TOYOTA JIDOSHA KABUSHIKI KAISHA

Transcription

1 As filed with the U.S. Securities and Exchange Commission on June 25, 2018 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 20-F (Mark One) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: March 31, 2018 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: TOYOTA JIDOSHA KABUSHIKI KAISHA (Exact Name of Registrant as Specified in its Charter) TOYOTA MOTOR CORPORATION (Translation of Registrant s Name into English) Japan (Jurisdiction of Incorporation or Organization) 1 Toyota-cho, Toyota City Aichi Prefecture Japan (Address of Principal Executive Offices) Nobukazu Takano Telephone number: Facsimile number: Address: 1 Toyota-cho, Toyota City, Aichi Prefecture , Japan (Name, telephone, and/or facsimile number and address of registrant s contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on Which Registered: American Depositary Shares* The New York Stock Exchange Common Stock** * American Depositary Receipts evidence American Depositary Shares, each American Depositary Share representing two shares of the registrant s Common Stock. ** No par value. Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the U.S. Securities and Exchange Commission. Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer s classes of capital or common stock as of the close of the period covered by the annual report: 2,909,923,992 shares of common stock (including 45,002,629 shares of common stock in the form of American Depositary Shares) and 47,100,000 First Series Model AA class shares as of March 31, 2018 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes È No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes È No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes È No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of large accelerated filer, accelerated filer, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer È Accelerated filer Non-accelerated filer Emerging growth company If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: The term new or revised financial accounting standard refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP È International Financial Reporting Standards as issued by the International Accounting Standards Board Other If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No È

2 TABLE OF CONTENTS ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS... 1 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE... 1 ITEM 3. KEY INFORMATION A SELECTED FINANCIAL DATA B CAPITALIZATION AND INDEBTEDNESS C REASONS FOR THE OFFER AND USE OF PROCEEDS D RISK FACTORS... 5 ITEM 4. INFORMATION ON THE COMPANY A HISTORY AND DEVELOPMENT OF THE COMPANY B BUSINESS OVERVIEW C ORGANIZATIONAL STRUCTURE D PROPERTY, PLANTS AND EQUIPMENT ITEM 4A. UNRESOLVED STAFF COMMENTS ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A OPERATING RESULTS B LIQUIDITY AND CAPITAL RESOURCES C RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES D TREND INFORMATION E OFF-BALANCE SHEET ARRANGEMENTS F TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS G SAFE HARBOR ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A DIRECTORS AND SENIOR MANAGEMENT B COMPENSATION C BOARD PRACTICES D EMPLOYEES E SHARE OWNERSHIP ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A MAJOR SHAREHOLDERS B RELATED PARTY TRANSACTIONS C INTERESTS OF EXPERTS AND COUNSEL ITEM 8. FINANCIAL INFORMATION A CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION B SIGNIFICANT CHANGES ITEM 9. THE OFFER AND LISTING A LISTING DETAILS B PLAN OF DISTRIBUTION C MARKETS D SELLING SHAREHOLDERS E DILUTION F EXPENSES OF THE ISSUE ITEM 10. ADDITIONAL INFORMATION A SHARE CAPITAL B MEMORANDUM AND ARTICLES OF ASSOCIATION C MATERIAL CONTRACTS D EXCHANGE CONTROLS

3 10.E TAXATION F DIVIDENDS AND PAYING AGENTS G STATEMENT BY EXPERTS H DOCUMENTS ON DISPLAY I SUBSIDIARY INFORMATION ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A DEBT SECURITIES B WARRANTS AND RIGHTS C OTHER SECURITIES D AMERICAN DEPOSITARY SHARES ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS ITEM 15. CONTROLS AND PROCEDURES ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ITEM 16B. CODE OF ETHICS ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ITEM 16F. CHANGE IN REGISTRANT S CERTIFYING ACCOUNTANT ITEM 16G. CORPORATE GOVERNANCE ITEM 16H. MINE SAFETY DISCLOSURE ITEM 17. FINANCIAL STATEMENTS ITEM 18. FINANCIAL STATEMENTS ITEM 19. EXHIBITS

