20-F/A 1 ss113948_20fa.htm ANNUAL REPORT



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F/A
(Amendment No. 2)

(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 2010
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to                                 
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-14948

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 471-8571
Japan
+81 565 28-2121
(Address of Principal Executive Offices)
Kenichiro Makino
Telephone number: +81 565 28-2121
Facsimile number: +81 565 23-5800
Address: 1 Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan
(Name, telephone, e-mail 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: 3,135,995,860 Shares of Common Stock (including 79,850,690 Shares of Common Stock in the form of American Depositary Shares) as of March 31, 2010
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes  x    No   o
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  o    No  x
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  x    No  o
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 (§232.405 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  x    No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
   Large accelerated filer x  Accelerated filer o  Non-accelerated filer o  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP  x             International Financial Reporting Standards as issued by the International Accounting Standards Board  o            Other   o
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  o    Item 18  o
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  o    No   x
 


 
 

 
 
EXPLANATORY NOTE
 
This Amendment No. 2 to Form 20-F (the “Form 20-F/A”) amends the annual report on Form 20-F of Toyota Motor Corporation (“Toyota”) for the fiscal year ended March 31, 2010, originally filed with the U.S. Securities and Exchange Commission (“SEC”) on June 25, 2010 (the “Form 20-F”). This Form 20-F/A is being filed in response to a comment letter received from the staff of the SEC dated January 21, 2011 (the “SEC Comment Letter”) and relates to matters discussed in comment letters received from the staff of the SEC dated September 10, 2010 and November 22, 2010 and Toyota’s response letters dated October 15, 2010, December 17, 2010 and March 15, 2011. We expect that these comment letters and response letters will be released in due course on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system at www.sec.gov under the Central Index Key (CIK) 0001094517 for Toyota. “Operating and Financial Review and Prospects — Operating Results — Results of Operations — Fiscal 2010 Compared with Fiscal 2009 — Operating Costs and Expenses” in the Form 20-F is amended by this Form 20-F/A to reflect additional information requested in the SEC Comment Letter. No other changes have been made to the Form 20-F. The Form 20-F, as amended by this Form 20-F/A, speaks as of the original filing date of the Form 20-F, is not intended to reflect events that may have occurred subsequent to the original filing date of the Form 20-F, and is not intended to update in any way the disclosures made in the Form 20-F.
 
 
 

 
 
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
5.A OPERATING RESULTS
 
All financial information discussed in this section is derived from Toyota’s consolidated financial statements that appear elsewhere in this annual report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
 
Overview
The business segments of Toyota include automotive operations, financial services operations and all other operations. Automotive operations are Toyota’s most significant business segment, accounting for 89% of Toyota’s total revenues before the elimination of intersegment revenues for fiscal 2010. Toyota’s primary markets based on vehicle unit sales for fiscal 2010 were: Japan (30%), North America (29%), Europe (12%) and Asia (14%). During fiscal 2010, as a result of announcements of recalls and other safety measures for several models of vehicles in several countries, the number of recalls and other safety measures increased. These recalls and other safety measures have impacted the financial results of the automotive and financial services operations and led to a number of claims, lawsuits and government investigations. As a result of the foregoing, the fiscal 2010 operating results of the automotive operations were principally affected by factors including but not limited to the accrued costs related to the recalls and other safety measures announced in fiscal 2010, a temporary decrease in sales mainly in North America and additional costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures. In fiscal 2010, Toyota has employed an estimation model for recalls and other safety measures which takes into account Toyota’s historical experience and individual occurrences of recalls and other safety measures to accrue recall costs at the time of vehicle sale. In addition, as a result of the above, the fiscal 2010 operating results of the financial services operations were principally affected by the evaluation for credit losses and residual value losses at March 31, 2010. Not all of the impacts described above are financially significant or are able to be precisely measured. Toyota has included in the following discussion and analysis, where relevant, significant impacts of these items.
 
Automotive Market Environment
The worldwide automotive market is highly competitive and volatile. The demand for automobiles is affected by a number of factors including social, political and general economic conditions; introduction of new vehicles and technologies; and costs incurred by customers to purchase and operate vehicles. These factors can cause consumer demand to vary substantially in different geographic markets and for different types of automobiles.
 
The automotive industry generally experienced difficult market conditions during fiscal 2010 due to changes in market demand resulting from a shift in consumer preference towards small and low-price vehicles, despite the continuous growth in China, India and other emerging countries and the effects of government stimulus packages in developed countries.
 
The following table sets forth Toyota’s consolidated vehicle unit sales by geographic market based on location of customers for the past three fiscal years.
 
   
(Thousands of Units)
 
   
Year Ended March 31,
 
   
2008
   
2009
   
2010
 
Japan
    2,188       1,945       2,163  
North America
    2,958       2,212       2,098  
Europe
    1,284       1,062       858  
Asia
    956       905       979  
Other*
    1,527       1,443       1,139  
                         
Overseas total
    6,725       5,622       5,074  
                         
Total
    8,913       7,567       7,237  

*
“Other” consists of Central and South America, Oceania, Africa and the Middle East, etc.
 
During fiscal 2009, Toyota’s consolidated vehicle unit sales in Japan decreased due to weak market conditions as compared to the prior fiscal year. During fiscal 2010, sales in Japan increased as compared to the prior fiscal year reflecting frequent introduction of new products and sales efforts of domestic dealers on the sales of new products. In fiscal 2010, Toyota and Lexus brands’ market share excluding mini-vehicles was 48.2%, and Toyota’s market share (including Daihatsu and Hino brands) including mini-vehicles was 44.3%, and both market shares represented record highs. Overseas vehicle unit sales decreased during fiscal 2009 and 2010, each compared to the prior fiscal year. During fiscal 2009, overseas vehicle unit sales decreased, particularly in North America and Europe, where the contraction of automotive markets was especially pronounced. During fiscal 2010, total overseas vehicle unit sales decreased, particularly in Europe, despite an increase in Asia.
 
 
 

 
 
Toyota’s share of total vehicle unit sales in each market is influenced by the quality, safety, reliability, price, design, performance, economy and utility of Toyota’s vehicles compared with those offered by other manufacturers. The timely introduction of new or redesigned vehicles is also an important factor in satisfying customer needs. Toyota’s ability to satisfy changing customer preferences can affect its revenues and earnings significantly.
 
The profitability of Toyota’s automotive operations is affected by many factors. These factors include:
 
 
vehicle unit sales volumes,
 
 
the mix of vehicle models and options sold,
 
 
the level of parts and service sales,
 
 
the levels of price discounts and other sales incentives and marketing costs,
 
 
the cost of customer warranty claims and other customer satisfaction actions,
 
 
the cost of research and development and other fixed costs,
 
 
the prices of raw materials,
 
 
the ability to control costs,
 
 
the efficient use of production capacity, and
 
 
changes in the value of the Japanese yen and other currencies in which Toyota does business.
 
Changes in laws, regulations, policies and other governmental actions can also materially impact the profitability of Toyota’s automotive operations. These laws, regulations and policies include those attributed to environmental matters and vehicle safety, fuel economy and emissions that can add significantly to the cost of vehicles. The European Union has enforced a directive that requires manufacturers to be financially responsible for taking back end-of-life vehicles and to take measures to ensure that adequate used vehicle disposal facilities are established and those hazardous materials and recyclable parts are removed from vehicles prior to scrapping. Please see “Legislation Regarding End-of-Life Vehicles” “Information on the Company — Business Overview — Governmental Regulation, Environmental and Safety Standards” and note 23 to the consolidated financial statements for a more detailed discussion of these laws, regulations and policies.
 
Many governments also regulate local content, impose tariffs and other trade barriers, and enact price or exchange controls that can limit an automaker’s operations and can make the repatriation of profits unpredictable. Changes in these laws, regulations, policies and other governmental actions may affect the production, licensing, distribution or sale of Toyota’s products, cost of products or applicable tax rates. Toyota is currently one of the defendants in purported national class actions alleging violations of the U.S. Sherman Antitrust Act. Toyota believes that its actions have been lawful. In order to avoid a protracted dispute, however, Toyota entered into a settlement agreement with the plaintiffs at the end of February 2006. The settlement agreement is pending the approval of the federal district court, and immediately upon approval the plaintiffs will, in accordance with the terms of the settlement agreement, withdraw all pending actions against Toyota in the federal district court as well as all state courts and all related actions will be closed. From time-to-time, Toyota issues vehicle recalls and takes other safety measures including safety campaigns in its vehicles. In November 2009, Toyota announced a safety campaign in North America for certain models of Toyota and Lexus vehicles related to floor mat entrapment of accelerator pedals, and later expanded it to include additional models. In January 2010, Toyota announced a recall in North America for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals. Also in January 2010, Toyota recalled in Europe and China certain models of Toyota vehicles related to sticking accelerator pedals. In February 2010, Toyota announced a worldwide recall related to the software program that controls the antilock braking system (ABS) in certain vehicles models including the Prius. The recalls and other safety measures described above have led to a number of claims, lawsuits and government investigations against Toyota in the United States. For a more detailed description of these claims, lawsuits and government investigations, see note 23 to the consolidated financial statements.
 
