<PAGE>
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, 1998
-------------
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
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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, 1998, 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-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1998 1997 1997
--------- -------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 152 $ 177 $ 158
Investments in marketable securities...... 349 305 299
Investments in operating leases, net...... 9,775 10,257 10,437
Finance receivables, net.................. 11,390 8,452 8,856
Receivable from Parent.................... 83 112 -
Other receivables......................... 174 137 75
Deferred charges.......................... 179 164 167
Other assets.............................. 260 183 182
Income taxes receivable................... 8 43 -
------- ------- -------
Total Assets..................... $22,370 $19,830 $20,174
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $16,932 $14,745 $15,236
Accrued interest.......................... 145 213 175
Accounts payable and accrued expenses..... 1,291 1,072 1,012
Due to Parent............................. - - 33
Deposits.................................. 240 248 247
Income taxes payable...................... - - 130
Deferred income........................... 555 517 545
Deferred income taxes..................... 1,020 954 751
------- ------- -------
Total Liabilities................... 20,183 17,749 18,129
------- ------- -------
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...................... 1,258 1,159 1,126
Net unrealized gains on marketable
securities.......................... 14 7 4
------- ------- -------
Total Shareholder's Equity.......... 2,187 2,081 2,045
------- ------- -------
Total Liabilities and
Shareholder's Equity............. $22,370 $19,830 $20,174
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Leasing................................. $ 647 $ 683 $1,943 $2,074
Retail financing........................ 138 105 394 328
Wholesale and other dealer financing.... 27 24 73 68
------ ------ ------ ------
Total financing revenues................... 812 812 2,410 2,470
Depreciation on operating leases........ 423 438 1,261 1,354
Interest expense........................ 249 228 722 680
------ ------ ------ ------
Net financing revenues..................... 140 146 427 436
Other revenues............................. 45 47 130 118
------ ------ ------ ------
Net financing revenues and other revenues.. 185 193 557 554
------ ------ ------ ------
Expenses:
Operating and administrative............ 99 81 278 232
Provision for credit losses............. 31 36 108 101
------ ------ ------ ------
Total expenses............................. 130 117 386 333
------ ------ ------ ------
Income before income taxes................. 55 76 171 221
Provision for income taxes................. 23 32 72 92
------ ------ ------ ------
Net Income................................. $ 32 $ 44 $ 99 $ 129
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1998 1997
------ ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 99 $ 129
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 1,363 1,387
Provision for credit losses..................... 108 101
Gain from sale of finance receivables, net...... (5) (9)
(Decrease) in accrued interest................... (68) (51)
Increase (decrease) in deferred income taxes.... 66 (54)
(Increase) decrease in other assets.............. (47) 2
Increase in other liabilities................... 22 112
------ ------
Total adjustments..................................... 1,439 1,488
------ ------
Net cash provided by operating activities................ 1,538 1,617
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities...... (523) (285)
Disposition of investments in marketable securities... 486 343
Addition to investments in operating leases........... (3,228) (3,150)
Disposition of investments in operating leases........ 2,393 2,158
Purchase of finance receivables....................... (13,722) (11,443)
Liquidation of finance receivables.................... 10,008 9,234
Proceeds from sale of finance receivables............. 666 754
------ ------
Net cash used in investing activities.................... (3,920) (2,389)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable..... 4,776 5,049
Payments on notes and loans payable................... (3,171) (3,385)
Net increase (decrease) in commercial paper with
original maturities less than 90 days.............. 752 (904)
------ ------
Net cash provided by financing activities................ 2,357 760
------ ------
Net (decrease) in cash and cash equivalents.............. (25) (12)
Cash and cash equivalents at the beginning of the period. 177 170
------ ------
Cash and cash equivalents at the end of the period....... $ 152 $ 158
====== ======
Supplemental disclosures:
Interest paid......................................... $ 765 $ 711
Income taxes paid..................................... $ 5 $ 5
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
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, 1998 and
1997 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, 1998 are not necessarily indicative of those expected for any
other interim period or for a full year. Certain June 1997 accounts have been
reclassified to conform with the June 1998 and September 1997 presentation.
Under an arrangement with Toyota Motor Sales, U.S.A., Inc. ("TMS" or
"Parent"), TMS will provide support to Toyota Motor Credit Corporation ("TMCC"
or the "Company") for certain vehicle disposition losses incurred during
fiscal 1998. TMS support amounts included in the Consolidated Statement of
Income related to this arrangement totaled $28 million for the quarter and $53
million for the nine months ended June 30, 1998.
Effective July 1, 1998 Toyota Motor Insurance Company, Toyota Motor Insurance
Corporation of Vermont and Toyota Motor Life Insurance Company which had been
wholly-owned subsidiaries of TMCC became wholly-owned subsidiaries of Toyota
Motor Insurance Services, Inc., a wholly-owned subsidiary of TMCC.
