ANNUAL REPORT

20-F 1 d322218d20f.htm ANNUAL REPORT ANNUAL REPORT

As filed with the Securities and Exchange Commission on June 23, 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: March 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-14948

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)

Nobukazu Takano

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: 2,974,722,856 shares of common stock (including 56,099,541 shares of common stock in the form of American Depositary Shares) and 47,100,000 First Series Model AA class shares as of March 31, 2017

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☒ No ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐
		Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act: ☐

†	The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

TABLE OF CONTENTS


ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	1

ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	1

ITEM 3.	KEY INFORMATION	1

3.A	SELECTED FINANCIAL DATA	1
3.B	CAPITALIZATION AND INDEBTEDNESS	4
3.C	REASONS FOR THE OFFER AND USE OF PROCEEDS	4
3.D	RISK FACTORS	5

ITEM 4.	INFORMATION ON THE COMPANY	8

4.A	HISTORY AND DEVELOPMENT OF THE COMPANY	8
4.B	BUSINESS OVERVIEW	9
4.C	ORGANIZATIONAL STRUCTURE	53
4.D	PROPERTY, PLANTS AND EQUIPMENT	54

ITEM 4A.	UNRESOLVED STAFF COMMENTS	55

ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	55

5.A	OPERATING RESULTS	55
5.B	LIQUIDITY AND CAPITAL RESOURCES	87
5.C	RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES	89
5.D	TREND INFORMATION	91
5.E	OFF-BALANCE SHEET ARRANGEMENTS	91
5.F	TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS	92
5.G	SAFE HARBOR	93

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	93

6.A	DIRECTORS AND SENIOR MANAGEMENT	93
6.B	COMPENSATION	100
6.C	BOARD PRACTICES	101
6.D	EMPLOYEES	102
6.E	SHARE OWNERSHIP	103

ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	104

7.A	MAJOR SHAREHOLDERS	104
7.B	RELATED PARTY TRANSACTIONS	105
7.C	INTERESTS OF EXPERTS AND COUNSEL	105

ITEM 8.	FINANCIAL INFORMATION	105

8.A	CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION	105
8.B	SIGNIFICANT CHANGES	106

ITEM 9.	THE OFFER AND LISTING	106

9.A	LISTING DETAILS	106
9.B	PLAN OF DISTRIBUTION	106
9.C	MARKETS	107
9.D	SELLING SHAREHOLDERS	107
9.E	DILUTION	107
9.F	EXPENSES OF THE ISSUE	107

ITEM 10.	ADDITIONAL INFORMATION	107

10.A	SHARE CAPITAL	107
10.B	MEMORANDUM AND ARTICLES OF ASSOCIATION	107
10.C	MATERIAL CONTRACTS	115
10.D	EXCHANGE CONTROLS	115


10.E	TAXATION	116
10.F	DIVIDENDS AND PAYING AGENTS	122
10.G	STATEMENT BY EXPERTS	122
10.H	DOCUMENTS ON DISPLAY	122
10.I	SUBSIDIARY INFORMATION	122

ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	122

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	124

12.A	DEBT SECURITIES	124
12.B	WARRANTS AND RIGHTS	124
12.C	OTHER SECURITIES	124
12.D	AMERICAN DEPOSITARY SHARES	124

ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	126

ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	126

ITEM 15.	CONTROLS AND PROCEDURES	126

ITEM 16.	[RESERVED]	127

ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	127

ITEM 16B.	CODE OF ETHICS	127

ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	127

ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	129

ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	129

ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	130

ITEM 16G.	CORPORATE GOVERNANCE	130

ITEM 16H.	MINE SAFETY DISCLOSURE	133

ITEM 17.	FINANCIAL STATEMENTS	134

ITEM 18.	FINANCIAL STATEMENTS	134

ITEM 19.	EXHIBITS	135

As used in this annual report, the term “fiscal” preceding a year means the twelve-month period ended March 31 of the year referred to. All other references to years refer to the applicable calendar year, unless the context otherwise requires. As used herein, the term “Toyota” refers to Toyota Motor Corporation and its consolidated subsidiaries as a group, unless the context otherwise indicates.

In parts of this annual report, amounts reported in Japanese yen have been translated into U.S. dollars for the convenience of readers. Unless otherwise noted, the rate used for this translation was ¥112.19 = $1.00. This was the approximate exchange rate in Japan on March 31, 2017.

CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS

Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, or the SEC, including this annual report, documents incorporated by reference, reports to shareholders and other communications.

The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as the information is identified as forward looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. Toyota relies on this safe harbor in making forward-looking statements.

Forward-looking statements appear in a number of places in this annual report and include statements regarding Toyota’s current intent, belief, targets or expectations or those of its management. In many, but not all cases, words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “hope,” “intend,” “may,” “plan,” “predict,” “probability,” “risk,” “should,” “will,” “would,” and similar expressions, are used as they relate to Toyota or its management, to identify forward-looking statements. These statements reflect Toyota’s current views with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those which are anticipated, aimed at, believed, estimated, expected, intended or planned.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ from those in forward-looking statements as a result of various factors. Important factors that could cause actual results to differ materially from estimates or forecasts contained in the forward-looking statements are identified in “Risk Factors” and elsewhere in this annual report, and include, among others:

(i) changes in economic conditions, market demand, and the competitive environment affecting the automotive markets in Japan, North America, Europe, Asia and other markets in which Toyota operates;

(ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar, the euro, the Australian dollar, the Russian ruble, the Canadian dollar and the British pound, and interest rates fluctuations;

(iii) changes in funding environment in financial markets and increased competition in the financial services industry;

(iv) Toyota’s ability to market and distribute effectively;

(v) Toyota’s ability to realize production efficiencies and to implement capital expenditures at the levels and times planned by management;

(vi) changes in the laws, regulations and government policies in the markets in which Toyota operates that affect Toyota’s automotive operations, particularly laws, regulations and government policies relating

to vehicle safety including remedial measures such as recalls, trade, environmental protection, vehicle emissions and vehicle fuel economy, as well as changes in laws, regulations and government policies that affect Toyota’s other operations, including the outcome of current and future litigation and other legal proceedings, government proceedings and investigations;

(vii) political and economic instability in the markets in which Toyota operates;

(viii) Toyota’s ability to timely develop and achieve market acceptance of new products that meet customer demand;

(ix) any damage to Toyota’s brand image;

(x) Toyota’s reliance on various suppliers for the provision of supplies;

(xi) increases in prices of raw materials;

(xii) Toyota’s reliance on various digital and information technologies;

(xiii) fuel shortages or interruptions in electricity, transportation systems, labor strikes, work stoppages or other interruptions to, or difficulties in, the employment of labor in the major markets where Toyota purchases materials, components and supplies for the production of its products or where its products are produced, distributed or sold; and

(xiv) the impact of natural calamities including the negative effect on Toyota’s vehicle production and sales.

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

3.A SELECTED FINANCIAL DATA

You should read the U.S. GAAP selected consolidated financial information presented below together with “Operating and Financial Review and Prospects” and Toyota’s consolidated financial statements contained in this annual report.

U.S. GAAP Selected Financial Data

The following selected financial data have been derived from Toyota’s consolidated financial statements. These financial statements were prepared in accordance with U.S. GAAP.


	Year Ended March 31,
	2013			2014			2015			2016			2017
	(Yen in millions, except share and per share data)
Consolidated Statement of Income Data:
Automotive:
Revenues		20,419,100			23,781,404			25,062,129			25,977,416			25,081,847
Operating income		944,704			1,938,778			2,325,310			2,448,998			1,692,973
Financial Services:
Revenues		1,170,670			1,421,047			1,661,149			1,896,224			1,823,600
Operating income		315,820			294,891			361,833			339,226			222,428
All Other:
Revenues		1,066,461			1,151,280			1,255,791			1,177,387			1,321,052
Operating income		53,616			64,270			65,650			66,507			81,327
Elimination of intersegment:
Revenues		(592,039	)		(661,820	)		(744,548	)		(647,909	)		(629,306	)
Operating income		6,748			(5,827	)		(2,229	)		(760	)		(2,356	)
Total Company:
Revenues		22,064,192			25,691,911			27,234,521			28,403,118			27,597,193
Operating income		1,320,888			2,292,112			2,750,564			2,853,971			1,994,372
Income before income taxes and equity in earnings of affiliated companies		1,403,649			2,441,080			2,892,828			2,983,381			2,193,825
Net income attributable to Toyota Motor Corporation		962,163			1,823,119			2,173,338			2,312,694			1,831,109
Net income attributable to Toyota Motor Corporation per common share (yen):
Basic		303.82			575.30			688.02			741.36			605.47
Diluted		303.78			574.92			687.66			735.36			599.22
Shares used in computing net income attributable to Toyota Motor Corporation per common share, basic (in thousands)		3,166,909			3,168,989			3,158,851			3,111,306			3,008,088
Shares used in computing net income attributable to Toyota Motor Corporation per common share, diluted (in thousands)		3,167,155			3,170,911			3,160,429			3,144,947			3,055,826


	Year Ended March 31,
	2013		2014		2015		2016		2017
	(Yen in millions, except per share and numbers of vehicles sold data)
Consolidated Balance Sheet Data (end of period):
Total Assets:		35,483,317		41,437,473		47,729,830		47,427,597		48,750,186
Short-term debt, including current portion of long-term debt		6,793,956		7,780,483		8,963,492		8,521,088		9,244,131
Long-term debt, less current portion		7,337,824		8,546,910		10,014,395		9,772,065		9,911,596
Toyota Motor Corporation shareholders’ equity		12,148,035		14,469,148		16,788,131		16,746,935		17,514,812
Common stock		397,050		397,050		397,050		397,050		397,050
Other Data:
Dividends per share (yen)		90.0		165.0		200.0		210.0		210.0
Number of vehicles sold
Japan		2,278,796		2,365,410		2,153,694		2,059,093		2,273,962
North America		2,468,804		2,529,398		2,715,173		2,839,229		2,837,334
Europe		799,085		844,003		859,038		844,412		924,560
Asia		1,683,578		1,608,355		1,488,922		1,344,836		1,587,822
Other*		1,640,401		1,768,867		1,755,037		1,593,758		1,347,182

Worldwide total		8,870,664		9,116,033		8,971,864		8,681,328		8,970,860

*	“Other” consists of Central and South America, Oceania, Africa and the Middle East, etc.

Dividend Information

At the 111th Ordinary General Shareholders’ Meeting held in June 2015, Toyota’s shareholders approved amendments to Toyota’s articles of incorporation permitting the issuance of Model AA Class Shares in the future. The articles of incorporation currently provide that in the event that Toyota pays a year-end dividend to holders of common shares, it will pay a year-end dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares of record as of the record date for the year-end dividend, in the amount payable on the Model AA Class Shares pursuant to their terms (“AA Dividends”), in preference to holders of common shares or registered pledgees of common shares.

In addition to these year-end dividends, Toyota may pay an interim dividend in the form of cash distributions from its distributable surplus to holders of common shares and pledgees of common shares of record as of September 30, the record date, in each year by a resolution of its board of directors. The articles of incorporation currently provide that in the event that Toyota pays such interim dividends, Toyota will pay an amount equivalent to one-half of the AA Dividends (“AA Interim Dividends”) as an interim dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares of record as of the record date for the interim dividend, in preference to holders of common shares or registered pledgees of common shares.

If the amount of the dividends from surplus paid to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares is less than the prescribed amount of AA Dividends in any fiscal year, the amount of the shortfall will be carried forward to and accumulate in the following fiscal year and thereafter. Dividends from surplus will be paid to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares in preference to the payment of interim and year-end dividends until such payment reaches the amount of the accumulated unpaid dividends on the Model AA Class Shares.

For a further discussion of Model AA Class Shares, please see “Additional Information — Memorandum and Articles of Association.”

In addition, under the Companies Act of Japan (the “Companies Act”), dividends may be paid to holders of common shares and pledgees of record of common shares as of any record date, other than those specified above, as set forth in Toyota’s articles of incorporation or as determined by its board of directors from time to time. Under the Companies Act, dividends may be distributed in cash or (except in the case of interim dividends mentioned in the third preceding paragraph) in kind, subject to limitations on distributable surplus and to certain other conditions.

The following table sets forth the dividends declared per common share by Toyota for each of the periods shown. The periods shown are the six months ended on that date. The U.S. dollar equivalents for the cash dividends shown are based on the noon buying rate for Japanese yen on the last date of each period set forth below.


	Cash Dividends per Common Share
Period Ended	Yen		U.S. dollars
September 30, 2012		30.0		0.38
March 31, 2013		60.0		0.63
September 30, 2013		65.0		0.66
March 31, 2014		100.0		0.97
September 30, 2014		75.0		0.68
March 31, 2015		125.0		1.04
September 30, 2015		100.0		0.83
March 31, 2016		110.0		0.97
September 30, 2016		100.0		0.98
March 31, 2017		110.0		0.98

Toyota deems the benefit of its shareholders as one of its priority management policies, and it continues to work to improve its corporate structure to realize sustainable growth in order to enhance its corporate value. Toyota will strive to continue to pay stable dividends on its common shares aiming at a consolidated dividend payout ratio, defined as dividends per common share divided by net income attributable to Toyota Motor Corporation per common share, of 30% while giving due consideration to factors such as business results for each term, investment plans and its cash reserves. Toyota will pay dividends on the First Series Model AA Class Shares in accordance with a prescribed calculation method.

In order to successfully compete in this highly competitive industry, Toyota plans to utilize its internal funds for the early commercialization of technologies for next-generation environment and safety giving priority to customer safety and sense of security. Considering these factors, with respect to the dividends for fiscal 2016, Toyota has determined to pay a year-end dividend of 110 yen per common share by a resolution of the board of directors pursuant to Toyota’s articles of incorporation. As a result, combined with the interim dividend of 100 yen per common share, the annual dividend will be 210 yen per common share, and the total amount of the dividends on common shares for the year will be 627.5 billion yen. Furthermore, through repurchasing shares, Toyota will return capital to shareholders and promote capital efficiency and agile capital policy in view of the business environment.

In fiscal 2016, Toyota repurchased 29 million common shares, for an aggregate purchase price of 199.9 billion yen, in order to return to shareholders the profits derived from Toyota’s business operations in the interim period.

Furthermore, Toyota has determined to repurchase 50 million common shares (maximum), for an aggregate purchase price of 250.0 billion yen (maximum), in order to return to shareholders the profits for the fiscal year ended March 31, 2017 by a resolution of the board of directors on May 10, 2017.

Exchange Rates

In parts of this annual report, yen amounts have been translated into U.S. dollars for the convenience of investors. Unless otherwise noted, the rate used for the translations was ¥112.19 = $1.00. This was the approximate exchange rate in Japan on March 31, 2017.

The following table sets forth information regarding the noon buying rates for Japanese yen in New York City as announced for customs purposes by the Federal Reserve Bank of New York expressed in Japanese yen per $1.00 during the periods shown. At the end of May 2017, the noon buying rate was ¥110.71 = $1.00. The average exchange rate for the periods shown is the average of the month-end rates during the period.


Fiscal Year Ended or Ending March 31,	At End of Period		Average (of month-end rates)		High		Low
			(¥ per $1.00)
2013		94.16		83.26		96.16		77.41
2014		102.98		100.46		105.25		92.96
2015		119.96		110.78		121.50		101.26
2016		112.42		120.13		125.58		111.30
2017		111.41		108.31		118.32		100.07
2018 (through May 31, 2017)		110.71		111.08		114.19		108.40

Month Ended					High		Low
					(¥ per $1.00)
December 31, 2016						118.32		113.50
January 31, 2017						117.68		112.72
February 28, 2017						114.34		111.74
March 31, 2017						115.02		110.48
April 30, 2017						111.52		108.40
May 31, 2017						114.19		110.68

Fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect the dollar equivalent of the price of the shares on the Japanese stock exchanges. As a result, exchange rate fluctuations are likely to affect the market price of the American Depositary Shares (“ADSs”) on the New York Stock Exchange (“NYSE”). Toyota will declare any cash dividends on shares of capital stock in Japanese yen. Exchange rate fluctuations will also affect the U.S. dollar amounts received on conversion of cash dividends.

Exchange rate fluctuations can also materially affect Toyota’s reported operating results. In particular, a strengthening of the Japanese yen against the U.S. dollar can have a material adverse effect on Toyota’s reported operating results. For a further discussion of the effects of currency rate fluctuations on Toyota’s operating results, please see “Operating and Financial Review and Prospects — Operating Results — Overview — Currency Fluctuations.”

3.B CAPITALIZATION AND INDEBTEDNESS

Not applicable.

3.C REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

3.D RISK FACTORS

Industry and Business Risks

The worldwide automotive market is highly competitive.

The worldwide automotive market is highly competitive. Toyota faces intense competition from automotive manufacturers in the markets in which it operates. Although the global economy continues to recover gradually, competition in the automotive industry has further intensified amidst difficult overall market conditions. In addition, competition is likely to further intensify in light of further continuing globalization in the worldwide automotive industry, possibly resulting in industry reorganizations. Factors affecting competition include product quality and features, safety, reliability, fuel economy, the amount of time required for innovation and development, pricing, customer service and financing terms. Increased competition may lead to lower vehicle unit sales, which may result in a further downward price pressure and adversely affect Toyota’s financial condition and results of operations. Toyota’s ability to adequately respond to the recent rapid changes in the automotive market and to maintain its competitiveness will be fundamental to its future success in existing and new markets and to maintain its market share. There can be no assurances that Toyota will be able to compete successfully in the future.

The worldwide automotive industry is highly volatile.

Each of the markets in which Toyota competes has been subject to considerable volatility in demand. Demand for vehicles depends to a large extent on economic, social and political conditions in a given market and the introduction of new vehicles and technologies. As Toyota’s revenues are derived from sales in markets worldwide, economic conditions in such markets are particularly important to Toyota.

Reviewing the general economic environment for the fiscal year ended March 2017, with respect to the world economy, the U.S. economy has seen ongoing recovery due to increasing personal consumption owing to improvements in employment and income conditions, and the European economy has continued its moderate recovery. Meanwhile, weaknesses have been seen in some emerging countries. The Japanese economy has been on a moderate recovery due to improvements in employment and income conditions. For the automobile industry, although markets have progressed in a steady manner in the developed countries and expanded in China due to effects of a sales tax cut on small cars, markets in resource-rich countries have slowed down.

The shifts in demand for automobiles are continuing, and it is unclear how this situation will transition in the future. Toyota’s financial condition and results of operations may be adversely affected if the shifts in demand for automobiles continues or progresses further. Demand may also be affected by factors directly impacting vehicle price or the cost of purchasing and operating vehicles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations (including tariffs, import regulation and other taxes). Volatility in demand may lead to lower vehicle unit sales, which may result in downward price pressure and adversely affect Toyota’s financial condition and results of operations.

Toyota’s future success depends on its ability to offer new, innovative and competitively priced products that meet customer demand on a timely basis.

Meeting customer demand by introducing attractive new vehicles and reducing the amount of time required for product development are critical to automotive manufacturers. In particular, it is critical to meet customer demand with respect to quality, safety and reliability. The timely introduction of new vehicle models, at competitive prices, meeting rapidly changing customer preferences and demand is more fundamental to Toyota’s success than ever, as the automotive market is rapidly transforming in light of the changing global economy. There is no assurance, however, that Toyota will adequately and appropriately respond to changing customer preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner. Even if Toyota succeeds in perceiving customer preferences and demand, there is no assurance that Toyota will

be capable of developing and manufacturing new, price competitive products in a timely manner with its available technology, intellectual property, sources of raw materials and parts and components, and production capacity, including cost reduction capacity. Further, there is no assurance that Toyota will be able to implement capital expenditures at the level and times planned by management. Toyota’s inability to develop and offer products that meet customers’ preferences and demand with respect to quality, safety, reliability, styling and other features in a timely manner could result in a lower market share and reduced sales volumes and margins, and may adversely affect Toyota’s financial condition and results of operations.

Toyota’s ability to market and distribute effectively is an integral part of Toyota’s successful sales.

Toyota’s success in the sale of vehicles depends on its ability to market and distribute effectively based on distribution networks and sales techniques tailored to the needs of its customers. There is no assurance that Toyota will be able to develop sales techniques and distribution networks that effectively adapt to changing customer preferences or changes in the regulatory environment in the major markets in which it operates. Toyota’s inability to maintain well-developed sales techniques and distribution networks may result in decreased sales and market share and may adversely affect its financial condition and results of operations.

Toyota’s success is significantly impacted by its ability to maintain and develop its brand image.

In the highly competitive automotive industry, it is critical to maintain and develop a brand image. In order to maintain and develop a brand image, it is necessary to further increase customers’ confidence by providing safe, high-quality products that meet customer preferences and demand. If Toyota is unable to effectively maintain and develop its brand image as a result of its inability to provide safe, high-quality products or as a result of the failure to promptly implement safety measures such as recalls when necessary, vehicle unit sales and/or sale prices may decrease, and as a result revenues and profits may not increase as expected or may decrease, adversely affecting its financial condition and results of operations.

Toyota relies on suppliers for the provision of certain supplies including parts, components and raw materials

Toyota purchases supplies including parts, components and raw materials from a number of external suppliers located around the world. For some supplies, Toyota relies on a single supplier or a limited number of suppliers, whose replacement with another supplier may be difficult. Inability to obtain supplies from a single or limited source supplier may result in difficulty obtaining supplies and may restrict Toyota’s ability to produce vehicles. Furthermore, even if Toyota were to rely on a large number of suppliers, first-tier suppliers with whom Toyota directly transacts may in turn rely on a single second-tier supplier or limited second-tier suppliers. Toyota’s ability to continue to obtain supplies from its suppliers in a timely and cost-effective manner is subject to a number of factors, some of which are not within Toyota’s control. These factors include the ability of Toyota’s suppliers to provide a continued source of supply, and Toyota’s ability to effectively compete and obtain competitive prices from suppliers. A loss of any single or limited source supplier or inability to obtain supplies from suppliers in a timely and cost-effective manner could lead to increased costs or delays or suspensions in Toyota’s production and deliveries, which could have an adverse effect on Toyota’s financial condition and results of operations.

The worldwide financial services industry is highly competitive.

The worldwide financial services industry is highly competitive. Increased competition in automobile financing may lead to decreased margins. A decline in Toyota’s vehicle unit sales, an increase in residual value risk due to lower used vehicle price, an increase in the ratio of credit losses and increased funding costs are factors which may impact Toyota’s financial services operations. If Toyota is unable to adequately respond to the changes and competition in automobile financing, Toyota’s financial services operations may adversely affect its financial condition and results of operations.

Toyota’s operations and vehicles rely on various digital and information technologies.

Toyota depends on various information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, including sensitive data, and to manage or support a variety of business processes and activities, including manufacturing, research and development, supply chain management, sales and accounting. In addition, Toyota’s vehicles may rely on various digital and information technologies, including information service and driving assistance functions. Despite security measures, Toyota’s digital and information technology networks and systems may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers, computer viruses, breaches due to unauthorized use, errors or malfeasance by employees and others who have or gain access to the networks and systems Toyota depends on, service failures or bankruptcy of third parties such as software development or cloud computing vendors, power shortages and outages, and utility failures or other catastrophic events like natural disasters. Such incidents could materially disrupt critical operations, disclose sensitive data, interfere with information services and driving assistance functions in Toyota’s vehicles, and/or give rise to legal claims or proceedings, liability or regulatory penalties under applicable laws, which could have an adverse effect on Toyota’s brand image and its financial condition and results of operations.

Financial Market and Economic Risks

Toyota’s operations are subject to currency and interest rate fluctuations.

Toyota is sensitive to fluctuations in foreign currency exchange rates and is principally exposed to fluctuations in the value of the Japanese yen, the U.S. dollar and the euro and, to a lesser extent, the Australian dollar, the Russian ruble, the Canadian dollar and the British pound. Toyota’s consolidated financial statements, which are presented in Japanese yen, are affected by foreign currency exchange fluctuations through translation risk, and changes in foreign currency exchange rates may also affect the price of products sold and materials purchased by Toyota in foreign currencies through transaction risk. In particular, strengthening of the Japanese yen against the U.S. dollar can have an adverse effect on Toyota’s operating results.

Toyota believes that its use of certain derivative financial instruments including foreign exchange forward contracts and interest rate swaps and increased localized production of its products have reduced, but not eliminated, the effects of interest rate and foreign currency exchange rate fluctuations. Nonetheless, a negative impact resulting from fluctuations in foreign currency exchange rates and changes in interest rates may adversely affect Toyota’s financial condition and results of operations. For a further discussion of currency and interest rate fluctuations and the use of derivative financial instruments, see “Operating and Financial Review and Prospects — Operating Results — Overview — Currency Fluctuations,” “Quantitative and Qualitative Disclosures About Market Risk,” and notes 21 and 22 to Toyota’s consolidated financial statements.

High prices of raw materials and strong pressure on Toyota’s suppliers could negatively impact Toyota’s profitability.

Increases in prices for raw materials that Toyota and Toyota’s suppliers use in manufacturing their products or parts and components such as steel, precious metals, non-ferrous alloys including aluminum, and plastic parts, may lead to higher production costs for parts and components. This could, in turn, negatively impact Toyota’s future profitability because Toyota may not be able to pass all those costs on to its customers or require its suppliers to absorb such costs.

A downturn in the financial markets could adversely affect Toyota’s ability to raise capital.

Should the world economy suddenly deteriorate, a number of financial institutions and investors will face difficulties in providing capital to the financial markets at levels corresponding to their own financial capacity, and, as a result, there is a risk that companies may not be able to raise capital under terms that they would expect to receive with their creditworthiness. If Toyota is unable to raise the necessary capital under appropriate conditions on a timely basis, Toyota’s financial condition and results of operations may be adversely affected.

Regulatory, Legal, Political and Other Risks

The automotive industry is subject to various governmental regulations.

The worldwide automotive industry is subject to various laws and governmental regulations including those related to vehicle safety and environmental matters such as emission levels, fuel economy, noise and pollution. In particular, automotive manufacturers such as Toyota are required to implement safety measures such as recalls for vehicles that do not or may not comply with the safety standards of laws and governmental regulations. In addition, Toyota may, in order to reassure its customers of the safety of Toyota’s vehicles, decide to voluntarily implement recalls or other safety measures even if the vehicle complies with the safety standards of relevant laws and governmental regulations. Many governments also impose tariffs and other trade barriers, taxes and levies, or enact price or exchange controls. Toyota has incurred, and expects to incur in the future, significant costs in complying with these regulations. If Toyota launches products that result in safety measures such as recalls, Toyota may incur various costs including significant costs for free repairs. Furthermore, new legislation or changes in existing legislation may also subject Toyota to additional expenses in the future. If Toyota incurs significant costs related to implementing safety measures or meeting laws and governmental regulations, Toyota’s financial condition and results of operations may be adversely affected.

Toyota may become subject to various legal proceedings.

As an automotive manufacturer, Toyota may become subject to legal proceedings in respect of various issues, including product liability and infringement of intellectual property. Toyota may also be subject to legal proceedings brought by its shareholders and governmental proceedings and investigations. Toyota is in fact currently subject to a number of pending legal proceedings and government investigations. A negative outcome in one or more of these pending legal proceedings could adversely affect Toyota’s financial condition and results of operations. For a further discussion of governmental regulations, see “Information on the Company — Business Overview — Governmental Regulation, Environmental and Safety Standards” and for legal proceedings, please see “Information on the Company — Business Overview — Legal Proceedings.”

Toyota may be adversely affected by natural calamities, political and economic instability, fuel shortages or interruptions in social infrastructure, wars, terrorism and labor strikes.

Toyota is subject to various risks associated with conducting business worldwide. These risks include natural calamities; political and economic instability; fuel shortages; interruption in social infrastructure including energy supply, transportation systems, gas, water, or communication systems resulting from natural hazards or technological hazards; wars; terrorism; labor strikes and work stoppages. Should the major markets in which Toyota purchases materials, parts and components and supplies for the manufacture of Toyota products or in which Toyota’s products are produced, distributed or sold be affected by any of these events, it may result in disruptions and delays in the operations of Toyota’s business. Should significant or prolonged disruptions or delays related to Toyota’s business operations occur, it may adversely affect Toyota’s financial condition and results of operations.

ITEM 4. INFORMATION ON THE COMPANY

4.A HISTORY AND DEVELOPMENT OF THE COMPANY

Toyota Motor Corporation is a limited liability, joint-stock company incorporated under the Commercial Code of Japan and continues to exist under the Companies Act. Toyota commenced operations in 1933 as the automobile division of Toyota Industries Corporation (formerly, Toyoda Automatic Loom Works, Ltd.). Toyota became a separate company on August 28, 1937. In 1982, the Toyota Motor Company and Toyota Motor Sales merged into one company, the Toyota Motor Corporation of today. As of March 31, 2017, Toyota operated through 597 consolidated subsidiaries (including variable interest entities) and 200 affiliated companies, of which 54 companies were accounted for through the equity method.

See “— Business Overview — Capital Expenditures and Divestitures”for a description of Toyota’s principal capital expenditures and divestitures between April 1, 2014 and March 31, 2017 and information concerning Toyota’s principal capital expenditures and divestitures currently in progress.

Toyota’s principal executive offices are located at 1 Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan. Toyota’s telephone number in Japan is +81-565-28-2121.

4.B BUSINESS OVERVIEW

Toyota primarily conducts business in the automotive industry. Toyota also conducts business in finance and other industries. Toyota sold 8,971 thousand vehicles in fiscal 2017 on a consolidated basis. Toyota had net revenues of ¥27,597.1 billion and net income attributable to Toyota Motor Corporation of ¥1,831.1 billion in fiscal 2017.

Toyota’s business segments are automotive operations, financial services operations and all other operations. The following table sets forth Toyota’s sales to external customers in each of its business segments for each of the past three fiscal years.


	Yen in millions
	Year Ended March 31,
	2015		2016		2017
Automotive		25,006,224		25,923,813		25,032,229
Financial Services		1,621,685		1,854,007		1,783,697
All Other		606,612		625,298		781,267

Toyota’s automotive operations include the design, manufacture, assembly and sale of passenger vehicles, minivans and commercial vehicles such as trucks and related parts and accessories. Toyota’s financial services business consists primarily of providing financing to dealers and their customers for the purchase or lease of Toyota vehicles. Toyota’s financial services business also provides retail installment credit and leasing through the purchase of installment and lease contracts originated by Toyota dealers. Related to Toyota’s automotive operations, Toyota engages in intelligent transport systems (“ITS”). Toyota’s all other operations business segment includes the design and manufacture of prefabricated housing and information technology related businesses including a web portal for automobile information called GAZOO.com, etc.

Toyota sells its vehicles in approximately 190 countries and regions. Toyota’s primary markets for its automobiles are Japan, North America, Europe and Asia. The following table sets forth Toyota’s sales to external customers in each of its geographical markets for each of the past three fiscal years.


	Yen in millions
	Year Ended March 31,
	2015		2016		2017
Japan		8,338,881		8,588,437		8,798,903
North America		9,430,450		10,822,772		10,033,419
Europe		2,690,803		2,507,292		2,517,601
Asia		4,531,178		4,475,623		4,279,617
Other*		2,243,209		2,008,994		1,967,653

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

During fiscal 2017, 25.4% of Toyota’s automobile unit sales on a consolidated basis were in Japan, 31.6% were in North America, 10.3% were in Europe and 17.7% were in Asia. The remaining 15.0% of consolidated unit sales were in other markets.

The Worldwide Automotive Market

Toyota estimates that annual worldwide vehicle sales totaled approximately 94 million units in 2016.

Automobile sales are affected by a number of factors including:

•

social, political and economic conditions;

•

introduction of new vehicles and technologies; and

•

costs incurred by customers to purchase and operate automobiles.

These factors can cause consumer demand to vary substantially from year to year in different geographic markets and in individual categories of automobiles.

In fiscal 2017, the U.S. economy experienced steady growth, with Europe sustaining gradual recovery under monetary easing measures, while in Japan the favorable employment environment supported consumption. In emerging markets, even though the Chinese market recovered due to economic stimulus measures, consumption stagnated in resource-rich countries as consumption sentiment plummeted reflecting deterioration in fiscal conditions.

The automotive industry was also impacted by this trend. In 2016, with respect to developed countries, markets in Europe and the United States expanded. In addition, in Japan, the market contracted even though the introduction of new models supported demand. In emerging markets, the expansion of the Chinese market continued, but markets in other emerging countries contracted.

However, in the medium- to long-term, Toyota expects the automotive market to grow driven principally by the growth in China and emerging markets. Global competition is expected to be severe, as competition in compact and low-price vehicles intensifies, and technological development and development of new products become more frequent with a heightened global awareness of the environment and more stringent fuel economy standards.

In 2016, China, North America, Europe and Asia were the world’s largest automotive markets. The share of each market across the globe, which Toyota estimates based on the available automobile sales data in each country and region information, was 30% for China, 23% for North America (22% excluding Mexico and Puerto Rico), 21% for Europe and 10% for Asia. In China, new vehicle sales increased to approximately 28.3 million units. In North America, new vehicle sales increased to approximately 21.2 million units. In Europe, new vehicle sales increased to approximately 20.0 million units. In Asia (including India but excluding Japan and China), new vehicle unit sales increased from the previous year to approximately 9.5 million units.

The worldwide automotive industry is affected significantly by government regulations aimed at reducing harmful effects on the environment, enhancing vehicle safety and improving fuel economy. These regulations have added to the cost of manufacturing vehicles. Many governments also mandate local procurement of parts and components and impose tariffs and other trade barriers and price or exchange controls as a means of creating jobs, protecting domestic producers or influencing their balance of payments. Changes in regulatory requirements and other government-imposed restrictions can limit an automaker’s operations. These regulations can also make it difficult to repatriate profits to an automaker’s home country.

The development of the worldwide automotive market includes the continuing globalization of automotive operations. Manufacturers seek to achieve globalization by localizing the design and manufacture of automobiles and their parts and components in the markets in which they are sold. By expanding production capabilities beyond their home markets, automotive manufacturers are able to reduce their exposure to fluctuations in foreign exchange rates as well as to trade restrictions and tariffs.

Recently, there have been many global business alliances and investments entered into between manufacturers in the global automotive industry. There are various reasons behind these transactions including the need to respond to the excessive global capacity in the production of automobiles, the need to reduce costs and improve efficiency by increasing the number of automobiles produced using common vehicle platforms and by sharing research and development expenses for environmental and other technology, the desire to expand a company’s global presence through increased size and the desire to expand into particular segments or geographic markets.

Toyota believes that its research and development initiatives, particularly the development of environmentally friendly new vehicle technologies, vehicle safety and information technology, provide it with a strategic advantage.

Toyota’s ability to compete in the global automotive industry will depend in part on Toyota’s successful implementation of its business strategy. This is subject to a number of factors, some of which are not in Toyota’s control. These factors are discussed in “Operating and Financial Review and Prospects” and elsewhere in this annual report.

Toyota Global Vision

In March 2011, Toyota unveiled its “Toyota Global Vision” corporate outline for the future, which serves not only to give direction to Toyota employees around the world, but also to convey such direction to customers and to the public at large. Toyota will work to achieve sustained growth through the realization of the following ideals which are parts of the Vision:

“The safest and most responsible ways of moving people”

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Safety is Toyota’s highest priority, and Toyota will continue to provide world-class safety.

•

Toyota will also continue to contribute to environmental quality and to human happiness by using leading environmental technology and by deploying that technology in a growing line of vehicle models. At the same time, Toyota will work through the provision of products, sales and services that exceed customer expectation to offer a rewarding experience for customers.

“Enriching lives around the world”

•

Toyota has been consistently true to its founding spirit of serving society through conscientious manufacturing, and it will continue working in that spirit to contribute to enhance the quality of life wherever it has operations.

•

Toyota will strive to continue contributing to economic vitality wherever it has operations by generating stable employment and by participating in mutually beneficial business relationships with dealers and suppliers. It will also strive to continue to actively engage in initiatives for human resources development and the promotion of cultural activities of its host communities.

“Lead the way to the future of mobility”

•

Toyota will lead the industry in technological development that will spawn next-generation mobility. For example, it will explore possibilities in personal mobility and in the convergence of information technology for automobiles and “smart grids” for optimizing energy generation and consumption. Toyota will strive to offer products and services that match the needs in each market.

•

Toyota will strive to advance environmental technology and develop low-carbon technologies and technologies for maximizing safety through interaction with the transport infrastructure to lay a foundation for sustainable and amenable future mobility.

“Our commitment to quality, constant innovation”

•

Toyota is committed to providing quality vehicles that are highly reliable and driven with a sense of safety and reliability.

•

Toyota will constantly reinvent itself and continue to engage in cutting-edge technology development. Toyota will work towards offering vehicles around the world that address the needs of today and of tomorrow at affordable prices.

“Continued awareness for the Earth and environment”

•

Toyota will continue to work towards minimizing environmental impact in its manufacturing and other operations, and products.

•

With an emphasis on environmental awareness, Toyota will in its operations work towards energy conservation, reduction in carbon dioxide emission, efficient use of resources such as recycling, and human resource development and production methods that allow for coexistence with nature.

“Exceed expectations and be rewarded with a smile”

•

Everyone at Toyota will continuously maintain a sense of gratitude to customers and will strive to earn smiles with products and services that are stimulating and inspiring and exceed customer expectations.

“There is always a better way”

•

All Toyota employees will share the recognition that there is always a better way and share a commitment to continuous improvement, which are fundamental to The Toyota Way.

“Meet challenging goals by engaging the talent and passion of people”

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Toyota will nurture a corporate culture where teamwork and individual creativity thrive and where people will approach their work with pride and passion.

•

Toyota will honor the spirit of diversity in recruiting, training and promoting capable individuals around the world. Human resources development at Toyota will continue to promote the transfer of the company’s monozukuri spirit of conscientious manufacturing and related skills and know-how from one generation to the next.

As for our future business environment, developed countries are expected to continue growing steadily, while the growth rate of emerging countries are expected to increase gradually on the back of the steady growth in developed countries and the effects of policy measures taken by emerging countries. The Japanese economy is expected to improve mainly in the area of private demand supported by continuing extension of the positive cycle of the economy with improvements in employment and income conditions, although attention needs to be paid to uncertainty related to policy trends mainly in the U.S. and U.K.

The automotive market is expected to progress steadily in developed countries and to pick up gradually in emerging countries. Meanwhile, complicated interactions and developments such as changing market and regulations, developments in technology and entry from other businesses are changing the automotive business itself.

In this severe business environment, the Toyota group intends to steadily progress toward the realization of the Toyota Global Vision through sustainable growth based on the following policies:

First, Toyota intends to boldly take on new challenges to create the future. It aims to construct a future mobility society through the strategic approach to Electrification/Information/Intelligence and new value creation. Toyota will strive to reduce the environmental impact of automobiles as close to zero as possible, and will roll out new initiatives toward a sustainable society looking to make a positive impact on earth and society.

Second, Toyota will “change how we work” in order to grow as steadily as a tree adding annual growth rings. Through “strong vision and sense of mission” and “leaning humbly,” Toyota aims to make a break with the past, and thereby accelerate making “ever-better cars.” Toyota will also work to obtain and sustain its competitiveness for its own survival by increasing sensitivity to the drastically changing society and reacting to crises properly.

Third, Toyota will work to solidify its foundations in order to continuously support itself. Thoroughly following the principle of Customer First, every member will implement the basics of work.

Based on these initiatives, the Toyota group will contribute to “enriching lives of communities” by providing “ever-better cars.” This is expected to encourage more customers to purchase Toyota cars and thereby lead to the establishment of a stable business base. By perpetuating this cycle, Toyota will aim to realize sustainable growth and enhance corporate value. In addition, through full observance of corporate ethics such as compliance with applicable laws and regulations, the Toyota group will fulfill its social responsibilities.

Toyota Environmental Challenge 2050

Positioning responding to environmental issues as one of the most prioritized challenges for management, Toyota has tackled head-on activities such as the development and promotion of next-generation vehicles including hybrid vehicles and fuel cell vehicles, efficient production that puts less of a burden on the environment, the recycling of end-of-life vehicles and hybrid vehicle batteries, planting trees for the coexistence of humans and nature in harmony, and conservation of ecosystems.

However, in recent years, the seriousness of environmental issues is increasing over a wide area, as evidenced by global warming, water shortages, resource depletion, and degradation of biodiversity. In response to the situation, Toyota believes it is necessary to take on new challenges that consider the world 20 or 30 years in the future, in order to remain closely aligned with the global environment. Accordingly, Toyota announced Toyota Environmental Challenge 2050 in October 2015.

With the aims of reducing the environmental impact of vehicles as much as possible as well as moving toward a net positive impact, by 2050 in order to contribute to the realization of a sustainable society, the Toyota Environmental Challenge 2050 has set forth the following six challenges for Toyota to address.

New Vehicles Zero CO2 Emissions Challenge

Life Cycle Zero CO2 Emissions Challenge

Plant Zero CO2 Emissions Challenge

Challenge of Minimizing and Optimizing Water Usage

Challenge of Establishing a Recycling-Based Society and Systems

Challenge of Establishing a Future Society in Harmony with Nature

Further strengthening collaboration with the Toyota group and all other stakeholders, Toyota will consolidate new ideas, dynamism and technology to tackle together the realization of a truly sustainable society from a long-term perspective.

Automotive Operations

Toyota’s revenues from its automotive operations were ¥25,081.8 billion in fiscal 2017, ¥25,977.4 billion in fiscal 2016 and ¥25,062.1 billion in fiscal 2015.

Toyota produces and sells passenger vehicles, minivans and commercial vehicles such as trucks. Toyota Motor Corporation’s subsidiary, Daihatsu Motor Co., Ltd. (“Daihatsu”), produces and sells mini-vehicles and

compact cars. Hino Motors, Ltd. (“Hino”), also a subsidiary of Toyota Motor Corporation, produces and sells commercial vehicles such as trucks and buses. Toyota also manufactures automotive parts, components and accessories for its own use and for sale to others.

With an aim to strengthen competitiveness in the small car segment, on January 29, 2016, Toyota and Daihatsu entered into a share exchange agreement to make Daihatsu a wholly-owned subsidiary of Toyota as of August 1, 2016. From January 2017, Toyota and Daihatsu established the “Emerging-market Compact Car Company” to promote development of competitive products in emerging markets. Through planning and implementation of optimal strategies including combining their technical expertise and bases of operations, joint development of next-generation technology, bold cost reduction and expansion of product lineups with a global brand strategy, Daihatsu will play a key role in developing globally competitive small cars of both brands based on the technology Daihatsu has developed through manufacturing of mini-vehicles.

Vehicle Models

Toyota’s vehicles (produced by Toyota, Daihatsu and Hino) can be classified into three categories: hybrid vehicles, conventional engine vehicles, and fuel cell vehicles. Toyota’s product line-up includes subcompact and compact cars, mini-vehicles, mid-size, luxury, sports and specialty cars, recreational and sport-utility vehicles, pickup trucks, minivans, trucks and buses.

Hybrid Vehicles

The world’s first mass-produced hybrid car was Toyota’s Prius. It runs on an efficient combination of a gasoline engine and motor. This system allows the Prius to travel more efficiently than conventional engine vehicles of comparable size and performance. The hybrid design of the Prius also results in the output of 75% less emission than the maximum amount allowed by Japanese environmental regulations. Toyota views the Prius as the cornerstone of its emphasis on designing and producing eco-friendly automobiles.

In the last three years, Toyota has strengthened its hybrid lineup by introducing the fully remodeled Voxy HV/Noah HV in January 2014, the NX300h in July 2014, the RC300h and the Esquire HV in September 2014, the fully remodeled Alphard HV and Vellfire HV in January 2015, the Sienta HV in June 2015, the fully remodeled RX-HV in September 2015 and the fully remodeled Prius in November 2015, as well as adding Auris HV in April 2016, Prius PHV and the new model C-HR HV in October 2016 and the new model LC HV in May 2017. In the hybrid vehicles area, where strong growth is anticipated, Toyota aims to continue its efforts to offer a diverse line-up of hybrid vehicles, enhance engine power while improving fuel economy and otherwise work towards increasing the sales of hybrid vehicles.

Fuel Cell Vehicles

Toyota began limited sales of a fuel cell vehicle in Japan and the United States in December 2002. In June 2005, Toyota’s new fuel cell passenger vehicle became the first in Japan to acquire vehicle type certification under the Road Vehicles Act, as amended, on March 31, 2005, by Japan’s Ministry of Land, Infrastructure, Transport and Tourism. Leases for fuel cell vehicles began in July 2005. By 2007, Toyota was able to make improvements to start-up and cruising distance at temperatures below freezing, which were technological challenges. Toyota has made advances by solving technological issues such as the above and worked towards the practical use of such solutions, culminating in the general sale of the world’s first mass produced fuel cell vehicle MIRAI in Japan beginning in December 2014, in the United States beginning in June 2015 and in Europe beginning in September 2015.

Conventional Engine Vehicles

Subcompact and Compact

Toyota’s subcompact and compact cars include the four-door Corolla sedan, which is one of Toyota’s bestselling models. The Yaris, marketed as the Vitz in Japan, is a subcompact car designed to perform better and

offer greater comfort than other compact cars available in the market with low emissions that are particularly attractive to European consumers. In Europe, Toyota introduced the fully remodeled Aygo in June 2014. In Japan, Toyota introduced the remodeled Corolla Axio/Fielder in May 2012, the remodeled Porte and its variant, the Spade, in July 2012 and the remodeled Auris in August 2012. In India, Asia, China and other markets, Toyota introduced the Etios and Vios. In addition, Toyota introduced the AGYA, which is designed and manufactured by Daihatsu. Moreover, Yaris iA, which is designed and manufactured by Mazda Motor Corporation, was newly introduced in July 2015.

Mini-Vehicles

Mini-vehicles are manufactured and sold by Daihatsu. Daihatsu manufactures mini-vehicles, passenger vehicles, commercial vehicles and auto parts. Mini-vehicles are passenger vehicles, vans or trucks with engine displacements of 660 cubic centimeters or less. Daihatsu sold approximately 545 thousand mini-vehicles and 209 thousand automobiles on a consolidated basis during fiscal 2017. Daihatsu’s largest market is Japan, which accounted for approximately 70% of Daihatsu’s unit sales during fiscal 2017. From 2011, Toyota began to sell some mini-vehicles manufactured by Daihatsu under the Toyota brand.

Mid-Size

Toyota’s mid-size models include the Camry, which has been the bestselling passenger car in the United States for nineteen of the past twenty calendar years (from 1997 to present) and also for the last fifteen consecutive years. The Camry was fully remodeled in August 2011. Camry sales in the United States for 2016 were approximately 387 thousand units (including Camry hybrids). In addition, Toyota’s other mid-size models include the REIZ for the Chinese market, the Avensis, which was remodeled in November 2008 for the European market, and the Mark X, which was remodeled in October 2009 for the Japanese market.

Luxury & Large

In North America, Europe, Japan and other regions, Toyota’s luxury lineup consists primarily of vehicles sold under the Lexus brand name. Lexus passenger car models include the LS, the GS, the ES, the IS, the HS, the CT and the RC. Lexus models also include the LX, the GX, the RX and the NX sold as luxury sport-utility vehicles. Toyota commenced sales of its luxury automobiles in Japan under the Lexus brand in August 2005. As of March 31, 2017, the Lexus brand lineup in Japan includes the LS, the GS, the HS, the IS, the CT, the LX, the RX, the NX, LC and the RC. The Toyota brand’s full-size luxury car, the Avalon, was remodeled in October 2012, and the Crown was remodeled in December 2012. Toyota also sells the Century limousine in Japan.

Sports and Specialty

In April 2012, Toyota introduced the 86 (called Scion FR-S in the U.S.), a compact sports car with a front-mounted engine and rear-wheel drive. In October 2014, Toyota introduced the RC coupe that leads the image of Lexus, which engages drivers on a sentimental level. In May 2017, Toyota introduced LC, the new model flagship coupe for Lexus.

Recreational and Sport-Utility Vehicles and Pickup Trucks

Toyota sells a variety of sport-utility vehicles and pickup trucks. Toyota’s sport-utility vehicles available in North America include the Sequoia, the 4Runner, the RAV4, the Highlander, the FJ Cruiser and the Land Cruiser, and pickup trucks available are the Tacoma and Tundra. The Tacoma, the Tundra, the Highlander and the Sequoia are manufactured in the United States. Toyota also offers four types of sport-utility vehicles under the Lexus brand, including the LX, the GX, the RX, and the NX. Toyota also manufactures the RX and RAV4 models in Canada. Toyota’s pickup truck, the Hilux, has been the bestselling model of all Toyota cars sold in

Thailand. In July 2014, Toyota introduced the new NX model under the Lexus brand. In May 2015, Toyota introduced the fully remodeled Hilux and in September 2015, it introduced the fully remodeled RX of the Lexus brand. In December 2016, Toyota introduced C-HR, a model with a focus on both design and drive.

Minivans and Cabwagons

Toyota offers several basic models for the global minivan market. Its largest minivans in Japan, the Alphard and the Vellfire, were remodeled in January 2015. In addition, the Wish was remodeled in April 2009, the Noah/Voxy was remodeled in January 2014 and the new model Esquire was introduced in October 2014 in Japan. The new model Calya, an original equipment manufacturing (“OEM”) vehicle by Daihatsu, was introduced in July 2016 in Indonesia. Toyota’s other minivan models include, in Japan, the Estima, the Sienta and the Isis, and, in North America, the Sienna.

Trucks and Buses

Toyota’s product lineup includes trucks (including vans) up to a gross vehicle weight of five tons and micro-buses that are sold in Japan and in overseas markets. Trucks and buses are also manufactured and sold by Hino, a subsidiary of Toyota. Hino’s product lineup includes large trucks with a gross vehicle weight of over eleven tons, medium trucks with a gross vehicle weight of between five and eleven tons and small trucks with a gross vehicle weight of up to five tons. Hino’s bus lineup includes medium to large buses used primarily as tour buses and public buses, small buses and micro-buses.

Product Development

New cars introduced in Japan during fiscal 2017 and thereafter include the Auris HV and the C-HR. Remodeled cars in Japan during fiscal 2017 and thereafter include the Tank, the Roomy, the Prius PHV and the Coaster. New vehicles introduced outside of Japan during fiscal 2017 and thereafter include the C-HR and the LC. Remodeled cars outside of Japan during fiscal 2017 and thereafter include the Sienta and the Calya.

In addition, the IMV product lineup based on the IMV project to optimize global manufacturing and supply systems is a lineup of strategic multipurpose vehicles produced from a single platform to meet market demand. The IMV product lineup includes, as of March 31, 2017, the Hilux, Fortuner, and Innova, one or all of which are available in all regions except for Japan.

Markets, Sales and Competition

Toyota’s primary markets are Japan, North America, Europe and Asia. The following table sets forth Toyota’s consolidated vehicle unit sales by geographic market for the periods shown. The vehicle unit sales below reflect vehicle sales made by Toyota to unconsolidated entities (recognized as sales under Toyota’s revenue recognition policy), including sales to unconsolidated distributors and dealers. Vehicles sold by Daihatsu and Hino are included in the vehicle unit sales figures set forth below.


	Year Ended March 31,
	2013					2014					2015					2016					2017
	Units		%			Units		%			Units		%			Units		%			Units		%
Market
Japan		2,278,796		25.7	%		2,365,410		26.0	%		2,153,694		24.0	%		2,059,093		23.7	%		2,273,962		25.4	%
North America		2,468,804		27.8			2,529,398		27.7			2,715,173		30.3			2,839,229		32.7			2,837,334		31.6
Europe		799,085		9.0			844,003		9.3			859,038		9.6			844,412		9.7			924,560		10.3
Asia		1,683,578		19.0			1,608,355		17.6			1,488,922		16.6			1,344,836		15.5			1,587,822		17.7
Other*		1,640,401		18.5			1,768,867		19.4			1,755,037		19.5			1,593,758		18.4			1,347,182		15.0

Total		8,870,664		100.0	%		9,116,033		100.0	%		8,971,864		100.0	%		8,681,328		100.0	%		8,970,860		100.0	%

*	“Other” consists of Central and South America, Oceania, Africa and the Middle East, etc.

The following table sets forth Toyota’s vehicle unit sales and market share in Japan, North America, Europe and Asia on a retail basis for the periods shown. Each market’s total sales and Toyota’s sales represent new vehicle registrations in the relevant year (except for the Asia market where vehicle registration does not necessarily apply). All information on Japan excludes mini-vehicles. The sales information contained below excludes unit sales by Daihatsu and Hino, each a consolidated subsidiary of Toyota. Vehicle unit sales in Asia do not include sales in China.


	(Thousands of Units)
	Fiscal Year Ended March 31,
	2013			2014			2015			2016			2017
Japan:
Total market sales (excluding mini-vehicles)		3,242			3,433			3,126			3,126			3,360
Toyota sales (retail basis, excluding mini-vehicles)		1,570			1,605			1,439			1,462			1,607
Toyota market share		48.4	%		46.7	%		46.0	%		46.8	%		47.8	%

	(Thousands of Units)
	Calendar Year Ended December 31,
	2012			2013			2014			2015			2016
North America:
Total market sales		17,153			18,514			19,597			20,804			21,191
Toyota sales (retail basis)		2,360			2,520			2,670			2,817			2,798
Toyota market share		13.8	%		13.6	%		13.6	%		13.5	%		13.2	%

Europe:
Total market sales		18,171			18,009			18,397			18,971			19,968
Toyota sales (retail basis)		838			848			888			874			928
Toyota market share		4.6	%		4.7	%		4.8	%		4.6	%		4.6	%

Asia (excluding China):
Total market sales		8,986			8,899			8,785			9,287			9,541
Toyota sales (retail basis)		1,487			1,427			1,324			1,249			1,305
Toyota market share		16.5	%		16.0	%		15.1	%		13.4	%		13.7	%

Japan

Japan is one of the leading countries with respect to technological advancements and improvements and will continue to demonstrate such strength. Toyota strives to earn customer satisfaction by introducing products distinctive of Japan’s manufacturing ability such as value-added products including Lexus models, hybrid vehicles, vehicles with 3-seat rows and mini-vehicles. Toyota’s consolidated vehicle sales in Japan in fiscal 2017 was 2,274 thousand units, an increase of 215 thousand units in comparison with the previous year. Toyota endeavors to secure and maintain its large share of and position atop the Japanese market. Toyota held a domestic market share (excluding mini-vehicles) on a retail basis of 46.0% in fiscal 2015, 46.8% in fiscal 2016 and 47.8% in fiscal 2017.

Although Toyota’s principle is to conduct production in regions where it enjoys true competitiveness, it considers Japan to be the source of its good manufacturing practices. Toyota supports its operations worldwide through measures such as the development of new technologies and products, low-volume vehicles to complement local production, production of global vehicle models which straddle multiple regions and supporting overseas factories. Toyota will continue the implementation of the new platform and the new unit for the Toyota New Global Architecture (“TNGA”) globally, with Japan at the core. In Japan, Toyota is implementing flexible production based on market needs, in order to support its large share of domestic sales.

Since Toyota formed an alliance with SUBARU CORPORATION. (“SUBARU”) in 2005, Toyota and SUBARU have utilized each other’s resources in development and production. In April 2008, in order to create

synergy and to further strengthen competitiveness, Toyota, Daihatsu and SUBARU agreed on joint development of a compact rear-wheel-drive sports car and OEM supply with compact cars and mini-vehicles. In order to promote a smooth cooperation, SUBARU transferred 61 million SUBARU shares owned by SUBARU to Toyota in July 2008. As a result of this transfer, Toyota owns 16.5% of SUBARU issued shares. While Toyota vehicles have been manufactured at SUBARU’s North American production center, Subaru of Indiana Automotive, Inc. (“SIA”), since 2007, Toyota and SUBARU ceased such production in May 2016, and the collaboration between Toyota and SUBARU will shift going forward to collaboration focusing on products and technology.

Toyota and Mazda have been engaged in collaboration such as the licensing of Toyota’s hybrid technologies to Mazda and the production of compact cars for Toyota at Mazda’s plant in Mexico. In May 2015, Toyota and Mazda entered into an agreement to build a mutually beneficial long-term partnership that leverages the resources of both companies to complement and enhance each other’s products and technologies and that will result in more appealing cars that meet the diverse needs and tastes of customers around the world. A joint committee is currently evaluating how best to utilize each company’s respective strengths. The committee will encourage broad and meaningful collaboration across a range of fields, including environmental and advanced safety technologies.

In 2011, Toyota and BMW Group agreed to conduct collaborative research in the field of next-generation lithium-ion battery technologies and for BMW to supply diesel engines to Toyota Motor Europe, Toyota’s European subsidiary. In 2013, as part of their strategic long-term cooperation in the field of sustainable mobility, Toyota and BMW Group entered into agreements for the joint development of a fuel cell system, joint development of architecture and components for sports vehicles and joint research and development of lightweight technologies. The two companies completed collaborative research on lithium-air batteries, a post-lithium-battery solution as planned by conducting the second phase of collaborative research into next-generation lithium-ion battery cells.

In 2017, Toyota and Suzuki Motor Corporation (Suzuki), aiming to contribute jointly to resolution of social issues and achievement of the sound and sustainable development of an automobile-based society, entered into a memorandum of understanding on beginning concrete examination of a business partnership. The companies agreed to begin concrete examination toward the realization of business partnerships in areas including environmental technologies, safety technologies, information technologies and mutual supply of products and components. The companies aim to realize the points agreed upon.

In Japan, there are five major domestic manufacturers, five specialized domestic manufacturers and a growing volume of imports from major United States and European manufacturers. The prolonged economic slump in the Japanese economy and the recent increases in environmental awareness have also shifted consumer preference towards more affordable automobiles such as compact and subcompact vehicles and towards utility vehicles such as mini-vans. For more than 40 years, Toyota has maintained its position as the largest automobile manufacturer in Japan. Every year since fiscal 1999, Toyota, excluding Daihatsu and Hino, has achieved a market share (excluding mini-vehicles) of over 40%, reflecting in part the success of the introduction of new models for subcompact and compact cars, mini-vans and sedans. In August 2005, Toyota launched the Lexus brand in Japan and achieved a record top market share of 25.6% in the luxury market in 2011. Toyota aims to further distinguish the Lexus brand by continuing to attract new and affluent customers including customers that typically had purchased imported vehicles.

North America

The North American region is one of Toyota’s most significant markets. Toyota has reorganized its production structure and made improvements to its product lineup. In addition, Toyota is actively working to promote increased local operations independence in North America, in accordance with the Toyota Global Vision, announced in 2011.

In the North American region, of which the U.S. is the center, Toyota has a wide product lineup (excluding large trucks and buses), and sold 2,837 thousand vehicles on a consolidated basis in fiscal 2017. This represents approximately 32% of Toyota’s total unit sales on a consolidated basis. The U.S., in particular, is the largest market in the North American region, accounting for 87% of the retail sales of Toyota in such region. Sales figures for fiscal 2017 were 99.9% of those in the prior fiscal year.

Toyota commenced sales of the first-generation Prius hybrid model in North America in 2000. The Prius became Toyota’s bestselling model behind the Corolla and Camry, having gained particular support among customers concerned with the environment. Toyota introduced the first hybrid model under the Lexus brand, the RX400h, and the Highlander hybrid in 2005. Toyota continued further expansion of its environmentally friendly vehicles with the introduction of models such as the CT200h in 2011, the ESh and the Avalon HV in 2012, the NXh in 2014, the all-new Prius and the fuel cell vehicle MIRAI in 2015 and the all-new Prius PHV in 2016.

Since the introduction of the LS and ES models under the premium brand model, Lexus, in the United States in 1989, Toyota has expanded its Lexus sales with models including the GS, IS and RX. Toyota is seeking to steadily increase sales every year and achieved sales of 311 thousand units through the introduction of the new NX and RC models in 2014, 344 thousand units through the introduction of the new RX model in 2015 and 352 thousand units in 2016.

Toyota is continuing to revise its vehicle models and North American production capacities in response to changes in market conditions. Starting 2011, Toyota, instead of importing from Japan, began production of the Corolla at its Mississippi plant. In 2013, the production capacity at the Woodstock plant in Canada increased from 150 to 200 thousand units per year, and the production capacity at the Indiana plant also increased. Toyota commenced production of the RX450h hybrid model at its Cambridge plant in Canada in 2014. Through the business alliance with Mazda Motor Corporation, the production of Toyota brand light vehicles for sale mainly in North America began at Mazda’s plant in Mexico in June 2015. In addition, Toyota commenced production of the Lexus ES350 at its Kentucky plant for sale in the North America market starting in October 2015.

In terms of auto parts, Toyota increased production capacity of engine plants in Kentucky and Alabama in 2013 and 2014, respectively, to meet rising demand, and also increased production capacity of auto parts at its automatic transmission plant in West Virginia in 2014. Toyota plans to increase the production capacity of the Tacoma from 100,000 to 160,000 in Baja California, Mexico in 2018 and of the Highlander at its Indiana plant in 2019. In the meantime, consignment production that started at SIA in 2007 ceased in May 2016.

In order to further strengthen competitiveness in North America, Toyota will continue the realignment of North American manufacturing operations going forward. As part of this effort, a new plant will be built in Mexico in 2019 and production of the Corolla will be shifted from the plant in Canada to the new plant in Mexico. In addition to the plant in Mississippi, compact cars will also be produced at the new plant. Toyota will consider focusing its production of mid-sized vehicles in the plant in Canada, along with the plants in Indiana and Kentucky, by commencing production of mid-sized vehicles instead of the Corolla in Canada starting in 2019.

As for Toyota’s vehicle development in North America, the Toyota Technical Center spearheads the design, planning, and evaluation of vehicles and parts as to their ability to meet customer needs. Toyota will continue to promote self-reliance towards producing even better cars in the future.

In April 2014, Toyota decided to relocate its North American headquarters for manufacturing, sales and marketing, financial services and other functions to the city of Plano in northern Dallas, Texas. By unifying its North American operations, Toyota plans to promote collaboration and efficiencies across functions, position itself to deliver “ever-better cars” to customers and work towards realizing sustainable growth in the North America market. The relocation is expected to take place following the completion of the construction of the new headquarters by the end of 2017.

Europe

Toyota’s principal European markets are Germany, France, the United Kingdom, Italy, Spain and Russia. Toyota’s principal competitors in Europe are Volkswagen, Renault, Ford, Opel and Peugeot, as well as Korean manufacturers Hyundai and Kia.

While competition in Europe continues to intensify, Toyota has expanded its lineup of hybrid models to further strengthen its sales operations, and has entered into supply agreements with BMW and PSA for diesel engines and light commercial vehicles, respectively. As a result, Toyota launched the BMW engine-equipped Verso in early 2014 and started equipping the RAV4 with BMW engines beginning in 2015. Toyota also began sales of light commercial vehicles supplied by PSA from mid-2013. To strengthen its business setup so that it is less likely to be affected by exchange rates, Toyota launched RAV4 for Russia at OOO “TOYOTA MOTOR” (“TMR”) and C-HR for Europe at Toyota Motor Manufacturing Turkey Inc. (“TMMT”) in 2016 in the form of local production. In addition, Toyota is actively promoting production and sales measures that meet local demand by strengthening its value chain including used car dealerships, after-sales services and finance and insurance services.

