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Building a Platform for Growth
Annual Report 2007
Year ended March 31, 2007

Table of contents

  • Page 1
    Annual Report 2007 Year ended March 31, 2007 Building a Platform for Growth

  • Page 2
    ... in local communities, with 52 companies manufacturing vehicles and parts in 26 countries and regions. Toyota had approximately 300,000 employees on a consolidated basis at the end of fiscal 2007. Cautionary Statement with Respect to Forward-Looking Statements This annual report contains forward...

  • Page 3
    ...Operations 44 Financial Services Operations 46 Other Business Operations P33 47 Management & Corporate Information A variety of information relating to the Company and its management, including corporate philosophy, corporate governance, environmental and social initiatives, Toyota milestones, and...

  • Page 4
    .... In Toyota's management platform, technological, supply, and sales capabilities drive growth, supported by quality, cost, and human resources. At Toyota, we are building a rock-solid management platform that will launch us toward new levels of achievement. In this year's annual report, Toyota...

  • Page 5
    ...Toyota Motor Corporation Fiscal years ended March 31 Consolidated Performance (U.S. GAAP) Yen in millions U.S. dollars* in millions % change 2005 2006 2007 2007 2006 vs 2007 For the Year: Net Revenues ...Operating Income ...Net Income...ROE ...At Year-End: Total Assets ...Shareholders' Equity...

  • Page 6
    ... Toyota Motor Corporation Fiscal years ended March 31 Consolidated Segment Information Business Segment Net Revenues Other Business Financial Services Operating Income Other Business Automotive Financial Services 5.4% 1.8% Automotive 5.3% 89.3% 7.1% 91.1% FY 2007 FY 2007 Geographic...

  • Page 7
    ... ...Consolidated Total ...Vehicle Sales by Region: Japan...Overseas Total ...North America ...Europe...Asia ...Other Regions ...Central and South America...Oceania ...Others ...Consolidated Total ...Vehicle Production by Brand: Toyota / Lexus ...Daihatsu ...Hino ...Consolidated Total ...Toyota Group...

  • Page 8
    Chairman's Message Tokyo Head Office "By focusing on its core manufacturing principles, Toyota is committed to building cars that customers love the world over." 6 ANNUAL REPORT 2007

  • Page 9
    ..., ended March 31, 2007, Toyota again posted solid business results. On behalf of Toyota's management team, I would like to sincerely thank our shareholders, customers, suppliers, and local communities for their constant support and understanding, which continue to underpin Toyota's growth. This year...

  • Page 10
    President's Message Lexus showroom in Midland Square, Nagoya, Aichi Prefecture "I am committed to steadily improving Toyota's corporate value by continuing to pursue farsighted innovations and building a solid management platform." 8 ANNUAL REPORT 2007

  • Page 11
    ... successes, I am committed to steadily improving Toyota's corporate value by continuing to pursue farsighted innovations and building a solid management platform. As we pursue that goal, I ask our shareholders for their continued support. July 2007 Katsuaki Watanabe, President ANNUAL REPORT 2007...

  • Page 12
    ... higher fixed costs, such as capital investment and research and development expenses. In addition, I think we have established a balanced earnings structure in each region. Management Issues Japan Other Regions Asia 5.3% Europe 3.7% 64.9% 6.1% North America Q A What issues does Toyota need...

  • Page 13
    ... pride in quality-or the extent to which the vehicles we build meet the needs of our customers. Therefore, I would like to improve many different aspects of Toyota's operations to become number one globally in terms of products, manufacturing speed, manufacturing cost, and sales services. Through...

  • Page 14
    ... on the philosophy that developing human resources is a key part of manufacturing. These efforts extend beyond simply having employees acquire knowledge and skills that development, production, or sales divisions need. Globally, we are implementing programs to enable all employees to embrace Toyota...

  • Page 15
    ... market strategies that will support them? We plan to increase sales globally by aggressively rolling out appealing new products. In the medium term, we are targeting Group vehicle sales* of about 9.8 million units in 2008. In 2006, Group vehicle sales totaled 8.81 million units, ANNUAL REPORT 2007...

