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Annual Report 2005
Year ended March 31, 2005
Positioned for the Future

Table of contents

  • Page 1
    Annual Report 2005 Year ended March 31, 2005 Positioned for the Future

  • Page 2
    ... Vice President Responsible for Finance & Accounting 16 > Corporate Governance 21 > Contribution towards Sustainable Development 23 > Special Feature: Positioned for the Future 36 > Business Overview 48 > Financial Section 123 > Domestic Production Sites 124 > Overseas Manufacturing Companies 128...

  • Page 3
    ... farsighted innovation in all operational areas-including development, purchasing, production, and sales-enabling us to lead growth in the industry. Furthermore, Toyota's advances in the face of fierce competition among automakers have underscored the Company's unique value. However, every year the...

  • Page 4
    ... share data 2005 % change 2004 vs 2005 For the Year: Net Revenues...Operating Income...Net Income...ROE ...Per Share Data (yen and U.S. dollars): Net Income (Basic) ...Cash Dividends ...Shareholders' Equity...At Year-End: Total Assets ...Shareholders' Equity...Share Performance (March 31): Price...

  • Page 5
    3 CONSOLIDATED OPERATING SUMMARY [ Vehicle Sales ] ... [ Vehicle Production ] ... [ Net Revenues ] ... [ Operating Income ] ... [ Net Income ] ... [ ROE ] ...moved from 15.2% to [ Net Income per Share ] ... [ Annual Cash Dividends ...per Share ] 10.3 % 7.40 million up11.0 % 7.23 million up 7.3 %...

  • Page 6
    ... INFORMATION Toyota Motor Corporation Fiscal years ended March 31 2003 Yen in millions 2004 2005 % change 2004 vs 2005 By Business Operations: Revenues: Automotive ...Financial Services...All Other ...Intersegment Elimination ...Total Company...Operating Income: Automotive ...Financial Services...

  • Page 7
    ... SALES Toyota Motor Corporation Fiscal years ended March 31 2003 Thousands of units 2004 2005 % change 2004 vs 2005 Vehicle Production by Region: Japan...North America ...Europe ...Other Regions ...Overseas Total...Consolidated Total ...Vehicle Sales by Region: Japan...North America ...Europe...

  • Page 8
    6 CHAIRMAN'S MESSAGE Tokyo Head Office

  • Page 9
    ... a management team that can respond agilely to changes in the operating environment and accelerate forward-looking reform. Toyota will continue tireless efforts to fulfill the expectations of its shareholders and other stakeholders by raising corporate value. Our goal is to realize long-term, stable...

  • Page 10
    8 PRESIDENT'S MESSAGE Design Headquarters, Toyota City, Aichi Prefecture, Japan " We will step up growth through further innovation inspired by the Toyota Way tradition. "

  • Page 11
    ...responsible for purchasing-with a particular focus on advancing manufacturing innovation in partnership with suppliers and enhancing Toyota's cost and product competitiveness in markets worldwide. And, I intend to draw on that experience to tackle management issues head on. Handed down and developed...

  • Page 12
    ...in Thailand and six other countries we started up production of the IMV (Innovative International Multipurpose Vehicle) series. Offering premium quality, comfort, and affordable prices, the lineup sold briskly. In North America, Toyota targeted young customers by launching sales of Scion-marque cars...

  • Page 13
    ... reform of management and manufacturing, we intend to unlock further corporate value going forward. [ TARGETS AND MOTIVATION ] " Planned Vehicle Sales Note: Different from fiscal year figures 8.5 million units " Our employees will work as a team toward the realization of Toyota's vision. ➤ In...

  • Page 14
    ...closely. ➤ We have regarded actively returning profits to our shareholders as an important management policy. But, starting in fiscal 2005, we aim to further emphasize that philosophy in three respects. First, we will view returns to shareholders on a consolidated basis. In the past several years...

  • Page 15
    ... customers, employees, business partners, and local communities, as an important management function that will enable continued growth as one of international society's trusted corporate citizens. Accordingly, in January 2005 Toyota issued the "Contribution towards Sustainable Development" statement...

  • Page 16
    ... reduction activities, -one of Toyota's perennial strengths-the Company has launched the "VI Activity," in pursuit of "value innovation" and strives to promote cost reduction on a new level. Toyota is making a concerted effort to take profitability and efficiency to new heights. Financial Strategy...

