 and 1998
model years that does not conform to the applicable federal regulations and
ordering Toyota to take appropriate action to remedy the alleged violations of
the Clean Air Act as well as civil penalties civil penalties of up to $27,500
for each vehicle allegedly sold in violation of that Act. In November 1999, the
Environmental Protection Agency and the Department of Justice named Toyota and
its U.S. subsidiary, Toyota Technical Center, U.S.A., Inc., as additional
defendants. The case has been in the discovery stage since that time. The
deadline for completing discovery has been extended, at the government's motion,
until August 2002.
Toyota believes that it has valid defenses to the federal claim and intends to
vigorously defend that action. Because litigation is subject to many
uncertainties, it is not feasible for Toyota to predict the outcome of that
action if fully litigated. Although the final judgment could have a material
effect on Toyota's consolidated operating results and cash flows for a
particular reporting period, Toyota does not expect that this matter should have
a material effect on its consolidated financial position.
Toyota has various other legal actions, governmental proceedings and other
claims pending against it, including product liability and customer satisfaction
claims in the United States. Although certain matters purport to seek
potentially substantial damages, the fact of liability and the resulting
damages, if any, cannot be determined. Amounts recorded for identified
contingent liabilities including those related to product liability and customer
satisfaction claims are estimates, which are reviewed periodically by Toyota and
its legal counsel and adjusted to reflect additional information when it comes
available. Subject to the uncertainties inherent in estimating future costs for
contingent liabilities, Toyota management believes that losses from such
matters, if any, would not have a material adverse effect on Toyota's financial
position, operating results or cash flows for any year.
In September 2000, the European Union approved a directive that requires member
states to promulgate regulations implementing the following by April 21, 2002:
(1) manufacturers are to be financially responsible for taking back end-of-life
vehicles put on the market after July 1, 2002 and dismantling and recycling
those vehicles. Beginning January 1, 2007, manufacturers are additionally
responsible for vehicles put on the market before July 1, 2002; (2)
manufacturers may not use certain hazardous materials in vehicles to be sold
after July 2003; and (3) 95% of parts of vehicles sold as of a specified date to
be determined in a future directive must be re-usable and recoverable.
In addition, under this directive member states must take measures to ensure
that car manufacturers, distributors and other auto-related businesses establish
adequate used vehicle disposal facilities and to ensure that hazardous materials
and recyclable parts are removed from vehicles prior to scrapping. This
directive impacts Toyota's vehicles sold in the European Union. Toyota has
provided for its estimated liability related to covered vehicles in existence at
March 31, 2002. However, Toyota is continuing to assess the impact of this
future legislation on its results of operations, cash flows and financial
position.
Toyota has a concentration of material purchases from a supplier which is an
affiliated company. These purchases approximate 10% of material costs.
Toyota has a concentration of labor supply in employees working under collective
bargaining agreements and a substantial portion of these employees are working
under the agreement that will expire on December 31, 2002.
23. Segment data:
The operating segments reported below are the segments of Toyota for which
separate financial information is available and for which operating income/loss
amounts are evaluated regularly by executive management in deciding how to
allocate resources and in assessing performance.
The major portions of Toyota's operations on a worldwide basis are derived from
the Automotive and Financial Services business segments. The Automotive segment
designs, manufactures, assembles and distributes passenger cars, recreational
and sport-utility vehicles, minivans, trucks and related parts and accessories.
The Financial Services segment consists primarily of financing operations, and
vehicle and equipment leasing operations to assist in the merchandising of
Toyota's products as well as other products. The All Other segment includes
Toyota's telecommunications business which was disposed of during the year ended
March 31, 2001, its operations that manufacture and market industrial vehicles
which were transferred to affiliated company during the year ended March 31,
2002, and prefabricated housing and various other business activities.
