TOYOTA MOTOR CORPORATION

Analysis of Results of Operations

 

Financial results

Consolidated vehicle unit sales in Japan and overseas decreased by 135 thousand units, or 6.3%, to 2,013 thousand units in FY2023 first quarter (the first quarter ended June 30, 2022) compared with FY2022 first quarter (the first quarter ended June 30, 2021). Vehicle unit sales in Japan decreased by 97 thousand units, or 19.4%, to 403 thousand units in FY2023 first quarter compared with FY2022 first quarter. Overseas vehicle unit sales decreased by 37 thousand units, or 2.3%, to 1,610 thousand units in FY2023 first quarter compared with FY2022 first quarter.

The results of operations for FY2023 first quarter were as follows:

 

Sales revenues		¥	8,491.1 billion			(an increase of ¥555.5 billion or 7.0% compared with FY2022 first quarter)
Operating income		¥	578.6 billion			(a decrease of ¥418.8 billion or 42.0% compared with FY2022 first quarter)
Income before income taxes		¥	1,021.7 billion			(a decrease of ¥235.4 billion or 18.7% compared with FY2022 first quarter)
Net income attributable to Toyota Motor Corporation		¥	736.8 billion			(a decrease of ¥161.0 billion or 17.9% compared with FY2022 first quarter)

The changes in operating income were as follows:

 

Effects of marketing activities		a decrease of ¥115.0 billion
Effects of changes in exchange rates		an increase of ¥195.0 billion
Cost reduction efforts		a decrease of ¥275.0 billion
Increase or decrease in expensesand expense reduction efforts		a decrease of ¥125.0 billion
Other		a decrease of ¥98.8 billion

 

1

 

 

TOYOTA MOTOR CORPORATION

Analysis of Results of Operations

 

 

Segment operating results

 

(i)	Automotive:

Sales revenues for the automotive operations increased by ¥478.8 billion, or 6.6%, to ¥7,720.1 billion in FY2023 first quarter compared with FY2022 first quarter. However, operating income decreased by ¥330.8 billion, or 42.4%, to ¥449.2 billion in FY2023 first quarter compared with FY2022 first quarter. The decrease in operating income was mainly due to the unfavorable impact of soaring materials prices as well as decreases in both production volume and vehicle unit sales.

 

(ii)	Financial services:

Sales revenues for the financial services operations increased by ¥73.2 billion, or 12.7%, to ¥652.1 billion in FY2023 first quarter compared with FY2022 first quarter. However, operating income decreased by ¥81.5 billion, or 41.6%, to ¥114.5 billion in FY2023 first quarter compared with FY2022 first quarter. The decrease in operating income was mainly due to the recording of valuation losses on interest rate swaps stated at fair value in sales finance subsidiaries in the United States.

 

(iii)

All other:

Sales revenues for all other businesses increased by ¥21.1 billion, or 8.8%, to ¥262.3 billion in FY2023 first quarter compared with FY2022 first quarter. However, operating income decreased by ¥3.2 billion, or 15.1%, to ¥18.3 billion in FY2023 first quarter compared with FY2022 first quarter.

 

2

 

 

TOYOTA MOTOR CORPORATION

Analysis of Results of Operations

 

 

Geographic information

 

(i)

Japan:

Sales revenues in Japan decreased by ¥196.8 billion, or 4.8%, to ¥3,899.7 billion in FY2023 first quarter compared with FY2022 first quarter, and operating income decreased by ¥181.7 billion, or 35.1%, to ¥336.7 billion in FY2023 first quarter compared with FY2022 first quarter. The decrease in operating income was mainly due to decreases in both production volume and vehicle unit sales as well as the unfavorable impact of soaring materials prices.

 

(ii)	North America:

Sales revenues in North America increased by ¥474.8 billion, or 16.5%, to ¥3,349.9 billion in FY2023 first quarter compared with FY2022 first quarter. However, operating income decreased by ¥234.2 billion, or 94.1%, to ¥14.5 billion in FY2023 first quarter compared with FY2022 first quarter. The decrease in operating income was mainly due to the unfavorable impact of soaring materials prices as well as the recording of valuation losses on interest rate swaps stated at fair value in sales finance subsidiaries in the United States.