  • Page 16
    ... States. We will continue to increase production capacity in a globally balanced way while reflecting our basic philosophy of "building vehicles where demand is found" by making overseas manufacturing companies more self-reliant and growing hand-in-hand with local economies. 14 ANNUAL REPORT 2007

  • Page 17
    ... of Toyota's global operations. I would like to ask our shareholders for their continued trust, support, and understanding. 1,500 30 1,000 20 500 10 0 FY 0 '03 '04 '05 '06 '07 Consolidated dividend payout ratio (Right scale) Note: Fiscal years ended March 31 ANNUAL REPORT 2007 15

  • Page 18
    ... managed to move toward a more globally balanced earnings structure by growing earnings in Europe and Central and South America. Toyota will continue to build a rock-solid base through the improvement of technology, supply, and marketing and their supporting factors: product quality, cost, and human...

  • Page 19
    ...FY 2007 Note: Fiscal year ended March 31 Financial Strategy 1. Growth Continue forward-looking investment for growth 2. Efficiency Enhance profitability and capital efficiency 3. Stability Maintain solid financial base Balanced implementation of 1. - 3. over the medium to long term Sustainable...

  • Page 20
    ...profitability by introducing products efficiently through the development of core global models, realizing the benefits of innovative VI Activity cost reductions, expanding production systems that link plants in Japan and abroad, and developing and introducing highly efficient production engineering...

  • Page 21
    .... However, Toyota intends to continue acquiring its own shares in order to respond to changes in business conditions and improve capital efficiency. â- Consolidated Results Outlook for Fiscal 2008 In the fiscal year ending March 31, 2008, we project sales of 8.89 million vehicles, net revenues of...

  • Page 22
    ... and the issues accompanying Toyota's rapid global expansion of production. Part III: Innovation Up Close P 24 How is Toyota strengthening international competitiveness at its plants? Taking a variety of perspectives, we look at initiatives in production networks, production engineering, and the...

  • Page 23
    ... of our competitiveness. By continuing to innovate production engineering technologies, which underpin manufacturing, and strengthening international competitiveness, Toyota will sustain dynamic growth. At the same time, we will build cars that satisfy customers around the world. In the following...

  • Page 24
    ... global demand, innovating production engineering technologies, and establishing self-reliant overseas manufacturing companies. Overseas production has almost doubled in the past five years, with consolidated overseas annual production now at 3.08 million vehicles. In its long history, Toyota...

  • Page 25
    ... human resources development. Q A Q A What measures is Toyota taking in production engineering technologies innovation? We are stepping up the development of production engineering to improve efficiency and quality. Since its establishment, the Company has followed a manufacturing philosophy...

  • Page 26
    ... when new overseas plants start An Example of a Global Link Production System: Link Production of the Corolla and Vitz/Yaris U.K. France Turkey Toyota Industries Corporation Vitz/Yaris Canada NUMMI Takaoka Plant Corolla Vitz/Yaris Kanto Auto Works, Ltd. Corolla South Africa Overseas Stable...

  • Page 27
    ... losing sales opportunities. France plant (TMMF) Norifumi Miura Project General Manager Strategic Planning Group Global Strategic Production Planning Division up production. The geographical coverage and complexity of such supporting relationships have increased with our growing international...

  • Page 28
    ... needs. Such production lines make it easier to adjust production plans to sales trends. They also maintain high plant capacity utilization because changing or adding models requires minimal time and labor. Global Body Line Innovation: Toyota has developed production lines that can manufacture...

  • Page 29
    ...the manual welding process and parts setting that are used by some smaller plants. Length of Production Lines Halved by the Set Parts System: Innovation in production engineering technologies is also transforming assembly processes for attaching interior and exterior parts and power train components...

  • Page 30
    ...use and maintain equipment and systems-making a major contribution to our current efforts to rapidly develop operations globally. Hisanori Nakamura General Manager Production Process Engineering Innovation Division Previous Current Downsized injection molding machine for bumpers Andon 28 ANNUAL...

  • Page 31
    ...Tetsuaki Yoshikawa General Manager Engineering Service Department Tsutsumi Plant Body Manufacturing Division In-line measurement process of how we build quality in production processes. Advancing the Self-Reliance of Overseas Manufacturing Companies Self-Reliance Promotion: Toyota is establishing...

  • Page 32
    ... domestic plants and production engineering departments use to identify the best-practice or global best processes. This system cross-sectionally links the staff at stamping shops, paint shops, and other shops. Grouped by shop, staff members gather and share information on transferring technology to...

  • Page 33
    ... support from their respective mother plants in Kentucky and Indiana. We plan to replicate these successes at other overseas operations to increase the number of self-reliant manufacturing companies. Toyota Hosts Global Production Strategy Summit In April 2006, senior managers from manufacturing...

