-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQBJtt2cesBYpFuPpFUaUvwOQrXwTt1M9HB95JnnI64uiCbcOqvQwA8XZq2VGDN3 mumIR6UMorRLLkU6ZvOatg== 0000834071-02-000023.txt : 20020530 0000834071-02-000023.hdr.sgml : 20020530 20020530163955 ACCESSION NUMBER: 0000834071-02-000023 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020530 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOYOTA MOTOR CREDIT CORP CENTRAL INDEX KEY: 0000834071 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 953775816 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09961 FILM NUMBER: 02666497 BUSINESS ADDRESS: STREET 1: 19300 GRAMERCY PLACE STREET 2: NORTH BUILDING CITY: TORRANCE STATE: CA ZIP: 90509 BUSINESS PHONE: 3107871310 MAIL ADDRESS: STREET 1: 19300 GRAMERCY PLACE STREET 2: NORTH BUILDING CITY: TORRANCE STATE: CA ZIP: 90509 10-K 1 form10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended March 31, 2002 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------------- -------------- Commission file number 1-9961 ---------- TOYOTA MOTOR CREDIT CORPORATION - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3775816 - ---------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19001 S. Western Avenue Torrance, California 90509 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 468-1310 ----------------------- Securities registered pursuant to section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ----------------------- n/a n/a ------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: 5.49% Fixed Rate Notes due 2003 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of April 30, 2002, 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 ITEM 1. BUSINESS. General Toyota Motor Credit Corporation ("TMCC") was incorporated in California in 1982 as a wholly-owned subsidiary of Toyota Motor Sales, USA, Inc. ("TMS") and commenced operations in 1983. TMS is an indirect wholly-owned subsidiary of Toyota Motor Corporation ("TMC"). On October 1, 2000, ownership of TMCC was transferred from TMS to Toyota Financial Services Americas Corporation ("TFSA"), a holding company wholly-owned by Toyota Financial Services Corporation ("TFSC"). TFSC, in turn, is a wholly-owned subsidiary of TMC. TFSC was incorporated in July 2000 and is headquartered in Nagoya, Japan. The purpose of TFSC is to control and manage Toyota's finance operations worldwide. TMCC provides retail and wholesale financing, retail leasing and certain other financial products and services to authorized Toyota and Lexus vehicle dealers, and to a lesser extent other domestic and import franchised dealers and their customers in the United States (excluding Hawaii) and the Commonwealth of Puerto Rico. Additionally, commencing in fiscal year 2003, TMCC will also provide retail and wholesale financing to authorized Toyota vehicle dealers and their customers in Mexico and Venezuela. TMCC also provides retail, lease and wholesale financing to industrial and other equipment dealers throughout the United States (excluding Hawaii) and Puerto Rico. Financing is offered for various industrial and commercial products such as forklifts, light and medium-duty trucks and electric vehicles. Assets and liabilities related to transactions with industrial and other equipment dealers are combined with the vehicle related business results and are included in the appropriate financial data and financial statement line items in the Consolidated Financial Statements as shown in Items 1,6 and 8 of this Form 10-K. TMCC has eight wholly-owned subsidiaries, one of which is engaged in the insurance business, two limited purpose subsidiaries formed primarily to acquire and securitize retail finance receivables (one of which is a limited liability company), one limited purpose subsidiary formed primarily to acquire and securitize lease finance receivables, one subsidiary which provides retail and wholesale financing and certain other financial services to authorized Toyota and Lexus vehicle dealers and their customers in the Commonwealth of Puerto Rico, two subsidiaries which will provide retail and wholesale financing in Mexico, and one subsidiary which will provide retail and wholesale financing in Venezuela. TMCC does business as Toyota Motor Credit Corporation and is marketed under the brands of Toyota Financial Services ("TFS") and Lexus Financial Services ("LFS"). TMCC and its wholly-owned subsidiaries are collectively referred to as the "Company". TMCC also holds minority interests in two subsidiaries of TFSC, Toyota Credit Argentina S.A. ("TCA") and Banco Toyota Do Brasil ("BTB"). TCA provides retail and wholesale financing to authorized Toyota vehicle dealers and their customers in Argentina. TMCC owns a 33% interest in TCA. In February 2002, the Argentine government established measures to re-denominate the entire Argentine economy into pesos and has permitted the peso to float freely against other global currencies. This re-denomination policy adversely affected TCA's financial condition and its ability to fully satisfy its offshore dollar loans. Consequently, in the third quarter of fiscal 2002, TMCC included a charge against income of $31 million to write-off its $5 million investment in TCA and to establish a reserve of $26 million relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt. Prior to the write- off of the TCA investment, TMCC's investment in TCA was accounted for using the equity method. TMCC will continue to monitor the situation in Argentina. Banco Toyota do Brasil ("BTB") provides retail and lease financing to authorized Toyota vehicle dealers and their customers in Brazil. TMCC's 15% investment in BTB is accounted for using the cost method. -2- Toyota Motor Sales The Company's earnings are primarily impacted by the level of average earning assets, comprised primarily of investments in finance receivables and operating leases, earning asset yields as well as outstanding borrowings and the related borrowing cost. The Company's business is substantially dependent upon the sale of Toyota and Lexus vehicles in the United States. For the year ended March 31, 2002, TMS sold approximately 1,673,000 automobiles and light trucks in the United States (excluding Hawaii), of which approximately 896,000 were manufactured in the United States; TMS exported approximately 38,000 automobiles. TMS' sales represented approximately 30% of TMC's worldwide unit sales volume for the year ended March 31, 2002. For the year ended March 31, 2002, the six months ended March 31, 2001 and the fiscal years ended September 30, 2000 and 1999, Toyota and Lexus vehicles accounted for approximately 9.8%, 9.8%, 9.1% and 8.7%, respectively, of all retail automobile and light truck unit sales volume in the United States. Changes in the volume of sales of such vehicles resulting from governmental action, changes in consumer demand, changes in pricing of imported units due to currency fluctuations, or other events, could impact the level of finance and insurance operations of the Company. To date, the level of the Company's operations has not been restricted by the level of sales of Toyota and Lexus vehicles. Credit Support Agreements In connection with the creation of TFSC and the transfer of ownership of TMCC from TMS to TFSA, a credit support agreement (the "TMC Credit Support Agreement") has been entered into between TMC and TFSC, and a credit support agreement (the "TFSC Credit Support Agreement") has been entered into between TFSC and TMCC. Under the terms of the TMC Credit Support Agreement, TMC has agreed to: 1) maintain 100% ownership of TFSC; 2) cause TFSC and its subsidiaries to have a net worth of at least Japanese yen 10 million; and 3) make sufficient funds available to TFSC so that TFSC will be able to (i) service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper and (ii) honor its obligations incurred as a result of guarantees or credit support agreements that it has extended. The agreement is not a guarantee by TMC of any securities or obligations of TFSC. Under the terms of the TFSC Credit Support Agreement, TFSC agreed to: 1) maintain 100% ownership of TMCC; 2) cause TMCC and its subsidiaries to have a net worth of at least U.S. $100,000; and 3) make sufficient funds available to TMCC so that TMCC will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper (collectively, "TMCC Securities"). The agreement is not a guarantee by TFSC of any TMCC Securities or other obligations of TMCC. The TMC Credit Support Agreement and the TFSC Credit Support Agreement are governed by, and construed in accordance with, the laws of Japan. During fiscal 2001, TMCC and TFSC entered into a credit support fee agreement (the "Credit Support Fee Agreement"). The Credit Support Fee Agreement provides that TMCC will pay to TFSC a semi-annual fee equal to 0.05% per annum of the weighted average outstanding amount of TMCC's Securities entitled to credit support. Holders of TMCC Securities will have the right to claim directly against TFSC and TMC to perform their respective obligations under the credit support agreements by making a written claim together with a declaration to the effect that the holder will have recourse to the rights given under the credit support agreement. If TFSC and/or TMC receives such a claim from any holder of TMCC Securities, TFSC and/or TMC shall indemnify, without any further action or formality, the holder against any loss or damage resulting from the failure of TFSC and/or TMC to perform any of their respective obligations under the credit support agreements. The holder of TMCC Securities who made the claim may then enforce the indemnity directly against TFSC and/or TMC. -3- TMC files periodic reports and other information with the Securities and Exchange Commission ("SEC"), which can be read and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's public reference rooms in New York, New York and Chicago, Illinois. Copies of such material may also be obtained by mail from the Public Reference Section of the SEC, at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. You may obtain information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. Repurchase Agreement An Amended and Restated Repurchase Agreement was entered into between TMCC and TMS effective as of October 1, 2000. This agreement states that TMCC is not obligated to finance wholesale obligations from any TMS dealers or retail obligations of any TMS customers. In addition, TMS will arrange for the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed in the event of dealer default. Shared Services Agreement On October 1, 2000, TMS and TMCC entered into a Shared Services Agreement covering certain technological and administrative services, such as information systems support, facilities and corporate services, provided by each entity to the other after the ownership of TMCC was transferred to TFSA. Fiscal Year End Change On June 6, 2000, the Executive Committee of the Board of Directors of TMCC approved a change in TMCC's year-end from September 30 to March 31. This change resulted in a six-month transition period from October 1, 2000 through March 31, 2001 (the "transition period"). Results related to the transition period are included in this Form 10-K Report. Earning Assets Substantially all of the Company's assets are originated throughout the United States (excluding Hawaii) and principally sourced through Toyota and Lexus dealers. In the United States, retail and lease assets are concentrated in California (25%) and Texas (8%) as of March 31, 2002. The remainder of retail and lease assets are relatively balanced throughout the remaining 47 serviced states. As of March 31, 2002, approximately 2% of the Company's total earning assets were originated in Puerto Rico. The assets related to the Company's operations in Argentina, Mexico and Venezuela comprise less than 1% of total earning assets as of March 31, 2002. TMCC's wholesale and other dealer financing receivables, such as revolving credit lines and real estate and working capital loans, arise from transactions with individual dealers or national dealer groups. As of March 31, 2002, wholesale and other dealer financing receivables totaled $3.7 billion or 12% of total earning assets. Further, the 25 largest outstanding total dealer receivables, aggregating approximately $1.5 billion, represent approximately 45% of total dealer receivables and 5% of total earning assets. All of these receivables were current as of March 31, 2002. -4- Summary of Lease and Retail Earning Asset Activity TMS has historically and continues to sponsor special lease and retail programs by subsidizing below market lease and retail contract rates. A summary of vehicle retail leasing and financing activity follows:
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, --------- ---------- -------------------------------------------- 2002 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- -------- Contract volume: Retail............... 643,000 209,000 412,000 333,000 282,000 247,000 Lease................ 192,000 102,000 240,000 249,000 312,000 262,000 ------- ------- ------- ------- ------- ------- Total............. 835,000 311,000 652,000 582,000 594,000 509,000 ======= ======= ======= ======= ======= ======= Average amount financed: Retail............... $19,000 $18,000 $17,600 $17,600 $17,100 $16,500 Lease................ $30,000 $28,500 $25,500 $24,700 $24,600 $24,200 Outstanding portfolio at period end ($Millions): Retail............ $13,409 $9,034 $10,235 $8,916 $7,834 $5,866 Lease............. $13,553 $13,426 $13,084 $11,605 $11,872 $11,622 Number of accounts 1,512,000 1,344,000 1,426,000 1,234,000 1,193,000 1,061,000
The table above excludes amounts related to retail receivables and interests in lease finance receivables sold through securitization transactions that qualify as a sale for legal and accounting purposes, but includes receivables sold through securitization transactions that qualify as a sale for legal but not accounting purposes, under the Financial Accounting Standards Board Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". TMCC continues to service all such receivables. The outstanding balance of retail finance receivables sold through securitizations which TMCC continues to service totaled $4.6 billion, $4.1 billion, $1.9 billion and $1.0 billion at March 31, 2002 and 2001, and September 2001 and 2000 respectively. The outstanding balance of interests in lease finance receivables sold through securitizations which TMCC serviced totaled $1.1 billion, $1.9 billion and $3.1 billion at March 31, 2001 and September 2001 and 2000 respectively. There is no outstanding balance of interests in lease finance receivables sold through securitizations as of March 31, 2002. Retail Financing TMCC purchases primarily new and used vehicle and industrial equipment installment contracts from Toyota, Lexus and, to a lesser extent, other domestic and import franchised dealers. Certain of the used vehicle contracts purchased by TMCC are "Certified" Toyota and Lexus used vehicle contracts. Certified used vehicles are vehicles purchased by dealers, reconditioned and certified to meet certain Toyota and Lexus standards, and sold or leased with an extended warranty from the manufacturer. Installment contracts purchased must first meet TMCC's credit standards. Thereafter TMCC retains responsibility for contract collection and administration. TMCC acquires security interests in the vehicles financed and generally can repossess vehicles if customers fail to meet contract obligations. Substantially all of TMCC's retail financings are non-recourse, which relieves the dealers from financial responsibility in the event of repossession. TMCC requires retail financing customers to carry fire, theft and collision insurance on financed vehicles covering the interests of both TMCC and the customer. Retail financing revenues contributed 26%, 22%, 23% and 20% to total financing revenues for the fiscal year ended March 31, 2002, the transition period ended March 31, 2001 and for fiscal years ended September 30, 2000 and 1999, respectively. -5- TMCC's finance portfolio includes contracts with original terms ranging from 24 to 72 months; the average original contract term in TMCC's finance portfolio was 57 months, 56 months, 56 months, 54 months and 53 months at March 31, 2002, 2001 and 2000 and at September 30, 2000 and 1999, respectively. Retail Leasing TMCC purchases primarily new vehicle and industrial and other equipment lease contracts originated by Toyota and Lexus dealers. Lease contracts purchased must first meet TMCC's credit standards after which TMCC assumes ownership of the leased vehicles and industrial and other equipment and is generally permitted to take possession of such vehicles and industrial equipment upon lessee default. TMCC is responsible for contract collection and administration during the lease period and for the unguaranteed residual value of the vehicle or equipment at lease maturity if the vehicle or equipment is not purchased by the lessee or dealer. Off-lease vehicles returned to TMCC are sold to dealers through a network of auction sites located throughout the United States as well as through the internet. Off-lease industrial and other equipment is sold through authorized Toyota industrial equipment dealerships using a bidding process. TMCC lease contracts require lessees to carry fire, theft, collision and liability insurance on leased vehicles covering the interests of both TMCC and the lessee. Leasing revenues contributed 69%, 71%, 72% and 76% to total financing revenues for the fiscal year ended March 31, 2002, the transition period ended March 31, 2001 and for fiscal years ended September 30, 2000 and 1999, respectively. TMCC's lease portfolio includes contracts with original terms ranging from 12 to 60 months; the average original contract term in TMCC's lease portfolio was 45 months, 43 months, 41 months, 42 months and 40 months at March 31, 2002, 2001 and 2000 and at September 30, 2000 and 1999, respectively. In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust (the "Titling Trust"), to act as lessor and to hold title to leased vehicles in specified states in connection with a lease securitization program. TMCC acts as the servicer for lease contracts purchased by the Titling Trust from Toyota and Lexus dealers and services such lease contracts in the same manner as contracts owned directly by TMCC. TMCC holds an undivided trust interest in lease contracts owned by the Titling Trust, and such lease contracts are included in TMCC's lease assets unless and until such time as the beneficial interests in such contracts are transferred in a securitization transaction. National Tiered Pricing Program TMCC completed the national launch of a tiered pricing program for both retail and lease vehicle contracts in the transition period ended March 31, 2001. The objective of the program is to better match customer risk with contract rates charged to allow profitable purchases of a wider range of risk levels. Implementation of this program has contributed to increased average contract yields and increased credit losses in connection with purchases of higher risk contracts. Wholesale Financing TMCC provides wholesale financing primarily to qualified Toyota and Lexus vehicle dealers and, to a lesser extent, other domestic and import franchised dealers to finance inventories of new and used Toyota, Lexus and other vehicles and industrial equipment. TMCC acquires security interests in vehicles financed at wholesale, and such financings are generally backed by corporate or individual guarantees from or on behalf of participating dealers. In the event of dealer default, TMCC has the right to liquidate any assets acquired and seek legal remedies pursuant to the guarantees. Pursuant to the Amended and Restated Repurchase Agreement, TMS will arrange for the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed in the event of dealer default. -6- A summary of vehicle wholesale financing activity follows:
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, --------- ---------- ----------------------------------------- 2002 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- -------- Dealer financing volume ($Millions)................. $18,898 $8,608 $13,950 $11,093 $9,802 $8,573 Outstanding portfolio at period end ($Millions)...... $2,413 $2,641 $1,435 $855 $757 $574 Average amount financed per vehicle................. $23,742 $23,674 $22,534 $22,120 $21,562 $20,695
Other Dealer Financing TMCC also extends term loans and revolving credit facilites to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets and usually carry the personal or corporate guarantees of the dealers. In addition, TMCC provides financing to various large publicly-held dealer organizations, also called national dealer groups, often as part of a lending consortium for wholesale and real estate financing, business acquisitions and working capital. While the majority of these loans are secured, a portion remains unsecured. Wholesale and other dealer financing revenues contributed 5%, 7%, 5% and 4% to total financing revenues for the year ended March 31, 2002, the transition period ended March 31, 2001 and for each of the fiscal years ended September 30, 2000 and 1999, respectively. Other dealer financing arrangements are discussed further under Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Insurance The principal activities of TMCC's insurance subsidiary, Toyota Motor Insurance Services, Inc. ("TMIS"), include marketing, underwriting, claims administration and providing certain insurance and contractual coverages to Toyota and Lexus vehicle dealers and their customers. In addition, TMIS insures and reinsures certain TMS and TMCC risks. Income before income taxes from insurance operations contributed 16%, 41%, 22% and 13% to total income before income taxes and cumulative effect of change in accounting principle for the year ended March 31, 2002, the transition period ended March 31, 2001 and for each of the fiscal years ended September 30, 2000 and 1999, respectively. Servicing TMCC services accounts included in its asset-backed securitization transactions and is paid a servicing fee of 1% of the total principal balance of the receivables for both retail and lease securitizations. -7- Field Operations-Restructuring During the first quarter of fiscal 2001, TMCC announced plans to restructure the Company's field operations. The branch offices of TMCC will be converted to serve only dealer financing needs, which includes the purchasing of contracts from dealers, financing inventories, loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements, as well as consulting on finance and insurance operations. The other functions that the branch offices currently cover, such as customer service, collections, lease termination and administrative functions for retail and lease contracts, will be handled by three regional customer service centers. The regional center for the Western region was opened in October 2001. The regional center for the Eastern region opened in February 2002, and the transfer of certain functions from branches to the regional center for the Midwest region is scheduled to continue during the summer of 2002. The conversion of these activities is expected to be completed in fiscal 2003. Restructuring charges and costs and their impact on operations and credit losses are discussed under Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Funding The Company supports growth in earning assets through funding obtained in the capital markets as well as funds provided by operating activities. Capital market funding has generally been in the form of commercial paper, domestic and euro medium-term notes and bonds and transactions through the Company's asset- backed securitization programs. The Company uses a variety of derivative financial instruments to manage interest rate and foreign exchange exposures. The derivative instruments used include cross currency and interest rate swap agreements, indexed note swap agreements and option-based products. The Company does not use derivative instruments for trading purposes. Competition and Government Regulations TMCC's primary competitors for retail leasing and financing are commercial banks, savings and loan associations, credit unions, finance companies and other captive automobile finance companies. Commercial banks and other captive automobile finance companies also provide wholesale financing and the other types of financing discussed above under "Other Dealer Financing" for Toyota and Lexus dealers. Competition for the principal products and services provided through the insurance operations is primarily from national and regional independent service contract providers. TMCC's strategy for long term profitable growth is to supplement, with competitive financing and insurance programs, the overall commitment of TMS to offer a complete package of services to authorized Toyota and Lexus dealers and their customers. -8- The finance and insurance operations of the Company are regulated under both federal and state law. A majority of states have enacted legislation establishing licensing requirements to conduct retail and other finance and insurance activities. Most states also impose limits on the maximum rate of finance charges. In certain states, the margin between the present statutory maximum interest rates and borrowing costs is sufficiently narrow that, in periods of rapidly increasing or high interest rates, there could be an adverse effect on the Company's operations in these states if the Company were unable to pass on increased interest costs to its customers. In addition, state laws differ as to whether anyone suffering injury to person or property involving a leased vehicle may bring an action against the owner of the vehicle merely by virtue of that ownership. To the extent that applicable state law permits such an action, TMCC may be subject to liability to such an injured party. However, the laws of most states either do not permit such suits or limit the lessor's liability to the amount of any liability insurance that the lessee was required under applicable law to maintain (or, in some states, the lessor was permitted to maintain), but failed to maintain. TMCC's lease contracts contain provisions requiring the lessees to maintain levels of insurance satisfying applicable state law and TMCC maintains certain levels of contingent liability insurance for protection from catastrophic claims. TMCC currently does not monitor ongoing insurance compliance in connection with its customary servicing procedures. The Company's operations are also subject to regulation under federal and state consumer protection and privacy statutes. The Company continually reviews its operations for compliance with applicable laws. Future administrative rulings, judicial decisions and legislation may require modification of the Company's business practices and documentation. Employee Relations At April 30, 2002, the Company had approximately 2,600 full-time employees. The Company considers its employee relations to be good. Segment Information Financial information regarding industry segments is set forth in Note 18 - Segment Information of the Notes to Consolidated Financial Statements. -9- ITEM 2. PROPERTIES. The headquarters of the Company for both finance and insurance operations is located in Torrance, California. The Company plans to relocate to a new headquarters location in the TMS headquarters complex, also in Torrance, California, in fiscal year 2004. During fiscal 2002, TMCC began the process of restructuring its field operations, as described under "Item 1. Business - Field Operations- Restructuring". As of April 30, 2002, the finance operation has three regional customer service centers ("CSC") and 33 dealer sales and service organizations ("DSSO") in cities throughout the United States; two of the DSSOs share premises with the regional customer services centers. The CSC for the Central region is located in Cedar Rapids, Iowa. The CSC for the Western region was opened in October 2001 and is located in Chandler, Arizona. The CSC for the Eastern region opened in February 2002 and is located in Owings Mills, Maryland. The restructuring is expected to be completed in fiscal 2003. The finance operation also has one subsidiary office in the Commonwealth of Puerto Rico, one subsidiary office in Venezuela and one subsidiary office in Mexico. The subsidiary office in Mexico is shared with TMS. The insurance operation has six regional sales offices, which are located with the finance operations in either a DSSO or CSC. All premises are occupied under lease. ITEM 3. LEGAL PROCEEDINGS. Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against TMCC and its subsidiaries with respect to matters arising from the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in TMCC's business operations, policies and practices. Certain of these actions are similar to suits, which have been filed against other financial institutions and captive finance companies. Management and internal and external counsel perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. The amounts of liability on pending claims and actions as of March 31, 2002 were not determinable; however, in the opinion of management, the ultimate liability resulting therefrom should not have a material adverse effect on TMCC's consolidated financial position or results of operations. The foregoing is a forward looking statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, which represents the Company's expectations and beliefs concerning future events. The Company cautions that its discussion of Legal Proceedings is further qualified by important factors that could cause actual results to differ materially from those in the forward looking statement, including but not limited to the discovery of facts not presently known to the Company or determinations by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. -10- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. TMCC is a wholly-owned subsidiary of TFSA and, accordingly, all shares of the Company's stock are owned by TFSA. There is no market for TMCC's stock. Dividends are declared and paid by TMCC as determined by its Board of Directors. TMCC's Board of Directors declared a cash dividend of $4 million that was paid to TFSA during fiscal 2002. No dividends had previously been declared or paid. -11- ITEM 6. SELECTED FINANCIAL DATA.
