SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

For the month of November, 2019

Commission File Number 001-14948

 

 

Toyota Motor Corporation

(Translation of Registrant’s Name Into English)

 

 

1, Toyota-cho, Toyota City,

Aichi Prefecture 471-8571,

Japan

(Address of Principal Executive Offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F      X        Form 40-F               

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):             

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):             

 

 

 

Material Contained in this Report:

 

I.	Executive Summary of the Japanese-language Quarterly Securities Report, as filed with the Director of the Kanto Local Finance Bureau on November 13, 2019.

 

II.

The registrant’s Unaudited Condensed Consolidated Financial Statements for the periods ended September 30, 2019, prepared in accordance with U.S. generally accepted accounting principles, which materially conform to the Consolidated Financial Statements filed with the Japanese-language Quarterly Securities Report referred to above.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 29, 2019

Japanese-language Quarterly Securities Report for the periods ended September 30, 2019, as filed with the Director of the Kanto Local Finance Bureau of the Ministry of Finance of Japan on November 13, 2019, and which includes the following:

 

I.

Corporate information

 

A.

Corporate overview

 

1.

History of changes in major business indices

 

2.

Overview of business

 

B.

Business

 

1.

Risk factors

 

2.

Management’s analysis of financial position, results of operations and cash flows

 

3.

Material contracts

 

C.

Company information

 

1.

Share information

 

2.

Directors and corporate auditors

 

D.

Financial information

 

1.

Consolidated financial statements and notes

 

2.

Other

 

II.

Information on Guarantors

Auditors Report

Certificate

 

 

TOYOTA MOTOR

CORPORATION

Unaudited Consolidated Financial Statements

For the periods ended

September 30, 2019

 

 

 

TOYOTA MOTOR CORPORATION

Analysis of Results of Operations

For the first half ended September 30, 2019

 

Financial results

Consolidated vehicle unit sales in Japan and overseas increased by 220 thousand units, or 5.0%, to 4,639 thousand units in FY2020 first half (the six months ended September 30, 2019) compared with FY2019 first half (the six months ended September 30, 2018). Vehicle unit sales in Japan increased by 109 thousand units, or 10.6%, to 1,140 thousand units in FY2020 first half compared with FY2019 first half. Overseas vehicle unit sales increased by 111 thousand units, or 3.3%, to 3,499 thousand units in FY2020 first half compared with FY2019 first half.

The results of operations for FY2020 first half were as follows:

 

Net revenues			15,285.5 billion yen			(an increase of 611.5 billion yen or 4.2% compared with FY2019 first half)
Operating income			1,404.3 billion yen			(an increase of 142.4 billion yen or 11.3% compared with FY2019 first half)
Income before income taxes and equity in earnings of affiliated companies			1,583.4 billion yen			(an increase of 34.6 billion yen or 2.2% compared with FY2019 first half)
Net income attributable to Toyota Motor Corporation			1,274.9 billion yen			(an increase of 32.5 billion yen or 2.6% compared with FY2019 first half)

The changes in operating income and loss were as follows:

 

Marketing efforts		an increase of 185.0 billion yen
Effects of changes in exchange rates		a decrease of 90.0 billion yen
Cost reduction efforts		an increase of 60.0 billion yen
Increase or decrease in expenses and expense reduction efforts		a decrease of 120.0 billion yen
Other		an increase of 107.4 billion yen

Segment operating results

 

(i)	Automotive:

Net revenues for the automotive operations increased by 540.7 billion yen, or 4.1%, to 13,689.0 billion yen in FY2020 first half compared with FY2019 first half, and operating income increased by 49.6 billion yen, or 4.7%, to 1,114.3 billion yen in FY2020 first half compared with FY2019 first half. The increase in operating income was mainly due to increases in both production volume and vehicle unit sales.

