Form 20-F (1d/4)
Toyota Motor Corporation
24 June 2005
Table of Contents
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Affiliated companies and variable interest entities:
Investments in and transactions with affiliated companies -
Summarized financial information for affiliated companies accounted for by the
equity method is shown below:
Yen in millions U.S.
dollars
in
millions
March 31, March 31,
2004 2005 2005
Current assets Y 4,632,926 Y 5,282,960 $ 49,194
Noncurrent assets 7,128,587 8,017,220 74,655
Total assets Y 11,761,513 Y 13,300,180 $ 123,849
Current liabilities Y 3,407,702 Y 3,982,816 $ 37,087
Long-term liabilities 3,823,124 4,167,042 38,803
Shareholders' equity 4,530,687 5,150,322 47,959
Total liabilities and shareholders' equity Y 11,761,513 Y 13,300,180 $ 123,849
Toyota's share of shareholders' equity Y 1,358,079 Y 1,556,236 $ 14,491
Number of affiliated companies accounted for by the equity method at 53 56
end of period
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March 31,
2003 2004 2005 2005
Net revenues Y 13,661,769 Y 13,187,869 Y 15,359,634 $ 143,027
Gross profit Y 1,654,250 Y 1,650,233 Y 1,900,344 $ 17,696
Net income Y 187,330 Y 403,213 Y 420,640 $ 3,917
Entities comprising a significant portion of Toyota's investment in affiliated
companies include Denso Corporation; Aioi Insurance Co., Ltd.; Toyota Industries
Corporation; Toyota Tsusho Corporation; and Aisin Seiki Co., Ltd.
Certain affiliated companies accounted for by the equity method with carrying
amounts of Y1,024,084 million and Y1,235,535 million ($11,505 million) at March
31, 2004 and 2005, respectively, were quoted on various established markets at
an aggregate value of Y1,383,398 million and Y1,827,725 million ($17,020
million), respectively.
Account balances and transactions with affiliated companies are presented below:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Trade accounts and notes receivable, and other receivables Y 129,036 Y 179,519 $ 1,672
Accounts payable and other payables 460,730 463,870 4,319
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Table of Contents
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Net revenues Y 921,636 Y 883,112 Y 1,150,523 $ 10,714
Purchases 3,725,315 2,577,696 2,923,325 27,222
Dividends from affiliated companies accounted for by the equity method for the
years ended March 31, 2003, 2004 and 2005 were Y18,270 million, Y15,722 million
and Y22,164 million ($206 million), respectively.
Toyota has convertible debt securities issued by affiliated companies accounted
for by the equity method, which were included in 'Investments and other assets -
Affiliated companies' in the consolidated balance sheets at fair value. Fair
value of those securities as of March 31, 2004 and 2005 were Y8,005 million and
Y11,124 million ($104 million), respectively. Maturities of these convertible
debt securities are in one year.
Variable Interest Entities -
Toyota enters into securitization transactions with certain special-purpose
entities. However, substantially all securitization transactions are with
entities that are qualifying special-purpose entities under FAS 140 and thus no
material variable interest entities ('VIEs') relating to these securitization
transactions.
Certain joint ventures in which Toyota has invested are VIEs for which Toyota is
not the primary beneficiary. However, neither the aggregate size of these joint
ventures nor Toyota's involvements in these entities are material to Toyota's
consolidated financial statements.
13. Short-term borrowings and long-term debt:
Short-term borrowings at March 31, 2004 and 2005 consist of the following:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Loans, principally from banks, with a weighted-average Y 806,508 Y 789,801 $ 7,354
interest at March 31, 2004 and March 31, 2005 of 1.29% and
1.58% per annum, respectively
Commercial paper with a weighted-average interest at March 1,382,516 1,592,026 14,825
31, 2004 and March 31, 2005 of 1.47% and of 2.81% per
annum, respectively
Y 2,189,024 Y 2,381,827 $ 22,179
At March 31, 2005, Toyota has unused short-term lines of credit amounting to Y
1,617,351 million ($15,061 million) of which Y619,387 million ($5,768 million)
related to commercial paper programs. Under these programs, Toyota is authorized
to obtain short-term financing at prevailing interest rates for periods not in
excess of 360 days.
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Table of Contents
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Long-term debt at March 31, 2004 and 2005 comprises the following:
Yen in millions U.S.
dollars
in
millions
March 31, March 31,
2004 2005 2005
Unsecured loans, representing obligations principally to banks, Y 669,751 Y 894,212 $ 8,327
due 2004 to 2025 in 2004 and due 2005 to 2025 in 2005 with
interest ranging from 0.05% to 16.00% per annum in 2004 and from
0.05% to 27.00% per annum in 2005
Secured loans, representing obligations principally to banks, 29,307 24,320 226
due 2004 to 2019 in 2004 and due 2005 to 2019 in 2005 with
interest ranging from 0.35% to 5.04% per annum in 2004 and from
0.35% to 5.60% per annum in 2005
Medium-term notes of consolidated subsidiaries, due 2004 to 2019 3,027,920 3,447,104 32,099
in 2004 and due 2005 to 2035 in 2005 with interest ranging from
0.05% to 7.59% per annum in 2004 and from 0.01% to 7.59% per
annum in 2005
Unsecured notes of parent company, due 2008 to 2018 in 2004 and 500,000 500,000 4,656
due 2008 to 2018 in 2005 with interest ranging from 1.33% to
3.00% per annum in 2004 and from 1.33% to 3.00% per annum in
2005
Unsecured notes of consolidated subsidiaries, due 2004 to 2031 1,044,875 1,228,929 11,443
in 2004 and due 2005 to 2031 in 2005 with interest ranging from
0.27% to 7.00% per annum in 2004 and from 0.27% to 7.00% per
annum in 2005
Notes payable related to securitized finance receivables 23,903 - -
structured as collateralized borrowings
Long-term capital lease obligations, due 2004 to 2017 in 2004 76,705 71,280 664
and due 2005 to 2017 in 2005, with interest ranging from 0.37%
to 9.33% per annum in 2004 and from 0.37% to 9.33% per annum in
2005
5,372,461 6,165,845 57,415
Less - Current portion due within one year (1,125,195 ) (1,150,920 ) (10,717 )
Y 4,247,266 Y 5,014,925 $ 46,698
At March 31, 2005, property, plant and equipment with a book value of Y112,885
million ($1,051 million) was pledged as collateral by consolidated subsidiaries
for certain debt obligations. In addition, other assets aggregating Y44,553
million ($415 million) was pledged as collateral by consolidated subsidiaries
for certain debt obligations. At March 31, 2005, approximately 38%, 27%, 17% and
18% of long-term debt is denominated in U.S. dollars, Japanese yen, euros, and
other currencies, respectively.
The aggregate amounts of annual maturities of long-term debt during the next
five years are as follows:
Years ending March 31, Yen in U.S.
--------------- millions dollars
in
millions
2006 Y 1,150,920 $ 10,717
2007 1,251,073 11,650
2008 1,260,228 11,735
2009 927,560 8,637
2010 628,884 5,856
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Table of Contents
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Standard agreements with certain banks in Japan include provisions that
collateral (including sums on deposit with such banks) or guarantees will be
furnished upon the banks' request and that any collateral furnished, pursuant to
such agreements or otherwise, will be applicable to all present or future
indebtedness to such banks. During the year ended March 31, 2005, Toyota has not
received any significant such requests from these banks.
At March 31, 2005, Toyota has unused long-term lines of credit amounting to Y
3,677,859 million ($34,248 million).
14. Product warranties:
Toyota provides product warranties for certain defects mainly resulting from
manufacturing based on warranty contracts with its customers at the time of sale
of products. Toyota accrues estimated warranty costs to be incurred in the
future in accordance with the warranty contracts. The net change in the accrual
for the product warranties for the years ended March 31, 2003, 2004 and 2005,
which is included in 'Accrued expenses' in the accompanying consolidated balance
sheets, consist of the following:
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Liabilities for product warranties at beginning of Y 225,654 Y 240,634 Y 269,140 $ 2,506
year
Payments made during year (179,650 ) (193,979 ) (209,166 ) (1,948 )
Provision for warranties 200,484 229,578 239,117 2,227
Changes relating to pre-existing warranties (1,670 ) (1,910 ) (3,654 ) (34 )
Other (4,184 ) (5,183 ) 1,725 16
Liabilities for product warranties at end of year Y 240,634 Y 269,140 Y 297,162 $ 2,767
The other amount primarily includes the impact of currency translation
adjustments and the impact of consolidation and deconsolidation of certain
entities due to changes in ownership interest.
In addition to product warranties above, Toyota initiates recall actions or
voluntary service campaigns to repair or to replace parts which might be
expected to fail from products safety perspectives or customer satisfaction
standpoints. Toyota accrues costs of these activities, which are not included in
the reconciliation above, based on management's estimates.
15. Other payables:
Other payables are mainly related to purchases of property, plant and equipment
and non-manufacturing purchases.