4 As used in this annual report, the term fiscal preceding a year means the twelve-month period ended March 31 of the year referred to. All other references to years refer to the applicable calendar year, unless the context otherwise requires. As used herein, the term Toyota refers to Toyota Motor Corporation and its consolidated subsidiaries as a group, unless the context otherwise indicates. In parts of this annual report, amounts reported in Japanese yen have been translated into U.S. dollars for the convenience of readers. Unless otherwise noted, the rate used for this translation was = $1.00. This was the approximate exchange rate in Japan on March 31, CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS Written forward-looking statements may appear in documents filed with the U.S. Securities and Exchange Commission, or the SEC, including this annual report, documents incorporated by reference, reports to shareholders and other communications. The U.S. Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as the information is identified as forward looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. Toyota relies on this safe harbor in making forward-looking statements. Forward-looking statements appear in a number of places in this annual report and include statements regarding Toyota s current intent, belief, targets or expectations or those of its management. In many, but not all cases, words such as aim, anticipate, believe, estimate, expect, hope, intend, may, plan, predict, probability, risk, should, will, would, and similar expressions, are used as they relate to Toyota or its management, to identify forward-looking statements. These statements reflect Toyota s current views with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those which are anticipated, aimed at, believed, estimated, expected, intended or planned. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ from those in forward-looking statements as a result of various factors. Important factors that could cause actual results to differ materially from estimates or forecasts contained in the forwardlooking statements are identified in Risk Factors and elsewhere in this annual report, and include, among others: (i) changes in economic conditions, market demand, and the competitive environment affecting the automotive markets in Japan, North America, Europe, Asia and other markets in which Toyota operates; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar, the euro, the Australian dollar, the Russian ruble, the Canadian dollar and the British pound, and interest rates fluctuations; (iii) changes in funding environment in financial markets and increased competition in the financial services industry; (iv) Toyota s ability to market and distribute effectively; (v) Toyota s ability to realize production efficiencies and to implement capital expenditures at the levels and times planned by management; (vi) changes in the laws, regulations and government policies in the markets in which Toyota operates that affect Toyota s automotive operations, particularly laws, regulations and government policies relating to vehicle safety including remedial measures such as recalls, trade, environmental protection, vehicle emissions and vehicle fuel economy, as well as changes in laws, regulations and government policies that affect Toyota s other operations, including the outcome of current and future litigation and other legal proceedings, government proceedings and investigations;

5 (vii) political and economic instability in the markets in which Toyota operates; (viii) Toyota s ability to timely develop and achieve market acceptance of new products that meet customer demand; (ix) any damage to Toyota s brand image; (x) Toyota s reliance on various suppliers for the provision of supplies; (xi) increases in prices of raw materials; (xii) Toyota s reliance on various digital and information technologies; (xiii) fuel shortages or interruptions in electricity, transportation systems, labor strikes, work stoppages or other interruptions to, or difficulties in, the employment of labor in the major markets where Toyota purchases materials, components and supplies for the production of its products or where its products are produced, distributed or sold; and (xiv) the impact of natural calamities including the negative effect on Toyota s vehicle production and sales.

6 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION 3.A SELECTED FINANCIAL DATA You should read the U.S. GAAP selected consolidated financial information presented below together with Operating and Financial Review and Prospects and Toyota s consolidated financial statements contained in this annual report. U.S. GAAP Selected Financial Data The following selected financial data have been derived from Toyota s consolidated financial statements. These financial statements were prepared in accordance with U.S. GAAP. Year Ended March 31, (, except share and per share data) Consolidated Statement of Income Data: Automotive: Revenues... 23,781,404 25,062,129 25,977,416 25,081,847 26,397,940 Operating income... 1,938,778 2,325,310 2,448,998 1,692,973 2,011,135 Financial Services: Revenues... 1,421,047 1,661,149 1,896,224 1,823,600 2,017,008 Operating income , , , , ,546 All Other: Revenues... 1,151,280 1,255,791 1,177,387 1,321,052 1,646,118 Operating income... 64,270 65,650 66,507 81, ,812 Elimination of intersegment: Revenues... (661,820) (744,548) (647,909) (629,306) (681,556) Operating income... (5,827) (2,229) (760) (2,356) 2,369 Total Company: Revenues... 25,691,911 27,234,521 28,403,118 27,597,193 29,379,510 Operating income... 2,292,112 2,750,564 2,853,971 1,994,372 2,399,862 Income before income taxes and equity in earnings of affiliated companies... 2,441,080 2,892,828 2,983,381 2,193,825 2,620,429 Net income attributable to Toyota Motor Corporation... 1,823,119 2,173,338 2,312,694 1,831,109 2,493,983 Net income attributable to Toyota Motor Corporation per common share (yen): Basic Diluted Shares used in computing net income attributable to Toyota Motor Corporation per common share, basic (in thousands)... 3,168,989 3,158,851 3,111,306 3,008,088 2,947,365 Shares used in computing net income attributable to Toyota Motor Corporation per common share, diluted (in thousands)... 3,170,911 3,160,429 3,144,947 3,055,826 2,994,766 1

