UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q
(Mark(Mark One)
[X][X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period endedSeptemberJune 30,2003 ------------------2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period from _______ to
-------- --------_______Commission file number1-9961
----------TOYOTA MOTOR CREDIT CORPORATION
- --------------------------------------------------------------------------- (Exact(Exact name of registrant as specified in its charter)
California 95-3775816 - ---------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19001 S. Western Avenue Torrance, California 90509 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code)
California (State or other jurisdiction of incorporation or organization) | 95-3775816 (I.R.S. Employer Identification No.) | |
19001 S. Western Avenue Torrance, California (Address of principal executive offices) | 90509 (Zip Code) | |
Registrant's telephone number, including area code code: (310) 468-1310
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YesNo X --- ---
As of September 30, 2003,July 31, 2004, the number of outstanding shares of capital stock, par value $10,000 per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services Americas Corporation.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars
(Dollars in Millions)
June 30, 2004 | March 31, 2004 | |||||||
---|---|---|---|---|---|---|---|---|
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 868 | $ | 818 | ||||
Investments in marketable securities | 983 | 1,125 | ||||||
Finance receivables, net | 33,785 | 32,460 | ||||||
Investments in operating leases, net | 7,869 | 7,685 | ||||||
Other assets | 2,414 | 2,766 | ||||||
Total Assets | $ | 45,919 | $ | 44,854 | ||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||||
Notes and loans payable | $ | 37,692 | $ | 36,822 | ||||
Other liabilities | 2,394 | 2,363 | ||||||
Deferred income taxes | 2,177 | 2,178 | ||||||
Total Liabilities | 42,263 | 41,363 | ||||||
Commitments and Contingencies (See Note 8) | ||||||||
Shareholder's Equity: | ||||||||
Capital stock, $l0,000 par value (100,000 shares authorized; | ||||||||
issued and outstanding 91,500) | 915 | 915 | ||||||
Retained earnings | 2,698 | 2,531 | ||||||
Accumulated other comprehensive income | 43 | 45 | ||||||
Total Shareholder's Equity | 3,656 | 3,491 | ||||||
Total Liabilities and Shareholder's Equity | $ | 45,919 | $ | 44,854 | ||||
See Accompanying Notes to Consolidated Financial Statements.
- Statements
2 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars
(Dollars in Millions)
(Unaudited)
Three Months Ended June 30, | ||||||||
---|---|---|---|---|---|---|---|---|
2004 | 2003 | |||||||
Financing Revenues: | ||||||||
Leasing | $ | 563 | $ | 584 | ||||
Retail financing | 341 | 290 | ||||||
Wholesale and other dealer financing | 53 | 49 | ||||||
Total financing revenues | 957 | 923 | ||||||
Depreciation on leases | 389 | 420 | ||||||
Interest expense | 115 | 231 | ||||||
Net financing revenues | 453 | 272 | ||||||
Insurance premiums earned and contract revenues | 53 | 45 | ||||||
Investment and other income | 29 | 36 | ||||||
Net financing revenues and other revenues | 535 | 353 | ||||||
Expenses: | ||||||||
Operating and administrative | 145 | 134 | ||||||
Provision for credit losses | 46 | 109 | ||||||
Insurance losses and loss adjustment expenses | 31 | 27 | ||||||
Total expenses | 222 | 270 | ||||||
Income before provision for income taxes | 313 | 83 | ||||||
Provision for income taxes | 123 | 33 | ||||||
Net Income | $ | 190 | $ | 50 | ||||
See Accompanying Notes to Consolidated Financial Statements.
- Statements
3 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'SSHAREHOLDER’S EQUITY
(Dollars
(Dollars in Millions)
(Unaudited)
Capital Stock | Retained Earnings | Accumulated Other Comprehensive Income | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BALANCE AT MARCH 31, 2003 | $ | 915 | $ | 1,930 | $ | 18 | $ | 2,863 | ||||||
Net income for the three months ended | ||||||||||||||
June 30, 2003 | -- | 50 | -- | 50 | ||||||||||
Change in net unrealized gain on | ||||||||||||||
available-for-sale marketable securities | -- | -- | 23 | 23 | ||||||||||
Total comprehensive income | -- | 50 | 23 | 73 | ||||||||||
BALANCE AT JUNE 30, 2003 | $ | 915 | $ | 1,980 | $ | 41 | $ | 2,936 | ||||||
BALANCE AT MARCH 31, 2004 | $ | 915 | $ | 2,531 | $ | 45 | $ | 3,491 | ||||||
Net income for the three months ended June 30, 2004 | -- | 190 | -- | 190 | ||||||||||
Change in net unrealized gain on | ||||||||||||||
available-for-sale marketable securities | -- | -- | (8 | ) | (8 | ) | ||||||||
Total comprehensive income | -- | 190 | (8 | ) | 182 | |||||||||
Distribution of net assets to TFSA | -- | (23 | ) | 6 | (17 | ) | ||||||||
BALANCE AT JUNE 30, 2004 | $ | 915 | $ | 2,698 | $ | 43 | $ | 3,656 | ||||||
See Accompanying Notes to Consolidated Financial Statements.
- Statements
4 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars
(Dollars in Millions)
(Unaudited)
Three Months Ended June 30, | ||||||||
---|---|---|---|---|---|---|---|---|
2004 | 2003 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 190 | $ | 50 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Derivative fair value adjustments | (75 | ) | 38 | |||||
Depreciation and amortization | 485 | 458 | ||||||
Provision for credit losses | 46 | 109 | ||||||
Decrease in other assets | 38 | 126 | ||||||
Increase in other liabilities | 127 | 108 | ||||||
Total adjustments | 621 | 839 | ||||||
Net cash provided by operating activities | 811 | 889 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of investments in marketable securities | (180 | ) | (222 | ) | ||||
Disposition of investments in marketable securities | 225 | 466 | ||||||
Acquisition of finance receivables | (13,079 | ) | (11,785 | ) | ||||
Collection of finance receivables | 11,548 | 9,842 | ||||||
Acquisition of investments in operating leases | (1,085 | ) | (769 | ) | ||||
Disposals of investments in operating leases | 544 | 442 | ||||||
Net cash used in investing activities | (2,027 | ) | (2,026 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of notes and loans payable | 2,201 | 1,141 | ||||||
Payments on notes and loans payable | (1,226 | ) | (2,086 | ) | ||||
Net change in commercial paper | 305 | 1,837 | ||||||
Net cash provided by financing activities | 1,280 | 892 | ||||||
Net increase (decrease) in cash and cash equivalents | 64 | (245 | ) | |||||
Cash and cash equivalents at the beginning of the period | 818 | 980 | ||||||
Decrease in cash in connection with the distribution of net assets to TFSA | (14 | ) | -- | |||||
Cash and cash equivalents at the end of the period | $ | 868 | $ | 735 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | 163 | $ | 171 | ||||
Income taxes paid | $ | 8 | $ | 32 | ||||
Non-cash investing and financing activities in connection with the | ||||||||
distribution of net assets to TFSA: | ||||||||
Decrease in assets | $ | 133 | -- | |||||
Decrease in liabilities | $ | 130 | -- |
See Accompanying Notes to Consolidated Financial Statements.
- Statements
5 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying information pertaining to the three and six months ended SeptemberJune 30, 20032004 and 20022003 is unaudited and has been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities
revenues, expenses, and disclosure of contingent assets and liabilities.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. In the opinion of management, the unaudited financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and six months ended SeptemberJune 30, 20032004 are not necessarily indicative of those expected for any other interim period or for a full year. Certain prior period amounts have been reclassified to conform with the current period presentation. These include the reclassification of the
derivative fair value adjustment into interest expense in the consolidated
statement of income, made in response to recent Securities and Exchange
Commission ("SEC") public announcements related to the income statement
presentation of certain derivative activities.
These financial statements should be read in conjunction with the consolidated financial statements, significant accounting policies, and other notes to the consolidated financial statements included in Toyota Motor Credit Corporation's 2003Corporation’s 2004 Annual Report to the SEC on Form 10-K. References herein to "TMCC"“TMCC” denote Toyota Motor Credit Corporation and references herein to "the
Company"“the Company” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.
On April 1, 2004, the Company transferred substantially all of its interests in Toyota Services de Mexico, S.A. de C.V. (“TSM”) and Toyota Services de Venezuela, C.A. (“TSV”), and its minority interest in Banco Toyota do Brazil (“BTB”), to its parent, Toyota Financial Services Americas (“TFSA”). The transfer of the $17 million net carrying value of the Company’s interests in these entities was accounted for as a distribution of assets and, accordingly, a reduction of shareholder’s equity.
Finance receivables, net consisted of the following:
June 30, 2004 | March 31, 2004 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | |||||||||||
Retail receivables | $ | 24,504 | $ | 22,693 | |||||||
Finance leases | 3,710 | 4,325 | |||||||||
Wholesale and other dealer loans | 6,643 | 6,571 | |||||||||
34,857 | 33,589 | ||||||||||
Unearned income | (647 | ) | (747 | ) | |||||||
Finance receivables, net of unearned income | 34,210 | 32,842 | |||||||||
Allowance for credit losses | (425 | ) | (382 | ) | |||||||
Finance receivables, net | $ | 33,785 | $ | 32,460 | |||||||
Finance leases included estimated unguaranteed residual values of $1.5 billion
and $1.8$1.3 billion at Septemberboth June 30 and March 31, 2003, respectively.2004. The aggregate balances related to finance receivables 60 or more days past due totaled $151$133 million and $160$115 million at SeptemberJune 30 and March 31, 2003,2004, respectively. The majority ofSubstantially all retail and finance lease receivables do not involve recourse to the dealer in the event of customer default.
-
6 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As part of management’s quarterly evaluation, the allowance for credit losses related to the Company’s retail and wholesale and other dealer loans portfolios was adjusted to reflect changes in estimated credit losses. These adjustments were recorded to reflect the growth in these portfolios and the increased level of non-Toyota/Lexus dealers receiving wholesale and other dealer financing.
Investments in operating leases, net consisted of the following:
June 30, 2004 | March 31, 2004 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | |||||||||||
Vehicles | $ | 9,841 | $ | 9,700 | |||||||
Equipment and other | 712 | 688 | |||||||||
10,553 | 10,388 | ||||||||||
Accumulated depreciation | (2,597 | ) | (2,565 | ) | |||||||
Allowance for credit losses | (87 | ) | (138 | ) | |||||||
Investments in operating leases, net | $ | 7,869 | $ | 7,685 | |||||||
The aggregate balances related to investments in operating leases, net of 60 or more days past due totaled $33 million and $23 million at June 30 and March 31, 2004, respectively.
