-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N30wRsQR1kSj/LmLcyPoF8QCDp1ewBMpn9nEfYG8SNZtEK+d4I3r2q8QjeSAapWT TjYOIhyRl+I/ojpFDVcMYA== /in/edgar/work/20000811/0000834071-00-000025/0000834071-00-000025.txt : 20000921 0000834071-00-000025.hdr.sgml : 20000921 ACCESSION NUMBER: 0000834071-00-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOYOTA MOTOR CREDIT CORP CENTRAL INDEX KEY: 0000834071 STANDARD INDUSTRIAL CLASSIFICATION: [6141 ] IRS NUMBER: 953775816 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09961 FILM NUMBER: 693302 BUSINESS ADDRESS: STREET 1: 19001 S WESTERN AVE STREET 2: PO BOX 2958 FN12 CITY: TORRANCE STATE: CA ZIP: 90509-2958 BUSINESS PHONE: 3107871310 MAIL ADDRESS: STREET 1: 19001 S WESTERN AVE CITY: TORRANCE STATE: CA ZIP: 90509 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission file number 1-9961 ---------- TOYOTA MOTOR CREDIT CORPORATION - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3775816 - ---------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19001 S. Western Avenue Torrance, California 90509 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 787-1310 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of July 31, 2000, the number of outstanding shares of capital stock, par value $10,000 per share, of the registrant was 91,500, all of which shares were held by Toyota Motor Sales, U.S.A., Inc. -1- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Millions)
June 30, September 30, June 30, 2000 1999 1999 ------------ ------------- ------------ (Unaudited) (Unaudited) ASSETS ------ Cash and cash equivalents................. $ 161 $ 180 $ 184 Investments in marketable securities...... 890 450 439 Finance receivables, net.................. 16,787 13,856 13,508 Investments in operating leases, net...... 8,151 8,605 8,795 Receivable from Parent.................... 189 717 207 Other receivables......................... 466 366 218 Deferred charges.......................... 125 131 133 Other assets.............................. 275 242 223 Income taxes receivable................... - 31 - ------- ------- ------- Total Assets..................... $27,044 $24,578 $23,707 ======= ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Notes and loans payable................... $20,475 $18,565 $17,565 Accrued interest.......................... 151 161 122 Accounts payable and accrued expenses..... 1,645 1,096 1,432 Deposits.................................. 172 201 213 Income taxes payable...................... 45 - 77 Deferred income........................... 663 636 606 Deferred income taxes..................... 1,445 1,554 1,350 ------- ------- ------- Total Liabilities................... 24,596 22,213 21,365 ------- ------- ------- Commitments and Contingencies Shareholder's Equity: Capital stock, $l0,000 par value (100,000 shares authorized; 91,500 issued and outstanding)............. 915 915 915 Retained earnings...................... 1,515 1,435 1,405 Accumulated other comprehensive income.............................. 18 15 22 ------- ------- ------- Total Shareholder's Equity.......... 2,448 2,365 2,342 ------- ------- ------- Total Liabilities and Shareholder's Equity............. $27,044 $24,578 $23,707 ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements. -2- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Millions)
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ------ ------ ------ ------ (Unaudited) Financing Revenues: Leasing................................. $ 606 $ 591 $1,788 $1,810 Retail financing........................ 211 169 588 492 Wholesale and other dealer financing.... 44 28 112 77 ------ ------ ------ ------ Total financing revenues................... 861 788 2,488 2,379 Depreciation on leases.................. 322 410 1,072 1,268 Interest expense........................ 347 230 941 690 ------ ------ ------ ------ Net financing revenues..................... 192 148 475 421 Insurance premiums earned and contract revenues................................ 35 31 103 89 Investment and other income................ 22 18 62 62 Loss on asset impairment................... 60 - 74 - ------ ----- ------ ------ Net financing revenues and other revenues.. 189 197 566 572 ------ ------ ------ ------ Expenses: Operating and administrative............ 104 94 297 272 Provision for credit losses............. 29 20 89 79 Insurance losses and loss adjustment expenses............................. 21 15 59 45 ------ ------ ------ ------ Total expenses............................. 154 129 445 396 ------ ------ ------ ------ Income before income taxes................. 35 68 121 176 Provision for income taxes................. 11 29 40 74 Equity in net loss of subsidiary........... 1 - 1 - ------ ------ ------ ------ Net Income................................. $ 23 $ 39 $ 80 $ 102 ====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements. -3- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (Dollars in Millions)
Accumulated Other Capital Retained Comprehensive Stock Earnings Income Total ------- -------- ------------- ------- Balance at September 30, 1998.... $ 915 $ 1,303 $ 13 $2,231 ------ ------- ---------- ------ Net income for the nine months ended June 30, 1999........... - 102 - 102 Change in net unrealized gains on available-for-sale marketable securities......... - - 9 9 ------ -------- ---------- ------ Total Comprehensive Income - 102 9 111 ------ -------- ---------- ------ Balance at June 30, 1999......... $ 915 $ 1,405 $ 22 $2,342 ====== ======= ========== ====== Balance at September 30, 1999.... $ 915 $ 1,435 $ 15 $2,365 ------ ------- ---------- ------ Net income for the nine months ended June 30, 2000........... - 80 - 80 Change in net unrealized gains on available-for-sale marketable securities......... - - 3 3 ------ -------- ---------- ------ Total Comprehensive Income - 80 3 83 ------ -------- ---------- ------ Balance at June 30, 2000......... $ 915 $ 1,515 $ 18 $2,448 ====== ======= ========== ======
See Accompanying Notes to Consolidated Financial Statements. -4- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Millions)
Nine Months Ended June 30, -------------------------- 2000 1999 ------ ------ (Unaudited) Cash flows from operating activities: Net income............................................ $ 80 $ 102 ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 1,167 1,301 Provision for credit losses..................... 89 79 Gain from sale of finance receivables, net...... (6) (9) Realized loss on asset impairment............... 74 - (Increase) decrease in other assets.............. (26) 314 Decrease in accrued interest.................... (10) (54) Decrease in deferred income taxes............... (102) (36) Increase in other liabilities................... 134 121 ------ ------ Total adjustments..................................... 1,320 1,716 ------ ------ Net cash provided by operating activities................ 1,400 1,818 ------ ------ Cash flows from investing activities: Addition to investments in marketable securities...... (1,047) (551) Disposition of investments in marketable securities... 598 561 Purchase of finance receivables....................... (18,621) (14,949) Liquidation of finance receivables.................... 14,121 11,836 Proceeds from sale of finance receivables............. 1,476 1,022 Addition to investments in operating leases........... (2,336) (2,613) Disposition of investments in operating leases........ 1,694 2,351 Change in receivable from Parent...................... 466 71 ------ ------ Net cash used in investing activities.................... (3,649) (2,272) ------ ------ Cash flows from financing activities: Proceeds from issuance of notes and loans payable..... 5,029 4,546 Payments on notes and loans payable................... (3,562) (3,689) Net increase (decrease) in commercial paper with original maturities less than 90 days.............. 763 (375) ------ ------ Net cash provided by financing activities................ 2,230 482 ------ ------ Net (decrease) increase in cash and cash equivalents..... (19) 28 Cash and cash equivalents at the beginning of the period. 180 156 ------ ------ Cash and cash equivalents at the end of the period....... $ 161 $ 184 ====== ====== Supplemental disclosures: Interest paid......................................... $ 936 $ 762 Income taxes paid..................................... $ 20 $ 17
