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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-9961
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TOYOTA MOTOR CREDIT CORPORATION
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3775816
- ---------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19001 S. Western Avenue
Torrance, California 90509
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 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).
Yes No X
--- ---
As of January 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.
- 1 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
(Unaudited)
December 31, March 31,
2003 2003
------------ ------------
ASSETS
------
Cash and cash equivalents............... $ 946 $ 980
Investments in marketable securities.... 1,407 1,630
Finance receivables, net................ 30,722 26,477
Investments in operating leases, net.... 7,755 8,017
Derivative assets....................... 2,345 1,421
Other assets............................ 558 708
-------- --------
Total assets................... $ 43,733 $ 39,233
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................. $ 36,044 $ 32,099
Derivative liabilities.................. 221 514
Other liabilities....................... 849 869
Income taxes payable.................... 51 26
Deferred income......................... 1,125 996
Deferred income taxes................... 2,088 1,866
-------- --------
Total liabilities................. 40,378 36,370
-------- --------
Commitments and contingent liabilities (See note 8)
Shareholder's equity:
Capital stock, $l0,000 par value
(100,000 shares authorized;
91,500 issued and outstanding)... 915 915
Retained earnings.................... 2,399 1,930
Accumulated other comprehensive
income............................ 41 18
-------- --------
Total shareholder's equity........ 3,355 2,863
-------- --------
Total liabilities and
shareholder's equity........... $ 43,733 $ 39,233
======== ========
See Accompanying Notes to Consolidated Financial Statements.
- 2 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
Financing revenues:
Leasing.................................... $ 605 $ 630 $ 1,840 $ 1,883
Retail financing........................... 311 293 911 841
Wholesale and other dealer financing....... 45 45 137 127
------- ------- ------- -------
Total financing revenues...................... 961 968 2,888 2,851
Depreciation on leases..................... 389 415 1,252 1,182
Interest expense........................... 115 192 433 955
------- ------- ------- -------
Net financing revenues........................ 457 361 1,203 714
Insurance premiums earned and contract
revenues................................... 46 41 138 124
Investment and other income................... 45 71 159 152
------- ------- ------- -------
Net financing revenues and other revenues..... 548 473 1,500 990
------- ------- ------- -------
Expenses:
Operating and administrative............... 142 142 420 400
Losses related to Argentine investment..... - - - 11
Provision for credit losses................ 76 151 263 400
Insurance losses and loss adjustment
expenses................................ 24 22 74 66
------- ------- ------- -------
Total expenses................................ 242 315 757 877
------- ------- ------- -------
Income before income taxes.................... 306 158 743 113
Provision for income taxes.................... 102 65 274 45
------- ------- ------- -------
Net income.................................... $ 204 $ 93 $ 469 $ 68
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
- 3 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)
(Unaudited)
Accumulated
Other
Capital Retained Comprehensive
Stock Earnings Income/(Loss) Total
------- -------- ------------- -------
Balance at March 31, 2002........ $ 915 $ 1,820 $ 16 $ 2,751
------- -------- ------------- -------
Net income for the nine months
ended December 31, 2002....... - 68 - 68
Change in net unrealized gain
on available-for-sale
marketable securities
(net of tax).................. - - (5) (5)
------- -------- ------------- -------
Total comprehensive income....... - 68 (5) 63
------- -------- ------------- -------
Balance at December 31, 2002.... $ 915 $ 1,888 $ 11 $ 2,814
======= ======== ============= =======
Balance at March 31, 2003........ $ 915 $ 1,930 $ 18 $ 2,863
------- -------- ------------- -------
Net income for the nine months
ended December 31, 2003....... - 469 - 469
Change in net unrealized gain
on available-for-sale
marketable securities
(net of tax).................. - - 23 23
------- -------- ------------- -------
Total comprehensive income....... - 469 23 492
------- -------- ------------- -------
Balance at December 31, 2003.... $ 915 $ 2,399 $ 41 $ 3,355
======= ======== ============= =======
See Accompanying Notes to Consolidated Financial Statements.
- 4 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
December 31,
-------------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net income................................................ $ 469 $ 68
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Derivative fair value adjustment.................... (125) 322
Depreciation and amortization....................... 1,337 1,256
Provision for credit losses......................... 263 400
Gain from securitization of finance receivables..... (42) (72)
Gain from sale of marketable securities............. (7) -
Loss on impairment of retained interests............ - 11
Loss and reserve related to Argentine Investment.... - 11
Decrease in other assets............................ 112 178
Increase in deferred income taxes................... 239 174
Increase in other liabilities....................... 77 23
-------- --------
Total adjustments......................................... 1,854 2,303
-------- --------
Net cash provided by operating activities.................... 2,323 2,371
-------- --------
Cash flows from investing activities:
Addition to investments in marketable securities.......... (1,401) (1,469)
Disposition of investments in marketable securities....... 1,530 1,165
Acquisition of finance receivables........................ (36,224) (29,632)
Liquidation of finance receivables........................ 30,011 23,207
Proceeds from sale of finance receivables................. 1,825 3,002
Addition to investments in operating leases............... (2,274) (2,726)
Disposition of investments in operating leases............ 1,282 1,375
-------- --------
Net cash used in investing activities........................ (5,251) (5,078)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable......... 9,020 6,949
Payments on notes and loans payable....................... (7,696) (5,551)
Net increase in commercial paper.......................... 1,570 1,419
-------- --------
Net cash provided by financing activities.................... 2,894 2,817
-------- --------
Net (decrease)/increase in cash and cash equivalents......... (34) 110
Cash and cash equivalents at the beginning of the period..... 980 747
-------- --------
Cash and cash equivalents at the end of the period........... $ 946 $ 857
======== ========
Supplemental disclosures:
Interest paid............................................. $ 497 $ 569
Income taxes paid/(received).............................. $ 43 $ (378)
See Accompanying Notes to Consolidated Financial Statements.
