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-
<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,
2000 1999 1999
------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
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
======= ======= =======
</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,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive
Stock Earnings Income Total
------- -------- ------------- -------
<S> <C> <C> <C> <C>
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
====== ======= ========== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
2000 1999
------ ------
(Unaudited)
<S> <C> <C>
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
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-5-
<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, 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-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Finance Receivables
----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
2000 1999 1999
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
2000 1999 1999
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
-7-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Notes and Loans Payable
--------------------------------
Notes and loans payable consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
2000 1999 1999
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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-
<PAGE>
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-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Segment Information
----------------------------
Financial results for the Company's operating segments are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- --------------------
2000 1999 2000 1999
------- -------- -------- --------
(Dollars in Millions)
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
-10-
<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 operating segment for the
three and nine months ended June 30, 2000 and June 30, 1999:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars in Millions)
Net income:
Financing operations................ $ 14 $ 36 $ 55 $ 87
Insurance operations................ 9 3 25 15
---- ---- ---- ----
Total net income................. $ 23 $ 39 $ 80 $102
==== ==== ==== ====
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
2000 1999 1999
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
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%
===== ===== ===== =====
</TABLE>
-12-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
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
==== ==== ==== ====
</TABLE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -------------------
2000 1999 2000 1999
---- ---- ------ ------
<S> <C> <C> <C> <C>
(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
==== ==== ====== ======
</TABLE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
----- ----- ----- -----
(Dollars in Millions)
<S> <C> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
2000 1999 1999
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Allowance for Credit Losses..... $211 $202 $228
Allowance for Credit Losses
as a % of Earning Assets..... .84% .89% 1.01%
</TABLE>
-18-
<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, 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-
<PAGE>
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-
<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 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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Average for the
As of Nine Months Ended
June 30, 2000 June 30, 2000
----------------- -------------------
<S> <C> <C>
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%
</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, 2000 and 1999 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
------------ ------------ ------------ ------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
-24-
<PAGE>
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-
<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, 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-
<PAGE>
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-
<PAGE>
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-
<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 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-
<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
-30-