 

(ii)	Financial services:

Net revenues for the financial services operations increased by 37.8 billion yen, or 3.6%, to 1,089.1 billion yen in FY2020 first half compared with FY2019 first half, and operating income increased by 72.8 billion yen, or 47.0%, to 227.8 billion yen in FY2020 first half compared with FY2019 first half. The increase in operating income was mainly due to the recording of valuation gains on interest rate swaps stated at fair value and the decrease in expenses related to residual value losses, in sales finance subsidiaries.

 

2

 

 

TOYOTA MOTOR CORPORATION

Analysis of Results of Operations

For the first half ended September 30, 2019

 

 

(iii)

All other:

Net revenues for all other businesses increased by 55.1 billion yen, or 7.2%, to 825.5 billion yen in FY2020 first half compared with FY2019 first half, and operating income increased by 0.7 billion yen, or 1.9%, to 41.5 billion yen in FY2020 first half compared with FY2019 first half.

Geographic information

 

(i)

Japan:

Net revenues in Japan increased by 551.5 billion yen, or 7.0%, to 8,429.4 billion yen in FY2020 first half compared with FY2019 first half, and operating income increased by 77.9 billion yen, or 10.4%, to 828.1 billion yen in FY2020 first half compared with FY2019 first half. The increase in operating income was mainly due to increases in both production volume and vehicle unit sales.

 

(ii)	North America:

Net revenues in North America increased by 87.8 billion yen, or 1.6%, to 5,515.3 billion yen in FY2020 first half compared with FY2019 first half, and operating income increased by 126.0 billion yen, or 113.6%, to 237.0 billion yen in FY2020 first half compared with FY2019 first half. The increase in operating income was mainly due to the recording of valuation gains on interest rate swaps stated at fair value and the decrease in expenses related to residual value losses, in sales finance subsidiaries.

 

(iii)

Europe:

Net revenues in Europe increased by 99.1 billion yen, or 6.3%, to 1,680.8 billion yen in FY2020 first half compared with FY2019 first half, and operating income increased by 13.7 billion yen, or 22.4%, to 74.9 billion yen in FY2020 first half compared with FY2019 first half. The increase in operating income was mainly due to the increase in vehicle unit sales.

 

(iv)

Asia:

Net revenues in Asia increased by 46.6 billion yen, or 1.8%, to 2,681.6 billion yen in FY2020 first half compared with FY2019 first half. However, operating income decreased by 61.8 billion yen, or 21.8%, to 221.6 billion yen in FY2020 first half compared with FY2019 first half. The decrease 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):

Net revenues in other regions decreased by 108.5 billion yen, or 9.0%, to 1,098.2 billion yen in FY2020 first half compared with FY2019 first half, and operating income decreased by 16.4 billion yen, or 24.9%, to 49.5 billion yen in FY2020 first half compared with FY2019 first half. The decrease in operating income was mainly due to the effects of changes in exchange rates.

 

3

 

 

TOYOTA MOTOR CORPORATION

Unaudited Consolidated Balance Sheets

At March 31, 2019 and September 30, 2019

 

 

		Yen in millions
		March 31, 2019				September 30, 2019
Assets
Current assets:
Cash and cash equivalents			3,574,704				3,979,764
Time deposits			1,126,352				1,334,616
Marketable securities			1,127,160				876,440
Trade accounts and notes receivable, less allowance for doubtful accounts			2,372,734				2,228,524
Finance receivables, net			6,647,771				6,558,020
Other receivables			568,156				549,874
Inventories			2,656,396				2,576,968
Prepaid expenses and other current assets			805,964				872,710
Total current assets			18,879,237				18,976,916
Noncurrent finance receivables, net			10,281,118				10,396,209
Investments and other assets:
Marketable securities and other securities investments			7,479,926				7,220,663
Affiliated companies			3,313,723				3,392,862
Employees receivables			21,683				21,790
Other			1,275,768				1,636,237
Total investments and other assets			12,091,100				12,271,552
Property, plant and equipment:
Land			1,386,308				1,362,252
Buildings			4,802,175				4,755,496
Machinery and equipment			11,857,425				11,791,699
Vehicles and equipment on operating leases			6,139,163				5,947,228
Construction in progress			651,713				646,680
Total property, plant and equipment, at cost			24,836,784				24,503,355
Less – Accumulated depreciation			(14,151,290	)			(13,907,954	)
Total property, plant and equipment, net			10,685,494				10,595,401
Total assets			51,936,949				52,240,078

