USGAAP Annual Report 5

Toyota Motor Corporation 31 July 2003 Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The weighted-average fair value per option at the date of grant for options granted during the year ended March 31, 2001, 2002 and 2003 was Y1,327, Y1,046 and Y766 ($6), respectively. The fair value of options granted, which is amortized over the option vesting period in determining the pro forma impact, is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: 2001 2002 2003 ---- ---- ---- Dividend rate 0.5% 0.8% 1.3% Risk-free interest rate 1.7% 1.3% 0.7% Expected volatility 36% 33% 34% Expected holding period (years) 4.0 4.0 5.1 19. Employee benefit plans: Pension and severance plans - On terminating employment, employees of the parent company and subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pension payments as described below, based on current rates of pay and lengths of service. Under normal circumstances, the minimum payment prior to retirement age is an amount based on voluntary retirement. Employees receive additional benefits on involuntary retirement, including retirement at the age limit. With respect to directors' resignations, lump-sum severance indemnities calculated by using a similar formula are normally paid subject to approval of the shareholders. The parent company and most subsidiaries in Japan have contributory funded defined benefit pension plans, which are pursuant to the Japanese Welfare Pension Insurance Law. The contributory pension plans cover a portion of the governmental welfare pension program ('substitutional portion'), under which the contributions are made by the companies and their employees, and an additional portion representing the noncontributory pension plans. The defined benefits under the noncontributory portion of the plans, in general, cover more than fifty percent of the indemnities under the existing regulations to employees. The remaining portion of the indemnities is covered by severance payments by the companies. The pension benefits are determined based on years of service and the compensation amounts as stipulated in the aforementioned regulations, and are payable, at the option of the retiring employee, as a monthly pension payment or in a lump-sum amount. The contributions to the plans are funded with several financial institutions in accordance with the applicable laws and regulations. These pension plan assets consist principally of investments in government obligations, equity and fixed income securities, and insurance contracts. Toyota revised its pension plan during the years ended March 31, 2001 and 2002, which reduced the projected benefit obligations. These effects of the reductions in the projected benefit obligations have been reflected as an unrecognized prior service cost. July 1, 2002, the benefits under the noncontributory defined benefit pension plan of the parent company was reduced by approximately 12.5% in exchage for assets of an equivalent amount being contributed to the newly established defined contribution plan. This plan amendment reduced accumulated benefit obligation of the defined benefit plan by Y36,807 million ($306 million), which equivalent to the benefits transferred to the defined contribution plan, and the difference between that amount and the relevant amount of projected benefit obligation resulted in /10,401 million ($87 million) being treated as negative prior service cost. Most foreign subsidiaries have defined benefit pension plans or severance indemnity plans covering substantially all of their employees under which the cost of benefits is currently invested or accrued. The benefits for these plans are based primarily on current rate of pay and lengths of service. F-38 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Toyota recorded an additional minimum liability totaling Y222,997 million and Y 513,506 million ($4,273 million) at March 31, 2002 and 2003, respectively, for plans where the accumulated benefit obligation exceeded the fair market value of plan assets and accrued pension and severance costs. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for which the accumulated benefit obligations exceed plan assets and accrued pension and severance costs are as follows: Yen in millions U.S. ----------------------------- dollars in millions -------- March 31, March ----------------------------- 31, -------- 2002 2003 2003 ----------- ----------- -------- Projected benefit obligation Y 1,688,348 Y 1,896,710 $ 15,780 Accumulated benefit obligation 1,437,233 1,640,142 13,645 Fair value of plan assets 859,464 768,308 6,392 Information regarding Toyota's defined benefit plans is as follows: Yen in millions U.S. -------------------------------- dollars in millions -------- March 31, March ------------------------------- 31, -------- 2002 2003 2003 ----------- --------- -------- Change in benefit obligation: Benefit obligation at beginning of year Y 1,880,582 Y 2,238,398 $ 18,622 Service cost 74,926 71,873 598 Interest cost 58,149 49,030 408 Plan participants' contributions 12,515 5,765 48 Actuarial loss 205,345 96,760 805 Acquisition and other 80,192 2,110 18 Benefits paid (62,633) (70,601) (587) Plan amendment (10,678) (47,208) (393) - --------- ---- --------- - --- ---- - Benefit obligation at end of year 2,238,398 2,346,127 19,519 - --------- ---- --------- - --- ---- - Change in plan assets: Fair value of plan assets at beginning of year 1,123,899 1,097,035 9,126 Actual return on plan assets (87,984) (170,647) (1,420) Employer contribution 41,352 37,580 313 Acquisition and other 37,178 708 6 Plan participants' contributions 12,515 5,765 48 Benefits paid (29,925) (38,275) (318) - --------- ---- --------- - --- ---- - Fair value of plan assets at end of year 1,097,035 932,166 7,755 - --------- ---- --------- - --- ---- - Funded status 1,141,363 1,413,961 11,763 Unrecognized actuarial loss (693,143) (961,756) (8,001) Unrecognized prior service cost 135,129 131,366 1,093 Unrecognized net transition obligation (65,127) (45,497) (379) - --------- ---- --------- - --- ---- - Net amount recognized Y 518,222 Y 538,074 $ 4,476 - --------- ---- --------- - --- ---- - Amounts included in the consolidated balance sheets are comprised of: Accrued pension and severance costs Y 754,403 Y 1,052,687 $ 8,758 Prepaid pension and severance costs (13,184) (1,107) (9) Investments and other assets (5,401) (3,595) (31) Accumulated other comprehensive income (217,596) (509,911) (4,242) - --------- ---- --------- - --- ---- - Net amount recognized Y 518,222 Y 538,074 $ 4,476 - --------- ---- --------- - --- ---- - F-39 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) March 31, ---------------------------------------- 2001 2002 2003 ------ ------ ------ Weighted-average assumptions: Discount rate 3.1% 2.5% 2.1% Expected return on plan assets 3.3% 2.7% 2.1% Rate of compensation increase 2.0 - 1.5 - 0.8 - 6.5% 6.0% 9.7% Yen in millions U.S. ---------------------------------------------- dollars in millions -------- For the years ended March 31, For the ---------------------------------------------- year ended March 31, -------- 2001 2002 2003 2003 --------- ----------- ------ -------- Components of net periodic (benefit) cost: Service cost Y 68,084 Y 74,926 Y 71,873 $ 598 Interest cost 53,118 58,149 49,030 408 Expected return on plan assets (29,184) (29,465) (23,003) (191) Amortization of prior service cost (8,867) (12,723) (14,272) (119) Recognized net actuarial loss 2,184 17,228 22,977 191 Amortization of net transition obligation 18,960 19,055 19,630 163 - ------- --- ------- --- - ---- - ----- --- ---- - Net periodic pension cost Y 104,295 Y 127,170 Y 126,235 $ 1,050 - ------- --- ------- --- - ---- - ----- --- ---- - The parent company and its Japanese subsidiaries represent substantially all of the pension obligation at March 31, 2002 and 2003. The weighted-average assumptions used for the discount rate and expected return on plan assets to determine the pension obligation for the parent company and the Japanese subsidiaries were 2.5% and 2.5% as of March 31, 2002, and 2.0% and 2.0% as of March 31, 2003, respectively. Recognized net actuarial losses for the year ended March 31, 2002 and 2003 were primarily due to changes in estimates made for actuarial assumptions in addition to lower returns on plan assets in 2001 and 2002. Transfer to the government of the substitutional portion of the Employee Pension Fund Liabilities - Originally, the Japanese government pension plan consisted of two tiers, 'Basic National Pension' and 'Welfare Pension Insurance Relating to Salaries'. 