  • Page 34
    ...39.6 billion, remaining at the same level as in fiscal 2006. Included in other business operations, the housing business achieved favorable production and sales. 300 10 0 FY 0 '03 '04 '05 '06 '07 Revenues Operating income (Right scale) Note: Fiscal years ended March 31 32 ANNUAL REPORT 2007

  • Page 35
    ... Sales (Thousands of units) Consolidated Production (Thousands of units) +19.6% 1,224 +13.9% 709 -10.3% -9.7% 789 755 -3.9% 2,273 +0.3% 1,205 Europe +6.8% 433 Asia North America Middle East +20.0% +11.1% 304 147 Japan +6.7% +3.9% 268 117 +21.8% +20.6% 284 147 Africa Central and South...

  • Page 36
    ...Services Operations Other Business Operations LEXUS LS600hL IS220d GS450h SC430 GS430 Toyota is developing Lexus into a powerful global premium brand. Lexus Vehicle Sales (Thousands of units) 500 Market Strategy 400 300 200 100 0 FY '03 '04 '05 '06 '07 North America Others Europe Japan...

  • Page 37
    ... of Lexus as a premium brand and steadily build a customer base. In Europe, fiscal 2007 Lexus sales jumped 48%, to more than 50,000 vehicles, thanks to the expansion of the dedicated Lexus dealer network and the stepped-up introduction of diesel and hybrid models. In Asia, including China, Lexus...

  • Page 38
    ... 8.3%, to 3.58 million vehicles. In recent years, consumer spending in Japan has been flat, and customers have tended to delay vehicle replacement. At the same time, demand has shifted toward minivehicles and used vehicles. The market Note: Fiscal years ended March 31 36 ANNUAL REPORT 2007

  • Page 39
    .... We will make full use of the advantages of the foursales-channel system to accurately respond to structural changes in the market. And, we will carefully cater to the diverse needs of customers through sales and after-sales services that reflect the philosophy of putting the customer first. 10th...

  • Page 40
    ... Financial Services Operations Other Business Operations North America Tundra RAV4 FJ Cruiser Camry Hybrid Yaris Toyota aims to continue to localize operations in North America, which has an automotive market that promises to expand, and work in harmony with local communities. Consolidated...

  • Page 41
    ...The California plant is a Toyota-General Motors joint venture company that is accounted for using the equity method. Production capacity figures include vehicles for General Motors. Note: Please see the Overseas Manufacturing Companies section on page 66 for full plant names. ANNUAL REPORT 2007 39

  • Page 42
    ... automotive market in Europe is challenging. In addition to the large number of car manufacturers competing in the region, customer needs and priorities with respect to cars differ in each country. Note: Fiscal years ended March 31 Note: Different from fiscal year figures 40 ANNUAL REPORT 2007

  • Page 43
    ...000 vehicles per year. As the start of a campaign that will cover countries throughout the region, Toyota began marketing the Auris- a strategic model for Europe and Japan-in the United Kingdom in February 2007. Strengthen Brand Power by Cultivating Core Models and Emphasizing Quality In Europe, we...

  • Page 44
    ... and continued to develop into one of the world's major automotive markets. Meanwhile, automotive markets in Central and South America and Africa expanded steadily. Markets are expected to continue growing mainly in Central and South America, Africa, and the Middle East. 42 ANNUAL REPORT 2007

  • Page 45
    ... 2007. Adding 200,000 vehicles to our annual production capacity, this latest plant will enable Tianjin FAW Toyota Motor to build 470,000 vehicles a year. We will sell the new Corolla built at this plant through a network of approximately 260 dealers across China developed by FAW Toyota Motor Sales...

  • Page 46
    ... needs through intense collaboration among regional management companies, distributors, and dealers. Strengthen Auto Sales Financing Services in 31 Countries and Regions Toyota's financial services operations are centered on Toyota Financial Services Corporation (TFS), which has overall control...

  • Page 47
    ... key for key product in Europe. Similarly, in Japan we are marketing such demandgenerating products as the "Lexus Owners' Lease*" and "Rakuchin Corolla Credit**." In addition, the TFS group is bolstering financing products for fleets and used vehicles to expand its customer base and support Toyota...

  • Page 48
    ... members. In addition, Toyota expanded operations by entering the telematics field with the development of the G-BOOK information service for onboard terminals. We have steadily upgraded that service, developing G-BOOK ALPHA and G-link for Lexus-brand models, and we launched G-BOOKmX in May 2007...