The following tables present certain information regarding Toyota's industry
segments and operations by geographic areas as of and for the years ended March
31, 2000, 2001 and 2002:
Segment Operating results and assets -
As of and for the year ended March 31, 2000:
Yen in millions
Intersegment
Elimination/
Unallocated
Financial Amount
Services
Automotive All Other Total
Revenues JPY11,098,864 JPY534,154 JPY1,207,787 JPY(191,028) JPY12,649,777
Depreciation 574,533 183,174 64,608 - 822,315
Operating income 638,990 31,667 26,453 1,451 698,561
Segment assets 7,557,700 4,752,270 1,089,532 3,041,458 16,440,960
Investment in equity method 1,066,349 179,845 8,702 49,595 1,304,491
investees
Expenditures for segment
assets 720,682 465,808 196,732 (6,518) 1,376,704
As of and for the year ended March 31, 2001:
Yen in millions
Intersegment
Elimination/
Unallocated
Financial Amount
Services
Automotive All Other Total
Revenues JPY11,723,043 JPY571,058 JPY1,069,378 JPY(226,409) JPY13,137,070
Depreciation 569,159 164,503 51,122 - 784,784
Operating income (loss) 765,557 31,693 (4,578) (1,943) 790,729
Segment assets 7,951,107 5,531,568 584,948 2,952,160 17,019,783
Investment in equity method 1,155,536 181,285 8,411 50,981 1,396,213
investees
Expenditures for segment
assets 776,086 358,026 109,320 (42,026) 1,201,406
As of and for the year ended March 31, 2002:
Yen in millions
Automotive Financial Services All Other Intersegment Total
Elimination/
Unallocated
Amount
Revenues JPY13,193,994 JPY 698,022 JPY728,848 JPY (303,990) JPY14,316,874
Depreciation 603,468 186,146 20,227 - 809,841
Operating income (loss) 1,057,948 45,115 (2,954) (6,477) 1,093,632
Segment assets 9,121,406 6,910,593 650,912 2,622,819 19,305,730
Investment in equity method 1,065,455 185,072 3,950 66,495 1,320,972
investees
Expenditures for segment assets 924,386 565,227 37,921 21,059 1,548,593
U.S. dollars in millions
Automotive Financial Services All Other Intersegment Total
Elimination/
Unallocated
Amount
Revenues $99,017 $ 5,238 $5,469 $ (2,281) $107,443
Depreciation 4,529 1,397 152 - 6,078
Operating income (loss) 7,939 339 (22) (49) 8,207
Segment assets 68,454 51,862 4,885 19,683 144,884
Investment in equity method 7,996 1,389 30 498 9,913
investees
Expenditures for segment 6,937 4,242 285 158 11,622
assets
Geographic Information -
Revenues for the year ended March 31:
Yen in millions U.S. dollars in millions
2000 2001 2002 2002
Japan
External customers JPY 6,280,553 JPY 6,462,066 JPY 6,437,931 $ 48,315
Intercompany 3,112,958 3,308,518 3,832,912 28,764
Total 9,393,511 9,770,584 10,270,843 77,079
North America
External customers 4,517,648 4,802,167 5,548,847 41,642
Intercompany 141,168 164,280 244,553 1,836
Total 4,658,816 4,966,447 5,793,400 43,478
Europe
External customers 1,088,095 1,013,967 1,265,509 9,497
Intercompany 14,548 31,295 56,828 427
Total 1,102,643 1,045,262 1,322,337 9,924
Other foreign countries
External customers 763,481 858,870 1,064,587 7,989
Intercompany 63,254 81,729 96,919 728
Total 826,735 940,599 1,161,506 8,717
Elimination of intercompany revenue (3,331,928) (3,585,822) (4,231,212) (31,755)
Consolidated total JPY12,649,777 JPY13,137,070 JPY14,316,874 $107,443
Operating income (loss) for the year ended March 31:
Yen in millions U.S. dollars in millions
2000 2001 2002 2002
Japan JPY539,731 JPY623,195 JPY 844,049 $6,334
North America 159,457 194,548 264,759 1,987
Europe (9,897) (24,893) (24,147) (181)
Other foreign countries 3,658 6,636 13,049 98
Elimination of intersegment profits 5,612 (8,757) (4,078) (31)
Consolidated total JPY698,561 JPY790,729 JPY1,093,632 $8,207
Long-lived assets as of March 31:
Yen in millions U.S. dollars in millions
2000 2001 2002 2002
Japan JPY2,788,733 JPY2,347,840 JPY2,694,473 $20,222
North America 1,503,927 1,645,856 1,826,905 13,710
Europe 224,612 283,468 341,562 2,563
Other foreign countries 181,706 180,738 244,070 1,832
Consolidated total JPY4,698,978 JPY4,457,902 JPY5,107,010 $38,327
Revenues are attributed to geographies based on the country location of the
parent company or the subsidiary that transacted the sale with the external
customer.