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

 

4

 

 

TOYOTA MOTOR CORPORATION

Unaudited Consolidated Balance Sheets

At March 31, 2019 and September 30, 2019

 

 

		Yen in millions
		March 31, 2019				September 30, 2019
Liabilities
Current liabilities:
Short-term borrowings			5,344,973				5,198,456
Current portion of long-term debt			4,254,260				4,453,335
Accounts payable			2,645,984				2,546,545
Other payables			1,102,802				937,139
Accrued expenses			3,222,446				3,064,629
Income taxes payable			320,998				277,766
Other current liabilities			1,335,475				1,454,390
Total current liabilities			18,226,938				17,932,260
Long-term liabilities:
Long-term debt			10,550,945				10,340,214
Accrued pension and severance costs			963,406				969,810
Deferred income taxes			1,014,851				1,092,125
Other long-term liabilities			615,599				903,352
Total long-term liabilities			13,144,801				13,305,501
Total liabilities			31,371,739				31,237,761
Mezzanine equity
Model AA Class Shares, no par value, authorized: 150,000,000 shares at March 31, 2019 and September 30, 2019 issued: 47,100,000 shares at March 31, 2019 and September 30, 2019			498,073				501,744
Shareholders’ equity
Toyota Motor Corporation shareholders’ equity:
Common stock, no par value, authorized: 10,000,000,000 shares at March 31, 2019 and September 30, 2019 issued: 3,262,997,492 shares at March 31, 2019 and September 30, 2019			397,050				397,050
Additional paid-in capital			487,162				491,142
Retained earnings			21,987,515				22,913,956
Accumulated other comprehensive income (loss)			(916,650	)			(1,099,428	)
Treasury stock, at cost, 430,558,325 shares at March 31, 2019 and 473,914,931 shares at September 30, 2019			(2,606,925	)			(2,907,078	)
Total Toyota Motor Corporation shareholders’ equity			19,348,152				19,795,642
Noncontrolling interests			718,985				704,931
Total shareholders’ equity			20,067,137				20,500,573
Commitments and contingencies
Total liabilities, mezzanine equity and shareholders’ equity			51,936,949				52,240,078

 

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.

 

5

 

 

TOYOTA MOTOR CORPORATION

Unaudited Consolidated Statements of Income and

Unaudited Consolidated Statements of Comprehensive Income

For the first half ended September 30, 2019

 

Consolidated Statements of Income

 

		Yen in millions
		For the first half ended September 30, 2018				For the first half ended September 30, 2019
Net revenues:
Sales of products			13,638,830				14,206,661
Financing operations			1,035,176				1,078,934
Total net revenues			14,674,006				15,285,595
Costs and expenses:
Cost of products sold			11,290,626				11,840,365
Cost of financing operations			693,531				654,126
Selling, general and administrative			1,428,004				1,386,768
Total costs and expenses			13,412,161				13,881,259
Operating income			1,261,845				1,404,336
Other income (expense):
Interest and dividend income			124,778				126,221
Interest expense			(11,603	)			(14,846	)
Foreign exchange gain (loss), net			64,784				(61,167	)
Unrealized gains (losses) on equity securities			147,849				145,427
Other income (loss), net			(38,844	)			(16,486	)
Total other income (expense)			286,964				179,149
Income before income taxes and equity in earnings of affiliated companies			1,548,809				1,583,485
Provision for income taxes			473,591				474,648
Equity in earnings of affiliated companies			222,587				205,952
Net income			1,297,805				1,314,789
Less – Net income attributable to noncontrolling interests			(55,413	)			(39,813	)
Net income attributable to Toyota Motor Corporation			1,242,392				1,274,976

 

Note:

Net income attributable to common shareholders for the first half ended September 30, 2019 and 2018 is 1,266,334 million yen and 1,234,998 million yen, respectively, which is derived by deducting dividend and accretion to Model AA Class Shares of 8,642 million yen and 7,394 million yen, respectively, from Net income attributable to Toyota Motor Corporation.