See Accompanying Notes to Consolidated Financial Statements. -5- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Interim Financial Data - ------------------------------- Information pertaining to the three and nine months ended June 30, 2000 and 1999 is unaudited. In the opinion of management, the unaudited financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and nine months ended June 30, 2000 are not necessarily indicative of those expected for any other interim period or for a full year. Certain June 1999 accounts have been reclassified to conform with the June 2000 and September 1999 presentation. These financial statements should be read in conjunction with the consolidated financial statements, significant accounting policies and other notes to the consolidated financial statements included in Toyota Motor Credit Corporation's ("TMCC's" or the "Company's") 1999 Annual Report to the Securities and Exchange Commission ("SEC")on Form 10-K. -6- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Finance Receivables - ---------------------------- Finance receivables, net consisted of the following:
June 30, September 30, June 30, 2000 1999 1999 -------- ------------- -------- (Dollars in Millions) Retail................................... $ 9,961 $ 9,524 $ 9,561 Finance leases........................... 6,047 4,065 3,361 Wholesale and other dealer loans......... 2,167 1,292 1,529 ------- ------- ------- 18,175 14,881 14,451 Unearned income.......................... (1,237) (888) (795) Allowance for credit losses.............. (151) (137) (148) ------- ------- ------- Finance receivables, net.............. $16,787 $13,856 $13,508 ======= ======= =======
Finance leases included estimated unguaranteed residual values of $1,188 million, $823 million and $715 million at June 30, 2000, September 30, 1999 and June 30, 1999, respectively. The aggregate balances related to finance receivables 60 or more days past due totaled $32 million, $20 million and $19 million at June 30, 2000, September 30, 1999 and June 30, 1999, respectively. Note 3 - Investments in Operating Leases - ---------------------------------------- Investments in operating leases, net consisted of the following:
June 30, September 30, June 30, 2000 1999 1999 -------- ------------- -------- (Dollars in Millions) Vehicles................................. $ 9,770 $10,246 $10,606 Equipment and other...................... 615 548 524 ------- ------- ------- 10,385 10,794 11,130 Accumulated depreciation................. (2,174) (2,124) (2,255) Allowance for credit losses ............. (60) (65) (80) ------- ------- ------- Investments in operating leases, net..... $ 8,151 $ 8,605 $ 8,795 ======= ======= =======
-7- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Notes and Loans Payable - -------------------------------- Notes and loans payable consisted of the following:
June 30, September 30, June 30, 2000 1999 1999 -------- ------------- -------- (Dollars in Millions) Commercial paper, net.................... $ 2,468 $ 1,427 $ 1,765 Extendible commercial notes, net 51 146 - ------- ------- ------- Other senior debt, due in the years ending September 30,: 1999.................................. - - 885 2000.................................. 1,857 4,077 2,948 2001.................................. 4,198 3,213 3,188 2002.................................. 2,580 2,718 2,471 2003.................................. 2,990 2,095 1,739 2004.................................. 3,372 2,466 2,178 Thereafter............................ 2,887 2,336 2,302 ------- ------- ------- 17,884 16,905 15,711 Unamortized premium...................... 72 87 89 ------- ------- ------- Total other senior debt............... 17,956 16,992 15,800 ------- ------- ------- Notes and loans payable............ $20,475 $18,565 $17,565 ======= ======= =======
Short-term borrowings include commercial paper, extendible commercial notes and certain medium-term notes ("MTNs"). The weighted average remaining term and weighted average interest rate of commercial paper was 19 days and 6.48%, respectively, at June 30, 2000. The weighted average remaining term and weighted average interest rate on extendible commercial notes at June 30, 2000 was 33 days and 6.69%, respectively. Short-term MTNs with original terms of one year or less, included in other senior debt, were $1.8 billion at June 30, 2000. The weighted average interest rate on these short-term MTNs was 6.25% at June 30, 2000, including the effect of interest rate swap agreements. The weighted average interest rate on other senior debt was 6.34% at June 30, 2000, including the effect of interest rate swap agreements. This rate has been calculated using rates in effect at June 30, 2000, some of which are floating rates that reset periodically. Approximately 58% of other senior debt at June 30, 2000 had interest rates including the effect of interest rate swap agreements that were fixed. The weighted average of these fixed interest rates was 6.51% at June 30, 2000. Approximately 48% of total debt at June 30, 2000 had floating interest rates that were covered by option-based products. The weighted average strike rate on these option-based products was 6.34% at June 30, 2000. TMCC manages interest rate risk through continuous adjustment of the mix of fixed and floating rated debt using interest rate swap agreements and option-based products. -8- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Notes and Loans Payable (Continued) - -------------------------------- Included in notes and loans payable at June 30, 2000 were unsecured notes denominated in various foreign currencies; concurrent with the issuance of these notes, TMCC entered into cross currency interest rate swap agreements to convert these obligations at maturity into U.S. dollar obligations which in aggregate total a principal amount of $8.1 billion. TMCC's foreign currency debt was translated into U.S. dollars in the financial statements at the various foreign currency spot exchange rates in effect at June 30, 2000. The receivables or payables arising as a result of the differences between the June 30, 2000 foreign currency spot exchange rates and the contract rates applicable to the cross currency interest rate swap agreements are classified in other receivables or accounts payable and accrued expenses, respectively, and in aggregate reflect a net payable position of $964 million at June 30, 2000. Note 5 - Sale of Retail Receivables - ----------------------------------- During June 2000, the Company sold retail finance receivables aggregating $1.5 billion subject to certain limited recourse provisions. TMCC sold its receivables to Toyota Motor Credit Receivables Corporation ("TMCRC") which in turn sold them to a trust; TMCC remains as servicer and is paid a servicing fee. In a subordinated capacity, TMCRC retains excess servicing cash flows, certain cash deposits and other related amounts which are held as restricted assets subject to limited recourse provisions. These restricted assets are not available to satisfy any obligations of TMCC. Included in investment and other income for the quarter and nine months ended June 30, 2000 is a net pretax gain of $4.9 million resulting from