  • Page 17
    ... PRESIDENT RESPONSIBLE FOR FINANCE & ACCOUNTING > 15 Regarding "stability," the Company maintained its solid financial base by ensuring sufficient liquidity and stable shareholders' equity. At fiscal 2005 year-end, liquid assets were approximately ¥3.5 trillion while shareholders' equity stood...

  • Page 18
    ..., including shareholders, customers, business partners, local communities, and employees. We are convinced that providing products that fully cater to customer needs is essential to achieve stable, long-term growth. That philosophy is outlined in the "Guiding Principles at Toyota." Further...

  • Page 19
    ... support the Company's corporate governance efforts by undertaking audits in accordance with the audit policies and plans determined by the Board of Corporate Auditors. [ SYSTEMS FOR ENSURING APPROPRIATE MANAGEMENT ] ➤ As a system to ensure appropriate management, Toyota has convened meetings...

  • Page 20
    ... of corporate and financial information as a critical responsibility in corporate governance, and we work to enhance our accountability to shareholders and other investors. With respect to financial information, in addition to quarterly reporting of financial statements, we made financial statements...

  • Page 21
    ... Governance Rules require that the non-management directors of each listed company meet at regularly scheduled executive sessions without management, the Company currently has no non-management director on its board of directors. Unlike the NYSE Corporate Governance Rules, the Code and the Special...

  • Page 22
    ...annual report on Form 20-F for the year ended March 31, 2003. ➤ 6. Shareholder Approval of Equity Compensation Plans Unlike the NYSE Corporate Governance Rules, under which material revisions to equity-compensation plans of listed companies are subject to shareholder approval, pursuant to the Code...

  • Page 23
    ...growth in harmony with the global community through innovative management. 7. Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships. [ ] We, TOYOTA MOTOR CORPORATION and our subsidiaries, take...

  • Page 24
    ... Principle 5) Management of each company takes leadership in fostering a corporate culture and implementing policies, that promote ethical behavior. (Guiding Principles 1 and 5) Business Partners We respect our business partners such as suppliers and dealers and work with them through long-term...

  • Page 25
    ... R O W T H A N D E F F I C I E N C Y Contents 24 > 01. Product and Brand Strategy 26 > 02. Next-Generation Technology Development 28 > 03. Production Engineering Innovation 30 > 04. Globally Optimal Production and Supply System 32 > 05. Cost Reduction Activities 34 > 06. Human Resources Development

  • Page 26
    ... production of a full-size pickup truck is scheduled to increase beginning in 2006. In Europe, we began joint manufacturing of small passenger cars with a local automaker in February 2005. In China, Toyota is steadily assembling a full model lineup that ranges from compact cars and SUVs to high-end...

  • Page 27
    ...has been the best-selling high-end car in the U.S. In fiscal 2005, Lexus sales grew an impressive 3.7% year on year, to approximately 358,000 vehicles. In August 2005, the Lexus will debut in Japan. In every aspect of product development, sales, marketing, and customer service, we are determined to...

  • Page 28
    ... and "Maxi-mize" Vision development of highly original technologies. Marrying Advanced Environmental and Driving Performance in Hybrid Technology "Zero-nize" and "Maxi-mize" are the terms we use to sum up the vision and philosophy that guide our technology development initiatives. Under the vision...

  • Page 29
    ... protection system that stores and manages encrypted musical data on hard disks. When vehicles are shipped, more than 10,000 musical titles are encrypted and stored in digital format on the navigation system's hard disk. Customers download and purchase the licenses and decrypt keys of titles that...

  • Page 30
    ... engineering innovation, Toyota is building a lean production system that allows the efficient manufacturing of high-quality vehicles anywhere in the world. Supporting Rapidly Expanding Overseas Production Toyota's worldwide consolidated vehicle production reached 7.23 million units in fiscal 2005...

  • Page 31
    ...gain an edge in markets, in-house development of those technologies is key. To take one example, in the past several years Toyota has channeled resources into the development of industrial robots. Conventionally, robots are used for spot welding at vehicle production plants. However, we are creating...

  • Page 32
    ... In response to the immediate popularity of the Hilux VIGO and the other models, Toyota has upwardly revised production plans. The IMV series has already begun expanding shipments to markets worldwide. To Central and South America Argentina Pickup trucks and multi-purpose vehicles Engines and main...

  • Page 33
    ... example, in Thailand the local purchasing ratio is now 96%. Stepping Up Our Ability to Supply Growth Markets To meet such demand, Toyota is expanding its production platform by building a new plant in Thailand and ramping up capacity in Indonesia. In only three years, Toyota's consolidated vehicle...