'Basic National Pension' is funded by an employer to the government and 'Welfare Pension Insurance Relating to Salaries' is funded by the contributions both by the employer and employees to the government. Companies are allowed to establish private pension plans in lieu of participating in the 'Welfare Pension Insurance Relating to Salaries.' In order to give more benefits to its employees, Toyota established such a private employee pension fund which consists of the portion substituting 'Welfare Pension Insurance Relating to Salaries' (the ' Substitutional Portion'), and the portion of additional employee pension fund (the 'Corporate Portion'). In June 2001, the Contributed Benefit Pension Plan Law was enacted and allows a company to transfer the Substitutional Portion to the government thereby eliminating the company's responsibility for the benefits related to future employee service. In order to transfer the Substitutional Portion, a company must obtain approval from the Minister of Health, Labor and Welfare of the exemption from the payment of the benefits related to future employee service. In addition, a company must obtain approval from the same body for separation of the remaining benefit obligation of the Substitutional Portion which relates to past employee services. On obtaining that approval, the remaining benefit obligation of the Substitutional Portion (that amount earned by past services) as well as government-specified portion of the plan assets will be transferred to the government. F-40 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In the year ended March 31, 2003, the parent company and certain domestic subsidiaries applied for exemption from the payments of the benefits related to future employee services and received approvals from the Minister of Health, Labor and Welfare, and also made applications for separation of the remaining substitutional portion that was related to past services. The final approvals for separation of the remaining benefit obligation of the Substitutional Portion is expected to be granted by the government in the year ending March 31, 2004 and the actual transfer of the Substitutional Portion of the benefit obligation and related plan assets to the government is also expected to complete in the year ending March 31, 2004. Accordingly, no effects of these transactions have been recognized in the accompanying consolidated financial statements for the year ended March 31, 2003. The possible impacts of these transactions on Toyota's consolidated financial statements for the future periods could not be determined at this present time due to, among other matters, possible changes in the unrecognized actuarial gain or loss for the period up to the date of the actual transfer of Substitutional Portion and actual amount of the related plan assets to be transferred to the government. Postretirement benefits other than pensions and postemployment benefits - Toyota's U.S. subsidiaries provide certain health care and life insurance benefits to eligible retired employees. In addition, Toyota provides benefits to certain former or inactive employees after employment, but before retirement. These benefits are currently unfunded and provided through various insurance companies and health care providers. The cost of these benefits are recognized over the period the employee provides credited service to Toyota. Toyota's obligations under these arrangements are not material. 20. Derivative financial instruments: Toyota employs derivative financial instruments, including foreign exchange forward contracts, foreign currency options, interest rate swaps and interest rate currency swap agreements to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives for speculation or trading. Toyota adopted FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, on April 1, 2001. Upon adoption of this statement, Toyota recorded a net transition adjustment gain of Y8,986 million, net of income tax expense of Y4,967 million, in net income, and a net transition adjustment loss of Y2,451 million, net of income tax benefit of Y1,453 million, in accumulated other comprehensive loss. Fair value hedges - Toyota enters into interest rate swaps, and interest rate currency swap agreements mainly to convert its fixed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing its exposure to interest rate fluctuations. Interest rate swap agreements are executed as either an integral part of specific debt transactions or on a portfolio basis. Toyota uses interest rate currency swap agreements to entirely hedge exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executing interest rate currency swap agreements which involve the exchange of foreign currency principal and interest obligations for each functional currency obligations at agreed-upon currency exchange and interest rates. For the years ended March 31, 2002 and 2003, Toyota reported losses of Y625 million, and Y488 million ($4 million), respectively, related to the ineffective portion of Toyota's fair value hedges which is included in cost of financing operations in the accompanying consolidated statements of income. For fair value hedging relationships, the components of each derivative's gain or loss are included in the assessment of hedge effectiveness. F-41 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Cash flow hedges - Toyota enters into interest rate swaps, and interest rate currency swap agreements to manage its exposure to interest rate risk, and foreign currency exchange risk mainly associated with funding in currencies in which it operates. Interest rate swap agreements are used in managing Toyota's exposure to the variability of interest payments due to the changes in interest rates arising principally in variable-rate debts issued by Toyota. Interest rate swap agreements, which are designated as, and qualify as cash flow hedges are executed as an integral part of specific debt transactions and the critical terms of the interest rate swaps and the hedged debt transactions are the same. Toyota uses interest rate currency swap agreements to manage the foreign-currency exposure to variability in functional-currency-equivalent cash flows principally from debts or borrowings denominated in currencies other than functional currencies. Net derivative gains and losses included in other comprehensive income are reclassified into earnings at the time that the associated hedged transactions impact the income statement. For the years ended March 31, 2002 and 2003, net derivative gains of Y4,762 million and losses of Y790 million ($7 million) were reclassified to foreign exchange gain (loss), net in the accompanying consolidated statements of income, respectively. These net gains and losses were offset by net losses and gains from transactions being hedged. The components of each derivative's gain and loss are included in the assessment of hedge effectiveness, and no hedge ineffectiveness was reported because all critical terms of derivative financial instruments designated as, and qualify as, cash flow hedging instruments are same as those of hedged debt transactions. Toyota does not expect to reclassify any gains or losses included in other comprehensive income as at March 31, 2003, into earnings in next twelve months because no derivative instruments designated as, and qualify as, cash flow hedges as of the date. Undesignated derivative financial instruments - Toyota uses foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements, and interest rate options, which manage its exposure to foreign currency exchange fluctuation and interest rate fluctuation from an economic perspective, and which Toyota is unable or has elected not to apply hedge accounting. Unrealized gains or losses on these derivative instruments are reported in cost of financing operations and foreign exchange gain (loss), net in the accompanying consolidated statements of income. 