 

(iii)

Europe:

Sales revenues in Europe decreased by ¥13.9 billion, or 1.4%, to ¥973.0 billion in FY2023 first quarter compared with FY2022 first quarter, and operating income decreased by ¥10.4 billion, or 34.8%, to ¥19.6 billion in FY2023 first quarter compared with FY2022 first quarter. The decrease in operating income was mainly due to the unfavorable impact of soaring materials prices.

 

(iv)

Asia:

Sales revenues in Asia increased by ¥263.6 billion, or 17.2%, to ¥1,795.6 billion in FY2023 first quarter compared with FY2022 first quarter, and operating income increased by ¥46.1 billion, or 27.7%, to ¥212.7 billion in FY2023 first quarter compared with FY2022 first quarter. The increase in operating income was mainly due to the effects of changes in exchange rates.

 

(v)	Other (Central and South America, Oceania, Africa and the Middle East):

Sales revenues in other regions increased by ¥140.5 billion, or 20.4%, to ¥828.7 billion in FY2023 first quarter compared with FY2022 first quarter. However, operating income decreased by ¥19.5 billion, or 29.9%, to ¥45.8 billion in FY2023 first quarter compared with FY2022 first quarter. The decrease in operating income was mainly due to the unfavorable impact of soaring materials prices.

 

3

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Quarterly Consolidated Statement of Financial Position

 

 

						Yen in millions
		Notes				March 31, 2022				June 30, 2022
Assets
Current assets
Cash and cash equivalents							6,113,655				6,685,012
Trade accounts and other receivables							3,142,832				2,938,876
Receivables related to financial services							7,181,327				7,770,781
Other financial assets							2,507,248				2,696,661
Inventories							3,821,356				4,022,898
Income tax receivable							163,925				242,291
Other current assets							791,947				947,547
Total current assets							23,722,290				25,304,067
Non-current assets
Investments accounted for using the equity method							4,837,895				4,830,904
Receivables related to financial services							14,583,130				16,163,485
Other financial assets							9,517,267				9,938,805
Property, plant and equipment
Land							1,361,791				1,388,607
Buildings							5,284,620				5,470,510
Machinery and equipment							13,982,362				14,734,386
Vehicles and equipment on operating leases							6,781,229				7,248,654
Construction in progress							565,528				598,352
Total property, plant and equipment, at cost							27,975,530				29,440,508
Less - Accumulated depreciation and impairment losses							(15,648,890	)			(16,524,264	)
Total property, plant and equipment, net							12,326,640				12,916,244
Right of use assets							448,412				454,152
Intangible assets							1,191,966				1,190,300
Deferred tax assets							342,202				408,521
Other non-current assets							718,968				728,713
Total non-current assets							43,966,482				46,631,124
Total assets							67,688,771				71,935,191

The accompanying notes are an integral part of these condensed quarterly consolidated financial statements.

 

4

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Quarterly Consolidated Statement of Financial Position

 

 

						Yen in millions
		Notes				March 31, 2022				June 30, 2022
Liabilities
Current liabilities
Trade accounts and other payables							4,292,092				3,981,456
Short-term and current portion of long-term debt							11,187,839				12,185,076
Accrued expenses							1,520,446				1,652,407
Other financial liabilities							1,046,050				1,355,080
Income taxes payable							826,815				506,495
Liabilities for quality assurance							1,555,711				1,674,232
Other current liabilities							1,413,208				1,666,386
Total current liabilities							21,842,161				23,021,132
Non-current liabilities
Long-term debt							15,308,519				16,881,527
Other financial liabilities							461,583				629,173
Retirement benefit liabilities							1,022,749				1,059,003
Deferred tax liabilities							1,354,794				1,461,153
Other non-current liabilities							544,145				574,661
Total non-current liabilities							18,691,790				20,605,516
Total liabilities							40,533,951				43,626,648
Shareholders’ equity
Common stock							397,050				397,050
Additional paid-in capital							498,575				498,776
Retained earnings							26,453,126				26,873,431
Other components of equity							2,203,254				3,032,336
Treasury stock							(3,306,037	)			(3,426,775	)
Total Toyota Motor Corporation shareholders’ equity							26,245,969				27,374,818
Non-controlling interests							908,851				933,725
Total shareholders’ equity							27,154,820				28,308,543
Total liabilities and shareholders’ equity							67,688,771				71,935,191

The accompanying notes are an integral part of these condensed quarterly consolidated financial statements.