  • Page 34
    ... activity Manufacturing innovation that reached component design and development stages Toyota has grown market support through unflagging cost reduction efforts focused on all of its models, including Toyota's signature global car: the Corolla. Our quest to make better products less expensively...

  • Page 35
    ...long-term relationships of mutual trust with suppliers. We work toward challenging targets as partners. And, the improvements gained through those initiatives strengthen the corporate organizations and market competitiveness of Toyota and its suppliers. Returning Cost Reduction Benefits to Customers...

  • Page 36
    ..., Toyota has developed human resources based on Toyota Way values, and this approach will be the wellspring of the Company's future competitiveness. Promoting Human Resources Development and Diversity In the achievement of sustainable growth, personnel are the most precious management resource that...

  • Page 37
    ... courses at GPC. And, we plan to maintain that level by training 2,000 employees a year at the center. Moreover, Toyota intends to create GPC branches in the U.S., Europe, and Asia to step up the pace and global scope of training for professional production site managers. We are confident that those...

  • Page 38
    36 Business Overview Contents 38 > Automotive Operations 38 > Japan 40 > North America 42 > Europe 44 > Other Regions 46 > Financial Services Operations 47 > Other Business Operations

  • Page 39
    ...of substitutional portion of the employee pension fund to the government, and an increase in research and development expenses and other costs, which were partially offset by the benefits of growth in production and vehicle sales and cost reduction efforts. Revenues and Operating Income (Â¥ Billion...

  • Page 40
    ... high-end minivan, have been selling Unconsolidated Consolidated Market Share in Japan (%) 50 term, we are confident that there is significant potential for market growth based on fullfledged economic recovery and the deployment of higher-value-added products that offer 40 41.1% 30 outstanding...

  • Page 41
    ... competitive muscle to capture and hold a 45% share of the Japanese automotive market excluding minivehicles. To that end, in February 2003 we announced a revised product strategy and began reforming sales channels to reflect changing times. In May 2004, we consolidated domestic, Toyota-brand sales...

  • Page 42
    ... OVERVIEW 5 Toyota notches up record vehicle sales in U.S. market for ninth consecutive year In North America in fiscal 2005, Toyota sold an all-time-high 2.27 million vehicles and built a '00 '01 '02 '03 '04 0 CY record 1.15 million vehicles on a consolidated basis. Adding Toyota-brand...

  • Page 43
    ...Truck Production Started in Mexico * The Company plans to fill the 30,000-vehicle gap relative to total plant production capacity by enhancing efficiency and personnel at existing plants. ** The California plant is a Toyota-General Motors joint venture company that is accounted for using the equity...

  • Page 44
    ...-ever consolidated vehicle sales of approximately 979,000 units in fiscal 2005, Toyota extended its record-breaking run in Europe to seven years and claimed almost 2 0 CY '01 '02 '03 '04 Note: Different from fiscal year figures Increased Local Production Capacity to 775,000 in 2005 Annual...

  • Page 45
    ... Kingdom, France, and Turkey, we plan to increase local capacity to 775,000 vehicles a year in 2005. Further, in March 2005 a plant built in collaboration with Toyota Industries Corporation in Poland began shipping out diesel engines-bringing the combined annual diesel engine production capacity of...

  • Page 46
    ... Consolidated Vehicle Sales and Production in Other Regions (Thousands of units) +25.5% 1,800 1,777 +38.9% 945 Toyota is extending its network of companies in many different countries and regions, including Asia, Oceania, Central and South America, the Middle East, and Africa. MARKET CONDITIONS...

  • Page 47
    ... promise mediumto-long-term economic growth. Therefore, we are allocating management resources to those markets, which we view as of equal importance to Japan, North America, and Europe. In ASEAN countries, Toyota is strengthening the region's role as a strategic export base for pickup trucks and...

  • Page 48
    ... services lineup that can cater to customers' diverse needs. Particularly in Japan, TFS offers wide-ranging financial services that include auto sales financing, credit cards, retail sales of corporate bonds and investment trusts, and insurance. For example, in April 2001 Toyota Finance Corporation...

  • Page 49
    ... sales areas and product lineups to address wideranging customer needs. Sincé Cada Marine Business By making full use of the engines and other advanced technologies it has developed in automotive manufacturing, Toyota produces and markets motorboats and marine engines. In fiscal 2005, the Company...