The worldwide automotive industry is in a period of global competition which may continue for the foreseeable future, and in general the competitive environment in which Toyota operates is likely to intensify. Toyota believes it has the resources, strategies and technologies in place to compete effectively in the industry as an independent company for the foreseeable future.
 
Financial Services Operations
The worldwide automobile financial services industry has become highly competitive due to the contraction of automotive markets. As competition increases, margins on financing transactions may decrease and market share may also decline as customers obtain financing for Toyota vehicles from alternative sources.
 
Toyota’s financial services operations mainly include loans and leasing programs for customers and dealers. Toyota believes that its ability to provide financing to its customers is an important value added service. Therefore, Toyota has expanded its network of finance subsidiaries in order to offer financial services in many countries.
 
 
 

 
 
Toyota’s competitors for retail financing and retail leasing include commercial banks, credit unions and other finance companies. Meanwhile, commercial banks and other captive automobile finance companies also compete against Toyota’s wholesale financing activities.
 
Toyota reasonably estimated and recorded allowance for credit losses and residual value losses. This estimation includes the unfavorable impact of the recalls and other safety measures announced in fiscal 2010.
 
Toyota’s financial assets decreased during fiscal 2010 primarily due to the impact of fluctuations in foreign currency translation rates.
 
The following table provides information regarding Toyota’s finance receivables and operating leases as of March 31, 2009 and 2010.
 
   
Yen in millions
 
   
March 31,
 
   
2009
   
2010
 
Finance Receivables
           
Retail
  ¥ 6,655,404     ¥ 6,810,144  
Finance leases
    1,108,408       1,232,508  
Wholesale and other dealer loans
    2,322,721       2,403,239  
                 
      10,086,533       10,445,891  
Deferred origination costs
    104,521       109,747  
Unearned income
    (405,171 )     (482,983 )
Allowance for credit losses
               
Retail
    (157,359 )     (148,503 )
Finance leases
    (7,776 )     (36,917 )
Wholesale and other dealer loans
    (73,797 )     (47,059 )
      (238,932 )     (232,479 )
Total finance receivables, net
    9,546,951       9,840,176  
Less – Current portion
        (3,891,406 )     (4,209,496 )
Noncurrent finance receivables, net
  ¥ 5,655,545     ¥ 5,630,680  
                 
Operating Leases
               
Vehicles
  ¥ 2,729,713     ¥ 2,516,948  
Equipment
    107,168       96,300  
      2,836,881       2,613,248  
Less – Accumulated depreciation
    (795,767 )     (791,169 )
Vehicles and equipment on operating leases, net
  ¥ 2,041,114     ¥ 1,822,079  
                 
 
Toyota’s finance receivables are subject to collectability risks. These risks include consumer and dealer insolvencies and insufficient collateral values (less costs to sell) to realize the full carrying values of these receivables. See discussion in the Critical Accounting Estimates section regarding “Allowance for Doubtful Accounts and Credit Losses” and note 11 to the consolidated financial statements regarding the allowance for doubtful accounts and credit losses.
 
Toyota continues to originate leases to finance new Toyota vehicles. These leasing activities are subject to residual value risk. Residual value losses could be incurred when the lessee of a vehicle does not exercise the option to purchase the vehicle at the end of the lease term. See discussion in the Critical Accounting Estimates section regarding “Investment in Operating Leases” and note 2 to the consolidated financial statements regarding the allowance for residual value losses.
 
Toyota primarily enters into interest rate swap agreements and cross currency interest rate swap agreements to convert its fixed-rate debt to variable-rate functional currency debt. A portion of the derivative instruments are entered into to hedge interest rate risk from an economic perspective and are not designated to specific assets or liabilities on Toyota’s consolidated balance sheet and accordingly, unrealized gains or losses related to derivatives that are not designated are recognized currently in operations. See discussion in the Critical Accounting Estimates section regarding “Derivatives and Other Contracts at Fair Value”, further discussion in the Market Risk Disclosures section and note 20 to the consolidated financial statements.
 
 
 

 
 
Funding costs can affect the profitability of Toyota’s financial services operations. Funding costs are affected by a number of factors, some of which are not in Toyota’s control. These factors include general economic conditions, prevailing interest rates and Toyota’s financial strength. Funding costs decreased during fiscal 2009 and 2010, mainly as a result of lower interest rates.
 
Toyota launched its credit card business in Japan at the beginning of fiscal 2002. As of March 31, 2009, Toyota had 7.1 million cardholders, an increase of 0.5 million cardholders compared with March 31, 2008. As of March 31, 2010, Toyota had 7.7 million cardholders, an increase of 0.6 million cardholders compared with March 31, 2009. The credit card receivables at March 31, 2009 decreased by ¥1.1 billion from March 31, 2008 to ¥224.6 billion. The credit card receivables at March 31, 2010 increased by ¥30.8 billion from March 31, 2009 to ¥255.4 billion.
 
Other Business Operations
Toyota’s other business operations consist of housing, including the manufacture and sale of prefabricated homes; information technology related businesses, including information technology and telecommunications, intelligent transport systems, GAZOO and other.
 
Toyota does not expect its other business operations to materially contribute to Toyota’s consolidated results of operations.
 
Currency Fluctuations
Toyota is affected by fluctuations in foreign currency exchange rates. In addition to the Japanese yen, Toyota is principally exposed to fluctuations in the value of the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, 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 both translation risk and transaction risk.
 
Translation risk is the risk that Toyota’s consolidated financial statements for a particular period or for a particular date will be affected by changes in the prevailing exchange rates of the currencies in those countries in which Toyota does business compared with the Japanese yen. Even though the fluctuations of currency exchange rates to the Japanese yen can be substantial, and, therefore, significantly impact comparisons with prior periods and among the various geographic markets, the translation risk is a reporting consideration and does not reflect Toyota’s underlying results of operations. Toyota does not hedge against translation risk.
 
Transaction risk is the risk that the currency structure of Toyota’s costs and liabilities will deviate from the currency structure of sales proceeds and assets. Transaction risk relates primarily to sales proceeds from Toyota’s non-domestic operations from vehicles produced in Japan.
 
Toyota believes that the location of its production facilities in different parts of the world has significantly reduced the level of transaction risk. As part of its globalization strategy, Toyota has continued to localize production by constructing production facilities in the major markets in which it sells its vehicles. In calendar 2008 and 2009, Toyota produced 64.1% and 64.5% of Toyota’s non-domestic sales outside Japan, respectively. In North America, 57.4% and 60.0% of vehicles sold in calendar 2008 and 2009 respectively were produced locally. In Europe, 60.9% and 57.0% of vehicles sold in calendar 2008 and 2009 respectively were produced locally. Localizing production enables Toyota to locally purchase many of the supplies and resources used in the production process, which allows for a better match of local currency revenues with local currency expenses.
 
Toyota also enters into foreign currency transactions and other hedging instruments to address a portion of its transaction risk. This has reduced, but not eliminated, the effects of foreign currency exchange rate fluctuations, which in some years can be significant. See notes 20 and 21 to the consolidated financial statements for additional information regarding the extent of Toyota’s use of derivative financial instruments to hedge foreign currency exchange rate risks.
 
Generally, a weakening of the Japanese yen against other currencies has a positive effect on Toyota’s revenues, operating income and net income attributable to Toyota Motor Corporation. A strengthening of the Japanese yen against other currencies has the opposite effect. In fiscal 2009 and 2010, the Japanese yen was on average and at the end of the fiscal year stronger against the U.S. dollar and the euro in comparison to the prior fiscal year. See further discussion in the Market Risk Disclosures section regarding “Foreign Currency Exchange Rate Risk”.
 
During fiscal 2009 and 2010, the average exchange rate of the Japanese yen strengthened against the major currencies including the U.S. dollar and the euro compared to the average exchange rate of the prior fiscal year. The operating results excluding the impact of currency fluctuations described in the “Results of Operations — Fiscal 2010 Compared with Fiscal 2009” and the “Results of Operations — Fiscal 2009 Compared with Fiscal 2008,” show results of net revenues obtained by applying the Japanese yen’s average exchange rate in the previous fiscal year to the local currency-denominated net revenues for fiscal 2009 and 2010, respectively, as if the value of the Japanese yen had remained constant for the comparable periods. Results excluding the impact of currency fluctuations year-on-year are not on the same basis as Toyota’s consolidated financial statements and do not conform with U.S. GAAP. Furthermore, Toyota does not believe that these measures are a substitute for U.S. GAAP measures. However, Toyota believes that such results excluding the impact of currency fluctuations year-on-year provide additional useful information to investors regarding the operating performance on a local currency basis.
 
 
 

 
 
Segmentation
 
Toyota’s most significant business segment is its automotive operations. Toyota carries out its automotive operations as a global competitor in the worldwide automotive market. Management allocates resources to, and assesses the performance of, its automotive operations as a single business segment on a worldwide basis. Toyota does not manage any subset of its automotive operations, such as domestic or overseas operations or parts, as separate management units.
 