the sale of retail finance receivables. This net gain includes a $3.9 million loss on the termination of interest rate swaps issued in conjunction with the transaction. In addition, during the quarter ended June 30, 2000, TMCC exercised its clean- up call option to purchase the outstanding receivables sold in the April 1997 retail securitization transaction. Note 6 - Related Party Transactions - ----------------------------------- TMCC has an arrangement to borrow from and invest funds with Toyota Motor Sales, U.S.A., Inc. ("TMS" or "Parent") at short term market rates. For the nine months ended June 30, 2000 and 1999, the highest amounts of funds, included in Receivable from Parent, invested with TMS were $797 million and $2.0 billion, respectively. Interest earned on these investments totaled $1 million and $4 million for the three months ended June 30, 2000 and 1999, respectively, and $11 million and $29 million for the nine months ended June 30, 2000 and 1999, respectively. During the quarter ended June 30, 2000, TMCC received Parent support for vehicle disposition losses totaling $35 million. Note 7 - Commitments and Contingent Liabilities - ----------------------------------------------- As of June 30, 2000, TMCC has guaranteed payments of principal, interest and premiums, if any, on $186 million principal amount of bonds issued in connection with the manufacturing facilities of certain of its affiliates as well as $50 million of debt of Toyota Credit Argentina S.A. ("TCA"). -9- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Segment Information - ---------------------------- Financial results for the Company's operating segments are summarized below:
Three Months Ended Nine Months Ended June 30, June 30, ------------------- -------------------- 2000 1999 2000 1999 ------- -------- -------- -------- (Dollars in Millions) Assets: Financing operations.............. $ 26,570 $ 23,296 $ 26,570 $ 23,296 Insurance operations.............. 793 680 793 680 Eliminations/reclassifications.... (319) (269) (319) (269) -------- -------- -------- -------- Total assets.................... $ 27,044 $ 23,707 $ 27,044 $ 23,707 ======== ======== ======== ======== Gross revenues: Financing operations.............. $ 816 $ 803 $ 2,460 $ 2,426 Insurance operations.............. 42 34 119 104 -------- -------- -------- -------- Total gross revenues............ $ 858 $ 837 $ 2,579 $ 2,530 ======== ======== ======== ======== Net income: Financing operations.............. $ 14 $ 36 $ 55 $ 87 Insurance operations.............. 9 3 25 15 -------- -------- -------- -------- Total net income................ $ 23 $ 39 $ 80 $ 102 ======== ======== ======== ========
-10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Income - ---------- The following table summarizes TMCC's net income by operating segment for the three and nine months ended June 30, 2000 and June 30, 1999:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) Net income: Financing operations................ $ 14 $ 36 $ 55 $ 87 Insurance operations................ 9 3 25 15 ---- ---- ---- ---- Total net income................. $ 23 $ 39 $ 80 $102 ==== ==== ==== ====
Net income from financing operations decreased 61% and 37% for the quarter and nine months ended June 30, 2000, respectively, as compared with the same periods in fiscal 1999 primarily due to lower interest margin as a result of higher interest expense, the recognition of asset impairment losses, higher operating and administrative expenses and higher provision for credit losses, partially offset by lower depreciation on leases and higher financing revenues. Net income from insurance operations increased $6 million and $10 million for the quarter and nine months ended June 30, 2000, respectively, as compared with the same periods in fiscal 1999, primarily due to lower provision for income taxes reflecting a modification of tax allocation treatment for intercompany insurance income which resulted in elimination of previously provided income tax and reduction of current income tax. -11- Earning Assets - -------------- The composition of TMCC's net earning assets (which excludes retail receivables and interests in lease finance receivables sold through securitization transactions), as of the balance sheet dates reported herein and TMCC's vehicle lease and retail contract volume and finance penetration for the three and nine months ended June 30, 2000 and June 30, 1999 are summarized below:
June 30, September 30, June 30, 2000 1999 1999 --------- ------------- --------- (Dollars in Millions) Vehicle lease Investment in operating leases, net..... $ 7,791 $ 8,290 $ 8,513 Finance leases, net..................... 4,939 3,315 2,731 ------- ------- ------- Total vehicle leases..................... 12,730 11,605 11,244 Vehicle retail finance receivables, net.. 9,288 8,916 8,909 Vehicle wholesale and other receivables.. 3,131 2,142 2,378 Allowance for credit losses.............. (211) (202) (228) ------- ------- ------- Total net earning assets................. $24,938 $22,461 $22,303 ======= ======= =======
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Total contract volume: Vehicle lease......................... 56,000 65,000 182,000 176,000 Vehicle retail........................ 104,000 92,000 293,000 220,000 ------- ------- ------- ------- Total.................................... 160,000 157,000 475,000 396,000 ======= ======= ======= ======= TMS sponsored contract volume: Vehicle lease......................... 11,000 20,000 43,000 37,000 Vehicle retail........................ 11,000 12,000 29,000 26,000 ------- ------- ------- ------- Total.................................... 22,000 32,000 72,000 63,000 ======= ======= ======= ======= Finance penetration (excluding fleet): Vehicle lease......................... 17.0% 17.4% 17.0% 17.4% Vehicle retail........................ 13.8% 16.6% 16.1% 14.7% ----- ----- ----- ----- Total.................................... 30.8% 34.0% 33.1% 32.1% ===== ===== ===== =====
-12- TMCC's net earning assets increased to $24.9 billion at June 30, 2000 from $22.5 billion at September 30, 1999 and $22.3 billion at June 30, 1999. Asset growth from September 30, 1999 and June 30, 2000 reflects primarily higher vehicle retail contract volume as well as increased wholesale and lease earning assets. The increase in retail earning assets was substantially offset by the sale of retail finance receivables totaling $989 million and $1.5 billion in July 1999 and June 2000, respectively. Wholesale earning assets increased from September 30, 1999 and June 30, 1999, due to an increase in the number of dealers receiving wholesale financing from TMCC. The allowance for credit losses increased from September 30, 1999 reflecting asset growth and is deemed adequate to cover expected losses based on current and historical credit loss experience, portfolio composition and other factors. In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust (the "Titling Trust"), to act as a lessor and to hold title to leased vehicles in specified states. TMCC holds an undivided trust interest in lease contracts owned by the Titling Trust, and such lease contracts are included in TMCC's lease assets, until such time as the beneficial interests in such contracts are transferred in connection with a securitization transaction. Substantially all leases owned by the Titling Trust are classified as finance receivables due to certain residual value insurance arrangements in place with respect to such leases, while leases of similar nature originated outside of the Titling Trust are classified as operating leases. The continued acquisition of leases by the Titling Trust has changed the composition of earning assets resulting in an increased mix of finance receivables relative to operating lease