  • Page 50
    ... Results of Operations 76 > Consolidated Balance Sheets 78 > Consolidated Statements of Income 79 > Consolidated Statements of Shareholders' Equity 80 > Consolidated Statements of Cash Flows 81 > Notes to Consolidated Financial Statements 122 > Report of Independent Registered Public Accounting Firm

  • Page 51
    ..., Plant and Equipment* ...Depreciation...At Year-End: Shareholders' Equity ...Total Assets...Long-Term Debt ...Cash and Cash Equivalents...Equity Ratio...Share Information (March 31): Price per Share (yen)...Market Capitalization ...Number of Shares Issued...Other Data: Exchange Rate (yen/dollar...

  • Page 52
    ... QUARTERLY FINANCIAL SUMMARY Toyota Motor Corporation Fiscal years ended March 31 Yen in billions First Quarter Second Quarter Third Quarter Forth Quarter 2004 2005 2004 2005 2004 2005 2004 2005 Net Revenues...¥4,092.9 ¥4,510.3 Operating Income ...340.7 448.6 Income before Income Taxes...

  • Page 53
    ... volumes, the mix of vehicle models and options sold, the level of parts and service sales, the levels of price discounts and other sales incentives and marketing costs, the cost of customer warranty claims and other customer satisfaction actions, the cost of research and development and other fixed...

  • Page 54
    ...an automaker's operations and can make the repatriation of profits unpredictable. Changes in these laws, regulations, policies and other governmental actions may affect the production, licensing, distribution or sale of Toyota's products, cost of products or applicable tax rates. Toyota is currently...

  • Page 55
    ... a loss at the end of the lease, which may offset a portion of the earnings on the lease. To the extent that sales incentives remain an integral part of sales promotions (reducing new vehicle prices and cost of ownership), resale prices of used vehicles and, correspondingly, the fair value of Toyota...

  • Page 56
    ... Accounting Estimates section regarding "Derivatives and Other Contracts at Fair Value", and further discussion in the Market Risk Disclosures section. In addition, aggregated funding costs can affect the profitability of Toyota's financial services operations. Funding costs are affected by a number...

  • Page 57
    ... the major operating functions within the segment. Management assesses financial and non-financial data such as units of sale, units of production, market share information, vehicle model plans and plant location costs to allocate resources within the automotive operations. GEOGRAPHICAL BREAKDOWN...

  • Page 58
    ... ¥160.0 billion of cost reduction efforts in fiscal 2005. In 2001, the Corporate Defined Benefit Pension Plan Law was enacted and allowed a company to transfer the substitutional portion of the obligation to the government. The parent company and certain subsidiaries in Japan applied for an...

  • Page 59
    ... employee pension funds to the government and the impact of increased expenses in expanding business operations, which were partially offset by the impact of unfavorable currency fluctuations. The decrease for the financial services operations reflects lower provisions for credit losses specifically...

  • Page 60
    ... America relates primarily to the increase in production volume and vehicle unit sales, the impact of cost reduction efforts in the manufacturing operations, increases in the asset base of the financial services operations, and lower provisions for credit losses and the allowance for residual value...

  • Page 61
    ... of the reduction in the effective tax rate for fiscal 2005, which decreased to 37.5% from 38.6% for the prior year mainly attributed to the reduction in the statutory tax rate in Japan. Minority Interest in Consolidated Subsidiaries and Equity in Earnings of Affiliated Companies Minority interest...

  • Page 62
    ... a higher volume of financings and the impact of expansion of the credit card business in Japan that was partially offset by the impact of foreign currency translation rates fluctuations during fiscal 2004. Eliminating the difference in the yen value used for translation purposes, financial services...

  • Page 63
    ... in sales mix, the consolidation of the results of subsidiaries previously accounted for on the equity basis, the impact of increased parts and service sales, the increase in research and development expenses and settlement loss on transfer of the substitutional portion of the employee pension fund...

  • Page 64
    ... of the yen against the U.S. dollar. The increase in the European market relates mainly to the impact of cost reduction efforts of manufacturing companies, an increase in production volume and vehicle unit sales, the impact of changes in sales mix and a favorable exchange rate of the yen against the...

  • Page 65
    ... to the sales of inventory in its consolidated statement of cash flows from investing activities to operating activities. This change in presentation was based on concerns raised by the staff of the Division of the Corporation Finance of the United States Securities and Exchange Commission. To...

  • Page 66
    ......Net cash outflows from finance receivables relating to the sale of inventories reported in operating activities in the consolidated statement of cash flows for the year ended March 31, 2005 were ¥55.9 billion. See note 4 and 7 to the consolidated financial statements. Net cash provided by...

