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Geared toward Continuing Growth
Annual Report 2006
Year ended March 31, 2006

Table of contents

  • Page 1
    Annual Report 2006 Year ended March 31, 2006 Geared toward Continuing Growth

  • Page 2
    ... Responsible for Finance & Accounting Special Feature: The Camry Challenge-Simultaneous Worldwide Start-Up- Business Overview R&D and Intellectual Property Risk Factors Corporate Governance Directors and Auditors Corporate Philosophy Environmental and Social Initiatives Motorsports Financial...

  • Page 3
    ...where its products are produced, distributed or sold. A discussion of these and other factors which may affect Toyota's actual results, performance, achievements or financial position is contained in Toyota's annual report on Form 20-F, which is on file with the United States Securities and Exchange...

  • Page 4
    ... 2006 % change 2005 vs 2006 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 ...Stock Information (March 31): Stock Price...

  • Page 5
    ...units A new record '02 '03 '04 '05 '06 Cash Dividends per Share (¥) 100 80 60 40 20 0 FY Vehicle Sales by Region Other Regions Japan +¥25.00 Annual Cash Dividends per Share Asia 14.4% 11.0% FY 2006 12.8% 29.7% ¥90.00 Europe 32.1% North America '02 '03 '04 '05 '06 7 consecutive years of...

  • Page 6
    Chairman's Message Head Office (Toyota City, Aichi Prefecture, Japan) 4

  • Page 7
    ...as human resources development, the promotion of localization, and the development of technologies that satisfy society's growing calls for environmental and safety measures. I firmly believe that by steadfastly working to meet those management challenges Toyota will achieve stable, long-term growth...

  • Page 8
    President's Message Global Production Center (GPC), Toyota City, Aichi Prefecture, Japan 6

  • Page 9
    ... changes in the world. At the same time, Toyota will foster good relations with all of its stakeholders to become a global company in which people and local communities around the world place long-term trust. I ask our shareholders and other investors for their continued support. July 2006...

  • Page 10
    ...dealers in Europe and China. Meanwhile, we increased production capacity at home and abroad to allow us to cater flexibly to growing global demand. It gives me great pride and pleasure that because of those initiatives the Toyota Group was able to provide close to eight million vehicles to customers...

  • Page 11
    ... based on new ideas and approaches and accelerate the development of systems and technology that enable the lower-cost manufacturing and development of products with outstanding performance and quality. Cost reduction benefits will play a major role in bolstering Toyota's market competitiveness...

  • Page 12
    ... the accelerating expansion of our operations worldwide, we need to rapidly establish selfsupporting local business organizations and localize management. Because employees are the key to such efforts, we are currently developing employee-training programs and creating systems to further promote...

  • Page 13
    ... and cost. As for models, plans call for a doubling of the current lineup of seven passenger-car-type hybrid models early in the 2010s. Our second key growth strategy is the advancement of localization. To meet heavier demand worldwide, we will raise the ratio of local production-globally balancing...

  • Page 14
    ...-which account for more than 30% of consolidated vehicle sales-to step up marketing initiatives. In line with this strategy, we have already launched a completely remodeled Camry, which was the result of a successful development project tasked with achieving a simultaneous worldwide production start...

  • Page 15
    ... profits to our shareholders as an important management policy. Our approach for returns to shareholders has three main aspects: first, the implementation of returns to shareholders on a consolidated basis; second, the change to consolidated dividend payout ratios as the main determinant of dividend...

  • Page 16
    ..., starting up overseas plants steadily, and managing fixed costs globally. 2. Efficiency Enhance profitability and capital efficiency 3. Stability Maintain solid financial base Balanced implementation of 1. - 3. over the medium to long term 3. Stability: Maintaining a solid financial base Toyota...

  • Page 17
    ... products, develop next-generation technology, and establish production and sales systems in Japan and overseas for the global expansion of operations. Dividends and Acquisition of Shares Toyota believes that actively returning profits to its shareholders is an important management policy and...

  • Page 18
    ... at Detroit's North American International Auto Show in January 2006. However, the new Camry marks more than just another model change. Remodeled for the first time in four and a half years, the Camry is a mainstay of Toyota's worldwide business, and its launch heralded the start of a revolution at...

  • Page 19
    ... sales in approximately 170 countries and regions, we aim to build cars that are the first choice of customers the world over. The foundation of these efforts to popularize the Toyota brand and secure earnings worldwide consists of our three global models-the Corolla, Camry, and Yaris (Vitz in Japan...

