ITEM 1. BUSINESS.
General
Toyota Motor Credit Corporation ("TMCC") was incorporated in California in 1982 as a wholly-owned subsidiary of Toyota Motor Sales, USA, Inc. ("TMS") and commenced operations in 1983. TMS is an indirect wholly-owned subsidiary of Toyota Motor Corporation ("TMC"). On October 1, 2000, ownership of TMCC was transferred from TMS to Toyota Financial Services Americas Corporation ("TFSA"), a holding company owned 100% by Toyota Financial Services Corporation ("TFSC"). TFSC, in turn, is a wholly-owned subsidiary of TMC. TFSC was incorporated in July 2000 and its corporate headquarters is located in Nagoya, Japan. The purpose of TFSC is to control and manage Toyota's finance operations worldwide.
TMCC provides retail and wholesale financing, retail leasing and certain other financial services to authorized Toyota and Lexus vehicle and Toyota industrial equipment dealers and their customers in the United States (excluding Hawaii) and the Commonwealth of Puerto Rico. TMCC has four wholly-owned subsidiaries, one of which is engaged in the insurance business, one limited purpose subsidiary formed primarily to acquire and securitize retail finance receivables, one limited purpose subsidiary formed primarily to acquire and securitize lease finance receivables and one subsidiary which provides retail and wholesale financing and certain other financial services to authorized Toyota and Lexus vehicle dealers and their customers in the Commonwealth of Puerto Rico. TMCC does business as Toyota Motor Credit Corporation and Lexus Financial Services and markets products under the service mark "Toyota Financial Services". TMCC and its wholly-owned subsidiaries are collectively referred to as the "Company".
Toyota Credit Argentina S.A. ("TCA") provides retail and wholesale financing to authorized Toyota vehicle dealers and their customers in Argentina. TMCC owns a 33% interest in TCA. Banco Toyota do Brasil ("BTB") provides retail and lease financing to authorized Toyota vehicle dealers and their customers in Brazil. BTB is owned 15% by TMCC. The remaining interests in TCA and BTB are owned by TFSC.
The Company's earnings are primarily impacted by the level of average earning assets, comprised primarily of investments in finance receivables and operating leases, and asset yields as well as outstanding borrowings and the cost of funds. The Company's business is substantially dependent upon the sale of Toyota and Lexus vehicles in the United States. For the year ended September 30, 2000, TMS sold approximately 1,629,000 automobiles and light trucks in the United States (excluding Hawaii), of which approximately 1,033,000 were manufactured in the United States; TMS exported approximately 36,100 automobiles. TMS' sales represented approximately 31% of TMC's worldwide unit sales volume for the year ended March 31, 2000. For the years ended September 30, 2000 and 1999, Toyota and Lexus vehicles accounted for approximately 9.1% and 8.7%, respectively, of all retail automobile and light truck unit sales volume in the United States. Changes in the volume of sales of such vehicles resulting from governmental action, changes in consumer demand, changes in pricing of imported units due to currency fluctuations, or other events, could impact the level of finance and insurance operations of the Company. To date, the level of the Company's operations has not been restricted by the level of sales of Toyota and Lexus vehicles.
In connection with the creation of TFSC and the transfer of ownership of TMCC from TMS to TFSC, a new credit support agreement (the "TMC Credit Support Agreement") has been entered into between TMC and TFSC, and a new credit support agreement (the "TFSC Credit Support Agreement") has been entered into between TFSC and TMCC. Under the terms of the TMC Credit Support Agreement, TMC has agreed to: 1) maintain 100% ownership of TFSC; 2) cause TFSC and its subsidiaries to have a net worth of at least Japanese yen 10 million; and 3) make sufficient funds available to TFSC so that TFSC 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 TFSC. Under the terms of the TFSC Credit Support Agreement, TFSC agreed 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 is not a guarantee by TFSC of any TMCC Securities or other obligations of TMCC. The TMC Credit Support Agreement and the TFSC Credit Support Agreement are governed by, and construed in accordance with, the laws of Japan. Both agreements are filed as exhibits in Item 14.
Holders of TMCC Securities will have the right to claim directly against TFSC 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 TFSC and/or TMC receives such a claim from any holder of TMCC Securities, TFSC and/or TMC shall indemnify, without any further action or formality, the holder against any loss or damage resulting from the failure of TFSC 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 TFSC and/or TMC.
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.
A Repurchase Agreement was entered into between TMCC and TMS in October 2000 which provides that TMCC is under no obligation to TMS to finance wholesale obligations from any dealers or retail obligations of any customers. In addition, TMS will arrange for the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed in the event of dealer default. The Repurchase Agreement is filed as an exhibit in Item 14.
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.
Retail Leasing
TMCC purchases primarily new vehicle lease contracts originated by Toyota and Lexus dealers. Lease contracts purchased must first meet TMCC's credit standards after which TMCC assumes ownership of the leased vehicles and is generally permitted to take possession of vehicles upon lessee default. TMCC is responsible for contract collection and administration during the lease period and for the value of the vehicle at lease maturity if the vehicle is not purchased by the lessee or dealer. Off-lease vehicles returned to TMCC are sold through a network of auction sites located throughout the United States as well as through the internet. TMCC requires lessees to carry fire, theft, collision and liability insurance on leased vehicles covering the interests of both TMCC and the lessee. Leasing revenues contributed 72%, 76% and 80% to total financing revenues for the fiscal years ended September 30, 2000, 1999 and 1998, respectively.
In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust (the "Titling Trust"), to act as lessor and to hold title to leased vehicles in specified states in connection with a lease securitization program. TMCC acts as the servicer for lease contracts purchased by the Titling Trust from Toyota and Lexus dealers and services such lease contracts in the same manner as contracts owned directly by TMCC. 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.
Retail Financing
TMCC purchases primarily new and used vehicle installment contracts from Toyota and Lexus dealers. Certain of the used vehicle contracts purchased by TMCC are "Certified" Toyota and Lexus used vehicle contracts which relate to vehicles purchased by dealers, reconditioned and certified to meet certain Toyota and Lexus standards, and sold or leased with an extended warranty from the manufacturer. Installment contracts purchased must first meet TMCC's credit standards and thereafter TMCC retains responsibility for contract collection and administration. TMCC acquires security interests in the vehicles financed and generally can repossess vehicles if customers fail to meet contract obligations. Substantially all of TMCC's retail financings are non-recourse which relieves the dealers from financial responsibility in the event of repossession. TMCC requires retail financing customers to carry fire, theft and collision insurance on financed vehicles covering the interests of both TMCC and the customer. Retail financing revenues contributed 23%, 20% and 16% to total financing revenues for the fiscal years ended September 30, 2000, 1999 and 1998, respectively.
During fiscal 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 national launch of an expanded tiered pricing program for lease vehicle contracts is planned for fiscal 2001. 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.
TMS has historically and continues to sponsor special lease and retail programs by subsidizing below market lease and retail contract rates.
A summary of vehicle retail leasing and financing activity follows:
Retail receivables and interests in lease finance receivables sold, totaling $3.8 billion as of September 30, 2000 and $4.1 billion as of September 30, 1999, which TMCC continues to service, are excluded from the outstanding portfolio amounts in the above table.
Wholesale Financing
TMCC provides wholesale financing primarily to qualified Toyota and Lexus vehicle dealers to finance inventories of new Toyota and Lexus vehicles and used Toyota, Lexus and other vehicles. TMCC acquires security interests in vehicles financed at wholesale, and substantially all such financings are backed by corporate or individual guarantees from or on behalf of participating dealers. In the event of dealer default, TMCC has the right to liquidate any assets acquired and seek legal remedies pursuant to the guarantees. Pursuant to the Repurchase Agreement, TMS will arrange for the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed in the event of dealer default.
A summary of vehicle wholesale financing activity follows:
TMCC also makes term loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, other dealership assets and/or personal guarantees of the dealers. Wholesale and other dealer financing revenues contributed 5%, 4% and 4% to total financing revenues for each of the fiscal years ended September 30, 2000, 1999 and 1998, respectively.
Insurance
The principal activities of TMCC's insurance subsidiary, Toyota Motor Insurance Services, Inc. ("TMIS"), include marketing, underwriting, claims administration and providing certain coverages related to vehicle service agreements and contractual liability agreements sold by or through Toyota and Lexus vehicle dealers and affiliates to customers. In addition, TMIS insures and reinsures certain TMS and TMCC risks. Income before income taxes from insurance operations contributed 22%, 13% and 16% to total income before income taxes for the fiscal years ended September 30, 2000, 1999 and 1998, respectively.
Servicing
TMCC remains as servicer on accounts included in its asset-backed securitization transactions and is paid a servicing fee.
Field Operations
During the first quarter of fiscal 2001, TMCC announced plans to restructure the Company's field operations. The branch offices of TMCC will be converted to serve only dealer business which includes the purchasing of contracts from dealers, financing inventories, loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements, as well as consulting on finance and insurance operations. The other functions that the branch offices currently cover, such as customer service, collections, lease termination and administrative functions, will be handled by three regional call centers. The new structure is expected to be completed in fiscal 2003.
Funding
Funding to support the Company's level of earning assets is provided by access to the capital markets as well as earning asset liquidations and funds provided by operating activities. Capital market funding has generally been in the form of commercial paper, extendible commercial notes, domestic and euro medium-term notes and bonds and transactions through the Company's asset-backed securitization programs.
The Company uses a variety of derivative financial instruments to manage interest rate and currency exchange exposures. The derivative instruments used include cross currency and interest rate swap agreements, indexed note swap agreements and option-based products. The Company does not use any of these instruments for trading purposes.
Competition and Government Regulations
TMCC's primary competitors for retail leasing and financing are commercial banks, savings and loan associations, credit unions, finance companies and other captive automobile finance companies. Commercial banks and other captive automobile finance companies also provide wholesale financing for Toyota and Lexus dealers. Competition for the principal products and services provided through the insurance operations is primarily from national and regional independent service contract providers. TMCC's strategy is to supplement, with competitive financing and insurance programs, the overall commitment of TMS to offer a complete package of services to authorized Toyota and Lexus dealers and their customers.