 

		Yen
Net income attributable to Toyota Motor Corporation per common share
Basic			427.02				449.35
Diluted			422.68				444.98

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

 

6

 

 

TOYOTA MOTOR CORPORATION

Unaudited Consolidated Statements of Income and

Unaudited Consolidated Statements of Comprehensive Income

For the first half ended September 30, 2019

 

Consolidated Statements of Comprehensive Income

 

		Yen in millions
		For the first half ended September 30, 2018				For the first half ended September 30, 2019
Net income			1,297,805				1,314,789
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments			141,848				(251,656	)
Unrealized gains (losses) on securities			65,855				65,567
Pension liability adjustments			11,160				1,200
Total other comprehensive income (loss)			218,863				(184,889	)
Comprehensive income			1,516,668				1,129,900
Less – Comprehensive income attributable to noncontrolling interests			(57,836	)			(37,702	)
Comprehensive income attributable to Toyota Motor Corporation			1,458,832				1,092,198

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

 

7

 

 

TOYOTA MOTOR CORPORATION

Unaudited Consolidated Statements of Income and

Unaudited Consolidated Statements of Comprehensive Income

For the second quarter ended September 30, 2019

 

Consolidated Statements of Income

 

		Yen in millions
		For the second quarter ended September 30, 2018				For the second quarter ended September 30, 2019
Net revenues:
Sales of products			6,784,867				7,102,868
Financing operations			526,406				536,636
Total net revenues			7,311,273				7,639,504
Costs and expenses:
Cost of products sold			5,650,630				5,970,713
Cost of financing operations			345,376				313,688
Selling, general and administrative			736,109				692,718
Total costs and expenses			6,732,115				6,977,119
Operating income			579,158				662,385
Other income (expense):
Interest and dividend income			36,890				51,830
Interest expense			(8,164	)			(10,495	)
Foreign exchange gain (loss), net			25,568				(3,159	)
Unrealized gains (losses) on equity securities			112,816				54,656
Other income (loss), net			(11,323	)			(13,482	)
Total other income (expense)			155,787				79,350
Income before income taxes and equity in earnings of affiliated companies			734,945				741,735
Provision for income taxes			227,428				225,019
Equity in earnings of affiliated companies			106,052				96,399
Net income			613,569				613,115
Less – Net income attributable to noncontrolling interests			(28,483	)			(21,113	)
Net income attributable to Toyota Motor Corporation			585,086				592,002

 

Note:

Net income attributable to common shareholders for the second quarter ended September 30, 2019 and 2018 is 587,681 million yen and 581,389 million yen, respectively, which is derived by deducting dividend and accretion to Model AA Class Shares of 4,321 million yen and 3,697 million yen, respectively, from Net income attributable to Toyota Motor Corporation.

 

		Yen
Net income attributable to Toyota Motor Corporation per common share
Basic			202.20				209.49
Diluted			200.21				207.55

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

 

8

 

 

TOYOTA MOTOR CORPORATION

Unaudited Consolidated Statements of Income and

Unaudited Consolidated Statements of Comprehensive Income

For the second quarter ended September 30, 2019

 

Consolidated Statements of Comprehensive Income

 

		Yen in millions
		For the second quarter ended September 30, 2018				For the second quarter ended September 30, 2019
Net income			613,569				613,115
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments			91,139				(108,650	)
Unrealized gains (losses) on securities			65,771				25,114
Pension liability adjustments			3,715				3,762
Total other comprehensive income (loss)			160,625				(79,774	)
Comprehensive income			774,194				533,341
Less – Comprehensive income attributable to noncontrolling interests			(35,000	)			(18,278	)
Comprehensive income attributable to Toyota Motor Corporation			739,194				515,063