In 2016, while sales in the United Kingdom fell slightly below that of previous year and the market in Russia continued to suffer from sluggish economic recovery, the European market expanded from the previous year as the Eurozone market recovered steadily due to its strong economy.

Sales in 2016 in Europe hit a new record due to higher sales in principal markets such as Germany, France, Italy and Spain from the sales expansion of hybrid core models including Yaris, as well as solid sales in Poland, Turkey and Israel, even though the sales in Russia remained around the same as the previous year. Toyota’s consolidated vehicle sales in Europe in fiscal 2017 was 925 thousand units, an increase of 9.5% from fiscal 2016.

Toyota has in the past increased European production in response to sales growth, establishing Toyota Motor Manufacturing (UK) Ltd. (“TMUK”) in 1992, TMMT in 1994 and Toyota Motor Manufacturing France S.A.S. (“TMMF”) in 2001. Further, in 2005, Toyota Peugeot Citroën Automobile Czech was formed as a result of a joint venture with PSA Peugeot Citroën as vehicle supply factories to Europe.

Toyota commenced production of the compact crossover C-HR by increasing the annual production capacity of TMMT from 150,000 units to 280,000 units (three-shift) in September 2016.

Toyota opened the Toyota Motor Manufacturing Russia plant in 2007 as a base for its manufacturing operations in the Russian market (integrated to sales entity TMR in March 2013). A two-shift production operation started in September 2012 and production capacity was increased from 20,000 units to 50,000 units per year. In August 2016, the production capacity was increased to 100.000 units and the production of the RAV4 commenced in addition to the Camry. Toyota commenced complete knock down, or CKD, production of the IMV Fortuner in Kazakhstan beginning in the spring of 2014.

In terms of auto parts, in October 2016, Toyota decided to produce hybrid transaxles and gasoline engines in Poland. Toyota will start production of hybrid transaxles in 2018 at Toyota Motor Manufacturing Poland (“TMMP”), a production plant for transmissions and engines, and add two gasoline engines — a 1.5L in 2017 and a 2.0L in 2019 — at Toyota Motor Industries, Poland (“TMIP”), a production plant for diesel engines. In concert with the enhancement of the gasoline engine business, the two companies were integrated in April 2017.

Asia

Toyota’s consolidated vehicle sales in Asia (including China) in fiscal 2017 was 1,588 thousand units, an increase of 18.1% from fiscal 2016.

In light of the importance of the Asian market that is further expected to grow in the long term, Toyota aims to build an operational framework that is efficient and self-reliant as well as a predominant position in the automotive market in Asia. Toyota has responded to increasing competition in Asia by making strategic investments in the market and developing relationships with local suppliers. Toyota believes that its existing local presence in the market provides it with an advantage over new entrants to the market and expects to be able to promptly respond to demand for vehicles in the region.

In this region, Toyota has been further strengthening its business foundations by improving its product line-up, expanding local procurement and increasing production capacities.

Toyota’s principal Asian markets are Thailand, India, Indonesia, Malaysia and Taiwan.

As part of Toyota’s efforts to expand business, Toyota Motor Thailand Co., Ltd. commenced production of hybrid vehicles such as the Camry hybrid in 2009. Toyota also started operation of its second Gateway plant in 2013, expanding production capacity by 80 thousand units in Thailand to 810 thousand units. In April 2015, Toyota implemented a full model change for IMV models manufactured at its Samrong Plant and Ban Pho Plant in Thailand.

In India, Toyota constructed a second plant with an annual production capacity of 70 thousand units and commenced production and sales of the Etios compact model designed specifically for the Indian market in 2010. Furthermore, Toyota increased production capacity in India during 2012 and 2013 to 210 thousand units. Moreover, Toyota began exporting the gasoline-fueled model of the Etios to South Africa from India in 2012.

In Indonesia, Toyota introduced the Etios and commenced operation of a second plant in Karawang in 2013 in order to meet the diverse customer needs and the expanding market. In 2014, Toyota increased the initial production capacity of 70 thousand units per year to 120 thousand units per year with the introduction of the Vios and the Yaris, and also began exporting the Vios to the Middle East. Toyota also constructed a passenger vehicle engine plant that commenced production in February 2016.

In Malaysia, Toyota began production of the Camry hybrid in March 2015, and is planning to reorganize its production structure there in 2019 by building a new plant dedicated to passenger vehicles while making the existing plant dedicated to commercial vehicles. In addition, in 2016 Toyota began production and sales of the Sienta in Taiwan in response to diversifying demands.

China

Toyota has been conducting operations in China through joint ventures, and its success in producing products that meet local demands and in establishing its sales and service network has significantly contributed to Toyota’s profits. Based on the firm business foundation that it has established, Toyota is conducting its operations with the aim of promoting further growth and increasing profitability through further development of its sales and service network and expansion of its product lineup.

In China, Toyota has been conducting joint ventures with two major partners. First, with respect to the joint venture with China FAW Group Corporation since Toyota first launched the Vios through the joint venture in 2002, Toyota has been producing and selling the Land Cruiser Prado, the Corolla, the Corolla HV, the Crown, the REIZ, the Coaster and the RAV4 in China. With regard to production capacity, in 2007, Toyota commenced production at the new Tianjin Teda plant, which has an annual production capacity of 200 thousand units, and in 2012, commenced production at a new factory of Sichuan FAW Toyota Motor Co., Ltd. in Changchun, China, which has an annual production capacity of 100 thousand units. Toyota also increased annual production capacity of the plant in Sichuan from 30 thousand units to 50 thousand units in the spring of 2015 to increase production of the Prado. Toyota plans to construct a new production line to replace an aging existing line at the Tianjin Teda plant in the middle of 2018. In addition, Toyota sought to improve production efficiency by closing small, aging production lines at the Changchun East Plant of Sichuan FAW Toyota Motor Co., Ltd. in December 2016 and the Xiqing Plant of Tianjin FAW Toyota Motor Co., Ltd. in February 2017.

GAC Toyota Motor Co., Ltd., a joint venture between Toyota and Guangzhou Automobile Group Co., Ltd., commenced sales of the Camry in 2006, followed by production and sales of the Yaris, the Highlander, the E’z, the Levin and the Levin HV. In 2006, it commenced production at the first plant with an annual production capacity of around 200 thousand units. In addition, a second plant commenced production in 2009 and Toyota plans to expand its annual production capacity to approximately 460 thousand units by completing construction of a third plant in 2017.

In terms of auto parts, in 2014, Toyota opened a plant in Changshu in Jiangsu, China for the production of the CVT as the first CVT plant outside of Japan and in September 2015, Toyota also began production of HV Transaxles at the CVT plant. Toyota also launched a plant to produce hybrid vehicle batteries in October 2015.

Total vehicle sales in the Chinese market increased 13% from 25.00 million in 2015 to 28.30 million in 2016. In this market, Toyota’s sales in 2016 were 1.22 million vehicles, up 8% from the previous year. In the passenger vehicle market (22.57 million units), Toyota had a market share of 6%. In 2016, favorable conditions in the less-than-1.6 liter market continued, and in particular sales of SUVs expanded as a result of customers’ value diversification. As for Toyota’s distribution network, Toyota has been expanding the distribution network for locally produced vehicles in cooperation with Chinese joint venture partners under Tianjin FAW Toyota Motor Co., Ltd. and Guanqi Toyota Motor Co., Ltd., and for imported vehicles, Toyota has also been expanding primarily the Lexus brand sales network. Toyota plans to further increase sales by expanding the number of dealers and the product lineup for both locally produced and imported vehicles. In addition, as the market in China develops, Toyota plans to promote the so-called “Value Chain” businesses such as used cars, services, financing and insurance.

South and Central America, Oceania, Africa and the Middle East

Toyota’s consolidated vehicle sales in South and Central America, Oceania, Africa and the Middle East (collectively, the “Four Regions”) in fiscal 2017 were 1,347 thousand units, a decrease of 15.5% from fiscal 2016.

In these regions, which are expected to become increasingly important to Toyota’s business strategy, Toyota aims to develop new products which meet the specific demands of each region, increase production and further promote sales.

Toyota’s principal markets in the Four Regions are Brazil in South and Central America, Australia in Oceania, South Africa in Africa and Saudi Arabia in the Middle East.

The core models in this region are global models such as the Corolla, IMV (the Hilux) and Camry. In order to increase production of IMVs, Toyota expanded the annual production capacity of its Argentina factory from 70 thousand units to 90 thousand units in 2011. Toyota further increased annual production capacity to 140 thousand units per year at the end of 2015 and is seeking to increase production to meet demand after 2016. In order to expand business in Brazil, Toyota constructed a new factory in Sorocaba with an annual production capacity of 70 thousand units, and in 2012, began production and sales of compact vehicles. Starting from the beginning of 2016, Toyota increased production capacity to 110 thousand units per year.

Further, Toyota began local production of the Fortuner in Egypt in 2012.

Moreover, in terms of auto parts, Toyota commenced production at a plant in Brazil for passenger vehicle engines in February 2016.

Toyota plans to end production of vehicles and engines at Toyota Motor Corporation Australia Ltd. by October 2017.

Production

Toyota and its affiliated companies produce automobiles and related parts and components through more than 50 overseas manufacturing companies in 28 countries and regions besides Japan. Toyota’s major manufacturing facilities include plants in Japan, the United States, Canada, the United Kingdom, France, Turkey, Thailand, China, Taiwan, India, Indonesia, South Africa, Australia, Argentina and Brazil. Daihatsu brand vehicles are produced at 4 factories in Japan and 2 manufacturing companies in 2 other countries of Indonesia and Malaysia. Hino brand vehicles are produced at 2 factories in Japan and 10 manufacturing companies in 10 countries, including Indonesia and Thailand. For a listing of Toyota’s principal production facilities, see “Information on the Company — Property, Plants and Equipment.”

In promoting a sustainable growth strategy, establishing a system capable of providing optimal supply of products in the global market is integral to Toyota’s strategy.

In line with its basic policy of manufacturing where there is demand and where Toyota is truly competitive, Toyota will make efficient use of and maximize capacity utilization at its existing plants to respond to the expanding market and will continue to focus on making efficient capital investments as necessary. Furthermore, Toyota will continue to place top priority on safety and quality in strengthening true competitiveness with the aim of achieving sustainable growth.

In 2016, 76.5% of Toyota vehicles sold in overseas markets were manufactured in overseas plants by Toyota and its unconsolidated affiliated companies. In 2016, approximately 75.9% of Toyota vehicles sold in North America were produced in North America. Of the vehicles sold in Europe in 2016, approximately 75.2% were produced in Europe. In fiscal 2017, Toyota produced on a consolidated basis 4,109 thousand vehicles in Japan and 4,866 thousand vehicles overseas, compared to 3,981 thousand vehicles in Japan and 4,595 thousand vehicles overseas in fiscal 2016.

The following table shows the worldwide vehicle unit production by Toyota for the periods shown. These production figures do not include vehicles produced by Toyota’s unconsolidated affiliated companies. The sales unit information elsewhere in this annual report includes sales of vehicles produced by these affiliated companies. Vehicles produced by Daihatsu and Hino are included in the vehicle production figures set forth below.


	Year Ended March 31,
	2013		2014		2015		2016		2017
Units Produced		8,698,454		9,032,165		8,929,887		8,575,899		8,975,509

Toyota closely monitors its actual units of sale, market share and units of production data and uses this information to allocate resources to existing manufacturing facilities and to plan for future expansions.

See “— Capital Expenditures and Divestitures” for a description of Toyota’s recent investments in completed plant constructions and for a description of Toyota’s current investments in ongoing plant constructions.

The Toyota Production System

Toyota pioneered the internationally recognized production system known as the “Toyota Production System.” The Toyota Production System is based on Toyota’s own concepts of efficient production of only necessary and quality products and efficient cost reduction, and has the following two principal elements:

•

“Just-in-Time,” and

•

“Jidoka.”

Just-in-Time is an approach in which necessary parts and components are manufactured and delivered in just the right quantity in a timely manner just as they are needed. This allows Toyota to maintain low levels of inventory while maintaining operating efficiency.

Jidoka is a production concept which involves immediate stop of work when problems arise in the production line in order to stop the production of defective items from being passed on to subsequent stages of the process, and therefore making quality assurance an inherent part of the production process. To achieve this, Toyota’s equipment is designed to detect and highlight abnormalities and to stop whenever abnormalities occur. Toyota also authorizes its machine operators and other members of its production team to stop production whenever they note anything suspicious. This helps Toyota to build quality into the production process by avoiding defects and preventing the waste that would result from producing a series of defective items.

Toyota believes that the Toyota Production System allows it to achieve mass-production efficiencies even in high-mix, low-volume production. This belief gives Toyota the flexibility to respond to changing consumer demand without significantly increasing production costs. While the Toyota Production System remains the basis of Toyota’s automobile production, the system has been expanded for use in Toyota’s parts production, logistics and customer service activities as well.

Through the Toyota Production System, issues are identified and analyzed at the actual site, the entire production process is made visible and production efficiency as well as product quality are improved through the application of measures to address the sources of problems. As one method to implement these measures, Toyota utilizes sophisticated information technologies to improve each step of its vehicle development process, from product planning to commencement of mass-production. These technologies are intended to enhance flexibility, simplification, quality, cost competitiveness and speed. Specifically, detailed virtual assembly and other simulations of manufacturing processes are conducted on computers for a new vehicle or new production equipment/systems before a prototype is made. An actual prototype is made only after defects and related issues have been identified and resolved by computer simulation, thereby minimizing the time required for rebuilding prototypes and significantly shortening the time required before starting mass production. Moreover, this system is used to prepare virtual factories and other visual aids in order to facilitate training and communication at overseas plants and enable the efficient transfer of necessary technology and skills.

In order to strengthen manufacturing and promote localization of overseas production, Toyota established the Global Production Center (“GPC”) in July 2003 as a development and training center for global human resources. The GPC is intended to introduce local managers to the Toyota methodology, allowing them to train their subordinates while managing locally. GPC develops simple, easy-to-understand and efficient training systems for the development of explicit knowledge. One characteristic of the GPC is that managers and supervisors, new hires and experienced workers can all receive common skill-training. GPC’s training system involves a pre-training phase where trainees learn basic skills and discover the skills that they must acquire through image training. This is followed by various steps, from basic skill training and elemental task training to standard task training, which ensures a step-by-step training. The fruits of this training method are reduced training time, higher levels of achievement and the efficiency of training. Since January 2006, Toyota has opened regional GPCs in North America, Europe and Asia. In each region, Toyota commenced courses where trainees from each department are trained by local trainers to become trainers themselves.

In April 2015, the GPC was reorganized into the TPS Promotion Center. In concert with each in-house company, the TPS Promotion Center inherited and utilizes the way of thinking and methods of TPS (Toyota Production System) in order to contribute to “challenge, growth and creation of solid foundation” that support all of Toyota. In order to improve its overall manufacturing abilities, Toyota is also comprehensively promoting TPS, sound and efficient launches of global vehicle models, activities centering on improving production, engineering and manufacturing methods at each manufacturing process, reinforcement of infrastructure, fostering highly skilled workers, development of best practices and strengthening maintenance power and systematic structures, as well as has been working to resolve issues relating to the entire supply chain, including distributors and technical divisions.

Toyota is working company-wide towards the production of “ever-better cars.” The production engineering and manufacturing divisions are developing Toyota’s own innovative production systems, equipment and processing technologies and deploying them in production lines in order to produce vehicles that create excitement, joy and fun for customers through truly competitive manufacturing methods.

Distribution

Toyota’s automotive sales distribution network is the largest in Japan. As of March 31, 2017, this network consisted of 280 dealers employing approximately 32 thousand sales personnel and operating approximately 4.7 thousand sales and service outlets. Toyota owns 15 of these dealers and the remainder is independent.

Toyota believes that this extensive sales network has been an important factor in its success in the Japanese market. A large number of the cars sold in Japan are purchased from salespersons who visit customers in their homes or offices. In recent years, however, the traditional method of sales through home visits is being replaced by showroom sales and the percentage of automobile purchases through showrooms has been gradually increasing. Toyota expects this trend to continue, and accordingly, is working to improve its sales activities such as customer reception and meticulous service at showrooms to increase customer satisfaction.

Sales of Toyota vehicles in Japan are conducted through four sales channels — “Toyota,” “Toyopet,” “Corolla” and “Netz.” In addition, Toyota introduced the Lexus brand to the Japanese market in August 2005, and currently distributes the Lexus brand vehicles through a network of 168 sales outlets in order to enhance its competitiveness in the domestic luxury automobile market. The following table provides information for each channel as of March 31, 2017.


	Dealers
Channel	Toyota Owned		Independent		Total		Market Focus
Toyota		4		45		49	Luxury channel for Toyota brand vehicles
Toyopet		4		48		52	Leading channel for the medium market
Corolla		4		70		74	Volume retail channel centering on compact models
Netz		3		102		105	Sales channel targeting customers with new values for the 21^st century


Brand					Sales Outlets		Market Focus
Lexus						168	Premium brand

Outside Japan, Toyota vehicles are sold through approximately 170 distributors in approximately 190 countries and regions. Through these distributors, Toyota maintains networks of dealers. The chart below shows the number of Toyota distributors as of March 31, 2017 by country and region:


Country/Region	Number of Countries		Number of Distributors
North America		3		5
Europe		53		30
China		1		4
Asia (excluding China)		19		12
Oceania		17		15
Middle East		16		14
Africa		55		48
Central and South America		30		40

Improving Efficiency

Toyota is working on the following to create a corporate structure allowing for efficient development, production and sales that can respond flexibly to changes in the external environment:

•

working with suppliers as one team to dramatically increase the efficiency of development;

•

creating a production structure that can better withstand fluctuations in demand and currency exchange rates; and

•

strengthening sales capabilities in line with local conditions.

Toyota also plans to improve profitability and enhance operating efficiency by continuing to pursue aggressive cost reduction programs, including:

•

improving product development and production efficiencies through the re-integration and improvement of vehicle platforms and power trains as well as through the development of electronic platforms which organize electronic devices of vehicles as a package and standardize electronic structure and infrastructure;

•

implementing Ryohin-Renka Cost Innovation (“RR-CI”) activity, which aims for the elimination of waste in all processes from design to production while ensuring the reliability and safety of each part;

•

applying advanced information technologies to improve efficiency throughout the product development and production processes;

•

promoting global reinforcement of the supply base under an open and fair purchasing policy;

•

streamlining production systems; and

•

improving the efficiency of domestic and international distribution.

Toyota is further improving production efficiency by installing more versatile equipment and systems, modifying vehicle body designs to allow for a greater variety of models on each production line and sharing more parts among vehicles, not simply among different models but also among different platforms.

In April 2012, Toyota announced a new development framework, the TNGA, which reconciles sweeping advances in product appeal with cost reductions. The new framework sets forth an architecture that incorporates not only the three fundamental vehicle functions of moving, turning and stopping, but also ergonomics such as driving position as well as freedom of design. Toyota plans to efficiently develop cars with high basic-performance attributes by developing parts and modules based on this architecture. The TNGA provides for handling multiple models simultaneously in grouped development projects that will increase the sharing of parts and core vehicle components. This sharing, carried out in cooperation with suppliers, will result in lowered costs, thereby allowing developmental manpower and funds to be reinvested in R&D to meet consumer preferences and R&D to meet regional needs, resulting in further product improvement.

By April 2013, Toyota established systems to rapidly promote the TNGA and carried out product development under this new way of doing business. As a result, Toyota realized high basic performance and marketability in the Prius that was introduced in Japan in December 2015. Toyota has rolled out, and plans to continue to roll out, the results of such development to other vehicles as well.

Enhancing Vehicle Functionality and Realizing a Smart Mobility Society

Toyota is striving to realize a smart mobility society in which people feel at ease and excited about being in cars and in everyday life by connecting vehicles, people and communities in order to meet the needs of rapidly changing societies, including the falling birth rate and aging populations in developed nations and an increasingly diverse range of energy sources, among others. In particular, Toyota aims to contribute to an affluent lifestyle

that offers peace of mind by enhancing vehicle functionality that will increase the attractiveness of vehicles and the excitement of driving, enhancing transport systems that make being in cars more comfortable and more environmentally friendly, and realizing Smart Communities that aim for optimization of local energy use and establishment of a low-carbon emission transportation system.

Enhancing Vehicle Functionality — Information Service Functions

To Toyota, enhancing vehicle functionality means advancing information service functions that integrate vehicles with telecommunication systems, and driving assistance functions that use communication technologies and sensor technologies to create vehicles with intelligent features. Information service functions can improve convenience and enrich the driving experience through information communication technologies that add new functions that are connected to the basic vehicle functions of “running, turning and stopping.” Examples include the following:

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Toyota is advancing enhancement of car navigation systems, such as car parking maps that display detailed information inside car parks, as well as the VICS system (Vehicle Information and Communication System) that provides real-time road traffic information such as congestion, accidents, traffic restrictions and parking. Car navigation systems play an increasingly important role in providing drivers with various types of information on safety, smooth traveling, comfort and convenience.

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T-Connect/G-BOOK is the latest information network service that merges the latest network technologies and car multimedia a step ahead of the arrival of the ubiquitous network society. T-Connect/G-BOOK provides various types of information useful for driving, as well as safety and security services that detect unusual conditions in the vehicle, thereby supporting a lifestyle with one’s vehicles anytime and anywhere through a network. In 2005, Toyota started G-BOOK ALPHA and G-Link for Lexus, each with additional various features including traffic congestion forecast service. In 2007, Toyota launched G-BOOK mX, which in addition to the well-received conventional safety and security services of G-BOOK, introduced even more useful car navigation services such as “Map-on-Demand” — the world’s first technology for automatically updating map data — and “Probe Communication Traffic Information” that provides drivers with highly precise information on traffic congestion. In 2014, Toyota launched T-Connect, which in addition to conventional telematics services, provides new services and functions through the distribution of applications to on-board device, as well as destination and other information searches through the adoption of a voice recognition system.

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HELPNET is an emergency dial system that, in the event of a traffic accident or medical emergency, transmits information required for emergency rescue, such as present-location data and vehicle details, either automatically or with the touch of a button. It immediately contacts police and fire departments through the HELPNET Operation Center. This system is integrated into T-Connect/G-BOOK and G-Link to improve the quality of services. HELPNET shortens the time taken to report following an emergency situation, which contributes to decreasing the number of traffic accident fatalities and reducing the level of impact, while at the same time aiming to prevent secondary disasters and ease traffic congestion.

In addition to the above, Toyota also operates a Japanese-language web portal for automobile information, GAZOO.com. The name “GAZOO” originates from the Japanese word gazo, meaning images. GAZOO was established as an Internet membership service linking Toyota, its national dealer network and GAZOO members, and has provided information on new and used Toyota vehicles and related services, as well as online shopping services. GAZOO later provided information on not only Toyota vehicles but also other automakers, as well as offering a rich blog feature as a social networking portal site on automobiles. In addition, GAZOO has exhanced its contents line-up through which Toyota aims to expand the fan base of car enthusiasts by promoting activities where customers can experience in real life the enjoyment that cars offer, such as TOYOTA GAZOO Racing. GAZOO is currently in charge of all Toyota motor sports activities (such as WRC, WEC and SuperGT). Toyota utilized its GAZOO technology that links the customers, distributors and Toyota to further expand its automobile information service by launching the G-BOOK telematics service in Japan in fall 2002 and G-Link, which is a service exclusive to Lexus, in August 2005. Toyota also offers a theft detection system, vehicle tracking service

and operator support service as standard services to enhance services aiming to provide safety, security and comfort for T-Connect/G-BOOK and G-Link users in their lifestyle using vehicles. With G-BOOK mX announced in April 2007, Toyota started offering services that allow drivers to use more convenient navigation systems such as “Map-on-Demand” — the world’s first technology for automatically updating map data. In addition, Toyota has further strengthened its linkage between GAZOO and G-BOOK and has, for example, allowed map information searched on a blog on GAZOO.com to be used on G-BOOK, further maturing as a comprehensive telematics service. In Japan, Toyota is seeking to promote the use of the T-Connect/G-BOOK by equipping all Lexus models and certain Crown models with the T-Connect/G-BOOK as a standard feature. Toyota has also licensed its T-Connect/G-BOOK technology to certain other competitors in Japan. Toyota is applying the technology and experience which it has accumulated in Japan to regions outside Japan; G-BOOK services were introduced in China in March 2009, and unique telematics services in the United States were launched in August 2009. In addition, Toyota began offering telematics services for smartphones in December 2010 in Japan, and began to offer the same service in Thailand in March 2012 and the Middle East from January 2014 (UAE, Qatar and Lebanon in January 2014, Saudi Arabia in August 2014, Bahrain in October 2014 and Kuwait in January 2015).

In addition, in March 2004, Toyota launched its CRM (Customer Relationship Management) system called e-CRB (evolutionary Customer Relationship Building) in Thailand. e-CRB builds on a technology cultivated through the development of Gazoo and G-BOOK and offers its customers a variety of services such as providing information on new vehicles, accepting requests for brochures and estimates and notifying customers when it is time for maintenance by keeping track of the vehicle’s maintenance history and mileage. In addition, e-CRB offers an advanced operation system that can be utilized comprehensively at dealers including new and used cars and services. Toyota is promoting e-CRB in countries such as China, Thailand, Australia, India and Brazil where steady progress has been made as the service-in ratio has increased. In 2013, Toyota introduced the next-generation e-CRB that adopts tablet terminals (portable information processing terminals) in China. These tablet terminals are supporting the improvement of customer satisfaction at points of sale and in after-sale service.

Toyota also introduced a system called Sales Logistics Integrated Management (“SLIM”) in Guangzhou, China and India. By utilizing real sales information and linking with production and distribution, Toyota is able to realize the Just-in-Time production system of producing and delivering only the number of vehicles that have been sold. SLIM has been recognized to significantly increase the freshness of inventory and improve cash flow.

In September 2010, Toyota announced its smart-grid initiatives, which are intended to demonstrate efficient energy use toward the realization of a low-carbon and energy-saving society. By utilizing technology cultivated through the Internet and telematics services mentioned above, Toyota developed the Toyota Smart Center (“TSC”) that optimally controls electricity and links EV (electric vehicles) and PHV (plug-in hybrid vehicles) with homes, and conducted a demonstration project in Rokkasho Village in Aomori aimed at reducing overall CO2 emissions and users’ electricity costs. In addition, in order to develop a global platform of the TSC, Toyota announced a partnership with Microsoft Corp. in April 2011 and a partnership with Salesforce.com in May 2011. Toyota plans to utilize the cloud technology of these two companies in its Internet and telematics services to build a framework for TSC’s global implementation. In January 2012, Toyota began eConnect and “TOYOTA friend” services for PHV. In May 2013, Toyota utilized the latest version of Microsoft’s SharePoint to comprehensively redesign GAZOO, the automobile information portal site. Toyota aims to offer new services, achieve better vehicle quality and enhance product attractiveness as well as contribute further to society by utilizing the vehicle information, road conditions and other parameters collected via telematics services and stored at the TSC. With regard to contribution to society, Toyota began offering the Big Data Traffic Information Service in June 2013, through which traffic information, statistics and other related information are provided to local governments, universities and businesses to support traffic flow improvement and assist disaster prevention measures. In December 2016, Toyota launched the TC Smartphone Navigation free-of-charge to users, including those other than Toyota users, to provide readily usable route history maps. Toyota plans to continue to work with new information technologies and the IT industry to establish a framework for TSC’s global implementation and to realize a mobility society of the future.

In 2016, Toyota has been working actively on “connected car technology” and alliances with other companies for effective vehicle data utilization to “make ever-better cars” and for safer and securer “connected” service. In January 2016, Toyota announced a “connected vehicle framework” to increase installation of a Data Communication Module (DCM) into a broader range of its vehicles starting in the United States from 2017. In April 2016, Toyota established a new company, “Toyota Connected, Inc.,” in the United States to consolidate and analyze information collected from vehicles and to develop new products, and thereby promoting “making ever-better cars” through utilizing big data. In addition, Toyota is collaborating with insurance companies on developing insurance services as well as tying up with a sharing service company, thereby actively advancing research for new services and the realization of a mobility society utilizing big data.

As a further engagement in the insurance industry, Toyota established Toyota Insurance Management Solutions USA, LLC (“TIMS”), a new U.S. telematics car insurance services company, to promote analysis of big data and development of algorithms. TIMS provides telematics insurance services best suited to Toyota’s customers by consolidating Toyota’s data, financing and insurance knowhow.

In November 2016, based on the proliferation and popularity of mobility services such as car-sharing, Toyota started to establish the Mobility Services Platform (“MSPF”), which has various functions to support mobility services, leveraging the TSC, the Toyota Big Data Center, and financial services. MSPF is a platform that aggregates and covers individual business functions, such as vehicle management systems and leasing programs, that Toyota developed and offered to mobility service providers such as ridesharing operators when working together with them. As one example of the functions that MSPF offers, to enhance a MSPF-based car-sharing, Toyota developed the smart key box (“SKB”) that enables users to lock and unlock doors and to start the engine with their smartphone — thus providing a safer and more secure way of lending and renting cars. Using the MSPF and SKB, Toyota started a pilot program in collaboration with Getaround, a venture company providing car-sharing services targeted at individuals in the United States, in March 2017 in San Francisco, California.

Toyota and Uber Technologies, Inc. have entered into a memorandum of understanding to explore collaboration with respect to ridesharing. As part of the partnership, the companies created new leasing options in which car purchasers can lease vehicles with connected terminals from Toyota Financial Services and cover their payments through earnings generated as Uber drivers.

Toyota and Japan Federation of Hire-Taxi Associations have entered into a memorandum of understanding to explore areas for collaboration, so as to develop and introduce the “Japanese taxi of the future.” Through use of taxis to collect and analyze of information concerning the road traffic environment, and applying those results to the development of the Mobility Teammate Concept, which embodies Toyota’s vision of automated driving, Toyota and the Japan Federation of Hire-Taxi Associations will continue to be important partners in helping to develop Japanese taxis into the “world’s safest, most pleasant, world-class public transportation service” and to strengthen the Japanese transportation infrastructure.

Enhancing Vehicle Functionality — Driving Assistance Functions

Toyota’s driving assistance functions offer functions that assist drivers with an aim to lessen the burden of driving, enhance safety and provide to everyone the pleasure of driving. Toyota has commercialized enhancements to various functions that assist the driver in sensing external information, avoiding danger and making appropriate maneuvers. Examples of driving assistance functions include the following:

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VDIM (Vehicle Dynamics Integrated Management) is a system that constantly monitors the driver’s operations and the vehicle’s situation and centrally manages the engine, steering mechanisms and brakes. By stabilizing the vehicle before the driver loses control of the vehicle, VDIM achieves a high level of ‘active safety’ and improves driving performance, consisting namely of running, turning and stopping.

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“Pre-collision System” is a system that perceives possibilities of a crash with obstacles, cars in front or crossing pedestrians through a sensor installed in a vehicle. If a collision seems likely, it proceeds to activate warnings as well as brake assistance, which aids the driver’s operation of the brake, or the automatic braking system, which aids in avoiding the collision altogether or mitigates any damage.

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“Radar Cruise Control (with all-speed tracking function)” allows the vehicle to keep a constant distance between itself and the preceding vehicle within a speed range from zero to a preset speed, automatically slowing down and stopping if necessary to avoid collision. When the car in front speeds up, it allows the driver to accelerate.

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“Lane Departure Alert” is a system that uses a camera to detect white or yellow lane markers while driving. The system warns the driver with a buzzer and displays if it detects possible deviation in order to assist in avoiding a collision accident resulting from deviation. In addition, “Lane Keeping Assist System,” a system that assists the driver’s operation of the steering wheel with electric power steering in order to help keep the vehicle traveling between lane markers, has been developed.

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“Automatic High Beam” detects the headlights of oncoming vehicles or taillights of vehicles running in front and adjusts the headlight range, automatically switching to low beam or high beam, in order to avoid dazzling the visions of the drivers with bright lights, as well as to secure the drivers’ forward visions at night.

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“Blind Spot Monitor” is a system which aims to reduce accidents by alerting the driver to other vehicles in the driver’s blind spot diagonally behind the driver’s seat with sound and visual display in the side mirrors while changing lanes.

From these driving assistance functions, in 2015 Toyota commercialized the Toyota Safety Sense, a collision avoidance support package that includes the Pre-collision System, the Lane Departure Alert and the Automatic High Beam. By the end of 2017, Toyota plans to install this package on nearly all models sold in Japan, the United States and Europe at an affordable price aimed at widespread adaption.

Enhancing Transport Systems

Enhancing transport systems requires taking a general approach that addresses various factors across a wide scope that are pertinent not only to vehicles but also roads, people and public transport systems in order to ensure smooth and efficient movement of people and vehicles and to build a safe transportation environment. In addition to VICS and ETC (Electronic Toll Collection System), which are already standard in Japan, the “Cooperative ITS,” which combines cutting edge IT and vehicle technology, is in development and has begun to be partially implemented.

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The operation of “ETC2.0” commenced in 2009 and corresponding products are available for purchase. Mainly for use on highways, this service provides drivers with information related to road traffic and safe driving that is transmitted from road infrastructures to car navigation systems via video and voice.

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In the summer of 2011, Toyota introduced products corresponding to the driving safety support system, “DSSS,” which the National Police Agency has started operating. Mainly for use on general roads, this system supports safe driving, including by preventing the driver from overlooking red lights, by transmitting traffic control information (such as traffic lights and signs) and peripheral information from road infrastructures to automobiles.

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Aiming at further reducing accidents, “ITS Connect,” a driving safety support system that uses a dedicated ITS frequency of 760 MHz, was introduced in the fall of 2015. Through direct and continuous exchange of information between vehicles and the road and among vehicles, this system aims to mitigate accidents near intersections, which have been difficult to mitigate to date. The system also includes Communicating Radar Cruise Control features, which supports smooth acceleration and

deceleration when following behind another vehicle. Toyota aims at the realization of automated driving in which all drivers can move safely, smoothly and freely by integrating ITS technology and vehicle control technology.

Toyota is committed to developing new ITS products. Toyota believes that intelligent transport systems will become an integral part of its overall automotive operations and enhance the competitiveness of its vehicles. As familiarity with and demand for ITS products grow, Toyota expects an increasing number of ITS products to become commercially available and achieve greater acceptance each year.

Smart Communities

In April 2010, Toyota City was selected as a “Model Region for Next-Generation Energy Systems” by the Ministry of Economy, Trade and Industry. Toyota since joined the “Toyota City Low-Carbon Society Verification Council” (established in August 2010), and carried out experiments relating to the “Optimization of Local Energy Use in Households and Destinations (commercial and public facilities)” and “Establishment of a System for Low-Carbon Emission Transportation” until March 2015. As a way of building on the results of such experiments, starting in October 2014, Toyota launched an experimental ultra-compact electric vehicle sharing program in Grenoble, France, together with the city of Grenoble and local companies, as well as in Tokyo from April 2015. It also launched an experimental ultra-compact electric vehicle program for tourism using a Toyota developed car-sharing system in Okinawa from January 2016. An experimental car-sharing program was also implemented in Okayama City from October through December 2016. Furthermore, in Toyota City and Okinawa, local companies and organizations began operating car-sharing business in April 2017.

In February 2013, Toyota, together with Toyota affiliated companies, established the “F-Grid Ohira, Miyagi Limited Liability Partnership,” a smart community business which operates the “F-Grid” in the Northern Sendai Industrial Park in the village of Ohira, Miyagi. The Partnership began supplying electricity and heat to partners in the industrial park in April 2013. This business aims to contribute to “creating a safe and secure community with the community and the industrial park working as one,” “revitalizing local industry” and “revitalizing the community.” Toyota believes that the elemental technologies developed through these experiments and businesses will help in the creation of new systems for society that meet differing social environments and municipal needs, not just in Japan but around the world, in both developed and emerging countries, and will play a role in the creation of energy and transportation infrastructure to help spread next-generation eco-cars.

Research and Development of, and Collaboration Regarding, Connected Platforms

With respect to research and development of platform technologies to make connected services a reality in the future, Toyota is moving forward with the following research and development activities related to in-vehicle system technologies as well as telecommunication and data processing system technologies by means of both open collaboration led by a nonprofit organization as well as collaboration with certain other companies.

For in-vehicle system technologies, a collaborative open source project is underway to develop an operating system for in-vehicle multimedia telematics systems based on the open source software Linux, but incorporating in-vehicle requirements. Named Automotive Grade Linux, the operating system is being developed in collaboration with other auto companies as well as companies that design a manufacture the hardware and software for devices that make up in-vehicle systems, under the initiative of Linux Foundation, an incorporated nonprofit organization. With respect to functions that link in-vehicle multimedia system to smartphones, Toyota established a nonprofit organization called Smart Device Link Consortium in November 2016, jointly with Ford and certain other auto companies, to develop specifications for in-vehicle multimedia systems and their related platform software.

For telecommunication and server system technologies, Toyota is developing a “global mobile communications platform,” which allows for globally integrated management of the telecommunication

environment, in collaboration with KDDI Corporation. Toyota is also conducting research and development jointly with the NTT Group in the areas of data processing system technologies and mobile communications technologies that will enable the processing of big data obtained from vehicles in the future.

Financial Services

Toyota’s financial services include loan programs and leasing programs for customers and dealers. Toyota believes that its ability to provide financing to its customers is an important value-added service. In July 2000, Toyota established a wholly-owned subsidiary, Toyota Financial Services Corporation (“TFSC”), to oversee the management of Toyota’s finance companies worldwide, through which Toyota aims to strengthen the overall competitiveness of its financial business, improve risk management and streamline decision-making processes. Toyota has expanded its network of financial services, in accordance with its strategy of developing auto-related financing businesses in significant markets. Accordingly, Toyota currently operates financial services companies in 36 countries and regions, which support its automotive operations globally.

Toyota’s revenues from its financial services operations were ¥1,823.6 billion in fiscal 2017, ¥1,896.2 billion in fiscal 2016 and ¥1,661.1 billion in fiscal 2015. In fiscal 2016, although economic weakness was seen in areas such as Asia, including China, recovery in the United States, among other places, continued and the balance of loan receivables increased steadily. In fiscal 2017, although uncertainties related to political trends emerged primarily in Europe and North America, Toyota’s business remained solid in areas where Toyota’s financial services business is operated. In such an environment, as a result of Toyota’s continued collaboration with dealers in various countries and regions and efforts to expand products and services that meet customer needs, Toyota’s share of financing provided for new car sales of Toyota and Lexus vehicles in regions where TFSC operates remained at a high level of approximately 35% and the balance of loan receivables, mainly in the United States, continued to increase steadily. Meanwhile, Toyota is making efforts to provide both its customers and dealers with stable financial services by diversifying its funding methods using such means as commercial paper, corporate bonds, bank borrowings, ABCP (Asset Backed Commercial Paper) and ABS (Asset Backed Securities). Toyota continued to perform detailed credit appraisals and serve customers by monitoring bad debt and loan payment extensions, and the percentage of credit losses remained low, at 0.37% and 0.36% in fiscal years 2017 and 2016, respectively. Toyota continues to work towards improving its risk management measures in connection with credit and residual value risks.

Toyota Motor Credit Corporation is Toyota’s principal financial services subsidiary in the United States. Toyota also provides financial services in 35 other countries and regions through various financial services subsidiaries, including:

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Toyota Finance Corporation in Japan;

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Toyota Credit Canada Inc. in Canada;

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Toyota Finance Australia Ltd. in Australia;

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Toyota Kreditbank GmbH in Germany;

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Toyota Financial Services (UK) PLC in the United Kingdom;

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Toyota Leasing (Thailand) Co., Ltd. in Thailand; and

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Toyota Motor Finance (China) Co., Ltd. in China.

Toyota Motor Credit Corporation provides a wide range of financial services, including retail financing, retail leasing, wholesale financing and insurance. Toyota Finance Corporation also provides a range of financial services, including retail financing, retail leasing and credit cards. Toyota’s other finance subsidiaries provide services including retail financing, retail leasing and wholesale financing.

In June 2016, Toyota established Toyota Financial Services Portugal, Limited, a Portuguese branch of Toyota Kreditbank GmbH, and started its operation in March 2017.

Net finance receivables for all of Toyota’s dealer and customer financing operations were ¥1,520,877.2 billion as of March 31, 2017, representing an increase of 4.5% as compared to the previous year. The majority of Toyota’s financial services are provided in North America. As of March 31, 2017, 59.1% of Toyota’s finance receivables were derived from financing operations in North America, 11.3% from Asia, 10.3% from Europe, 8.1% from Japan and 11.2% from other areas.

Approximately 50% of Toyota’s unit sales in the United States during fiscal 2017 included a finance or lease arrangement with Toyota. Because the majority of Toyota’s financial services operations are related to the sale of Toyota vehicles, a decrease in vehicle unit sales may lead to a contraction of Toyota’s financial services operations.

The worldwide financial services market is highly competitive. Toyota’s competitors in retail financing and retail leasing include commercial banks, credit unions and other finance companies. Commercial banks and other automobile finance subsidiary companies serving their parent automobile companies are competitors of Toyota’s wholesale financing activities. Competitors in Toyota’s insurance operations are primarily national and regional insurance companies.

For information on Toyota’s finance receivables and operating leases, please see “Operating and Financial Review and Prospects — Operating Results — Financial Services Operations.”

Retail Financing

Toyota’s finance subsidiaries acquire new and used vehicle installment contracts primarily from Toyota dealers. Installment contracts acquired must first meet specified credit standards. Thereafter, the finance company retains responsibility for installment payment collections and administration. Toyota’s finance subsidiaries acquire security interests in the vehicles financed and can generally repossess vehicles if customers fail to meet their contractual obligations. Almost all retail financings are non-recourse, which relieves the dealers from financial responsibility in the event of repossession. In most cases, Toyota’s finance subsidiaries require their retail financing customers to carry automobile insurance on financed vehicles covering the interests of both the finance company and the customer.

Toyota has historically sponsored, and continues to sponsor, special lease and retail programs by subsidizing below market lease and retail contract rates.

Retail Leasing

In the area of retail leasing, Toyota’s finance subsidiaries acquire new vehicle lease contracts originated primarily through Toyota dealers. Lease contracts acquired must first meet specified credit standards after which the finance company assumes ownership of the leased vehicle. The finance company is generally permitted to take possession of the vehicle upon a default by the lessee. Toyota’s finance subsidiaries are responsible for contract collection and administration during the lease period. The residual value is normally estimated at the time the vehicle is first leased. Vehicles returned to the finance subsidiaries at the end of their leases are sold by auction. For example, in the United States, vehicles are sold through a network of auction sites as well as through the Internet. In most cases, Toyota’s finance subsidiaries require lessees to carry automobile insurance on leased vehicles covering the interests of both the finance company and the lessee.

Wholesale Financing

Toyota’s finance subsidiaries also provide wholesale financing primarily to qualified Toyota dealers to finance inventories of new Toyota vehicles and used vehicles of Toyota and others. The finance companies acquire security interests in vehicles financed at wholesale. In cases where additional security interests would be required, the finance companies take dealership assets or personal assets, or both, as additional security. If a dealer defaults, the finance companies have the right to liquidate any assets acquired and seek legal remedies.

Toyota’s finance subsidiaries also make term loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, other dealership assets and/or personal assets of the dealers.

Insurance

Toyota provides insurance services in the United States through Toyota Motor Credit Corporation’s wholly-owned subsidiary, Toyota Motor Insurance Services, Inc. (“TMIS”) and its wholly-owned insurance company subsidiaries. Their principal activities include marketing, underwriting and claims administration. TMIS also provides coverage related to vehicle service agreements and contractual liability agreements through Toyota dealers to customers. In addition, TMIS also provides coverage and related administrative services to affiliated companies of Toyota Motor Credit Corporation. Toyota dealers in Japan and in other countries and regions also engage in vehicle insurance sales.

Other Financial Services

Toyota Finance Corporation launched its credit card business in April 2001 and began issuing Lexus credit cards in 2005 when the Lexus brand was introduced in Japan. As of March 31, 2017, Toyota Finance Corporation has 14.9 million card holders (including Lexus credit card holders).

All Other Operations

In addition to its automotive operations and financial services operations, Toyota is involved in a number of other non-automotive business activities. Net sales for these activities totaled ¥1,321.0 billion in fiscal 2017, ¥1,177.3 billion in fiscal 2016 and ¥1,255.7 billion in fiscal 2015.

Housing

Toyota established its subsidiary Toyota Housing Corporation in April 2003 and has transferred to it product planning and sales operations related to the manufacture and sale of housing. Furthermore, in order to quickly and accurately grasp clients’ needs and to plan, develop and sell products on a timely basis, in April 2008, Toyota transferred the product development operation to Toyota Housing Corporation. In October 2010, Toyota spun-off its housing operations (project planning, technology development and manufacturing) through a statutory demerger and integrated them into Toyota Housing Corporation. Toyota believes that in the vastly changing housing market environment, the integration of the development, manufacture and sales functions will expedite decision making and lead to flexible business operations that will enable Toyota to better respond to the needs of even more customers. In March 2005, Toyota, together with institutional investors, agreed to jointly invest in Misawa Home Holdings, Inc. (“Misawa”; renamed Misawa Homes Co., Ltd.) pursuant to its request for assistance in its rehabilitation. In April 2010, determining that a stronger collaboration with Misawa would be desirable in order to achieve further growth in the difficult operating environment of the housing industry, Toyota Housing Corporation agreed to purchase Misawa shares from an institutional investor. In addition, Toyota transferred ownership of Misawa to Toyota Housing Corporation in October 2010. Through these activities, Toyota has strengthened the housing business of both companies.

Information Technology

See “— Enhancing Vehicle Functionality and Intelligent Transport Systems” for a description of Toyota’s information technology.

Governmental Regulation, Environmental and Safety Standards

Toyota is subject to laws in various jurisdictions regulating the levels of pollutants generated by its plants. In addition, Toyota is subject to regulations relating to the emission levels, fuel economy, noise and safety of its

products. Toyota has incurred significant costs in complying with these laws and regulations and expects to incur significant compliance costs in the future. Toyota’s management views leadership in environmental protection as an important competitive factor in the marketplace.

Vehicle Emissions

Japanese Standards

The Air Pollution Control Law of Japan and the Road Vehicle Law and the Law Concerning Special Measures for Total Emission Reduction of Nitrogen Oxides from Automobiles in Specified Areas regulate vehicle emissions in Japan. In addition, both the Noise Regulation Law and the Road Vehicles Law provide for noise reduction standards on automobiles in Japan. Toyota’s vehicles manufactured for sale in Japan comply with all Japanese exhaust emission and noise level standards.

U.S. Federal Standards

The federal Clean Air Act directs the Environmental Protection Agency (“EPA”) to establish and enforce air quality standards, including emission control standards on passenger vehicles, light-duty trucks and heavy-duty vehicles. The EPA decided in February 2000 to adopt more stringent vehicle emission and fuel economy standards applicable to passenger vehicles and light-duty trucks produced in model years 2004 and beyond. In the standards adopted for model years 2004 and beyond, manufacturers must guarantee that their vehicles meet the requirements for ten years or 120 thousand miles, whichever occurs first. Manufacturers are not permitted to sell vehicles in the United States that do not meet the standards. In April 2007, EPA regulations that further restrict emissions from passenger vehicles and light-duty trucks operating at cold temperatures became effective. The new emission standards set by these regulations were phased in between 2010 and 2013. Similar standards that further restrict emissions from heavy-duty vehicles operating at cold temperatures were phased in from 2012 to 2015. In March 2014, the EPA finalized new vehicle emission and evaporative emission standards for passenger vehicles and light-duty trucks for model years 2017 and onwards. Under the new standards, emission standards for volatile organic compounds and nitrogen oxides are to be strengthened in phases from 2017 to 2025, bringing the emission standards in line with emission standards in California, resulting in the unification of the differing California and federal emission standards. In addition, the particulate matter standards and fuel evaporative emission standards will also be strengthened to be brought in line with California’s emission standards. This is expected to lead to reductions in the burden on development, such as a reduction in the number of tests required for certification and standardization of emission reduction systems.

Furthermore, in April 2007 the U.S. Supreme Court ruled that the EPA has the authority to regulate automobile emissions of greenhouse gases. In response to this ruling, on April 1, 2010 the EPA and the federal National Highway Traffic Safety Administration (“NHTSA”) issued a joint final rule to reduce the emission of greenhouse gases from passenger vehicles, light-duty trucks and medium-duty passenger vehicles for model years 2012 through 2016. These vehicles were required to meet an estimated combined average emissions level of 250 grams of carbon dioxide per mile, equivalent to 35.5 miles per gallon if the requirements were met through fuel economy standards. The NHTSA also set Corporate Average Fuel Economy (“CAFE”) standards for passenger vehicles and light-duty trucks that required manufacturers of those vehicles to meet an estimated combined average fuel economy level of 34.1 miles per gallon in model year 2016.

On August 28, 2012, the EPA and the NHTSA jointly issued the final rule to further reduce greenhouse gas emissions and improve fuel economy for passenger vehicles, light-duty trucks and medium-duty passenger vehicles for model years 2017 through 2025. In the final rule, these vehicles are required to meet an estimated combined average emission level of 163 grams of carbon dioxide per mile in model year 2025, equivalent to 54.5 miles per gallon if these requirements were met through improvements in fuel economy standards. The NHTSA also issued CAFE standards for passenger vehicles and light-duty trucks that would require manufacturers to meet an estimated combined average fuel economy level of 49.6 miles per gallon in model year 2025.

On January 13, 2017, the EPA issued its “final determination” to maintain the final rule for model years 2022 through 2025. On March 13, 2017, however, the newly-appointed Administrator of the EPA and the newly-appointed Secretary of the Department of Transportation issued a notice that they were reconsidering the final determination. The EPA announced that it and the NHTSA would issue a “new” final determination by April 1, 2018. Also, on March 13, 2017, the Alliance of Automobile Manufacturers petitioned the U.S. Court of Appeals for the District of Columbia to review the EPA’s final determination. However, upon issuance of the notice regarding the reconsideration of the EPA’s final determination, the Alliance promptly withdrew its petition for review by the Court. On March 14, 2017, California petitioned the Court to protect its interests in the EPA’s final determination to maintain the final rule. As discussed below, California had adopted a “deemed to comply” rule, which provided that compliance with the federal final rule would also satisfy California’s greenhouse gas emission standards for model years 2022 through 2025. It is unclear at this time whether the final rule will remain in its current form or whether the standards will be eased.

In addition, in July 2015, the EPA adopted final rules to limit, in relation to greenhouse gas emissions, the use of various hydroflourocarbons (“HFCs”) and HFC-containing refrigerant blends used in motor vehicle air conditioning systems for new vehicles, among other applications. Toyota purchases air conditioning systems from third parties for use in its vehicles. The final rules list HFC-134a, the most dominant refrigerant used in light-duty vehicles worldwide, as unacceptable for use in motor vehicle air conditioning systems in new light-duty vehicles beginning in model year 2021. The final rules also list additional refrigerant blends as unacceptable for use in new light-duty vehicles beginning in model year 2017. Feasible alternatives to these refrigerants that will be prohibited by the rules may be costly or present other risks, such as flammability or other safety concerns.

As discussed above, the EPA has been granted the authority to set fuel standards in connection with the regulation of automobile emissions. In October 2010, the EPA approved the sale and use of fuel with a 15% ethanol blend (“E15”) for model years 2007 and later passenger vehicles and light-duty trucks. The use of E15 is not permitted for engines used in lawnmowers, small generators, motorbikes, boats and other vehicles and equipment. Subsequently, in February 2011, the EPA approved the use of E15 for certain 2001 model year or newer vehicles, such as light-duty passenger vehicles and small trucks. However, E15 is prohibited for use in other 2000 model year or older vehicles and general purpose engines. As a result, the EPA promulgated regulations in July 2011, effective August 2011, requiring businesses that sell E15 to put a warning label regarding E15 on gasoline fuel dispensers.

California Standards

Under the federal Clean Air Act, the State of California is permitted to establish its own vehicle emission control standards if it receives a waiver from the EPA. As a result, the California Air Resources Board (“CARB”) established the Low Emission Vehicle Program and set emission standards for certain regulated pollutants that were phased in beginning in the 2004 model year. Under these standards, most light-duty trucks and passenger vehicles are required to meet the same emission standards, which were stricter than the federal standards. As part of the original Low Emission Vehicle Program, the CARB also required that a specified percentage of a manufacturer’s passenger vehicles and light-duty trucks sold in California for all model years 1998 and after be “zero-emission vehicles” (vehicles producing no emissions of regulated pollutants). This zero-emission vehicles requirement also permitted certain advanced technology vehicles such as Plug-in Hybrid Vehicles (“PHVs”), hybrid cars and alternative fuel vehicles that meet “partial zero-emission vehicles requirements” to be granted partial qualification as Electronic Vehicles (“EVs”) or Fuel Cell Vehicle (“FCVs”). The current zero-emission regulations mandate substantial annual increases in the production and sale of battery-electric, fuel cell and plug-in hybrid vehicles such that, by 2025, the state of California has estimated that approximately 15% of the new vehicles sold in the state would be zero-emission or plug-in hybrid vehicles. Toyota’s MIRAI qualifies as zero-emission vehicles. The current Prius plug-in hybrid qualifies as partial zero-emission vehicles. Toyota intends to continue to develop additional advanced technologies and alternative fuel technologies that will allow other vehicles using such technologies to qualify as zero-emission vehicles or partial-zero-emission vehicles.

In July 2002, the California legislature passed legislation that required the CARB to develop and adopt, by the end of 2004, regulations that achieved the maximum feasible reduction in greenhouse gas emissions from vehicles. In September 2004, the CARB adopted regulations that required a 20 to 30 percent reduction of greenhouse gas emissions from passenger vehicles, light-duty trucks and other noncommercial vehicles to be phased in between the 2009 and 2016 model years.

In December 2007, the EPA denied California’s request for a waiver under the Clean Air Act that would have allowed the state to enforce these regulations to control greenhouse gas emissions from motor vehicles. However, the EPA reconsidered its decision pursuant to a direction issued by the U.S. President in January 2009, and in July 2009 decided to allow the state to enforce such regulations.

In February 2010, the CARB enacted a “deemed to comply” rule that provides that compliance with federal greenhouse gas emission standards for model years 2012 through 2016 and 2017 through 2025 also satisfies California’s greenhouse gas emissions standards.

In January 2012, the CARB adopted the Advanced Clean Cars (“ACC”) program. The ACC program includes new Low-Emission Vehicle regulations that reduce smog-causing pollutants (including nitrogen oxides and particulate matter) and greenhouse gas emissions from cars and light-duty trucks for model years 2015 to 2025, and more stringent zero-emission vehicle regulations which will require increased production of zero-emission vehicles and plug-in hybrid electric vehicles for model years 2018 to 2025. The ACC program also lowers allowable smog-forming particulate emissions to 1 mg/mile or lower, to be phased in beginning with model year 2015.

In a March 24, 2017 ACC Midterm Review, the CARB affirmed the ACC program’s requirements. In this review, the CARB noted the March 13, 2017 decisions of the Administrator of the EPA and the Secretary of the Department of Transportation to reconsider the EPA’s final determination to maintain the final rule for greenhouse gas emissions for model years 2022 through 2025, and suggested that its decision to follow the federal final rule might change if the federal standards “were substantially changed.”

Other States’ Standards

The states of New York, Massachusetts, Connecticut, Maine, Maryland, New Jersey, Oregon, Rhode Island and Vermont have either adopted, or plan to adopt, regulations substantially similar to California’s zero-emission vehicles requirement. With regard to greenhouse gas emissions regulations, in addition to these states, Pennsylvania and Washington have adopted California’s regulations.

Canadian Standards

Canada has established vehicle emission standards equivalent to the federal standards in the United States, including the heightened requirements that became applicable to passenger vehicles and light-duty trucks in model years 2004 and beyond. In addition, in response to the strengthening of the federal greenhouse gas emission standards in the United States applicable to model years 2017 to 2025, Canada finalized equivalent standards in October 2014. Furthermore, certain Canadian provinces are currently considering enacting their own regulations on vehicle emissions of greenhouse gases. In Province of Quebec, a bill that requires manufactures to sell (at least a certain percentage of) FCVs, EVs and PHVs starting with model year 2018 was passed. The details of these regulations are currently under consideration but the Province of Quebec, like the Northeastern United States, has signaled that they plan to follow the regulations in California. Canada also adopted a more stringent fuel rule, which is based on the fuel rule in the United States, that reduces refineries’ annual average sulfur concentration of gasoline to 10 mg/kg from 2017 with a new addition of credit system to secure compliance.

European Standards

The European Union adopted a directive that establishes increasingly stringent emission standards for passenger vehicles and light commercial vehicles in October 1998. Under this directive, the standards adopted

beginning with year 2000 require manufacturers to recall any vehicles which fail to meet the standards for five years or 80 thousand kilometers, whichever occurs first. Toyota introduced vehicles complying with this directive in 1999. Under standards adopted in 2005, manufacturers are obligated to meet the more stringent standards for five years or total vehicle miles of 100 thousand kilometers, whichever occurs first. In 2007, the European Parliament adopted more stringent emission standards for passenger vehicles and light commercial vehicles. The effective dates for phasing in these stricter standards for passenger vehicles were September 2009 for Euro 5 and September 2014 for Euro 6. For light commercial vehicles, the effective dates are September 2010 for Euro 5 and September 2015 for Euro 6. Euro 5 provides for lower emission levels for gasoline and diesel powered vehicles and also extends the manufacturers’ responsibility for emission performance to total vehicle miles of 160 thousand kilometers. The primary focus of Euro 6 is to limit further emissions of diesel powered vehicles and bring them down to a level equivalent to gasoline powered vehicles. In addition, Euro 6 will be implemented in two stages, and beginning with the second stage (September 2017 for passenger vehicles and September 2018 for commercial vehicles), the EU is implementing the Real Driving Emission (“RDE”) regulations, which will require manufactures to conduct on-road emissions tests using portable emissions testers. During the initial phase, which started in January 2016, the RDE tests are used for monitoring purposes. Beginning in September 2017, manufacturers will be required to reduce the divergence between the regulatory limit tested in laboratory conditions and the values of RDE tests. The EU has also decided to implement the Worldwide harmonized Light vehicles Test Procedure (WLTP).

Chinese Standards

Emissions regulations are being implemented throughout China pursuant to the Chinese National Standards (GB) of the Ministry of Environmental Protection of the People’s Republic of China, and the manufacture and sale of models not meeting these regulations are prohibited.

For passenger vehicles, pursuant to GB18352.3-2005, Level 3 Emissions Regulations (China 3) (corresponding to Euro 3 standards) apply to new models after July 2007 and Level 4 Emissions Regulations (China 4) (corresponding to Euro 4 standards) apply to new models after July 2010. Starting with new models after July 2008, on-board diagnostics must be equipped. Furthermore, pursuant to GB18352.5-2013, it has been decided that Level 5 Emissions Regulations (China 5) (corresponding to Euro 5 standards) are to be implemented throughout China for all models that are sold and registered after January 2018.

In an effort to improve the fuel quality in the market, stricter China 5 gasoline and diesel fuel standards have been stipulated in GB17930-2013 and GB19147-2013 to achieve the Level 5 Emissions Regulations, and it has been decided that these standards will be implemented from January 2018. Following that, however, given the accelerated improvement in fuel quality in the market, new China 5 fuel standards (corresponding to Euro 5) have been implemented in 11 provincial capitals in eastern China from January 2016 and nationwide in China from January 2017, as opposed to January 2018 as initially determined. In connection with this, the Ministry of Environmental Protection and the Ministry of Industry and Information Technology issued a directive on the implementation timing of the Level 5 Emissions Regulations, in accordance with which, the implementation started for gasoline-powered passenger vehicles in the 11 provincial capitals from April 2016 and nationwide in China from January 2017, as well as will start for diesel passenger vehicles nationwide in China from January 2018 as initially scheduled. The next-generation emissions regulations for passenger vehicles, or Level 6 Emissions Regulations (China 6), have been issued as GB18352.6-2016 at the end of 2016, pursuant to which tighter requirements will be implemented in two steps, depending on the regulated subjects and the implementation timing. Specifically, China 6a will apply to all models to be sold or registered in July 2020 and beyond, and China 6b will apply to all models to be sold or registered in July 2023 and beyond. With respect to fuels in the market, the quality standards and the implementation timing for China 6 gasoline fuel and China 6 diesel fuel have been provided in GB17930-2016 and GB19147-2016 so as to keep up with the implementation timing of China 6 emissions regulations.

For heavy-duty diesel-powered commercial vehicles, pursuant to GB17691-2005, Level III Emissions Regulations (China III) apply to models after January 2007. Although Level IV Emissions Regulations (China

IV) were to apply to new models after January 2010, and Level V Staged Emissions Regulations (China V) were to apply to new models after January 2012, because the infrastructure to supply sufficient diesel fuel meeting the Level 4 fuel quality standards had yet to be put in place, the implementation of the China IV Emissions Regulations for all models was postponed to July 2013. In connection with such delay, the implementation of the China V Emissions Regulations has been postponed from the original plan and is now scheduled to be implemented from July 2017. For heavy-duty gasoline-powered commercial vehicles, pursuant to GB14762-2008, Level III Emissions Regulations (China III) apply to new models after July 2009 and Level IV Emissions Regulations (China IV) apply to new models after July 2012. After the first day the regulation is implemented to a new model, all new models released during the following one-year period also become subject to the regulation. Tightening of the next-generation emissions regulations is currently considered for heavy-duty diesel-powered commercial vehicles and heavy-duty gasoline-powered commercial vehicles.

Compliance with new and more stringent emissions and fuel consumption standards will present significant technological challenges to automobile manufacturers and will likely require significant expenditures. Examples of these challenges include the development of advanced technologies, such as high performance batteries and catalytic converters, as well as the development of alternative fuel technologies. Manufacturers that are unable to develop commercially viable technologies within the time frames set by the new standards will lose their market share and will be forced to decrease the number of types of vehicles and engines in their principal markets.

Standards of Other Countries

Countries other than Japan, the United States, Europe and China are also proactively introducing emissions regulations. Many countries or regions such as Australia, Mexico, the Middle East, Taiwan and Hong Kong, as well as countries in Eastern Europe and Asia, have considered or implemented emissions regulations.

In particular, in India, given the worsening air pollution, the government accelerated the implementations of BS-6 (equivalent to EURO6) to 2020, and in addition the Supreme Court banned the registration of diesel cars with engines that are 2 liters or larger in the National Capital Region, including the Delhi metropolitan area. In August 2016, the ban on registration was lifted on the condition that a deposit equal to 1% of the vehicle’s retail price is to be paid to the Environment Pollution Control Authority.