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Table of Contents
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
16. Income taxes:
The components of income before income taxes comprise the following:
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Income before income taxes:
Parent company and domestic subsidiaries Y 803,594 Y 1,104,719 Y 946,626 $ 8,815
Foreign subsidiaries 423,058 661,074 808,011 7,524
Y 1,226,652 Y 1,765,793 Y 1,754,637 $ 16,339
The provision for income taxes consists of the following:
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Current income tax expense:
Parent company and domestic subsidiaries Y 497,613 Y 404,672 Y 376,845 $ 3,509
Foreign subsidiaries 93,674 155,804 196,354 1,828
Total current 591,287 560,476 573,199 5,337
Deferred income tax expense (benefit):
Parent company and domestic subsidiaries (102,276 ) 77,970 34,820 324
Foreign subsidiaries 28,003 42,858 49,891 465
Total deferred (74,273 ) 120,828 84,711 789
-
Total provision Y 517,014 Y 681,304 Y 657,910 $ 6,126
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Table of Contents
TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Toyota is subject to a number of different income taxes which, in the aggregate,
indicate a statutory rate in Japan of approximately 41.3% in the years ended
March 31, 2003 and 2004. Due to changes in Japanese income tax regulations,
effective April 1, 2004, the statutory rate was reduced to approximately 40.2%,
and such rate was also used to calculate the future expected tax effects of
temporary differences, which are expected to be realized on and after April 1,
2005. Reconciliation of the differences between the statutory tax rate and the
effective income tax rate is as follows:
For the years ended March 31,
2003 2004 2005
Statutory tax rate 41.3 % 41.3 % 40.2 %
Increase (reduction) in taxes resulting from:
Non-deductible expenses 0.7 0.5 0.3
Tax on equity earnings in affiliated companies 1.6 1.7 1.8
Valuation allowance 1.3 (0.9 ) (0.1 )
Tax credits (1.9 ) (3.5 ) (3.4 )
Changes in tax rate resulting from enactment of income tax regulations 0.6 0.6 -
Other (1.5 ) (1.1 ) (1.3 )
Effective income tax rate 42.1 % 38.6 % 37.5 %
Significant components of deferred tax assets and liabilities are as follows:
Yen in millions U.S.
dollars
in
millions
March 31, March 31,
2004 2005 2005
Deferred tax assets
Accrued pension and severance costs Y 204,002 Y 172,811 $ 1,609
Warranty reserves and accrued expenses 162,783 160,565 1,495
Other accrued employees' compensation 115,416 111,555 1,039
Operating loss carryforwards for tax purposes 84,829 50,566 471
Inventory adjustments 43,392 53,093 494
Property, plant and equipment and other assets 109,623 131,467 1,224
Other 267,745 294,828 2,746
Gross deferred tax assets 987,790 974,885 9,078
Less - Valuation allowance (104,083 ) (102,737 ) (957 )
Total deferred tax assets 883,707 872,148 8,121
Deferred tax liabilities
Unrealized gains on securities (273,591 ) (255,028 ) (2,375 )
Undistributed earnings of affiliates accounted for by the equity (360,310 ) (365,981 ) (3,408 )
method
Basis difference of acquired assets (33,670 ) (33,313 ) (310 )
Lease transactions (287,410 ) (321,055 ) (2,990 )
Gain on securities contribution to employee retirement benefit (66,523 ) (66,523 ) (619 )
trust
Other (43,526 ) (65,681 ) (611 )
Gross deferred tax liabilities (1,065,030 ) (1,107,581 ) (10,313 )
Net deferred tax liability Y (181,323 ) Y (235,433 ) $ (2,192 )
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The valuation allowance mainly relates to deferred tax assets of the
consolidated subsidiaries with operating loss carryforwards for tax purposes
that are not expected to be realized. The net changes in the total valuation
allowance for deferred tax assets for the years ended March 31, 2003, 2004 and
2005 consist of the following:
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Valuation allowance at beginning of year Y 103,211 Y 119,620 Y 104,083 $ 969
Additions 29,530 17,738 21,249 198
Deductions (12,989 ) (31,934 ) (22,829 ) (213 )
Other (132 ) (1,341 ) 234 3
Valuation allowance at end of year Y 119,620 Y 104,083 Y 102,737 $ 957
The other amount includes the impact of consolidation and deconsolidation of
certain entities due to changes in ownership interest, changes in the statutory
tax rates and currency translation adjustments during the years ended March 31,
2003, 2004 and 2005.
During the years ended March 31, 2004 and 2005, certain subsidiaries reported
favorable results resulting in reduction or reversal of certain previously
provided valuation allowances.
The deferred tax assets and liabilities that comprise the net deferred tax
liability are included in the consolidated balance sheets as follows:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Deferred tax assets
Deferred income taxes (Current assets) Y 457,161 Y 475,764 $ 4,430
Investments and other assets - other 145,695 108,513 1,010
Deferred tax liabilities
Other current liabilities (5,618 ) (8,040 ) (74 )
Deferred income taxes (Long-term liabilities) (778,561 ) (811,670 ) (7,558 )
Net deferred tax liability Y (181,323 ) Y (235,433 ) $ (2,192 )
Management intends to reinvest certain undistributed earnings of their foreign
subsidiaries for an indefinite period of time. As a result, no provision for
income taxes has been made on undistributed earnings of these subsidiaries not
expected to be remitted in the foreseeable future aggregating Y1,776,398 million
($16,542 million) as of March 31, 2005. Toyota estimates an additional tax
provision of Y113,951 million ($1,061 million) would be required if the full
amount of these accumulated earnings became subject to Japanese taxes.
Operating loss carryforwards for tax purposes attributed to consolidated
subsidiaries at March 31, 2005 were approximately Y141,534 million ($1,318
million) and are available as an offset against future taxable income of such
subsidiaries. The majority of these carryforwards expire in years 2006 to 2012.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17. Shareholders' equity:
Changes in the number of shares of common stock issued have resulted from the
following:
For the years ended March 31,
2003 2004 2005
Common stock issued
Balance at beginning of year 3,649,997,492 3,609,997,492 3,609,997,492
Issuance during the year
Purchase and retirement (40,000,000 ) - -
Balance at end of year 3,609,997,492 3,609,997,492 3,609,997,492
The Japanese Commercial Code provides that an amount equal to at least 10% of
cash dividends and other distributions from retained earnings paid by the parent
company and its Japanese subsidiaries be appropriated as a legal reserve. No
further appropriation is required when total amount of the legal reserve and
capital surplus reaches 25% of stated capital. The legal reserve included in
retained earnings as of March 31, 2004 and 2005 was Y133,432 million and Y
141,064 million ($1,314 million), respectively. The legal reserve is restricted
and unable to be used for dividend payments, and is excluded from the
calculation of the profit available for dividend.
The amounts of statutory retained earnings of the parent company available for
dividend payments to shareholders were Y4,765,477 million and Y4,864,555 million
($45,298 million) as of March 31, 2004 and 2005, respectively. In accordance
with customary practice in Japan, the appropriations are not accrued in the
financial statements for the corresponding period, but are recorded in the
subsequent accounting period after shareholders' approval has been obtained.
Retained earnings at March 31, 2005 include amounts representing year-end cash
dividends of Y130,723 million ($1,217 million), Y40 ($0.37) per share, which
were approved at the shareholders' meeting held on June 23, 2005.
Retained earnings at March 31, 2005 include Y919,685 million ($8,564 million)
relating to equity in undistributed earnings of companies accounted for by the
equity method.
In June 26, 1997, the shareholders of the parent company approved a stock
repurchase policy at the Ordinary General Shareholders' Meeting in accordance
with the Japanese Commercial Code, which allows the company to purchase treasury
stock only for the purpose of retirement of the stock with a resulting reduction
in retained earnings. Under the stock repurchase policy, the shareholders
authorized the parent company to repurchase up to 370 million shares of its
common stock without the limitation of time, subject to the approval of the
Board of Directors. In October 2001, the Japanese Commercial Code was changed to
allow the company to purchase treasury stock without limitation of reason during
the whole period until the next Ordinary General Shareholders' Meeting by the
resolution of the Board of Directors up to the limitation of number of shares
and aggregated acquisition costs approved at the Ordinary General Shareholders'
Meeting. In response to the Japanese Commercial Code revision, on June 26, 2002,
at the Ordinary General Shareholders' Meeting, the shareholders of the parent
company approved the amendment of the stock repurchase policy in the Articles of
Incorporation to be deleted the limitation of the purpose of purchasing treasury
stock noted above. As a result, Toyota's unused authorized shares for the
repurchase of shares of common stock under the legacy policy elapsed. In the
same Shareholders' Meeting, the shareholders of the parent company also approved
the purchase as treasury stock of up to 170 million shares at a cost up to Y
600,000 million during the period until the next Ordinary General Shareholders'
Meeting which was held on June 26, 2003. As a result, the parent company
repurchased approximately 170 million shares during the year ended March 31,
2003. On June 26, 2003, at the Ordinary General Shareholders' Meeting, the
shareholders of the parent company again approved to purchase up
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
to 150 million of its common stock at a cost up to Y400,000 million during the
period until the next Ordinary General Shareholders' Meeting which was held on
June 23, 2004. According to this authorization, the parent company purchased
approximately 113 million shares of its treasury stock during the approved
period of time. On June 23, 2004, at the Ordinary Shareholders' Meeting, the
shareholders of the parent company again approved to purchase up to 65 million
of its common stock at a cost of up to Y250,000 million during the period until
the next Ordinary General Shareholders' Meeting which was held on June 23, 2005,
and, in response to the Japanese Commercial Code revision, also approved to
change the Articles of Incorporation to authorize the Board of Directors to
repurchase treasury stock on the basis of its resolution. During this approved
period of time, the parent company purchased 59 million of shares. In addition,
on June 23, 2005, the shareholders of the parent company approved to purchase up
to 65 million of its common stock at a cost of up to Y250,000 million during the
period until the resolution of next Ordinary General Shareholders' Meeting.
These approvals by the shareholders on and after the resolution in the Ordinary
General Shareholders' Meeting on June 23, 2004 are not required under the
current regulation.
In years prior to 1997, Toyota had made free distributions of shares to its
shareholders for which no accounting entry is required in Japan. Had the
distributions been accounted for in a manner used by companies in the United
States of America, Y2,576,606 million ($23,993 million) would have been
transferred from retained earnings to the appropriate capital accounts.