- 5 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Interim Financial Data
- -------------------------------
The accompanying information pertaining to the three and nine months ended
December 31, 2003 and 2002 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 of assets, liabilities,
revenues, expenses, and disclosure of contingent assets and liabilities.
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 nine months ended December 31, 2003 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. The reclassification had no
impact on net financing revenues and other revenues or net income.
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 2003 Annual Report to the SEC on Form 10-K. References herein to
"TMCC" denote Toyota Motor Credit Corporation and references herein to "the
Company" denote Toyota Motor Credit Corporation and its consolidated
subsidiaries.
Note 2 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
December 31, March 31,
2003 2003
------------ ------------
(Dollars in Millions)
Retail.................................... $ 21,013 $ 16,160
Finance leases............................ 4,817 6,078
Wholesale and other dealer loans.......... 6,042 5,608
-------- --------
31,872 27,846
Unearned income........................... (814) (1,043)
-------- --------
Finance receivables, net of
unearned income................... 31,058 26,803
Allowance for credit losses............... (336) (326)
-------- --------
Finance receivables, net .............. $ 30,722 $ 26,477
======== ========
Finance leases included estimated unguaranteed residual values of $1.4 billion
and $1.8 billion at December 31 and March 31, 2003, respectively. The
aggregate balances related to finance receivables 60 or more days past due
totaled $162 million and $160 million at December 31 and March 31, 2003,
respectively. The majority of 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
Note 3 - Investments in Operating Leases
- ----------------------------------------
Investments in operating leases, net consisted of the following:
December 31, March 31,
2003 2003
------------ ------------
(Dollars in Millions)
Vehicles.................................. $ 9,736 $ 9,687
Equipment and other....................... 693 720
------- -------
10,429 10,407
Accumulated depreciation.................. (2,508) (2,254)
Allowance for credit losses .............. (166) (136)
------- -------
Investments in operating leases, net...... $ 7,755 $ 8,017
======= =======
Note 4 - Allowance for Credit Losses
- ------------------------------------
An analysis of the allowance for credit losses follows:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
(Dollars in Millions)
Allowance for credit losses
at beginning of period............... $ 544 $ 417 $ 526 $ 283
Provision for credit losses............. 76 151 263 400
Charge-offs............................. (88) (98) (264) (227)
Recoveries.............................. 17 9 43 24
Other adjustments....................... 1 (13) (18) (14)
------- ------- ------- -------
Allowance for credit losses
at end of period..................... $ 550 $ 466 $ 550 $ 466
======= ======= ======= =======
At December 31, 2003, the allowance for credit losses consisted of $502
million to cover probable losses on the Company's owned portfolio and $48
million to cover probable losses on repossessed collateral in inventory.
Total repossessed collateral in inventory at December 31, 2003 was $119
million. Repossessed collateral is included in other assets in the
consolidated balance sheet.
- 7 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Derivatives and Hedging Activities
- -------------------------------------------
In response to recent SEC public announcements related to the income statement
presentation of certain derivative activities, the Company's derivative fair
value adjustment was reclassified into interest expense in the consolidated
statement of income.
The following table summarizes the net unrealized gains and losses for the
items included in the Company's derivative fair value adjustment:
Three months ended Nine months ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------ ------ ------ ------
(Dollars in Millions)
(Unrealized (Gain)/Loss)
Non-designated derivatives............... $ (86) $ 36 $ (132) $ 428
Previously designated derivatives that no
longer qualify as fair value hedges... - 5 18 3
Ineffective portion of the
Company's fair value hedges........... 6 (57) (11) (109)
------ ------ ------ ------
Derivative fair value adjustment......... $ (80) $ (16) $ (125) $ 322
====== ====== ====== ======
- 8 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Notes and Loans Payable
- --------------------------------
The following table summarizes the items comprising notes and loans payable
and the related weighted average interest rates:
December 31, March 31, December 31, March 31,
2003 2003 2003 2003
--------- --------- --------- ---------
(Dollars in Millions)
Short-term debt ............... $ 8,246 $ 4,843 1.07% 1.36%
Long-term debt ................ 25,515 26,034 1.26% 1.43%
Fair value adjustments .... 2,283 1,222
--------- ---------
Notes and loans payable... $ 36,044 $ 32,099 1.22% 1.42%
========= =========
- --------------------
Includes the effect of certain United States ("U.S.") dollar interest rate swap
agreements and cross currency interest rate swap agreements.
Adjusts debt to fair market value in accordance with Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and related amendments ("SFAS 133, as amended").
Included in long-term debt are unsecured notes denominated in various foreign
currencies totaling approximately $11.5 billion and $11.4 billion at December
31 and March 31, 2003, respectively. Concurrent with the issuance of these
unsecured notes, the Company entered into cross currency interest rate swap
agreements to convert these obligations into variable rate U.S. dollar
obligations.