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 TMCC's 1997 Annual Report to the
Securities and Exchange Commission ("SEC")on Form 10-K.
Note 2 - Investments in Operating Leases
- ----------------------------------------
Investments in operating leases, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1998 1997 1997
--------- -------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles.................................. $11,919 $12,557 $12,888
Equipment and other....................... 410 338 319
------- ------- -------
12,329 12,895 13,207
Accumulated depreciation.................. (2,454) (2,535) (2,665)
Allowance for credit losses .............. (100) (103) (105)
------- ------- -------
Investments in operating leases, net..... $ 9,775 $10,257 $10,437
======= ======= =======
</TABLE>
-5-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1998 1997 1997
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Retail..................................... $7,582 $6,315 $5,834
Finance leases............................. 3,380 1,938 2,668
Wholesale and other dealer loans........... 1,359 885 1,130
------ ------ ------
12,321 9,138 9,632
Unearned income............................ (798) (576) (661)
Allowance for credit losses................ (133) (110) (115)
------ ------ ------
Finance receivables, net................ $11,390 $8,452 $8,856
====== ====== ======
</TABLE>
Finance leases included estimated unguaranteed residual values of
$802 million, $678 million and $893 million at June 30, 1998, September 30,
1997 and June 30, 1997, respectively.
The aggregate balances related to finance receivables 60 or more days past due
totaled $16 million, $17 million and $23 million at June 30, 1998,
September 30, 1997 and June 30, 1997, respectively.
Note 4 - Notes and Loans Payable
- --------------------------------
Notes and loans payable consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1998 1997 1997
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................... $ 2,382 $ 1,512 $ 1,347
------- ------- -------
Other senior debt, due in the years
ending September 30,:
1997.................................. - - 830
1998.................................. 664 2,868 2,808
1999.................................. 1,736 1,324 1,311
2000.................................. 2,424 2,505 2,554
2001.................................. 2,245 2,154 2,166
2002.................................. 2,578 2,660 2,542
Thereafter............................ 4,780 1,606 1,560
------- ------- -------
14,427 13,117 13,771
Unamortized premium...................... 123 116 118
------- ------- -------
Total other senior debt............... 14,550 13,233 13,889
------- ------- -------
Notes and loans payable............ $16,932 $14,745 $15,236
======= ======= =======
</TABLE>
-6-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Notes and Loans Payable (Continued)
- --------------------------------------------
Short-term borrowings include commercial paper and certain medium-term notes
("MTNs"). The weighted average remaining term and weighted average interest
rate of commercial paper was 19 days and 5.60%, respectively, at June 30, 1998.
Short-term MTNs with original terms of one year or less, included in other
senior debt, were $419 million at June 30, 1998. The weighted average interest
rate on these short-term MTNs was 5.44% at June 30, 1998, including the effect
of interest rate swap agreements.
The weighted average interest rate on other senior debt was 5.70% at June 30,
1998, including the effect of derivative financial instruments. This rate has
been calculated using rates in effect at June 30, 1998, some of which are
floating rates that reset daily. Approximately 42% of other senior debt at
June 30, 1998 had floating interest rates that were covered by option-based
products. The weighted average strike rate on these option-based products was
6.04% at June 30, 1998. TMCC manages interest rate risk via continuous
adjustment of the mix of fixed and floating rate debt through use of interest
rate swap agreements and option-based products.
Included in notes and loans payable at June 30, 1998 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 $8.5 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, 1998. The
receivables or payables arising as a result of the differences between the June
30, 1998 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 would
in aggregate reflect a net payable position of $1.0 billion at June 30, 1998.
Note 5 - Sale of Interests in Lease Finance Receivables
- -------------------------------------------------------
TMCC holds an undivided trust interest ("UTI") in leases held in a titling
trust established by TMCC. In May 1998, TMCC identified certain leases
included in the UTI to be allocated to a separate portfolio represented by a
special unit of beneficial interest ("SUBI") totaling $515 million. TMCC then
sold the SUBI to Toyota Leasing, Inc. ("TLI") which in turn contributed
substantially all of the SUBI to a trust; TMCC continues to act as servicer for
all assets represented by the UTI and the SUBI and is paid a servicing fee.
TLI retains subordinated interests in the excess cash flows of these
transactions, certain cash deposits and other related amounts which are held as
restricted assets subject to limited recourse provisions. None of the lease
assets represented by the SUBI or the restricted assets are available to
satisfy any obligations of TMCC.
-7-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Sale of Interests in Lease Finance Receivables (Continued)
- -------------------------------------------------------------------
The pretax gain resulting from the sale of interests in lease finance
receivables totaled approximately $3 million for the nine months ended June 30,
1998, after providing an allowance for estimated credit and residual value
losses. Principal collections related to the lease receivables sold in
September 1997 and May 1998 were used to purchase additional vehicle lease
contracts resulting in gains of approximately $2 million for the nine months
ended June 30, 1998.