Vehicle Fuel Economy

Japanese Standards

The Law Concerning the Rational Use, etc. of Energy requires automobile manufacturers to improve their vehicles to meet specified fuel economy standards. Fuel economy standards are established according to the types of vehicles specified below, and are required to be met by either fiscal 2011 (April 2010-March 2011), fiscal 2016 (April 2015-March 2016), fiscal 2021 (April 2020-March 2021) or fiscal 2023 (April 2022-March 2023).

Among qualifying passenger vehicles are:

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Vehicles which are designated in Article 75, Paragraph 1 of the Road Vehicles Law as type-designated vehicles (“type-designated vehicles”) with 10 seats or less using LPG;

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Type-designated vehicles with 9 seats or less or that are 3.5 tons or less in vehicle weight using gasoline, or type-designated vehicles with 9 seats or less or 10 seats that are 3.5 tons or less in vehicle weight using gas oil;

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Type-designated vehicles with 11 seats or more that are 3.5 tons or less in vehicle weight using gasoline or gas oil; and

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Type-designated vehicles with 10 seats or more that are over 3.5 tons in vehicle weight using gas oil, or designated carbon monoxide emission control vehicles (“designated carbon monoxide emission control vehicles”) which are designated in Article 75-3 Paragraph 1 of the Road Vehicles Law.

Among qualifying cargo vehicles are:

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Type-designated vehicles that are 3.5 tons or less in vehicle weight using gasoline, gas oil or LPG; and

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Type-designated vehicles that are over 3.5 tons in vehicle weight using gas oil or LPG, or designated carbon monoxide emission control vehicles.

Toyota is promoting the improvement of its vehicles in order to achieve compliance with these standards.

Japan is a signatory to the Framework Convention on Climate Change and has agreed to take measures to reduce its greenhouse gas emissions. Improved vehicle fuel economy is contributing to the reduction in carbon dioxide emissions.

U.S. Standards

The Federal Motor Vehicle Information and Cost Savings Act requires automobile manufacturers to comply with CAFE standards. A manufacturer is subject to substantial civil penalties if, in any model year, its vehicles do not meet the CAFE standards. Manufacturers that exceed the CAFE standards earn credits determined by the difference between the average fuel economy performance of their vehicles and the CAFE standards. Credits earned for the five model years preceding the current model year, and credits projected to be earned for the next three model years, can be used to meet CAFE standards in a current model year.

In April 2006, the NHTSA established CAFE standards applicable to light-duty trucks for model year 2008 and beyond. These CAFE standards aimed at shifting the framework from one that used to be advantageous only to compact car manufacturers to one that is fair to full line manufacturers. The requirements were changed so that the CAFE standards are now determined by a sales rate based on vehicle size (measured by the area of the wheel and wheel base) for each manufacturer.

On April 1, 2010, the EPA and the NHTSA issued a joint final rule to reduce the emission of greenhouse gases from passenger vehicles, light-duty trucks and medium-duty passenger vehicles for model years 2012 through 2016. These vehicles were required to meet an estimated combined average emissions level of 250 grams of carbon dioxide per mile, equivalent to 35.5 miles per gallon if the requirements were met through fuel economy standards. The NHTSA also set CAFE standards for passenger vehicles and light-duty trucks that will require manufacturers of those vehicles to meet an estimated combined average fuel economy level of 34.1 miles per gallon in model year 2016. Furthermore, the EPA and the NHTSA joint final rule allows the two agencies and California standards to act in a unified way, and creates a regulatory framework that makes compliance less burdensome for the manufacturers. In addition, in December 2011, the EPA and the NHTSA issued a joint proposed rule to further reduce greenhouse gas emissions and improve fuel economy for passenger vehicles, light-duty trucks and medium-duty passenger vehicles for model years 2017 through 2025. In the rule, which was finalized in August 2012, these vehicles are required to meet an estimated combined average emission level of 163 grams of carbon dioxide per mile in model year 2025, equivalent to 54.5 miles per gallon if these requirements are met through improvements in fuel economy standards. At the same time, the NHTSA also issued CAFE standards for passenger vehicles and light-duty trucks that would require manufacturers to meet an estimated combined average fuel economy level of 49.6 miles per gallon in model year 2025. As discussed above, however, the EPA and NHTSA are reconsidering the final rule for model years 2022 through 2025, and they are expected to issue a final determination, either upholding the standards or easing them, by April 1, 2018. The standards of fuel economy are stringent, and Toyota strives to meet the fuel economy standards by further developing fuel-efficient technology, alternative fuel technology and other advanced technology.

In addition, the Energy Tax Act of 1978 imposes a “gas guzzler” tax on automobiles with a fuel economy rating below specified levels.

European Standards

In December 2008, the European Parliament approved a new regulation that established an average emission standard of 130 grams of carbon dioxide per kilometer by 2012 for passenger vehicles sold in member states, made effective in June 2009. The regulation was phased in gradually, initially requiring 65% of new cars to comply with the new standards in 2012 and increasing to 100% of new cars in 2015. As a result of the new regulations, different targets applied to each manufacturer, based on their respective fleets of vehicles and weight. Penalties applied to those manufacturers who fail to meet their targets from 2012, in amounts corresponding to the degree of shortfall. Manufacturers failing to meet their targets between 2012 and 2018 will incur penalties of between €5 and €95 per each gram of carbon dioxide per kilometer shortfall for each non-compliant vehicle, and such penalties will rise to €95 in 2019 and beyond. Furthermore, in June 2011, a new carbon dioxide emission standard applicable to light commercial vehicles entered into force establishing an average emissions target of 175 grams of carbon dioxide per kilometer. This regulation has the same basic regulatory framework as passenger vehicles, raising the compliance rate from 70% in 2014 to 100% in 2017.

Furthermore, in February 2014, the European Parliament and Council adopted a regulation to reduce the average carbon dioxide emissions target for light commercial vehicles to 147 grams per kilometer beginning in 2020. In March 2014, the European Parliament and Council adopted a regulation to reduce the average carbon dioxide emissions target for passenger vehicles to 95 grams per kilometer beginning in 2021. 95% of each manufacturer’s new cars must comply with this new standard by 2020. The relevant legislation requested the European Commission to conduct a review by 2015 and, if appropriate, propose new targets for the period beyond 2020, including possibly setting a 2025 target. A public consultation on revision of the legislation was conducted in 2016.

An increasing number of EU member states are introducing vehicle tax laws based on carbon dioxide emission levels pursuant to the directive issued by the European Commission in 2005. This trend is expected to continue in accordance with the recent increases in environmental awareness.

An EU directive on motor vehicle air conditioning units required manufacturers to replace currently used refrigerants with refrigerants having a lower global warming impact for all newly registered vehicles starting in January 2017.

Chinese Standards

Fuel consumption regulations are being implemented pursuant to the Chinese National Standards (“GB”), and the manufacture and sale of vehicle models not meeting these regulations are prohibited. For passenger vehicles, pursuant to GB19578-2004, Level 1 Fuel Consumption Regulations apply to new models after July 2005 and Level 2 Fuel Consumption Regulations apply to new models after January 2008. For small commercial vehicles, pursuant to GB20997-2007, Level 2 Fuel Consumption Regulations apply to new models after February 2008, Level 1 Fuel Consumption Regulations apply to all vehicles as of January 2009 and Level 2 Fuel Consumption Regulations apply to all models as of January 2011. These regulations determine the consumption standards that apply depending on the mass of the applicable vehicle and set forth a method for determining whether each model has met the regulation. With respect to passenger vehicles, GB27999-2011 has been issued to further strengthen fuel consumption regulations from 2012 and beyond. In these Level 3 Fuel Consumption Regulations for passenger vehicles, the regulation framework was substantially revised, such as the introduction of new regulations requiring automobile manufacturers to meet standards of corporate average fuel consumption across models in addition to existing regulations requiring each model to meet consumption standards. Furthermore, in order to achieve the national target for average fuel efficiency for 2020, the following more stringent fuel consumption regulations have been enacted and enforced. First, GB19578-2014, which has been enacted to strengthen regulations for each model, is being applied to new models after January 2016. Second, GB27999-2014, which has been enacted as Level 4 Fuel Consumption Regulations for passenger vehicles to strengthen corporate average regulations, has been in effect since 2016. In addition, Level 5 Fuel Consumption Regulations for passenger vehicles are being examined as more stringent next-generation fuel consumption regulations.

Standards of Other Countries

As momentum gathers to increase energy security and prevent global warming, other countries in addition to Japan, the United States, Europe and China are moving to introduce fuel consumption regulations, and Korea, Mexico, Brazil, Taiwan, India, Saudi Arabia and Canada have already decided to introduce or implemented fuel consumption regulations. Australia is also considering the introduction of new regulations to reduce average carbon dioxide emissions by vehicles. Toyota predicts that this trend will spread to other countries, and in the future many nations will consider new regulations related to fuel consumption and carbon dioxide.

Vehicle Safety

Japanese Standards

In Japan, efforts have been made since 1998 to bring Japanese standards in line with the regulations of the United Nations Economic Commission for Europe (“UN”).

With respect to standards that were previously brought in line with the UN regulations, the Japanese standards regarding steering systems require disabling of automatic steering functions when vehicles travel at more than 10km/h. These standards began to apply to new model cars in July 2016. As amendments to the requirement to disable automatic steering functions are currently being discussed at the United Nations, and in light of the fact that vehicles equipped with automatic steering functions are already being sold in Japan, a provision was added to suspend the application of the requirement to disable automatic steering functions for the time being in Japan. Standards for the brake assistance system and the electronic stability control were established as new standards separately from standards for brake equipment and began to apply in February 2017. A requirement for the tire pressure monitoring systems will be established as a new standard separately from standards for emergency temporary use spare units and tire pressure monitoring systems and apply beginning in February 2018, as applicable. With respect to standards that were newly brought in line with the UN regulations, safety standards for hydrogen fuel cell vehicles will apply in stages to new model cars beginning in September 2018. Standards for protection of passengers from full-wrap head-on collision will apply in stages to new models beginning in September 2018. Standards for indirect vision will apply to new models beginning in June 2019 and to existing models still in production beginning in June 2021. Standards for approaching vehicle audible system will apply to new models beginning in March 2018 and to existing models still in production beginning in October 2020. Standards for day time running lamps began to apply in October 2016, as applicable. Standards for tire fitting will apply to new models beginning in September 2019 and to existing models still in production beginning in September 2022. With respect to standards that are scheduled to be newly brought in line with the UN regulations, standards for compressed natural gas vehicles and liquid natural gas vehicles will apply to new models beginning in March 2020 and to existing models still in production beginning in March 2021.

Furthermore, unique to Japan, technical guidelines for driver medical emergency response system (slowdown and stop type) were established. Requirements for equipment with automatic on-off headlight (autolight) function will apply in stages to new model cars beginning in April 2020 and to existing models still in production beginning in October 2021. The enhancement of visibility standards for rearward and surrounding area, as well as the standardization of measures relating to brake override systems, the strengthening of anti-spinal injury measures, anti-drunk driving measures and automated emergency call systems are currently under consideration.

U.S. Standards

The U.S. National Traffic and Motor Vehicle Safety Act of 1966, or Safety Act, requires vehicles and equipment sold in the United States to meet various safety standards issued by the NHTSA. The Safety Act also authorizes the NHTSA to investigate complaints relating to vehicle safety and to order manufacturers to recall and repair vehicles found to have safety-related defects. The cost of these recalls can be substantial depending on the nature of the repair and the number of vehicles affected.

The Transportation Recall Enhancement, Accountability and Documentation Act was enacted in the United States on November 1, 2000. This Act required the NHTSA to regulate the dynamic rollover standards and to upgrade federal motor vehicle safety standards relating to tires. It also required the NHTSA to enhance its authority to gather information potentially relating to motor vehicle defects. This Act substantially increases the maximum civil penalties for violation of regulatory requirements and specifies possible criminal penalties for violations of the federal Fraud and False Statements Act. In 2003, the NHTSA expanded its New Car Assessment Program (“NCAP”) to implement consumer information programs for vehicle rollover resistance and child restraints and, beginning in 2003, adopted extensive early warning defect reporting requirements. Regulations regarding tire-pressure monitoring systems were strengthened in 2005.

Legislation on a transportation budget plan promoting a safe and efficient vehicle safety program for drivers, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) was passed in August 2005. The legislation requires the NHTSA to propose and issue safety standards to reduce rollover accidents, to complete the creation of standards for the reduction of vehicle passengers released from cars at the time of rollover accidents, to upgrade door lock standards, to complete the upgrade of roof crash standards, to decide on the side impact protection standards for passengers in all seat locations, to review seat belt wearing technology and complete a study that includes a proposal for improving the rate of seat belt usage, to establish standards to display NCAP ratings on new car labels and to complete the upgrade of the standard for power windows that will require pulling up switches. Some actions have already been taken and completed in response to the above requirements.

In February 2008, legislation to prevent non-traffic related injuries to young children caused by vehicles, the “Cameron Gulbransen Kids Transportation Safety Act,” was passed. Pursuant to this legislation, the NHTSA finalized standards requiring vehicles to be equipped with rearview camera systems in order to ensure rearward visibility to prevent children from being struck by backing vehicles and mandating the use of brake shift interlock systems.

In January 2011, legislation to improve the safety of the visually impaired and other pedestrians, the “Pedestrian Safety Enhancement Act of 2010,” was passed. Based on this standard, the NHTSA determined minimum sound standards for electric and hybrid vehicles.

In response to the unintended acceleration issue in 2010, the NHTSA has started to examine and implement measures to strengthen safety standards, such as mandating brake override systems, mandating Event Data Recorders, or EDR, and standardizing push-start switches.

In December 2015, in reaction to quality issues of motor vehicles and recalls conducted by automobile companies in recent years, a bill to strengthen U.S. motor vehicle safety regulations was passed. In response to the passage of the bill, NHTSA began to examine firmer measures.

In 2016, the NHTSA and the Insurance Institute for Highway Safety announced that they have agreed with twenty major vehicle manufacturers to standardize equipment of automatic emergency brakes on almost all new models by 2022. In the same year, the NHTSA also announced a policy regarding automatic driving vehicles to promote such vehicles safely, as well as best practices to enhance cybersecurity for vehicles.

In 2017, the NHTSA proposed to establish a new safety standard to require passenger vehicles and light-duty commercial vehicles to have dedicated short-range communication units that enable Vehicle-to-Vehicle communication.

European Standards

In 2009, the European Union overhauled its safety regulations and enacted a new regulation and a simplified framework, repealing more than 50 existing European Commission directives regarding vehicle safety other than pedestrian protection, and replacing them with a single regulation aimed at incorporating the UN regulations. The

new regulation also requires the adoption of advanced safety systems. The EU Regulation directly incorporating the UN Regulations commenced in 2012 and requires advanced safety systems, including requiring new type vehicles to have electronic stability control systems from 2011, to introduce regulations relating to low rolling resistance tires in 2013, to require tire pressure monitoring systems starting in 2012 and to require heavy vehicles to have advanced emergency braking systems and lane departure warning systems from 2013. All of the technical requirements for these advanced safety systems were discussed in the United Nations. Further, application of UN regulation came into force from November 2012 for new vehicle types and from 2014 for all new vehicles sold in the EU market. The new mandatory measures include electric car safety requirements and gear shift indicators.

In October 2010, CARS 21 was resumed in order to proceed with the realization of the “2020 Strategy” (CARS 2020) by the European Commission that aims for high-level, sustainable and comprehensive growth, and the CARS 21 final report was issued in June 2012. The final report addresses issues facing the widespread adoption of electric vehicles, including charging infrastructure in the EU, establishing battery requirements, adopting seat belt reminder devices for all seats, connection of alcohol interlock devices to vehicles, adopting speed management devices, establishing safety requirements for micro urban mobility, strengthening safety regulation to protect the vulnerable from collisions and the possibility of regulation in connection with preventative safety technology. In November 2012, “CARS 2020: Action Plan for a competitive and sustainable automotive industry in Europe” was issued based on the final report. The action plan is built on four core concepts, and within these concepts it discusses enhancement of road safety, improving the market conditions within the EU and the implementation of smart regulations. Each item is given a target date and is to be monitored going forward.

On the widespread adoption of emergency call systems (“eCall”), eCall will become mandatory from the end of March 2018 for light-duty passenger vehicles and light-duty commercial vehicles using the framework of “Whole Vehicle Type Approval.” New rulemaking regarding eCall has also been proposed by the United Nations, and this proposal is expected to be passed by the end of 2017. In addition, it will be necessary to build infrastructure such as communication bases in the different member states of the EU for the receipt and handling of eCalls, and rulemaking regarding eCall also covers the creation of such infrastructure.

The possibility of regulation in connection with ITS and other advanced driver assist systems for 2020 and beyond is also under consideration. In addition, the adoption of Advanced Emergency Breaking systems and lane departure warning systems on light vehicles, Advanced Emergency Breaking systems which detect pedestrians and regulations to require information disclosure for installation of blind spot monitors, reverse system which detect pedestrians, reverse detection, Evert Data Recorders and alcohol interlock devices on trucks are also expected to be considered. In March 2015, the European Commission published a final report on the benefit and feasibility of a range of new safety technologies. Currently, a process to revise the General Safety Regulation (EC) No 661/2009 and Regulation (EC) No 78/2009 with regards to pedestrian protection is ongoing. With respect to individual matters that are to be strengthened through regulations, the European Commission plans to propose amendments to the United Nations rules regarding matters that are already regulated by the United Nations, while other matters are likely to be considered within the EU. In either case, deliberations will be conducted with the goal of application to new vehicle models from 2020 and regulations for registrants from 2022, although target date of the regulations vary for each matter. Matters to be strengthened include requirement for installation of AEB to small cars, LKAS to small cars, driver monitoring systems, ESS and EDR, as well as TPMS regulations, expansion of application of regulations on collision, creation of regulations on small lap, creation of laws and regulations on far-side impact tests, requirement for installation of camera monitoring system and requirement for A pillar windscreen head impact.

From April 2009, the applicable scope for Whole Vehicle Type Approval (“WVTA”) was extended to cover all vehicle categories. Furthermore, an amendment was issued in 2011 which clarifies the categories (especially those for passenger and light-duty commercial vehicles). Through this amendment, the criteria for light-duty commercial vehicles was clarified, and there is a possibility that vehicles currently classified as light-duty commercial vehicles become classified as passenger vehicles. In addition, revisions to EU regulations related to

vehicle mass and dimensions were issued in 2012. These revisions clarified the mass, criteria and definitions which comprise the base specifications for vehicles. In 2016, the European Commission’s proposal regarding major amendments to the WVTA, including a strengthening of type approval process (e.g. enabling access to software algorithm; five year approval limit (type approval validity)) with the market surveillance requirements (addition of auditing authority by the European Commission), strengthening of auditing of technical service, clarification of recall requirements and increased surveillance of cars already in circulation, was submitted. Currently, the bill is under deliberation by the European Council and the European Parliament.

In addition, GEAR2030 (the High Level Group on the Competitiveness and Sustainable Growth of the Automotive Industry in the European Union) was established in January 2016 as a successor body of the CARS2020 and deliberations on recommendations to the European Commission, member states and high-level related stakeholders for strengthening the competitiveness of the automobile value chain in Europe by 2030 commenced. In particular, a roadmap for smooth development of automatic driving vehicles is scheduled to be discussed. The finalization of the recommendation is aimed for the end of 2017.

United Nations Regulations

The 1958 Agreement (“Agreement Concerning the Adoption of Uniform Technical Prescriptions for Wheeled Vehicles, Equipment and Parts which can be Fitted and/or be Used on Wheeled Vehicles and the Conditions for Reciprocal Recognition of Approvals Granted on the Basis of These Prescriptions”) was originally based on the European regulations, but the UN Regulations are developing as an established international law, and Japan, Thailand, Malaysia and Egypt as well as other countries outside the EU have become members after the amendment in 1995, and many other countries are expected to join in the future. The countries bound by the 1958 Agreement have incorporated the UN Regulations into their own domestic policies (The EU and Japan have directly included the UN Regulations into their domestic legislations). While automotive parts and vehicle systems are regulated by the UN regulations, there are currently no regulations with respect to Whole Vehicle Type Approval (WVTA) such as those in Europe. Japan proposed legislation establishing International Whole Vehicle Type Approval (IWVTA) under the United Nations in 2016, and the matter is being deliberated by the United Nations. IWVTA is expected to take effect in January 2018 (although the mutual recognition of IWVTA will not take place) and IWVTA is expected to be implemented with the mutual recognition in October 2018. If IWVTA is established, integration of global approval administrative regulations of each country and simplification of vehicle construction regulations are expected. IWVTA would only be partially applicable at the time of its establishment in 2016 and deliberation toward the full application would continue after establishment.

An amendment to the 1958 Agreement has been considered in order to establish R0 (IWVTA). The bill of such amendment to the 1958 Agreement was passed in June 2016 and it is expected to take effect in around September 2017 without trouble. Such amendment will increase the flexibility of the regulations, enabling approvals to be granted for the old series of regulations according to the needs of the signatory countries to the 1958 Agreement. The percentage of required votes for voting in connection with proposed UN regulations will also be considered and the 1958 Agreement is expected to become fairer. Such amendment to the 1958 Agreement is expected to make the 1958 Agreement more attractive to countries that are not currently party to the 1958 Agreement, and aims to increase the number of signatory countries.

The 1998 Agreement (“Agreement Concerning the Establishing of Global Technical Regulations for Wheeled Vehicles, Equipment and Parts which can be Fitted and/or be Used on Wheeled Vehicles”) is a U.S.-led agreement that aims to harmonize technical regulations, and defines each regulation as a Global Technical Regulation (“GTR”). At present, there are 16 GTRs in total. Currently, numerous provisions are under discussion in order to include more regulations. The countries bound by the 1998 agreement are required to incorporate the GTRs into their domestic laws. The parties to the 1998 agreement include the United States, Canada, China and India, which are not parties to the 1958 agreement, so GTRs will also influence those countries.

Chinese Standards

Vehicle safety regulations in China were drafted with reference to the UN regulations and cover almost the same matters as the UN regulations. However, recently, these regulations also include unique provisions which take into account the distinctive characteristics of the Chinese market environment and the progress of technological development in China and there are increasing number of legislations that differ from the latest UN regulations or other international standards. As for future safety regulations, standards related to batteries, motors, the charging of electric vehicles and data communication are currently being planned.

Standards of Other Countries

Vehicle safety regulations in Canada are basically similar to those in the United States. In regions outside of North America, movements for adoption and conformity with the UN regulations have become active, including in those countries without automotive manufacturing industries. The list of signatories to the 1958 agreement of the United Nations continues to grow, and now includes Korea, Thailand and Malaysia in Asia, as well as Russia, South Africa, Egypt and Morocco. In addition, ASEAN, pursuant to its economic community mission, has decided to adopt the UN regulations as its regional agreement. Latin America, India and countries in the Middle East that are not signatories to the 1958 agreement of the United Nations are also moving forward to conform their respective regulations to the UN regulations or to adopt new regulations consistent with the UN regulations.

Environmental Matters

Japanese Standards

Toyota’s automotive operations in Japan are subject to substantial environmental regulation under laws such as the Air Pollution Law, the Water Pollution Control Law, the Noise Regulation Law and the Vibration Control Law. Under these laws, if a business entity establishes or alters any facility that is regulated by these laws, the business entity is required to give prior notice to regulators, and if a business entity discharges, uses or stores substances that are environmental burdens or causes noise or vibration from such facility, the business entity is also required to comply with the applicable standards. Toyota is also subject to local regulations, which in some cases impose more stringent obligations than the Japanese central government requirements. Toyota has complied with these regulations. Under the Waste Disposal and Public Cleaning Law, producers of industrial waste must dispose of industrial waste in the manner prescribed in the Waste Disposal and Public Cleaning Law. Toyota has also complied with the Waste Disposal and Public Cleaning Law.

The Soil Contamination Countermeasures Law of Japan requires that land owners conduct contamination testing and submit a report at the time they cease to use hazardous substances, such as in connection with the sale of a former factory, or if there is a possibility of health hazards due to land contamination. If it is found that land contamination exceeds a certain level, the relevant prefectural authority designates the area considered to be contaminated and orders the land owner to take necessary measures. Toyota is suitably managing its land in accordance with the same law. In addition, under the Law on Recycling of End-of-Life Vehicles, vehicle manufacturers are required to take back and recycle specified materials (automotive shredder residues, air bags and fluorocarbons) of end-of-life vehicles and the provisions concerning such obligations of vehicle manufacturers became effective in January 2005. Toyota has coordinated with relevant parties to establish a vehicle take-back and recycle system throughout Japan. As a result, in fiscal 2016, Toyota achieved a recycling/recovery rate of 97% for automobile shredder residue (the legal requirement being 70%) and 93% for air bags (the legal requirement being 85%) and reached the targets set forth in this law.

U.S. Standards

Toyota’s assembly, manufacturing and other operations in the United States are subject to a wide range of environmental regulation under the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Pollution Prevention Act and the Toxic Substances Control Act. Toyota is also subject to a variety of state legislation that parallels, and in some cases imposes more stringent obligations than, federal

requirements. These federal and state regulations impose severe restrictions on air- and water-borne discharges of pollution from Toyota facilities, the handling of hazardous materials at Toyota facilities and the disposal of wastes from Toyota operations. Toyota is subject to many similar requirements in its operations in Europe, Canada and other countries.

Pursuant to the Clean Air Act, the EPA has promulgated National Ambient Air Quality Standards (“NAAQS”) for six “criteria” pollutants, including for ozone and particulate matter. The Clean Air Act requires that the EPA review and possibly revise these NAAQS every five years. On December 14, 2012, the EPA made the annual health-based particulate matter NAAQS more stringent. On October 1, 2015, the EPA made the annual health-based and welfare-based ozone NAAQS more stringent. The revised annual health-based particulate matter NAAQS and the revised annual health-based and welfare-based ozone NAAQS, as well as any future NAAQS revisions, could lead to additional pollution control requirements on the industry, including on Toyota’s manufacturing operations.

Toyota expects growing pressure in the next several years to further reduce emissions from motor vehicles and manufacturing facilities.

European Standards

In October 2000, the European Union brought into effect a directive that requires member states to promulgate regulations implementing the following:

•

automotive manufacturers shall bear all or a significant part of the costs for taking back end-of-life vehicles sold after July 1, 2002 and dismantling and recycling those vehicles. Beginning January 1, 2007, this requirement became applicable to vehicles put on the market before July 1, 2002 as well;

•

automotive manufacturers may not use certain hazardous materials in vehicles sold after July 1, 2003;

•

type-approved vehicle models put on the market after December 15, 2008 shall be re-usable and/or recyclable to a minimum of 85% by weight per vehicle and shall be re-usable and/or re-use as material or energy to a minimum of 95% by weight per vehicle; and

•

end-of-life vehicles must meet actual re-use and/or recycling of 80% and re-use and/or recovery of 85%, respectively, of vehicle weight by 2006, rising respectively to 85% and 95% by 2015.

Laws to implement this directive came into effect in each of the EU member states. Currently, there are uncertainties surrounding the implementation of the applicable regulations in different EU member states, particularly regarding automotive manufacturer responsibilities and resultant expenses that may be incurred.

In addition, under this directive, the member states must take measures to ensure that car manufacturers, distributors and other auto-related economic operators establish adequate used vehicle collection and treatment facilities and to ensure that hazardous materials and recyclable parts are removed from vehicles prior to shredding. This directive impacts Toyota’s vehicles sold in the EU. Toyota accommodated, in offering its products, any measures the EU member states chose to implement in order to comply with this directive.

The EU has also issued directives and made proposals relating to the following subjects on environmental matters:

•

emission standards that include a framework permitting member states to introduce fiscal incentives to promote early compliance; and

•

reform of rules governing automotive distribution and service. The block exemption on distribution has been amended so that dealers may engage in cross-border sales actively within the EU and open additional facilities for sales and services. Additionally, dealers may no longer be required by manufacturers to operate both sales and service facilities side by side.

In December 2011, the European Commission proposed to reduce noise produced by cars, vans, buses, coaches and light and heavy trucks. As proposed, noise limit values would ultimately be lowered by four A-weighted decibels for vehicles other than trucks, and three A-weighted decibels for trucks. Compliance would be achieved in three steps over a 10 to 12 year period. In May 2014, a regulation adopting the proposal was published in final form in the EU Official Journal.

Toyota believes that its operations are materially in compliance with environmental regulatory requirements concerning its facilities and products in each of the markets in which it operates. Toyota continuously monitors these requirements and takes necessary operational measures to ensure that it remains in material compliance with all of these requirements.

Toyota believes that environmental regulatory requirements have not had a material adverse effect on its operations. However, compliance with environmental regulations and standards has increased costs and is expected to lead to higher costs in the future. Therefore, Toyota recognizes that effective environmental cost management will become increasingly important. Moreover, innovation and leadership in the area of environmental protection are becoming increasingly important to remain competitive in the market. As a result, Toyota has proceeded with the development and production of environmentally friendly technologies, such as hybrid vehicles, fuel cell vehicles and high fuel efficiency, low emission engines.

In addressing environmental issues, based on an assessment of the environmental impact of its products through their entire life cycles, from production through sales, disposal and recycling, Toyota, as a manufacturer, strives to take all possible measures from development stage and continues to work toward technological innovations to make efficient use of resources and to reduce the burden on the environment.

Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934

None.

Research and Development

The overriding goals of Toyota’s technology and product development activities are to minimize the negative aspects of cars, such as traffic accidents and impact on the environment, and maximize the positive aspects, such as driving pleasure, comfort and convenience. By achieving these sometimes conflicting goals to a high degree, Toyota seeks to open the door to the automobile society of the future. To ensure efficient progress in research and development activities, Toyota coordinates and integrates all research and development phases, from basic research and advanced research to forward-looking technology and product development. With respect to long-term basic research in areas such as energy, the environment, information technology, telecommunications and materials, projects are regularly reviewed and evaluated in consultation with outside experts to achieve research and development cost control. With respect to forward-looking, leading-edge technology and product development, Toyota establishes cost-performance benchmarks on a project-by-project basis to ensure efficient development investment.

The chart below provides an overview of Toyota’s R&D at each phase.


Basic research		Phase to discover development theme Research on basic vehicle-related technology

Forward-looking and leading-edge technology development		Phase requiring technological breakthroughs such as components and systems Development of leading-edge components and systems that are more advanced than those of competitors

Product development		Phase mainly for development of new models Development of all-new models and existing-model upgrades

Toyota is promoting research and development into the early commercialization of next generation environmentally friendly, energy-efficient and safe-vehicle technology and is making efforts to produce vehicles that are friendly to people and the environment by focusing on the following areas:

•

further improvements in hybrid technologies, including in functions and cost, and contributions to the environment through advancements;

•

improvement in gasoline engine fuel economy technology as well as improvement in technology in connection with more stringent emission standards;

•

promoting improvements in functions and fuel economy of clean diesel engines;

•

development of electric vehicles, fuel cell vehicles and other alternative fuel vehicles; and

•

development of technology designed to promote driving and vehicle safety.

For a detailed discussion of the company’s research and development infrastructure, see “Operating and Financial Review and Prospects — Research and Development, Patents and Licenses.”

Components and Parts, Raw Materials and Sources of Supply

Toyota purchases parts, components, raw materials, equipment and other supplies from multiple competing suppliers located around the world. Toyota works closely with its suppliers to pursue the most optimal purchasing possible. Toyota believes that this policy encourages technological innovation, cost reduction and other measures to strengthen its vehicle competitiveness. Toyota plans to continue purchases based on the same principle and does not anticipate any difficulty in obtaining stable supplies in the foreseeable future.

Because Toyota had more than 50 overseas operations in 28 countries and regions as of March 31, 2017, procurement of parts and components is being carried out not only locally in the country of the production site but also from third countries, and the distribution network has become increasingly more complex. In order to realize timely and efficient distribution at the same time as keeping total costs at a minimum, Toyota is promoting efforts to optimize each stage of the supply-chain. To this end, Toyota has developed a standardized system of global distribution and is supporting the operation of the system at each production base. The use of the global distribution system aims at implementing parts procurement that meets changes in vehicle production in a timely manner. These varying efforts, combined together, have led to maximized customer satisfaction, as well as to building a good working relationship with Toyota’s suppliers.

Toyota aims to share information and collaborate among the procurement divisions in each of the regions throughout the world in order to procure parts and materials from the most competitive suppliers among Toyota factories located in various areas worldwide. At the same time, Toyota carries out streamlining efforts undertaken together with suppliers in each country in order to achieve sustainable growth. Toyota has been working on a cost reduction measure referred to as RR-CI and VA activities. RR-CI activities aim to improve competitive power through thorough localization, sharing parts and components and manufacturing reforms together with producing products matching customers’ needs in each region and vehicle category. Toyota is advancing RR-CI activities in conjunction with the TNGA and has been continuously working on VA (value analysis) Activities for the various types of vehicles already on sale in collaboration with in-house vehicle companies. In addition, Toyota has been working on the TNGA to achieve sweeping advances in basic performance and product appeal of parts and units as well as seeking cost reductions by sharing more parts and implementing manufacturing reforms.

In the first half of fiscal 2017, market prices of raw materials such as steel generally decreased in comparison to the first half of prior fiscal year due in part to decreased demand in China. In the latter half, prices recently picked up after remaining flat for a while. The direction of prices is still unforeseeable and Toyota is continually promoting cost reduction efforts, such as reducing the amount of raw materials it uses.

Toyota’s ability to continue to obtain supplies in an efficient manner is subject to a number of factors, some of which are not in Toyota’s control. These factors include the ability of its suppliers to provide a continued source of supplies and the effect on Toyota of competition by other users in obtaining the supplies.

Intellectual Property

Toyota holds numerous Japanese and foreign patents, trademarks, design patents and some utility model registrations. It also has a number of applications pending for Japanese and foreign patents. While Toyota considers all of its intellectual property to be important, it does not consider any specific subset of its patents, trademarks, design patents or utility model registrations to be so important that their expiration or termination would materially affect Toyota’s business.

Capital Expenditures and Divestitures

Set forth below is a chart of Toyota’s principal capital expenditures between April 1, 2014 and March 31, 2017, the approximate total costs of such activity, as well as the location and method of financing of such activity, presented on a “by subsidiary” basis and as reported in Toyota’s annual Japanese securities report filed with the director of the Kanto Local Finance Bureau.


Description of Activity	Total Cost (Yen in billions)		Location	Primary Method of Financing
Japan

Investment primarily in technology and products by Toyota Motor Corporation		946.9	Japan	Internal funds, financing from issuance of bonds, etc.

Investment primarily in technology and products by Hino Motors, Ltd.		133.2	Japan	Internal funds

Investment primarily in technology and products by Daihatsu Motor Co., Ltd.		72.1	Japan	Internal funds

Investment primarily in technology and products by Toyota Auto Body Co., Ltd.		71.4	Japan	Internal funds

Investment primarily in technology and products by Toyota Motor Kyushu, Inc.		70.4	Japan	Internal funds

Investment primarily in technology and products by Primeearth EV Energy Co., Ltd.		54.2	Japan	Borrowings

Outside of Japan

Investment primarily to promote localization by Toyota Motor Manufacturing, Kentucky, Inc.		219.5	United States	Internal funds

Investment primarily to promote localization by Toyota Motor Thailand Co., Ltd.		128.5	Thailand	Internal funds

Investment primarily to establish office facilities by Toyota Motor North America, Inc.		95.2	United States	Internal funds

Investment primarily to promote localization by Toyota Motor Manufacturing Canada Inc.		93.6	Canada	Internal funds

Investment primarily to promote localization by PT. Toyota Motor Manufacturing Indonesia		91.9	Indonesia	Internal funds

Investment primarily to promote localization by Toyota Argentina S.A.		89.6	Argentina	Borrowings


Description of Activity	Total Cost (Yen in billions)		Location	Primary Method of Financing

Investment primarily to promote localization by Toyota Motor Europe NV/SA .		68.7	Belgium	Internal funds

Investment primarily to promote localization by Toyota do Brazil Ltda.		59.9	Brazil	Internal funds

Investment primarily in leased automobiles by Toyota Motor Credit Corporation		6,574.4	United States	Internal funds, financing from issuance of bonds, etc.

Set forth below is information with respect to Toyota’s material plans to construct, expand or improve its facilities between April 2017 and March 2018, presented on a “by subsidiary” basis and as reported in Toyota’s annual Japanese securities report filed with the director of the Kanto Local Finance Bureau.


Description of Activity	Total Cost (Yen in billions)		Location	Primary Method of Financing
Japan

Investment primarily in manufacturing facilities by Toyota Motor Corporation		350.0	Japan	Internal funds

Outside of Japan

Investment primarily in manufacturing facilities by Toyota Motor Manufacturing, Kentucky, Inc.		94.4	United States	Internal funds

Investment primarily in manufacturing facilities by Toyota do Brazil Ltda.		41.6	Brazil	Internal funds

Investment primarily in manufacturing facilities by Toyota Motor Manufacturing, Indiana, Inc.		39.8	United States	Internal funds

Investment primarily in manufacturing facilities by Toyota Motor Manufacturing Canada Inc.		38.3	Canada	Internal funds

Investment primarily in manufacturing facilities by Toyota Motor Thailand Co., Ltd.		34.3	Thailand	Internal funds

Set forth below is additional information with respect to Toyota’s material plans to construct, expand or improve its facilities.

Toyota completed annual production capacity increase at its Russian factory from 50 thousand units to 100 thousand units in August 2016 and at its Turkish factory from 150 thousand units to 280 thousand units beginning at the end of 2016. In Mexico, Toyota plans to increase production capacity at its Baja California factory from 100 thousand units to 160 thousand units in 2018 and to build a new plant in 2019. In China, Toyota plans to launch a third plant in Guangzhou in 2018. Tianjin FAW Toyota Motor Co., Ltd. also plans to construct a new production line to replace an aging existing line in the middle of 2018. At the beginning of 2019, Toyota plans to launch a new plant in Malaysia dedicated to passenger vehicles with annual production capacity of 50,000 cars.

To enhance production capacity of auto parts, Toyota constructed a plant for hybrid vehicle battery production in China in September 2015 and a plant for passenger vehicle engine production in Indonesia and Brazil in February 2016.

Toyota does not collect information on the amount of expenditures already paid for each plant under construction because Toyota believes that it is difficult and it would require unreasonable effort or expense to

identify and categorize each expenditure item with reasonable accuracy as past and future expenditures. Toyota’s construction projects consist of numerous expenditures, each of which is continually being adjusted and incurred in variable and constantly changing amounts as part of the overall work-in-progress.

Seasonality

Toyota does not consider its seasonality material in the sense of significantly higher sales during any certain period of the year as compared to other periods of the year.

Legal Proceedings

From time-to-time, Toyota issues vehicle recalls and takes other safety measures including safety campaigns relating to its vehicles. Since 2009, Toyota issued safety campaigns related to the risk of floor mat entrapment of accelerator pedals and vehicle recalls related to slow-to-return or sticky accelerator pedals. In March 2014, Toyota entered into a Deferred Prosecution Agreement (“DPA”) to resolve an investigation by the U. S. Attorney for the Southern District of New York (“SDNY”) related to unintended acceleration in certain of its vehicles. The DPA provides for an independent monitor to review and assess policies and procedures relating to Toyota’s safety communications process, its process for sharing vehicle accident information internally and its process for preparing and sharing certain technical reports.

Personal injury and wrongful death claims involving allegations of unintended acceleration are pending in several consolidated proceedings in federal and state courts, as well as in individual cases in various other states. The judges in the consolidated federal action and the consolidated California state action have approved an Intensive Settlement Process (“ISP”) for such claims in those actions. Under the ISP, all individual claims within the consolidated actions are stayed pending completion of a process to assess whether they can be resolved on terms acceptable to the parties. Cases not resolved after completion of the ISP will then proceed to discovery and toward trial. Toyota has offered the ISP process to plaintiffs in other consolidated actions and in individual cases, as well.

Toyota has been named as a defendant in 33 economic loss class action lawsuits in the United States, which, together with similar lawsuits against Takata and other automakers, have been made part of a multi-district litigation proceeding in the United States District Court for the Southern District of Florida, arising out of allegations that airbag inflators manufactured by Takata are defective. Toyota has reached a settlement with the plaintiffs in the United States economic loss class actions. Court approval is being sought for the settlement. Toyota and other automakers have also been named in certain class actions filed in Mexico and Canada, as well as some other actions by states or territories of the United States. Those actions have not been settled and are being litigated.

Toyota has received a request for information from the SDNY related to statements concerning one or more reported injuries sustained in Toyota vehicles following deployments of Takata airbags. Toyota has cooperated with the request.

Toyota self-reported a process gap in fulfilling certain emissions defect information reporting requirements with the U.S. Environmental Protection Agency (“EPA”) and California Air Resources Board, including updates on its repair completion rates for recalled emissions components and certain other reports concerning emissions related defects. Toyota is involved in discussions with these agencies. The SDNY and EPA have requested certain follow-up information regarding this reporting issue, and Toyota is cooperating with the request.

Toyota also has various other pending legal actions and claims, including without limitation personal injury and wrongful death lawsuits and claims in the United States, and is subject to government investigations from-time-to-time.

evidence gathering stages, (ii) significant factual issues need to be resolved, (iii) the legal theory or nature of the claims is unclear, (iv) the outcome of future motions or appeals is unknown and/or (v) the outcomes of other matters of these types vary widely and do not appear sufficiently similar to offer meaningful guidance. Based upon information currently available to Toyota, however, Toyota believes that its losses from these matters, if any, beyond the amounts accrued, would not have a material adverse effect on Toyota’s financial position, results of operations or cash flows.

4.C ORGANIZATIONAL STRUCTURE

As of March 31, 2017, Toyota Motor Corporation had 295 Japanese subsidiaries and 302 overseas subsidiaries. The following table sets forth for each of Toyota Motor Corporation’s principal subsidiaries, the country of incorporation and the percentage ownership interest and the voting interest held by Toyota Motor Corporation.


Name of Subsidiary	Country of Incorporation	Percentage Ownership Interest		Percentage Voting Interest
Toyota Financial Services Corporation	Japan		100.00		100.00
Hino Motors, Ltd.	Japan		50.21		50.32
Toyota Motor Kyushu, Inc.	Japan		100.00		100.00
Daihatsu Motor Co., Ltd.	Japan		100.00		100.00
Toyota Finance Corporation	Japan		100.00		100.00
Toyota Auto Body Co., Ltd.	Japan		100.00		100.00
Toyota Motor East Japan, Inc.	Japan		100.00		100.00
Daihatsu Motor Kyushu Co., Ltd.	Japan		100.00		100.00
Toyota Motor Engineering & Manufacturing North America, Inc.	United States		100.00		100.00
Toyota Motor Manufacturing, Kentucky, Inc.	United States		100.00		100.00
Toyota Motor North America, Inc.	United States		100.00		100.00
Toyota Motor Credit Corporation	United States		100.00		100.00
Toyota Motor Manufacturing, Indiana, Inc.	United States		100.00		100.00
Toyota Motor Manufacturing, Texas, Inc.	United States		100.00		100.00
Toyota Motor Sales, U.S.A., Inc.	United States		100.00		100.00
Toyota Motor Manufacturing, Mississippi, Inc.	United States		100.00		100.00
Toyota Motor Manufacturing Canada Inc.	Canada		100.00		100.00
Toyota Credit Canada Inc.	Canada		100.00		100.00
Toyota Canada Inc.	Canada		51.00		51.00
Toyota Motor Europe NV/SA	Belgium		100.00		100.00
Toyota Motor Manufacturing France S.A.S.	France		100.00		100.00
Toyota Motor Finance (Netherlands) B.V.	Netherlands		100.00		100.00
Toyota Motor Manufacturing Turkey Inc.	Turkey		90.00		90.00
Toyota Motor Manufacturing (UK) Ltd.	United Kingdom		100.00		100.00
Toyota Financial Services (UK) PLC	United Kingdom		100.00		100.00
OOO “TOYOTA MOTOR”	Russia		100.00		100.00
Toyota Motor (China) Investment Co., Ltd.	China		100.00		100.00
Toyota Motor Finance (China) Co., Ltd.	China		100.00		100.00
P.T. Astra Daihatsu Motor	Indonesia		61.75		61.75
PT. Toyota Motor Manufacturing Indonesia	Indonesia		95.00		95.00
Toyota Motor Asia Pacific Pte Ltd.	Singapore		100.00		100.00
Kuozui Motors, Ltd.	Taiwan		70.00		70.00
Toyota Leasing (Thailand) Co., Ltd.	Thailand		86.84		86.84
Toyota Motor Thailand Co., Ltd.	Thailand		86.43		86.43
Toyota Motor Asia Pacific Engineering and Manufacturing Co., Ltd.	Thailand		100.00		100.00


Name of Subsidiary	Country of Incorporation	Percentage Ownership Interest		Percentage Voting Interest
Toyota Motor Corporation Australia Ltd.	Australia		100.00		100.00
Toyota Finance Australia Ltd.	Australia		100.00		100.00
Toyota Argentina S.A.	Argentina		100.00		100.00
Toyota do Brasil Ltda.	Brazil		100.00		100.00
Toyota South Africa Motors (Pty) Ltd.	South Africa		100.00		100.00

4.D PROPERTY, PLANTS AND EQUIPMENT

As of March 31, 2017, Toyota and its affiliated companies produced automobiles and related components through more than 50 overseas manufacturing organizations in 28 countries and regions besides Japan. The facilities are located principally in Japan, the United States, Canada, the United Kingdom, France, Turkey, Thailand, China, Taiwan, India, Indonesia, South Africa, Australia, Argentina and Brazil.

In addition to its manufacturing facilities, Toyota’s properties include sales offices and other sales facilities in major cities, repair service facilities and research and development facilities.

The following table sets forth information, as of March 31, 2017, with respect to Toyota’s principal facilities and organizations, all of which are owned by Toyota Motor Corporation or its subsidiaries. However, small portions, all under approximately 20%, of some facilities are on leased premises.

Facility or Subsidiary Name

Location

Land Area
(thousand
square
meters)

Number of
Employees

Principal

Products or

Functions

Japan (Toyota Motor Corporation)

Tahara Plant

Tahara City, Aichi Pref.

4,029

6,966

Automobiles

Higashi-Fuji Technical Center

Susono City, Shizuoka Pref.

2,041

3,174

Research and

Development

Toyota Head Office and Technical Center

Toyota City, Aichi Pref.

1,930

24,139

Research and

Development

Motomachi Plant

Toyota City, Aichi Pref.

1,593

7,452

Automobiles

Takaoka Plant

Toyota City, Aichi Pref.

1,312

4,079

Automobiles

Tsutsumi Plant

Toyota City, Aichi Pref.

937

5,079

Automobiles

Kamigo Plant

Toyota City, Aichi Pref.

868

2,862

Automobile parts

Kinu-ura Plant

Hekinan City, Aichi Pref.

836

3,099

Automobile parts

Honsha Plant

Toyota City, Aichi Pref.

551

2,002

Automobile parts

Nagoya Office

Nagoya City, Aichi Pref.

2,295

Office

Japan (Subsidiaries)

Hino Motors, Ltd.

Hino City, Tokyo, etc.

6,256

12,622

Automobiles

Daihatsu Motor Co., Ltd. .

Ikeda City, Osaka, etc.

7,875

11,387

Automobiles

Toyota Auto Body Co., Ltd.

Kariya City, Aichi Pref., etc.

2,256

10,920

Automobiles

Toyota Motor East Japan, Inc.

Kurokawa-gun, Miyagi Pref., etc.

2,576

7,234

Automobiles

Toyota Motor Kyushu, Inc.

Miyawaka City, Fukuoka Pref., etc.

1,940

7,534

Automobiles

Outside Japan (Subsidiaries)

Toyota Motor Manufacturing, Kentucky, Inc.

Kentucky, U.S.A.

5,161

7,863

Automobiles

Facility or Subsidiary Name

Location

Land Area
(thousand
square
meters)

Number of
Employees

Principal

Products or

Functions

Toyota Motor Thailand Co., Ltd.

Samutprakan, Thailand

4,414

10,221

Automobiles

Toyota Motor Manufacturing Canada, Inc.

Ontario, Canada

4,752

7,423

Automobiles

Toyota Motor Sales, U.S.A., Inc.

California, U.S.A.

3,348

6,032

Sales facilities

PT. Toyota Motor Manufacturing, Indonesia

Jakarta, Indonesia

2,810

6,038

Automobiles

Toyota is constantly engaged in upgrading, modernizing and revamping the operations of its manufacturing facilities based on its assessment of market needs and prospects. To respond flexibly to fluctuations in demand in each of its production operations throughout the world, Toyota continually reviews and implements appropriate production measures such as revising takt time and adjusting days of operation. As a result, Toyota believes it would require unreasonable effort to track the exact productive capacity and the extent of utilization of each of its manufacturing facilities with a reasonable degree of accuracy.

As of March 31, 2017, property, plant and equipment having a net book value of approximately ¥599.9 billion was pledged as collateral securing indebtedness incurred by Toyota Motor Corporation’s consolidated subsidiaries. Toyota believes that there does not exist any material environmental issues that may affect the company’s utilization of its assets.

Toyota considers all its principal manufacturing facilities and other significant properties to be in good condition and adequate to meet the needs of its operations.

See “— Business Overview — Capital Expenditures and Divestitures” for a description of Toyota’s material plans to construct, expand or improve facilities.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5.A OPERATING RESULTS

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 2017. Toyota’s primary markets based on vehicle unit sales for fiscal 2017 were: Japan (25.4%), North America (31.6%), Europe (10.3%) and Asia (17.7%).

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 or operate vehicles. These factors can cause consumer demand to vary substantially in different geographic markets and for different types of automobiles.

During fiscal 2017, although markets have progressed in a steady manner in the developed countries and expanded in China due to effects of a sales tax cut on small cars, markets in resource-rich countries have slowed down. Meanwhile, efforts toward improvement across businesses in areas including automated driving technology, connected vehicles, environmental technologies used in fuel cell vehicles and electric vehicles, as well as car-sharing and ride-sharing have become active.

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,
	2015		2016		2017
Japan		2,154		2,059		2,274
North America		2,715		2,839		2,837
Europe		859		844		925
Asia		1,489		1,345		1,588
Other*		1,755		1,594		1,347

Overseas total		6,818		6,622		6,697

Total		8,972		8,681		8,971

*	“Other” consists of Central and South America, Oceania, Africa and the Middle East, etc.

During fiscal 2016, Toyota’s consolidated vehicle unit sales in Japan decreased compared to the previous fiscal year, while during fiscal 2017, vehicle unit sales in Japan increased primarily as a result of the active introduction of new products and the efforts of dealers nationwide. For fiscal 2016 and fiscal 2017, the Toyota and Lexus brands’ market share excluding mini-vehicles in Japan was 46.8% and 47.8%, and the market share (including Daihatsu and Hino brands) including mini-vehicles was 43.2% and a record high of 45.0%, each remaining at a high level, consistent with in fiscal 2015. Overseas consolidated vehicle unit sales decreased as a whole during fiscal 2016, due mainly to decreases in Asia and the Middle East, despite an increase in North America, while vehicle unit sales increased as a whole during fiscal 2017, due mainly to increases in Asia and Europe, despite a decrease in the Middle East.

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,

•

the adverse effect on production due to the reliance on various suppliers for the provision of supplies,

•

the adverse effect on market, sales and productions of natural calamities and interruptions of social infrastructure, and

•

changes in the value of the Japanese yen and other currencies in which Toyota conducts 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, vehicle safety, fuel economy and emissions that can add significantly to the cost of vehicles.

Many governments also impose local content requirements, 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. From time-to-time when potential safety problems arise, Toyota issues vehicle recalls and takes other safety measures including safety campaigns relating to its vehicles. Since 2009, Toyota issued safety campaigns related to the risk of floor mat entrapment of accelerator pedals and vehicle recalls related to slow-to-return or sticky accelerator pedals. The recalls and other safety measures described above have led to a number of claims and lawsuits against Toyota. For a more detailed description of these claims and lawsuits, see “Information on the Company — Business Overview — Legal Proceedings” and note 24 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 competition in the worldwide automobile financial services industry is intensifying. 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’s total finance receivables increased during fiscal 2017 mainly due to an increase in the average lending balance. Also, vehicles and equipment on operating leases, net increased during fiscal 2017 mainly due to an increase in the number of operating leases in financial services subsidiaries in North America.

The following table provides information regarding Toyota’s finance receivables and operating leases in the past two fiscal years.


	Yen in millions
	March 31,
	2016			2017
Finance Receivables
Retail		11,156,798			11,453,352
Finance leases		1,144,312			1,265,882
Wholesale and other dealer loans		2,994,171			3,281,142

		15,295,281			16,000,376
Deferred origination costs		169,467			172,298
Unearned income		(754,836	)		(804,591	)
Allowance for credit losses
Retail		(98,853	)		(104,354	)
Finance leases		(24,600	)		(23,962	)
Wholesale and other dealer loans		(30,828	)		(30,896	)

		(154,281	)		(159,212	)

Total finance receivables, net		14,555,631			15,208,871
Less – Current portion		(5,912,684	)		(6,196,649	)

Noncurrent finance receivables, net		8,642,947			9,012,222

Operating Leases
Vehicles		5,778,463			6,105,527
Equipment		12,836			13,096
Less – Deferred income and other		(138,677	)		(152,044	)

		5,652,622			5,966,579
Less – Accumulated depreciation		(1,133,785	)		(1,263,774	)
Less – Allowance for credit losses		(13,049	)		(18,889	)

Vehicles and equipment on operating leases, net		4,505,788			4,683,916

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 “Critical Accounting Estimates — Allowance for Doubtful Accounts and Credit Losses” and note 10 to the consolidated financial statements.

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 “Critical Accounting Estimates — Investment in Operating Leases” and note 2 to the consolidated financial statements.

Toyota 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 as a hedge of specific assets or liabilities on Toyota’s consolidated balance sheet and accordingly, unrealized gains or losses related to derivatives that are not designated as a hedge are recognized currently in operations. See discussion in “Critical Accounting Estimates — Derivatives and Other Contracts at Fair Value” and “Quantitative and Qualitative Disclosures about Market Risk” and notes 21 and 27 to the consolidated financial statements.

The fluctuations in 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 2016, mainly as a result of lower interest rates, while funding costs increased during fiscal 2017, mainly as a result of higher interest rates.

Toyota launched its credit card business in Japan in April 2001. As of March 31, 2016, Toyota had 14.3 million cardholders, an increase of 0.8 million cardholders compared with March 31, 2015. As of March 31, 2017, Toyota had 14.9 million cardholders, an increase of 0.6 million cardholders compared with March 31, 2016. Credit card receivables as of March 31, 2016 increased by ¥2.7 billion from March 31, 2015 to ¥383.6 billion, and that as of March 31, 2017 increased by ¥26.0 billion from March 31, 2016 to ¥409.6 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 and GAZOO) and other businesses.

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. Toyota is exposed to fluctuations in the value of the Japanese yen against the U.S. dollar and the euro as well as the Australian dollar, the Russian ruble, the Canadian dollar, the British pound, and others. 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 2015 and 2016, Toyota produced 75.1% and 76.5%, respectively, of its non-domestic sales outside Japan. In North America, 72.2% and 75.9% of vehicles sold in calendar 2015 and 2016, respectively, were produced locally. In Europe, 76.3% and 75.2% of vehicles sold in calendar 2015 and 2016, 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 21 and 27 to the consolidated financial statements for additional information.

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 2016, the Japanese yen was on average weaker against the U.S. dollar in comparison to the previous fiscal year, but in fiscal 2017, was on average stronger against the U.S. dollar in comparison to the previous fiscal year. At the end of each of fiscal 2016 and 2017, the Japanese yen was stronger against the U.S. dollar in comparison to the end of fiscal 2015 and 2016, respectively. In fiscal 2016 and 2017, the Japanese yen was on average stronger against the euro in comparison to fiscal 2015 and 2016, respectively. At the end of each of fiscal 2016 and 2017, the Japanese yen was stronger against the euro in comparison to the end of fiscal 2015 and 2016, respectively. See further discussion in “Quantitative and Qualitative Disclosures about Market Risk — Market Risk Disclosures — Foreign Currency Exchange Rate Risk”.

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 and assesses financial and non-financial data such as vehicle unit sales, production volume, market share information, vehicle model plans and plant location costs to allocate resources within the automotive operations. Toyota does not manage any subset of its automotive operations, such as domestic or overseas operations or parts, as separate management units.

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,
	2015		2016		2017
Japan		8,338,881		8,588,437		8,798,903
North America		9,430,450		10,822,772		10,033,419
Europe		2,690,803		2,507,292		2,517,601
Asia		4,531,178		4,475,623		4,279,617
Other*		2,243,209		2,008,994		1,967,653

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

Results of Operations — Fiscal 2017 Compared with Fiscal 2016


	Yen in millions
	Year ended March 31,						2017 v. 2016 Change
	2016			2017			Amount			Percentage
Net revenues:
Japan		14,759,488			14,830,868			71,380			0.5	%
North America		11,051,970			10,239,091			(812,879	)		(7.4	)
Europe		2,661,331			2,681,039			19,708			0.7
Asia		5,003,859			4,819,821			(184,038	)		(3.7	)
Other*		2,210,214			2,161,074			(49,140	)		(2.2	)
Intersegment elimination/unallocated amount		(7,283,744	)		(7,134,700	)		149,044			—

Total		28,403,118			27,597,193			(805,925	)		(2.8	)
Operating income (loss):
Japan		1,677,522			1,202,245			(475,277	)		(28.3	)
North America		528,819			311,194			(217,625	)		(41.2	)
Europe		72,416			(12,244	)		(84,660	)		—
Asia		449,189			435,179			(14,010	)		(3.1	)
Other*		108,909			58,694			(50,215	)		(46.1	)
Intersegment elimination/unallocated amount		17,116			(696	)		(17,812	)		—

Total		2,853,971			1,994,372			(859,599	)		(30.1	)
Operating margin		10.0	%		7.2	%		(2.8	)%
Income before income taxes and equity in earnings of affiliated companies		2,983,381			2,193,825			(789,556	)		(26.5	)
Net margin from income before income taxes and equity in earnings of affiliated companies		10.5	%		7.9	%		(2.6	)%
Equity in earnings of affiliated companies		329,099			362,060			32,961			10.0
Net income attributable to Toyota Motor Corporation		2,312,694			1,831,109			(481,585	)		(20.8	)
Net margin attributable to Toyota Motor Corporation		8.1	%		6.6	%		(1.5	)%

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

Net Revenues

Toyota had net revenues for fiscal 2017 of ¥27,597.1 billion, a decrease of ¥805.9 billion, or 2.8%, compared with the prior fiscal year. This decrease mainly reflected the unfavorable impact of fluctuations in foreign currency translation rates of ¥2,380.0 billion, partially offset by the changes in vehicle unit sales and sales mix of ¥1,250.0 billion. For fiscal 2017 automotive market, Europe and Japan progressed in a steady manner and the market in Europe increased by 8.1% in calendar 2016 compared with the prior calendar year and the market in Japan increased by 7.5% compared with the prior fiscal year. Under these automotive market conditions, Toyota’s consolidated vehicle unit sales increased by 3.3% compared with the prior fiscal year to 8,971 thousand vehicles.

The table below shows Toyota’s net revenues from external customers by product category and by business.


	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Vehicles		22,267,136		21,540,563		(726,573	)		(3.3	)%
Parts and components for overseas production		493,499		468,214		(25,285	)		(5.1	)
Parts and components for after service		2,042,623		1,955,781		(86,842	)		(4.3	)
Other		1,120,555		1,067,671		(52,884	)		(4.7	)

Total Automotive		25,923,813		25,032,229		(891,584	)		(3.4	)
All Other		625,298		781,267		155,969			24.9

Total sales of products		26,549,111		25,813,496		(735,615	)		(2.8	)
Financial Services		1,854,007		1,783,697		(70,310	)		(3.8	)

Total		28,403,118		27,597,193		(805,925	)		(2.8	)%

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 2.8% during fiscal 2017 compared with the prior fiscal year to ¥25,813.4 billion, and net revenues from financial services operations which decreased by 3.8% during fiscal 2017 compared with the prior fiscal year to ¥1,783.6 billion. The decrease in net revenues from sales of products is mainly due to the unfavorable impact of fluctuations in foreign currency translation rates.

The following table shows the number of financing contracts by geographic region at the end of fiscal 2017 and 2016, respectively.


	Number of financing contracts in thousands
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount		Percentage
Japan		1,961		1,977		16		0.8	%
North America		5,252		5,394		142		2.7
Europe		954		1,019		65		6.8
Asia		1,531		1,575		44		2.9
Other*		767		786		19		2.5

Total		10,465		10,751		286		2.7	%

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

Geographically, net revenues (before the elimination of intersegment revenues) for fiscal 2017 increased by 0.5% in Japan and 0.7% in Europe, while they decreased by 7.4% in North America, 3.7% in Asia, and 2.2% in Other compared with the prior fiscal year. Excluding the impact of changes in the Japanese yen values used for translation purposes of ¥2,380.0 billion, net revenues in fiscal 2017 would have increased by 0.5% in Japan, 3.1% in North America, 17.1% in Europe, 8.0% in Asia and 12.8% in Other 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,				2017 v. 2016 Change
	2016		2017		Amount		Percentage
Toyota’s consolidated vehicle unit sales*		3,818		4,000		182		4.8	%
* including number of exported vehicle unit sales

	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount		Percentage
Net revenues:
Sales of products		14,638,709		14,705,518		66,809		0.5	%
Financial services		120,779		125,350		4,571		3.8

Total		14,759,488		14,830,868		71,380		0.5	%

Toyota’s domestic and exported vehicle unit sales increased by 182 thousand vehicles compared with the prior fiscal year and net revenues in Japan increased. For fiscal 2016 and 2017, exported vehicle unit sales were 1,759 thousand units and 1,726 thousand units, respectively.

North America


	Thousands of units
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Toyota’s consolidated vehicle unit sales		2,839		2,837		(2	)		(0.1	)%

	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Net revenues:
Sales of products		9,741,529		8,951,333		(790,196	)		(8.1	)%
Financial services		1,310,441		1,287,758		(22,683	)		(1.7	)

Total		11,051,970		10,239,091		(812,879	)		(7.4	)%

Net revenues in North America decreased due primarily to the unfavorable impact of fluctuations in foreign currency translation rates despite vehicle unit sales being nearly equal to those of the prior fiscal year.