The finance and insurance operations of the Company are regulated under both federal and state law. A majority of states have enacted legislation establishing licensing requirements to conduct retail and other finance and insurance activities. Most states also impose limits on the maximum rate of finance charges. In certain states, the margin between the present statutory maximum interest rates and borrowing costs is sufficiently narrow that, in periods of rapidly increasing or high interest rates, there could be an adverse effect on the Company's operations in these states if the Company were unable to pass on increased interest costs to its customers. In addition, state laws differ as to whether anyone suffering injury to person or property involving a leased vehicle may bring an action against the owner of the vehicle merely by virtue of that ownership. To the extent that applicable state law permits such an action, TMCC may be subject to liability to such an injured party. However, the laws of most states either do not permit such suits or limit the lessor's liability to the amount of any liability insurance that the lessee was required under applicable law to maintain (or, in some states, the lessor was permitted to maintain), but failed to maintain. TMCC's lease contracts contain provisions requiring the lessees to maintain levels of insurance satisfying applicable state law and TMCC maintains certain levels of contingent liability insurance for protection from catastrophic claims. TMCC currently does not monitor ongoing insurance compliance in connection with its customary servicing procedures.
The Company's operations are also subject to regulation under federal and state consumer protection statutes. The Company continually reviews its operations for compliance with applicable laws. Future administrative rulings, judicial decisions and legislation may require modification of the Company's business practices and documentation.
Employee Relations
At November 30, 2000, the Company had approximately 2,700 full-time employees. The Company considers its employee relations to be good.
Segment Information
Financial information regarding industry segments is set forth in Note 17 of the Notes to Consolidated Financial Statements.
ITEM 2.
ITEM 2. PROPERTIES.
The headquarters of the Company for both finance and insurance operations is located in Torrance, California. In addition, as of November 30, 2000, the finance operation has three regional offices and 32 branch offices in cities throughout the United States and one branch office in the Commonwealth of Puerto Rico. The insurance operation has six regional sales offices; five of these premises are shared with the finance operation's branch offices. A finance and insurance service center is located in Cedar Rapids, Iowa. All premises are occupied under lease.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against TMCC and its subsidiaries with respect to matters arising from the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in TMCC's business operations, policies and practices. Certain of these actions are similar to suits, which have been filed against other financial institutions and captive finance companies. 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 September 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 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
TMCC is a wholly-owned subsidiary of TFSA and, accordingly, all shares of the Company's stock are owned by TFSA. There is no market for TMCC's stock.
No dividends have been declared or paid to date.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Certain prior period amounts have been reclassified to conform with the current period presentation.
ITEM 7.
ITEM 7. 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 fiscal years ended September 30, 2000, 1999 and 1998:
Net income from financing operations decreased 38% in fiscal 2000, primarily due to lower interest margin as a result of higher interest expense, the recognition of asset impairment losses, higher provision for credit losses, and higher operating and administrative expenses. The decrease in fiscal 1999 financing operations net income from fiscal 1998 reflects lower financing revenues and higher operating and administrative expenses, substantially offset by lower interest expense, lower provision for credit losses and lower depreciation on leases.
Net income from insurance operations increased 79% in fiscal 2000, primarily due to higher insurance premiums earned and contract revenues, higher investment income and lower provision for income taxes, partially offset by higher insurance losses and loss adjustment expenses. The decrease in fiscal 1999 net income reflects higher operating and administrative expenses and lower investment income.
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 years ended September 30, 2000, 1999, and 1998 are summarized below:
TMCC's net earning assets as of September 30, 2000 increased from September 30, 1999 due to growth in retail, finance lease and wholesale earning assets, partially offset by a decline in operating lease earning assets. The increase in retail earning assets was primarily due to higher retail contract volume, partially offset by the sale of $1.5 billion of retail finance receivables during fiscal 2000. Finance lease earning assets increased from September 30, 1999 as fiscal 2000 volume exceeded liquidations. Wholesale earning assets increased from September 30, 1999 primarily due to an increase in the number of dealers receiving wholesale financing. The increase in allowance for credit losses reflects asset growth.
TMCC's net earning assets as of September 30, 1999 increased from September 30, 1998 primarily due to growth in retail and wholesale earning assets, partially offset by a decline in lease earning assets.
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. The value of the lease contracts purchased by the Titling Trust in fiscal 2000 and 1999 represented approximately 43% and 41%, respectively, of all lease contracts purchased by both TMCC and the Titling Trust. 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 increasing mix of finance receivables relative to operating lease assets due to the classification differences described above.
TMS sponsors special lease and retail programs which subsidize reduced monthly payments on certain Toyota and Lexus new vehicles and Toyota industrial equipment to qualified lease and retail customers. Support amounts received from TMS in connection with these programs approximate the balances required by TMCC to maintain revenues at standard program levels and are earned over the expected lease and retail installment contract terms. The level of sponsored program activity varies based on TMS marketing strategies, and revenues earned vary based on the mix of Toyota and Lexus vehicles, timing of programs and the level of support provided. Support amounts earned from TMS sponsored special lease and retail contracts totaled $108 million, $126 million and $142 million for fiscal years 2000, 1999 and 1998, respectively.
TMCC's lease contract volume for the year ended September 30, 2000 declined from 1999 reflecting lower levels of programs sponsored by TMS. TMCC's retail contract volume for the year ended September 30, 2000 increased from 1999 levels due to competitive pricing and the strong sales of Toyota and Lexus vehicles.
The increase in used vehicle retail contract volume during fiscal 2000 and 1999 reflects a large supply of used vehicles due to the volume of vehicles coming off-lease as well as a shift from leasing to retail financing.
Lower lease contract volume in 1999 compared to 1998 was primarily due to lower finance penetration due to changes in lease programs and the residual value setting policy, as well as lower levels of programs sponsored by TMS. Higher retail contract volume in 1999 compared to 1998 was primarily due to competitive pricing and strong sales of Toyota and Lexus vehicles.
Net Financing Revenue and Other Revenues - ----------------------------------------
TMCC's net financing revenues increased in fiscal 2000 primarily due to lower depreciation expenses and higher retail and wholesale revenues, substantially offset by higher interest expense. The decrease in fiscal 1999 net financing revenues was primarily due to lower leasing revenues, offset by lower interest expense and increased retail and wholesale revenues. 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 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 9% in fiscal 2000 and 1999, respectively, due to higher underwriting revenues associated with in-force agreements.
The following table summarizes TMCC's investment and other income for the fiscal years ended September 30, 2000, 1999 and 1998:
The increase in investment and other income from fiscal 1999 to fiscal 2000 is primarily due to higher investment income, partially offset by lower gains on assets sold and lower servicing fee income. The increase in investment and other income from fiscal 1998 to fiscal 1999 is primarily due to higher servicing fee income, partially offset by lower gains on assets sold.
The increase in investment income in fiscal 2000 reflects higher market interest rates and an increase in TMCC's portfolio of marketable securities. Servicing fee income decreased 13% in fiscal 2000 due to the reduction in the average balance of sold interests in lease and retail finance receivables as well as the temporary waiver of servicing fee income related to the fiscal 1997 sale of interests in lease finance receivables. Servicing fee income increased 50% in fiscal 1999 due to the growth in the combined balance of sold interests in lease finance and sold retail receivables.
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. Gains on assets sold decreased $10 million and $6 million during fiscal years 2000 and 1999, respectively, primarily due to increases in market interest rates which result in narrower spreads being retained by the Company.
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 $74 million and $19 million during the years ended September 30, 2000 and 1999, respectively, resulting from an increase in vehicle disposition loss assumptions related to leases originated prior to model year 1999 and terminating fiscal years 2000 through 2002.
Depreciation on Leases - ---------------------- The following table sets forth the items included in TMCC's depreciation on leases for the years ended September 30, 2000, 1999 and 1998:
Straight-line depreciation expense decreased 8% during fiscal 2000 and 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 on operating leases.
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 risk of higher aggregate losses.
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 September 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.
The decrease in the provision for residual value losses in fiscal 2000 reflects reduced losses at vehicle disposition, as well as management's estimate that current reserve levels are considered adequate to cover expected losses at vehicle disposition as of September 30, 2000. Losses at vehicle disposition decreased $30 million and $42 million during fiscal 2000 and fiscal 1999, respectively. 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, partially offset by a higher rate of vehicle returns. 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.
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% for fiscal 2000 as compared to 47% and 40% for fiscal 1999 and 1998, respectively. 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 the large supply of vehicles coming off-lease to continue through fiscal 2001 and that the full term return ratio and losses will remain at or near current levels.
Under an arrangement with TMS, TMCC received support for vehicle disposition losses in fiscal years 2000 and 1998; no assurance can be provided as to either the level of 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 42 months and 40 months at September 30, 2000 and 1999, respectively.
Interest Expense - ----------------
Interest expense increased 37% in fiscal 2000 compared with fiscal 1999 primarily due to higher average cost of borrowings and an increase in average debt outstanding. Interest expense decreased 5% in fiscal 1999 reflecting lower average cost of borrowings, partially offset by an increase in average debt outstanding. The weighted average cost of borrowings was 6.30%, 5.34% and 5.85% for the years ended September 30, 2000, 1999 and 1998, respectively. Increases in TMCC's interest costs are expected to continue through fiscal 2001 reflecting the increases in market interest rates during fiscal 2000 and 1999.
Operating and Administrative Expenses - -------------------------------------
Operating and administrative expenses increased 6% and 16% in fiscal 2000 and 1999, respectively. The increase in fiscal 2000 reflects expenses associated with technology-related projects, as well as costs to support TMCC's growing customer base. The increase in fiscal 1999 reflects primarily additional personnel and operating costs required to support TMCC's growing customer base, growth in the Company's insurance operations, as well as costs in connection with technology upgrades and software modifications to address year 2000 issues.
Included in operating and administrative expenses are charges allocated by TMS for certain technological and administrative services provided to TMCC. On October 1, 2000, TMS and TMCC entered into a Shared Services Agreement covering the services TMS will continue to provide after the ownership of TMCC was transferred to TFSA. During fiscal 2000, charges reimbursed by TMCC to TMS totaled $25 million. Net charges to be reimbursed by TMCC to TMS during the six months ended March 31, 2001 are estimated to range between $22 million and $28 million. The Shared Services Agreement is filed as an exhibit in Item 14.
A credit support fee agreement expected to be entered into between TMCC and TFSC provides that TMCC will pay to TFSC a semi-annual fee equal to a percentage of the outstanding amount of TMCC's Securities entitled to credit support, as described under Item 1. Credit support fees to be included in operating and administrative expenses for the six months ended March 31, 2001 are estimated to be $6 million.