  • Page 49
    ... Philosophy 50 Corporate Governance 54 Directors and Auditors 56 Environmental and Social Initiatives 58 R&D and Intellectual Property 61 R&D Organization 62 Risk Factors 64 Toyota Milestones 65 Domestic Production Sites 66 Overseas Manufacturing Companies 68 Motorsports ANNUAL REPORT 2007...

  • Page 50
    ... products and services that fulfill the needs of customers worldwide. Foster a corporate culture that enhances individual creativity and teamwork value, while honoring mutual trust and respect between labor and management. Pursue growth in harmony with the global community through innovative...

  • Page 51
    ... our employees, we build and share the value "Mutual Trust and Mutual Responsibility" and work together for the success of our employees and the company. (Guiding Principles 5) • Management of each company takes leadership in fostering a corporate culture and implementing policies, that promote...

  • Page 52
    ..., 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 53
    ... Directors Managing Officers Disclosure Committee Internal Auditing Department (internal control systems) (As of June 22, 2007) Accountability Toyota considers the appropriate disclosure of corporate and financial information as a critical responsibility in corporate governance, and the Company...

  • Page 54
    ...monitoring corporate activities and management in relation to social responsibilities, including the Corporate Philanthropy Committee and the Toyota Environment Committee. [2] [3] Internal Control Systems and Toyota's Basic Approach Based on the "Guiding Principles at Toyota" and the "Toyota Code...

  • Page 55
    ...a Corporate Auditors Department and assign a number of full-time staff to support this function. [ 8 ] Independence of the employees described in the preceding item [ 7 ] from Directors Any changes in personnel in the Corporate Auditors Department will require prior consent of the Board of Corporate...

  • Page 56
    ... Engineering, Motor Sports) Kyoji Sasazu Business Development / Purchasing / Housing President, Member of the Board Katsuaki Watanabe Mitsuo Kinoshita Corporate Planning & Research / Government & Public Affairs / Global Audit / General Administration & Human Resources / Accounting / Information...

  • Page 57
    ...Shoji Ikawa Production Engineering Group / Fuel Cell System Development Group Satoshi Ozawa General Administration & Human Resources Group Takeshi Suzuki Business Development Group / Accounting Group Koichi Ina Strategic Production Planning Group / Manufacturing Group James E. Press Toyota Motor...

  • Page 58
    ... productivity, Toyota is promoting the effective utilization of resources, reducing water consumption, and encouraging the development of designs for recycling. • Reduction goals were set for the volume of waste not processed within Toyota. • In response to automobile recycling laws in Japan...

  • Page 59
    ... model as one form of Toyota universal design. In-line measurement sensor gate on a Prius line Relations with Employees Based on mutual trust and respect between labor and management, long-term employment stability, and communication, each Toyota employee is taking measures to enhance work-related...

  • Page 60
    ... customers worldwide with high-quality, low-cost, appealing products. Further, viewing intellectual property created by R&D as an important management resource, we utilize and protect it to help maximize corporate value. R&D Policy In R&D, Toyota follows guiding principles that call on the Company...

  • Page 61
    ... Kanto Auto Works, Ltd., develop products 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 in...

  • Page 62
    ..., Toyota basically has an open licensing policy and grants patent license under appropriate conditions. A good example of this policy is our licensing to other companies of patents related to hybrid systems, a core technology enabling adaptation to environmental energy. 60 ANNUAL REPORT 2007

  • Page 63
    ... 31, 2007 Japan 1 Head Office Technical Center Europe Establishment 1954 Location Activities Toyota City, Aichi Prefecture Planning and design of products, prototypes manufacture, and vehicle evalution 8 Toyota Europe Design Development 7 Toyota Motor Europe R&D/ Manufacturing Establishment 1987...

  • Page 64
    ... light of continuing globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may...

  • Page 65
    ... the British pound. Toyota's consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange fluctuations through both translation risk and transaction risk. Changes in foreign currency exchange rates may affect Toyota's pricing of products sold and...

  • Page 66
    ... control of operations in Europe. 1990s 1992 1997 1999 Establishment of Toyota Supplier Support Center in the United States U.K. plant (TMUK) begins production Launch of the Prius hybrid vehicle Toyota Motor Corporation lists on the New York and London stock exchanges Cumulative total domestic...

  • Page 67
    ..., 4 Runner, Land Cruiser Prado, engines Mechanical equipment, moldings for forging and casting and resin-molding dies R&D and production of electronic control devices, IC 1938 1959 1965 1966 1968 1970 1973 1975 1978 1979 1986 1989 Manufacturing Subsidiaries and Vehicle Assembly Affiliates Company...