The management of the automotive operations is aligned on a functional basis with managers having oversight responsibility for the major operating functions within the segment. Management assesses financial and non-financial data such as units of sale, units of production, market share information, vehicle model plans and plant location costs to allocate resources within the automotive operations.
 
Geographic Breakdown
 
The following table sets forth Toyota’s net revenues in each geographic market based on the country location of the parent company or the subsidiaries that transacted the sale with the external customer for the past three fiscal years.
 
   
Yen in millions
 
   
Year ended March 31,
 
   
2008
   
2009
   
2010
 
Japan
  ¥ 8,418,620     ¥ 7,471,916     ¥ 7,314,813  
North America
    9,248,950       6,097,676       5,583,228  
Europe
    3,802,814       2,889,753       2,082,671  
Asia
    2,790,987       2,450,412       2,431,648  
Other*
    2,027,869       1,619,813       1,538,613  

*
“Other” consists of Central and South America, Oceania and Africa.
 
Results of Operations — Fiscal 2010 Compared with Fiscal 2009
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Net revenues:
                       
Japan
  ¥ 12,186,737     ¥ 11,220,303     ¥ (966,434 )     (7.9 )%
North America
    6,222,914       5,670,526       (552,388 )     (8.9 )
Europe
    3,013,128       2,147,049       (866,079 )     (28.7 )
Asia
    2,719,329       2,655,327       (64,002 )     (2.4 )
Other*
    1,882,900       1,673,861       (209,039 )     (11.1 )
Intersegment elimination/unallocated amount
    (5,495,438 )     (4,416,093 )     1,079,345        
Total
    20,529,570       18,950,973       (1,578,597 )     (7.7 )
Operating income (loss):
                               
Japan
    (237,531 )     (225,242 )     12,289        
North America
    (390,192 )     85,490       475,682        
Europe
    (143,233 )     (32,955 )     110,278        
Asia
    176,060       203,527       27,467       15.6  
Other*
    87,648       115,574       27,926       31.9  
Intersegment elimination/unallocated amount
    46,237       1,122       (45,115 )     (97.6 )
Total
    (461,011 )     147,516       608,527        
Operating margin
    (2.2 )%     0.8 %     3.0 %        
Income (loss) before income taxes and equity in earnings of
affiliated companies
    (560,381 )     291,468       851,849        
Net margin from Income (loss) before income taxes and
equity in earnings of affiliated companies
    (2.7 )%     1.5 %     4.2 %        
Equity in earnings of affiliated companies
    42,724       45,408       2,684       6.3  
Net income (loss) attributable to Toyota Motor Corporation 
    (436,937 )     209,456       646,393        
Net margin attributable to Toyota Motor Corporation
    (2.1 )%     1.1 %     3.2 %        

*
“Other” consists of Central and South America, Oceania and Africa.
 
 
 

 
 
Net Revenues
 
Toyota had net revenues for fiscal 2010 of ¥18,950.9 billion, a decrease of ¥1,578.6 billion, or 7.7%, compared with the prior year. This decrease principally reflects the unfavorable impact of fluctuations in foreign currency translation rates of ¥986.9 billion, the impact of decreased vehicle unit sales and changes in sales mix of approximately ¥570.0 billion, partially offset by the increased parts sales of ¥34.9 billion during fiscal 2010. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues would have been approximately ¥19,937.8 billion during fiscal 2010, a 2.9% decrease compared with the prior year. The automotive market expanded by 10.0% in Japan compared to the prior fiscal year due to the government stimulus packages. However, other automotive markets contracted significantly such as 22.0% in North America and 13.7% in Europe compared to the prior calendar year due to the continuous market downturn. Affected by this downturn, Toyota’s vehicle unit sales decreased to 7,237 thousand vehicles, or by 4.4%, compared to the prior fiscal year.
 
Toyota’s net revenues by product category in each business with external customer is as follows:
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Vehicles
  ¥ 15,635,490     ¥ 14,309,595     ¥ (1,325,895 )     (8.5 )%
Parts and components for overseas production
    298,176       355,273       57,097       19.1  
Parts and components for after service
    1,575,316       1,543,941       (31,375 )     (2.0 )
Other
    1,041,519       978,499       (63,020 )     (6.1 )
Total Automotive
    18,550,501       17,187,308       (1,363,193 )     (7.3 )
All Other
    623,219       537,421       (85,798 )     (13.8 )
Total sales of products
    19,173,720       17,724,729       (1,448,991 )     (7.6 )
Financial services
    1,355,850       1,226,244       (129,606 )     (9.6 )
Total
  ¥ 20,529,570     ¥ 18,950,973     ¥ (1,578,597 )     (7.7 )%
 
Toyota’s net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, that decreased by 7.6% during fiscal 2010 compared with the prior fiscal year to ¥17,724.7 billion, and net revenues from financial services operations that decreased by 9.6% during fiscal 2010 compared with the prior fiscal year to ¥1,226.2 billion. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues from sales of products would have been ¥18,618.7 billion, a 2.9% decrease during fiscal 2010 compared with the prior fiscal year. The decrease in net revenues from sales of products is due primarily to a decrease in vehicle unit sales which resulted from the generally difficult market conditions in the automotive industry as a whole in fiscal 2010. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues from financial services operations would have been approximately ¥1,319.1 billion, a 2.7% decrease during fiscal 2010 compared with the prior fiscal year. The decrease in net revenues from financial services operations resulted primarily from unfavorable impact of fluctuations in foreign currency translation rates and decrease in rental income from vehicles and equipment on operating leases.
 
Number of financing contracts by geographic region (at the end of the fiscal year 2009 and 2010) is as follows:
 
   
Number of financing contracts in thousands
 
   
Year ended March 31, 
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Japan
    1,660       1,684       24       1.4 %
North America
    4,403       4,488       85       1.9  
Europe
    748       774       26       3.5  
Asia
    387       428       41       10.6  
Other*
    440       476       36       8.2  
Total
    7,638       7,850       212       2.8 %

*
“Other” consists of Central and South America, Oceania and Africa.
 
 
 

 
 
Geographically, net revenues (before the elimination of intersegment revenues) for fiscal 2010 decreased by 7.9% in Japan, 8.9% in North America, 28.7% in Europe, 2.4% in Asia and 11.1% in Other compared with the prior fiscal year. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues in fiscal 2010 would have decreased by 7.9% in Japan, 1.2% in North America, 20.1% in Europe, 7.3% in Other and would have increased by 5.5% in Asia compared with the prior fiscal year.
 
The following is a discussion of net revenues in each geographic market (before the elimination of intersegment revenues).
 
Japan
 
   
Thousands of units
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    1,945       2,163       218       11.2 %
 
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 12,067,494     ¥ 11,095,044     ¥ (972,450 )     (8.1 )%
Financial services
    119,243       125,259       6,016       5.0  
Total
  ¥ 12,186,737     ¥ 11,220,303     ¥ (966,434 )     (7.9 )%
 
Supported by the government stimulus packages including the eco-car tax reduction and subsidy, Toyota’s domestic vehicle unit sales showed growth as compared to the prior fiscal year mainly within the environmentally-friendly and new vehicle markets, such as Prius and SAI. However, net revenues in Japan decreased reflecting the decrease in the number of exported vehicles for the overseas markets.
 
North America
 
   
Thousands of units
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    2,212       2,098       (114 )     (5.2 )%
 
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 5,226,426     ¥ 4,782,379     ¥ (444,047 )     (8.5 )%
Financial services
    996,488       888,147       (108,341 )     (10.9 )
Total
  ¥ 6,222,914     ¥ 5,670,526     ¥ (552,388 )     (8.9 )%
 
 
 

 
 
The market is recovering gradually from the downturn stemming from the financial crisis since the fall of 2008 and Toyota’s vehicle unit sales in the second half of fiscal 2010 increased year-on-year primarily due to the sales of new Sienna. However, net revenues in North America decreased primarily as a result of the substantial decline in vehicle unit sales caused by the downturn in the market during the first half of fiscal 2010, fluctuations in foreign currency translation rates and the effects of the recalls and other safety measures.
 
Europe
 
   
Thousands of units
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    1,062       858       (204 )     (19.2 )%
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 2,911,234     ¥ 2,065,768     ¥ (845,466 )     (29.0 )%
Financial services
    101,894       81,281       (20,613 )     (20.2 )
Total
  ¥ 3,013,128     ¥ 2,147,049     ¥ (866,079 )     (28.7 )%
 
Although Toyota’s vehicle unit sales in some European countries increased compared with the prior fiscal year benefiting from various government stimulus packages, net revenues in Europe overall decreased primarily due to the decrease in vehicle unit sales which resulted from the downturn in the market and fluctuations in foreign currency translation rates.
 