- 9 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Liquidity Facilities and Letters of Credit
- ---------------------------------------------------
The following table summarizes the Company's committed and uncommitted
facilities:
Committed Uncommitted Unused Facilities
-------------------- -------------------- --------------------
December 31, March 31, December 31, March 31, December 31, March 31,
2003 2003 2003 2003 2003 2003
-------- -------- -------- -------- -------- --------
(Dollars in Millions)
364-day syndicated bank
credit facilities........ $ 3,600 $ 2,800 $ - $ - $ 3,600 $ 2,800
5-year syndicated bank
credit facility - TMCC... 1,400 1,400 - - 1,400 1,400
Letters of credit facilities - - 60 60 59 59
-------- -------- -------- -------- -------- --------
Total facilities $ 5,000 $ 4,200 $ 60 $ 60 $ 5,059 $ 4,259
======== ======== ======== ======== ======== ========
During the second quarter of fiscal 2004, Toyota Credit de Puerto Rico Corp.
("TCPR Corp.") established a $400 million, 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 $3.2 billion and renewed during September 2003 for an additional
364-day period.
- 10 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Commitments and Contingent Liabilities
- -----------------------------------------------
TMCC has entered into certain guarantees and commitments. As of December 31,
2003, TMCC had not recorded any liabilities under such arrangements. The
maximum commitment amounts under the guarantees and commitments as of December
31, 2003 are summarized in the table below:
Maximum
Commitment
Amount
--------------
(Dollars in Millions)
Credit facilities with
dealers and affiliates................. $ 3,239
Guarantees of affiliate pollution control
and solid waste disposal bonds......... 148
Lease commitments......................... 147
Revolving liquidity notes
related to securitizations............. 48
Guarantee of Banco Toyota Do
Brasil debt("BTB")..................... 30
-------
Total guarantees and commitments............. $ 3,612
=======
The Company maintains credit facilities with dealers and affiliates. 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 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's exposure under such
agreements. The Company prices the credit facilities according to the risks
assumed in entering into the credit facility.
During the first quarter of fiscal 2004, TCPR Corp. extended a $90 million
revolving line of credit to Toyota de Puerto Rico Corp. ("TDPR"), a wholly-
owned subsidiary of Toyota Motor Sales, U.S.A., Inc. ("TMS"). This $90
million commitment is included in the table above under credit facilities with
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.
- 11 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Commitments and Contingent Liabilities (Continued)
- ------------------------------------------------
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.
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 has not been required to perform
under any of these affiliate bond guarantees as of December 31, 2003.
During the first quarter of fiscal 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 December 31, 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
million; 2006 - $17 million; 2007 - $15 million; 2008 - $10 million; 2009 - $9
million; and thereafter - $56 million.
- 12 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Commitments and Contingent Liabilities (Continued)
- ------------------------------------------------
In certain securitization structures, revolving liquidity notes are used in
lieu of reserve funds to provide credit enhancement to the senior securities.
Under these revolving liquidity notes, investors may draw upon the notes to
cover any shortfall in interest and principal payments. The draws are funded
by TMCC, and TMCC is entitled to reimbursement of amounts drawn on the
liquidity notes. Reimbursement of amounts drawn on the liquidity notes is
subordinated to principal and interest payments due on the securities. TMCC
must fund the entire amount available under the revolving liquidity notes if
TMCC's short-term unsecured debt rating is downgraded below P-1 or A-1 by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
a division of The McGraw-Hill Companies, Inc. ("S&P"), respectively.
TMCC has guaranteed payments of up to $30 million in principal, interest,
fees, and expenses with respect to the 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. 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 offshore 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 December 31, 2003.
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 as 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 evaluates the probability of having to incur such costs. Due to
the difficulty in predicting events which could cause a breach of the
indemnification provisions or trigger a gross-up 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 December 31,
2003, 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 December 31, 2003.
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'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 amounts of liability on pending claims and actions as of
December 31, 2003 were not determinable; however, in the opinion of management,
the ultimate liability resulting therefrom should not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
- 13 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Related Party Transactions
- -----------------------------------
As of December 31, 2003, there have been no material changes to related party
agreements or relationships as described in the Company's annual report on Form
10-K for the year ended March 31, 2003, except for the finance receivables with
TDPR and the lease agreement with TMS, as described in Note 8. The table below
summarizes amounts included in the Company's consolidated balance sheet and
statement of income under various related party agreements or relationships:
December 31, March 31,
2003 2003
---------- ----------
(Dollars in Millions)
Assets:
Finance receivables with affiliate... $ 33 $ -
Notes receivable under
home loan program................ $ 6 $ 9
Other................................ $ - $ 7
Liabilities:
Accrued credit support fee payable... $ 12 $ 7
Net intercompany payable............. $ 48 $ 59
Notes payable under
affiliate MTN program............ $ 1 $ 1
Other................................ $ 1 $ -
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
(Dollars in Millions)
Revenues:
Marketing, wholesale support, and
other revenues.................... $ 48 $ 44 $ 142 $ 108
Affiliate insurance premiums and
commissions revenue............... $ 13 $ 9 $ 35 $ 29
Expenses:
Credit support fees incurred........... $ 4 $ 3 $ 12 $ 10
Shared services reimbursement.......... $ 14 $ 10 $ 58 $ 31
Rent expense and other amounts incurred $ 2 $ 1 $ 6 $ 4