There are not any individually material countries with respect to revenues and
long-lived assets included in other foreign countries.
Transfers between industry or geographic segments are made at amounts which
Toyota's management believes approximate arm's-length prices. In measuring the
reportable segments' income or losses, operating income consists of sales and
operating revenue less costs and operating expenses. Unallocated assets consist
primarily of cash and cash equivalents and marketable securities maintained for
general corporate purposes.
Certain financial statement data on non-financial services
and financial services businesses -
On July 7, 2000, Toyota established a wholly-owned subsidiary in Japan named
Toyota Financial Services Corporation ('TFS'), to manage all Toyota finance
companies worldwide. Through TFS, Toyota expects to improve its finance service
operations and expand its financial service network to 30 or more countries.
In fiscal 2000, Toyota began preparing certain financial statement data relating
to the segmentation of Toyota's non-financial services and financial services
businesses. This financial statement data includes balance sheets at March 31,
2001 and 2002 and statements of income and cash flows for each of the three
years in the period ended March 31, 2002.
Balance sheets -
Yen in millions U.S. dollars
in millions
March 31, March 31,
2001 2002 2002
Non-Financial Services Businesses
Current assets:
Cash and cash equivalents JPY 1,456,750 JPY 1,510,974 $ 11,339
Time deposits 48,917 8,327 62
Marketable securities 475,463 596,530 4,477
Trade accounts and notes receivable 1,272,764 1,471,716 11,045
Finance receivables, net 10,635 14,612 110
Inventories 873,456 961,840 7,218
Prepaid expenses and other current assets 1,025,355 1,258,788 9,447
Total current assets 5,163,340 5,822,787 43,698
Noncurrent finance receivables, net 18,835 17,996 135
Investments and other assets 3,385,418 3,265,860 24,509
Property, plant and equipment 3,446,417 3,989,227 29,938
Total Non-Financial Services Businesses assets 12,014,010 13,095,870 98,280
Financial Services Businesses
Current assets:
Cash and cash equivalents 54,142 146,186 1,097
Time deposits - 11,650 87
Marketable securities 12,633 4,207 32
Trade accounts and notes receivable 7,813 - -
Finance receivables, net 1,622,612 2,005,879 15,054
Inventories 2,796 - -
Prepaid expenses and other current assets 377,073 539,544 4,049
Total current assets 2,077,069 2,707,466 20,319
Noncurrent finance receivables, net 2,049,933 2,653,464 19,913
Investments and other assets 393,079 431,880 3,241
Property, plant and equipment 1,011,487 1,117,783 8,389
Total Financial Services Businesses assets 5,531,568 6,910,593 51,862
Eliminations (525,795) (700,733) (5,258)
Total assets JPY17,019,783 JPY19,305,730 $144,884
Yen in millions U.S. dollars
in millions
March 31, March 31,
2001 2002 2002
Non-Financial Services Businesses
Current liabilities:
Short-term borrowings JPY 621,648 JPY 834,490 $ 6,263
Current portion of long-term debt 48,292 236,117 1,772
Accounts payable 1,248,698 1,413,373 10,607
Accrued expenses 780,650 872,672 6,549
Income taxes payable 247,613 321,579 2,413
Other current liabilities 814,775 770,219 5,780
Total current liabilities 3,761,676 4,448,450 33,384
Long-term liabilities:
Long-term debt 775,256 719,375 5,399
Accrued pension and severance costs 503,306 753,806 5,657
Other long-term liabilities 299,684 272,391 2,044
Total long-term liabilities 1,578,246 1,745,572 13,100
Total Non-Financial Services Businesses liabilities 5,339,922 6,194,022 46,484
Financial Services Businesses
Current liabilities:
Short-term borrowings 1,098,527 1,407,183 10,560
Current portion of long-term debt 766,522 929,893 6,979
Accounts payable 43,294 7,460 56
Accrued expenses 36,195 58,750 441
Income taxes payable 4,622 6,134 46
Other current liabilities 214,783 263,472 1,977
Total current liabilities 2,163,943 2,672,892 20,059
Long-term liabilities:
Long-term debt 2,462,719 3,255,970 24,436
Accrued pension and severance costs 1,844 597 4
Other long-term liabilities 315,790 328,338 2,464
Total long-term liabilities 2,780,353 3,584,905 26,904
Total Financial Services Businesses liabilities 4,944,296 6,257,797 46,963
Eliminations (526,963) (701,822) (5,267)
Minority interest in consolidated subsidiaries 185,117 291,621 2,189
Shareholders' equity 7,077,411 7,264,112 54,515
Total liabilities and shareholders' equity JPY17,019,783 JPY19,305,730 $144,884
Statements of income -
Yen in millions U.S. dollars
in millions
For the year ended March 31, For the year ended
March
2000 2001 2002 31, 2002
Non- Financial Services
Businesses
Net revenues JPY12,122,783 JPY12,582,339 JPY13,677,522 $102,646
Costs and expenses:
Cost of revenues 9,847,306 10,229,269 10,916,547 81,926
Selling, general and 1,607,501 1,581,775 1,698,652 12,748
administrative
Total costs and expenses 11,454,807 11,811,044 12,615,199 94,674
Operating income 667,976 771,295 1,062,323 7,972
Other income (expense), net 169,349 298,018 (158,902) (1,192)
Income before income taxes, 837,325 1,069,313 903,421 6,780
minority interest and equity
in earnings of affiliated
companies
Provision for income taxes 404,299 504,359 393,149 2,950
Income before minority 433,026 564,954 510,272 3,830
interest and equity in
earnings of affiliated
companies
Minority interest in (7,380) (11,959) (9,310) (70)
consolidated subsidiaries
Equity in earnings of 29,259 94,334 46,353 348
affiliated companies
Net income- Non- Financial 454,905 647,329 547,315 4,108
Services Businesses
Financial Services Businesses
Net revenues 534,154 571,058 698,022 5,238
Costs and expenses:
Cost of revenues 402,621 420,327 460,842 3,458
Selling, general and 99,866 119,038 192,065 1,441
administrative
Total costs and expenses 502,487 539,365 652,907 4,899
Operating income 31,667 31,693 45,115 339
Other income (expense), net 13,149 7,074 23,653 177
Income before income taxes, 44,816 38,767 68,768 516
minority interest and equity
in earnings of affiliated
companies
Provision for income taxes 18,432 19,637 29,691 223
Income before minority 26,384 19,130 39,077 293
interest and equity in
earnings of affiliated
companies
Minority interest in (101) (209) (1,557) (12)
consolidated subsidiaries
Equity in earnings of 2,360 9,280 (28,263) (212)
affiliated companies
Net income- Financial 28,643 28,201 9,257 69
Services Businesses
Eliminations (1,612) (632) (5) (0)
Net income JPY 481,936 JPY 674,898 JPY 556,567 $ 4,177
Statement of cash flows -
Yen in millions Yen in millions
For the year ended March 31, 2000 For the year ended March 31, 2001
Non-Financial Financial Non-Financial Financial
Services Services Consolidated Services Services Consolidated
Businesses Businesses Businesses Businesses
Cash flows
from operating
activities:
Net income JPY454,905 JPY 28,643 JPY 481,936 JPY 647,329 JPY 28,201 JPY 674,898
Adjustments to
reconcile net
income to net
cash provided
by operating
activities -
Depreciation 639,141 183,174 822,315 620,281 164,503 784,784
Provision for 7,043 26,712 33,755 5,675 21,102 27,131
doubtful
accounts and
credit losses
Pension and 27,212 95 27,307 44,665 473 45,138
severance
costs, less
payments
Loss on 19,215 329 19,544 21,541 868 22,409
disposal of
fixed assets