As part of management’s quarterly evaluation, the allowance for credit losses related to the Company’s operating lease portfolio was adjusted to reflect changes in the estimate of credit losses. Notwithstanding the increase in 60-day delinquencies on the operating lease portfolio from March 2004 to June 2004, driven, in part, by seasonal variations, overall delinquencies and credit loss results on this portfolio are expected to improve. Accordingly, management reduced the allowance for credit losses related to the operating lease portfolio consistent with its expectation of future results.
An analysis of the allowance for credit losses follows:
Three Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Allowance for credit losses at beginning of period | $ | 520 | $ | 462 | |||||||
Provision for credit losses | 46 | 109 | |||||||||
Charge-offs | (69 | ) | (80 | ) | |||||||
Recoveries | 18 | 11 | |||||||||
Other | (3 | ) | -- | ||||||||
Allowance for credit losses at end of period | $ | 512 | $ | 502 | |||||||
7 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forthsummarizes the items comprisingnet unrealized gains and losses included in the Company'sCompany’s derivative fair value adjustment, which is included in interest expense:
expense.
Three Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) Unrealized (Gain)/Loss | |||||||||||
Ineffectiveness related to designated hedges | $ | 32 | $ | 2 | |||||||
Amortization of de-designated hedges | (49 | ) | -- | ||||||||
Currency basis swaps 1 | (25 | ) | -- | ||||||||
Non-designated hedges | |||||||||||
Interest rate swaps | (25 | ) | 18 | ||||||||
Interest rate caps | (7 | ) | 19 | ||||||||
Other | (1 | ) | (1 | ) | |||||||
Derivative fair value adjustment | $ | (75 | ) | $ | 38 | ||||||
1 | Currency basis swaps used in | |
Notes and loans payable and the related weighted average interest rates:
rates are summarized as follows:
Wtd. Avg. Int. Rates1 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, | March 31, | June 30, | March 31, | ||||||||||||||
2004 | 2004 | 2004 | 2004 | ||||||||||||||
(Dollars in millions) | |||||||||||||||||
Commercial paper | $ | 8,400 | $ | 8,094 | 1.13 | % | 1.05 | % | |||||||||
Notes and loans payable | 27,642 | 26,787 | 1.47 | % | 1.32 | % | |||||||||||
Fair value adjustment 2 | 1,650 | 1,941 | |||||||||||||||
Notes and loans payable | $ | 37,692 | $ | 36,822 | 1.38 | % | 1.26 | % | |||||||||
1 | Includes the effect of certain | |
2 | Adjusts debt in designated hedge relationships to fair market |
Included in long-term debtnotes and loans payable are unsecured notes denominated in various foreign currencies totaling approximately $11.2 billion and $11.4$11 billion at SeptemberJune 30 and March 31, 2003, respectively.2004. Concurrent with the issuance of these unsecured notes, the Company entered into cross currency interest rate swap agreements or a combination of interest rate swaps coupled with currency basis swaps to convert these obligations into variable ratenon-U.S. dollar debt to U.S. dollar obligations.
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8
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2004 and March 31, 2004, notes and loans payable of $173 million and $226 million, respectively, were collateralized by retail finance receivables of $207 million and $261 million respectively, arising from a securitization transaction accounted for as a collateralized borrowing. The retail finance receivables serve as collateral for the payment of the notes and loans payable and are therefore restricted from TMCC’s creditors.
The following table sets forthsummarizes the Company'sCompany’s committed and uncommitted facilities at September 30 and March 31, 2003:
Committed | Uncommitted | Unused Facilities | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, | March 31, | June 30, | March 31, | June 30, | March 31, | |||||||||||||||
2004 | 2004 | 2004 | 2004 | 2004 | 2004 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
364-day syndicated bank credit facilities | $ | 4,000 | $ | 4,000 | $ | -- | $ | -- | $ | 4,000 | $ | 4,000 | ||||||||
5-year syndicated bank credit facility - TMCC | 1,400 | 1,400 | -- | -- | 1,400 | 1,400 | ||||||||||||||
Letters of credit facilities | -- | -- | 55 | 55 | 53 | 53 | ||||||||||||||
Total facilities | $ | 5,400 | $ | 5,400 | $ | 55 | $ | 55 | $ | 5,453 | $ | 5,453 | ||||||||
The 364-day syndicated bank credit facility, which is restricted to its own use. In addition, a TMCC 364-day
syndicated bank credit facility, which is restricted to TMCC's own use, was
increased to $3.2facilities consist of $3.6 billion and renewed during September 2003$0.4 billion for an additional
364-day period.
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9
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Guarantees and Commitments
TMCC has entered into certain guarantees and commitments. As of SeptemberJune 30, 2003,2004, TMCC hadhas not recorded any liabilities under such arrangements. The maximum commitment amounts under the guarantees and commitments as of SeptemberJune 30, 20032004 are summarized in the table below:
Maximum Commitment Amount | ||||||
---|---|---|---|---|---|---|
(Dollars in millions) | ||||||
Credit facilities with vehicle and industrial equipment dealers and affiliates | $ | 3,752 | ||||
Guarantees of affiliate pollution control and solid waste disposal bonds | 148 | |||||
Lease commitments | 130 | |||||
Revolving liquidity notes related to securitizations | 48 | |||||
Guarantees of affiliate debt | 35 | |||||
Total guarantees and commitments | $ | 4,113 | ||||
The Company maintainsprovides variable rate credit facilities with dealersto vehicle and affiliates.industrial equipment dealers. These credit facilities may be used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. The Company obtains a personal guarantee from the vehicle or industrial equipment dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover the Company'sCompany’s exposure under such agreements. The Company prices the credit facilities according to the risks assumed in entering into the credit facility.
Duringfacility and reviews amounts funded under these facilities for collectibility in conjunction with its quarterly evaluation of the first quarterallowance for credit losses. The Company also provides financing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of fiscal 2004, TCPR Corp. extended a lending consortium, for wholesale, working capital, real estate, and business acquisitions.
In addition, the $90 million revolving line of creditcommitment to Toyota de Puerto Rico Corp., a wholly-owned
subsidiary of Toyota Motor Sales, U.S.A.,USA Inc. ("TMS"(“TMS”). This $90 million
commitment discussed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004 is included in the table above under credit facilities with vehicle and industrial equipment dealers and affiliates. The revolving line of credit has a one-year renewable term,
with interest due monthly. Any loans outstanding under this revolving line of credit are not guaranteed by TMS.
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10
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, $28 million matures in August 2029, and $20 million matures in April 2030. The bonds were issued in connection with a West Virginia manufacturing facility of an affiliate.
TMCC has guaranteed payments of principal, interest, and premiums, if any, on $60 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, January 2030, February 2031, and September 2031, respectively. The bonds were issued in connection with an Indiana manufacturing facility of an affiliate.
Under these affiliate bond guarantees, TMCC would be required to perform in the event of any of the following:
a) payment of any installment of interest, principal, premium, if any, or
purchase price on the bonds is not made when the payment becomes due and
payable;
b) the occurrence of certain events of bankruptcy involving the benefactor
manufacturing facilities or TMCC;
c) failure by the benefactor manufacturing facilities to observe or perform
any covenant, condition or agreement under the guarantees, other than as
referred to in (a) above;
d) failure by the bond issuers to observe or perform any covenant, condition
or agreement under the guarantees, other than as referred to in (a) above;
e) failure by TMCC to observe or perform any covenant, condition, agreement
or obligation under the guarantees.
a) | payment of any installment of interest, principal, premium, if any, or purchase price on the bonds, is not made when the payment becomes due and payable; |
b) | the occurrence of certain events of bankruptcy involving the benefactor manufacturing facilities or TMCC; |
c) | failure by the benefactor manufacturing facilities to observe or perform any covenant, condition or agreement under the guarantees, other than as referred to in (a) above; |
d) | failure by the bond issuers to observe or perform any covenant, condition or agreement under the guarantees, other than as referred to in (a) above; |
e) | failure by TMCC to observe or perform any covenant, condition, agreement or obligation under the guarantees. |
These guarantees include provisions whereby TMCC is entitled to reimbursement by the benefactor manufacturing facilities for all principal and interest paid and fees incurred on behalf of the benefactor manufacturing facilities and to default interest on those amounts. TMCC receives an annual fee of $100,000 for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of SeptemberJune 30, 2003.
During the first quarter of fiscal2004.
At June 30, 2004, the Company entered into a 15-year
lease agreement with TMS. The lease agreement is for the Company's new
headquarters location in the TMS headquarters complex in Torrance, California.
At September 30, 2003, minimum future commitments under lease agreements to which the Company is a lessee including those under the agreement discussed
above, are as follows: fiscal years ending 2004 - $21 million; 2005 - $19— $20 million; 2006 - $17– $18 million; 2007 - $15– $16 million; 2008 - $10– $11 million; 2009 -— $9 million; and thereafter -– $56 million.
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11
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In certain securitization structures, revolving liquidity notes (“RLN”) are used in lieu of deposits to a cash reserve funds to provide credit enhancement to the senior securities.
Under these revolving liquidity notes, investorsfund. The securitization trust may draw upon the notesRLN to cover any shortfall in interest and principal payments.payments to investors. The Company funds any draws, are funded
by TMCC and TMCC is entitledthe terms of the RLN obligate the securitization trust to reimbursement ofrepay amounts drawn onplus accrued interest. Repayments of principal and interest due under the liquidity notes. Reimbursement of amounts drawn on the liquidity notes isRLN are subordinated to principal and interest payments due on the securities. TMCCasset-backed securities and, in some circumstances, to deposits into a reserve account. If collections are insufficient to repay amounts outstanding under a RLN, the Company will recognize a loss for the outstanding amounts. The Company must fund the entire amount available under the revolving liquidity notesRLN into a reserve account if TMCC's short-termthe Company’s short term unsecured debt rating is downgraded below P-1 or A-1 by Moody'sMoody’s Investors Service, Inc. ("Moody's") or Standard & Poor'sPoor’s Ratings Group, a division of Thethe McGraw-Hill Companies, Inc. ("S&P"), respectively. No amounts were outstanding under the RLN as of June 30, 2004.
As described in Note 18 – Subsequent Events in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004, following the transfer of the Company’s interests in TSM, TSV, and BTB to TFSA, TMCC continues to guarantee $30 million of certain credit facilities of BTB, as discussed further below. During the quarter ended June 30, 2004, the Company reduced the maximum amount guaranteed of TSV debt from $35 million to $5 million, as discussed further below.
TMCC has guaranteed payments of up to $30 million in principal, interest, fees, and expenses with respect to a $30 millionthe offshore bank loan of BTB. This guarantee will remain in effect until the loan is repaid in full, and TMCC elects to terminate the guarantee. The loan matures in fiscal 2005.November 2004. Under the terms of the guarantee, TMCC would be required to perform on behalf of BTB should BTB default on payments for any reason including, but not limited to, financial insolvency, cross border payment restrictions, and other sovereign restrictions on off-shoreoffshore payments. TMCC has entered into a separate indemnity agreement with BTB. The indemnity agreement includes provisions whereby TMCC is entitled to reimbursement from BTB. TMCC has not been required to perform under the BTB guarantee as of SeptemberJune 30, 2003.