  • Page 68
    ... Africa Company name Start of operations Voting rights ratio* (%) Main products Kenya South Africa ] Associated Vehicle Assemblers Ltd. (AVA) \ Toyota South Africa Motors (Pty) Ltd. Aug. 1977 June 1962 - 75.00 Land Cruiser Corolla, Dyna, Hiace, Hilux, Fortuner, engines 66 ANNUAL REPORT 2007

  • Page 69
    ... Motor Manufacturing Russia LLC. (TMMR) (planned) Dec. 2007 - - Highlander Camry * Including voting rights by the subsidiaries determined in accordance with U.S. GAAP ** Companies also produce brands other than Toyota and Lexus *** First year of Toyota's vehicle production ANNUAL REPORT 2007 67

  • Page 70
    ...the manufacturers' title. Also, in 2007 we entered the Toyota Camry in the Nextel Cup Series, the pinnacle of NASCAR racing, and in the Busch Series. In Japan, we continue to back six teams competing in the elite SUPER GT Series. Also, we hope to win a title using the Lexus SC430 for all GT500-class...

  • Page 71
    ... of Cash Flows 73 Consolidated Quarterly Financial Summary 99 Notes to Consolidated Financial Statements 74 Management's Discussion and Analysis of Financial Condition and Results of Operations 133 Management's Annual Report on Internal Control over Financial Reporting 94 Consolidated Balance...

  • Page 72
    ... ...Net Cash Used in Investing Activities ...Net Cash Provided by (Used in) Financing Activities...R&D Expenses...Capital Expenditures for Property, Plant and Equipment* ...Depreciation ...At Year-End: Shareholders' Equity ...Total Assets ...Long-Term Debt ...Cash and Cash Equivalents...Ratio of...

  • Page 73
    ...640,490 1,569,387 36.8% 2006 ¥11,836,092 32,574,779 6,263,585 1,900,379 36.3% 2007 +12.1 +13.4 +11.0 +21.1 - % change 2004 2006 vs 2007 ¥ 152.26 28 2,015.82 ¥ 211.32 36 2,063.43 ¥ 342.90 45 2,456.08...23,212,284 ¥27,255,481 3,609,997,492 3,609,997,492 +17.4 +17.4 - ANNUAL REPORT 2007 71

  • Page 74
    Consolidated Segment Information Toyota Motor Corporation Fiscal years ended March 31 Yen in millions % change 2002 2003 2004 2005 2006 2007 2006 vs 2007 Business Segment: Net Revenues: Automotive...Financial Services...All Other ...Intersegment Elimination...Consolidated ...Operating ...

  • Page 75
    ... Income Taxes, Minority Interest and Equity in Earnings of Affiliated Companies ...% Change...Net Income ...% Change...Business Segment: Net Revenues: Automotive...Financial Services...All Other ...Intersegment Elimination...Consolidated ...Operating Income: Automotive...Financial Services...All...

  • Page 76
    ... customer satisfaction actions, • the cost of research and development and other fixed costs, • the ability to control costs, • the efficient use of production capacity, and • changes in the value of the Japanese yen and other currencies in which Toyota does business. 74 ANNUAL REPORT 2007

  • Page 77
    ...'s financial services oper4,000 ations mainly include loans and leasing programs for customers and dealers. Toyota believes that its 0 ability to provide financing to its FY '03 '04 '05 '06 '07 customers is an important value added service. Therefore, Toyota intends to continue to expand its network...

  • Page 78
    ... 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 of factors, some of which are not in Toyota's control. These factors include general economic 76 ANNUAL REPORT 2007

  • Page 79
    ...The credit card receivables at March 31, 2007 increased by Â¥30.0 billion from March 31, 2006 to Â¥201.2 billion. â- Other Business Operations Toyota's other business operations consist of housing, including the manufacture and sale of prefabricated homes; information technology related businesses...

  • Page 80
    .... 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. Geographic Breakdown The following table sets forth Toyota's net revenues...

  • Page 81
    ... technologies relating to collision safety and vehicle stability controls and the impact 0 0 of expanding new models to proFY '03 '04 '05 '06 '07 mote Toyota's strength in a global % of sales of products market to further build up competi(Right scale) tive strength in the future. ANNUAL REPORT 2007...

  • Page 82
    ... Europe relates mainly to the impact of an increase in production volume and vehicle unit sales, cost reduction efforts in the manufacturing operations and the favorable impact of fluctuations in foreign currency translation rates. The decrease in Asia relates primarily to the decrease in production...