Detailed components of accumulated other comprehensive loss at March 31, 2004
and 2005 and the related changes, net of taxes for the years ended March 31,
2003, 2004 and 2005 consist of the following:
Yen in millions
Foreign Unrealized Minimum Net gains Accumulated
currency gains pension (losses) on other
translation on securities liability derivative comprehensive
adjustments adjustments instruments income (loss)
Balances at March 31, 2002 Y (172,488 ) Y 33,747 Y (127,773 ) Y (790 ) Y (267,304 )
Other comprehensive income (139,285 ) (26,495 ) (171,978 ) 790 (336,968 )
(loss)
Balances at March 31, 2003 (311,773 ) 7,252 (299,751 ) - (604,272 )
Other comprehensive income (203,257 ) 329,672 273,265 - 399,680
(loss)
Balances at March 31, 2004 (515,030 ) 336,924 (26,486 ) - (204,592 )
Other comprehensive income 75,697 38,455 9,780 - 123,932
Balances at March 31, 2005 Y (439,333 ) Y 375,379 Y (16,706 ) Y - Y (80,660 )
U.S. dollars in millions
Foreign Unrealized Minimum Net gains Accumulated
currency gains pension (losses) on other
translation on liability derivative comprehensive
securities
adjustments adjustments instruments income (loss)
Balances at March 31, 2004 $ (4,796 ) $ 3,137 $ (246 ) $ - $ (1,905 )
Other comprehensive income 705 358 91 - 1,154
Balances at March 31, 2005 $ (4,091 ) $ 3,495 $ (155 ) $ - $ (751 )
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Tax effects allocated to each component of other comprehensive income for the
years ended March 31, 2003, 2004 and 2005 are as follows:
Yen in millions
Pre-tax Tax Net-of-tax
amount expense amount
(benefit)
For the year ended March 31, 2003
Foreign currency translation adjustments Y (142,278 ) Y 2,993 Y (139,285 )
Unrealized losses on securities:
Unrealized net holding losses arising for the year (143,806 ) 59,707 (84,099 )
Less: reclassification adjustments for losses included in net income 98,100 (40,496 ) 57,604
Minimum pension liability adjustments (292,315 ) 120,337 (171,978 )
Net gains on derivative instruments 1,074 (284 ) 790
Other comprehensive loss Y (479,225 ) Y 142,257 Y (336,968 )
For the year ended March 31, 2004
Foreign currency translation adjustments Y (201,511 ) Y (1,746 ) Y (203,257 )
Unrealized gains on securities:
Unrealized net holding gains arising for the year 554,496 (211,234 ) 343,262
Less: reclassification adjustments for gains included in net income (21,953 ) 8,363 (13,590 )
Minimum pension liability adjustments 450,549 (177,284 ) 273,265
Other comprehensive income Y 781,581 Y (381,901 ) Y 399,680
For the year ended March 31, 2005
Foreign currency translation adjustments Y 76,089 Y (392 ) Y 75,697
Unrealized gains on securities:
Unrealized net holding gains arising for the year 214,661 (86,294 ) 128,367
Less: reclassification adjustments for gains included in net income (150,355 ) 60,443 (89,912 )
Minimum pension liability adjustments 21,691 (11,911 ) 9,780
Other comprehensive income Y 162,086 Y (38,154 ) Y 123,932
U.S. dollars in millions
Pre-tax Tax Net-of-tax
amount expense amount
(benefit)
For the year ended March 31, 2005
Foreign currency translation adjustments $ 709 $ (4 ) $ 705
Unrealized gains on securities:
Unrealized net holding gains arising for the year 1,998 (803 ) 1,195
Less: reclassification adjustments for gains included in net income (1,400 ) 563 (837 )
Minimum pension liability adjustments 202 (111 ) 91
Other comprehensive income $ 1,509 $ (355 ) $ 1,154
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
18. 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 an amendment of the plan
to include both board members and key employees. Each year, since the plans'
inception, the shareholders have approved the authorization for the 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 ranging from 4 years to 6 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 2 years from the date of grant.
Subsequent to March 31, 2005, the shareholders approved the authorization of an
additional 2,104,000 shares for issuance under the Toyota's stock option plan
for board members and key employees.
The following table summarizes Toyota's stock option activity:
Yen
Number of Weighted- Weighted-
options average average
exercise remaining
price contractual
life in
years
Options outstanding at March 31, 2002 2,398,200 Y 4,237 2.62
Granted 1,876,000 2,958
Exercised
Canceled (348,800 ) 3,895
Options outstanding at March 31, 2003 3,925,400 3,656 3.53
Granted 1,958,000 3,116
Exercised
Canceled (987,000 ) 3,849
Options outstanding at March 31, 2004 4,896,400 3,401 3.83
Granted 2,021,000 4,541
Exercised (810,300 ) 2,995
Canceled (606,800 ) 4,105
Options outstanding at March 31, 2005 5,500,300 Y 3,802 3.86
Options exercisable at March 31, 2003 625,000 Y 4,503 0.85
Options exercisable at March 31, 2004 1,371,400 Y 4,319 1.15
Options exercisable at March 31, 2005 1,740,300 Y 3,641 1.69
The following table summarizes information for options outstanding and options
exercisable at March 31, 2005:
Outstanding Exercisable
Exercise Weighted Weighted Weighted Weighted Weighted
price -average -average -average -average -average
range exercise exercise remaining exercise exercise
Number of price price life price price
Yen shares Yen Dollars Years Number Yen Dollars
----- of
shares
Y2,958 - 4,000 2,538,900 Y 3,067 $ 29 4.02 785,900 Y2,958 $ 28
4,001 - 4,541 2,961,400 4,432 41 3.72 954,400 4,203 39
2,958 - 4,541 5,500,300 3,802 35 3.86 1,740,300 3,641 34
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The weighted-average fair value per option at the date of grant for options
granted during the years ended March 31, 2003, 2004 and 2005 was Y766, Y769 and
Y1,139 ($11), respectively. The fair value of options granted, which is
amortized over the option vesting period in determining the pro forma impact in
Note 2, is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
2003 2004 2005
Dividend rate 1.3 % 1.5 % 1.5 %
Risk-free interest rate 0.7 % 0.4 % 1.2 %
Expected volatility 34 % 34 % 32 %
Expected holding period (years) 5.1 5.3 5.3
19. Employee benefit plans:
Pension and severance plans -
Upon terminations of employments, employees of the parent company and
subsidiaries in Japan are entitled, under the retirement plans of each company,
to lump-sum indemnities or pension payments 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.
Effective October 1, 2004, the parent company amended its retirement plan to
introduce a 'point' based retirement benefit plan. Under the new plan, upon
terminations of employment, employees are entitled to lump-sum or pension
payments determined based on accumulated 'points' vested in each year of
service. Under the new plan, there are three types of 'points' that vest in each
year of service consisting of 'service period points' which are attributed to
the length of service, 'job title points' which are attributed to the job title
of each employee, and 'performance points' which are attributed to the annual
performance evaluation of each employee. Under normal circumstances, the minimum
payment prior to retirement age is an amount reflecting an adjustment rate
applied to represent voluntary retirement. Employees receive additional benefits
upon involuntary retirement, including retirement at the age limit. As a result
of this plan amendment, the projected benefit obligation decreased by Y32,208
million ($300 million), at October 1, 2004 and resulted in an unrecognized prior
service cost, which is recognized in future service periods.
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 ('JWPIL') or the Corporate Defined Benefit Pension Plan
Law (CDBPPL). The contributory pension plans under JWPIL cover a portion of the
governmental welfare pension program, under which the contributions are made by
the companies and their employees, and a corporate portion representing the
noncontributory pension plans. However, the contributory pension plans under the
CDBPPL are established solely by the companies and are not required to cover any
portion of the governmental welfare program. The pension benefits are determined
based on the number of points upon retirement for companies which employ the
point plan, or determined based on length of service and current rates of pay as
stipulated in the aforementioned regulations for companies which do not employ a
points-based plan. Both benefits 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. Most foreign subsidiaries have
defined benefit pension plans or severance indemnity plans covering
substantially all of their employees under which the cost of benefits are
currently invested or accrued. The benefits for these plans are based primarily
on lengths of service and current rates of pay.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Transfer to the government of the Substitutional Portion of the Employee Pension
Fund Liabilities -
The parent company and certain subsidiaries in Japan had maintained employees'
pension funds (EPFs) pursuant to the JWPIL. The EPF consisted of two tiers, a
Substitutional Portion, in which the EPF, in lieu of the government's social
insurance program, collected contributions, funded them and paid benefits to the
employees with respect to the pay-related portion of the old-age pension
benefits prescribed by JWPIL, and a Corporate Portion which was established at
the discretion of each employer.
In June 2001, the CDBPPL was enacted and allowed any EPF to terminate its
operation relating to the Subsititutional Portion that in the past an EPF had
operated and managed in lieu of the government, subject to approval from the
Japanese Minister of Health, Labour and Welfare. In September 2003, Toyota Motor
Pension Fund, the parent company's EPF under JWPIL, obtained the approval from
the Minister for the exemption from benefit payments related to employee
services of the Subsititutional Portion. In January 2004, Toyota Motor Pension
Fund completed the transfer of the plan assets attributable to the
Subsititutional Portion to the government. In addition, during the years ended
March 31, 2004 and 2005, certain subsidiaries and affiliates in Japan that had
EPFs under JWPIL also completed the transfer of the plan assets attributable to
the Subsititutional Portion to the government in compliance with the same
procedures followed by the parent company. Certain other subsidiaries and
affiliates in Japan that have EPFs under JWPIL are currently in process of
obtaining the approval from the Minister for the exemption from the benefit
payments related to employee service of the Subsititutional Portion and upon
approval will transfer the plan assets equivalent to the Subsititutional Portion
to the government.
In accordance with the consensus on EITF Issue No. 03-2, Accounting for the
Transfer to the Japanese Government of the Substitutional Portion of Employee
Pension Fund Liabilities ('EITF 03-2'), Toyota accounted the entire separation
process, upon completion of transfer of the plan assets attributable to the
Substitutional Portion to the government, as a single settlement transaction.