2004.
TMCC has guaranteed payments of up to $5 million in principal, interest, fees, and expenses with respect to a Venezuelan bank credit facility on behalf of TSV. The credit facility would allow TSV to borrow up to the amount of the guarantee for a period of one year. The guarantee will remain in effect until the loan is repaid in full, and TMCC elects to terminate the guarantee. Under the terms of the guarantee, TMCC would be required to perform on behalf of TSV should TSV default on payments as a result of financial insolvency. The Company has entered into a separate reimbursement agreement with TSV which includes provisions whereby TMCC is entitled to reimbursement from TSV in the event TSV defaults under its loan agreement covered by this guarantee and TMCC is called upon to perform its guarantee obligations. TMCC has not been required to perform under the TSV guarantee as of June 30, 2004.
12
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Indemnification
In the ordinary course of business, the Company enters into agreements containing indemnification provisions standard in the industry related to several types of transactions, such asincluding, but not limited to, debt funding, derivatives, securitization transactions, and its vendor and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties, or covenants made or given, or a third party claim. In addition, the Company has agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. Management
periodically evaluatesIn addition, certain of the probability of havingCompany’s funding arrangements would require the Company to incur such costs.pay lenders for increased costs due to certain changes in laws or regulations. Due to the difficulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, the Company is not able to estimate its maximum exposure to future payments that could result from claims made under such provisions. The Company has not made any material payments in the past as a result of these provisions, and as of SeptemberJune 30, 2003,2004, the Company does not believe it is probable that it will have to make any material payments in the future. As such, no amounts have been recorded under these indemnifications as of SeptemberJune 30, 2003.
2004.
Receivable Repurchase Obligations
The Company sells discrete pools of retail finance receivables to wholly owned consolidated bankruptcy remote special purpose entities (“SPE”). TMCC makes certain representations and warranties to the SPE, and the SPE makes corresponding representations and warranties to the securitization trust, relating to receivables sold in a securitization. TMCC and the SPE may be required to repurchase any receivables in the event of a breach of a representation and warranty relating to the receivable that materially and adversely affects the interest of the SPE, or securitization trust, as applicable. In addition, TMCC, as servicer of the receivables, may be required to repurchase any receivable in the event of a breach of a covenant by the servicer with respect to the receivable that materially and adversely affects the interest of the securitization trust or of certain extensions or modifications of a receivable as to which TMCC, as servicer, does not commit to make advances to fund reductions in interest payments. The repurchase price is generally the outstanding principal balance of the receivable and accrued interest. These provisions are customary for securitization transactions.No receivables were repurchased during the quarter ended June 30, 2004.
Advancing Requirements
As servicer, TMCC is required to advance certain shortfalls in obligor payments to the related securitization trust to the extent it believes the advance will be recovered from future collections of the related receivable. Each securitization trust is required to reimburse the Company for these advances from collections on all receivables before making other required payments. These provisions are customary for securitization transactions. No advances were outstanding at June 30, 2004.
13
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation
Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against the Company with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in the Company'sCompany’s business operations, policies and practices. Certain of these actions are similar to suits that 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 Company establishes reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts reserved for these claims. However, based on information currently available, the advice of liability on pending claimscounsel, and actions as of
September 30, 2003 were not determinable; however,established reserves, in the opinion of management, the ultimate liability resulting therefrom shouldwill not have a material adverse effect on the Company'sCompany’s consolidated financial position or results of operations.
- 13 -
14
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of SeptemberJune 30, 2003,2004, there have been no material changes to the related party agreements or relationships as described in the Company's annual reportCompany’s Annual Report on Form 10-K for the year ended March 31, 2003,2004, except for the leasereciprocal credit agreement with TMS, asTFSA described in Note 8.7. The tabletables below summarizessummarize amounts included in the Company'sCompany’s consolidated balance sheetsheets and statementstatements of income for the fiscal periods presented under various related party agreements or relationships:
June 30, 2004 | March 31, 2004 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | |||||||||||
Assets: | |||||||||||
Finance receivables with affiliates | $ | 76 | $ | 75 | |||||||
Intercompany receivables | $ | 14 | $ | 1 | |||||||
Notes receivable under home loan program | $ | 7 | $ | 7 | |||||||
Other | $ | 4 | $ | 3 | |||||||
Liabilities: | |||||||||||
Intercompany payables | $ | 30 | $ | 48 |
Three Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Revenues: | |||||||||||
Manufacturers' subvention support and other revenues | $ | 52 | $ | 45 | |||||||
Affiliate insurance premiums and commissions revenue | $ | 15 | $ | 11 | |||||||
Expenses: | |||||||||||
Shared services charges | $ | 20 | $ | 23 | |||||||
Credit support fees incurred | $ | 4 | $ | 5 | |||||||
Pension plan expense | $ | 4 | $ | 4 | |||||||
Rent expense and other amounts incurred | $ | 2 | $ | 2 |
15
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial results for the Company'sCompany’s operating segments are summarized below:
June 30, 2004 | March 31, 2004 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | |||||||||||
Assets: | |||||||||||
Financing operations | $ | 44,972 | $ | 43,948 | |||||||
Insurance operations | 1,191 | 1,137 | |||||||||
Eliminations/reclassifications | (244 | ) | (231 | ) | |||||||
Total assets | $ | 45,919 | $ | 44,854 | |||||||
Three Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Gross revenues: | |||||||||||
Financing operations | $ | 983 | $ | 950 | |||||||
Insurance operations | 65 | 62 | |||||||||
Eliminations/reclassifications | (9 | ) | (8 | ) | |||||||
Total gross revenues | $ | 1,039 | $ | 1,004 | |||||||
Net Income: | |||||||||||
Financing operations | $ | 179 | $ | 39 | |||||||
Insurance operations | 11 | 11 | |||||||||
Net Income | $ | 190 | $ | 50 | |||||||
16
Toyota Motor Credit Corporation (“TMCC”) and its consolidated subsidiaries, collectively referred to herein as the “Company”, is wholly owned by Toyota Financial Services Americas Corporation (“TFSA”), a California corporation which is a wholly owned subsidiary of Toyota Financial Services Corporation, a Japanese corporation. On April 1, 2004, the Company transferred substantially all of its interests in Toyota Services de Mexico, S.A. de C.V. and Toyota Services de Venezuela, C.A., and its minority interest in Banco Toyota do Brazil, to its parent, TFSA. The compositiontransfer of the Company's$17 million net earning assets ascarrying value of the balance sheet
dates reported is summarized below:
Refer to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003. 2004 for a more complete description of the Company’s business, including a description of sources of revenue, performance measures, and competitors.
The growthCompany reported net income of $190 million during the quarter ended June 30, 2004, compared with net income of $50 million for the same period in earning assets during this period was driventhe prior year. Financial results for the quarter ended June 30, 2004 were influenced by a number of factors including continued improvement in the increased volumeCompany’s credit loss experience, and reduced funding costs, including a positive adjustment to the fair value of vehicle retail financing, partially offset by
decreases in vehicle lease financing and vehicle wholesale and other financing.the Company’s derivative instruments. The significant increase in retail finance receivables primarily resulted from
the increased volume of new financings continuing to outpace the liquidation
of the existing portfolio. The volume achieved was generated in large part by
an increased use of marketing incentives sponsored by Toyota Motor Sales,
U.S.A., Inc. ("TMS") and highercontracts purchased primarily from Toyota and Lexus vehicle dealers remained relatively constant at 246,000 and 247,000 contracts during the quarters ended June 30, 2004 and 2003, respectively. The Company experienced a decrease in its consumer retail and lease finance market share of Toyota and Lexus vehicles, excluding fleet sales levels, which
increased 9%and sales of an independent distributor, from 47.9% for the three monthsquarter ended SeptemberJune 30, 2003 to 43.9% for the quarter ended June 30, 2004. While contract volume remained level and overall market share declined, earning assets continued to increase due to new vehicle contract volume exceeding liquidations during the quarter ended June 30, 2004, as well as the cumulative effect of a reduction in securitization activity during the last fiscal year. In addition, the amount of wholesale and other dealer loans outstanding at June 30, 2004 has increased substantially when compared to June 30, 2003 primarily due to the increase in the number of vehicle dealers receiving vehicle wholesale financing.
During the quarter ended June 30, 2004, financing revenues increased $34 million or 4% to $957 million when compared to the same period in the prior year due to the increase in earning assets, partially offset by a general decline in the earnings rate, or portfolio yield, of the Company’s earning assets portfolio. The decline in the earnings rate resulted from declines in market interest rates and the level of competitive pricing pressure.
The Company continued to benefit from low short-term interestrates as a portion of its funding is based upon LIBOR. Additionally, the recent rise in two and three-year swap rates in the past few quarters resulted in favorable mark-to-market adjustments on the Company’s derivative portfolio. The combination of these two factors contributed to a $116 million or 50% reduction in overall interest expense for the quarter ended June 30, 2004 when compared to the same period in the prior year. Vehicle lease
Overall, the Company increased its capital position by $0.2 billion bringing total equity to $3.7 billion at June 30, 2004. The Company’s debt-to-equity position improved from 10.5 to 10.3 at March 31, 2004 and June 30, 2004, respectively. Additionally, reserves as a percentage of gross earning assets declined from 1.37% at June 30, 2003 to 1.21% at June 30, 2004, reflecting the improvement in overall portfolio credit quality.
17
The Company anticipates fiscal 2005 results will be influenced by the level of new vehicle retail and lease contract volume, the continued use of Toyota Motor Sales, U.S.A., Inc. (“TMS”) subvention support and the level of competitive pricing pressure. During the last several fiscal years the Company reduced its reliance on vehicle lease financing programs and focused primarily on retail financing programs. In light of recent trends indicating potential improvements in the vehicle lease market, including stabilized used vehicle prices and rising market interest rates, the Company is evaluating options to decreaseincrease its vehicle leasing volume while maintaining its emphasis on the retail financing market. In addition to the anticipated growth in vehicle lease volume, the Company also expects continued growth in the number of dealers receiving wholesale and other dealer financing as a result of its focus on building dealer relationships.
The sustainability of the Company’s financial results depends on the Company’s ability to maintain gross margin while facing increased competition and rising interest rates. The Company intends to take a balanced approach to matching increases in financing rates to increases in costs of funds in a highly competitive marketplace. The Company expects operating and administrative costs to increase as a result of costs incurred under its technology initiative and general business growth, although, as a percentage of earning assets, expenses are expected to be consistent with fiscal 2004.