Unrealized (41,614) - (41,614) 13,377 - 13,377
(gains) losses
on trading
securities, net
Realized gain - - - (180,950) - (180,950)
on disposition
of ownership
interest in
telecommunication
subsidiary
Gain on - - - (161,151) - (161,151)
securities
contribution
to employee
retirement
benefit trust
Deferred 59,482 3,023 88,406 38,541 10,904 49,325
income taxes
Minority 7,380 101 7,632 11,959 209 12,129
interest in
consolidated
subsidiaries
Equity in (29,259) (2,360) (31,619) (94,334) (9,280) (103,614)
earnings of
affiliated
companies
Changes in (264,622) (135,802) (387,599) 155,491 (61,384) 197,451
operating
assets and
liabilities
Other 36,685 67,550 78,862 (62,014) 108,405 47,091
Net cash 915,568 171,465 1,098,925 1,060,410 264,001 1,428,018
provided by
operating activities
Cash flows
from investing
activities:
Additions to (1,306) (2,677,980) (2,681,142) (7,291) (3,690,085) (3,697,376)
finance
receivables
Collection of - 2,088,063 2,088,063 - 3,308,971 3,308,971
and proceeds
from sale of
finance
receivables
Additions to (794,092) (44,217) (838,309) (710,495) (51,779) (762,274)
fixed assets
excluding
equipment
leased to
others
Additions to (115,724) (422,671) (538,395) (132,885) (306,247) (439,132)
equipment
leased to others
Proceeds from 76,242 4,133 80,375 52,227 9,038 61,265
sales of fixed
assets excluding
equipment
leased to
others
Proceeds from 66,581 315,271 381,852 67,264 269,783 337,047
sales of
equipment
leased to
others
Payments for (3,130) (10,692) (61,261) (19,175) (15,795) (70,906)
investments
and other
assets
Purchases of (1,061,570) (83,269) (1,144,839) (644,312) (304,746) (949,058)
marketable
securities and
security
investments
Proceeds from 909,331 75,700 985,031 623,359 209,278 832,017
sales of and
maturity of
marketable
securities and
security
investments
Decrease in 327,447 (3,853) 323,594 41,971 3,219 45,190
time deposits
Payment for (12,550) (5,801) (18,351) (34,204) - (34,204)
additional
investments in
affiliated
companies, net
of cash
acquired
Other (24,467) 2,829 34,865 50,389 403 49,722
Net cash used JPY(633,238) JPY(762,487) JPY(1,388,517) JPY(713,152) JPY(567,960) JPY(1,318,738)
in investing
activities
Yen in millions Yen in millions
For the year ended March 31, 2000 For the year ended March 31, 2001
Non-Financial Financial Non-Financial Financial
Services Services Consolidated Services Services Consolidated
Businesses Businesses Businesses Businesses
Cash flows
from
financing
activities:
Purchase JPY (45,929) JPY - JPY (45,929) JPY(265,012) JPY - JPY (265,012)
and retirement
of common
stock
Proceeds 84,327 917,818 1,006,046 261,939 912,926 1,117,360
from
issuance of
long-term
debt
Payments of (78,636) (563,067) (654,745) (186,971) (827,516) (958,475)
long-term
debt
Increase 35,386 307,426 332,853 (46,006) 138,533 28,039
(decrease)
in short-term
borrowings
Dividends (87,958) - (87,958) (88,625) - (88,625)
paid
Net cash (92,810) 662,177 550,267 (324,675) 223,943 (166,713)
provided by
(used in)
financing
activities
Effect of (38,334) (27,131) (65,465) 35,667 3,390 39,057
exchange rate
changes on
cash and
cash
equivalents
Net 151,186 44,024 195,210 58,250 (76,626) (18,376)
increase
(decrease)
in cash and
cash
equivalents
Cash and 1,247,314 86,744 1,334,058 1,398,500 130,768 1,529,268
cash
equivalents
at beginning
of year
Cash and JPY1,398,500 JPY130,768 JPY1,529,268 JPY1,456,750 JPY 54,142 JPY1,510,892
cash
equivalents
at end of
year
Yen in millions U.S. dollars in millions
For the year ended March 31, 2002 For the year ended March 31, 2002
Non-Financial Financial Consolidated Non-Financial Financial
Services Services Services Services Consolidated
