ToyotaMotor Corporation competes in the automotive industry. Founded in 1937, Toyota Motor Corporation is aJapanese company that engages in the design, manufacture, assembly, and sale ofpassenger cars, minivans, commercial vehicles, and related parts andaccessories primarily in Japan, North America, Europe, and Asia. Current brands include Toyota, Lexus, Daihatsuand Hino.
Toyota Motor Corporation isthe leading auto manufacturer and the eighth largest company in the world. As of March 31, 2017, Toyota MotorCorporation’s annual revenue was $229 billion and it employed 364,445 people. The productionof Toyota automobiles was started in 1933 as a division of Toyoda Automatic Loom Works devotedto the production of automobiles under the direction of the founder’sson, Kiichiro Toyoda. Its first vehicles were the A1 passenger car and the G1 in 1935. Since then Toyota started to design vehiclesmainly small sized vehicles under the name Toyopet. The first vehicle soldunder this name was the Toyopet SA, but it alsoincluded vehicles such as the Toyopet SB lighttruck, Toyopet Stout lighttruck, Toyopet Crown, Toyopet Master, and the Toyopet Corona. However whenthey entered the United States market in 1957 the name was not well received byconsumers because of it connotations to toys and pets. That is when they decided to change the nameto Toyota Motors.
ToyotaMotors current assets on the balance sheet include the cash and cashequivalents, marketable securities, accounts and notes receivable, financialreceivables, inventories, equipment on operating leases and other currentassets. Toyota cash and cash equivalent include all highly liquid investments withoriginal maturities of three months or less, that are readily convertible toknown amounts of cash and are so near maturity that they present insignificantrisk of changes in value because of changes in interest rates. The inventories of Toyota 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 subsidiarycompanies 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 and2017, 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 millionhigher than reported at March 31, 2016 and 2017, respectively. Marketable securities consist of debt andequity securities. Debt and equitysecurities designated as available-for-sale are carried at fair value withunrealized gains or losses included as a component of accumulated othercomprehensive income in shareholders’ equity, net of applicable taxes. Individual securities classified asavailable-for-sale are reduced to net realizable value for other-than-temporarydeclines in market value.
In determiningif a decline in value is other-than-temporary, Toyota considers the length oftime and the extent to which the fair value has been less than the carryingvalue, the financial condition and prospects of the company and Toyota’sability and intent to retain its investment in the company for a period of timesufficient to allow for any anticipated recovery in market value. Realized gains and losses, which aredetermined on the average-cost method, are reflected in the consolidatedstatements of income when realized. Financereceivables recorded on Toyota’s consolidated balance sheets are comprised ofthe unpaid principal balance, plus accrued interest, less charge-offs, net ofany unearned income and deferred origination costs and the allowance for creditlosses. Deferred origination costs are amortized so as to approximate a levelrate of return over the term of the related contracts.
Toyotas noncurrent assets mainly consistof property plants and equipment and Goodwill and intangible assets. Toyota’s Property,plant and equipment are stated at cost. Majorrenewals and improvements are capitalized; minor replacements, maintenance andrepairs are charged to current operations. Depreciation of property, plant and equipmentis mainly computed on the declining-balance method for the parent company andJapanese subsidiaries and on the straight-line method for foreign subsidiarycompanies at rates based on estimated useful lives of the respective assetsaccording to general class, type of construction and use. The estimated useful lives range from 2 to 65years for buildings and from 2 to 20 years for machinery and equipment. Vehicles and equipment on operating leases tothird parties are originated by dealers and acquired by certain consolidatedsubsidiaries. Such subsidiaries are alsothe lessors of certain property that they acquire directly. Vehicles and equipment on operating leases aredepreciated primarily on a straight-line method over the lease term, generallyfrom 2 to 5 years, to the estimated residual value.