The Company’s vehicle retail and lease delinquency and credit loss results continue to improve when compared with March 31,prior periods. This improvement resulted from recently implemented operational and technological efficiencies and processes, and current favorable economic trends. Management remains cautiously optimistic that current levels of delinquencies and credit losses on these portfolios will continue for the remainder of fiscal 2005. As discussed in the “Financial Condition – Net Earning Assets” section of this MD&A, the number of vehicle dealers receiving wholesale and other dealer financing from the Company, including the number of non-Toyota/Lexus dealers, has increased substantially from June 30, 2003 duecompared to a general shiftJune 30, 2004. The Company expects that this growth in programs
sponsorednon-Toyota/Lexus wholesale and other dealer financing may increase the degree of credit risk assumed by TMS from lease to retailthe Company as well as the Company's reduced
emphasisconcentration of credit risk within a particular dealer group. To date this change has not had a material effect on leasing, in line with industry trends. Vehicledelinquencies or credit losses related to the Company’s wholesale and other dealer loan portfolio.
During the latter half of fiscal 2004 and the first quarter of fiscal 2005, used vehicle prices stabilized, and the U.S. economy improved. Management’s view of the impact of these favorable trends on the used vehicle market is tempered by several observations. Recent employment reports have indicated a mixed performance following several months of a strengthening jobs market. Although economic conditions have improved, short-term interest rates have risen and are projected to rise in the near term, while fuel costs have remained at elevated levels. As a result of these recent trends, management remains cautious regarding the residual risk it underwrites.
The foregoing information and the other information in this MD&A under the caption “Outlook” contains “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. Forward looking statements may include estimates, projections and statements of the Company’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Refer to the “Cautionary Statement for Purposes of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995” section of this MD&A for a detailed discussion regarding words used to identify such statements and factors that could cause actual results to differ materially from those expressed or implied by such statements.
18
The composition of the Company’s net earning assets is summarized below:
June 30, | March 31, | June 30, | % Change | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2004 | 2003 | June 30, 2004 to | June 30, 2004 to | |||||||||||||
(Dollars in millions) | March 31, 2004 | June 30, 2003 | |||||||||||||||
Net Earning Assets1 | |||||||||||||||||
Finance receivables, net | |||||||||||||||||
Retail finance receivables, net | $ | 24,019 | $ | 22,264 | $ | 17,972 | 8 | % | 34 | % | |||||||
Finance leases, net | 3,164 | 3,645 | 4,694 | (13 | %) | (33 | %) | ||||||||||
Wholesale and other dealer loans, net | 6,602 | 6,551 | 5,679 | 1 | % | 16 | % | ||||||||||
Total finance receivables, net | 33,785 | 32,460 | 28,345 | 4 | % | 19 | % | ||||||||||
Investments in operating leases, net | 7,869 | 7,685 | 7,900 | 2 | % | -- | |||||||||||
Net earning assets | $ | 41,654 | $ | 40,145 | $ | 36,245 | 4 | % | 15 | % | |||||||
Wholesale and Other Dealers (Number of dealers serviced) | |||||||||||||||||
Toyota and Lexus Dealers 2 | 644 | 633 | 588 | ||||||||||||||
Vehicle dealers outside of the | |||||||||||||||||
Toyota/Lexus dealer network | 369 | 373 | 293 | ||||||||||||||
Total number of wholesale dealers receiving vehicle wholesale financing | |||||||||||||||||
1,013 | 1,006 | 881 | |||||||||||||||
Dealer inventory financed (units) | 170,000 | 166,000 | 142,000 |
1 | Certain prior period amounts have been reclassified to conform to current year presentation. | |
2 | Includes wholesale and other loan arrangements in which the Company participates as part of a syndicate of lenders. |
The increase in net earning assets at June 30, 2004 when compared to March 31, 2004 and June 30, 2003 was primarily driven by the continued growth in retail finance receivables, wholesale and other dealer loans, and investments in operating leases, partially offset by a reduction in finance lease receivables.
Retail finance receivables at June 30, 2004 increased when compared to the balance at March 31, 2004 as the volume of new vehicles financed under the Company’s retail financing programs exceeded liquidations during the quarter ended June 30, 2004 when compared to the quarter ended March 31, 2004. Retail finance receivables decreasedat June 30, 2004 increased when compared to the balance at June 30, 2003 due to both the volume of new vehicles financed under the Company’s retail financing programs exceeding liquidations and the cumulative effect of a reduction in securitization activity during the last fiscal year. The Company did not execute a securitization transaction in the first quarter of fiscal 2005. Additionally, during fiscal 2004, the Company entered into one securitization transaction totaling approximately $1.9 billion that qualified for sale accounting as compared with March 31, 2003 as a
result of seasonal fluctuations in the number of dealer-financed units
outstanding, partially offset by continued growththree such transactions totaling approximately $4.6 billion during fiscal 2003.
19
Wholesale and other dealer loans increased primarily due to increases in the number of vehicle dealers receiving vehicle wholesale financing.
- 16 -
Net earning assets at September 30, 2003 increased $2.1 billion or 6% compared
to September 30, 2002. The growth in earning assets during this period was
driven by the increased volume of vehicle retail financing and vehicle
wholesale and other financing, partially offset by a decrease in vehicle lease
financing. The significant increase in retail finance receivables primarily
resulted from the increased volume of new financings continuing to outpace the
liquidation of the existing portfolio. The volume achieved was generated in
large part by an increased use of marketing incentives sponsored by TMS and
higher Toyota and Lexus vehicle sales levels, which increased 7% for the six
months ended September 30, 2003 when compared to June 30, 2003 and the same periodcorresponding increase in the prior
year. Vehicle wholesale and other financing also increased as compared with
September 30, 2002 resulting from an increased numberamount of dealer-financed units
and growthdealer inventory financed by the Company. The increase in the number of vehicle dealers receiving vehiclefinancing is attributable to the Company’s continued emphasis on developing dealer relationships. Many of the Toyota and Lexus dealerships serviced by the Company share common ownership, or are otherwise affiliated, with non-Toyota/Lexus dealerships. The growth in the numbers of non-Toyota/Lexus dealers receiving wholesale financing. Vehicleand other dealer financing by the Company reflects an increased emphasis on providing single-source financing for affiliated dealers with multiple franchises both within and outside of the Toyota and Lexus dealer franchise network. The Company believes that its single-source financing strategy will increase its retail and lease earning assetspenetration, supporting continued growth in its retail finance and lease portfolios. However, this strategy also exposes the Company to a greater concentration of credit risk.
The increase in investment in operating leases and the related decrease in finance leases during the quarter ended June 30, 2004 resulted primarily from the Company’s revising on a prospective basis, the estimated economic life of its vehicles under lease. As a result of this revision, certain new leases that previously would have been classified as compared
with September 30, 2003finance leases are now classified as investments in operating leases. In total, finance leases and investments in operating leases decreased due to a general shift in programs sponsored by TMS
from lease to retail as well as the Company's reducedcontinued emphasis on retail financing programs. However, in light of recent trends indicating potential improvements in the vehicle lease market, including stabilized used vehicle prices and rising market interest rates, the Company is evaluating options to increase its vehicle leasing in
line with industry trends.
The allowance for credit losses at September 30, 2003 increased $34 million or
7% and $154 million or 45% as compared to March 31, 2003 and September 30,
2002, respectively. Refer tovolume while maintaining its emphasis on the "Provision for Credit Losses" section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") for further discussion regarding the Company's delinquency
and charge-off experience.
retail financing market.
20
The composition of the Company'sCompany’s contract volume and market share for the three
and six months ended September 30, 2003 and 2002 is summarized below:
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
Contract Volume: | |||||||||||
Total vehicle retail contract volume | 215,000 | 216,000 | -- | ||||||||
Total vehicle lease contract volume | 31,000 | 31,000 | -- | ||||||||
Total contract volume | 246,000 | 247,000 | -- | ||||||||
TMS subvened contract volume (included in the above table): | |||||||||||
Vehicle retail contracts | 82,000 | 91,000 | (10 | %) | |||||||
Vehicle leases | 8,000 | 8,000 | -- | ||||||||
Total | 90,000 | 99,000 | (9 | %) | |||||||
TMS subvention rates1: | |||||||||||
Vehicle retail | 38 | % | 42 | % | |||||||
Vehicle lease | 26 | % | 26 | % | |||||||
Market share2: | |||||||||||
Vehicle retail contracts | 36.7 | % | 39.8 | % | |||||||
Vehicle leases | 7.2 | % | 8.1 | % | |||||||
Total | 43.9 | % | 47.9 | % | |||||||
1 | TMS subvention rates represent subvened new and used contract |
2 | Market share represents |
While total contract volume increased 13% and 14% forremained essentially level during the three and six months ended
September 30, 2003, respectively,first quarter of fiscal 2005, the Company’s market share of total TMS volume decreased when compared to the same periods in thefirst quarter of fiscal 2004. The level of TMS subvention support remained relatively consistent with prior year primarily due toperiods; however total TMS vehicle sales increased vehicle retail contract volume. The
increase in retail contract volume reflects the continued use of incentives on
new vehicles primarily related to retail financing programs sponsored by TMS.
In contrast, vehicle lease contract volume decreased 23% and 26% for the three
and six months ended September 30, 2003, respectively, when compared with the
same periods in the prior year. The decline in lease contract volume is due
to a general shift in programs sponsored by TMS from lease to retail as well
as the Company's reduced emphasis on leasing, in line with industry trends.
The increase in total market share for the three and six months ended
September 30, 2003approximately 12% over the comparable prior year period was attributableperiod. During the first quarter of fiscal 2005 the Company increased rates charged on new retail and lease financing volume in response to rising market interest rates ahead of its competitors. This action increased levelsthe level of marketing incentives sponsored by TMS.
competitive pricing pressure on the Company’s non-subvened financing business, which affected the Company’s market share of TMS sales. Competitive pricing pressure eased near the end of the first quarter of fiscal 2005 as competitors increased rates in response to the current interest rate environment.
Refer to the “Financial Condition – Net Earning Assets” discussion of this MD&A for a discussion of the Company’s outlook on vehicle leasing volume.