7 Year Ended March 31, (, except per share and numbers of vehicles sold data) Consolidated Balance Sheet Data (end of period): Total Assets:... 41,437,473 47,729,830 47,427,597 48,750,186 50,308,249 Short-term debt, including current portion of long-term debt... 7,780,483 8,963,492 8,521,088 9,244,131 9,341,190 Long-term debt, less current portion... 8,546,910 10,014,395 9,772,065 9,911,596 10,006,374 Toyota Motor Corporation shareholders equity... 14,469,148 16,788,131 16,746,935 17,514,812 18,735,982 Common stock , , , , ,050 Other Data: Dividends per share (yen) Number of vehicles sold Japan... 2,365,410 2,153,694 2,059,093 2,273,962 2,255,313 North America... 2,529,398 2,715,173 2,839,229 2,837,334 2,806,467 Europe , , , , ,077 Asia... 1,608,355 1,488,922 1,344,836 1,587,822 1,542,806 Other*... 1,768,867 1,755,037 1,593,758 1,347,182 1,391,731 Worldwide total... 9,116,033 8,971,864 8,681,328 8,970,860 8,964,394 * Other consists of Central and South America, Oceania, Africa and the Middle East, etc. Dividend Information Toyota normally pays dividends twice per year, including an interim dividend and a year-end dividend. Toyota s articles of incorporation provide that retained earnings can be distributed as dividends pursuant to a resolution of its board of directors. Toyota s board of directors resolves to pay year-end dividends to holders of common shares and registered pledgees of common shares of record as of March 31, the record date, in each year. At the 111th Ordinary General Shareholders Meeting held in June 2015, Toyota s shareholders approved amendments to Toyota s articles of incorporation permitting the issuance of Model AA Class Shares in the future. The articles of incorporation currently provide that in the event that Toyota pays a year-end dividend to holders of common shares, it will pay a year-end dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares of record as of the record date for the year-end dividend, in the amount payable on the Model AA Class Shares pursuant to their terms ( AA Dividends ), in preference to holders of common shares or registered pledgees of common shares. In addition to these year-end dividends, Toyota may pay an interim dividend in the form of cash distributions from its distributable surplus to holders of common shares and pledgees of common shares of record as of September 30, the record date, in each year by a resolution of its board of directors. The articles of incorporation currently provide that in the event that Toyota pays such interim dividends, Toyota will pay an amount equivalent to one-half of the AA Dividends ( AA Interim Dividends ) as an interim dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares of record as of the record date for the interim dividend, in preference to holders of common shares or registered pledgees of common shares. If the amount of the dividends from surplus paid to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares is less than the prescribed amount of AA Dividends in any fiscal year, the amount of the shortfall will be carried forward to and accumulate in the following fiscal year and thereafter. Dividends from surplus will be paid to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares in preference to the payment of interim and year-end dividends until such payment reaches the amount of the accumulated unpaid dividends on the Model AA Class Shares. 2

8 For a further discussion of Model AA Class Shares, please see Additional Information Memorandum and Articles of Association. In addition, under the Companies Act of Japan (the Companies Act ), dividends may be paid to holders of common shares and pledgees of record of common shares as of any record date, other than those specified above, as set forth in Toyota s articles of incorporation or as determined by its board of directors from time to time. Under the Companies Act, dividends may be distributed in cash or (except in the case of interim dividends mentioned in the third preceding paragraph) in kind, subject to limitations on distributable surplus and to certain other conditions. The following table sets forth the dividends declared per common share by Toyota for each of the periods shown. The periods shown are the six months ended on that date. The U.S. dollar equivalents for the cash dividends shown are based on the noon buying rate for Japanese yen on the last date of each period set forth below. Cash Dividends per Common Share Period Ended Yen U.S. dollars September 30, March 31, September 30, March 31, September 30, March 31, September 30, March 31, September 30, March 31, September 30, March 31, Toyota deems the benefit of its shareholders as one of its priority management policies, and it continues to work to improve its corporate structure to realize sustainable growth in order to enhance its corporate value. Toyota will strive to continue to pay stable dividends on its common shares aiming at a consolidated dividend payout ratio, defined as dividends per common share divided by net income attributable to Toyota Motor Corporation per common share, of 30% while giving due consideration to factors such as business results for each term, investment plans and its cash reserves. Toyota will pay dividends on the First Series Model AA Class Shares in accordance with a prescribed calculation method. In order to successfully compete in this highly competitive industry, Toyota plans to utilize its internal funds for the early commercialization of technologies for next-generation environment and safety giving priority to customer safety and sense of security. Considering these factors, with respect to the dividends for fiscal 2018, Toyota has determined to pay a year-end dividend of 120 yen per common share by a resolution of the board of directors pursuant to Toyota s articles of incorporation. As a result, combined with the interim dividend of 100 yen per common share, the annual dividend will be 220 yen per common share, and the total amount of the dividends on common shares for the year will be billion yen. Furthermore, through repurchasing shares, Toyota will return capital to shareholders and promote capital efficiency and agile capital policy in view of the business environment. In fiscal 2018, Toyota repurchased 33 million common shares, for an aggregate purchase price of billion yen, in order to return to shareholders the profits derived from Toyota s business operations in the interim period. 3