During the years ended March 31, 2004 and 2005, Toyota recognized settlement
losses of Y323,715 million and Y96,066 million ($894 million), respectively, as
part of net periodic pension costs which are the proportionate amounts of the
net unrecognized losses immediately prior to the separation related to the
entire EPFs under JWPIL, and which are determined based on the proportion of the
projected benefit obligation settled to the total projected benefit obligation
immediately prior to the separation. Toyota also recognized as reductions of net
periodic pension costs totaling Y109,885 million and Y21,722 million ($202
million) for the years ended March 31, 2004 and 2005, respectively, which
resulted in gains attributed to the derecognition of previously accrued salary
progression. In addition, Toyota recognized gains of Y320,867 million and Y
121,553 million ($1,132 million) for the years ended March 31, 2004 and 2005,
respectively, which represented the differences between the obligation settled
and the assets transferred to the government. These gains and losses are
reflected in the consolidated statement of income for the years ended March 31,
2004 and 2005 as follows:
Yen in millions
For the year ended March 31, 2004
Costs of Selling, Total
general
products
sold and
administrative
Settlement losses Y (288,177 ) Y (35,538 ) Y (323,715 )
Gains on derecognition of previously accrued salary progression 98,079 11,806 109,885
Gains on difference between the obligation settled and the - 320,867 320,867
assets transferred
Total Y (190,098 ) Y 297,135 Y 107,037
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Yen in millions
For the year ended March 31, 2005
Costs of Selling, Total
general
products and
sold administrative
Settlement losses Y (85,379 ) Y (10,687 ) Y (96,066 )
Gains on derecognition of previously accrued salary progression 19,494 2,228 21,722
Gains on difference between the obligation settled and the assets - 121,553 121,553
transferred
Total Y (65,885 ) Y 113,094 Y 47,209
U.S. dollars in millions
For the year ended March 31, 2005
Costs of Selling, Total
general
products and
sold administrative
Settlement losses $ (794 ) $ (100 ) $ (894 )
Gains on derecognition of previously accrued salary progression 181 21 202
Gains on difference between the obligation settled and the assets - 1,132 1,132
transferred
Total $ (613 ) $ 1,053 $ 440
All these gains and losses are non-cash gains and losses, and reported on a net
basis in 'Pension and severance costs, less payments' in the consolidated
statements of cash flows for the years ended March 31, 2004 and 2005.
Toyota uses a March 31 measurement date for the majority of its benefit plans.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Information regarding Toyota's defined benefit plans follow:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Change in benefit obligation
Benefit obligation at beginning of year Y 2,346,127 Y 1,891,051 $ 17,609
Service cost 75,988 60,715 565
Interest cost 48,674 37,790 352
Plan participants' contributions 2,245 1,078 10
Plan amendments (7,903 ) (47,535 ) (443 )
Projected benefit obligation settled due to the separation of (752,646 ) (304,184 ) (2,832 )
substitutional portion
Actuarial gain (11,280 ) (80,370 ) (748 )
Acquisition and other 265,969 (32,816 ) (306 )
Benefits paid (76,123 ) (74,990 ) (698 )
Benefit obligation at end of year 1,891,051 1,450,739 13,509
Change in plan assets
Fair value of plan assets at beginning of year 932,166 1,049,815 9,776
Actual return on plan assets 171,600 43,866 408
Acquisition and other 128,031 (10,304 ) (96 )
Employer contributions 213,790 86,128 802
Plan participants' contributions 2,245 1,078 10
Assets transferred to the government due to the separation of (321,894 ) (160,909 ) (1,498 )
substitutional portion
Benefits paid (76,123 ) (74,990 ) (698 )
Fair value of plan assets at end of year 1,049,815 934,684 8,704
Funded status 841,236 516,055 4,805
Unrecognized actuarial loss (478,830 ) (256,628 ) (2,389 )
Unrecognized prior service costs 129,965 171,753 1,599
Unrecognized net transition obligations (27,572 ) (13,290 ) (124 )
Net amount recognized Y 464,799 Y 417,890 $ 3,891
In connection with the enactment of the CDBPPL and the transfer of the
Substitutional Portion, the parent company performed its pension funding
calculations for the Toyota Motor Pension Fund as required by the CDBPPL and
contributed Y115,294 million to plan assets in cash during the year ended March
31, 2004, equivalent to the unfunded 'Corporate Portion' of the EPF.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts recognized in the consolidated balance sheets are comprised of the
following:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Accrued pension and severance costs Y 725,569 Y 646,989 $ 6,025
Prepaid pension and severance costs (164,176 ) (173,078 ) (1,612 )
Investments and other assets (18,627 ) (7,027 ) (66 )
Accumulated other comprehensive income (77,967 ) (48,994 ) (456 )
- - -
Net amount recognized Y 464,799 Y 417,890 $ 3,891
- - -
The accumulated benefit obligation for all defined benefit pension plans was Y
1,688,666 million and Y1,284,339 million ($11,959 million) at March 31, 2004 and
2005, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for which the accumulated benefit obligations exceed plan assets
are as follows:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Projected benefit obligation Y 1,051,841 Y 512,571 $ 4,773
Accumulated benefit obligation 954,158 489,975 4,563
Fair value of plan assets 349,217 63,675 593
Components of the net periodic pension cost are as follows:
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Service cost Y 71,873 Y 75,988 Y 60,715 $ 565
Interest cost 49,030 48,674 37,790 352
Expected return on plan assets (23,003 ) (24,991 ) (27,517 ) (256 )
Amortization of prior service costs (14,272 ) (15,092 ) (16,599 ) (155 )
Recognized net actuarial loss 22,977 45,653 22,366 208
Settlement loss resulting from the transfer of the - 213,830 74,344 692
substitutional portion
Amortization of net transition obligation 19,630 18,963 9,981 93
- - - -
Net periodic pension cost Y 126,235 Y 363,025 Y 161,080 $ 1,499
- - - -
Changes in recognized net actuarial loss for the years ended March 31, 2003,
2004, and 2005 were primarily due to changes in estimates made for actuarial
assumptions, changes in differences between expected and actual returns on plan
assets, and the decrease in net actuarial loss due to the transfers to the
government of the Substitutaion Portion of the EPF liabilities.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For plans where the accumulated benefit obligation net of plan assets exceeds
the accrued pension and severance costs, Toyota has recorded a minimum pension
liability. The minimum pension liability amounts at March 31, 2004 and 2005 were
Y96,594 million and Y56,021 million ($522 million), respectively. Changes in the
minimum pension liability are reflected as adjustments in other comprehensive
income (loss) for the years ended March 31, 2003, 2004 and 2005 as follows:
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
Minimum pension liability adjustments, included in other Y (171,978 ) Y 273,265 Y 9,780 $ 91
comprehensive income (loss)
Weighted-average assumptions used to determine benefit obligations as of March
31, 2004 and 2005 are as follows:
March 31,
2004 2005
Discount rate 2.2 % 2.6 %
Rate of compensation increase 0.5 - % 0.1 - %
9.7 9.7
Weighted-average assumptions used to determine net periodic pension cost for the
years ended March 31, 2003, 2004 and 2005 are as follows:
For the years ended March 31,
2003 2004 2005
Discount rate 2.5 % 2.1 % 2.2 %
Expected return on plan assets 2.7 % 2.1 % 2.1 %
Rate of compensation increase 1.5 % 0.8 % 0.5 %
6.0 9.7 9.7
The expected rate of return on plan assets is determined after considering
several applicable factors including, the composition of plan assets held,
assumed risks of asset management, historical results of the returns on plan
assets, Toyota's principal policy for plan asset management, and forecasted
market conditions.
Toyota's pension plan weighted-average asset allocations as of March 31, 2004
and 2005, by asset category are as follows:
Plan assets at
March 31,
2004 2005
Equity securities 49.4 % 64.0 %
Debt securities 16.9 21.5
Real estate 0.3 0.5
Other 33.4 14.0
Total 100.0 % 100.0 %
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Toyota's policy and objective for plan asset management is to maximize returns
on plan assets to meet future benefit payment requirements under risks which
Toyota considers permissible. Asset allocations under the plan asset management
are determined based on Toyota's plan asset management guidelines which are
established to achieve the optimized asset compositions in terms of the
long-term overall plan asset management. Prior to making individual investments,
Toyota performs in-depth assessments of corresponding factors including risks,
transaction costs and liquidity of each potential investment under
consideration. To measure the performance of the plan asset management, Toyota
establishes bench mark return rates for each individual investment, combines
these individual bench mark rates based on the asset composition ratios within
each asset category, and compares the combined rates with the corresponding
actual return rates on each asset category.
Toyota expects to contribute Y83,862 million ($781 million) to its pension plan
in the year ending March 31, 2006.
The following pension benefit payments, which reflect expected future service,
as appropriate, are expected to be paid:
Years ending March 31, Yen in U.S.
----------------- millions dollars
in
millions
2006 Y 72,184 $ 672
2007 78,137 728
2008 77,379 721
2009 79,998 745
2010 79,568 741
from 2011 to 2015 388,551 3,617
Total 775,817 7,224
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 costs of these benefits are recognized
over the period the employee provides credited service to Toyota. Toyota's
obligations under these arrangements are not material.
20. Derivative financial instruments:
Toyota employs derivative financial instruments, including foreign exchange
forward contracts, foreign currency options, interest rate swaps, interest rate
currency swap agreements and interest rate options to manage its exposure to
fluctuations in interest rates and foreign currency exchange rates. Toyota does
not use derivatives for speculation or trading.
Fair value hedges -
Toyota enters into interest rate swaps, and interest rate currency swap
agreements mainly to convert its fixed-rate debt to variable-rate debt. Toyota
uses interest rate swap agreements in managing 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 currency exchange
rate fluctuations on principal and interest payments for borrowings denominated
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
in foreign currencies. Notes and loans payable issued in foreign currencies are
hedged by concurrently executing interest rate currency swap agreements, which
involve the exchange of foreign currency principal and interest obligations for
each functional currency obligations at agreed-upon currency exchange and
interest rates.