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

 

9

 

 

TOYOTA MOTOR CORPORATION

Unaudited Condensed Consolidated Statements of Cash Flows

For the first half ended September 30, 2019

 

 

		Yen in millions
		For the first half ended September 30, 2018				For the first half ended September 30, 2019
Cash flows from operating activities:
Net income			1,297,805				1,314,789
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			865,307				784,057
Provision (reversal) for doubtful accounts and credit losses			28,999				34,712
Pension and severance costs, less payments			10,161				12,730
Losses on disposal of fixed assets			19,093				24,704
Unrealized losses (gains) on securities			(143,474	)			(154,755	)
Deferred income taxes			65,051				117,807
Equity in earnings of affiliated companies			(222,587	)			(205,952	)
Changes in operating assets and liabilities, and other			(94,167	)			139,473
Net cash provided by operating activities			1,826,188				2,067,565
Cash flows from investing activities:
Additions to finance receivables			(7,878,662	)			(8,434,132	)
Collection of and proceeds from sales of finance receivables			7,358,000				7,752,495
Additions to fixed assets excluding equipment leased to others			(717,435	)			(725,081	)
Additions to equipment leased to others			(1,204,802	)			(1,191,812	)
Proceeds from sales of fixed assets excluding equipment leased to others			26,237				17,747
Proceeds from sales of equipment leased to others			693,712				727,935
Purchases of marketable securities and security investments			(1,089,727	)			(649,927	)
Proceeds from sales of and maturity of marketable securities and security investments			1,289,729				1,241,524
Changes in investments and other assets, and other			(331,318	)			(230,220	)
Net cash used in investing activities			(1,854,266	)			(1,491,471	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			3,037,778				2,670,506
Payments of long-term debt			(2,201,865	)			(2,162,617	)
Increase in short-term borrowings			13,205				60,976
Dividends paid to Toyota Motor Corporation class shareholders			(3,721	)			(4,969	)
Dividends paid to Toyota Motor Corporation common shareholders			(349,191	)			(339,893	)
Dividends paid to noncontrolling interests			(42,240	)			(38,631	)
Reissuance (repurchase) of treasury stock			(299,595	)			(300,154	)
Net cash provided by (used in) financing activities			154,371				(114,782	)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents			36,933				(68,017	)
Net increase in cash and cash equivalents and restricted cash and cash equivalents			163,226				393,295
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period			3,219,639				3,706,515
Cash and cash equivalents and restricted cash and cash equivalents at end of period			3,382,865				4,099,810

 

Note:

Cash and cash equivalents and restricted cash and cash equivalents for the first half ended September 30, 2019 include restricted cash and cash equivalents of 131,811 million yen and 120,046 million yen at the beginning of the period and the end of the period, respectively. Restricted cash and cash equivalents were included in Prepaid expenses and other current assets in the consolidated balance sheets.

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

 

10

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

1.	Basis of preparation:

The accompanying unaudited condensed consolidated financial statements of Toyota Motor Corporation (the “parent company”) as of and for the periods ended September 30, 2019, have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.GAAP”) and on substantially the same basis as its annual consolidated financial statements except for certain required disclosures for interim periods which have been omitted. The unaudited condensed consolidated financial statements should be read in conjunction with the Annual Report on Form 20-F for the year ended March 31, 2019. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the result for that period and the financial condition at that date. The consolidated results for the six-month and the three-month periods are not necessarily indicative of results to be expected for the full year.

 

2.	Accounting changes and recent pronouncements to be adopted in future periods:

Accounting changes -

Adoption of new accounting standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance for leases. This guidance requires lessees to recognize substantially all leases on their balance sheet as a right-of-use asset and a lease liability. The parent company and its consolidated subsidiaries (“Toyota”) adopted this guidance on April 1, 2019 using the modified retrospective method of adoption and elected the transition method that allows for application of the standard at the adoption date. Additionally, Toyota elected the package of practical expedients of not reassessing lease classifications and others for lease contracts that expired or exist as of the adoption date. As a result of adoption, Toyota recognized an additional balance of ¥334,555 million as right-of-use assets as of September 30, 2019, which is included in “Other” of “Investments and other assets” of Toyota’s consolidated balance sheet. Lease liabilities are included in “Other current liabilities” and “Other long-term liabilities,” and were ¥60,551 million and ¥273,799 million, respectively.