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, --------- --------- --------------------------------------- 2002 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ ------ (Dollars in Millions) INCOME STATEMENT DATA Financing Revenues: Leasing......................... $ 2,479 $ 1,246 $ 2,402 $ 2,397 $ 2,595 $ 2,743 Retail financing................ 917 390 768 645 531 433 Wholesale and other dealer financing............. 186 124 182 123 114 101 ------ ------ ------ ------ ------ ------ Total financing revenues........ 3,582 1,760 3,352 3,165 3,240 3,277 Depreciation on leases.......... 1,580 753 1,440 1,664 1,681 1,793 Interest expense................ 1,030 726 1,289 940 994 918 SFAS 133 fair value adjustments. (38) 23 - - - - ------ ------ ------ ------ ------ ------ Net financing revenues.......... 1,010 258 623 561 565 566 Insurance premiums earned and contract revenues............ 155 68 138 122 112 97 Investment and other income..... 206 130 99 88 79 66 Loss on asset impairment........ 70 25 74 19 - - ------ ------ ------ ------ ------ ------ Net financing revenues and other revenues........... 1,301 431 786 752 756 729 ------ ------ ------ ------ ------ ------ Expenses: Operating and administrative.... 529 236 400 376 323 259 Losses related to Argentine Investment................... 31 - - - - - Provision for credit losses..... 263 89 135 83 127 136 Insurance losses and loss adjustment expenses.......... 76 35 81 63 55 51 ------ ------ ------ ------ ------ ------ Total expenses.................. 899 360 616 522 505 446 ------ ------ ------ ------ ------ ------ Income before equity in net loss of subsidiary, income taxes and cumulative effect of change in accounting principle.................... 402 71 170 230 251 283 Equity in net loss of subsidiary................... - - 1 - - - Provision for income taxes...... 159 27 65 98 107 121 ------ ------ ------ ------ ------ ------ Income before cumulative effect of change in accounting principle..................... 243 44 104 132 144 162 Cumulative effect of change in accounting principle, net of tax benefits.................. - (2) - - - - ------ ------ ------ ------ ------ ------ Net Income...................... $ 243 $ 42 $ 104 $ 132 $ 144 $ 162 ====== ====== ====== ====== ====== ======
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March 31, September 30, ------------------ -------------------------------------- 2002 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- -------- (Dollars in Millions) BALANCE SHEET DATA Finance receivables, net.. $ 22,390 $ 19,216 $ 18,168 $ 13,856 $ 11,521 $ 8,452 Finance receivables, net - securitized............. $ 1,087 $ - $ - $ - $ - $ - Investments in operating leases, net............. $ 7,631 $ 7,409 $ 7,964 $ 8,605 $ 9,765 $ 10,257 Total assets.............. $ 34,260 $ 29,214 $ 28,036 $ 24,578 $ 23,225 $ 19,830 Notes and loans payable... $ 25,990 $ 22,194 $ 21,098 $ 18,565 $ 17,597 $ 14,745 Notes payable related to securitized finance receivables structured as collateralized borrowings.............. $ 1,036 $ - $ - $ - $ - $ - Capital stock............. $ 915 $ 915 $ 915 $ 915 $ 915 $ 915 Retained earnings......... $ 1,820 $ 1,581 $ 1,539 $ 1,435 $ 1,303 $ 1,159
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, --------- --------- --------------------------------------- 2002 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ ------ (Dollars in Millions) KEY FINANCIAL DATA Ratio of earnings to fixed charges.......... 1.39 1.10 1.13 1.24 1.25 1.31 Debt to Equity............ 9.82 8.83 8.53 7.85 7.89 7.09 Return on Assets.......... .77% .15% .40% .55% .67% .83% Return on Equity.......... 9.23% 1.68% 4.30% 5.74% 6.68% 8.11% Allowance for credit losses as a percent of gross earning assets................. .90% .85% .87% .89% 1.02% 1.13% Net credit losses as a percent of average earning assets......... .59% .50% .39% .40% .51% .55% Aggregate balances at end of period for finance receivables and operating leases 60 or more days past due as a percent of net investments in operating leases and gross receivables outstanding.................... .40% .21% .21% .20% .15% .14%
Certain prior period amounts have been reclassified to conform with the current period presentation. -13- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Presentation - --------------------- In view of the change in the Company's fiscal year from September 30 to March 31 during fiscal 2001, management's discussion and analysis of financial condition and results of operation will: - compare the audited results of operations for the year ended March 31, 2002 to the proforma results of operations for the year ended March 31, 2001; - compare the audited results of operations for the six months ended March 31, 2001 ("transition period") to the proforma results of operations for the six months ended March 31, 2000; and, - compare the results of operations for the year ended September 30, 2000, to the results of operations for the year ended September 30, 1999. - the use of proforma results of operations provide meaningful comparative analysis. Such proforma results of operation are appropriately noted. Critical Accounting Policies - --------------------------------- TMCC has identified the policies below as critical to the Company's business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on the Company's business operations are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The evaluation of the factors described below in determining each of the Company's critical accounting policies involves significant assumptions, complex analysis and management judgment. Thus, changes in these factors may significantly impact the Consolidated Financial Statements. Different assumptions or changes in economic circumstances could result in additional changes to the allowances for credit and residual value losses, the valuation of the Company's retained interests and derivatives and its results of operations and financial condition. Allowance for Credit Losses - --------------------------------- TMCC maintains allowances to cover estimated losses on its present owned portfolio resulting from the inability of customers to make required payments. The allowance for credit losses is evaluated quarterly, considering historical trends of repossession, charge-offs, recoveries and credit losses. In addition, portfolio credit quality, and current and projected economic and market conditions, are monitored and taken into account. After carefully evaluating these factors, management develops several loss scenarios and reviews allowance levels to ensure reserves are adequate to cover the probable range of losses. The allowance for credit losses is considered by management to be appropriate in relation to the expected loss experience on the present owned portfolio. Losses are charged to the allowance when it has been determined that payments will not be received and collateral cannot be recovered or the related collateral is repossessed and sold. Any shortfall between proceeds received and the carrying cost of repossessed collateral is charged to the allowance. Recoveries are credited to the allowance for credit losses. The allowance for credit losses and related provision expense are included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet and total expenses in the Consolidated Statement of Income, respectively. -14- Allowance for Residual Value Losses - ---------------------------------------- The Company also maintains an allowance to cover estimated vehicle disposition losses related to unguaranteed residuals on its present owned portfolio. The allowance required to cover estimated residual value losses is evaluated quarterly, considering projected vehicle return rates and projected residual value losses derived from historical and market information on used vehicle sales, historical factors including trends in lease returns, the new car markets, and general economic conditions. After carefully evaluating these factors, management develops several loss scenarios and reviews allowance levels to ensure reserves are adequate to cover the probable range of losses. The allowance for residual value losses is maintained in amounts considered by management to be appropriate in relation to the expected losses on the present owned portfolio. Upon disposal of the assets, the allowance for residual losses is adjusted for the difference between the net book value and the proceeds from sale. The allowance for residual value losses and related provision expense are included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet and lease depreciation expense in the Consolidated Statement of Income, respectively. Gain on Sale of Receivables and Valuation of Residual Interests - --------------------------------------------------------------- The Company recognizes gains on the sale of receivables in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which replaced FASB Statement No. 125 and other related pronouncements. The gain on sale is reported in the accompanying Consolidated Statement of Income under investment and other income. The gain on sale recorded depends, in part, on the carrying amount of the assets at the time of the sale. The carrying amount is allocated between the assets sold and the retained interests based on their relative fair values at the date of the sale. TMCC records its retained assets at fair value, which is estimated by using a discounted cash flow analysis. The retained assets are not considered to have a readily available market value. The key economic assumptions used in the calculation of the initial gain on sale of receivables and the subsequent valuation of the retained interests include the estimated interest rate environment (in order to project the net rate earned on the residual interests, if applicable), severity and rate of credit losses, and the prepayment speed of the receivables. Management estimates the credit loss rate based on a number of factors including attributes of the finance receivables securitized. Attributes considered include the new versus used vehicle contract mix, loan credit scoring, and seasoning of contracts sold. To determine the prepayment assumption used, management considers prior and current prepayment speeds of outstanding securitization transactions and estimated future economic conditions. Discount rates applied to the residual interests at the point of sale are at current market rates based on an investment with a similar term and risk associated with the retained interest. All key assumptions used in the valuation of the retained interests are reviewed at least quarterly and are revised as deemed appropriate. After carefully evaluating the factors discussed above, management ensures that the final assumptions used are adequate to cover probable potential losses or decreases in cash flows related to the prepayment of assets. In certain transactions, the securitization trust issues securities bearing interest at variable rates, although the underlying receivables held by the securitization trust bear interest at fixed rates. In these circumstances, swaps are used to fix the spread between the different interest rates. As a result, management does not need to factor in possible adverse interest rate changes that would reduce the value of the retained interests. -15- The Company accounts for its retained interests in accordance with EITF No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." Under EITF 99- 20, TMCC recognizes the excess of all cash flows attributable to the beneficial interest estimated at the acquisition/transaction date (the "transaction date") over the initial investment as interest income over the life of the beneficial interest using the effective yield method. As adjustments to the estimated cash flows are made based upon expected market conditions, the Company adjusts the rate at which income is earned prospectively. Additionally, EITF 99-20 provides guidance as to when the holder of a retained interest must conclude that a decline in value below the carrying amount is considered permanent impairment. TMCC's policy is that if a decrease in the estimated future cash flows results in a fair value below the carrying amount and the decline is considered permanent, then the asset is written down through earnings (as opposed to other comprehensive income). Any excess of the carrying amount of the retained interest over its fair value results in an adjustment to the asset with a corresponding offset to unrealized gain. Unrealized gains, net of income taxes, related to retained assets are included in comprehensive income. Derivatives and Hedging Activities - ---------------------------------- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Fair value is determined using externally quoted market values where possible. If externally quoted market rates are not available, the Company uses external market rates in conjunction with a customized market valuation system to determine the fair value of the Company's derivatives. Derivative assets and liabilities include interest rate swaps, indexed note swap agreements, cross currency interest rate swap agreements and option-based products. The accounting for the gain or loss due to changes in fair value of the hedged item depends on whether the relationship between the hedged item and the derivative instrument qualifies for hedge treatment. If the relationship between the hedged item and the derivative instrument does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the relationship between the hedged item and the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged. The types of instruments that do not qualify for hedge accounting include, but are not limited to, U.S. basis swap instruments, and currency structured transactions including inverse floating rate instruments. Derivatives are recognized in the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of the fair value of a recognized asset or liability or a foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the fair value of a derivative that is highly effective as - and that is designated and qualifies as - a fair-value hedge or foreign-currency hedge, along with changes in fair value of the hedged assets or liabilities that are attributable to the hedged risk, are recorded in current-period earnings. Additional information concerning the SFAS No. 133 requirements is disclosed in Note 8 - Derivatives and Hedging Activities of the Notes to Consolidated Financial Statements and Note 2 - Summary of Significant Accounting Policies - Derivative Financial Instruments. -16- Net Income - ---------- The following table summarizes TMCC's net income by business segment for the years ended March 31, 2002 and 2001, the six months ended March 31, 2001 and 2000, and the years ended September 30, 2000 and 1999:
Year Ended Six Months Ended Years Ended March 31, March 31, September 30, ------------------ ------------------- ------------------ 2002 2001(1) 2001 2000(1) 2000 1999 ------ ------- ------ ------- ------ ------ (Dollars in Millions) Net income: Financing operations.. $ 199 $ 51 $ 22 $ 41 $ 70 $ 113 Insurance operations.. 44 38 20 16 34 19 ------ ------ ------ ------ ------ ------ Total net income... $ 243 $ 89 $ 42 $ 57 $ 104 $ 132 ====== ====== ====== ====== ====== ====== (1) Pro Forma
Net income from financing operations increased $148 million, or 290%, for the year ended March 31, 2002 as compared to the year ended March 31, 2001 primarily due to an increase in finance margin resulting from lower interest rates, higher earning asset amounts funded, and favorable fair value adjustment related to the Statement of Financial Statement Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is reported as SFAS 133 fair value adjustments in the Consolidated Statement of Income. This increase was partially offset by higher termination losses, increased net credit losses, higher impairment of assets retained from the sale of retail finance receivables, the write-off of its $5 million investment in Toyota Credit Argentina, S.A. ("TCA") and the establishment of a reserve of $26 million relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt and higher operating and administrative expenses which increased as a result of the costs incurred in connection with the restructuring of TMCC's field operations. Net income from financing operations decreased $19 million, or 46%, in the transition period as compared to the six months ended March 31, 2000, primarily due to lower interest margin as a result of higher interest expense, higher operating and administrative expenses, higher provision for credit losses, losses associated with the implementation of SFAS 133 in fiscal 2001 and the recognition of asset impairment losses partially offset by higher financing revenues and higher investment and other income. The decrease in fiscal 2000 financing operations net income from fiscal 1999 is due primarily to lower interest margin as a result of higher interest expense, the recognition of asset impairment losses, higher provision for credit losses, and higher operating and administrative expenses. Net income from insurance operations increased $6 million, or 16%, for the year ended March 31, 2002 as compared to the year ended March 31, 2001 primarily due to increased contract volume. Net income from insurance operations increased $4 million, or 25%, in the transition period as compared to the six months ended March 31, 2000, primarily due to higher investment income resulting from increased net realized gains on sales of available-for-sale securities, partially offset by higher provision for income taxes. There can be no assurance that the Company will recognize similar gains in future periods. The increase in fiscal 2000 insurance operations net income from fiscal 1999 is primarily due to higher insurance premiums earned and contract revenues, higher investment income and lower provision for income taxes, partially offset by higher insurance losses and loss adjustment expenses. Additional information concerning TMCC's financing and insurance operations is disclosed in Note 18 - Segment Information of the Notes to Consolidated Financial Statements. -17- Earning Assets - -------------- The composition of TMCC's net earning assets (which excludes receivables sold through securitization transactions that qualify as a sale for legal and accounting purposes, but includes receivables sold through securitization transactions that qualify as a sale for legal but not accounting purposes, under the Financial Accounting Standards Board Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"), as of the balance sheet dates reported herein and TMCC's vehicle lease and retail contract volume and finance penetration for the years ended March 31, 2002 and 2001, the six months ended March 31, 2001 and 2000, and for the years ended September 30, 2000 and 1999, are summarized below:
March 31, September 30, ------------------ ------------------ 2002 2001 2000 1999 -------- -------- -------- -------- (Dollars in Millions) Vehicle lease Investment in operating leases, net... $ 7,215 $ 6,994 $ 7,580 $ 8,290 Finance leases, net................... 6,338 6,432 5,504 3,315 -------- -------- -------- -------- Total vehicle leases.................... 13,553 13,426 13,084 11,605 Vehicle retail finance receivables, net. 13,409 9,034 10,235 8,916 Vehicle wholesale and other financing... 4,429 4,392 3,043 2,142 Allowance for credit losses............. (283) (227) (230) (202) -------- -------- -------- -------- Total net earning assets................ $ 31,108 $ 26,625 $ 26,132 $ 22,461 ======== ======== ======== ========
Years Ended Six Months Ended Years Ended March 31, March 31, September 30, ------------------ -------------------- ------------------ 2002 2001(1) 2001 2000(1) 2000 1999 -------- -------- -------- -------- -------- -------- Total contract volume: Vehicle retail.................... 643,000 432,000 209,000 189,000 412,000 333,000 Vehicle lease..................... 192,000 216,000 102,000 126,000 240,000 249,000 -------- -------- -------- -------- -------- -------- Total................................ 835,000 648,000 311,000 315,000 652,000 582,000 ======== ======== ======== ======== ======== ======== TMS sponsored contract volume: Vehicle retail.................... 149,000 59,000 33,000 18,000 44,000 46,000 Vehicle lease..................... 33,000 58,000 30,000 31,000 59,000 96,000 -------- -------- -------- -------- -------- -------- Total................................ 182,000 117,000 63,000 49,000 103,000 142,000 ======== ======== ======== ======== ======== ======== Used contract volume: Vehicle retail.................... 224,000 160,000 80,000 69,000 149,000 112,000 Vehicle lease..................... 5,000 6,000 3,000 4,000 8,000 6,000 -------- -------- -------- -------- -------- -------- Total................................ 229,000 166,000 83,000 73,000 157,000 118,000 ======== ======== ======== ======== ======== ======== Finance penetration (excluding fleet) (2): Vehicle retail.................... 25.9% 18.0% 18.4% 17.0% 17.5% 16.0% Vehicle lease..................... 11.6% 14.1% 14.1% 17.4% 15.4% 17.7% -------- -------- -------- -------- -------- -------- Total................................ 37.5% 32.1% 32.5% 34.4% 32.9% 33.7% ======== ======== ======== ======== ======== ======== (1) Pro Forma (2) Finance penetration represents penetration of Toyota and Lexus vehicle financed sales to consumers.