Asia
 
   
Thousands of units
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    905       979       74       8.3 %
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 2,676,939     ¥ 2,612,595     ¥ (64,344 )     (2.4 )%
Financial services
    42,390       42,732       342       0.8  
Total
  ¥ 2,719,329     ¥ 2,655,327     ¥ (64,002 )     (2.4 )%
 
Although Toyota’s vehicle unit sales increased, particularly in Thailand and Indonesia, compared with the prior fiscal year due primarily to various government stimulus packages, net revenues in Asia decreased due primarily to the unfavorable impact of fluctuations in foreign currency translation rates. Eliminating the difference in the Japanese yen value used for translation purposes of ¥212.9 billion, net revenues would have increased by ¥148.6 billion.
 
Other
 
   
Thousands of units
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    1,443       1,139       (304 )     (21.1 )%
 
 
 

 
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 1,779,089     ¥ 1,571,846     ¥ (207,243 )     (11.6 )%
Financial services
    103,811       102,015       (1,796 )     (1.7 )
Total
  ¥ 1,882,900     ¥ 1,673,861     ¥ (209,039 )     (11.1 )%
 
Net revenues in Other decreased due to the decrease in Toyota’s vehicle unit sales compared to the prior fiscal year as a result of a downturn in the markets in Central and South America, Oceania, Africa, and all other regions.
 
Operating Costs and Expenses
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Operating costs and expenses
                       
Cost of products sold
  ¥ 17,468,416     ¥ 15,971,496      ¥ (1,496,920 )     (8.6 )%
Cost of financing operations
    987,384       712,301        (275,083 )     (27.9 )
Selling, general and administrative
    2,534,781       2,119,660        (415,121 )     (16.4 )
Total
  ¥ 20,990,581     ¥ 18,803,457      ¥ (2,187,124 )     (10.4 )%
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in operating costs and expenses:
     
Effect of decrease in vehicle unit sales and changes in sales mix
  ¥ (110,000 )
Effect of fluctuation in foreign currency translation rates 
    (963,300 )
Effect of increase in parts sales
    11,200  
Effect of decrease in research and development expenses
    (178,700 )
Effect of cost reduction efforts, decrease in fixed costs and other efforts
    (946,324 )
Total
  ¥ (2,187,124 )
 
Operating costs and expenses decreased by ¥2,187.1 billion, or 10.4%, to ¥18,803.4 billion during fiscal 2010 compared with the prior fiscal year. This decrease resulted primarily from the ¥963.3 billion impact of fluctuations in foreign currency translation rates, the ¥946.3 billion of cost reduction efforts, decrease in fixed costs and other efforts, the ¥178.7 billion decrease in research and development expenses, and the approximate ¥110.0 billion impact on costs of products attributable to the decrease in vehicle unit sales and the changes in sales mix, partially offset by the ¥11.2 billion impact on increase in parts sales.
 
The ¥946.3 billion in cost reduction efforts, decrease in fixed costs and other efforts includes a net cost increase related to recalls and other safety measures of ¥97.0 billion from fiscal 2009 to fiscal 2010. This net increase in costs related to recalls and other safety measures is primarily the result of a ¥105.7 billion increase in costs resulting from a change in the estimation model used to record Toyota’s liability for recalls and other safety measures in fiscal 2010, an ¥89.0 billion increase resulting from the total estimated costs of the four recalls and other safety measures in fiscal 2010 as described below, and a ¥32.3 billion increase in costs related to other recalls and safety measures in fiscal 2010, offset by a decrease of approximately ¥130 billion related to customer satisfaction measures with respect to certain Tacoma pick-up trucks in North America recorded in fiscal 2009 also described below. Out of the ¥32.3 billion increase in costs related to other recalls and safety measures from fiscal 2009 to fiscal 2010, approximately ¥21.0 billion is mainly attributable to an accrual of additional costs in fiscal 2010 related to the Tacoma pick-up trucks customer satisfaction measures reflecting an update to the repair ratio, based on fiscal year 2010 repair experience, and the remaining is the result of an increased number of small-scale recalls and other safety measures.
 
The following is a description of the four recalls and other safety measures referenced above.
 
In fiscal 2010, Toyota experienced a significant increase in the number of vehicles subject to recalls and other safety measures.  There were over 14 million vehicles worldwide subject to recalls and other safety measures in fiscal 2010, the majority of which occurred in the third and fourth quarters of fiscal 2010 relating to the following four recalls and other safety measures.
 
 
 

 
 
In November 2009, Toyota announced a safety campaign in North America for certain models of Toyota and Lexus vehicles related to floor mat entrapment of accelerator pedals, and later expanded it to include additional models.  The vehicle models involved were the Camry, Avalon, Prius, Tacoma, Tundra, ES 350, IS 250/350, Highlander, Corolla, Venza and Matrix.  As of the end of December 2010, approximately 64% of the approximately 6 million vehicles included in the campaign were remedied to address the potential for issues.  In January 2010, Toyota announced a recall in North America for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals.  The vehicle models involved were the Tundra, Sequoia, Avalon, Camry, Corolla, Matrix, RAV4 and Highlander.  As of the end of December 2010, approximately 87% of the approximately 2.5 million vehicles subject to this recall were remedied to address sticking and slow-to-return accelerator pedals.  Also in January 2010, Toyota announced a recall in Europe and China for certain models of Toyota vehicles related to sticking and slow-to-return accelerator pedals.  The vehicle models involved in Europe were the Yaris, Verso, Corolla, Auris, Aygo, RAV4, iQ and Avensis.  In China, the recall was limited to the RAV4.  As of the end of December 2010, approximately 88% of the approximately 1.7 million vehicles subject to this recall in Europe, and approximately 99% of the approximately 75 thousand vehicles subject to this recall in China, were remedied to address sticking and slow-to-return accelerator pedals.  In February 2010, we announced a worldwide recall related to the software program that controls the antilock braking system (ABS) in the Prius, HS 250h, Prius PHV and SAI.  As of the end of December 2010, approximately 94% of the approximately 430 thousand units subject to this recall received program updates.  As of the end of December 2010, a total of approximately 10.7 million remedies were announced on vehicles subject to the above four recalls and other safety measures. Total estimated costs associated with the above four recalls and other safety measures amounted to ¥89.0 billion for fiscal 2010.  Of this amount, actual payments incurred for fiscal 2010 amounted to ¥32.4 billion yen.  Specific types of costs involved include costs for parts, labor and costs related to loaner vehicles.
 
The net changes in the accrual for the four recalls and other safety measures described above consist of the following:
 
   
Yen in billions
 
   
Year ended
March 31, 2010
 
Balance and beginning of year
  ¥  
Accrual 
    89.0  
Amounts paid
    (32.4 )
Balance at end of year
  ¥ 56.6  
 
The following is a description of the customer satisfaction measures related to certain Tacoma pick-up trucks in North America referred to above.
 
In fiscal 2009, Toyota accrued the cost of the customer satisfaction measures related to Tacoma pick-up trucks in North America in order to address the possibility of rust developing on the frame of a portion of older model Tacoma pick-up trucks manufactured in North America during 1995-2004, by rendering repair services for a portion of the vehicles and providing warranty extensions of up to 15 years to owners of approximately 820 thousand units, a portion of which may include vehicle buyback. Accordingly, the cost of approximately ¥130 billion was recorded in operating costs and expenses in fiscal 2009. The repair ratio for these customer satisfaction measures to date has been relatively low due primarily to the low rate of incidence of rust on the frames of these vehicles which may occur when exposed to severe environmental conditions including accumulation of road salts. This low repair ratio was assumed in the calculation of the accrual.
 
The net changes in the accrual for the customer satisfaction measures related to Tacoma pick-up trucks in North America described above consist of the following:
 
   
Yen in billions
 
   
Year ended 
March 31, 2009
   
Year ended 
March 31, 2010
 
Balance at beginning of year
  ¥     ¥ 57.5  
Accrual 
    130.0       21.0  
Amounts paid
    (72.5 )     (28.4 )
Balance at end of year
  ¥ 57.5     ¥ 50.1  
 
Cost Reduction Efforts
 
During fiscal 2010, continued cost reduction efforts reduced operating costs and expenses by approximately ¥520.0 billion. The cost reduction efforts include decreases in the prices of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts. In fiscal 2010, the decline in raw materials prices and, continued cost reduction efforts, by
 
 
 

 
 
working closely with suppliers, contributed to the improvement in earnings. These cost reduction efforts related to ongoing value engineering and value analysis activities, the use of common parts that result in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production.
 
Cost of Products Sold
 
Cost of products sold decreased by ¥1,496.9 billion, or 8.6%, to ¥15,971.5 billion during fiscal 2010 compared with the prior fiscal year. The decrease in cost of products sold for automotive operations is primarily attributed to the decrease in fixed costs including the decrease in research and development expenses, the cost reduction efforts, the decrease in vehicle unit sales and the changes in sales mix, and the impact of fluctuations in foreign currency translation rates partially offset by increases in parts sales. The decrease in fixed costs was due mainly to a decline in labor costs and research and development expenses as a result of profit improvement initiatives. The decrease in vehicle unit sales and the changes in sales mix were due to factors such as the substantial contraction of the automotive market caused by the financial crisis since the fall of 2008. The decrease in research and development expenses is attributable to reduced development costs realized as a result of Toyota’s more focused investment decisions for the future such as in environmental technologies, and effective management over research and development expenses spending.
 