Note 6 - Commitments and Contingent Liabilities
- -----------------------------------------------
Effective June 17, 1998, TMCC has guaranteed payments of principal and interest
on $40 million principal amount of flexible rate demand solid waste disposal
revenue bonds issued by Putnam County, West Virginia maturing in June 2028,
issued in connection with the West Virginia manufacturing facility subsidiary
of Toyota Motor Manufacturing North America, Inc., an affiliate of TMCC.
-8-
<PAGE>
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 business segment for the
three and nine months ended June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars in Millions)
Net income:
Financing operations..................... $27 $39 $84 $114
Insurance operations..................... 5 5 15 15
---- ---- ---- ----
Total net income...................... $32 $44 $99 $129
==== ==== ==== ====
</TABLE>
Net income from financing operations decreased 31% and 26% for the quarter and
nine months ended June 30, 1998, as compared with the same periods in fiscal
1997. The decrease in the quarter was primarily the result of increased
provision for residual value losses due to higher residual value loss
experience as well as higher operating and administrative expenses. The
decrease for the nine months ended June 30, 1998 was primarily the result of
increased provision for residual value losses as well as higher operating and
administrative expenses and increased provision for credit losses, partially
offset by increased other income.
Net income from insurance operations remained stable for the quarter and for
the nine months ended June 30, 1998, as compared with the same periods in
fiscal 1997.
-9-
<PAGE>
Earning Assets
- --------------
The composition of TMCC's net earning assets (excluding 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, 1998 and June 30, 1997 are summarized below:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1998 1997 1997
--------- -------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicle lease
Investment in operating leases, net..... $9,591 $10,124 $10,318
Finance leases, net..................... 2,739 1,498 2,118
------- ------- -------
Total vehicle leases..................... 12,330 11,622 12,436
Vehicle retail finance receivables, net.. 7,024 5,866 5,407
Vehicle wholesale and other receivables.. 2,044 1,434 1,670
Allowance for credit losses.............. (233) (213) (220)
------- ------- -------
Total net earning assets................. $21,165 $18,709 $19,293
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total contract volume:
Vehicle lease.......................... 87,000 73,000 222,000 183,000
Vehicle retail......................... 78,000 69,000 188,000 176,000
------- ------- ------- -------
Total..................................... 165,000 142,000 410,000 359,000
======= ======= ======= =======
TMS sponsored contract volume:
Vehicle lease.......................... 63,000 19,000 100,000 50,000
Vehicle retail......................... 28,000 6,000 41,000 12,000
------- ------- ------- -------
Total..................................... 91,000 25,000 141,000 62,000
======= ======= ======= =======
Finance penetration (excluding fleet):
Vehicle lease.......................... 26.3% 25.5% 25.9% 22.4%
Vehicle retail......................... 16.2% 13.9% 13.6% 12.7%
----- ----- ----- -----
Total..................................... 42.5% 39.4% 39.5% 35.1%
===== ===== ===== =====
</TABLE>
-10-
<PAGE>
TMCC's net earning assets increased to $21.2 billion at June 30, 1998 from
$18.7 billion at September 30, 1997 and $19.3 billion at June 30, 1997. Asset
growth from the prior year reflects primarily increased retail and wholesale
earning assets, partially offset by a decline in lease earning assets due to
the sale of interests in lease finance receivables through lease
securitization transactions in September 1997 and May 1998. Asset growth for
the nine months ended June 30, 1998 reflects increases in lease, retail and
wholesale earning assets. The increase in the allowance for credit losses
reflects asset growth.
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 and retail contract volume increased for the quarter and nine
months ended June 30, 1998 as compared with the same periods in fiscal 1997
reflecting higher levels of programs sponsored by TMS and higher finance
penetration.
-11-
<PAGE>
Net Financing Revenue and Other Revenues
- ----------------------------------------
TMCC's net financing revenues decreased 4% and 2% for the quarter and nine
months ended June 30, 1998, as compared with the same periods in fiscal 1997
primarily due to increased provision for residual value losses, described
below under depreciation on operating leases, as well as increased interest
expense, partially offset by increased retail and wholesale revenues.