Europe


	Thousands of units
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Toyota’s consolidated vehicle unit sales		844		925		81			9.5	%

	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Net revenues:
Sales of products		2,562,788		2,588,968		26,180			1.0	%
Financial services		98,543		92,071		(6,472	)		(6.6	)

Total		2,661,331		2,681,039		19,708			0.7	%

Despite the unfavorable impact of fluctuations in foreign currency translation rates, net revenues in Europe increased due primarily to the 81 thousand vehicles increase in vehicle unit sales compared with the prior fiscal year. The vehicle unit sales increased due mainly to strong sales of new models such as C-HR and RAV4.

Asia


	Thousands of units
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Toyota’s consolidated vehicle unit sales		1,345		1,588		243			18.1	%

	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Net revenues:
Sales of products		4,850,563		4,689,774		(160,789	)		(3.3	)%
Financial services		153,296		130,047		(23,249	)		(15.2	)

Total		5,003,859		4,819,821		(184,038	)		(3.7	)%

Net revenues in Asia decreased due primarily to the unfavorable impact of fluctuations in foreign currency translation rates despite vehicle unit sales increasing by 243 thousand compared with the prior fiscal year. The increase in vehicle unit sales was due mainly to increased sales of new models such as Calya, Sienta and IMV in Indonesia and the Philippines.

Other


	Thousands of units
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Toyota’s consolidated vehicle unit sales		1,594		1,347		(247	)		(15.5	)%

	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Net revenues:
Sales of products		2,023,206		1,996,087		(27,119	)		(1.3	)%
Financial services		187,008		164,987		(22,021	)		(11.8	)

Total		2,210,214		2,161,074		(49,140	)		(2.2	)%

Net revenues in Other decreased due primarily to the 247 thousand vehicles decrease in vehicle unit sales compared with the prior fiscal year. The decrease in vehicle unit sales was due mainly to decreased sales in the Middle East and Africa.

Operating Costs and Expenses


	Yen in millions
	Year ended March 31,				2017 v. 2016 Change
	2016		2017		Amount			Percentage
Operating costs and expenses
Cost of products sold		21,456,086		21,543,035		86,949			0.4	%
Cost of financing operations		1,149,379		1,191,301		41,922			3.6
Selling, general and administrative		2,943,682		2,868,485		(75,197	)		2.6

Total		25,549,147		25,602,821		53,674			0.2	%


	Yen in millions
	2017 v. 2016 Change
Changes in operating costs and expenses:
Effect of changes in vehicle unit sales and sales mix		1,060,000
Effect of fluctuation in foreign currency translation rates		(1,470,000	)
Effect of increase of cost of financing operations		174,000
Effect of cost reduction efforts		(440,000	)
Effect of increase of miscellaneous costs and others		729,674

Total		53,674

Operating costs and expenses increased by ¥53.6 billion, or 0.2%, to ¥25,602.8 billion during fiscal 2017 compared with the prior fiscal year. This increase resulted from the ¥1,060.0 billion impact of changes in vehicle unit sales and sales mix, the ¥174.0 billion increase in cost of financing operations (excluding the effect of fluctuation in foreign currency translation rates) and the ¥729.6 billion increase of miscellaneous costs and others, partially offset by the ¥1,470.0 billion favorable impact of fluctuations in foreign currency translation rates, and the ¥440.0 billion impact of cost reduction efforts.

The increase in miscellaneous costs and others was due mainly to the ¥310.0 billion increase in product quality related expenses, the ¥80.0 billion increase in labor costs, the ¥50.0 billion increase in depreciation expenses and the ¥105.0 billion increase in other various costs.

The increase in product quality related expenses was due mainly to an increase in provisions for recalls and other safety measures resulting from an increase in actual payments during fiscal 2017. See note 13 to the consolidated financial statements for further discussion.

During fiscal 2017 and beyond, Toyota announced recalls and other safety measures including the following:

In June 2016, Toyota announced in Japan and other regions recalls on certain Toyota and Lexus vehicles in relation to the fuel suction plate assembled to the fuel tank. In June 2016, Toyota announced in Japan and other regions recalls on certain Toyota and Lexus vehicles in relation to the curtain shield air bags in the driver and passenger side roof rails. In May, June and October 2016 and in January and March 2017, Toyota announced in Japan and other regions recalls on certain Toyota and Lexus vehicles in relation to the driver/front passenger airbag inflators.

Cost Reduction Efforts

During fiscal 2017, continued cost reduction efforts together with suppliers contributed to a reduction of operating costs and expenses by ¥440.0 billion. This was due to ¥370.0 billion in cost reduction efforts concerning design related costs due mainly to ongoing value engineering activities, and ¥70.0 billion in cost reduction efforts at plants and logistics departments.

These cost reduction efforts related to ongoing value engineering and value analysis activities, the use of common parts resulting in a reduction of part types and other manufacturing initiatives designed to reduce the costs of vehicle production. The amount of the effect of cost reduction efforts includes the impact of fluctuation in the price of steel, precious metals, non-ferrous alloys including aluminum, plastic parts and other production materials and parts.

Cost of Products Sold

Cost of products sold increased by ¥86.9 billion, or 0.4%, to ¥21,543.0 billion during fiscal 2017 compared with the prior fiscal year. The increase resulted mainly from the impact of changes in vehicle unit sales and sales mix, as well as the increase in product quality related expenses, depreciation expenses and labor costs, partially offset by the favorable impact of fluctuations in foreign currency translation rates and the impact of cost reduction efforts.

Cost of Financing Operations

Cost of financing operations increased by ¥41.9 billion, or 3.6%, to ¥1,191.3 billion during fiscal 2017 compared with the prior fiscal year. The increase resulted mainly from the increase in expenses related to residual value losses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by ¥75.1 billion, or 2.6%, to ¥2,868.4 billion during fiscal 2017 compared with the prior fiscal year. This decrease mainly reflected the favorable impact of fluctuations in foreign currency translation rates, partially offset by the impact of changes in vehicle unit sales and sales mix.

Operating Income


	Yen in millions
	2017 v. 2016 Change
Changes in operating income and loss:
Effect of cost reduction efforts		440,000
Effect of marketing efforts		210,000
Effect of increase of miscellaneous costs and others		(530,000	)
Effect of changes in exchange rates		(940,000	)
Other		(39,599	)

Total		(859,599	)

Toyota’s operating income decreased by ¥859.5 billion, or 30.1%, to ¥1,994.3 billion during fiscal 2017 compared with the prior fiscal year. This decrease was due mainly to the ¥940.0 billion unfavorable impact of changes in foreign currency exchange rates and the ¥530.0 billion increase in miscellaneous costs and others, partially offset by the ¥440.0 billion impact of cost reduction efforts and the ¥210.0 billion impact of marketing efforts. The increase in miscellaneous costs and others was due to the ¥310.0 billion increase in product quality related expenses, ¥80.0 billion increase in labor costs, the ¥50.0 billion increase in depreciation expenses and the ¥105.0 billion increase in other various costs.

Marketing efforts and marketing activities include changes in vehicle unit sales and sales mix, sales expenses and other. “Other” includes valuation gains and losses from interest rate swaps etc.

From fiscal 2017, the effect of changes in exchange rates includes translational impacts concerning operating income of overseas subsidiaries and concerning provisions in foreign currencies at the end of the fiscal year. During fiscal 2017, the negative effect of changes in exchange rates includes ¥130.0 billion in translational impacts concerning operating income of overseas subsidiaries (North America ¥40.0 billion, Europe ¥15.0 billion, Asia ¥50.0 billion and Other ¥25.0 billion) and ¥30.0 billion in translational impacts concerning provisions in foreign currencies at the end of the fiscal year.

During fiscal 2017, operating income (before elimination of intersegment profits) compared with the prior fiscal year decreased by ¥475.2 billion, or 28.3%, in Japan, ¥217.6 billion, or 41.2%, in North America, ¥84.6 billion in Europe, ¥14.0 billion, or 3.1%, in Asia, and ¥50.2 billion, or 46.1%, in Other.

The following is a description of operating income in each geographic market.

Japan


	Yen in millions
	2017 v. 2016 Change
Changes in operating income and loss:
Effect of cost reduction efforts		320,000
Effect of marketing efforts		85,000
Effect of increase of miscellaneous costs and others		(185,000	)
Effect of changes in exchange rates		(690,000	)
Other		(5,277	)

Total		(475,277	)

North America


	Yen in millions
	2017 v. 2016 Change
Changes in operating income and loss:
Effect of cost reduction efforts		110,000
Effect of marketing activities		(125,000	)
Effect of increase of miscellaneous costs and others		(115,000	)
Effect of changes in exchange rates		(45,000	)
Other		(42,625	)

Total		(217,625	)

Europe


	Yen in millions
	2017 v. 2016 Change
Changes in operating income and loss:
Effect of cost reduction efforts		25,000
Effect of marketing efforts		25,000
Effect of increase of miscellaneous costs and others		(100,000	)
Effect of changes in exchange rates		(40,000	)
Other		5,340

Total		(84,660	)

Asia


	Yen in millions
	2017 v. 2016 Change
Changes in operating income and loss:
Effect of cost reduction efforts		25,000
Effect of marketing efforts		75,000
Effect of increase of miscellaneous costs and others		(20,000	)
Effect of changes in exchange rates		(115,000	)
Other		20,990

Total		(14,010	)

Other


	Yen in millions
	2017 v. 2016 Change
Changes in operating income and loss:
Effect of cost reduction efforts		(40,000	)
Effect of marketing efforts		150,000
Effect of increase of miscellaneous costs and others		(95,000	)
Effect of changes in exchange rates		(50,000	)
Other		(15,215	)

Total		(50,215	)

Other Income and Expenses

Interest and dividend income increased by ¥1.1 billion, or 0.7%, to ¥158.9 billion during fiscal 2017 compared with the prior fiscal year.

Interest expense decreased by ¥6.0 billion, or 17.1%, to ¥29.3 billion during fiscal 2017 compared with the prior fiscal year.

Foreign exchange gain (loss), net increased by ¥39.1 billion to ¥33.6 billion during fiscal 2017 compared with the prior fiscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated assets and liabilities recognized through transactions in foreign currencies translated at prevailing exchange rates and the value at the date the transaction settled during the fiscal year, including those settled using forward foreign currency exchange contracts, or the value translated by appropriate year-end exchange rates. The ¥39.1 billion increase in foreign exchange gain (loss), net was due mainly to the losses recorded in fiscal 2016 resulting from the Japanese yen being stronger against foreign currencies at the dates of settlement of the foreign currency trade accounts receivable than at the dates of the transactions.

Other income, net increased by ¥23.6 billion to ¥36.2 billion during fiscal 2017 compared with the prior fiscal year.

Income Taxes

The provision for income taxes decreased by ¥249.3 billion, or 28.4%, to ¥628.9 billion during fiscal 2017 compared with the prior fiscal year due mainly to the decrease in income before income taxes and equity in earnings of affiliated companies. The effective tax rate for fiscal 2017 was 28.7%, which was lower than the statutory tax rate in Japan. This was due mainly to the increase in tax credits and the effect of foreign subsidiaries where statutory tax rates are lower than that of Japan.

Net Income Attributable to Noncontrolling Interests and Equity in Earnings of Affiliated Companies

Net income attributable to noncontrolling interests decreased by ¥25.6 billion, or 21.1%, to ¥95.8 billion during fiscal 2017 compared with the prior fiscal year. This was due mainly to a decrease during fiscal 2017 in net income attributable to the shareholders of consolidated subsidiaries.

Equity in earnings of affiliated companies during fiscal 2017 increased by ¥32.9 billion, or 10.0%, to ¥362.0 billion compared with the prior fiscal year. This increase was due mainly to an increase during fiscal 2017 in net income attributable to the shareholders of affiliated companies accounted for by the equity method.

Net Income Attributable to Toyota Motor Corporation

Net income attributable to the shareholders of Toyota Motor Corporation decreased by ¥481.5 billion, or 20.8%, to ¥1,831.1 billion during fiscal 2017 compared with the prior fiscal year.

Net income attributable to common shareholders during fiscal 2017 is ¥1,821.3 billion, which is derived by deducting dividends and accretion to Model AA Class Shares of ¥9.7 billion from net income attributable to Toyota Motor Corporation.

Other Comprehensive Income and Loss

Other comprehensive income and loss increased by ¥896.9 billion to ¥30.1 billion for fiscal 2017 compared with the prior fiscal year. This increase resulted from unfavorable foreign currency translation adjustment losses of ¥52.4 billion in fiscal 2017 compared with losses of ¥362.9 billion in the prior fiscal year due mainly to

appreciation of the yen against the U.S. dollar, from unrealized holding losses on securities in fiscal 2017 of ¥8.0 billion compared with losses of ¥302.6 billion in the prior fiscal year due mainly to an increase in prices of marketable securities in stock exchange markets in Japan, and from pension liability adjustment gains in fiscal 2017 of ¥92.8 billion compared with losses of ¥201.1 billion in the prior fiscal year due mainly to an increase in fair value of plan assets.

Segment Information

The following is a discussion of the 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,						2017 v. 2016 Change
	2016			2017			Amount			Percentage
Automotive:
Net revenues		25,977,416			25,081,847			(895,569	)		(3.4	)%
Operating income		2,448,998			1,692,973			(756,025	)		(30.9	)
Financial Services:
Net revenues		1,896,224			1,823,600			(72,624	)		(3.8	)
Operating income		339,226			222,428			(116,798	)		(34.4	)
All Other:
Net revenues		1,177,387			1,321,052			143,665			12.2
Operating income		66,507			81,327			14,820			22.3
Intersegment elimination/unallocated amount:
Net revenues		(647,909	)		(629,306	)		18,603			—
Operating income		(760	)		(2,356	)		(1,596	)		—

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 2017 by ¥895.5 billion, or 3.4%, to ¥25,081.8 billion compared with the prior fiscal year. The decrease mainly reflects the ¥2,180.0 billion unfavorable impact of fluctuations in foreign currency translation rates, partially offset by the ¥1,250.0 billion favorable impact of changes in vehicle unit sales and sales mix.

Operating income from the automotive operations decreased by ¥756.0 billion, or 30.9%, to ¥1,692.9 billion during fiscal 2017 compared with the prior fiscal year. This decrease in operating income was due mainly to the ¥940.0 billion unfavorable impact of changes in foreign currency exchange rates and the ¥530.0 billion increase in miscellaneous costs and others, partially offset by the ¥440.0 billion impact of cost reduction efforts and ¥210.0 billion impact of marketing efforts.

The increase in miscellaneous costs and others was due mainly to the ¥310.0 billion increase in product quality related expenses, ¥80.0 billion increase in labor costs, the ¥50.0 billion increase in depreciation expenses and the ¥105.0 billion increase in other various costs. The impact of marketing efforts was due primarily to the increase in Toyota’s vehicle unit sales by 290 thousand vehicles compared with the prior fiscal year. Vehicle unit sales increased due mainly to new models in Japan, Asia and Europe, despite the fall in demand resulting from the downturn in the economy and market in the Middle East caused by the low price of crude oil.

Financial Services Operations Segment

Net revenues for the financial services operations decreased during fiscal 2017 by ¥72.6 billion, or 3.8%, to ¥1,823.6 billion compared with the prior fiscal year. This decrease was primarily due to the ¥190.0 billion unfavorable impact of fluctuations in foreign currency translation rates.

Operating income from financial services operations decreased by ¥116.7 billion, or 34.4%, to ¥222.4 billion during fiscal 2017 compared with the prior fiscal year. This decrease was due primarily to the increase in expenses related to credit losses and residual value losses, mainly in North America.

All Other Operations Segment

Net revenues for Toyota’s other operations segments increased by ¥143.6 billion, or 12.2%, to ¥1,321.0 billion during fiscal 2017 compared with the prior fiscal year.

Operating income from Toyota’s other operations segments increased by ¥14.8 billion, or 22.3%, to ¥81.3 billion during fiscal 2017 compared with the prior fiscal year.

Results of Operations — Fiscal 2016 Compared with Fiscal 2015


	Yen in millions
	Year ended March 31,						2016 v. 2015 Change
	2015			2016			Amount			Percentage
Net revenues:
Japan		14,403,867			14,759,488			355,621			2.5	%
North America		9,677,596			11,051,970			1,374,374			14.2
Europe		2,848,294			2,661,331			(186,963	)		(6.6	)
Asia		4,981,240			5,003,859			22,619			0.5
Other*		2,449,238			2,210,214			(239,024	)		(9.8	)
Intersegment elimination/unallocated amount		(7,125,714	)		(7,283,744	)		(158,030	)		—

Total		27,234,521			28,403,118			1,168,597			4.3
Operating income:
Japan		1,571,476			1,677,522			106,046			6.7
North America		584,519			528,819			(55,700	)		(9.5	)
Europe		81,118			72,416			(8,702	)		(10.7	)
Asia		421,782			449,189			27,407			6.5
Other*		111,509			108,909			(2,600	)		(2.3	)
Intersegment elimination/unallocated amount		(19,840	)		17,116			36,956			—

Total		2,750,564			2,853,971			103,407			3.8
Operating margin		10.1	%		10.0	%		(0.1	)%
Income before income taxes and equity in earnings of affiliated companies		2,892,828			2,983,381			90,553			3.1
Net margin from income before income taxes and equity in earnings of affiliated companies		10.6	%		10.5	%		(0.1	)%
Equity in earnings of affiliated companies		308,545			329,099			20,554			6.7
Net income attributable to Toyota Motor Corporation		2,173,338			2,312,694			139,356			6.4
Net margin attributable to Toyota Motor Corporation		8.0	%		8.1	%		0.1	%

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

Net Revenues

Toyota had net revenues for fiscal 2016 of ¥28,403.1 billion, an increase of ¥1,168.5 billion, or 4.3%, compared with the prior fiscal year. This increase mainly reflected the favorable impact of fluctuations in foreign currency translation rates of ¥386.4 billion and changes in vehicle unit sales and sales mix of ¥330.0 billion. Excluding the impact of changes in the Japanese yen values used for translation purposes of ¥386.4 billion, net revenues would have been ¥28,016.6 billion during fiscal 2016, a 2.9% increase compared with the prior fiscal

year. The North America automotive market increased by 6.2% in calendar 2015 compared with the prior calendar year due to the market in the U.S. progressing in a steady manner. However, Toyota’s consolidated vehicle unit sales decreased in Japan due mainly to the slowdown of the mini-vehicles market, in Asia due mainly to the heating up of the competitive climate as well as a market downturn, and in the Middle East, Africa and Central and South America due mainly to the fall in demand resulting from the low price of crude oil and currency weakness. Under these automotive market conditions, Toyota’s consolidated vehicle unit sales decreased by 3.2% compared with the prior fiscal year to 8,681 thousand vehicles.

The table below shows Toyota’s net revenues from external customers by product category and by business.


	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Vehicles		21,557,684		22,267,136		709,452			3.3	%
Parts and components for overseas production		402,864		493,499		90,635			22.5
Parts and components for after service		1,921,764		2,042,623		120,859			6.3
Other		1,123,912		1,120,555		(3,357	)		(0.3	)

Total Automotive		25,006,224		25,923,813		917,589			3.7
All Other		606,612		625,298		18,686			3.1

Total sales of products		25,612,836		26,549,111		936,275			3.7
Financial Services		1,621,685		1,854,007		232,322			14.3

Total		27,234,521		28,403,118		1,168,597			4.3	%

Toyota’s net revenues include net revenues from sales of products, consisting of net revenues from automotive operations and all other operations, which increased by 3.7% during fiscal 2016 compared with the prior fiscal year to ¥26,549.1 billion, and net revenues from financial services operations which increased by 14.3% during fiscal 2016 compared with the prior fiscal year to ¥1,854.0 billion. Excluding the impact of changes in the Japanese yen values used for translation purposes of ¥311.9 billion, net revenues from sales of products would have been ¥26,237.1 billion during fiscal 2016, a 2.4% increase compared with the prior fiscal year. The increase in net revenues from sales of products is mainly due to changes in vehicle unit sales and sales mix. Excluding the impact of changes in the Japanese yen values used for translation purposes of ¥74.5 billion, net revenues from financial services operations would have been ¥1,779.4 billion during fiscal 2016, a 9.7% increase compared with the prior fiscal year.

The following table shows the number of financing contracts by geographic region at the end of fiscal 2016 and 2015, respectively.


	Number of financing contracts in thousands
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount		Percentage
Japan		1,873		1,961		88		4.7	%
North America		5,046		5,252		206		4.1
Europe		910		954		44		4.8
Asia		1,382		1,531		149		10.8
Other*		741		767		26		3.4

Total		9,952		10,465		513		5.2	%

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

Geographically, net revenues (before the elimination of intersegment revenues) for fiscal 2016 increased by 2.5% in Japan, 14.2% in North America, and 0.5% in Asia, whereas net revenues decreased by 6.6% in Europe,

and 9.8% in Other compared with the prior fiscal year. Excluding the impact of changes in the Japanese yen values used for translation purposes of ¥386.4 billion, net revenues in fiscal 2016 would have increased by 2.5% in Japan, 5.6% in North America, 2.8% in Europe and 3.3% in Other, and would have decreased by 2.6% 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,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Toyota’s consolidated vehicle unit sales*		3,938		3,818		(120	)		(3.0	)%

*	including number of exported vehicle unit sales



	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount		Percentage
Net revenues:
Sales of products		14,283,195		14,638,709		355,514		2.5	%
Financial services		120,672		120,779		107		0.1

Total		14,403,867		14,759,488		355,621		2.5	%

Net revenues in Japan increased due primarily to the effect of changes in exchange rates related to export transactions, despite Toyota’s domestic and exported vehicle unit sales decreasing by 120 thousand vehicles compared with the prior fiscal year. For fiscal 2015 and 2016, exported vehicle unit sales were 1,784 thousand units and 1,759 thousand units, respectively.

North America


	Thousands of units
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount		Percentage
Toyota’s consolidated vehicle unit sales		2,715		2,839		124		4.6	%

	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount		Percentage
Net revenues:
Sales of products		8,601,879		9,741,529		1,139,650		13.2	%
Financial services		1,075,717		1,310,441		234,724		21.8

Total		9,677,596		11,051,970		1,374,374		14.2	%

Net revenues in North America increased due primarily to the 124 thousand vehicles increase in vehicle unit sales compared with the prior fiscal year. The vehicle unit sales increased due mainly to the market progressing in a steady manner and strong sales of the RAV4, NX and other car models.

Europe


	Thousands of units
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Toyota’s consolidated vehicle unit sales		859		844		(15	)		(1.7	)%

	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Net revenues:
Sales of products		2,750,164		2,562,788		(187,376	)		(6.8	)%
Financial services		98,130		98,543		413			0.4

Total		2,848,294		2,661,331		(186,963	)		(6.6	)%

Net revenues in Europe decreased due primarily to the 15 thousand vehicles decrease in vehicle unit sales compared with the prior fiscal year. The vehicle unit sales decreased due mainly to decreased sales in Russia, despite the strong sales in Western Europe, especially in France and Spain.

Asia


	Thousands of units
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Toyota’s consolidated vehicle unit sales		1,489		1,345		(144	)		(9.7	)%

	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Net revenues:
Sales of products		4,833,952		4,850,563		16,611			0.3	%
Financial services		147,288		153,296		6,008			4.1

Total		4,981,240		5,003,859		22,619			0.5	%

Net revenues in Asia increased due primarily to the favorable impact of fluctuations in foreign currency translation rates despite the vehicle unit sales decreasing by 144 thousand compared with the prior fiscal year. The decrease in vehicle unit sales was due mainly to decreased sales in Indonesia and Thailand, which in turn was attributable mainly to the downturn of the market and intensifying competitive market conditions.

Other


	Thousands of units
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Toyota’s consolidated vehicle unit sales		1,755		1,594		(161	)		(9.2	)%

	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount			Percentage
Net revenues:
Sales of products		2,255,122		2,023,206		(231,917	)		(10.3	)%
Financial services		194,115		187,008		(7,107	)		(3.7	)

Total		2,449,238		2,210,214		(239,024	)		(9.8	)%

Net revenues in Other decreased due primarily to the 161 thousand vehicles decrease in vehicle unit sales compared with the prior fiscal year. The decrease in vehicle unit sales was due mainly to decreased sales in the Middle East, Africa and Central and South America.

Operating Costs and Expenses


	Yen in millions
	Year ended March 31,				2016 v. 2015 Change
	2015		2016		Amount		Percentage
Operating costs and expenses
Cost of products sold		20,916,362		21,456,086		539,724		2.6	%
Cost of financing operations		925,314		1,149,379		224,065		24.2
Selling, general and administrative		2,642,281		2,943,682		301,401		11.4

Total		24,483,957		25,549,147		1,065,190		4.4	%


	Yen in millions
	2016 v. 2015 Change
Changes in operating costs and expenses:
Effect of changes in vehicle unit sales and sales mix		510,000
Effect of fluctuation in foreign currency translation rates		350,700
Effect of increase of cost of financing operations		161,000
Effect of cost reduction efforts		(390,000	)
Effect of increase of miscellaneous costs and others		433,490

Total		1,065,190

Operating costs and expenses increased by ¥1,065.1 billion, or 4.4%, to ¥25,549.1 billion during fiscal 2016 compared with the prior fiscal year. This increase resulted from the ¥510.0 billion impact of changes in vehicle unit sales and sales mix, ¥350.7 billion unfavorable impact of fluctuations in foreign currency translation rates, ¥161.0 billion increase in cost of financing operations (excluding the effect of fluctuation in foreign currency translation rates) and the ¥433.4 billion increase of miscellaneous costs and others, partially offset by the ¥390.0 billion impact of cost reduction efforts.

The increase in miscellaneous costs and others was due mainly to the ¥110.0 billion increase in labor costs, the ¥50.0 billion increase in research and development expenses, the ¥50.0 billion increase in depreciation expenses and the ¥130.0 billion increase in other various costs, partially offset by the ¥62.8 billion decrease in product quality related expenses.

The decrease in product quality related expenses was due mainly to the effect of the strengthening of the Japanese yen against other currencies at the end of fiscal 2016 in comparison to the prior fiscal year end, primarily concerning the translation of liabilities denominated in foreign currencies. See note 13 to the consolidated financial statements for further discussion.

During fiscal 2016 and beyond, Toyota announced recalls and other safety measures including the following:

In October 2015, Toyota announced in Japan and other regions recalls on certain Toyota vehicles in relation to the power window master switch. In November 2015, Toyota announced in Japan and other regions recalls on certain Toyota vehicles in relation to the clutch piston in the continuously variable transmission. In May, June, August, September and November 2015 and in March, May and June 2016, Toyota announced in Japan and other regions recalls on certain Toyota and Lexus vehicles in relation to the driver/front passenger airbag inflator.

Cost Reduction Efforts

During fiscal 2016, continued cost reduction efforts together with suppliers contributed to a reduction of operating costs and expenses by ¥390.0 billion. This was due to ¥340.0 billion in cost reduction efforts concerning design related costs due mainly to ongoing value engineering activities, and ¥50.0 billion in cost reduction efforts at plants and logistics departments.

Cost of Products Sold

Cost of products sold increased by ¥539.7 billion, or 2.6%, to ¥21,456.0 billion during fiscal 2016 compared with the prior fiscal year. The increase resulted mainly from the ¥450.0 billion impact of changes in vehicle unit sales and sales mix, the ¥252.2 billion unfavorable impact of fluctuations in foreign currency translation rates, the ¥60.0 billion increase in labor costs and the ¥50.0 billion increase in research and development expenses, partially offset by the ¥390.0 billion impact of cost reduction efforts.

Cost of Financing Operations

Cost of financing operations increased by ¥224.0 billion, or 24.2%, to ¥1,149.3 billion during fiscal 2016 compared with the prior fiscal year. The increase resulted mainly from the increase in depreciation expenses, which was mostly attributable to an increase in operating leases.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by ¥301.4 billion, or 11.4%, to ¥2,943.6 billion during fiscal 2016 compared with the prior fiscal year. This increase mainly reflected the ¥60.0 billion impact of changes in vehicle unit sales and sales mix, the ¥53.8 billion increase in advertising costs, the ¥50.0 billion increase in labor costs, the ¥35.4 billion unfavorable impact of fluctuations in foreign currency translation rates and the increase in other various costs.

Operating Income


	Yen in millions
	2016 v. 2015 Change
Changes in operating income and loss:
Effect of cost reduction efforts		390,000
Effect of changes in exchange rates		160,000
Effect of marketing activities		(120,000	)
Effect of increase of miscellaneous costs and others		(340,000	)
Other		13,407

Total		103,407

Toyota’s operating income increased by ¥103.4 billion, or 3.8%, to ¥2,853.9 billion during fiscal 2016 compared with the prior fiscal year. This increase was due mainly to the ¥390.0 billion impact of cost reduction efforts and the ¥160.0 billion favorable impact of changes in foreign currency exchange rates, partially offset by the ¥120.0 billion impact of marketing activities, and the ¥340.0 billion increase in miscellaneous costs and others. The increase in miscellaneous costs and others was due to the ¥110.0 billion increase in labor costs, the ¥50.0 billion increase in research and development expenses, the ¥50.0 billion increase in depreciation expenses and the ¥130.0 billion increase in other various costs.

Marketing activities and marketing efforts include changes in vehicle unit sales and sales mix, sales expenses and other.

During fiscal 2016, operating income (before elimination of intersegment profits) compared with the prior fiscal year increased by ¥106.0 billion, or 6.7%, in Japan, and ¥27.4 billion, or 6.5%, in Asia, whereas it decreased by ¥55.7 billion, or 9.5%, in North America, ¥8.7 billion, or 10.7%, in Europe, and ¥2.6 billion, or 2.3%, in Other.

The following is a description of operating income in each geographic market.

Japan


	Yen in millions
	2016 v. 2015 Change
Changes in operating income and loss:
Effect of cost reduction efforts		275,000
Effect of changes in exchange rates		270,000
Effect of marketing activities		(190,000	)
Effect of increase of miscellaneous costs and others		(255,000	)
Other		6,046

Total		106,046

North America


	Yen in millions
	2016 v. 2015 Change
Changes in operating income and loss:
Effect of cost reduction efforts		75,000
Effect of changes in exchange rates		(65,000	)
Effect of marketing efforts		5,000
Effect of increase of miscellaneous costs and others		(75,000	)
Other		4,300

Total		(55,700	)

Europe


	Yen in millions
	2016 v. 2015 Change
Changes in operating income and loss:
Effect of cost reduction efforts		15,000
Effect of changes in exchange rates		(30,000	)
Effect of marketing efforts		25,000
Effect of increase of miscellaneous costs and others		(5,000	)
Other		(13,702	)

Total		(8,702	)

Asia


	Yen in millions
	2016 v. 2015 Change
Changes in operating income and loss:
Effect of cost reduction efforts		20,000
Effect of changes in exchange rates		30,000
Effect of marketing activities		(5,000	)
Effect of increase of miscellaneous costs and others		(35,000	)
Other		17,407

Total		27,407

Other


	Yen in millions
	2016 v. 2015 Change
Changes in operating income and loss:
Effect of cost reduction efforts		5,000
Effect of changes in exchange rates		(45,000	)
Effect of marketing efforts		45,000
Effect of increase of miscellaneous costs and others		(5,000	)
Other		(2,600	)

Total		(2,600	)

Other Income and Expenses

Interest and dividend income increased by ¥10.7 billion, or 7.3%, to ¥157.8 billion during fiscal 2016 compared with the prior fiscal year.

Interest expense increased by ¥12.5 billion, or 54.8%, to ¥35.4 billion during fiscal 2016 compared with the prior fiscal year.

Foreign exchange gain (loss), net decreased by ¥93.7 billion to a loss of ¥5.5 billion during fiscal 2016 compared with the prior fiscal year. Foreign exchange gains and losses include the differences between the value of foreign currency denominated assets and liabilities recognized through transactions in foreign currencies translated at prevailing exchange rates and the value at the date the transaction settled during the fiscal year, including those settled using forward foreign currency exchange contracts, or the value translated by appropriate year-end exchange rates. The ¥93.7 billion decrease in foreign exchange gain (loss), net was due mainly to the gains recorded in fiscal 2015 resulting from the Japanese yen being weaker against foreign currencies at the dates of settlement of the foreign currency trade accounts receivable than at the dates of the transactions.

Other income, net increased by ¥82.6 billion to ¥12.5 billion during fiscal 2016 compared with the prior fiscal year. The increase was due mainly to the effect of the reissuance of treasury stock for Toyota Mobility Foundation, a General Incorporated Foundation, being recorded in the prior fiscal year. See note 17 to the consolidated financial statements for further discussion.

Income Taxes

The provision for income taxes decreased by ¥15.2 billion, or 1.7%, to ¥878.2 billion during fiscal 2016 compared with the prior fiscal year due mainly to the reduction of the corporation tax rate resulting from fiscal 2015 Japanese tax reforms. The effective tax rate for fiscal 2016 was 29.4%, which was lower than the statutory tax rate in Japan. This was due mainly to the increase in tax credits and the effect of foreign subsidiaries where statutory tax rates are lower than that of Japan.

Net Income Attributable to Noncontrolling Interests and Equity in Earnings of Affiliated Companies

Net income attributable to noncontrolling interests decreased by ¥13.0 billion, or 9.7%, to ¥121.5 billion during fiscal 2016 compared with the prior fiscal year. This was due mainly to a decrease during fiscal 2016 in net income attributable to the shareholders of consolidated subsidiaries.

Equity in earnings of affiliated companies during fiscal 2016 increased by ¥20.5 billion, or 6.7%, to ¥329.0 billion compared with the prior fiscal year. This increase was due mainly to an increase during fiscal 2016 in net income attributable to the shareholders of affiliated companies accounted for by the equity method.

Net Income Attributable to Toyota Motor Corporation

Net income attributable to the shareholders of Toyota Motor Corporation increased by ¥139.3 billion, or 6.4%, to ¥2,312.6 billion during fiscal 2016 compared with the prior fiscal year.

Net income attributable to common shareholders during fiscal 2016 is ¥2,306.6 billion, which is derived by deducting dividends and accretion to Model AA Class Shares of ¥6.0 billion from net income attributable to Toyota Motor Corporation.

Other Comprehensive Income and Loss

Other comprehensive income and loss decreased by ¥1,816.1 billion to a loss of ¥866.7 billion for fiscal 2016 compared with the prior fiscal year. This decrease resulted from unrealized holding losses on securities in

fiscal 2016 of ¥302.6 billion compared with gains of ¥567.0 billion in the prior fiscal year due mainly to a decrease in prices of marketable securities in stock exchange markets in Japan, from unfavorable foreign currency translation adjustment losses of ¥362.9 billion in fiscal 2016 compared with gains of ¥380.4 billion in the prior fiscal year due mainly to appreciation of the yen against the U.S. dollar, and from pension liability adjustment losses in fiscal 2016 of ¥201.1 billion compared with gains of ¥1.9 billion in the prior fiscal year due mainly to an increase in pension obligations resulting from decreasing discount rates in Japan and a decrease in fair value of plan assets.

Segment Information

The following is a discussion of the 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,						2016 v. 2015 Change
	2015			2016			Amount			Percentage
Automotive:
Net revenues		25,062,129			25,977,416			915,287			3.7	%
Operating income		2,325,310			2,448,998			123,688			5.3
Financial Services:
Net revenues		1,661,149			1,896,224			235,075			14.2
Operating income		361,833			339,226			(22,607	)		(6.2	)
All Other:
Net revenues		1,255,791			1,177,387			(78,404	)		(6.2	)
Operating income		65,650			66,507			857			1.3
Intersegment elimination/unallocated amount:
Net revenues		(744,548	)		(647,909	)		96,639			—
Operating income		(2,229	)		(760	)		1,469			—

Automotive Operations Segment

The automotive operations segment is Toyota’s largest operating segment by net revenues. Net revenues for the automotive segment increased during fiscal 2016 by ¥915.2 billion, or 3.7%, to ¥25,977.4 billion compared with the prior fiscal year. The increase mainly reflects the ¥330.0 billion favorable impact of changes in vehicle unit sales and sales mix and the ¥307.5 billion favorable impact of fluctuations in foreign currency translation rates.

Operating income from the automotive operations increased by ¥123.6 billion, or 5.3%, to ¥2,448.9 billion during fiscal 2016 compared with the prior fiscal year. This increase in operating income was due mainly to the ¥390.0 billion impact of cost reduction efforts and the ¥160.0 billion favorable impact of changes in foreign currency exchange rates, partially offset by the ¥110.0 billion impact of marketing activities and the ¥340.0 billion increase in miscellaneous costs and others.

The impact of marketing activities was due primarily to the decrease in Toyota’s vehicle unit sales by 291 thousand vehicles compared with the prior fiscal year. The vehicle unit sales decreased due mainly to the slowdown of the mini-vehicles market in Japan, the heating up of the competitive climate, as well as the market downturn, in Asia, the fall in demand resulting from the low price of crude oil and currency weakness in the Middle East, Africa, and Central and South America, despite the increase in sales in the steady North American market. The increase in miscellaneous costs and others was due mainly to the ¥110.0 billion increase in labor costs, the ¥50.0 billion increase in research and development expenses, the ¥50.0 billion increase in depreciation expenses and the ¥110.0 billion increase in other various costs.

Financial Services Operations Segment

Net revenues for the financial services operations increased during fiscal 2016 by ¥235.0 billion, or 14.2%, to ¥1,896.2 billion compared with the prior fiscal year. This increase was primarily due to the ¥74.8 billion favorable impact of fluctuations in foreign currency translation rates.

Operating income from financial services operations decreased by ¥22.6 billion, or 6.2%, to ¥339.2 billion during fiscal 2016 compared with the prior fiscal year. This decrease was due primarily to a ¥19.7 billion worsening overall of valuation gains or losses on interest rate swaps stated at fair value, mainly in North America.

All Other Operations Segment

Net revenues for Toyota’s other operations segments decreased by ¥78.4 billion, or 6.2%, to ¥1,177.3 billion during fiscal 2016 compared with the prior fiscal year.

Operating income from Toyota’s other operations segments increased by ¥0.8 billion, or 1.3%, to ¥66.5 billion during fiscal 2016 compared with the prior fiscal year.

Related Party Transactions

Toyota does not have any significant related party transactions other than transactions with affiliated companies in the ordinary course of business. See note 11 to the consolidated financial statements for further discussion.

Recent Accounting Pronouncements in the United States

For a detail of recent accounting pronouncements to be adopted in future periods, see note 2 to the consolidated financial statements.

Critical Accounting Estimates

The consolidated financial statements of Toyota are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Toyota believes that of its significant accounting policies, the following may involve a higher degree of judgments, estimates and assumptions:

Product Warranties and Recalls and Other Safety Measures

Toyota generally warrants its products against certain manufacturing and other defects. Provisions for product warranties are provided for specific periods of time and/or usage of the product and vary depending upon the nature of the product, the geographic location of the sale and other factors. All product warranties are consistent with commercial practices. Toyota includes a provision for estimated product warranty costs as a component of cost of sales at the time the related sale is recognized. The accrued warranty costs represent management’s best estimate at the time of sale of the total costs that Toyota will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience of product failures as well as current information on repair costs. The amount of warranty costs accrued also contains an estimate of warranty claim recoveries to be received from suppliers. The foregoing evaluations are inherently uncertain, as they require material estimates and some products’ warranties extend for several years. Consequently, actual warranty costs may differ from the estimated amounts and could require additional warranty provisions. If these factors require a significant increase in Toyota’s accrued estimated warranty costs, it would negatively affect future operating results of the automotive operations.

An estimate of warranty claim accrued for each fiscal year is calculated based on the estimate of warranty claim per unit. The estimate of warranty claim per unit is calculated by dividing the actual amounts of warranty claim, net of claim recovery cost received from suppliers, by the number of sales units for the fiscal year.

As the historical recovery amounts received from suppliers is used as a factor in Toyota’s calculation of estimated accrued warranty cost, the estimated accrued warranty cost may change depending on the average recovery amounts received from suppliers in the past. However, Toyota believes that there is not a significant uncertainty of estimated amounts based on historical experience regarding recoveries received from suppliers. Toyota may seek recovery to suppliers over the life of the warranty, and there are no other significant special terms and conditions including cap on amounts that can be recovered.

Toyota accrues for costs of recalls and other safety measures, as well as product warranty cost described above, included as a component of cost of sales at the time of vehicle sale. Toyota provides for such “liabilities for recalls and other safety measures” at the time of vehicle sales comprehensively by aggregate sales of various models in a certain period by geographical regions instead of by individual models. While there is no difference in the calculation method among geographical regions, Toyota believes it is reasonable to calculate the liabilities by geographical regions because of factors such as varying labor costs among geographical regions.

The “liabilities for the costs of recalls and other safety measures” recorded in the balance sheet is calculated by deducting the “accumulated amount of repair cost paid” from the “expected liability for the cost of recalls and other safety measures”. As such, this liability is evaluated every period based on new data and are adjusted as appropriate. Toyota calculates these liabilities for units sold in the current period and each of the past 10 fiscal years, and aggregates such liabilities in determining the final liability amount.

The “expected liability for the cost of recalls and other safety measures” are calculated by multiplying the “sales unit” by the “expected average repair cost per unit”. The “expected average repair cost per unit” is calculated based on dividing the “accumulated amount of repair cost paid per unit” by the “pattern of payment occurrences”. The “pattern of payment occurrence” represents a ratio that shows the measure of payment occurrence over 10 years based on actual payments with regard to units sold within 10 years.

Factors that may cause a difference between the amount accrued at the time of vehicle sale and actual payment on individual recalls and other safety measures mainly include actual cost of recalls and safety measures during the period being significantly different from the accumulated amount of repair cost paid per unit (generally comprised of parts and labor) and the actual pattern of payment occurrence during the period being significantly different from the pattern of the payment occurrence in the past, which is considered as part of our estimation process for future recalls and other safety measures.

As described above, in estimating the comprehensive provision, the actual cost of individual recalls and other safety measures is included as a component of the calculation such as the accumulated amount of repair cost paid per unit. Thus, an individual recall announcement generally does not directly impact the financial statements when it occurs.

Allowance for Doubtful Accounts and Credit Losses

Natures of estimates and assumptions

Retail receivables and finance lease receivables consist of retail installment sales contracts secured by passenger cars and commercial vehicles. Collectability risks include consumer and dealer insolvencies and insufficient collateral values (less costs to sell) to realize the full carrying values of these receivables. As a matter of policy, Toyota maintains an allowance for doubtful accounts and credit losses representing management’s estimate of the amount of asset impairment in the portfolios of finance, trade and other receivables. Toyota determines the allowance for doubtful accounts and credit losses based on a systematic, ongoing review and

evaluation performed as part of the credit-risk evaluation process, historical loss experience, the size and composition of the portfolios, current economic events and conditions, the estimated fair value and adequacy of collateral, and other pertinent factors. This evaluation is inherently judgmental and requires material estimates, including the amounts and timing of future cash flows expected to be received, which may be susceptible to significant change. Although management considers the allowance for doubtful accounts and credit losses to be adequate based on information currently available, additional provisions may be necessary due to (i) changes in management estimates and assumptions about asset impairments, (ii) information that indicates changes in expected future cash flows, or (iii) changes in economic and other events and conditions. To the extent that sales incentives remain an integral part of sales promotion with the effect of reducing new vehicle prices, resale prices of used vehicles and, correspondingly, the collateral value of Toyota’s retail receivables and finance lease receivables could experience further downward pressure. If these factors require a significant increase in Toyota’s allowance for doubtful accounts and credit losses, it could negatively affect future operating results of the financial services operations. The level of credit losses, which has a greater impact on Toyota’s results of operations, is influenced by two factors: frequency of occurrence and expected severity of loss. For evaluation purposes, exposures to credit losses are segmented into the two primary categories of “consumer” and “dealer”. Toyota’s “consumer” category consists of smaller balances that are homogenous retail receivables and finance lease receivables. The “dealer” category consists of wholesale and other dealer loan receivables. The overall allowance for credit losses is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable losses.

Sensitivity analysis

The level of credit losses, which could significantly impact Toyota’s results of operations, is influenced by two factors: frequency of occurrence and expected severity of loss. The overall allowance for credit losses is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable losses. The following table illustrates the effect of an assumed change in frequency of occurrence or expected severity of loss mainly in the United States, assuming all other assumptions are held consistent. The table below represents the impact on the allowance for credit losses in Toyota’s financial services operations of the change in frequency of occurrence or expected severity of loss as any change impacts most significantly on the financial services operations.


	Yen in millions
	Effect on the allowance for credit losses as of March 31, 2017
10 percent change in frequency of occurrence or expected severity of loss		5,610

Investment in Operating Leases

Natures of estimates and assumptions

Vehicles on operating leases, where Toyota is the lessor, are valued at cost and depreciated over their estimated useful lives using the straight-line method to their estimated residual values. Toyota utilizes industry published information and its own historical experience to determine estimated residual values for these vehicles. Toyota evaluates the recoverability of the carrying values of its leased vehicles for impairment when there are indications of declines in residual values, and if impaired, Toyota recognizes an allowance for losses on its residual values.

Throughout the life of the lease, management performs periodic evaluations of estimated end-of-term fair values to determine whether estimates used in the determination of the contractual residual value are still considered reasonable. Factors affecting the estimated residual value at lease maturity include, but are not limited to, new vehicle incentive programs, new vehicle pricing, used vehicle supply, projected vehicle return rates, and projected loss severity. The vehicle return rate represents the number of leased vehicles actually returned at

contract maturity as a percentage of the number of lease contracts originally scheduled to mature in the same period less lease contracts subject to early terminations. A higher rate of vehicle returns exposes Toyota to higher potential losses incurred at lease termination. Severity of loss is the extent to which the end-of-term fair value of a lease is less than its carrying value at lease end.

To the extent that sales incentives remain an integral part of sales promotion, resale prices of used vehicles and, correspondingly, the fair value of Toyota’s leased vehicles could be subject to downward pressure. The extent of the impact this will have on the end of term residual value depends on the significance of the incentive programs and whether they are sustained over a number of periods. This in turn can impact the projection of future used vehicle values, adversely impacting the expected residual value of the current operating lease portfolio and increasing the provision for residual value losses. However, various other factors impact used vehicle values and the projection of future residual values, including the supply of and demand for used vehicles, interest rates, inflation, the actual or perceived quality, safety and reliability of vehicles, the general economic outlook, new vehicle pricing, projected vehicle return rates and projected loss severity, which may offset this effect. Such factors may adversely affect the results of operations for financial services due to significant charges reducing the estimated residual value.

Sensitivity analysis

The following table illustrates the effect of an assumed change in the vehicle return rate and end-of-term market values mainly in the United States, which Toyota believes are the critical estimates, in determining the residual value losses, holding all other assumptions constant. The following table represents the impact on the residual value losses in Toyota’s financial services operations of the change in vehicle return rate and end-of-term market values for returned units as those changes have a significant impact on financial services operations.


	Yen in millions
	Effect on the residual value losses over the remaining terms of the operating leases on and after April 1, 2017
1 percent increase in vehicle return rate		4,600
1 percent increase in end-of-term market values		11,892

Impairment of Long-Lived Assets

Toyota periodically reviews the carrying value of its long-lived assets held and used and assets to be disposed of, including intangible assets, when events and circumstances warrant such a review. This review is performed using estimates of future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Management believes that the estimates of future cash flows and fair values are reasonable. However, changes in estimates of such cash flows and fair values would affect the evaluations and negatively affect future operating results of the automotive operations.

Pension Costs and Obligations

Natures of estimates and assumptions

Pension costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, benefits earned, interest costs, expected rate of return on plan assets, mortality rates and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Toyota’s pension costs and obligations.

The two most critical assumptions impacting the calculation of pension costs and obligations are the discount rates and the expected rates of returns on plan assets. Toyota determines the discount rates mainly based on the rates of high quality fixed income bonds or fixed income governmental bonds currently available and expected to be available during the period to maturity of the defined benefit pension plans. Toyota determines the expected rates of return for pension assets after considering several applicable factors including, the composition of plan assets held, assumed risks of asset management, historical results of the returns on plan assets, Toyota’s principal policy for plan asset management, and forecasted market conditions. A weighted-average discount rate of 0.5% domestically and 4.2% overseas and a weighted-average expected rate of return on plan assets of 2.4% domestically and 6.1% overseas were used in calculating Toyota’s consolidated pension costs for fiscal 2017. Also, a weighted-average discount rate of 0.7% domestically and 4.0% overseas were used in calculating Toyota’s consolidated pension obligations for fiscal 2017.

Sensitivity analysis

The following table illustrates the effects of assumed changes in weighted-average discount rates and the weighted-average expected rate of return on plan assets, which Toyota believes are critical estimates in determining pension costs and obligations, assuming all other assumptions are consistent.


	Yen in millions
	Domestic						Overseas
	Effect on pre-tax income for the year ended March 31, 2018			Effect on obligations for the year ended March 31, 2017			Effect on pre-tax income for the year ended March 31, 2018			Effect on obligations for the year ended March 31, 2017
Discount rates
0.5% decrease		(10,221	)		158,111			(7,524	)		102,699
0.5% increase		9,049			(139,411	)		6,668			(76,846	)
Expected rate of return on plan assets
0.5% decrease		(7,419	)					(3,792	)
0.5% increase		7,419						3,792

Derivatives and Other Contracts at Fair Value

Toyota uses derivatives in the normal course of business to manage its exposure to foreign currency exchange rates and interest rates. The accounting for derivatives is complex and continues to evolve. Toyota estimates the fair value of derivative financial instruments using industry-standard valuation models that require observable inputs including interest rates and foreign exchange rates, and the contractual terms. In other certain cases when market data is not available, key inputs to the fair value measurement include quotes from counterparties, and other market data. These estimates are based upon valuation methodologies deemed appropriate under the circumstances. However, the use of different assumptions may have a material effect on the estimated fair value amounts.

Marketable Securities and Investments in Affiliated Companies

Toyota’s accounting policy is to record a write-down of such investments to net realizable value when a decline in fair value below the carrying value is other-than-temporary. In determining if a decline in value is other-than-temporary, Toyota considers the length of time and the extent to which the fair value has been less than the carrying value, the financial condition and prospects of the company and Toyota’s ability and intent to retain its investment in the company for a period of time sufficient to allow for any anticipated recovery in fair value.

Reissuance of treasury stock for Toyota Mobility Foundation, a General Incorporated Foundation

In fiscal 2015, Toyota Motor Corporation reissued treasury stock for Toyota Mobility Foundation, a General Incorporated Foundation (the “Foundation”), and the difference between amount of proceeds and fair value of treasury stock on reissuance was included in “Other income (expense)”. The fair value of treasury stock was measured using a dividend discount model due to the restrictions on transfer in the reissued stock for the Foundation. These estimates were based upon valuation methodologies deemed appropriate under the circumstances. See note 17 to the consolidated financial statements for further discussion.

Deferred Tax Assets

The factors used to assess the likelihood of realization of the deferred tax assets are the future reversal of existing taxable temporary differences, the future taxable income and available tax planning strategies that are prudent and feasible. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for deferred tax assets which are not more-likely-than-not to be realized.

The accounting for deferred tax assets represents Toyota’s current best estimate based on all available evidence. Unanticipated events or changes could result in re-evaluating the realizability of deferred tax assets.

Outlook

The automotive market is expected to progress steadily in developed countries and to pick up gradually in emerging countries. Meanwhile, complicated interactions and changes such as changing market and regulations, developments in technology, and entry from other businesses are changing the automotive business itself. Taking the foregoing external factors into account, Toyota expects that net revenues for fiscal 2018 will decrease compared with fiscal 2017 due mainly to an unfavorable impact of fluctuations in foreign currency translation rates. Toyota expects that operating income will decrease in fiscal 2018 compared with fiscal 2017 due mainly to the effect of marketing activities and an increase in miscellaneous costs, partially offset by a favorable impact of cost reduction efforts. Toyota expects that income before income taxes and equity in earnings of affiliated companies and net income attributable to Toyota Motor Corporation will also decrease in fiscal 2018.

For the purposes of this outlook discussion, Toyota is assuming an average exchange rate of ¥105 to the U.S. dollar and ¥115 to the euro. Exchange rate fluctuations can materially affect Toyota’s operating results. In particular, a strengthening of the Japanese yen against the U.S. dollar can have a material adverse effect on Toyota’s operating results. See “Operating and Financial Review and Prospects — Operating Results — Overview — Currency Fluctuations” for further discussion.

The foregoing statements are forward-looking statements based upon Toyota’s management’s assumptions and beliefs regarding exchange rates, market demand for Toyota’s products, economic conditions and others. See “Cautionary Statement Concerning Forward-Looking Statements”. Toyota’s actual results of operations could vary significantly from those described above as a result of unanticipated changes in the factors described above or other factors, including those described in “Risk Factors”.

5.B LIQUIDITY AND CAPITAL RESOURCES

Historically, Toyota has funded its capital expenditures and research and development activities through cash generated by operations.

In fiscal 2018, Toyota expects to sufficiently fund its capital expenditures and research and development activities through cash and cash equivalents on hand, and cash generated by operations. Toyota will use its funds for the development of environment technologies, maintenance and replacement of manufacturing facilities, and the introduction of new products. See “Information on the Company — Business Overview — Capital Expenditures and Divestitures” for information regarding Toyota’s material capital expenditures and divestitures for fiscal 2015, 2016 and 2017, and information concerning Toyota’s principal capital expenditures and divestitures currently in progress.

Toyota funds its financing programs for customers and dealers, including loans and leasing programs, from both cash generated by operations and borrowings by its sales finance subsidiaries. Toyota seeks to expand its ability to raise funds locally in markets throughout the world by expanding its network of finance subsidiaries.

Net cash provided by operating activities decreased by ¥1,046.6 billion to ¥3,414.2 billion for fiscal 2017, compared with ¥4,460.8 billion for fiscal 2016.

The decrease was primarily attributable to the ¥859.5 billion decrease in operating income. Results of operations are recorded on an accrual basis and are therefore different from cash provided or used in operating activities. Other than the operating income decrease, net cash provided by operating activities decreased primarily due to the ¥239.6 billion increase in accrued trade receivables resulting mainly from increased revenue from sales of after-service parts and components.

Net cash provided by operating activities increased by ¥775.1 billion to ¥4,460.8 billion for fiscal 2016, compared with ¥3,685.7 billion for fiscal 2015.

The increase was primarily attributable to the ¥103.4 billion increase in operating income and the ¥216.7 billion increase in depreciation expenses, i.e. noncash expenses, resulting from an increase in capital expenditures. Results of operations are recorded on an accrual basis and are therefore different from cash provided or used in operating activities. Other than the operating income increase, net cash provided by operating activities increased primarily due to the ¥240.5 billion decrease in cash payments for income taxes for fiscal 2016 resulting mainly from a decrease in provisional tax payment.

Net cash used in investing activities decreased by ¥212.6 billion to ¥2,969.9 billion for fiscal 2017, compared with ¥3,182.5 billion for fiscal 2016. The decrease was primarily attributable to the ¥1,634.6 billion decrease in investments and other assets and the ¥459.1 billion decrease in purchases of equipment leased to others, partially offset by a ¥1,833.8 billion increase in purchases of marketable securities and security investments.

Net cash used in investing activities decreased by ¥630.9 billion to ¥3,182.5 billion for fiscal 2016, compared with ¥3,813.4 billion for fiscal 2015. The decrease was primarily attributable to the ¥1,729.6 billion decrease in purchases of marketable securities and security investments, partially offset by the ¥565.4 billion increase in purchases of equipment leased to others and the ¥948.7 billion increase in investments and other assets.

Net cash used in financing activities decreased by ¥48.4 billion to ¥375.1 billion for fiscal 2017, compared with ¥423.5 billion for fiscal 2016. The decrease was primarily attributable to the ¥330.6 billion decrease in payments of long-term debt and a ¥283.9 billion increase in short-term borrowings, partially offset by the ¥474.9 billion in proceeds from the issuance of Model AA Class Shares, being recorded in the prior fiscal year.

Net cash used in financing activities was ¥423.5 billion for fiscal 2016, compared with net cash provided by financing activities of ¥306.0 billion for fiscal 2015, a ¥729.6 billion change. The change was primarily

attributable to the ¥713.9 billion increase in payments of long-term debt and a ¥430.3 billion increase in repurchase and reissuance of treasury stock, partially offset by the ¥474.9 billion proceeds from the issuance of Model AA Class Shares.

Total capital expenditures for property, plant and equipment, excluding vehicles and equipment on operating leases, were ¥1,223.8 billion during fiscal 2017, a decrease of 4.6% from the ¥1,282.5 billion in total capital expenditures during the prior fiscal year. This decrease was due primarily to a decrease in investments in Asia.

Total capital expenditures for vehicles and equipment on operating leases were ¥2,317.5 billion during fiscal 2017, a decrease of 16.5% from the ¥2,776.6 billion in total capital expenditures during the prior fiscal year. This decrease was due primarily to a decrease in investments in the financial services operations.

Toyota expects investments in property, plant and equipment, excluding vehicles and equipment on operating leases, to be approximately ¥1,300.0 billion during fiscal 2018.

Cash and cash equivalents were ¥2,995.0 billion as of March 31, 2017. Most of Toyota’s cash and cash equivalents are held in Japanese yen or in U.S. dollars. In addition, time deposits were ¥1,082.6 billion and marketable securities were ¥1,821.5 billion as of March 31, 2017.

Liquid assets, which Toyota defines as cash and cash equivalents, time deposits, marketable debt securities and its investment in monetary trust funds, increased during fiscal 2017 by ¥179.2 billion, or 1.7%, to ¥10,749.5 billion.

Trade accounts and notes receivable, less allowance for doubtful accounts increased during fiscal 2017 by ¥115.7 billion, or 5.8%, to ¥2,115.9 billion. This increase was due mainly to increased revenue from sales of after-service parts and components.

Inventories increased during fiscal 2017 by ¥327.1 billion, or 15.9%, to ¥2,388.6 billion. This increase was due mainly to the increase in vehicle inventories at foreign subsidiaries.

Total finance receivables, net increased during fiscal 2017 by ¥653.2 billion, or 4.5%, to ¥15,208.8 billion. This increase was due mainly to the increase in the lending balance in the financial services operations. As of March 31, 2017, finance receivables were geographically distributed as follows: in North America 59.1%, in Asia 11.3%, in Europe 10.3%, in Japan 8.1% and in Other 11.2%.

Marketable securities and other securities investments, including those included in current assets, increased during fiscal 2017 by ¥550.3 billion, or 6.1%, reflecting the purchases of public and corporate bonds by Toyota Motor Corporation, and the effects of marking equity securities to market.

Property, plant and equipment increased during fiscal 2017 by ¥456.6 billion, or 4.7%, primarily reflecting the increase in the capital expenditures.

Accounts and notes payable increased during fiscal 2017 by ¥176.8 billion, or 7.4%. This increase was due mainly to the increase in purchase of vehicles in foreign subsidiaries

Accrued expenses increased during fiscal 2017 by ¥411.7 billion, or 15.1%. This increase was due mainly to the increase in accrued product quality related expenses.

Income taxes payable decreased during fiscal 2017 by ¥119.7 billion, or 34.9%. This decrease was due mainly to the increase in interim tax payments.

Toyota’s total borrowings increased during fiscal 2017 by ¥862.5 billion, or 4.7%. Toyota’s short-term borrowings consist of loans with a weighted-average interest rate of 1.86% and commercial paper with a weighted-average interest rate of 1.08%. Short-term borrowings increased during fiscal 2017 by ¥255.5 billion, or 5.4%, to ¥4,953.6 billion. Toyota’s long-term debt consists of unsecured and secured loans, medium-term

notes, unsecured and secured notes etc. with weighted-average interest rates ranging from 1.35% to 8.14%, and maturity dates ranging from 2017 to 2046. The current portion of long-term debt increased during fiscal 2017 by ¥467.4 billion, or 12.2%, to ¥4,290.4 billion and the non-current portion increased by ¥139.5 billion, or 1.4%, to ¥9,911.5 billion. The increase in total borrowings resulted mainly from the increasing demand for financing associated with the increase in the lending balance. As of March 31, 2017, approximately 51% of long-term debt was denominated in U.S. dollars, 11% in Japanese yen, 10% in Australian dollars, 9% in Euros, and 19% in other currencies. Toyota hedges interest rate risk exposure of fixed-rate borrowings by entering into interest rate swaps. There are no material seasonal variations in Toyota’s borrowings requirements.

As of March 31, 2017, Toyota’s total interest bearing debt was 109.4% of Toyota Motor Corporation shareholders’ equity, compared with 109.2% as of March 31, 2016.

The following table provides information for credit rating of Toyota’s short-term borrowing and long-term debt from rating agencies, Standard & Poor’s Ratings Group (S&P), Moody’s Investors Services (Moody’s), and Rating and Investment Information, Inc. (R&I), as of May 31, 2017. A credit rating is not a recommendation to buy, sell or hold securities. A credit rating may be subject to withdrawal or revision at any time. Each rating should be evaluated separately of any other rating.


	S&P	Moody’s	R&I
Short-term borrowing	A-1+	P-1	—
Long-term debt	AA-	Aa3	AA+

Toyota’s unfunded pension liabilities of Japanese plans decreased during fiscal 2017 by ¥96.3 billion, or 17.7%, to ¥446.6 billion. The liabilities of foreign plans decreased during fiscal 2017 by ¥2.7 billion, or 1.0%, to ¥267.7 billion. The unfunded amounts will be funded through future cash contributions by Toyota or in some cases will be settled on the retirement date of each covered employee. The decrease in unfunded pension liabilities of the Japanese plans reflects mainly an increase in plan assets that resulted from an increase in stock prices. See note 20 to the consolidated financial statements for further discussion.

Toyota’s treasury policy is to maintain controls on all exposures, to adhere to stringent counterparty credit standards, and to actively monitor marketplace exposures. Toyota remains centralized, and is pursuing global efficiency of its financial services operations through Toyota Financial Services Corporation.

The key element of Toyota’s financial strategy is maintaining a strong financial position that will allow Toyota to fund its research and development initiatives, capital expenditures and financial services operations efficiently even if earnings are subject to short-term fluctuations. Toyota believes that it maintains sufficient liquidity for its present requirements and that by maintaining its high credit ratings, it will continue to be able to access funds from external sources in large amounts and at relatively low costs. Toyota’s ability to maintain its high credit ratings is subject to a number of factors, some of which are not within Toyota’s control. These factors include general economic conditions in Japan and the other major markets in which Toyota does business, as well as Toyota’s successful implementation of its business strategy.

5.C RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Toyota’s research and development is dedicated to capturing the increasingly diverse and sophisticated market through the development of attractive, affordable, high-quality products for customers worldwide. The intellectual property that R&D generates is a vital management resource that Toyota utilizes and protects to maximize its corporate value. For a more detailed discussion of the company’s research and development objectives and policies, see “Information on the Company —Business Overview — Research and Development.”

Toyota’s research and development expenditures were approximately ¥1,037.5 billion in fiscal 2017, ¥1,055.6 billion in fiscal 2016 and ¥1,004.5 billion in fiscal 2015.