Cost of Financing Operations
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in cost of financing operations:
     
Effect of fluctuation in foreign currency translation rates
  ¥ (83,500 )
Effect of changes in funding costs
    (70,000 )
Effect of increase in valuation gains on interest rate swaps stated at fair value
    (64,500 )
Effect of decrease in provision for residual value losses
    (50,000 )
Other
    (7,083 )
Total
  ¥ (275,083 )
 
Cost of financing operations decreased by ¥275.1 billion, or 27.9%, to ¥712.3 billion during fiscal 2010 compared with the prior year. The decrease resulted primarily from the ¥83.5 billion impact of fluctuations in foreign currency translation rates, the ¥70.0 billion favorable impact of changes in funding costs, the ¥64.5 billion recognition of valuation gains on interest rate swaps stated at fair value, and the ¥50.0 billion decrease in provision for residual value losses. The favorable impact of changes in funding costs is attributable to a decline in market interest rates. The decrease in provision for residual value losses is primarily attributable to the recovery of the used vehicles markets particularly in the United States and other effects, partially offset by the impact from the recalls and other safety measures.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses decreased by ¥415.1 billion, or 16.4%, to ¥2,119.6 billion during fiscal 2010 compared with the prior fiscal year. This decrease mainly reflects the ¥173.8 billion decrease for the financial services operations and the ¥84.9 billion decrease of marketing expense. The decrease in the financial services operations is primarily due to the ¥140.0 billion decrease in provision for credit losses and net charge-offs, which is attributable to the rise in the ratio of credit losses as a result of the economic downturn mainly in the United States in the prior fiscal year, partially offset by the impact from the recalls and other safety measures. The decrease in marketing expense is attributable to reduced marketing costs realized as a result of the profit improvement initiatives.
 
Operating Income and Loss
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in operating income and loss:
     
Effect of decrease in vehicle unit sales and changes in sales mix and other operational factors
  ¥ (370,000 )
Effect of increase in parts sales
    23,700  
Effect of fluctuation in foreign currency translation rates 
    (23,600 )
Effect of decrease in research and development expenses
    178,700  
Effect of cost reduction efforts, decrease in fixed costs and other efforts
    799,727  
Total
  ¥ 608,527  
 
 
 
 

 
 
Toyota’s operating income increased by ¥608.5 billion to an operating income of ¥147.5 billion during fiscal 2010 compared with the prior year. This operating income was favorably impacted by the effects of a ¥799.7 billion cost reduction efforts, decrease in fixed costs and other efforts, the ¥178.7 billion decrease in research and development expenses, and the ¥23.7 billion increase in parts sales, partially offset by the ¥380.0 billion decrease in vehicle unit sales and the changes in sales mix. The cost reduction efforts, decrease in fixed costs and other efforts are partially offset by the ¥105.7 billion increase in costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures.
 
During fiscal 2010, operating income (before the elimination of intersegment profits), increased by ¥475.6 billion in North America, increased by ¥27.5 billion, or 15.6%, in Asia, and increased by ¥27.9 billion, or 31.9% in Other compared with the prior fiscal year. During fiscal 2010, operating loss (before the elimination of intersegment profits) decreased by ¥12.3 billion in Japan and decreased by ¥110.3 billion in Europe compared with the prior fiscal year.
 
The following is a discussion of operating income and loss in each geographic market.
 
Japan
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales in the export markets and other operational factors
  ¥ (325,000 )
Effect of cost reduction efforts, decrease in fixed costs and other efforts
    337,289  
Total
  ¥ 12,289  
 
The decrease in operating losses in Japan was mainly due to the cost reduction efforts, decrease in fixed costs and other efforts in the automotive operations segment, partially offset by the ¥330.0 billion impact of decreases in both production volume and vehicle unit sales in the export markets. The decreases in both production volume and vehicle unit sales in the export markets are attributable to the difficult market conditions particularly in North America and Europe.
 
North America
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales and other operational factors
  ¥ (30,000 )
Effect of fluctuation in foreign currency translation rates 
    (4,100 )
Effect of cost reduction efforts, decrease in fixed costs and other efforts
    509,782  
Total
  ¥ 475,682  
 
The increase in operating income in North America was due mainly to the ¥200.0 billion decreases in the provision for credit losses, net charge-offs and provision for residual value losses of sales finance subsidiaries in the United States, which are included in “Effect of cost reduction efforts, decrease in fixed costs and other efforts”, partially offset by the ¥40.0 billion impact of decreases in both production volume and vehicle unit sales and the ¥4.1 billion impact of the fluctuations in foreign currency translation rates. The decreases in both production volume and vehicle unit sales in North America are attributable to the substantial decline in vehicle unit sales of commercial vehicles and passenger vehicles due to the downturn in the market in the first half of fiscal year 2010.
 
Europe
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales and other operational factors
  ¥ (60,000 )
Effect of fluctuation in foreign currency translation rates 
    4,900  
Effect of cost reduction efforts, decrease in fixed costs and other efforts
    165,378  
Total
  ¥ 110,278  
 
 
 
 

 
 
The decrease in operating loss in Europe was mainly due to the ¥155.3 billion impact of cost reduction efforts, decrease in fixed costs and other efforts in the automotive operations segment and the ¥4.9 billion impact of fluctuations in foreign currency translation rates, partially offset by the ¥60.0 billion reduction of both production volume and vehicle unit sales. The decreases in both production volume and vehicle unit sales in Europe was attributable to the decline in vehicle unit sales in the overall European market compared to the prior fiscal year despite sales growth in some of the countries that benefited from government stimulus packages.
 
Asia
 
   
Yen in millions
 
   
2010 v. 2009 Change
 
Changes in operating income and loss:
     
Effect of increase in production volume and vehicle unit sales and other operational factors
  ¥ 20,000  
Effect of fluctuation in foreign currency translation rates 
    (16,200 )
Effect of cost reduction efforts, decrease in fixed costs and other efforts
    23,667  
Total
  ¥ 27,467  
 
The increase in operating income in Asia was mainly due to the ¥20.0 billion impact of increase in production volume and vehicle unit sales and the ¥18.6 billion impact of cost reduction efforts, decrease in fixed costs and other efforts in the automotive operations segment, partially offset by the ¥16.2 billion impact of fluctuation in foreign currency translation rates. The increase in production volume and vehicle unit sales in Asia was primarily attributable to the recovery of Asian automotive markets, particularly in Thailand and Indonesia, benefiting from the government stimulus packages.
 
Other Income and Expenses
 
Interest and dividend income decreased by ¥60.2 billion, or 43.5%, to ¥78.2 billion during fiscal 2010 compared with the prior fiscal year mainly due to a decrease in interest income reflecting decreases in market interest rates.
 
Interest expense decreased by ¥13.5 billion, or 28.7%, to ¥33.4 billion during fiscal 2010 compared with the prior fiscal year.
 
Foreign exchange gains, net increased by ¥70.0 billion to ¥68.2 billion during fiscal 2010 compared with the prior fiscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated sales translated at prevailing exchange rates and the value of the sales amounts settled during the year, including those settled using forward foreign currency exchange contracts.
 
Other income, net increased by ¥220.0 billion to ¥30.9 billion during fiscal 2010 compared with the prior fiscal year. This increase was mainly due to the recognition of impairment losses on available-for sale securities in the prior fiscal year.
 
Income Taxes
 
The provision for income taxes increased by ¥149.1 billion to ¥92.6 billion during fiscal 2010 compared with the prior year primarily due to the increase in income before income taxes. The effective tax rate was 31.8%, which was lower than the statutory tax rate in Japan. This was primarily due to the increase in income before income taxes of overseas subsidiaries whose statutory tax rates were lower than the statutory tax rate in Japan.
 
Net Income and Loss attributable to the Noncontrolling Interest and Equity in Earnings of Affiliated Companies
 
Net income attributable to the noncontrolling interest increased by ¥59.0 billion to ¥34.8 billion during fiscal 2010 compared with the prior year. This increase was mainly due to an increase in net income attributable to the shareholders of consolidated subsidiaries.
 
Equity in earnings of affiliated companies during fiscal 2010 increased by ¥2.7 billion, or 6.3%, to ¥45.4 billion compared with the prior fiscal year. This increase was due to an increase in net income attributable to the shareholders of affiliated companies.
 
Net Income and Loss attributable to Toyota Motor Corporation
 
Net income attributable to Toyota Motor Corporation increased by ¥646.4 billion to ¥209.4 billion during fiscal 2010 compared with the prior fiscal year.
 
Other Comprehensive Income and Loss
 
Other comprehensive income increased by ¥1,127.4 billion to ¥260.9 billion for fiscal 2010 compared with the prior fiscal year. This increase resulted primarily from unrealized holding gains on securities in fiscal 2010 of ¥176.4 billion compared with losses of
 
 
 

 
 
¥293.1 billion in the prior fiscal year, and from favorable foreign currency translation adjustments of ¥9.8 billion in fiscal 2010 compared with losses of ¥381.3 billion in the prior fiscal year. The increase in unrealized holding gains on securities was mainly due to the recognition of impairment losses on available-for sale securities in the prior fiscal year.
 