Operating and administrative expenses are also expected to increase as a result of the planned restructuring of TMCC's field operations. The branch offices of TMCC will be converted to serve only dealer business which includes the purchasing of contracts from dealers, financing inventories, loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements, as well as consulting on finance and insurance operations. The other functions that the branch offices currently cover, such as customer service, collections, lease termination and administrative functions, will be handled by three regional call centers. The new structure is expected to be completed in fiscal 2003. Restructuring charges to be recognized during the six months ended March 31, 2001 are not expected to exceed $10 million. Additional restructuring charges are expected through fiscal 2003.
Provision for Credit Losses - ---------------------------
TMCC's provision for credit losses increased 63% during fiscal 2000 reflecting growth in earning assets. The provision for credit losses decreased 35% during fiscal 1999 based on improved credit loss experience, portfolio composition and other factors. 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 September 30, 2000.
During fiscal 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 national launch of an expanded tiered pricing program for lease vehicle contracts is planned for fiscal 2001. 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.
An analysis of credit losses and the related allowance follows, excluding net losses on receivables sold subject to limited recourse provisions:
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 securitization programs. Debt issuances have generally been in the form of commercial paper, extendible commercial notes ("ECNs") and domestic and euro medium-term notes ("MTNs") and bonds.
Commercial paper and ECN issuances 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 fiscal 2000, with an average outstanding balance of $2.7 billion. The outstanding balance of ECNs at September 30, 2000 totaled $195 million.
For additional liquidity purposes, TMCC maintains syndicated bank credit facilities with certain banks, which aggregated $3.0 billion at November 30, 2000. No loans were outstanding under any of these bank credit facilities during fiscal 2000. TMCC also maintains, uncommitted, unsecured lines of credit with banks totaling $125 million. At November 30, 2000, TMCC had issued approximately $1 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 fiscal 2000, TMCC issued approximately $4.9 billion of domestic and euro MTNs and bonds all of which had original maturities of one year or more.
The original maturities of all MTNs and bonds outstanding at September 30, 2000 ranged from nine months to eleven years. As of September 30, 2000, TMCC had total MTNs and bonds outstanding of $17.5 billion, of which $7.0 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 November 30, 2000, approximately $3.3 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 $4.8 billion was available for issuance under the euro MTN program as of November 30, 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 markets that are not issued under its MTN programs.
Additionally, TMCC uses its asset-backed securitization programs to generate funds for investment in earning assets as described in Note 7 to the Consolidated Financial Statements. 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. During the year ended September 30, 2000, TMCC sold retail receivables totaling $1.5 billion in connection with securities issued under the shelf registration statement. As of November 30, 2000, $1.5 billion remained available for issuance under the registration statement.
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 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, 1.24 and 1.25 in the years ended September 30, 2000, 1999, and 1998, respectively. 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 during fiscal 2000 was due to several factors including lower interest margin as a result of higher interest expense, the recognition of asset impairment losses, higher provision for credit losses and higher operating and administrative expenses.
Cash flows provided by operating, investing and financing activities have been used primarily to support earning asset growth. Cash provided by the liquidation and sale of earning assets, totaling $23.0 billion and $21.0 billion during fiscal 2000 and 1999, respectively, was used to purchase additional investments in operating leases and finance receivables, totaling $28.2 billion and $23.9 billion during fiscal 2000 and 1999, respectively. Investing activities resulted in a net use of cash of $5.1 billion and $3.3 billion in fiscal 2000 and 1999, respectively, as the purchase of additional earning assets exceeded cash provided by the liquidation of earning assets. Net cash provided by operating activities totaled $1.9 billion and $2.3 billion in fiscal 2000 and 1999, and net cash provided by financing activities totaled $3.1 billion and $1.1 billion, during fiscal 2000 and 1999, respectively. 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 ECNs, and asset-backed securitization transactions will provide sufficient liquidity to meet its future funding requirements.
Euro Conversion - ---------------
On January 1, 1999, eleven of the fifteen member countries of the European Union (the "participating countries") established fixed conversion rates between their existing sovereign currencies (the "legacy currencies") and the euro. The participating countries agreed to adopt the euro as their common legal currency on the date that the euro began trading on currency exchanges and was available for non-cash transactions. The legacy currencies are scheduled to remain legal tender in the participating countries as denominations of the euro until January 1, 2002 (the "transition period"). During the transition period, public and private parties may pay for goods and services using either the euro or the participating country's legacy currency. Beginning January 1, 2002, the participating countries will issue new euro-denominated bills and coins for use in cash transactions and legacy currencies will be withdrawn from circulation, signifying the completion of the euro conversion process.
As TMCC does not currently support Toyota finance operations in Europe, the impact of the euro conversion is limited to issues in connection with raising funds in the European capital markets. TMCC generally hedges all foreign exchange exposure associated with its funding activities which limits its exposure to movements in foreign exchange rates. In addition, payments in foreign currencies owed by TMCC are made by its counterparties under International Swaps and Derivatives Association, Inc. ("ISDA") master agreements governing swap transactions. Accordingly, TMCC did not need to make any material changes to its systems to accommodate these types of payments. TMCC has provided changes to its standard settlement instructions to the extent necessary to reflect changes in account information and payment instructions occurring as a result of the introduction of the euro. TMCC does not believe that it will experience significant issues relating to the continuity of TMCC's contracts arising from the introduction of the euro. The ISDA Master Agreements entered into by TMCC are generally governed by New York law. New York has adopted legislation which prevents a party to a contract from unilaterally breaking or changing its contractual obligations as a result of the euro conversion. In addition, TMCC is a party to the EMU Protocol published by ISDA designed to clarify the effects of certain issues surrounding the introduction of the euro including continuity of contracts, price source changes, payment netting and certain definitions.
The introduction of the euro has not had a material adverse effect on the Company's operations or financial results. The Company plans to continue to consider the euro in future funding strategies and will continue to fund in all markets which are cost-effective.
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 the Company considers its employee relations to be good; that increases in interest costs are expected to continue through fiscal 2001; that TMCC anticipates continued growth in operating and administrative expenses reflecting costs associated with technology initiatives and operating and administrative services provided by TMS, credit support fees and the restructuring of TMCC's field operations; that the implementation of the expanded tiered pricing programs may result in increased contract yields and as the portfolio matures, increased credit losses in connection with purchases of higher risk contracts; that TMCC expects the large supply of vehicles coming off-lease to continue through fiscal 2001 and that the full term return ratio and losses will remain at or near current levels; 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 the decline in the ratio of earnings to fixed charges has not affected its 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 ECNs, and asset-backed securitization transactions will provide sufficient liquidity to meet its future funding requirements; that TMCC does not believe that it will experience significant issues relating to the continuity of TMCC's contracts arising from the introduction of the euro; that the Company does not currently anticipate non-performance by any of its counterparties;
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 rating agency actions; increases in market interest rates; 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.
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 adopted SFAS Nos. 133 and 138 on October 1, 2000. The adoption of these new accounting standards will result in cumulative after-tax reductions in net income of approximately $2 million. The adoption will also impact assets and liabilities recorded on the balance sheet.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement replaces SFAS No. 125 and revises the standards for accounting for securitizations and other transfers of financial assets and collateral. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company has not determined the impact that adoption of this standard will have on its consolidated financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TMCC utilizes a variety of interest rate and currency derivative financial instruments to manage interest rate and currency exchange exposures. The derivative instruments used include cross currency and interest rate swaps, indexed note swaps and option-based products. TMCC does not use any of these instruments for trading purposes. The total notional amounts of TMCC's derivative financial instruments at September 30, 2000 and 1999 were $32.0 billion and $26.0 billion, respectively. The notional amounts of interest rate and indexed note swap agreements and option-based products do not represent amounts exchanged by the parties and, thus, are not a measure of the Company's exposure through its use of derivatives. The only market rate risk related to TMCC's portfolio is interest rate risk as foreign currency risks are entirely hedged through cross currency interest rate swap agreements.
TMCC utilizes interest rate swap agreements in managing its exposure to interest rate fluctuations. Interest rate swap agreements are executed as an integral part of specific debt transactions or on a portfolio basis. TMCC's interest rate swap agreements involve agreements to pay fixed and receive a floating rate, or receive fixed and pay a floating rate, at specified intervals, calculated on an agreed-upon notional amount. Interest rate swap agreements may also involve basis swap contracts which are agreements to exchange the difference between certain floating interest amounts, such as the net payment based on the commercial paper rate and the London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional amount.
TMCC also utilizes option-based products in managing its exposure to interest rate fluctuations. Option-based products are executed on a portfolio basis and consist primarily of purchased interest rate cap agreements and, to a lesser extent, corridor agreements. Option-based products are agreements which either grant TMCC the right to receive, or require TMCC to make payments at, specified interest rate levels.
TMCC utilizes indexed note swap agreements in managing its exposure in connection with debt instruments whose interest rate and/or principal redemption amounts are derived from other underlying instruments. Indexed note swap agreements involve agreements to receive interest and/or principal amounts associated with the indexed notes, denominated in either U.S. dollars or a foreign currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities.
TMCC utilizes cross currency interest rate swap agreements to entirely hedge exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executed cross currency interest rate swap agreements which involve the exchange of foreign currency principal and interest obligations for U.S. dollar obligations at agreed-upon currency exchange and interest rates.
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 risk is managed through the use of credit standard guidelines, counterparty diversification, monitoring of counterparty financial condition and master netting agreements in place with all derivative counterparties. Credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at September 30, 2000 reduced by the effects of master netting agreements. The credit exposure of TMCC's derivative financial instruments at September 30, 2000 was $95 million on an aggregate notional amount of $32.0 billion. Additionally, at September 30, 2000, approximately 89% 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 currently anticipate non-performance by any of its counterparties and has no reserves related to non-performance as of September 30, 2000; TMCC has not experienced any counterparty default during the three years ended September 30, 2000.
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 in fair value 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 and equipment financing as these amounts are not significant to TMCC's total portfolio.
The value-at-risk methodology uses five 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.
The value-at-risk and the average value-at-risk of TMCC's portfolio as of and for the fiscal years ended September 30, 2000 and 1999, measured as the potential 30 day loss in fair value from assumed adverse changes in interest rates are as follows:
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. The increase in the mean portfolio value and value-at-risk levels from fiscal 1999 primarily reflects an increase in TMCC's portfolio and changes in market rates.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page -------
Report of Independent Accountants................................ 27
Consolidated Balance Sheet at September 30, 2000 and 1999........ 28
Consolidated Statement of Income for the years ended September 30, 2000, 1999 and 1998................. 29
Consolidated Statement of Shareholder's Equity for the years ended September 30, 2000, 1999 and 1998............. 30
Consolidated Statement of Cash Flows for the years ended September 30, 2000, 1999 and 1998................. 31
Notes to Consolidated Financial Statements....................... 32-60
All schedules have been omitted because they are not required, not applicable, or the information has been included elsewhere.