9 Furthermore, Toyota has determined to repurchase 55 million common shares (maximum), for an aggregate purchase price of billion yen (maximum), in order to return to shareholders the profits for the fiscal year ended March 31, 2018 by a resolution of the board of directors on May 9, Exchange Rates In parts of this annual report, yen amounts have been translated into U.S. dollars for the convenience of investors. Unless otherwise noted, the rate used for the translations was = $1.00. This was the approximate exchange rate in Japan on March 31, The following table sets forth information regarding the noon buying rates for Japanese yen in New York City as announced for customs purposes by the Federal Reserve Bank of New York expressed in Japanese yen per $1.00 during the periods shown. At the end of May 2018, the noon buying rate was = $1.00. The average exchange rate for the periods shown is the average of the month-end rates during the period. Fiscal Year Ended or Ending March 31, At End of Period Average (of month-end rates) High Low ( per $1.00) (through May 31, 2018) Month Ended High Low ( per $1.00) December 31, January 31, February 28, March 31, April 30, May 31, Fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect the dollar equivalent of the price of the shares on the Japanese stock exchanges. As a result, exchange rate fluctuations are likely to affect the market price of the American Depositary Shares ( ADSs ) on the New York Stock Exchange ( NYSE ). Toyota will declare any cash dividends on shares of capital stock in Japanese yen. Exchange rate fluctuations will also affect the U.S. dollar amounts received on conversion of cash dividends. Exchange rate fluctuations can also materially affect Toyota s reported operating results. In particular, a strengthening of the Japanese yen against the U.S. dollar can have a material adverse effect on Toyota s reported operating results. For a further discussion of the effects of currency rate fluctuations on Toyota s operating results, please see Operating and Financial Review and Prospects Operating Results Overview Currency Fluctuations. 3.B CAPITALIZATION AND INDEBTEDNESS Not applicable. 3.C REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. 4

10 3.D RISK FACTORS Industry and Business Risks The worldwide automotive market is highly competitive. The worldwide automotive market is highly competitive. Toyota faces intense competition from automotive manufacturers in the markets in which it operates. Although the global economy continues to recover gradually, competition in the automotive industry has further intensified amidst difficult overall market conditions. In addition, competition is likely to further intensify in light of further continuing globalization in the worldwide automotive industry, possibly resulting in industry reorganizations. Factors affecting competition include product quality and features, safety, reliability, fuel economy, the amount of time required for innovation and development, pricing, customer service and financing terms. Increased competition may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyota s financial condition and results of operations. Toyota s ability to adequately respond to the recent rapid changes in the automotive market and to maintain its competitiveness will be fundamental to its future success in existing and new markets and to maintain its market share. There can be no assurances that Toyota will be able to compete successfully in the future. The worldwide automotive industry is highly volatile. Each of the markets in which Toyota competes has been subject to considerable volatility in demand. Demand for vehicles depends to a large extent on economic, social and political conditions in a given market and the introduction of new vehicles and technologies. As Toyota s revenues are derived from sales in markets worldwide, economic conditions in such markets are particularly important to Toyota. Reviewing the general economic environment for the fiscal year ended March 2018, the world economy has continued its moderate recovery due to the global expansion of trade and production and solid domestic demand. The Japanese economy has been on a moderate recovery due to improvements in employment and income conditions. For the automotive industry, although markets have progressed in a steady manner in the developed countries and expanded in China, markets in some resource-rich countries have slowed down. The changes in demand for automobiles are continuing, and it is unclear how this situation will transition in the future. Toyota s financial condition and results of operations may be adversely affected if the changes in demand for automobiles continues or progresses further. Demand may also be affected by factors directly impacting vehicle price or the cost of purchasing and operating vehicles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations (including tariffs, import regulation and other taxes). Volatility in demand may lead to lower vehicle unit sales, which may result in downward price pressure and adversely affect Toyota s financial condition and results of operations. Toyota s future success depends on its ability to offer new, innovative and competitively priced products that meet customer demand on a timely basis. Meeting customer demand by introducing attractive new vehicles and reducing the amount of time required for product development are critical to automotive manufacturers. In particular, it is critical to meet customer demand with respect to quality, safety and reliability. The timely introduction of new vehicle models, at competitive prices, meeting rapidly changing customer preferences and demand is more fundamental to Toyota s success than ever, as the automotive market is rapidly transforming in light of the changing global economy. There is no assurance, however, that Toyota will adequately and appropriately respond to changing customer preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner. Even if Toyota succeeds in perceiving customer preferences and demand, there is no assurance that Toyota will be capable of developing and manufacturing new, price competitive products in a timely manner with its available technology, intellectual property, sources of raw materials and parts and components, and production 5