Segment Information
 
The following is a discussion of results of operations for each of Toyota’s operating segments. The amounts presented are prior to intersegment elimination.
 
   
Yen in millions
 
   
Year ended March 31,
   
2010 v. 2009 Change
 
   
2009
   
2010
   
Amount
   
Percentage
 
Automotive:
                       
Net revenues
  ¥ 18,564,723     ¥ 17,197,428     ¥ (1,367,295 )     (7.4 )%
Operating income (loss)
    (394,876 )     (86,370 )     308,506        
Financial Services:
                               
Net revenues
    1,377,548       1,245,407       (132,141 )     (9.6 )
Operating income (loss)
    (71,947 )     246,927       318,874        
All Other:
                               
Net revenues
    1,184,947       947,615       (237,332 )     (20.0 )
Operating income (loss)
    9,913       (8,860 )     (18,773 )      
Intersegment elimination/unallocated amount:
                               
Net revenues
    (597,648 )     (439,477 )     158,171        
Operating income (loss)
    (4,101 )     (4,181 )     (80 )      
 
Automotive Operations Segment
 
The automotive operations segment is Toyota’s largest operating segment by net revenues. Net revenues for the automotive segment decreased during fiscal 2010 by ¥1,367.3 billion, or 7.4%, compared with the prior year to ¥17,197.4 billion. The decrease was primarily due to fluctuations in foreign currency translation rates of ¥886.5 billion and decreased vehicle unit sales and the changes in sales mix of approximately ¥570.0 billion, partially offset by increased parts sales of ¥34.9 billion.
 
Operating loss from the automotive operations decreased by ¥308.5 billion during fiscal 2010 compared with the prior year to an operating loss of ¥86.3 billion. This decrease in operating loss was primarily due to cost reduction efforts, decrease in fixed costs of ¥990.0 billion, and increase in parts sales, partially offset by a ¥380.0 billion decrease in vehicle unit sales and changes in sales mix.
 
The decrease in vehicle unit sales and changes in sales mix was due primarily to a decrease in vehicle unit sales which resulted from the generally difficult market conditions in the automotive industry during fiscal 2010. The decrease in fixed costs was due mainly to the decline in labor costs and research and development expenses as a result of profit improvement initiatives, partially offset by ¥105.7 billion increase in costs resulting from a change in the estimation model of expenses related to future recalls and other safety measures.
 
Financial Services Operations Segment
 
Net revenues for the financial services operations decreased during fiscal 2010 by ¥132.1 billion, or 9.6%, compared to the prior year to ¥1,245.4 billion. This decrease was primarily due to the unfavorable impact of fluctuations in foreign currency translation rates of ¥93.3 billion. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues for its financial services operations would have been approximately ¥1,338.7 billion during fiscal 2010, a 2.8% decrease compared with the prior fiscal year. The decrease in net revenues eliminating the difference in the Japanese yen value used for translation purposes resulted primarily from a decrease in rental income from vehicles and equipment on operating leases.
 
Operating income from financial services operations increased by ¥318.9 billion to ¥246.9 billion during fiscal 2010 compared with the prior year. This increase was primarily due to the ¥140.0 billion decrease in provision for credit losses, net charge-offs, the ¥64.5 billion of the recognition of valuation gains on interest rate swaps stated at fair value, and the ¥50.0 billion decrease in provision for residual value losses.
 
The decrease in provision for credit losses, net charge-offs is primarily attributable to the increase in provision for credit losses and net charge-offs in the United States primarily due to the rise in the ratio of credit losses as a result of the economic downturn in the prior fiscal year, partially offset by the impact from the recalls and other safety measures. The decrease in provision for residual value losses is primarily attributable to the recovery in the used vehicle market, partially offset by the impact from the recalls and other safety measures.
 
 
 

 
 
Ratio of credit loss experience in the United States is as follows:
 
   
Year ended March 31,
 
   
2009
   
2010
 
Net charge-offs as a percentage of average gross earning assets:
           
Finance receivables
    1.54 %     1.15 %
Operating lease
    0.86       0.63  
Total
    1.37 %     1.03 %
 
All Other Operations Segment
 
Net revenues for Toyota’s other operations segment decreased by ¥237.3 billion, or 20.0%, to ¥947.6 billion during fiscal 2010 compared with the prior year.
 
Operating income from Toyota’s other operations segment decreased by ¥18.8 billion, to operating loss of ¥8.9 billion during fiscal 2010 compared with the prior year.
 
Results of Operations — Fiscal 2009 Compared with Fiscal 2008
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Net revenues:
                       
Japan
  ¥ 15,315,812     ¥ 12,186,737     ¥ (3,129,075 )     (20.4 )%
North America
    9,423,258       6,222,914       (3,200,344 )     (34.0 )
Europe
    3,993,434       3,013,128       (980,306 )     (24.5 )
Asia
    3,120,826       2,719,329       (401,497 )     (12.9 )
Other*
    2,294,137       1,882,900       (411,237 )     (17.9 )
Intersegment elimination/unallocated amount
    (7,858,227 )     (5,495,438 )     2,362,789        
Total
    26,289,240       20,529,570       (5,759,670 )     (21.9 )
Operating income (loss):
                               
Japan
    1,440,286       (237,531 )     (1,677,817 )      
North America
    305,352       (390,192 )     (695,544 )      
Europe
    141,571       (143,233 )     (284,804 )      
Asia
    256,356       176,060       (80,296 )     (31.3 )
Other*
    143,978       87,648       (56,330 )     (39.1 )
Intersegment elimination/unallocated amount
    (17,168 )     46,237       63,405        
Total
    2,270,375       (461,011 )     (2,731,386 )      
Operating margin
    8.6 %     (2.2 )%     (10.8 )%      
Income (loss) before income taxes, minority interest and equity in earnings of affiliated companies
    2,437,222       (560,381 )     (2,997,603 )      
Net margin from Income (loss) before income taxes, minority interest and equity in earnings of affiliated companies
    9.3 %     (2.7 )%     (12.0 )%        
Equity in earnings of affiliated companies
    270,114       42,724       (227,390 )     (84.2 )
Net income (loss)
    1,717,879       (436,937 )     (2,154,816 )      
Net margin
    6.5 %     (2.1 )%     (8.6 )%        

*
“Other” consists of Central and South America, Oceania and Africa.
 
Net Revenues
 
Toyota had net revenues for fiscal 2009 of ¥20,529.5 billion, a decrease of ¥5,759.7 billion, or 21.9%, compared with the prior year. This decrease principally reflects the impact of decreased vehicle unit sales and changes in sales mix of ¥3,400.0 billion, the unfavorable impact of fluctuations in foreign currency translation rates of ¥2,031.2 billion, and decreased parts sales of ¥128.6 billion during fiscal 2009. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues would have been approximately ¥22,560.7 billion during fiscal 2009, a 14.2% decrease compared with the prior fiscal year. As a result of the downturn in the global economy stemming from the financial crisis since the fall of 2008, the automotive market contracted by 15.6% in Japan compared to the prior fiscal year, and by 15.8 % in North America and 8.2% in Europe compared to the prior calendar year,
 
 
 

 
 
respectively. Affected by this downturn, Toyota’s vehicle unit sales decreased to 7,567 thousand vehicles, or by 15.1%, compared to the prior fiscal year. The decrease in net revenues was also due to the effect of foreign currency exchange rate fluctuations and changes in the market demand resulting from a shift in consumer preference towards small vehicles and low-price vehicles.
 
Toyota’s net revenues by product category in each business to external customer is as follows:
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Vehicles
  ¥ 20,723,588     ¥ 15,635,490     ¥ (5,088,098 )     (24.6 )%
Parts and components for overseas production
    342,244       298,176       (44,068 )     (12.9 )
Parts and components for after service
    1,785,684       1,575,316       (210,368 )     (11.8 )
Other
    1,308,738       1,041,519       (267,219 )     (20.4 )
Total Automotive
    24,160,254       18,550,501       (5,609,753 )     (23.2 )
All Other
    660,256       623,219       (37,037 )     (5.6 )
Total sales of products
    24,820,510       19,173,720       (5,646,790 )     (22.8 )
Financial services
    1,468,730       1,355,850       (112,880 )     (7.7 )
Total
  ¥ 26,289,240     ¥ 20,529,570     ¥ (5,759,670 )     (21.9 )%
 
Toyota’s net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, which decreased by 22.8% during fiscal 2009 compared with the prior fiscal year to ¥19,173.7 billion, and net revenues from financial services operations, which decreased by 7.7% during fiscal 2009 compared with the prior fiscal year to ¥1,355.8 billion. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues from sales of products would have been approximately ¥21,011.3 billion, a 15.3% decrease during fiscal 2009 compared with the prior fiscal year. The decrease in net revenues from sales of products is primarily attributable to a substantial contraction of the automotive market caused by a rapid deterioration of the world economy following the financial crisis since the fall of 2008, as well as changes in market demand resulting from a shift in consumer preference towards small vehicles and low-price vehicles. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues from financial services operations would have been approximately ¥1,549.4 billion, a 5.5% increase during fiscal 2009 compared with the prior year. The increase in net revenues from financial services operations is primarily attributable to the increase in volume of financings as a result of an increase in market share primarily of the finance subsidiary in North America.
 