21
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Financing revenues: | |||||||||||
Leasing | $ | 563 | $ | 584 | (4 | %) | |||||
Retail financing | 341 | 290 | 18 | % | |||||||
Wholesale and other dealer financing | 53 | 49 | 8 | % | |||||||
Total financing revenues | $ | 957 | $ | 923 | 4 | % | |||||
Overall portfolio yield | 5.97 | % | 6.84 | % |
Total financing revenues increased $7 million or 1% and $44
million or 2% for the three and six months ended September 30, 2003,
respectively, primarily due to higher retail financing revenues, partially offset by a decline in leasing revenues. Retail financing revenues increased as a result of the continued growth in vehicle retail finance receivables, partially offset by reductions in retail portfolio yield. Leasing revenues declined primarily due to reductions in vehicle lease earning assets. The decline in overall yield is due to the declines in market interest rates, and tothe impact of competitive pricing pressure. The changes in leasing and retail financing revenues are consistent with the continued emphasis by the Company and TMS on subvened financing programs. Wholesale and other dealer financing revenue increased as a lesser extent, higherresult of growth in wholesale and other dealer financing revenues. Total
financing revenues increased at a lesser rate thanloans, partially offset by reductions in corresponding portfolio yield. Refer to the growth“Financial Condition” section of this MD&A for further discussion regarding changes in the Company’s earning asset portfolio due to reductionsportfolios.
22
Depreciation on Operating Leases
The following table sets forth the items included in overall portfolio yield, resultingthe Company’s depreciation on operating leases:
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions, except per vehicle data) | |||||||||||
Contractual depreciation | $ | 362 | $ | 348 | 4 | % | |||||
Incremental depreciation | 27 | 72 | (63 | %) | |||||||
Total depreciation on leases | $ | 389 | $ | 420 | (7 | %) | |||||
Average capitalized cost per vehicle | $ | 32,931 | $ | 30,719 | |||||||
(Less) Average depreciable basis per vehicle | (16,703 | ) | (15,913 | ) | |||||||
Average residual values per vehicle | $ | 16,228 | $ | 14,806 | |||||||
Average depreciable basis percentage | 50.7 | % | 51.8 | % | |||||||
Average operating lease units outstanding | 307,000 | 315,000 |
Lower total depreciation expense on operating leases resulted from a general decrease in market interest rates. Overall portfolio yield decreased
from 7.73% for the six months ended September 30, 2002 to 6.72% for the six
months ended September 30, 2003.
- 18 -
DEPRECIATION ON LEASES
- ----------------------
Straight-lineincremental depreciation expense, partially offset by an increase in contractual depreciation. Incremental depreciation is based upon the difference between a
leased vehicle's original book value ("capitalized cost") and thetaken to bring contractual residual value establishedvalues in line with expected end of term market values. Incremental depreciation also includes any net losses incurred at lease origination. Additionalmaturity. The decline in incremental depreciation expense is recorded ratably overduring the remaining lifefirst quarter of the lease when the
residual value at lease maturity is estimated to be less than the contractual
residual value. Factors affecting the estimate of residual value include, but
are not limited to, new vehicle incentive programs, new vehicle pricing and
used vehicle supply. The evaluation of these factors involves significant
assumptions, complex analysis, and management judgment. Any difference
between the undepreciated value at termination and the proceeds received at
sale is recorded as depreciation expense at the time of asset disposal.
Depreciation expense increased $11 million or 3% for the three months ended
September 30, 2003fiscal 2005 when compared to the same prior year period inresulted primarily from the prior year.recent stabilization of used vehicle prices and from lower net losses incurred at lease maturity. The
increase was comprised of a $27 million increase in straight-line
depreciation, partially offset by a $16 million decrease in additional
depreciation expense when compared to the same period in the prior year.
Average capitalized costs have continued to increase while average contractual
residual values as a percentage of capitalized cost have declined. This
combination has resulted in an overall increase in the depreciable basis of
leased vehicles ("depreciable basis") and the resulting increase in straight-
line depreciation expense. The decline in additional depreciation expensenet losses incurred at lease maturity was primarily dueattributable to a decreasereduction in the number of leased vehicles returned at maturity and sold at auctionauction. In prior periods, the Company recorded larger incremental depreciation expense in response to rapid declines in used vehicle prices.
Outlook
During the latter half of fiscal 2004 and the first quarter of fiscal 2005, used vehicle prices stabilized, and the U.S. economy improved. Management’s view of the impact of these favorable trends on the used vehicle market is tempered by several observations. Recent employment reports have indicated a mixed performance following several months of a strengthening jobs market. Although economic conditions have improved, short-term interest rates have risen and are projected to rise in the near term, while fuel costs have remained at elevated levels. As a result of these recent trends, management remains cautious regarding the residual risk it underwrites.
23
Allowance for Credit Losses and Credit Loss Experience
The following tables provide information related to the Company’s allowance for credit losses and credit loss experience:
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Allowance for credit losses at beginning of period | $ | 520 | $ | 462 | 13 | % | |||||
Provision for credit losses | 46 | 109 | (58 | %) | |||||||
Charge-offs | (69 | ) | (80 | ) | (14 | %) | |||||
Recoveries | 18 | 11 | 64 | % | |||||||
Other | (3 | ) | -- | -- | |||||||
Allowance for credit losses at end of period | $ | 512 | $ | 502 | 2 | % | |||||
June 30, | |||||||||||
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Net credit losses as a percentage of average earning assets 1 | 0.49 | % | 0.75 | % | |||||||
Aggregate balances 60 or more days past due | $ | 166 | $ | 198 | |||||||
Over-60 day delinquencies as a percentage of gross earning assets | 0.39 | % | 0.54 | % | |||||||
Allowance for credit losses as a percentage of gross earning assets | 1.21 | % | 1.37 | % |
1 | Net credit loss ratios have been annualized using three-month results. | |
Reductions in the provision for credit losses and total charge-offs, net of recoveries, as well as in the allowance for credit losses as a percentage of gross earning assets, reflect decreases in both the total number of contracts that defaulted (“frequency of occurrence”) and loss per occurrence (“loss severity”). The improvement in both the frequency and severity of losses during the period.
For the sixthree months ended SeptemberJune 30, 2004 compared to the same period in the prior year resulted, in large part, from several operational initiatives implemented during fiscal 2004, as described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004. Overall loss severity was also positively influenced by continued improvement in used vehicle prices, as evidenced by the increase in the Manheim Used Vehicle Value Index, a statistical index based on historical auction sales data, which moved from approximately 104 (as a percentage of January 1995 used car prices) at June 2003 to approximately 107 at June 2004. The Company’s delinquency experience during the three months ended June 30, 2004 compared to the same period in the prior year was positively influenced by the operational initiatives discussed above, as well as overall positive economic trends.
24
As part of management’s quarterly evaluation, the allowance for credit losses was adjusted at the portfolio level to reflect changes in the estimate of credit losses on the Company’s receivables portfolios. Notwithstanding the increase in 60-day delinquencies on the operating lease portfolio from March 2004 to June 2004, driven, in part, by seasonal variations, overall delinquencies and credit loss results on this portfolio are expected to improve. Accordingly, management reduced the allowance for credit losses related to the operating lease portfolio consistent with its expectation of future results. Additionally, management increased the allowance for credit losses on both its retail and wholesale and other dealer loan portfolios. These adjustments were recorded to reflect the growth in these portfolios and the increased level of non-Toyota/Lexus dealers receiving wholesale and other dealer financing. The result of these adjustments was a net decrease to the allowance for credit losses at June 2004 when compared to March 2004. Refer to the “Net Earning Assets” section within this MD&A for further discussion regarding the growth in the retail and wholesale and other dealer loan portfolios.
Outlook
As noted above, the Company’s vehicle retail and lease delinquency and credit loss results are trending favorably. Management remains cautiously optimistic that current levels of delinquencies and credit losses on these portfolios will continue for the remainder of fiscal 2005. As discussed in the “Financial Condition – Net Earning Assets” section of this MD&A, the number of vehicle dealers receiving wholesale and other dealer loans from the Company, including the number of non-Toyota/Lexus dealers, has increased substantially from June 30, 2003 depreciationcompared to June 30, 2004. The Company expects that this growth in non-Toyota/Lexus wholesale and other dealer financing may increase the degree of credit risk assumed by the Company as well as the concentration of credit risk within a particular dealer group. To date this change has not had a material effect on delinquencies or credit losses related to the Company’s wholesale and other dealer loan portfolio.
25
Interest expense increased
$96 million or 13%is comprised of interest paid on notes and loans payable (including net settlements on interest rate swaps) and the Company’s derivative fair value adjustment.
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Interest on notes and loans payable, including net settlements on interest rate swaps | $ | 190 | $ | 193 | (2 | %) | |||||
Derivative fair value adjustment | (75 | ) | 38 | -- | |||||||
Total interest expense | $ | 115 | $ | 231 | (50 | %) | |||||
Weighted average interest rate 1 | 2.17 | % | 2.52 | % | |||||||
Weighted average outstanding debt | $ | 34,992 | $ | 30,681 |
1 | Represents the weighted average interest rates of the combined debt and derivatives portfolio for the periods presented. |
The decline in total interest expense during the quarter ended June 30, 2004 when compared to the same period in the prior year. The
increaseyear was comprised of a $56 million increase in straight-line depreciation
and a $40 million increase in additional depreciation expense. Increases in
straight-line depreciation expense resulted fromdue to the overall increasechange in the depreciable basis.derivative fair value adjustment. The increase in the amount of additional depreciation
expense recognized during the six months ended September 30, 2003 was
attributable to a significant increase in the total number of leased vehicles
returned at maturity and sold at auction during the period.
- 19 -
INTEREST EXPENSE
- ----------------
In response to recent SEC public announcements related to the income statement
presentation of certain derivative activities, the Company'sCompany’s positive derivative fair value adjustment was reclassified intoduring the quarter ended June 30, 2004, which decreased interest expense, inwas primarily due to the consolidated
statementamortization of income.
Interestthe cumulative fair value adjustment for de-designated hedges, as well as the impact of increased market interest rates, particularly the two- and three-year swap rates, on the Company’s non-designated hedges. The Company’s negative derivative fair value adjustment during the quarter ended June 30, 2003, which increased interest expense, is comprisedwas mainly due to the impact of realizeddecreased market interest rates on the value of the Company’s non-designated hedges and unrealized gains and losses from
the Company's derivative activity and interest on notes and loans payable. caps.
26
The following table summarizes the Company's interest expense forcomponents of the three and
six months ended September 30, 2003 and 2002:
Three Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) Unrealized (Gain)/Loss | |||||||||||
Ineffectiveness related to designated hedges | $ | 32 | $ | 2 | |||||||
Amortization of de-designated hedges | (49 | ) | -- | ||||||||
Currency basis swaps 1 | (25 | ) | -- | ||||||||
Non-designated hedges | |||||||||||
Interest rate swaps | (25 | ) | 18 | ||||||||
Interest rate caps | (7 | ) | 19 | ||||||||
Other | (1 | ) | (1 | ) | |||||||
Derivative fair value adjustment | $ | (75 | ) | $ | 38 | ||||||
1 | Currency basis swaps used in combination with interest rate swaps to convert U.S. dollar debt to U.S. dollar denominated payments are not eligible for hedge accounting. |
The Company manages its exposure to managemarket risks such as interest rate risk
onand foreign exchange risks with derivative instruments. These instruments include interest rate swaps, cross currency interest rate swaps, and purchased interest rate caps. Market risks are discussed further in Item 3, “Quantitative and Qualitative Disclosures About Market Risk”. The Company’s use of derivatives is limited to the reduction of the economic exposure inherent in otherwise unhedged positions. The Company is not a portfolio basis as part of an overall programderivatives dealer and does not enter into derivatives transactions for trading purposes.