assets due to the classification differences described above. TMCC's lease contract volume decreased for the quarter ended June 30, 2000, as compared with the same period in fiscal 1999 reflecting lower levels of programs sponsored by TMS. TMCC's lease contract volume increased for the nine months ended June 30, 2000, as compared with the same period in fiscal 2000 reflecting strong sales of Toyota and Lexus vehicles as well as higher levels of programs sponsored by TMS during the first half of fiscal 2000. TMCC's retail contract volume increased for the quarter and nine months ended June 30, 2000, as compared with the same periods in fiscal 1999 primarily due to strong sales of Toyota and Lexus vehicles, as well as an increase in used vehicle financing. -13- Net Financing Revenues and Other Revenues - ----------------------------------------- TMCC's net financing revenues increased 30% and 13% for the quarter and nine months ended June 30, 2000, as compared with the same periods in fiscal 1999 primarily due to lower depreciation on leases, described below under Depreciation on Leases, and increased retail and wholesale revenue, substantially offset by higher interest expense. TMCC's continued use of the Titling Trust to purchase leases has caused a shift in the composition of earning assets from operating leases to finance receivables, as discussed earlier, and has resulted in increased revenues from finance leases and reduced operating lease revenues and depreciation on operating leases. Insurance premiums earned and contract revenues increased 13% and 16% for the quarter and nine months ended June 30, 2000, as compared with the same periods in fiscal 1999 due to higher underwriting revenues associated with in-force agreements. The following table summarizes TMCC's investment and other income for the three and nine months ended June 30, 2000 and June 30, 1999:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (Dollars in Millions) Investment income...................... $8 $6 $30 $25 Servicing fee income................... 9 9 26 28 Gains on assets sold................... 5 3 6 9 ---- ---- ---- ---- Investment and other income......... $22 $18 $62 $62 ==== ==== ==== ====
Investment income increased 33% and 20% for the quarter ended and nine months ended June 30, 2000,respectively, as compared with the same periods in fiscal 1999 primarily due to increased interest income, partially offset by a loss of $8 million reflecting the discounting of the cash deposited into the reserve funds of the Company's lease securitizations as described under "Liquidity and Capital Resources". Servicing fee income decreased 7% for the nine months ended ended June 30, 2000, as compared with the same period in fiscal 1999 due to the reduction in the balance of sold interests in lease finance receivables as well as the temporary waiver of servicing fee income related to the fiscal 1997 sale of interests in lease finance receivables. -14- Gains on assets sold increased by $2 million for the quarter ended June 30, 2000, as compared with the same period in fiscal 1999 due to the sale of retail finance receivables in June 2000. Gains on assets sold decreased by $3 million for the nine months ended June 30, 2000, as compared with the same period in fiscal 1999 due to an increase in market interest rates. Gains recognized on asset-backed securitization transactions generally accelerate the recognition of income on lease and retail contracts, net of servicing fees and other related deferrals, into the period the assets are sold. Numerous factors can affect the timing and amounts of these gains, such as the type and amount of assets sold, the structure of the sale, key assumptions used and current financial market conditions. TMCC performs a quarterly review of the fair market value of assets retained in the sale of interests in lease finance receivables. The fair market value of these retained assets are impacted by management's expectations as to future losses on vehicle disposition, credit losses and prepayment rates. During the third quarter of fiscal 2000, the Company refined its methodology for forecasting losses on vehicle disposition to better reflect recent and expected loss experience. TMCC recognized losses due to the permanent impairment of assets retained in the sale of interests in lease finance receivables totaling $60 million and $74 million during the quarter and nine months ended June 30, 2000, respectively, resulting from an increase in vehicle disposition loss assumptions related to leases originated prior to model year 1999 and terminating over the next 18 months. -15- Depreciation on Leases - ---------------------- The following table sets forth the items included in TMCC's depreciation on leases for the three and nine months ended June 30, 2000 and 1999:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------- 2000 1999 2000 1999 ---- ---- ------ ------ (Dollars in Millions) Straight-line depreciation on operating leases... $318 $338 $ 962 $1,050 Provision for residual value losses.............. 39 72 145 218 Parent support for certain vehicle disposition losses........................................ (35) - (35) - ---- ---- ------ ------ Total depreciation on leases.................. $322 $410 $1,072 $1,268 ==== ==== ====== ======
Straight-line depreciation expense decreased 6% and 8% for the quarter and nine months ended June 30, 2000, respectively, as compared with the same periods in fiscal 1999 corresponding with a decline in average operating lease assets. As discussed earlier, the acquisition of leases by the Titling Trust has increased the ratio of lease finance receivables relative to operating lease assets, which results in reduced operating lease revenues and depreciation expense. TMCC is subject to residual value risk in connection with its lease portfolio. TMCC's residual value exposure is a function of the number of off- lease vehicles returned for disposition and any shortfall between the net disposition proceeds and the estimated unguaranteed residual values on returned vehicles. If the market value of a leased vehicle at contract termination is less than its contract residual value, the vehicle is more likely to be returned to TMCC. A higher rate of vehicle returns exposes TMCC to a higher risk of aggregate losses. The number of returned leased vehicles sold by TMCC during a specified period as a percentage of the number of lease contracts that as of their origination dates were scheduled to terminate ("full term return ratio") was 50% in the first nine months of fiscal 2000 as compared to 47% for the same period in fiscal 1999. TMCC believes that industry-wide record levels of incentives on new vehicles and a large supply of late model off-lease vehicles have put downward pressure on used car prices. In addition, TMCC's increased vehicle return rates reflect the impact of competitive new vehicle pricing for core Toyota and Lexus models. Return rates and losses may also be affected by the amount and types of accessories or installed optional equipment included in leased vehicles. Although vehicle loss rates are typically the result of a combination of factors, to the extent certain types of optional equipment depreciate more quickly than the value of the base vehicle, leased vehicles having a greater portion of their manufacturer's suggested retail price attributable to such optional equipment will experience relatively higher levels of loss. TMCC expects that the full term return ratio and losses per unit will remain at or near current levels through fiscal 2000. Total unguaranteed residual values related to TMCC's vehicle lease portfolio increased from approximately $6.5 billion at September 30, 1999 to $7.0 billion at June 30, 2000. TMCC maintains an allowance for estimated losses