Number of financing contracts by geographic region (at the end of the fiscal year 2008 and 2009) is as follows:
 
   
Number of financing contracts in thousands
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Japan
    1,614       1,660       46       2.9 %
North America
    4,241       4,403       162       3.8  
Europe
    709       748       39       5.5  
Asia
    357       387       30       8.4  
Other*
    413       440       27       6.5  
Total
    7,334       7,638       304       4.1 %

*
“Other” consists of Central and South America, Oceania and Africa.
 
 
 
 

 
 
Geographically, net revenues (before the elimination of intersegment revenues) for fiscal 2009 decreased by 20.4% in Japan, 34.0% in North America, 24.5% in Europe, 12.9% in Asia and 17.9% in Other compared with the prior fiscal year. Eliminating the difference in the Japanese yen value used for translation purposes, net revenues in fiscal 2009 would have decreased by 20.4% in Japan, 25.0% in North America, 14.1% in Europe, 1.1% in Other and 0.5% in Asia compared with the prior fiscal year.
 
The following is a discussion of net revenues in each geographic market (before the elimination of intersegment revenues).
 
Japan
 
   
Thousands of units
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    2,188       1,945       (243 )     (11.1 )%
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 15,183,262     ¥ 12,067,494     ¥ (3,115,768 )     (20.5 )%
Financial services
    132,550       119,243       (13,307 )     (10.0 )
Total
  ¥ 15,315,812     ¥ 12,186,737     ¥ (3,129,075 )     (20.4 )%
 
Although Toyota enjoyed strong sales of new car models such as the Alphard and the Vellfire amid the downturn in the real economy and increased domestic competition, net revenues in Japan decreased primarily due to lower vehicle unit sales compared to the prior fiscal year as a result of difficult market conditions. Net revenues in Japan decreased also due to shift in consumer preference towards compact and subcompact cars influenced by decreased consumer spending and heightened environmental awareness.
 
North America
 
   
Thousands of units
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    2,958       2,212       (746 )     (25.2 )%
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 8,339,887     ¥ 5,226,426     ¥ (3,113,461 )     (37.3 )%
Financial services
    1,083,371       996,488       (86,883 )     (8.0 )
Total
  ¥ 9,423,258     ¥ 6,222,914     ¥ (3,200,344 )     (34.0 )%
 
Net revenues in North America decreased primarily due to the substantial decrease in vehicle unit sales as a result of the downturn in the market stemming from the financial crisis since the fall of 2008. In particular, the decline in vehicle unit sales is attributable to the decline in vehicle unit sales of commercial vehicles as a result of the surge in prices of crude oil in the first half of fiscal 2009, a shift in consumer preference towards small vehicles and fuel-efficient vehicles, and a rapid decline in vehicle unit sales of passenger vehicles as a result of the financial crisis in the second half of fiscal 2009. Although net revenues from financing operations decreased, net revenues from financing operations increased by ¥54.3 billion excluding the ¥141.1 billion impact of fluctuation in foreign currency exchange rate, which is attributable to the increase in the volume of financings as a result of an increase in market share primarily of the finance subsidiary in North America.
 
 
 

 
 
Europe
 
   
Thousands of units
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    1,284       1,062       (222 )     (17.3 )%
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 3,878,677     ¥ 2,911,234     ¥ (967,443 )     (24.9 )%
Financial services
    114,757       101,894       (12,863 )     (11.2 )
Total
  ¥ 3,993,434     ¥ 3,013,128     ¥ (980,306 )     (24.5 )%
 
Although Toyota enjoyed strong sales of compact cars and environmentally-friendly cars such as the Aygo and the Prius, net revenues in Europe decreased due to lower vehicle unit sales compared to the prior fiscal year. The decrease in net revenues was also due to the fiscal year falling between periods of full model changes.
 
Asia
 
   
Thousands of units
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    956       905       (51 )     (5.4 )%
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 3,082,832     ¥ 2,676,939     ¥ (405,893 )     (13.2 )%
Financial services
    37,994       42,390       4,396       11.6  
Total
  ¥ 3,120,826     ¥ 2,719,329     ¥ (401,497 )     (12.9 )%
 
Although the sales of models such as the Avanza and the Innova increased, net revenues in Asia decreased due to a decrease in vehicle unit sales compared to the prior fiscal year as a result of the deterioration of the world economy stemming from the subprime mortgage crisis in the fall of 2008.
 
Other
 
   
Thousands of units
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Toyota’s consolidated vehicle unit sales
    1,527       1,443       (84 )     (5.5 )%
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Net revenues:
                       
Sales of products
  ¥ 2,186,817     ¥ 1,779,089     ¥ (407,728 )     (18.6 )%
Financial services
    107,320       103,811       (3,509 )     (3.3 )
Total
  ¥ 2,294,137     ¥ 1,882,900     ¥ (411,237 )     (17.9 )%
 
Net revenues in Other decreased due to the decrease in vehicle unit sales compared to the prior fiscal year as a result of a downturn in the markets.
 
 
 
 

 
 
Operating Costs and Expenses
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Operating costs and expenses
                       
Cost of products sold
  ¥ 20,452,338     ¥ 17,468,416     ¥ (2,983,922 )     (14.6 )%
Cost of financing operations
    1,068,015       987,384       (80,631 )     (7.5 )
Selling, general and administrative expenses
    2,498,512       2,534,781       36,269       1.5  
Total
  ¥ 24,018,865     ¥ 20,990,581     ¥ (3,028,284 )     (12.6 )%
 
 
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in operating costs and expenses:
     
Effect of decrease in vehicle unit sales and changes in sales mix
  ¥ (2,100,000 )
Effect of fluctuation in foreign currency translation rates 
    (2,062,100 )
Effect of decrease in parts sales
    (64,400 )
Effect of decrease in research and development expenses
    (54,800 )
Effect of increase in cost reduction, expenses and other effects
    1,253,016  
Total
  ¥ (3,028,284 )
 
Operating costs and expenses decreased by ¥3,028.3 billion, or 12.6%, to ¥20,990.5 billion during fiscal 2009 compared with the prior fiscal year. This decrease resulted primarily from the approximate ¥2,100 billion impact on costs of products attributable to the decrease in vehicle unit sales and the changes in sales mix, the ¥2,062.1 billion impact of fluctuations in foreign currency translation rates, ¥64.4 billion decreased costs corresponding to the decrease in parts sales, and the ¥54.8 billion decrease in research and development expenses, partially offset by the ¥1,253.0 billion increase in cost reduction, expenses and other effects.
 
Cost Reduction Efforts
 
Cost reduction efforts were offset by increases in the prices of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts. Although the prices of raw materials such as steel remained high through fiscal 2009 as a result of market conditions, cost reduction efforts, by working closely with suppliers, absorbed the impact of the market price increase. These cost reduction efforts related to ongoing value engineering and value analysis activities, the use of common parts that result in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production.
 
Cost of Products Sold
 
Cost of products sold decreased by ¥2,984.0 billion, or 14.6%, to ¥17,468.4 billion during fiscal 2009 compared with the prior fiscal year. The decrease in cost of products sold for automotive operations is primarily attributed to the decrease in vehicle unit sales and the changes in sales mix, the impact of fluctuations in foreign currency translation rates, the impact of the decrease in parts sales, and the decrease in research and development expenses, partially offset by increases in expenses. The impact of decrease in vehicle unit sales and the changes in sales mix reflected such factors as the substantial contraction of the automotive market caused by a rapid deterioration of the world economy following the financial crisis since the fall of 2008, as well as changes in the market structure resulting from a shift in consumer preference towards small vehicles and low-price vehicles. The decrease in research and development expenses is attributable to reduced development costs realized as a result of efforts to improve earnings by improving development efficiency. This decrease in research and development expenses was achieved while maintaining a focus on the development of environmentally conscious technologies including hybrid and fuel-cell technology, and the developments in advanced technologies relating to collision safety and vehicle stability controls to further build up competitive strength in the future. The increase in expenses is attributable to the inefficiency from decreased operational activity, increase in inventory reserve for the lower of cost or market, and the incurrence of product-quality related expenses in the first half of fiscal 2009.
 