The following table summarizes TMCC's other revenues for the three and nine
months ended June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Insurance operations revenues............. $36 $32 $105 $94
Gains and servicing fees on assets sold... 8 14 22 19
Investment and other income............... 1 1 3 5
---- ---- ---- ----
Total other revenues................... $45 $47 $130 $118
==== ==== ==== ====
</TABLE>
Other revenues decreased 4% for the quarter ended June 30, 1998, as compared
with the same period in fiscal 1997, primarily reflecting lower gains on
assets sold, offset by higher insurance operations revenues. Other revenues
increased 10% for the nine months ended June 30, 1998 as compared with the
same period in fiscal year 1997, reflecting increased insurance operations
revenues due to higher underwriting revenues associated with in-force
agreements as well as increased investment income. Also, servicing fee income
increased for the nine months ended June 30, 1998, as compared with the same
period in fiscal 1997 due to growth in the balance of sold interests in lease
finance receivables, partially offset by a decrease in the balance of sold
retail receivables. The gain resulting from the sale of interests in lease
finance receivables in May 1998 and retail receivables in April 1997 totaled
approximately $3 million and $9 million for the nine months ended June 30,
1998 and 1997, respectively. Principal collections related to the lease
receivables sold in September 1997 and May 1998 were used to purchase
additional vehicle lease contracts resulting in gains of approximately $2
million for the nine months ended June 30, 1998. 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 and financial market conditions.
-12-
<PAGE>
Depreciation on Operating Leases
- --------------------------------
The following table sets forth the items included in TMCC's depreciation on
operating leases for the three and nine months ended June 30, 1998 and June
30, 1997:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
(Dollars in Millions)
Straight-line depreciation on operating leases..... $371 $406 $1,133 $1,255
Provision for residual value losses
on operating leases............................ 80 32 181 99
Parent support for certain vehicle disposition
losses......................................... (28) - (53) -
---- ---- ------ ------
Total depreciation on operating leases.......... $423 $438 $1,261 $1,354
==== ==== ====== ======
</TABLE>
Straight-line depreciation expense decreased 9% for the quarter and 10% for
the nine months ended June 30, 1998, as compared with the same periods in
fiscal 1997 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 risk 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.
Total unguaranteed residual values related to TMCC's vehicle lease portfolio
declined from approximately $9.0 billion at September 30, 1997 to $8.5 billion
at June 30, 1998 reflecting the acquisition of residual value insurance on an
increasing number of leases in connection with the lease securitization
program as well as sales of interests in lease finance receivables. In July
1998, TMCC entered into insurance policies with Gramercy Place Insurance
Limited, a single purpose licensed Cayman Islands insurance company, to insure
TMCC against specified potential losses in respect of the residual value risk
associated with identified pools of retail closed end lease contracts; these
insurance arrangements will reduce unguaranteed residual value levels. 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 on core models derived from
market information on used vehicle sales, historical factors, including lease
return trends, and general economic factors. The provision for losses on
returned lease vehicles is included in TMCC's depreciation expense for
operating leases and in leasing revenues for direct finance leases.
-13-
<PAGE>
The increase in the provision for residual value losses on operating leases
for the quarter and nine months ended June 30, 1998 as compared with the prior
year periods reflects higher off-lease vehicle return rates as well as higher
residual value losses per vehicle sold at auction. 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 39% in the first nine months of
fiscal 1998 as compared to 16% for the same period in fiscal 1997. TMCC
anticipates that the full term return ratio will continue at the increased
level for the remainder of the fiscal year and perhaps longer. Losses at
vehicle disposition increased $30 million and $90 million for the quarter and
nine months ended June 30, 1998 as compared with the same periods in fiscal
1997. TMCC believes that the increase in vehicle returns and losses is due in
part to (i) the relatively large number of 24 month Toyota vehicle leases
maturing during the current fiscal year, which historically experience higher
return rates and losses per unit than longer term contracts and (ii) the
impact of competitive new vehicle pricing for core Toyota and Lexus models
which has put downward pressure on late model Toyota and Lexus used vehicle
prices. In addition, the large supply of late model used vehicles in the used
car market may also be affecting return rates by depressing market prices.
Per unit loss rates may also be affected by the amount of accessories or
installed optional equipment included on leased vehicles and the types of
installed optional equipment included theron. Although per unit 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
attributable to the base leased vehicle, leased vehicles having a greater
portion of their overall manufacturer's suggested retail price attributable to
such optional equipment will experience relatively higher level of losses.
The Company has taken action to reduce vehicle disposition losses by adjusting
the lease term purchase mix and developing strategies to maximize proceeds on
vehicles sold through auction. Though per unit residual value loss rates have
improved for the quarter ended June 30, 1998 as compared with the previous
quarter ended March 31, 1998, no assurance can be given that such activities
or strategies will be successful with regard to future results. During fiscal
1998, the Company received Parent support for vehicle disposition losses; no
assurance can be provided as to either the level of Parent support for the
remainder of fiscal 1998 or the continuation of the support arrangement beyond
fiscal 1998. TMCC's lease portfolio includes contracts with original terms
ranging from 12 to 60 months; the average original contract term in TMCC's
operating lease portfolio was 38 months at June 30, 1998 and 1997.