  • Page 20
    ...global models. By "global best" we mean building cars with common value worldwide while pursuing the world's highest levels of quality and performance. The global best concept is fundamental to the Toyota mind-set. We want to give superior quality and outstanding cost performance to customers buying...

  • Page 21
    ... Challenge -Simultaneous Worldwide Start-Up- Solidarity Was the Cornerstone of Team Camry's Success Kenichiro Fuse Chief Engineer, Product Development Group, Toyota Motor Corporation The Camry-one of Toyota's flagship global models-claims the largest share of the U.S. passenger car market. So for...

  • Page 22
    ... Coetzee Vice President, Product Planning Department, Toyota Motor Sales, U.S.A., Inc. My job was to reflect feedback from U.S. Camry drivers and our dealers in the development process of the new-model Camry. The Camry is an outstanding vehicle, much-loved by many customers in the States. However...

  • Page 23
    ... Key to Success in a Global Project John Bell Chief Engineer, Product Office, Toyota Motor Corporation Australia Ltd. (TMCA) As the leader of the Camry project at the plant in Australia, I was heavily involved in coordination with Toyota's head office from the start of development, visiting Japan...

  • Page 24
    ... to a Single Drawing Hidekazu Otowa General Manager, Body Engineering Division 1, Toyota Development Center 1, Toyota Motor Corporation Common technical drawings for each component were a precondition for the realization of a simultaneous worldwide production start-up. My task was to prepare...

  • Page 25
    The Camry Challenge -Simultaneous Worldwide Start-Up- Consolidating the Requests of Various Plants into a Single Set of Drawings Noriaki Ikari Project General Manager, Global Production Center (GPC), Toyota Motor Corporation My job was to examine the technical drawings from the standpoint of ...

  • Page 26
    ...head office and to work with the design department to realize those ideas. Our achievements will likely become the new benchmarks for cost reduction activities in our global development of vehicles. Moreover, the line had a trouble-free start-up, reaching peak production in a very short time. Cost...

  • Page 27
    ... General Manager, Quality Control Division, Toyota Motor Manufacturing, Kentucky, Inc. (TMMK) Our primary role was to meet customers' ever demanding quality expectations with the new Camry. Fundamental to this goal was the establishment of "One Voice" to Design from all manufacturing locations. For...

  • Page 28
    ...local communities. For our other core global models, which are thriving in markets worldwide alongside the Camry, we are embarking on new ventures to fulfill their different missions. Adding to production in Japan and In May 2006, the Camry began rolling off the line at a newly constructed plant in...

  • Page 29
    The new Camry development project took on the daunting tasks of pursuing the commitments to global best, local best and achieving the simultaneous worldwide start-up of production, and the fruits of those efforts are steadily emerging. Now, as it heads for new horizons, Toyota is taking up new ...

  • Page 30
    ... Europe 1,201 880 836 405 Middle East Asia Japan North America 233 122 251 113 253 132 Central and South America Oceania Africa Contents 30 Automotive Operations 30 32 34 36 38 Lexus Japan North America Europe Asia and Other Regions 40 Financial Services Operations 41 Other Business...

  • Page 31
    ..., was due to such factors as the valuation losses on interest rate swaps stated at fair value and the gain in fiscal 2005 to record prior-year adjustments relating to accounting for loan origination costs by a sales finance subsidiary in the United States. Revenues and Operating Income (Â¥ Billion...

  • Page 32
    ... when Lexus debuted, and March 2006. Plans call for expansion of the network of dedicated Lexus dealers from the initial 151 to about 180. Product Strategy Lexus Vehicle Sales (Thousands of units) 500 400 300 Market Strategy Move from North America to Europe, Asia, and Japan 200 100 0 FY '02...

  • Page 33
    ... market support. Further, we have slated a complete transformation of the flagship Lexus LS model in time for its September 2006 debut in Japan. Spring 2007 will witness the launch of an LS hybrid model. In February 2006 in Europe, we unveiled the Lexus IS featuring an advanced clean diesel engine...

  • Page 34
    ... developing and offering products with enhanced appeal amid steady trends in its home market. Market Conditions Vehicle Sales in Japan (Thousands of units) 2,500 -1.9% 1,769 -0.7% 2,000 2,364 Steady demand in domestic market as automotive market undergoes structural change Fiscal 2006 saw total...