Incremental direct costs incurred inconnection with the acquisition of operating lease contracts are capitalizedand amortized on a straight-line method over the lease term. The goodwill is not material to Toyota’sconsolidated balance sheets. Intangibleassets consist mainly of software. Intangibleassets with a definite life are amortized on a straight-line basis withestimated useful lives mainly of 5 years. Intangible assets with an indefinite life aretested for impairment whenever events or circumstances indicate that a carryingamount of an asset (asset group) may not be recoverable. An impairment loss would be recognized when thecarrying amount of an asset exceeds the estimated undiscounted cash flows usedin determining the fair value of the asset.
The amount of the impairment loss to berecorded is generally determined by the difference between the fair value ofthe asset using a discounted cash flow valuation method and the current bookvalue.Toyota’s liabilities mainly consist of short-term borrowingand long-term debt. For Toyota the fairvalues of short-term borrowings and long-term debt including the currentportion, except for secured loans provided by securitization transactions usingspecial-purpose entities, are estimated based on the discounted amounts offuture cash flows using Toyota’s current borrowing rates for similarliabilities. As these inputs areobservable, these debts are classified in Level 2. The fair values of the secured loans providedby securitization transactions are estimated based on current market rates andcredit spreads for debt with similar maturities.
Internal assumptions including prepayment speedsand expected credit losses are used to estimate the timing of cash flows to bepaid on the underlying securitized assets. As these valuations utilize unobservableinputs, the secured loans are classified in Level 3. See note 11 to the consolidated financialstatements for information regarding the secured loans. Accrued pension cost isincluded in the liabilities of Toyota that is basically the employee benefitsobligation. Toyota has both defined benefit anddefined contribution plans for employees’ retirement benefits. Retirementbenefit obligations are measured by actuarial calculations in accordance withU.S.
GAAP. The funded status of thedefined benefit postretirement plans is recognized on the consolidated balancesheets as prepaid pension and severance costs or accrued pension and severancecosts, and the funded status change is recognized in the year in which itoccurs through other comprehensive income. Revenuesfrom sales of vehicles and parts for Toyota are generally recognized upondelivery which is considered to have occurred when the dealer has taken titleto the product and the risk and reward of ownership have been substantivelytransferred, Toyota’s sales incentive programs principally consist of cash paymentsto dealers calculated based on vehicle volume or a model sold by a dealerduring a certain period of time. Toyota accrues these incentives as revenuereductions upon the sale of a vehicle corresponding to the program by theamount determined in the related incentive program.
Revenues from the sales of vehicles underwhich Toyota conditionally guarantees the minimum resale value are recognizedon a pro rata basis from the date of sale to the first exercise date of theguarantee in a manner similar to operating lease accounting. The underlying vehicles of these transactionsare recorded as assets and are depreciated in accordance with Toyota’sdepreciation policy. Revenues fromretail financing contracts and finance leases are recognized using theeffective yield method. Revenues fromoperating leases are recognized on a straight-line basis over the lease term. The sale of certain vehicles includes adeterminable amount for the contract, which entitles customers to free vehiclemaintenance.
Such revenues from freemaintenance contracts are deferred and recognized as revenue over the period ofthe contract, which approximates the pattern of the related costs.According to Pricewaterhouse Coopers LLC the consolidated financial statements listed in theaccompanying index present fairly, in all material respects, the financialposition of Toyota Motor Corporation and its subsidiaries at March 31,2016 and 2017, and the results of their operations and their cash flows foreach of the three years in the period ended March 31, 2017 in conformitywith accounting principles generally accepted in the United States of America. Also in their opinion, the Company maintained,in all material respects, effective internal control over financial reportingas of March 31, 2017, based on criteria established in Internal Control—IntegratedFramework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). General Motors, incorporated as aDelaware corporation in 2009, is a domestic car and truck manufacturingcompany.