In August 2017, the FASB issued updated guidance for hedge accounting. This guidance simplifies and expands the application of hedge accounting. Toyota adopted this guidance on April 1, 2019. The adoption of this guidance did not have a material impact on Toyota’s consolidated financial statements.

 

11

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

Change in depreciation method

Toyota used the declining-balance method mainly for the parent company and Japanese subsidiaries, and the straight-line method for foreign subsidiary companies, regarding the depreciation method of property, plant and equipment. In recent years, Toyota has been strengthening competitiveness globally through the investments in areas such as the remodeling of cars by introducing a new platform and powertrain units, the improvement of technological capabilities and productivity, as well as the promotion of equipment versatility. In response to such recent changes, effective as of April 1, 2019, Toyota changed the depreciation method of the parent company and Japanese subsidiaries to the straight-line method because Toyota believes it better reflects the future economic benefit from the stable usage of property, plant and equipment. The impact of the change in depreciation method is recognized prospectively as a change in accounting estimate in accordance with the FASB Accounting Standards Codification (“ASC”) 250 “Accounting Changes and Error Corrections.”

As a result of the change in depreciation method, depreciation expense for the first half ended September 30, 2019 decreased by ¥80,555 million. Net income attributable to Toyota Motor Corporation and basic net income attributable to Toyota Motor Corporation per common share for the first half ended September 30, 2019 increased by ¥54,246 million and ¥19.25, respectively.

Recent pronouncements to be adopted in future periods -

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.

In August 2018, the FASB issued updated guidance for fair value measurements. This guidance adds, removes and modifies fair value measurement disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is evaluating the potential impacts of this guidance on Toyota’s disclosures.

 

3.	Accounting procedures specific to quarterly consolidated financial statements:

Provision for income taxes -

The provision for income taxes is computed by multiplying income before income taxes and equity in earnings of affiliated companies for the first half by estimated annual effective tax rates. These estimated annual effective tax rates reflect anticipated investment tax credits, foreign tax credits and other items, including changes in valuation allowances, that are expected to affect estimated annual effective tax rates.

 

12

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

4.	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 first half and the second quarter ended September 30, 2018 and 2019, 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.

 

13

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

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, 2019 and September 30, 2019:

 

		Yen in millions
		March 31, 2019				September 30, 2019
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			—				—
Total			—				—
Undesignated derivative financial instruments
Interest rate and currency swap agreements
Prepaid expenses and other current assets			74,971				59,551
Investments and other assets - Other			114,642				170,599
Total			189,613				230,150
Foreign exchange forward and option contracts
Prepaid expenses and other current assets			10,720				12,663
Investments and other assets - Other			—				—
Total			10,720				12,663
Total derivative assets			200,333				242,813
Counterparty netting			(89,364	)			(91,702	)
Collateral received			(46,590	)			(61,020	)
Carrying value of derivative assets			64,379				90,091
Derivative liabilities
Derivative financial instruments designated as hedging instruments
Interest rate and currency swap agreements
Other current liabilities			—				—
Other long-term liabilities			—				—
Total			—				—
Undesignated derivative financial instruments
Interest rate and currency swap agreements
Other current liabilities			(28,911	)			(54,320	)
Other long-term liabilities			(189,157	)			(254,593	)
Total			(218,068	)			(308,913	)
Foreign exchange forward and option contracts
Other current liabilities			(13,847	)			(10,078	)
Other long-term liabilities			—				—
Total			(13,847	)			(10,078	)
Total derivative liabilities			(231,915	)			(318,991	)
Counterparty netting			89,364				91,702
Collateral posted			110,159				171,132
Carrying value of derivative liabilities			(32,392	)			(56,157	)