For the years ended March 31, 2003, 2004 and 2005, the ineffective portion of
Toyota's fair value hedge relationships which are included in cost of financing
operations in the accompanying consolidated statements of income were not
material. 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 funding in currencies in which it operates.
Interest rate swap agreements are used by Toyota to manage its exposure to the
variability of interest payments due to the changes in interest rates arising
principally from 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, 2003, a net derivative
loss of Y790 million was reclassified to foreign exchange gain (loss), net in
the accompanying consolidated statements of income. This net loss were offset by
net gains from transactions being hedged. The components of each derivative's
gain and loss were 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 were same as those of hedged debt transactions. For the years ended
March 31, 2004 and 2005, no gains or losses resulted from cash flow hedges were
reported as no derivative instruments were designated as, and qualified as cash
flow hedging instruments. Toyota does not expect to reclassify any gains or
losses included in other comprehensive income as at March 31, 2005, into
earnings in next twelve months because no derivative instruments were designated
as, and qualified as, cash flow hedges.
Undesignated derivative financial instruments -
Toyota uses foreign exchange forward contracts, foreign currency options,
interest rate swaps, interest rate currency swap agreements, and interest rate
options, to manage its exposure to foreign currency exchange rate fluctuations
and interest rate fluctuations from an economic perspective, and which Toyota is
unable or has elected not to apply hedge accounting. Unrealized gains or losses
on these derivative instruments are reported in the cost of financing operations
and foreign exchange gain, net in the accompanying consolidated statements of
income together with realized gains or losses on those derivative instruments.
21. Other financial instruments:
Toyota has certain financial instruments, including financial assets and
liabilities and off-balance sheet financial instruments which arose in the
normal course of business. These financial instruments are executed with
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 not significant.
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
March 31, 2004
Carrying Estimated
amount fair value
Asset (Liability)
Cash and cash equivalents Y 1,729,776 Y 1,729,776
Time deposits 68,473 68,473
Total finance receivables, net 5,069,041 5,228,629
Other receivables 396,788 396,788
Short-term borrowings (2,189,024 ) (2,189,024 )
Long-term debt including the current portion (5,295,756 ) (5,387,028 )
Foreign exchange forward contracts 8,923 8,923
Interest rate and currency swap agreements 208,141 208,141
Option contracts purchased 8,841 8,841
Option contracts written (1,725 ) (1,725 )
Yen in millions U.S. dollars in millions
March 31, 2005 March 31, 2005
Carrying Estimated Carrying Estimated
amount fair value amount fair
value
Asset (Liability)
Cash and cash equivalents Y 1,483,753 Y 1,483,753 $ 13,816 $ 13,816
Time deposits 63,609 63,609 592 592
Total finance receivables, net 6,306,648 6,298,144 58,727 58,647
Other receivables 438,676 438,676 4,085 4,085
Short-term borrowings (2,381,827 ) (2,381,827 ) (22,179 ) (22,179 )
Long-term debt including the current portion (6,094,565 ) (6,140,043 ) (56,751 ) (57,175 )
Foreign exchange forward contracts (10,176 ) (10,176 ) (95 ) (95 )
Interest rate and currency swap agreements 148,119 148,119 1,379 1,379
Option contracts purchased 2,282 2,282 21 21
Option contracts written (4,042 ) (4,042 ) (38 ) (38 )
Following are explanatory notes regarding the financial assets and liabilities
other than derivative financial instruments.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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, 2004 and 2005. 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, 2004 and 2005.
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.
22. Lease commitments:
Toyota leases certain assets under capital lease and operating lease
arrangements.
An analysis of leased assets under capital leases is as follows:
Yen in millions U.S.
dollars
in
millions
March 31, March
31,
2004 2005 2005
Class of property
Building Y 10,937 Y 11,762 $ 110
Machinery and equipment 161,446 162,938 1,517
Less - Accumulated depreciation (118,956 ) (128,578 ) (1,198 )
Y 53,427 Y 46,122 $ 429
Amortization expenses under capital leases for the years ended March 31, 2003,
2004 and 2005 were Y14,501 million, Y12,908 million and Y12,725 million ($118
million), respectively.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of March 31, 2005 are as follows:
Years ending March 31, Yen in U.S.
----------------- millions dollars
in
millions
2006 Y 17,982 $ 167
2007 16,202 151
2008 12,200 114
2009 6,192 58
2010 5,814 54
Thereafter 20,712 193
Total minimum lease payments 79,102 737
Less - Amount representing interest (7,822 ) (73 )
Present value of net minimum lease payments 71,280 664
Less - Current obligations (17,044 ) (159 )
Long-term capital lease obligations Y 54,236 $ 505
Rental expenses under operating leases for the years ended March 31, 2003, 2004
and 2005 were Y76,118 million, Y81,912 million and Y83,784 million ($780
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, 2005 are as follows:
Years ending March 31, Yen in U.S.
----------------- millions dollars
in
millions
2006 Y 8,649 $ 81
2007 7,027 65
2008 4,983 46
2009 4,270 40
2010 3,567 33
Thereafter 14,655 137
Total minimum future rentals Y 43,151 $ 402
23. Other commitments and contingencies, concentrations and factors that may
affect future operations:
Commitments outstanding at March 31, 2005 for the purchase of property, plant
and equipment and other assets approximated Y87,617 million ($816 million).
Toyota enters into contracts with Toyota dealers to guarantee customers'
payments of their installment payables that arise from installment contracts
between customers and Toyota dealers, as and when requested by Toyota dealers.
Guarantee periods are set to match maturity of installment payments, and at
March 31, 2005, range from one month to 35 years; however, they are generally
shorter than the useful lives of products sold. Toyota is required to execute
its guarantee primarily when customers are unable to make required payments. The
maximum potential amount of future payments as of March 31, 2005 is Y1,139,638
million ($10,612 million). Liabilities for guarantees totaling Y3,789 million
($35 million) have been provided as of March 31, 2005. Under these guarantee
contracts, Toyota is entitled to recover any amount paid by Toyota from the
customers whose obligations Toyota has guaranteed.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In February 2003, Toyota, General Motors Corporation, Ford, DaimlerChrysler,
Honda, Nissan and BMW and their U.S. and Canadian sales and marketing
subsidiaries, the National Automobile Dealers Association and the Canadian
Automobile Dealers Association were named as defendants in purported nationwide
class actions on behalf of all purchasers of new motor vehicles in the United
States since January 1, 2001. 26 similar actions were filed in federal district
courts in California, Illinois, New York, Massachusetts, Florida, New Jersey and
Pennsylvania. Additionally, 56 parallel class actions were filed in state courts
in California, Minnesota, New Mexico, New York, Tennessee, Wisconsin, Arizona,
Florida, Iowa, New Jersey and Nebraska on behalf of the same purchasers in these
states. As of April 1, 2005, actions filed in federal district courts were
consolidated in Maine and actions filed in the state courts of California and
New Jersey were also consolidated, respectively. The nearly identical complaints
allege that the defendants violated the Sherman Antitrust Act by conspiring
among themselves and with their dealers to prevent the sale to United States
citizens of vehicles produced for the Canadian market. The complaints allege
that new vehicle prices in Canada are 10% to 30% lower than those in the United
States and that preventing the sale of these vehicles to United States citizens
resulted in United States consumers paying excessive prices for the same type of
vehicles. The complaints seek permanent injunctions against the alleged
antitrust violations and treble damages in an unspecified amount. In March 2004,
the federal district court of Maine (i) dismissed claims against certain
Canadian sales and marketing subsidiaries, including Toyota Canada, Inc., for
lack of personal jurisdiction but denied or deferred to dismiss claims against
certain other Canadian companies, and (ii) dismissed the claim for damages based
on the Sherman Antitrust Act but did not bar the plaintiffs from seeking
injunctive relief against the alleged antitrust violations. The plaintiffs have
submitted an amended compliant adding a claim for damages based on state
antitrust laws and Toyota is now responding to the plaintiff's discovery
requests. Toyota believes that its actions have been lawful and intends to
vigorously defend these cases.
Toyota has various legal actions, governmental proceedings and other claims
pending against it, including product liability claims in the United States.
Although the claimants in some of these actions seek potentially substantial
damages, Toyota cannot currently determine its potential liability or the
damages, if any, with respect to these claims. However, based upon information
currently available to Toyota, Toyota believes that its losses from these
matters, if any, would not have a material adverse effect on Toyota's financial
position, operating results or cash flows.
In September 2000, the European Union approved a directive that requires member
states to promulgate regulations implementing the following by April 21, 2002:
(i) manufacturers shall bear all or a significant part of the costs for taking
back end-of-life vehicles put on the market after July 1, 2002 and dismantling
and recycling those vehicles. Beginning January 1, 2007, manufacturers will also
be financially responsible for vehicles put on the market before July 1, 2002;
(ii) manufacturers may not use certain hazardous materials in vehicles to be
sold after July 2003; (iii) vehicles type-approved and put on the market from
three years after the amendment of the directive on type-approval shall be
re-usable and/or recyclable to a minimum of 85% by weight per vehicle and shall
be re-usable and/or recoverable to a minimum of 95% by weight per vehicle; and
(iv) end-of-life vehicles must meet actual re-use of 80% and re-use as material
or energy of 85%, respectively, of vehicle weight by 2006, rising respectively
to 85% and 95% by 2015. Currently, there are numerous uncertainties surrounding
the form and implementation of the applicable regulations in different European
Union member states, particularly regarding manufacturer responsibilities and
resultant expenses that may be incurred. All of the member states, other than
the 10 new member states, have adopted legislation to implement the directive.