 

5

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Quarterly Consolidated Statement of Income and

Unaudited Condensed Quarterly Consolidated Statement of Comprehensive Income

 

 

Unaudited Condensed Quarterly Consolidated Statement of Income

 

						Yen in millions
		Notes				For the first quarter ended June 30, 2021				For the first quarter ended June 30, 2022
Sales revenues
Sales of products			VIII				7,362,417				7,844,455
Financial services			VIII				573,140				646,661
Total sales revenues			VIII				7,935,558				8,491,116
Costs and expenses
Cost of products sold							6,014,841				6,700,127
Cost of financial services							271,078				399,840
Selling, general and administrative							652,150				812,494
Total costs and expenses							6,938,068				7,912,462
Operating income							997,489				578,655
Share of profit (loss) of investments accounted for using the equity method							161,483				171,069
Other finance income							72,065				125,793
Other finance costs							(7,484	)			(19,362	)
Foreign exchange gain (loss), net							25,921				183,259
Other income (loss), net							7,746				(17,667	)
Income before income taxes							1,257,220				1,021,748
Income tax expense							330,679				263,496
Net income							926,540				758,253
Net income attributable to
Toyota Motor Corporation							897,832				736,820
Non-controlling interests							28,708				21,432
Net income							926,540				758,253
						Yen
Earnings per share attributable to Toyota Motor Corporation
Basic			IX				64.23				53.65
Diluted			IX				64.22				—

 

The accompanying notes are an integral part of these condensed quarterly consolidated financial statements.

 

6

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Quarterly Consolidated Statement of Income and

Unaudited Condensed Quarterly Consolidated Statement of Comprehensive Income

 

 

Unaudited Condensed Quarterly Consolidated Statement of Comprehensive Income

 

						Yen in millions
		Notes				For the first quarter ended June 30, 2021				For the first quarter ended June 30, 2022
Net income							926,540				758,253
Other comprehensive income, net of tax
Items that will not be reclassified to profit (loss)
Net changes in revaluation of financial assets measured at fair value through other comprehensive income							1,565				41,613
Remeasurements of defined benefit plans							(4,361	)			(3,528	)
Share of other comprehensive income of equity method investees							61,695				(60,004	)
Total of items that will not be reclassified to profit (loss)							58,899				(21,919	)
Items that may be reclassified subsequently to profit (loss)
Exchange differences on translating foreign operations							78,998				918,143
Net changes in revaluation of financial assets measured at fair value through other comprehensive income							11,224				(87,260	)
Share of other comprehensive income of equity method investees							70,200				121,095
Total of items that may be reclassified subsequently to profit (loss)							160,422				951,978
Total other comprehensive income, net of tax							219,322				930,059
Comprehensive income							1,145,862				1,688,311
Comprehensive income for the period attributable to
Toyota Motor Corporation							1,117,394				1,635,179
Non-controlling interests							28,469				53,132
Comprehensive income							1,145,862				1,688,311

 

The accompanying notes are an integral part of these condensed quarterly consolidated financial statements.

 

7

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Quarterly Consolidated Statement of Changes in Equity

 

 

For the first quarter ended June 30, 2021

 