-18- TMCC's net earning assets as of March 31, 2002 increased significantly from March 31, 2001 primarily due to an increase in retail and vehicle wholesale and other financing earning assets. The increase in retail earning assets is primarily due to higher levels of incentives on new vehicles and the strong sales of Toyota and Lexus vehicles. The increase in wholesale earning assets was primarily due to a 23% increase in the number of dealers receiving wholesale financing. TMCC's net earning assets as of March 31, 2001 increased slightly from September 30, 2000 due to growth in wholesale and finance lease earning assets, partially offset by a decline in retail and operating lease earning assets. The increase in wholesale earning assets was primarily due to a 6% increase in the number of dealers receiving wholesale financing. The increase in finance lease earning assets was primarily due to volume exceeding liquidations during the transition period. The decline in retail earning assets was primarily due to the sales of retail receivables pursuant to securitizations totaling $3.1 billion during the transition period. TMCC's net earning assets as of September 30, 2000 increased from September 30, 1999 due to growth in retail, finance lease and wholesale earning assets, partially offset by a decline in operating lease earning assets. In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust (the "Titling Trust"), to act as a lessor and to hold title to leased vehicles in specified states. The value of the lease contracts purchased by the Titling Trust during the year ended March 31, 2002 and the six months ended March 31, 2001 and 2000, represented approximately 47%, 48% and 42%, respectively, of all lease contracts purchased by both TMCC and the Titling Trust. The value of the lease contracts purchased by the Titling Trust in fiscal 2000 and 1999 represented approximately 43% and 41%, respectively, of all lease contracts purchased by both TMCC and the Titling Trust. TMCC holds an undivided trust interest in lease contracts owned by the Titling Trust, and such lease contracts are included in TMCC's lease assets, unless and until such time as the beneficial interests in such contracts are transferred in connection with a securitization transaction. The majority of all leases owned by the Titling Trust are classified as finance receivables due to certain residual value insurance arrangements in place with respect to such leases, while leases of similar nature originated outside of the Titling Trust are classified as operating leases. The purchase of residual value insurance on leases acquired by the Titling Trust before June 2001 changed the composition of the Company's earning assets resulting in an increasing mix of finance receivables relative to operating lease assets due to the classification differences described above. However, beginning June 2001, the purchasing of residual value insurance on lease contracts was terminated. As a result, the future composition of the Company's lease portfolio will gradually change as more leases acquired by the Titling Trust will be classified as operating leases. TMS sponsors special lease and retail programs which subsidize reduced monthly payments on certain Toyota and Lexus new vehicles to qualified lease and retail customers. Toyota Material Handling, U.S.A., Inc. ("TMHU") subsidizes reduced monthly payments on certain Toyota industrial equipment to qualified lease and retail customers. Support amounts received from TMS and TMHU in connection with these programs approximate the balances required by TMCC to maintain revenues at standard program levels and are earned over the expected lease and retail installment contract terms. The level of sponsored program activity varies based on TMS and TMHU's marketing strategies, and revenues earned vary based on the mix of Toyota and Lexus vehicles, timing of programs and the level of support provided. Support amounts earned from TMS and TMHU's sponsored special lease and retail contracts totaled $143 million, $63 million, $61 million, $108 million and $126 million for the fiscal year ended March 31, 2002, the six months ended March 31, 2001 and 2000, and for fiscal years 2000 and 1999, respectively. TMCC's decrease in lease contract volume and corresponding increase in retail contract volume during the year ended March 31, 2002 as compared to the year ended March 31, 2001 reflects a general shift in programs sponsored by TMS from lease to retail as well as an industry-wide shift away from leasing. -19- TMCC's lease contract volume declined during the transition period ended March 31, 2001 as compared to the six months ended March 31, 2000 reflecting lower finance penetration due to lower levels of programs sponsored by TMS. TMCC's retail contract volume for the transition period ended March 31, 2001 increased from the six months ended March 31, 2000 primarily due to competitive pricing and the strong sales of Toyota and Lexus vehicles and higher TMS sponsored programs. TMCC's lease contract volume for the year ended September 30, 2000 declined from 1999 reflecting lower levels of programs sponsored by TMS. TMCC's retail contract volume for the year ended September 30, 2000 increased from 1999 levels due to competitive pricing and the strong sales of Toyota and Lexus vehicles. The increase in used vehicle retail contract volume during the year ended March 31, 2002 reflects an increased supply of used cars returned to dealers in the form of trade-ins due to recent new model incentives, a large supply of used vehicles due to the volume of vehicles coming off-lease and a shift from leasing to retail financing. The increase in used vehicle retail contract volume during the transition period and fiscal 2000 reflects a large supply of used vehicles due to the volume of vehicles coming off-lease as well as a shift from leasing to retail financing. Net Financing Revenues - ---------------------- TMCC's net financing revenues increased $412 million, or 69%, for the year ended March 31, 2002 as compared to the year ended March 31, 2001 due to lower interest expense, higher financing revenues and favorable fair value adjustment related to SFAS 133, which is reported as SFAS 133 fair value adjustments in the Consolidated Statement of Income. TMCC's net financing revenues decreased $25 million, or 9%, during the transition period ended March 31, 2001 as compared to the six months ended March 31, 2000 primarily due to higher interest expense and losses associated with the adoption of SFAS 133 substantially offset by higher financing revenues. TMCC's net financing revenues increased in fiscal 2000 primarily due to lower depreciation expenses and higher retail and wholesale revenues, substantially offset by higher interest expense. The purchase of residual value insurance for lease contracts acquired by the Titling Trust caused a shift in the composition of the lease portfolio from operating leases to finance leases, as discussed earlier, and resulted in decreased straight-line depreciation and decreased revenues from operating leases. However, due to the termination of residual value insurance on lease contracts beginning in June 2001, straight-line depreciation and operating lease revenues are expected to increase as leases acquired by the Titling Trust will be classified as operating leases. Depreciation on Leases - ---------------------- The following table sets forth the items included in TMCC's depreciation on leases for the years ended March 31, 2002 and 2001, the six months ended March 31, 2001 and 2000, and for the years ended September 30, 2000 and 1999:
Years Ended Six Months Ended Years Ended March 31, March 31, September 30, ------------------ -------------------- ------------------ 2002 2001(1) 2001 2000(1) 2000 1999 -------- -------- -------- -------- -------- -------- (Dollars in Millions) Straight-line depreciation on operating leases........... $1,199 $1,241 $ 612 $ 644 $1,273 $1,378 Provision for residual value losses........................ 381 237 141 106 202 286 TMS support for certain vehicle disposition losses............ - (35) - - (35) - ------ ------ ------ ------ ------ ------ Total depreciation on leases..... $1,580 $1,443 $ 753 $ 750 $1,440 $1,664 ====== ====== ====== ====== ====== ====== (1) Pro Forma
-20- Straight-line Depreciation Straight-line depreciation expense on operating leases decreased 3% during the twelve months ended March 31, 2002 compared to the comparable prior period resulting from decline in average outstanding operating lease assets. Straight-line depreciation expense decreased 5% during the transition period compared to the same period in fiscal 2000, and 8% during fiscal 2000 also as a result of a decrease in average outstanding operating lease assets. As discussed earlier, purchasing residual value insurance for leases acquired by the Titling Trust through June 2001 increased the ratio of lease finance receivables relative to operating lease assets. TMCC discontinued purchasing residual value insurance for operating lease assets acquired by the Titling Trust beginning July 2001. The Company expects an increase in straight-line depreciation expense as operating leases become a larger proportion of the Company's lease portfolio. Residual Value Losses TMCC is subject to residual value risk in connection with its lease portfolio. TMCC's residual value exposure is a function of the number of off-lease vehicles returned for disposition and any shortfall between the net disposition proceeds and the estimated unguaranteed residual values on returned vehicles. If the market value of a leased vehicle at contract termination is less than its contract residual value, the vehicle is more likely to be returned to TMCC. A higher rate of vehicle returns exposes TMCC to a risk of higher aggregate losses. Total unguaranteed residual values related to TMCC's vehicle lease portfolio increased from approximately $6.9 billion to $7.1 billion between March 31, 2001 and March 31, 2002, respectively. The increase primarily resulted from the suspension of purchasing residual value insurance for operating leases acquired by the Titling Trust beginning in June 2001. Total unguaranteed residual values related to TMCC's vehicle lease portfolio decreased from approximately $7.1 billion at March 31, 2000 to $6.9 billion at March 31, 2001 due in part to the continuation of purchasing residual value insurance for operating leases acquired by the Titling Trust. Total unguaranteed residual values related to TMCC's vehicle lease portfolio increased from approximately $6.5 billion at September 30, 1999 to $7.0 billion at September 30, 2000 commensurate with the growth in leased assets during the same period. The increase of $144 million in the provision for residual value losses as of March 31, 2002 reflects the overall increases in vehicle return rates and losses per vehicle experienced in the current year as well as expected market conditions. TMCC believes that reserve levels at March 31, 2002 are adequate to cover expected losses on its vehicle portfolio. TMCC experienced a $76 million (31%) increase in losses at vehicle disposition in the fiscal year ended March 31, 2002 relative to the comparable period ended March 31, 2001. The increase resulted from an increased supply of off- lease vehicles, higher return rates and higher average losses per vehicle. The increase in losses also reflects the downward pressure placed on used vehicle prices as a result of the general economic downturn, competitive new vehicle pricing for core Toyota and Lexus models and industry-wide record levels of incentives on new vehicles. The Company also believes that these factors were compounded by auto manufacturers' responding to the events of September 11, 2001 with additional incentives, which continued throughout the remainder of fiscal 2002. The increase of $36 million in losses at vehicle disposition during the transition period as compared to the six months ended March 31, 2000 also reflects a larger supply of vehicles coming off-lease, higher off-lease vehicle return rates and higher losses per vehicle. The provision for residual value losses increased in the transition period as a result of these factors. -21- The Company also maintains an allowance to cover estimated vehicle disposition losses related to unguaranteed residuals on its present owned portfolio. The allowance required to cover estimated residual value losses is evaluated quarterly, considering projected vehicle return rates and projected residual value losses derived from historical and market information on used vehicle sales, historical factors including trends in lease returns, the new car markets, and general economic conditions. After carefully evaluating these factors, management develops several loss scenarios and reviews allowance levels to ensure reserves are adequate to cover the probable range of losses. The allowance for residual value losses is maintained in amounts considered by management to be appropriate in relation to the expected losses on the present owned portfolio. Upon disposal of the assets, the allowance for residual losses is adjusted for the difference between the net book value and the proceeds from sale. The allowance for residual value losses and related provision expense are included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet and lease depreciation expense in the Consolidated Statement of Income, respectively. The decrease in the provision for residual value losses in fiscal 2000 compared to fiscal 1999 reflects reduced vehicle disposition losses of $30 million during fiscal 2000 coupled with management's estimate that reserve levels during the same period were considered adequate to cover expected losses at September 2000. The decrease in vehicle disposition losses was primarily due to a decrease in the number of vehicles scheduled to terminate resulting from the sale of interests in lease finance receivables during fiscal 1997 and 1998, partially offset by a higher rate of vehicle returns. In addition to the factors discussed above, disposition losses may also be affected by the amount and types of accessories or installed optional equipment included in leased vehicles. Although vehicle loss rates are typically the result of a combination of factors, to the extent certain types of optional equipment depreciate more rapidly than the value of the base vehicle, leased vehicles, having a greater portion of their manufacturer's suggested retail price attributable to such optional equipment, will experience relatively higher levels of loss. To help mitigate risk of loss associated with accessories and optional equipment, TMCC implemented a new residual value setting policy beginning with model year 1999 Toyota vehicles. Under the new policy, the residual value applicable to the base vehicle and the residual value applicable to certain specified optional accessories and optional equipment are calculated separately. The Company has also taken action to reduce vehicle disposition losses by developing strategies to increase dealer purchases of off-lease vehicles and expanding marketing of off-lease vehicles through the internet to maximize proceeds on vehicles sold through auction. Vehicle Lease Return Rates The number of returned leased vehicles sold by TMCC during a specified period as a percentage of the number of lease contracts that as of their origination dates were scheduled to terminate in the same period was 55% for the year ended March 31, 2002 as compared to 51%, 54%, 52%, 50% and 47% for the twelve months ended March 31, 2001, the six months ended March 31, 2001 and 2000 and for the years ended September 30, 2000 and 1999, respectively. The increase for the year ended March 31, 2002 as compared to the same period ended March 31, 2001, is primarily due to the higher supply of off-lease vehicles. TMS Support Under an arrangement with TMS, TMCC received support for vehicle disposition losses in June 2000. No assurance can be provided as to either the level of support or the continuation of the support arrangement in future periods. -22- Interest Expense - ---------------- Interest expense decreased 28% during the year ended March 31, 2002 as compared to the year ended March 31, 2001 primarily due to lower average cost of borrowings, partially offset by higher average outstanding debt. Interest expense increased 22% during the six months ended March 31, 2001 compared with the six months ended March 31, 2000, and 37% in fiscal 2000 compared with fiscal 1999 primarily due to higher average cost of borrowings and an increase in average debt outstanding. The weighted average cost of borrowings was 4.06%, 6.46%, 6.44%, 6.07%, 6.30% and 5.34% for the years ended March 31, 2002 and 2001, the six months ended March 31, 2001 and 2000, and for the fiscal years ended September 30, 2000 and 1999, respectively. Insurance - --------- The principal activities of TMCC's insurance subsidiary, Toyota Motor Insurance Services, Inc. ("TMIS"), include marketing, underwriting, claims administration and providing certain insurance and contractual coverages to Toyota and Lexus vehicle dealers and their customers. In addition, TMIS insures and reinsures certain TMS and TMCC risks. Insurance premiums earned and contract revenues recognized from insurance operations increased $17 million, or 12%, for the year ended March 31, 2002 as compared with the year ended March 31, 2001 primarily due to increased contract volume. Insurance premiums earned and contract revenues remained constant during the six months ended March 31, 2001 as compared to the six months ended March 31, 2000. Insurance premiums earned and contract revenues recognized from insurance operations increased $16 million, or 13%, in fiscal 2000 due to higher underwriting revenues associated with in-force agreements. Investment and Other Income - --------------------------- The following table summarizes TMCC's investment and other income for the year ended March 31, 2002, the six months ended March 31, 2001 and 2000, and for fiscal years ended September 30, 2000 and 1999:
Years Ended Six Months Ended Years Ended March 31, March 31, September 30, ------------------ -------------------- ----------------- 2002 2001(1) 2001 2000(1) 2000 1999 -------- -------- -------- -------- ------- -------- (Dollars in Millions) Investment income.............. $ 96 $ 113 $ 68 $ 22 $ 60 $ 34 Gains on receivables sold...... 81 52 42 1 5 15 Servicing fee and other income. 29 38 20 17 34 39 ------ ------ ------ ------ ------ ------ Investment and other income. $ 206 $ 203 $ 130 $ 40 $ 99 $ 88 ====== ====== ====== ====== ====== ====== (1) Pro Forma
The increase in investment and other income for the twelve months ended March 31, 2002 as compared to the twelve months ended March 31, 2001 is primarily due to higher gains on sold receivables, partially offset by a decrease in investment income. The increase in investment and other income for the transition period ended March 31, 2001 as compared to the six months ended March 31, 2000 is primarily due to higher investment income and gains on receivables sold. The increase in investment and other income from fiscal 1999 to fiscal 2000 is primarily due to higher investment income, partially offset by lower gains on receivables sold and lower servicing fee income. -23- Investment Income The decrease in investment income for the twelve months ended March 31, 2002 as compared to the twelve months ended March 31, 2001 is due to decreased net realized gains on sales of available-for-sale securities coupled with a general decrease in interest rates. The increase in investment income during the transition period ended March 31, 2001 as compared to the six months ended March 31, 2000, and during fiscal 2000 as compared to fiscal 1999, reflects higher market interest rates and an increase in TMCC's portfolio of marketable securities due to a higher level of assets retained in connection with recent retail securitizations. Servicing Fee Income Servicing fee income decreased for the twelve months ended March 31, 2002 as compared to the twelve months ended March 31, 2001 due to fewer securitization transactions qualifying for sale treatment in the current fiscal year. TMCC normally collects a 1% servicing fee on sold receivables. Due to the nature of, and accounting treatment for, the September 2001 transaction, TMCC is not paid this fee for the receivables included in that transaction. Servicing fee income increased 18% for the six months ended March 31, 2001 compared to the six months ended March 31, 2000 due to the increase in the level of sold retail receivables. Servicing fee income decreased 13% for the fiscal year ended September 30, 2000 due to the reduction in the average balance of sold interests in lease and retail finance receivables as well as the temporary waiver of servicing fee income related to the fiscal 1997 sale of interests in lease finance receivables. Servicing fee income increased 50% for the fiscal year ended September 30, 1999 due to the growth in the combined balance of sold interests in lease finance and sold retail receivables. Gains on Receivables Sold Gains recognized on asset-backed securitization transactions generally accelerate the recognition of income on lease and retail contracts, net of related deferrals, into the period the assets are sold. Numerous factors can affect the timing and amounts of these gains, such as the type and amount of assets sold, the structure of the sale, key assumptions used and current financial market conditions. Gains on receivables sold increased $29 million to $81 million for the twelve months ended March 31, 2002 as compared to the twelve months ended March 31, 2001. The increase reflects decreases in market interest rates, which resulted in larger spreads retained by the Company, coupled with an increased use of securitization. Gains on receivables sold increased $41 million during the six months ended March 31, 2001 as compared to the same period in fiscal 2000, primarily due to decreases in market interest rates which result in larger spreads being retained by the Company. Gains on receivables sold decreased $10 million during fiscal year 2000 due to an increase in market interest rates. Gains on assets sold are further discussed in Note 7 - Sale of Receivables and Securitization of the Notes to Consolidated Financial Statements. -24- Loss on Asset Impairment - --------------------------- TMCC performs a review of the fair market value of assets retained in the sale of retail receivables and interests in lease finance receivables on at least a quarterly basis. The fair market value of these retained assets is impacted by management's and the market's expectations as to future losses on vehicle disposition, credit losses and prepayment rates. Impairment losses related to lease and retail finance receivables totaled $70 million for the twelve months ended March 31, 2002. Losses related to asset impairment are discussed further in Note 7: Sale of Receivables and Securitization. In June 2001, the Company experienced increased return rates and loss per unit upon disposition relating to vehicles associated with its lease and finance receivables. This experience, combined with revised forecasts for future return rates and loss per unit, resulted in a downward revision to the vehicle disposition assumptions. The assumption for expected residual value losses for TMCC's lease securitizations was 4.9%-7.6% at March 31, 2001 and was revised to 7.1%-7.9% at June 30, 2001. The increase in residual value loss assumptions was primarily due to the performance of leases originated prior to model year 1999 and scheduled to terminate over the next 3 months. As a result of the change in assumptions, TMCC recognized losses due to the permanent impairment of assets retained in the sale of interests in lease finance receivables totaling $47 million as required by EITF 99-20, which was adopted in the first quarter of fiscal year 2002. During fiscal year 2002 TMCC recognized an additional $23 million in impairment losses related to retail finance receivables as a result of actual credit losses exceeding original credit loss assumptions. Actual credit losses increased primarily due to recent economic conditions, restructuring of field operations, and the impact of a full year under tiered pricing. Retail credit loss assumptions have been revised as of March 31, 2002 to reflect current market conditions. The $23 million impairment charge effectively reduces the value of TMCC's retained interests in securitized retail finance receivables to estimated net realizable value as of March 31, 2002. During the third quarter of fiscal 2000, the Company refined its methodology for forecasting losses on vehicle disposition to better reflect recent and expected loss experience. TMCC recognized losses due to the permanent impairment of assets retained in the sale of interests in lease finance receivables totaling $25 million, $14 million, $74 million and $19 million during the six months ended March 31, 2001 and 2000, and during the years ended September 30, 2000 and 1999, respectively, resulting from an increase in vehicle disposition loss assumptions related to leases originated prior to model year 1999 and terminating fiscal years 2000 through 2004. The Company did not recognize any impairment losses related to assets retained in the sale of retail finance receivables during the six months ended March 31, 2001 and 2000, or during the years ended September 30, 2000 and 1999, respectively. -25- Losses Related to Argentine Investment - -------------------------------------- TMCC has executed guarantees totaling $65 million in respect to TCA's offshore dollar bank loans, of which approximately $40 million, including principal and interest, is outstanding. Late in 2001, the Argentine government instituted a series of changes that led to political, economic and regulatory risks to Argentine businesses. The government has imposed foreign exchange controls restricting offshore payment transfers, and these controls are currently preventing TCA from sending payments on its offshore dollar loans out of Argentina. In February 2002, the Argentine government established measures to re-denominate the entire Argentine economy into pesos and has permitted the peso to float freely against other global currencies. This re-denomination policy adversely affected TCA's financial condition and its ability to fully satisfy its offshore dollar loans. Consequently, TMCC has included a charge against income of $31 million to write-off its $5 million investment in TCA and to establish a reserve of $26 million relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt. TMCC will continue to monitor the situation in Argentina. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses increased 19% for the year ended March 31, 2002 as compared to the year ended March 31, 2001, 22% in the six months ended March 31, 2001 as compared to the six months ended March 31, 2000, and 6% for the year ended September 20, 2000 as compared to the year ended September 30, 1999, respectively. The increase in fiscal 2002 reflects costs associated with the field operations restructuring, technology-related projects as well as costs to support the Company's growing customer base. The increases noted in the transition period and fiscal 2000 also reflect expenses associated with technology-related projects and costs to support TMCC's growing customer base. Included in operating and administrative expenses are charges allocated by TMS for certain technological and administrative services provided to TMCC. During the year ended March 31, 2002, the six months ended March 31, 2001 and 2000, and for fiscal 2000, net charges reimbursed by TMCC to TMS totaled $51 million, $27 million, $13 million and $25 million, respectively. Net charges to be reimbursed by TMCC to TMS during fiscal 2003 are estimated to range between $45 million and $55 million. The Credit Support Fee Agreement entered into between TMCC and TFSC provides that TMCC will pay to TFSC a semi-annual fee equal to 0.05% per annum of the weighted average outstanding amount of TMCC's Securities entitled to credit support, as described under Item 1. Credit support fees included in operating and administrative expenses for the year ended March 31, 2002 and the six months ended March 31, 2001 were $12 million and $6 million, respectively, and expenses for fiscal 2003 are estimated to be $13 million. -26- Restructuring and Related Activities Operating and administrative expenses are also expected to increase during fiscal 2003 as a result of the costs incurred in connection with the continued restructuring of TMCC's field operations. The branch offices of TMCC are being converted to serve only dealer financing needs which includes the purchasing of contracts from dealers, financing inventories, loans to dealers for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements, as well as consulting on finance and insurance operations. The other functions that the branch offices currently cover, such as customer service, collections, lease termination and administrative functions for retail and lease contracts, will be handled by three regional customer service centers. The regional center for the Western region was opened in October 2001. The regional center for the Eastern region opened in February 2002, and the transfer of the other functions from branches to the regional center for the Midwest region is scheduled to continue during the summer of 2002. The conversion of these activities is expected to be completed in fiscal 2003. Restructuring and related charges of $23.4 million and $6.0 million were expensed during the periods ending March 31, 2002 and March 31, 2001, respectively. The expenses charged in the period ending March 31, 2002 were comprised of $9.1 million related to employee separations, $7.2 million related to asset and facility costs and $7.1 million for other exit costs. The expenses charged in the period ended March 31, 2001 were comprised entirely of employee separation costs. During fiscal 2002 TMCC experienced an increase in delinquency and charge off rates as a result of the disruption to normal collections processes during the field reorganization. TMCC is taking measures to minimize the disruption of operations; however, the restructuring of field operations could continue to adversely affect delinquencies and credit losses. Management believes that the impact of the restructuring has been accurately factored into the provision for credit losses. Upon the completion of the field reorganization and strategic deployment of resources, the Company hopes to derive greater internal operation efficiencies and superior dealer and customer account management. Provision for Credit Losses - --------------------------- TMCC maintains allowances to cover estimated losses on its present owned portfolio resulting from the inability of customers to make required payments. The allowance for credit losses is evaluated quarterly, considering historical trends of repossession, charge-offs, recoveries and credit losses. In addition, portfolio credit quality, and current and projected economic and market conditions, are monitored and taken into account. After carefully evaluating these factors, management develops several loss scenarios and reviews allowance levels to ensure reserves are adequate to cover the probable range of losses. The allowance for credit losses is considered by management to be appropriate in relation to the expected loss experience on the present owned portfolio. Losses are charged to the allowance when it has been determined that payments will not be received and collateral cannot be recovered or the related collateral is repossessed and sold. Any shortfall between proceeds received and the carrying cost of repossessed collateral is charged to the allowance. Recoveries are credited to the allowance for credit losses. The allowance for credit losses and related provision expense are included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet and total expenses in the Consolidated Statement of Income, respectively. -27- The allowance for credit losses increased for the year ended March 31, 2002 as compared to the year ended March 31, 2001 due to an increase in the provision for credit losses, partially offset by an increase in net charge-offs. TMCC's provision for credit losses increased 60% for the year ended March 31, 2002 as compared to the year ended March 31, 2001, 48% during the transition period and 63% during fiscal 2000 compared to fiscal 1999, reflecting growth in earning assets and, in 2002, increased credit losses and delinquencies as discussed below. Allowances for credit losses are evaluated quarterly, considering historical loss experience and other factors, and are considered adequate to cover expected credit losses as of March 31, 2002. TMCC completed the national launch of a tiered pricing program for both retail and lease vehicle contracts during the transition period ended March 31, 2001. The objective of the program is to better match customer risk with contract rates charged to allow profitable purchases of a wider range of risk levels. Implementation of this program has contributed to increased average contract yields and increased credit losses in connection with purchases of higher risk contracts. An analysis of credit losses and the related allowance follows. This analysis includes receivables sold through securitizations that qualify as a sale for legal but not accounting purposes, but excludes net losses on receivables sold through securitization transactions that qualify as a sale for legal and accounting purposes, under SFAS 140:
Years Six Months Years Ended Ended Ended March 31, March 31, September 30, ----------------- --------- ---------------------------- 2002 2001(1) 2001 2000 1999 1998 ------ ------ ------ ------ ------ ------ (Dollars in Millions) Allowance for credit losses at beginning of period......... $ 227 $ 214 $ 230 $ 202 $ 220 $ 213 Provision for credit losses....... 263 164 89 135 83 127 Charge-offs....................... (190) (134) (75) (116) (104) (120) Recoveries........................ 20 19 9 19 17 17 Other Adjustments................. (37) (36) (26) (10) (14) (17) ------ ------ ------ ------ ------ ------ Allowance for credit losses at end of period............... $ 283 $ 227 $ 227 $ 230 $ 202 $ 220 ====== ====== ====== ====== ====== ====== Allowance for credit losses as a percent of gross earning assets................. .90% .85% .85% .87% .89% 1.02% Net credit losses as a percent of average earning assets...... .59% .44% .50% .39% .40% .51% Aggregate balances at end of period for finance receivables and operating leases 60 or more days past due.......... $126 $56 $56 $54 $35 $30 Aggregate balances at end of period for finance receivables and operating leases 60 or more days past due as a percent of net investments in operating leases and gross receivables outstanding.................... .40% .21% .21% .20% .15% .14% (1) Pro Forma
-28- As a result of increased credit losses and delinquencies, TMCC increased the allowance for credit losses as a percent of gross earning assets at March 31, 2002 as compared to March 31, 2001. TMCC believes that the increased credit losses and delinquencies are primarily due to the recent national economic downturn, the introduction of the tiered pricing program, and the effects of TMCC's field reorganization which has temporarily disrupted normal collection activities. The decrease in the allowance for credit losses as a percent of gross earning assets from September 2000 to March 2001 primarily reflects significant growth in vehicle wholesale earning assets which historically have experienced minimal credit losses. Net credit losses as a percent of average earning assets for the year ended March 31, 2002 as compared with the year ended March 31, 2001, also increased as a result of the recent economic downturn, tiered pricing and field reorganization described above. Net credit losses as a percent of average earning assets from September 2000 to March 2001 increased due to a deterioration in economic conditions. Delinquency and charge-off ratios typically fluctuate over time as a portfolio matures. The information in the table above has not been adjusted to eliminate the effect of the growth of TMCC's portfolio. During the year ended March 31, 2002, TMCC's portfolio has experienced significantly increased delinquency rates. Repossession and credit loss experience has also increased during the same period. TMCC believes that the increased delinquency experience is a result of a number of factors including the recent national economic downturn, a full fiscal year under the tiered pricing program, and the effects of TMCC's field reorganization described previously. The reorganization is ongoing and the transfer of certain functions from branches to customer service centers is scheduled to continue during the summer of 2002. TMCC is taking measures to minimize the disruption of operations; however, the restructuring of field operations and economic downturn could continue to adversely affect delinquencies and credit losses. Management has increased the allowance for credit losses by $56 million from March 31, 2001 to March 31, 2002 and believes that it is adequate at March 31, 2002. Insurance Losses and Loss Adjustment Expenses - --------------------------------------------- The liability for losses and loss expenses represents the accumulation of estimates for reported losses and a provision for losses incurred but not reported, including claim adjustment expenses. Loss reserve projections are used to estimate loss reporting patterns, loss payment patterns and ultimate claim costs. An inherent assumption in such projections is that historical loss patterns can be used to predict future patterns with reasonable accuracy. Because many variables can affect past and future loss patterns, the effect of changes in such variables on the results of loss projections must be carefully evaluated. The evaluation of these factors involves significant assumptions, complex analysis and management judgment, which may significantly impact the financial statements. Insurance liabilities are, therefore, necessarily based on estimates, and the ultimate liability may vary from such estimates. These estimates are regularly reviewed by management and adjustments to such estimates are included in income on a current basis. The liability for reported losses and the estimate of unreported losses are recorded in accounts payable and accrued expenses. Commissions and fees from services provided are recognized in relation to the timing and level of services performed. Concentration of Credit Risk - ---------------------------- The Company's business is substantially dependent upon the sale of Toyota and Lexus vehicles in the United States. Changes in the volume of sales of such vehicles resulting from governmental action, changes in consumer demand, changes in pricing of imported units due to currency fluctuations, or other events, could impact the level of finance and insurance operations of the Company. To date, the level of sales of Toyota and Lexus vehicles has not restricted the level of the Company's operations. -29- The Company's finance receivables reflect a broad customer base of 1,512,000 accounts and are geographically diversified throughout the United States with the exception of California and Texas. As of March 31, 2002, approximately 25% and 8% of the Company's retail finance and lease receivables are concentrated in California and Texas, respectively. The average retail customer account outstanding was $19,000 as of March 31, 2002. Any material adverse changes to California's or Texas' economy could have an adverse effect on TMCC's financial condition and results of operations. TMCC's wholesale and other dealer financing receivables, such as revolving credit lines and real estate and working capital loans, arise from transactions with individual dealers or national dealer groups. As of March 31, 2002, the 25 largest outstanding total dealer receivables, aggregating approximately $1.5 billion, represent approximately 45% of total dealer receivables and 5% of total earning assets. All of these receivables were current as of March 31, 2002. The majority of dealer financing receivables outstanding as of March 31, 2002 is secured by vehicle inventory, real estate, or other assets. Receivables not secured by assets are generally secured by corporate or individual guarantees. Any material adverse change in the business or financial condition of a dealer or dealer group to whom TMCC has extended a substantial amount of financing, or financing which is unsecured or not secured by realizable assets, could result in a material adverse effect on TMCC's financial conditions and results of operations. Sales of Receivables and Securitization - --------------------------------------- Many finance companies and banks use securitization transactions to fund their operations. The United States securitization market is well developed and highly liquid. TMCC has been an active participant in the asset-backed securitization market since 1993, securitizing both retail and lease finance receivables. TMCC's current securitization program involves only retail finance receivables. Typical Securitization Structure TMCC's securitization program involves selling discrete pools of finance receivables or interests in lease receivables to a wholly-owned bankruptcy remote special purpose entity ("SPE"), which in turn sells the receivables to a separate securitization trust in exchange for the proceeds from securities issued by the trust. The securities issued by the trust, usually notes or certificates of various maturities and interest rates, are secured by collections on the sold receivables. These securities, commonly referred to as asset-backed securities, are structured into senior and subordinated classes. Generally, the senior classes have priority over the subordinated classes in receiving collections from the sold receivables. -30- The SPE uses the proceeds received from the securitization trust to pay TMCC for a portion of the purchase price for the receivables. The remainder is typically represented by a promissory note from the SPE. The SPE also retains an interest in the securitization trust. The retained interest may include subordinated securities issued by the SPE, restricted cash held for the benefit of the SPE and an interest-only strip. Most retained interests are subordinated and serve as credit enhancements for the more senior securities issued by the SPE to help ensure that adequate funds will be available to pay investors that hold senior securities. The SPE uses the distributions it receives from the securitization trust to repay the promissory note to TMCC. However, the retained interests are held by the SPE as restricted assets and are not available to satisfy any obligations of TMCC. The SPE's ability to realize on its retained interests, and thus repay TMCC, depends on actual credit losses and prepayment speeds on the sold receivables. To the extent prepayment speeds are faster than expected and/or losses are greater than expected, TMCC may be required to recognize a loss in respect of the retained interests. The Company's retained interests in such receivables are included in investments in marketable securities and are classified as available for sale. TMCC retains servicing rights for sold receivables and receives a servicing fee which is recognized over the remaining term of the related sold retail receivables or interests in lease finance receivables. Income earned from the sale of the receivables includes the gain or loss on sale of finance receivables, as well as servicing fee income, the interest income earned on retained securities and excess spread. The sale of receivables has the effect of reducing financing revenues in the year the receivables are sold as well as in future years. The net impact of securitizations on annual earnings will include income effects in addition to the reported gain or loss on the sale of receivables and will vary depending on the amount, type of receivable and timing of our securitizations in the current year and the preceding two to three year period as well as the interest rate environment at the time the finance receivables were originated and securitized. Pre-tax gains on sold retail receivables are recognized in the period in which the sale occurs and are included in other income. The determination of gains and the valuation of retained interests are based on an allocation of the cost of the sold receivables between the portion sold and the portion retained using the relative fair values on the date of sale. The fair value of the retained interests is estimated by discounting expected cash flows using management's best estimates and other key assumptions. The selection of assumptions involves complex analysis and management judgment which, when changed, may significantly impact the financial statements. The increased use of securitization, coupled with the decline in interest rates during fiscal years 2002 and 2001, led to higher reported gains on sold receivables compared with prior years. In addition to the increase in gains during fiscal years 2002 and 2001, interest earned on retained assets and servicing fees also increased due to the increased use of securitization. Various forms of credit enhancements also are provided to reduce the risk of loss for senior classes of securities. These credit enhancements may include the following or other forms designed for particular transactions: Over-collateralization: The principal balance of receivables held by the securitization trust exceeds the principal amount of asset-backed securities issued. In addition, the receivables earn a higher rate of interest than the rate due on the securities, which is referred to as excess spread and is recorded as an interest-only strip and is included in investments in marketable securities on the consolidated balance sheet. As a result of over-collateralization, the SPE, pursuant to its retained interest, has the right to receive collections on the sold receivables in excess of amounts needed to pay interest and principal to investors and servicing and other fees. Cash reserve funds or restricted cash: A portion of the proceeds from the sale of asset-backed securities are held in segregated reserve funds and may be used to pay principal and interest to investors if collections on the sold receivables are insufficient. Additional excess amounts from collections on receivables held by the securitization trusts may be added to such reserve funds during the term of the securitizations. -31- Subordinated securities: Generally these securities do not receive payments of principal until more senior securities are paid, and may be subordinated to payments of interest as well. Revolving liquidity note: In lieu of a cash reserve fund to fund shortfalls in principal and interest payments to security holders, TMCC may undertake to advance funds in respect of certain shortfalls and losses, taking a revolving liquidity note in return which allows the securitization trust to receive draws from TMCC to fund shortfalls in principal and interest payments due to investors up to a specified amount and obligates the securitization trust to repay any amounts drawn with interest accrued thereon. Repayments of principal and interest due under the revolving liquidity note are subordinated to principal and interest payments on the asset-backed securities and, in some circumstances, to deposits into a reserve account. To the extent amounts are insufficient to repay amounts outstanding under a revolving liquidity note, TMCC may recognize a loss. TMCC may enter into a swap agreement with the securitization trust under which the securitization trust is typically obligated to pay TMCC amounts in U.S. dollars in respect of interest and/or principal due on specified dates in exchange for receiving from TMCC amounts equal to the principal and interest payable on the asset backed securities in the relevant currency. This arrangement enables the securitization trust to issue securities payable in currencies other than U.S. Dollars or bearing interest on a basis different from that of the receivables held by the securitization trust. TMCC typically uses an amortizing structure in its securitizations. In most amortizing structures, holders of the asset-backed securities receive monthly payments of principal and interest and therefore the outstanding principal balance of the securities is repaid as principal collections on the sold receivables are received. In some cases, TMCC's securitizations have involved a modified structure in which principal payments are invested in demand notes issued by TMCC instead of being paid to investors. Upon the maturity of the demand notes, the trust uses the proceeds to repay the principal of the securities. Sale Accounting Treatment TMCC's securitizations have been treated as a sale for both legal and accounting purposes, except for the 2001-C transaction which occurred in September 2001. This securitization was treated as a sale for legal purposes, but treated as a secured borrowing for accounting purposes since the securitization trust was not structured as a qualifying special purpose entity ("QSPE"). The receivables and debt issued were accounted for as remaining on TMCC's balance sheet pursuant to Financial Accounting Standards Board Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 140"), as amended. Purpose of Securitization Program TMCC securitizes its receivables because it allows the Company to access a highly liquid and efficient market for securitization of financial assets thereby providing the Company with an alternative source of funding, and diversification of its investor base to enhance its liquidity position. For the past three fiscal years, securitization averaged approximately 24% of total annual funding. TMCC's use of SPEs in securitizations is consistent with conventional practices in the securitization markets. The sale to the SPE isolates the sold receivables from other creditors of TMCC for the benefit of securitization investors and, assuming accounting requirements are satisfied, the sold receivables are accounted for as no longer on the Company's balance sheet. None of TMCC's officers, directors or employees holds any equity interests in TMCC's SPEs or receives any direct or indirect compensation from the SPEs. The SPEs do not own the Company's stock or stock of any of the Company's affiliates and there are no contracts to do so. -32- The asset-backed securities are rated by at least two independent rating agencies and sold in registered public offerings or in private transactions exempt from registration under United States securities laws. The value of the interests retained by the trust is exposed to losses in receivables and such cash flows are available as credit support for senior securities. The exposure of these interests exists until the associated securities are paid in full. Investors in securitizations have no recourse to TMCC or its assets for failure of obligations on the receivables or otherwise and have no ability to require TMCC to repurchase their securities. TMCC does not guarantee any securities issued by the SPE. Each SPE has limited purposes and may only be used to purchase and sell the receivables. The individual securitization trusts have a limited duration and generally terminate when investors holding the asset-backed securities have been paid all amounts owed to them. The sale of receivables through securitization is further discussed in Note 7 of the Notes to Consolidated Financial Statements. Derivatives and Hedging Activities - ---------------------------------- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Fair value is determined using externally quoted market values where possible. If externally quoted market rates are not available, the Company uses external market rates in conjunction with a customized market valuation system to determine the fair value of the Company's derivatives. Derivative assets and liabilities include interest rate swaps, indexed note swap agreements, cross currency interest rate swap agreements and option-based products. The accounting for the gain or loss due to changes in fair value of the hedged item depends on whether the relationship between the hedged item and the derivative instrument qualifies for hedge treatment. If the relationship between the hedged item and the derivative instrument does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the relationship between the hedged item and the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged. The types of instruments that do not qualify for hedge accounting include, but are not limited to, U.S. basis swap instruments, and currency structured transactions including inverse floating rate instruments. Derivatives are recognized in the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of the fair value of a recognized asset or liability or a foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the fair value of a derivative that is highly effective as - and that is designated and qualifies as - a fair-value hedge or foreign-currency hedge, along with changes in fair value of the hedged assets or liabilities that are attributable to the hedged risk, are recorded in current-period earnings. Additional information concerning the SFAS No. 133 requirements is disclosed in Note 8 - Derivatives and Hedging Activities of the Notes to Consolidated Financial Statements and Note 2 - Summary of Significant Accounting Policies - Derivative Financial Instruments. -33- For the year ended March 31, 2002, the Company recognized a gain of $38 million (reported as SFAS 133 fair value adjustments in the Consolidated Statement of Income). The net adjustment reflects a gain of $43 million in the fair market value of TMCC's portfolio of option-based products and certain interest rate swaps, offset by a $5 million decrease related to the ineffective portion of TMCC's fair value hedges. The increase in the fair market value of TMCC's option-based products is primarily due to higher market interest rates. Various derivative instruments, such as option-based products which hedge interest rate risk from an economic perspective, and which the Company is unable or has elected not to apply hedge accounting, are discussed in Non-Hedging Activities below. For fair value hedging relationships, the components of each derivative's gain or loss are included in the assessment of hedge effectiveness. TMCC maintains an overall risk management strategy that utilizes a variety of interest rate and currency derivative financial instruments to mitigate its economic exposure to fluctuations caused by volatility in interest rate and currency exchange rates. TMCC does not use any of these instruments for trading purposes. Accounting for Derivatives and Hedging Activities Derivatives are recognized in the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of the fair value of a recognized asset or liability or a foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the fair value of a derivative that is highly effective as - and that is designated and qualifies as - a fair-value hedge or foreign-currency hedge, along with changes in fair value of the hedged assets or liabilities that are attributable to the hedged risk, are recorded in current-period earnings. The Company occasionally purchases a financial instrument in which a derivative instrument is "embedded." Upon purchasing the financial instrument, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e. host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as either (1) a fair-value hedge or (2) non-hedging derivative instrument. However, if the entire contract were to be measured at fair value, with changes in fair value reported in current earnings, or if the Company could not reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the balance sheet at fair value and not be designated as a hedging instrument. The Company formally documents relationships between hedging instruments and hedged items, as well as its risk-management and strategy for undertaking various hedge transactions. This process includes linking derivatives that are designated as fair-value hedges to specific liabilities on the balance sheet. The Company also assesses whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below. The Company will discontinue hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; or (3) management determines that designating the derivative as a hedging instrument is no longer appropriate. -34- When hedge accounting is discontinued due to the Company's determination that the derivative no longer qualifies as an effective fair-value hedge, the Company will continue to carry the derivative on the balance sheet at its fair value but cease to adjust the hedged liability for changes in fair value. In a situation in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings. Fair-Value Hedges The Company enters into interest rate swaps, indexed note swap agreements and cross currency interest rate swap agreements to convert its fixed-rate debt to variable-rate debt, a portion of which is covered by option-based products. (Refer to non-hedging activities below for a discussion of option-based products.) TMCC uses interest rate swap agreements in managing its exposure to interest rate fluctuations. Interest rate swap agreements are executed as an integral part of specific debt transactions or on a portfolio basis. TMCC's interest rate swap agreements involve agreements to pay fixed and receive a floating rate, or receive fixed and pay a floating rate, at specified intervals, calculated on an agreed-upon notional amount. Interest rate swap agreements may also involve basis swap contracts which are agreements to exchange the difference between certain floating interest amounts, such as the net payment based on the commercial paper rate and the London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional amount. TMCC uses indexed note swap agreements in managing its exposure in connection with debt instruments whose interest rate and/or principal redemption amounts are derived from other underlying indices. Indexed note swap agreements involve agreements to receive interest and/or principal amounts associated with the indexed notes, denominated in either U.S. dollars or a foreign currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities. TMCC uses cross currency interest rate swap agreements to entirely hedge exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies and for managing its exposure to interest rate fluctuations. Notes and loans payable issued in foreign currencies are hedged by concurrently executed cross currency interest rate swap agreements which involve the exchange of foreign currency principal and interest obligations for U.S. dollar obligations at agreed-upon currency exchange and interest rates. Derivative instruments used by TMCC involve, to varying degrees, elements of credit risk in the event a counterparty should default and market risk as the instruments are subject to rate and price fluctuations. Credit risk is managed through the use of credit standard guidelines, counterparty diversification, monitoring of counterparty financial condition and master netting agreements in place with all derivative counterparties. Credit exposure of derivative instruments is discussed further under Item 7A. - Quantitative and Qualitative Disclosures About Market Risk. Non-Hedging Activities Option-based products are executed on a portfolio basis and consist primarily of purchased interest rate cap agreements, interest rate swaps and, to a lesser extent, foreign exchange forward contract agreements. Option-based products are agreements which either grant TMCC the right to receive, or require TMCC to make payments at, specified interest rate levels. Option-based products are used to hedge interest rate risk from an economic perspective on TMCC's portfolio of pay-variable receive-fixed interest rate swaps. The Company uses this strategy to minimize its exposure to volatility in LIBOR and for overall asset and liability management purposes. These products are not linked to specific assets and liabilities that appear on the balance sheet and therefore, do not qualify for hedge accounting. -35- LIQUIDITY AND CAPITAL RESOURCES The Company, in the normal course of business, is an active debt issuer and requires a substantial amount of funding to support the growth in earning assets. The objective of its liquidity management is to ensure the Company has the ability to maintain access to the capital markets to meet its obligations and other commitments on a timely and cost-effective basis. Significant reliance is placed on the Company's ability to obtain debt and asset-backed securitization funding in the capital markets in addition to funding provided by earning asset liquidations and cash provided by operating activities. Debt issuances have generally been in the form of commercial paper, and domestic and euro medium-term notes ("MTNs") and bonds. Commercial paper issuances are used to meet short-term funding needs. Commercial paper outstanding under TMCC's commercial paper program ranged from approximately $3.0 billion to $5.7 billion during the year ended March 31, 2002, with an average outstanding balance of $4.4 billion. For additional liquidity purposes, TMCC maintains syndicated bank credit facilities with certain banks which aggregated $3.5 billion at March 31, 2002. No loans were outstanding under any of these bank credit facilities as of March 31, 2002. TMCC maintains additional committed and uncommitted lines of credit for $40 million and $100 million, respectively. TMCC also maintains uncommitted, unsecured lines of credit with banks totaling $61 million as of March 31, 2002. At March 31, 2002 TMCC had issued approximately $0.5 million in letters of credit in connection with these uncommitted, unsecured lines of credit. Long-term funding requirements are met through the issuance of a variety of debt securities underwritten in both the United States and international capital markets. Domestic and euro MTNs and bonds have provided TMCC with significant sources of funding. During the year ended March 31, 2002, TMCC issued approximately $8.8 billion of domestic and euro MTNs and bonds all of which except for $.5 billion had original maturities of one year or more. The original maturities of all MTNs and bonds outstanding at March 31, 2002 ranged from one year to ten years. As of March 31, 2002, TMCC had total MTNs and bonds outstanding of $21.0 billion, of which $7.0 billion was denominated in foreign currencies. TMCC anticipates continued use of MTNs and bonds in both the United States and international capital markets. To provide for the issuance of MTNs and other debt securities in the U.S. capital market, the Company maintains a shelf registration with the SEC under which approximately $10.0 billion was available for issuance at April 30, 2002. Under TMCC's euro MTN program, which provides for the issuance of debt securities in the international capital market, the maximum aggregate principal amount authorized to be outstanding at any time is $16.0 billion, of which $4.6 billion was available for issuance at April 30, 2002. The United States and euro MTN programs may be expanded from time to time to allow for the continued use of these sources of funding. In addition, TMCC may issue bonds in the domestic and international capital markets that are not issued under its MTN programs. Additionally, TMCC uses its asset-backed securitization programs to generate funds for investment in earning assets as described in the above section "Sales of Receivables and Securitization" and in Note 7 - Sale of Receivables and Securitization to the Consolidated Financial Statements. TMCC maintains a shelf registration statement with the SEC relating to the issuance of asset-backed notes secured by, and certificates representing interests, in retail receivables. During the year ended March 31, 2002, TMCC sold retail receivables totaling $4.6 billion in connection with securities issued under the shelf registration statement. As of April 30, 2002, $3.1 billion remained available for issuance under the registration statement. Subsequent to that date, $2.0 billion remained available for issuance under the registration statement after a sale of retail finance receivables in May 2002. -36- Dividends are declared and paid by TMCC as determined by its Board of Directors. TMCC's Board of Directors declared a cash dividend of $4 million that was paid to TFSA during fiscal 2002. No dividends had previously been declared or paid. TMCC's ratio of earnings to fixed charges was 1.39, 1.10, 1.13, 1.24, 1.25 and 1.31 for the year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000, 1999, 1998 and 1997, respectively. The increase in the ratio during the year ended March 31, 2002 was primarily due to an increase in finance margin resulting from lower interest rates and higher earning asset amounts funded. Cash flows provided by operating, investing and financing activities have been used primarily to support earning asset growth. Cash provided by the liquidation and sale of earning assets, totaling $19.6 billion, $14.7 billion, $23.0 billion and $21.0 billion during the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, respectively, was used to purchase additional investments in operating leases and finance receivables, totaling $25.7 billion, $15.9 billion, $28.2 billion and $23.9 billion during the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, respectively. Investing activities resulted in a net use of cash of $6.2 billion, $1.5 billion, $5.1 billion and $3.3 billion for the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, respectively, as the purchase of additional earning assets exceeded cash provided by the liquidation of earning assets. Net cash provided by operating activities totaled $2.1 billion, $.7 billion, $1.9 billion and $2.3 billion for the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, respectively, and net cash provided by financing activities totaled $4.6 billion, $0.9 billion, $3.1 billion and $1.1 billion, during the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, respectively. The Company believes that cash provided by operating and investing activities as well as access to domestic and international capital markets, the issuance of commercial paper, and asset-backed securitization transactions will provide sufficient liquidity to meet its future funding requirements. Contractual Obligations and Credit-Related Commitments As disclosed in the footnotes to the Consolidated Financial Statements, the Company has certain obligations to make future payments under contracts and credit-related financial instruments and commitments. At March 31, 2002, aggregate contractual obligations and credit-related commitments are summarized as follows:
During the Years Ending ------------------------------------------------------------- 2003 2004 2005 2006 2007 Thereafter -------- -------- -------- -------- -------- ---------- (Dollars in Millions) Contractual Obligations: Premises occupied under lease..... $ 19 $ 14 $ 9 $ 7 $ 4 $ 2 Other senior debt................. $ 5,184 $ 5,360 $ 3,665 $ 2,885 $ 1,252 $ 2,632 Manufacturing facilities guarantees..................... $ - $ - $ - $ 58 $ - $ 148 International affiliates Guarantees (b)................. $ 40 $ 4 $ 12 $ - $ - $ - Revolving liquidity notes......... $ 15 $ (a) $ (a) $ - $ - $ - -------- -------- -------- -------- -------- -------- $ 5,258 $ 5,378 $ 3,686 $ 2,950 $ 1,256 $ 2,782 ======== ======== ======== ======== ======== ======== (a) The securitization trusts may draw a total of $15 million from TMCC under the revolving liquidity notes over the life of the asset-backed securities transactions. (b) Amounts represent TMCC's guarantee of debt or other contractual commitments entered into by TCA, TSV and BTB. Allocation to fiscal years is based on maturity dates specified in underlying contractual agreements.