  • Page 67
    ... Japan 15.7%, in Europe 10.3% and in all other markets 10.0%. Toyota maintains programs to sell finance receivables through special purpose entities and obtained proceeds from securitization transactions, net of purchased and retained interests totaling ¥48.9 billion during fiscal 2005. Marketable...

  • Page 68
    ... Equity ratio (Right scale) debt was 94.5% of total shareholders' equity, compared to 92.5% as of March 31, 2004. Toyota's long-term debt was rated "AAA" by Standard & Poor's Ratings Group, "Aaa" by Moody's Investors Services and "AAA" by Rating and Investment Information, Inc. as of March 31, 2005...

  • Page 69
    ... the fair value is less than the carrying amount. Such losses would be included in the consolidated statement of income. These retained interests as well as senior securities purchased by Toyota are reflected in the consolidated balance sheet for accounting purposes. Various other forms of credit...

  • Page 70
    ...likelihood of Toyota incurring such losses or Toyota's short-term credit rating being downgraded is remote. There were no outstanding amounts drawn on the RLN's at March 31, 2004 and 2005. The RLN had no material fair value as of March 31, 2004 and 2005. Toyota has not recognized a liability for the...

  • Page 71
    ... groups, often as part of a lending consortium, for wholesale inventory financing, business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. Toyota's outstanding credit facilities with dealers totaled ¥1,169.5 billion as of March 31, 2005. Guarantees...

  • Page 72
    ... the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value will be recognized as compensation cost...

  • Page 73
    .... The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Management does not expect this statement to have a material impact on Toyota's consolidated...

  • Page 74
    ... values (less costs to sell) to realize the full carrying values of these receivables. As a matter of policy, Toyota maintains an allowance for doubtful accounts and credit losses representing Toyota management's estimate of the amount of asset impairment in the portfolios of finance, trade...

  • Page 75
    ...part of sales promotion with the effect of reducing new vehicle prices, resale prices of used vehicles and, correspondingly, the fair value of Toyota's leased vehicles could be subject to downward pressure. If resale prices of used vehicles decline, future operating results of the financial services...

  • Page 76
    ...the expected rate of return on plan assets, which we believe are critical estimates in determining pension costs and obligations, assuming all other assumptions are consistent. Yen in millions Effect on pre-tax income Effect on PBO for the year ending as of March 31, March 31, 2006 2005 MARKET RISK...

  • Page 77
    ...United States and Western European countries. Toyota uses a value-at-risk analysis ("VAR") to evaluate its exposure to changes in foreign currency exchange rates. The value-at-risk of the combined foreign exchange position represents a potential loss in pre-tax earnings that are estimated to be ¥37...

  • Page 78
    76 CONSOLIDATED BALANCE SHEETS Toyota Motor Corporation March 31, 2004 and 2005 Yen in millions ASSETS Current assets Cash and cash equivalents ...Time deposits ...Marketable securities...Trade accounts and notes receivable, less allowance for doubtful accounts of ¥28,966 million in 2004 and ¥...

  • Page 79
    ... Long-term debt...Accrued pension and severance costs...Deferred income taxes ...Other long-term liabilities ...Total long-term liabilities ...Minority interest in consolidated subsidiaries ...Shareholders' equity Common stock, no par value, authorized: 9,740,185,400 shares in 2004 and 2005...

  • Page 80
    ...CONSOLIDATED STATEMENTS OF INCOME Toyota Motor Corporation For the years ended March 31, 2003, 2004 and 2005 2003 Yen in millions 2004 2005 U.S. dollars in millions 2005 Net revenues Sales of products ...Â¥14,793,973 Financing operations ...707,580 15,501,553 Costs and expenses Cost of products...

  • Page 81
    79 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Toyota Motor Corporation For the years ended March 31, 2003, 2004 and 2005 Common stock Additional paid-in capital Yen in millions Accumulated other Retained comprehensive earnings income (loss) Treasury stock, at cost Total Balances at March...

  • Page 82
    ... accounts and credit losses...Pension and severance costs, less payments ...Losses on disposal of fixed assets...Unrealized losses on available-for-sale securities, net...Deferred income taxes ...Minority interest in consolidated subsidiaries...Equity in earnings of affiliated companies...Changes...

  • Page 83
    ... estimates include: product warranties, allowance for doubtful accounts and credit losses, residual values for leased assets, impairment of long-lived assets, pension costs and obligations, fair value of derivative financial instruments and other-thantemporary losses on marketable securities...

  • Page 84
    ...Fair value is determined principally through the use of the latest financial information. Finance receivables- Finance receivables are recorded at the present value of the related future cash flows including residual values for finance leases. Allowance for credit losses- Allowance for credit losses...