 

14

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

The following table summarizes the notional amounts of derivative financial instruments as of March 31, 2019 and September 30, 2019:

 

		Yen in millions
		March 31, 2019								September 30, 2019
		Designated derivative financial instruments				Undesignated derivative financial instruments				Designated derivative financial instruments				Undesignated derivative financial instruments
Interest rate and currency swap agreements			—				21,001,883				—				20,255,096
Foreign exchange forward and option contracts			—				4,005,578				—				3,556,199
Total			—				25,007,461				—				23,811,295
The following table summarizes the gains and losses on derivative financial instruments and hedged items reported in the consolidated statements of income for the first half and the second quarter ended September 30, 2018 and 2019:
		Yen in millions
		For the first half ended September 30, 2018								For the first half ended September 30, 2019
		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			(817	)			795				—				—
Undesignated derivative financial instruments
Interest rate and currency swap agreements
Cost of financing operations			(14,199	)							(34,634	)
Foreign exchange gain (loss), net			43,344								14,512
Foreign exchange forward and option contracts
Cost of financing operations			273								3,023
Foreign exchange gain (loss), net			(80,793	)							27,504

 

15

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

		Yen in millions
		For the second quarter ended September 30, 2018								For the second quarter ended September 30, 2019
		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			(170	)			165				—				—
Undesignated derivative financial instruments
Interest rate and currency swap agreements
Cost of financing operations			(22,392	)							(11,975	)
Foreign exchange gain (loss), net			16,127								34,217
Foreign exchange forward and option contracts
Cost of financing operations			(3,468	)							7,903
Foreign exchange gain (loss), net			(36,703	)							2,467

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.

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 September 30, 2019 is ¥7,291 million. The aggregate fair value amount of assets that are already posted as cash collateral as of September 30, 2019 is ¥166,686 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 ¥7,291 million as of September 30, 2019.

 

16

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

5.	Contingencies:

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. 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 September 30, 2019 is ¥3,286,254 million. Liabilities for guarantees totaling ¥9,638 million have been provided as of September 30, 2019. 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. Personal injury and wrongful death claims involving allegations of unintended acceleration are still 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. The court approved the settlement on October 31, 2017, and the subsequent appeals have been withdrawn, making the settlement final. The economic loss class action lawsuits against Toyota have been dismissed. Toyota and other automakers have also been named in certain class actions filed in Mexico, Canada, Australia, Israel and Brazil, as well as some other actions by states or territories of the United States. Those actions have not been settled and are being litigated.

 

17

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

Toyota self-reported a process gap in fulfilling certain emissions defect information reporting requirements of 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 the EPA and the Civil Division of the Southern District of New York (“SDNY”) on this reporting issue. These agencies 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.

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.

 

18

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

6.	Segment data:

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

The major portions of Toyota’s operations on a worldwide basis are derived from the Automotive and Financial Services business segments. The Automotive segment designs, manufactures 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 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 for the first half and the second quarter ended September 30, 2018 and 2019.

Segment operating results -

For the first half ended September 30, 2018:

 

		Yen in millions
		Automotive				Financial Services				All Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			13,130,498				1,035,176				508,332				—				14,674,006
Inter-segment sales and transfers			17,812				16,124				262,069				(296,005	)			—
Total			13,148,310				1,051,300				770,401				(296,005	)			14,674,006
Operating expenses			12,083,557				896,309				729,581				(297,286	)			13,412,161
Operating income			1,064,753				154,991				40,820				1,281				1,261,845
For the first half ended September 30, 2019:
		Yen in millions
		Automotive				Financial Services				All Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			13,674,203				1,078,934				532,458				—				15,285,595
Inter-segment sales and transfers			14,891				10,239				293,099				(318,229	)			—
Total			13,689,094				1,089,173				825,557				(318,229	)			15,285,595
Operating expenses			12,574,737				861,291				783,968				(338,737	)			13,881,259
Operating income			1,114,357				227,882				41,589				20,508				1,404,336