						Yen in millions
		Notes				Common stock				Additional paid-in capital				Retained earnings				Other components of equity				Treasury stock				Toyota Motor Corporation shareholders’ equity				Non-controlling interests				Total shareholders’ equity
Balances at April 1, 2021							397,050				497,275				24,104,176				1,307,726				(2,901,680	)			23,404,547				883,782				24,288,329
Comprehensive income
Net income							—				—				897,832				—				—				897,832				28,708				926,540
Other comprehensive income, net of tax							—				—				—				219,561				—				219,561				(240	)			219,322
Total comprehensive income							—				—				897,832				219,561				—				1,117,394				28,469				1,145,862
Transactions with owners and other
Dividends paid			VII				—				—				(377,453	)			—				—				(377,453	)			(19,494	)			(396,947	)
Repurchase of treasury stock							—				—				—				—				(21,600	)			(21,600	)			—				(21,600	)
Reissuance of treasury stock							—				34				—				—				49				83				—				83
Equity transactions and other							—				70				—				—				—				70				1,104				1,174
Total transactions with owners and other							—				104				(377,453	)			—				(21,551	)			(398,900	)			(18,389	)			(417,290	)
Reclassification to retained earnings							—				—				30,778				(30,778	)			—				—				—				—
Balances at June 30, 2021							397,050				497,379				24,655,333				1,496,510				(2,923,231	)			24,123,041				893,861				25,016,901
For the first quarter ended June 30, 2022
						Yen in millions
		Notes				Common stock				Additional paid-in capital				Retained earnings				Other components of equity				Treasury stock				Toyota Motor Corporation shareholders’ equity				Non-controlling interests				Total shareholders’ equity
Balances at April 1, 2022							397,050				498,575				26,453,126				2,203,254				(3,306,037	)			26,245,969				908,851				27,154,820
Comprehensive income
Net income							—				—				736,820				—				—				736,820				21,432				758,253
Other comprehensive income, net of tax							—				—				—				898,359				—				898,359				31,699				930,059
Total comprehensive income							—				—				736,820				898,359				—				1,635,179				53,132				1,688,311
Transactions with owners and other
Dividends paid			VII				—				—				(385,792	)			—				—				(385,792	)			(25,187	)			(410,979	)
Repurchase of treasury stock							—				—				—				—				(121,311	)			(121,311	)			—				(121,311	)
Reissuance of treasury stock							—				334				—				—				573				907				—				907
Equity transactions and other							—				(133	)			—				—				—				(133	)			(3,071	)			(3,204	)
Total transactions with owners and other							—				201				(385,792	)			—				(120,739	)			(506,330	)			(28,258	)			(534,588	)
Reclassification to retained earnings							—				—				69,277				(69,277	)			—				—				—				—
Balances at June 30, 2022							397,050				498,776				26,873,431				3,032,336				(3,426,775	)			27,374,818				933,725				28,308,543

The accompanying notes are an integral part of these condensed quarterly consolidated financial statements.

 

8

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Quarterly Consolidated Statement of Cash Flows

 

 

						Yen in millions
		Notes				For the first quarter ended June 30, 2021				For the first quarter ended June 30, 2022
Cash flows from operating activities
Net income							926,540				758,253
Depreciation and amortization							439,778				503,366
Interest income and interest costs related to financial services, net							(83,022	)			(178,125	)
Share of profit (loss) of investments accounted for using the equity method							(161,483	)			(171,069	)
Income tax expense							330,679				263,496
Changes in operating assets and liabilities, and other							(588,367	)			(286,225	)
Interest received							198,692				309,518
Dividends received							241,885				338,516
Interest paid							(89,881	)			(80,904	)
Income taxes paid, net of refunds							(255,863	)			(692,736	)
Net cash provided by (used in) operating activities							958,958				764,087
Cash flows from investing activities
Additions to fixed assets excluding equipment leased to others							(335,088	)			(374,083	)
Additions to equipment leased to others							(739,484	)			(458,483	)
Proceeds from sales of fixed assets excluding equipment leased to others							9,996				16,925
Proceeds from sales of equipment leased to others							419,887				427,753
Additions to intangible assets							(64,515	)			(71,861	)
Additions to public and corporate bonds and stocks							(868,405	)			(353,453	)
Proceeds from sales of public and corporate bonds and stocks and upon maturity of public and corporate bonds							640,954				282,823
Other, net			X				1,563,755				79,467
Net cash provided by (used in) investing activities							627,100				(450,912	)
Cash flows from financing activities
Increase (decrease) in short-term debt							(80,929	)			160,646
Proceeds from long-term debt							2,128,592				2,238,120
Payments of long-term debt							(3,320,588	)			(1,940,196	)
Dividends paid to Toyota Motor Corporation common shareholders			VII				(377,453	)			(385,792	)
Dividends paid to non-controlling interests							(19,494	)			(25,187	)
Reissuance (repurchase) of treasury stock							(21,517	)			(121,311	)
Net cash provided by (used in) financing activities							(1,691,389	)			(73,721	)
Effect of exchange rate changes on cash and cash equivalents							17,901				331,904
Net increase (decrease) in cash and cash equivalents							(87,430	)			571,357
Cash and cash equivalents at beginning of period							5,100,857				6,113,655
Cash and cash equivalents at end of period							5,013,426				6,685,012