The Company enters into interest rate swap and cross currency interest rate swap agreements to convert certain fixed-rate assets and debt to variable-rate U.S. dollar assets and debt. The currency exposure for all foreign currency debt is hedged at issuance, using either cross currency interest rate swaps or a combination of interest rate risk
management.
Realizedswaps coupled with currency basis swaps to convert non-U.S. dollar debt to U.S. dollar denominated payments.
All derivative gainsinstruments are recorded as assets or liabilities at fair value in the Consolidated Balance Sheet. Certain derivatives are linked to specific liabilities at inception and lossesare designated as fair value hedges for accounting purposes (“designated hedges”). In certain instances, the Company may elect not to apply hedge accounting for specific interest rate swaps and interest rate caps (“non-designated hedges”). All designated hedge relationships are formally documented. This documentation includes the risk management objectives and strategies for undertaking the hedge, along with the method for assessing hedge effectiveness.
Refer to the “Use of Derivative Instruments” section in the Company’s Annual Report on notes and loans payable
also declinedForm 10-K for the threeyear ended March 31, 2004 for further discussion about the Company’s use of derivatives.
27
The following table summarizes the Company'sCompany’s investment and other income for
the threeincome:
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Income from retained interests | $ | 17 | $ | 15 | 13 | % | |||||
Servicing fee income | 8 | 11 | (27 | %) | |||||||
Investment income from securitizations | 25 | 26 | (4 | %) | |||||||
Investment income from marketable | |||||||||||
securities | 6 | 6 | -- | ||||||||
Realized gains/(losses) on marketable | |||||||||||
securities | (3 | ) | 4 | -- | |||||||
Other income | 1 | -- | -- | ||||||||
Investment and other income | $ | 29 | $ | 36 | (19 | %) | |||||
Operating and administrative expenses increased $12 million, or 9% for the three monthsquarter ended SeptemberJune 30, 2003 as compared with the same period in
fiscal 2003. The net increase primarily reflects a $4 million increase in
charges related to technology services provided by TMS and a $4 million
increase in personnel expenses related to increases in headcount.
Operating and administrative expenses2004 increased $20 million, or 8% for the six
months ended September 30, 2003 asslightly when compared to the same period in the prior year, primarily due to the growth in the Company’s business. However, the Company expects operating and administrative costs to increase as a result of costs incurred under its technology initiatives and general business growth, although, as a percentage of earning assets, expenses are expected to be consistent with fiscal 2003.
Approximately $8 million resulted from increases in charges related to
technology services provided by TMS. 2004.
28
The majoritygeneral financial condition and operating expenses of the remaining increase
was comprisedinsurance segment are included in the foregoing discussion of a $4 million increase in personnelthe overall financial condition and results of operations of the Company. Certain revenues and expenses associated with
increases in headcount and a $3 million loss on disposal of assets in
connection with the Company's movespecific to the new headquarters location in the TMS
headquarters complex in Torrance, California.
- 22 -
PROVISION FOR CREDIT LOSSES
- ---------------------------
The Company is exposed to credit risk on its owned portfolio. Credit risk is
the risk that customers will not make required payments to the Company in
accordance with their contractual obligation. The Company's level of credit
losses is influenced primarily by two factors: the total number of contracts
that default ("frequency of occurrence")Company’s insurance operations are discussed below.
Three Months Ended June 30, | % Change | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | ||||||||||
(Dollars in millions) | |||||||||||
Insurance premiums earned and | |||||||||||
contract revenues | $ | 53 | $ | 45 | 18 | % | |||||
Insurance losses and loss adjustment | |||||||||||
expenses | $ | 31 | $ | 27 | 15 | % | |||||
Agreement volume (units) | 274,000 | 254,000 | |||||||||
Agreements in force (units) | 3,121,000 | 2,718,000 | |||||||||
Loss ratio | 72 | % | 76 | % |
Insurance premiums earned and loss per occurrence ("loss
severity"). The Company maintains an allowance for credit losses to cover
probable losses.
The following tables provide information related to the Company's credit loss
experience:
Insurance losses and fiscal year-to-date periods,
the provision for credit lossesloss adjustment expenses increased for the three and six monthsquarter ended SeptemberJune 30, 2003 declined2004 when compared withto the same periodsperiod in the prior year. The
period-to-period declines in the provision for credit losses reflect recent
favorable trends in 60-day contractual delinquency from 0.72% at September 30,
2002 to 0.52% at September 30, 2003.
Delinquency and Net Credit Loss Experience
- ------------------------------------------
The Company's delinquency and net credit loss experience continued to be
influenced by the combined impact of the following factors:
- - Continued economic uncertainty
- - Lower used vehicle prices
- - Longer term financing
- - Tiered/risk based pricing
- - The Company's field restructuring
The impact of the listed factors to the Company's current year delinquency and
net credit loss experience is consistent with the impact to fiscal 2003
results as discussed in the "Provision for Credit Losses" section of the
Company's 2003 Annual Report on Form 10-K, except as discussed below. The
impact of the tiered/risk based pricing program ("tiered pricing"), which was
fully implemented as of March 2001, continues to diminish as a contributing
factor to higher delinquency and credit loss rates. While the implementation
of tiered pricing has resulted in increased overall credit loss, the period-
to-period effects have lessened over time. Similarly, the impact of the
Company's field restructuring, completed in fiscal 2003, is becoming a less
significant factor affecting the level of delinquenciesprimarily due to improvementsan increased number of agreements in operating efficiencies at the recently opened service centers.
Although delinquency rates have improved from September 2002 to September
2003, the overall level of delinquency remains high relative to historical
experience. While the Company's credit loss rates have declined from
historical highs reached during fiscal 2003, credit loss rates remain at
elevated levels. Though the impact of certain factors influencing heightened
levels of delinquencies and charge-offs over the last several quarters has
lessened, management remains cautious regarding the near term economic
outlook, used vehicle price trends, and the extent to which significant and
sustained favorable trends are expected.
- 24 -
29
The objectivefollowing table summarizes the outstanding components of the Company's liquidity strategy isCompany’s funding sources.
June 30, 2004 | March 31, 2004 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | |||||||||||
Commercial paper | $ | 8,400 | $ | 8,094 | |||||||
Unsecured term debt 1 | 27,642 | 26,787 | |||||||||
Securitized debt | 173 | 226 | |||||||||
Total notes and loans payable | 36,215 | 35,107 | |||||||||
Off-balance sheet securitization | 3,474 | 4,121 | |||||||||
Total funding | $ | 39,689 | $ | 39,228 | |||||||
1 | Includes fair value adjustments on debt in designated hedge relationships of $1.7 billion and $1.9 billion at June 30, 2004 and March 31, 2004, respectively, as described in Note 6 of the Consolidated Financial Statements. |
The Company does not rely on any one source of funding and may choose to ensure access to the
capital markets so as to meet obligationsreallocate its funding activities depending upon market conditions, relative costs, and other commitments on a timely and
cost-effective basis to support the growth in earning assets. Significant
reliance is placed on the Company's ability to obtain debt and securitization
funding in the capital markets. Debt issuances have generally been in the form
of commercial paper and unsecured term debt.factors. The Company believes that debt issuances and securitization funding, combined with cash provided by operating investing, and financinginvesting activities, will provide sufficient liquidity to meet future funding requirements.
Commercial paper outstanding under the Company'sCompany’s commercial paper programs ranged from approximately $6.0$8.0 billion to $7.7$9.3 billion during the quarter ended SeptemberJune 30, 2003,2004, with an average outstanding balance of $6.9$8.7 billion. The Company’s commercial paper programs are supported by the liquidity facilities discussed later in this section. As an issuer rated A-1+/P-1 by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), respectively, in a $1.3 trillion commercial paper market, the Company believes there is ample capacity to meet its short-term requirements. In addition, the Company maintained excess cash and cash equivalents ranging from $0.2 million to $1 billion during the quarter ended June 30, 2004, with an average balance of $0.6 billion.
30
During the quarter ended SeptemberJune 30, 2003,2004, the Company issued approximately $1.5$2.2 billion of MTNsmedium term notes (“MTNs”) and bonds all of which
hadwith original maturities ranging from greater than one year to approximately tenfifteen years. At SeptemberJune 30, 2003,2004, the Company had total MTNs and bonds outstanding of $26.5$27.4 billion, of which $11.2$11 billion waswere denominated in foreign currencies. The remaining maturities of all MTNs and bonds outstanding at SeptemberJune 30, 20032004 ranged from less than one year to approximately tenfifteen years.
The Company anticipates continued use of MTNs and bonds in both the U.S. and
international capital markets.
To provide for the issuance of debt securities in the U.S. capital market, the Company maintains a shelf registration with the SEC under which approximately $5.0$13.6 billion was available for issuance at OctoberJuly 31, 2003.2004. Under the Company's euroCompany’s Euro MTN program, which provides for the issuance of debt securities in the international capital markets, the maximum aggregate principal amount authorized to be outstanding at any time is $20.0$20 billion, of which approximately $6.0$6.9 billion was available for issuance at OctoberJuly 31, 2003.2004. The U.S. dollar and euroEuro MTN programs may be expanded from time to time to allow for the continued use of these sources of funding. In addition, the Company may issue bonds in the U.S. and international capital markets that are not issued under its MTN or Euro MTN programs.
The Company did not execute any securitization transactions in the quarters ended June 30, 2004 and 2003.
The Company’s securitization program allowsis a significant source of liquidity as the Company to access an additional
source of funding, further diversifying its investor base to enhance its
liquidity position. TMCC's securitization transactions are structured using
qualifying special purpose entities (with the exception of one transaction
executedholds over $24 billion in fiscal 2002).potentially securitizable retail finance receivables. The Company had $3.7 billion and $4.6 billion outstanding balance ofin securitized retail finance receivables which TMCC continues to service totaled $6.6 billion at
Septemberas of June 30, 2003.