 

19

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

For the second quarter ended September 30, 2018:

 

		Yen in millions
		Automotive				Financial Services				All Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			6,505,842				526,406				279,025				—				7,311,273
Inter-segment sales and transfers			9,037				8,039				133,289				(150,365	)			—
Total			6,514,879				534,445				412,314				(150,365	)			7,311,273
Operating expenses			6,052,667				453,010				382,956				(156,518	)			6,732,115
Operating income			462,212				81,435				29,358				6,153				579,158
For the second quarter ended September 30, 2019:
		Yen in millions
		Automotive				Financial Services				All Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			6,800,413				536,636				302,455				—				7,639,504
Inter-segment sales and transfers			7,763				4,796				152,497				(165,056	)			—
Total			6,808,176				541,432				454,952				(165,056	)			7,639,504
Operating expenses			6,315,265				421,759				427,136				(187,041	)			6,977,119
Operating income			492,911				119,673				27,816				21,985				662,385

 

20

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

Geographic information -

For the first half ended September 30, 2018:

 

		Yen in millions
		Japan				North America				Europe				Asia				Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			4,414,521				5,317,988				1,500,719				2,276,465				1,164,313				—				14,674,006
Inter-segment sales and transfers			3,463,328				109,577				81,006				358,524				42,533				(4,054,968	)			—
Total			7,877,849				5,427,565				1,581,725				2,634,989				1,206,846				(4,054,968	)			14,674,006
Operating expenses			7,127,644				5,316,603				1,520,460				2,351,500				1,140,874				(4,044,920	)			13,412,161
Operating income			750,205				110,962				61,265				283,489				65,972				(10,048	)			1,261,845
For the first half ended September 30, 2019:
		Yen in millions
		Japan				North America				Europe				Asia				Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			4,840,678				5,408,594				1,568,869				2,420,126				1,047,328				—				15,285,595
Inter-segment sales and transfers			3,588,745				106,774				112,007				261,505				50,927				(4,119,958	)			—
Total			8,429,423				5,515,368				1,680,876				2,681,631				1,098,255				(4,119,958	)			15,285,595
Operating expenses			7,601,247				5,278,333				1,605,900				2,459,986				1,048,704				(4,112,911	)			13,881,259
Operating income			828,176				237,035				74,976				221,645				49,551				(7,047	)			1,404,336

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

 

21

 

 

TOYOTA MOTOR CORPORATION

Notes to Unaudited Consolidated Financial Statements

 

 

For the second quarter ended September 30, 2018:

 

		Yen in millions
		Japan				North America				Europe				Asia				Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			2,267,637				2,582,179				753,158				1,121,043				587,256				—				7,311,273
Inter-segment sales and transfers			1,744,720				54,285				42,668				197,670				21,132				(2,060,475	)			—
Total			4,012,357				2,636,464				795,826				1,318,713				608,388				(2,060,475	)			7,311,273
Operating expenses			3,658,132				2,589,050				757,647				1,181,556				585,671				(2,039,941	)			6,732,115
Operating income			354,225				47,414				38,179				137,157				22,717				(20,534	)			579,158
For the second quarter ended September 30, 2019:
		Yen in millions
		Japan				North America				Europe				Asia				Other				Inter-segment Elimination				Consolidated
Net revenues
Sales to external customers			2,489,050				2,627,131				759,268				1,241,745				522,310				—				7,639,504
Inter-segment sales and transfers			1,761,814				54,645				59,473				125,562				25,910				(2,027,404	)			—
Total			4,250,864				2,681,776				818,741				1,367,307				548,220				(2,027,404	)			7,639,504
Operating expenses			3,859,525				2,563,724				781,559				1,256,651				521,495				(2,005,835	)			6,977,119
Operating income			391,339				118,052				37,182				110,656				26,725				(21,569	)			662,385

“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.

Transfers between industry or geographic segments are made at terms and conditions in the ordinary course of business. In measuring the reportable segments’ income or losses, operating income consists of revenue less operating expenses.

 

22