  • Page 85
    ... loss to be recorded is generally determined by the difference between the fair value of the asset using a discounted cash flow valuation method and the current book value. Employee benefit obligations- Toyota has both defined benefit and defined contribution plans for employees' retirement benefits...

  • Page 86
    ... Yen in millions For the years ended March 31, 2004 U.S. dollars in millions For the year ended March 31, 2005 2003 2005 Net income As reported...Deduct: Total stock-based compensation expenses determined under fair value based method for all awards, net of related tax effects ...Pro forma ...Net...

  • Page 87
    .... The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Management does not expect this statement to have a material impact on Toyota's consolidated...

  • Page 88
    ..., the rate of ¥107.39 = U.S. $1, the approximate current exchange rate at March 31, 2005, was used for the translation of the accompanying consolidated financial amounts of Toyota as of and for the year ended March 31, 2005. 4. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for income taxes were...

  • Page 89
    ...these companies. Subsequent to the date of each acquisition, Toyota's consolidated financial statements include the accounts of these contract manufacturers. The fair values of assets acquired and liabilities assumed at the dates of acquisition based on the allocation of the aggregate purchase price...

  • Page 90
    ... accompanying consolidated statements of income. In the ordinary course of business, Toyota maintains long-term investment securities, included in "Marketable securities and other securities investments" and issued by a number of non-public companies which are recorded at cost, as their fair values...

  • Page 91
    ...FINANCIAL STATEMENTS > 89 7. FINANCE RECEIVABLES Finance receivables consist of the following: Yen in millions March 31, 2004 2005 U.S. dollars in millions March 31, 2005 Retail ...Finance leases...Wholesale and other dealer loans ...Unearned income ...Allowance for credit losses ...Total finance...

  • Page 92
    .... These impairments were calculated by discounting cash flows using management's estimates and other key economic assumptions. No impairment losses on retained interests were recorded for the years ended March 31, 2004 and 2005. Key economic assumptions used in measuring the fair value of retained...

  • Page 93
    ...the original balance of each pool of assets. Expected cumulative static pool credit losses for the retail loans securitized for the years ended March 31, 2003, 2004 and 2005 were 0.54%, 0.50%, and 0.47%, respectively. The key economic assumptions and the sensitivity of the current fair value of the...

  • Page 94
    ... the years ended March 31, 2003, 2004 and 2005, respectively. Future minimum rentals from vehicles and equipment on operating leases are due in installments as follows: Years ending March 31, Yen in millions U.S. dollars in millions 2006 ...2007 ...2008 ...2009 ...2010 ...Thereafter...Total minimum...

  • Page 95
    ...2005 U.S. dollars in millions March 31, 2005 Current assets...Noncurrent assets ...Total assets ...Current liabilities ...Long-term liabilities ...Shareholders' equity ...Total liabilities and shareholders' equity ...Toyota's share of shareholders' equity ...Number of affiliated companies accounted...

  • Page 96
    .... 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...

  • Page 97
    ...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. Long-term debt at March 31, 2004 and 2005 comprises the following: Yen in millions March 31, 2004 2005 U.S. dollars in...

  • Page 98
    ... long-term lines of credit amounting to ¥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...

  • Page 99
    ... 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...

  • Page 100
    ... 31, 2004 2005 U.S. dollars in millions March 31, 2005 Deferred tax assets Accrued pension and severance costs ...Warranty reserves and accrued expenses...Other accrued employees' compensation ...Operating loss carryforwards for tax purposes...Inventory adjustments ...Property, plant and equipment...

  • Page 101
    ...17. SHAREHOLDERS' EQUITY Changes in the number of shares of common stock issued have resulted from the following: 2003 For the years ended March, 31, 2004 2005 Common stock issued Balance at beginning of year ...Issuance during the year ...Purchase and retirement...Balance at end of year ... 3,649...

  • Page 102
    ... company again approved to purchase up to 65 million of its common stock at a cost of up to ¥250,000 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...

  • Page 103
    ...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...

  • Page 104
    ...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...

  • Page 105
    ...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. Transfer to the government of the Substitutional Portion of the Employee Pension Fund Liabilities- The parent company and certain subsidiaries in Japan...

  • Page 106
    ... 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.

  • Page 107
    ... contributions...Plan participants' contributions...Assets transferred to the government due to the separation of substitutional portion ...Benefits paid ...Fair value of plan assets at end of year...Funded status...Unrecognized actuarial loss ...Unrecognized prior service costs ...Unrecognized...