11 capacity, including cost reduction capacity. Further, there is no assurance that Toyota will be able to implement capital expenditures at the level and times planned by management. Toyota s inability to develop and offer products that meet customers preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner could result in a lower market share and reduced sales volumes and margins, and may adversely affect Toyota s financial condition and results of operations. Toyota s ability to market and distribute effectively is an integral part of Toyota s successful sales. Toyota s success in the sale of vehicles depends on its ability to market and distribute effectively based on distribution networks and sales techniques tailored to the needs of its customers. There is no assurance that Toyota will be able to develop sales techniques and distribution networks that effectively adapt to changing customer preferences or changes in the regulatory environment in the major markets in which it operates. Toyota s inability to maintain well-developed sales techniques and distribution networks may result in decreased sales and market share and may adversely affect its financial condition and results of operations. Toyota s success is significantly impacted by its ability to maintain and develop its brand image. In the highly competitive automotive industry, it is critical to maintain and develop a brand image. In order to maintain and develop a brand image, it is necessary to further increase customers confidence by providing safe, high-quality products that meet customer preferences and demand. If Toyota is unable to effectively maintain and develop its brand image as a result of its inability to provide safe, high-quality products or as a result of the failure to promptly implement safety measures such as recalls when necessary, vehicle unit sales and/or sale prices may decrease, and as a result revenues and profits may not increase as expected or may decrease, adversely affecting its financial condition and results of operations. Toyota relies on suppliers for the provision of certain supplies including parts, components and raw materials Toyota purchases supplies including parts, components and raw materials from a number of external suppliers located around the world. For some supplies, Toyota relies on a single supplier or a limited number of suppliers, whose replacement with another supplier may be difficult. Inability to obtain supplies from a single or limited source supplier may result in difficulty obtaining supplies and may restrict Toyota s ability to produce vehicles. Furthermore, even if Toyota were to rely on a large number of suppliers, first-tier suppliers with whom Toyota directly transacts may in turn rely on a single second-tier supplier or limited second-tier suppliers. Toyota s ability to continue to obtain supplies from its suppliers in a timely and cost-effective manner is subject to a number of factors, some of which are not within Toyota s control. These factors include the ability of Toyota s suppliers to provide a continued source of supply, and Toyota s ability to effectively compete and obtain competitive prices from suppliers. A loss of any single or limited source supplier or inability to obtain supplies from suppliers in a timely and cost-effective manner could lead to increased costs or delays or suspensions in Toyota s production and deliveries, which could have an adverse effect on Toyota s financial condition and results of operations. The worldwide financial services industry is highly competitive. The worldwide financial services industry is highly competitive. Increased competition in automobile financing may lead to decreased margins. A decline in Toyota s vehicle unit sales, an increase in residual value risk due to lower used vehicle prices, an increase in the ratio of credit losses and increased funding costs are additional factors which may impact Toyota s financial services operations. If Toyota is unable to adequately respond to the changes and competition in automobile financing, Toyota s financial services operations may adversely affect its financial condition and results of operations. Toyota s operations and vehicles rely on various digital and information technologies. Toyota depends on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, including sensitive data, and to manage or 6