-14-
<PAGE>
Interest Expense
- ----------------
Interest expense increased 9% and 6% during the quarter and nine months ended
June 30, 1998, as compared with the same periods in fiscal 1997. The increase
for the quarter and nine months was due primarily to higher average borrowings
outstanding required to fund the growth in average earning assets. The
weighted average cost of borrowings was 5.83% and 5.90% for the quarter ended
June 30, 1998 and 1997 and 5.87% for the nine months ended June 30, 1998 and
1997.
Operating and Administrative Expenses
- -------------------------------------
Operating and administrative expenses increased 22% and 20% during the quarter
and nine months ended June 30, 1998, as compared with the same periods in
fiscal 1997 reflecting primarily additional personnel and operating costs
required to support TMCC's growing customer base as well as growth in the
Company's insurance operations. TMCC anticipates continued growth in expenses
reflecting increasing headcount and operating costs associated with portfolio
growth and expanded customer service activities as well as costs in connection
with technology upgrades and software modifications to address year 2000
issues.
-15-
<PAGE>
Provision for Credit Losses
- ---------------------------
TMCC's provision for credit losses decreased 14% during the quarter ended June
30, 1998, as compared with the same period in fiscal 1997, reflecting more
favorable credit loss experience as well as a smaller increase in the
allowance for credit losses reflecting management's estimate that current
reserve levels are adequate with respect to expected loss experience. The
provision for credit losses increased 7% during the nine months ended June 30,
1998, as compared with the same period in fiscal 1997 primarily as a result of
earning asset growth. TMCC has not significantly altered its underwriting
standards during the quarter and nine months ended June 30, 1998, as compared
with the same periods in fiscal 1997. 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, 1998.
Net credit loss experience, excluding net losses on receivables sold subject to
limited recourse provisions, for the three and nine months ended June 30, 1998
and 1997 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
----- ----- ----- -----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Gross Credit Losses $30.0 $30.2 $92.2 $83.7
Recoveries (4.2) (3.4) (11.1) (9.1)
----- ----- ----- -----
Net Credit Losses............... $25.8 $26.8 $81.1 $74.6
===== ===== ===== =====
Annualized Net Credit Losses
as a % of Average Earning
Assets....................... .50% .57% .54% .53%
</TABLE>
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1998 1997 1997
--------- -------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Allowance for Credit Losses..... $233 $213 $220
Allowance for Credit Losses
as a % of Earning Assets..... 1.09% 1.13% 1.13%
</TABLE>
-16-
<PAGE>
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, United States and Euro Medium Term Notes ("MTNs") and
Eurobonds. On occasion, this funding has been supplemented by loans and equity
contributions from TMS.
Commercial paper issuances are used to meet short-term funding needs.
Commercial paper outstanding under TMCC's commercial paper program ranged from
approximately $1.3 billion to $3.0 billion during the first nine months of
fiscal 1998, with an average outstanding balance of $2.1 billion. For
additional liquidity purposes, TMCC maintains syndicated bank credit facilities
with certain banks which aggregated $2.0 billion at June 30, 1998. No loans
were outstanding under any of these bank credit facilities during the first
nine months of fiscal 1998. TMCC also maintains, along with TMS, uncommitted,
unsecured lines of credit with banks totaling $250 million. At June 30, 1998,
TMCC had issued approximately $19 million in letters of credit, primarily
related to the Company's insurance operations.
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. During the first nine months of fiscal 1998, TMCC issued
approximately $4.2 billion of MTNs and Eurobonds all of which had original
maturities of one year or more.
The original maturities of all MTNs and Eurobonds outstanding at June 30, 1998
ranged from one to eleven years. At June 30, 1998, the amounts outstanding
under MTNs and Eurobonds, including the effect of foreign currency
translations at June 30, 1998 spot exchange rates, are as follows:
<TABLE>
<CAPTION>
Total
U.S. and
U.S. Foreign Foreign
Currency Currency Currency
Denominated Denominated Denominated
------------- ------------- -------------
<S> <C> <C> <C>
MTNs.............. $6.0 billion $4.9 billion $10.9 billion
Eurobonds......... 1.0 billion 2.6 billion 3.6 billion
------------ ------------ -------------
$7.0 billion $7.5 billion $14.5 billion
============ ============ =============
</TABLE>
-17-
<PAGE>
TMCC anticipates continued use of MTNs in both the United States and
international capital markets. The Company maintains a shelf registration with
the SEC providing for the issuance of MTN's and other debt securities. At July
31, 1998, approximately $843 million was available for issuance under this
registration statement, of which $250 million was committed for issue by the
Company. In addition, in August 1998, TMCC filed a new shelf registration
providing for an aggregate of $4.3 billion of debt securities. The maximum
aggregate principal amount authorized to be outstanding at any time under
TMCC's Euro MTN program is $16.0 billion. Approximately $5.2 billion was
available for issuance under the Euro MTN program as of July 31, 1998 of which
the Company has committed to issue approximately $25 million. 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.