- 14 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Segment Information
- -----------------------------
Financial results for the Company's operating segments are summarized below:
December 31, March 31,
----------- ------------
2003 2003
-------- --------
(Dollars in Millions)
Assets:
Financing operations................. $ 42,837 $ 38,529
Insurance operations................. 1,104 912
Eliminations/reclassifications....... (208) (208)
-------- --------
Total assets....................... $ 43,733 $ 39,233
======== ========
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
(Dollars in Millions)
Gross revenues:
Financing operations................. $ 994 $ 1,032 $ 3,019 $ 2,983
Insurance operations................. 58 48 166 144
------- ------- ------- -------
Total gross revenues............... $ 1,052 $ 1,080 $ 3,185 $ 3,127
======= ======= ======= =======
Net income:
Financing operations................. $ 191 $ 83 $ 434 $ 41
Insurance operations................. 13 10 35 27
------- ------- ------- -------
Total net income................... $ 204 $ 93 $ 469 $ 68
======= ======= ======= =======
- 15 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EARNING ASSETS AND CONTRACT VOLUME
Net Earning Assets
- ------------------
The composition of the Company's net earning assets is summarized below:
December 31, March 31, December 31,
2003 2003 2002
------------ ------------ ------------
(Dollars in Millions)
Vehicle lease earning assets
Investment in operating leases, net...... $ 7,475 $ 7,679 $ 7,415
Finance leases, net...................... 3,957 4,997 5,410
-------- -------- --------
Total vehicle lease earning assets........ 11,432 12,676 12,825
Vehicle retail finance receivables, net... 20,796 15,873 15,976
Vehicle wholesale and other financing 6,751 6,407 6,014
Allowance for credit losses .......... (502) (462) (381)
-------- -------- --------
Total net earning assets.................. $ 38,477 $ 34,494 $ 34,434
======== ======== ========
- ----------------------
For purposes of this table, vehicle wholesale and other financing includes
wholesale financing, real estate loans, working capital loans, revolving credit lines,
and industrial equipment financing.
Includes amounts to cover probable losses on the Company's owned portfolio, but
excludes amounts related to repossessed collateral in inventory.
Net earning assets at December 31, 2003 increased $4.0 billion or 12% compared
to both March 31, 2003 and December 31, 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 continued growth in the number
of new vehicles financed under the Company's retail financing programs. This
growth was generated in large part by an increased use of marketing incentives
sponsored by Toyota Motor Sales, U.S.A., Inc. ("TMS") and higher Toyota and
Lexus vehicle sales levels, which increased 12% and 8% for the three and nine
months ended December 31, 2003, respectively, when compared to the same
periods in the prior year. Also contributing to the growth in retail finance
receivables during the current year periods was a decrease in the amount of
retail finance receivables securitized when compared to the same periods in
the prior year. Vehicle wholesale and other financing receivables also
increased when compared to March 31, 2003 and December 31, 2002 primarily due
to an increase in dealer inventory financed by the Company and increases in
the number of vehicle dealers receiving vehicle wholesale financing. Vehicle
lease earning assets continued to decrease when compared to March 31, 2003 and
December 31, 2002 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.
- 16 -
The allowance for credit losses at December 31, 2003 increased $40 million or
9% and $121 million or 32% when compared to March 31, 2003 and December 31,
2002, respectively. Refer to 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.
Contract Volume
- ---------------
The composition of the Company's contract volume and market share is
summarized below:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
Total contract volume:
Vehicle retail....................... 194,000 153,000 647,000 521,000
Vehicle lease........................ 25,000 33,000 90,000 121,000
------- ------- ------- -------
Total................................... 219,000 186,000 737,000 642,000
======= ======= ======= =======
TMS sponsored contract volume:
Vehicle retail....................... 57,000 46,000 207,000 134,000
Vehicle lease........................ 5,000 6,000 24,000 21,000
------- ------- ------- -------
Total................................... 62,000 52,000 231,000 155,000
======= ======= ======= =======
Market share :
Vehicle retail....................... 35.8% 31.1% 38.3% 32.4%
Vehicle lease........................ 6.6% 9.8% 7.5% 10.9%
----- ----- ----- -----
Total................................... 42.4% 40.9% 45.8% 43.3%
===== ===== ===== =====
- --------------------
Market share represents the percentage of total TMS sales of new Toyota and Lexus
vehicles financed by TMCC. Total TMS sales excludes fleet sales, sales of Toyota
Services de Mexico, S.A. de C.V., Toyota Services de Venezuela, C.A., and a private
Toyota distributor.
Total contract volume increased for the three and nine months ended December
31, 2003, respectively, when compared to the same periods in the prior year
due to increased vehicle retail contract volume. The growth in vehicle retail
contract volume during both periods was attributable to the combined effects
of higher Toyota and Lexus vehicle sales, incremental volume from the
increased number of wholesale dealers serviced by TMCC, and continued use of
new vehicle incentive programs sponsored by TMS. In contrast, vehicle lease
contract volume decreased for the three and nine months ended December 31,
2003, respectively, when compared to the same periods in the prior year. The
decline in lease contract volume was 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.
- 17 -
RESULTS OF OPERATIONS
- ---------------------
Net income increased $111 million and $401 million for the three and nine
months ended December 31, 2003, respectively, when compared to the same
periods in the prior year. The increases in net income for both periods
reflect reductions in total interest expense and in provision for credit
losses. The decrease in total interest expense reflects the effect of
declines in short term interest rates and the positive impact of changes in
market interest rates on the valuation of the Company's derivatives, partially
offset by the effects of higher average outstanding balances of notes and
loans payable used to finance asset growth. The decrease in provision for
credit losses reflects continued improvement in the Company's overall
delinquency experience. These items, and other factors influencing the
Company's financial results are discussed in more depth within this MD&A
section.