  • Page 83
    ... year. This decrease was mainly due to the decrease of a gain calculated in accordance with EITF 91-5 from the nonmonetary exchange of marketable equity investments related shares of UFJ Holdings, Inc. held by a domestic consolidated subsidiary prior to the merger with Mitsubishi Tokyo Financial...

  • Page 84
    ... of cost reduction efforts including rise in prices of production materials and parts in fiscal 2006. 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...

  • Page 85
    ... of losses from changes in the fair value of derivative financial instruments such as interest rate swaps and the impact of adjustments made by a sales financing subsidiary in fiscal 2005 for the correction of errors relating to prior periods (see note 24 to the consolidated financial statements...

  • Page 86
    ... and divestitures currently in progress. Toyota funds its financing programs for customers and dealers, including loans and leasing programs, from both operating cash flows and borrowings by its finance subsidiaries. Toyota seeks to expand its ability to raise funds locally in markets throughout the...

  • Page 87
    ...wholesale, the increase in * Cash and cash equivalents, time other dealer loans including real deposits, marketable debt securities and investment in estate loans and working capital monetary trust funds financing provided to dealers, and the increase in finance leases. As of March 31, 2007, finance...

  • Page 88
    ...compared to the prior year mainly due to cash contributions to the plans and the increase in the market value of plan assets. See note 19 to the consolidated financial statements. Off-Balance Sheet Arrangements â- Securitization Funding Toyota uses its securitization program as part of its funding...

  • Page 89
    ... risk of loss for senior classes of securities. These credit enhancements may include the following: • Cash reserve funds or restricted cash A portion of the proceeds from the sale of asset-backed securities may be held by the securitization trust in segregated reserve funds and may be used to pay...

  • Page 90
    .... Toyota prices the credit facilities according to the risks assumed in entering into the credit facility. Toyota's financial services operation also provides financing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of a lending consortium, for wholesale...

  • Page 91
    ... the accounting for separately recognized servicing assets and servicing liabilities. FAS 156 is effective for fiscal year beginning after September 15, 2006. Management does not expect this Statement to have a material impact on Toyota's consolidated financial statements. Legislation Regarding End...

  • Page 92
    ... location of the sale and other factors. All product warranties are consistent with commercial practices. Toyota provides a provision for estimated product warranty costs as a component of cost of sales at the time the related sale is recognized. The accrued warranty costs represent management...

  • Page 93
    ... prices, resale prices of used vehicles and, correspondingly, the collateral value of Toyota's sales financing and finance lease receivables could experience further downward pressure. If these factors require a significant increase in Toyota's allowance for doubtful accounts and credit losses...

  • Page 94
    ... in the company for a period of time sufficient to allow for any anticipated recovery in market value. Market Risk Disclosures Toyota is exposed to market risk from changes in foreign currency exchange rates, interest rates and certain commodity and equity security prices. In order to manage the...

  • Page 95
    ... interest rates change and, as a result, Toyota's model does not address prepayment risk for automotive related finance receivables. However, in the event of a change in interest rates, actual loan prepayments may deviate significantly from the assumptions used in the model. ANNUAL REPORT 2007 93

  • Page 96
    Consolidated Balance Sheets Toyota Motor Corporation March 31, 2006 and 2007 Yen in millions U.S. dollars in millions ASSETS 2006 2007 2007 Current assets Cash and cash equivalents ...Â¥ 1,569,387 Time deposits ...50,349 Marketable securities ...634,879 Trade accounts and notes receivable, ...

  • Page 97
    ...,306 Total current liabilities ...10,028,735 Long-term liabilities 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...

  • Page 98
    ...Statements of Income Toyota Motor Corporation For the years ended March 31, 2005, 2006 and 2007 Yen in millions U.S. dollars in millions 2005 2006 2007 2007 Net revenues Sales of products ...Â¥17,790,862 Financing operations...760,664 18,551,526 Costs and expenses Cost of products sold...Cost...

  • Page 99
    ... Statements of Shareholders' Equity Toyota Motor Corporation For the years ended March 31, 2005, 2006 and 2007 Yen in millions Additional paid-in capital Accumulated other comprehensive income (loss) Treasury stock, at cost Total shareholders' equity Common stock Retained earnings Balances...

  • Page 100
    ... 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 101
    .... In addition, Toyota provides 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...