-37- TMCC has also guaranteed the obligations of TMIS relating to vehicle service insurance agreements issued in four states (Alabama, Illinois, New York and Virginia). These guarantees have been given without regard to any security, but are limited to the duration of the underlying insurance coverages up to a maximum of the original manufacturer's suggested retail price on the vehicles. As of March 31, 2002, TMCC has not historically, and does not expect, to pay any amounts under this guarantee. TMCC also maintains revolving credit facilities with dealers. These revolving credit facilities may be used for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These financings are backed by corporate or individual guarantees from or on behalf of the participating dealers. The revolving credit facilities totaled $1,524 million of which $553 million was outstanding as of March 31, 2002. Off-Balance Sheet Activities TMCC's securitization program involves selling discrete pools of finance receivables or interests in lease receivables to wholly-owned bankruptcy remote SPEs, which in turn sell the receivables to separate securitization trusts in exchange for the proceeds from securities issued by the trust. The securities issued by the trust, usually notes or certificates of various maturities and interest rates, are secured by collections on the sold receivables. These securities, commonly referred to as asset-backed securities, are structured into senior and subordinated classes. Generally, the senior classes have priority over the subordinated classes in receiving collections from the sold receivables. As of March 31, 2002, outstanding debt from asset-backed securitizations and notes payable related to securitized finance receivables structured as collateralized borrowings totaled $4.3 billion and $1.0 billion, respectively. On any payment date, the priority of payments made from available collections and amounts withdrawn from existing reserve funds or revolving liquidity notes, are as follows: servicing fee, noteholder interest, allocation of principal, reserve fund account deposit, and finally, excess amounts. Therefore, the interests of noteholders are subordinate to the servicer, but have priority over any deposits in a reserve fund, any draws against existing revolving liquidity notes, or any excess amounts. In addition, in most cases, noteholders holding senior classes of notes are paid prior to any existing subordinate class (some transactions are structured so that the subordinate tranche is released pro rata with certain senior tranches). TMCC may enter into swap agreements with the securitization trusts so that interest rate exposure remains with TMCC, and not the securitization trusts. This exposure may or may not be mitigated by other swap arrangements entered into by TMCC, and this is determined by TMCC management. The Company's general exposure every month, is the notional balance of the security multiplied by the rate differential. However, in the case of a default by the securitization trust, the Company's maximum exposure would be the interest due based on the outstanding notional value of underlying securities paid at the rate inherent in the swap agreement. -38- For the year ended March 31, 2002, the following table summarizes certain cash flows received from and paid to the securitization trusts:
Year ended March 31, 2002 ------------------------- Lease Retail --------- ---------- (Dollars in Millions) Proceeds from new securitizations........... n/a $4,410.8 Servicing fees received..................... $ 5.4 $ 55.7 Excess interest received from interest only strips..................... $ 1.8 $ 171.6 Other repurchases of receivables............ $ (7.6) $ (1.5) Repurchase of lease receivables (b)......... $ (303.6) $ - Reimbursement of servicer advances.......... $ 18.7 $ 6.9 Maturity advances (a)....................... $ - n/a Reimbursements of maturity advances (a)..... $ 69.0 n/a (a) Maturity advances represent the difference between the aggregate amount of principal collected and available to pay principal of the Certificates, and the outstanding balance of the Certificates due on targeted maturity dates. The Company was reimbursed for prior period maturity advances from principal collections in subsequent months. (b) Amount represents optional redemptions associated with the maturity of lease securitizations.
During the year ended March 31, 2002 and the six months ended March 31, 2001, servicing fee assets in the amounts of $15 million and $17 million, were recorded in conjunction with retail loan securitizations executed. The amortized balance of servicing fee assets at March 31, 2002 and 2001, totaled approximately $17 million and $18 million. -39- 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 effects of the September 11, 2001 terrorist attacks; the effect of the current political, economic and regulatory risk in Argentina; 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 United States dollar; the effect of governmental actions; the effect of competitive pressures on the used car market and residual values and the continuation of the other factors causing an increase in vehicle returns and disposition losses; the continuation of, and if continued, the level and type of special programs offered by TMS; the ability of the Company to successfully access the United States and international capital markets; the effects of any rating agency actions; increases in market interest rates; the monetary policies exercised by the European Central Bank and other monetary authorities; increased costs associated with the Company's debt funding or restructuring efforts; with respect to the effects of litigation matters, the discovery of facts not presently known to the Company or determination by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation; and the ability of the Company's counterparties to perform under interest rate and cross currency swap agreements. 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. -40- New Accounting Standards - ------------------------ In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and it applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. Under SFAS No. 143, a company is required to 1) record an existing legal obligation associated with the retirement of a tangible long-lived asset as a liability when incurred and the amount of the liability be initially measured at fair value, 2) recognize subsequent changes in the liability that result from (a) the passage of time and (b) revisions in either the timing or amount of estimated cash flows and 3) upon initially recognizing a liability for an asset retirement obligation, an entity shall capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, with earlier application encouraged. Management does not anticipate that the adoption of SFAS No. 143 will have a material impact on the financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). The objectives of SFAS 144 are to address significant issues relating to the implementation of FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121") and to develop a single accounting model based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale whether previously held and used or newly acquired. Even though SFAS No. 144 supersedes SFAS No. 121, it retains the fundamental provisions of SFAS No. 121 for (1) the recognition and measurement of the impairment of long-lived assets to be held and used and (2) the measurement of long-lived assets to be disposed of by sale. SFAS No. 144 supersedes the accounting and reporting provisions of Accounting Principles Board No. 30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30") for segments of a business to be disposed of. However, SFAS 144 retains APB 30's requirement that entities report discontinued operations separately from continuing operations and extends that reporting requirement to "a component of an entity" that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as "held for sale". SFAS No. 144 also amends the guidance of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB 51") to eliminate the exception to consolidation for a temporarily controlled subsidiary. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Management of the Company anticipates that the adoption of SFAS No. 144 will not have a material effect on the Company's earnings or financial position. -41- In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The objectives of SFAS No. 145 are to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement related to the rescission of Statement 4 will be applied in fiscal years beginning after May 15, 2002. The provisions related to Statement 13 will be effective for transactions occurring after May 15, 2002. All other provisions of the Statement will be effective for financial statements issued on or after May 15, 2002. Management of the Company anticipates that the adoption of SFAS No. 145 will not have a material effect on the Company's earnings or financial position. -42- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is defined as the sensitivity of income and capital to changes in interest rates, foreign exchange rates and other relevant market rates or prices. The primary market risk to which TMCC is exposed is interest rate risk with particular exposure to volatility in LIBOR. Substantially all of our interest rate risk arises from instruments, positions and transactions entered into for purposes other than trading. As discussed more fully in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, TMCC uses a variety of interest rate and currency derivative financial instruments to manage interest rate and currency exchange exposures. The total notional amounts of TMCC's derivative financial instruments at March 31, 2002 and 2001 were $43.7 billion and $37.3 billion, respectively. Derivative financial instruments used by TMCC involve, to varying degrees, elements of credit risk in the event a counterparty should default and market risk as the instruments are subject to rate and price fluctuations. Credit risk is managed through the use of credit standard guidelines, counterparty diversification, monitoring of counterparty financial condition and master netting agreements in place with all derivative counterparties. Credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at March 31, 2002 reduced by the effects of master netting agreements. The credit exposure of TMCC's derivative financial instruments at March 31, 2002 was $314 million on an aggregate notional amount of $43.7 billion. Additionally, at March 31, 2002, approximately 100% of TMCC's derivative financial instruments, based on notional amounts, were with commercial banks and investment banking firms assigned investment grade ratings of "A" or better by national rating agencies. TMCC does not currently anticipate non-performance by any of its counterparties and has no reserves related to non-performance as of March 31, 2002. TMCC has not experienced any counterparty default during the year ended March 31, 2002, the six months ended March 31, 2001 or the year ended September 30, 2000. TMCC uses a value-at-risk methodology, in connection with other management tools, to assess and manage the interest rate risk of aggregated loan and lease assets and financial liabilities, including interest rate derivatives and option-based products. Value-at-risk represents the potential losses in fair value for a portfolio from adverse changes in market factors for a specified period of time and likelihood of occurrence (i.e. level of confidence). TMCC's value-at-risk methodology incorporates the impact from adverse changes in market interest rates but does not incorporate any impact from other market changes, such as foreign currency exchange rates or commodity prices, which do not affect the value of TMCC's portfolio. The value-at-risk methodology excludes changes in fair values related to investments in marketable securities and equipment financing as these amounts are not significant to TMCC's total portfolio. The value-at-risk methodology uses seven years of historical interest rate data to build a database of prediction errors in forward rates for a one month holding period. These prediction errors are then applied randomly to current forward rates through a Monte Carlo process to simulate 500 potential future yield curves. The portfolio is then re-priced with these curves to develop a distribution of future portfolio values. Options in the portfolio are priced with current market implied volatilities and the simulated yield curves using the Black Scholes method. The lowest portfolio value at the 95% confidence interval is compared with the current portfolio value to derive the value-at- risk number. -43- The value-at-risk and the average value-at-risk of TMCC's portfolio as of the year ended March 31, 2002 and the six months ended March 31, 2001, 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 Fiscal Year Ending March 31, 2002 March 31, 2002 ------------------ ------------------- Mean portfolio value..................... $4,401.0 million $4,888.0 million Value-at-risk............................ $44.3 million $82.4 million Percentage of the mean portfolio value... 1.0% 1.7% Confidence level......................... 95.0% 95.0% Average for the As of Six Months Ending March 31, 2001 March 31, 2001 ------------------ ------------------- Mean portfolio value..................... $4,867.0 million $3,956.0 million Value-at-risk............................ $108.6 million $116.0 million Percentage of the mean portfolio value... 2.2% 2.9% Confidence level......................... 95.0% 95.0%
TMCC's calculated value-at-risk exposure represents an estimate of reasonably possible net losses that would be recognized on its portfolio of financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results which may occur. It does not represent the maximum possible loss nor any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in the composition of TMCC's portfolio of financial instruments during the year. The decrease in the mean portfolio value from March 31, 2001 to March 31, 2002 primarily reflects the change in asset yields in a lower rate environment coupled with a change in the early termination assumptions for the assets. The decrease in the value-at-risk from March 31, 2001 to March 31, 2002 primarily reflects an increased hedge ratio. -44- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO FINANCIAL STATEMENTS Page ------- Report of Independent Accountants................................ 46 Consolidated Balance Sheet at March 31, 2002 and 2001............ 47 Consolidated Statement of Income for the year ended March 31, 2002, the six months ended March 31, 2001, and the years ended September 30, 2000 and 1999....................... 48 Consolidated Statement of Shareholder's Equity for the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999............... 49 Consolidated Statement of Cash Flows for the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999....................... 50 Notes to Consolidated Financial Statements....................... 51-90 -45- REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholder of Toyota Motor Credit Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholder's equity and cash flows present fairly, in all material respects, the financial position of Toyota Motor Credit Corporation and its subsidiaries at March 31, 2002 and 2001, and the results of their operations and their cash flows for the year ended March 31, 2002, the six months ended March 31, 2001 and for each of the two years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, effective October 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". /S/ PRICEWATERHOUSECOOPERS LLP Los Angeles, California April 10, 2002 -46- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Millions)
March 31, -------------------------- 2002 2001 -------- -------- ASSETS ------ Cash and cash equivalents..................... $ 747 $ 294 Investments in marketable securities.......... 1,100 1,075 Finance receivables, net...................... 22,390 19,216 Finance receivables, net - securitized........ 1,087 - Investments in operating leases, net.......... 7,631 7,409 Derivative assets............................. 454 379 Other assets.................................. 630 762 Income taxes receivable....................... 221 79 -------- -------- Total Assets............................ $ 34,260 $ 29,214 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Notes and loans payable....................... $ 25,990 $ 22,194 Notes payable related to securitized finance receivables structured as collateralized borrowings................................. 1,036 - Derivative liabilities........................ 1,124 1,414 Other liabilities............................. 819 925 Deferred income............................... 861 699 Deferred income taxes......................... 1,679 1,468 -------- -------- Total Liabilities....................... 31,509 26,700 -------- -------- Commitments and Contingencies Shareholder's Equity: Capital stock, $l0,000 par value (100,000 shares authorized; issued and outstanding 91,500 in 2002 and 2001. 915 915 Retained earnings.......................... 1,820 1,581 Accumulated other comprehensive income..... 16 18 -------- -------- Total Shareholder's Equity.............. 2,751 2,514 -------- -------- Total Liabilities and Shareholder's Equity................. $ 34,260 $ 29,214 ======== ========
See Accompanying Notes to Consolidated Financial Statements. -47- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Millions)
Fiscal Six Fiscal Year Months Years Ended Ended Ended March 31, March 31, September 30, --------- --------- ----------------- 2002 2001 2000 1999 ------ ------ ------ ------ Financing Revenues: Leasing................................. $2,479 $1,246 $2,402 $2,397 Retail financing........................ 917 390 768 645 Wholesale and other dealer financing.... 186 124 182 123 ------ ------ ------ ------ Total financing revenues................... 3,582 1,760 3,352 3,165 Depreciation on leases.................. 1,580 753 1,440 1,664 Interest expense........................ 1,030 726 1,289 940 SFAS 133 fair value adjustments......... (38) 23 - - ------ ------ ------ ------ Net financing revenues..................... 1,010 258 623 561 Insurance premiums earned and contract revenues................................ 155 68 138 122 Investment and other income................ 206 130 99 88 Loss on asset impairment................... 70 25 74 19 ------ ------ ------ ------ Net financing revenues and other revenues.. 1,301 431 786 752 ------ ------ ------ ------ Expenses: Operating and administrative............ 529 236 400 376 Losses related to Argentine Investment.. 31 - - - Provision for credit losses............. 263 89 135 83 Insurance losses and loss adjustment expenses............................. 76 35 81 63 ------ ------ ------ ------ Total expenses............................. 899 360 616 522 ------ ------ ------ ------ Income before equity in net loss of subsidiary, income taxes and cumulative effect of change in accounting principle................. 402 71 170 230 Equity in net loss of subsidiary........... - - 1 - Provision for income taxes................. 159 27 65 98 ------ ------ ------ ------ Income before cumulative effect of change in accounting principle.......... 243 44 104 132 Cumulative effect of change in accounting principle, net of tax benefits.......... - (2) - - ------ ------ ------ ------ Net Income................................. $ 243 $ 42 $ 104 $ 132 ====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements. -48- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (Dollars in Millions)
Accumulated Other Capital Retained Comprehensive Stock Earnings Income Total ------- -------- ---------- ------- Balance at September 30, 1999.... 915 1,435 15 2,365 ------- -------- ---------- ------- Net income for the year ended September 30, 2000........... - 104 - 104 Dividends........................ - - - - Change in net unrealized gains on available-for-sale marketable securities, net of tax........................ - - 4 4 ------- -------- ---------- ------- Total - 104 4 108 ------- -------- ---------- ------- Balance at September 30, 2000.... 915 1,539 19 2,473 Net income for the six months ended March 31, 2001.......... - 42 - 42 Dividends........................ - - - - Change in net unrealized gains on available-for-sale marketable securities, net of tax........................ - - (1) (1) ------- -------- ---------- ------- Total - 42 (1) 41 ------- -------- ---------- ------- Balance at March 31, 2001........ $ 915 $ 1,581 $ 18 $ 2,514 Net income for the year ended March 31, 2002................ - 243 - 243 Dividends........................ - (4) - (4) Change in net unrealized gains on available-for-sale marketable securities, net of tax........................ - - (2) (2) ------- -------- ---------- ------- Total - 239 (2) 237 ------- -------- ---------- ------- Balance at March 31, 2002........ $ 915 $ 1,820 $ 16 $ 2,751 ======= ======== ========== =======
See Accompanying Notes to Consolidated Financial Statements. -49- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Millions)
Fiscal Six Fiscal Year Months Years Ended Ended Ended March 31, March 31, September 30, --------- --------- ----------------- 2002 2001 2000 1999 ------ ------ ------ ------ Cash flows from operating activities: Net income.......................................... $ 243 $ 42 $ 104 $ 132 ------ ------ ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principles, net.............................. - 2 - - SFAS 133 fair value adjustments................ (38) 23 - - Depreciation and amortization.................. 1,556 789 1,557 1,711 Provision for credit losses.................... 263 89 135 83 Gain from sale of finance receivables, net..... (81) (42) (5) (15) Gain from sale of marketable securities, net.......................................... (1) (6) (8) (1) Loss on asset impairment....................... 70 25 74 19 Loss and reserve related to Argentine Investment 31 - - - (Increase) decrease in other assets............. (109) 219) (58) 125 Increase(decrease) in deferred income taxes.... 197 (15) (68) 173 (Decrease) increase in other liabilities........ (39) 60 199 27 ------ ------ ------ ------ Total adjustments................................... 1,849 706 1,826 2,122 ------ ------ ------ ------ Net cash provided by operating activities.............. 2,092 748 1,930 2,254 ------ ------ ------ ------ Cash flows from investing activities: Addition to investments in marketable securities.... (1,528) (1,582) (1,409) (705) Disposition of investments in marketable securities. 1,477 1,378 985 694 Purchase of finance receivables.....................(21,759) (14,587) (25,161) (20,309) Liquidation of finance receivables.................. 14,370 10,568 19,238 15,802 Proceeds from sale of finance receivables........... 2,958 2,910 1,476 2,042 Addition to investments in operating leases......... (3,990) (1,352) (3,085) (3,577) Disposition of investments in operating leases...... 2,247 1,177 2,262 3,137 Decrease (increase) in receivable from Affiliate.... - - 644 (396) ------ ------ ------ ------ Net cash used in investing activities.................. (6,225) (1,488) (5,050) (3,312) ------ ------ ------ ------ Cash flows from financing activities: Proceeds from issuance of notes and loans payable... 10,504 4,172 6,783 6,634 Payments on notes and loans payable................. (6,535) (4,220) (5,582) (4,985) Net increase (decrease) in commercial paper, with original maturities less than 90 days....... 617 912 1,909 (567) ------ ------ ------ ------ Net cash provided by financing activities.............. 4,586 864 3,110 1,082 ------ ------ ------ ------ Net increase (decrease) in cash and cash equivalents... 453 124 (10) 24 Cash and cash equivalents at the beginning of the period....................................... 294 170 180 156 ------ ------ ------ ------ Cash and cash equivalents at the end of the period.............................................. $ 747 $ 294 $ 170 $ 180 ====== ====== ====== ====== Supplemental disclosures: Interest paid....................................... $1,027 $750 $1,240 $979 Income taxes paid................................... $91 $121 $22 $17
See Accompanying Notes to Consolidated Financial Statements. -50- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Nature of Operations - ----------------------------- Toyota Motor Credit Corporation ("TMCC") provides retail and wholesale financing, retail leasing and certain other financial services to authorized Toyota and Lexus vehicle and Toyota industrial equipment dealers and their customers in the United States (excluding Hawaii), the Commonwealth of Puerto Rico, Mexico and Venezuela. As of March 31, 2002, TMCC was a wholly-owned subsidiary of Toyota Financial Services Americas Corporation ("TFSA" or the "Parent"), a holding company owned 100% by Toyota Financial Services Corporation ("TFSC"). TFSC, in turn, is a wholly-owned subsidiary of Toyota Motor Corporation ("TMC"). TFSC was incorporated in July 2000 and its corporation headquarters is located in Nagoya, Japan. The purpose of TFSC is to control and manage Toyota's finance operations worldwide. TMCC has eight wholly-owned subsidiaries, Toyota Motor Insurance Services, Inc. ("TMIS"), Toyota Motor Credit Receivables Corporation ("TMCRC"), Toyota Auto Finance Receivables LLC ("TAFR"), Toyota Leasing, Inc. ("TLI"), Toyota Credit de Puerto Rico Corporation ("TCPR"), Toyota Services de Mexico, S.A. de C.V. ("TSM"), TFSM Servicios de Mexico, S.A. de C.V. ("TFSM") and Toyota Services de Venezuela, C.A. ("TSV"). TMCC and its wholly-owned subsidiaries are collectively referred to as the "Company". TMIS provides certain insurance services along with certain insurance and contractual coverages in connection with the sale and lease of vehicles. In addition, the insurance subsidiaries insure and reinsure certain Toyota Motor Sales, USA, Inc. ("TMS") and TMCC risks. TMCRC and TAFR, both limited purpose subsidiaries, operate primarily to acquire retail finance receivables from TMCC for the purpose of securitizing such receivables. TLI, a limited purpose subsidiary, operates primarily to acquire lease finance receivables from TMCC for the purpose of securitizing such leases. TCPR provides retail and wholesale financing and certain other financial services to authorized Toyota and Lexus vehicle dealers and their customers in Puerto Rico. TSM and TFSM provide financing for the import of vehicles into Mexico. TSV provides financing for distributor sales into Venezuela. Toyota Credit Argentina, S.A. ("TCA") provides retail and wholesale financing to authorized Toyota vehicle dealers and their customers in Argentina. TMCC owns a 33% interest in TCA. In February 2002, the Argentine government established measures to re-denominate the entire Argentine economy into pesos and has permitted the peso to float freely against other global currencies. This re-denomination policy adversely affected TCA's financial condition and its ability to fully satisfy its offshore dollar loans. Consequently in the third quarter of fiscal 2002, TMCC included a charge against income of $31 million to write-off its $5 million investment in TCA and to establish a reserve of $26 million relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt. TMCC's investment in TCA is accounted for using the equity method. TMCC will continue to monitor the situation. Banco Toyota do Brasil ("BTB") provides retail and lease financing to authorized Toyota vehicle dealers and their customers in Brazil. BTB is owned 15% by TMCC. TMCC's investment in BTB is accounted for using the cost method. The remaining interests in TCA and BTB are owned by TFSC, TMCC's indirect parent. The Company's earnings are primarily impacted by the level of average earning assets, comprised primarily of investments in finance receivables and operating leases, and asset yields as well as outstanding borrowings and the cost of funds. The Company's business is substantially dependent upon the sale of Toyota and Lexus vehicles in the United States. Changes in the volume of sales of such vehicles resulting from governmental action, changes in consumer demand, changes in pricing of imported units due to currency fluctuations, or other events could impact the level of finance and insurance operations of the Company. -51- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies - --------------------------------------------------- Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Change in Fiscal Year - --------------------- On June 6, 2000, the Executive Committee of the Board of Directors of TMCC approved a change in TMCC's year-end from September 30 to March 31. The six- month transition period from October 1, 2000 through March 31, 2001 precedes the start of the new fiscal year and was reported in the Form 10-K/T filed for the period ended March 31, 2001. The transition period is also included in this form 10-K. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of TMCC and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Cash and Cash Equivalents - ------------------------- Cash equivalents, consisting primarily of money market instruments and debt securities, represent highly liquid investments with original maturities of three months or less. Investments in Marketable Securities - ------------------------------------ Investments in marketable securities consist of debt and equity securities. Debt securities designated as held-to-maturity are carried at amortized cost and are reduced to net realizable value for other than temporary declines in market value. Debt and equity securities designated as available-for-sale are carried at fair value with unrealized gains or losses included in accumulated other comprehensive income, net of applicable taxes. Realized investment gains and losses, which are determined on the specific identification method, are reflected in income. Investments in Operating Leases - ------------------------------- Investments in operating leases are recorded at cost and depreciated on a straight-line basis, over the lease terms to the estimated residual value. Revenue from operating leases is recognized on a straight-line basis over the lease term. Finance Receivables - ------------------- Finance receivables are recorded at the present value of the related future cash flows including residual values for finance leases. Revenue associated with finance receivables is recognized on a level-yield basis over the contract term. -52- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- Allowance for Credit Losses - --------------------------- TMCC maintains allowances to cover estimated losses on its present owned portfolio resulting from the inability of customers to make required payments. The allowance for credit losses is evaluated quarterly, considering historical trends of repossession, charge-offs, recoveries and credit losses. In addition, portfolio credit quality, and current and projected economic and market conditions, are monitored and taken into account. After carefully evaluating these factors, management develops several loss scenarios and reviews allowance levels to ensure reserves are adequate to cover the probable range of losses. The allowance for credit losses is considered by management to be appropriate in relation to the expected loss experience on the present owned portfolio. Losses are charged to the allowance when it has been determined that payments will not be received and collateral cannot be recovered or the related collateral is repossessed and sold. Any shortfall between proceeds received and the carrying cost of repossessed collateral is charged to the allowance. Recoveries are credited to the allowance for credit losses. The allowance for credit losses and related provision expense are included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet and total expenses in the Consolidated Statement of Income, respectively. Allowance for Residual Value Losses - ----------------------------------- The Company also maintains an allowance to cover estimated vehicle disposition losses related to unguaranteed residuals on its present owned portfolio. The allowance required to cover estimated residual value losses is evaluated quarterly, considering projected vehicle return rates and projected residual value losses derived from historical and market information on used vehicle sales, historical factors including trends in lease returns, the new car markets, and general economic conditions. After carefully evaluating these factors, management develops several loss scenarios and reviews allowance levels to ensure reserves are adequate to cover the probable range of losses. The allowance for residual value losses is maintained in amounts considered by management to be appropriate in relation to the expected losses on the present owned portfolio. Upon disposal of the assets, the allowance for residual losses is adjusted for the difference between the net book value and the proceeds from sale. The allowance for residual value losses and related provision expense are included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet and lease depreciation expense in the Consolidated Statement of Income, respectively. Deferred Charges - ---------------- Deferred charges consist primarily of underwriters' commissions and other debt issuance costs which are amortized to interest expense over the life of the related instruments on a straight-line basis, which is not materially different from the effective interest method. -53- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- Derivative Financial Instruments - -------------------------------- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Fair value is determined using externally quoted market values where possible. If externally quoted market rates are not available, the Company uses external market rates in conjunction with a customized market valuation system to determine the fair value of the Company's derivatives. Derivative assets and liabilities include interest rate swaps, indexed note swap agreements, cross currency interest rate swap agreements and option-based products. The accounting for the gain or loss due to changes in fair value of the hedged item depends on whether the relationship between the hedged item and the derivative instrument qualifies for hedge treatment. If the relationship between the hedged item and the derivative instrument does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the relationship between the hedged item and the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged. The types of instruments that do not qualify for hedge accounting include, but are not limited to, U.S. basis swap instruments, and currency structured transactions including inverse floating rate instruments. Derivatives are recognized in the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of the fair value of a recognized asset or liability or a foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the fair value of a derivative that is highly effective as - and that is designated and qualifies as - a fair-value hedge or foreign-currency hedge, along with changes in fair value of the hedged assets or liabilities that are attributable to the hedged risk, are recorded in current-period earnings. Additional information concerning the SFAS No. 133 requirements is disclosed in Note 8 - Derivatives and Hedging Activities of the Notes to Consolidated Financial Statements. -54- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- Derivative Financial Instruments (Continued) - -------------------------------- The Company occasionally purchases a financial instrument in which a derivative instrument is "embedded." Upon purchasing the financial instrument, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e. host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as either (1) a fair-value hedge or (2) non-hedging derivative instrument. However, if the entire contract were to be measured at fair value, with changes in fair value reported in current earnings, or if the Company could not reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the balance sheet at fair value and not be designated as a hedging instrument. The Company formally documents relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking derivatives that are designated as fair-value hedges to specific liabilities on the balance sheet. The Company also assesses whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively, as discussed below. The Company will discontinue hedge accounting prospectively when (1) it determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; or (3) management determines that designating the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued due to the Company's determination that the derivative no longer qualifies as an effective fair-value hedge, the Company will continue to carry the derivative on the balance sheet at its fair value but cease to adjust the hedged liability for changes in fair value. In a situation in which hedge accounting is discontinued and the derivative remains outstanding, the Company will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings. -55- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- Insurance Operations - -------------------- Revenues from providing coverage under various contractual agreements are recognized over the term of the agreement in relation to the timing and level of anticipated expenses. Revenues from insurance premiums are earned over the terms of the respective policies in proportion to estimated claims activity. Certain costs of acquiring new business, consisting primarily of commissions and premium taxes, are deferred and amortized over the term of the related policies on the same basis as revenues are earned. The liability for losses and loss expenses represents the accumulation of estimates for reported losses and a provision for losses incurred but not reported, including claim adjustment expenses. Loss reserve projections are used to estimate loss reporting patterns, loss payment patterns and ultimate claim costs. An inherent assumption in such projections is that historical loss patterns can be used to predict future patterns with reasonable accuracy. Because many variables can affect past and future loss patterns, the effect of changes in such variables on the results of loss projections must be carefully evaluated. The evaluation of these factors involves significant assumptions, complex analysis and management judgment, which may significantly impact the financial statements. Insurance liabilities are, therefore, necessarily based on estimates, and the ultimate liability may vary from such estimates. These estimates are regularly reviewed by management and adjustments to such are included in income on a current basis. The liability for reported losses and the estimate of unreported losses are recorded in accounts payable and accrued expenses. Commissions and fees from services provided are recognized in relation to the timing and level of services performed. Income Taxes - ------------ TMCC uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are adjusted to reflect changes in tax rates and laws in the period such changes are enacted resulting in adjustments to the current period's provision for income taxes. The Company files a consolidated federal income tax return with its subsidiaries. The Company files either separate or consolidated/combined state income tax returns with Toyota Motor North America ("TMA") or other subsidiaries of TMCC. State income tax expense is generally recognized as if the Company filed its tax returns on a stand-alone basis. In those states where TMCC joins in the filing of consolidated or combined income tax returns, TMCC is allocated its share of the total income tax expense based on combined allocation/apportionment factors and separate company income or loss. Based on an informal state tax sharing agreement with TMA and subsidiaries of the Company, TMCC pays for its share of the combined income tax expense and is reimbursed for the benefit of any of its tax basis losses utilized in the combined state income tax returns. -56- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- Asset-Backed Securitization Transactions - ---------------------------------------- TMCC periodically sells retail receivables through the limited purpose subsidiaries TMCRC or TAFR. In 1997 and 1998, TMCC maintained programs to sell interests in lease finance receivables through the limited purpose subsidiary TLI. TMCC retains servicing rights for sold receivables and receives a servicing fee which is recognized over the remaining term of the related sold retail receivables or interests in lease finance receivables. TMCRC and TAFR retain subordinated interests in the excess cash flows for these transactions, certain cash deposits and other related amounts which are held as restricted assets subject to limited recourse provisions. The Company's retained interests in such receivables are included in investments in marketable securities and are classified as available for sale. Pre-tax gains on sold retail receivables are recognized in the period in which the sale occurs and are included in other income. The determination of gains and the valuation of retained interests are based on an allocation of the cost of the sold receivables between the portion sold and the portion retained using the relative fair values on the date of sale. The fair value of the retained interests is estimated using the present value of future expected cash flows, with market interest rates, discount rates commensurate with the risks involved, estimated credit losses, credit spreads and prepayment speeds comprising the key calculation assumptions. Such assumptions are determined utilizing data obtained from other market participants, where available. Otherwise, such assumptions are based on historical information or derived from management's best estimate. Thus, the selection of assumptions involves complex, subjective judgments which, when changed, may significantly impact the financial statements. The Company accounts for its retained interests in accordance with EITF No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." Under EITF 99- 20, TMCC recognizes the excess of all cash flows attributable to the beneficial interest estimated at the acquisition/transaction date (the "transaction date") over the initial investment as interest income over the life of the beneficial interest using the effective yield method. As adjustments to the estimated cash flows are made based upon expected market conditions, the Company adjusts the rate at which income is earned prospectively. Additionally, EITF 99-20 provides guidance as to when the holder of a retained interest must conclude that a decline in value below the carrying amount is considered permanent impairment. TMCC's policy is that if a decrease in the estimated future cash flows results in a fair value below the carrying amount and the decline is considered permanent, then the asset is written down through earnings (as opposed to other comprehensive income). Any excess of the carrying amount of the retained interest over its fair value results in an adjustment to the asset with a corresponding offset to unrealized gain. Unrealized gains, net of income taxes, related to retained assets are included in comprehensive income. Management reviews the underlying assumptions of the residual interests at least on a quarterly basis. -57- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- New Accounting Standards - ------------------------ In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and it applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. Under SFAS No. 143, a company is required to 1) record an existing legal obligation associated with the retirement of a tangible long-lived asset as a liability when incurred and the amount of the liability be initially measured at fair value, 2) recognize subsequent changes in the liability that result from (a) the passage of time and (b) revisions in either the timing or amount of estimated cash flows and 3) upon initially recognizing a liability for an asset retirement obligation, an entity shall capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, with earlier application encouraged. Management does not anticipate that the adoption of SFAS No. 143 will have a material impact on the financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). The objectives of SFAS 144 are to address significant issues relating to the implementation of FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121") and to develop a single accounting model based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale whether previously held and used or newly acquired. Even though SFAS No. 144 supersedes SFAS No. 121, it retains the fundamental provisions of SFAS No. 121 for (1) the recognition and measurement of the impairment of long-lived assets to be held and used and (2) the measurement of long-lived assets to be disposed of by sale. SFAS No. 144 supersedes the accounting and reporting provisions of Accounting Principles Board No. 30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30") for segments of a business to be disposed of. However, SFAS 144 retains APB 30's requirement that entities report discontinued operations separately from continuing operations and extends that reporting requirement to "a component of an entity" that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as "held for sale". SFAS No. 144 also amends the guidance of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB 51") to eliminate the exception to consolidation for a temporarily controlled subsidiary. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. Management of the Company anticipates that the adoption of SFAS No. 144 will not have a material effect on the Company's earnings or financial position. -58- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (Continued) - --------------------------------------------------- New Accounting Standards (Continued) - ------------------------ In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The objectives of SFAS No. 145 are to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement related to the rescission of Statement 4 will be applied in fiscal years beginning after May 15, 2002. The provisions related to Statement 13 will be effective for transactions occurring after May 15, 2002. All other provisions of the Statement will be effective for financial statements issued on or after May 15, 2002. Management of the Company anticipates that the adoption of SFAS No. 145 will not have a material effect on the Company's earnings or financial position. Reclassifications - ----------------- Certain 2001 and 2000 amounts have been reclassified to conform with the 2002 presentation. -59- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Investments in Marketable Securities - --------------------------------------------- TMCC records its investments in marketable securities which are designated as available-for-sale at fair value estimated using quoted market prices or discounted cash flow analysis. Unrealized gains, net of income taxes, related to available-for-sale securities are included in comprehensive income. Securities designated as held-to-maturity are recorded at amortized cost. The estimated fair value and amortized cost of investments in marketable securities are as follows:
March 31, 2002 ------------------------------------------ Net Net Fair Unrealized Unrealized Cost Value Gains Losses ------ ------ ---------- ---------- (Dollars in Millions) Available-for-sale securities: Asset-backed securities............. $ 804 $ 827 $ 24 $ (1) Corporate debt securities........... 110 109 2 (2) Equity securities................... 129 134 9 (4) U.S. debt securities................ 23 23 - - ------ ------ ---- ----- Total available-for-sale securities.... $1,066 $1,093 $ 35 $ (7) ==== ===== Held-to-maturity securities: U.S. debt securities................ 7 7 ------ ------ Total marketable securities............ $1,073 $1,100 ====== ======
March 31, 2001 ------------------------------------------ Net Net Fair Unrealized Unrealized Cost Value Gains Losses ------ ------ ---------- ---------- (Dollars in Millions) Available-for-sale securities: Asset-backed securities............. $ 823 $ 845 $ 23 $ (1) Corporate debt securities........... 99 100 2 (1) Equity securities................... 80 86 9 (3) U.S. debt securities................ 36 37 1 - ------ ------ ---- ----- Total available-for-sale securities.... $1,038 $1,068 $ 35 $ (5) ==== ===== Held-to-maturity securities: U.S. debt securities................ 7 7 ------ ------ Total marketable securities............ $1,045 $1,075 ====== ======
-60- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Investments in Marketable Securities (Continued) - --------------------------------------------- The contractual maturities of investments in marketable securities at March 31, 2002 are as follows:
Available-for-Sale Held-to-Maturity Securities Securities -------------------- ---------------- Fair Fair Cost Value Cost Value ------ ------ ---- ----- (Dollars in Millions) Within one year......................$ 317 $ 317 $ - $ - After one year through five years.... 409 430 7 7 After five years through ten years... 82 83 - - After ten years...................... 129 129 - - Equity securities.................... 129 134 - - ------ ------ ---- ----- Total.............................$1,066 $1,093 $ 7 $ 7 ====== ====== ==== =====
The proceeds from sales of available-for-sale securities were $474 million, $287 million, $740 million and $562 million for the year ended March 31, 2002, the six months ended March 31, 2001, and the years ended September 30, 2000 and 1999, respectively. Realized gains on sales of available-for-sale securities were $5 million, $7 million, $13 million and $6 million for the year ended March 31, 2002, the six months ended March 31, 2001, and the years ended September 30, 2000 and 1999, respectively. Realized losses on sales of available-for-sale securities were $4 million, $1 million, $5 million and $5 million for the year ended March 31, 2002, the six months ended March 31, 2001, and the years ended September 30, 2000 and 1999, respectively. -61- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Finance Receivables - ---------------------------- Finance receivables, net and Finance receivables, net - securitized consisted of the following:
March 31, ----------------------- 2002 2001 -------- -------- (Dollars in Millions) Retail............................... $ 13,715 $ 9,370 Finance leases....................... 7,692 7,871 Wholesale and other dealer loans..... 3,626 3,619 -------- -------- 25,033 20,860 Unearned income...................... (1,340) (1,476) Allowance for credit losses.......... (216) (168) -------- -------- Finance receivables, net.......... $ 23,477 $ 19,216 ======== ========
Contractual maturities are as follows:
Due in the Wholesale Years Ending Finance and Other March 31, Retail Leases Dealer Loans ------------- -------- --------- ------------ (Dollars in Millions) 2003.................. $ 3,513 $ 2,339 $ 2,965 2004.................. 3,377 2,041 86 2005.................. 2,985 1,655 133 2006.................. 2,290 963 148 2007.................. 1,270 694 193 Thereafter............ 280 - 101 ------- ------- ------- Total.............. $13,715 $ 7,692 $ 3,626 ======= ======= =======
The aggregate balances related to finance receivables 60 or more days past due totaled $95 million and $29 million at March 31, 2002 and 2001, respectively. The increased delinquency experience is a result of a number of factors including the recent national economic downturn, the introduction of the tiered pricing program, and the effects of TMCC's field reorganization which has temporarily disrupted normal collection activities. The consolidation is ongoing and the transfer of certain functions from branches to customer service centers is scheduled to be completed in fiscal 2003. TMCC is taking measures to minimize the disruption of operations; however, the restructuring of field operations and economic downturn could continue to adversely affect delinquencies and credit losses. A substantial portion of TMCC's finance receivables have historically been repaid prior to contractual maturity dates; contractual maturities and future minimum lease payments as shown above should not be considered as necessarily indicative of future cash collections. The majority of retail and finance lease receivables do not involve recourse to the dealer in the event of customer default. -62- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Investments in Operating Leases - ---------------------------------------- Investments in operating leases, net consisted of the following:
March 31, ----------------------- 2002 2001 -------- -------- (Dollars in Millions) Vehicles................................. $ 9,011 $ 8,891 Equipment and other...................... 721 689 -------- -------- 9,732 9,580 Accumulated depreciation................. (2,034) (2,112) Allowance for credit losses.............. (67) (59) -------- -------- Investments in operating leases, net.. $ 7,631 $ 7,409 ======== ========
Rental income from operating leases was $1,871 million, $971 million, $2,013 million and $2,185 million for the year ended March 31, 2002, the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, respectively. Future minimum rentals on operating leases for each of the five succeeding years ending March 31, are: 2003 - $1,594 million; 2004 - $1,119 million; 2005 - $621 million; 2006 - $157 million; 2007 - $7 million and thereafter - $400 thousand. A substantial portion of TMCC's operating lease contracts have historically been terminated prior to maturity; future minimum rentals as shown above should not be considered as necessarily indicative of future cash collections. -63- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Allowance for Credit Losses - ------------------------------------ An analysis of the allowance for credit losses follows:
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, ------------- ------------- ----------------- 2002 2001 2000 1999 ------ ------ ------ ------ (Dollars in Millions) Allowance for credit losses at beginning of period............ $ 227 $ 230 $ 202 $ 220 Provision for credit losses....... 263 89 135 83 Charge-offs....................... (190) (75) (116) (104) Recoveries........................ 20 9 19 17 Other adjustments................. (37) (26) (10) (14) ------ ------ ------ ------ Allowance for credit losses at end of period............... $ 283 $ 227 $ 230 $202 ====== ====== ====== ======
The increase in the allowance for credit losses for the year ended March 31, 2002 as compared with the six months ended March 31, 2001 and the years ended September 30, 2000 and 1999, is due to the recent national economic downturn, the introduction of the tiered pricing program, and the effects of TMCC's field reorganization which has temporarily disrupted normal collection activities. The objective of the tiered pricing programs is to better match customer risk with contract rates charged to allow profitable purchases of a wider range of risk levels. Implementation of these programs has contributed to increased average contract yields and increased credit losses in connection with purchases of higher risk contracts. Note 7 - Sale of Receivables and Securitization - ----------------------------------------------- TMCC maintains programs to sell retail receivables through the limited purpose subsidiaries TMCRC and TAFR. In 1997 and 1998, TMCC maintained programs to sell interests in lease finance receivables through the limited purpose subsidiary TLI. TMCC services its securitized receivables and is paid a servicing fee of 1% of the total principal balance of the outstanding receivables for both retail and lease securitizations. In a subordinated capacity, the limited purpose subsidiaries retain excess cash flows, certain cash deposits and other related amounts, which are held as restricted assets subject to limited recourse provisions. These restricted assets are not available to satisfy any obligations of TMCC. Investors in these securitizations have recourse to the interest-only strips, restricted cash held by the securitization trusts, any subordinated retained interest, and any draws against existing revolving liquidity note agreements. The exposure of these interests exists until the associated securities are paid in full. Investors do not have recourse to other assets held by TMCC for failure of obligors on the receivables to pay when due or otherwise. Senior and subordinated securities are further discussed in Item 7 - Sale of Receivables and Securitization. -64- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Sale of Receivables and Securitization (Continued) - ----------------------------------------------- Following is a summary of amounts included in investment in marketable securities and other receivables:
March 31, ------------------- 2002 2001 ------ ------ (Dollars in Millions) Interest in trusts........................ $506 $ 527 Interest-only strips...................... 109 129 ------ ------ Total................................. $615 $ 656 ====== ====== Other Receivables (Restricted cash)........ $ 35 $ 171 ====== ======