TOTAL FINANCING REVENUES
- ------------------------
Total financing revenues remained essentially level for the three and nine
months ended December 31, 2003 when compared to the same periods in the prior
year as a result of offsetting fluctuations in leasing and retail financing
revenues. Retail financing revenues increased as a result of the continued
growth in vehicle retail finance receivables, partially offset by reductions
in portfolio yield. Leasing revenues declined during both periods due to
reductions in portfolio yield and vehicle lease earning assets. Wholesale and
other dealer financing revenues remained relatively unchanged during both
periods as increases in average vehicle wholesale and other receivables
outstanding were offset by reductions in portfolio yield. The decrease in
portfolio yield reflects general decreases in market interest rates.
Portfolio yield on the Company's total net earning assets decreased from 7.40%
for the three months ended December 31, 2002 to 6.36% for the three months
ended December 31, 2003, and from 7.61% for the nine months ended December 31,
2002 to 6.60% for the nine months ended December 31, 2003. The changes in
leasing and retail financing revenues are consistent with the 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. Refer to the
"Earning Assets and Contract Volume" section of the MD&A for further
discussion regarding earning asset changes.
- 18 -
DEPRECIATION ON LEASES
- ----------------------
Straight-line depreciation expense, recorded over the original contract life,
is based upon the depreciable basis of leased vehicles ("depreciable basis").
Depreciable basis is the difference between a leased vehicle's original book
value ("capitalized cost") and its contractual residual value established at
lease origination. Additional depreciation expense is recorded ratably over
the remaining life of the lease when the residual value at lease maturity is
estimated to be less than the contractual residual value. Factors affecting
the estimated residual value at lease maturity 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.
Total depreciation expense decreased $26 million or 6% for the three months
ended December 31, 2003 when compared to the same period in the prior year.
The decrease was comprised of a $49 million decrease in additional
depreciation expense, partially offset by a $23 million increase in straight-
line depreciation. The decline in additional depreciation expense resulted
primarily from lower losses incurred at lease termination, attributable to
lower average losses per vehicle sold ("loss severity") during the quarter,
coupled with a reduction in the number of leased vehicles returned at maturity
and sold at auction. In prior periods, the Company recorded additional
depreciation expense in response to the continued decline in used vehicle
prices. These actions were taken to bring contractual residual values in line
with expected residual values at lease maturity. Additionally, the Company
continued to adjust contractual residual values on new lease volume to take
into account lower expected used vehicle prices. These adjustments have
contributed to the increase in straight-line depreciation and the
corresponding decrease in additional depreciation expense.
Total depreciation expense increased $70 million or 6% for the nine months
ended December 31, 2003 when compared to the same period in the prior year.
The increase was comprised of a $79 million increase in straight-line
depreciation, partially offset by a $9 million decrease in additional
depreciation expense. Increases in straight-line depreciation expense
resulted from the overall increase in the depreciable basis. The decrease in
additional depreciation expense recognized during the nine months ended
December 31, 2003 primarily resulted from adjustments to contractual residual
values at lease inception in response to expected lower end-of-term market
values. This decrease was offset by an increase in loss severity, primarily
during the first quarter of fiscal 2004, experienced on units returned at
maturity when compared to the same prior year period.
- 19 -
INTEREST EXPENSE
- ----------------
Interest expense is comprised of interest paid on notes and loans payable,
including net settlements on interest rate swaps, and unrealized gains and
losses included in the Company's derivative fair value adjustment. During the
current year, the Company's derivative fair value adjustment was reclassified
into interest expense in response to recent SEC public announcements regarding
the income statement presentation of certain derivative activities.
The following table summarizes the primary components of interest expense:
Three months ended Nine months ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------ ------ ------ ------
(Dollars in Millions)
Interest on notes and loans payable,
including net settlements on interest
rate swaps............................ $ 195 $ 208 $ 558 $ 633
Derivative fair value adjustment............ (80) (16) (125) 322
------ ------ ------ ------
Total interest expense...................... $ 115 $ 192 $ 433 $ 955
====== ====== ====== ======
The decrease in total interest expense for the three and nine months ended
December 31, 2003 reflects the effect of declines in short term interest rates
and the positive impact of changes in market interest rates on the valuation
of the Company's derivatives, partially offset by the effects of higher
average outstanding balances of notes and loans payable used to finance asset
growth.
Interest on notes and loans payable, including net settlements on interest rate
swaps, benefited from a decline in short term interest rates. The impact of
the decrease in rates was partially offset by an increase in the average
outstanding balance of notes and loans payable from $29 billion for the nine
months ended December 31, 2002 to $34 billion for the nine months ended
December 31, 2003.
The following table summarizes the net unrealized gains and losses for the
items included in the Company's derivative fair value adjustment, which is
included in interest expense. The unrealized gains were primarily due to an
increase in the value of the Company's non-designated derivatives. These
derivatives are used to manage interest rate risk on a portfolio basis.
Three months ended Nine months ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------ ------ ------ ------
(Dollars in Millions)
(Unrealized (Gain)/Loss)
Non-designated derivatives............... $ (86) $ 36 $ (132) $ 428
Previously designated derivatives that no
longer qualify as fair value hedges... - 5 18 3
Ineffective portion of the
Company's fair value hedges........... 6 (57) (11) (109)
------ ------ ------ ------
Derivative fair value adjustment......... $ (80) $ (16) $ (125) $ 322
====== ====== ====== ======
- 20 -
INSURANCE PREMIUMS EARNED AND CONTRACT REVENUES
- -----------------------------------------------
Insurance premiums earned and contract revenues recognized from insurance
operations increased $5 million or 12% and $14 million or 11% for the three
and nine months ended December 31, 2003, respectively, when compared to the
same periods in the prior year due to increased contract volume and an
increase in total agreements in force.