Toyota operates a global research and development organization with the primary goal of building automobiles that meet the needs of customers in every region of the world. In Japan, research and development

operations are led by Toyota and Toyota Central Research & Development Laboratories, Inc., which works closely with Daihatsu Motor Co., Ltd., Hino Motors, Ltd., Toyota Auto Body Co., Ltd., Toyota Motor East Japan, Inc., and many other Toyota group companies. Overseas, Toyota has a worldwide network of technical centers as well as design and motorsports research and development centers.

Toyota established Toyota Research Institute, Inc. in January 2016 to accelerate research and development of artificial intelligence technology, which has significant potential to support future industrial technologies.

The following table provides information on Toyota’s principal research and development facilities.


Facility		Principal Activity
Japan
Toyota Technical Center		Product planning, style, design and evaluation
Higashi-Fuji Technical Center		Advanced research and development
Tokyo Design Research & Laboratory		Research of advanced styling designs
Shibetsu Proving Ground		Vehicle testing and evaluation
Toyota Central R&D Labs., Inc.		Basic research
United States
Toyota Motor Engineering and Manufacturing North America, Inc.		North American production and product planning, upper body planning, evaluation
Calty Design Research, Inc.		Design
Toyota Research Institute of North America (TRI-NA)		Advanced research relating to “energy and environment,” “safety” and “mobility infrastructure”
Toyota Research Institute, Inc.		Research and development of artificial intelligence technology
Europe
Toyota Motor Europe NV/SA		Upper body planning for European production, evaluation and advanced research
Toyota Europe Design Development S.A.R.L.		Design
Toyota Motorsport GmbH		Development of motor sports vehicles
Asia Pacific
Toyota Daihatsu Engineering and Manufacturing Co., Ltd.		Upper body planning for Australian and Asian production and evaluation
Toyota Technical Center Asia Pacific Australia Pty, Ltd.*		Upper body planning for Australian and Asian production and evaluation
China
Toyota Motor Engineering and Manufacturing (China) Co., Ltd.		Research of new, low-energy vehicle technology, vehicle evaluation and quality assurance in China
FAW Toyota Research & Development Co., Ltd		Design and evaluation of vehicles manufactured in China
GAC Toyota Motor Co., Ltd. R&D Center		Design and evaluation of vehicles manufactured in China

*	Toyota Technical Center Asia Pacific Australia Pty, Ltd. was dissolved in September 2016.

Toyota reorganized its subsidiary and vehicle development partner Toyota Technical Development Corporation, integrating its vehicle development functions into Toyota in January 2016.

Toyota carefully analyzes patents and the need for patents in each area of research to formulate more effective research and development strategies. Toyota identifies research and development projects in which it should build a strong global patent portfolio.

In addition, Toyota wishes to contribute to sustainable mobility by promoting the spread of technologies with environmental and safety benefits. This is why Toyota takes an open stance to patent licensing and grants licenses when appropriate terms are met. For example, in March 2010, Toyota and Mazda Motor Corporation entered into a licensing agreement regarding the supply of hybrid system technology.

For a further discussion of Toyota’s intellectual property, see “Information on the Company — Business Overview — Intellectual Property.”

5.D TREND INFORMATION

For a discussion of the trends that affect Toyota’s business and operating results, see “— Operating Results” and “— Liquidity and Capital Resources.”

5.E OFF-BALANCE SHEET ARRANGEMENTS

Toyota uses its securitization program as part of its funding through special purpose entities for its financial services operations. Toyota is considered as the primary beneficiary of these special purpose entities and therefore consolidates them. Toyota has not entered into any off-balance sheet securitization transactions during fiscal 2017.

Lending Commitments

Credit Facilities with Credit Card Holders

Toyota’s financial services operations issue credit cards to customers. As customary for credit card businesses, Toyota maintains credit facilities with holders of credit cards issued by Toyota. These facilities are used upon each holder’s requests up to the limits established on an individual holder’s basis. Although loans made to customers through these facilities are not secured, for the purposes of minimizing credit risks and of appropriately establishing credit limits for each individual credit card holder, Toyota employs its own risk management policy which includes an analysis of information provided by financial institutions in alliance with Toyota. Toyota periodically reviews and revises, as appropriate, these credit limits. Outstanding credit facilities with credit card holders were ¥210.2 billion as of March 31, 2017.

Credit Facilities with Dealers

Toyota’s financial services operations maintain credit facilities with dealers. These credit facilities may be used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. Toyota obtains a personal guarantee from the dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover Toyota’s exposure under such agreements. Toyota evaluates the credit facilities according to the risks assumed in entering into the credit facility. Toyota’s financial services operations also provide financing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of a lending consortium, for wholesale inventory financing, business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. Toyota’s outstanding credit facilities with dealers totaled ¥2,480.4 billion as of March 31, 2017.

Guarantees

Toyota enters into certain guarantee contracts with its dealers to guarantee customers’ payments of their installment payables that arise from installment contracts between customers and Toyota dealers, as and when requested by Toyota dealers. Guarantee periods are set to match the maturity of installment payments, and as of March 31, 2017, ranged from one month to 35 years. However, they are generally shorter than the useful lives of products sold. Toyota is required to execute its guarantee primarily when customers are unable to make required payments.

The maximum potential amount of future payments as of March 31, 2017 is ¥2,596.4 billion. Liabilities for these guarantees of ¥6.3 billion have been provided as of March 31, 2017. Under these guarantee contracts, Toyota is entitled to recover any amounts paid by it from the customers whose obligations it guaranteed.

5.F TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Contractual Obligations and Commitments

For information regarding debt obligations, capital lease obligations, operating lease obligations and other obligations, including amounts maturing in each of the next five years, see notes 12, 23 and 24 to the consolidated financial statements. In addition, as part of Toyota’s normal business practices, Toyota enters into long-term arrangements with suppliers for purchases of certain raw materials, components and services. These arrangements may contain fixed/minimum quantity purchase requirements. Toyota enters into such arrangements to facilitate an adequate supply of these materials and services.

The following tables summarize Toyota’s contractual obligations and commercial commitments as of March 31, 2017.


	Yen in millions
	Total		Payments Due by Period
	Total		Less than 1 year		1 to 3 years		3 to 5 years		5 years and after
Contractual Obligations:
Short-term borrowings (note 12)
Loans		1,125,324		1,125,324		—		—		—
Commercial paper		3,828,358		3,828,358		—		—		—
Long-term debt* (note 12)		14,179,796		4,285,806		5,513,860		3,290,910		1,089,220
Estimated amount of interest expense on long-term debt		883,915		276,755		329,311		127,995		149,854
Capital lease obligations (note 23)		22,249		4,643		5,990		2,601		9,015
Non-cancelable operating lease obligations (note 23)		80,515		16,107		21,598		15,081		27,729
Commitments for the purchase of property, plant, other assets and services (note 24)		337,498		121,865		64,957		61,513		89,163

Total		20,457,655		9,658,858		5,935,716		3,498,100		1,364,981

*	“Long-term debt” represents future principal payments.

Toyota is unable to make reasonable estimates of the period of cash settlement with respect to liabilities recognized for uncertain tax benefits, and accordingly such liabilities are excluded from the table above. See note 15 to the consolidated financial statements for further discussion.

Toyota expects to contribute ¥39,847 million domestically and ¥16,020 million overseas to its pension plans in fiscal 2018.


	Yen in millions
	Total Amounts Committed		Amount of Commitment Expiration Per Period
	Total Amounts Committed		Less than 1 year		1 to 3 years		3 to 5 years		5 years and after
Commercial Commitments (note 24):
Maximum potential exposure to guarantees given in the ordinary course of business		2,596,443		685,315		1,049,831		615,982		245,315

Total Commercial Commitments		2,596,443		685,315		1,049,831		615,982		245,315

5.G SAFE HARBOR

All information that is not historical in nature disclosed under “— Off-Balance Sheet Arrangements” and “— Tabular Disclosure of Contractual Obligations” is deemed to be a forward-looking statement. See “Cautionary Statement Concerning Forward-Looking Statements” for additional information.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A DIRECTORS AND SENIOR MANAGEMENT

In March 2011, Toyota announced its “Toyota Global Vision.” With respect to its framework for executing its operations, Toyota, with the aim of realizing the Toyota Global Vision, has been continuing its efforts to respond swiftly to the external environment, which is changing faster than ever. Following the introduction of “region-based operations” and the “business unit system” in 2011 and 2013, respectively, in 2016 Toyota adopted the “in-house company system”. Under the in-house company system, product-based in-house companies are responsible for operations of the entire process, from development to manufacturing, and work with the Business Planning & Operation Unit (existing region-based business units were reorganized into this Unit in April 2017) to promote the development of “even-better cars” from the customers’ viewpoint.

Toyota believes it is fundamental for it to be led by members of the board of directors and senior management who deeply understand, and can effectively implement, Toyota’s strengths — the monozukuri spirit of conscientious manufacturing and the genchi genbutsu principle of placing emphasis on on-site operations with a go-and-see attitude for continued improvement and problem solving. At the 109th Ordinary General Shareholders’ Meeting held in June 2013,three outside members of the board of directors were appointed in order to further reflect the opinions of those from outside the company in management’s decision-making process.Toyota has six audit & supervisory board members, three of whom are outside audit & supervisory board members. Since the 110th Ordinary General Shareholders’ Meeting held in June 2014, in order to be prepared in the event Toyota lacks the number of audit & supervisory board members required by law, one substitute audit & supervisory board member has been appointed pursuant to Article 329, Paragraph 3 of the Companies Act. In April 2015, with the aim of enhancing operational oversight and further increasing the speed of decision-making and execution of operations, the responsibility for executive vice presidents was changed to making decisions regarding management from a medium to long-term perspective and supervising execution of operations, with executives at senior managing officer level and below now responsible for execution of operations, such as business units, regional operations and key functions. In addition, at the 111th Ordinary General Meeting of Shareholders held in June 2015, the first non-Japanese executive vice president was appointed as a part of promoting diversity. In April 2017, for purposes of further accelerating decision-making and operational execution, Toyota further clarified that members of the board of directors are responsible for decision-making and management oversight and that operating officers are responsible for operational execution.

Set forth below are brief summaries of Toyota’s members of the board of directors and audit & supervisory board members.


Name (Date of birth)	Position	Brief career summary and important concurrent duties	Number and kind of shares
Takeshi Uchiyamada (August 17, 1946)	Chairman of the Board of Directors	1969 Joined Toyota Motor Corporation (“TMC”) 1998 Member of the Board of Directors of TMC 2001 Managing Director of TMC 2003 Senior Managing Director of TMC 2005 Executive Vice President of TMC 2012 Vice Chairman of TMC 2013 Chairman of TMC (to present)		51,339 common shares

Shigeru Hayakawa (September 15, 1953)		1977 Joined Toyota Motor Sales Co., Ltd. 2007 Managing Officer of TMC 2007 Toyota Motor North America, Inc. President 2009 Retired from Toyota Motor North America, Inc. President 2012 Senior Managing Officer of TMC 2015 Member of the Board of Directors and Senior Managing Officer of TMC 2017 Vice Chairman of TMC (to present) (important concurrent duties) Representative Director of Institute for International Economic Studies		21,800 common shares

Akio Toyoda (May 3, 1956)	President, Member of the Board of Directors	1984 Joined TMC 2000 Member of the Board of Directors of TMC 2002 Managing Director of TMC 2003 Senior Managing Director of TMC 2005 Executive Vice President of TMC 2009 President of TMC (to present) (important concurrent duties) Chairman and CEO of Toyota Motor North America, Inc. Chairman of TOWA REAL ESTATE Co., Ltd. Chairman and Executive Director of Toyota Alvark Tokyo Corporation		4,734,075 common shares

Didier Leroy (December 26, 1957)	Executive Vice President, Member of the Board of Directors	1982 Joined Renault S.A. 1998 Retired from Renault S.A. 1998 Joined Toyota Motor Manufacturing France S.A.S. 1998 Toyota Motor Manufacturing France S.A.S. Vice President 2005 Toyota Motor Manufacturing France S.A.S. President 2007 Managing Officer of TMC		26,000 common shares


Name (Date of birth)	Position	Brief career summary and important concurrent duties	Number and kind of shares
		2007 Toyota Motor Europe NV/SA Executive Vice President 2009 Toyota Motor Manufacturing France S.A.S. Chairman 2010 Toyota Motor Europe NV/SA President 2010 Retired from Toyota Motor Manufacturing France S.A.S. Chairman 2011 Toyota Motor Europe NV/SA President and CEO 2012 Senior Managing Officer of TMC 2015 Toyota Motor Europe NV/SA Chairman (to present) 2015 Executive Vice President, Member of the Board of Directors of TMC 2017 Member of the Board of Directors of TMC (to present) (important concurrent duties) Chairman of Toyota Motor Europe NV/SA Vice Chairman of Toyota Motor North America, Inc.

Shigeki Terashi (February 16, 1955)	Executive Vice President, Member of the Board of Directors	1980 Joined TMC 2008 Managing Officer of TMC 2008 Executive Vice President of Toyota Motor Engineering & Manufacturing North America, Inc. 2011 President and COO of Toyota Motor Engineering & Manufacturing North America, Inc. 2012 President and CEO of Toyota Motor Engineering & Manufacturing North America, Inc. 2012 President and COO of Toyota Motor North America, Inc. 2013 Retired from Toyota Motor Engineering & Manufacturing North America, Inc. President and CEO 2013 Retired from Toyota Motor North America, Inc. President and COO 2013 Senior Managing Officer of TMC 2013 Member of the Board of Directors and Senior Managing Officer of TMC 2015 Executive Vice President, Member of the Board of Directors of TMC 2017 Member of the Board of Directors of TMC (to present) (important concurrent duties) Director of Hino Motors, Ltd. Chairman of Toyota Motorsport GmbH		40,700 common shares


Name (Date of birth)	Position	Brief career summary and important concurrent duties	Number and kind of shares
Osamu Nagata (March 2, 1957)	Executive Vice President, Member of the Board of Directors	1980 Joined TMC 2009 Managing Officer of TMC 2013 Toyota Motor Engineering & Manufacturing North America, Inc. President and CEO 2015 Retired from Toyota Motor Engineering & Manufacturing North America, Inc. President and CEO 2015 Senior Managing Officer of TMC 2017 Operating Officer (Executive Vice President) of TMC 2017 Member of the Board of Directors of TMC (to present)		23,000 common shares

Ikuo Uno (January 4, 1935)	Member of the Board of Directors	1959 Joined Nippon Life Insurance Company 1986 Director of Nippon Life Insurance Company 1989 Managing Director of Nippon Life Insurance Company 1992 Senior Managing Director of Nippon Life Insurance Company 1994 Vice President and Representative Director of Nippon Life Insurance Company 1997 President and Representative Director of Nippon Life Insurance Company 2005 Chairman and Representative Director of Nippon Life Insurance Company 2011 Advisor and Director of Nippon Life Insurance Company 2011 Advisor of Nippon Life Insurance Company 2013 Member of the Board of Directors of TMC (to present) 2015 Honorary Advisor of Nippon Life Insurance Company (to present) (important concurrent duties) Honorary Advisor of Nippon Life Insurance Company Outside Director of Fuji Kyuko Co., Ltd. Outside Corporate Auditor of Odakyu Electric Railway Co., Ltd. Outside Corporate Auditor of Tohoku Electric Power Co., Inc. Outside Corporate Auditor of Sumitomo Mitsui Financial Group, Inc.		—


Name (Date of birth)	Position	Brief career summary and important concurrent duties	Number and kind of shares
Haruhiko Kato (July 21, 1952)	Member of the Board of Directors	1975 Joined Ministry of Finance (Japan) 2007 Director of Taxation Bureau, Ministry of Finance (Japan) 2009 Director-General of National Tax Administration Agency 2010 Retired from National Tax Administration Agency Director-General 2011 Senior Managing Director of Japan Securities Depository Center, Inc. 2011 President and CEO of Japan Securities Depository Center, Inc. 2013 Member of the Board of Directors of TMC (to present) 2015 President and CEO of Japan Securities Depository Center, Inc. (to present) (important concurrent duties) President and CEO of Japan Securities Depository Center, Inc. Outside Director of Canon Inc.		—

Mark. T. Hogan (May 15, 1951)	Member of the Board of Directors	1973 Joined General Motors Corporation 2002 Vice President of General Motors Group 2004 Retired from General Motors Group Vice President 2004 President of Magna International Inc. 2007 Retired from Magna International Inc. President 2008 President and CEO of Vehicle Production Group LLC 2010 Retired from Vehicle Production Group LLC President and CEO 2010 President of Dewey Investments LLC (to present) 2013 Member of the Board of Directors of TMC (to present) (important concurrent duties) President of Dewey Investments LLC		—

Masaki Nakatsugawa (January 29, 1953)	Full-time Audit & Supervisory Board Member	1976 Joined Toyota Motor Sales Co., Ltd. 2000 Dispatched to Toyota Motor Thailand Co., Ltd. 2004 General Manager for Accounting Div. of TMC 2006 Audit & Supervisory Board Member of TMC (to present)		5,800 common shares


Name (Date of birth)	Position	Brief career summary and important concurrent duties	Number and kind of shares
Masahiro Kato (September 17, 1952)	Full-time Audit & Supervisory Board Member	1975 Joined TMC 2009 Toyota Motor (China) Investment Co., Ltd. President 2009 Managing Officer of TMC 2011 Retired from Toyota Motor (China) Investment Co., Ltd. President 2011 Audit & Supervisory Board Member of TMC (to present)		15,600 common shares, 1,000 First Series Model AA Class Shares

Yoshiyuki Kagawa (December 18, 1960)	Full-time Audit & Supervisory Board Member	1983 Joined TMC 2010 General Manager of Prototype Production Division of TMC 2015 Project General Manager of Secretary Division of TMC 2015 Audit & Supervisory Board Member of TMC (to present)		3,200 common shares, 200 First Series Model AA Class Shares

Yoko Wake (November 18, 1947)	Outside Audit & Supervisory Board Member	1970 Joined the Fuji Bank, Limited 1973 Retired from the same 1977 Assistant Lecturer of Faculty of Business and Commerce of Keio University 1982 Associate Professor of the same 1993 Professor of the same 2011 Outside Audit & Supervisory Board Member of TMC (to present) 2013 Professor Emeritus of Keio University (to present) (important concurrent duties) Professor Emeritus of Keio University		—

Teisuke Kitayama (October 26, 1946)	Outside Audit & Supervisory Board Member	1969 Joined Mitsui Bank 1997 Director of The Sakura Bank, Limited 1999 Executive Officer of the same 2000 Managing Executive Officer of the same 2000 Managing Director and Managing Executive Officer of the same 2001 Managing Director and Managing Executive Officer of Sumitomo Mitsui Banking Corporation 2003 Senior Managing Director and Senior Executive Officer of the same 2003 Senior Executive Officer of Sumitomo Mitsui Financial Group, Inc. 2004 Vice President and Executive Officer of the same 2004 Retired from Director of Sumitomo Mitsui Banking Corporation 2004 Vice President and Director of Sumitomo Mitsui Financial Group, Inc. 2005 President and Director of the same		—


Name (Date of birth)	Position	Brief career summary and important concurrent duties	Number and kind of shares
		2005 Chairman and Director of Sumitomo Mitsui Banking Corporation 2011 Retired from Director of Sumitomo Mitsui Financial Group, Inc. 2014 Outside Audit & Supervisory Board Member of TMC (to present) 2017 Director of Sumitomo Mitsui Banking Corporation (to present) (important concurrent duties) Director of Sumitomo Mitsui Banking Corporation Outside Director of FUJIFILM Holdings Corporation Outside Audit & Supervisory Board Member of Tokyo Broadcasting System Holdings, Inc.

Hiroshi Ozu (July 21, 1949)	Outside Audit & Supervisory Board Member	2012 Prosecutor-General 2014 Retired from Prosecutor-General 2014 Registered as Attorney 2015 Outside Audit & Supervisory Board Member of TMC (to present) (important concurrent duties) Attorney Outside Corporate Auditor of Mitsui & Co., Ltd. Audit & Supervisory Board Member (External) of Shiseido Company, Limited		—

Mr. Akio Toyoda, who is President and Member of the Board of Directors, concurrently serves as Operating Officer (President).

Mr. Didier Leroy, Mr. Shigeki Terashi and Mr. Osamu Nagata, who are Members of the Board of Directors, concurrently serve as Operating Officers (Executive Vice Presidents).

None of the persons listed above was selected as member of board of directors, audit & supervisory board member or member of senior management pursuant to an arrangement or understanding with Toyota’s major shareholders, customers, suppliers or others.

Set forth below is a brief summary of Toyota’s substitute audit & supervisory board member.

Name

(Date of birth)

Position

Brief career summary and important concurrent duties

Number and
kind of shares

Ryuji Sakai

(August 7, 1957)

Substitute Audit & Supervisory Board Member

1985 Registered as attorney and joined Nagashima & Ohno

1990 Wilson Sonsini Goodrich & Rosati

1995 Partner of Nagashima & Ohno

2000 Partner of Nagashima Ohno & Tsunematsu (to present)

(important concurrent duties)

Attorney

Outside Audit & Supervisory Board Member of Kobayashi Pharmaceutical Co., Ltd.

Outside Audit & Supervisory Board Member of Tokyo Electron Limited

—

6.B COMPENSATION

The aggregate amount of remuneration, including bonuses but excluding stock options, accrued for all members of the board of directors and audit & supervisory board members as a group by Toyota for services in all capacities during fiscal 2017 was approximately ¥2,023 million. Members of the board of directors of Toyota Motor Corporation receive year-end bonuses, the aggregate amount of which is approved at Toyota Motor Corporation’s ordinary general shareholders’ meeting and is based on Toyota Motor Corporation’s financial performance for the fiscal year. The amounts of the bonuses paid to individual members of the board of directors are then determined based upon discussions at a meeting of Toyota Motor Corporation’s board of directors.

Remuneration for members of the board of directors was set at four billion yen or less per year (including 300 million yen or less for outside members of the board of directors), pursuant to a resolution at the 113th Ordinary General Shareholders’ Meeting held on June 14, 2017. Starting from the fiscal year ending March 2018, the “Executive Compensation Meeting,” members of which include outside members of the board of directors, will prepare recommendations to the board of directors regarding details of the monthly remuneration and bonuses for the members of the board of directors within the aforementioned maximum total amount per year, and the board of directors will make the final decision.

In addition to the above form of compensation, Toyota enacted stock option plans in 2009 and 2010. Under the 2009 plan, Toyota issued to its members of the board of directors and audit & supervisory board members stock acquisition rights to purchase 440,000 shares of common stock at an exercise price of ¥4,193 and with an expiration date of July 31, 2017. Under the 2010 plan, Toyota issued to its members of the board of directors stock acquisition rights to purchase 400,000 shares of common stock at an exercise price of ¥3,183 and with an expiration date of July 31, 2018. See “Share Ownership — Stock Options” for a more detailed discussion of Toyota’s stock option plans.

Toyota Motor Corporation and its subsidiaries have not set aside or accrued any amounts to provide pension, retirement or similar benefits to members of the board of directors and audit & supervisory board members of Toyota Motor Corporation.

Toyota’s Annual Securities Report filed with the Kanto Local Bureau of Finance on June 23, 2017, contained the following information concerning compensation in fiscal 2017 on a consolidated basis for members of the board of directors and audit & supervisory board members whose total compensation exceeded ¥100 million during such period:

- Takeshi Uchiyamada, Member of the Board of Directors: ¥183 million (¥100 million in base compensation and ¥83 million in bonus)

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- Akio Toyoda, Member of the Board of Directors: ¥322 million (¥100 million in base compensation and ¥221 million in bonus)

- Mitsuhisa Kato, Member of the Board of Directors: ¥119 million (¥67 million in base compensation and ¥51 million in bonus)

- Takahiko Ijichi, Member of the Board of Directors: ¥104 million (¥61 million in base compensation and ¥43 million in bonus)

- Didier Leroy, Member of the Board of Directors: ¥683 million (¥214 million in base compensation and ¥468 million in bonus)

- Shigeki Terashi, Member of the Board of Directors: ¥110 million (¥61 million in base compensation and ¥48 million in bonus)

The amounts above were recorded as expenses in fiscal 2017.

6.C BOARD PRACTICES

Toyota’s articles of incorporation provide for a board of directors of not more than 20 members and for not more than seven audit & supervisory board members. Shareholders elect the members of the board of directors and audit & supervisory board members at the general shareholders’ meeting. The normal term of office of a member of the board of directors is one year and of an audit & supervisory board member is four years. Members of the board of directors and audit & supervisory board members may serve any number of consecutive terms.

The board of directors may appoint one Chairman of the Board of Directors and one President, as well as one or more Vice Chairmen of the Board and Executive Vice Presidents. The board of directors elects, pursuant to its resolutions, one or more Representative Directors. Each Representative Director represents Toyota generally in the conduct of its affairs. The board of directors has the ultimate responsibility for the administration of Toyota’s affairs. None of Toyota’s members of the board of directors is party to a service contract with Toyota or any of its subsidiaries that provides for benefits upon termination of employment.

Under the Companies Act and Toyota’s articles of incorporation, Toyota may, by a resolution of its board of directors, exempt members of the board of directors (including former members of the board of directors) from their liabilities to Toyota arising in connection with their failure to execute their duties within the limits stipulated by laws and regulations. In addition, Toyota may enter into a liability limitation agreement with each member of the board of directors (excluding executive members of the board of directors, among others) which limits the maximum amount of their liabilities owed to Toyota arising in connection with their failure to execute their duties to an amount equal to the minimum liability limit amount prescribed in the laws and regulations.

Under the Companies Act, Toyota must have at least three audit & supervisory board members. At least half of the audit & supervisory board members are required to be an “outside” audit & supervisory board member, which is any person who satisfies all of the following requirements:

(a) the person has never been a member of the board of directors, accounting counselor (in the case that an accounting counselor is a legal entity, an employee of such entity who is in charge of its affairs), executive officer, manager or employee of Toyota or its subsidiaries during the 10 year period before becoming an outside audit & supervisory board member;

(b) if the person was an audit & supervisory board member of Toyota or any of its subsidiaries at any time during the 10 year period before becoming an outside audit & supervisory board member, such person has not been a member of the board of directors, accounting counselor (in the case that an accounting counselor is a legal entity, an employee of such entity who is in charge of its affairs), executive officer, manager or employee of

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Toyota or any of its subsidiaries during the 10 year period before becoming an audit & supervisory board member of Toyota or any of its subsidiaries; and

(c) the person is not a spouse or relative within the second degree of kinship of any member of the board of directors or manager or other key employee of Toyota.

The audit & supervisory board members may not at the same time be a member of the board of directors, accounting counselor (in case that an accounting counselor is a judicial person, a member of such judicial person who is in charge of its affairs), executive officers, general managers or employees of Toyota or any of its subsidiaries. Together, these audit & supervisory board members form the audit & supervisory board. The audit & supervisory board members have the duty to examine the financial statements and business reports which are submitted by the board of directors to the general shareholders’ meeting. The audit & supervisory board members also monitor the administration of Toyota’s affairs by the members of the board of directors. Audit & supervisory board members are not required to be, and Toyota’s audit & supervisory board members are not, certified public accountants. They are required to participate in meetings of the board of directors but are not entitled to vote.

Under the Companies Act and Toyota’s articles of incorporation, Toyota may, by a resolution of its board of directors, exempt audit & supervisory board members (including former audit & supervisory board members) from their liabilities to Toyota arising in connection with their failure to execute their duties within the limits stipulated by laws and regulations. In addition, Toyota may enter into a liability limitation agreement with each audit & supervisory board member which limits the maximum amount of their liabilities owed to Toyota arising in connection with their failure to execute their duties to an amount equal to the minimum liability limit amount prescribed in the laws and regulations.

Toyota does not have a remuneration committee. However, members of Toyota’s “Executive Compensation Meeting,” consisting of the Chairman, President, Chief Officer in charge of human resources and outside directors, discuss recommendations to the board of directors concerning remuneration for members of the board of directors.

6.D EMPLOYEES

The total number of Toyota employees, on a consolidated basis, was 364,445 as of March 31, 2017, 348,877 as of March 31, 2016 and 344,109 as of March 31, 2015. The following tables set forth a breakdown of persons employed by business segment and by geographic location as of March 31, 2017.


Segment	Number of Employees	Location	Number of Employees
Automotive	316,577	Japan	209,856
Financial services	10,280	North America	48,310
All other	32,312	Europe	19,196
Unallocated	5,276	Asia	63,565
		Other*	23,518

Total	364,445	Total	364,445

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

Most regular employees of Toyota Motor Corporation and its consolidated subsidiaries in Japan, other than management, are required to become members of the labor unions that comprise the Federation of All Toyota Workers’ Unions. Approximately 87% of Toyota Motor Corporation’s regular employees in Japan are members of this union.

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In Japan, basic wages and other working conditions are negotiated annually. In addition, in accordance with Japanese national custom, each employee is also paid a semi-annual bonus. Bonuses are negotiated at the time of wage negotiations and are based on Toyota’s financial results, prospects and other factors. The average wage increases per employee, excluding bonuses, in Japan have been approximately 2.6% per year for the past five fiscal years.

In general, Toyota considers its labor relations with all of its workers to be good. However, Toyota is currently a party to, and otherwise from time to time experiences, labor disputes in some of the countries in which it operates. Toyota does not expect any disputes to which it is currently a party to materially affect Toyota’s consolidated financial position.

Toyota’s average number of temporary employees on a consolidated basis was 86,005 during fiscal 2017.

6.E SHARE OWNERSHIP

For information on the number of shares of Toyota’s common stock held by each member of the board of directors and audit & supervisory board member as of June 2017, see “— Directors and Senior Management.” Each such member of the board of directors and audit & supervisory board member owns less than one percent of the issued and outstanding shares of common stock of Toyota. The shares held by each member of the board of directors and audit & supervisory board member do not include options that are exercisable for shares of Toyota’s common stock. For a description of these options, see “— Stock Options” below.

None of Toyota’s shares of common stock entitles the holder to any preferential voting rights.

Stock Options

The only stock option plans for which stock options or stock acquisition rights are currently exercisable or will become exercisable in the future are those approved by Toyota’s shareholders in June of 2009 and 2010.Toyota has not enacted any such plan after 2011. Under the 2009 plan, Toyota issued stock acquisition rights to purchase 3,492,000 shares of common stock to its members of the board of directors and 615 officers and employees, including directors, officers and employees of its subsidiaries and one Toyota affiliated company. Under the 2010 plan, Toyota issued stock acquisition rights to purchase 3,600,000 shares of common stock to its members of the board of directors and officers and employees, including directors, officers and employees of its subsidiaries and one Toyota affiliated company.

Pursuant to the provisions of the 2009 and 2010 plans, stock acquisition rights may be exercised during a six-year period that starts two years from the date of grant. The exercise price of each stock acquisition right is 1.025 times the closing price of Toyota’s common stock on the Tokyo Stock Exchange on the date of grant. The 2009 and 2010 plans provide that each member of the board of directors will be granted no more than 400 and no less than 300 stock acquisition rights, and each eligible officer or employee will be granted no more than 200 and no less than 20 stock acquisition rights. For each of the 2009 and 2010 plans, 100 shares will be issued or delivered upon the exercise of each stock acquisition right. The options are granted as of early August of each year for each plan.

An option holder who retires while one’s options are still exercisable retains the right to exercise one’s options until the expiration of the exercise period described above. However, an option holder’s right to purchase common stock under each plan lapses automatically upon one’s death or upon taking position such as in the management with a competitor.

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The following table summarizes information for options and the incentive plan outstanding and exercisable at March 31, 2017:

Outstanding

Exercisable

Exercise price range

Number of
shares

Weighted-
average
exercise
price

Weighted-
average
remaining
life

Number of
shares

Weighted-
average
exercise
price

(Yen)

(Years)

(Yen)

3,153 – 4,154

1,192,300

3,682

0.80

1,192,300

3,682

Toyota also has an employee stock ownership association in Japan for employees and full time and part time company advisors. Members of the employee stock ownership association set aside certain amounts from their monthly salary and bonuses to purchase Toyota’s common stock through the employee stock ownership association. As of March 31, 2017, the employee stock ownership association held 14,199,548 shares of Toyota’s common stock.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A MAJOR SHAREHOLDERS

As of March 31, 2017, 3,262,997,492 shares of Toyota’s common stock (out of which 288,274,636 shares were treasury stock and 2,974,722,856 shares were outstanding) and 47,100,000 First Series Model AA Class Shares of Toyota were issued. Beneficial ownership of Toyota’s common stock in the table below was prepared from information known to Toyota or that could be ascertained from public filings, including filings made by Toyota’s shareholders regarding their ownership of Toyota’s common stock under the Financial Instruments and Exchange Law of Japan.

Under the Financial Instruments and Exchange Law, any person who becomes, beneficially and solely or jointly, a holder, including, but not limited to, a deemed holder who manages shares for another holder pursuant to a discretionary investment agreement, of more than 5% of the total issued shares of a company listed on a Japanese stock exchange (including ADSs representing such shares) must file a report concerning the shareholding with the director of the relevant local finance bureau. A similar report must be filed, with certain exceptions, if the percentage of shares held by a holder, solely or jointly, of more than 5% of the total issued shares of a company increases or decreases by 1% or more, or if any change to a material matter set forth in any previously filed reports occurs.

Based on information known to Toyota or can be ascertained from public filings, the following table sets forth the beneficial ownership of holders of 5% or more of Toyota’s common stock as of the most recent practicable date. Toyota is not aware of any holder of First Series Model AA Class Shares who beneficially owns 5% or more of Toyota’ outstanding First Series Model AA Class Shares.


Name of Beneficial Owner	Number of Shares of Common Stock (in thousands)		Percentage of Outstanding Voting Shares of Common Stock
Toyota Industries Corporation		229,274		7.71

According to The Bank of New York Mellon, depositary for Toyota’s ADSs (the “Depositary”), as of March 31, 2017, 56,099,541 shares of Toyota’s common stock were held in the form of ADRs and there were 1,942 ADR holders of record and 166,175 beneficial owners in the United States. According to Toyota’s register of shareholders, as of March 31, 2017, there were 687,028 holders of common stock and First Series Model AA Class Shares of record worldwide. As of March 31, 2017, there were 516 record holders of Toyota’s common stock with addresses in the United States, whose shareholdings represented approximately 11.6% of the issued common stock on that date. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States might not fully show the number of beneficial owners in the United States.

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None of Toyota’s shares of common stock entitles the holder to any preferential voting rights.

To the extent known to Toyota, Toyota is not owned or controlled, directly or indirectly, by another corporation, any foreign government or any natural or legal person.

Toyota knows of no arrangements the operation of which may at a later time result in a change of control.

7.B RELATED PARTY TRANSACTIONS

Business Relationships

Toyota purchases materials, supplies and services from numerous suppliers throughout the world in the ordinary course of business, including Toyota’s affiliated companies accounted for by the equity method and those firms with which certain members of Toyota’s board of directors are affiliated. Toyota purchased materials, supplies and services from these affiliated entities in the amount of ¥5,483.7 billion in fiscal 2017. Toyota also sells its products and services to Toyota’s affiliated companies accounted for by the equity method and firms with which certain members of Toyota’s board of directors are affiliated. Toyota sold products and services to these affiliated entities in the amount of ¥1,914.3 billion in fiscal 2017. See note 11of Toyota’s consolidated financial statements for additional information regarding Toyota’s investments in and transactions with affiliated companies.

Loans

Toyota regularly has trade accounts and other receivables by, and accounts payable to, Toyota’s affiliated companies accounted for by the equity method and firms with which certain members of Toyota’s board of directors are affiliated. Toyota had outstanding trade accounts and other receivables by these affiliated entities in the amount of ¥273.4 billion as of March 31, 2017. Toyota had outstanding trade accounts and other payables to these affiliated entities in the amount of ¥680.6 billion as of March 31, 2017.

Toyota, from time to time, provides short- to medium-term loans to its affiliated companies, as well as loans under a loan program established by certain subsidiaries to assist their executives and members of the board of directors with the purchase of homes. As of March 31, 2017, an aggregate amount of ¥1.1 billion in loans was outstanding to its affiliated companies accounted for by the equity method. As of March 31, 2017, an aggregate amount of ¥30.8 billion in loans was outstanding to those of its affiliated companies not accounted for by the equity method, which are 20% to 50% owned by Toyota. As of March 31, 2017, the largest loan outstanding to any such affiliated company accounted for by the equity method was a loan of ¥0.8 billion at a fixed rate of 0.46%. Toyota believes that each of these loans was entered into in the ordinary course of business.

7.C INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

8.A CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

1-3.	Consolidated Financial Statements. Toyota’s audited consolidated financial statements are included under “Item 18 — Financial Statements.” Except for Toyota’s consolidated financial statements included under Item 18, no other information in this annual report has been audited by Toyota’s auditors.

4.	Not applicable.

5.	Not applicable.

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6.	Export Sales. See “Operating and Financial Review and Prospects — Operating Results — Overview — Geographic Breakdown.”

7.	Legal and Arbitration Proceedings. See “Information on the Company — Business Overview — Legal Proceedings.”

8.	Dividend Policy. See “Key Information — Selected Financial Data — Dividend Information.”

8.B SIGNIFICANT CHANGES

Except as disclosed in this annual report, there have been no significant changes since the date of Toyota’s latest annual financial statements.

ITEM 9. THE OFFER AND LISTING

9.A LISTING DETAILS

The following table sets forth for the periods shown the reported high and low sales prices of the common stock on the Tokyo Stock Exchange and the ADSs on the New York Stock Exchange.


	Tokyo Stock Exchange				New York Stock Exchange
	Price per Share				Price per ADS
	High		Low		High		Low
Fiscal Year Ended March 31,
2013		5,050		2,795		106.00		72.04
2014		6,760		4,610		134.94		99.70
2015		8,783		5,205		145.80		103.38
2016		8,700		5,703		142.84		102.54
2017		7,215		4,917		123.18		97.80

Financial Quarter Ended:
June 30, 2015		8,700		8,095		142.84		131.91
September 30, 2015		8,444		6,650		136.39		105.00
December 31, 2015		7,862		6,961		127.28		117.23
March 31, 2016		7,495		5,703		122.26		102.54
June 30, 2016		6,027		4,917		110.00		97.80
September 30, 2016		6,372		4,965		122.09		98.48
December 31, 2016		7,215		5,492		123.18		109.94
March 31, 2017		7,103		6,042		121.39		108.41

Month Ended:
December 31, 2016		7,215		6,592		123.18		116.70
January 31, 2017		7,103		6,575		121.39		115.07
February 28, 2017		6,558		6,220		116.15		111.12
March 31, 2017		6,550		6,042		114.98		108.41
April 30, 2017		6,154		5,670		110.33		104.17
May 31, 2017		6,242		5,923		110.35		105.69

9.B PLAN OF DISTRIBUTION

Not applicable.

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9.C MARKETS

The primary trading market for Toyota’s common stock is the Tokyo Stock Exchange. The common stock is also listed on the Nagoya Stock Exchange and two other regional stock exchanges in Japan.

Since September 29, 1999, American Depositary Shares, each equal to two shares of Toyota’s common stock and evidenced by American Depositary Receipts, have been traded and listed on the New York Stock Exchange through a sponsored ADR facility operated by The Bank of New York Mellon, as Depositary. Prior to that time, Toyota’s ADSs were listed on the Nasdaq SmallCap Market through five unsponsored ADR facilities.

Toyota’s common stock is also listed on the London Stock Exchange.

9.D SELLING SHAREHOLDERS

Not applicable.

9.E DILUTION

Not applicable.

9.F EXPENSES OF THE ISSUE

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

10.A SHARE CAPITAL

Not applicable.

10.B MEMORANDUM AND ARTICLES OF ASSOCIATION

Except as otherwise stated, set forth below is information relating to Toyota’s common stock and Model AA Class Shares, including brief summaries of the relevant provisions of Toyota’s articles of incorporation and share handling regulations, as currently in effect, and of the Companies Act, Act Concerning Book-Entry Transfer of Corporate Bonds, Shares and Other Securities (the “Book-Entry Transfer Act”) and related legislation.

General

Toyota’s authorized number of shares as of March 31, 2017 was 10,000,000,000 common shares, of which 3,262,997,492 shares were issued. The articles of incorporation was amended at the 111th Ordinary General Shareholders’ Meeting held in June 2015 and Toyota’s authorized number of shares was changed to 10,000,000,000 shares, with the total number of authorized shares per class, of 10,000,000,000 for common shares, 50,000,000 for First Series Model AA Class Shares, 50,000,000 for Second Series Model AA Class Shares, 50,000,000 for Third Series Model AA Class Shares, 50,000,000 for Fourth Series Model AA Class Shares and 50,000,000 for Fifth Series Model AA Class Shares, and the total number of shares authorized to be issued with respect to First Series Model AA Class Shares through the Fifth Series Model AA Class Shares not to exceed 150,000,000 shares. As of June 23, 2017, there were 47,100,000 shares of First Series Model AA Class Shares issued and outstanding.

Toyota does not issue share certificates for its shares. In accordance with the Companies Act, the Book-Entry Transfer Act and Toyota’s articles of incorporation, Toyota’s common shares are recorded or registered on (i) Toyota’s register of shareholders and (ii) transfer account books of the Japan Securities Depository Center, Inc. (“JASDEC”) which is a book-entry transfer institution and securities firms, banks or other account

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management institutions. The transfer of common shares will generally become effective once the transfer is recorded in the transferee’s account. In order to assert shareholders’ rights against Toyota, a shareholder must generally have his or her name and address recorded or registered on Toyota’s register of shareholders. A holder of common shares can assert minority shareholders’ rights (shareholders’ rights for which Toyota has not set a record date) against Toyota if JASDEC provides an individual shareholder notice to Toyota upon the shareholder’s request. The shareholder of deposited shares underlying the ADSs is the Depositary for the ADSs. Accordingly, holders of ADSs will not be able directly to assert shareholders’ rights.

A holder of common shares must have a transfer account to transfer shares. Holders of common shares who do not have a transfer account with JASDEC must have an account with an account management institution that directly or indirectly has a transfer account with JASDEC. Once Toyota decides on the record date for its shareholders’ meeting or makes a request to JASDEC based on justifiable grounds, JASDEC will promptly provide to Toyota names, addresses and other information with respect to the holders of Toyota’s common shares who are recorded on the transfer account books of JASDEC or account management institutions. Upon receiving such information, Toyota will record or register such information received from JASDEC on its register of shareholders. Accordingly, holders of common shares recorded or registered on Toyota’s register of shareholders will be treated as holders of common shares of Toyota and may exercise rights, such as voting rights, and will receive dividends (if any) and notices to holders of common shares directly from Toyota. Holders of common shares wishing to assert minority shareholders’ rights against Toyota must request an individual shareholder notice to JASDEC or the account management institution at which the shareholder has opened a transfer account. In response to such request, JASDEC will provide the individual shareholders notice to Toyota. A holder of common shares may assert his or her minority shareholders’ rights against Toyota for a period of four weeks after the date the individual shareholder notice is provided to Toyota. The shares held by a person who is deemed to hold additional shares according to the transfer account books are aggregated for these purposes.

Model AA Class Shares, once issued, will be recorded or registered on Toyota’s register of shareholders. The transfer of Model AA Class Shares, once issued, will be effective upon an agreement between the transferor and the transferee, but entry or record of a change of holder in the register of shareholders will require an approval from the board of directors.

Corporate Purpose

Article 2 of Toyota’s articles of incorporation states that its purpose is to engage in the following businesses:

•

the manufacture, sale, leasing and repair of:

•

motor vehicles, industrial vehicles, ships, aircraft, other transportation machinery and apparatus, spacecraft and space machinery and apparatus, and parts thereof;

•

industrial machinery and apparatus, other general machinery and apparatus, and parts thereof;

•

electrical machinery and apparatus, and parts thereof; and

•

measuring machinery and apparatus, medical machinery and apparatus, and parts thereof.

•

the manufacture and sale of ceramics and products of synthetic resins, and materials thereof;

•

the manufacture, sale and repair of construction materials and equipment, furnishings and fixtures for residential buildings;

•

the planning, designing, supervision, execution and undertaking of construction works, civil engineering works, land development, urban development and regional development;

•

the sale, purchase, leasing, brokerage and management of real estate;

•

the service of information processing, information communications and information supply and the development, sale and leasing of software;

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•

the design and development of product sales systems that utilize networks such as the Internet, sale, leasing and maintenance of computers included within such systems, and sale of products by utilizing such systems;

•

the inland transportation, marine transportation, air transportation, stevedoring, warehousing and tourism businesses;

•

the printing, publishing, advertising and publicity, general leasing, security and workers dispatch businesses;

•

the credit card operations, purchase and sale of securities, investment consulting, investment trust operation, and other financial services;

•

the operation and management of such facilities as parking lots, showrooms, educational facilities, medical care facilities, sports facilities, marinas, airfields, food and drink stands and restaurants, lodging facilities, retail stores and others;

•

the non-life insurance agency business and the life insurance agency business;

•

the production and processing by using biotechnology of agricultural products including trees, and the sale of such products;

•

the sale of goods related to each of the preceding items and mineral oil;

•

the conducting of engineering, consulting, invention and research relating to each of the preceding items and the utilization of such invention and research; and

•

any businesses incidental to or related to any of the preceding items.

Dividends

Dividends — General

Toyota normally pays dividends twice per year, including an interim dividend and a year-end dividend. Toyota’s articles of incorporation provide that retained earnings can be distributed as dividends pursuant to a resolution of its board of directors. Toyota’s board of directors resolves to pay year-end dividends to holders of common shares and registered pledgees of common shares of record as of March 31, the record date, in each year. In addition, the articles of incorporation provide that in the event that Toyota pays a year-end dividend to holders of common shares, it will pay AA Dividends in cash from surplus to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares entered or recorded in the final register of shareholders as of the record date for the year-end dividend, in preference to holders of common shares or registered pledgees of common shares. The amount of annual AA Dividends per Model AA Class Share is calculated by multiplying the amount per Model AA Class Share paid to Toyota as consideration by a rate determined by the board of directors prior to the issuance of such Model AA Class Share, which rate is not to exceed 5%.

In addition to these year-end dividends, Toyota may pay an interim dividend in the form of cash distributions from its distributable surplus to holders of common shares and pledgees of common shares of record as of September 30, the record date, in each year by a resolution of its board of directors. The articles of incorporation provide that in the event that Toyota pays such interim dividends, Toyota will pay AA Interim Dividends in cash as interim dividend to any holders of Model AA Class Shares or registered pledgees of Model AA Class Shares entered or recorded in the final register of shareholders as of the record date for the interim dividend, in preference to holders of common shares or registered pledgees of common shares. If AA Interim Dividends are paid during the fiscal year in which the record date for the year-end dividend falls, the amount of AA Interim Dividends is deducted from AA Dividends to be paid per the above paragraph.

If the amount of the dividends from surplus paid in cash to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares is less than the prescribed amount of AA Dividends in any fiscal year, the

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amount of the shortfall will be carried forward to and accumulate in the following fiscal year and thereafter. Dividends from surplus will be paid in cash to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares in preference to the payment of interim and year-end dividends until such payment reaches the amount of the accumulated unpaid dividends.

In addition, under the Companies Act, dividends may be paid to holders of common shares and pledgees of record of common shares as of any record date, other than those specified above, as set forth by Toyota’s articles of incorporation or as determined by its board of directors from time to time. Under the Companies Act, dividends may be distributed in cash or (except in the case of interim dividends mentioned in the second preceding paragraph) in kind, subject to limitations on distributable surplus and to certain other conditions.

Dividends — Distributable amount

Under the Companies Act, Toyota is permitted to make distributions of surplus to the extent that the aggregate book value of the assets to be distributed to shareholders does not exceed the distributable amount provided for by the Companies Act and the ordinance of the Ministry of Justice as at the effective date of such distribution of surplus.

The amount of surplus at any given time shall be the amount of Toyota’s assets and the book value of Toyota’s treasury stock after subtracting and adding the amounts of items provided for by the Companies Act and the ordinance of the Ministry of Justice, and the amount of surplus distributable for dividends is calculated by adding to and subtracting from this amount the amounts of items provided for by the Companies Act and the ordinance of the Ministry of Justice.

Dividends — Prescription

Under its articles of incorporation, Toyota is not obligated to pay any dividends in cash which are left unclaimed for a period of three years after the date on which they first became payable.

Capital Accounts

The amount of the cash or assets paid or contributed by subscribers for new shares (with certain exceptions) is required to be accounted for as stated capital, although Toyota may account for an amount not exceeding one-half of such cash or assets as additional paid-in capital.

Under the Companies Act, Toyota may reduce its additional paid-in capital and legal reserve without limitation on the amount to be reduced, generally, by a resolution of a general shareholders’ meeting and if so decided by the same resolution, may account for the whole or any part of the amount of the reduction of additional paid-in capital as stated capital. The whole or any part of surplus which may be distributed as dividends may also be transferred to stated capital by a resolution of a general shareholders’ meeting.

Stock Splits

Toyota may at any time split the outstanding shares into a greater number of shares by a resolution of the board of directors. Toyota must give public notice of the stock split, specifying a record date for the stock split, not less than two weeks prior to the record date. Toyota shall conduct any stock split simultaneously and in the same proportion with respect to the common shares and the Model AA Class Shares.

Consolidation of Shares

Toyota may at any time consolidate shares in issue into a smaller number of shares by a special shareholders resolution (as defined in “Voting Rights”). When a consolidation of shares is to be made, Toyota must give public notice of certain matters two weeks prior to the effective date of the consolidation. Toyota must disclose the reason for the consolidation of shares at a general shareholders’ meeting. Toyota shall conduct any consolidation of shares simultaneously and in the same proportion with respect to the common shares and the Model AA Class Shares.

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Japanese Unit Share System

General. Consistent with the requirements of the Companies Act, Toyota’s articles of incorporation provide that 100 common shares or Model AA Class Shares each constitute one “unit.” Although the number of shares constituting a unit is included in the articles of incorporation, any amendment to the articles of incorporation reducing (but not increasing) the number of shares constituting a unit or eliminating the provisions for the unit of shares may be made by a resolution of the board of directors rather than by a special shareholders resolution, which is otherwise required for amending the articles of incorporation.

Voting Rights under the Unit Share System. Under the unit share system, shareholders have one voting right for each unit of shares that they hold. Any number of common shares or Model AA Class Shares less than a full unit will carry no voting rights.

Purchase by Toyota of Shares Constituting Less Than a Unit. A holder of shares constituting less than a full unit may require Toyota to purchase those shares at their market value in the case of common shares and at fair price in the case of Model AA Class Shares in accordance with the provisions of Toyota’s share handling regulations and the Companies Act.

Surrender of American Depositary Receipts. ADR holders will only be permitted to surrender ADRs and withdraw underlying common shares constituting an integral number of a whole unit. If a holder surrenders an ADR including ADRs representing common shares that do not constitute an integral number of whole units, the Depositary will deliver to that holder only those common shares which constitute a whole unit. The Depositary will then issue to the holder a new ADR representing the remaining shares. Holders of an ADR that represents less than a whole unit of underlying shares will be unable to withdraw the underlying shares. As a result, those holders will be unable to require Toyota to purchase their common shares to the extent those common shares constitute less than one whole unit.

Voting Rights

Toyota holds its ordinary general shareholders’ meeting each year. In addition, Toyota may hold an extraordinary general shareholders’ meeting whenever necessary by giving at least two weeks’ advance notice. Under the Companies Act, notice of any shareholders’ meeting must be given to each shareholder having voting rights or, in the case of a non-resident shareholder, to his or her resident proxy or mailing address in Japan in accordance with Toyota’s share handling regulations, at least two weeks prior to the date of the meeting.

Holders of common shares and holders of Model AA Class Shares shall have voting rights exercisable at a general shareholders’ meeting. A holder of shares constituting one or more whole units is entitled to one vote per unit of shares subject to the limitations on voting rights set forth in this paragraph. In general, under the Companies Act, a resolution can be adopted at a general shareholders’ meeting by a majority of the shares having voting rights represented at the meeting. The Companies Act and Toyota’s articles of incorporation require a quorum for the election of members of the board of directors and audit & supervisory board members of not less than one-third of the total number of outstanding shares having voting rights. Toyota’s shareholders are not entitled to cumulative voting in the election of members of the board of directors. A corporate shareholder, the management of which is substantially under Toyota’s control as provided by an ordinance of the Ministry of Justice, either through the holding of voting rights or for any other reason, does not have voting rights.

Shareholders may exercise their voting rights by attending the general shareholders’ meeting or in writing by mail. Shareholders who choose to exercise their voting rights by mail must fill out and return to Toyota the voting right exercise form enclosed with the convocation notice of the general shareholders’ meeting by the date specified in such convocation notice. In addition, from the general shareholders’ meeting for fiscal 2009, shareholders may exercise their voting rights through the internet. Shareholders electing to exercise their voting rights through the internet must log on to the “Website to Exercise Voting Rights” using the login ID and temporary password provided in the voting right exercise form enclosed with the convocation notice and submit

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their votes by a date specified in the convocation notice, following instructions appearing on the website. Institutional investors may also use the Electronic Proxy Voting Platform operated by Investor Communications Japan (“ICJ”) to exercise their voting rights through the use of the Internet, if such institutional investor applies to use the platform in advance. Shareholders may also exercise their voting rights through proxies, provided that those proxies are also shareholders who have voting rights. Toyota may refuse a shareholder having two or more proxies attend a general shareholders’ meeting.

The Companies Act provides that a quorum of at least one-third of outstanding shares with voting rights must be present at a shareholders’ meeting to approve any material corporate actions such as:

(1)

any amendment of the articles of incorporation with certain exceptions in which a shareholders’ resolution is not required;

(2)

acquisition of its own shares from a specific party;

(3)

consolidation of shares;

(4)

any issue or transfer of its shares at a “specially favorable” price (or any issue of stock acquisition rights or bonds with stock acquisition rights at “specially favorable” conditions by Toyota) to any persons other than shareholders;

(5)

the removal of an audit & supervisory board member;

(6)

the exemption of liability of a director or audit & supervisory board member with certain exceptions;

(7)

a reduction of stated capital which meets certain requirements with certain exceptions;

(8)

a distribution of in-kind dividends which meets certain requirements;

(9)

dissolution, merger, or consolidation with certain exceptions in which a shareholders’ resolution is not required;

(10)

the transfer of the whole or a material part of the business;

(11)

the transfer in entirety or in part of shares or equity interest of a subsidiary under certain conditions;

(12)

the taking over of the entire business of any other corporation with certain exceptions in which a shareholders’ resolution is not required;

(13)

share exchange or share transfer for the purpose of establishing 100% parent-subsidiary relationships with certain exceptions in which a shareholders’ resolution is not required; or

(14)

company split with certain exceptions in which a shareholders’ resolution is not required.

At least two-thirds of the shares having voting rights represented at the meeting must approve these actions.

The voting rights of holders of ADSs are exercised by the Depositary based on instructions from those holders.

Rights to be Allotted Shares

Holders of common shares and Model AA Class Shares have no preemptive rights under Toyota’s articles of incorporation. Under the Companies Act, the board of directors may, however, determine that shareholders shall be given rights to be allotted shares or stock acquisition rights on request in connection with a particular issue or transfer of shares, or issue of stock acquisition rights, respectively. In this case, such rights must be given on uniform terms to all shareholders as of a specified record date by at least two weeks’ prior public notice to shareholders of the record date.

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Rights to be allotted shares are nontransferable. However, a shareholder may be allotted stock acquisition rights without consideration thereto, and may transfer such rights.

Liquidation Rights

In the event of a liquidation of Toyota, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed as follows. First, an amount per First Series Model AA Class Share through Fifth Series Model AA Class Share, determined by resolution of the board of directors or calculated using a formula determined by a resolution of the board of directors prior to the issuance of such Model AA Class Shares based on the amount per Model AA Class Shares paid to Toyota as consideration (the “Base Amount”), shall be paid in cash to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares. No other distribution of residual assets shall be made to holders of Model AA Class Shares or registered pledgees of Model AA Class Shares. The remaining residual assets shall be distributed among the holders of common shares or registered pledgees of common shares in proportion to the respective number of shares they own.

Liability to Further Calls or Assessments

All of Toyota’s currently outstanding shares, including shares represented by the ADSs, are fully paid and nonassessable.

Transfer Agent

Mitsubishi UFJ Trust and Banking Corporation is the transfer agent for all shares. Mitsubishi UFJ Trust and Banking Corporation’s office is located at 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo, 100-8212 Japan. Mitsubishi UFJ Trust and Banking Corporation maintains Toyota’s register of shareholders and records transfers of record ownership (in the case of common shares, upon receiving notification from JASDEC).

Record Date

The close of business on March 31 is the record date for Toyota’s year-end dividends, if paid. A holder of common shares or Model AA Class Shares constituting one or more whole units who is recorded or registered as a holder on Toyota’s register at the close of business as of March 31 is also entitled to exercise shareholders’ voting rights at the ordinary general shareholders’ meeting with respect to the business year ending on March 31. The close of business on September 30 of each year is the record date for interim dividends, if paid. In addition, Toyota may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.

The shares generally trade ex-dividend or ex-rights in the Japanese stock exchanges on the second business day before a record date (or if the record date is not a business day, the third business day prior thereto), for the purpose of dividends or rights offerings.

Acquisition by Toyota of Shares

Toyota may acquire its own common shares (i) through a stock exchange on which such shares are listed or by way of tender offer (pursuant to an ordinary resolution of a general shareholders’ meeting or a resolution of the board of directors), (ii) by purchase from a specific party (pursuant to a special resolution of a general shareholders’ meeting) or (iii) from a subsidiary of Toyota (pursuant to a resolution of the board of directors). In addition, Toyota may acquire its own Model AA Class Shares (i) by purchase from all holders of the relevant series of Model AA Class Shares who make an offer to transfer the shares to Toyota upon notice from Toyota to acquire the shares (pursuant to an ordinary resolution of a general shareholders’ meeting), (ii) by purchase from a specific party (pursuant to a special resolution of a general shareholders’ meeting) or (iii) from a subsidiary of Toyota (pursuant to a resolution of the board of directors). When such acquisition of common shares is made by Toyota from a specific party other than a subsidiary of Toyota, any other holder of common shares may make a demand to a representative director, more than five calendar days prior to the relevant shareholders’ meeting, that

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Toyota also purchase the common shares held by such holder. However, the acquisition of its own common shares at a price not exceeding the market price to be provided under an ordinance of the Ministry of Justice will not trigger the right of any shareholder to include him/her as the seller of his/her shares in such proposed purchase.

Any acquisition of shares must satisfy certain requirements that the total amount of the acquisition price may not exceed the amount of the distributable dividends. See “— Dividends.”

Shares acquired by Toyota may be held by it for any period or may be cancelled by resolution of the board of directors. Toyota may also transfer to any person the shares held by it, subject to a resolution of the board of directors, and subject also to other requirements applicable to the issuance of new shares. Toyota may also utilize its treasury stock for the purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way of merger, share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company.

The Companies Act generally prohibits any subsidiary of Toyota from acquiring shares of Toyota.

Model AA Class Shareholder’s Conversion Right into Common Shares

Holders of Model AA Class Shares may, at certain times specified in resolution of the board of directors as the conversion period at the time of the issuance of First Series Model AA Class Shares to Fifth Series Model AA Class Shares, demand that Toyota acquire some or all of such Model AA Class Shares held by such holder of Model AA Class shares in exchange for common shares in a number determined by a formula specified in such board resolution. Any fractions of less than one common share to be delivered in exchange for such Model AA Class Shares shall be disregarded, in which case payment of money as provided in the Companies Act shall not be made.

Model AA Class Shareholder’s Cash Put Option

Holders of Model AA Class Shares may, at certain times specified in resolution of the board of directors as the cash put option period at the time of the issuance of First Series Model AA Class Shares to Fifth Series Model AA Class Shares, demand that Toyota acquire some or all of such Model AA Class Shares in exchange for cash in an amount equivalent to the Base Amount. If demand for acquisition exceeds the amount available under the Companies Act for distribution as of the date of demand for such acquisition, Model AA Class Shares to be acquired by Toyota shall be determined by a resolution of the board of directors, and the cash put option in respect of Model AA Class Shares not so acquired shall be deemed not to have been exercised.

Toyota’s Cash Call Option

After the lapse of period specified in resolution of its board of directors at the time of the issuance of First Series Model AA Class Shares to Fifth Series Model AA Class Shares, on an acquisition date separately determined by a resolution of the board of directors, Toyota may acquire all of such Model AA Class Shares in exchange for cash in an amount equivalent to the Base Amount.

Acquisition or Disposition of Shares or ADS

Under the Foreign Exchange and Foreign Trade Law and the cabinet orders and ministerial ordinances thereunder (collectively, the “Foreign Exchange Regulations”), all aspects of regulations on foreign exchange and foreign trade transactions are, with minor exceptions (which are not generally applicable to the purchase and sale of Toyota’s shares), only subject to post transaction reporting requirements. Acquisitions and dispositions of shares of common stock or ADS by non-residents of Japan (including foreign corporations not resident in Japan) are generally not subject to this reporting requirement. However, the Minister of Finance has the power to impose a licensing requirement for transactions in limited circumstances.

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Report of Substantial Shareholdings

The Financial Instruments and Exchange Law of Japan and regulations under the Law require any person who has become a holder (together with its related persons) of more than 5% of the total issued shares of a company listed on any Japanese stock exchange (including ADSs representing such shares) to file with the Director of a competent Local Finance Bureau, within five business days, a report concerning those shareholdings. A similar report must also be filed to reflect any change of 1% or more in any shareholding or any change in material matters set out in reports previously filed. Any such report shall be filed with the Director of a competent Local Finance Bureau through the Electronic Disclosure for Investor’s Network (“EDINET”) system. For this purpose, shares issuable to a shareholder upon exercise of stock acquisition rights are taken into account in determining both the number of shares held by that stock acquisition rights holder and the company’s total issued shares.

10.C MATERIAL CONTRACTS

All contracts concluded by Toyota during the two years preceding this filing were entered into in the ordinary course of business.

10.D EXCHANGE CONTROLS

The Foreign Exchange Regulations govern the acquisition and holding of shares of capital stock of Toyota by “exchange non-residents” and by “foreign investors.” The Foreign Exchange Regulations currently in effect do not, however, affect transactions between exchange non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.

Exchange non-residents are:

•

individuals who do not reside in Japan; and

•

corporations whose principal offices are located outside Japan.

Generally, branches and other offices of non-resident corporations that are located within Japan are regarded as residents of Japan. Conversely, branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents.

Foreign investors are:

•

individuals who are exchange non-residents;

•

corporations or other organizations that are organized under the laws of foreign countries or whose principal offices are located outside of Japan; and

•

corporations (1) of which 50% or more of their voting rights are held directly or indirectly by individuals who are exchange non-residents and/or corporations or other organizations (a) that are organized under the laws of foreign countries or (b) whose principal offices are located outside of Japan or (2) a majority of whose officers, or officers having the power of representation, are individuals who are exchange non-residents.