 

The accompanying notes are an integral part of these condensed quarterly consolidated financial statements.

 

9

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

I.	Reporting entity

Toyota Motor Corporation (“TMC”) is a limited liability, joint-stock company located in Japan, and TMC’s principal executive offices are registered in Toyota City, Aichi Prefecture. For the first quarter ended June 30, 2022, the condensed quarterly consolidated financial statements of the group consist of TMC, its consolidated subsidiaries (collectively, “Toyota”) and their interests in associates and joint ventures.

Toyota and its associates are primarily engaged in the design, manufacture, and sale of sedans, minivans, compact cars, SUVs, trucks and related parts and accessories throughout the world. In addition, Toyota and its associates provide financing, vehicle 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 associates.

 

II.	Basis of preparation

1. Compliance with international financial reporting standards

Toyota’s condensed quarterly consolidated financial statements have been prepared in accordance with IAS 34 “Interim Financial Reporting”. The condensed quarterly consolidated financial statements should be read in conjunction with Toyota’s consolidated financial statements for the fiscal year ended March 31, 2022, since the condensed quarterly consolidated financial statements do not include all the information required in the annual consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The condensed quarterly consolidated financial statements were approved on August 4, 2022 by the Board of Directors.

2. Basis of measurement

Toyota’s condensed quarterly consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities measured at fair value and assets and liabilities associated with defined benefit plans.

3. Functional currency and presentation currency

The condensed quarterly consolidated financial statements are presented in Japanese yen, which is the functional currency of TMC. All financial information presented in Japanese yen has been rounded to the nearest million Japanese yen, except when otherwise indicated. Amounts may not sum to totals due to rounding.

 

III.	Significant accounting policies

Toyota’s condensed quarterly consolidated financial statements are prepared based on the same accounting policies as those applied and described in the consolidated financial statements for the fiscal year ended March 31, 2022.

 

10

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

IV.	Significant accounting judgments and estimates

The preparation of the condensed quarterly consolidated financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies, the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. These estimates and underlying assumptions are reviewed on a continuous basis. Changes in these accounting estimates are recognized in the period in which the estimates were revised and in any future periods affected.

The condensed quarterly consolidated financial statements are prepared based on generally the same judgments and estimations as those applied and described in Toyota’s consolidated financial statements for the fiscal year ended March 31, 2022.

 

11

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

V.	Segment information

1. Outline of reporting segments

The operating segments reported below are the segments of Toyota for which separate financial information is available and for which operating income/loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance.

The major portions of Toyota’s operations on a worldwide basis are derived from the Automotive and Financial services business segments. The Automotive segment designs, manufactures and distributes sedans, minivans, compact cars, SUVs, trucks and related parts and accessories. The Financial services segment consists primarily of financing and vehicle leasing operations to assist in the merchandising of Toyota’s products as well as other products. The All other segment includes telecommunications and other businesses.