During the 12 months ended March 31, 2002, TMCC sold retail finance receivables totaling approximately $4.6 billion to TAFR which in turn sold them to specific trusts. Some of the classes issued within the securitization transactions were issued in conjunction with associated swaps. For those securitization transactions, the securitization trust swapped the fixed rate interest coupon with TMCC and received a floating interest coupon payable to the investors. The pretax gain resulting from the sale of retail receivables totaled approximately $81 million, $46 million, $5 million and $8 million for the year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000 and 1999, respectively, after providing an allowance for estimated credit and residual value losses. The pretax gain resulting from the sale of interests in lease finance receivables totaled approximately $5 million for the year ended September 30, 1999. Gains on sales of receivables sold are reported in the accompanying Consolidated Statement of Income under investment and other income. The gain on sale recorded depends on the carrying amount of the assets at the time of the sale. The carrying amount is allocated between the assets sold and the retained interests based on their relative fair values at the date of the sale. The fair value of retained interests was estimated by discounting expected cash flows using management's best estimates and other key assumptions. Income earned from the sale of the receivables includes the gain or loss on sale of finance receivables, as well as servicing fee income, the interest income earned on retained securities and excess spread. The sale of receivables has the effect of reducing financing revenues in the year the receivables are sold as well as in future years. The net impact of securitizations on annual earnings will include income effects in addition to the reported gain or loss on the sale of receivables and will vary depending on the amount, type of receivable and timing of our securitizations in the current year and the preceding two to three year period as well as the interest rate environment at the time the finance receivables were originated and securitized. -65- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Sale of Receivables and Securitization (Continued) - ----------------------------------------------- The increased use of securitization, coupled with the decline in interest rates during fiscal years 2002 and 2001, led to higher reported gains on sold receivables compared with prior years. In addition to the increase in gains during fiscal years 2002 and 2001, interest earned on retained assets increased due to the increased use of securitization. In January 2002, TMCC sold retail finance receivables totaling $1.6 billion. The Company sold certain finance receivables to TAFR which in turn sold them to a specific trust. The pretax gain resulting from the sale of these retail receivables totaled approximately $51.5 million after providing an allowance for estimated credit losses. As part of the transaction, TMCC entered into a revolving liquidity note agreement in lieu of a cash reserve fund to fund shortfalls in principal and interest payments to security holders. The aggregate amount available under the revolving liquidity note is $7,786,611. The trust will be obligated to repay amounts drawn and interest will be accrued at 4.419% per annum. If TMCC's short-term unsecured debt rating falls below P-1 or A-1+ by Moody's or S&P, respectively, or if TMCC fails to fund any amount drawn under the revolving liquidity note, the trust is entitled to draw down the entire undrawn amount of the revolving liquidity note. Repayments of principal and interest due under the revolving liquidity note are subordinated to principal and interest payments on the asset backed notes and, in some circumstances, to deposits into a reserve account. In September 2001, TMCC securitized retail finance receivables totaling $1.5 billion. This securitization was treated as a sale for legal purposes, but treated as a secured borrowing for accounting purposes as the securitization trust was not structured as a qualifying special purpose entity ("QSPE") as defined pursuant to Financial Accounting Standards Board Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 140"). Therefore, the receivables and debt issued remained on the balance sheet pursuant to SFAS 140, as amended. This accounting method is referred to as the "portfolio method". Under the portfolio method, the finance receivables transferred to the securitization trust and held as collateral for the notes issued to investors are classified as "Finance receivables, net - securitized". The weighted average annual percentage rate for these receivables is approximately 8.60%. Due to the nature of the accounting treatment, neither servicing fee income or excess interest income is recognized. The $1.1 billion notes issued to investors in the securitization trust are classified as "Notes payable related to securitized finance receivables structured as collateralized borrowings". The weighted average fixed rate equivalent for these payables at March 31, 2002 was approximately 4.47% and had a remaining weighted average life of approximately 1.30 years. TMCC entered into a revolving liquidity note agreement in lieu of a cash reserve fund to fund shortfalls in principal and interest payments to security holders. Any aggregate amount available under the revolving liquidity note is $7,500,000. The Trust will be obligated to repay amounts drawn and interest will be accrued at 5.07% per annum. If TMCC's short-term unsecured debt rating falls below P-1 or A-1+ by Moody's or S&P, respectively, or if TMCC fails to fund any amount drawn under the revolving liquidity note, the trust is entitled to draw down the entire undrawn amount of the revolving liquidity note. Repayments of principal and interest due under the revolving liquidity note are subordinated to principal and interest payments on the asset backed notes and, in some circumstances, to deposits into a reserve account. -66- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Sale of Receivables and Securitization (Continued) - ----------------------------------------------- During May 2001, TMCC sold retail finance receivables totaling $1.5 billion subject to certain limited recourse provisions. TMCC sold its receivables to TAFR which in turn sold them to a trust. The pretax gain resulting from the sale of these retail receivables totaled approximately $29.5 million after providing an allowance for estimated credit losses. The key economic assumptions used in the calculation of the initial gain on sale of receivables and the subsequent valuation of the retained interests include the estimated interest rate environment (in order to project the net rate earned on the residual interests), severity and rate of credit losses, and the prepayment speed of the receivables. Management estimates the credit loss rate based on a number of factors including attributes of the finance receivables securitized. Attributes considered include the new versus used contract mix, loan credit scoring, and seasoning of contracts sold. To determine the prepayment assumption used, management considers prior and current prepayment speeds of outstanding securitization transactions and estimated future economic conditions. Discount rates applied to the residual interests at the point of sale are at current market rates based on an investment with a similar term and risk associated with the retained interest. All key assumptions used in the valuation of the retained interests are reviewed at least quarterly and are revised as deemed appropriate. After carefully evaluating the factors discussed above, management ensures that the final assumptions used are adequate to cover probable potential losses or decreases in cash flows related to the prepayment of assets. Key economic assumptions used in estimating the fair value of retained interests at the date of securitization for securitizations completed during the year ended March 31, 2002 were as follows:
Year ended March 31, 2002 ---------------- Collateral prepayment speed....................... 1.5% ABS Weighted average life (in years).................. 1.26 - 1.38 Collateral expected credit losses (per annum)..... 0.70% Discount rate used on residual cash flows......... 8% - 12% Discount rate used on the subordinated tranche.... 5% - 8%
The outstanding balance of retail finance receivables sold through securitizations which TMCC continues to service totaled $4.6 billion, $4.1 billion, $1.9 billion and $1.0 billion at March 31, 2002 and 2001, and September 2001 and 2000 respectively. The outstanding balance of interests in lease finance receivables sold through securitizations which TMCC serviced totaled $1.1 billion, $1.9 billion and $3.1 billion at March 31, 2001 and September 2001 and 2000 respectively. During fiscal year 2002, TLI exercised its option to repurchase remaining outstanding receivables under all lease ABS transactions. As of result of the repurchase, there is no outstanding balance of interests in lease finance receivables as of March 31, 2002. -67- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Sale of Receivables and Securitization (Continued) - ----------------------------------------------- TMCC records its retained assets at fair value, which is estimated using a discounted cash flow analysis. The retained assets are not considered to have a readily available market value. Any excess of the carrying amount of the retained interest over its fair value results in an adjustment to the asset with a corresponding offset to unrealized gain. Unrealized gains, net of income taxes, related to the retained assets are included in comprehensive income. If management deems the excess between the carrying value and the fair value to be unrecoverable, the asset is written down through earnings. As stated above, the Company evaluates the key economic assumptions used in the initial valuation of the retained assets and performs a subsequent review of those assumptions on a quarterly basis. Management reviews the underlying assumptions of the residual interests at least on a quarterly basis. TMCC recorded an adjustment to other receivables totaling $70 million, $25 million, $74 million, and $19 million for the year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000 and 1999, respectively. Prior to fiscal year 2002, all impairment related to interest in lease finance receivables. Of the $70 million in impairment recognized in the fiscal year ended March 31, 2002, $23 million related to retail finance receivables recognized in the fourth quarter of 2002. Impairment of retail finance receivables resulted primarily from the Company experiencing an increase in credit losses as a result of the restructuring of field operations into regional centers of certain of its servicing operations that were previously performed in branch offices, tiered pricing, and the recent national economic downturn. As a result, credit loss assumptions were adjusted to properly reflect current market conditions. The impairments associated with the retained interest in lease finance receivables were recognized when the future undiscounted cash flows of the assets were estimated to be insufficient to recover the related carrying values resulting from higher return rates and an increase in vehicle disposition loss assumptions. Cumulative static pool losses over the life of the securitizations are calculated by taking the actual losses (life to date) and expected losses and dividing them by the original balance of each pool of assets. Actual and expected static pool credit losses for the retail loan securitizations were ...45% and .61% respectively as of March 31, 2002 and .21% and .52% respectively as of March 31, 2001. Actual and expected static pool credit losses for the lease securitizations were 1.74% and 0% respectively as of March 31, 2002 and 1.64% and .12% respectively as of March 31, 2001. Actual and expected residual value losses for the lease securitizations were 5.95% and 0% as of March 31,2002 and 3.75% and 2.72% respectively as of March 31, 2001. -68- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Sale of Receivables and Securitization (Continued) - ----------------------------------------------- For the year ended March 31, 2002, the following table summarizes certain cash flows received from and paid to the securitization trusts:
Year ended March 31, 2002 ------------------------- Lease Retail --------- ---------- (Dollars in Millions) Proceeds from new securitizations.............. n/a $ 4,410.8 Servicing fees received........................ $ 5.4 $ 55.7 Excess interest received from interest only strips........................ $ 1.8 $ 171.6 Repurchase of lease receivables (b)............ $ (303.6) $ - Other repurchases of receivables............... $ (7.6) $ (1.5) Reimbursement of servicer advances............. $ 18.7 $ 6.9 Maturity advances (a).......................... $ - n/a Reimbursements of maturity advances (a)........ $ 69.0 n/a (a) Maturity advances represent the difference between the aggregate amount of principal collected and available to pay principal of the Certificates, and the outstanding balance of the Certificates due on targeted maturity dates. The Company was reimbursed for prior period maturity advances from principal collections in subsequent months. (b) Amount represents optional redemptions associated with the maturity of lease securitizations.
During the year ended March 31, 2002 and the six months ended March 31, 2001, servicing fee assets in the amounts of $15 million and $17 million, were recorded in conjunction with retail loan securitizations executed. The amortized balance of servicing fee assets at March 31, 2002 and 2001, totaled approximately $17 million and $18 million. Historical and delinquency amounts for all vehicle receivables managed, which represents those owned and securitized, for the year ended March 31, 2002 and the six months ended March 31, 2001:
Year ended Six Months ended March 31, 2002 March 31, 2001 ----------------------- ------------------------ Lease Retail Lease Retail --------- ---------- --------- ---------- (Dollars in Millions) Principal amount managed........... $13,553.6 $17,994.6 $14,559.2 $13,108.0 Contracts outstanding managed...... 620,258 1,272,941 702,952 993,790 Delinquent contracts over 60 days.. 5,296 7,913 1,470 2,578 Credit Losses (net of recoveries).. $ 98.0 $ 98.7 $ 43.6 $ 34.1 Residual value losses.............. $ 388.4 n/a $ 193.9 n/a Comprised of: Receivables owned.................. $13,553.6 $13,409.2 $13,426.1 $ 9,034.5 Receivables securitized............ $ - $ 4,585.4 $ 1,133.1 $ 4,073.5
-69- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Sale of Receivables and Securitization (Continued) - ----------------------------------------------- At March 31, 2002, the key economic assumptions and the sensitivity of the current fair value of the residual cash flows to an immediate 10 and 20 percent adverse change in those economic assumptions are presented below.
Retail ------------- (Dollars in Millions) Balance Sheet Carrying amount/fair value of retained interests............................. $ 356.4 Prepayment speed assumption.......................... 1.5%-1.6% ABS Impact on fair value of 10% adverse change........ $ (10.4) Impact on fair value of 20% adverse change........ $ (20.9) Residual cash flows discount rate (annual rate)...... 5%-10.0% Impact on fair value of 10% adverse change........ $ (3.8) Impact on fair value of 20% adverse change........ $ (7.5) Expected credit losses (annual rate)................. .50%-.90% Impact on fair value of 10% adverse change........ $ (4.8) Impact on fair value of 20% adverse change........ $ (9.6)
These hypothetical scenarios do not reflect expected market conditions and should not be used as a prediction of future performance. As the figures indicate, changes in the fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Actual cash flows may drastically differ from the above analysis. -70- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Derivatives and Hedging Activities - ------------------------------------------- Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Fair value is determined using externally quoted market values where possible. If externally quoted market rates are not available, the Company uses external market rates in conjunction with a customized market valuation system to determine the fair value of the Company's derivatives. Derivative assets and liabilities include interest rate swaps, indexed note swap agreements, cross currency interest rate swap agreements and option-based products. The accounting for the gain or loss due to changes in fair value of the hedged item depends on whether the relationship between the hedged item and the derivative instrument qualifies for hedge treatment. If the relationship between the hedged item and the derivative instrument does not qualify as a hedge, the gains or losses are reported in earnings when they occur. However, if the relationship between the hedged item and the derivative instrument qualifies as a hedge, the accounting varies based on the type of risk being hedged. The types of instruments that do not qualify for hedge accounting include, but are not limited to, U.S. basis swap instruments, and currency structured transactions including inverse floating rate instruments. Derivatives are recognized in the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of the fair value of a recognized asset or liability or a foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the fair value of a derivative that is highly effective as - and that is designated and qualifies as - a fair-value hedge or foreign-currency hedge, along with changes in fair value of the hedged assets or liabilities that are attributable to the hedged risk, are recorded in current-period earnings. Additional information concerning the SFAS No. 133 requirements is disclosed in Note 2 - Summary of Significant Accounting Policies - Derivative Financial Instruments. For the year ended March 31, 2002, the Company recognized a gain of $38 million (reported as SFAS 133 fair value adjustments in the Consolidated Statement of Income). The net adjustment reflects a gain of $43 million in the fair market value of TMCC's portfolio of option-based products and certain interest rate swaps, offset by a $5 million decrease related to the ineffective portion of TMCC's fair value hedges. The increase in the fair market value of TMCC's option-based products is primarily due to higher market interest rates. Various derivative instruments, such as option-based products which hedge interest rate risk from an economic perspective, and which the Company is unable or has elected not to apply hedge accounting, are discussed in Non-Hedging Activities below. For fair value hedging relationships, the components of each derivative's gain or loss are included in the assessment of hedge effectiveness. TMCC maintains an overall risk management strategy that utilizes a variety of interest rate and currency derivative financial instruments to mitigate its economic exposure to fluctuations caused by volatility in interest rate and currency exchange rates. TMCC does not use any of these instruments for trading purposes. -71- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Derivatives and Hedging Activities (Continued) - ------------------------------------------- A reconciliation of the activity of TMCC's derivative financial instruments which totaled $43.7 million for the year ended March 31, 2002 and the six months ended March 31, 2001 is as follows:
March 31, ------------------------------------------------------------------------------- Cross Currency Interest Interest Indexed Rate Swap Rate Swap Option-based Note Swap Agreements Agreements Products Agreements ---------------- ---------------- ---------------- ---------------- 2002 2001 2002 2001 2002 2001 2002 2001 ---- ---- ---- ---- ---- ---- ---- ---- (Dollars in Billions) Beginning Notional Amount... $8.3 $8.4 $16.9 $10.5 $11.5 $11.7 $0.6 $1.4 Add: New agreements........... 1.7 0.5 16.9 8.5 5.4 1.6 0.2 0.1 Less: Terminated agreements.... - - 0.1 - 8.0 - 0.1 - Expired agreements....... 2.2 0.6 3.8 2.1 2.8 1.8 0.5 0.9 Amortizing notionals - - 0.3 - - - - - ---- ---- ----- ----- ---- ----- ---- ---- Ending Notional Amount...... $7.8 $8.3 $29.6 $16.9 $6.1 $11.5 $0.2 $0.6 ==== ==== ===== ===== ==== ===== ==== ====
Fair-Value Hedges The Company enters into interest rate swaps, indexed note swap agreements and cross currency interest rate swap agreements to convert its fixed-rate debt to variable-rate debt, a portion of which is covered by option-based products. (Refer to non-hedging activities below for a discussion of option-based products). TMCC uses interest rate swap agreements in managing its exposure to interest rate fluctuations. Interest rate swap agreements are executed as either an integral part of specific debt transactions or on a portfolio basis. TMCC's interest rate swap agreements involve agreements to pay fixed and receive a floating rate, or receive fixed and pay a floating rate, at specified intervals, calculated on an agreed-upon notional amount. Interest rate swap agreements may also involve basis swap contracts which are agreements to exchange the difference between certain floating interest amounts, such as the net payment based on the commercial paper rate and the London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional amount. The original maturities of interest rate swap agreements ranged from one to ten years at March 31, 2002. -72- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Derivatives and Hedging Activities (Continued) - ------------------------------------------- The aggregate notional amounts of interest rate swap agreements outstanding at March 31, 2002 and 2001:
March 31, ------------------------- 2002 2001 ---------- ---------- (Dollars in Billions) Floating rate swaps.......................... $ 14.9 $ 10.2 Fixed rate swaps............................. 11.5 5.3 Basis swaps.................................. 3.2 1.4 ------ ------ Total interest rate swap agreements...... $ 29.6 $ 16.9 ====== ======
TMCC uses indexed note swap agreements in managing its exposure in connection with debt instruments whose interest rate and/or principal redemption amounts are derived from other underlying indices. Indexed note swap agreements involve agreements to receive interest and/or principal amounts associated with the indexed notes, denominated in either U.S. dollars or a foreign currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities. At March 31, 2002, TMCC was the counterparty to $0.2 billion of indexed note swap agreements, of which $0.2 billion was denominated in foreign currencies. At March 31, 2001, TMCC was the counterparty to $0.6 billion of indexed note swap agreements, of which $0.3 billion was denominated in foreign currencies and $0.3 billion was denominated in U.S. dollars. The original maturities of indexed note swap agreements were ten years at March 31, 2002. TMCC uses cross currency interest rate swap agreements to entirely hedge exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executing cross currency interest rate swap agreements which involve the exchange of foreign currency principal and interest obligations for U.S. dollar obligations at agreed-upon currency exchange and interest rates. The aggregate notional amounts of cross currency interest rate swap agreements at March 31, 2002 and 2001 were $7.8 billion and $8.3 billion, respectively. The original maturities of cross currency interest rate swap agreements ranged from three to ten years at March 31, 2002. Derivative instruments used by TMCC involve, to varying degrees, elements of credit risk in the event a counterparty defaults in performing its obligation under the derivative agreement. Credit risk is managed through the use of credit standard guidelines, counterparty diversification, monitoring of counterparty financial condition and master netting agreements in place with all derivative counterparties. Credit exposure of derivative instruments is discussed further under Item 7A. Quantitative and Qualitative Disclosures About Market Risk. -73- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Derivatives and Hedging Activities (Continued) - ------------------------------------------- Non-Hedging Activities Option-based products are executed on a portfolio basis and consist primarily of purchased interest rate cap agreements, interest rate swaps and, to a lesser extent, foreign exchange forward contract agreements. Option-based products are agreements which either grant TMCC the right to receive, or require TMCC to make payments at, specified interest rate levels. The aggregate notional amounts of option-based products outstanding at March 31, 2002 and 2001 were $6.1 billion and $11.5 billion, respectively. Approximately 28% of TMCC's other senior debt at March 31, 2002 had floating interest rates that were covered by option-based products which had an average strike rate of 4.35%. Option-based products are used to hedge interest rate risk from an economic perspective on TMCC's portfolio. The Company uses this strategy to moderate its exposure to volatility in LIBOR. These products are not linked to specific assets and liabilities that appear on the balance sheet, and therefore, do not qualify for hedge accounting. In addition, the Company also uses certain interest rate swaps for overall asset/liability management purposes. These products are not linked to specific assets or liabilities. -74- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Notes and Loans Payable - -------------------------------- Notes and loans payable at March 31, 2002 and 2001, which consisted of senior debt, included the following:
March 31, ----------------------- 2002 2001 -------- -------- (Dollars in Millions) Commercial paper, net..................... $ 5,012 $ 4,407 Other senior debt, due in the years Ending: 2002................................ - 4,620 2003................................ 5,184 3,080 2004................................ 5,360 5,182 2005................................ 3,665 1,839 2006................................ 2,885 1,228 2007................................ 1,252 26 Thereafter.......................... 2,632 1,812 -------- -------- Total other senior debt............. 20,978 17,787 -------- -------- Notes and loans payable.......... $ 25,990 $ 22,194 ======== ========
Notes and loans payable at March 31, 2002 and 2001 reflect the adjustments required under SFAS No. 133 for derivatives and debt instruments which qualify for hedge treatment as discussed in Note 8 - Derivatives and Hedging Activities. The notional amount of notes and loans payable was $26.7 billion and $23.1 billion at March 31, 2002 and 2001, respectively. Short-term borrowings include commercial paper and certain medium-term notes ("MTNs"). The weighted average remaining term of commercial paper was 19 days and 17 days at March 31, 2002 and 2001, respectively. The weighted average interest rate on commercial paper was 1.83% and 5.10% at March 31, 2002 and 2001, respectively. At March 31, 2002, TMCC had no short-term MTNs with original terms of one year or less. Short-term MTNs with original terms of one year or less, included in other senior debt, were $1,205 million at March 31, 2001. The weighted average interest rate on these short-term MTNs was 5.01% at March 31, 2001, including the effect of interest rate swap agreements. Other senior debt includes certain MTNs, euro bonds and domestic bonds. The weighted average interest rate on other senior debt was 4.23% and 5.46% at March 31, 2002 and 2001, respectively, including the effect of interest rate swap agreements. The rates have been calculated using rates in effect at March 31, 2002 and 2001, some of which are floating rates that reset periodically. Less than one percent of other senior debt at March 31, 2002 had interest rates, including the effect of interest rate swap agreements, that were fixed for a period of more than one year. Approximately 28% of other senior debt at March 31, 2002 had floating interest rates that were covered by option-based products. The weighted average strike rate on these option-based products was 4.35% at March 31, 2002. TMCC manages interest rate risk through continuous adjustment of the mix of fixed and floating rate debt using interest rate swap agreements and option-based products. -75- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Notes and Loans Payable (Continued) - -------------------------------- Included in notes and loans payable at March 31, 2002 and 2001 were unsecured notes denominated in various foreign currencies as follows:
March 31, --------------------- 2002 2001 ------ ------ (Amounts in Millions) British pound sterling................. 500 575 Danish kroner.......................... 400 400 Euro................................... 2,150 1,400 French franc........................... 1,545 1,545 German deutsche mark................... 792 2,842 Greek drachma.......................... - 5,000 Hong Kong dollar....................... 500 500 Italian lire........................... 234,000 434,000 Japanese yen........................... 218,200 159,300 Luxembourg franc....................... 2,000 2,000 New Zealand dollar..................... 100 200 Norwegian Krone........................ 1,250 1,000 Singapore dollar....................... 200 200 Swedish kronor......................... 560 1,060 Swiss franc............................ 2,750 2,000