12 support a variety of business processes and activities, including manufacturing, research and development, supply chain management, sales and accounting. In addition, Toyota s vehicles may rely on various digital and information technologies, including information service and driving assistance functions. Despite security measures, Toyota s digital and information technology networks and systems may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers, computer viruses, breaches due to unauthorized use, errors or malfeasance by employees and others who have or gain access to the networks and systems Toyota depends on, service failures or bankruptcy of third parties such as software development or cloud computing vendors, power shortages and outages, and utility failures or other catastrophic events like natural disasters. Such incidents could materially disrupt critical operations, disclose sensitive data, interfere with information services and driving assistance functions in Toyota s vehicles, and/or give rise to legal claims or proceedings, liability or regulatory penalties under applicable laws, which could have an adverse effect on Toyota s brand image and its financial condition and results of operations. Financial Market and Economic Risks Toyota s operations are subject to currency and interest rate fluctuations. Toyota is sensitive to fluctuations in foreign currency exchange rates and is principally exposed to fluctuations in the value of the Japanese yen, the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Russian ruble, the Canadian dollar and the British pound. Toyota s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange fluctuations through translation risk, and changes in foreign currency exchange rates may also affect the price of products sold and materials purchased by Toyota in foreign currencies through transaction risk. In particular, strengthening of the Japanese yen against the U.S. dollar can have an adverse effect on Toyota s operating results. Toyota believes that its use of certain derivative financial instruments including foreign exchange forward contracts and interest rate swaps and increased localized production of its products have reduced, but not eliminated, the effects of interest rate and foreign currency exchange rate fluctuations. Nonetheless, a negative impact resulting from fluctuations in foreign currency exchange rates and changes in interest rates may adversely affect Toyota s financial condition and results of operations. For a further discussion of currency and interest rate fluctuations and the use of derivative financial instruments, see Operating and Financial Review and Prospects Operating Results Overview Currency Fluctuations, Quantitative and Qualitative Disclosures About Market Risk, and notes 21 and 22 to Toyota s consolidated financial statements. High prices of raw materials and strong pressure on Toyota s suppliers could negatively impact Toyota s profitability. Increases in prices for raw materials that Toyota and Toyota s suppliers use in manufacturing their products or parts and components such as steel, precious metals, non-ferrous alloys including aluminum, and plastic parts, may lead to higher production costs for parts and components. This could, in turn, negatively impact Toyota s future profitability because Toyota may not be able to pass all those costs on to its customers or require its suppliers to absorb such costs. A downturn in the financial markets could adversely affect Toyota s ability to raise capital. Should the world economy suddenly deteriorate, a number of financial institutions and investors will face difficulties in providing capital to the financial markets at levels corresponding to their own financial capacity, and, as a result, there is a risk that companies may not be able to raise capital under terms that they would expect to receive with their creditworthiness. If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, Toyota s financial condition and results of operations may be adversely affected. 7

13 Regulatory, Legal, Political and Other Risks The automotive industry is subject to various governmental regulations. The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. In particular, automotive manufacturers such as Toyota are required to implement safety measures such as recalls for vehicles that do not or may not comply with the safety standards of laws and governmental regulations. In addition, Toyota may, in order to reassure its customers of the safety of Toyota s vehicles, decide to voluntarily implement recalls or other safety measures even if the vehicle complies with the safety standards of relevant laws and governmental regulations. Many governments also impose tariffs and other trade barriers, taxes and levies, or enact price or exchange controls. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations. If Toyota launches products that result in safety measures such as recalls, Toyota may incur various costs including significant costs for free repairs. Furthermore, new legislation or changes in existing legislation may also subject Toyota to additional expenses in the future. If Toyota incurs significant costs related to implementing safety measures or meeting laws and governmental regulations, Toyota s financial condition and results of operations may be adversely affected. Toyota may become subject to various legal proceedings. As an automotive manufacturer, Toyota may become subject to legal proceedings in respect of various issues, including product liability and infringement of intellectual property. Toyota may also be subject to legal proceedings brought by its shareholders and governmental proceedings and investigations. Toyota is in fact currently subject to a number of pending legal proceedings and government investigations. A negative outcome in one or more of these pending legal proceedings could adversely affect Toyota s financial condition and results of operations. For a further discussion of governmental regulations, see Information on the Company Business Overview Governmental Regulation, Environmental and Safety Standards and for legal proceedings, please see Information on the Company Business Overview Legal Proceedings. Toyota may be adversely affected by natural calamities, political and economic instability, fuel shortages or interruptions in social infrastructure, wars, terrorism and labor strikes. Toyota is subject to various risks associated with conducting business worldwide. These risks include natural calamities; political and economic instability; fuel shortages; interruption in social infrastructure including energy supply, transportation systems, gas, water, or communication systems resulting from natural hazards or technological hazards; wars; terrorism; labor strikes and work stoppages. Should the major markets in which Toyota purchases materials, parts and components and supplies for the manufacture of Toyota products or in which Toyota s products are produced, distributed or sold be affected by any of these events, it may result in disruptions and delays in the operations of Toyota s business. Should significant or prolonged disruptions or delays related to Toyota s business operations occur, it may adversely affect Toyota s financial condition and results of operations. ITEM 4. INFORMATION ON THE COMPANY 4.A HISTORY AND DEVELOPMENT OF THE COMPANY Toyota Motor Corporation is a limited liability, joint-stock company incorporated under the Commercial Code of Japan and continues to exist under the Companies Act. Toyota commenced operations in 1933 as the automobile division of Toyota Industries Corporation (formerly, Toyoda Automatic Loom Works, Ltd.). Toyota became a separate company in August In 1982, the Toyota Motor Company and Toyota Motor Sales merged into one company, the Toyota Motor Corporation of today. As of March 31, 2018, Toyota operated through 606 consolidated subsidiaries (including variable interest entities) and 199 affiliated companies, of which 57 companies were accounted for through the equity method. 8