In general, the acquisition of shares of a Japanese company (such as the shares of capital stock of Toyota) by an exchange non-resident from a resident of Japan is not subject to any prior filing requirements. In certain limited circumstances, however, the Minister of Finance may require prior approval of an acquisition of this type. While prior approval, as described above, is not required, in the case where a resident of Japan transfers shares of a Japanese company (such as the shares of capital stock of Toyota) for consideration exceeding ¥100 million to an exchange non-resident, the resident of Japan who transfers the shares is required to report the transfer to the Minister of Finance within 20 days from the date of the transfer or the date of receipt of payment, whichever comes later, unless the transfer was made through a bank or financial instruments business operator licensed or registered under Japanese law.

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If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock exchange (such as the shares of capital stock of Toyota) and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or more of the issued shares of the relevant company, the foreign investor, with certain exceptions, must file a report of the acquisition with the Minister of Finance and any other competent Ministers having jurisdiction over that Japanese company by the 15th day of the month following the month in which the date of the acquisition falls. In limited circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any other competent Ministers, who may then modify or prohibit the proposed acquisition.

Under the Foreign Exchange Regulations, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement pursuant to which Toyota’s ADSs are issued, the Depositary is required, to the extent that in its judgment it can convert yen on a reasonable basis into dollars and transfer the resulting dollars to the United States, to convert all cash dividends that it receives in respect of deposited shares into dollars and to distribute the amount received (after deduction of applicable withholding taxes) to the holders of ADSs.

10.E TAXATION

The following discussion is a general summary of the principal U.S. federal income and Japanese national tax consequences of the acquisition, ownership and disposition of shares of common stock or ADSs. This summary does not purport to address all material tax consequences that may be relevant to holders of shares of common stock or ADSs, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, partnerships and other pass-through entities, investors liable for the U.S. alternative minimum tax, investors that own or are treated as owning 10% or more of Toyota’s voting stock, investors that hold shares of common stock or ADSs as part of a straddle, hedge, conversion transaction or other integrated transaction and U.S. Holders (as defined below) whose functional currency is not the U.S. dollar) may be subject to special tax rules. This summary is based on the tax laws and regulations of the United States and Japan, judicial decisions, published rulings and administrative pronouncements all as in effect on the date hereof, as well as on the current income tax convention between the United States and Japan (the “Treaty”), as described below, all of which are subject to change (possibly with retroactive effect), and to differing interpretations.

For purposes of this discussion, a “U.S. Holder” is any beneficial owner of shares of common stock or ADSs that, for U.S. federal income tax purposes, is:

an individual who is a citizen or resident of the United States;

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States, any state thereof, or the District of Columbia;

an estate the income of which is subject to U.S. federal income tax without regard to its source; or

a trust that is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, or that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

An “Eligible U.S. Holder” is a U.S. Holder that:

is a resident of the United States for purposes of the Treaty;

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does not maintain a permanent establishment in Japan (a) with which the shares of common stock or ADSs are effectively connected and through which the U.S. Holder carries on or has carried on business, or (b) of which the shares of common stock or ADSs form part of the business property; and

is eligible for benefits under the Treaty with respect to income and gain derived in connection with the shares of common stock or ADSs.

This summary does not address any aspects of U.S. federal tax law other than income taxation and does not discuss any aspects of Japanese tax law other than income taxation, as limited to national taxes, inheritance and gift taxation. This summary also does not cover any state or local, or non-U.S., non-Japanese tax considerations. Investors are urged to consult their tax advisors regarding the U.S. federal, state and local and Japanese and other tax consequences of acquiring, owning and disposing of shares of common stock or ADSs. In particular, where relevant, investors are urged to confirm their status as Eligible U.S. Holders with their tax advisors and to discuss with their tax advisors any possible consequences of their failure to qualify as Eligible U.S. Holders. In addition, this summary is based in part upon the representations of the Depositary and the assumption that each obligation in the deposit agreement, and in any related agreement, will be performed in accordance with its terms.

In general, for purposes of the Treaty and for U.S. federal income and Japanese income tax purposes, owners of ADRs evidencing ADSs will be treated as the owners of the shares of common stock represented by those ADSs, and exchanges of shares of common stock for ADSs, and exchanges of ADSs for shares of common stock, will not be subject to U.S. federal income or Japanese income tax.

The discussion below is intended for general information only and does not constitute a complete analysis of all tax consequences relating to ownership of shares of common stock or ADSs. Prospective purchasers of shares of common stock or ADSs should consult their own tax advisors concerning the tax consequences of their particular situations.

Japanese Taxation

The following is a summary of the principal Japanese tax consequences (limited to national taxes) to non-residents of Japan or non-Japanese corporations without permanent establishments in Japan (“non-resident Holders”) who are holders of shares of common stock or of ADSs of Toyota. The following information regarding taxation in Japan is based on the tax treaties and tax laws in force and their interpretation by Japan’s tax authorities as of the date of this annual report. Tax laws and treaties and their interpretations may change (including with retroactive effect). Toyota will not revise this summary on the basis of any such change occurring after the date of this annual report.

Generally, non-resident Holders are subject to Japanese withholding tax on dividends paid by Japanese corporations. Stock splits are, in general, not taxable events.

In the absence of an applicable income tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing an exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to non-resident Holders is generally 20.42 percent, provided that, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of common stock or ADSs of Toyota) to non-resident Holders, other than any individual shareholder who holds 3 percent or more of the total issued shares of the relevant Japanese corporation, the aforementioned 20.42 percent withholding tax rate is reduced to 15.315 percent for dividends due and payable on or before December 31, 2037. These rates include a special additional withholding tax (2.1 percent of the original withholding tax amount) to secure funds for reconstruction from the Great East Japan Earthquake.

At the date of this annual report, Japan has income tax treaties, conventions or agreements whereby the above-mentioned withholding tax rate is reduced, in most cases to 15 percent or 10 percent for portfolio investors (15 percent under the income tax treaties with, among other countries, Belgium, Canada, Denmark, Finland,

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Germany, Ireland, Italy, Luxembourg, New Zealand, Norway, Singapore, and Spain, and 10 percent under the income tax treaties with, among other countries, Australia, France, Hong Kong, the Netherlands, Portugal, Sweden, Switzerland, the U.K. and the United States).

Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a portfolio investor is generally reduced to 10 percent of the gross amount actually distributed, and dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a pension fund (as defined in the Treaty) are exempt from Japanese income tax by way of withholding or otherwise, provided that such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension fund.

If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by Toyota to any particular non-resident Holder is lower than the withholding tax rate otherwise applicable under Japanese tax law or if any particular non-resident Holder is exempt from Japanese income tax with respect to such dividends under the income tax treaty applicable to such particular non-resident Holder, such non-resident Holder who is entitled to a reduced rate of or exemption from Japanese withholding tax on the payment of dividends on shares of common stock by Toyota is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends (together with any other required forms and documents) in advance through the withholding agent to the relevant tax authority before the payment of dividends. A standing proxy for non-resident Holders of a Japanese corporation may provide this application service. In addition, a simplified special filing procedure is available for non-resident Holders to claim treaty benefits of exemption from or reduction of Japanese withholding tax by submitting a Special Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends of Listed Stock (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption is applicable if the Depositary or its agent submits, together with other documents, two Special Application Forms (one before payment of dividends, the other within eight months after the recording date concerning such payment of dividends) to the Japanese tax authority. To claim this reduced rate or exemption, any relevant non-resident Holder of ADSs will be required to file proof of taxpayer status, residence and beneficial ownership (as applicable) and to provide other information or documents as may be required by the Depositary. A non-resident Holder who is entitled, under an applicable income tax treaty, to a reduced treaty rate lower than the withholding tax rate otherwise applicable under Japanese tax law or an exemption from the withholding tax, but fails to submit the required application in advance, will be entitled to claim the refund of Japanese taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident Holder is entitled to a reduced treaty rate under the applicable income tax treaty) or the entire amount of Japanese tax withheld (if such non-resident Holder is entitled to an exemption under the applicable income tax treaty) by complying with a certain subsequent filing procedure. Toyota does not assume any responsibility to ensure withholding at the reduced rate, or exemption therefrom, for non-resident Holders who would be so eligible under an applicable tax treaty, but where the required procedures as stated above are not followed.

Gains derived from the sale of shares of common stock or ADSs outside Japan by a non-resident Holder holding such shares of common stock or ADSs as portfolio investors are, in general, not subject to Japanese income tax or corporation tax under Japanese law. Eligible U.S. Holders are not subject to Japanese income or corporation tax with respect to such gains under the Treaty so long as filings required under Japanese law are made.

Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired from another individual shares of common stock or ADSs as a legatee, heir or donee even though neither the individual, nor the deceased, nor donor is a Japanese resident.

Holders of shares of common stock or ADSs should consult their tax advisors regarding the effect of these taxes and, in the case of U.S. Holders, the possible application of the Estate and Gift Tax Treaty between the United States and Japan.

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U.S. Federal Income Taxation

U.S. Holders

The following discussion is a summary of the principal U.S. federal income tax consequences to U.S. Holders that hold shares of common stock or ADSs as capital assets (generally, for investment purposes).

Taxation of Dividends

Subject to the passive foreign investment company (“PFIC”) rules discussed below, the gross amount of any distribution made by Toyota in respect of shares of common stock or ADSs (without reduction for Japanese withholding taxes) will constitute a taxable dividend to the extent paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. The U.S. dollar amount of such a dividend generally will be included in the gross income of a U.S. Holder, as ordinary income, when actually or constructively received by the U.S. Holder, in the case of shares of common stock, or by the Depositary, in the case of ADSs. Dividends paid by Toyota will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.

Dividends received on shares and ADSs of certain foreign corporations by non-corporate U.S. investors may be subject to U.S. federal income tax at lower rates than other types of ordinary income if certain conditions are met. Dividends received by non-corporate U.S. Holders with respect to shares of common stock or ADSs of Toyota are expected to be eligible for these reduced rates of tax. U.S. Holders should consult their own tax advisors regarding the eligibility of such dividends for a reduced rate of tax.

The U.S. dollar amount of a dividend paid in Japanese yen will be determined based on the Japanese yen/U.S. dollar exchange rate in effect on the date that the dividend is included in the gross income of the U.S. Holder, regardless of whether the payment is converted into U.S. dollars on that date. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the gross income of a U.S. Holder through the date that payment is converted into U.S. dollars (or otherwise disposed of) will be treated as U.S.-source ordinary income or loss. U.S. Holders should consult their own tax advisors regarding the calculation and U.S. federal income tax treatment of foreign currency gain or loss.

To the extent, if any, that the amount of any distribution received by a U.S. Holder in respect of shares of common stock or ADSs exceeds Toyota’s current and accumulated earnings and profits, as determined under U.S. federal income tax principles, the distribution first will be treated as a tax-free return of capital to the extent of the U.S. Holder’s adjusted tax basis in those shares or ADSs, and thereafter will be treated as U.S.-source capital gain.

Distributions of additional shares of common stock that are made to U.S. Holders with respect to their shares of common stock or ADSs, and that are part of a pro rata distribution to all of Toyota’s shareholders, generally will not be subject to U.S. federal income tax.

For U.S. foreign tax credit purposes, dividends included in gross income by a U.S. Holder in respect of shares of common stock or ADSs will constitute income from sources outside the United States, and will generally be “passive category income” or, in the case of certain U.S. Holders, “general category income.” Subject to generally applicable limitations under U.S. federal income tax law and the Treaty, any Japanese withholding tax imposed in respect of a Toyota dividend may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, or alternatively as a deduction in the computation of such U.S. Holder’s taxable income if the U.S. Holder does not elect to claim a credit for any foreign taxes paid or accrued for the taxable year. Special rules generally will apply to the calculation of foreign tax credits in respect of dividend income that qualifies for preferential U.S. federal income tax rates. Additionally, special rules apply to individuals whose foreign source income during the taxable year consists entirely of “qualified passive income”

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and whose creditable foreign taxes paid or accrued during the taxable year do not exceed $300 ($600 in the case of a joint return). Further, under some circumstances, a U.S. Holder that:

(i)

has held shares of common stock or ADSs for less than a specified minimum period; or

(ii)

is obligated to make payments related to Toyota dividends,

will not be allowed a foreign tax credit for Japanese taxes imposed on Toyota dividends.

U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Taxation of Capital Gains and Losses

In general, upon a sale or other taxable disposition of shares of common stock or ADSs, a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. Holder’s adjusted tax basis in those shares of common stock or ADSs. A U.S. Holder generally will have an adjusted tax basis in a share of common stock or an ADS equal to its U.S. dollar cost. Subject to the PFIC rules discussed below, gain or loss recognized on the sale or other taxable disposition of shares of common stock or ADSs generally will be capital gain or loss and, if the U.S. Holder’s holding period for those shares or ADSs exceeds one year, will be long-term capital gain or loss. Non-corporate U.S. Holders, including individuals, currently are eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. Under U.S. federal income tax law, the deduction of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder in respect of the sale or other disposition of shares of common stock or ADSs generally will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes.

Deposits and withdrawals of common stock in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

Passive Foreign Investment Companies

A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying look-through rules, either (1) at least 75% of its gross income is passive income or (2) on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions. The PFIC determination is made annually and generally is based on the value of a non-U.S. corporation’s assets (including goodwill) and composition of its income.

Toyota does not believe that it was a PFIC for U.S. federal income tax purposes for its taxable year ended March 31, 2017, and currently intends to continue its operations in such a manner that it will not become a PFIC in the future. Because the PFIC determination is made annually and the application of the PFIC rules to a corporation such as Toyota (which among other things is engaged in leasing and financing through several subsidiaries) is not entirely clear, no assurances can be made regarding determination of its PFIC status in the current or any future taxable year. If Toyota is determined to be a PFIC, U.S. Holders could be subject to additional U.S. federal income taxes on gain recognized with respect to the shares of common stock or ADSs and on certain distributions. In addition, an interest charge may apply to the portion of the U.S. federal income tax liability on such gains or distributions treated under the PFIC rules as having been deferred by the U.S. Holder. Moreover, dividends that a non-corporate U.S. Holder receives from Toyota will not be eligible for the reduced U.S. federal income tax rates on dividends described above if Toyota is a PFIC either in the taxable year of the dividend or the preceding taxable year. If a U.S. Holder owns shares of common stock or ADSs in any taxable year in which Toyota is a PFIC, such U.S. Holder generally would be required to file Internal Revenue Service (“IRS”) Form 8621 (or other form specified by the U.S. Department of the Treasury) on an annual basis, subject

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to certain exceptions based on the value of PFIC stock held. Toyota will inform U.S. Holders if it believes that it will be classified as a PFIC in any taxable year.

Prospective investors should consult their own tax advisors regarding the potential application of the PFIC rules to shares of common stock or ADSs.

Non-U.S. Holders

The following discussion is a summary of the principal U.S. federal income tax consequences to beneficial owners of shares of common stock or ADSs that are neither U.S. Holders, nor partnerships, nor entities taxable as partnerships for U.S. federal income tax purposes (“Non-U.S. Holders”).

A Non-U.S. Holder generally will not be subject to any U.S. federal income or withholding tax on distributions received in respect of shares of common stock or ADSs unless the distributions are effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States (and, if an applicable tax treaty requires, are attributable to a U.S. permanent establishment or fixed base of such Non-U.S. Holder).

A Non-U.S. Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a sale or other disposition of shares of common stock or ADSs, unless:

(i)

the gain is effectively connected with a trade or business conducted by the Non-U.S. Holder within the United States (and, if an applicable tax treaty requires, is attributable to a U.S. permanent establishment or fixed base of such Non-U.S. Holder); or

(ii)

the Non-U.S. Holder is an individual who was present in the United States for 183 or more days in the taxable year of the disposition and other conditions are met.

Income that is effectively connected with a U.S. trade or business of a Non-U.S. Holder, and, if an income tax treaty applies and so requires, is attributable to a U.S. permanent establishment or fixed base of the Non-U.S. Holder, generally will be taxed in the same manner as the income of a U.S. Holder. In addition, under certain circumstances, any effectively connected earnings and profits realized by a corporate Non-U.S. Holder may be subject to an additional “branch profits tax” at the rate of 30% or at a lower rate that may be prescribed by an applicable income tax treaty.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends paid to a U.S. Holder in respect of shares of common stock or ADSs, and to the proceeds received upon the sale, exchange or redemption of the shares of common stock or ADSs within the United States by U.S. Holders. Furthermore, backup withholding may apply to those amounts (currently at a 28% rate) if a U.S. Holder fails to provide an accurate taxpayer identification number to certify that such U.S. Holder is not subject to backup withholding or to otherwise comply with the applicable requirements of the backup withholding requirements.

Dividends paid to a Non-U.S. Holder in respect of shares of common stock or ADSs, and proceeds received upon the sale, exchange or redemption of shares of common stock or ADSs by a Non-U.S. Holder, generally are exempt from information reporting and backup withholding under current U.S. federal income tax law. However, a Non-U.S. Holder may be required to provide certification of non-U.S. status in order to obtain that exemption.

Persons required to establish their exempt status generally must provide such certification under penalty of perjury on IRS Form W-9, entitled Request for Taxpayer Identification Number and Certification, in the case of U.S. persons, and on IRS Form W-8BEN, entitled Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or IRS Form W-8BEN-E, entitled Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) (or other appropriate IRS

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Form W-8), in the case of non-U.S. persons. Backup withholding is not an additional tax. The amount of backup withholding imposed on a payment generally may be claimed as a credit against the holder’s U.S. federal income tax liability, provided that the required information is properly furnished to the IRS in a timely manner.

In addition, certain U.S. Holders who are individuals that hold certain foreign financial assets (which may include shares of common stock or ADSs) are required to report information relating to such assets, subject to certain exceptions. U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of shares of common stock or ADSs.

THE SUMMARY OF U.S. FEDERAL INCOME AND JAPANESE NATIONAL TAX CONSEQUENCES SET OUT ABOVE IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY. PROSPECTIVE PURCHASERS OF COMMON STOCK OR ADSs ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OR DISPOSING OF COMMON STOCK OR ADSs, BASED ON THEIR PARTICULAR CIRCUMSTANCES.

10.F DIVIDENDS AND PAYING AGENTS

Not applicable.

10.G STATEMENT BY EXPERTS

Not applicable.

10.H DOCUMENTS ON DISPLAY

Toyota files annual reports on Form 20-F and reports on Form 6-K with the SEC. You may read and copy this information at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 or by accessing the SEC’s home page (http://www.sec.gov). You can also request copies of the documents, upon payment of a duplicating fee, by writing to the Public Reference Section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. In addition, Toyota’s reports, proxy statements and other information may be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Copies of the documents referred to herein may also be inspected at Toyota’s offices by contacting Toyota at 1 Toyota-cho, Toyota City, Aichi Prefecture 471-8571, Japan, attention: Financial Reporting Department, Accounting Division, telephone number: 81-565-28-2121.

10.I SUBSIDIARY INFORMATION

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk

Toyota is exposed to market risk from changes in foreign currency exchange rates, interest rates, certain commodity and equity security prices. In order to manage the risk arising from changes in foreign currency exchange rates and interest rates, Toyota enters into a variety of derivative financial instruments.

A description of Toyota’s accounting policies for derivative instruments is included in note 2 to the consolidated financial statements and further disclosure is provided in notes 21 and 27 to the consolidated financial statements.

Toyota monitors and manages these financial exposures as an integral part of its overall risk management program, which recognizes the unpredictability of financial markets, and seeks to reduce the potentially adverse effects on Toyota’s operating results.

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The financial instruments included in the market risk analysis consist of all of Toyota’s cash and cash equivalents, marketable securities, finance receivables, securities investments, long-term and short-term debt and all derivative financial instruments. Toyota’s portfolio of derivative financial instruments consists of forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options. Anticipated transactions denominated in foreign currencies that are covered by Toyota’s derivative hedging are not included in the market risk analysis. Although operating leases are not required to be included, Toyota has included these instruments in determining interest rate risk.

Foreign Currency Exchange Rate Risk

Toyota has foreign currency exposures related to buying, selling and financing in currencies other than the local currencies in which it operates. Toyota is exposed to foreign currency risk related to future earnings or assets and liabilities that are exposed due to operating cash flows and various financial instruments that are denominated in foreign currencies. Toyota’s most significant foreign currency exposures relate to the U.S. dollar and the euro.

Toyota uses a value-at-risk analysis (“VAR”) to evaluate its exposure to changes in foreign currency exchange rates. The VAR of the combined foreign exchange position represents a potential loss in pre-tax earnings that was estimated to be ¥155.1 billion and ¥183.6 billion as of March 31, 2016 and 2017, respectively. Based on Toyota’s overall currency exposure (including derivative positions), the risk during fiscal 2017 to pre-tax cash flow from currency movements was on average ¥164.2 billion, with a high of ¥183.6 billion and a low of ¥144.1 billion.

The VAR was estimated by using a Monte Carlo Simulation Method and assumed 95% confidence level on the realization date and a 10-day holding period.

Interest Rate Risk

Toyota is subject to market risk from exposures to changes in interest rates based on its financing, investing and cash management activities. Toyota enters into various financial instrument transactions to maintain the desired level of exposure to the risk of interest rate fluctuations and to minimize interest expense. The potential decrease in fair value resulting from a hypothetical 100 basis point upward shift in interest rates would be approximately ¥231.2 billion as of March 31, 2016 and ¥240.9 billion as of March 31, 2017.

There are certain shortcomings inherent to the sensitivity analyses presented. The model assumes that interest rate changes are instantaneous parallel shifts in the yield curve. However, in reality, changes are rarely instantaneous. Although certain assets and liabilities may have similar maturities or periods to repricing, they may not react correspondingly to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate with changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Finance receivables are less susceptible to prepayments when interest rates change and, as a result, Toyota’s model does not address prepayment risk for automotive related finance receivables. However, in the event of a change in interest rates, actual loan prepayments may deviate significantly from the assumptions used in the model.

Commodity Price Risk

Commodity price risk is the possibility of higher or lower costs due to changes in the prices of commodities, such as non-ferrous alloys (e.g., aluminum), precious metals (e.g., palladium, platinum and rhodium) and ferrous alloys, which Toyota uses in the production of motor vehicles. Toyota does not use derivative instruments to hedge the price risk associated with the purchase of those commodities and controls its commodity price risk by holding minimum stock levels.

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Equity Price Risk

Toyota holds investments in various available-for-sale equity securities that are subject to price risk. The fair value of available-for-sale equity securities was ¥2,558.9 billion as of March 31, 2016 and ¥2,686.9 billion as of March 31, 2017. The potential change in the fair value of these investments, assuming a 10% change in prices, would be approximately ¥255.8 billion as of March 31, 2016 and ¥268.6 billion as of March 31, 2017.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A DEBT SECURITIES

Not applicable.

12.B WARRANTS AND RIGHTS

Not applicable.

12.C OTHER SECURITIES

Not applicable.

12.D AMERICAN DEPOSITARY SHARES

Fees and Charges for Holders of American Depositary Receipts

The Bank of New York Mellon, as Depositary for the ADSs, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.


Persons depositing or withdrawing shares must pay:		For:

$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		• Issuance of ADSs, including issuances resulting from a distribution, sale or exercise of shares or rights or other property • Cancellation of ADSs for the purpose of withdrawal including if the deposit agreement terminates

$0.02 (or less) per ADS		• Any cash distribution to ADS registered holders

A fee equivalent to the fee that would be payable if securities distributed to the ADR holder had been shares and the shares had been deposited for issuance of ADSs		• Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders

Registration fees		• Registration of transfer of shares on Toyota’s share register to the name of the Depositary or its nominee or the custodian or its nominee when shares are deposited or withdrawn

Expenses of the Depositary		• Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) • Converting foreign currency to U.S. dollars

Taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS		• As necessary

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Fees Incurred in Fiscal 2017

For fiscal 2017, Toyota received $385,644.56 from the Depositary for standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual reports, printing and distributing dividend checks, stationery, postage, facsimile, and telephone calls) and expenses relating to Toyota’s annual general shareholders’ meeting that are incurred with respect to Toyota’s ADR holders. The Depositary also paid Toyota’s continuing annual stock exchange listing fees.

Fees to be Paid in the Future

With regards to the ADS program, the Depositary has agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which includes the expenses of postage and envelopes for mailing annual reports, printing and distributing dividend checks, stationery, postage, facsimile and telephone calls. It has also agreed to pay for investor relations expenses and any other program related expenses. The limit on the amount of expenses for which the Depositary will pay is the sum of $300,000 annually. In addition, the Depositary has agreed to pay Toyota 50% of the net dividend fees collected by the Depositary during each annual period towards the aforementioned expenses.

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PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

(a) DISCLOSURE CONTROLS AND PROCEDURES

Toyota performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of fiscal 2017. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Form 20-F that Toyota files under the Exchange Act is accumulated and communicated to its management, including the chief executive officer and the principal accounting and financial officer, to allow timely decisions regarding required disclosure. The disclosure controls and procedures also ensure that the Form 20-F that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. The evaluation was performed under the supervision of Toyota’s Chairman of the Board of Directors and the Executive Vice President. Toyota’s disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. Managerial judgment was necessary to evaluate the cost-benefit relationship of possible controls and procedures. The Chairman of the Board of Directors and the Executive Vice President have concluded that Toyota’s disclosure controls and procedures are effective at the reasonable assurance level.

(b) MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Toyota’s management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Toyota’s internal control over financial reporting includes those policies and procedures that:

(i)

pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of Toyota’s assets;

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that Toyota’s receipts and expenditures are being made only in accordance with authorizations of Toyota’s management and members of the board of directors; and

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Toyota’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Toyota’s management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Based on this evaluation, management concluded that Toyota’s internal control over financial reporting was effective as of March 31, 2017.

PricewaterhouseCoopers Aarata LLC, an independent registered public accounting firm that audited the consolidated financial statements included in this report, has also audited the effectiveness of Toyota’s internal control over financial reporting as of March 31, 2017, as stated in its report included herein.

(c) ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

Toyota’s independent registered public accounting firm, PricewaterhouseCoopers Aarata LLC, has issued an audit report on the effectiveness of Toyota’s internal control over financial reporting. This report appears in Item 18.

(d) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in Toyota’s internal control over financial reporting during fiscal 2017 that have materially affected, or are reasonably likely to materially affect, Toyota’s internal control over financial reporting.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Toyota maintains an audit & supervisory board system, in accordance with the Companies Act. Toyota’s audit & supervisory board is comprised of six audit & supervisory board members, three of whom are outside audit & supervisory board members. Each audit & supervisory board member has been appointed at Toyota’s meetings of shareholders and has certain statutory powers independently, including auditing the business affairs and accounts of Toyota.

Toyota’s audit & supervisory board has determined that it does not have an “audit committee financial expert” serving on the audit & supervisory board. The qualifications for, and powers of, the audit & supervisory board member delineated in the Companies Act are different from those anticipated for any audit committee financial expert. Audit & supervisory board members have the authority to be given reports from a certified public accountant or an accounting firm concerning audits, including technical accounting matters. At the same time, each audit & supervisory board member has the authority to consult internal and external experts on accounting matters. Each audit & supervisory board member must fulfill the requirements under Japanese laws and regulations and otherwise follow Japanese corporate governance practices and, accordingly, Toyota’s audit & supervisory board has confirmed that it is not necessarily in Toyota’s best interest to nominate as audit & supervisory board member a person who meets the definition of audit committee financial expert. Although Toyota does not have an audit committee financial expert on its audit & supervisory board, Toyota believes that Toyota’s current corporate governance system, taken as a whole, including the audit & supervisory board members’ ability to consult internal and external experts, is fully equivalent to a system having an audit committee financial expert on its audit & supervisory board.

ITEM 16B.

CODE OF ETHICS

Toyota has adopted a code of ethics that applies to its members of the board of directors and managing officers, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of Toyota’s code of ethics is included as an exhibit to this annual report on Form 20-F.

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PricewaterhouseCoopers Aarata LLC has audited the financial statements of Toyota included in this annual report on Form 20-F.

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The following table presents the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers Aarata LLC and the various network and member firms of PricewaterhouseCoopers to Toyota in fiscal 2016 and fiscal 2017.


	Yen in millions
	2016		2017
Audit Fees⁽¹⁾		4,786		4,279
Audit-related Fees⁽²⁾		167		90
Tax Fees⁽³⁾		586		477
All Other Fees⁽⁴⁾		251		293

Total		5,790		5,139

(1)

Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor reasonably can provide, and include the services of annual audit, quarterly reviews and assessment and reviews of the effectiveness of internal controls over financial reporting of Toyota and its subsidiaries and affiliated companies; the services associated with SEC registration statements or other documents issued in connection with securities offerings such as comfort letters and consents; and consultations as to the accounting or disclosure treatment of transactions or events.

(2)

Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of its financial statements or that are traditionally performed by the external auditor, and mainly include services such as due diligence; agreed-upon or expanded audit procedures; internal control reviews and assistance; review of the information system; and financial statement audits of employee benefit plans.

(3)

Tax Fees include fees billed for tax compliance services, including services such as tax planning, advice and compliance of federal, state, local and international tax; the review of tax returns; assistance with tax audits and appeals; tax-only valuation services including transfer pricing and cost segregation studies; expatriate tax assistance and compliance.

(4)	All Other Fees primarily include fees billed for risk management advisory services of assessment and testing of security infrastructure controls; services providing information related to automotive market conditions; IT advisory services; and other advisory services.

Policies and Procedures of the Audit & Supervisory Board

Below is a summary of the current policies and procedures of the audit & supervisory board for the pre-approval of audit and permissible non-audit services performed by Toyota’s independent public accountants.

Under the policy, the Representative Directors submit a request for general pre-approval of audit and permissible non-audit services for the following fiscal year, which shall include details of the specific services and estimated fees for the services, to the audit & supervisory board, which reviews and determines whether or not to grant the request by the end of March of the fiscal year. Upon the general pre-approval of the audit & supervisory board, the Representative Directors are not required to obtain any specific pre-approval for audit and permissible non-audit services so long as those services fall within the scope of the general pre-approval provided.

The audit & supervisory board makes a further determination of whether or not to grant a request to revise the general pre-approval for the applicable fiscal year if such request is submitted by the Representative Directors. Such request may include (i) adding any audit or permissible non-audit services other than the ones listed in the general pre-approval and (ii) obtaining services that are listed in the general pre-approval but of which the total fee amount exceeds the amount affirmed by the general pre-approval. The determination of whether or not to grant a request to revise the general pre-approval noted in the foregoing may alternatively be made by an audit & supervisory board member (full time), who is designated in advance by a resolution of the

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audit & supervisory board, in which case such audit & supervisory board member (full time) shall report such decision at the next meeting of the audit & supervisory board. The performance of audit and permissible non-audit services and the payment of fees are subject to review by the audit & supervisory board at least once every fiscal half year.

None of the audit related fees, tax fees or all other fees described in the table above were approved by the audit & supervisory board pursuant to the de minimis exception provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Toyota does not have an audit committee. Toyota is relying on the general exemption contained in Rule 10A-3(c)(3) under the Exchange Act, which provides an exemption from the NYSE’s listing standards relating to audit committees for foreign companies like Toyota that have an audit & supervisory board. Toyota’s reliance on Rule 10A-3(c)(3) does not, in its opinion, materially adversely affect the ability of its audit & supervisory board to act independently and to satisfy the other requirements of Rule 10A-3.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table sets forth purchases of Toyota’s common stock by Toyota and its affiliated purchasers during fiscal 2017:


Period	(a) Total Number of Shares Purchased⁽¹⁾		(b) Average Price Paid per Share (Yen)⁽¹⁾		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
April 1, 2016 – April 30, 2016		583		5,699.29		—		—
May 1, 2016 – May 31, 2016		569		5,531.81		—		—
June 1, 2016 – June 30, 2016		26,473,313		5,582.95		26,471,900		—
July 1, 2016 – July 31, 2016		24,891,900		5,467.70		24,890,900		—
August 1, 2016 – August 31, 2016		30,364,386		5,926.44		30,348,200		—
September 1, 2016 – September 30, 2016		5,814,145		6,235.63		5,811,700		—
October 1, 2016 – October 31, 2016		1,868		5,944.42		—		—
November 1, 2016 – November 30, 2016		1,820		6,098.35		—		—
December 1, 2016 – December 31, 2016		15,109,036		6,939.45		15,101,800		—
January 1, 2017– January 31, 2017		13,933,676		6,832.63		13,931,200		—
February 1, 2017 – February 28, 2017		1,757		6,490.80		—		—
March 1, 2017 – March 31, 2017		1,657		6,432.41		—		—

Total		116,594,710				116,555,700		—

(1)

A portion of the above purchases were made as a result of holders of shares constituting less than one unit, which is 100 shares of common stock, requesting Toyota to purchase shares that are a fraction of a unit, in accordance with Toyota’s share handling regulations. Toyota is required to comply with such requests pursuant to the Companies Act. See “Additional Information — Memorandum and Articles of Association — Japanese Unit Share System.” The number of shares purchased not pursuant to publicly announced plans or programs conducted in fiscal 2017 is 39,010.

(2)	Toyota announced on May 11, 2016, that it would repurchase up to 100 million common shares between May 18, 2016 and November 17, 2016 at a total price up to ¥500 billion, in order to return to shareholders

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the profits derived in the fiscal year ended March 31, 2016. Toyota also announced on November 8, 2016 that it would repurchase up to 40 million common shares between November 15, 2016 and February 14, 2017 at a total price up to ¥200 billion in order to return to shareholders the profits derived in the interim period ended September 30, 2016.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

Significant Differences in Corporate Governance Practices between Toyota and U.S. Companies Listed on the NYSE

Pursuant to home country practices exemptions granted by the NYSE, Toyota is permitted to follow certain corporate governance practices complying with Japanese laws, regulations and stock exchange rules in lieu of the NYSE’s listing standards. The SEC approved changes to the NYSE’s listing standards related to corporate governance practices of listed companies (the “NYSE Corporate Governance Rules”) in November 2003, as further amended in November 2004. Toyota is exempt from the approved changes, except for requirements that (a) Toyota’s audit & supervisory board satisfies the requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (b) Toyota must disclose significant differences in its corporate governance practices as compared to those followed by domestic companies under the NYSE listing standards, (c) Toyota’s principal executive officer must notify the NYSE in writing after any executive officer of Toyota becomes aware of any non-compliance with (a) and (b), and (d) Toyota must submit annual and interim written affirmations to the NYSE. Toyota’s corporate governance practices and those followed by domestic companies under the NYSE Corporate Governance Rules have the following significant differences:

1. Members of the Board of Directors. Toyota currently does not have any members of the board of directors who will be deemed an “independent director” as required under the NYSE Corporate Governance Rules for U.S. listed companies. Unlike the NYSE Corporate Governance Rules, the Companies Act does not require Japanese companies with an audit & supervisory board such as Toyota to have any independent directors on its board of directors. While the NYSE Corporate Governance Rules require that the non-management directors of each listed company meet at regularly scheduled executive sessions without management, Toyota currently has no non-management member on its board of directors. Unlike the NYSE Corporate Governance Rules, the Companies Act does not require, and accordingly Toyota does not have, an internal corporate organ or committee comprised solely of independent directors.

Toyota currently has three outside members of the board of directors under the Companies Act. An “outside” member of the board of directors refers to:

(a) a person who is not, and has never been during the 10 year period before becoming an outside member of the board of directors, an executive director (a member of the board of directors who engages in the execution of business), executive officer, manager or employee (collectively, “Executive Director, etc.”) of Toyota or its subsidiaries;

(b) if a person was a member of the board of directors, accounting counselor (in the case that an accounting counselor is a legal entity, an employee of such entity who is in charge of its affairs) or audit & supervisory board member (excluding those who have ever been Executive Directors, etc.) of Toyota or any of its subsidiaries at any time during the 10 year period before becoming an outside member of the board of directors, such person who has not been an Executive Director, etc. of Toyota or any of its subsidiaries during the 10 year period before becoming a member of the board of directors, accounting counselor or audit & supervisory board member; and

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(c) a person who is not a spouse or relative within the second degree of kinship of any member of the board of directors or manager or other key employee of Toyota.

Such qualifications for an “outside” member of the board of directors are different from the director independence requirements under the NYSE Corporate Governance Rules.

In addition, pursuant to the regulations of the Japanese stock exchanges, Toyota is required to have one or more “independent director(s)/audit & supervisory board member(s),” defined under the relevant regulations of the Japanese stock exchanges as “outside directors” or “outside audit & supervisory board members” (as defined under the Companies Act), who are unlikely to have any conflicts of interests with Toyota’s general shareholders, and is also required to make efforts to have at least one “independent director(s)/audit & supervisory board member(s)” who is also a director. Each of the outside members of the board of directors of Toyota satisfies the “independent director/audit & supervisory board member” requirements under the regulations of the Japanese stock exchanges. Japan’s Corporate Governance Code provides that companies should appoint at least two “independent outside directors” as defined based on the criteria for assessing director independence established by Toyota in line with the independence standards of the Japanese stock exchanges. The content of the criteria for assessing director independence established by Toyota is the same as that of the independence standards of the Japanese stock exchanges, and each of the outside members of the board of directors of Toyota satisfies the “independent outside director” requirements under such independence standards.The definition of “independent director/audit & supervisory board member” and “independent outside director” is different from that of the definition of independent director under the NYSE Corporate Governance Rules.

2. Committees. Under the Companies Act, Toyota has elected to structure its corporate governance system as a company with audit & supervisory board members who are under a statutory duty to monitor, review and report on the management of the affairs of Toyota. Toyota, as with other Japanese companies with an audit & supervisory board, does not have certain committees that are required of U.S. listed companies subject to the NYSE Corporate Governance Rules, including those that are responsible for director nomination, corporate governance and executive compensation. However, members of Toyota’s “Executive Appointment Meeting” and “Executive Compensation Meeting,” half of whom in each meeting are outside directors, discuss recommendations to the board of directors concerning nominees and remuneration for members of the board of directors, respectively.

Pursuant to the Companies Act, Toyota’s board of directors nominates and submits a proposal for the appointment of members of the board of directors for shareholder approval. The shareholders vote on such nomination at the general shareholders’ meeting. The Companies Act requires that the limits or calculation formula and kind (in case that the remuneration, bonus and any other benefits in compensation for the execution of duties (“remuneration, etc.”) are to be paid in other than cash) of remuneration, etc. to be paid to directors as well as limits of remuneration, etc. to be paid to audit & supervisory board members must be determined by a resolution of the general shareholders’ meeting, unless their remuneration, etc. is provided for in the articles of incorporation. The distribution of remuneration, etc. among each member of the board of directors is broadly delegated to the board of directors and the distribution of remuneration among each audit & supervisory board member is determined by consultation among the audit & supervisory board members.

3. Audit Committee. Toyota avails itself of paragraph (c)(3) of Rule 10A-3 of the Exchange Act, which provides a general exemption from the audit committee requirements to a foreign private issuer with an audit & supervisory board, subject to certain requirements which continue to be applicable under Rule 10A-3.

Pursuant to the requirements of the Companies Act, Toyota elects its audit & supervisory board members through a resolution adopted at a general shareholders’ meeting. Toyota currently has six audit & supervisory board members, which exceeds the minimum number of audit & supervisory board members required pursuant to the Companies Act.

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Unlike the NYSE Corporate Governance Rules, the Companies Act, among others, does not require audit & supervisory board members to establish an expertise in accounting or financial management nor are they required to present other special knowledge and experience. Therefore, none of Toyota’s audit & supervisory board members has “an expertise in accounting or financial management” as set forth in the NYSE Corporate Governance Rules. The Japanese Corporate Governance Code indicates that one or more audit & supervisory board members who have appropriate knowledge of finance and accounting matters should be appointed. Toyota has appointed persons who are able to provide opinions and advice regarding management based on their broader experience and discretion beyond finance and accounting. Under the Companies Act, the audit & supervisory board may determine the auditing policies and methods of investigating the conditions of Toyota’s business and assets, and may resolve other matters concerning the execution of the audit & supervisory board member’s duties. The audit & supervisory board also prepares auditors’ reports, gives consent to proposals of the nomination of audit & supervisory board members and makes decisions concerning proposals relating to the appointment and dismissal of accounting auditors.

Toyota currently has three outside audit & supervisory board members under the Companies Act. Under the Companies Act, at least half of the audit & supervisory board members must be an “outside” audit & supervisory board member, which is any person who satisfies all of the following requirements:

(a)

the person has never been a member of the board of directors, accounting counselor (in the case that an accounting counselor is a legal entity, an employee of such entity who is in charge of its affairs), executive officer, manager or employee of Toyota or its subsidiaries during the 10 year period before becoming an outside audit & supervisory board member;

(b)

if the person was an audit & supervisory board member of Toyota or any of its subsidiaries at any time during the 10 year period before becoming an outside audit & supervisory board member, such person has not been a member of the board of directors, accounting counselor (in the case that an accounting counselor is a legal entity, an employee of such entity who is in charge of its affairs), executive officer, manager or employee of Toyota or any of its subsidiaries during the 10 year period before becoming an audit & supervisory board member of Toyota or any of its subsidiaries; and

(c)

the person is not a spouse or relative within the second degree of kinship of any member of the board of directors or manager or other key employee of Toyota.

Such qualifications for an “outside” audit & supervisory board member are different from the audit committee independence requirement under the NYSE Corporate Governance Rules.

Each of the outside audit & supervisory board members of Toyota satisfies the “independent director/audit & supervisory board member” requirements under the regulations of the Japanese stock exchanges, as described above in “1. Members of the Board of Directors.”

4. Corporate Governance Guidelines. Unlike the NYSE Corporate Governance Rules, Toyota is not required to adopt Japan’s Corporate Governance Code under Japanese laws and regulations, including the Companies Act, the Financial Instruments and Exchange Law of Japan and stock exchange rules. However, if Toyota does not comply with Japan’s Corporate Governance Code, it is required to explain the reasons why it does not do so in accordance with the regulations of the Japanese stock exchanges. In addition, Toyota is required to resolve at the board of directors matters relating to a system, which is required under the ordinance of the Ministry of Justice (“internal control system” or “naibu-tosei“), to ensure the execution of duties of the members of the board of directors to comply with laws, regulations and articles of incorporation, and any other systems to ensure the adequacy of the business, and to disclose such matters resolved, policies and the present status of its corporate governance in its business reports, annual securities report and certain other disclosure documents in accordance with the regulations under the Financial Instruments and Exchange Law and stock exchange rules in respect of timely disclosure.

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5. Code of Business Conduct and Ethics. Similar to the NYSE Corporate Governance Rules, under Japan’s Corporate Governance Code, Toyota is encouraged to adopt a code of conduct regarding ethical business activities for members of the board of directors, officers and employees. Toyota has resolved matters relating to maintenance of an “internal control system,” or “naibu-tosei,“ in order to ensure its employees comply with laws, regulations and the articles of incorporation, etc. pursuant to the Companies Act, and Toyota maintains guidelines and internal regulations such as “Guiding Principles at Toyota,” “Toyota Code of Conduct” and a code of ethics pursuant to Section 406 of the Sarbanes-Oxley Act. Please see “Code of Ethics” for additional information.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

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PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report on Form 20-F.

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TOYOTA MOTOR CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page

Report of Independent Registered Public Accounting Firm		F-2

Consolidated balance sheets at March 31, 2016 and 2017		F-3

Consolidated statements of income for the years ended March 31, 2015, 2016 and 2017		F-5

Consolidated statements of comprehensive income for the years ended March 31, 2015, 2016 and 2017		F-6

Consolidated statements of shareholders’ equity for the years ended March 31, 2015, 2016 and 2017		F-7

Consolidated statements of cash flows for the years ended March 31, 2015, 2016 and 2017		F-9

Notes to consolidated financial statements		F-10

All financial statements schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.

Financial statements of 50% or less owned persons accounted for by the equity method have been omitted because the registrant’s proportionate share of the income from continuing operations before income taxes is less than 20% of consolidated income from continuing operations before income taxes and the investment in and advances to each company is less than 20% of consolidated total assets.

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Toyota Jidosha Kabushiki Kaisha

(“Toyota Motor Corporation”)

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Toyota Motor Corporation and its subsidiaries at March 31, 2016 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 15(b). Our responsibility is to express opinions on these financial statements, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ PricewaterhouseCoopers Aarata LLC

Nagoya, Japan

June 23, 2017

F-2

TOYOTA MOTOR CORPORATION

CONSOLIDATED BALANCE SHEETS


	Yen in millions
	March 31,
	2016			2017
Assets
Current assets
Cash and cash equivalents		2,939,428			2,995,075
Time deposits		1,032,034			1,082,654
Marketable securities		1,511,389			1,821,598
Trade accounts and notes receivable, less allowance for doubtful accounts of ¥83,969 million in 2016 and ¥50,110 million in 2017		2,000,149			2,115,938
Finance receivables, net		5,912,684			6,196,649
Other receivables		451,406			436,867
Inventories		2,061,511			2,388,617
Deferred income taxes		967,607			—
Prepaid expenses and other current assets		1,333,345			796,297

Total current assets		18,209,553			17,833,695

Noncurrent finance receivables, net		8,642,947			9,012,222

Investments and other assets
Marketable securities and other securities investments		7,439,799			7,679,928
Affiliated companies		2,631,612			2,845,639
Employees receivables		32,998			25,187
Other		730,271			1,156,406

Total investments and other assets		10,834,680			11,707,160

Property, plant and equipment
Land		1,352,904			1,379,991
Buildings		4,311,895			4,470,996
Machinery and equipment		10,945,267			11,357,340
Vehicles and equipment on operating leases		5,652,622			5,966,579
Construction in progress		513,953			474,188

Total property, plant and equipment, at cost		22,776,641			23,649,094
Less - Accumulated depreciation		(13,036,224	)		(13,451,985	)

Total property, plant and equipment, net		9,740,417			10,197,109

Total assets		47,427,597			48,750,186

The accompanying notes are an integral part of these consolidated financial statements.

F-3

TOYOTA MOTOR CORPORATION

CONSOLIDATED BALANCE SHEETS


	Yen in millions
	March 31,
	2016			2017
Liabilities
Current liabilities
Short-term borrowings		4,698,134			4,953,682
Current portion of long-term debt		3,822,954			4,290,449
Accounts payable		2,389,515			2,566,382
Other payables		1,040,277			936,938
Accrued expenses		2,726,120			3,137,827
Income taxes payable		343,325			223,574
Other current liabilities		1,104,131			1,210,113

Total current liabilities		16,124,456			17,318,965

Long-term liabilities
Long-term debt		9,772,065			9,911,596
Accrued pension and severance costs		904,911			905,070
Deferred income taxes		2,046,089			1,423,726
Other long-term liabilities		491,890			521,876

Total long-term liabilities		13,214,955			12,762,268

Total liabilities		29,339,411			30,081,233

Mezzanine equity
Model AA Class Shares, no par value,		479,779			485,877
authorized: 150,000,000 shares in 2016 and 2017; issued: 47,100,000 shares in 2016 and 2017

Shareholders’ equity
Toyota Motor Corporation shareholders’ equity
Common stock, no par value, authorized: 10,000,000,000 shares in 2016 and 2017; issued: 3,337,997,492 shares in 2016 and 3,262,997,492 shares in 2017		397,050			397,050
Additional paid-in capital		548,161			484,013
Retained earnings		16,794,240			17,601,070
Accumulated other comprehensive income (loss)		610,768			640,922
Treasury stock, at cost, 300,321,622 shares in 2016 and 288,274,636 shares in 2017		(1,603,284	)		(1,608,243	)

Total Toyota Motor Corporation shareholders’ equity		16,746,935			17,514,812

Noncontrolling interests		861,472			668,264

Total shareholders’ equity		17,608,407			18,183,076

Commitments and contingencies
Total liabilities, mezzanine equity and shareholders’ equity		47,427,597			48,750,186

Note: The total number of authorized shares for common stock and Model AA Class Shares is 10,000,000,000 shares.

The accompanying notes are an integral part of these consolidated financial statements.

F-4

TOYOTA MOTOR CORPORATION

CONSOLIDATED STATEMENTS OF INCOME


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Net revenues
Sales of products		25,612,836			26,549,111			25,813,496
Financing operations		1,621,685			1,854,007			1,783,697

Total net revenues		27,234,521			28,403,118			27,597,193

Costs and expenses
Cost of products sold		20,916,362			21,456,086			21,543,035
Cost of financing operations		925,314			1,149,379			1,191,301
Selling, general and administrative		2,642,281			2,943,682			2,868,485

Total costs and expenses		24,483,957			25,549,147			25,602,821

Operating income		2,750,564			2,853,971			1,994,372

Other income (expense)
Interest and dividend income		147,122			157,862			158,983
Interest expense		(22,871	)		(35,403	)		(29,353	)
Foreign exchange gain (loss), net		88,140			(5,573	)		33,601
Other income (loss), net		(70,127	)		12,524			36,222

Total other income (expense)		142,264			129,410			199,453

Income before income taxes and equity in earnings of affiliated companies		2,892,828			2,983,381			2,193,825

Provision for income taxes		893,469			878,269			628,900
Equity in earnings of affiliated companies		308,545			329,099			362,060

Net income		2,307,904			2,434,211			1,926,985

Less - Net income attributable to noncontrolling interests		(134,566	)		(121,517	)		(95,876	)

Net income attributable to Toyota Motor Corporation		2,173,338			2,312,694			1,831,109


Note: Net income attributable to common shareholders for the fiscal year ended March 31, 2017 and 2016 is 1,821,314 million yen and 2,306,607 million yen, respectively, which is derived by deducting dividend and accretion to Model AA Class Shares of 9,795 million yen and 6,087 million yen, respectively, from Net income attributable to Toyota Motor Corporation.
	Yen
Net income attributable to Toyota Motor Corporation per common share
- Basic		688.02			741.36			605.47

- Diluted		687.66			735.36			599.22

Cash dividends per common share		200.00			210.00			210.00

The accompanying notes are an integral part of these consolidated financial statements.

F-5

TOYOTA MOTOR CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Net income		2,307,904			2,434,211			1,926,985
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments		404,352			(395,352	)		(57,926	)
Unrealized gains (losses) on securities		577,703			(312,192	)		4,279
Pension liability adjustments		4,316			(209,181	)		93,312

Total other comprehensive income (loss)		986,371			(916,725	)		39,665

Comprehensive income		3,294,275			1,517,486			1,966,650

Less - Comprehensive income attributable to noncontrolling interests		(171,553	)		(71,569	)		(103,161	)

Comprehensive income attributable to Toyota Motor Corporation		3,122,722			1,445,917			1,863,489

The accompanying notes are an integral part of these consolidated financial statements.

F-6

TOYOTA MOTOR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


	Yen in millions
	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock, at cost			Total Toyota Motor Corporation shareholders’ equity			Noncontrolling interests			Total shareholders’ equity
Balances at March 31, 2014		397,050		551,308			14,116,295			528,161			(1,123,666	)		14,469,148			749,839			15,218,987

Equity transaction with noncontrolling interests and other				(422	)											(422	)		7,101			6,679
Comprehensive income
Net income							2,173,338									2,173,338			134,566			2,307,904
Other comprehensive income (loss)
Foreign currency translation adjustments										380,448						380,448			23,904			404,352
Unrealized gains (losses) on securities										567,002						567,002			10,701			577,703
Pension liability adjustments										1,934						1,934			2,382			4,316

Total comprehensive income																3,122,722			171,553			3,294,275

Dividends paid to Toyota Motor Corporation common shareholders							(554,933	)								(554,933	)					(554,933	)
Dividends paid to noncontrolling interests																			(69,295	)		(69,295	)
Repurchase of treasury stock													(360,233	)		(360,233	)					(360,233	)
Reissuance of treasury stock				(2,136	)		(23,290	)					137,275			111,849						111,849
Retirement of treasury stock				(1,696	)		(119,463	)					121,159			—						—

Balances at March 31, 2015		397,050		547,054			15,591,947			1,477,545			(1,225,465	)		16,788,131			859,198			17,647,329

Equity transaction with noncontrolling interests and other				1,972			(97	)								1,875			3,834			5,709
Comprehensive income
Net income							2,312,694									2,312,694			121,517			2,434,211
Other comprehensive income (loss)
Foreign currency translation adjustments										(362,965	)					(362,965	)		(32,387	)		(395,352	)
Unrealized gains (losses) on securities										(302,620	)					(302,620	)		(9,572	)		(312,192	)
Pension liability adjustments										(201,192	)					(201,192	)		(7,989	)		(209,181	)

Total comprehensive income																1,445,917			71,569			1,517,486

Accretion to Mezzanine equity							(3,638	)								(3,638	)					(3,638	)
Dividends to Toyota Motor Corporation class shareholders							(2,449	)								(2,449	)					(2,449	)
Dividends paid to Toyota Motor Corporation common shareholders							(704,728	)								(704,728	)					(704,728	)
Dividends paid to noncontrolling interests																			(73,129	)		(73,129	)
Repurchase of treasury stock													(782,871	)		(782,871	)					(782,871	)
Reissuance of treasury stock				183									4,515			4,698						4,698
Retirement of treasury stock				(1,048	)		(399,489	)					400,537			—						—

Balances at March 31, 2016		397,050		548,161			16,794,240			610,768			(1,603,284	)		16,746,935			861,472			17,608,407

The accompanying notes are an integral part of these consolidated financial statements.

F-7

TOYOTA MOTOR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)


	Yen in millions
	Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock, at cost			Total Toyota Motor Corporation shareholders’ equity			Noncontrolling interests			Total shareholders’ equity
Balances at March 31, 2016		397,050		548,161			16,794,240			610,768			(1,603,284	)		16,746,935			861,472			17,608,407

Equity transaction with noncontrolling interests and other				(35,555	)					(2,226	)		283,561			245,780			(232,433	)		13,347
Comprehensive income
Net income							1,831,109									1,831,109			95,876			1,926,985
Other comprehensive income (loss)
Foreign currency translation adjustments										(52,427	)					(52,427	)		(5,499	)		(57,926	)
Unrealized gains (losses) on securities										(8,002	)					(8,002	)		12,281			4,279
Pension liability adjustments										92,809						92,809			503			93,312

Total comprehensive income																1,863,489			103,161			1,966,650

Accretion to Mezzanine equity							(4,849	)								(4,849	)					(4,849	)
Dividends to Toyota Motor Corporation class shareholders							(4,946	)								(4,946	)					(4,946	)
Dividends paid to Toyota Motor Corporation common shareholders							(634,475	)								(634,475	)					(634,475	)
Dividends paid to noncontrolling interests																			(63,936	)		(63,936	)
Repurchase of treasury stock													(700,228	)		(700,228	)					(700,228	)
Reissuance of treasury stock				(1,219	)								4,325			3,106						3,106
Retirement of treasury stock				(27,374	)		(380,009	)					407,383			—						—

Balances at March 31, 2017		397,050		484,013			17,601,070			640,922			(1,608,243	)		17,514,812			668,264			18,183,076

The accompanying notes are an integral part of these consolidated financial statements.

F-8

TOYOTA MOTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Cash flows from operating activities
Net income		2,307,904			2,434,211			1,926,985
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		1,409,075			1,625,837			1,610,950
Provision for doubtful accounts and credit losses		78,969			159,265			98,666
Pension and severance costs, less payments		(3,161	)		8,833			23,253
Losses on disposal of fixed assets		31,625			33,329			30,673
Unrealized losses on available-for-sale securities, net		2,578			9,272			7,073
Deferred income taxes		(26,887	)		32,889			(53,299	)
Equity in earnings of affiliated companies		(308,545	)		(329,099	)		(362,060	)
Changes in operating assets and liabilities, and other
Increase in accounts and notes receivable		(69,477	)		(25,180	)		(264,784	)
Increase in inventories		(171,001	)		(68,912	)		(246,326	)
Increase in other current assets		(43,355	)		(200,669	)		(152,116	)
Increase in accounts payable		150,058			120,381			145,957
Decrease in accrued income taxes		(246,043	)		(5,516	)		(121,032	)
Increase in other current liabilities		494,254			368,923			480,094
Other		79,759			297,293			290,203

Net cash provided by operating activities		3,685,753			4,460,857			3,414,237

Cash flows from investing activities
Additions to finance receivables		(13,126,596	)		(13,549,278	)		(13,636,694	)
Collection of finance receivables		12,426,475			13,067,700			12,885,944
Proceeds from sales of finance receivables		23,913			48,154			42,037
Additions to fixed assets excluding equipment leased to others		(1,146,318	)		(1,282,545	)		(1,223,878	)
Additions to equipment leased to others		(2,211,250	)		(2,776,671	)		(2,317,559	)
Proceeds from sales of fixed assets excluding equipment leased to others		41,547			42,147			41,238
Proceeds from sales of equipment leased to others		803,423			1,111,727			1,238,278
Purchases of marketable securities and security investments		(3,194,294	)		(2,197,477	)		(2,517,008	)
Proceeds from sales of marketable securities and security investments		113,348			108,708			260,039
Proceeds upon maturity of marketable securities and security investments		2,569,653			3,307,107			1,641,502
Payment for additional investments in affiliated companies, net of cash acquired		—			628			44,274
Changes in investments and other assets, and other		(113,391	)		(1,062,744	)		571,888

Net cash used in investing activities		(3,813,490	)		(3,182,544	)		(2,969,939	)

Cash flows from financing activities
Proceeds from issuance of long-term debt		5,029,018			4,845,872			4,603,446
Payments of long-term debt		(3,462,237	)		(4,176,202	)		(3,845,554	)
Increase (decrease) in short-term borrowings		(288,724	)		(10,903	)		273,037
Proceeds from issuance of class shares		—			474,917			—
Dividends paid to Toyota Motor Corporation class shareholders		—			(1,225	)		(3,697	)
Dividends paid to Toyota Motor Corporation common shareholders		(554,933	)		(704,728	)		(634,475	)
Dividends paid to noncontrolling interests		(69,295	)		(73,129	)		(63,936	)
Reissuance (repurchase) of treasury stock, and other		(347,784	)		(778,173	)		(703,986	)

Net cash provided by (used in) financing activities		306,045			(423,571	)		(375,165	)

Effect of exchange rate changes on cash and cash equivalents		65,079			(199,871	)		(13,486	)
Net increase in cash and cash equivalents		243,387			654,871			55,647
Cash and cash equivalents at beginning of year		2,041,170			2,284,557			2,939,428

Cash and cash equivalents at end of year		2,284,557			2,939,428			2,995,075

The accompanying notes are an integral part of these consolidated financial statements.

F-9

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of operations:

Toyota and its affiliated companies are primarily engaged in the design, manufacture, and sale of sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories throughout the world. In addition, Toyota and its affiliated companies provide financing, vehicle and equipment leasing and certain other financial services primarily to its dealers and their customers to support the sales of vehicles and other products manufactured by Toyota and its affiliated companies.

2. Summary of significant accounting policies:

The parent company and its subsidiaries in Japan and its foreign subsidiaries maintain their records and prepare their financial statements in accordance with Japanese generally accepted accounting principles and those of their countries of domicile. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform to U.S.GAAP.

Significant accounting policies after reflecting adjustments for the above are as follows:

Basis of consolidation and accounting for investments in affiliated companies -

The consolidated financial statements include the accounts of the parent company, its majority-owned subsidiary companies and variable interest entities of which Toyota is the primary beneficiary. All significant intercompany transactions and accounts have been eliminated. Investments in affiliated companies in which Toyota exercises significant influence, but which it does not control, are stated at cost plus equity in undistributed earnings. Consolidated net income includes Toyota’s equity in current earnings of such companies, after elimination of unrealized intercompany profits. Investments in such companies are reduced to net realizable value if a decline in market value is determined other-than-temporary. Investments in non-public companies in which Toyota does not exercise significant influence (generally less than a 20% ownership interest) are stated at cost.

Estimates -

The preparation of Toyota’s consolidated financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The more significant estimates include: product warranties, liabilities accrued for recalls and other safety measures, allowance for doubtful accounts and credit losses, residual values for leased assets, impairment of long-lived assets, pension costs and obligations, fair value of derivative financial instruments, other-than-temporary losses on marketable securities, litigation liabilities and valuation allowance for deferred tax assets.

Translation of foreign currencies -

All asset and liability accounts of foreign subsidiaries and affiliated companies are translated into Japanese yen at appropriate year-end current exchange rates and all income and expense accounts of those subsidiaries are translated at the average exchange rates for each period. The foreign currency translation adjustments are included as a component of accumulated other comprehensive income.

Foreign currency receivables and payables are translated at appropriate year-end current exchange rates and the resulting transaction gains or losses are recorded in operations currently.

F-10

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue recognition -

Revenues from sales of vehicles and parts are generally recognized upon delivery which is considered to have occurred when the dealer has taken title to the product and the risk and reward of ownership have been substantively transferred, except as described below.

Toyota’s sales incentive programs principally consist of cash payments to dealers calculated based on vehicle volume or a model sold by a dealer during a certain period of time. Toyota accrues these incentives as revenue reductions upon the sale of a vehicle corresponding to the program by the amount determined in the related incentive program.

Revenues from the sales of vehicles under which Toyota conditionally guarantees the minimum resale value are recognized on a pro rata basis from the date of sale to the first exercise date of the guarantee in a manner similar to operating lease accounting. The underlying vehicles of these transactions are recorded as assets and are depreciated in accordance with Toyota’s depreciation policy.

Revenues from retail financing contracts and finance leases are recognized using the effective yield method. Revenues from operating leases are recognized on a straight-line basis over the lease term.

The sale of certain vehicles includes a determinable amount for the contract, which entitles customers to free vehicle maintenance. Such revenues from free maintenance contracts are deferred and recognized as revenue over the period of the contract, which approximates the pattern of the related costs.

Other costs -

Advertising and sales promotion costs are expensed as incurred. Advertising costs were ¥435,150 million, ¥489,036 million and ¥448,780 million for the years ended March 31, 2015, 2016 and 2017, respectively.

In addition to product warranties above, Toyota accrues for costs of recalls and other safety measures based on management’s estimates when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Toyota employs an estimation model, to accrue at the time of vehicle sale, an amount that represents management’s best estimate of expenses related to future recalls and other safety measures. The estimation model for recalls and other safety measures takes into account Toyota’s historical experience of recalls and other safety measures.

Litigation liabilities are established to cover probable losses on various lawsuits based on the information currently available. Attorneys’ fees are expensed as incurred.

Research and development costs are expensed as incurred. Research and development costs were ¥1,004,547 million, ¥1,055,672 million and ¥1,037,528 million for the years ended March 31, 2015, 2016 and 2017, respectively.

F-11

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash and cash equivalents -

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates.