on lease vehicles returned to the Company for disposition at lease termination. The level of allowance required to cover future vehicle disposition losses is based upon projected vehicle return rates and projected residual value losses derived from market information on used vehicle sales, historical factors, including lease return trends, and general economic factors. -16- The decrease in the provision for residual value losses for the quarter and nine months ended June 30, 2000 as compared with the same periods in fiscal 1999 reflects reduced losses at vehicle disposition of $12 million and $30 million, respectively, as well as management's estimate that current reserve levels are considered adequate to cover expected losses at vehicle disposition as of June 30, 2000. The decrease in vehicle disposition losses was primarily due to a decrease in the number of vehicles scheduled to terminate resulting from the sale of interests in lease finance receivables during fiscal 1997 and 1998. The Company has taken action to reduce vehicle disposition losses by developing strategies to increase dealer and lessee purchases of off-lease vehicles, expanding marketing of off-lease vehicles through the internet and maximizing proceeds on vehicles sold through auction. In addition, TMCC implemented a new residual value setting policy for new model year 1999 Toyota vehicles that separately calculates the residual value applicable to the base vehicle and the residual value applicable to certain specified optional accessories and optional equipment. Under an arrangement with TMS, TMCC received Parent support for vehicle disposition losses during the quarter ended June 30, 2000; no assurance can be provided as to either the level of Parent support or the continuation of the support arrangement in future periods. TMCC's lease portfolio includes contracts with original terms ranging from 12 to 60 months; the average original contract term in TMCC's lease portfolio was 41 months and 39 months at June 30, 2000 and 1999, respectively. Interest Expense - ---------------- Interest expense increased 51% and 36% for the quarter and nine months ended June 30, 2000, as compared with the same periods in fiscal 1999 primarily due to higher average cost of borrowings and increased average debt outstanding. The weighted average cost of borrowings was 6.23% and 5.30% for the nine months ended June 30, 2000 and 1999, respectively. Continuing increases in market interest rates are expected to negatively impact the interest margin on TMCC's outstanding portfolio. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased 11% and 9% for the quarter and nine months ended June 30, 2000, respectively, as compared with the same periods in fiscal 1999 reflecting expenses associated with technology-related projects, as well as costs to support TMCC's growing customer base. TMCC anticipates continued growth in operating and administrative expenses reflecting costs associated with technology initiatives and portfolio growth. Included in operating and administrative expenses are charges allocated by TMS for certain technical and administrative services provided to TMCC. As a result of the reorganization described under Item 5, TMS and TMCC are expected to enter into an agreement covering the costs of services TMS will continue to provide to TMCC after fiscal 2000. As of July 31, 2000, the impact of the agreement on the Company's expenses has not been determined. -17- Provision for Credit Losses - --------------------------- TMCC's provision for credit losses increased 45% and 13% for the quarter and nine months ended June 30, 2000,respectively, as compared with the same periods in fiscal 1999 reflecting growth in earning assets. Allowances for credit losses are evaluated periodically, considering historical loss experience and other factors, and are considered adequate to cover expected credit losses as of June 30, 2000. In April 2000, TMCC completed the national launch of an expanded tiered pricing program for retail vehicle contracts. The objective of the expanded program is to better match customer risk with contract rates charged to allow profitable purchases of a wider range of risk levels. A pilot program for expanded tiered pricing for lease vehicle contracts is underway. Implementation of these expanded programs is expected to increase contract yields and as the portfolio matures, increase credit losses in connection with purchases of higher risk contracts. Net credit loss experience, excluding net losses on receivables sold subject to limited recourse provisions, for the three and nine months ended June 30, 2000 and 1999, was as follows:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ----- ----- ----- ----- (Dollars in Millions) Gross Credit Losses............. $ 27 $ 23 $ 84 $ 79 Recoveries...................... (5) (4) (14) (13) ----- ----- ----- ----- Net Credit Losses............... $ 22 $ 19 $ 70 $ 66 ===== ===== ===== ===== Annualized Net Credit Losses as a % of Average Earning Assets....................... .35% .35% .38% .41%
The allowance for credit losses and the allowance for credit losses as a percent of earning assets as of the balance sheet dates reported herein are summarized below:
June 30, September 30, June 30, 2000 1999 1999 -------- ------------- -------- (Dollars in Millions) Allowance for Credit Losses..... $211 $202 $228 Allowance for Credit Losses as a % of Earning Assets..... .84% .89% 1.01%
-18- Liquidity and Capital Resources - ------------------------------- The Company requires, in the normal course of business, substantial funding to support the level of its earning assets. Significant reliance is placed on the Company's ability to obtain debt funding in the capital markets in addition to funding provided by earning asset liquidations and cash provided by operating activities as well as transactions through the Company's asset-backed securities programs. Debt issuances have generally been in the form of commercial paper, extendible commercial notes, domestic and euro medium-term notes ("MTNs"), and bonds. Commercial paper issuances and extendible commercial notes are used to meet short-term funding needs. Commercial paper outstanding under TMCC's commercial paper program ranged from approximately $1.5 billion to $4.0 billion during the first nine months of fiscal 2000, with an average outstanding balance of $2.8 billion. The outstanding balance of extendible commercial notes at June 30, 2000 totaled $51 million. For additional liquidity purposes, TMCC maintains syndicated bank credit facilities with certain banks which aggregated $2.7 billion at June 30, 2000. No loans were outstanding under any of these bank credit facilities during the first nine months of fiscal 2000. TMCC also maintains uncommitted, unsecured lines of credit with banks totaling $175 million, of which $100 million is maintained along with TMS. At June 30, 2000, TMCC had issued approximately $12 million in letters of credit. Long-term funding requirements are met through the issuance of a variety of debt securities underwritten in both the United States and international capital markets. Domestic and euro MTNs and bonds have provided TMCC with significant sources of funding. During the first nine months of fiscal 2000, TMCC issued approximately $3.8 billion of domestic and euro MTNs and bonds, of which approximately $3.6 billion had original maturities of one year or more. The original maturities of all MTNs and bonds outstanding at June 30, 2000 ranged from one to eleven years. As of June 30, 2000, TMCC had total MTNs and bonds outstanding of $17.2 billion, of which $7.1 billion was denominated in foreign currencies. TMCC anticipates continued use of MTNs and bonds in both the United States and international capital markets. The Company