  • Page 35
    ...-to-long-term growth. To spur replacement demand by creating new value in cars, Toyota will offer products that customers find even more appealing and move forward with technology development. Further, we will continue restructuring sales channels to cater to customers with diverse needs and values...

  • Page 36
    .... * Toyota plans to fill the 30,000-vehicle gap relative to total plant production capacity by enhancing efficiency and increasing personnel at existing plants. ** The California plant is a Toyota-General Motors joint venture company that is accounted for using the equity method. Production capacity...

  • Page 37
    ... at the Michigan research and development center. Avalon Tacoma New Company Overseeing R&D and Production In April 2006 in Erlanger, Kentucky, Toyota established a company with overall control of research and development and production in North America: Toyota Motor Engineering & Manufacturing...

  • Page 38
    ...'06 Consolidated vehicle sales Consolidated production Diesel Vehicle Sales and Diesel Sales Ratio (Thousands of units) 400 Eighth straight sales record takes market share above 5% for first time 40 40.3% (%) +10.6% 345 300 30 In Europe in fiscal 2006, Toyota posted its highest-ever sales for...

  • Page 39
    ... ability to develop products that reflect Europe's diversifying market, we expanded Toyota Motor Europe's Technical Center, completing new offices and testing facilities in January 2006. The Technical Center will handle body engineering for models to be built in Europe and diesel engine evaluation...

  • Page 40
    ... the markets of Central and South America and Africa demonstrated that the global auto market continues to grow. Performance Overview production volumes in China and Africa. IMV Strategy 400 200 Speed up development of global project in readiness for increased demand With production centered on...

  • Page 41
    ...Sichuan 2000 December~ Coaster 2003 September~ Land Cruiser Prado Guangzhou 2006 May~ Camry Exhibiting the new-model REIZ Inauguration of Plant in Thailand In December 2005, Toyota's vehicle production and sales company in Thailand, Toyota Motor Thailand Co., Ltd. (TMT), held a cornerstone-laying...

  • Page 42
    ... of the Company's core automotive operations. Because car purchases often require auto loans, delivering superior quality auto sales financing is a key part of competitive marketing. Covering 31 countries and regions, including Japan, financial services operations center on Toyota Financial Services...

  • Page 43
    ... and development and proving tests. Information Technology and Telecommunications Business helps cultivate long-term relationships with customers mainly in Thailand, Australia, and China. Housing Business Toyota is focusing its efforts on developing homes that feature outstanding functionality...

  • Page 44
    ... Auto Works, Ltd., advance product development in close collaboration with Toyota's R&D. Further, Toyota is constructing a global development organization. We have established technical centers in North America, Europe, Asia, and Oceania in order to build cars that cater accurately to customer needs...

  • Page 45
    ... freely, gain access, communicate, trade, and establish relationships without sacrificing other essential human or ecological values today or in the future." R&D Facilities Note: Please see the R&D Organization section on page 132 for full names. Toyota Technical Center TEMA (Ann Arbor, Michigan...

  • Page 46
    ... and times planned by management. Toyota's inability to develop and offer products that meet customer demand in a timely manner can result in a lower market share and reduced sales volumes and margins, and may adversely affect Toyota's financial conditions and results of operations. The worldwide...

  • Page 47
    ... in North America and Europe. Increased competition in automobile financing may lead to decreased margins. A decline in Toyota's vehicle unit sales, an increase in residual value risk due to lower used vehicle price and increased funding costs are factors which may impact Toyota's financial services...

  • Page 48
    ... in international society through open and fair business activities that honor the language and spirit of the law of every nation. In order to put that philosophy into practice, Toyota builds favorable relationships with all of its stakeholders, including shareholders, customers, business partners...

  • Page 49
    ...Round Table Conference Board of Corporate Auditors Majority are outside corporate auditors Monitoring Board of Directors Corporate Philanthropy Committee Toyota Environment Committee Corporate Ethics Committee Stock Option Committee Senior Managing Directors Financial statement audits based on...

  • Page 50
    ... disclosure of corporate and financial information as a critical responsibility in corporate governance, and the Company works to enhance its accountability to shareholders and other investors. With respect to financial information, in addition to quarterly reporting of financial statements, we made...

  • Page 51
    ... in corporate governance practices between Toyota and U.S. companies listed on the New York Stock Exchange, please refer to the annual report on Form 20-F filed with the United States Securities and Exchange Commission. Form 20-F can be viewed at the Company's web site (http://www.toyota.co...