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Board of Directors and Shareholder of Toyota Motor Credit Corporation
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholder's equity and cash flows present fairly, in all material respects, the financial position of Toyota Motor Credit Corporation and its subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California October 31, 2000
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Millions)
See Accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Millions)
See Accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (Dollars in Millions)
See Accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Millions)
See Accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations - -----------------------------
Toyota Motor Credit Corporation ("TMCC") provides retail and wholesale financing, retail leasing and certain other financial services to authorized Toyota and Lexus vehicle and Toyota industrial equipment dealers and their customers in the United States (excluding Hawaii) and the Commonwealth of Puerto Rico. As of September 30, 2000, TMCC was a wholly-owned subsidiary of Toyota Motor Sales, U.S.A., Inc. ("TMS" or the "Parent"). TMS is primarily engaged in the wholesale distribution of automobiles, trucks, industrial equipment and related replacement parts and accessories throughout the United States (excluding Hawaii). Substantially all of TMS's products are purchased from Toyota Motor Corporation ("TMC") or its affiliates.
TMCC has four wholly-owned subsidiaries, Toyota Motor Insurance Services, Inc. ("TMIS"), Toyota Motor Credit Receivables Corporation ("TMCRC"), Toyota Leasing, Inc. ("TLI") and Toyota Credit de Puerto Rico Corporation ("TCPR"). TMCC and its wholly-owned subsidiaries are collectively referred to as the "Company". TMIS provides certain insurance services along with certain insurance and contractual coverages in connection with the sale and lease of vehicles. In addition, the insurance subsidiaries insure and reinsure certain TMS and TMCC risks. TMCRC, a limited purpose subsidiary, operates primarily to acquire retail finance receivables from TMCC for the purpose of securitizing such receivables. TLI, a limited purpose subsidiary, operates primarily to acquire lease finance receivables from TMCC for the purpose of securitizing such leases. TCPR provides retail and wholesale financing and certain other financial services to authorized Toyota and Lexus vehicle dealers and their customers in Puerto Rico.
Toyota Credit Argentina S.A. ("TCA") provides retail and wholesale financing to authorized Toyota vehicle dealers and their customers in Argentina. TMCC owns a 33% interest in TCA. TMCC's investment in TCA is accounted for using the equity method. Banco Toyota do Brasil ("BTB") provides retail and lease financing to authorized Toyota vehicle dealers and their customers in Brazil. BTB is owned 15% by TMCC. TMCC's investment in BTB is accounted for using the cost method. The remaining interests in TCA and BTB are owned by TMC, the ultimate parent of TMCC.
The Company's earnings are primarily impacted by the level of average earning assets, comprised primarily of investments in finance receivables and operating leases, and asset yields as well as outstanding borrowings and the cost of funds. The Company's business is substantially dependent upon the sale of Toyota and Lexus vehicles in the United States. Changes in the volume of sales of such vehicles resulting from governmental action, changes in consumer demand, changes in pricing of imported units due to currency fluctuations, or other events could impact the level of finance and insurance operations of the Company.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies - ---------------------------------------------------
Use of Estimates ----------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation ---------------------------
The consolidated financial statements include the accounts of TMCC and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents -------------------------
Cash equivalents, consisting primarily of money market instruments and debt securities, represent highly liquid investments with original maturities of three months or less.
Investments in Marketable Securities ------------------------------------
Investments in marketable securities consist of debt and equity securities. Debt securities designated as held-to-maturity are carried at amortized cost and are reduced to net realizable value for other than temporary declines in market value. Debt and equity securities designated as available-for-sale are carried at fair value with unrealized gains or losses included in accumulated other comprehensive income, net of applicable taxes. Realized investment gains and losses, which are determined on the specific identification method, are reflected in income.
Investments in Operating Leases -------------------------------
Investments in operating leases are recorded at cost and depreciated on a straight-line basis, over the lease terms to the estimated residual value. Revenue from operating leases is recognized on a straight-line basis over the lease terms.
Finance Receivables -------------------
Finance receivables are recorded at the present value of the related future cash flows including residual values for finance leases. Revenue associated with finance receivables is recognized on a level-yield basis over the contract terms.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued) - ---------------------------------------------------
Allowance for Credit Losses ---------------------------
Allowances for credit losses are evaluated periodically, considering historical loss experience and other factors, and are maintained in amounts considered by management to be appropriate in relation to receivables outstanding and expected future loss experience. Losses are charged to the allowance for credit losses when it has been determined that collateral cannot be recovered and any shortfall between proceeds received and the carrying cost of repossessed collateral is charged to the allowance. Recoveries are credited to the allowance for credit losses.
Allowance for Residual Value Losses -----------------------------------
Allowances for estimated losses on lease vehicles returned to TMCC for disposition at lease termination are established based upon projected vehicle return rates and projected residual value losses derived from historical and market information as well as general economic factors. The provision for residual value losses is included in lease depreciation expense.
Deferred Charges ----------------
Deferred charges consist primarily of premiums paid for option-based products, underwriters' commissions and other debt issuance costs which are amortized to interest expense over the life of the related instruments on a straight-line basis, which is not materially different from the effective interest method.
Derivative Financial Instruments --------------------------------
TMCC uses a variety of derivative financial instruments to manage funding costs and risks associated with changes in interest and foreign currency exchange rates. The derivative instruments used include interest rate, cross currency interest rate and indexed note swap agreements and option-based products. TMCC does not use any of these instruments for trading purposes. The derivative financial instruments are specifically designated to the underlying debt obligations or to portfolio level risks. Cash flows related to these instruments are classified in the same categories as cash flows from related borrowing activities.
Interest Rate Swap Agreements ----------------------------- Interest rate swap agreements are executed as an integral part of specific debt transactions or on a portfolio basis. The differential paid or received on interest rate swap agreements is recorded on an accrual basis as an adjustment to interest expense over the term of the agreements.
Cross Currency Interest Rate Swap Agreements -------------------------------------------- Cross currency interest rate swap agreements are executed as an integral part of foreign currency debt transactions. The differential between the contract rates and the foreign currency spot exchange rates as of the reporting dates is classified in other receivables or accounts payable and accrued expenses; the differential paid or received on the interest rate swap portion of the agreements is recorded on an accrual basis as an adjustment to interest expense over the term of the agreements.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued) - ---------------------------------------------------
Indexed Note Swap Agreements ---------------------------- Indexed note swap agreements are executed as an integral part of indexed note transactions. Any differential between contract rates and foreign currency spot exchange rates as of the reporting dates is classified in other receivables or accounts payable and accrued expenses; the interest differential paid or received on indexed note swap agreements is recorded on an accrual basis as an adjustment to interest expense over the term of the agreements.
Option-Based Products --------------------- Option-based products are executed on a portfolio basis. Premiums paid for option-based products are included in deferred charges and are amortized to interest expense over the life of the instruments on a straight-line basis. Amounts receivable under option-based products are recorded on an accrual basis as a reduction to interest expense.
Insurance Operations --------------------
Revenues from providing coverage under various contractual agreements are recognized over the term of the agreement in relation to the timing and level of anticipated expenses. Revenues from insurance premiums are earned over the terms of the respective policies in proportion to estimated claims activity. Certain costs of acquiring new business, consisting primarily of commissions and premium taxes, are deferred and amortized over the terms of the related policies on the same basis as revenues are earned. The liability for reported losses and the estimate of unreported losses are recorded in accounts payable and accrued expenses. Commissions and fees from services provided are recognized in relation to the timing and level of services performed.
Income Taxes ------------
TMCC uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are adjusted to reflect changes in tax rates and laws in the period such changes are enacted resulting in adjustments to the current period's provision for income taxes.
The Company joins with TMS in filing consolidated federal income tax returns and combined or consolidated income tax returns in certain states. Federal and state income tax expense is generally recognized as if the Company filed its tax returns on a stand alone basis. In those states where TMCC joins in the filing of consolidated or combined income tax returns, TMCC is allocated its share of the total income tax expense based on the Company's income or loss which would be allocable to such states if the Company filed separate returns. Based on an informal tax sharing agreement with TMS and other members of the TMS group, the Company pays TMS for its share of the consolidated federal and consolidated or combined state income tax expense and is reimbursed for the benefit of any of its tax basis losses utilized in the consolidated federal and consolidated or combined state income tax returns.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued) - ---------------------------------------------------
Asset-Backed Securitization Transactions ----------------------------------------
TMCC periodically sells retail receivables and interests in lease finance receivables through limited purpose subsidiaries TMCRC and TLI, respectively. TMCC retains servicing rights for sold assets and receives a servicing fee which is recognized over the remaining term of the related sold retail receivables or interests in lease finance receivables. TMCRC and TLI retain 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. The Company's retained interests in such receivables are included in investments in marketable securities and are classified as available for sale.
Pre-tax gains on sold retail receivables and interests in lease finance receivables are recognized in the period in which the sale occurs and are included in other income. In determining such gains, the investment in sold retail receivables and interests in lease finance receivables are allocated between the portion sold and the portion retained based on their relative fair values on the date sold.
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 adopted SFAS Nos. 133 and 138 on October 1, 2000. The adoption of these new accounting standards will result in cumulative after-tax reductions in net income of approximately $2 million. The adoption will also impact assets and liabilities recorded on the balance sheet.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This statement replaces SFAS No. 125 and revises the standards for accounting for securitizations and other transfers of financial assets and collateral. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company has not determined the impact that adoption of this standard will have on its consolidated financial statements.
Reclassifications -----------------
Certain 1999 and 1998 amounts have been reclassified to conform with the 2000 presentation.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities - ---------------------------------------------
TMCC records its investments in marketable securities which are designated as available-for-sale at fair value estimated using quoted market prices or discounted cash flow analysis. Unrealized gains, net of income taxes, related to available-for-sale securities are included in comprehensive income. Securities designated as held-to-maturity are recorded at amortized cost.