In addition, Sweden, Denmark and Belgium have existing legislation that
partially implements the directive. The 10 new member states which joined the
European Union in May 2004 are also in the process of adopting legislation to
implement the directive. 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 and Toyota expects to introduce vehicles that are in
compliance
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
with such measures taken by the member states pursuant to the directive. Based
on the legislation that has been enacted to date, Toyota has provided for its
estimated liability related to covered vehicles in existence as of March 31,
2005. Depending on the legislation that is yet to be enacted by certain member
states and subject to other circumstances, Toyota may be required to provide
additional accruals for the expected costs to comply with these regulations.
Although Toyota does not expect its compliance with the directive to result in
significant cash expenditures, Toyota is continuing to assess the impact of this
future legislation on its results of operations, cash flows and financial
position.
Toyota has a concentration of material purchases from a supplier which is an
affiliated company. These purchases approximate 10% of material costs.
The parent company has a concentration of labor supply in employees working
under collective bargaining agreements and a substantial portion of these
employees are working under the agreement that will expire on December 31, 2005.
24. Segment data:
The operating segments reported below are the segments of Toyota for which
separate financial information is available and for which operating income/loss
amounts are evaluated regularly by executive management in deciding how to
allocate resources and in assessing performance.
The major portions of Toyota's operations on a worldwide basis are derived from
the Automotive and Financial Services business segments. The Automotive segment
designs, manufactures and distributes sedans, minivans, compact cars,
sport-utility vehicles, trucks and related parts and accessories. The Financial
Services segment consists primarily of financing 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 the design,
manufacturing and sales of housing, telecommunications and other business.
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, 2003, 2004 and 2005:
Segment operating results and assets -
As of and for the year ended March 31, 2003:
Yen in millions
Automotive Financial All Other Inter-segment Total
Services Elimination/
Unallocated
Amount
Revenues
External customers Y 14,300,799 Y 707,527 Y 493,227 Y - Y 15,501,553
Inter-segment 10,652 17,371 301,990 (330,013 ) -
Total revenue 14,311,451 724,898 795,217 (330,013 ) 15,501,553
Operating expenses 13,064,526 694,570 790,688 (319,877 ) 14,229,907
Operating income Y 1,246,925 Y 30,328 Y 4,529 Y (10,136 ) Y 1,271,646
Segment assets Y 9,392,749 Y 7,392,486 Y 722,604 Y 2,645,135 Y 20,152,974
Investment in equity method investees 1,054,234 161,820 - 56,493 1,272,547
Depreciation 657,814 192,624 20,198 - 870,636
Expenditures for segment assets 998,528 544,390 48,041 19,270 1,610,229
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of and for the year ended March 31, 2004:
Yen in millions
Automotive Financial All Other Inter-segment Total
Services Elimination/
Unallocated
Amount
Revenues
External customers Y 15,963,100 Y 716,727 Y 614,933 Y - Y 17,294,760
Inter-segment 10,726 20,125 281,311 (312,162 ) -
Total revenue 15,973,826 736,852 896,244 (312,162 ) 17,294,760
Operating expenses 14,454,872 590,854 880,997 (298,853 ) 15,627,870
Operating income Y 1,518,954 Y 145,998 Y 15,247 Y (13,309 ) Y 1,666,890
Segment assets Y 10,207,395 Y 8,138,297 Y 941,925 Y 2,752,611 Y 22,040,228
Investment in equity method investees 1,092,713 211,657 - 60,407 1,364,777
Depreciation 772,829 175,533 21,542 - 969,904
Expenditures for segment assets 1,020,608 432,222 43,212 (7,501 ) 1,488,541
As of and for the year ended March 31, 2005:
Yen in millions
Automotive Financial All Other Inter-segment Total
Services Elimination/
Unallocated
Amount
Revenues
External customers Y 17,098,415 Y 760,664 Y 692,447 Y - Y 18,551,526
Inter-segment 15,120 20,597 337,873 (373,590 ) -
Total revenue 17,113,535 781,261 1,030,320 (373,590 ) 18,551,526
Operating expenses 15,661,000 580,408 996,577 (358,646 ) 16,879,339
Operating income Y 1,452,535 Y 200,853 Y 33,743 Y (14,944 ) Y 1,672,187
Segment assets Y 11,141,197 Y 9,487,248 Y 1,025,517 Y 2,681,049 Y 24,335,011
Investment in equity method investees 1,271,044 215,642 - 75,746 1,562,432
Depreciation 754,339 220,584 22,790 - 997,713
Expenditures for segment assets 1,161,757 726,777 50,555 (15,849 ) 1,923,240
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
U.S. dollars in millions
Automotive Financial All Inter-segment Total
Services Other Elimination/
Unallocated
Amount
Revenues
External customers $ 159,218 $ 7,083 $ 6,448 $ - $ 172,749
Inter-segment 141 192 3,146 (3,479 ) -
Total revenue 159,359 7,275 9,594 (3,479 ) 172,749
Operating expenses 145,833 5,405 9,280 (3,340 )
157,178
Operating income $ 13,526 $ 1,870 $ 314 $ (139 ) $ 15,571
Segment assets $ 103,745 $ 88,344 $ 9,549 $ 24,966 $ 226,604
Investment in equity method investees 11,836 2,008 - 705 14,549
Depreciation 7,025 2,054 212 - 9,291
Expenditures for segment assets 10,818 6,768 471 (148 ) 17,909
Revenues to external customers and operating income of the Financial Services
segment for the year ended March 31, 2005, includes the impact of adjustments
totaling /14,991 million ($140 million)made by a sales financing subsidiary in
the United States of America for the correction of errors relating to prior
periods mainly in connection with capitalization of certain disbursements,
including disbursements made in prior years, directly related to origination of
loans in accordance with Statement of Financial Accounting Standards No. 91.
Geographic Information -
As of and for the year ended March 31, 2003:
Yen in millions
Japan North Europe Other Inter-segment Total
America foreign Elimination/
countries Unallocated
Amount
Revenues
External customers Y 6,621,054 Y 5,929,803 Y 1,514,683 Y 1,436,013 Y - Y 15,501,553
Inter-segment 4,224,573 289,036 85,138 110,731 (4,709,478 ) -
-
Total revenue 10,845,627 6,218,839 1,599,821 1,546,744 (4,709,478 ) 15,501,553
Operating expenses 9,901,337 5,938,851 1,591,516 1,501,118 (4,702,915 ) 14,229,907
-
Operating income Y 944,290 Y 279,988 Y 8,305 Y 45,626 Y (6,563 )Y 1,271,646
-
Segment assets Y 9,272,330 Y 6,217,941 Y 1,516,360 Y 1,072,887 Y 2,073,456 Y 20,152,974
Long-lived assets 2,732,654 1,778,892 410,389 281,944 - 5,203,879
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of and for the year ended March 31, 2004:
Yen in millions
Japan North Europe Other Inter-segment Total
America foreign Elimination/
countries Unallocated
Amount
Revenues
External customers Y 7,167,704 Y 5,910,422 Y 2,018,969 Y 2,197,665 Y - Y 17,294,760
Inter-segment 4,422,283 217,217 145,372 164,218 (4,949,090 ) -
Total revenue 11,589,987 6,127,639 2,164,341 2,361,883 (4,949,090 ) 17,294,760
Operating expenses 10,481,860 5,736,662 2,091,866 2,264,970 (4,947,488 ) 15,627,870
Operating income Y 1,108,127 Y 390,977 Y 72,475 Y 96,913 Y (1,602 )Y 1,666,890
Segment assets Y 10,210,904 Y 6,674,694 Y 1,842,947 Y 1,567,276 Y 1,744,407 Y 22,040,228
Long-lived assets 3,032,629 1,536,550 448,954 336,514 - 5,354,647
As of and for the year ended March 31, 2005:
Yen in millions
Japan North Europe Other Inter-segment Total
America foreign Elimination/
countries Unallocated
Amount
Revenues
External customers Y 7,408,136 Y 6,187,624 Y 2,305,450 Y 2,650,316 Y - Y 18,551,526
Inter-segment 4,596,019 185,829 173,977 158,808 (5,114,633 ) -
Total revenue 12,004,155 6,373,453 2,479,427 2,809,124 (5,114,633 ) 18,551,526
Operating expenses 11,016,913 5,925,894 2,370,886 2,667,898 (5,102,252 ) 16,879,339
Operating income Y 987,242 Y 447,559 Y 108,541 Y 141,226 Y (12,381 ) Y 1,672,187
Segment assets Y 10,740,796 Y 7,738,898 Y 2,242,566 Y 1,943,807 Y 1,668,944 Y 24,335,011
Long-lived assets 3,110,123 1,708,147 544,597 432,727 - 5,795,594
U.S. dollars in millions
Japan North Europe Other Inter-segment Total
America foreign Elimination/
countries Unallocated
Amount
Revenues
External customers $ 68,984 $ 57,618 $ 21,468 $ 24,679 $ - $ 172,749
Inter-segment 42,797 1,731 1,620 1,479 (47,627 ) -
Total revenue 111,781 59,349 23,088 26,158 (47,627 ) 172,749
Operating expenses 102,588 55,181 22,077 24,843 (47,511 ) 157,178
Operating income $ 9,193 $ 4,168 $ 1,011 $ 1,315 $ (116 ) $ 15,571
Segment assets $ 100,017 $ 72,064 $ 20,882 $ 18,100 $ 15,541 $ 226,604
Long-lived assets 28,961 15,906 5,071 4,030 - 53,968
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.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
There are no any individually material countries with respect to revenues,
operating expenses, operating income, segment assets and long-lived assets
included in other foreign countries.
Unallocated amounts included in segment assets represents assets held for
corporate purposes, which mainly consist of cash and cash equivalents and
marketable securities. Such corporate assets were Y3,125,276 million, Y3,270,973
million and Y3,308,055 million ($30,804 million), as of March 31, 2003, 2004 and
2005, respectively.
Transfers between industry or geographic segments are made at amounts which
Toyota's management believes approximate arm's-length transactions. In measuring
the reportable segments' income or losses, operating income consists of revenue
less operating expenses.