2. Segment operating results

For the first quarter ended June 30, 2021:

 

		Yen in millions
		Automotive				Financial services				All other				Elimination				Consolidated
Sales revenues
Revenues from external customers			7,233,324				573,140				129,094				—				7,935,558
Inter-segment revenues and transfers			7,921				5,712				112,131				(125,765	)			—
Total			7,241,245				578,852				241,225				(125,765	)			7,935,558
Operating expenses			6,461,150				382,776				219,581				(125,439	)			6,938,068
Operating income			780,095				196,076				21,644				(325	)			997,489
For the first quarter ended June 30, 2022:
		Yen in millions
		Automotive				Financial services				All other				Elimination				Consolidated
Sales revenues
Revenues from external customers			7,717,491				646,661				126,964				—				8,491,116
Inter-segment revenues and transfers			2,613				5,463				135,398				(143,473	)			—
Total			7,720,104				652,124				262,361				(143,473	)			8,491,116
Operating expenses			7,270,846				537,611				243,984				(139,978	)			7,912,462
Operating income			449,258				114,513				18,377				(3,495	)			578,655

Accounting policies applied by each segment are in conformity with those of Toyota’s condensed quarterly consolidated financial statements. Transfers between industry segments are made in accordance with terms and conditions in the ordinary course of business.

 

12

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

3. Geographic information

For the first quarter ended June 30, 2021:

 

		Yen in millions
		Japan				North America				Europe				Asia				Other				Elimination				Consolidated
Sales revenues
Revenues from external customers			2,150,774				2,813,461				942,080				1,373,730				655,512				—				7,935,558
Inter-segment revenues and transfers			1,945,888				61,561				44,916				158,270				32,699				(2,243,334	)			—
Total			4,096,661				2,875,022				986,997				1,531,999				688,211				(2,243,334	)			7,935,558
Operating expenses			3,578,118				2,626,171				956,924				1,365,387				622,824				(2,211,356	)			6,938,068
Operating income			518,543				248,851				30,073				166,612				65,387				(31,978	)			997,489
For the first quarter ended June 30, 2022:
		Yen in millions
		Japan				North America				Europe				Asia				Other				Elimination				Consolidated
Sales revenues
Revenues from external customers			1,909,042				3,262,851				923,768				1,576,341				819,115				—				8,491,116
Inter-segment revenues and transfers			1,990,725				87,053				49,272				219,323				9,607				(2,355,981	)			—
Total			3,899,767				3,349,904				973,040				1,795,664				828,722				(2,355,981	)			8,491,116
Operating expenses			3,563,003				3,335,305				953,427				1,582,936				782,887				(2,305,095	)			7,912,462
Operating income			336,765				14,599				19,612				212,728				45,836				(50,886	)			578,655

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

The above amounts are aggregated by region based on the location of the country where TMC or consolidated subsidiaries are located. Transfers between geographic areas are made in accordance with terms and conditions in the ordinary course of business.

 

13

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

4. Sales revenues by location of external customers

In addition to the disclosure requirements under IFRS, Toyota discloses this information in order to provide financial statements users with valuable information.

 

		Yen in  millions
		For the first quarter ended June 30,
		2021				2022
Japan			1,652,916				1,375,874
North America			2,859,747				3,274,863
Europe			894,249				872,707
Asia			1,446,752				1,612,365
Other			1,081,894				1,355,307
Total			7,935,558				8,491,116

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

 

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TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

VI.	Fair value measurements

1. Definition of fair value hierarchy

In accordance with IFRS, Toyota classifies fair value measurement into the following three levels based on the observability and significance of the inputs used.

 

2. Method of fair value measurement

The fair value of assets and liabilities is determined using relevant market information and appropriate valuation methods.

The methods and assumptions for measuring the fair value of assets and liabilities are as follows:

(1) Cash and cash equivalents -

Cash equivalents include money market funds and other investments with original maturities of three months or less. 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 their short duration.

(2) Trade accounts and other receivables and Trade accounts and other payables -

These receivables and payables are carried at amounts which approximate fair value due to their short duration.

(3) Receivables related to financial services -

The fair value of receivables related to financial services is estimated by discounting expected cash flows to present value using internal assumptions, including prepayment speeds, expected credit losses and collateral value.

As unobservable inputs are utilized, the fair value of receivables related to financial services is classified as Level 3.

(4) Other financial assets -

(Public and corporate bonds)

Public and corporate bonds include government bonds. Japanese bonds and foreign bonds, including U.S., European and other bonds, represent 26% and 74% (as of March 31, 2022) and 25% and 75% (as of June 30, 2022) of public and corporate bonds, respectively. Toyota primarily uses quoted market prices for identical assets to measure the fair value of these securities.