The estimated fair value and amortized cost of investments in marketable securities are as follows:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities (Continued) - ---------------------------------------------
The contractual maturities of investments in marketable securities at September 30, 2000 are as follows:
The proceeds from sales of available-for-sale securities were $740 million and $562 million for the years ended September 30, 2000 and 1999, respectively. Realized gains on sales of available-for-sale securities were $13 million, $6 million and $6 million for the years ended September 30, 2000, 1999 and 1998, respectively. Realized losses on sales of available-for-sale securities were $5 million, $5 million and $1 million for the years ended September 30, 2000, 1999 and 1998, respectively.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Finance Receivables - ----------------------------
Finance receivables, net consisted of the following:
Contractual maturities are as follows:
Finance leases, net consisted of the following:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Finance Receivables (Continued) - ----------------------------
The aggregate balances related to finance receivables 60 or more days past due totaled $32 million and $20 million at September 30, 2000 and 1999, respectively. Future minimum finance lease payments for each of the five succeeding years ending September 30, are: 2001 - $1,400 million; 2002 - $1,493 million; 2003 - $1,342 million; 2004 - $796 million and 2005 - $402 million. A substantial portion of TMCC's finance receivables have historically been repaid prior to contractual maturity dates; contractual maturities and future minimum lease payments as shown above should not be considered as necessarily indicative of future cash collections. The majority of retail and finance lease receivables do not involve recourse to the dealer in the event of customer default.
Note 5 - Investments in Operating Leases - ----------------------------------------
Investments in operating leases, net consisted of the following:
Rental income from operating leases was $2,013 million, $2,185 million and $2,372 million for the years ended September 30, 2000, 1999 and 1998, respectively. Future minimum rentals on operating leases for each of the five succeeding years ending September 30, are: 2001 - $1,530 million; 2002 - $943 million; 2003 - $447 million; 2004 - $101 million; 2005 - $9 million and thereafter - $1 million. A substantial portion of TMCC's operating lease contracts have historically been terminated prior to maturity; future minimum rentals as shown above should not be considered as necessarily indicative of future cash collections.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Allowance for Credit Losses - ------------------------------------
An analysis of the allowance for credit losses follows:
Note 7 - Sale of Retail Receivables and Interests in Lease Finance Receivables - ----------------------------------------------------------------------------- - -
TMCC maintains programs to sell retail receivables and interests in lease finance receivables through limited purpose subsidiaries TMCRC and TLI, respectively. During fiscal year 2000, TMCC sold interests in retail finance receivables totaling $1.5 billion, as described below.
Following is a summary of amounts included in investment in marketable securities and other receivables:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Retail Receivables and Interests in Lease Finance Receivables - ----------------------------------------------------------------------------- - - (Continued)
The pretax gain resulting from the sale of retail receivables and interests in lease finance receivables totaled approximately $5 million, $8 million and $15 million in fiscal 2000, 1999 and 1998, respectively, after providing an allowance for estimated credit and residual value losses. The pretax gain of $5 million for fiscal 2000 included a $3.9 million loss on the termination of interest rate swaps issued in conjunction with the transaction. In addition, TMCC exercised its clean-up call option to purchase the outstanding receivables sold in the April 1997 retail securitization transaction.
TMCC recorded an adjustment to other receivables totaling $74 million and $19 million in fiscal years 2000 and 1999, respectively, to recognize the impairment of an asset retained in the fiscal 1997, 1998 and 1999 sales of interests in lease finance receivables. These impairments were recognized when the future undiscounted cash flows of the assets were estimated to be insufficient to recover the related carrying values.
The outstanding balance of sold retail finance receivables which TMCC continues to service totaled $1.9 billion and $1.0 billion at September 30, 2000 and 1999, respectively. The outstanding balance of sold interests in lease finance receivables which TMCC continues to service totaled $1.9 billion and $3.1 billion at September 30, 2000 and 1999, respectively.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Notes and Loans Payable - --------------------------------
Notes and loans payable at September 30, 2000 and 1999, which consisted of senior debt, included the following:
Short-term borrowings include commercial paper, extendible commercial notes and certain domestic and euro medium-term notes ("MTNs"). The weighted average remaining term of commercial paper was 15 days and 21 days at September 30, 2000 and 1999, respectively. The weighted average interest rate on commercial paper was 6.56% and 5.33% at September 30, 2000 and 1999, respectively. The weighted average remaining term of extendible commercial notes was 47 days and 18 days at September 30, 2000 and 1999, respectively. The weighted average interest rate on extendible commercial notes was 6.64% and 5.39% at September 30, 2000 and 1999, respectively. Short-term MTNs with original terms of one year or less, included in other senior debt, were $775 million and $1,358 million at September 30, 2000 and 1999, respectively. The weighted average interest rate on these short-term MTNs was 5.93% and 5.57% at September 30, 2000 and 1999, respectively, including the effect of interest rate swap agreements.
The weighted average interest rate on other senior debt was 6.52% and 5.45% at September 30, 2000 and 1999, respectively, including the effect of interest rate swap agreements. The rates have been calculated using rates in effect at September 30, 2000 and 1999, some of which are floating rates that reset periodically. Less than one percent of other senior debt at September 30, 2000 had interest rates, including the effect of interest rate swap agreements, that were fixed for a period of more than one year. Approximately 62% of other senior debt at September 30, 2000 had floating interest rates that were covered by option-based products. The weighted average strike rate on these option- based products was 6.45% at September 30, 2000. TMCC manages interest rate risk through continuous adjustment of the mix of fixed and floating rate debt using interest rate swap agreements and option-based products.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Notes and Loans Payable (Continued) - --------------------------------
Included in notes and loans payable at September 30, 2000 and 1999 were unsecured notes denominated in various foreign currencies as follows:
Concurrent with the issuance of these unsecured 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 $8.2 billion at September 30, 2000. 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 September 30, 2000. The receivables or payables arising as a result of the differences between the September 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 would in aggregate total a net payable position of $1.2 billion at September 30, 2000.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Fair Value of Financial Instruments - --------------------------------------------
The fair value of financial instruments at September 30, 2000 and 1999, was estimated using the valuation methodologies described below. Considerable judgement was employed in interpreting market data to develop estimates of fair value; accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of the Company's financial instruments at September 30, 2000 and 1999 are as follows:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Fair Value of Financial Instruments (Continued) - --------------------------------------------
The fair value estimates presented herein are based on information available to management as of September 30, 2000 and 1999.
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows:
Cash and Cash Equivalents -------------------------
The carrying amount of cash and cash equivalents approximates market value due to the short maturity of these investments.
Investments in Marketable Securities ------------------------------------
The fair value of marketable securities was estimated using quoted market prices or discounted cash flow analysis.
Retail Finance Receivables --------------------------
The carrying amounts of $2.1 billion and $1.1 billion of variable rate finance receivables at September 30, 2000 and 1999, respectively, were assumed to approximate fair value as these receivables reprice at prevailing market rates. The fair value of fixed rate finance receivables was estimated by discounting expected cash flows using the rates at which loans of similar credit quality and maturity would be originated as of September 30, 2000 and 1999.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Fair Value of Financial Instruments (Continued) - --------------------------------------------
Other Receivables and Other Payables ------------------------------------
The carrying amount and fair value of other receivables and other payables are presented separately from the receivables and payables arising from cross currency interest rate swap agreements. The carrying amount of the remaining other receivables and payables approximate market value due to the short maturity of these instruments.
Notes and Loans Payable -----------------------
The fair value of notes and loans payable was estimated by discounting expected cash flows using the interest rates at which debt of similar credit quality and maturity would be issued as of September 30, 2000 and 1999. The carrying amount of commercial paper and extendible commercial notes were assumed to approximate fair value due to the short maturity of these instruments.
Cross Currency Interest Rate Swap Agreements --------------------------------------------
The estimated fair value of TMCC's outstanding cross currency interest rate swap agreements was derived by discounting expected cash flows using quoted market exchange rates and quoted market interest rates as of September 30, 2000 and 1999.
Interest Rate Swap Agreements -----------------------------
The estimated fair value of TMCC's outstanding interest rate swap agreements was derived by discounting expected cash flows using quoted market interest rates as of September 30, 2000 and 1999.
Option-based Products ---------------------
The estimated fair value of TMCC's outstanding option-based products was derived by discounting expected cash flows using market exchange rates and market interest rates as of September 30, 2000 and 1999.
Indexed Note Swap Agreements ----------------------------
The estimated fair value of TMCC's outstanding indexed note swap agreements was derived using quoted market prices as of September 30, 2000 and 1999.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Financial Instruments with Off-Balance Sheet Risk - -----------------------------------------------------------
Inventory Lines of Credit - -------------------------
TMCC has extended inventory floorplan lines of credit to dealers, the unused portion of which amounted to $1.3 billion and $1.5 billion at September 30, 2000 and 1999, respectively. Security interests are acquired in vehicles and equipment financed and substantially all such financings are backed by corporate or individual guarantees from or on behalf of the participating dealers.
Derivative Financial Instruments - --------------------------------
TMCC utilizes a variety of derivative financial instruments to manage its currency exchange rate risk arising as a result of borrowings denominated in foreign currencies and its interest rate risk as explained in this note. TMCC does not enter into these arrangements for trading purposes.
A reconciliation of the activity of TMCC's derivative financial instruments for the years ended September 30, 2000 and 1999 is as follows:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Financial Instruments with Off-Balance Sheet Risk (Continued) - -----------------------------------------------------------
Interest Rate Risk Management - -----------------------------
TMCC utilizes interest rate swap agreements in managing its exposure to interest rate fluctuations. Interest rate swap agreements are executed as an integral part of specific debt transactions or on a portfolio basis. TMCC's interest rate swap agreements involve agreements to pay fixed and receive a floating rate, or receive fixed and pay a floating rate, at specified intervals, calculated on an agreed-upon notional amount. Interest rate swap agreements may also involve basis swap contracts which are agreements to exchange the difference between certain floating interest amounts, such as the net payment based on the commercial paper rate and the London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional amount. The original maturities of interest rate swap agreements ranged from one to ten years at September 30, 2000.
TMCC also utilizes option-based products in managing its exposure to interest rate fluctuations. Option-based products are executed on a portfolio basis and consist primarily of purchased interest rate cap agreements and to a lesser extent corridor agreements. Option-based products are agreements which either grant TMCC the right to receive or require TMCC to make payments at specified interest rate levels. Approximately 62% of TMCC's other senior debt at September 30, 2000 had floating interest rates that were covered by option- based products which had an average strike rate of 6.45%. The premiums paid for option-based products are included in deferred charges and are amortized to interest expense over the life of the instruments on a straight-line basis. Amounts receivable under option-based products are recorded as a reduction to interest expense. The original maturities of option-based products ranged from one to four years at September 30, 2000.