TMCC utilizes its asset-backed securitization programs to generate funds for
investment in earning assets. In October 1996, TMCC created Toyota Lease
Trust, a Delaware business trust to act as a lessor and to hold title to
leased vehicles in specified states in connection with its lease
securitization program. TMCC anticipates that the number and principal amount
of leases originated by the Toyota Lease Trust will comprise a significant and
increasing percentage of what otherwise would have been TMCC's lease portfolio;
however, until leases are included in a securitization transaction, they will
continue to be classified as finance receivables on TMCC's balance sheet.
During the quarter ended June 30, 1998, TMCC sold interests in lease finance
receivables totaling $515 million as described in Note 5 of the Notes to the
Consolidated Financial Statements. In addition, in June 1998, the Toyota Lease
Trust filed a registration statement with the SEC in connection with the
expected sale of an additional $1.1 billion in interests in lease finance
receivables.
The Company's ratio of earnings to fixed charges was 1.24 for the first nine
months of fiscal 1998 compared to 1.32 for the first nine months of fiscal
1997. 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 higher interest expense, higher
provisions for residual value and credit losses and increased operating
expenses attributable to TMCC's growing customer base, customer service and
technology initiatives and costs in connection with the year 2000 project.
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 1998, cash used to purchase additional investments in operating
leases and finance receivables, totaling $17.0 billion, was partially provided
by the liquidation and sale of earning assets totaling $12.4 billion.
Investing activities resulted in a net cash use of $3.9 billion during the
first nine months of fiscal 1998, 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
finance activities totaling $1.5 billion and $2.4 billion, respectively, during
the first nine months of fiscal 1998. 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 and asset-
backed securitization transactions will provide sufficient liquidity to meet
its future funding requirements.
-18-
<PAGE>
On July 3, 1998, Moody's placed the "Aaa" long term debt ratings of Toyota
Motor Corporation ("TMC"), and its subsidiaries (including TMCC) under review
for possible downgrade. In making this announcement, Moody's stated that its
action was based on the increasingly competitive environment in which TMC
operates and the weakening of automobile demand in both TMC's core market of
Japan and in its export markets throughout Southeast Asia. In addition, in
April 1998, Moody's changed its outlook for Japan's "Aaa" credit rating from
"stable" to "negative". On July 23, 1998, Moody's announced its decision to
review for possible downgrade Japan's "Aaa" "country ceilings" for foreign
currency-denominated debt and bank deposits as well as the "Aaa" rated yen-
denominated securities issued or guaranteed by the government of Japan. If
Japan's credit rating is lowered below TMC's level (and its subsidiaries), the
credit rating of TMC (and its subsidiaries) would likely be lowered to the same
extent. As of August 13, 1998, Standard & Poor's has not changed its "AAA"
rating or outlook on the debt of TMC (and its subsidiaries) or the credit
rating of Japan.
As discussed more fully in TMCC's 1997 Annual Report on Form 10-K, TMCC uses a
variety of interest rate and currency derivative instruments in managing its
interest rate and foreign currency exchange exposures. TMCC does not utilize
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, 1998 reduced by the
effects of master netting agreements. The credit exposure of TMCC's derivative
financial instruments at June 30, 1998 was $52 million on an aggregate notional
amount of $23.7 billion. At June 30, 1998 approximately 91% 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.
As of June 30, 1998, an interest rate increase of 1% (100 basis points) would
raise TMCC's weighted average interest rate, including the effects of interest
rate swap agreements and option-based products, by .72% from 5.69% to an
estimated 6.41% at June 30, 1998. Conversely, an interest rate decrease of 1%
(100 basis points) would lower TMCC's weighted average interest rate, including
the effects of interest rate swap agreements and option-based products, by .91%
from 5.69% to an estimated 4.78% at June 30, 1998.
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 methodology assumes that changes in
interest rates are lognormally distributed. For options and instruments with
non-linear returns, the model uses the Black Scholes method to approximate
changes in fair value. The value-at-risk methodology excludes changes in fair
values related to investments in marketable securities as these amounts are not
significant. TMCC estimates value-at-risk using historical interest rate
volatilities for the past two years and a stratified random sampling
methodology.