INVESTMENT AND OTHER INCOME
- ---------------------------
The following table summarizes the Company's investment and other income:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------ ------ ------ ------
(Dollars in Millions)
Investment and servicing fee income...... $ 33 $ 24 $ 87 $ 70
Gains from securitization of
finance receivables................... - 39 42 72
Loss on impairment of
retained interests.................... - - - (11)
------ ------ ------ ------
Investment income from securitizations 33 63 129 131
Investment income from marketable
securities and other income........... 12 8 30 21
------ ------ ------ ------
Total investment and other income..... $ 45 $ 71 $ 159 $ 152
====== ====== ====== ======
For the three months ended December 31, 2003, total investment and other
income decreased when compared with the same period in the prior year
primarily due to a decrease in investment income from securitizations,
partially offset by an increase in investment income from marketable
securities and other income. For the nine months ended December 31, 2003,
total investment and other income increased when compared with the same period
in the prior year primarily due to an increase in investment income from
marketable securities and other income.
For the three months ended December 31, 2003, investment income from
securitizations decreased when compared with the same period in the prior year
primarily due to the absence of a securitization transaction during the most
recent quarter. There was one securitization transaction during the third
quarter of fiscal 2003.
For the nine months ended December 31, 2003, investment income from
securitizations remained relatively unchanged when compared with the same
period in the prior year. However, the components within investment income
from securitizations changed. Servicing fee income increased primarily due to
an increase in the average outstanding principal balance of the securitized
receivables on which such income is earned. Gains from securitization of
finance receivables decreased primarily due to a decrease in the number of
securitization transactions. During the nine months ended December 31, 2003,
the Company entered into one securitization transaction totaling $1.9 billion
compared to two securitization transactions during the nine months ended
December 31, 2002 totaling $3.1 billion. The Company also incurred impairment
losses on retained interests during the nine months ended December 31, 2002 as
a result of projected credit losses on the related retail finance receivables
exceeding the existing loss assumptions. No impairment loss on retained
interests was recorded during the nine months ended December 31, 2003.
- 21 -
Investment income from marketable securities and other income increased for
the three and nine months ended December 31, 2003 when compared to the same
periods in the prior year primarily as a result of higher net realized gains
on investments in corporate and U.S. debt securities. During the three and
nine months ended December 31, 2003, net realized gains on debt securities
were $2 million and $6 million, respectively, compared to net realized losses
of $1 million during both the three and nine months ended December 31, 2002.
OPERATING AND ADMINISTRATIVE EXPENSES
- -------------------------------------
Operating and administrative expenses increased $20 million, or 5% for the
nine months ended December 31, 2003 when compared to the same period in fiscal
2003. The higher level of expense reflected increases in personnel expenses
related to increased headcount and training activities, charges related to
technology services provided by TMS, and losses on disposal of assets in
connection with the Company's move to the new headquarters location in the TMS
headquarters complex in Torrance, California.
LOSSES RELATED TO ARGENTINE INVESTMENT
- --------------------------------------
During the nine months ended December 31, 2002, TMCC recorded an $11 million
charge against income to increase the reserve related to the Company's
guarantee of Toyota Credit Argentina S.A.'s ("TCA") offshore outstanding debt
to $37 million. During the remainder of fiscal 2003, TMCC satisfied its
obligations under the guarantees and terminated the guarantees. Accordingly,
no additional charges were recorded during the three or nine months ended
December 31, 2003.
- 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 and loss per occurrence. The Company maintains an allowance for
credit losses to cover probable losses resulting from the non-performance of
its customers.
The following tables provide information related to the Company's allowance
for credit losses and credit loss experience:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
(Dollars in Millions)
Allowance for credit losses
at beginning of period............... $ 544 $ 417 $ 526 $ 283
Provision for credit losses............. 76 151 263 400
Charge-offs............................. (88) (98) (264) (227)
Recoveries.............................. 17 9 43 24
Other adjustments....................... 1 (13) (18) (14)
------- ------- ------- -------
Allowance for credit losses
at end of period..................... $ 550 $ 466 $ 550 $ 466
======= ======= ======= =======
December 31,
-------------------
2003 2002
------ ------
(Dollars in Millions)
Annualized net credit losses as a percentage
of average earning assets . 0.80% 0.82%
Aggregate balances 60 or more days
past due ................................ $ 196 $ 260
Over-60 day delinquencies as a percentage
of gross earning assets ........ 0.50% 0.74%
Allowance for credit losses
as a percentage of gross
earning assets ...................... 1.41% 1.33%
- --------------------
Delinquency and charge-off ratios typically fluctuate over time as a portfolio
matures. The information in the preceding table has not been adjusted to eliminate the
effect of the Company's portfolio growth.
For purposes of this table, "earning assets" include earning assets and repossessed
collateral that has not yet been sold.
Net credit loss ratios have been annualized using nine-month results.