Overseas Revenues by destination -
The following information shows revenues that are attributed to countries based
on location of customers, excluding customers in Japan. In addition to the
disclosure requirements under FAS No. 131, Disclosure about Segments of an
Enterprise and Related Information ('FAS 131'), Toyota discloses this
information in order to provide financial statement users with valuable
information.
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March
31,
2003 2004 2005 2005
North America Y 6,200,075 Y 6,108,723 Y 6,374,235 $ 59,356
Europe 1,556,261 2,037,344 2,365,525 22,027
Other foreign countries 2,568,229 3,355,148 3,865,764 35,997
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Certain financial statement data on non-financial services and financial
services businesses -
The financial data below presents separately Toyota's non-financial services and
financial services businesses.
Balance sheets -
Yen in millions U.S.
dollars
in
millions
March 31, March 31,
2004 2005 2005
Non-Financial Services Businesses
Current assets
Cash and cash equivalents Y 1,618,876 Y 1,324,126 $ 12,330
Time deposits 16,689 8,006 74
Marketable securities 444,543 541,785 5,045
Trade accounts and notes receivable, less allowance for doubtful 1,570,205 1,640,155 15,273
accounts
Inventories 1,083,326 1,306,709 12,168
Prepaid expenses and other current assets 1,391,600 1,580,371 14,716
Total current assets 6,125,239 6,401,152 59,606
Investments and other assets 4,254,625 4,804,843 44,742
Property, plant and equipment 4,398,163 4,579,052 42,640
Total Non-Financial Services Businesses assets 14,778,027 15,785,047 146,988
Financial Services Businesses
Current assets
Cash and cash equivalents 110,900 159,627 1,486
Time deposits 51,784 55,603 518
Marketable securities 3,914 1,339 13
Finance receivables, net 2,608,340 3,010,135 28,030
Prepaid expenses and other current assets 605,019 609,946 5,680
Total current assets 3,379,957 3,836,650 35,727
Noncurrent finance receivables, net 3,221,013 3,976,941 37,032
Investments and other assets 580,843 457,115 4,257
Property, plant and equipment 956,484 1,216,542 11,328
Total Financial Services Businesses assets 8,138,297 9,487,248 88,344
Eliminations (876,096 ) (937,284 ) (8,728 )
Total assets Y 22,040,228 Y 24,335,011 $ 226,604
Assets in the non-financial service include unallocated corporate assets.
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Yen in millions U.S.
dollars
in
millions
March 31, March 31,
2004 2005 2005
Non-Financial Services Businesses
Current liabilities
Short-term borrowings Y 718,396 Y 713,474 $ 6,644
Current portion of long-term debt 62,634 60,092 560
Accounts payable 1,695,255 1,847,036 17,199
Accrued expenses 1,084,357 1,200,122 11,175
Income taxes payable 241,691 263,291 2,452
Other current liabilities 971,796 1,055,336 9,827
Total current liabilities 4,774,129 5,139,351 47,857
Long-term liabilities
Long-term debt 771,791 747,911 6,964
Accrued pension and severance costs 724,369 645,308 6,009
Other long-term liabilities 600,158 564,185 5,254
Total long-term liabilities 2,096,318 1,957,404 18,227
Total Non-Financial Services Businesses liabilities 6,870,447 7,096,755 66,084
Financial Services Businesses
Current liabilities
Short-term borrowings 2,029,258 2,269,197 21,130
Current portion of long-term debt 1,088,762 1,092,328 10,172
Accounts payable 15,287 15,542 145
Accrued expenses 53,031 93,042 866
Income taxes payable 10,864 29,544 275
Other current liabilities 259,826 289,850 2,699
Total current liabilities 3,457,028 3,789,503 35,287
Long-term liabilities
Long-term debt 3,726,355 4,503,247 41,933
Accrued pension and severance costs 1,200 1,681 16
Other long-term liabilities 244,386 331,827 3,090
Total long-term liabilities 3,971,941 4,836,755 45,039
Total Financial Services Businesses liabilities 7,428,969 8,626,258 80,326
Eliminations (884,048 ) (937,881 ) (8,733 )
Total liabilities 13,415,368 14,785,132 137,677
Minority interest in consolidated subsidiaries 446,293 504,929 4,702
Shareholders' equity 8,178,567 9,044,950 84,225
Total liabilities and shareholders' equity Y 22,040,228 Y 24,335,011 $ 226,604
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Statements of income -
Yen in millions U.S.
dollars
in
millions
For the years ended March 31, For the
year
ended
March 31,
2003 2004 2005 2005
Non-Financial Services Businesses
Net revenues Y 14,803,475 Y 16,586,814 Y 17,800,357 $ 165,754
Costs and expenses
Cost of revenues 11,915,394 13,507,835 14,497,252 134,996
Selling, general and administrative 1,631,151 1,540,724 1,813,288 16,885
Total costs and expenses 13,546,545 15,048,559 16,310,540 151,881
Operating income 1,256,930 1,538,255 1,489,817 13,873
Other income (expense), net (48,563 ) 97,885 68,736 640
Income before income taxes, minority interest and 1,208,367 1,636,140 1,558,553 14,513
equity in earnings of affiliated companies
Provision for income taxes 514,710 627,038 578,709 5,389
Income before minority interest and equity in 693,657 1,009,102 979,844 9,124
earnings of affiliated companies
Minority interest in consolidated subsidiaries (10,796 ) (41,886 ) (63,952 ) (596 )
Equity in earnings of affiliated companies 46,309 107,542 131,849 1,228
Net income- Non-Financial Services Businesses 729,170 1,074,758 1,047,741 9,756
Financial Services Businesses
Net revenues 724,898 736,852 781,261 7,275
Costs and expenses
Cost of revenues 425,691 365,750 376,150 3,503
Selling, general and administrative 268,879 225,104 204,258 1,902
Total costs and expenses 694,570 590,854 580,408 5,405
Operating income 30,328 145,998 200,853 1,870
Other expense, net (11,444 ) (16,438 ) (4,764 ) (44 )
Income before income taxes, minority interest and 18,884 129,560 196,089 1,826
equity in earnings of affiliated companies
Provision for income taxes 2,298 53,959 78,748 733
Income before minority interest and equity in 16,586 75,601 117,341 1,093
earnings of affiliated companies
Minority interest in consolidated subsidiaries (735 ) (815 ) (988 ) (9 )
Equity in earnings of affiliated companies 6,526 12,753 7,622 71
Net income- Financial Services Businesses 22,377 87,539 123,975 1,155
Eliminations (605 ) (199 ) (456 ) (4 )
Net income Y 750,942 Y 1,162,098 Y 1,171,260 $ 10,907
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Statement of cash flows -
Yen in millions Yen in millions
For the year ended March 31, 2003 For the year ended March 31, 2004
Non-Financial Financial Consolidated Non-Financial Financial
Services Services Services Services
Businesses Businesses Businesses Businesses Con-
solidated
Cash flows from operating
activities
Net income Y 729,170 Y 22,377 Y 750,942 Y 1,074,758 Y 87,539 Y 1,162,098
Adjustments to reconcile
net income to net cash
provided by operating
activities
Depreciation 678,012 192,624 870,636 794,371 175,533 969,904
Provision for doubtful 2,989 96,248 99,837 13,356 69,782 83,138
accounts and credit
losses
Pension and severance 55,068 569 55,637 (159,291) 24 (159,267 )
costs, less payments
Loss on disposal of fixed 46,205 287 46,492 38,708 1,034 39,742
assets
Unrealized losses on 111,346 - 111,346 3,063 - 3,063
available-for-sale
securities, net
Deferred income taxes (85,056 ) 10,777 (74,273) 82,918 37,603 120,828
Minority interest in 10,796 735 11,531 41,886 815 42,686
consolidated subsidiaries
Equity in earnings of (46,309 ) (6,526 ) (52,835 ) (107,542 ) (12,753 ) (120,295 )
affiliated companies
Changes in operating 206,810 (50,572 ) 120,775 88,212 (13,546 ) 44,837
assets and liabilities,
and other
Net cash provided by 1,709,031 266,519 1,940,088 1,870,439 346,031 2,186,734
operating activities
Cash flows from investing
activities
Additions to finance - (6,481,200 ) (3,439,936 ) - (8,126,880 ) (4,547,068 )
receivables
Collection of and - 5,825,456 2,929,151 - 6,878,953 3,395,430
proceeds from sale of
finance receivables
Additions to fixed assets (955,488 ) (50,443 ) (1,005,931 ) (923,105 ) (22,698 ) (945,803 )
excluding equipment
leased to others
Additions to equipment (110,351 ) (493,947 ) (604,298 ) (133,214 ) (409,524 ) (542,738 )
leased to others
Proceeds from sales of 50,702 11,145 61,847 63,211 10,714 73,925
fixed assets excluding
equipment leased to
others
Proceeds from sales of 64,773 221,765 286,538 78,393 210,288 288,681
equipment leased to
others
Purchases of marketable (868,227 ) (245,771 ) (1,113,998 ) (1,077,317 ) (259,150 ) (1,336,467 )
securities and security
investments
Proceeds from sales of 727,462 194,503 921,965 1,108,265 327,877 1,436,142
and maturity of
marketable securities and
security investments
Payment for additional (28,229 ) - (28,229 ) (20,656 ) - (20,656 )
investments in affiliated
companies, net of cash
acquired
Changes in investments 65,499 (13,795 ) (8,557 ) (16,051 ) (41,054 ) (17,941 )
and other assets, and
other
Net cash used in (1,053,859 ) (1,032,287 ) (2,001,448 ) (920,474 ) (1,431,474 ) (2,216,495 )
investing activities
Cash flows from financing
activities
Purchase of common stock (454,611 ) - (454,611 ) (357,457 ) - (357,457 )
Proceeds from issuance of 174,657 1,528,429 1,686,564 48,373 1,682,550 1,636,570
long-term debt
Payments of long-term (224,261 ) (913,207 ) (1,117,803 ) (140,384 ) (1,187,219 ) (1,253,045 )
debt