-19-
<PAGE>
The value-at-risk of TMCC's portfolio as of June 30, 1998, measured as the
potential 30 day loss in fair value from assumed adverse changes in interest
rates is as follows:
<TABLE>
<CAPTION>
As of
June 30, 1998
----------------
<S> <C>
Mean portfolio value...................... $3,490.0 million
Value-at-risk............................. $26.9 million
Percentage of the mean portfolio value.... 0.9%
Confidence level.......................... 95.0%
</TABLE>
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, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
------------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------ ------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning notional amount....... $6.5 $5.6 $6.3 $6.8 $5.6 $6.2 $2.4 $1.9
Add:
New agreements............... 3.5 1.6 1.3 1.9 2.1 1.9 0.1 0.8
Less:
Terminated agreements........ - - - - - - - -
Expired agreements........... 0.9 0.3 1.6 1.6 1.2 2.4 0.4 0.2
---- ---- ---- ---- ---- ---- ---- ----
Ending notional amount.......... $9.1 $6.9 $6.0 $7.1 $6.5 $5.7 $2.1 $2.5
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
-20-
<PAGE>
Year 2000 Date Conversion
- -------------------------
TMCC, together with its parent TMS, has developed an action plan to identify,
evaluate and implement changes to information technology systems
("IT systems"), including mainframe, AS/400, networks and personal computers
to address potential year 2000 systems malfunctions associated with time
sensitive programs that may not properly recognize the year 2000. In
addition, the action plan addresses year 2000 compliance of non-information
technology systems ("non-IT systems"), such as security systems, automated
access readers and other machinery and equipment. The assessment of mainframe
and AS/400 applications has been completed and the conversion and testing
phases are underway. Completion of the assessment of networks, personal
computers and non-IT systems and the testing and validation phases on all IT
and non-IT systems is expected by fiscal year end 1999. Independent
consultants have been retained to assist in the development and execution of
the year 2000 action plan. TMCC has initiated communications with dealers,
financial institutions, and suppliers to determine the extent of risk created
by those third parties' failure to remediate their own year 2000 issues. At
present, TMCC cannot determine the effect of failed remediation efforts by
these outside parties.
Costs associated with the year 2000 systems and software modifications are
expensed as incurred. The total estimated cost associated with the required
modifications to TMCC's IT and non-IT systems is not expected to have a
material impact on the Company's results of operations, liquidity or capital
resources.
The inability of TMCC or TMCC's outside parties to address the necessary year
2000 modifications of IT and non-IT systems could result in a significant
adverse effect on the Company's operations and financial results including the
inability to collect receivables, pay obligations, process new business and
occupy facilities. The Company is in the process of developing a contingency
plan in the case of failure of the year 2000 remediation efforts. Completion
of the contingency plan is expected by the end of fiscal year 1999.
-21-
<PAGE>
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 insurance
arrangements will reduce unguaranteed residual value levels; that TMCC
anticipates that the rate of vehicle returns will continue at the increased
level for the remainder of the fiscal year and perhaps longer; that allowances
for credit losses are considered adequate to cover expected credit losses; that
TMCC anticipates continued growth in operating expenses associated with
portfolio growth, expanded customer service activities, technology upgrades and
software modifications to address year 2000 issues; the Company's continued use
of MTNs in the United States and the international capital markets; that TMCC
anticipates that the number and principal amount of leases originated by the
Toyota Lease Trust will comprise a significant and increasing percentage of
what otherwise would have been TMCC's lease portfolio; that the decline in the
ratio of earnings to fixed charges has not affected the Company'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 asset-
backed securitization transactions will provide sufficient liquidity to meet
the Company's future funding requirements; that TMCC does not anticipate non-
performance by any of its counterparties; that completion of the assessment of
networks, personal computers and non-IT systems and the testing and validation
phases on all IT and non-IT systems in connection with year 2000 issues is
expected by fiscal year end 1999; that the total cost associated with required
year 2000 issues is not expected to have a material impact on the Company's
results of operations, liquidity or capital resources; that completion of the
contingency plan relating to year 2000 issues is expected by the end of fiscal
year 1999.
The Company cautions that these statements are further qualified by 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
ratings downgrade; the failure of the Company's action plan to resolve timely
year 2000 issues due to non-performance by outside contractors, failure of
third parties to remediate their year 2000 issues or other factors; the failure
of the Company to develop an adequate contingency plan relating to year 2000
issues; increased costs associated with the Company's debt funding efforts; 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.
-22-
<PAGE>
New Accounting Standards
In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132, "Employers Disclosure About Pensions and Other Postretirement
Benefits." SFAS No. 132 standardizes the disclosure requirements for pension
and other postretirement benefits, requires additional information on changes
in the benefit obligations and fair values of plan assets and eliminates
certain previously required disclosures. The Company does not have a pension
plan separate from TMS; all full-time employees of the Company are eligible to
participate in the TMS pension plan. Benefit obligations and fair values of
plan assets for employees of the Company are not determined separately from
TMS. The impact on the Company of adoption of SFAS No. 132 is not expected to
be significant.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. This SOP requires that entities capitalize certain internal-use
software costs once certain criteria are met. Currently, the Company generally
expenses the costs of developing or obtaining internal-use software
as incurred. The Company is currently evaluating SOP 98-1, but does not expect
adoption to have a material impact on its consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities," effective for fiscal years beginning after December 15, 1998.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs. This SOP requires start-up activities and organization
costs to be expensed as incurred. Currently, the Company expenses start-up
costs and organization costs as incurred.