 
 

 
 
Cost of Financing Operations
 
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in cost of financing operations:
     
Effect of fluctuation in foreign currency translation rates
  ¥ (206,400 )
Effect of increase in provision for residual value losses
    70,000  
Effect of increase in valuation losses on interest rate swaps stated at fair value
    12,200  
Other
    43,569  
Total
  ¥ (80,631 )
 
Cost of financing operations decreased by ¥80.6 billion, or 7.5%, to ¥987.4 billion during fiscal 2009 compared with the prior fiscal year. The decrease resulted primarily from the ¥206.4 billion impact of fluctuations in foreign currency translation rates, partially offset by the ¥70.0 billion increase in provision for residual value losses and the ¥12.2 billion increase in valuation losses on interest rate swaps stated at fair value. The increase in provision for residual value losses is primarily attributable to the increase in provision for residual value losses of operating lease vehicles resulting from the decrease in the prices of used vehicles, particularly of large vehicles with low fuel economy due to the economic downturn. The increase in valuation losses on interest rate swaps stated at fair value is attributable to the valuation losses on floating to fixed interest rate swaps that are not designated as hedges due to the decline in market interest rates.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased by ¥36.2 billion, or 1.5%, to ¥2,534.7 billion during fiscal 2009 compared with the prior fiscal year. This increase mainly reflects the ¥119.4 billion increase for the financial services operations, partially offset by the ¥95.2 billion decrease of marketing expense which is attributable to reduced marketing costs realized as a result of efforts to improve earnings. The increase in the financial services operations is primarily due to the ¥170.0 billion increase in provision for credit losses and net charge-offs, which is attributable to the rise in the ratio of credit losses as a result of the economic downturn mainly in the United States.
 
Operating Income and Loss
 
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in operating income and loss:
     
Effect of decrease in vehicle unit sales and changes in sales mix and other operational factors
  ¥ (1,480,000 )
Effect of decrease in parts sales
    (17,300 )
Effect of fluctuation in foreign currency translation rates 
    30,900  
Effect of decrease in research and development expenses
    54,800  
Effect of increase in cost reduction, expenses and other effects
    (1,319,786 )
Total
  ¥ (2,731,386 )
 
Toyota’s operating income decreased by ¥2,731.3 billion to an operating loss of ¥461.0 billion during fiscal 2009 compared with the prior fiscal year. This decrease was unfavorably affected by the ¥1,300.0 billion decrease in vehicle unit sales and the changes in sales mix, the ¥1,319.7 billion increase in cost reduction, expenses and other effects, and the ¥17.3 billion decrease in parts sales, partially offset by the ¥54.8 billion decrease in research and development expenses.
 
During fiscal 2009, operating income (before the elimination of intersegment profits) for significant geographic regions decreased by ¥1,677.8 billion in Japan, decreased by ¥695.5 billion in North America, decreased by ¥284.8 billion in Europe, decreased by ¥80.3 billion, or 31.3%, in Asia, and decreased by ¥56.3 billion, or 39.1% in Other compared with the prior fiscal year.
 
 
 

 
 
The following is a discussion of operating income and loss in each geographic market.
 
Japan
 
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales in the export markets and other operational factors
  ¥ (730,000 )
Effect of increase in cost reduction, expenses and other effects
    (947,817 )
Total
  ¥ (1,677,817 )
 
The decrease in Japan was mainly due to the ¥700.0 billion impact of decreases in both production volume and vehicle unit sales in the export markets, partially offset by the decrease in research and development expenses. The decreases in both production volume and vehicle unit sales in the export markets are attributable to the difficult market conditions caused by the downturn in the real economy.
 
North America
 
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales and other operational factors
  ¥ (580,000 )
Effect of fluctuation in foreign currency translation rates 
    52,700  
Effect of increase in cost reduction, expenses and other effects
    (168,244 )
Total
  ¥ (695,544 )
 
The decrease in North America was mainly due to the ¥400.0 billion impact of decreases in both production volume and vehicle unit sales, the increases in the provision for credit losses, net charge-offs and provision for residual value losses in sales finance subsidiaries in the United States, which are included in “Effect of increase in cost reduction, expenses and other effects”, partially offset by the ¥52.7 billion impact of the fluctuations in foreign currency translation rates. The decreases in both production volume and vehicle unit sales in North America are attributable to the rapid decline in vehicle unit sales of commercial vehicles and passenger vehicles due to the downturn in the market stemming from the financial crisis in the fall of 2008.
 
Europe
 
       
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales and other operational factors
  ¥ (190,000 )
Effect of fluctuation in foreign currency translation rates 
    18,100  
Effect of increase in cost reduction, expenses and other effects
    (112,904 )
Total
  ¥ (284,804 )
 
The decrease in Europe was mainly due to the ¥180.0 billion impact of decreases in both production volume and vehicle unit sales, partially offset by the ¥18.1 billion impact of fluctuations in foreign currency translation rates. The decreases in both production volume and vehicle unit sales in Europe was attributable to the significant decline in vehicle unit sales in western Europe compared to the prior fiscal year as a result of the rapid market contraction due to the financial crisis in the fall of 2008. The decreases are also attributable to the fiscal year falling between periods of full model changes.
 
Asia
 
   
Yen in millions
 
   
2009 v. 2008 Change
 
Changes in operating income and loss:
     
Effect of decrease in production volume and vehicle unit sales and other operational factors
  ¥  
Effect of fluctuation in foreign currency translation rates 
    (24,400 )
Effect of increase in cost reduction, expenses and other effects
    (55,896 )
Total
  ¥ (80,296 )
 
 
 
 

 
 
The decrease in Asia was mainly due to the ¥24.4 billion impact of the fluctuations in foreign currency translation rates. The decrease in production volume and vehicle unit sales in Asia was primarily attributable to the sales decline in the market compared to the prior fiscal year following the financial crisis in the majority of Asian countries including Thailand.
 
Other
 
The decrease in Other was primarily due to the decrease in vehicle unit sales.
 
Other Income and Expenses
 
Interest and dividend income decreased by ¥27.3 billion, or 16.4%, to ¥138.4 billion during fiscal 2009 compared with the prior fiscal year mainly due to a decrease in interest income from marketable securities.
 
Interest expense increased by ¥0.8 billion, or 1.7%, to ¥46.9 billion during fiscal 2009 compared with the prior fiscal year.
 
Foreign exchange gains, net decreased by ¥11.0 billion to a loss of ¥1.8 billion during fiscal 2009 compared with the prior fiscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated sales translated at prevailing exchange rates and the value of the sales amounts settled during the fiscal year, including those settled using forward foreign currency exchange contracts.
 
Other income, net decreased by ¥227.2 billion to a loss of ¥189.1 billion during fiscal 2009 compared with the prior fiscal year. This decrease was mainly due to the recognition of impairment losses on available-for sale securities.
 
Income Taxes
 
The provision for income taxes decreased by ¥968.0 billion to a tax benefit of ¥56.5 billion during fiscal 2009 compared with the prior fiscal year primarily due to the decrease in income before income taxes. The effective tax rate was 10.1%, which was lower than its statutory tax rate in Japan primarily due to a recognition of valuation allowance for deferred tax assets at domestic and overseas subsidiaries.
 
Net Income and Loss attributable to the Noncontrolling Interest and Equity in Earnings of Affiliated Companies
 
Net income and loss attributable to the noncontrolling interest decreased by ¥102.2 billion to a loss of ¥24.2 billion during fiscal 2009 compared with the prior fiscal year. This decrease was mainly due to a decrease in net income attributable to the shareholders of consolidated subsidiaries.
 
Equity in earnings of affiliated companies during fiscal 2009 decreased by ¥227.4 billion, or 84.2%, to ¥42.7 billion compared with the prior fiscal year. This decrease was due to a decrease in net income attributable to the shareholders of affiliated companies.
 
Net Income and Loss attributable to Toyota Motor Corporation
 
Net income attributable to Toyota Motor Corporation decreased by ¥2,154.8 billion to a loss of ¥437.0 billion during fiscal 2009 compared with the prior fiscal year.
 
Other Comprehensive Income and Loss
 
Other comprehensive losses decreased by ¥76.0 billion to losses of ¥866.5 billion for fiscal 2009 compared with the prior fiscal year. This decrease in losses resulted primarily from favorable foreign currency translation adjustments in fiscal 2009 to losses of ¥381.3 billion compared with losses of ¥461.1 billion in the prior fiscal year, and a decrease in unrealized holding losses on securities in fiscal 2009 to ¥293.1 billion compared with ¥347.8 billion in the prior fiscal year. The decrease in unrealized holding losses on securities was mainly due to the recognition of impairment losses on available-for sale securities.
 
 
 

 
 
Segment Information
 
The following is a discussion of results of operations for each of Toyota’s operating segments. The amounts presented are prior to intersegment elimination.
 
   
Yen in millions
 
   
Year ended March 31,
   
2009 v. 2008 Change
 
   
2008
   
2009
   
Amount
   
Percentage
 
Automotive:
                       
Net revenues
  ¥ 24,177,306     ¥ 18,564,723     ¥ (5,612,583 )     (23.2 )%
Operating income (loss)
    2,171,905       (394,876 )     (2,566,781 )      
Financial Services:
                               
Net revenues
    1,498,354       1,377,548       (120,806 )     (8.1 )
Operating income (loss)
    86,494       (71,947 )     (158,441 )      
All Other:
                               
Net revenues
    1,346,955       1,184,947  </