21. Other financial instruments: Toyota has certain financial instruments, including financial assets and liabilities and off-balance sheet financial instruments incurred in the normal course of business. These financial instruments are executed with creditworthy financial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major industrialized countries. Financial instruments involve, to varying degrees, market risk as instruments are subject to price fluctuations, and elements of credit risk in the event a counterparty should default. In the unlikely event the counterparties fail to meet the contractual terms of a foreign currency or an interest rate instrument, Toyota's risk is limited to the fair value of the instrument. Although Toyota may be exposed to losses in the event of non-performance by counterparties on financial instruments, it does not anticipate significant losses due to the nature of its counterparties. Counterparties to Toyota's financial instruments represent, in general, international financial institutions. Additionally, Toyota does not have a significant exposure to any individual counterparty, based on the creditworthiness of these financial institutions. Collateral is generally not required of the counterparties or of Toyota. Toyota believes that the overall credit risk related to its financial instruments is not significant. F-42 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The estimated fair values of Toyota's financial instruments, excluding marketable securities and other securities investments and affiliated companies, are summarized as follows: Yen in millions --------------------------------------- March 31, March 31, 2002 2002 ------------ ------------ Carrying Estimated amount fair value ------------ ------------ Asset (Liability) Cash and cash equivalents Y 1,657,160 Y 1,657,160 Time deposits 19,977 19,977 Total finance receivables, net 3,499,333 3,514,838 Other receivables 508,970 508,970 Short-term borrowings (1,825,564) (1,825,564) Long-term debt including the current portion (4,793,147) (4,808,126) Foreign exchange forward contracts 953 953 Interest rate and currency swap agreements (58,416) (58,416) Option contracts purchased 13,393 13,393 Option contracts written 6,447 6,447 Yen in millions U.S. dollars in millions ----------------------------------- --------------------------- --- March 31, 2003 March 31, 2003 ----------------------------------- --------------------------- --- Carrying Estimated Carrying Estimated amount fair value amount fair ------------ -------------- -------- value ------ --- Asset (Liability) Cash and cash equivalents Y 1,592,028 Y 1,592,028 $ 13,245 $ 13,245 Time deposits 55,406 55,406 461 461 Total finance receivables, net 4,198,957 4,332,742 34,932 36,046 Other receivables 513,952 513,952 4,276 4,276 Short-term borrowings (1,855,648) (1,855,648) (15,438) (15,438) Long-term debt including the current (5,317,090) (5,405,239) (44,235) (44,969) portion Foreign exchange forward contracts (2,464) (2,464) (21) (21) Interest rate and currency swap 103,038 103,038 857 857 agreements Option contracts purchased 5,935 5,935 49 49 Option contracts written (3,581) (3,581) (30) (30) Following are explanatory notes regarding the financial assets and liabilities other than derivative financial instruments. Cash and cash equivalents, time deposits and other receivables - In the normal course of business, substantially all cash and cash equivalents, time deposits and other receivables are highly liquid and are carried at amounts which approximate fair value. Finance receivables, net - The carrying value of variable rate finance receivables was assumed to approximate fair value as they were repriced at prevailing market rates at March 31, 2002 and 2003. The fair value of fixed rate finance receivables was estimated by discounting expected cash flows using the rates at which loans of similar credit quality and maturity would be made as of March 31, 2002 and 2003. F-43 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Short-term borrowings and long-term debt - The fair values of short-term borrowings and total long-term debt including the current portion were estimated based on the discounted amounts of future cash flows using Toyota's current incremental borrowing rates for similar liabilities. 22. Lease commitments: Toyota leases certain assets under capital lease and operating lease arrangements. An analysis of leased assets under capital leases is as follows: Yen in millions U.S. ---------------------------------------- dollars in millions -------- March 31, March ---------------------------------------- 31, -------- Class of property 2002 2003 2003 ------------ ---------- --------------- -------- Building Y 9,836 Y 11,059 $ 92 Machinery and equipment 155,455 155,197 1,291 Less - Accumulated depreciation (101,169) (106,633) (887) - -------- ------ -------- ------ - --- ---- - Y 64,122 Y 59,623 $ 496 - -------- ------ -------- ------ - --- ---- - Amortization expenses under capital leases for the years ended March 31, 2001, 2002 and 2003 were Y17,355 million, Y18,361 million and Y14,501 million ($119 million), respectively. Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2003 are as follows: Yen in U.S. millions dollars -------- in millions -------- Year ending March 31: 2004 Y 16,061 $ 134 2005 14,186 118 2006 12,934 107 2007 9,621 80 2008 14,283 119 Thereafter 29,471 245 - ------ --- ---- Total minimum lease payments 96,556 803 Less - Amount representing interest 13,101 108 - ------ --- ---- Present value of net minimum lease payments 83,455 695 Less - Current obligations 13,054 109 - ------ --- ---- Long-term capital lease obligations Y 70,401 $ 586 - ------ --- ---- Rental expenses under operating leases for the years ended March 31, 2001, 2002 and 2003 were Y64,744 million, Y72,989 million and Y76,118 million ($624 million), respectively. F-44 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The minimum rental payments required under operating leases relating primarily to land, buildings and equipment having initial or remaining non-cancelable lease terms in excess of one year at March 31, 2003 are as follows: Yen in U.S. millions dollars -------- in millions -------- Year ending March 31: 2004 Y 9,511 $ 79 2005 7,382 62 2006 5,872 49 2007 3,756 31 2008 2,666 22 Thereafter 10,840 90 - ------ --- ---- Total minimum future rentals Y 40,027 $ 333 - ------ --- ---- 23. Other commitments and contingencies, concentrations and factors that may affect future operations: Commitments outstanding at March 31, 2003 for the purchase of property, plant and equipment and other assets approximated Y64,464 million ($536 million). Toyota enters into contracts with Toyota dealers to guarantee customers' payment of their installment payables that arises from installment contracts between customers and Toyota dealers, as and when requested by Toyota dealers. Guarantee periods are set to match maturity of installment payments, and range from 1 month to 88 months at March 31, 2003, however, they are generally shorter than the useful lives of products sold. Toyota is required to execute its guarantee primarily when customers are unable to make required payments. The maximum potential amount of future payments as of March 31, 2003 is Y867,391 million ($7,216 million). Liability for guarantee of Y4,806 million ($40 million) has been provided as of March 31, 2003. Under these guarantee contracts, Toyota is entitled to recover its payments from customers either by cash or through