- 25 -
In September 2003, the2004 and March 31, 2004, respectively. The Company sold retail receivables totaling $1.9 billion
in connection with securities issued undercurrently maintains a shelf registration statement
maintained with the SEC. OfSEC relating to the $1.9 billion sold, the Company invested $0.6
billion in purchased and retained senior class and otherissuance of securities resulting
in $1.3 billion of net funding.secured by retail finance receivables. As of OctoberJuly 31, 2003,2004, approximately $6.2 billion of
securities remained available for issuance under the SEC shelf registration statement. ForRefer to the past three fiscal years, securitization transactions averaged
approximately 29% of the Company's total funding. A reduction or termination
of TMCC's securitization activities would cause the Company to seek
alternative funding from debt capital markets. Management does not anticipate
any changes“Off-Balance Sheet Arrangements” section in the Company's ability to accessCompany’s Annual Report on Form 10-K for the year ended March 31, 2004 for further discussion about the Company’s securitization market in
the foreseeable future.
program.
For additional liquidity purposes, the Company maintains syndicated bank credit facilities with certain banks whose commitments aggregated $5.0$5.4 billion at SeptemberJune 30, 2003.2004 and March 31, 2004. No amounts were outstanding under the syndicated bank credit facilities as of SeptemberJune 30, 2003. During the second quarter of
fiscal 2004 TCPR Corp. established a $400 million,and March 31, 2004, respectively. The 364-day syndicated bank credit facility,facilities consist of $3.6 billion and $0.4 billion for TMCC and TCPR, respectively at June 30, 2004 and March 31, 2004. On July 30, 2004, the Company renewed and increased its 5-year syndicated bank credit facilities from $1.4 billion to $4.2 billion, of which $3.9 billion is restrictedavailable to its own use. In addition,TMCC and $0.3 billion is available to TCPR. Additionally, on July 30, 2004, the TMCCCompany decreased its 364-day syndicated bank credit facility,facilities from $4.0 billion to $2.1 billion, of which $2 billion is restrictedavailable to its own use,
was increasedTMCC and $0.1 billion is available to $3.2 billion and renewed during September 2003 for an
additional 364-day period.
The syndicated bank credit facilities do not contain any material adverse change clauses or restrictive financial covenants that would limit the long-term ratingsability of Toyota Motor Corporation ("TMC") and its supported
subsidiaries, including TMCC, from Aa1the Company or TCPR Corp. to Aaa, and retained its stable
outlook.borrow under their respective facilities. As of SeptemberJune 30, 2003,2004, these facilities contained provisions that would have prevented the Company or TCPR Corp., as applicable, from borrowing (and could require repayment of any outstanding loans) if the Company’s long-term debt ratings from S&P or Moody’s were less than A and A2, respectively, (for TMCC) or TCPR Corp.‘s short-term debt ratings from S&P and Moody’s are less than A-2 and P-3, respectively (for TCPR Corp.), or if credit support arrangements acceptable to the rating agencies rating the Company’s and TCPR Corp’s debt were not maintained. In conjunction with the July 30, 2004 renewal of the bank credit facilities as described above, these provisions are no longer applicable.
31
Committed | Uncommitted | Unused Facilities | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, | March 31, | June 30, | March 31, | June 30, | March 31, | |||||||||||||||
2004 | 2004 | 2004 | 2004 | 2004 | 2004 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
364-day syndicated bank credit facilities | $ | 4,000 | $ | 4,000 | $ | -- | $ | -- | $ | 4,000 | $ | 4,000 | ||||||||
5-year syndicated bank credit facility - TMCC | 1,400 | 1,400 | -- | -- | 1,400 | 1,400 | ||||||||||||||
Letters of credit facilities | -- | -- | 55 | 55 | 53 | 53 | ||||||||||||||
Total facilities | $ | 5,400 | $ | 5,400 | $ | 55 | $ | 55 | $ | 5,453 | $ | 5,453 | ||||||||
As of July 31, 2004, the ratings and outlook established by Moody'sMoody’s and Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
("S&P")&P for TMCC were as follows:
�� | NRSRO | Senior Debt | Commercial Paper | Outlook |
---|---|---|---|---|
S&P | AAA | A-1+ | Stable | |
Moody's | Aaa | P-1 | Stable |
Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the first quarterassigning nationally recognized statistical rating organization (“NRSRO”). Each NRSRO may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each NRSRO.
32
A detailed description of fiscalthe Company’s securitization funding program is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004.
TMCC has guaranteed the payments of principal and interest with respect to the bonds of manufacturing facilities of certain affiliates. TMCC receives an annual fee of $100,000 for guaranteeing such payments. TMCC has also guaranteed the payments of principal and interest of offshore bank loans of certain international affiliates. The nature, business purpose, and amounts of these guarantees are described in Note 8 – Commitments and Contingent Liabilities of the Consolidated Financial Statements. Other than the fee discussed above, there are no corresponding expenses or cash flows arising from the Company’s guarantees, nor are any amounts recorded as liabilities on the Company’s consolidated balance sheet.
A detailed description of the Company’s lending commitments is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004. While the majority of these credit facilities and financing arrangements are secured, approximately 20% at June 30, 2004 are unsecured. The credit facilities and financing arrangements with vehicle and industrial equipment dealers and affiliates totaled $3.8 billion of which $2.3 billion was outstanding as of June 30, 2004.
In the ordinary course of business, the Company enters into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and its vendor and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or a third party claim. In addition, the Company has agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. In addition, certain of the Company’s funding arrangements would require the Company to pay lenders for increased costs due to certain changes in laws or regulations. Due to the difficulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, the Company is not able to estimate its maximum exposure to future payments that could result from claims made under such provisions. The Company has not made any material payments in the past as a result of these provisions, and as of June 30, 2004, the Company entered into a 15-year
lease agreement with TMS. The lease agreementdoes not believe it is for the Company's new
headquarters locationprobable that it will have to make any material payments in the TMS headquarters complexfuture. As such, no amounts have been recorded under these indemnifications as of June 30, 2004.
33
The Company sells discrete pools of retail finance receivables to wholly owned consolidated bankruptcy remote special purpose entities (“SPE”). TMCC makes certain representations and warranties to the SPE, and the SPE makes corresponding representations and warranties to the securitization trust, relating to receivables sold in Torrance, California.
At September 30, 2003, minimum future commitments under lease agreementsa securitization. TMCC and the SPE may be required to repurchase any receivables in the event of a breach of a representation and warranty relating to the receivable that materially and adversely affects the interest of the SPE, or securitization trust, as applicable. In addition, TMCC, as servicer of the receivables, may be required to repurchase any receivable in the event of a breach of a covenant by the servicer with respect to the receivable that materially and adversely affects the interest of the securitization trust or of certain extensions or modifications of a receivable as to which TMCC, as servicer, does not commit to make advances to fund reductions in interest payments. The repurchase price is generally the outstanding principal balance of the receivable and accrued interest. These provisions are customary for securitization transactions. No receivables were repurchased during the quarter ended June 30, 2004.
As servicer, TMCC is required to advance certain shortfalls in obligor payments to the related securitization trust to the extent it believes the advance will be recovered from future collections of the related receivable. Each securitization trust is required to reimburse the Company is a lessee, including those under the agreement discussed
above,for these advances from collections on all receivables before making other required payments. These provisions are as follows: fiscal years ending 2004 - $21 million; 2005 - $19
million; 2006 - $17 million; 2007 - $15 million; 2008 - $10 million; 2009 - $9
million; and thereafter - $56 million.
- 27 -
34
This report contains "forward“forward looking statements"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 include estimates, projections and statements of the Company'sCompany’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as "believe", "anticipate", "expect", "estimate",
"project", "should", "intend", "will", "may"“believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning. The Company cautions that the forward looking statements involve known and unknown risks, uncertainties and other important factors that may 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; the effect of
the current political, economic and regulatory risk in Argentina, Mexico,
Venezuela, Brazil and other Latin American and South American countries and the
resulting effect on their economies and monetary and fiscal policies; a decline
in the market acceptability of leasing; the effect of competitive pricing on
interest margins; changes in pricing due to the appreciation of the Japanese
yen against the U.S. dollar; the effect of governmental actions; changes in tax
laws; changes in regulations that affect retail installment lending, leasing or
insurance; 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 U.S. and international capital
markets; the effects of any rating agency actions; increases in market interest
rates; the implementation of new technology systems; the continuation of
factors causing increased delinquencies and credit losses; the changes in the
fiscal policy of any government agency which increases sovereign risk; monetary
policies exercised by the European Central Bank and other monetary authorities;
increased costs associated with the Company's debt funding or restructuring
efforts; the effect of any military action by or against the U.S., as well as
any future terrorist attacks, including any resulting effects on general
economic conditions, consumer confidence and general market liquidity; 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; increased losses resulting from
default by any dealers to which the Company has a significant credit exposure;
default by any counterparty to a derivative contract; and performance under any
guaranty or comfort letter issued by the Company.
• | changes in demand for Toyota and Lexus products |
• | changes in economic conditions |
• | a decline in the market acceptability of leasing or retail financing |
• | the effect of competitive pricing on interest margins |
• | changes in vehicle and component pricing due to the appreciation of the Japanese yen against the U.S. dollar |
• | the effect of governmental actions |
• | changes in tax laws or the Company's tax position |
• | the effect of competitive pressures on the used car market and residual values and the continuation of the other factors causing changes in vehicle returns and net losses incurred at lease maturity |
• | 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 U.S. and international capital markets |
• | the effect of any NRSRO actions |
• | increases in market interest rates or other changes in costs associated with the Company's debt funding |
• | implementation of new technology systems or failure to successfully implement the Company's disaster recovery program |
• | continuation of factors causing changes in delinquencies and credit losses |
• | changes in the fiscal policy of any government agency which increases sovereign risk |
• | monetary policies exercised by the European Central Bank and other monetary authorities |
• | effect of any military action by or against the U.S., as well as any future terrorist attacks, including any resulting effect on general economic conditions, consumer confidence and general market liquidity |
• | with respect to the effect 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 |
• | inability of a party to the Company's syndicated credit facilities or credit support agreements to perform when required |
• | losses resulting from default by any vehicle or industrial equipment dealers to which the Company has a significant credit exposure |
• | default by any counterparty to a derivative contract |
• | performance under any guaranty or comfort letter issued by the Company |
• | changes in legislation and new regulatory requirements |
• | changes in the current political, economic and regulatory risk in Argentina and related impact on its economy and monetary and fiscal policies |
35
The risks included here are not exhaustive. New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor to assess the impact such risk factors might have on the Company'sCompany’s business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward looking statements as a prediction of actual results. The Company will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements.
- 28 -
36
Currently, the Company’s primary market risk exposure is interest rate risk, in
particular risk relating to changes in the U.S. dollar London Interbank
Offered Rate ("LIBOR").risk. The Company uses the valueValue at risk ("VAR"Risk (“VaR”) methodology to measure thisinterest rate risk. The VAR provides an overview of the
Company's exposure to changes in market factors. VAR representsVaR model presents the potential loss in fair value for the Company'sCompany’s portfolio from adverse changes in market
factorsinterest rates for a 30-day holding period within a 95% confidence interval using the
Monte Carlo simulation technique.techniques. The VAR methodology uses historical interest rate data to assess the potential future loss.