  • Page 52
    ..., Product Development, Vehicle Engineering, Motor Sports) Kyoji Sasazu Global Planning Operations / Japan Sales Operations President, Member of the Board Mitsuo Kinoshita Katsuaki Watanabe Corporate Planning / General Administration & Human Resources / Finance & Accounting / Information Systems...

  • Page 53
    ...Toyota Motor North America, Inc.) (Toyota Motor Sales, U.S.A., Inc.) Yoshio Shirai Product Development Group Takeshi Suzuki Business Development Group / Accounting Group Yoichiro Ichimaru Japan Sales Operations Group / Customer Service Operations Group Atsushi Niimi Strategic Production Planning...

  • Page 54
    ... through open and fair communication. • Based on our philosophy of "Customer First", we develop and provide innovative, safe and outstanding high quality products and services that meet a wide variety of customers' demands to enrich the lives of people around the world. (Guiding Principles 3 and...

  • Page 55
    ... Principles 5) • Management of each company takes leadership in fostering a corporate culture and implementing policies, that promote ethical behavior. (Guiding Principles 1 and 5) • We respect our business partners such as suppliers and dealers and work with them through long-term relationships...

  • Page 56
    ... total production that meets the Ultra-Low-Emission Vehicle level reached 96%. â- In March 2006, the Lexus GS450h equipped with a newly developed dedicated hybrid system for rear-wheel-drive passenger vehicles was launched, widening the market base for hybrid vehicles. â- Worldwide sales of Toyota...

  • Page 57
    ... for employment of persons 60 years and older was reviewed. Training at GPC At the 60th anniversary commemorative event (January 2006) Toyota Child Care Bubu Land Cooperation with Business Partners â- The "Toyota Green Purchasing Guidelines" were revised. â- Toyota dealers in Japan adopted...

  • Page 58
    ... of motorsports in Japan and overseas through the promotion of the Toyota Driver Development Program, which scouts highly motivated, talented individuals and, in line with their ability, helps them move up the ladder of international motorsports. * NASCAR is the common name for the stock car races...

  • Page 59
    ... Summary Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of...

  • Page 60
    ... Financial Summar y (U.S. GA AP) Toyota Motor Corporation Fiscal years ended March 31 2002 Yen in millions except per share data, stock information, and other data 2003 2004 2005 2006 % change 2005 vs 2006 For the Year: Net Revenues: Sales of Products ...Financing Operations ...Total ...Costs...

  • Page 61
    Consolidated Segment Information Toyota Motor Corporation Fiscal years ended March 31 2004 Yen in millions 2005 2006 % change 2005 vs 2006 By Business Operations: Revenues: Automotive ...Financial Services ...All Other ...Intersegment Elimination...Total Company...Operating Income: Automotive ...

  • Page 62
    ... Quarterly Financial Summar y Toyota Motor Corporation Fiscal years ended March 31 First Quarter 2005 2006 Yen in billions Second Quarter Third Quarter 2005 2006 2005 2006 Fourth Quarter 2005 2006 Net Revenues...Operating Income...Income before Income Taxes, Minority Interest and Equity in...

  • Page 63
    ... following table sets forth Toyota's consolidated vehicle unit sales by geographic market based on location of customers for the past three fiscal years. Thousands of units Year ended March 31, 2004 2005 2006 Japan...North America...Europe...Asia ...Other...Overseas total...Total... 2,303 2,103 898...

  • Page 64
    ... Europe. As competition increases, margins on financing transactions may decrease and market share may also decline as customers obtain financing for Toyota vehicles from alternative sources. Toyota's financial services operations mainly include loans and leasing programs for customers and dealers...

  • Page 65
    ... resale prices of used vehicles and, correspondingly, the fair value of Toyota's leased vehicles could be subject to downward pressure. During fiscal 2005 and 2006, losses have decreased mainly due to a decrease in the number of vehicles returned. See discussion in the Critical Accounting Estimates...

  • Page 66
    ... trading purposes. See discussion in the Critical 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...

  • Page 67
    ... based on the country location of the parent company or the subsidiary that transacted the sale with the external customer for the past three fiscal years. Revenues by Market 6.8% 8.7% 12.2% 36.8% FY 2006 35.5% Japan Asia North America All Other Markets Europe Yen in millions For the year ended...