vehicles foreclosed. In February 2003, Toyota, General Motors Corporation, Ford, DaimlerChrysler, Honda, Nissan and BMW and their U.S. and Canadian sales and marketing subsidiaries, the National Automobile Dealers Association and the Canadian Automobile Dealers Association were named as defendants in purported nationwide class actions on behalf of all purchasers of new motor vehicles in the United States since January 1, 2001. These actions were filed in federal courts in California, Illinois, New York, Massachusetts, Florida, New Jersey and Pennsylvania. Additionally, parallel class actions were filed in state courts in California, Minnesota, New Mexico, New York, Tennessee, Wisconsin, Arizona, Florida and New Jersey on behalf of the same purchasers in those states. As of May 31, 2003, approximately 70 such cases were pending before the various federal and state courts. The nearly identical complaints allege that the defendants violated the Sherman Antitrust Act by conspiring among themselves and with their dealers to prevent the sale to United States citizens of vehicles produced for the Canadian market. The complaints allege that new vehicle prices in Canada are 10% to 30% lower than those in the United States and that preventing the sale of these vehicles to United States citizens resulted in United States consumers paying excessive prices for the same type of vehicles. The complaints seek permanent injunctions against the alleged antitrust violations and treble damages in an unspecified amount. The cases are at a preliminary stage; no defendant has yet answered the complaints and there has been no decision on the certification of the alleged cases. Toyota believes that its actions have been lawful and intends to vigorously defend these cases. F-45 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In September 1998, the California Air Resources Board issued a recall order against Toyota and its U.S. subsidiary, Toyota Technical Center, U.S.A., Inc., seeking the recall of approximately 337,000 Toyota and Lexus vehicles in the 1996, 1997 and 1998 model years sold in California. The California Air Resources Board claims that the on-board diagnostic systems installed in these vehicles do not properly detect gas vapor leaks within the vehicles and illuminate warning lights when required by evaporative emissions regulatory requirements. In October 1998, Toyota filed a petition contesting the recall order under California administrative hearing procedures. After a full hearing on the claims, an administrative law judge in February 2000 issued a recommended decision concluding that (i) the Toyota vehicles meet the applicable standard for evaporative emissions monitoring, (ii) Toyota did not timely inform the California Air Resources Board of certain enabling conditions programmed into the operation of the evaporative emissions monitoring system, and (iii) the recall order should be dismissed. In February 2002, Toyota and the California Air Resources Board executed a settlement under which Toyota contributed funds to the state Air Pollution Control Fund and to selected projects proposed by the Air Resources Board staff. In addition, Toyota will extend warranties for the evaporative emission control system of relevant Toyota models from 3 years or 50,000 miles to 14 years or 150,000 miles and will accelerate introduction of near-zero-emission cars. The total estimated cost of the settlement to Toyota has been agreed to be Y1,053 million ($8 million). In July 1999, the U.S. Environmental Protection Agency, represented by the U.S. Department of Justice, filed a federal lawsuit against Toyota's U.S. subsidiary, Toyota Motor Sales U.S.A., Inc., in the United States District Court for the District of Columbia. This lawsuit relates to approximately 2.2 million Toyota and Lexus vehicles in the 1996, 1997 and 1998 model years sold in the United States (including the vehicles subject to the California proceeding). This lawsuit alleges that Toyota violated the U.S. Clean Air Act as a result of similar claims of noncompliance with on-board diagnostic systems as were raised in the California proceeding. The complaint seeks a judgment enjoining Toyota from selling in the United States any new vehicle between the 1996 and 1998 model years that does not conform to the applicable federal regulations and ordering Toyota to take appropriate action to remedy the alleged violations of the Clean Air Act as well as civil penalties of up to $27,500 for each vehicle allegedly sold in violation of that Act. In November 1999, the Environmental Protection Agency and the Department of Justice named Toyota and its U.S. subsidiary, Toyota Technical Center, U.S.A., Inc., as additional defendants. In March 2003, Toyota and the Environmental Protection Agency and the Department of Justice agreed to a settlement and submitted it to the United States District Court for the District of Columbia. Under the settlement terms, Toyota will contribute funds to certain supplemental environmental projects and make settlement payments to the United States government. In addition, Toyota will extend warranties for the evaporative emission control systems of relevant Toyota models from 3 years or 50,000 miles to 14 years or 150,000 miles and will accelerate introduction of near-zero-emission cars. The total estimated cost of the settlement to Toyota is currently estimated to be Y3,931 million ($33 million). Toyota has various other legal actions, governmental proceedings and other claims pending against it, including product liability claims in the United States. Although the claimants in some of these actions seek potentially substantial damages, Toyota cannot currently determine its potential liability or the damages, if any, with respect to these claims. However, based upon information currently available to Toyota, Toyota believes that its losses from these matters, if any, would not have a material adverse effect on Toyota's financial position, operating results or cash flows. In September 2000, the European Union approved a directive that requires member states to promulgate regulations implementing the following by April 21, 2002: (1) manufacturers are to be financially responsible for taking back end-of-life vehicles put on the market after July 1, 2002 and dismantling and recycling those vehicles. Beginning January 1, 2007, manufacturers will also be financially responsible for vehicles put on the market before July 1, 2002; (2) manufacturers may not use certain hazardous materials in vehicles to be sold after F-46 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) July 2003; (3) vehicles approved and sold from three years after the directive must, upon release, meet reuse and/or recyclability targets of 85% by weight per vehicle, as well as reuse and/or recoverability targets of 95% by weight per vehicle; and (4) end-of-life vehicles must meet actual re-use and recovery targets of 80% and 85%, respectively, of vehicle weight by 2006, rising respectively to 85% and 95% by 2015. Currently, there are numerous uncertainties surrounding the form and implementation of the applicable regulations in different European Union member states, particularly regarding manufacturer responsibilities and resultant expenses that may be incurred. As of April 30, 2003, the following five member states have adopted legislation to implement the directive: The Netherlands, Germany, Austria, Spain and Luxembourg. In addition, Sweden, Norway and Denmark have adopted legislation similar to the directive. Belgium has adopted legislation that partially implements the directive. Although all member states were required to enact legislation to implement the directive by April 21, 2002, implementation of the directive has been delayed in some countries and is now expected to be substantially finalized during 2003. In addition, under this directive member states must take measures to ensure that car manufacturers, distributors and other auto-related businesses establish adequate