Marketable securities -

Marketable securities consist of debt and equity securities. Debt and equity securities designated as available-for-sale are carried at fair value with unrealized gains or losses included as a component of accumulated other comprehensive income in shareholders’ equity, net of applicable taxes. Individual securities classified as available-for-sale are reduced to net realizable value for other-than-temporary declines in market value. In determining if a decline in value is other-than-temporary, Toyota considers the length of time and the extent to which the fair value has been less than the carrying value, the financial condition and prospects of the company and Toyota’s ability and intent to retain its investment in the company for a period of time sufficient to allow for any anticipated recovery in market value. Realized gains and losses, which are determined on the average-cost method, are reflected in the consolidated statements of income when realized.

Security investments in non-public companies -

Security investments in non-public companies are carried at cost as fair value is not readily determinable. If the value of a non-public security investment is estimated to have declined and such decline is judged to be other-than-temporary, Toyota recognizes the impairment of the investment and the carrying value is reduced to its fair value. Determination of impairment is based on the consideration of such factors as operating results, business plans and estimated future cash flows. Fair value is determined principally through the use of the latest financial information.

Finance receivables -

Finance receivables recorded on Toyota’s consolidated balance sheets are comprised of the unpaid principal balance, plus accrued interest, less charge-offs, net of any unearned income and deferred origination costs and the allowance for credit losses. Deferred origination costs are amortized so as to approximate a level rate of return over the term of the related contracts.

The determination of portfolio segments is based primarily on the qualitative consideration of the nature of Toyota’s business operations and finance receivables. The three portfolio segments within finance receivables are as follows:

Retail receivables portfolio segment -

The retail receivables portfolio segment consists of retail installment sales contracts acquired mainly from dealers (“auto loans”) including credit card loans. These contracts acquired must first meet specified credit standards. Thereafter, Toyota retains responsibility for contract collection and administration.

The contract periods of auto loans primarily range from 2 to 7 years. Toyota acquires security interests in the vehicles financed and has the right to repossess vehicles if customers fail to meet their contractual obligations. Almost all auto loans are non-recourse, which relieves the dealers from financial responsibility in the event of repossession.

F-12

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Toyota classifies retail receivables portfolio segment into one class based on common risk characteristics associated with the underlying finance receivables, the similarity of the credit risks, and the quantitative materiality.

Finance lease receivables portfolio segment -

Toyota acquires new vehicle lease contracts originated primarily through dealers. The contract periods of these primarily range from 2 to 5 years. Lease contracts acquired must first meet specified credit standards after which Toyota assumes ownership of the leased vehicle. Toyota is responsible for contract collection and administration during the lease period.

Toyota is generally permitted to take possession of the vehicle upon a default by the lessee. The residual value is estimated at the time the vehicle is first leased. Vehicles returned to Toyota at the end of their leases are sold by auction.

Toyota classifies finance lease receivables portfolio segment into one class based on common risk characteristics associated with the underlying finance receivables and the similarity of the credit risks.

Wholesale and other dealer loan receivables portfolio segment -

Toyota provides wholesale financing to qualified dealers to finance inventories. Toyota acquires security interests in vehicles financed at wholesale. In cases where additional security interests would be required, Toyota takes dealership assets or personal assets, or both, as additional security. If a dealer defaults, Toyota has the right to liquidate any assets acquired and seek legal remedies.

Toyota also makes term loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, other dealership assets and/or personal assets of the dealers.

Toyota classifies wholesale and other dealer loan receivables portfolio segment into three classes of wholesale, real estate and working capital, based on the risk characteristics associated with the underlying finance receivables.

A receivable account balance is considered impaired when, based on current information and events, it is probable that Toyota will be unable to collect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying loan agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether a loan is impaired. Impaired finance receivables include certain nonaccrual receivables for which a specific reserve has been assessed. An account modified as a troubled debt restructuring is considered to be impaired. A troubled debt restructuring occurs when an account is modified through a concession to a borrower experiencing financial difficulty.

All classes of wholesale and other dealer loan receivables portfolio segment are placed on nonaccrual status when full payment of principal or interest is in doubt, or when principal or interest is 90 days or more contractually past due, whichever occurs first. Collateral dependent loans are placed on nonaccrual status if collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a receivable is placed on nonaccrual status is reversed against interest income. In addition, the amortization of net deferred fees is suspended.

F-13

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest income on nonaccrual receivables is recognized only to the extent it is received in cash. Accounts are restored to accrual status only when interest and principal payments are brought current and future payments are reasonably assured. Receivable balances are written-off against the allowance for credit losses when it is probable that a loss has been realized. Retail receivables class and finance lease receivables class are not placed generally on nonaccrual status when principal or interest is 90 days or more past due. However, these receivables are generally written-off against the allowance for credit losses when payments due are no longer expected to be received or the account is 120 days contractually past due, whichever occurs first.

As of March 31, 2016 and 2017, finance receivables on nonaccrual status are as follows:


	Yen in millions
	March 31,
	2016		2017
Retail		8,107		7,064
Finance leases		682		2,297
Wholesale		16,122		15,018
Real estate		16,801		12,632
Working capital		822		561

		42,534		37,572

As of March 31, 2016 and 2017, finance receivables 90 days or more past due and accruing are as follows:


	Yen in millions
	March 31,
	2016		2017
Retail		23,419		26,616
Finance leases		3,984		3,526

		27,403		30,142

Allowance for credit losses -

Allowance for credit losses is established to cover probable losses on finance receivables and vehicles and equipment on operating leases, resulting from the inability of customers to make required payments. Provision for credit losses is included in selling, general and administrative expenses.

The allowance for credit losses is based on a systematic, ongoing review and evaluation performed as part of the credit-risk evaluation process, historical loss experience, the size and composition of the portfolios, current economic events and conditions, the estimated fair value and adequacy of collateral and other pertinent factors. Vehicles and equipment on operating leases are not within the scope of accounting guidance governing the disclosure of portfolio segments.

Retail receivables portfolio segment -

Toyota calculates allowance for credit losses to cover probable losses on retail receivables by applying reserve rates to such receivables. Reserve rates are calculated mainly by historical loss experience, current economic events and conditions and other pertinent factors.

F-14

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Finance lease receivables portfolio segment -

Toyota calculates allowance for credit losses to cover probable losses on finance lease receivables by applying reserve rates to such receivables. Reserve rates are calculated mainly by historical loss experience, current economic events and conditions and other pertinent factors such as used car markets.

Wholesale and other dealer loan receivables portfolio segment -

Toyota calculates allowance for credit losses to cover probable losses on wholesale and other dealer loan receivables by applying reserve rates to such receivables. Reserve rates are calculated mainly by financial conditions of the dealers, terms of collateral setting, current economic events and conditions and other pertinent factors.

Toyota establishes specific reserves to cover the estimated losses on individually impaired receivables within the wholesale and other dealer loan receivables portfolio segment. Specific reserves on impaired receivables are determined by the present value of expected future cash flows or the fair value of collateral when it is probable that such receivables will be unable to be fully collected. The fair value of the underlying collateral is used if the receivable is collateral-dependent. The receivable is determined collateral-dependent if the repayment of the loan is expected to be provided by the underlying collateral. For the receivables in which the fair value of the underlying collateral was in excess of the outstanding balance, no allowance was provided.

Troubled debt restructurings in the retail receivables and finance lease receivables portfolio segments are specifically identified as impaired and aggregated with their respective portfolio segments when determining the allowance for credit losses. Impaired loans in the retail receivables and finance lease receivables portfolio segments are insignificant for individual evaluation and Toyota has determined that allowance for credit losses for each of the retail receivables and finance lease receivables portfolio segments would not be materially different if they had been individually evaluated for impairment.

Specific reserves on impaired receivables within the wholesale and other dealer loan receivables portfolio segment are recorded by an increase to the allowance for credit losses based on the related measurement of impairment. Related collateral, if recoverable, is repossessed and sold and the account balance is written-off.

Any shortfall between proceeds received and the carrying cost of repossessed collateral is charged to the allowance. Recoveries are reversed from the allowance for credit losses.

Allowance for residual value losses -

Toyota is exposed to risk of loss on the disposition of off-lease vehicles to the extent that sales proceeds are not sufficient to cover the carrying value of the leased asset at lease termination. Toyota maintains an allowance to cover probable estimated losses related to unguaranteed residual values on its owned portfolio. The allowance is evaluated considering projected vehicle return rates and projected loss severity. Factors considered in the determination of projected return rates and loss severity include historical and market information on used vehicle sales, trends in lease returns and new car markets, and general economic conditions. Management evaluates the foregoing factors, develops several potential loss scenarios, and reviews allowance levels to determine whether reserves are considered adequate to cover the probable range of losses.

The allowance for residual value losses is maintained in amounts considered by Toyota to be appropriate in relation to the estimated losses on its owned portfolio. Upon disposal of the assets, the allowance for residual losses is adjusted for the difference between the net book value and the proceeds from sale.

F-15

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Inventories -

Inventories are valued at cost, not in excess of market, cost being determined on the “average-cost” basis, except for the cost of finished products carried by certain subsidiary companies which is determined on the “specific identification” basis or “last-in, first-out” (“LIFO”) basis. Inventories valued on the LIFO basis totaled ¥382,660 million and ¥433,802 million at March 31, 2016 and 2017, respectively. Had the “first-in, first-out” basis been used for those companies using the LIFO basis, inventories would have been ¥13,297 million and ¥40,650 million higher than reported at March 31, 2016 and 2017, respectively.

Property, plant and equipment -

Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are charged to current operations. Depreciation of property, plant and equipment is mainly computed on the declining-balance method for the parent company and Japanese subsidiaries and on the straight-line method for foreign subsidiary companies at rates based on estimated useful lives of the respective assets according to general class, type of construction and use. The estimated useful lives range from 2 to 65 years for buildings and from 2 to 20 years for machinery and equipment.

Vehicles and equipment on operating leases to third parties are originated by dealers and acquired by certain consolidated subsidiaries. Such subsidiaries are also the lessors of certain property that they acquire directly. Vehicles and equipment on operating leases are depreciated primarily on a straight-line method over the lease term, generally from 2 to 5 years, to the estimated residual value. Incremental direct costs incurred in connection with the acquisition of operating lease contracts are capitalized and amortized on a straight-line method over the lease term.

Long-lived assets -

Toyota reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset group exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the carrying value of the asset group over its fair value. Fair value is determined mainly using a discounted cash flow valuation method.

Goodwill and intangible assets -

Goodwill is not material to Toyota’s consolidated balance sheets.

Intangible assets consist mainly of software. Intangible assets with a definite life are amortized on a straight-line basis with estimated useful lives mainly of 5 years. Intangible assets with an indefinite life are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable.

An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss to be recorded is generally determined by the difference between the fair value of the asset using a discounted cash flow valuation method and the current book value.

F-16

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Employee benefit obligations -

Toyota has both defined benefit and defined contribution plans for employees’ retirement benefits. Retirement benefit obligations are measured by actuarial calculations in accordance with U.S.GAAP. The funded status of the defined benefit postretirement plans is recognized on the consolidated balance sheets as prepaid pension and severance costs or accrued pension and severance costs, and the funded status change is recognized in the year in which it occurs through other comprehensive income.

Environmental matters -

Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Liabilities for remediation costs are recorded when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or Toyota’s commitment to a plan of action. The cost of each environmental liability is estimated by using current technology available and various engineering, financial and legal specialists within Toyota based on current law. Such liabilities do not reflect any offset for possible recoveries from insurance companies and are not discounted. There were no material changes in these liabilities for all periods presented.

Income taxes -

The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

Derivative financial instruments -

Toyota employs derivative financial instruments, including forward foreign currency exchange contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. All derivative financial instruments are recorded on the consolidated balance sheets at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to net settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Toyota does not use derivatives for speculation or trading purposes. Changes in the fair value of derivatives are recorded each period in current earnings or through other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges is recognized currently in operations.

Net income attributable to Toyota Motor Corporation per common share -

Basic net income attributable to Toyota Motor Corporation per common share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the reported period. The calculation of diluted net income attributable to Toyota Motor Corporation per common share is done by adjusting net income attributable to common shareholders and the weighted-average number of common shares outstanding, which includes the additional dilution from the assumed conversion of model AA class shares and the assumed exercise of dilutive stock options.

F-17

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based compensation -

Toyota measures compensation expense for its stock-based compensation plan based on the grant-date fair value of the award, and accounts for the award.

Other comprehensive income -

Other comprehensive income refers to revenues, expenses, gains and losses that, under U.S.GAAP are included in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity. Toyota’s other comprehensive income is primarily comprised of unrealized gains/losses on marketable securities designated as available-for-sale, foreign currency translation adjustments and adjustments attributed to pension liabilities associated with Toyota’s defined benefit pension plans.

Accounting changes -

In February 2015, the Financial Accounting Standards Board (“FASB”) issued updated guidance that amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. Toyota adopted this guidance on April 1, 2016. The adoption of this guidance did not have a material impact on Toyota’s consolidated financial statements.

In April 2015, the FASB issued updated guidance that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. In August 2015, the FASB issued an additional update which clarifies that debt issuance costs for line of credit agreements may continue to be deferred and amortized. Toyota adopted this guidance on April 1, 2016. The adoption of this guidance did not have a material impact on Toyota’s consolidated financial statements. For the previous consolidated fiscal year, debt issuance costs are recorded at “Other” in “Investments and other assets” on the consolidated balance sheet in the amount of 23,695 million yen.

In April 2015, the FASB issued updated guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. Toyota adopted this guidance on April 1, 2016. The adoption of this guidance did not have a material impact on Toyota’s consolidated financial statements.

In May 2015, the FASB issued updated guidance on disclosures for investments in certain entities that calculate net asset value per share. This guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Toyota adopted this guidance on April 1, 2016. The adoption of this guidance did not have a material impact on Toyota’s consolidated financial statements. For a further discussion of additional disclosures by adoption of this guidance, see note 20 and 27 to the consolidated financial statements.

In November 2015, the FASB issued updated guidance to simplify the balance sheet classification of deferred taxes. This guidance will require that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. Toyota early adopted this guidance on April 1, 2016. Toyota adopted this guidance on a prospective basis from April 1, 2016 and prior periods were not retrospectively adjusted.

In March 2016, the FASB issued updated guidance to simplify the requirement in applying the equity method of accounting. This update eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively as if the equity method had been in effect during all previous periods that the investment had been held. Toyota early adopted this guidance on April 1, 2016. The adoption of this guidance did not have a material impact on Toyota’s consolidated financial statements.

F-18

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent pronouncements to be adopted in future periods -

In May 2014, the FASB issued updated guidance on the recognition of revenue from contracts with customers. This guidance requires an entity to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and supersedes the current revenue recognition guidance. In August 2015, the FASB issued updated guidance on the deferral of the effective date. As a result, this guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. This guidance may be adopted retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. Toyota currently plans to adopt the modified retrospective method of adoption from the fiscal year beginning April 1, 2018. Toyota’s current efforts to this end include the identification of revenue within the scope of this guidance, as well as the evaluation of revenue contracts. Toyota continues to assess the impact of adoption of this guidance on its consolidated financial statements and related disclosure.

In July 2015, the FASB issued updated guidance to simplify the measurement of inventory. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management is evaluating the impact of adopting this guidance on Toyota’s consolidated financial statements.

In January 2016, the FASB issued updated guidance for financial instruments. This guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and will require entities to measure equity investments at fair value and recognize any changes in fair value in net income. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of adopting this guidance on Toyota’s consolidated financial statements.

In February 2016, the FASB issued updated guidance for leases. This guidance will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is evaluating the impact of adopting this guidance on Toyota’s consolidated financial statements.

In March 2016, the FASB issued updated guidance for the effect of derivative contract novations on existing hedge accounting relationships. This guidance clarifies that a change in the counterparty to a designated derivative hedging instrument does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management does not expect this guidance to have a material impact on Toyota’s consolidated financial statements.

In March 2016, the FASB issued updated guidance for contingent put and call options in debt instruments. This guidance clarifies whether embedded contingent put and call options are clearly and closely related to the debt host when bifurcating embedded derivatives. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management does not expect this guidance to have a material impact on Toyota’s consolidated financial statements.

In June 2016, the FASB issued updated guidance for measurement of credit losses on financial instruments. This guidance introduces an approach to estimate credit losses on certain types of financial instruments based on expected losses. It also modifies the impairment model for available-for-sale debt securities. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is evaluating the impact of adopting this guidance on Toyota’s consolidated financial statements.

F-19

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In August 2016, the FASB issued updated guidance for classification of statement of cash flows. This guidance clarifies classification of certain cash receipts and cash payments of statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of adopting this guidance on Toyota’s consolidated financial statements.

In October 2016, the FASB issued updated guidance that would require entities to recognize the income tax consequences of intercompany asset transfers other than inventory. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management does not expect this guidance to have a material impact on Toyota’s consolidated financial statements.

In October 2016, the FASB issued updated guidance for consolidation. Under this guidance, a reporting entity would evaluate its indirect economic interest in a variable interest entity held through a related party under common control on a proportionate basis. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management does not expect this guidance to have a material impact on Toyota’s consolidated financial statements.

In November 2016, the FASB issued updated guidance for the statement of cash flows. This guidance will require that restricted cash and restricted cash equivalents should be included with cash and cash equivalents. It will also require entities to disclose how the statement of cash flows that includes restricted cash with cash and cash equivalents reconciles to the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the impact of adopting this guidance on Toyota’s consolidated financial statements.

Reclassifications -

Certain prior year amounts have been reclassified to conform to the presentations as of and for the year ended March 31, 2017.

3. Supplemental cash flow information:

Cash payments for income taxes were ¥1,145,808 million, ¥884,589 million and ¥854,600 million for the years ended March 31, 2015, 2016 and 2017, respectively. Interest payments during the years ended March 31, 2015, 2016 and 2017 were ¥369,770 million, ¥381,280 million and ¥362,602 million, respectively.

Capital lease obligations of ¥3,709 million, ¥6,546 million and ¥5,975 million were incurred for the years ended March 31, 2015, 2016 and 2017, respectively.

4. Acquisitions and dispositions:

Toyota Housing Corporation, a consolidated subsidiary of Toyota Motor Corporation, increased its ownership interest in Misawa Homes Co., Ltd. (Business description: Production and sale of housing materials and components, etc.) to 51% by acquiring 11,181,798 shares of common stock of Misawa Homes Co., Ltd. through a tender offer on December 29, 2016 as well as a third-party allotment of Misawa Homes Co., Ltd. shares to Toyota Housing Corporation and a disposal of Misawa Homes Co., Ltd. treasury stock on January 5, 2017, in order to increase competitiveness through enhanced cooperation with Misawa Homes Co., Ltd. As a result, Misawa Homes Co., Ltd., previously an affiliated company accounted for under the equity method, will now be accounted for as a consolidated subsidiary of Toyota Motor Corporation.

The acquisition is accounted for under the acquisition method. Acquisition-related costs were accounted as expense when incurred, and the estimated fair values of the assets acquired, liabilities assumed and noncontrolling interests as of the date of the acquisition of control are immaterial in value.

F-20

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The amount of sales of Misawa Homes Co., Ltd. after the date of the acquisition of control, which is included in “Sales of products” of Toyota’s consolidated statements of income for fiscal 2017, is ¥130,046 million. Misawa Homes’ net income does not have a material effect on net income attributable to Toyota Motor Corporation in term of monetary value.

In addition to the above, Toyota made several acquisitions and dispositions during the years ended March 31, 2015, 2016 and 2017, however the assets and liabilities acquired or transferred were not material.

5. Marketable securities and other securities investments:

Marketable securities and other securities investments include public and corporate bonds and common stocks for which the aggregate cost, gross unrealized gains and losses and fair value are as follows:


	Yen in millions
	March 31, 2016
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale
Public and corporate bonds		5,706,026		261,226		15,671		5,951,581
Common stocks		661,796		1,897,439		304		2,558,931
Other		318,240		30,282		40		348,482

Total		6,686,062		2,188,947		16,015		8,858,994

Securities not practicable to determine fair value
Public and corporate bonds		20,253
Common stocks		71,941

Total		92,194


	Yen in millions
	March 31, 2017
	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Available-for-sale
Public and corporate bonds		5,789,221		145,640		49,030		5,885,831
Common stocks		668,345		2,018,910		321		2,686,934
Other		819,514		9,724		2,670		826,568

Total		7,277,080		2,174,274		52,021		9,399,333

Securities not practicable to determine fair value
Public and corporate bonds		25,257
Common stocks		76,936

Total		102,193

Japanese bonds as well as U.S., European and other bonds represent 37% and 63% (as of March 31, 2016) and 28% and 72% (as of March 31, 2017) of public and corporate bonds included in available-for-sale, respectively. Listed stocks on the Japanese stock markets represent 90% and 92% of common stocks which are included in available-for-sale as of March 31, 2016 and 2017, respectively. Public and corporate bonds include government bonds, and “Other” includes investment trusts.

F-21

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Unrealized losses continuing over a 12 month period or more in the aggregate were not material as of March 31, 2016 and 2017.

As of March 31, 2016 and 2017, maturities of public and corporate bonds included in available-for-sale are mainly from 1 to 10 years.

Proceeds from sales of available-for-sale securities were ¥113,348 million, ¥108,708 million and ¥251,940 million for the years ended March 31, 2015, 2016 and 2017, respectively. On those sales, gross realized gains were ¥17,912 million, ¥9,500 million and ¥61,038 million and gross realized losses were ¥161 million, ¥365 million and ¥108 million, respectively.

During the years ended March 31, 2015, 2016 and 2017, Toyota recognized impairment losses on available-for-sale securities of ¥2,578 million, ¥9,272 million and ¥7,073 million, respectively, which are included in “Other income (loss), net” and other in the accompanying consolidated statements of income.

In the ordinary course of business, Toyota maintains long-term investment securities, included in “Marketable securities and other securities investments” and issued by a number of non-public companies which are recorded at cost, as their fair values were not readily determinable. Management employs a systematic methodology to assess the recoverability of such investments by reviewing the financial viability of the underlying companies and the prevailing market conditions in which these companies operate to determine if Toyota’s investment in each individual company is impaired and whether the impairment is other-than-temporary. Toyota periodically performs this impairment test for significant investments recorded at cost. If the impairment is determined to be other-than-temporary, the carrying value of the investment is written-down by the impaired amount and the losses are recognized currently in operations.

6. Finance receivables:

Finance receivables consist of the following:


	Yen in millions
	March 31,
	2016			2017
Retail		11,156,798			11,453,352
Finance leases		1,144,312			1,265,882
Wholesale and other dealer loans		2,994,171			3,281,142

		15,295,281			16,000,376
Deferred origination costs		169,467			172,298
Unearned income		(754,836	)		(804,591	)
Allowance for credit losses
Retail		(98,853	)		(104,354	)
Finance leases		(24,600	)		(23,962	)
Wholesale and other dealer loans		(30,828	)		(30,896	)

Total allowance for credit losses		(154,281	)		(159,212	)

Total finance receivables, net		14,555,631			15,208,871
Less - Current portion		(5,912,684	)		(6,196,649	)

Noncurrent finance receivables, net		8,642,947			9,012,222

F-22

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Finance receivables were geographically distributed as follows: in North America 59.1%, in Asia 11.9%, in Europe 10.3%, in Japan 8.3% and in Other 10.4% as of March 31, 2016, and in North America 59.1%, in Asia 11.3%, in Europe 10.3%, in Japan 8.1% and in Other 11.2% as of March 31, 2017.

The contractual maturities of retail receivables, the future minimum lease payments on finance leases and the contractual maturities of wholesale and other dealer loans at March 31, 2017 are summarized as follows:


	Yen in millions
Years ending March 31,	Retail		Finance leases		Wholesale and other dealer loans
2018		3,743,543		323,426		2,437,941
2019		2,794,572		250,978		275,706
2020		2,191,969		190,217		151,757
2021		1,471,456		87,492		111,925
2022		791,695		31,798		139,923
Thereafter		460,117		5,611		163,890

		11,453,352		889,522		3,281,142

Finance leases consist of the following:


	Yen in millions
	March 31,
	2016			2017
Minimum lease payments		810,088			889,522
Estimated unguaranteed residual values		334,224			376,360

		1,144,312			1,265,882
Deferred origination costs		5,135			5,809
Less - Unearned income		(95,213	)		(103,518	)
Less - Allowance for credit losses		(24,600	)		(23,962	)

Finance leases, net		1,029,634			1,144,211

Toyota is exposed to credit risk on Toyota’s finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with Toyota or otherwise fail to perform as agreed. Toyota estimates allowance for credit losses by variety of credit-risk evaluation process to cover probable and estimable losses above.

F-23

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The table below shows the amount of the finance receivables segregated into aging categories based on the number of days outstanding as of March 31, 2016 and 2017:


	Yen in millions
	March 31, 2016
	Retail		Finance leases		Wholesale		Real estate		Working capital
Current		10,966,689		1,135,474		1,482,697		817,896		692,784
30-59 days past due		128,603		2,896		1		—		—
60-89 days past due		29,995		1,465		—		—		—
90 days or greater past due		31,511		4,477		3		480		310

Total		11,156,798		1,144,312		1,482,701		818,376		693,094


	Yen in millions
	March 31, 2017
	Retail		Finance leases		Wholesale		Real estate		Working capital
Current		11,264,660		1,255,626		1,707,432		848,757		722,697
30-59 days past due		125,626		5,114		1,327		—		405
60-89 days past due		29,321		1,321		—		—		—
90 days or greater past due		33,745		3,821		—		266		258

Total		11,453,352		1,265,882		1,708,759		849,023		723,360

The tables below show the recorded investment for each credit quality of the finance receivable within the wholesale and other dealer loan receivables portfolio segment in the United States and other regions as of March 31, 2016 and 2017:

United States

The wholesale and other dealer loan receivables portfolio segment is primarily segregated into credit qualities below based on internal risk assessments by dealers.

Performing: Account not classified as either Credit Watch, At Risk or Default

Credit Watch: Account designated for elevated attention

At Risk:

Account where there is an increased likelihood that default may exist based on qualitative and quantitative factors

Default:

Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements


	Yen in millions
	March 31, 2016
	Wholesale		Real estate		Working capital		Total
Performing		912,643		430,673		189,969		1,533,285
Credit Watch		117,346		85,963		25,753		229,062
At Risk		12,683		12,311		1,937		26,931
Default		976		1,085		151		2,212

Total		1,043,648		530,032		217,810		1,791,490

F-24

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	March 31, 2017
	Wholesale		Real estate		Working capital		Total
Performing		1,076,164		449,884		233,677		1,759,725
Credit Watch		142,336		68,726		16,049		227,111
At Risk		1,286		5,071		561		6,918
Default		8,791		5,079		544		14,414

Total		1,228,577		528,760		250,831		2,008,168

Other regions

Credit qualities of the wholesale and other dealer loan receivables portfolio segment in other regions are also monitored based on internal risk assessments by dealers on a consistent basis as in the United States. These accounts classified as “Credit Watch” or “At Risk” were not significant in other regions, and consequently the tables below summarize information for two categories, “Performing” and “Default”.


	Yen in millions
	March 31, 2016
	Wholesale		Real estate		Working capital		Total
Performing		436,839		284,512		474,731		1,196,082
Default		2,214		3,832		553		6,599

Total		439,053		288,344		475,284		1,202,681


	Yen in millions
	March 31, 2017
	Wholesale		Real estate		Working capital		Total
Performing		460,308		316,008		472,198		1,248,514
Default		19,874		4,255		331		24,460

Total		480,182		320,263		472,529		1,272,974

F-25

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The tables below summarize information about impaired finance receivables:


	Yen in millions
	Recorded investment				Unpaid principal balance				Individually evaluated allowance
	March 31,				March 31,				March 31,
	2016		2017		2016		2017		2016		2017
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale		13,374		10,667		13,374		10,667		1,303		1,373
Real estate		13,891		10,986		13,891		10,986		1,934		1,596
Working capital		4,851		3,793		4,851		3,793		3,916		1,291

Total		32,116		25,446		32,116		25,446		7,153		4,260

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale		21,056		15,033		21,056		15,033
Real estate		11,098		11,780		11,098		11,780
Working capital		388		—		388		—

Total		32,542		26,813		32,542		26,813

Impaired account balances aggregated and evaluated for impairment:
Retail		27,854		27,269		27,149		26,597
Finance leases		85		66		75		54

Total		27,939		27,335		27,224		26,651

Total impaired account balances:
Retail		27,854		27,269		27,149		26,597
Finance leases		85		66		75		54
Wholesale		34,430		25,700		34,430		25,700
Real estate		24,989		22,766		24,989		22,766
Working capital		5,239		3,793		5,239		3,793

Total		92,597		79,594		91,882		78,910


	Yen in millions
	Average impaired finance receivables				Interest income recognized
	For the years ended March 31,				For the years ended March 31,
	2016		2017		2016		2017
Total impaired account balances:
Retail		31,368		26,628		2,155		1,741
Finance leases		96		76		2		0
Wholesale		29,315		26,306		481		650
Real estate		23,441		22,482		721		867
Working capital		5,486		4,208		240		217

Total		89,706		79,700		3,599		3,475

The amount of finance receivables modified as a troubled debt restructuring for the year ended March 31, 2017 was not significant for all classes of finance receivables. Finance receivables modified as troubled debt restructurings for the year ended March 31, 2017 and for which there was a payment default were not significant for all classes of such receivables.

F-26

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. Other receivables:

Other receivables relate to arrangements with certain component manufacturers whereby Toyota procures inventory for these component manufactures and is reimbursed for the related purchases.

8. Inventories:

Inventories consist of the following:


	Yen in millions
	March 31,
	2016		2017
Finished goods		1,323,477		1,552,823
Raw materials		367,079		413,049
Work in process		265,570		309,387
Supplies and other		105,385		113,358

Total		2,061,511		2,388,617

9. Vehicles and equipment on operating leases:

Vehicles and equipment on operating leases consist of the following:


	Yen in millions
	March 31,
	2016			2017
Vehicles		5,778,463			6,105,527
Equipment		12,836			13,096
Less - Deferred income and other		(138,677	)		(152,044	)

		5,652,622			5,966,579
Less - Accumulated depreciation		(1,133,785	)		(1,263,774	)
Less - Allowance for credit losses		(13,049	)		(18,889	)

Vehicles and equipment on operating leases, net		4,505,788			4,683,916

Rental income from vehicles and equipment on operating leases was ¥726,515 million, ¥891,733 million and ¥850,210 million for the years ended March 31, 2015, 2016 and 2017, respectively. Future minimum rentals from vehicles and equipment on operating leases are due in installments as follows:


Years ending March 31,	Yen in millions
2018		792,555
2019		528,657
2020		216,929
2021		44,847
2022		12,193
Thereafter		2,049

Total minimum future rentals		1,597,230

The future minimum rentals as shown above should not be considered indicative of future cash collections.

F-27

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. Allowance for doubtful accounts and credit losses:

The net changes in the allowance for doubtful accounts relating to trade accounts and notes receivable for the years ended March 31, 2015, 2016 and 2017 are as follows:


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Allowance for doubtful accounts at beginning of year		47,518			50,410			94,853
Provision for doubtful accounts, net of reversal		(1,598	)		69,029			6,519
Write-offs		(289	)		(20,649	)		(3,839	)
Other		4,779			(3,937	)		3,179

Allowance for doubtful accounts at end of year		50,410			94,853			100,712

“Other” includes the impact of currency translation adjustments for the years ended March 31, 2015, 2016 and 2017.

A portion of the allowance for doubtful accounts balance at March 31, 2016 and 2017 totaling ¥10,884 million and ¥50,602 million, respectively, is attributed to certain non-current receivable balances which are reported as “Other” assets in the consolidated balance sheets.

The net changes in the allowance for credit losses relating to finance receivables and vehicles and equipment on operating leases for the years ended March 31, 2015, 2016 and 2017 are as follows:


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Allowance for credit losses at beginning of year		153,602			178,038			167,330
Provision for credit losses, net of reversal		80,567			90,236			92,147
Charge-offs		(84,310	)		(102,948	)		(99,550	)
Recoveries		18,173			22,356			21,757
Other		10,006			(20,352	)		(3,583	)

Allowance for credit losses at end of year		178,038			167,330			178,101

“Other” primarily includes the impact of currency translation adjustments for the years ended March 31, 2015, 2016 and 2017.

F-28

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The net changes in the allowance for credit losses above relating to retail receivables portfolio segment, finance lease receivables portfolio segment and wholesale and other dealer loan receivables portfolio segment for the years ended March 31, 2015, 2016 and 2017 are as follows:


	Yen in millions
	For the year ended March 31, 2015
	Retail			Finance leases			Wholesale and other dealer loans
Allowance for credit losses at beginning of year		89,439			30,585			26,358
Provision for credit losses, net of reversal		70,129			(858	)		2,531
Charge-offs		(71,403	)		(2,568	)		(603	)
Recoveries		15,008			497			78
Other		6,143			1,647			1,689

Allowance for credit losses at end of year		109,316			29,303			30,053


	Yen in millions
	For the year ended March 31, 2016
	Retail			Finance leases			Wholesale and other dealer loans
Allowance for credit losses at beginning of year		109,316			29,303			30,053
Provision for credit losses, net of reversal		65,677			1,742			4,962
Charge-offs		(83,116	)		(3,833	)		(667	)
Recoveries		18,999			380			230
Other		(12,023	)		(2,992	)		(3,750	)

Allowance for credit losses at end of year		98,853			24,600			30,828


	Yen in millions
	For the year ended March 31, 2017
	Retail			Finance leases			Wholesale and other dealer loans
Allowance for credit losses at beginning of year		98,853			24,600			30,828
Provision for credit losses, net of reversal		67,433			1,657			854
Charge-offs		(78,114	)		(2,007	)		(324	)
Recoveries		18,282			194			160
Other		(2,100	)		(482	)		(622	)

Allowance for credit losses at end of year		104,354			23,962			30,896

F-29

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11. Affiliated companies and variable interest entities:

Investments in and transactions with affiliated companies -

Summarized financial information for affiliated companies accounted for by the equity method is shown below:


	Yen in millions
	March 31,
	2016		2017
Current assets		11,299,674		11,795,296
Noncurrent assets		10,961,889		11,003,432

Total assets		22,261,563		22,798,728

Current liabilities		7,414,894		7,419,176
Long-term liabilities and noncontrolling interests		5,509,745		5,423,938
Affiliated companies accounted for by the equity method shareholders’ equity		9,336,924		9,955,614

Total liabilities and shareholders’ equity		22,261,563		22,798,728

Toyota’s share of affiliated companies accounted for by the equity method shareholders’ equity		2,631,389		2,845,422

Number of affiliated companies accounted for by the equity method at end of period		54		54


	Yen in millions
	For the years ended March 31,
	2015		2016		2017
Net revenues		30,163,457		31,037,029		30,309,263

Gross profit		3,614,946		3,852,899		3,644,267

Net income attributable to affiliated companies accounted for by the equity method		966,133		957,742		1,099,080

Equity in earnings of affiliated companies attributable to Toyota Motor Corporation		308,545		329,099		362,060

Entities comprising a significant portion of Toyota’s investment in affiliated companies and percentage of ownership are presented below:


	Percentage of ownership
	March 31,
Name of affiliated companies	2016			2017
Denso Corporation		24.9	%		24.9	%
Toyota Industries Corporation		24.6	%		24.9	%
Aisin Seiki Co., Ltd.		23.3	%		24.1	%
Toyota Tsusho Corporation		22.0	%		22.0	%
Toyoda Gosei Co., Ltd.		43.0	%		43.0	%

F-30

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Certain affiliated companies accounted for by the equity method with carrying amounts of ¥1,950,661 million and ¥2,126,128 million at March 31, 2016 and 2017, respectively, were quoted on various established markets at an aggregate value of ¥2,470,588 million and ¥2,894,106 million, respectively. Toyota evaluated its investments in affiliated companies, considering the length of time and the extent to which the quoted market prices have been less than the carrying amounts, the financial condition and near-term prospects of the affiliated companies and Toyota’s ability and intent to retain those investments in the companies for a period of time. Toyota did not recognize any impairment loss for the years ended March 31, 2015, 2016 and 2017.

Account balances and transactions with affiliated companies are presented below:


	Yen in millions
	March 31,
	2016		2017
Trade accounts and notes receivable, and other receivables		256,700		289,406
Accounts payable and other payables		676,415		691,173


	Yen in millions
	For the years ended March 31,
	2015		2016		2017
Net revenues		1,785,238		1,804,493		1,914,318
Purchases		5,065,613		4,359,854		5,357,682

Dividends from affiliated companies accounted for by the equity method for the years ended March 31, 2015, 2016 and 2017 were ¥174,485 million, ¥186,212 million and ¥180,326 million, respectively.

Toyota does not have any significant related party transactions other than transactions with affiliated companies in the ordinary course of business.

Variable Interest Entities -

Toyota enters into securitization transactions using special-purpose entities, that are considered variable interest entities (“VIEs”). Although the finance receivables and vehicles on operating leases related to securitization transactions have been legally sold to the VIEs, Toyota has both the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance and the obligation to absorb losses of the VIEs or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. As a result, Toyota is considered the primary beneficiary of the VIEs and therefore consolidates the VIEs.

Related to securitization transactions, ¥2,087,303 million and ¥2,092,311 million retail finance receivables, ¥290,873 million and ¥557,383 million vehicles on operating leases, ¥126,012 million and ¥151,943 million restricted cash and ¥1,903,189 million and ¥2,067,221 million secured debt were included in Toyota’s consolidated financial statements as of March 31, 2016 and 2017, respectively. The creditors of the VIEs do not have recourse to Toyota’s general credit with the exception of debts guaranteed by Toyota. Risks to which Toyota is exposed including credit, interest rate, and/or prepayment risks are not incremental compared with the situation before Toyota enters into securitization transactions.

F-31

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Toyota has variable interests in investment trusts that are VIEs due mainly to insufficient equity within the structure but determined that it was not the primary beneficiary due to lack of the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance and, therefore, does not consolidate the VIEs. Investments in the trusts started from fiscal 2017 are held at fair value and are included in “Marketable securities and other securities investments” in the accompanying consolidated balance sheets. As of March 31, 2017, the maximum exposure to loss is limited to the carrying value of its investment in the trusts, which totaled ¥539,862 million. Toyota does not provide support that is not contractually required to the trusts.

As for VIEs other than those specified above, neither the aggregate size nor Toyota’s involvements are material to Toyota’s consolidated financial statements.

12. Short-term borrowings and long-term debt:

Short-term borrowings at March 31, 2016 and 2017 consist of the following:


	Yen in millions
	March 31,
	2016		2017
Loans, principally from banks, with a weighted-average interest at March 31, 2016 and March 31, 2017 of 2.05% and of 1.86% per annum, respectively		1,068,417		1,125,324
Commercial paper with a weighted-average interest at March 31, 2016 and March 31, 2017 of 0.71% and of 1.08% per annum, respectively		3,629,717		3,828,358

		4,698,134		4,953,682

As of March 31, 2017, Toyota has unused short-term lines of credit amounting to ¥1,861,434 million of which ¥532,284 million related to commercial paper programs. Under these programs, Toyota is authorized to obtain short-term financing at prevailing interest rates for periods not in excess of 360 days.

F-32

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-term debt at March 31, 2016 and 2017 comprises the following:


	Yen in millions
	March 31,
	2016			2017
Unsecured loans, representing obligations principally to banks, due 2016 to 2035 in 2016 and due 2017 to 2036 in 2017 with a weighted-average interest at March 31, 2016 and March 31, 2017 of 2.24% and of 2.44% per annum, respectively		3,403,347			3,318,865
Secured loans, representing obligations principally to finance receivables securitization due 2016 to 2030 in 2016 and due 2017 to 2030 in 2017 with a weighted-average interest at March 31, 2016 and March 31, 2017 of 1.11% and of 1.43% per annum, respectively		1,909,830			2,080,362
Medium-term notes of consolidated subsidiaries, due 2016 to 2047 in 2016 and due 2017 to 2046 in 2017 with a weighted-average interest at March 31, 2016 and March 31, 2017 of 2.05% and of 2.12% per annum, respectively		6,409,141			6,923,511
Unsecured notes of parent company, due 2016 to 2024 in 2016 and due 2017 to 2036 in 2017 with a weighted-average interest at March 31, 2016 and March 31, 2017 of 1.43% and of 1.35% per annum, respectively		350,000			370,000
Unsecured notes of consolidated subsidiaries, due 2016 to 2031 in 2016 and due 2017 to 2032 in 2017 with a weighted-average interest at March 31, 2016 and March 31, 2017 of 2.30% and of 2.17% per annum, respectively		1,467,199			1,430,022
Secured notes of consolidated subsidiaries, due 2016 to 2019 in 2016 and due 2017 to 2020 in 2017 with a weighted-average interest at March 31, 2016 and March 31, 2017 of 8.58% and of 8.14% per annum, respectively		34,000			57,036
Long-term capital lease obligations, due 2016 to 2035 in 2016 and due 2017 to 2035 in 2017 with interest ranging from 0.23% to 14.73% per annum in 2016 and from 0.37% to 14.73% per annum in 2017		21,502			22,249

		13,595,019			14,202,045
Less - Current portion due within one year		(3,822,954	)		(4,290,449	)

		9,772,065			9,911,596

As of March 31, 2017, approximately 51%, 11%, 10%, 9% and 19% of long-term debt are denominated in U.S. dollars, Japanese yen, Australian dollars, euros and other currencies, respectively.

As of March 31, 2017, property, plant and equipment with a book value of ¥599,907 million and other assets aggregating ¥2,175,526 million were pledged as collateral mainly for certain debt obligations of subsidiaries. These other assets principally consist of securitized finance receivables.

The aggregate amounts of annual maturities of long-term debt during the next five years are as follows:


Years ending March 31,	Yen in millions
2018		4,290,449
2019		2,861,129
2020		2,658,721
2021		1,711,573
2022		1,581,938

F-33

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Standard agreements with certain banks include provisions that collateral (including sums on deposit with such banks) or guarantees will be furnished upon the banks’ request and that any collateral furnished, pursuant to such agreements or otherwise, will be applicable to all present or future indebtedness to such banks. During the year ended March 31, 2017, Toyota has not received any significant requests from these banks.

As of March 31, 2017, Toyota has unused long-term lines of credit amounting to ¥7,197,426 million.

Interest expense during the years ended March 31, 2015, 2016 and 2017 were ¥347,030 million, ¥377,310 million and ¥352,691 million, respectively. Interest expense related to the financial services business is included in “Cost of financing operations” in the accompanying consolidated statements of income.

13. Product warranties and recalls and other safety measures:

Toyota provides product warranties for certain defects mainly resulting from manufacturing based on warranty contracts with its customers at the time of sale of products. Toyota accrues estimated warranty costs to be incurred in the future in accordance with the warranty contracts. In addition to product warranties, Toyota initiates recalls and other safety measures to repair or to replace parts which might be expected to fail from products safety perspectives or customer satisfaction standpoints. Toyota accrues for costs of recalls and other safety measures at the time of vehicle sale based on the amount estimated from historical experience.

Liabilities for product warranties and liabilities for recalls and other safety measures have been combined into a single table showing an aggregate liability for quality assurances due to the fact that both are liabilities for costs to repair or replace defects of vehicles and the amounts incurred for recalls and other safety measures may affect the amounts incurred for product warranties and vice versa.

Liabilities for quality assurances are included in “Accrued expenses” in the consolidated balance sheets.

The net changes in liabilities for quality assurances above for the years ended March 31, 2015, 2016 and 2017 consist of the following:


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Liabilities for quality assurances at beginning of year		1,154,021			1,328,916			1,403,764
Payments made during year		(509,488	)		(501,073	)		(604,853	)
Provision for quality assurances		686,006			636,719			919,086
Changes relating to pre-existing quality assurances		(25,619	)		(39,225	)		(24,147	)
Other		23,996			(21,573	)		3,088

Liabilities for quality assurances at end of year		1,328,916			1,403,764			1,696,938

“Other” primarily includes the impact of currency translation adjustments and the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest.

F-34

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The table below shows the net changes in liabilities for recalls and other safety measures which are comprised in liabilities for quality assurances above for the years ended March 31, 2015, 2016 and 2017.


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Liabilities for recalls and other safety measures at beginning of year		680,475			755,050			925,475
Payments made during year		(357,447	)		(347,861	)		(444,416	)
Provision for recalls and other safety measures		421,618			524,100			794,009
Other		10,404			(5,814	)		132

Liabilities for recalls and other safety measures at end of year		755,050			925,475			1,275,200

14. Other payables:

Other payables are mainly related to purchases of property, plant and equipment and non-manufacturing purchases.

15. Income taxes:

The components of income before income taxes comprise the following:


	Yen in millions
	For the years ended March 31,
	2015		2016		2017
Income before income taxes:
Parent company and domestic subsidiaries		1,685,909		1,834,413		1,423,208
Foreign subsidiaries		1,206,919		1,148,968		770,617

		2,892,828		2,983,381		2,193,825

The provision for income taxes consists of the following:


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Current income tax expense:
Parent company and domestic subsidiaries		552,122			591,868			435,560
Foreign subsidiaries		368,234			253,512			246,639

Total current		920,356			845,380			682,199

Deferred income tax expense (benefit):
Parent company and domestic subsidiaries		(77,653	)		(40,934	)		(21,756	)
Foreign subsidiaries		50,766			73,823			(31,543	)

Total deferred		(26,887	)		32,889			(53,299	)

Total provision		893,469			878,269			628,900

F-35

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Toyota is subject to a number of different income taxes which, in the aggregate, indicate a statutory rate in Japan of approximately 35.2%, 32.9% and 31.1% for the years ended March 31, 2015, 2016 and 2017, respectively. The statutory tax rates in effect for the year in which the temporary differences are expected to reverse are used to calculate the tax effects of temporary differences which are expected to reverse in the future years. Reconciliation of the differences between the statutory tax rate and the effective income tax rate is as follows:


	For the years ended March 31,
	2015			2016			2017
Statutory tax rate		35.2	%		32.9	%		31.1	%
Increase (reduction) in taxes resulting from:
Non-deductible expenses		1.5			0.3			0.4
Deferred tax liabilities on undistributed earnings of foreign subsidiaries		1.0			1.0			1.3
Deferred tax liabilities on undistributed earnings of affiliated companies accounted for by the equity method		2.5			2.4			3.3
Valuation allowance		(0.5	)		(0.4	)		(0.6	)
Tax credits		(5.3	)		(4.7	)		(4.8	)
The difference between the statutory tax rate in Japan and that of foreign subsidiaries		(2.4	)		(1.3	)		(1.9	)
Unrecognized tax benefits adjustments		3.2			0.2			0.4
Revision to reduce deferred tax assets and liabilities at the fiscal year-end due to changes in tax rates		(1.9	)		(0.5	)		—
Other		(2.4	)		(0.5	)		(0.5	)

Effective income tax rate		30.9	%		29.4	%		28.7	%

“Unrecognized tax benefits adjustments” for the year ended March 31, 2015 reflects a charge for the settlement of a pre 2012 tax position in a foreign jurisdiction.

F-36

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant components of deferred tax assets and liabilities are as follows:


	Yen in millions
	March 31,
	2016			2017
Deferred tax assets
Accrued pension and severance costs		283,713			219,465
Accrued expenses and liabilities for quality assurances		586,628			644,936
Other accrued employees’ compensation		116,420			114,752
Operating loss carryforwards for tax purposes		201,957			76,317
Allowance for doubtful accounts and credit losses		68,686			82,916
Property, plant and equipment and other assets		241,454			234,372
Other		275,023			335,992

Gross deferred tax assets		1,773,881			1,708,750
Less - Valuation allowance		(151,665	)		(146,623	)

Total deferred tax assets		1,622,216			1,562,127

Deferred tax liabilities
Unrealized gains on securities, net		(692,972	)		(692,962	)
Undistributed earnings of foreign subsidiaries		(30,112	)		(28,544	)
Undistributed earnings of affiliated companies accounted for by the equity method		(656,448	)		(709,094	)
Basis difference of acquired assets		(31,171	)		(31,861	)
Lease transactions		(1,073,518	)		(973,000	)
Other		(93,206	)		(46,407	)

Gross deferred tax liabilities		(2,577,427	)		(2,481,868	)

Net deferred tax liability		(955,211	)		(919,741	)

The deferred tax assets and liabilities above that comprise the net deferred tax liability are included in the consolidated balance sheets as follows:


	Yen in millions
	March 31,
	2016			2017
Deferred tax assets
Deferred income taxes (Current assets)		967,607			—
Investments and other assets - Other		151,431			503,985
Deferred tax liabilities
Other current liabilities		(28,160	)		—
Deferred income taxes (Long-term liabilities)		(2,046,089	)		(1,423,726	)

Net deferred tax liability		(955,211	)		(919,741	)

F-37

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Operating loss carryforwards for tax purposes as of March 31, 2017 in Japan and foreign countries were ¥62,223 million and ¥184,364 million, respectively, and are available as an offset against future taxable income. The majority of these carryforwards in Japan and foreign countries expire in years 2018 to 2026 and expire in years 2018 to 2037, respectively. Tax credit carryforwards as of March 31, 2017 in Japan and foreign countries were ¥2,774 million and ¥32,073 million, respectively, and the majority of these carryforwards in Japan and foreign countries expire in years 2018 to 2020 and expire in years 2018 to 2037, respectively.

The valuation allowance mainly relates to deferred tax assets of operating loss and foreign tax credit carryforwards for tax purposes that are not more-likely-than-not to be realized. The net changes in the total valuation allowance for deferred tax assets for the years ended March 31, 2015, 2016 and 2017 consist of the following:


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Valuation allowance at beginning of year		189,894			169,811			151,665
Additions		34,485			33,243			27,147
Deductions		(50,247	)		(43,723	)		(37,891	)
Other		(4,321	)		(7,666	)		5,702

Valuation allowance at end of year		169,811			151,665			146,623

“Other” includes the impact of consolidation and deconsolidation of certain entities due to changes in ownership interest and currency translation adjustments during the years ended March 31, 2015, 2016 and 2017.

Because management intends to reinvest undistributed earnings of foreign subsidiaries to the extent not expected to be remitted in the foreseeable future, management has made no provision for income taxes on those undistributed earnings aggregating ¥3,454,027 million as of March 31, 2017. Toyota estimates an additional tax provision of ¥129,885 million would be required if the full amount of those undistributed earnings were remitted.

A summary of the gross unrecognized tax benefits changes for the years ended March 31, 2015, 2016 and 2017 is as follows:


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Balance at beginning of year		19,393			13,644			19,250
Additions based on tax positions related to the current year		593			1,001			8,187
Additions for tax positions of prior years		94,852			6,378			6,076
Reductions for tax positions of prior years		(4,015	)		(77	)		(5,593	)
Reductions for tax positions related to lapse of statute of limitations		(58	)		(7	)		(9	)
Reductions for settlements		(98,929	)		(427	)		(6,317	)
Other		1,808			(1,262	)		(41	)

Balance at end of year		13,644			19,250			21,553

F-38

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was not material at March 31, 2015, 2016 and 2017, respectively. Toyota does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

Interest and penalties related to income tax liabilities are included in “Other income (loss), net”. The amounts of interest and penalties accrued as of and recognized for the years ended March 31, 2015, 2016 and 2017, were not material.

Toyota remains subject to income tax examination for the tax returns related to the years beginning on and after April 1, 2010 and April 1, 2002, with various tax jurisdictions in Japan and foreign countries, respectively.

16. Class Shares:

TMC issued First Series Model AA Class Shares (the “Model AA Class Shares”) on July 24, 2015. Presented below is additional information regarding the Model AA Class Shares:


Total number of shares issued	:	47,100,000 shares

Issue price	:	10,598 yen per share

Purchase price	:	10,121.09 yen per share

Voting rights	:	Model AA Class Shares shall have voting rights. The number of shares constituting one unit with respect to Model AA Class Shares shall be 100.

Restrictions on transfer	:	Model AA Class Shares shall have restrictions on transfer.

Dividends	:	(1) If the record date falls in the fiscal year ending on March 31, 2016 : 0.5% of the issue price
		(2) If the record date falls in the fiscal year ending on March 31, 2017 through March 31, 2020 : the annual dividend rate for the previous fiscal year plus 0.5% of the issue price
		(3) If the record date falls in the fiscal year ending on March 31, 2021 or later : 2.5% of the issue price

Shareholder’s right	:	(1) Shareholder’s conversion right into Common Shares Shareholders of the Model AA Class Shares may demand TMC to acquire all or a part of their Model AA Class Shares in exchange for Common Shares on the first business day of April and October of every year, starting October 1, 2020.
		(2) Shareholder’s cash put option Shareholders of the Model AA Class Shares may demand TMC to acquire all or a part of their Model AA Class Shares in exchange for cash on the last business day of March, June, September and December of each year, starting on September 1, 2020.

TMC’s right	:	TMC may acquire, on or after April 2, 2021, all of the outstanding Model AA Class Shares in exchange for cash.

F-39

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Model AA Class Shares will not be treated as shareholders’ equity because the shareholders of the Model AA Class Shares will have cash put options and hence, the Model AA Class Shares will be reported as mezzanine equity, a separate line item between liabilities and shareholders’ equity.

Unpaid dividends included in mezzanine equity as of March 31, 2016 and 2017 were ¥1,224 million and ¥2,473 million, respectively.

The difference between the issuance amount and initial carrying amount of the mezzanine equity is adjusted for accretion of the mezzanine equity over a period of time from the issuance date until the Class Shares can first be redeemed.

17. Shareholders’ equity:

Changes in the number of shares of common stock issued have resulted from the following:


	For the years ended March 31,
	2015			2016			2017
Common stock issued
Balance at beginning of year		3,447,997,492			3,417,997,492			3,337,997,492
Issuance during the year		—			—			—
Purchase and retirement		(30,000,000	)		(80,000,000	)		(75,000,000	)

Balance at end of year		3,417,997,492			3,337,997,492			3,262,997,492

The Companies Act provides that an amount equal to 10% of distributions from surplus paid by the parent company and its Japanese subsidiaries be appropriated as a capital reserve or a retained earnings reserve. No further appropriations are required when the total amount of the capital reserve and the retained earnings reserve reaches 25% of stated capital.

The retained earnings reserve included in retained earnings as of March 31, 2016 and 2017 were ¥182,518 million and ¥190,227 million, respectively. The Companies Act provides that the retained earnings reserve of the parent company and its Japanese subsidiaries is restricted and unable to be used for dividend payments, and is excluded from the calculation of the profit available for dividend.

The amounts of statutory retained earnings of the parent company available for dividend payments to shareholders were ¥7,964,099 million and ¥8,470,887 million as of March 31, 2016 and 2017, respectively. In accordance with customary practice in Japan, the distributions from surplus are not accrued in the financial statements for the corresponding period, but are recorded in the subsequent accounting period after shareholders’ approval has been obtained. Retained earnings at March 31, 2017 include amounts representing year-end cash dividends of ¥327,219 million, ¥110 per common share, which were resolved at the Meeting of the Board of Directors held on May 10, 2017.

Retained earnings at March 31, 2017 include ¥2,160,108 million relating to equity in undistributed earnings of affiliated companies accounted for by the equity method.

F-40

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The repurchase, reissuance and retirement of treasury stock for the years ended March 31, 2015, 2016 and 2017 are as follows:

For the year ended March 31, 2015

Repurchase of treasury stock

Reason for repurchasing treasury stock -

The repurchase was made to avoid the dilution of common share value triggered by the reissuance of treasury stock described below, and to promote capital efficiency and agile capital policy in view of the business environment.

Details of matters relating to repurchase


Number of common shares repurchased		55,521,900 shares
Total purchase price for repurchase of shares		¥359,994 million

Reissuance of treasury stock

Reason for reissuing treasury stock -

TMC resolved at the Meeting of the Board of Directors held on March 26, 2014 to establish Toyota Mobility Foundation, a General Incorporated Foundation (the “Foundation”). The reissuance of treasury stock was made by way of third-party allotment to a trust that was established by TMC to provide funding for the activities of the Foundation through dividends, etc. on TMC’s common stock.

Details of matters relating to reissuance -


Number of common shares reissued		30,000,000 shares
Price of reissuance		¥1 per share
Amount of proceeds		¥30 million

Retirement of treasury stock

Reason for retiring treasury stock -

The retirement was made to relieve concerns regarding the dilution of common share value due to reissuance of treasury stock in the future.

Details of matters relating to retirement -


Number of common shares retired		30,000,000 shares

The amount on retirement of treasury stock and the amount of the difference between fair value and book value of treasury stock on reissuance for the Foundation were treated as a reduction in additional paid-in capital and retained earnings and the amount of the difference between amount of proceeds and fair value of treasury stock on reissuance was included in Other income (expense). The fair value of treasury stock was measured using a dividend discount model due to the restrictions on transfer in the reissued stock for the Foundation. As a result, treasury stock, additional paid-in capital, retained earnings and Other income (expense) decreased by ¥246,807 million, ¥4,624 million, ¥142,753 million and ¥99,400 million, respectively.

F-41

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the year ended March 31, 2016

Repurchase of treasury stock

Reason for repurchasing treasury stock -

The repurchase was made to avoid the dilution of common share value as a result of the issuance of the First Series Model AA Class Shares.

Details of matters relating to repurchase -


Number of common shares repurchased		47,100,000 shares
Total purchase price for repurchase of shares		¥349,935 million

Reason for repurchasing treasury stock -

The repurchase was made to return capital to shareholders in addition to promoting capital efficiency and agile capital policy in view of the business environment.

Details of matters relating to repurchase -


Number of common shares repurchased		62,942,900 shares
Total purchase price for repurchase of shares		¥432,692 million

Retirement of treasury stock

Reason for retiring treasury stock -

The retirement was made to relieve concerns regarding the dilution of common share value due to reissuance of treasury stock in the future.

Details of matters relating to retirement -


Number of common shares retired		80,000,000 shares

The amount on retirement of treasury stock was treated as a reduction in additional paid-in capital and retained earnings. As a result, treasury stock, additional paid-in capital and retained earnings decreased by ¥400,537 million, ¥1,048 million and ¥399,489 million, respectively.

For the year ended March 31, 2017

Repurchase of treasury stock

Reason for repurchasing treasury stock -

The repurchase was made to return capital to shareholders in addition to promoting capital efficiency and agile capital policy in view of the business environment.

Details of matters relating to repurchase -


Number of common shares repurchased		116,555,700 shares
Total purchase price for repurchase of shares		¥699,986 million

F-42

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reissuance of treasury stock

Reason for reissuing treasury stock and details of matters relating to reissuance -

On August 1, 2016, the parent company implemented share exchange as a result of which the parent company became a wholly owning parent company and Daihatsu Motor Co., Ltd. (“Daihatsu”) became a wholly owned subsidiary, and the parent company acquired additional shares of Daihatsu. As a result of this share exchange, the parent company issued 52,856,096 shares of treasury stock, treasury stock decreased by ¥283,561 million and gains on disposal of treasury stock occurred in the amount of ¥27,972 million. As a result, additional paid-in capital increased by ¥27,972 million. As a result of acquiring additional shares of Daihatsu, additional paid-in capital, noncontrolling interests and accumulated other comprehensive income (loss) decreased by ¥53,742 million, ¥255,565 million and ¥2,226 million, respectively.

Retirement of treasury stock

Reason for retiring treasury stock -

The retirement was made to relieve concerns regarding the dilution of common share value due to reissuance of treasury stock in the future.

Details of matters relating to retirement -


Number of common shares retired		75,000,000 shares

The amount on retirement of treasury stock was treated as a reduction in additional paid-in capital and retained earnings. As a result, treasury stock, additional paid-in capital and retained earnings decreased by ¥407,383 million, ¥27,374 million and ¥380,009 million, respectively.

F-43

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

18. Accumulated other comprehensive income:

Changes in accumulated other comprehensive income (loss) are as follows:


	Yen in millions
	Foreign currency translation adjustments			Unrealized gains (losses) on securities			Pension liability adjustments			Accumulated other comprehensive income (loss)
Balance at March 31, 2014		(516,538	)		1,160,563			(115,864	)		528,161
Other comprehensive income (loss) before reclassifications, net of taxes of ¥(8,742) million, ¥(309,767) million, ¥2,853 million and ¥(315,656) million		404,352			596,417			621			1,001,390
Reclassifications, net of taxes of ¥— million, ¥11,013 million, ¥(2,153) million and ¥8,860 million		—			(18,714	)		3,695			(15,019	)

Other comprehensive income (loss), net of tax		404,352			577,703			4,316			986,371
Less - Other comprehensive income attributable to noncontrolling interests		(23,904	)		(10,701	)		(2,382	)		(36,987	)

Balance at March 31, 2015		(136,090	)		1,727,565			(113,930	)		1,477,545
Other comprehensive income (loss) before reclassifications, net of taxes of ¥10,719 million, ¥130,092 million, ¥93,210 million and ¥234,021 million		(423,404	)		(291,681	)		(214,600	)		(929,685	)
Reclassifications, net of taxes of ¥— million, ¥9,832 million, ¥(3,318) million and ¥6,514 million		28,052			(20,511	)		5,419			12,960

Other comprehensive income (loss), net of tax		(395,352	)		(312,192	)		(209,181	)		(916,725	)
Less - Other comprehensive income attributable to noncontrolling interests		32,387			9,572			7,989			49,948

Balance at March 31, 2016		(499,055	)		1,424,945			(315,122	)		610,768
Other comprehensive income (loss) before reclassifications, net of taxes of ¥9,240 million, ¥(9,048) million, ¥(40,099) million and ¥(39,907) million		(57,926	)		41,134			82,939			66,147
Reclassifications, net of taxes of ¥— million, ¥23,275 million, ¥(5,255) million and ¥18,020 million		—			(36,855	)		10,373			(26,482	)

Other comprehensive income (loss), net of tax		(57,926	)		4,279			93,312			39,665
Less - Other comprehensive income attributable to noncontrolling interests		5,499			(12,281	)		(503	)		(7,285	)
Equity transaction with noncontrolling interests and other		(8,626	)		9,060			(2,660	)		(2,226	)

Balance at March 31, 2017		(560,108	)		1,426,003			(224,973	)		640,922

F-44

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reclassifications for the years ended March 31, 2015, 2016 and 2017 consist of the following:


	Yen in millions
	For the years ended March 31,									Affected line items in the consolidated statements of income
	2015			2016			2017
Foreign currency translation adjustments:
		—			28,052			—		Other income (loss), net

		—			28,052			—		Income before income taxes and equity in earnings of affiliated companies

		—			28,052			—		Net income

Unrealized gains (losses) on securities:
		(7,727	)		(779	)		(24,553	)	Financing operations
		(14,552	)		(27,275	)		(3,572	)	Foreign exchange gain (loss), net
		(7,446	)		(6,185	)		(31,685	)	Other income (loss), net

		(29,725	)		(34,239	)		(59,810	)	Income before income taxes and equity in earnings of affiliated companies
		11,013			9,832			23,275		Provision for income taxes
		(2	)		3,896			(320	)	Equity in earnings of affiliated companies

		(18,714	)		(20,511	)		(36,855	)	Net income

Pension liability adjustments:
Recognized net actuarial loss		10,194			12,971			19,432		*1
Amortization of prior service costs		(4,346	)		(4,234	)		(3,804	)	*1

		5,848			8,737			15,628		Income before income taxes and equity in earnings of affiliated companies
		(2,153	)		(3,318	)		(5,255	)	Provision for income taxes

		3,695			5,419			10,373		Net income

Total reclassifications, net of tax		(15,019	)		12,960			(26,482	)

Amounts of reclassifications in parentheses indicate gains in the consolidated statements of income.