The aggregate notional amounts of interest rate swap agreements and option- based products outstanding at September 30, 2000 and 1999 were as follows:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Financial Instruments with Off-Balance Sheet Risk (Continued) - -----------------------------------------------------------
Interest Rate Risk Management (Continued) - -----------------------------
TMCC utilizes indexed note swap agreements in managing its exposure in connection with debt instruments whose interest rate and/or principal redemption amounts are derived from other underlying instruments. Indexed note swap agreements involve agreements to receive interest and/or principal amounts associated with the indexed notes, denominated in either U.S. dollars or a foreign currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities. At September 30, 2000, TMCC was the counterparty to $1.4 billion of indexed note swap agreements, of which $0.4 billion was denominated in foreign currencies and $1.0 billion was denominated in U.S. dollars. At September 30, 1999, TMCC was the counterparty to $1.3 billion of indexed note swap agreements, of which $0.4 billion was denominated in foreign currencies and $0.9 billion was denominated in U.S. dollars. The original maturities of indexed note swap agreements ranged from two to ten years at September 30, 2000.
The notional amounts of interest rate and indexed note swap agreements and option-based products do not represent amounts exchanged by the parties and, thus, are not a measure of the Company's exposure through its use of derivatives. The amounts exchanged are calculated based on the notional amounts and other terms of the derivatives which relate to interest rates or financial or other indexes.
Foreign Exchange Risk Management - --------------------------------
TMCC utilizes cross currency interest rate swap agreements to manage exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executed cross currency interest rate swap agreements which involve the exchange of foreign currency principal and interest obligations for U.S. dollar obligations at agreed-upon currency exchange and interest rates. The aggregate notional amounts of cross currency interest rate swap agreements at September 30, 2000 and 1999 were $8.4 billion and $8.8 billion, respectively. The original maturities of cross currency interest rate swap agreements ranged from two to nine years at September 30, 2000.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Financial Instruments with Off-Balance Sheet Risk (Continued) - -----------------------------------------------------------
Credit Risk Management - ----------------------
TMCC manages the risk of counterparty default through the use of credit standard guidelines, counterparty diversification and monitoring of counterparty financial condition. At September 30, 2000, approximately 89% 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 and has no reserves related to non- performance as of September 30, 2000; TMCC has not experienced any counterparty default during the three years ended September 30, 2000. Additionally, TMCC's loss in the event of counterparty default is partially mitigated as a result of master netting agreements in place with all derivative counterparties which allow the net difference between TMCC and each counterparty to be exchanged in the event of default.
Credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at September 30, 2000 reduced by the effects of master netting agreements. The credit exposure of TMCC's derivative financial instruments at September 30, 2000 was $95 million on an aggregate notional amount of $32 billion.
Note 11 - Pension and Other Benefit Plans - -----------------------------------------
All full-time employees of the Company are eligible to participate in the TMS pension plan commencing on the first day of the month following hire. Benefits payable under this non-contributory defined benefit pension plan are based upon the employees' years of credited service and the highest sixty consecutive months' compensation, reduced by a percentage of social security benefits. The Company's pension expense was $5 million, $6 million and $4 million for the years ended September 30, 2000, 1999, and 1998, respectively. At September 30, 2000, 1999 and 1998, the accumulated benefit obligation and plan net assets for employees of the Company were not determined separately from TMS; however, the plan's net assets available for benefits exceeded the accumulated benefit obligation. TMS funding policy is to contribute annually the maximum amount deductible for federal income tax purposes.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Provision for Income Taxes - ------------------------------------
The provision for income taxes consisted of the following:
A reconciliation between the provision for income taxes computed by applying the federal statutory tax rate to income before income taxes and actual income taxes provided is as follows:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Provision for Income Taxes (Continued) - ------------------------------------
The deferred federal and state income tax liabilities are as follows:
The Company's deferred tax assets and liabilities consisted of the following:
TMCC has state tax net operating loss carryforwards of $279 million which expire beginning in fiscal 2001 through 2016.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Comprehensive Income - ------------------------------
The Company's total comprehensive earnings were as follows:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Related Party Transactions - ------------------------------------
During fiscal 2000, an operating agreement with TMS and Toyota Motor Manufacturing North America Inc. ("TMMNA") (the "Operating Agreement") provided that 100% ownership of TMCC would be retained by TMS as long as TMCC had any funded debt outstanding and that TMS and TMMNA would provide necessary equity contributions or other financial assistance it deemed appropriate to ensure that TMCC maintained a minimum coverage on fixed charges of 1.10 times such charges in any fiscal quarter. The coverage provision of the Operating Agreement was solely for the benefit of the holders of TMCC's commercial paper and extendible commercial notes. The Operating Agreement may be amended or terminated at any time without notice to, or the consent of, holders of other TMCC obligations. The Operating Agreement did not constitute a guarantee by TMS of any obligations of TMCC.
During fiscal 2000, TMCC had an arrangement to borrow and invest funds with TMS at short term market rates. For the years ended September 30, 2000, 1999 and 1998, TMCC had no borrowings from TMS for the years ended September 30, 1999 and 1998. For the years ended September 30, 2000, 1999 and 1998, the highest amounts of funds invested with TMS were $797 million, $2 billion and $567 million, respectively; interest earned on these investments totaled $13 million, $41 million and $3 million for the years ended September 30, 2000, 1999 and 1998, respectively.
During fiscal 2000 and 1998, TMS provided support to TMCC for certain vehicle disposition losses. TMS support amounts included in the Consolidated Statement of Income related to this arrangement totaled $35 million and $80 million for the years ended September 30, 2000 and 1998, respectively. TMCC did not receive any Parent support for vehicle disposition losses for the year ended September 30, 1999.
TMS provides certain technical and administrative services and incurs certain expenses on the Company's behalf. Payments and reimbursements to TMS for such services totaled $25 million, $25 million and $13 million for the years ended September 30, 2000, 1999 and 1998, respectively. In addition, TMS sponsors special retail and lease programs offered by TMCC; for the years ended September 30, 2000, 1999 and 1998, TMCC recognized revenue of $108 million, $126 million and $142 million, respectively, related to TMS sponsored programs.
The Company leases its headquarters facility and Iowa Service Center from TMS; rent expense paid to TMS for these facilities totaled $5 million, $4 million and $3 million for the years ended September 30, 2000, 1999 and 1998, respectively. TMCC leases a corporate aircraft to TMS and provides wholesale financing for TMS affiliates; TMCC recognized revenue related to these arrangements of $6 million, $6 million and $7 million for the years ended September 30, 2000, 1999 and 1998, respectively.
TMIS provides certain insurance services, and insurance and reinsurance coverages, respectively, to TMS. Premiums, commissions and fees earned on these services for the years ended September 30, 2000, 1999 and 1998 totaled $33 million, $24 million and $18 million, respectively.
During fiscal 1999, Toyota Credit Canada Inc., an affiliate of the Company, paid off $201 million in intercompany loans. Interest charged on these loans reflected market rates and totaled $8 million for the year ended September 30, 1999.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Lines of Credit/Standby Letters of Credit - ---------------------------------------------------
To support its commercial paper program, TMCC maintains syndicated bank credit facilities with certain banks which aggregated $3.0 billion and $2.7 billion at September 30, 2000 and 1999, respectively. No loans were outstanding under any of these bank credit facilities as of September 30, 2000 or 1999.
To facilitate and maintain letters of credit, TMCC maintains, along with TMS, uncommitted, unsecured lines of credit with banks totaling $175 million as of September 30, 2000 and 1999. Approximately $11 million and $13 million in letters of credit had been issued as of September 30, 2000, and 1999, respectively.
Note 16 - Commitments and Contingent Liabilities - ------------------------------------------------
At September 30, 2000, the Company was a lessee under lease agreements for facilities with minimum future commitments as follows: years ending September 30, 2001 - $15 million; 2002 - $13 million; 2003 - $9 million; 2004 - $5 million; 2005 - $2 million and thereafter - $3 million.
TMCC has guaranteed payments of principal and interest on $58 million principal amount of flexible rate demand pollution control revenue bonds maturing in 2006, issued in connection with the Kentucky manufacturing facility of an affiliate.
TMCC has guaranteed payments of principal, interest and premiums, if any, on $88 million principal amount of flexible rate demand solid waste disposal revenue bonds issued by Putnam County, West Virginia, of which $40 million matures in June 2028, $27.5 million matures in August 2029, and $20.5 million matures in April 2030. The bonds were issued in connection with the West Virginia manufacturing facility of an affiliate.
TMCC has guaranteed payments of principal, interest and premiums, if any, on $40 million principal amount of flexible rate demand pollution control revenue bonds issued by Gibson County, Indiana, of which $10 million matures in October 2027, January 2028, January 2029 and January 2030. The bonds were issued in connection with the Indiana manufacturing facility of an affiliate.
TMCC has guaranteed $50 million of the debt of TCA.
TMCC has guaranteed the obligations of TMIS relating to vehicle service insurance agreements issued in several states. These guarantees have been given without regard to any security and without any limitation as to duration or amount.
An operating agreement between TMCC and TCPR (the "Agreement"), provides that TMCC will make necessary equity contributions or provide other financial assistance TMCC deems appropriate to ensure that TCPR maintains a minimum coverage on fixed charges of 1.10 times such fixed charges in any fiscal quarter. The Agreement does not constitute a guarantee by TMCC of any obligations of TCPR. The fixed charge coverage provision of the Agreement is solely for the benefit of the holders of TCPR's commercial paper, and the Agreement may be amended or terminated at any time without notice to, or the consent of, holders of other TCPR obligations.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 - Commitments and Contingent Liabilities (Continued) - ------------------------------------------------
Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against TMCC and its subsidiaries with respect to matters arising from the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in TMCC's business operations, policies and practices. Certain of these actions are similar to suits which have been filed against other financial institutions and captive finance companies. 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 September 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.
Note 17 - Segment Information - -----------------------------
The Company's operating segments include finance and insurance operations. Finance operations include retail leasing, retail and wholesale financing and certain other financial services to authorized Toyota and Lexus vehicle and Toyota industrial equipment dealers and their customers in the United States (excluding Hawaii) and Puerto Rico. Insurance operations are performed by TMIS and subsidiaries. The principal activities of TMIS include marketing, underwriting, claims administration and providing certain coverages related to vehicle service agreements and contractual liability agreements sold by or through Toyota and Lexus vehicle dealers and affiliates to customers in the United States (excluding Hawaii). In addition, the insurance subsidiaries insure and reinsure certain TMS and TMCC risks.