Operating in a motor vehicleindustry that focuses on meeting the demands of North American customers,General Motors designs, builds, and sell and lease a variety of vehicles,including cars, trucks, crossovers, and automobile parts worldwide. Due to the competitive market GM is apart of,they appease consumers with certain preferences, such as vehicle design, price,quality, available options, safety, reliability, fuel economy andfunctionality. General Motor’s current assets onthe balance sheet include cash and equivalents, marketable securities, accountsand notes receivable, financial receivables, inventories, equipment onoperating leases and other current assets.
GM cash equivalents are short-term, liquid investments withoriginal maturities of 90 days or less. Inventories are stated at the lower of cost or net realizable value (theestimated selling price in the ordinary course of business less cost to sell). The net realizable value for off-lease andother vehicles is current auction sales proceeds less disposal and warrantycosts. Equipment on operating leases,net is reported at cost, less accumulated depreciation and impairment, net oforigination fees or costs and lease incentives. Estimated income from operating lease assetsequals net of lease origination costs. This is recorded as operating lease revenue on a straight-line basisover the term of the lease agreement.
Leasedvehicles are depreciated on a straight-line basis to an estimated residualvalue over the term of the lease agreements. GeneralMotor’s noncurrent assets on the balance sheet include financial receivables,property, goodwill and intangible assets, deferred incomes taxes, and otherassets. GM records property, plant and equipment at cost. Improvements to PP that extend theuseful life or add functionality are capitalized. The gross amount of assets under capitalleases is included in PP.
Expenditures for repairs and maintenance are charged to expense asincurred. GM depreciates all depreciableproperty using the straight-line method. Leasehold improvements are amortized over the shorter of: the period oflease or the life of the asset. Theamortization of the assets under capital leases is included in depreciationexpense. Upon retirement or dispositionof property, plant and equipment, the cost and related accumulated depreciationare eliminated and any resulting gain or loss is recorded in earnings.
GM intangible assets include brand names,technology and intellectual property, customer relationships and dealernetworks. Intangible assets areamortized on a straight-line or an accelerated method of amortization overtheir estimated useful lives. Impairmentcharges related to intangible assets are recorded in automotive selling,general and administrative expense or automotive cost of sales. Amortization of developed technology andintellectual property is recorded in automotive cost of sales. Amortization of brand names, customerrelationships and our dealer networks is recorded in automotive selling, generaland administrative expense or GM Financial interest, operating and otherexpenses.
GeneralMotor’s current liabilities include accounts payable, short-term debt andcurrent portion of long-term debt, and accrued liabilities. Automotive debt’s fair value is based onquoted prices in active markets for identical instruments that a marketparticipant can access at the measurement date. The fair value of automotivedebt is based on a discounted cash flow model using observable inputs. GeneralMotor’s non-current liabilities include long-term debt, postretirement benefitsother than pensions, pensions, and other liabilities. Benefit pension plans covering eligible U.S.hourly employees provide benefits of negotiated, stated amounts for each yearof service and supplemental benefits for employees who retire with 30 years ofservice before normal retirement age.
The benefits provided by the definedbenefit pension plans covers salary eligible U.S. hired and Canadian employeesare generally on years of service and compensation history. The funding policyfor qualified defined benefit pension plans is to contribute annually not lessthan the minimum required by applicable laws and regulations or to directly paybenefit payments where appropriate.
Accordingto General Motor’s 10K, GM had about 1.5 billion shares of common stock issuedand outstanding at the end of fiscal year 2016. Holders of the GM stock were authorized to dividends at the choice ofthe Board of Directors.
Their dividend declared per common share was $1.52 andtotal dividends paid on common stock were $2.3 billion on December 31, 2016. Deloitte& Touche LLP completed General Motor’s audit report and gave an unqualifiedopinion for fiscal ending December 31, 2016. Deloitte concluded that the consolidated financial statements werepresented fairly and in conformity with accounting principles generallyaccepted accounting principals. Deloitte’s opinion also included the GeneralMotor’s effective internal control over financial reporting based on thecriteria established internal control.