- 23 -
The decrease in the provision for credit losses recorded during the three and
nine months ended December 31, 2003 when compared to the same periods in the
prior year reflects continued improvement in the Company's overall delinquency
experience. During the third quarter of fiscal 2003 the Company was
experiencing historically high delinquency and charge-off rates primarily as a
result of the Company's field restructuring and the general weakness of the
economy. The higher level of provision recorded in the prior year reflected
management's expectations for increased losses in the near term. The lower
amount of provision expense recorded in the current year reflects recent
favorable trends and management's expectations for probable losses on the
currently owned portfolio. The increase in total charge-offs, net of
recoveries, for the nine months ended December 31, 2003 when compared to the
same period in the prior year was consistent with management's expectations.
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 on 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 losses, the period-
to-period effects continue to lessen over time. Similarly, the impact of the
Company's field restructuring, completed in fiscal 2003, has been
significantly reduced due to improvements in operating efficiencies at the
customer service centers.
While the Company's credit loss rates have declined from historical highs
reached during fiscal 2003, credit loss rates remain at elevated levels.
Management does not anticipate a return to historically high delinquency and
credit loss rates in the near term but remains cautious regarding the extent
to which these favorable trends are expected to continue.
- 24 -
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The objective of the Company's liquidity strategy is to ensure access to the
capital markets, meet obligations and other commitments on a timely and cost-
effective basis, and support 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. The Company does not rely on any
one source of funding and may choose to reallocate its funding activities
depending upon market conditions, relative costs, and other factors.
Management does not anticipate changes in the Company's ability to access the
unsecured debt and securitization markets in the foreseeable future. The
Company believes that debt and securitization funding, combined with cash
provided by operating and investing activities, will provide sufficient
liquidity to meet future funding requirements.
Commercial Paper
- ----------------
Short-term funding needs are met through the issuance of commercial paper.
Commercial paper outstanding under the Company's commercial paper programs
ranged from approximately $6.0 billion to $8.7 billion during the quarter ended
December 31, 2003, with an average outstanding balance of $7.3 billion.
Unsecured Term Debt
- -------------------
Long-term funding requirements are met through the issuance of a variety of
debt securities underwritten in both the U.S. and international capital
markets. Medium term notes ("MTNs") and bonds have provided the Company with
significant sources of funding. During the quarter ended December 31, 2003,
the Company issued approximately $2.4 billion of MTNs and bonds, all of which
had original maturities ranging from greater than one year to approximately ten
years. At December 31, 2003, the Company had total MTNs and bonds outstanding
of $27.3 billion, of which $11.5 billion was denominated in foreign currencies.
The remaining maturities of all MTNs and bonds outstanding at December 31, 2003
ranged from less than one year to approximately ten 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 $4 billion was available for issuance at January
31, 2004. Under the Company'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
billion, of which approximately $6 billion was available for issuance at
January 31, 2004. The U.S. dollar and Euro 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 programs.
Securitization Funding
- ----------------------
TMCC's securitization program allows the Company to access an additional
source of funding, thus further diversifying its investor base and enhancing
its liquidity position. With the exception of the securitization transaction
executed in September 2001, TMCC's securitization transactions are treated as
sales for accounting purposes. The outstanding balance of securitized retail
finance receivables serviced by TMCC totaled $5.7 billion at December 31,
2003.
- 25 -
During the nine months ended December 31, 2003, the Company sold retail
receivables totaling $1.9 billion in connection with securities issued under a
shelf registration statement maintained with the SEC. Of the $1.9 billion
sold, the Company invested $0.6 billion in purchased and retained senior class
and other securities, resulting in $1.3 billion of net funding. As of January
31, 2004, $6.2 billion of securities were available for issuance under the
current SEC shelf registration statement.
Liquidity Facilities and Letters of Credit
- ------------------------------------------
For additional liquidity purposes, the Company maintains syndicated bank
credit facilities with banks whose commitments aggregated $5.0 billion at
December 31, 2003. No amounts were outstanding under the syndicated bank
credit facilities as of December 31, 2003. During the second quarter of
fiscal 2004, TCPR Corp. established a $400 million, 364-day syndicated bank
credit facility, which is restricted to its own use. In addition, the TMCC
364-day syndicated bank credit facility, which is restricted to its own use,
was increased to $3.2 billion and renewed during September 2003 for an
additional 364-day period.
Committed Uncommitted Unused Facilities
-------------------- -------------------- --------------------
December 31, March 31, December 31, March 31, December 31, March 31,
2003 2003 2003 2003 2003 2003
-------- -------- -------- -------- -------- --------
(Dollars in Millions)
364-day syndicated bank
credit facilities........ $ 3,600 $ 2,800 $ - $ - $ 3,600 $ 2,800
5-year syndicated bank
credit facility - TMCC... 1,400 1,400 - - 1,400 1,400
Letters of credit facilities - - 60 60 59 59
-------- -------- -------- -------- -------- --------
Total facilities $ 5,000 $ 4,200 $ 60 $ 60 $ 5,059 $ 4,259
======== ======== ======== ======== ======== ========
Credit Ratings
- --------------
Effective January 2004, Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P") revised the outlook of Toyota Motor
Corporation ("TMC") and its supported subsidiaries, including TMCC, from
negative to stable. As of January 31, 2004, the ratings and outlook
established by Moody's Investors Service, Inc. ("Moody's") and S&P for TMCC
were as follows:
Rating Agency Senior Debt Commercial Paper Outlook
--------------- ------------- ------------------ ---------
S&P AAA A-1+ Stable
Moody's Aaa P-1 Stable
- 26 -
CONTRACTUAL OBLIGATIONS AND CREDIT-RELATED COMMITMENTS
- ------------------------------------------------------
During the first quarter of fiscal 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 December 31, 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
million; 2006 - $17 million; 2007 - $15 million; 2008 - $10 million; 2009 - $9
million; and thereafter - $56 million.