The accounting policies of the operating segments are the same as those described in Note 2 of the Notes to Consolidated Financial Statements. The Company reports consolidated financial information for both external and internal purposes. Currently, TMCC's finance and insurance segments operate only in the United States and Puerto Rico.
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Segment Information (Continued) - -----------------------------
Financial results for the Company's operating segments are summarized below:
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 - Selected Quarterly Financial Data (Unaudited) - -------------------------------------------------------
Note 19 - Subsequent Events - ---------------------------
On October 1, 2000, TMCC, formerly a subsidiary of TMS, became a wholly-owned subsidiary of Toyota Financial Services Americas Corporation ("TFSA"), a holding company owned 100% by Toyota Financial Services Corporation ("TFSC") on October 1, 2000. TFSC, in turn, is a wholly-owned subsidiary of TMC. TFSC was incorporated in July 2000 and its corporate headquarters is located in Nagoya, Japan. The purpose of TFSC is to control and manage Toyota's finance operations worldwide.
Note 19 - Subsequent Events (Continued) - ---------------------------
In connection with the creation of TFSC and the transfer of ownership of TMCC from TMS to TFSC, the Operating Agreement with TMS and TMMNA was terminated, a new credit support agreement (the "TMC Credit Support Agreement") was entered into between TMC and TFSC, and a new credit support agreement (the "TFSC Credit Support Agreement") was entered into between TFSC and TMCC. Under the terms of the TMC Credit Support Agreement, TMC agreed to: 1) maintain 100% ownership of TFSC; 2) cause TFSC and its subsidiaries to have a net worth of at least Japanese yen 10 million; and 3) make sufficient funds available to TFSC so that TFSC 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 TFSC. Under the terms of the TFSC Credit Support Agreement, TFSC agreed 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 is not a guarantee by TFSC of any TMCC Securities or other obligations of TMCC. The TMC Credit Support and the TFSC Credit Support Agreements are governed by, and construed in accordance with, the laws of Japan.
On October 1, 2000, TMS and TMCC entered into a Shared Services Agreement covering the services TMS will continue to provide after the ownership of TMCC was transferred to TFSA. Additionally, a Repurchase Agreement was entered into between TMCC and TMS in October 2000 which provides that TMCC is under no obligation to TMS to finance wholesale obligations from any dealers or retail obligations of any customers. In addition, TMS will arrange for the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed in the event of dealer default.
During the first quarter of fiscal 2001, TMCC announced plans to restructure the Company's field operations. The branch offices of TMCC will be converted to serve only dealer business which includes the purchasing of contracts from dealers, financing inventories, loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements, as well as consulting on finance and insurance operations. The other functions that the branch offices currently cover, such as customer service, collections, lease termination and administrative functions, will be handled by three regional call centers. The new structure is expected to be completed in fiscal 2003.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There is nothing to report with regard to this item.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the directors and executive officers of TMCC as of November 30, 2000.
Name Age Position ---- --- -------- George Borst ............. 52 Director, President and Chief Executive Officer, TMCC; Director, Secretary and Chief Financial Officer, TFSA
Nobukazu Tsurumi.......... 52 Director, Executive Vice President and Treasurer, TMCC
Michael Deaderick......... 54 Director, Senior Vice President and Secretary, TMCC
Ryuji Araki............... 60 Director, TMCC; Director, TFSA; Director, TFSC; Senior Managing Director, TMC
Hideto Ozaki.............. 54 Director, TMCC; Director and President, TFSA; President and Director, TFSC
Yoshio Ishizaka........... 60 Director, TMCC; Senior Managing Director, TMC
Yoshimi Inaba............. 54 Director, TMCC Director, TMC
James Press............... 54 Director, TMCC
All directors of TMCC are elected annually and hold office until their successors are elected and qualified. Officers are elected annually and serve at the pleasure of the Board of Directors.
Mr. Borst was named Director, President and Chief Executive Officer of TMCC and Director, Secretary and Chief Financial Officer of TFSA in October 2000. Mr. Borst was named Senior Vice President of TMS in June 1997. From April 1997 to September 2000, Mr. Borst was Director and Senior Vice President and General Manager of TMCC. From January 1993 to May 1997, Mr. Borst was Group Vice President of TMS. Mr. Borst has been employed with TMCC and TMS, in various positions, since 1985.
Mr. Tsurumi was named Director and Executive Vice President of TMCC in October 2000. From January 2000 to September 2000, Mr. Tsurumi was Director, Senior Vice President and Treasurer of TMCC and Group Vice President of TMS. From January 1999 to December 1999, Mr. Tsurumi was Group Vice President of TMCC and Vice President of TMS. From January 1996 to December 1998, Mr. Tsurumi was Managing Director for Toyota Finance Australia. Mr. Tsurumi has been employed with TMC, in various positions worldwide, since 1971.
Mr. Deaderick was named Director and Senior Vice President and Secretary of TMCC in October 2000. From April 1998 to September 2000, Mr. Deaderick was Group Vice President - Operations of TMCC. From April 1997 to September 2000, Mr. Deaderick was Assistant Secretary of TMCC. From April 1995 to April 1998, Mr. Deaderick was Vice President - Marketing and Operations of TMCC. Mr. Deaderick has been employed with TMCC and TMS, in various positions, since 1971.
Mr. Araki was named Director of TFSA in August 2000, Director of TFSC in July 2000, and Director of TMCC in September 1995. Mr. Araki was named Senior Managing Director of TMC's Board of Directors in June 1999 and has served on TMC's Board of Directors since September 1992. From June 1997 to May 1999, Mr. Araki was Managing Director of TMC. Mr. Araki has been employed with TMC, in various positions, since 1962.
Mr. Ozaki was named Director and President of TFSA in August 2000, President and Director of TFSC in July 2000, and Director of TMCC in October 1999. From September 1997 to June 1999, Mr. Ozaki was the general manager of the finance division of TMC. From January 1997 to August 1997, Mr. Ozaki was the Project General Manager of the Finance Division of TMC. From January 1994 to December 1996, Mr. Ozaki was the Project General Manager of the Accounting Division of TMC. Mr. Ozaki has been employed with TMC, in various positions, since 1968.
Mr. Ishizaka was named Director of TMCC in July 2000, and Senior Managing Director of TMC in June 1999. From June 1996 to June 1999, Mr. Ishizaka was President of TMS. From September 1992 to May 1999, Mr. Ishizaka was Director of TMC. Mr. Ishizaka has been employed with TMC, in various positions, since 1964.
Mr. Inaba was named Director of TMCC and TMS and President of TMS in June 1999, and was named Director of TMC in June 1997. From June 1999 to September 2000, Mr. Inaba was President of TMCC. From June 1997 to June 1999, Mr. Inaba was the General Manager of the Europe, Africa and United Kingdom Division of TMC. From June 1996 to May 1997, Mr. Inaba was Senior Vice President of TMS. Mr. Inaba has been employed with TMC, in various positions worldwide, since 1968.
Mr. Press was named Director of TMCC in July 1999. He is also a Director and Executive Vice President of TMS, positions he has held since June 1996 and July 1999, respectively. From March 1998 to July 1999, he was a Senior Vice President of TMS. From April 1995 to March 1998, Mr. Press was Senior Vice President and General Manager of Lexus. Mr. Press has been employed with TMS, in various positions, since 1970.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or paid to the Company's Principal Executive Officer and the most highly compensated executive officers whose salary and bonus for the latest fiscal year exceeded $100,000, for services rendered in all capacities to the Company for the fiscal years ended September 30, 2000, 1999 and 1998.
Employee Benefit Plan
The following pension plan table presents typical annual retirement benefits under the TMS Pension Plan for various combinations of compensation and years of credited service for participants who retire at age 62, assuming no final average bonus and excluding Social Security offset amounts. The amounts are subject to Federal statutory limitations governing pension calculations and benefits.
All full-time employees of the Company are eligible to participate in the TMS Pension Plan commencing on the first day of the month following hire. Benefits payable under this non-contributory defined benefit pension plan are based upon final average compensation, final average bonus and years of credited service. Final average compensation is defined as the average of the participant's base rate of pay, plus overtime, during the highest-paid 60 consecutive months prior to the earlier of termination or normal retirement. Final average bonus is defined as the highest average of the participant's fiscal year bonus, and basic seniority-based cash bonus for non-managerial personnel, over a period of 60 consecutive months prior to the earlier of termination or normal retirement. A participant generally becomes eligible for the normal retirement benefit at age 62, and may be eligible for early retirement benefits starting at age 55.
The annual normal retirement benefit under the Pension Plan, payable monthly, is an amount equal to the number of years of credited service (up to 25 years) multiplied by the sum of (i) 2% of the participant's final average compensation less 2% of the estimated annual Social Security benefit payable to the participant at normal retirement and (ii) 1% of the participant's final average bonus. The normal retirement benefit is subject to reduction for certain benefits under any union-sponsored retirement plan and benefits attributable to employer contributions under any defined-contribution retirement plan maintained by TMS and its subsidiaries or any affiliate that has been merged into the TMS Pension Plan.
The TMS Supplemental Executive Retirement Plan (TMS SERP), a non-qualified non- contributing benefit plan, authorizes a benefit to be paid to eligible executives, including Mr. Borst and Mr. Deaderick. Benefits under the TMS SERP, expressed as an annuity payable monthly, are based on 2% of the executive's compensation recognized under the plan multiplied by the years of service credited under the plan (up to a maximum of 30), offset by benefits payable under the TMS Pension Plan and the executive's primary Social Security benefit. A covered participant's compensation may include base pay and a percentage (not in excess of 100%) of bonus pay, depending on the executive's length of service in certain executive positions. Similarly, years of service credited under the plan are determined by reference, in part, to the executive's length of service in certain executive positions. No benefit is payable under the TMS SERP to an executive unless the executive's termination of employment occurs on a date, after the executive reaches age 55, that is agreed in writing by the President of TMS and the executive; and the executive is vested in benefits under the TMS Pension Plan, or unless the executive accepts an invitation to retire extended by the President of TMS.
Mr. Borst is a participant in the TMS Pension Plan and the TMS SERP, and had 15 years of total credited service as of September 30, 2000. Based upon years of credited service allocable to TMCC, Mr. Borst may be entitled to receive approximately $36,000 in annual pension plan benefits when Mr. Borst reaches age 62. Mr. Borst also may be entitled to receive pension benefits from TMS based upon services to and compensation by TMS.
Mr. Deaderick is a participant in the TMS Pension Plan and the TMS SERP, and had 26 years of total credited service as of September 30, 2000. Based upon years of credited service allocable to TMCC, Mr. Deaderick may be entitled to receive approximately $93,000 in annual pension plan benefits when Mr. Deaderick reaches age 62. Mr. Deaderick also may be entitled to receive pension benefits from TMS based upon services to and compensation by TMS.