used vehicle disposal facilities and to ensure that hazardous materials and recyclable parts are removed from vehicles prior to scrapping. This directive impacts Toyota's vehicles sold in the European Union. Based on the legislation that has been enacted to date, Toyota has provided for its estimated liability related to covered vehicles in existence as of March 31, 2003. Depending on the legislation implemented in the nine member states that have not yet enacted legislation and other circumstances, Toyota may be required to take additional accruals for the expected costs to comply with these regulations. Although Toyota does not expect its compliance with the directive to result in significant cash expenditures, Toyota is continuing to assess the impact of this future legislation on its results of operations, cash flows and financial position. Toyota has a concentration of material purchases from a supplier which is an affiliated company. These purchases approximate 10% of material costs. The parent company has a concentration of labor supply in employees working under collective bargaining agreements and a substantial portion of these employees are working under the agreement that will expire on December 31, 2005. 24. Segment data: The operating segments reported below are the segments of Toyota for which separate financial information is available and for which operating income/loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. The major portions of Toyota's operations on a worldwide basis are derived from the Automotive and Financial Services business segments. The Automotive segment designs, manufactures, assembles and distributes passenger cars, recreational and sport-utility vehicles, minivans, trucks and related parts and accessories. The Financial Services segment consists primarily of financing operations, and vehicle and equipment leasing operations to assist in the merchandising of Toyota's products as well as other products. The All Other segment includes Toyota's telecommunications business which was disposed of during the year ended March 31, 2001, its operations that manufacture and market industrial vehicles which were transferred to an affiliated company during the year ended March 31, 2002, and prefabricated housing and various other business activities. F-47 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables present certain information regarding Toyota's industry segments and operations by geographic areas as of and for the years ended March 31, 2001, 2002 and 2003: Segment Operating results and assets - As of and for the year ended March 31, 2001: Yen in millions -------------------------------------------------------------------------------- ----- Automotive Financial All Other Intersegment ------------ Services ----------- Elimination/ Total ----- ----------- Unallocated Amount ------------- Revenues Y 11,591,061 Y 571,058 Y 1,019,527 Y (226,409) Y 12,955,237 Depreciation 569,159 164,503 51,122 - 784,784 Operating income (loss) 765,557 31,693 (4,578) (1,943) 790,729 Segment assets 7,951,107 5,531,568 584,948 2,952,160 17,019,783 Investment in equity method 1,155,536 181,285 8,411 50,981 1,396,213 investees Expenditures for segment assets 776,086 358,026 109,320 (42,026) 1,201,406 As of and for the year ended March 31, 2002: Yen in millions ------------------------------------------------------------------------------ ----- Automotive Financial All Other Intersegment ------------ Services --------- Elimination/ Total ----- ----------- Unallocated Amount ------------- Revenues Y 13,067,428 Y 698,022 Y 728,848 Y (303,990) Y 14,190,308 Depreciation 603,468 186,146 20,227 - 809,841 Operating income (loss) 1,057,948 45,115 (2,954) (6,477) 1,093,632 Segment assets 9,121,406 6,910,593 650,912 2,622,819 19,305,730 Investment in equity method investees 1,065,455 185,072 3,950 66,495 1,320,972 Expenditures for segment assets 924,386 565,227 37,921 21,059 1,548,593 As of and for the year ended March 31, 2003: Yen in millions ---------------------------------------------------------------------------- --- Automotive Financial All Other Intersegment Total ------------ Services --------- Elimination/ -------- --- ----------- Unallocated Amount ------------ Revenues Y 14,311,451 Y 724,898 Y 795,217 Y (330,013) Y 15,501,553 Depreciation 657,814 192,624 20,198 - 870,636 Operating income (loss) 1,246,925 30,328 4,529 (10,136) 1,271,646 Segment assets 9,392,749 7,392,486 722,604 2,645,135 20,152,974 Investment in equity method investees 1,054,234 161,820 - 56,493 1,272,547 Expenditures for segment assets 998,528 544,390 48,041 19,270 1,610,229 U.S. dollars in millions ------------------------------------------------------------------------ --- Automotive Financial All Intersegment ---------- Services Other Elimination/ ----- --- --------- ------- Unallocated Total Amount ------------ Revenues $ 119,064 $ 6,031 $ 6,616 $ (2,746) $ 128,965 Depreciation 5,472 1,603 168 - 7,243 Operating income (loss) 10,374 252 38 (85) 10,579 Segment assets 78,143 61,501 6,012 22,006 167,662 Investment in equity method investees 8,771 1,346 - 470 10,587 Expenditures for segment assets 8,307 4,529 400 160 13,396 F-48 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Geographic Information - Revenues for the years ended March 31: Yen in millions U.S. ------------------------------------------------------- dollars in millions -------- For the years ended March 31, For the ------------------------------------------------------- year ended March 31, -------- 2001 2002 2003 2003 ------------ -------------- ------ -------- Japan External customers Y 6,340,590 Y 6,384,807 Y 6,621,054 $ 55,084 Intercompany 3,308,518 3,832,912 4,224,573 35,146 - ---------- --- ---------- --- - ---- - ------- --- ---- - Total 9,649,108 10,217,719 10,845,627 90,230 - ---------- --- ---------- --- - ---- - ------- --- ---- - North America External customers 4,741,810 5,475,405 5,929,803 49,332 Intercompany 164,280 244,553 289,036 2,405 - ---------- --- ---------- --- - ---- - ------- --- ---- - Total 4,906,090 5,719,958 6,218,839 51,737 - ---------- --- ---------- --- - ---- - ------- --- ---- - Europe External customers 1,013,967 1,265,509 1,514,683 12,602 Intercompany 31,295 56,828 85,138 708 - ---------- --- ---------- --- - ---- - ------- --- ---- - Total 1,045,262 1,322,337 1,599,821 13,310 - ---------- --- ---------- --- - ---- - ------- --- ---- - Other foreign countries External customers 858,870 1,064,587 1,436,013 11,947 Intercompany 81,729 96,919 110,731 921 - ---------- --- ---------- --- - ---- - ------- --- ---- - Total 940,599 1,161,506 1,546,744 12,868 - ---------- --- ---------- --- - ---- - ------- --- ---- - Elimination of intercompany revenue (3,585,822) (4,231,212) (4,709,478) (39,180) - ---------- --- ---------- --- - ---- - ------- --- ---- - Consolidated total Y 12,955,237 Y 14,190,308 Y 15,501,553 $ 128,965 - ---------- --- ---------- --- - ---- - ------- --- ---- - Operating income (loss) for the years ended March 31: Yen in millions U.S. -------------------------------------------------- dollars in millions -------- For the years ended March 31, For the -------------------------------------------------- year ended March 31, -------- 2001 2002 2003 2003 --------- ------------- ------ -------- Japan Y 623,195 Y 844,049 Y 944,290 $ 7,856 North America 194,548 264,759 279,988 2,329 Europe (24,893) (24,147) 8,305 69 Other foreign countries 6,636 13,049 45,626 380 Elimination of intersegment profits (8,757) (4,078) (6,563) (55) - ------- --- --------- --- - ---- - ------ --- ---- - Consolidated total Y 790,729 Y 1,093,632 Y 1,271,646 $ 10,579 - ------- --- --------- --- - ---- - ------ --- ---- - F-49 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Long-lived assets as of March 31: Yen in millions ----------------------------------------------- U.S. dollars in millions 2001 2002 2003 2003 ----------- ----------- ----------- ------ -- Japan Y 2,347,840 Y 2,694,473 Y 2,732,654 $ 22,734 North America 1,645,856 