- 27 -
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- ------------------------------------------------------------------------
This report 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, which 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. 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" 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 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; 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 changes in vehicle returns and termination 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 changes in 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; 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; 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. 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'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 -
NEW ACCOUNTING STANDARDS
- ------------------------
In December 2003, the Financial Accounting Standards Board ("FASB") issued a
revision to SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106"
("SFAS 132"). The revised Statement retains the disclosure requirements
contained in SFAS 132, but requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. SFAS 132 is
effective for financial statements for fiscal years ending after December 15,
2003. The implementation of SFAS 132 is not expected to have a material
impact on the Company's consolidated financial statements.
- 29 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Value at Risk
- -------------
The Company's primary market risk exposure is interest rate risk. The Company
uses the value at risk ("VAR") methodology to measure this risk. VAR
represents the potential loss in fair value for the Company's portfolio of
interest rate sensitive instruments from adverse changes in interest rates for
a 30-day holding period within a 95% confidence interval using the Monte Carlo
simulation technique. The VAR methodology uses historical interest rate data
to assess the potential future loss.
The Company's VAR methodology incorporates the impact from adverse changes in
market interest rates but does not incorporate the impact from other market
changes, such as foreign currency exchange rates, which do not materially
affect the value of the Company's portfolio.
The VAR and the average VAR of the Company's portfolio measured as the
potential 30 day loss in fair value from assumed adverse changes in interest
rates are as follows:
Average for the
As of Nine Months Ended
December 31, 2003 December 31, 2003
------------------ ------------------
Mean portfolio value..................... $6.5 billion $6.1 billion
VAR...................................... $56 million $48 million
Percentage of the mean portfolio value... 0.86% 0.79%
Confidence level......................... 95% 95%
The Company's calculated VAR 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's portfolio of
financial instruments during the year.
- 30 -
Market Price Risk
- -----------------
The Company is also exposed to market price risk related to equity investments
included in the investment portfolio of its insurance operations. These
investments consist primarily of passively managed mutual funds that are
designed to track the performance of major equity market indices. These
investments are classified as available for sale.
A summary of the unrealized gains and losses on equity investments included in
the Company's other comprehensive income assuming a 10% and 20% adverse change
in market prices is presented below.
As of
December 31,
------------------
2003 2002
------ ------
(Dollars in Millions)
Cost....................................... $ 131 $ 130
Fair Market Value.......................... $ 171 $ 110
Estimated 10% adverse change, net of tax... $ 14 $ (19)
Estimated 20% adverse change, net of tax... $ 4 $ (26)
These hypothetical scenarios represent an estimate of reasonably possible net
losses that may be recognized as a result of changes in the fair market value
of the Company's equity investments assuming hypothetical adverse movements in
future market values. 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 prices.
Counterparty Credit Risk
- ------------------------
Counterparty credit risk of derivative instruments is represented by the fair
value of contracts with a positive fair value at December 31, 2003, reduced by
the effects of master netting agreements. At December 31, 2003, aggregate
counterparty credit risk as represented by the fair value of the Company's
derivative instruments was approximately $2.5 billion on an aggregate notional
amount of $47.0 billion.
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Review by Independent Accountants
With respect to the unaudited consolidated financial information of Toyota
Motor Credit Corporation for the three-month and nine-month periods ended
December 31, 2003 and 2002, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report dated February 13, 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" or a "part" of the registration statement prepared or
certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of
the Act.
ITEM 4. CONTROLS AND PROCEDURES
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"), is recorded, processed, summarized, and reported within the time periods
specified in the Commission's rules and forms.
As of the end of the period of this quarterly report, the Company's Chief
Executive Officer ("CEO") and Chief Financial Officer ("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 such disclosure controls and procedures are effective.
There has been no change in the Company's internal control over financial
reporting identified in connection with the evaluation referred to above during
the Company's most recent fiscal quarter that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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'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 amounts of liability on pending claims and actions as of
December 31, 2003 were not determinable; however, in the opinion of management,
the ultimate liability resulting therefrom should not have a material adverse
effect on the Company's consolidated financial position or results of
operations. The foregoing is a forward looking statement within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, which represents the Company's expectations
and beliefs concerning future events. The Company cautions that its discussion
of Legal Proceedings is further qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statement, including but not limited to the discovery of facts not presently
known to the Company or determinations by judges, juries or other finders of
fact which do not accord with the Company's evaluation of the possible
liability from existing litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
There is nothing to report with regard to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There is nothing to report with regard to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
There is nothing to report with regard to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on page 35,
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 December 31, 2003:
Date of Report Items Reported
----------------- ---------------------
December 4, 2003 Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
November 12, 2003 Item 12. Disclosure of Results of Operations
And Financial Condition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOYOTA MOTOR CREDIT CORPORATION
-------------------------------
(Registrant)
Date: February 13, 2004 By /S/ GEORGE E. BORST
-------------------------------
George E. Borst
President and
Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 2004 By /S/ JOHN F. STILLO
-------------------------------
John F. Stillo
Vice President and
Chief Financial Officer
(Principal Financial Officer)
- 34 -
EXHIBIT INDEX
Exhibit Method
Number Description of Filing
- ------- ----------- ---------
12.1 Calculation of Ratio of Earnings to Fixed Charges Filed
Herewith
15.1 Report of Independent Accountants Filed
Herewith
15.2 Letter regarding unaudited interim financial Filed
information Herewith
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
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