  • Page 68
    ... the yen value used for translation purposes, net revenues in fiscal 2006 would have increased by 4.4% in Japan, 14.2% in North America, 9.2% in Europe, 11.1% in Asia and 24.4% in Other compared with the prior year. The following is a discussion of net revenues for each of Toyota's business segments...

  • Page 69
    ... 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 exemption from the payment of benefits related to future employee services...

  • Page 70
    ... in Europe, an increase of ¥51.7 billion, or 55.2%, in Asia and ¥19.8 billion, or 41.6% in Other compared with the prior year. The increase in Japan relates primarily to the vehicle unit sales growth in the export markets partially offset by changes in sales mix, continued cost reduction efforts...

  • Page 71
    ... of errors relating to prior periods (see note 24 to the consolidated financial statements), despite of the increase in the finance receivables asset base and the favorable impact of fluctuations in foreign currency translation rates. All Other Operations Segment Income Taxes The provision...

  • Page 72
    ... the yen value used for translation purposes, net revenues in fiscal 2005 would have increased by 3.4% in Japan, 10.0% in North America, 12.2% in Europe, 34.9% in Asia and 5.5% in Other compared with the prior year. The following is a discussion of net revenues for each of Toyota's business segments...

  • Page 73
    ... increase in parts and service sales. These increases were partially offset by approximately ¥160.0 billion of cost reduction efforts in fiscal 2005. In 2001, the Corporate Defined Benefit Pension Plan Law was enacted and the parent company and certain subsidiaries in Japan completed the...

  • Page 74
    ... by changes in sales mix and continued cost reduction efforts. The increase in North 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...

  • Page 75
    attributed to business expansion in North America and the impact of fluctuations in foreign currency translation rates. The increase in the European market operating income relates mainly to the impact of cost reduction efforts in the manufacturing operations, an increase in production volume and ...

  • Page 76
    ... in the prices of raw materials. Toyota expects that income before income taxes, minority interest and equity in earnings of affiliated companies and net income will decrease slightly in fiscal 2007 due to the posting of a ¥143.3 billion gain on exchange of marketable securities in fiscal 2006 that...

  • Page 77
    ... provided by financing activities resulted primarily from an increase in short-term debt and a decrease in repurchasing shares of common stock of Toyota Motor Corporation. Total capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases, were ¥1,523...

  • Page 78
    ...working capital financing provided to dealers. These increases were partially offset by the decrease in finance leases. As of March 31, 2006, finance receivables were geographically distributed as follows: 65.1% in North America, 14.3% in Japan, 9.7% in Europe, 2.9% in Asia and 8.0% in Other. Toyota...

  • Page 79
    ... employee. The unfunded pension liabilities decreased in fiscal 2006 compared to the prior year mainly due to the increase in the market value of assets of the plans. See note 19 to the consolidated financial statements. Toyota SPE (Wholly-owned by Toyota) QSPE (Securitization Trust) Investors...

  • Page 80
    ... 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 81
    ... 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 ¥1,334.4 billion as of March 31, 2006. Guarantees...

  • Page 82
    ... ...Commercial paper...Long-term debt * (note 13)...Capital lease obligations (note 13)...Non-cancelable operating lease obligations (note 22) ...Commitments for the purchase of property, plant and other assets (note 23)...Total ...* "Long-term debt" represents future principal payments. ¥ 986...

  • Page 83
    ... 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 84
    ... the related sale is recognized. The accrued warranty costs represent management's best estimate at the time of sale of the total costs that Toyota will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on...

  • Page 85
    ... affect Toyota's pension costs and obligations. The two most critical assumptions impacting the calculation of pension costs and obligations are the discount rates and the expected rates of returns on plan assets. Toyota determines the discount rates mainly based on the rates of high quality fixed...

  • Page 86
    ... exchange rates, interest rates and certain commodity and equity security prices. In order to manage the risk arising from changes in foreign currency exchange rates and interest rates, Toyota enters into a variety of derivative financial instruments. A description of Toyota's accounting policies...

  • Page 87
    ... stock levels. Equity Price Risk Toyota holds investments in various available-for-sale equity securities that are subject to price risk. The fair value of available-for-sale equity securities was ¥904.8 billion as of March 31, 2005 and ¥1,469.1 billion as of March 31, 2006. The potential change...