14 See Business Overview Capital Expenditures and Divestitures for a description of Toyota s principal capital expenditures and divestitures between April 1, 2015 and March 31, 2018 and information concerning Toyota s principal capital expenditures and divestitures currently in progress. Toyota s principal executive offices are located at 1 Toyota-cho, Toyota City, Aichi Prefecture , Japan. Toyota s telephone number in Japan is B BUSINESS OVERVIEW Toyota primarily conducts business in the automotive industry. Toyota also conducts business in finance and other industries. Toyota sold 8,964 thousand vehicles in fiscal 2018 on a consolidated basis. Toyota had net revenues of 29,379.5 billion and net income attributable to Toyota Motor Corporation of 2,493.9 billion in fiscal Toyota s business segments are automotive operations, financial services operations and all other operations. The following table sets forth Toyota s sales to external customers in each of its business segments for each of the past three fiscal years. Year Ended March 31, Automotive... 25,923,813 25,032,229 26,347,229 Financial Services... 1,854,007 1,783,697 1,959,234 All Other , ,267 1,073,047 Toyota s automotive operations include the design, manufacture, assembly and sale of passenger vehicles, minivans and commercial vehicles such as trucks and related parts and accessories. Toyota s financial services business consists primarily of providing financing to dealers and their customers for the purchase or lease of Toyota vehicles. Toyota s financial services business also provides retail installment credit and leasing through the purchase of installment and lease contracts originated by Toyota dealers. Related to Toyota s automotive operations, Toyota is working towards having all of its vehicles become connected vehicles, creating new value and reforming businesses by utilizing big data obtained from those connected vehicles, and establishing new mobility services. Toyota s all other operations business segment includes the design and manufacture of prefabricated housing and information technology related businesses including a web portal for automobile information called GAZOO.com, etc. Toyota sells its vehicles in approximately 190 countries and regions. Toyota s primary markets for its automobiles are Japan, North America, Europe and Asia. The following table sets forth Toyota s sales to external customers in each of its geographical markets for each of the past three fiscal years. Year Ended March 31, Japan... 8,588,437 8,798,903 9,273,672 North America... 10,822,772 10,033,419 10,347,266 Europe... 2,507,292 2,517,601 2,940,243 Asia... 4,475,623 4,279,617 4,497,374 Other*... 2,008,994 1,967,653 2,320,955 * Other consists of Central and South America, Oceania, Africa and the Middle East. During fiscal 2018, 25.2% of Toyota s automobile unit sales on a consolidated basis were in Japan, 31.3% were in North America, 10.8% were in Europe and 17.2% were in Asia. The remaining 15.5% of consolidated unit sales were in other markets. 9