  • Page 102
    ... results, business plans and estimated future cash flows. Fair value is determined principally through the use of the latest financial information. Property, plant and equipment- Finance receivables- Finance receivables are recorded at the present value of the related future cash flows including...

  • Page 103
    ... straight-line method over the lease term, generally 5 years, to the estimated residual value. amendment of FASB Statements No. 87, 88, 106, and 132(R) ("FAS 158") as of March 31, 2007. Under the provisions of FAS 158, the overfunded or underfunded status of the defined benefit postretirement plans...

  • Page 104
    ...employee compensation. See note 18 to the consolidated financial statements for weighted-average assumptions used in option pricing model. Yen in millions For the years ended March 31, 2005 2006 Net income As reported...Deduct: Total stock-based compensation expenses determined under fair value...

  • Page 105
    ... of adopting FAS 157 on Toyota's consolidated financial statements. In September 2006, FASB issued FAS 158. FAS 158 requires employers to measure the funded status of their defined benefit postretirement plans as of the date of their year-end statement of financial position. This provision in FAS...

  • Page 106
    ... the rate of ¥118.05 = U.S. $1, the approximate current exchange rate at March 30, 2007, was used for the translation of the accompanying consolidated financial amounts of Toyota as of and for the year ended March 31, 2007. 4. Supplemental cash flow information: Cash payments for income taxes were...

  • Page 107
    ..." in the accompanying consolidated statements of income. In the ordinary course of business, Toyota maintains longterm 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...

  • Page 108
    ... or loss on the sale of the finance receivables upon the transfer of the receivables to the securitization trusts structured as a QSPE. Toyota retains servicing rights and earns a contractual servicing fee of 1% per annum on the total monthly outstanding principal balance of the related securitized...

  • Page 109
    ... sale date of securitization transactions completed during the years ended March 31, 2005, 2006 and 2007 were as follows: For the years ended March 31, 2005 2006 2007 Prepayment speed related to securitizations...Weighted-average life (in years)...Expected annual credit losses ...Discount rate...

  • Page 110
    ... accounts and credit losses: An analysis of activity within the allowance for doubtful accounts relating to trade accounts and notes receivable for the years ended March 31, 2005, 2006 and 2007 is as follows: Yen in millions U.S. dollars in millions For the years ended March 31, For the year ended...

  • Page 111
    ...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, 2006 2007 2007 Current assets ...Noncurrent assets ...Total assets...Current liabilities...Long-term liabilities...Shareholders' equity...

  • Page 112
    ...in millions U.S. dollars in millions For the years ended March 31, For the year ended March 31, 2005 2006 2007 2007 Net revenues...Purchases ...Dividends from affiliated companies accounted for by the equity method for the years ended March 31, 2005, 2006 and 2007 were ¥22,164 million, ¥30...

  • Page 113
    ...2007, property, plant and equipment with a book value of ¥89,233 million ($756 million) and in addition, other assets aggregating ¥36,488 million ($309 million) were pledged as collateral mainly for certain debt obligations of subsidiaries. The aggregate amounts of annual maturities of long-term...

  • Page 114
    ... subsidiaries ...Total deferred...Total provision...Toyota is subject to a number of different income taxes which, in the aggregate, indicate a statutory rate in Japan of approximately 40.2% for the years ended March 31, 2005, 2006, and 2007. Such rate was also used to calculate the tax effects of...

  • Page 115
    ...' equity: Changes in the number of shares of common stock issued have resulted from the following: For the years ended March 31, 2005 2006 2007 Common stock issued Balance at beginning of year ...Issuance during the year ...Purchase and retirement ...Balance at end of year...The Corporation Act...

  • Page 116
    ... by the shareholders are not required under the current regulation. In years prior to 1997 (beginning of preparation for consolidated financial statements in accordance with accounting principles generally accepted in the United States of America), Toyota had made free distributions of shares to its...

  • Page 117
    ... shares for issuance under the Toyota's stock option plan for directors, officers and employees of the parent company, its subsidiaries and affiliates. Toyota adopted FAS 123(R) in fiscal year beginning from April 1, 2006. For the year ended March 31, 2007, Toyota recognized stock-based compensation...

  • Page 118
    ...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, based on current rates of pay and lengths of service...

  • Page 119
    ... 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 120
    ... 2007 2007 Change in benefit obligation Benefit obligation at beginning of year...Service cost ...Interest cost...Plan participants' contributions...Plan amendments ...Net actuarial loss ...Acquisition and other ...Benefits paid ...Benefit obligation at end of year ...Change in plan assets Fair...