  • Page 88
    Consolidated Balance Sheets Toyota Motor Corporation March 31, 2005 and 2006 Yen in millions ASSETS 2005 2006 U.S. dollars in millions 2006 Current assets Cash and cash equivalents...Â¥ 1,483,753 Time deposits ...63,609 Marketable securities ...543,124 Trade accounts and notes receivable, less...

  • Page 89
    ...-term liabilities...Total long-term liabilities ... 5,014,925 646,989 811,670 84,342 6,557,926 5,640,490 679,918 1,092,995 139,428 7,552,831 48,016 5,788 9,305 1,187 64,296 Minority interest in consolidated subsidiaries ... 504,929 589,580 5,019 Shareholders' equity Common stock, no par value...

  • Page 90
    Consolidated Statements of Income Toyota Motor Corporation For the years ended March 31, 2004, 2005, and 2006 2004 Yen in millions 2005 2006 U.S. dollars in millions 2006 Net revenues Sales of products...Â¥16,578,033 Financing operations ...716,727 17,294,760 Costs and expenses Cost of products...

  • Page 91
    ... Statements of Shareholders' Equity Toyota Motor Corporation For the years ended March 31, 2004, 2005, and 2006 Common stock Additional paid-in capital Yen in millions Accumulated other Retained comprehensive earnings income (loss) Treasury stock, at cost Total shareholders' equity Balances...

  • Page 92
    ... 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 93
    ... financing, vehicle and equipment leasing and certain other financial services primarily to its dealers and their customers to support the sales of vehicles and other products manufactured by Toyota. 2. Summary of significant accounting policies: The parent company and its subsidiaries in Japan...

  • Page 94
    ... is based on the consideration of such factors as operating results, business plans and estimated future cash flows. Fair value is determined principally through the use of the latest financial information. Finance receivables- Finance receivables are recorded at the present value of the related...

  • Page 95
    ... a plan of action. The cost of each environmental liability is estimated by using current technology available and various engineering, financial and legal specialists within Toyota based on current law. Such liabilities do not reflect any offset for possible recoveries from insurance companies and...

  • Page 96
    ... per share if the company had applied the fair value recognition provisions of FAS No. 123, Accounting for Stock-Based Compensation ("FAS 123"), to stock-based employee compensation. See note 18 to the consolidated financial statements for weighted-average assumptions used in option pricing model...

  • Page 97
    ... 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 98
    ...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 99
    ...,242 ¥160,105 Cost U.S. dollars in millions March 31, 2006 Gross Gross unrealized unrealized gains losses Fair value Available-for-sale Debt securities...Equity securities...Total ...Securities not practicable to determine fair value Debt securities...Equity securities...Total ... $20,711 5,630...

  • Page 100
    ... value of the post-merger entity, Mitsubishi UFJ Financial Group, Inc. common shares which Toyota received in exchange for UFJ Holdings, Inc. common shares. The gain was non-cash gain and included in the cost of the available-for-sale equity securities as of March 31, 2006. During the years ended...

  • Page 101
    ...: Yen in millions March 31, 2005 U.S. dollars in millions March 31, 2006 2006 Minimum lease payments ...Estimated unguaranteed residual values ...Deferred origination costs ...Less-Unearned income...Less-Allowance for credit losses ...Finance leases, net ... ¥485,696 271,036 756,732 1,900 (71,702...

  • Page 102
    ...31, 2004, 2005 and 2006 were as follows: 2004 For the years ended March 31, 2005 2006 Prepayment speed related to securitizations ...Weighted-average life (in years) ...Expected annual credit losses...Discount rate used on the subordinated securities...Discount rate used on other retained interests...

  • Page 103
    ......Expected credit losses (annual rate) ...Impact on fair value of 10% adverse change ...Impact on fair value of 20% adverse change ... 0.7%-1.5% ¥(136) (271) 5.0%-12.0% ¥ (172) (341) 0.05%-0.41% ¥ (56) (125) $(1) (2) $(1) (3) $(0) (1) These hypothetical scenarios do not reflect expected market...

  • Page 104
    ... years ended March 31, 2004, 2005 and 2006. A portion of the allowance for doubtful accounts balance at March 31, 2005 and 2006 totaling ¥37,095 million and ¥42,597 million ($363 million), respectively, is attributed to certain non-current receivable balances which are reported as other assets in...

  • Page 105
    ... 31, 2006 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 for by the equity method at end of...