15 The Worldwide Automotive Market Toyota estimates that annual worldwide vehicle sales totaled approximately 97 million units in Automobile sales are affected by a number of factors including: social, political and economic conditions; introduction of new vehicles and technologies; and costs incurred by customers to purchase and operate automobiles. These factors can cause consumer demand to vary substantially from year to year in different geographic markets and in individual categories of automobiles. In fiscal 2018, the U.S. saw steady employment growth as well as enhanced consumer spending, economies in Europe expanded at a solid pace under monetary easing measures, and Japan continued to experience favorable employment environment supporting consumption. In emerging markets, China continued to recover due to economic stimulus measures, which led to stronger growth of the global economy, while consumption in resource-rich countries has also been gradually recovering. The automotive industry was also impacted by these economic trends. In 2017, with respect to developed countries, the automotive market contracted in the United States from the effect of interest-rate hikes, while on the other hand, it expanded in Europe. In addition, in Japan, demand expanded due primarily to the introduction of new models. The automotive markets in emerging countries, including China, as a whole also expanded. In the medium- to long-term, Toyota expects the automotive market to continue growing driven principally by growth in China and other emerging markets. Global competition is expected to be severe, as competition in compact and low-price vehicles intensifies, and the pace of technological advancement and development of new products quickens, including in response to a heightened global awareness of the environment and more stringent fuel economy standards. In 2017, China, North America, Europe and Asia were the world s largest automotive markets. The share of each market across the globe, which Toyota estimates based on the available automobile sales data in each country and region information, was 30% for China, 22% for North America (21% excluding Mexico and Puerto Rico), 22% for Europe and 10% for Asia. In China, new vehicle sales increased to approximately 29.3 million units. In North America, new vehicle sales decreased from the previous year to approximately 20.9 million units. In Europe, new vehicle sales increased to approximately 20.7 million units. In Asia (including India but excluding Japan and China), new vehicle unit sales increased from the previous year to approximately 10 million units. The worldwide automotive industry is affected significantly by government regulations aimed at reducing harmful effects on the environment, enhancing vehicle safety and improving fuel economy. These regulations have added to the cost of manufacturing vehicles. Many governments also mandate local procurement of parts and components and impose tariffs and other trade barriers, as well as price or exchange controls as a means of creating jobs, protecting domestic producers or influencing their balance of payments. Changes in regulatory requirements and other government-imposed restrictions can limit or otherwise burden an automaker s operations. Government laws and regulations can also make it difficult to repatriate profits to an automaker s home country. The development of the worldwide automotive market includes the continuing globalization of automotive operations. Manufacturers seek to achieve globalization by localizing the design and manufacture of automobiles and their parts and components in the markets in which they are sold. By expanding production capabilities beyond their home markets, automotive manufacturers are able to reduce their exposure to fluctuations in foreign exchange rates as well as to trade restrictions and tariffs. 10

16 Over the years, there have been many global business alliances and investments entered into between manufacturers in the global automotive industry. There are various reasons behind these transactions including the need to address excessive global capacity in the production of automobiles, and the need to reduce costs and improve efficiency by increasing the number of automobiles produced using common vehicle platforms and by sharing research and development expenses for environmental and other technology, the desire to expand a company s global presence through increased size and the desire to expand into particular segments or geographic markets. Toyota believes that its research and development initiatives, particularly the development of environmentally friendly new vehicle technologies, vehicle safety and information technology, provide it with a strategic advantage. Toyota s ability to compete in the global automotive industry will depend in part on Toyota s successful implementation of its business strategy. This is subject to a number of factors, some of which are not in Toyota s control. These factors are discussed in Operating and Financial Review and Prospects and elsewhere in this annual report. Toyota Global Vision In March 2011, Toyota unveiled its Toyota Global Vision corporate outline for the future, which serves not only to give direction to Toyota employees around the world, but also to convey such direction to customers and to the public at large. Toyota will work to achieve sustained growth through the realization of the following ideals which are parts of the Vision: Toyota Global Vision Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile. We will meet challenging goals by engaging the talent and passion of people, who believe there is always a better way. The safest and most responsible ways of moving people Safety is Toyota s highest priority, and Toyota will continue to provide world-class safety. Toyota will also continue to contribute to environmental quality and to human happiness by using leading environmental technology and by deploying that technology in a growing line of vehicle models. At the same time, Toyota will work through the provision of products, sales and services that exceed customer expectation to offer a rewarding experience for customers. Enriching lives around the world Toyota has been consistently true to its founding spirit of serving society through conscientious manufacturing, and it will continue working in that spirit to contribute to enhance the quality of life wherever it has operations. Toyota will strive to continue contributing to economic vitality wherever it has operations by generating stable employment and by participating in mutually beneficial business relationships with dealers and suppliers. It will also strive to continue to actively engage in initiatives for human resources development and the promotion of cultural activities of its host communities. 11