Increase (decrease) in (83,907 ) 166,613 30,327 (105,051 ) 544,806 353,833
short-term borrowings
Dividends paid (110,846 ) (30 ) (110,876 ) (137,678 ) - (137,678 )
Other 4,074 - 4,074 (15,000 ) 15,000 -
Net cash provided by (694,894 ) 781,805 37,675 (707,197 ) 1,055,137 242,223
(used in) financing
activities
Effect of exchange rate (33,521 ) (7,926 ) (41,447 ) (61,623 ) (13,091 ) (74,714 )
changes on cash and cash
equivalents
Net increase (decrease) (73,243 ) 8,111 (65,132 ) 181,145 (43,397 ) 137,748
in cash and cash
equivalents
Cash and cash equivalents 1,510,974 146,186 1,657,160 1,437,731 154,297 1,592,028
at beginning of year
Cash and cash equivalents Y 1,437,731 Y 154,297 Y 1,592,028 Y 1,618,876 Y 110,900 Y 1,729,776
at end of year
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Yen in millions U.S. dollars in millions
For the year ended March 31, 2005 For the year ended March 31, 2005
Non-Financial Financial Consolidated Non-Financial Financial Consolidated
Services Services Services Services
Businesses Businesses Businesses Businesses
Cash flows from operating
activities
Net income Y 1,047,741 Y 123,975 Y 1,171,260 $ 9,756 $ 1,155 $ 10,907
Adjustments to reconcile
net income to net cash
provided by operating
activities
Depreciation 777,129 220,584 997,713 7,237 2,054 9,291
Provision for doubtful 15,752 47,402 63,154 147 441 588
accounts and credit losses
Pension and severance (53,401 ) 468 (52,933 ) (497 ) 4 (493 )
costs, less payments
Loss on disposal of fixed 48,334 825 49,159 450 8 458
assets
Unrealized losses on 2,324 - 2,324 22 - 22
available-for-sale
securities, net
Deferred income taxes 29,398 54,860 84,711 274 511 789
Minority interest in 63,952 988 64,938 596 9 605
consolidated subsidiaries
Equity in earnings of (131,849 ) (7,622 ) (139,471 ) (1,228 ) (71 ) (1,299 )
affiliated companies
Changes in operating (97,535 ) 203,762 130,085 (910 ) 1,897 1,210
assets and liabilities,
and other
Net cash provided by 1,701,845 645,242 2,370,940 15,847 6,008 22,078
operating activities
Cash flows from investing
activities
Additions to finance - (8,264,794 ) (4,296,966 ) - (76,961 ) (40,013 )
receivables
Collection of and proceeds - 7,289,387 3,377,510 - 67,878 31,451
from sale of finance
receivables
Additions to fixed assets (1,049,572 ) (18,715 ) (1,068,287 ) (9,774 ) (174 ) (9,948 )
excluding equipment leased
to others
Additions to equipment (146,891 ) (708,062 ) (854,953 ) (1,367 ) (6,593 ) (7,961 )
leased to others
Proceeds from sales of 60,034 9,362 69,396 559 87 646
fixed assets excluding
equipment leased to others
Proceeds from sales of 84,450 232,006 316,456 786 2,160 2,947
equipment leased to others
Purchases of marketable (1,053,417 ) (112,374 ) (1,165,791 ) (9,809 ) (1,047 ) (10,856 )
securities and security
investments
Proceeds from sales of and 471,614 102,329 573,943 4,392 952 5,344
maturity of marketable
securities and security
investments
Payment for additional (901 ) - (901 ) (8 ) - (8 )
investments in affiliated
companies, net of cash
acquired
Changes in investments and 84,979 (16,485 ) (11,603 ) 790 (152 ) (107 )
other assets, and other
Net cash used in investing (1,549,704 ) (1,487,346 ) (3,061,196 ) (14,431 ) (13,850 ) (28,505 )
activities
Cash flows from financing
activities
Purchase of common stock (264,106 ) - (264,106 ) (2,459 ) - (2,459 )
Proceeds from issuance of 27,363 1,862,012 1,863,710 255 17,339 17,354
long-term debt
Payments of long-term debt (59,689 ) (1,160,710 ) (1,155,223 ) (556 ) (10,808 ) (10,757 )
Increase in short-term 564 178,956 140,302 5 1,666 1,306
borrowings
Dividends paid (165,299 ) - (165,299 ) (1,539 ) - (1,539 )
Other (7,000 ) 7,000 - (65 ) 65 -
Net cash provided by (used (468,167 ) 887,258 419,384 (4,359 ) 8,262 3,905
in) financing activities
Effect of exchange rate 21,276 3,573 24,849 198 33 231
changes on cash and cash
equivalents
Net increase (decrease) in (294,750 ) 48,727 (246,023 ) (2,745 ) 453 (2,291 )
cash and cash equivalents
Cash and cash equivalents 1,618,876 110,900 1,729,776 15,075 1,033 16,107
at beginning of year
Cash and cash equivalents Y 1,324,126 Y 159,627 Y 1,483,753 $ 12,330 $ 1,486 $ 13,816
at end of year
In consolidated statements of cash flows as classified into non-financial
services business and financial services business, cash flows from origination
and collection activities of finance receivables relating to inventory-sales are
continued to be reported in investing activities.
F-58
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TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
25. Per share amounts:
Reconciliations of the differences between basic and diluted net income per
share for the years ended March 31, 2003, 2004 and 2005 are as follows:
Yen in Thousands Yen U.S.
millions
dollars
of shares
Net income Weighted- Net Net
income income
average per per
shares share share
For the year ended March 31, 2003
Basic net income per common share Y 750,942 3,553,602 Y 211.32
Effect of diluted securities
Assumed exercise of dilutive stock options 22
-
Diluted net income per common share Y 750,942 3,553,624 Y 211.32
-
For the year ended March 31, 2004
Basic net income per common share Y 1,162,098 3,389,074 Y 342.90
Effect of diluted securities
Assumed exercise of dilutive stock options 303
-
Diluted net income per common share Y 1,162,098 3,389,377 Y 342.86
-
For the year ended March 31, 2005
Basic net income per common share Y 1,171,260 3,296,092 Y 355.35 $
3.31
Effect of dilutive securities
Assumed exercise of dilutive stock options (1 ) 662
-
Diluted net income per common share Y 1,171,259 3,296,754 Y 355.28 $
3.31
-
Certain stock options were not included in the computation of diluted net income
per share for the years ended March 31, 2003, 2004 and 2005 because the options'
exercise prices were greater than the average market price per common share
during the period.
The following table shows Toyota's net assets per share as of March 31, 2004 and
2005. Net assets per share amounts are calculated as dividing net assets' amount
at the end of each period by the number of shares issued and outstanding at the
end of corresponding period. In addition to the disclosure requirements under
FAS No. 128, Earnings per Share, Toyota discloses this information in order to
provide financial statement users with valuable information.
Yen in Thousands Yen U.S.
millions of shares dollars
Net assets Shares Net assets Net
issued per share assets
and per
outstanding share
at the end
of
the year
March 31, 2004
Net assets Y 8,178,567 3,329,921 Y 2,456.08
March 31, 2005
Net assets 9,044,950 3,268,078 2,767.67 $ 25.77
F-59
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ITEM 19. EXHIBITS
Index to Exhibits
1.1 Amended and Restated Articles of Incorporation of the Registrant (English translation) (incorporated by
reference to Exhibit 1.1 of Toyota's annual report on Form 20-F filed with the SEC on July 2, 2004 (file
no. 001-14948))
1.2 Amended and Restated Regulations of the Board of Directors of the Registrant (English translation)
(incorporated by reference to Exhibit 1.2 of Toyota's annual report on Form 20-F filed with the SEC on July
2, 2004 (file no. 001-14948))
1.3 Amended and Restated Regulations of the Board of Corporate Auditors of the Registrant (English translation)
(incorporated by reference to Exhibit 4.6 to Toyota's registration statement on Form S-8 filed with the SEC
on July 25th, 2003 (file no. 333-107322))
2.1 Amended and Restated Share Handling Regulations of the Registrant (English translation) (incorporated by
reference to Exhibit 4.6 to Toyota's registration statement on Form S-8 filed with the SEC on July 25, 2003
(file no. 333-107322))
2.2 Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and the owners and
beneficial owners from time to time of American Depositary Receipts, including the form of American
Depositary Receipt (incorporated by reference to Exhibit 4.2 to Toyota's Registration Statement on Form F-1
(file no. 333-10768))
2.3 Form of ADR (included in Exhibit 2.2)
8.1 List of Principal Subsidiaries (See 'Organizational Structure' in 'Item 4. Information on the Company')
11.1 Code of Ethics of the Registrant applicable to its directors and managing officers, including its principal
executive officer, principal financial officer, principal accounting officer or controller, or persons
performing similar functions. (English translation) (incorporated by reference to Exhibit 11.1 of Toyota's
annual report on Form 20-F filed with the SEC on July 31, 2003 (file no. 001-14948))
12.1 Certifications of the Registrant's Chairman of the Board and Executive Vice President, Member of the Board
pursuant to Section 302 of the Sarbanes-Oxley Act
13.1 Certifications of the Registrant's Chairman of the Board and Executive Vice President, Member of the Board
pursuant to Section 906 of the Sarbanes-Oxley Act
15.1 Consent of Independent Registered Public Accounting Firm
105
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Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
TOYOTA MOTOR CORPORATION
By: /s/ TAKESHI SUZUKI
Name: Takeshi Suzuki
Title: Senior Managing Director, Member of
the Board;
Chief Finance and Accounting Officer
Date: June 24, 2005
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