1,826,905 1,778,892 14,800 Europe 283,468 341,562 410,389 3,414 Other foreign countries 180,738 244,070 281,944 2,346 - --------- - --------- - --------- - ---- -- Consolidated total Y 4,457,902 Y 5,107,010 Y 5,203,879 $ 43,294 - --------- - --------- - --------- - ---- -- Revenues are attributed to geographies based on the country location of the parent company or the subsidiary that transacted the sale with the external customer. There are not any individually material countries with respect to revenues and long-lived assets included in other foreign countries. Transfers between industry or geographic segments are made at amounts which Toyota's management believes approximate arm's-length prices. In measuring the reportable segments' income or losses, operating income consists of sales and operating revenue less costs and operating expenses. Unallocated assets consist primarily of cash and cash equivalents and marketable securities maintained for general corporate purposes. F-50 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Certain financial statement data on non-financial services and financial services businesses - On July 7, 2000, Toyota established a wholly-owned subsidiary in Japan named Toyota Financial Services Corporation ('TFS'), to manage all Toyota finance companies worldwide. Through TFS, Toyota expects to improve its finance service operations and expand its financial service network to 30 or more countries. Toyota is preparing certain financial statement data relating to the segmentation of Toyota's non-financial services and financial services businesses. This financial statement data includes balance sheets at March 31, 2002 and 2003 and statements of income and cash flows for each of the three years in the period ended March 31, 2003. Balance sheets - Yen in millions U.S. ------------------------------- dollars in millions -------- March 31, March ------------------------------- 31, -------- 2002 2003 2003 ------------ ---------- -------- Non-Financial Services Businesses Current assets: Cash and cash equivalents Y 1,510,974 Y 1,437,731 $ 11,961 Time deposits 8,327 29,213 243 Marketable securities 596,530 602,634 5,013 Trade accounts and notes receivable 1,471,716 1,496,432 12,450 Finance receivables, net 14,612 14,296 119 Inventories 961,840 1,025,838 8,534 Prepaid expenses and other current assets 1,258,788 1,383,264 11,509 - ---------- --- ---------- --- ---- - Total current assets 5,822,787 5,989,408 49,829 - ---------- --- ---------- --- ---- - Noncurrent finance receivables, net 17,996 14,463 120 Investments and other assets 3,265,860 3,423,676 28,483 Property, plant and equipment 3,989,227 4,100,077 34,111 - ---------- --- ---------- --- ---- - Total Non-Financial Services Businesses assets 13,095,870 13,527,624 112,543 - ---------- --- ---------- --- ---- - Financial Services Businesses Current assets: Cash and cash equivalents 146,186 154,297 1,284 Time deposits 11,650 26,193 218 Marketable securities 4,207 2,849 24 Finance receivables, net 2,005,879 2,490,844 20,722 Prepaid expenses and other current assets 539,544 545,701 4,540 - ---------- --- ---------- --- ---- - Total current assets 2,707,466 3,219,884 26,788 - ---------- --- ---------- --- ---- - Noncurrent finance receivables, net 2,653,464 2,555,345 21,259 Investments and other assets 431,880 513,455 4,271 Property, plant and equipment 1,117,783 1,103,802 9,183 - ---------- --- ---------- --- ---- - Total Financial Services Businesses assets 6,910,593 7,392,486 61,501 - ---------- --- ---------- --- ---- - Eliminations (700,733) (767,136) (6,382) - ---------- --- ---------- --- ---- - Total assets Y 19,305,730 Y 20,152,974 $ 167,662 - ---------- --- ---------- --- ---- - F-51 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Yen in millions U.S. ------------------------------ dollars in millions -------- March 31, March ------------------------------- 31, -------- 2002 2003 2003 ------------ ---------- -------- Non-Financial Services Businesses Current liabilities: Short-term borrowings Y 834,490 Y 784,501 $ 6,527 Current portion of long-term debt 236,117 134,636 1,120 Accounts payable 1,413,373 1,520,160 12,647 Accrued expenses 872,672 1,019,241 8,479 Income taxes payable 321,579 293,756 2,444 Other current liabilities 770,219 893,723 7,435 - ---------- --- ---------- --- ---- - Total current liabilities 4,448,450 4,646,017 38,652 - ---------- --- ---------- --- ---- - Long-term liabilities: Long-term debt 719,375 789,509 6,569 Accrued pension and severance costs 753,806 1,051,500 8,748 Other long-term liabilities 272,391 222,405 1,850 - ---------- --- ---------- --- ---- - Total long-term liabilities 1,745,572 2,063,414 17,167 - ---------- --- ---------- --- ---- - Total Non-Financial Services Businesses liabilities 6,194,022 6,709,431 55,819 - ---------- --- ---------- --- ---- - Financial Services Businesses Current liabilities: Short-term borrowings 1,407,183 1,542,514 12,833 Current portion of long-term debt 929,893 1,200,900 9,991 Accounts payable 7,460 11,893 99 Accrued expenses 58,750 51,388 428 Income taxes payable 6,134 6,962 58 Other current liabilities 263,472 177,115 1,473 - ---------- --- ---------- --- ---- - Total current liabilities 2,672,892 2,990,772 24,882 - ---------- --- ---------- --- ---- - Long-term liabilities: Long-term debt 3,255,969 3,532,811 29,391 Accrued pension and severance costs 597 1,187 10 Other long-term liabilities 328,339 249,952 2,079 - ---------- --- ---------- --- ---- - Total long-term liabilities 3,584,905 3,783,950 31,480 - ---------- --- ---------- --- ---- - Total Financial Services Businesses liabilities 6,257,797 6,774,722 56,362 - ---------- --- ---------- --- ---- - Eliminations (701,822) (767,645) (6,387) Minority interest in consolidated subsidiaries 291,621 315,466 2,625 Shareholders' equity 7,264,112 7,121,000 59,243 - ---------- --- ---------- --- ---- - Total liabilities and shareholders' equity Y 19,305,730 Y 20,152,974 $ 167,662 - ---------- --- ---------- --- ---- - F-52 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Statements of income - Yen in millions U.S. -------------------------------------------------- dollars in millions -------- For the years ended March 31, For the -------------------------------------------------- year ended March 31, -------- 2001 2002 2003 2003 --------- ------------- ------ -------- on- Financial Services Businesses Net revenues Y 12,400,506 Y 13,550,956 Y 14,803,475 $ 123,157 - ---------- --- ---------- --- - --- - ------- --- - --- - Costs and expenses: Cost of revenues 10,229,269 10,916,547 11,915,394 99,130 Selling, general and administrative 1,399,942 1,572,086 1,631,151 13,570 - ---------- --- ---------- --- - --- - ------- --- - --- - Total costs and expenses 11,629,211 12,488,633 13,546,545 112,700 - ---------- --- ---------- --- - --- - ------- --- - --- - Operating income 771,295 1,062,323 1,256,930 10,457 - ---------- --- ---------- --- - --- - ------- --- - --- - Other income (expense), net 298,018 (158,902) (48,563) (404) - ---------- --- ---------- --- - --- - ------- --- - --- - Income before income taxes, minority 1,069,313 903,421 1,208,367 10,053 interest and equity in earnings of affiliated companies Provision for income taxes 504,359 393,149 514,710 4,282 - ---------- --- ---------- --- - --- - ------- --- - --- - Income before minority interest and equity 564,954 510,272 693,657 5,771 in earnings of affiliated companies Minority interest in consolidated (11,959) (9,310) (10,796) (90) subsidiaries Equity in earnings of affiliated companies 94,334 46,353 46,309 385 - ---------- --- ---------- --- - --- - ------- --- - --- - Net income- Non- Financial Services 647,329 547,315 729,170 6,066 Businesses - ---------- --- ---------- --- - --- - ------- --- - --- - Financial Services Businesses Net revenues 571,058 698,022 724,898 6,031 - ---------- --- ---------- --- - --- - ------- --- - --- - Costs and expenses: Cost of revenues 420,327 460,842 425,691 3,542 Selling, general and administrative 