Compensation of Directors
No amounts are paid to members of the TMCC Board of Directors for their services as directors.
Compensation Committee Interlocks and Insider Participation
Members of the Executive Committee of the Board of Directors, which consists of the directors of TMCC other than Mr. Araki and Mr. Ishizaka, participate in decisions regarding the compensation of the executive officers of the Company. Certain of the members of the Executive Committee are current or former executive officers of the Company. Certain of the members of the Executive Committee are also current executive officers and directors of TMS and its affiliates and participate in compensation decisions for those entities.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of the date hereof, all of TMCC's capital stock is owned by TFSA.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS.
Transactions between the Company, TFSA, TFSC, TMS and TMMNA are included in Note 2, Note 11, Note 14, Note 15 and Note 16 of the Notes to the Consolidated Financial Statements as well as Item 1 and Item 7. Certain directors and executive officers of TMCC are also directors and executive officers of TFSA, TFSC, TMS and TMC as described in Item 10.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Financial Statements
Included in Part II, Item 8 of this Form 10-K. See Index to Financial Statements on page 26.
(2)Exhibits
The exhibits listed on the accompanying Exhibit Index, starting on page 68, are filed as part of, or incorporated by reference into, this Report.
(b)Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant during the quarter ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Torrance, State of California, on the 20th day of December, 2000.
TOYOTA MOTOR CREDIT CORPORATION
By /S/ GEORGE E. BORST ------------------------------ George E. Borst President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on the 20th day of December, 2000.
Signature Title --------- ----- President and Chief Executive Officer and Director /S/ GEORGE E. BORST (Principal Executive Officer) - ------------------------------------ George E. Borst
Executive Vice President and Treasurer and Director /S/ NOBUKAZU TSURUMI (Principal Financial Officer) - ------------------------------------ Nobukazu Tsurumi
Vice President - Finance and Affiliated Operations /S/ ROBERT M. ALLEN (Principal Accounting Officer) - ------------------------------------ Robert M. Allen
/S/ MICHAEL DEADERICK Director - ------------------------------------ Michael Deaderick
/S/ YOSHIMI INABA Director - ------------------------------------ Yoshimi Inaba
/S/ JAMES PRESS Director - ------------------------------------ James Press
EXHIBIT INDEX
Method Exhibit of Number Description Filing - ------- ----------- --------
3.1(a) Articles of Incorporation filed with the California Secretary of State on October 4, 1982. (1)
3.1(b) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on January 24, 1984. (1)
3.1(c) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on January 25, 1985. (1)
3.1(d) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on September 6, 1985. (1)
3.1(e) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on February 28, 1986. (1)
3.1(f) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on December 3, 1986. (1)
3.1(g) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on March 9, 1987. (1)
3.1(h) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on December 20, 1989. (2)
3.2 Bylaws as amended through January 16, 1993. (6)
4.1 Issuing and Paying Agency Agreement dated August 1, 1990 between TMCC and Bankers Trust Company. (3)
4.2(a) Indenture dated as of August 1, 1991 between TMCC and The Chase Manhattan Bank, N.A. (4)
- ----------------- (1) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Registration Statement on Form S-1, File No. 33-22440. (2) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Report on Form 10-K for the year ended September 30, 1989, Commission File number 1-9961. (3) Incorporated herein by reference to Exhibit 4.2 filed with TMCC's Report on Form 10-K for the year ended September 30, 1990, Commission File number 1-9961. (4) Incorporated herein by reference to Exhibit 4.1(a), filed with TMCC's Registration Statement on Form S-3, File No. 33-52359. (6) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Report on Form 10-K for the year ended September 30, 1993, Commission File number 1-9961.
EXHIBIT INDEX
Method Exhibit of Number Description Filing - ------- ----------- ------
4.2(b) First Supplemental Indenture dated as of October 1, 1991 among TMCC, Bankers Trust Company and The Chase Manhattan Bank, N.A. (5)
4.3 Third Amended and Restated Agency Agreement dated October 4, 2000 among TMCC, The Chase Manhattan Bank, Filed and Chase Manhattan Bank Luxembourg S.A. Herewith
4.4 TMCC has outstanding certain long-term debt as set forth in Note 8 of the Notes to Consolidated Financial Statements. Not filed herein as an exhibit, pursuant to Item 601(b) (4)(iii)(A) of Regulation S-K under the Securities Act of 1933, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10% of the total assets of TMCC and its subsidiaries on a consolidated basis. TMCC agrees to furnish copies of all such instruments to the Securities and Exchange Commission upon request.
10.1(a) Operating Agreement dated January 16, 1984 between TMCC and TMS. (15)
10.1(b) Amendment No. 1 to Operating Agreement dated May 14, 1996 between TMCC and TMS. (11)
10.1(c) Amendment No. 2 to Operating Agreement dated December 1, 1997 between TMCC, TMS and TMMNA. (20)
- ----------------- (5) Incorporated herein by reference to Exhibit 4.1 filed with TMCC's Current Report on Form 8-K dated October 16, 1991, Commission File No. 1-9961. (11) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's Report on Form 10-Q for the quarter ended March 31, 1996, Commission File No. 1-9961. (15) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's Registration Statement on Form S-1, File No. 33-22440. (20) Incorporated herein by reference to Exhibit 10.1(c) filed with TMCC's Current Report on Form 10-K for the year ended September 30, 1997, Commission File No. 1-9961.
EXHIBIT INDEX
Method Exhibit of Number Description Filing - ------- ----------- ------
10.1(d) Amendment No. 3 to Operating Agreement dated June 1, 1999 between TMCC, TMS and TMMNA. (22)
10.1(e) Amendment No. 4 to Operating Agreement dated August 1, Filed 2000 between TMCC, TMS and TMMNA. Herewith
10.1(f) Termination of Operating Agreement dated October 1, 2000 Filed between TMCC, TMS and TMMNA. Herewith
10.4 Form of Indemnification Agreement between TMCC and its directors and officers. (12)
10.5(a) Three-year Credit Agreement (the "Three-year Agreement") dated as of September 29, 1994 among TMCC, Morgan Guaranty Trust Company of New York, as agent, and Bank of America National Trust and Savings Association, The Bank of Tokyo, Ltd., The Chase Manhattan Bank, N.A., Citicorp USA, Inc. and Credit Suisse, as Co-Agents. (13)
10.5(b) Amendment No. 1 dated September 28, 1995 to the Three-year Agreement. (14)
10.5(c) Amended and Restated Three-Year Credit Agreement dated September 24, 1996. (16)
10.5(d) Amended and Restated Three-Year Credit Agreement dated September 23, 1997. (17)
10.5(e) Amendment dated March 19, 1999 to the Three-year Agreement. (8)
10.5(f) Amended and Restated Three-Year Credit Agreement dated September 17, 1999. (8)
- ---------------- (8) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Current Report on Form 10-K for the year ended September 30, 1999, Commission File No. 1-9961. (12) Incorporated herein by reference to Exhibit 10.6 filed with TMCC's Registration Statement on Form S-1, Commission File No. 33-22440. (13) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's Report on Form 10-K for the year ended September 30, 1994, Commission File No. 1-9961. (14) Incorporated herein by reference to Exhibit 10.10(a) filed with TMCC's Report on Form 10-K for the year ended September 30, 1995, Commission File No. 1-9961. (16) Incorporated herein by reference to Exhibit 10.9(d) filed with TMCC's Report on Form 10-K for the year ended September 30, 1996, Commission File No. 1-9961. (17) Incorporated herein by reference to Exhibit 10.5(f) filed with TMCC's Report on Form 10-K for the year ended September 30, 1997, Commission File No. 1-9961. (22) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's Report on Form 10-Q for the quarter ended June 30, 1999, Commission File No. 1-9961.
EXHIBIT INDEX
Method Exhibit of Number Description Filing - ------- ----------- ------
10.5(g) Fourth Amended and Restated Three-Year Credit Agreement Filed dated September 14, 2000. Herewith
10.5(h) Fourth Amended and Restated 364-Day Credit Agreement dated September 17, 1999 among TMCC, Bank of America N.A. as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi Ltd., and Citicorp USA, Inc. as Documentation Agents, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the other Banks named therein. (23)
10.5(i) Fifth Amended and Restated 364-Day Credit Agreement dated September 14, 2000 among TMCC, Bank of America N.A. as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi Ltd., and Citicorp USA, Inc. as Documentation Agents, Banc of America Securities LLC as Sole Lead Arranger Filed and Sole Book Manager and the other Banks named therein. Herewith
10.6 Toyota Motor Sales, U.S.A., Inc. Supplemental Executive Retirement Plan. * (9)
10.7 Toyota Motor Sales, U.S.A., Inc. 401(k) Excess Plan. * (10)
10.8 Amended and Restated Trust and Servicing Agreement dated as of October 1, 1996 by and among TMCC, TMTT, Inc., as titling trustee and U.S. Bank National Association, as trust agent. (18)
10.9 Credit Support Agreement dated July 14, 2000 between Filed TFSC and TMC. Herewith
10.10 Credit Support Agreement dated October 1, 2000 between Filed TMCC and TFSC. Herewith
- ---------------- (9) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's Report on Form 10-Q for the quarter ended December 31, 1995, Commission File No. 1-9961. (10) Incorporated herein by reference to Exhibit 10.2 filed with TMCC's Report on Form 10-Q for the quarter ended December 31, 1995, Commission File No. 1-9961. (18) Incorporated herein by reference to Exhibit 4.1 filed with Toyota Auto Lease Trust 1997-A's Report on Form 8-A dated December 23, 1997, Commission File No. 333-26717 *- Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission. (23) Incorporated herein by reference to Exhibit 10.5(g)filed with TMCC's Current Report on Form 10-K for the year ended September 30, 1999, Commission File No. 1-9961.
EXHIBIT INDEX
Method Exhibit of Number Description Filing - ------- ----------- ------
10.11 Repurchase Agreement dated October 1, 2000 between Filed TMCC and TMS. Herewith
10.12 Shared Services Agreement dated October 1, 2000 Filed between TMCC and TMS. Herewith
12.1 Calculation of ratio of earnings to fixed charges. Filed Herewith
21.1 TMCC's list of subsidiaries. Filed Herewith
23.1 Consent of Independent Accountants. Filed Herewith
27.1 Financial Data Schedule. Filed Herewith