maintains a shelf registration with the SEC providing for the issuance of MTNs and other debt securities. At July 31, 2000, approximately $3.8 billion was available for issuance under this registration statement. The maximum aggregate principal amount authorized to be outstanding at any time under TMCC's euro MTN program is $16.0 billion. Approximately $5.0 billion was available for issuance under the euro MTN program as of July 31, 2000. The United States and euro MTN programs may be expanded from time to time to allow for the continued use of these sources of funding. In addition, TMCC may issue bonds in the domestic and international capital market that are not issued under its euro MTN programs. -19- Additionally, TMCC uses its asset-backed securitization programs to generate funds for investment in earning assets. During the quarter ended June 30, 2000, TMCC sold retail finance receivables totaling $1.5 billion. TMCC maintains a shelf registration statement with the SEC relating to the issuance of asset-backed notes secured by, and certificates representing interests in, retail receivables. As of July 31, 2000, $433 million remained available for issuance under the registration statement. In July 2000, TMCC filed an additional shelf registration statement with the SEC relating to $1 million of asset-backed notes and certificates. TMCC anticipates increasing the total amount registered to $2.5 billion prior to the effectiveness of the registration statement. As described earlier, leases are purchased by the Toyota Auto Lease Trust to maintain a pool of assets available for sale in connection with TMCC's lease securitization program. However, until leases are included in a securitization transaction, they continue to be classified as finance receivables on TMCC's balance sheet. In March 2000, certain nationally recognized statistical rating organizations placed several classes of TMCC's lease securitizations under review for possible downgrade as a result of higher than expected residual value losses. In May 2000, TMCC made a cash capital contribution totaling $102 million to Toyota Leasing, Inc., a wholly-owned subsidiary of TMCC, for deposit into the reserve funds of the lease securitizations under review. In addition, a portion of the monthly excess cash flows in the transactions are being retained in these reserve funds to supplement the capital contribution. As a result of TMCC's actions, the rating organizations affirmed the original credit ratings for the lease asset-backed securities. TMCC's long term unsecured ratings were unaffected by these recent events. TMCC does not believe that the rating organization actions have had a material adverse effect on its liquidity or access to capital markets. TMCC's ratio of earnings to fixed charges was 1.13 for the first nine months of fiscal 2000 compared to 1.25 for the first nine months of fiscal 1999. TMCC believes that the decline in the ratio has not affected its ability to maintain liquidity or access to outside funding sources. The decline in the ratio is due to several factors including lower interest margin as a result of higher interest expense, losses on asset impairment, higher operating and administrative expenses, as well as a higher provision for credit losses. Cash flows provided by operating, investing and financing activities have been used primarily to support earning asset growth. During the first nine months of fiscal 2000, cash used to purchase additional finance receivables and investments in operating leases, totaling $21.0 billion, was partially provided by the liquidation and sale of earning assets totaling $17.3 billion. Investing activities resulted in a net cash use of $3.6 billion during the first nine months of fiscal 2000, as the purchase of additional earning assets exceeded cash provided by the liquidation and sale of earning assets. Investing activities were also supported by net cash provided by operating and financing activities totaling $1.4 billion and $2.2 billion, respectively, during the first nine months of fiscal 2000. The Company believes that cash provided by operating and investing activities as well as access to domestic and international capital markets, the issuance of commercial paper, extendible commercial notes and asset-backed securitization transactions will provide sufficient liquidity to meet its future funding requirements. -20- Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Business description and Management's Discussion and Analysis contain various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including the following: that current reserve levels are considered adequate to cover expected losses at vehicle disposition; that TMCC believes that industry-wide record levels of incentives on new vehicles and large supply of late model off-lease vehicles have put downward pressure on used car prices; that TMCC expects that the full term return ratio and losses per unit will remain at or near current levels through fiscal 2000; that TMCC anticipates continued growth in operating and administrative expenses; that continuing increases in market interest rates are expected to negatively impact the interest margin on the existing portfolio; that the implementation of the expanded tiered pricing program is expected to increase contract yields and as the portfolio matures, increase credit losses in connection with purchases of higher risk contracts; that allowances for credit losses are considered adequate to cover expected credit losses; that TMCC anticipates continued use of MTNs and bonds in the United States and the international capital markets; that TMCC may issue bonds in the domestic and international capital markets that are not issued under its MTN programs; that TMCC anticipates increasing the amount registered to $2.5 billion prior to the effectiveness of the shelf registration statement; that TMCC does not believe that the rating organizations actions have had a material adverse effect on its liquidity or access to capital markets; that the decline in the ratio of earnings to fixed charges has not affected TMCC's ability to maintain liquidity or access to outside funding sources; that cash provided by operating and investing activities as well as access to domestic and international capital markets, the issuance of commercial paper and extendible commercial notes, and asset-backed securitization transactions will provide sufficient liquidity to meet TMCC's future funding requirements. The Company cautions that the forward looking statements referred to above involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the following: decline in demand for Toyota and Lexus products; the effect of economic conditions; a decline in the market acceptability of leasing; the effect of competitive pricing on interest margins; increases in prevailing interest rates; changes in pricing due to the appreciation of the Japanese yen against the United States dollar; the effect of governmental actions; the effect of competitive pressures on the used car market and residual values and the continuation of the other factors causing an increase in vehicle returns and disposition losses; the continuation of, and if continued, the level and type of special programs offered by TMS; the ability of the Company to successfully access the United States and international capital markets; the effects of any rating agency actions; the monetary policies exercised by the European Central Bank and other monetary authorities; increased costs associated with the Company's debt funding efforts; with respect to the effects of litigation matters, the discovery of facts not presently known to the Company or determination by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation; and the ability of the Company's