  • Page 106
    ...millions For the year ended March 31, 2006 Yen in millions For the years ended March 31, 2005 2004 2006 Net revenues ...Purchases ... ¥ 883,112 2,577,696 ¥1,150,523 2,923,325 ¥1,394,071 3,356,626 $11,867 28,574 Dividends from affiliated companies accounted for by the equity method for the...

  • Page 107
    ...2006, property, plant and equipment with a book value of ¥100,753 million ($858 million) and in addition, other assets aggregating ¥42,628 million ($363 million) were pledged as collateral mainly for certain debt obligations of subsidiaries. The aggregate amounts of annual maturities of long-term...

  • Page 108
    ... 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...

  • Page 109
    ... 31, 2005 2006 U.S.dollars in millions March 31, 2006 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 110
    ... 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, 2004, 2005 and 2006...

  • Page 111
    ... 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...

  • Page 112
    ...2006 and the related changes, net of taxes for the years ended March 31, 2004, 2005 and 2006 consist of the following: Foreign currency translation adjustments Yen in millions Minimum Unrealized pension gains on liability securities adjustments Accumulated other comprehensive income (loss) Balances...

  • Page 113
    ... 23, 2006, at the Ordinary General Shareholders' Meeting, the shareholders of the parent company approved the authorization of an additional up to 3,500,000 shares for issuance under the Toyota's stock option plan for board members and key employees. Number of options Options outstanding at March...

  • Page 114
    ... service cost, which will be recognized in future service periods. Effective October 1, 2005, the parent company partly mended its retirement plan and introduced the quasi cash-balance 112 plan under which benefits are determined based on the variable-interest crediting rate rather than the fixed...

  • Page 115
    ... for the exemption from benefit payments related to employee services of the Substitutional Portion. In January 2004, Toyota Motor Pension Fund completed the transfer of the plan assets attributable to the Substitutional Portion to the government. In addition, during the years ended March 31, 2004...

  • Page 116
    ... gain or loss...Acquisition and other...Benefits paid...Benefit obligation at end of year ...Change in plan assets Fair value of plan assets at beginning of year...Actual return on plan assets ...Acquisition and other...Employer contributions ...Plan participants' contributions ...Assets transferred...

  • Page 117
    ... net periodic pension cost are as follows: Yen in millions For the years ended March 31, 2004 2005 U.S. dollars in millions For the year ended March 31, 2006 2006 Service cost ...Interest cost ...Expected return on plan assets ...Amortization of prior service costs ...Recognized net actuarial loss...

  • Page 118
    ... as follows: Plan assets at March 31, 2005 2006 Equity securities...Debt securities...Real estate...Other ...Total ... 64.0% 21.5 0.5 14.0 100.0% 68.2% 18.8 0.5 12.5 100.0% Toyota's policy and objective for plan asset management is to maximize returns on plan assets to meet future benefit payment...

  • Page 119
    ...currency exchange rates. Toyota does not use derivatives for speculation or trading. For the years ended March 31, 2004, 2005 and 2006, the ineffective portion of Toyota's fair value hedge relationships which are included in cost of financing operations in the accompanying consolidated statements of...

  • Page 120
    ... 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. Finance receivables, net- The carrying value of variable rate...

  • Page 121
    ..., 2006 are as follows: Years ending March 31, Yen in millions U.S. dollars in millions 2007 ...2008 ...2009 ...2010 ...2011 ...Thereafter...Total minimum lease payments...Less-Amount representing interest...Present value of net minimum lease payments ...Less-Current obligations ...Long-term capital...

  • Page 122
    ... and factors that may affect future operations: Commitments outstanding at March 31, 2006 for the purchase of property, plant and equipment and other assets totaled ¥103,324 million ($880 million). Toyota enters into contracts with Toyota dealers to guarantee customers' payments of their...

  • Page 123
    ... 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...

  • Page 124
    ...the year ended March 31, 2006: Yen in millions Financial Services Inter-segment Elimination/ Unallocated Amount Automotive All Other Consolidated Net revenues Sales to external customers ...Inter-segment sales and transfers ...Total...Operating expenses...Operating income ...Assets ...Investment...

  • Page 125
    ... ended March 31, 2004: Yen in millions North America Inter-segment Elimination/ Unallocated Amount Japan Europe Asia Other Consolidated Net revenues Sales to external customers ...Inter-segment sales and transfers...Total...Operating expenses...Operating income ...Assets ...Long-lived assets...