*1:	These components are included in the computation of net periodic pension cost. See note 20 to the consolidated financial statements for additional information.

19. Stock-based compensation:

In June 1997, the parent company’s shareholders approved a stock option plan for board members. In June 2001, the shareholders approved an amendment of the plan to include both board members and key employees. Each year until June 2010, since the plans’ inception, the shareholders have approved the authorization for the grant of options for the purchase of the parent company’s common stock. Authorized shares for each year that remain ungranted are unavailable for grant in future years. Stock options granted in and after August 2006 have terms of 8 years and an exercise price equal to 1.025 times the closing price of Toyota’s common stock on the date of grant. These options generally vest 2 years from the date of grant.

F-45

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no stock-based compensation expenses for stock options as selling, general and administrative expenses for the years ended March 31, 2015, 2016 and 2017, respectively.

The following table summarizes Toyota’s stock option activity:


				Yen				Yen in millions
	Number of shares			Weighted- average exercise price		Weighted- average remaining contractual life in years		Aggregate intrinsic value
Options outstanding at March 31, 2014		7,330,900			4,965		2.52		8,646
Granted		—			—
Exercised		(2,603,900	)		4,834
Canceled		(1,223,500	)		6,200

Options outstanding at March 31, 2015		3,503,500			4,632		2.05		13,143
Granted		—			—
Exercised		(936,400	)		5,049
Canceled		(473,600	)		6,917

Options outstanding at March 31, 2016		2,093,500			3,858		1.56		4,384

Granted		—			—
Exercised		(785,600	)		4,006
Canceled		(115,600	)		4,682

Options outstanding at March 31, 2017		1,192,300			3,682		0.80		2,813

Options exercisable at March 31, 2015		3,503,500			4,632		2.05		13,143
Options exercisable at March 31, 2016		2,093,500			3,858		1.56		4,384
Options exercisable at March 31, 2017		1,192,300			3,682		0.80		2,813

The total intrinsic value of options exercised for the years ended March 31, 2015, 2016 and 2017 was ¥5,313 million, ¥2,236 million and ¥1,632 million, respectively.

Cash received from the exercise of stock options for the years ended March 31, 2015, 2016 and 2017 was ¥12,501 million, ¥4,728 million and ¥3,147 million, respectively.

The following table summarizes information for options outstanding and options exercisable at March 31, 2017:

Outstanding

Exercisable

Exercise
price range

Number of
shares

Weighted-
average
exercise price

Weighted-
average
remaining life

Number of
shares

Weighted-
average
exercise price

Yen

Years

Yen

3,153 – 4,154

1,192,300

3,682

0.80

1,192,300

3,682

F-46

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

20. Employee benefit plans:

Pension and severance plans -

Upon terminations of employment, employees of the parent company and subsidiaries in Japan are entitled, under the retirement plans of each company, to lump-sum indemnities or pension payments, based on current rates of pay and lengths of service or the number of “points” mainly determined by those. Under normal circumstances, the minimum payment prior to retirement age is an amount based on voluntary retirement. Employees receive additional benefits on involuntary retirement, including retirement at the age limit.

Effective October 1, 2004, the parent company amended its retirement plan to introduce a “point” based retirement benefit plan. Under the new plan, employees are entitled to lump-sum or pension payments determined based on accumulated “points” vested in each year of service.

There are three types of “points” that vest in each year of service consisting of “service period points” which are attributed to the length of service, “job title points” which are attributed to the job title of each employee, and “performance points” which are attributed to the annual performance evaluation of each employee. Under normal circumstances, the minimum payment prior to retirement age is an amount reflecting an adjustment rate applied to represent voluntary retirement. Employees receive additional benefits upon involuntary retirement, including retirement at the age limit.

Effective October 1, 2005, the parent company partly amended its retirement plan and introduced the quasi cash-balance plan under which benefits are determined based on the variable-interest crediting rate rather than the fixed-interest crediting rate as was in the pre-amended plan.

The parent company and most subsidiaries in Japan have contributory funded defined benefit pension plans, which are pursuant to the Corporate Defined Benefit Pension Plan Law (CDBPPL). The contributions to the plans are funded with several financial institutions in accordance with the applicable laws and regulations. These pension plan assets consist principally of common stocks, government bonds and insurance contracts.

Most foreign subsidiaries have pension plans or severance indemnity plans covering substantially all of their employees under which the cost of benefits are currently invested or accrued. The benefits for these plans are based primarily on lengths of service and current rates of pay.

Toyota uses a March 31 measurement date for its benefit plans.

F-47

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Information regarding Toyota’s defined benefit plans is as follows:


	Yen in millions
	March 31,
	Japanese plans						Foreign plans
	2016			2017			2016			2017
Change in benefit obligation
Benefit obligation at beginning of year		1,721,225			1,912,156			976,930			963,255
Service cost		78,611			89,443			47,544			41,733
Interest cost		17,509			8,800			40,340			35,593
Plan participants’ contributions		898			923			404			436
Plan amendments		(489	)		(21	)		(573	)		(996	)
Net actuarial (gain) loss		160,983			(45,783	)		(22,332	)		22,220
Acquisition and other		(138	)		30,622			(63,107	)		(18,778	)
Benefits paid		(66,443	)		(65,642	)		(15,951	)		(17,439	)

Benefit obligation at end of year		1,912,156			1,930,498			963,255			1,026,024

Change in plan assets
Fair value of plan assets at beginning of year		1,447,802			1,369,236			713,528			692,801
Actual return on plan assets		(94,669	)		81,600			11,042			74,760
Acquisition and other		(88	)		30,266			(45,801	)		(11,960	)
Employer contributions		53,060			39,692			25,612			15,925
Plan participants’ contributions		898			923			404			436
Benefits paid		(37,767	)		(37,828	)		(11,984	)		(13,656	)

Fair value of plan assets at end of year		1,369,236			1,483,889			692,801			758,306

Funded status		542,920			446,609			270,454			267,718

Amounts recognized in the consolidated balance sheets as of March 31, 2016 and 2017 are comprised of the following:


	Yen in millions
	March 31,
	Japanese plans						Foreign plans
	2016			2017			2016			2017
Accrued expenses (Accrued pension and severance costs)		29,023			28,265			3,161			2,936
Accrued pension and severance costs		632,340			633,774			272,571			271,296
Investments and other assets - Other (Prepaid pension and severance costs)		(118,443	)		(215,430	)		(5,278	)		(6,514	)

Net amount recognized		542,920			446,609			270,454			267,718

F-48

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amounts recognized in accumulated other comprehensive income (loss) as of March 31, 2016 and 2017 are comprised of the following:


	Yen in millions
	March 31,
	Japanese plans						Foreign plans
	2016			2017			2016			2017
Net actuarial loss		(395,686	)		(288,126	)		(137,443	)		(116,700	)
Prior service costs		39,699			36,980			(3,491	)		(2,151	)
Net transition obligation		—			—			—			—

Net amount recognized		(355,987	)		(251,146	)		(140,934	)		(118,851	)

The accumulated benefit obligation for all defined benefit pension plans was ¥1,852,556 million and ¥1,874,424 million in Japanese plans, ¥892,154 million and ¥957,217 million in Foreign plans at March 31, 2016 and 2017, respectively.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for which the accumulated benefit obligations exceed plan assets are as follows:


	Yen in millions
	March 31,
	Japanese plans				Foreign plans
	2016		2017		2016		2017
Projected benefit obligation		892,078		892,684		311,256		445,482
Accumulated benefit obligation		863,593		866,566		300,026		426,201
Fair value of plan assets		242,096		242,488		66,183		178,357

Components of the net periodic pension cost are as follows:


	Yen in millions
	For the years ended March 31,
	Japanese plans									Foreign plans
	2015			2016			2017			2015			2016			2017
Service cost		73,256			78,611			89,443			41,147			47,544			41,733
Interest cost		21,746			17,509			8,800			37,993			40,340			35,593
Expected return on plan assets		(31,255	)		(35,012	)		(33,524	)		(40,784	)		(44,616	)		(38,893	)
Amortization of prior service costs		(4,723	)		(4,669	)		(4,148	)		377			435			344
Recognized net actuarial loss		7,302			5,850			14,298			2,892			7,121			5,134
Amortization of net transition obligation		—			—			—			—			—			—

Net periodic pension cost		66,326			62,289			74,869			41,625			50,824			43,911

F-49

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:


	Yen in millions
	For the years ended March 31,
	Japanese plans									Foreign plans
	2015			2016			2017			2015			2016			2017
Net actuarial gain (loss)		130,455			(290,664	)		93,859			(97,772	)		(11,242	)		13,647
Recognized net actuarial loss		7,302			5,850			14,298			2,892			7,121			5,134
Prior service costs		381			489			21			(3,217	)		573			996
Amortization of prior service costs		(4,723	)		(4,669	)		(4,148	)		377			435			344
Amortization of net transition obligation		—			—			—			—			—			—
Other		46			76			811			7,564			272			1,962

Total recognized in other comprehensive income (loss)		133,461			(288,918	)		104,841			(90,156	)		(2,841	)		22,083

The estimated prior service costs and net actuarial loss that will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost during the year ending March 31, 2018 are ¥(4,100) million and ¥7,800 million in Japanese plans, ¥300 million and ¥5,200 million in Foreign plans, respectively.

Weighted-average assumptions used to determine benefit obligations as of March 31, 2016 and 2017 are as follows:


	March 31,
	Japanese plans						Foreign plans
	2016			2017			2016			2017
Discount rate		0.5	%		0.7	%		4.2	%		4.0	%
Rate of compensation increase		2.7	%		2.9	%		3.9	%		3.8	%

As of March 31, 2016 and 2017, the parent company and certain subsidiaries in Japan employ “point” based retirement benefit plans and do not use the rates of compensation increase to determine benefit obligations.

Weighted-average assumptions used to determine net periodic pension cost for the years ended March 31, 2015, 2016 and 2017 are as follows:


	For the years ended March 31,
	Japanese plans									Foreign plans
	2015			2016			2017			2015			2016			2017
Discount rate		1.4	%		1.1	%		0.5	%		4.8	%		4.0	%		4.2	%
Expected return on plan assets		2.5	%		2.5	%		2.4	%		6.7	%		6.3	%		6.1	%
Rate of compensation increase		2.1	%		2.5	%		2.7	%		4.5	%		4.4	%		3.9	%

During the years ended March 31, 2015, 2016 and 2017, the parent company and certain subsidiaries in Japan employ “point” based retirement benefit plans and do not use the rates of compensation increase to determine net periodic pension cost.

F-50

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The expected rate of return on plan assets is determined after considering several applicable factors including, the composition of plan assets held, assumed risks of asset management, historical results of the returns on plan assets, Toyota’s principal policy for plan asset management, and forecasted market conditions.

Toyota’s policy and objective for plan asset management is to maximize returns on plan assets to meet future benefit payment requirements under risks which Toyota considers permissible. Asset allocations under the plan asset management are determined based on plan asset management policies of each plan which are established to achieve the optimized asset compositions in terms of the long-term overall plan asset management. In Japanese plans, excepting equity securities contributed by Toyota, approximately 40% of the plan assets is invested in equity securities, approximately 30% is invested in debt securities, and the rest of them is invested in insurance contracts and other products. In Foreign plans, excepting equity securities contributed by Toyota, approximately 60% of the plan assets is invested in equity securities, approximately 25% is invested in debt securities, and the rest of them is invested in other products. When actual allocations are not in line with target allocations, Toyota rebalances its investments in accordance with the policies. Prior to making individual investments, Toyota performs in-depth assessments of corresponding factors including category of products, industry type, currencies and liquidity of each potential investment under consideration to mitigate concentrations of risks such as market risk and foreign currency exchange rate risk. To assess performance of the investments, Toyota establishes bench mark return rates for each individual investment, combines these individual bench mark rates based on the asset composition ratios within each asset category, and compares the combined rates with the corresponding actual return rates on each asset category.

The following table summarizes the fair value of classes of plan assets as of March 31, 2016 and 2017. See note 27 to the consolidated financial statements for three levels of input which are used to measure fair value.

Japanese plans


	Yen in millions
	March 31, 2016
	Level 1		Level 2		Level 3		Total
Equity securities
Common stocks		500,990		—		—		500,990
Commingled funds		—		168,297		—		168,297

		500,990		168,297		—		669,287

Debt securities
Government bonds		90,330		—		—		90,330
Commingled funds		—		249,565		—		249,565
Other		—		33,362		146		33,508

		90,330		282,927		146		373,403

Insurance contracts		—		198,074		—		198,074
Other		39,232		32,320		2,518		74,070
Investments measured at net asset value		—		—		—		54,402

Total		630,552		681,618		2,664		1,369,236

F-51

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	March 31, 2017
	Level 1		Level 2		Level 3		Total
Equity securities
Common stocks		585,052		—		—		585,052
Commingled funds		—		180,835		—		180,835

		585,052		180,835		—		765,887

Debt securities
Government bonds		87,958		—		—		87,958
Commingled funds		—		248,498		—		248,498
Other		—		39,754		81		39,835

		87,958		288,252		81		376,291

Insurance contracts		—		199,779		—		199,779
Other		42,083		34,131		496		76,710
Investments measured at net asset value		—		—		—		65,222

Total		715,093		702,997		577		1,483,889

Foreign plans


	Yen in millions
	March 31, 2016
	Level 1		Level 2		Level 3		Total
Equity securities
Common stocks		201,967		—		—		201,967
Commingled funds		—		111,547		—		111,547

		201,967		111,547		—		313,514

Debt securities
Government bonds		75,222		—		—		75,222
Commingled funds		—		25,560		—		25,560
Other		—		47,583		—		47,583

		75,222		73,143		—		148,365

Insurance contracts		—		—		—		—
Other		12,566		15,308		30,758		58,632
Investments measured at net asset value		—		—		—		172,290

Total		289,755		199,998		30,758		692,801

F-52

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	March 31, 2017
	Level 1		Level 2		Level 3		Total
Equity securities
Common stocks		207,036		—		—		207,036
Commingled funds		—		152,104		—		152,104

		207,036		152,104		—		359,140

Debt securities
Government bonds		76,730		—		—		76,730
Commingled funds		—		36,430		—		36,430
Other		—		33,430		—		33,430

		76,730		69,860		—		146,590

Insurance contracts		—		—		—		—
Other		13,533		13,851		30,903		58,287
Investments measured at net asset value		—		—		—		194,289

Total		297,299		235,815		30,903		758,306

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The following is description of the assets, information about the valuation techniques used to measure fair value, key inputs and significant assumptions:

Quoted market prices for identical securities are used to measure fair value of common stocks. Japanese stocks and foreign stocks represent 75% and 25% (as of March 31, 2016) and 74% and 26% (as of March 31, 2017) of common stocks, respectively, in Japanese plans. Common stocks include mainly foreign stocks as of March 31, 2016 and 2017 in Foreign plans.

Quoted market prices for identical securities are used to measure fair value of government bonds. Japanese government bonds and foreign government bonds represent 27% and 73% (as of March 31, 2016) and 28% and 72% (as of March 31, 2017) of government bonds, respectively, in Japanese plans. Government bonds include mainly foreign government bonds as of March 31, 2016 and 2017 in Foreign plans.

Commingled funds are beneficial interests of collective trust. The fair values of commingled funds are measured using the net asset value (“NAV”) provided by the administrator of the fund, and are categorized by the ability to redeem investments by the NAV.

The fair values of insurance contracts are measured using contracted amount with accrued interest.

“Other” consists of cash equivalents, other private placement investment funds and other assets. The fair values of other private placement investment funds are measured using the NAV provided by the administrator of the fund, and are categorized by the ability to redeem investments by the NAV.

F-53

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize the changes in Level 3 plan assets measured at fair value for the years ended March 31, 2015, 2016 and 2017:

Japanese plans


	Yen in millions
	For the years ended March 31,
	2015									2016									2017
	Debt securities			Other			Total			Debt securities			Other			Total			Debt securities			Other			Total
Balance at beginning of year		322			1,000			1,322			233			1,018			1,251			146			2,518			2,664
Actual return on plan assets		2			19			21			1			(3	)		(2	)		—			(11	)		(11	)
Purchases, sales and settlements		(91	)		(1	)		(92	)		(88	)		1,503			1,415			(65	)		(2,011	)		(2,076	)
Other		—			—			—			—			—			—			—			—			—

Balance at end of year		233			1,018			1,251			146			2,518			2,664			81			496			577

Foreign plans


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
	Other			Other			Other
Balance at beginning of year		14,465			17,511			30,758
Actual return on plan assets		2,510			1,966			279
Purchases, sales and settlements		(1,889	)		12,372			—
Other		2,425			(1,091	)		(134	)

Balance at end of year		17,511			30,758			30,903

Toyota expects to contribute ¥39,847 million in Japanese plans and ¥16,020 million in Foreign plans to its pension plans in the year ending March 31, 2018.

The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid:


	Yen in millions
Years ending March 31,	Japanese plans		Foreign plans
2018		70,632		35,383
2019		76,238		19,714
2020		77,000		20,799
2021		77,898		22,019
2022		81,342		23,424
from 2023 to 2027		428,947		139,702

Total		812,057		261,041

F-54

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Postretirement benefits other than pensions and postemployment benefits -

Toyota’s U.S. subsidiaries provide certain health care and life insurance benefits to eligible retired employees. In addition, Toyota provides benefits to certain former or inactive employees after employment, but before retirement. These benefits are provided through various insurance companies, health care providers and others. The costs of these benefits are recognized over the period the employee provides credited service to Toyota. Toyota’s obligations under these arrangements are not material.

21. Derivative financial instruments:

Toyota employs derivative financial instruments, including foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements and interest rate options to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. Toyota does not use derivatives for speculation or trading.

Fair value hedges -

Toyota enters into interest rate swaps and interest rate currency swap agreements mainly to convert its fixed-rate debt to variable-rate debt. Toyota uses interest rate swap agreements in managing interest rate risk exposure. Interest rate swap agreements are executed as either an integral part of specific debt transactions or on a portfolio basis. Toyota uses interest rate currency swap agreements to hedge exposure to currency exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executing interest rate currency swap agreements, which involve the exchange of foreign currency principal and interest obligations for each functional currency obligations at agreed-upon currency exchange and interest rates.

For the years ended March 31, 2015, 2016 and 2017, the ineffective portion of Toyota’s fair value hedge relationships was not material. For fair value hedging relationships, the components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Undesignated derivative financial instruments -

Toyota uses foreign exchange forward contracts, foreign currency options, interest rate swaps, interest rate currency swap agreements, and interest rate options, to manage its exposure to foreign currency exchange rate fluctuations and interest rate fluctuations from an economic perspective, and for some of which Toyota is unable to or has elected not to apply hedge accounting.

F-55

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair value and gains or losses on derivative financial instruments -

The following table summarizes the fair values of derivative financial instruments as of March 31, 2016 and 2017:


	Yen in millions
	March 31,
	2016			2017
Derivative assets
Derivative financial instruments designated as hedging instruments
Interest rate and currency swap agreements
Prepaid expenses and other current assets		—			—
Investments and other assets - Other		4,371			662

Total		4,371			662

Undesignated derivative financial instruments
Interest rate and currency swap agreements
Prepaid expenses and other current assets		96,996			61,946
Investments and other assets - Other		230,726			168,292

Total		327,722			230,238

Foreign exchange forward and option contracts
Prepaid expenses and other current assets		34,290			12,357
Investments and other assets - Other		428			164

Total		34,718			12,521

Total derivative assets		366,811			243,421
Counterparty netting		(116,174	)		(84,883	)
Collateral received		(65,810	)		(60,021	)

Carrying value of derivative assets		184,827			98,517

Derivative liabilities
Derivative financial instruments designated as hedging instruments
Interest rate and currency swap agreements
Other current liabilities		—			(64	)
Other long-term liabilities		—			—

Total		—			(64	)

Undesignated derivative financial instruments
Interest rate and currency swap agreements
Other current liabilities		(42,404	)		(67,091	)
Other long-term liabilities		(180,716	)		(158,383	)

Total		(223,120	)		(225,474	)

Foreign exchange forward and option contracts
Other current liabilities		(21,167	)		(19,919	)
Other long-term liabilities		—			—

Total		(21,167	)		(19,919	)

Total derivative liabilities		(244,287	)		(245,457	)
Counterparty netting		116,174			84,883
Collateral posted		94,953			122,231

Carrying value of derivative liabilities		(33,160	)		(38,343	)

F-56

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the notional amounts of derivative financial instruments as of March 31, 2016 and 2017:


	Yen in millions
	March 31,
	2016				2017
	Designated derivative financial instruments		Undesignated derivative financial instruments		Designated derivative financial instruments		Undesignated derivative financial instruments
Interest rate and currency swap agreements		41,016		18,312,359		40,837		19,459,677
Foreign exchange forward and option contracts		—		2,742,102		—		2,772,741

Total		41,016		21,054,461		40,837		22,232,418

The following table summarizes the gains and losses on derivative financial instruments and hedged items reported in the consolidated statements of income for the years ended March 31, 2015, 2016 and 2017:


	Yen in millions
	For the years ended March 31,
	2015					2016					2017
	Gains or (losses) on derivative financial instruments			Gains or (losses) on hedged items		Gains or (losses) on derivative financial instruments			Gains or (losses) on hedged items		Gains or (losses) on derivative financial instruments			Gains or (losses) on hedged items
Derivative financial instruments designated as hedging instruments
Interest rate and currency swap agreements
Cost of financing operations		(15,488	)		15,595		(133	)		122		(339	)		1,212

Undesignated derivative financial instruments
Interest rate and currency swap agreements
Cost of financing operations		(57,015	)				119,096					(61,884	)
Foreign exchange gain (loss), net		6,459					(379	)				12,516
Foreign exchange forward and option contracts
Cost of financing operations		31,738					(16,363	)				2,614
Foreign exchange gain (loss), net		(4,108	)				115,256					81,614

Undesignated derivative financial instruments are used to manage economic risks of fluctuations in foreign currency exchange rates and interest rates of certain receivables and payables. Those economic risks are offset by changes in the fair value of undesignated derivative financial instruments.

F-57

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash flows from transactions of derivative financial instruments are included in cash flows from operating activities in the consolidated statements of cash flows.

Credit risk related contingent features -

Toyota enters into International Swaps and Derivatives Association Master Agreements with counterparties. These Master Agreements contain a provision requiring either Toyota or the counterparty to settle the contract or to post assets to the other party in the event of a ratings downgrade below a specified threshold.

The aggregate fair value amount of derivative financial instruments that contain credit risk related contingent features that are in a net liability position after being offset by cash collateral as of March 31, 2017 is ¥5,656 million. The aggregate fair value amount of assets that are already posted as cash collateral as of March 31, 2017 is ¥113,648 million. If the ratings of Toyota decline below specified thresholds, the maximum amount of assets to be posted or for which Toyota could be required to settle the contracts is ¥5,656 million as of March 31, 2017.

22. Other financial instruments:

Toyota has certain financial instruments, including financial assets and liabilities which arose in the normal course of business. These financial instruments are executed with creditworthy financial institutions, and virtually all foreign currency contracts are denominated in U.S. dollars, euros and other currencies of major developed countries. Financial instruments involve, to varying degrees, market risk as instruments are subject to price fluctuations, and elements of credit risk in the event a counterparty should default. In the unlikely event the counterparties fail to meet the contractual terms of a foreign currency or an interest rate instrument, Toyota’s risk is limited to the fair value of the instrument. Although Toyota may be exposed to losses in the event of non-performance by counterparties on financial instruments, it does not anticipate significant losses due to the nature of its counterparties. Counterparties to Toyota’s financial instruments represent, in general, international financial institutions. Additionally, Toyota does not have a significant exposure to any individual counterparty. Toyota believes that the overall credit risk related to its financial instruments is not significant.

The following table summarizes the estimated fair values of Toyota’s financial instruments, excluding marketable securities, other securities investments, investments and other assets in affiliated companies and derivative financial instruments. See note 27 to the consolidated financial statements for three levels of input which are used to measure fair value.


	Yen in millions
	March 31, 2016
				Estimated fair value
	Carrying amount			Level 1		Level 2			Level 3			Total
Assets (Liabilities)
Cash and cash equivalents		2,939,428			2,023,744		915,684			—			2,939,428
Time deposits		1,032,034			—		1,032,034			—			1,032,034
Total finance receivables, net		13,525,997			—		—			13,597,910			13,597,910
Other receivables		451,406			—		—			451,406			451,406
Short-term borrowings		(4,698,134	)		—		(4,698,134	)		—			(4,698,134	)
Long-term debt including the current portion		(13,573,517	)		—		(11,882,343	)		(1,900,953	)		(13,783,296	)

F-58

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	March 31, 2017
				Estimated fair value
	Carrying amount			Level 1		Level 2			Level 3			Total
Assets (Liabilities)
Cash and cash equivalents		2,995,075			2,103,469		891,606			—			2,995,075
Time deposits		1,082,654			—		1,082,654			—			1,082,654
Total finance receivables, net		14,064,660			—		—			14,226,440			14,226,440
Other receivables		436,867			—		—			436,867			436,867
Short-term borrowings		(4,953,682	)		—		(4,953,682	)		—			(4,953,682	)
Long-term debt including the current portion		(14,179,796	)		—		(12,241,617	)		(2,065,884	)		(14,307,501	)

Cash and cash equivalents and time deposits -

In the normal course of business, substantially all cash and cash equivalents and time deposits are highly liquid and are carried at amounts which approximate fair value due to its short duration. Cash equivalents and time deposits include negotiable certificate of deposit measured at fair value on a recurring basis. Where money market funds produce a daily net asset value in an active market, this value is used to determine the fair value of the fund investment, and the investment is classified in Level 1. All other types of cash and cash equivalents and time deposits are classified in Level 2.

Finance receivables, net -

The fair values of finance receivables are estimated by discounting expected cash flows to present value using internal assumptions, including prepayment speeds, expected credit losses and collateral value. Certain impaired finance receivables are measured at fair value on a nonrecurring basis based on collateral values.

As unobservable inputs are utilized, finance receivables are classified in Level 3.

Other receivables -

Other receivables are short-term receivables. These receivables are carried at amounts which approximate fair value, and the difference between the carrying amount and the fair value is not material. These receivables are classified in Level 3.

Short-term borrowings and long-term debt -

The fair values of short-term borrowings and long-term debt including the current portion, except for secured loans provided by securitization transactions using special-purpose entities, are estimated based on the discounted amounts of future cash flows using Toyota’s current borrowing rates for similar liabilities. As these inputs are observable, these debts are classified in Level 2.

The fair values of the secured loans provided by securitization transactions are estimated based on current market rates and credit spreads for debt with similar maturities. Internal assumptions including prepayment speeds and expected credit losses are used to estimate the timing of cash flows to be paid on the underlying securitized assets. As these valuations utilize unobservable inputs, the secured loans are classified in Level 3. See note 11 to the consolidated financial statements for information regarding the secured loans.

F-59

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

23. Lease commitments:

Toyota leases certain assets under capital lease and operating lease arrangements.

An analysis of leased assets under capital leases is as follows:


	Yen in millions
	March 31,
	2016			2017
Class of property
Building		18,411			18,775
Machinery and equipment		29,087			29,630
Less - Accumulated depreciation		(27,738	)		(28,703	)

		19,760			19,702

Amortization expenses under capital leases for the years ended March 31, 2015, 2016 and 2017 were ¥4,348 million, ¥4,801 million and ¥4,586 million, respectively.

Future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of March 31, 2017 are as follows:


Years ending March 31,	Yen in millions
2018		5,544
2019		4,824
2020		2,674
2021		1,978
2022		1,852
Thereafter		11,178

Total minimum lease payments		28,050
Less - Amount representing interest		(5,801	)

Present value of net minimum lease payments		22,249
Less - Current obligations		(4,643	)

Long-term capital lease obligations		17,606

Rental expenses under operating leases for the years ended March 31, 2015, 2016 and 2017 were ¥98,479 million, ¥101,932 million and ¥92,321 million, respectively.

F-60

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The minimum rental payments required under operating leases relating primarily to land, buildings and equipment having initial or remaining non-cancelable lease terms in excess of one year at March 31, 2017 are as follows:


Years ending March 31,	Yen in millions
2018		16,107
2019		12,154
2020		9,444
2021		7,842
2022		7,239
Thereafter		27,729

Total minimum future rentals		80,515

24. Other commitments and contingencies, concentrations and factors that may affect future operations:

Commitments -

Commitments outstanding as of March 31, 2017 for the purchase of property, plant and equipment, other assets and services totaled ¥337,498 million.

Guarantees -

Toyota enters into contracts with Toyota dealers to guarantee customers’ payments of their installment payables that arise from installment contracts between customers and Toyota dealers, as and when requested by Toyota dealers. Guarantee periods are set to match maturity of installment payments, and as of March 31, 2017, range from 1 month to 35 years; however, they are generally shorter than the useful lives of products sold. Toyota is required to execute its guarantee primarily when customers are unable to make required payments.

The maximum potential amount of future payments as of March 31, 2017 is ¥2,596,443 million. Liabilities for guarantees totaling ¥6,360 million have been provided as of March 31, 2017. Under these guarantee contracts, Toyota is entitled to recover any amount paid by Toyota from the customers whose original obligations Toyota has guaranteed.

Legal proceedings -

From time-to-time, Toyota issues vehicle recalls and takes other safety measures including safety campaigns relating to its vehicles. Since 2009, Toyota issued safety campaigns related to the risk of floor mat entrapment of accelerator pedals and vehicle recalls related to slow-to-return or sticky accelerator pedals. In March 2014, Toyota entered into a Deferred Prosecution Agreement (“DPA”) to resolve an investigation by the U.S. Attorney for the Southern District of New York (“SDNY”) related to unintended acceleration in certain of its vehicles. The DPA provides for an independent monitor to review and assess policies and procedures relating to Toyota’s safety communications process, its process for sharing vehicle accident information internally and its process for preparing and sharing certain technical reports.

F-61

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the consolidated actions are stayed pending completion of a process to assess whether they can be resolved on terms acceptable to the parties. Cases not resolved after completion of the ISP will then proceed to discovery and toward trial. Toyota has offered the ISP process to plaintiffs in other consolidated actions and in individual cases, as well.

Beyond the amounts accrued with respect to all aforementioned matters, Toyota is unable to estimate a range of reasonably possible loss, if any, for the pending legal matters because (i) many of the proceedings are in evidence gathering stages, (ii) significant factual issues need to be resolved, (iii) the legal theory or nature of the claims is unclear, (iv) the outcome of future motions or appeals is unknown and/or (v) the outcomes of other matters of these types vary widely and do not appear sufficiently similar to offer meaningful guidance. Based upon information currently available to Toyota, however, Toyota believes that its losses from these matters, if any, beyond the amounts accrued, would not have a material adverse effect on Toyota’s financial position, results of operations or cash flows.

The parent company has a concentration of labor supply in employees working under collective bargaining agreements and a substantial portion of these employees are working under the agreement that will expire on December 31, 2017.

25. Segment data:

The operating segments reported below are the segments of Toyota for which separate financial information is available and for which operating income/loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance.

F-62

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The major portions of Toyota’s operations on a worldwide basis are derived from the Automotive and Financial Services business segments. The Automotive segment designs, manufactures and distributes sedans, minivans, compact cars, sport-utility vehicles, trucks and related parts and accessories. The Financial Services segment consists primarily of financing, and vehicle and equipment leasing operations to assist in the merchandising of the parent company and its affiliated companies products as well as other products. The All Other segment includes the design, manufacturing and sales of housing, telecommunications and other businesses.

The following tables present certain information regarding Toyota’s industry or geographic segments and overseas revenues by destination as of and for the years ended March 31, 2015, 2016 and 2017.

Segment operating results and assets -

As of and for the year ended March 31, 2015:


	Yen in millions
	Automotive		Financial Services		All Other		Inter-segment Elimination/ Unallocated Amount			Consolidated
Net revenues
Sales to external customers		25,006,224		1,621,685		606,612		—			27,234,521
Inter-segment sales and transfers		55,905		39,464		649,179		(744,548	)		—

Total		25,062,129		1,661,149		1,255,791		(744,548	)		27,234,521
Operating expenses		22,736,819		1,299,316		1,190,141		(742,319	)		24,483,957

Operating income		2,325,310		361,833		65,650		(2,229	)		2,750,564

Assets		15,897,022		22,378,941		1,889,433		7,564,434			47,729,830
Investment in equity method investees		2,588,127		8,801		10,000		84,294			2,691,222
Depreciation expenses		819,280		564,619		25,176		—			1,409,075
Capital expenditure		1,262,670		2,086,481		39,503		(31,086	)		3,357,568

As of and for the year ended March 31, 2016:


	Yen in millions
	Automotive		Financial Services		All Other		Inter-segment Elimination/ Unallocated Amount			Consolidated
Net revenues
Sales to external customers		25,923,813		1,854,007		625,298		—			28,403,118
Inter-segment sales and transfers		53,603		42,217		552,089		(647,909	)		—

Total		25,977,416		1,896,224		1,177,387		(647,909	)		28,403,118
Operating expenses		23,528,418		1,556,998		1,110,880		(647,149	)		25,549,147

Operating income		2,448,998		339,226		66,507		(760	)		2,853,971

Assets		15,621,757		21,709,010		1,917,148		8,179,682			47,427,597
Investment in equity method investees		2,532,644		9,168		10,801		78,776			2,631,389
Depreciation expenses		900,434		697,991		27,412		—			1,625,837
Capital expenditure		1,389,289		2,638,111		41,826		(10,010	)		4,059,216

F-63

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of and for the year ended March 31, 2017:


	Yen in millions
	Automotive		Financial Services		All Other		Inter-segment Elimination/ Unallocated Amount			Consolidated
Net revenues
Sales to external customers		25,032,229		1,783,697		781,267		—			27,597,193
Inter-segment sales and transfers		49,618		39,903		539,785		(629,306	)		—

Total		25,081,847		1,823,600		1,321,052		(629,306	)		27,597,193
Operating expenses		23,388,874		1,601,172		1,239,725		(626,950	)		25,602,821

Operating income		1,692,973		222,428		81,327		(2,356	)		1,994,372

Assets		16,156,496		22,507,613		2,170,498		7,915,579			48,750,186
Investment in equity method investees		2,745,437		9,792		—		90,193			2,845,422
Depreciation expenses		912,797		671,155		26,998		—			1,610,950
Capital expenditure		1,293,564		2,182,149		53,710		12,014			3,541,437

Geographic information -

As of and for the year ended March 31, 2015:


	Yen in millions
	Japan		North America		Europe		Asia		Other		Inter-segment Elimination/ Unallocated Amount			Consolidated
Net revenues
Sales to external customers		8,338,881		9,430,450		2,690,803		4,531,178		2,243,209		—			27,234,521
Inter-segment sales and transfers		6,064,986		247,146		157,491		450,062		206,029		(7,125,714	)		—

Total		14,403,867		9,677,596		2,848,294		4,981,240		2,449,238		(7,125,714	)		27,234,521
Operating expenses		12,832,391		9,093,077		2,767,176		4,559,458		2,337,729		(7,105,874	)		24,483,957

Operating income		1,571,476		584,519		81,118		421,782		111,509		(19,840	)		2,750,564

Assets		14,466,432		16,961,700		2,640,054		4,753,850		2,903,474		6,004,320			47,729,830
Long-lived assets		3,062,463		4,632,536		301,736		874,207		424,777		—			9,295,719

F-64

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of and for the year ended March 31, 2016:


	Yen in millions
	Japan		North America		Europe		Asia		Other		Inter-segment Elimination/ Unallocated Amount			Consolidated
Net revenues
Sales to external customers		8,588,437		10,822,772		2,507,292		4,475,623		2,008,994		—			28,403,118
Inter-segment sales and transfers		6,171,051		229,198		154,039		528,236		201,220		(7,283,744	)		—

Total		14,759,488		11,051,970		2,661,331		5,003,859		2,210,214		(7,283,744	)		28,403,118
Operating expenses		13,081,966		10,523,151		2,588,915		4,554,670		2,101,305		(7,300,860	)		25,549,147

Operating income		1,677,522		528,819		72,416		449,189		108,909		17,116			2,853,971

Assets		14,291,434		16,622,979		2,612,210		4,415,700		2,579,113		6,906,161			47,427,597
Long-lived assets		3,210,376		4,958,989		309,657		869,989		391,406		—			9,740,417

As of and for the year ended March 31, 2017:


	Yen in millions
	Japan		North America		Europe			Asia		Other		Inter-segment Elimination/ Unallocated Amount			Consolidated
Net revenues
Sales to external customers		8,798,903		10,033,419		2,517,601			4,279,617		1,967,653		—			27,597,193
Inter-segment sales and transfers		6,031,965		205,672		163,438			540,204		193,421		(7,134,700	)		—

Total		14,830,868		10,239,091		2,681,039			4,819,821		2,161,074		(7,134,700	)		27,597,193
Operating expenses		13,628,623		9,927,897		2,693,283			4,384,642		2,102,380		(7,134,004	)		25,602,821

Operating income (loss)		1,202,245		311,194		(12,244	)		435,179		58,694		(696	)		1,994,372

Assets		14,791,969		17,365,237		2,846,469			4,486,021		2,819,935		6,440,555			48,750,186
Long-lived assets		3,376,157		5,274,928		313,182			828,619		404,223		—			10,197,109

“Other” consists of Central and South America, Oceania, Africa and the Middle East.

Revenues are attributed to geographies based on the country location of the parent company or the subsidiary that transacted the sale with the external customer.

There are no any individually material countries with respect to revenues, and long-lived assets included in other foreign countries.

Unallocated amounts included in assets represent assets held for corporate purposes, which mainly consist of cash and cash equivalents and marketable securities. Such corporate assets were ¥8,742,168 million, ¥9,369,868 million and ¥9,177,953 million, as of March 31, 2015, 2016 and 2017, respectively.

F-65

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transfers between industry or geographic segments are made at amounts which Toyota’s management believes approximate arm’s-length transactions. In measuring the reportable segments’ income or losses, operating income consists of revenue less operating expenses.

Overseas revenues by destination -

The following information shows revenues that are attributed to countries based on location of customers, excluding customers in Japan. In addition to the disclosure requirements under U.S.GAAP, Toyota discloses this information in order to provide financial statements users with valuable information.


	Yen in millions
	For the years ended March 31,
	2015		2016		2017
North America		9,405,305		10,797,304		10,054,431
Europe		2,555,368		2,323,399		2,341,364
Asia		4,231,077		4,292,800		4,414,236
Other		4,947,169		4,724,784		3,923,621

“Other” consists of Central and South America, Oceania, Africa and the Middle East, etc.

F-66

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Certain financial statements data on non-financial services and financial services businesses -

The financial data below presents separately Toyota’s non-financial services and financial services businesses.

Balance sheets -


	Yen in millions
	March 31,
	2016			2017
Assets
Non-Financial Services Businesses
Current assets
Cash and cash equivalents		2,318,152			2,257,064
Marketable securities		1,210,427			1,439,944
Trade accounts and notes receivable, less allowance for doubtful accounts		2,089,216			2,191,594
Inventories		2,061,113			2,388,394
Prepaid expenses and other current assets		3,341,150			1,988,016

Total current assets		11,020,058			10,265,012

Investments and other assets		10,204,760			11,276,128
Property, plant and equipment		5,426,247			5,700,818

Total Non-Financial Services Businesses assets		26,651,065			27,241,958

Financial Services Business
Current assets
Cash and cash equivalents		621,276			738,011
Marketable securities		300,962			381,654
Finance receivables, net		5,912,684			6,196,649
Prepaid expenses and other current assets		895,257			831,924

Total current assets		7,730,179			8,148,238

Noncurrent finance receivables, net		8,642,947			9,012,222
Investments and other assets		1,021,714			850,862
Property, plant and equipment		4,314,170			4,496,291

Total Financial Services Business assets		21,709,010			22,507,613

Eliminations		(932,478	)		(999,385	)

Total assets		47,427,597			48,750,186

Assets in the non-financial services include unallocated corporate assets.

F-67

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	March 31,
	2016			2017
Liabilities
Non-Financial Services Businesses
Current liabilities
Short-term borrowings		586,685			669,947
Current portion of long-term debt		117,484			196,227
Accounts payable		2,356,355			2,540,078
Accrued expenses		2,640,128			3,038,218
Income taxes payable		334,490			203,101
Other current liabilities		1,527,024			1,512,662

Total current liabilities		7,562,166			8,160,233

Long-term liabilities
Long-term debt		584,793			590,366
Accrued pension and severance costs		891,405			890,684
Other long-term liabilities		1,690,460			1,206,427

Total long-term liabilities		3,166,658			2,687,477

Total Non-Financial Services Businesses liabilities		10,728,824			10,847,710

Financial Services Business
Current liabilities
Short-term borrowings		4,418,483			4,605,389
Current portion of long-term debt		3,715,195			4,129,005
Accounts payable		40,094			33,283
Accrued expenses		109,246			117,773
Income taxes payable		8,835			20,473
Other current liabilities		814,298			833,813

Total current liabilities		9,106,151			9,739,736

Long-term liabilities
Long-term debt		9,343,632			9,491,504
Accrued pension and severance costs		13,506			14,386
Other long-term liabilities		1,081,789			987,289

Total long-term liabilities		10,438,927			10,493,179

Total Financial Services Business liabilities		19,545,078			20,232,915

Eliminations		(934,491	)		(999,392	)

Total liabilities		29,339,411			30,081,233

Mezzanine equity		479,779			485,877

Total Toyota Motor Corporation shareholders’ equity		16,746,935			17,514,812

Noncontrolling interests		861,472			668,264

Total shareholders’ equity		17,608,407			18,183,076

Total liabilities,mezzanine equity and shareholders’ equity		47,427,597			48,750,186

F-68

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Statements of income -


	Yen in millions
	For the years ended March 31,
	2015			2016			2017
Non-Financial Services Businesses
Net revenues		25,643,508			26,581,102			25,845,453

Costs and expenses
Cost of revenues		20,933,168			21,474,386			21,557,194
Selling, general and administrative		2,319,262			2,589,082			2,511,647

Total costs and expenses		23,252,430			24,063,468			24,068,841

Operating income		2,391,078			2,517,634			1,776,612

Other income (expense), net		136,797			117,930			200,370

Income before income taxes and equity in earnings of affiliated companies		2,527,875			2,635,564			1,976,982

Provision for income taxes		763,445			752,248			562,452
Equity in earnings of affiliated companies		306,749			327,167			360,130

Net income		2,071,179			2,210,483			1,774,660

Less - Net income attributable to noncontrolling interests		(130,172	)		(117,544	)		(89,337	)

Net income attributable to Toyota Motor Corporation - Non-Financial Services Businesses		1,941,007			2,092,939			1,685,323

Financial Services Business
Net revenues		1,661,149			1,896,224			1,823,600

Costs and expenses
Cost of revenues		955,380			1,181,437			1,221,268
Selling, general and administrative		343,936			375,561			379,904

Total costs and expenses		1,299,316			1,556,998			1,601,172

Operating income		361,833			339,226			222,428

Other income (expense), net		3,190			8,579			(5,618	)

Income before income taxes and equity in earnings of affiliated companies		365,023			347,805			216,810

Provision for income taxes		130,049			126,319			66,583
Equity in earnings of affiliated companies		1,796			1,932			1,930

Net income		236,770			223,418			152,157

Less - Net income attributable to noncontrolling interests		(4,417	)		(3,963	)		(6,518	)

Net income attributable to Toyota Motor Corporation - Financial Services Business		232,353			219,455			145,639

Eliminations		(22	)		300			147

Net income attributable to Toyota Motor Corporation		2,173,338			2,312,694			1,831,109

F-69

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Statements of cash flows -


	Yen in millions									Yen in millions
	For the year ended March 31, 2015									For the year ended March 31, 2016
	Non-Financial Services Businesses			Financial Services Business			Consolidated			Non-Financial Services Businesses			Financial Services Business			Consolidated
Cash flows from operating activities
Net income		2,071,179			236,770			2,307,904			2,210,483			223,418			2,434,211
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		844,456			564,619			1,409,075			927,846			697,991			1,625,837
Provision for doubtful accounts and credit losses		(1,598	)		80,567			78,969			69,029			90,236			159,265
Pension and severance costs, less payments		(5,263	)		2,102			(3,161	)		8,300			533			8,833
Losses on disposal of fixed assets		31,601			24			31,625			33,293			36			33,329
Unrealized losses on available-for-sale securities, net		2,565			13			2,578			3,217			6,055			9,272
Deferred income taxes		(114,122	)		87,260			(26,887	)		(43,237	)		76,423			32,889
Equity in earnings of affiliated companies		(306,749	)		(1,796	)		(308,545	)		(327,167	)		(1,932	)		(329,099	)
Changes in operating assets and liabilities, and other		356,269			(191,791	)		194,195			386,529			148,376			486,320

Net cash provided by operating activities		2,878,338			777,768			3,685,753			3,268,293			1,241,136			4,460,857

Cash flows from investing activities
Additions to finance receivables		—			(22,325,159	)		(13,126,596	)		—			(23,399,113	)		(13,549,278	)
Collection of and proceeds from sales of finance receivables		—			21,668,847			12,450,388			—			22,918,132			13,115,854
Additions to fixed assets excluding equipment leased to others		(1,133,102	)		(13,216	)		(1,146,318	)		(1,265,174	)		(17,371	)		(1,282,545	)
Additions to equipment leased to others		(137,985	)		(2,073,265	)		(2,211,250	)		(155,931	)		(2,620,740	)		(2,776,671	)
Proceeds from sales of fixed assets excluding equipment leased to others		40,032			1,515			41,547			41,154			993			42,147
Proceeds from sales of equipment leased to others		40,878			762,545			803,423			60,989			1,050,738			1,111,727
Purchases of marketable securities and security investments		(2,530,591	)		(663,703	)		(3,194,294	)		(1,302,965	)		(894,512	)		(2,197,477	)
Proceeds from sales of and maturity of marketable securities and security investments		2,198,799			484,202			2,683,001			2,471,876			943,939			3,415,815
Payment for additional investments in affiliated companies, net of cash acquired		—			—			—			628			—			628
Changes in investments and other assets, and other		(114,094	)		(9,669	)		(113,391	)		(1,371,996	)		296,788			(1,062,744	)

Net cash used in investing activities		(1,636,063	)		(2,167,903	)		(3,813,490	)		(1,521,419	)		(1,721,146	)		(3,182,544	)

Cash flows from financing activities
Proceeds from issuance of long-term debt		119,449			4,960,157			5,029,018			110,691			4,815,323			4,845,872
Payments of long-term debt		(100,627	)		(3,373,842	)		(3,462,237	)		(71,758	)		(4,127,178	)		(4,176,202	)
Increase (decrease) in short-term borrowings		(47,026	)		(259,931	)		(288,724	)		75,990			(132,852	)		(10,903	)
Proceeds from issuance of class shares		—			—			—			474,917			—			474,917
Dividends paid to Toyota Motor Corporation class shareholders		—			—			—			(1,225	)		—			(1,225	)
Dividends paid to Toyota Motor Corporation common shareholders		(554,933	)		—			(554,933	)		(704,728	)		—			(704,728	)
Dividends paid to noncontrolling interests		(69,295	)		—			(69,295	)		(73,129	)		—			(73,129	)
Reissuance (repurchase) of treasury stock		(347,784	)		—			(347,784	)		(778,173	)		—			(778,173	)

Net cash provided by (used in) financing activities		(1,000,216	)		1,326,384			306,045			(967,415	)		555,293			(423,571	)

Effect of exchange rate changes on cash and cash equivalents		27,075			38,004			65,079			(142,301	)		(57,570	)		(199,871	)

Net increase (decrease) in cash and cash equivalents		269,134			(25,747	)		243,387			637,158			17,713			654,871
Cash and cash equivalents at beginning of year		1,411,860			629,310			2,041,170			1,680,994			603,563			2,284,557

Cash and cash equivalents at end of year		1,680,994			603,563			2,284,557			2,318,152			621,276			2,939,428

F-70

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	For the year ended March 31, 2017
	Non-Financial Services Businesses			Financial Services Business			Consolidated
Cash flows from operating activities
Net income		1,774,660			152,157			1,926,985
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		939,795			671,155			1,610,950
Provision for doubtful accounts and credit losses		6,519			92,147			98,666
Pension and severance costs, less payments		21,796			1,457			23,253
Losses on disposal of fixed assets		30,461			212			30,673
Unrealized losses on available-for-sale securities, net		4,422			2,651			7,073
Deferred income taxes		(59,668	)		6,504			(53,299	)
Equity in earnings of affiliated companies		(360,130	)		(1,930	)		(362,060	)
Changes in operating assets and liabilities, and other		206,455			103,840			131,996

Net cash provided by operating activities		2,564,310			1,028,193			3,414,237

Cash flows from investing activities
Additions to finance receivables		—			(22,894,114	)		(13,636,694	)
Collection of and proceeds from sales of finance receivables		—			22,006,010			12,927,981
Additions to fixed assets excluding equipment leased to others		(1,206,738	)		(17,140	)		(1,223,878	)
Additions to equipment leased to others		(152,550	)		(2,165,009	)		(2,317,559	)
Proceeds from sales of fixed assets excluding equipment leased to others		40,189			1,049			41,238
Proceeds from sales of equipment leased to others		72,659			1,165,619			1,238,278
Purchases of marketable securities and security investments		(2,104,202	)		(412,806	)		(2,517,008	)
Proceeds from sales of and maturity of marketable securities and security investments		1,435,267			466,274			1,901,541
Payment for additional investments in affiliated companies, net of cash acquired		44,274			—			44,274
Changes in investments and other assets, and other		582,649			(60,345	)		571,888

Net cash used in investing activities		(1,288,452	)		(1,910,462	)		(2,969,939	)

Cash flows from financing activities
Proceeds from issuance of long-term debt		111,727			4,541,541			4,603,446
Payments of long-term debt		(82,840	)		(3,773,644	)		(3,845,554	)
Increase in short-term borrowings		51,523			233,331			273,037
Proceeds from issuance of class shares		—			—			—
Dividends paid to Toyota Motor Corporation class shareholders		(3,697	)		—			(3,697	)
Dividends paid to Toyota Motor Corporation common shareholders		(634,475	)		—			(634,475	)
Dividends paid to noncontrolling interests		(63,936	)		—			(63,936	)
Reissuance (repurchase) of treasury stock, and other		(703,986	)		—			(703,986	)

Net cash provided by (used in) financing activities		(1,325,684	)		1,001,228			(375,165	)

Effect of exchange rate changes on cash and cash equivalents		(11,262	)		(2,224	)		(13,486	)

Net increase (decrease) in cash and cash equivalents		(61,088	)		116,735			55,647
Cash and cash equivalents at beginning of year		2,318,152			621,276			2,939,428

Cash and cash equivalents at end of year		2,257,064			738,011			2,995,075

F-71

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

26 Per share amounts:

Reconciliations of the differences between basic and diluted net income attributable to Toyota Motor Corporation per common share for the years ended March 31, 2015, 2016 and 2017 are as follows:


	Yen in millions			Thousands of shares		Yen
	Net income attributable to Toyota Motor Corporation			Weighted- average common shares		Net income attributable to Toyota Motor Corporation per common share
For the year ended March 31, 2015
Basic net income attributable to Toyota Motor Corporation per common share		2,173,338			3,158,851		688.02
Effect of dilutive securities
Assumed exercise of dilutive stock options		(42	)		1,578

Diluted net income attributable to Toyota Motor Corporation per common share		2,173,296			3,160,429		687.66

For the year ended March 31, 2016
Net income attributable to Toyota Motor Corporation		2,312,694
Accretion to Mezzanine equity		(3,638	)
Dividends to Toyota Motor Corporation Model AA Class Shareholders		(2,449	)

Basic net income attributable to Toyota Motor Corporation per common share		2,306,607			3,111,306		741.36
Effect of dilutive securities
Model AA Class Shares		6,087			32,429
Assumed exercise of dilutive stock options		(21	)		1,212

Diluted net income attributable to Toyota Motor Corporation per common share		2,312,673			3,144,947		735.36

For the year ended March 31, 2017
Net income attributable to Toyota Motor Corporation		1,831,109
Accretion to Mezzanine equity		(4,849	)
Dividends to Toyota Motor Corporation Model AA Class Shareholders		(4,946	)

Basic net income attributable to Toyota Motor Corporation per common share		1,821,314			3,008,088		605.47
Effect of dilutive securities
Model AA Class Shares		9,795			47,100
Assumed exercise of dilutive stock options		(6	)		638

Diluted net income attributable to Toyota Motor Corporation per common share		1,831,103			3,055,826		599.22

Stock options that were not included in the computation of diluted net income attributable to Toyota Motor Corporation per common share for the years ended March 31, 2015 were 733 thousand shares, because the options’ exercise prices were greater than the average market price per common share during the period.There

F-72

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

were no stock options that were not included in the computation of diluted net income attributable to Toyota Motor Corporation per common share for the years ended March 31, 2016 and 2017.

In addition to the disclosure requirements under U.S.GAAP, Toyota discloses the information below in order to provide financial statements users with valuable information.

The following table shows Toyota Motor Corporation shareholders’ equity per share as of March 31, 2016 and 2017. Toyota Motor Corporation shareholders’ equity per share amounts are calculated by dividing Toyota Motor Corporation shareholders’ equities’ amount at the end of each period by the number of shares issued and outstanding, excluding treasury stock at the end of the corresponding period.


	Yen in millions		Thousands of shares		Yen
	Toyota Motor Corporation shareholders’ equity		Common shares issued and outstanding at the end of the year (excluding treasury stock)		Toyota Motor Corporation shareholders’ equity per share
As of March 31, 2016		16,746,935		3,037,676		5,513.08
As of March 31, 2017		17,514,812		2,974,723		5,887.88

27. Fair value measurements:

In accordance with U.S.GAAP, Toyota classifies fair value into three levels of input as follows which are used to measure it.


Level 1:		Quoted prices in active markets for identical assets or liabilities

Level 2:		Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the valuation of assets or liabilities

Level 3:		Valuation of assets or liabilities using unobservable inputs which reflect the reporting entity’s assumptions

F-73

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the fair values of the assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and 2017. Transfers between levels of the fair value are recognized at the end of their respective reporting periods:


	Yen in millions
	March 31, 2016
	Level 1		Level 2			Level 3			Total
Assets
Cash equivalents		100,841		915,684			—			1,016,525
Time deposits		—		600,000			—			600,000
Marketable securities and other securities investments
Public and corporate bonds		4,911,769		1,029,478			10,334			5,951,581
Common stocks		2,558,931		—			—			2,558,931
Other		83,082		68,185			—			151,267
Investments measured at net asset value		—		—			—			197,215
Derivative financial instruments		—		362,388			4,423			366,811

Total		7,654,623		2,975,735			14,757			10,842,330

Liabilities
Derivative financial instruments		—		(242,713	)		(1,574	)		(244,287	)

Total		—		(242,713	)		(1,574	)		(244,287	)


	Yen in millions
	March 31, 2017
	Level 1		Level 2			Level 3			Total
Assets
Cash equivalents		41,876		891,606			—			933,482
Time deposits		—		600,000			—			600,000
Marketable securities and other securities investments
Public and corporate bonds		4,797,499		1,079,385			8,947			5,885,831
Common stocks		2,686,934		—			—			2,686,934
Other		18,191		73,246			—			91,437
Investments measured at net asset value		—		—			—			735,131
Derivative financial instruments		—		243,334			87			243,421

Total		7,544,500		2,887,571			9,034			11,176,236

Liabilities
Derivative financial instruments		—		(237,848	)		(7,609	)		(245,457	)

Total		—		(237,848	)		(7,609	)		(245,457	)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The following is description of the assets and liabilities measured at fair value, information about the valuation techniques used to measure fair value, key inputs and significant assumptions:

F-74

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash equivalents and time deposits -

Cash equivalents include money market funds and other investments with original maturities of three months or less. Cash equivalents classified in Level 2 include negotiable certificate of deposit with original maturities of three months or less. These are measured at fair value using primarily observable interest rates in the market. Time deposits consist of negotiable certificates of deposit with original maturities over three months. These are measured at fair value using primarily observable interest rates in the market.

Marketable securities and other securities investments -

Marketable securities and other securities investments include public and corporate bonds, common stocks and other investments. Public and corporate bonds include government bonds. Japanese bonds as well as U.S., European and other bonds represent 37% and 63% (as of March 31, 2016) and 28% and 72% (as of March 31, 2017) of public and corporate bonds, respectively. Listed stocks on the Japanese stock markets represent 90% and 92% of common stocks as of March 31, 2016 and 2017, respectively. Toyota uses primarily quoted market prices for identical assets to measure fair value of these securities. “Other” includes investment trusts. Generally, Toyota uses quoted market prices for similar assets or quoted non-active market prices for identical assets to measure fair value of these securities. These assets are classified in Level 2.

Derivative financial instruments -

See note 21 to the consolidated financial statements about derivative financial instruments. Toyota primarily estimates the fair value of derivative financial instruments using industry-standard valuation models that require observable inputs including interest rates and foreign exchange rates, and the contractual terms. The usage of these models does not require significant judgment to be applied. These derivative financial instruments are classified in Level 2. In other certain cases when market data is not available, key inputs to the fair value measurement include quotes from counterparties, and other market data. Toyota assesses the reasonableness of changes of the quotes using observable market data. These derivative financial instruments are classified in Level 3. Toyota’s derivative fair value measurements consider assumptions about counterparty and Toyota’s own non-performance risk, using such as credit default probabilities.

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the periods ended March 31, 2015, 2016 and 2017:


	Yen in millions
	For the year ended March 31, 2015
	Marketable securities and other securities investments			Derivative financial instruments			Total
Balance at beginning of year		9,092			7,544			16,636
Total gains (losses)
Included in income (loss)		(33	)		(5,953	)		(5,986	)
Included in other comprehensive income (loss)		227			—			227
Purchases and issuances		4,055			—			4,055
Settlements		(2,914	)		(1,169	)		(4,083	)
Other		1,890			588			2,478

Balance at end of year		12,317			1,010			13,327

F-75

TOYOTA MOTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Yen in millions
	For the year ended March 31, 2016
	Marketable securities and other securities investments			Derivative financial instruments			Total
Balance at beginning of year		12,317			1,010			13,327
Total gains (losses)
Included in income (loss)		1			2,507			2,508
Included in other comprehensive income (loss)		(286	)		—			(286	)
Purchases and issuances		931			—			931
Settlements		(1,451	)		(479	)		(1,930	)
Other		(1,178	)		(189	)		(1,367	)

Balance at end of year		10,334			2,849			13,183


	Yen in millions
	For the year ended March 31, 2017
	Marketable securities and other securities investments			Derivative financial instruments			Total
Balance at beginning of year		10,334			2,849			13,183
Total gains (losses)
Included in income (loss)		(16	)		(7,310	)		(7,326	)
Included in other comprehensive income (loss)		60			—			60
Purchases and issuances		1,126			—			1,126
Settlements		(2,282	)		(2,693	)		(4,975	)
Other		(275	)		(368	)		(643	)

Balance at end of year		8,947			(7,522	)		1,425

“Included in income (loss)” in marketable securities and other securities investments and derivative financial instruments are included in “Other income (loss), net” and “Cost of financing operations” in the accompanying consolidated statements of income, respectively.

In the reconciliation table above, derivative financial instruments are presented net of assets and liabilities. “Other” includes the currency translation adjustments for the years ended March 31, 2015, 2016 and 2017.

As of March 31, 2017, the Level 3 assets and liabilities measured at fair value on a recurring basis are not significant.

Certain assets and liabilities are measured at fair value on a nonrecurring basis. During the years ended March 31, 2016 and 2017, Toyota measured certain finance receivables at fair value of ¥57,505 million and ¥47,999 million based on the collateral value, resulting in loss of ¥249 million and gain of ¥2,405 million, respectively. This fair value measurement on a nonrecurring basis is classified in Level 3. See note 22 to the consolidated financial statements for the fair value measurement. These Level 3 financial assets are not significant.

F-76

ITEM 19. EXHIBITS

Index to Exhibits



1.1		Amended and Restated Articles of Incorporation of the Registrant (English translation)(incorporated by reference to Exhibit 1.1 to Toyota’s Annual Report on Form 20-F for the fiscal year ended March 31, 2015, filed with the SEC on June 24, 2015 (file no. 001-14948))

1.2		Amended and Restated Regulations of the Board of Directors of the Registrant (English translation)

1.3		Amended and Restated Regulations of the Audit & Supervisory Board of the Registrant (English translation) (incorporated by reference to Exhibit 1.3 to Toyota’s Annual Report on Form 20-F for the fiscal year ended March 31, 2016, filed with the SEC on June 24, 2016 (file no. 001-14948))

2.1		Amended and Restated Share Handling Regulations of the Registrant (English translation) (incorporated by reference to Exhibit 2.1 to Toyota’s Annual Report on Form 20-F for the fiscal year ended March 31, 2015, filed with the SEC on June 24, 2015 (file no. 001-14948))

2.2		Form of Deposit Agreement among the Registrant, The Bank of New York (predecessor of The Bank of New York Mellon), as depositary, and the owners and beneficial owners from time to time of American Depositary Receipts, including the form of American Depositary Receipt (incorporated by reference to Exhibit 1 to Toyota’s Registration Statement on Form F-6, filed with the SEC on November 7, 2006 (file no. 333-138477))

2.3		Form of ADR (included in Exhibit 2.2)

8.1		List of Principal Subsidiaries (See “Organizational Structure” in “Item 4. Information on the Company”)

11.1		Code of Ethics of the Registrant applicable to its members of the board of directors and managing officers, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (English translation)

12.1		Certifications of the Registrant’s Chairman of the Board of Directors and Executive Vice President, Member of the Board pursuant to Section 302 of the Sarbanes-Oxley Act

13.1		Certifications of the Registrant’s Chairman of the Board of Directors and Executive Vice President, Member of the Board pursuant to Section 906 of the Sarbanes-Oxley Act

15.1		Consent of Independent Registered Public Accounting Firm

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

135

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


TOYOTA MOTOR CORPORATION

By:		/s/ TETSUYA OTAKE
Name:		Tetsuya Otake
Title:		Senior Managing Officer

Date: June 23, 2017