  • Page 108
    ... benefit obligation...Fair value of plan assets ... ¥1,051,841 954,158 349,217 ¥512,571 489,975 63,675 $4,773 4,563 593 Components of the net periodic pension cost are as follows: Yen in millions For the years ended March 31, 2004 U.S. dollars in millions For the year ended March 31, 2005...

  • Page 109
    ...TO CONSOLIDATED FINANCIAL STATEMENTS > 107 Weighted-average assumptions used to determine net periodic pension cost for the years ended March 31, 2003, 2004 and 2005 are as follows: 2003 For the years ended March 31, 2004 2005 Discount rate...Expected return on plan assets ...Rate of compensation...

  • Page 110
    ... 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...

  • Page 111
    ... March 31, 2005 Carrying Estimated amount fair value Asset (Liability) Cash and cash equivalents ...Time deposits ...Total finance receivables, net...Other receivables ...Short-term borrowings ...Long-term debt including the current portion ...Foreign exchange forward contracts ...Interest rate and...

  • Page 112
    ...- The fair values of short-term borrowings and total longterm 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...

  • Page 113
    ...MAY AFFECT FUTURE OPERATIONS Commitments outstanding at March 31, 2005 for the purchase of property, plant and equipment and other assets approximated ¥87,617 million ($816 million). Toyota enters into contracts with Toyota dealers to guarantee customers' payments of their installment payables that...

  • Page 114
    ..., 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...

  • Page 115
    ... for the year ended March 31, 2005: Yen in millions Financial Services Inter-segment Elimination/ Unallocated Amount Automotive All Other Total Revenues External customers...Inter-segment ...Total revenue ...Operating expenses ...Operating income...Segment assets ...Investment in equity method...

  • Page 116
    ...with Statement of Financial Accounting Standards No. 91. Yen in millions North America Other foreign countries Inter-segment Elimination/ Unallocated Amount Japan Europe Total Revenues External customers...Inter-segment ...Total revenue ...Operating expenses ...Operating income...Segment assets...

  • Page 117
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS > 115 As of and for the year ended March 31, 2005: Yen in millions North America Other foreign countries Inter-segment Elimination/ Unallocated Amount Japan Europe Total Revenues External customers...Inter-segment ...Total revenue ...Operating ...

  • Page 118
    ... Toyota's non-financial services and financial services businesses. Balance sheets- Yen in millions March 31, 2004 2005 U.S. dollars in millions March 31, 2005 Non-Financial Services Businesses Current assets Cash and cash equivalents ...Time deposits ...Marketable securities ...Trade accounts...

  • Page 119
    ...Accounts payable ...Accrued expenses ...Income taxes payable...Other current liabilities ...Total current liabilities...Long-term liabilities Long-term debt ...Accrued pension and severance costs ...Other long-term liabilities...Total long-term liabilities ...Total Non-Financial Services Businesses...

  • Page 120
    ... FINANCIAL STATEMENTS Statement of income- Yen in millions For the year ended March 31, 2004 U.S. dollars in millions For the year ended March 31, 2005 2003 2005 Non-Financial Services Businesses Net revenues...Costs and expenses Cost of revenues ...Selling, general and administrative ...Total...

  • Page 121
    ... flows from financing activities Purchase of common stock...Proceeds from issuance of long-term debt ...Payments of long-term debt ...Increase (decrease) in short-term borrowings...Dividends paid...Other ...Net cash provided by (used in) financing activities...Effect of exchange rate changes on cash...

  • Page 122
    ... accounts and credit losses ...15,752 Pension and severance costs, less payments ...(53,401) Loss on disposal of fixed assets...48,334 Unrealized losses on available-for-sale securities, net.. 2,324 Deferred income taxes ...29,398 Minority interest in consolidated subsidiaries ...63,952 Equity...

  • Page 123
    ... Share, Toyota discloses this information in order to provide financial statement users with valuable information. Yen in millions Net assets Thousands of shares Shares issued and outstanding at the end of the year Yen Net assets per share U.S. dollars Net assets per share March 31, 2004 Net assets...

  • Page 124
    ... PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Toyota Jidosha Kabushiki Kaisha ("Toyota Motor Corporation") In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly...

  • Page 125
    ...ASSEMBLY AFFILIATES Company name Main products* Start of operations Voting rights ratio** (%) Capital (Â¥ million) Toyota Motor Kyushu, Inc. Toyota Motor Hokkaido, Inc. Toyota Motor Tohoku Co., Ltd. Toyota Auto Body Co., Ltd. Kanto Auto Works, Ltd. Harrier, Kluger Transmissions, drivetrain parts...