The Company's VAR methodology incorporates the impactlosses from adverse changes in market interest rates but does not incorporate the impact fromwhile holding other market changes, such as foreign currency exchange rates, whichrisks constant. The model assumes that loan prepayments do not materially
affectdepend on the valuelevel of the Company's portfolio. The VAR methodology is applied
to more than 90% of the Company's market risk sensitive positions. Management
believes the positions consideredinterest rates. All options in the analysisdebt and derivatives portfolio are representativeincluded in the VaR calculation, with the exception of call options on debt instruments which are offset by the Company's total portfolio. use of interest rate swaps with call options mirroring those in the underlying debt. These matched positions are not included in the VaR calculation as the resulting net exposure is not material.
The VAR methodology currently does not consider
changes in fair values related to investments in marketable securities and
equipment financing.
The VARVaR and the average VARVaR of the Company'sCompany’s portfolio as of, and for the sixthree months ended, SeptemberJune 30, 20032004 measured as the potential 30 day loss in fair value from assumed adverse changes in interest rates are as follows:
As of June 30, 2004 | Average for the three months ended June 30, 2004 | |
---|---|---|
Mean portfolio value | $7.8 billion | $7.6 billion |
VaR | $75 million | $64 million |
Percentage of the mean portfolio value | 0.96% | 0.85% |
Confidence level | 95.0% | 95.0% |
As of March 31, 2004 | Average for the Year Ended March 31, 2004 | |
Mean portfolio value | $7.4 billion | $6.2 billion |
VaR | $47 million | $51 million |
Percentage of the mean portfolio value | 0.63% | 0.82% |
Confidence level | 95.0% | 95.0% |
The Company'sCompany’s calculated VARVaR 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 the Company'sCompany’s portfolio of financial instruments during the year. - 29 -
37
The Company is also exposed to market price risk related to equity investments included in the investment portfolio of its insurance operations. Investments
in marketable securitiesThese investments consist primarily of passively managed mutual funds that are designed to track the performance of major equity investments in mutual
funds.market indices. These investments are classified as available for sale in accordance
with Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Nonesale. Fair market values of the equity investments are considered trading securities within the meaning of
SFAS 115.
determined using quoted market prices.
A summary of the sensitivity of the fair market value of the Company'sunrealized gains and losses on equity investments to an assumedincluded in the Company’s other comprehensive income assuming a 10% and 20% adverse change in market prices is presented below.
June 30, | March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
2004 | 2004 | ||||||||
(Dollars in millions) | |||||||||
Carrying value | $ | 138 | $ | 132 | |||||
Fair market value | $ | 183 | $ | 176 | |||||
Unrealized gain, net of tax | $ | 28 | $ | 27 | |||||
Estimated 10% adverse change, net of tax | $ | 16 | $ | 16 | |||||
Estimated 20% adverse change, net of tax | $ | 5 | $ | 5 |
These hypothetical scenarios represent an estimate of reasonably possible net losses that may be recognized onas a result of changes in the Company'sfair market value of the Company’s equity investments assuming hypothetical adverse movements in future market rates and isvalues. These scenarios are not necessarily indicative of actual results that may occur. Additionally, the hypothetical scenarios do 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.
The Company issues debt in a variety of currencies, principally U.S. dollars, euros and Japanese Yen. As a matter of policy, currency exposure related to foreign currency debt is fully hedged at issuance through the execution of cross currency interest rate swaps or a combination of interest rate swaps coupled with currency basis swaps. Therefore, the Company believes that the market risk exposure to changes in currency exchange rates on its debt issuances is not material.
The Company is also exposed to foreign exchange risk related to equity and bond investments included in the investment portfolio of its insurance operations. These investments consist primarily of international equity funds and, to a lesser extent, bond funds which are incorporated into the overall investment portfolio to provide broader diversification of the investment assets. Substantially all of the market risk exposure to changes in currency exchange rates relates to the investments in international equity funds. These equity fund investments, and any related foreign exchange risk, are included in the market price risk analysis described above.
The Company has entered into reciprocal collateral arrangements with certain derivative counterparties to mitigate its exposure to the credit risk associated with the respective counterparty. At June 30, 2004, the Company held a net $86.7 million in collateral from counterparties.
38
Counterparty credit risk of derivative instruments is represented by the fair value of contracts with a positive fair value at SeptemberJune 30, 2003,2004, reduced by the effects of master netting agreements.agreements and collateral. At SeptemberJune 30, 2003,2004, aggregate counterparty credit risk as represented by the fair value of the Company'sCompany’s derivative instruments was approximately $1.9$1.8 billion on(net of collateral held). Additionally, at June 30, 2004, all of the Company’s derivative instruments were executed with commercial banks and investment banking firms assigned investment grade ratings of “A” or better by NRSROs. The Company has not experienced a counterparty default and does not currently anticipate non-performance by any of its counterparties, and as such has no reserves related to non-performance as of June 30, 2004. In addition, many of the Company’s ISDA Master Agreements with counterparties contain reciprocal ratings triggers providing either party with an aggregate notional
amountoption to terminate the agreement and related transactions at market in the event of $46.9 billion.
- 30 -
Reviewa ratings downgrade below a specified threshold.
A summary of the net counterparty credit exposure by Independent Accountants
credit rating is presented below:
June 30, | March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
2004 | 2004 | ||||||||
Credit Rating | (Dollars in billions) | ||||||||
AAA | $ | 0.9 | $ | 1.0 | |||||
AA | 0.8 | 0.9 | |||||||
A | 0.1 | 0.2 | |||||||
Total net counterparty credit exposure | $ | 1.8 | $ | 2.1 | |||||
39
With respect to the unaudited consolidated financial information of Toyota Motor Credit Corporation for the three-month and six-month periods ended SeptemberJune 30, 20032004 and 2002,2003, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers"(“PricewaterhouseCoopers”) reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 14, 2003August 16, 2004 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated financial information because that report is not a "report"“report” or a "part"“part” of the registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended ("(“Exchange Act"Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission'sCommission’s rules and forms. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period of this quarterly report, the Company'sCompany’s Chief Executive Officer ("CEO"(“CEO”) and Chief Financial Officer ("CFO"(“CFO”) evaluated the effectiveness of such disclosure controls and procedures in place pursuant to Rule 13a-15(b) of the Exchange Act. Based on the evaluation, the CEO and CFO concluded that suchthe disclosure controls and procedures are effective.
Thereprovided reasonable assurance of effectiveness as of the end of the period of this quarterly report.
The Company is currently in the process of reviewing and formalizing the consolidated enterprise’s internal controls and procedures for financial reporting in accordance with the SEC’s rules implementing the internal control reporting requirements included in Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Changes have been made and will be made to the Company’s internal controls over financial reporting as a result of these efforts. However, there has been no change in the Company'sCompany’s internal control over financial reporting identified in connection with the disclosure controls and procedures evaluation referred to above during the Company'sCompany’s most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
- 31 -
40
Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against the Company with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in the Company'sCompany’s business operations, policies and practices. Certain of these actions are similar to suits that 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 Company establishes reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts reserved for these claims. However, based on information currently available, the advice of liability on pending claimscounsel, and actions as of
September 30, 2003 were not determinable; however,established reserves, in the opinion of management, the ultimate liability resulting therefrom shouldwill not have a material adverse effect on the Company'sCompany’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'sCompany’s expectations and beliefs concerning future events. The Company cautions that its discussion of Legal Proceedingslegal 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'sCompany’s evaluation of the possible liability from existing litigation.
There is nothing to report with regard to this item.
There is nothing to report with regard to this item.
Not applicable.
There is nothing to report with regard to this item.
41
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on page 34,44, are filed as part of this report.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the registrant during the quarter ended SeptemberJune 30, 2003:
2004:
Date of ReportItems Reported
----------------- ---------------------
August
April 5, 2003 Item 12. Disclosure of Results of Operations
And Financial Condition.
July 14, 20032004 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- 32 -
May 11, 2004 Item 12. Disclosure of Results of Operations and Financial Condition
42
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TOYOTA MOTOR CREDIT CORPORATION
-------------------------------
(Registrant)
Date: November 14, 2003 By /S/ GEORGE E. BORST
-------------------------------
George E. Borst
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2003 By /S/ JOHN F. STILLO
-------------------------------
John F. Stillo
Vice President and
Chief Financial Officer
(Principal Financial Officer)
- 33 -
EXHIBIT INDEX
Exhibit Method
Number Description of Filing
- ------- ----------- ---------
4.1 Amendment No. 1 to the Fourth Amended and Restated Filed
Agency Agreement, dated September 30, 2003 among, Herewith
TMCC, JP Morgan Chase Bank and JP Morgan Bank
Luxembourg, S.A.
10.1 364 Day Facility Credit Agreement, dated September Filed
11, 2003 among TCPR, Bank of America, N.A., and Herewith
the Other Lenders Party Thereto
10.2 First Amended and Restated 364 Day Facility Filed
Credit Agreement, dated September 11, 2003 among Herewith
TMCC, Bank of America, N.A., and Other Lenders
Party Thereto
12.1 Calculation of Ratio of Earnings to Fixed Charges Filed
Herewith
15.1 Report of Independent Accountants Filed
Herewith
15.2 Letter regarding unaudited interim financial Filed
information Herewith
31.1 Certification of Chief Executive Officer Filed
Herewith
31.2 Certification of Chief Financial Officer Filed
Herewith
32.1 Certification pursuant to 18 U.S.C. Section 1350 Furnished
Herewith
32.2 Certification pursuant to 18 U.S.C. Section 1350 Furnished
Herewith
- 34 -
TOYOTA MOTOR CREDIT CORPORATION (Registrant) | ||
Date: August 16, 2004 | By /s/ GEORGE E. BORST | |
George E. Borst President and Chief Executive Officer (Principal Executive Officer) | ||
Date: August 16, 2004 | By /S/ JOHN F. STILLO | |
John F. Stillo Vice President and Chief Financial Officer (Principal Financial Officer) |
43
EXHIBIT INDEX | ||
---|---|---|
Exhibit Number | Description | Method of Filing |
12.1 | Calculation of Ratio of Earnings to Fixed Charges | Filed Herewith |
15.1 | Report of Independent Accountants | Filed Herewith |
15.2 | Letter regarding unaudited interim financial information | Filed Herewith |
31.1 | Certification of Chief Executive Officer | Filed Herewith |
31.2 | Certification of Chief Financial Officer | Filed Herewith |
32.1 | Certification pursuant to 18 U.S.C. Section 1350 | Furnished Herewith |
32.2 | Certification pursuant to 18 U.S.C. Section 1350 | Furnished Herewith |
44