In June 1998, the 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 components of comprehensive income depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company has not
determined the impact that adoption of this standard will have on its
consolidated financial statement disclosures. The Company plans to adopt SFAS
No. 133 by October 1, 1999, as required.
-23-
<PAGE>
Review by Independent Public 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, 1998 and 1997, 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 13, 1998 appearing herein, states that they did
not audit and they do not express an opinion on that unaudited consolidated
financial information. PricewaterhouseCoopers has not carried out any
significant or additional audit tests beyond those which would have been
necessary if their report had not been included. 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.
-24-
<PAGE>
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, 1998 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.
There is nothing to report with regard to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on page 27,
are filed as part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant during
the quarter ended June 30, 1998.
-25-
<PAGE>
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 13, 1998 By /S/ GEORGE E. BORST
-------------------------------
George E. Borst
Senior Vice President and
General Manager
(Principal Executive Officer)
Date: August 13, 1998 By /S/ GREGORY B. WILLIS
-------------------------------
Gregory B. Willis
Vice President
Finance and Administration
(Principal Accounting Officer)
-26-
<PAGE>
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
-27-
<PAGE>
EXHIBIT 12.1
TOYOTA MOTOR CREDIT CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes...................... $ 55 $ 76 $171 $221
---- ---- ---- ----
Fixed charges:
Interest................................. 249 228 722 680
Portion of rent expense
representative of the
interest factor (deemed
to be one-third)...................... 1 1 4 3
---- ---- ---- ----
Total fixed charges......................... 250 229 726 683
---- ---- ---- ----
Earnings available
for fixed charges........................ $305 $305 $897 $904
==== ==== ==== ====
Ratio of earnings to
fixed charges<F1>........................ 1.22 1.33 1.24 1.32
==== ==== ==== ====
<FN>
- -----------------
<F1> In March 1987, TMCC guaranteed payments of principal and interest on
$58 million principal amount of bonds issued in connection with the
Kentucky manufacturing facility of an affiliate.
In June 1998, TMCC guaranteed payments of principal and interest on
$40 million principal amount of bonds issued in connection with the
West Virginia manufacturing facility of an affiliate.
As of June 30, 1998, 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.
</FN>
</TABLE>
<PAGE>
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 sheet and the related
consolidated statements of income and of cash flows of Toyota Motor Credit
Corporation (a wholly owned subsidiary of Toyota Motor Sales, U.S.A., Inc.) and
its subsidiaries as of and for the three-month and nine-month periods ended
June 30, 1998 and 1997. This financial information is 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 financial information for it 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, 1997, and the related
consolidated statements of income, of shareholder's equity and of cash flows
for the year then ended (not presented herein), and in our report dated
October 31, 1997 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, 1997,
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 13, 1998
<PAGE>
EXHIBIT 15.2
August 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Toyota Motor Credit Corporation has incorporated by reference
our report dated August 13, 1998 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Prospectuses constituting part
of its Registration Statements on Form S-3 (Nos. 33-52359 and 333-26717). We
are also aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
/S/ PRICEWATERHOUSECOOPERS LLP
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYOTA
MOTOR CREDIT CORPORATION'S JUNE 30, 1998 FINANCIAL STATEMENTS AND
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
[/LEGEND]
[MULTIPLIER] 1,000,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-END] JUN-30-1998
[CASH] 152
[SECURITIES] 349
[RECEIVABLES] 21,398<F1>
[ALLOWANCES] 233
[INVENTORY] 0
[CURRENT-ASSETS] 0<F2>
[PP&E] 0
[DEPRECIATION] 0<F3>
[TOTAL-ASSETS] 22,370
[CURRENT-LIABILITIES] 0<F2>
[BONDS] 16,932
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 915
[OTHER-SE] 1,272
[TOTAL-LIABILITY-AND-EQUITY] 22,370
[SALES] 0
[TOTAL-REVENUES] 2,540
[CGS] 0
[TOTAL-COSTS] 1,983<F3>
[OTHER-EXPENSES] 278
[LOSS-PROVISION] 108
[INTEREST-EXPENSE] 0<F3>
[INCOME-PRETAX] 171
[INCOME-TAX] 72
[INCOME-CONTINUING] 99
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 99
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
<FN>
<F1>Receivables include Investments in Operating Leases net of Accumulated
Depreciation and Finance Receivables net of Unearned Income.
<F2>Toyota Motor Credit Corporation's Balance Sheet is not classified into
Current and Long-Term Assets and Liabilities.
<F3>Total Costs includes Interest Expense and Depreciation on Operating
Leases.
</FN>
</TABLE>