counterparties to perform under interest rate and cross currency swap agreements. Results actually achieved thus may differ materially from expected results included in these statements, and the Company will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements. -21- New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for fiscal years beginning after June 15, 1999. SFAS No. 133 requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains and losses resulting from changes in the values of those derivatives would be accounted for as either components of earnings or accumulated other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133", which amends the accounting and reporting standards of Statement No. 133. The Company has not determined the impact that adoption of these standards will have on its consolidated financial statements. The Company plans to adopt SFAS Nos. 133 and 138 effective October 1, 2000, as required. -22- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As discussed more fully in TMCC's 1999 Annual Report on Form 10-K, TMCC uses a variety of interest rate and currency derivative financial instruments to manage interest rate and currency exchange exposures. TMCC does not use these instruments for trading purposes. Derivative financial instruments used by TMCC involve, to varying degrees, elements of credit risk in the event a counterparty should default and market risk as the instruments are subject to rate and price fluctuations. Credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at June 30, 2000 reduced by the effects of master netting agreements. The credit exposure of TMCC's derivative financial instruments at June 30, 2000 was $70.4 million on an aggregate notional amount of $39.6 billion. At June 30, 2000 approximately 92% of TMCC's derivative financial instruments, based on notional amounts, were with commercial banks and investment banking firms assigned investment grade ratings of "AA" or better by national rating agencies. TMCC does not anticipate non- performance by any of its counterparties. TMCC uses a value-at-risk methodology, in connection with other management tools, to assess and manage the interest rate risk of aggregated loan and lease assets and financial liabilities, including interest rate derivatives and option-based products. Value-at-risk represents the potential losses for a portfolio from adverse changes in market factors for a specified period of time and likelihood of occurrence (i.e. level of confidence). TMCC's value- at-risk methodology incorporates the impact from adverse changes in market interest rates but does not incorporate any impact from other market changes, such as foreign currency exchange rates or commodity prices, which do not affect the value of TMCC's portfolio. The value-at-risk methodology excludes changes in fair values related to investments in marketable securities as these amounts are not significant. The value-at-risk methodology uses four years of historical interest rate data to build a database of prediction errors in forward rates for a one month holding period. These prediction errors are then applied randomly to current forward rates through a Monte Carlo process to simulate 500 potential future yield curves. The portfolio is then re-priced with these curves to develop a distribution of future portfolio values. Options in the portfolio are priced with current market implied volatilities and the simulated yield curves using the Black Scholes method. The lowest portfolio value at the 95% confidence interval is compared with the current portfolio value to derive the value-at-risk number. -23- The value-at-risk and the average value-at-risk of TMCC's portfolio as of June 30, 2000 and for the nine months ended June 30, 2000, measured as the potential 30 day loss in fair value from assumed adverse changes in interest rates are as follows:
Average for the As of Nine Months Ended June 30, 2000 June 30, 2000 ----------------- ------------------- Mean portfolio value..................... $5.1 billion $4.6 billion Value-at-risk............................ $101.6 million $108.0 million Percentage of the mean portfolio value... 2.0% 2.3% Confidence level......................... 95.0% 95.0%
TMCC's calculated value-at-risk exposure represents an estimate of reasonably possible net losses that would be recognized on its portfolio of financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results which may occur. It does not represent the maximum possible loss nor any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in the composition of TMCC's portfolio of financial instruments during the year. A reconciliation of the activity of TMCC's derivative financial instruments for the nine months ended June 30, 2000 and 1999 is as follows:
Nine Months Ended June 30, ------------------------------------------------------------ Cross Currency Interest Interest Indexed Rate Swap Rate Swap Option-based Note Swap Agreements Agreements Products Agreements ------------ ------------ ------------ ------------ 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- (Dollars in Billions) Beginning notional amount....... $8.8 $9.0 $ 9.0 $7.3 $6.9 $6.3 $1.3 $0.8 Add: New agreements............... 1.7 - 12.1 4.0 5.3 1.8 0.2 0.6 Less: Terminated agreements........ - - - 0.3 - - 0.1 - Expired agreements........... 1.9 0.6 1.8 2.0 1.9 1.4 - 0.3 ---- ---- ---- ---- ---- ---- ---- ---- Ending notional amount.......... $8.6 $8.4 $19.3 $9.0 $10.3 $6.7 $1.4 $1.1 ==== ==== ==== ==== ==== ==== ==== ====
-24- Review by Independent Accountants With respect to the unaudited consolidated financial information of Toyota Motor Credit Corporation for the three-month and nine-month periods ended June 30, 2000 and 1999, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated August 11, 2000 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act. -25- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Various claims and actions are pending against TMCC and its subsidiaries with respect to financing and insurance activities, taxes and other matters arising from the ordinary course of business. Certain of these actions are or purport to be class action suits. Management and internal and external counsel perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. The amounts of liability on pending claims and actions as of June 30, 2000 were not determinable; however, in the opinion of management, the ultimate liability resulting therefrom should not have a material adverse effect on TMCC's consolidated financial position or results of operations. The foregoing is a forward looking statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, which represents the Company's expectations and beliefs concerning future events. The Company cautions that its discussion of Legal Proceedings is further qualified by important factors that could cause actual results to differ materially from those in the forward looking statement, including but not limited to the discovery of facts not presently known to the Company or determinations by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation. ITEM 2. CHANGES IN SECURITIES. There is nothing to report with regard to this item. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. There is nothing to report with regard to this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. On June 6, 2000, the Executive Committee of the Board of Directors of TMCC approved a change in TMCC's year-end from September 30 to March 31. A report covering the six-month transition period beginning October 1, 2000 and ending March 31, 2001 will be filed with the SEC on Form 10-K. Toyota Financial Services Corporation ("TFS"), a wholly-owned subsidiary of Toyota Motor Corporation ("TMC") was incorporated on July 7, 2000. TFS will oversee the worldwide financial service operations of TMC's subsidiaries and affiliates, including those in the United States. In October 2000, TMCC, currently a subsidiary of TMS, will be owned by Toyota Financial Services Americas Corporation which will, in turn, be owned by TFS. The actual date ownership of TMCC is transferred from TMS to TFS is referred to herein as the "Reorganization Date". -26- In connection with the creation of TFS and the transfer of ownership of TMCC from TMS to TFS, a new credit support arrangement has been entered into between TMC and TFS, and is expected to be entered into between TFS and TMCC. Under the terms of the credit support agreement entered into between TFS and TMC in July 2000, TMC has agreed to: 1) maintain 100% ownership of TFS; 2) cause TFS and its subsidiaries to have a net worth of at least Japanese yen 10 million; and 3) make sufficient funds available to TFS so that TFS will be able to (i) service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper and (ii) honor its obligations incurred as a result of guarantees or credit support agreements that it has extended. The agreement is not a guarantee by TMC of any securities or obligations of TFS. Under the terms of the credit support agreement expected to be entered into between TMCC and TFS effective as of the Reorganization Date, TFS will agree to: 1) maintain 100% ownership of TMCC; 2) cause TMCC and its subsidiaries to have a net worth of at least U.S. $100,000; and 3) make sufficient funds available to TMCC so that TMCC will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper (collectively, "TMCC Securities"). The agreement will not be a guarantee by TFS of any TMCC Securities or other obligations of TMCC. Holders of TMCC Securities will have the right to claim directly against TFS and TMC to perform their respective obligations under the credit support agreements by making a written claim together with a declaration to the effect that the holder will have recourse to the rights given under the credit support agreement. If TFS and/or TMC receives such a claim from any holder of TMCC Securities, TFS and/or TMC shall indemnify, without any further action or formality, the holder against any loss or damage resulting from the failure of TFS and/or TMC to perform any of their respective obligations under the credit support agreements. The holder of TMCC Securities who made the claim may then enforce the indemnity directly against TFS and/or TMC. Both credit support agreements will be governed by the laws of Japan. TMC files periodic reports and other information with the Securities and Exchange Commission ("SEC"), which can be read and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained by mail from the Public Reference Section of the SEC, at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. -27- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The exhibits listed on the accompanying Exhibit Index, on page 30, are filed as part of this report. (b) Reports on Form 8-K The following reports on Form 8-K were filed during the quarter ended June 30, 2000, none of which contained financial statements. Date of Report Items Reported -------------- ------------------------------------------- April 18, 2000 Item 5 - Other Events Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits May 23, 2000 Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits June 6, 2000 Item 8 - Change in Fiscal Year -28- 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. TOYOTA MOTOR CREDIT CORPORATION ------------------------------- (Registrant) Date: August 11, 2000 By /S/ GEORGE E. BORST ------------------------------ George E. Borst Senior Vice President and General Manager (Principal Executive Officer) Date: August 11, 2000 By /S/ ROBERT M. ALLEN --------------------------------- Robert M. Allen Vice President Finance and Affiliated Operations (Principal Accounting Officer) -29- EXHIBIT INDEX Exhibit Method Number Description of Filing - ------- ----------- --------- 12.1 Calculation of Ratio of Earnings to Fixed Charges. Filed Herewith 15.1 Report of Independent Accountants. Filed Herewith 15.2 Letter regarding unaudited interim financial Filed information. Herewith 27.1 Financial Data Schedule. Filed Herewith -30- EX-12.1 2 0002.txt CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 TOYOTA MOTOR CREDIT CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------- 2000 1999 2000 1999 ---- ---- ------ ---- (Dollars in Millions) Consolidated income before income taxes....................... $ 35 $ 68 $ 121 $176 ---- ---- ------ ---- Fixed charges: Interest.................................. 347 230 941 690 Portion of rent expense representative of the interest factor (deemed to be one-third)....................... 2 1 5 4 ---- ---- ------ ---- Total fixed charges.......................... 349 231 946 694 ---- ---- ------ ---- Earnings available for fixed charges......................... $384 $299 $1,067 $870 ==== ==== ====== ==== Ratio of earnings to fixed charges......................... 1.10 1.29 1.13 1.25 ==== ==== ====== ==== - ----------------- As of July 31, 2000 TMCC has guaranteed payments of principal and interest on $186 million principal amount of bonds issued in connection with the manufacturing facilities of certain of its affiliates. In addition, as of July 31, 2000, TMCC has guaranteed $50 million of TCA's debt. TMCC has not incurred any fixed charges in connection with such guarantees and no amount is included in any ratio of earnings to fixed charges.
EX-15 3 0003.txt REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 15.1 Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholder of Toyota Motor Credit Corporation We have reviewed the accompanying consolidated balance sheets of Toyota Motor Credit Corporation (a wholly owned subsidiary of Toyota Motor Sales, U.S.A., Inc.) and its subsidiaries as of June 30, 2000 and June 30, 1999, and the related consolidated statements of income and shareholder's equity for each of the three-month and nine-month periods ended June 30, 2000 and June 30, 1999 and the consolidated statement of cash flows for the nine-month periods ended June 30, 2000 and June 30, 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of September 30, 1999, and the related consolidated statements of income and shareholder's equity, and of cash flows for the year then ended (not presented herein), and in our report dated October 29, 1999 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of September 30, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /S/ PRICEWATERHOUSECOOPERS LLP Los Angeles, California August 11, 2000 EX-16 4 0004.txt AWARENESS LETTER EXHIBIT 15.2 August 11, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Commissioners: We are aware that our report dated August 11, 2000 on our review of interim financial information of Toyota Motor Credit Corporation (the "Company")as of and for the period ended June 30, 2000 and included in the Company's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 333-76505, 333-89659, 333-41568 and 333-41568-01). Very truly yours, /S/ PRICEWATERHOUSECOOPERS LLP EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYOTA MOTOR CREDIT CORPORATION'S JUNE 30, 2000 FINANCIAL STATEMENTS AND NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS SEP-30-2000 JUN-30-2000 161 890 25,149 211 0 0 0 0 27,044 0 20,475 0 0 915 1,533 27,044 0 2,579 0 2,013 356 89 0 121 40 80 0 0 0 80 0 0 Receivables include Investments in Operating Leases net of Accumulated Depreciation and Finance Receivables net of Unearned Income. Toyota Motor Credit Corporation's Balance Sheet is not classified into Current and Long-Term Assets and Liabilities. Total Costs includes Interest Expense and Depreciation on Leases.
-----END PRIVACY-ENHANCED MESSAGE-----