  • Page 121
    ... U.S. dollars in millions For the years ended March 31, For the year ended March 31, 2005 2006 2007 2007 Service cost ...Interest cost ...Expected return on plan assets...Amortization of prior service costs ...Recognized net actuarial loss...Settlement loss resulting from the transfer of the...

  • Page 122
    ... and 2007, by asset category are as follows: Plan assets at March 31, 2006 2007 Equity securities ...Debt securities ...Real estate ...Other ...Total ...Toyota's policy and objective for plan asset management is to maximize returns on plan assets to meet future benefit payment requirements under...

  • Page 123
    ...currency exchange rates. Toyota does not use derivatives for speculation or trading. For the years ended March 31, 2005, 2006 and 2007, 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 124
    ... of Toyota's financial instruments, excluding marketable securities and other securities investments and affiliated companies, are summarized as follows: Yen in millions March 31, 2006 Carrying amount Estimated fair value Asset (Liability) Cash and cash equivalents...Time deposits...Total finance...

  • Page 125
    ... concentrations and factors that may affect future operations: Commitments outstanding at March 31, 2007 for the purchase of property, plant and equipment and other assets totaled ¥132,443 million ($1,122 million). Toyota enters into contracts with Toyota dealers to guarantee customers' payments of...

  • Page 126
    ... Financial Services segment consists primarily of financing, and vehicle and equipment leasing operations to assist in the merchandising of the parent company and its affiliate companies products as well as other products. The All Other segment includes the design, manufacturing and sales of housing...

  • Page 127
    ... year ended March 31, 2007: Yen in millions Automotive Financial Services All Other Inter-segment Elimination/ Unallocated Amount Consolidated Net revenues Sales to external customers ...Inter-segment sales and transfers ...Total...Operating expenses ...Operating income...Assets ...Investment...

  • Page 128
    ... in prior years, directly related to origination of loans in accordance with FAS No. 91. Geographic information- As of and for the year ended March 31, 2005: Yen in millions Japan North America Europe Asia Other Inter-segment Elimination/ Unallocated Amount Consolidated Net revenues Sales to...

  • Page 129
    ...395 Investments and other assets ...5,702,376 6,464,204 Property, plant and equipment ...5,207,760 5,689,383 Total Non-Financial Services Businesses assets ...18,064,789 19,767,982 Financial Services Businesses Current assets Cash and cash equivalents...151,365 185,657 Marketable securities ...1,843...

  • Page 130
    ..., March 31, 2006 2007 2007 Non-Financial Services Businesses Current liabilities Short-term borrowings ...¥ 797,969 ¥ 726,822 Current portion of long-term debt...68,299 249,750 Accounts payable ...2,084,399 2,212,598 Accrued expenses ...1,357,335 1,537,918 Income taxes payable ...328,360 404...

  • Page 131
    ...the year ended March 31, 2005 2006 2007 2007 Non-Financial Services Businesses Net revenues ...Costs and expenses Cost of revenues ...Selling, general and administrative ...Total costs and expenses...Operating income...Other income, net...Income before income taxes, minority interest and equity...

  • Page 132
    ... 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 133
    ... 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 134
    ... 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...

  • Page 135
    Management's Annual Report on Internal Control over Financial Reporting Toyota's management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding ...

  • Page 136
    ... Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below. Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present...

  • Page 137
    ...for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles...

  • Page 138
    ... shares Number of Employees 67,650 (Consolidated: 299,394) Number of Shares Issued 3,609,997,492 shares Fiscal Year-End March 31 Number of Shareholders 408,504 Corporate Web Site Corporate Information http://www.toyota.co.jp/en Number of Shares per Trading Unit 100 shares Stock Listings Japan...

  • Page 139
    ... ¥1,000 ¥ 210 180 150 120 90 60 30 0 FY 2003 2004 2005 2006 2007 0 Trading volume (million shares) Stock price High Low At Year-End Note: Fiscal years ended March 31 ¥3,790 2,625 2,635 ¥3,990 2,455 3,880 ¥4,520 3,730 3,990 ¥6,560 3,790 6,430 ¥8,350 5,430 7,550 ANNUAL REPORT 2007 137

  • Page 140
    http://www.toyota.co.jp Cert no. SA-COC-1544 Percentage of Waste Paperpulp 100% Percentage of Waste Paperpulp 70% Percentage of Waste Paperpulp 60% FSC-approved paper is used from page 69 to 136 of the main body. Printed in Japan