 

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TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

(Stocks)

Listed stocks on the Japanese stock markets represent 85% (as of March 31, 2022) and 86% (as of June 30, 2022) of stocks that Toyota holds. Toyota primarily uses quoted market prices for identical assets to measure fair value of these securities. Therefore, stocks with an active market are classified as Level 1.

Fair value of stocks with no active market is measured by using the market approach or other appropriate methods. Therefore, stocks with no active market are thus classified as Level 3.

Price book-value ratios (“PBR”) of comparable companies, discount ratios of discounted cash flow valuation method and others are the significant unobservable inputs relating to the fair value measurement of stocks classified as Level 3. The fair value increases (decreases) as PBR of a comparable company rises (declines) or the discount rate declines (rises). The estimated increase or decrease in fair value of stocks if the unobservable inputs were to be replaced by other reasonable alternative assumptions are not significant.

These estimates are based on valuation methods that are considered appropriate in each case. The significant assumptions involved in the estimations include the financial condition and future prospects and trends of the investees and the outcome of the referenced transactions. Due to the uncertain nature of these assumptions or by using different assumptions and estimates, the fair value may be impacted materially.

The shares classified as Level 3 are measured by the responsible department using quarterly available information in accordance with Toyota’s consolidated financial accounting policies and reported to the supervisors along with the basis of the change in fair value.

(5) 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 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 as Level 2. In other certain cases when market data are 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 as 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.

 

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TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

(6) Short-term and long-term debt -

The fair values of short-term and long-term debt including the current portion, except for secured loans provided by securitization transactions using special-purpose entities (“Loans Based on Securitization”), 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, the fair value of these debts is classified as Level 2.

The fair values of the Loans Based on Securitization are primarily 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. In cases where these valuations utilize unobservable inputs, the fair value of the Loans Based on Securitization is classified as Level 3.

 

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TOYOTA MOTOR CORPORATION

Notes to Unaudited Condensed Quarterly Consolidated Financial Statements

 

 

3. Financial instrument measured at fair value on recurring basis

The following table summarizes the fair values of the assets and liabilities measured at fair value on a recurring basis. Transfers between levels of the fair value are recognized at the date of the event or change in circumstances that caused the transfer:

 

		Yen in millions
		March 31, 2022
		Level 1				Level 2				Level 3				Total
Other financial assets:
Financial assets measured at fair value through profit or loss
Public and corporate bonds			61,376				96,136				1,674				159,186
Stocks			—				—				149,890				149,890
Derivative financial instruments			—				419,173				—				419,173
Other			307,446				158,355				—				465,801
Total			368,822				673,665				151,563				1,194,051
Financial assets measured at fair value through other comprehensive income
Public and corporate bonds			3,542,949				2,739,591				20,178				6,302,719
Stocks			3,162,805				—				169,404				3,332,209
Other			9,505				139				—				9,644
Total			6,715,259				2,739,730				189,583				9,644,571
Other financial liabilities:
Financial liabilities measured at fair value through profit or loss
Derivative financial instruments			—				(497,198	)			—				(497,198	)
Total			—				(497,198	)			—				(497,198	)
		Yen in millions
		June 30, 2022
		Level 1				Level 2				Level 3				Total
Other financial assets:
Financial assets measured at fair value through profit or loss
Public and corporate bonds			70,672				93,804				1,403				165,879
Stocks			—				—				175,335				175,335
Derivative financial instruments			—				636,068				—				636,068
Other			310,689				165,936				—				476,625
Total			381,361				895,807				176,738				1,453,906
Financial assets measured at fair value through other comprehensive income
Public and corporate bonds			3,985,357				2,663,120				22,499				6,670,976
Stocks			3,157,453				—				184,590				3,342,043
Other			7,963				155				—				8,118
Total			7,150,772				2,663,275				207,090				10,021,137
Other financial liabilities:
Financial liabilities measured at fair value through profit or loss
Derivative financial instruments			—				(648,227	)			—				(648,227	)
Total			—				(648,227	)			—				(648,227	)

 

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