  • Page 126
    ... ended March 31, 2006: Yen in millions North America Inter-segment Elimination/ Unallocated Amount Japan Europe Asia Other Consolidated Net revenues Sales to external customers ...Inter-segment sales and transfers...Total...Operating expenses...Operating income ...Assets ...Long-lived assets...

  • Page 127
    ... Toyota's non-financial services and financial services businesses. Balance sheets- Yen in millions March 31, 2005 2006 U.S.dollars in millions March 31, 2006 Non-Financial Services Businesses Current assets Cash and cash equivalents...Time deposits...Marketable securities ...Trade accounts...

  • Page 128
    ... ...Long-term liabilities Long-term debt...Accrued pension and severance costs ...Other long-term liabilities...Total long-term liabilities...Total Financial Services Businesses liabilities ...Eliminations ...Total liabilities ...Minority interest in consolidated subsidiaries ...Shareholders' equity...

  • Page 129
    Statements of income- Yen in millions For the years ended March 31, 2005 U.S. dollars in millions For the year ended March 31, 2006 2004 2006 Non-Financial Services Businesses Net revenues ...Costs and expenses Cost of revenues...Selling, general and administrative...Total costs and expenses ......

  • Page 130
    ...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 131
    ... accounts and credit losses ...10,361 Pension and severance costs, less payments ...22,664 Losses on disposal of fixed assets ...54,614 Unrealized losses on available-for-sale securities, net ...4,163 Deferred income taxes ...31,370 Minority interest in consolidated subsidiaries ...82,401 Equity...

  • Page 132
    ...Earnings per Share, Toyota discloses this information in order to provide financial statement users with valuable information. Yen in millions Thousands of shares Shares issued and outstanding at the end of the year Yen U.S. dollars Net assets Net assets per share Net assets per share March 31...

  • Page 133
    ... In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Toyota Motor Corporation and its subsidiaries at March 31, 2005 and 2006, and the...

  • Page 134
    ... Europe Design Development (ED2) 9 Toyota Motorsport GmbH U.S.A. 5 Toyota Motor Location (R&D) Ann Arbor, Michigan (with offices in Plymouth, Engineering & Michigan; Torrance and Gardena, California; Manufacturing Wittmann, Arizona; and Washington, D.C.) North America, Establishment April 2006...

  • Page 135
    ... ratio** (%) Capital (Â¥ million) Toyota Motor Kyushu, Inc. Toyota Motor Hokkaido, Inc. Toyota Motor Tohoku Co., Ltd. Toyota Auto Body Co., Ltd. Harrier, Harrier Hybrid, Kluger, Kluger Hybrid, IS Transmissions, drivetrain parts, aluminum wheels, etc. Mechanical and electronic parts Land Cruiser...

  • Page 136
    ... (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* (%) Main products** Canada U.S.A. Mexico 1 Canadian Autoparts Toyota Inc. (CAPTIN) Feb. 2 Toyota Motor...

  • Page 137
    ...shafts), engines Coaster, Land Cruiser Prado, Land Cruiser, Prius Camry s Toyota Kirloskar Motor Private Ltd. (TKM) d Toyota Kirloskar Auto Parts Private Ltd. (TKAP) f PT. Toyota Motor Manufacturing Indonesia g Assembly Services Sdn. Bhd. (ASSB) h Indus Motor Company Ltd. j Toyota Motor Philippines...

  • Page 138
    ... Stock Information London Toyota Motor Europe Curzon Square, 25 Park Lane, London, W1K 1RA, U.K. Telephone: (020) 7290-8512 Facsimile: (020) 7290-8502 Securities Code 7203 (Japan) Number of Shares Authorized 9,740,185,400 shares Number of Shares Issued 3,609,997,492 shares Shareholder Services...

  • Page 139
    .... Other corporate entities Toyota's Stock Price and Trading Volume on the Tokyo Stock Exchange ¥7,000 Stock price ¥6,000 ¥5,000 ¥4,000 ¥3,000 ¥2,000 ¥1,000 ¥0 210 180 150 120 90 60 30 0 Fiscal Year 2001 2002 2003 2004 2005 2006 Trading volume (million shares) High Low At Year-End ¥5,800...

  • Page 140
    http://www.toyota.co.jp Cert no. SA-COC-1544 Percentage of Waste Paperpulp 100% Percentage of Waste Paperpulp 60% Printed in Japan