119,038 192,065 268,879 2,237 - ---------- --- ---------- --- - --- - ------- --- - --- - Total costs and expenses 539,365 652,907 694,570 5,779 - ---------- --- ---------- --- - --- - ------- --- - --- - Operating income 31,693 45,115 30,328 252 - ---------- --- ---------- --- - --- - ------- --- - --- - Other income (expense), net 7,074 23,653 (11,444) (95) - ---------- --- ---------- --- - --- - ------- --- - --- - Income before income taxes, minority 38,767 68,768 18,884 157 interest and equity in earnings of affiliated companies Provision for income taxes 19,637 29,691 2,298 19 - ---------- --- ---------- --- - --- - ------- --- - --- - Income before minority interest and equity 19,130 39,077 16,586 138 in earnings of affiliated companies Minority interest in consolidated (209) (1,557) (735) (6) subsidiaries Equity in earnings of affiliated companies 9,280 (28,263) 6,526 54 - ---------- --- ---------- --- - --- - ------- --- - --- - Net income- Financial Services Businesses 28,201 9,257 22,377 186 - ---------- --- ---------- --- - --- - ------- --- - --- - Eliminations (632) (5) (605) (5) - ---------- --- ---------- --- - --- - ------- --- - --- - Net income Y 674,898 Y 556,567 Y 750,942 $ 6,247 - ---------- --- ---------- --- - --- - ------- --- - --- - F-53 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Statement of cash flows - Yen in millions Yen in millions -------------------------------------------------------- ----------------------------- ------------------ For the year ended March 31, 2001 For the year ended March 31, 2002 -------------------------------------------------------- ----------------------------- ------------------ Non-Financial Financial Consolidated Non-Financial Financial Consolidated Services Services ------------ Services Services ------------ Businesses Businesses Businesses Businesses ------------- ------------ ------------- ------------ Cash flows from operating activities: Net income Y 647,329 Y 28,201 Y 674,898 Y 547,315 Y 9,257 Y 556,567 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation 620,281 164,503 784,784 623,695 186,146 809,841 Provision for 5,675 21,102 27,131 6,329 37,996 44,407 doubtful accounts and credit losses Pension and 44,665 473 45,138 54,810 (1,267) 53,543 severance costs, less payments Loss on disposal of 21,541 868 22,409 46,243 591 46,834 fixed assets Unrealized losses 13,377 - 13,377 - - - on trading securities, net Unrealized (gains) (11,107) - (11,107) 179,649 - 179,649 losses on available-for-sale securities, net Realized gain on (180,950) - (180,950) - - - disposition of ownership interest in telecommunication subsidiary Gain on securities (161,151) - (161,151) - - - contribution to employee retirement benefit trust Deferred income 38,541 10,904 49,325 (152,766) 10,006 (142,811) taxes Minority interest 11,959 209 12,129 9,310 1,557 10,835 in consolidated subsidiaries Equity in earnings (94,334) (9,280) (103,614) (46,353) 28,263 (18,090) of affiliated companies Changes in 155,491 (61,384) 197,451 90,506 (143,391) 33,742 operating assets and liabilities Other (50,907) 108,405 58,198 (61,003) 32,091 (41,857) --- --------- - ---------- - - ------- ---- --------- -- ---------- - ---------- - - ----- ------ - Net cash provided 1,060,410 264,001 1,428,018 1,297,735 161,249 1,532,660 by operating activities --- --------- - ---------- - - ------- ---- --------- -- ---------- - ---------- - - ----- ------ - Cash flows from investing activities: Additions to (7,291) (3,690,085) (3,697,376) - (3,853,741) (3,853,741) finance receivables Collection of and - 3,308,971 3,308,971 - 3,077,933 3,077,933 proceeds from sale of finance receivables Additions to fixed (710,495) (51,779) (762,274) (853,198) (87,349) (940,547) assets excluding equipment leased to others Additions to (132,885) (306,247) (439,132) (130,168) (477,878) (608,046) equipment leased to others Proceeds from sales 52,227 9,038 61,265 54,972 1,553 56,525 of fixed assets excluding equipment leased to others Proceeds from sales 67,264 269,783 337,047 115,378 296,813 412,191 of equipment leased to others (Increase) decrease (19,175) (15,795) (70,906) (135,891) 15,445 (28,450) in investments and other assets Purchases of (644,312) (304,746) (949,058) (412,501) (241,255) (653,756) marketable securities and security investments Proceeds from sales 623,359 209,278 832,017 512,028 239,775 751,803 of and maturity of marketable securities and security investments (Increase) decrease 41,971 3,219 45,190 42,597 (11,078) 31,519 in time deposits Payment for (34,204) - (34,204) (27,510) - (27,510) additional investments in affiliated companies, net of cash acquired Other 50,389 403 49,722 (5,424) (21,963) (28,732) --- --------- - ---------- - - ------- ---- --------- -- ---------- - ---------- - - ----- ------ - Net cash used in Y (713,152) Y (567,960) Y (1,318,738) Y (839,717) Y (1,061,745) Y (1,810,811) investing activities --- --------- - ---------- - - ------- ---- --------- -- ---------- - ---------- - - ----- ------ - F-54 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Yen in millions Yen in millions ----------------------------------------------------- -------------------------------- --------------- For the year ended March 31, 2001 For the year ended March 31, 2002 ----------------------------------------------------- -------------------------------- --------------- Non-Financial Financial Consolidated Non-Financial Financial Consolidated ------------ ------------ Services Services Services Services Businesses Businesses Businesses Businesses ------------- ---------- ------------- ------------ Cash flows from financing activities: Purchase of common Y (265,012) Y - Y (265,012) Y (285,236) Y - Y (285,236) stock Proceeds from 261,939 912,926 1,117,360 79,195 1,734,754 1,701,727 issuance of long-term debt Payments of (186,971) (827,516) (958,475) (114,700) (1,005,965) (1,012,523) long-term debt Increase (decrease) (46,006) 138,533 28,039 (9,340) 243,471 73,884 in short-term borrowings Dividends paid (88,625) - (88,625) (98,639) - (98,639) Other - - - 935 12,000 12,935 --- --------- - -------- - - ------- ---- --------- - ----------- - ---------- - - ----- ------ - Net cash provided (324,675) 223,943 (166,713) (427,785) 984,260 392,148 by (used in) financing activities --- --------- - -------- - - ------- ---- --------- - ----------- - ---------- - - ----- ------ - Effect of exchange 35,667 3,390 39,057 23,991 8,280 32,271 rate changes on cash and cash equivalents --- --------- - -------- - - ------- ---- --------- - ----------- - ---------- - - ----- ------ - Net increase 58,250 (76,626) (18,376) 54,224 92,044 146,268 (decrease) in cash and cash equivalents Cash and cash 1,398,500 130,768 1,529,268 1,456,750 54,142 1,510,892 equivalents at beginning of year --- --------- - -------- - - ------- ---- --------- - ----------- - ---------- - - ----- ------ - Cash and cash Y 1,456,750 Y 54,142 Y 1,510,892 Y 1,510,974 Y 146,186 Y 1,657,160 equivalents at end of year --- --------- - -------- - - ------- ---- --------- - ----------- - ---------- - - ----- ------ - Yen in millions U.S. dollars in millions ----------------------------------------------------- ------------------------------------ --------- For the year ended March 31, 2003 For the year ended March 31, 2003 ----------------------------------------------------- ------------------------------------ --------- Non-Financial Financial Consolidated Non-Financial Financial Consolidated Services Services Services Services Businesses Businesses Businesses Businesses ------------- ---------- ------------- ---------- Cash flows from operating activities: Net income Y 729,170 Y 22,377 Y 750,942 $ 6,066 $ 186 $ 6,247 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation 678,012 192,624 870,636 5,640 1,603 7,243 Provision for 2,989 96,248 99,837 25 801 831 doubtful accounts and credit losses Pension and 55,068 569 55,637 458 5 463 severance costs, less payments Loss on disposal 46,205 287 46,492 385 2 387 of fixed assets Unrealized losses 111,346 - 111,346 926 - 926 on available-for-sale securities, net Deferred income (85,056) 10,777 (74,273) (708) 90 (618) taxes Minority interest 10,796 735 11,531 90 6 96 in consolidated subsidiaries Equity in earnings (46,309) (6,526) (52,835) (385) (54) (439) of affiliated companies Changes in 170,706 (155,193) 129,054 1,420 (1,291) 1,075 operating assets and liabilities Other 36,104 104,621 136,680 301 870 1,136 --- --------- - -------- - - -------- --- ------ - ----------- - ------ --- - --- -- ------ - Net cash provided 1,709,031 266,519 2,085,047 14,218 2,218 17,347 by operating activities --- --------- - -------- - - -------- --- ------ - ----------- - ------ --- - --- -- ------ - F-55 -------------------------------------------------------------------------------- Table of Contents TOYOTA MOTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Yen in millions U.S. dollars in millions -------------------------------------------------------- ---------------------------------- ----------- For the year ended March 31, 2003 For the year ended March 31, 2003 -------------------------------------------------------- ---------------------------------- ----------- Non-Financial Financial Consolidated Non-Financial Financial Consolidated ------------ - ----------- Services Services Services Services Businesses Businesses Businesses Businesses ------------- ------------ ------------- ---------- Cash flows from investing activities: Additions to - (6,481,200) (6,481,200) - (53,920) (53,920) finance receivables Collection of and - 5,825,456 5,825,456 - 48,465 48,465 proceeds from sale of finance receivables Additions to (955,488) (50,443) (1,005,931) (7,949) (420) (8,369) fixed assets excluding equipment leased to others Additions to (110,351) (493,947) (604,298) (918) (4,109) (5,027) equipment leased to others Proceeds from 50,702 11,145 61,847 422 93 515 sales of fixed assets excluding equipment leased to others Proceeds from 64,773 221,765 286,538 539 1,845 2,384 sales of equipment leased to others (Increase) 97,744 - (30,481) 813 - (254) decrease in investments and other assets Purchases of (868,227) (245,771) (1,113,998) (7,223) (2,045) (9,268) marketable securities and security investments Proceeds from 727,462 194,503 921,965 6,052 1,618 7,670 sales of and maturity of marketable securities and security investments (Increase) (21,119) (12,260) (33,379) (176) (102) (278) decrease in time deposits Payment for (28,229) - (28,229) (235) - (235) additional investments in affiliated companies, net of cash acquired Other (11,126) (1,535) 55,303 (93) (13) 460 -- ---------- - ---------- - - -------- --- ------ ----- ------- - ------- -- - - ---- ------ - Net cash used in Y (1,053,859) Y (1,032,287) Y (2,146,407) $ (8,768) $ (8,588) $ (17,857) investing activities -- ---------- - ---------- - - -------- --- ------ ----- ------- - ------- -- - - Yen in millions U.S. dollars in millions ------------------------------------------------------- ----------------------------------- ---------- For the year ended March 31, 2003 For the year ended March 31, 2003 ------------------------------------------------------- ----------------------------------- ---------- Non-Financial Financial Consolidated Non-Financial Financial Consolidated Services Services ------------ Services Services ------------ Businesses Businesses Businesses Businesses ------------- ----------- ------------- ---------- Cash flows from financing activities: Purchase of Y (454,611) Y - Y (454,611) $ (3,782) $ - $ (3,782) common stock Proceeds from 174,657 1,528,429 1,686,564 1,453 12,715 14,031 issuance of long-term debt Payments of (224,261) (913,207) (1,117,803) (1,866) (7,597) (9,300) long-term debt Increase (83,907) 166,613 30,327 (698) 1,386 252 (decrease) in short-term borrowings Dividends paid (110,846) (30) (110,876) (922) (0) (922) Other 4,074 - 4,074 34 - 34 --- --------- - --------- - - -------- --- ------ ----- ------- - ------ --- - -- --- ------ - Net cash provided (694,894) 781,805 37,675 (5,781) 6,504 313 by (used in) financing activities --- --------- - --------- - - -------- --- ------ ----- ------- - ------ --- - -- --- ------ - Effect of (33,521) (7,926) (41,447) (279) (66) (345) exchange rate changes on cash and cash equivalents --- --------- - --------- - - -------- --- ------ ----- ------- - ------ --- - -- --- ------ - Net increase (73,243) 8,111 (65,132) (610) 68 (542) (decrease) in cash and cash equivalents Cash and cash 1,510,974 146,186 1,657,160 12,571 1,216 13,787 equivalents at beginning of year --- --------- - --------- - - -------- --- ------ ----- ------- - ------ --- - -- --- ------ - Cash and cash Y 1,437,731 Y 154,297 Y 1,592,028 $ 11,961 $ 1,284 $ 13,245 equivalents at end of year --- --------- - --------- - - -------- --- ------ ----- ------- - ------ --- - -- --- ------ - F-56 -------------------------------------------------------------------------------- Table of Contents ITEM 19. EXHIBITS Index to Exhibits 1.1 Amended and Restated Articles of Incorporation of the Registrant (English translation) (incorporated by reference to Exhibit 4.6 to Toyota's registration statement on Form S-8 filed with the SEC on July 25th, 2003 (file no. 333-107322)) 1.2 Amended and Restated Regulations of the Board of Directors of the Registrant (English translation) (incorporated by reference to Exhibit 4.6 to Toyota's registration statement on Form S-8 filed with the SEC on July 25th, 2003 (file no. 333-107322)) 1.3 Amended and Restated Regulations of the Board of Corporate Auditors of the Registrant (English translation) (incorporated by reference to Exhibit 4.6 to Toyota's registration statement on Form S-8 filed with the SEC on July 25th, 2003 (file no. 333-107322)) 2.1 Amended and Restated Share Handling Regulations of the Registrant (English translation) (incorporated by reference to Exhibit 4.6 to Toyota's registration statement on Form S-8 filed with the SEC on July 25th, 2003 (file no. 333-107322)) 2.2 Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and the owners and beneficial owners from time to time of American Depositary Receipts, including the form of American Depositary Receipt (incorporated by reference to Exhibit 4.2 to Toyota's Registration Statement on Form F-1 (file no. 333-10768)) 2.3 Form of ADR (included in Exhibit 2.2) 8.1 List of Principal Subsidiaries (See 'Organizational Structure' in 'Item 4. Information on the Company') 11.1 Code of Ethics of the Registrant applicable to its directors and managing officers, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. (English translation) 99.1 Section 906 Certification 94 -------------------------------------------------------------------------------- Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. TOYOTA MOTOR CORPORATION By: /s/ TAKESHI SUZUKI ---------------------------------------- Name: Takeshi Suzuki Title: Managing Officer Date: July 31, 2003 S-1 -------------------------------------------------------------------------------- Table of Contents CERTIFICATIONS I, Hiroshi Okuda, certify that: 1. I have reviewed this annual report on Form 20-F of Toyota Motor Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the 'Evaluation Date'); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 31, 2003 /s/ HIROSHI OKUDA ----------------------------------------------- Hiroshi Okuda Chairman of the Board Toyota Motor Corporation S-2 -------------------------------------------------------------------------------- Table of Contents CERTIFICATIONS I, Ryuji Araki, certify that: 1. I have reviewed this annual report on Form 20-F of Toyota Motor Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the 'Evaluation Date'); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 31, 2003 /s/ RYUJI ARAKI ----------------------------------------------- Ryuji Araki Executive Vice President, Member of the Board Toyota Motor Corporation S-3 This information is provided by RNS The company news service from the London Stock Exchange

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