Businesses Businesses Businesses Businesses
Cash flows from
operating
activities:
Net income JPY547,315 JPY 9,257 JPY 556,567 $ 4,108 $ 69 $ 4,177
Adjustments to
reconcile net
income to net
cash provided
by operating
activities -
Depreciation 623,695 186,146 809,841 4,681 1,397 6,078
Provision for 6,329 37,996 44,407 47 285 333
doubtful
accounts and
credit losses
Pension and 54,809 (1,267) 53,543 411 (10) 402
severance
costs, less
payments
Loss on 46,243 591 46,834 347 4 352
disposal of
fixed assets
Unrealized 179,649 - 179,649 1,348 - 1,348
losses on
available-for-sale
securities, net
Deferred income (152,766) 10,006 (142,811) (1,146) 75 (1,072)
taxes
Minority 9,310 1,557 10,835 70 12 81
interest in
consolidated
subsidiaries
Equity in (46,353) 28,263 (18,090) (348) 212 (136)
earnings of
affiliated
companies
Changes in 90,506 (143,391) 33,742 679 (1,076) 253
operating
assets and
liabilities
Other (61,002) 32,091 (41,857) (458) 242 (314)
Net cash 1,297,735 161,249 1,532,660 9,739 1,210 11,502
provided by
operating
activities
Cash flows from
investing
activities:
Additions to - (3,853,741) (3,853,741) - (28,921) (28,921)
finance
receivables
Collection of - 3,077,933 3,077,933 - 23,099 23,099
and proceeds
from sale of
finance
receivables
Additions to (853,198) (87,349) (940,547) (6,403) (656) (7,059)
fixed assets
excluding
equipment
leased to
others
Additions to (130,168) (477,878) (608,046) (977) (3,586) (4,563)
equipment
leased to
others
Proceeds from 54,972 1,553 56,525 412 12 424
sales of fixed
assets
excluding
equipment
leased to
others
Proceeds from 115,378 296,813 412,191 866 2,227 3,093
sales of
equipment
leased to
others
Payments for (135,891) 15,445 (28,450) (1,019) 116 (214)
investments and
other assets
Purchases of (412,501) (241,255) (653,756) (3,096) (1,811) (4,906)
marketable
securities and
security
investments
Proceeds from 512,028 239,775 751,803 3,842 1,800 5,642
sales of and
maturity of
marketable
securities and
security
investments
(Increase) 42,596 (11,078) 31,519 320 (83) 237
decrease in
time deposits
Payment for (27,510) - (27,510) (206) - (206)
additional
investments in
affiliated
companies, net
of cash
acquired
Other (5,423) (21,963) (28,732) (41) (165) (215)
Net cash used JPY(839,717) JPY(1,061,745) JPY(1,810,811) $(6,302) $ (7,968) $(13,589)
in investing
activities
Yen in millions U.S. dollars in millions
For the year ended March 31, 2002 For the year ended March 31, 2002
Non-Financial Financial Consolidated Non-Financial Financial
Services Services Services Services Consolidated
Businesses Businesses Businesses Businesses
Cash flows
from
financing
activities:
Purchase JPY(285,236) JPY - JPY(285,236) $ (2,140) $ - $ (2,140)
and retirement
of common stock
Proceeds 79,195 1,734,754 1,701,727 594 13,019 12,771
from
issuance of
long-term
debt
Payments of (114,700) (1,005,965) (1,012,523) (861) (7,549) (7,599)
long-term
debt
Increase (9,340) 243,471 73,884 (70) 1,827 554
(decrease) in
short-term
borrowings
Dividends (98,639) - (98,639) (740) - (740)
paid
Other 935 12,000 12,935 7 90 97
Net cash (427,785) 984,260 392,148 (3,210) 7,387 2,943
provided by
(used in)
financing
activities
Effect of 23,991 8,280 32,271 180 62 242
exchange
rate
changes on
cash and cash
equivalents
Net 54,224 92,044 146,268 407 691 1,098
increase in
cash and
cash
equivalents
Cash and 1,456,750 54,142 1,510,892 10,932 406 11,338
cash
equivalents
at beginning
of year
Cash and JPY1,510,974 JPY 146,186 JPY1,657,160 $11,339 $ 1,097 $12,436
cash
equivalents
at end of year
This information is provided by RNS
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