  • Page 126
    ... (Plants that manufacture or assemble Toyota- or Lexus-brand vehicles and component manufacturers established by Toyota) NORTH AMERICA Company name Start of operations Voting rights ratio* (%) Products** Canada 1 2 Canadian Autoparts Toyota Inc. (CAPTIN) Toyota Motor Manufacturing Canada Inc...

  • Page 127
    ...AFRICA Company name Start of operations Voting rights ratio* (%) Products** Kenya South Africa 1 2 Associated Vehicle Assemblers Ltd. Toyota South Africa Motors (Pty) Ltd. Aug. 1977 June 1962 - 100.00 Hiace, Hilux, Land Cruiser Corolla, Dyna, Hiace, Hilux, catalytic converters, engines Europe...

  • Page 128
    ... Company name Start of operations Voting rights ratio* (%) Products** China 1 2 3 4 5 6 7 8 9 Tianjin Jinfeng Auto Parts Co., Ltd. Tianjin Toyota Motor Engine Co., Ltd. Tianjin Fengjin Auto Parts Co., Ltd. Tianjin Toyota Forging Co., Ltd. Tianjin FAW Toyota Motor Co., Ltd. Sichuan Toyota Motor...

  • Page 129
    ... Motor Corporation Australia Ltd. (TMCA) Apr. 1963 100.00 Camry, engines MIDDLE EAST AND SOUTHWEST ASIA Company name Start of operations Voting rights ratio* (%) Products** Bangladesh India 1 2 3 Aftab Automobiles Ltd. Toyota Kirloskar Motor Private Ltd. (TKM) Toyota Kirloskar Auto Parts...

  • Page 130
    ... invited 40 overseas environmental managers from 31 work sites in 21 countries to Japan for a training seminar. Bioplastics pilot plant * For additional information, please refer to the following web sites: (Japanese) http://www.toyota.co.jp/envrep05/ (English) http://www.toyota.co.jp/en/envrep05...

  • Page 131
    ... been supporting the parent-and-child educational programs run by the National Center for Family Literacy since 1991. Further, we have established the Toyota Family Literacy Program, mostly targeting immigrants from the Spanish-speaking countries of Central and South America. In Europe, we sponsor...

  • Page 132
    ... 15 other Group companies, offers a glimpse of Toyota's advanced technology through performances and exhibits. As of July 4th, 10 million people had visited EXPO 2005. Our pavilion has become one of the event's main attractions. In the main theater, a Toyota Partner Robots band Toyota Group Pavilion...

  • Page 133
    ... year's triumph at the storied Indy 500 race, we rounded off the season in style with a victory in the final race of the season in Texas. In 2005, Toyota engines are powering 10 cars used by six teams. In addition, the Toyota Driver Development Program grooms drivers for high-level competition...

  • Page 134
    ... Management, Technical Administration, Design, Product Development, Vehicle Engineering, Motor Sports) Kyoji Sasazu Domestic Sales Operations Katsuhiro Nakagawa Mitsuo Kinoshita Corporate Planning / General Administration & Human Resources / Finance & Accounting / Information Systems / Business...

  • Page 135
    ... Group / Customer Service Operations Group Hajime Wakayama Business Development Group / Purchasing Group Shoji Ikawa Production Engineering Group Hiroshi Takada Overseas Planning Operations Group BOARD OF CORPORATE AUDITORS Teiji Tachibana General Administration & Human Resources Group / Housing...

  • Page 136
    ...New York, London SHARES OF COMMON STOCK 3,609,997,492 shares issued NUMBER OF SHAREHOLDERS 352,029 MAJOR SHAREHOLDERS (TOP 10) Japan Trustee Services Bank, Ltd. The Master Trust Bank of Japan, Ltd. Toyota Industries Corporation Nippon Life Insurance Co. Trust & Custody Services Bank, Ltd. Shinsei...

  • Page 137
    CONSOLIDATED OPERATING SUMMARY > 135 TOYOTA'S SHARE PRICE AND TRADING VOLUME ON THE TOKYO STOCK EXCHANGE ¥6,000 ¥5,000 ¥4,000 ¥3,000 ¥2,000 ¥1,000 ¥0 180 150 120 90 60 30 0 Share price Trading volume (million shares) 2000 2001 2002 2003 2004 2005

  • Page 138
    1, Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan www.toyota.co.jp Printed in Japan