Concurrent with the issuance of these unsecured notes, TMCC entered into cross currency interest rate swap agreements to convert these obligations into U.S. dollar obligations which in aggregate total a principal amount of $7.0 billion and $8.2 billion at March 31, 2002 and 2001, respectively. In September 2001, TMCC securitized retail finance receivables totaling $1.5 billion. This securitization was treated as a sale for legal purposes, but treated as a secured borrowing for accounting purposes as the securitization trust was not structured as a qualifying special purpose entity as defined pursuant to SFAS 140. Therefore, the receivables and debt issued remained on the balance sheet pursuant to SFAS 140, as amended. This accounting method is referred to as the "portfolio method". Under the portfolio method, the finance receivables transferred to the securitization trust and held as collateral for the notes issued to investors are classified as "Finance receivables, net - securitized". The $1.1 billion notes issued to investors in the securitization trust are classified as "Notes payable related to securitized finance receivables structured as collateralized borrowings". Refer to Note 7 Sale of Receivables and Securitization for further discussion. -76- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 - Fair Value of Financial Instruments - --------------------------------------------- The fair value of financial instruments at March 31, 2002 and 2001, was estimated using the valuation methodologies described below. Considerable judgment was employed in interpreting market data to develop estimates of fair value; accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair values of the Company's financial instruments at March 31, 2002 and 2001 are as follows:
March 31, ----------------------------------------- 2002 2001 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- (Dollars in Millions) Balance sheet financial instruments: Assets: Cash and cash equivalents.......... $ 747 $ 747 $ 294 $ 294 Investments in marketable securities...................... $ 1,100 $ 1,100 $ 1,075 $ 1,075 Finance receivables, net and Finance receivables, net - securitized................... $ 17,038 $ 17,284 $ 12,693 $ 12,515 Derivative Assets: Cross currency interest rate swap agreements............... $ 12 $ 12 $ 72 $ 72 Interest rate swap agreements... $ 346 $ 346 $ 278 $ 278 Option-based products........... $ 92 $ 92 $ 4 $ 4 Indexed note swap agreements.... $ 4 $ 4 $ 25 $ 25 Other receivables.................. $ $ $ 311 $ 311 Liabilities: Notes and loans payable............ $ 25,990 $ 25,990 $ 22,194 $ 22,194 Notes payable related to securitized receivables structured as collateralized borrowings....... $ 1,036 $ 1,036 $ - $ - Derivative Liabilities: Cross currency interest rate swap agreements............... $ 970 $ 970 $ 1,322 $ 1,322 Interest rate swap agreements... $ 148 $ 148 $ 89 $ 89 Option-based products........... $ - $ - - - Indexed note swap agreements.... $ 6 $ 6 $ 3 $ 3 Other payables..................... $ 583 $ 583 $ 607 $ 607
-77- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 - Fair Value of Financial Instruments (Continued) - -------------------------------------------- The fair value estimates presented herein are based on information available to management as of March 31, 2002 and 2001. The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows: Cash and Cash Equivalents ------------------------- The carrying amount of cash and cash equivalents approximates market value due to the short maturity of these investments. Investments in Marketable Securities ------------------------------------ The fair value of marketable securities was estimated using quoted market prices or discounted cash flow analysis. Retail Finance Receivables -------------------------- The carrying amounts of $3.4 billion and $3.4 billion of variable rate finance receivables at March 31, 2002 and 2001, respectively, were assumed to approximate fair value as these receivables reprice at prevailing market rates. The fair value of fixed rate finance receivables was estimated by discounting expected cash flows using the rates at which loans of similar credit quality and maturity would be originated as of March 31, 2002 and 2001. Other Receivables and Other Payables ------------------------------------ The carrying amount and fair value of other receivables and other payables are presented separately from the receivables and payables arising from cross currency interest rate swap agreements. The carrying amount of the remaining other receivables and payables approximate market value due to the short maturity of these instruments. Notes and Loans Payable ----------------------- The fair value of notes and loans payable was estimated by discounting expected cash flows using the interest rates at which debt of similar credit quality and maturity would be issued as of March 31, 2002 and 2001. The carrying amount of commercial paper was assumed to approximate fair value due to the short maturity of these instruments. Cross Currency Interest Rate Swap Agreements -------------------------------------------- The estimated fair value of TMCC's outstanding cross currency interest rate swap agreements was derived by discounting expected cash flows using quoted market exchange rates and quoted market interest rates as of March 31, 2002 and 2001. Interest Rate Swap Agreements ----------------------------- The estimated fair value of TMCC's outstanding interest rate swap agreements was derived by discounting expected cash flows using quoted market interest rates as of March 31, 2002 and 2001. -78- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 - Fair Value of Financial Instruments (Continued) - -------------------------------------------- Option-based Products --------------------- The estimated fair value of TMCC's outstanding option-based products was derived by discounting expected cash flows using quoted market exchange rates and market interest rates as of March 31, 2002 and 2001. Indexed Note Swap Agreements ---------------------------- The estimated fair value of TMCC's outstanding indexed note swap agreements was derived by discounting expected cash flows using quoted market exchange rates and market interest rates or by using quoted market prices as of March 31, 2002 and 2001. Note 11 - Financial Instruments with Off-Balance Sheet Risk - ----------------------------------------------------------- Lines of Credit - --------------- TMCC has extended inventory floorplan lines of credit to dealers, the unused portion of which amounted to $1.8 billion and $675 million at March 31, 2002 and 2001, respectively. Security interests are acquired in vehicles and equipment financed and such financings are generally backed by corporate or individual guarantees from or on behalf of the participating dealers. Note 12 - Pension and Other Benefit Plans - ----------------------------------------- All full-time employees of the Company are eligible to participate in the TMS pension plan commencing on the first day of the month following hire. Benefits payable under this non-contributory defined benefit pension plan are based upon the employees' years of credited service and the highest sixty consecutive months' compensation, reduced by a percentage of social security benefits. The Company's pension expense was $8 million, $3 million, $5 million and $6 million for the year ended March 31, 2002, the six months ended March 31, 2001, and for the years ended September 30, 2000 and 1999, respectively. At March 31, 2002 and 2001, and September 30, 2000 and 1999, the accumulated benefit obligation and plan net assets for employees of the Company were not determined separately from TMS; however, the plan's net assets available for benefits exceeded the accumulated benefit obligation. TMS funding policy is to contribute annually the maximum amount deductible for federal income tax purposes. -79- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 - Provision for Income Taxes - ------------------------------------ The provision for income taxes consisted of the following:
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, ------------- ------------- ----------------- 2002 2001 2000 1999 ------ ------ ------ ------ (Dollars in Millions) Current Federal.......................... $ (46) $ 32 $ 71 $(130) State............................ (6) 10 41 17 ------ ------ ------ ------ Total current ................ (52) 42 112 (113) ------ ------ ------ ------ Deferred Federal.......................... 174 (11) (21) 202 State............................ 37 ( 4) (26) 9 ------ ------ ------ ------ Total deferred................ 211 (15) (47) 211 ------ ------ ------ ------ Provision for income taxes. $ 159 $ 27 $ 65 $ 98 ====== ====== ====== ======
A reconciliation between the provision for income taxes computed by applying the federal statutory tax rate to income before income taxes and actual income taxes provided is as follows:
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, -------------- -------------- ------------------------------ 2002 % 2001 % 2000 % 1999 % ------ ------ ------ ------ ------ ------ ------ ------ (Dollars in Millions) Provision for income taxes at federal statutory tax rate... $ 141 35.00% $ 25 35.00% $ 60 35.00% $ 81 35.00% State and local taxes (net of federal tax benefit)............. 20 4.97% 4 5.63% 10 5.88% 17 7.39% Other................... (2) (.45)% (2) (3.19)% (5) (2.43)% - .14% ------ ------ ------ ------ ------ ------ ------ ------ Provision for income taxes............. $ 159 $ 27 $ 65 $ 98 ====== ====== ====== ====== Effective tax rate...... 39.52% 37.44% 38.45% 42.53% ====== ====== ====== ======
-80- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 - Provision for Income Taxes (Continued) - ------------------------------------ The deferred federal and state income tax liabilities are as follows:
March 31, ----------------------- 2002 2001 ------ ------ (Dollars in Millions) Federal..................................... $1,524 $1,337 State....................................... 155 131 ------ ------ Net deferred income tax liability........ $1,679 $1,468 ====== ======
The Company's deferred tax assets and liabilities consisted of the following:
March 31, ----------------------- 2002 2001 ------ ------ (Dollars in Millions) Assets: Alternative minimum tax.................. $ - $ - Provision for losses..................... 91 69 Deferred administrative fees............. 130 104 NOL carryforwards........................ 36 31 Deferred acquisition costs............... 30 29 Unearned insurance premiums.............. 7 4 Revenue recognition...................... 1 1 Other.................................... - - ------ ------ Deferred tax assets................... 295 238 ------ ------ Liabilities: Mark-to-Market........................... 15 - Lease transactions....................... 1,664 1,475 State taxes.............................. 193 162 Other.................................... 102 69 ------ ------ Deferred tax liabilities.............. 1,974 1,706 ------ ------ Valuation allowance................... - - ------ ------ Net deferred income tax liability.. $1,679 $1,468 ====== ======
TMCC has state tax net operating loss carryforwards of $494 million which expire beginning in fiscal 2003 through 2017. -81- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 - Comprehensive Income - ------------------------------ The Company's total comprehensive earnings were as follows:
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, ------------- ------------- ----------------- 2002 2001 2000 1999 ------ ------ ------ ------ (Dollars in Millions) Net income........................................ $ 243 $ 42 $ 104 $ 132 Other comprehensive income: Net unrealized gains arising during period (net of tax of $(1), $2, $5 and $2 in 2002, 2001, 2000 and 1999).............. (1) 3 9 4 Less: reclassification adjustment for net gains included in net income (net of tax of $0, $2, $3 and $1 in 2002, 2001, 2000 and 1999)................................... (1) (4) (5) (2) ------ ------ ------ ------ Net unrealized (loss) gain on available-for-sale marketable securities....................... (2) (1) 4 2 ------ ------ ------ ------ Total Comprehensive Income..................... $ 241 $ 41 $ 108 $ 134 ====== ====== ====== ======
-82- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 15 - Related Party Transactions - ------------------------------------ Support Agreements During fiscal 2000, an operating agreement with TMS and Toyota Motor Manufacturing North America Inc. ("TMMNA") (the "Operating Agreement") provided that 100% ownership of TMCC would be retained by TMS as long as TMCC had any funded debt outstanding and that TMS and TMMNA would provide necessary equity contributions or other financial assistance it deemed appropriate to ensure that TMCC maintained a minimum coverage on fixed charges of 1.10 times such charges in any fiscal quarter. The coverage provision of the Operating Agreement was solely for the benefit of the holders of TMCC's commercial paper and extendible commercial notes. In connection with the creation of TFSC and the transfer of ownership of TMCC from TMS to TFSC, the Operating Agreement with TMS and TMMNA was terminated, a credit support agreement (the "TMC Credit Support Agreement") was entered into between TMC and TFSC, and a credit support agreement (the "TFSC Credit Support Agreement") was entered into between TFSC and TMCC. Under the terms of the TMC Credit Support Agreement, TMC agreed to: 1) maintain 100% ownership of TFSC; 2) cause TFSC and its subsidiaries to have a net worth of at least Japanese yen 10 million; and 3) make sufficient funds available to TFSC so that TFSC will be able to (i) service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper and (ii) honor its obligations incurred as a result of guarantees or credit support agreements that it has extended. The agreement is not a guarantee by TMC of any securities or obligations of TFSC. Under the terms of the TFSC Credit Support Agreement, TFSC agreed to: 1) maintain 100% ownership of TMCC; 2) cause TMCC and its subsidiaries to have a net worth of at least U.S. $100,000; and 3) make sufficient funds available to TMCC so that TMCC will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper (collectively, "TMCC Securities"). The agreement is not a guarantee by TFSC of any TMCC Securities or other obligations of TMCC. The TMC Credit Support and the TFSC Credit Support Agreements are governed by, and construed in accordance with, the laws of Japan. During fiscal 2001, TMCC and TFSC entered into a credit support fee agreement (the "Credit Support Fee Agreement"). The Credit Support Fee Agreement provides that TMCC will pay to TFSC a semi-annual fee equal to 0.05% per annum of the weighted average outstanding amount of TMCC's Securities entitled to credit support, as described above. Credit support fees totaled $12 million and $6 million for the year ended March 31, 2002 and the six months ended March 31, 2001, respectively. During fiscal 2000, TMCC had an arrangement to borrow from and invest funds with TMS at short-term market rates. This arrangement was terminated on October 1, 2000, when ownership of TMCC was transferred from TMS to TFSA, a holding company owned 100% by TFSC. TFSC, in turn, is a wholly-owned subsidiary of TMC. No funds were borrowed from or invested with TMS under this arrangement during the year ended March 31, 2001. However, TMS made a short term $282 million loan to TMCC at an interest rate of 3.53% in September 2001 to assist TMCC in its efforts to assure continuing liquidity during the financial market disruptions that occurred in the aftermath of the events of September 11, 2001. The loan and interest incurred were repaid in full prior to September 30, 2001. For the years ended September 30, 2000, 1999 and 1998, the highest amounts of funds invested with TMS were $797 million, $2 billion and $567 million, respectively; interest earned on these investments totaled $13 million, $41 million and $3 million for the years ended September 30, 2000, 1999 and 1998, respectively. -83- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 15 - Related Party Transactions (Continued) - ------------------------------------ Parent Support During fiscal 2000, TMS provided support in the amount of $35 million to TMCC for certain vehicle disposition losses. This amount is included in the Consolidated Statement of Income related for the year ended September 30, 2000. TMCC did not receive support from TMS or TFSA for vehicle disposition losses for the year ended March 31, 2002 or the six months ended March 31, 2001. Marketing and Wholesale Support TMS sponsors special retail and lease marketing incentive programs offered by TMCC. TMCC recognized revenue of $131 million, $55 million, $108 million and $126 million, for the year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000 and 1999, respectively, related to TMS sponsored programs. Additionally, TMCC and TMS entered into an Amended and Restated Repurchase Agreement in October 2000. This agreement states that TMCC is not obligated to finance wholesale obligations from any TMS dealers or retail obligations from any TMS customers. In addition, TMS will arrange for the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed in the event of dealer default. Shared Services On October 1, 2000, TMS and TMCC entered into a Shared Services Agreement covering certain technological and administrative services, such as information systems support, facilities and corporate services, TMS provides after the ownership of TMCC was transferred to TFSA. Net charges, which are assessed on a cost basis, that were reimbursed by TMCC to TMS totaled $51 million and $27 million for the year ended March 31, 2002 and the six months ended March 31, 2001, respectively. The Company leases its headquarters facility and Iowa Service Center from TMS. Rent expense paid to TMS for these facilities totaled $5 million, $3 million, $5 million and $4 million for the year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000 and 1999, respectively. TMCC leases a corporate aircraft to TMS and provides wholesale financing for TMS affiliates. TMCC recognized revenue related to these arrangements of $3 million, $4 million, $6 million and $6 million for the year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000 and 1999, respectively. TMIS provides certain insurance services, and insurance and reinsurance coverage, respectively, to TMS. Premiums, commissions and fees earned on these services for year ended March 31, 2002, the six months ended March 31, 2001 and for the years ended September 30, 2000 and 1999 totaled $40 million, $19 million, $33 million and $24 million, respectively. Affiliate Loans TMCC had extended a $42.5 million uncommitted revolving line of credit to iStarSystems, Inc., a corporation owned 80% by TMS. The loan bears interest at a floating rate of interest of LIBOR plus 3.75% per annum and is guaranteed by TMS. During fiscal 2002, TMS repaid the outstanding balance of $40 million and the line of credit was terminated. TMCC recognized $2.2 million in interest income on the loan in fiscal 2002. During fiscal 1999, Toyota Credit Canada Inc., an affiliate of the Company, repaid $201 million in intercompany loans. Interest charged on these loans reflected market rates and totaled $8 million for the year ended September 30, 1999. -84- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16 - Lines of Credit/Standby Letters of Credit - --------------------------------------------------- To support its commercial paper program, TMCC maintains syndicated bank credit facilities with certain banks which aggregated $3.5 billion and $3.0 billion, at March 31, 2002 and 2001, respectively. No loans were outstanding under any of these bank credit facilities as of March 31, 2002 or 2001. In addition, as of March 31, 2002, there are additional committed and uncommitted lines of credit for $40 million and $100 million, respectively, which are intended to be used by the Company to support its commercial paper program and for general corporate purposes. To facilitate and maintain letters of credit, TMCC maintains uncommitted, unsecured lines of credit with banks totaling $61 million and $85 million as of March 31, 2002 and 2001, respectively. Approximately $0.5 million and $1 million in letters of credit were outstanding as of March 31, 2002 and 2001, respectively. Note 17 - Commitments and Contingent Liabilities - ------------------------------------------------ TMCC has executed guarantees totaling $65 million in respect to TCA's offshore dollar bank loans, of which approximately $40 million, including principal and interest, is outstanding. Late in 2001, the Argentine government instituted a series of changes that lead to political, economic and regulatory risks to Argentine businesses. The government has imposed foreign exchange controls restricting offshore payment transfers, and these controls are currently preventing TCA from sending payments on its offshore dollar loans out of Argentina. In February 2002, the Argentine government established measures to re-denominate the entire Argentine economy into pesos and has permitted the peso to float freely against other global currencies. This re-denomination policy adversely affected TCA's financial condition and its ability to fully satisfy its offshore dollar loans. Consequently for the year ended March 31, 2002, TMCC has included a charge against income of $31 million to write-off its $5 million investment in TCA and to establish a reserve of $26 million relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt. TMCC will continue to monitor the situation in Argentina. TMCC has executed guarantees of the debt of BTB totaling $30 million. TMCC has signed a comfort letter on behalf of TSV regarding TSV's office lease. The comfort letter provides that in the event any currency exchange controls are imposed in Venezuela that render it illegal for TSV to pay the rent to the Landlord in U.S. Dollars (which is required under the Lease), then TMCC will pay the rental fees that are owed to the landlord during the currency exchange restriction period to a bank account located outside of Venezuela. The total rent and other lease costs payable under the lease for the entire 5-year term is approximately $4.2 million. The lease is cancellable at the convenience of TMCC after year 3. At March 31, 2002, the Company was a lessee under lease agreements for facilities with minimum future commitments as follows: years ending March 31, 2003 - $19 million; 2004 - $14 million; 2005 - $9 million; 2006 - $7 million; 2007 - $4 million and thereafter - $2 million. TMCC has guaranteed payments of principal and interest on $58 million principal amount of flexible rate demand pollution control revenue bonds maturing in 2006, issued in connection with the Kentucky manufacturing facility of an affiliate. -85- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 17 - 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, $27.5 million matures in August 2029, and $20.5 million matures in April 2030. The bonds were issued in connection with the West Virginia manufacturing facility of an affiliate. TMCC has guaranteed payments of principal, interest and premiums, if any, on $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. The bonds were issued in connection with the Indiana manufacturing facility of an affiliate. TMCC also maintains revolving credit facilities with dealers. These revolving credit facilities can be used for business acquisitions, facilities refurbishment, real estate purchases and working capital requirements. These financings are backed by corporate or individual guarantees from or on behalf of the participating dealers. The revolving credit facilities totaled $1,524 million of which $553 million was outstanding as of March 31, 2002. In lieu of a cash reserve fund to fund shortfalls in principal and interest payments to security holders, TMCC may undertake to advance funds in respect of certain shortfalls and losses, taking a revolving liquidity note in return which allows the securitization trust to receive draws from TMCC to fund shortfalls in principal and interest payments due to investors up to a specified amount and obligates the securitization trust to repay any amounts drawn with interest accrued thereon. Repayments of principal and interest due under the revolving liquidity note are subordinated to principal and interest payments on the asset-backed securities and, in some circumstances, to deposits into a reserve account. To the extent amounts are insufficient to repay amounts outstanding under a revolving liquidity note, TMCC may recognize a loss. As of March 31, 2002, the aggregate amount available under the revolving liquidity notes is $15 million. TMCC has also guaranteed the obligations of TMIS relating to vehicle service insurance agreements issued in four specific states (Alabama, Illinois, New York and Virginia). These guarantees have been given without regard to any security, but are limited to the duration of the underlying insurance coverages up to a maximum of the original manufacturer's suggested retail price on the vehicles. As of March 31, 2002, TMCC has not historically, and does not expect, to pay any amounts under this guarantee. An operating agreement between TMCC and TCPR (the "Agreement"), provides that TMCC will make necessary equity contributions or provide other financial assistance TMCC deems appropriate to ensure that TCPR maintains a minimum coverage on fixed charges of 1.10 times such fixed charges in any fiscal quarter. The Agreement does not constitute a guarantee by TMCC of any obligations of TCPR. The fixed charge coverage provision of the Agreement is solely for the benefit of the holders of TCPR's commercial paper, and the Agreement may be amended or terminated at any time without notice to, or the consent of, holders of other TCPR obligations. -86- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 17 - Commitments and Contingent Liabilities (Continued) - ------------------------------------------------ Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against TMCC and its subsidiaries with respect to matters arising from the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in TMCC's business operations, policies and practices. Certain of these actions are similar to suits which have been filed against other financial institutions and captive finance companies. Management and internal and external counsel perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. The amounts of liability on pending claims and actions as of March 31, 2002 were not determinable; however, in the opinion of management, the ultimate liability resulting therefrom should not have a material adverse effect on TMCC's consolidated financial position or results of operations. Note 18 - Segment Information - ----------------------------- The Company's operating segments include finance and insurance operations. Finance operations include retail leasing, retail and wholesale financing and certain other financial services to authorized Toyota and Lexus vehicle and Toyota industrial equipment dealers and their customers in the United States (excluding Hawaii), Puerto Rico, Mexico and Venezuela. Insurance operations are performed by TMIS and its subsidiaries. The principal activities of TMIS include marketing, underwriting, claims administration and providing certain insurance and contractual coverages related to vehicle service agreements and contractual liability agreements sold by or through Toyota and Lexus vehicle dealers and affiliates to customers in the United States (excluding Hawaii). In addition, the insurance subsidiaries insure and reinsure certain TMS and TMCC risks. The accounting policies of the operating segments are the same as those described in Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. The Company reports consolidated financial information for both external and internal purposes. Currently, TMCC's finance and insurance segments operate only in the United States, Puerto Rico, Mexico and Venezuela. The majority of the Company's finance and insurance segments are located within the United States. -87- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 18 - Segment Information (Continued) - ----------------------------- Financial results for the Company's operating segments for the year ended March 31, 2002, the six months ended March 31, 2002 and the years ended September 30, 2000 and 1999 are summarized below:
March 31, September 30, ----------------------- ----------------------- 2002 2001 2000 1999 ---------- ---------- ---------- ---------- (Dollars in Millions) Assets: Financing operations.................... $ 33,664 $ 28,694 $ 27,525 $ 24,156 Insurance operations.................... 780 852 863 732 Eliminations/reclassifications.......... (184) (332) (352) (310) ---------- ---------- ---------- ---------- Total assets.......................... $ 34,260 $ 29,214 $ 28,036 $ 24,578 ========== ========== ========== ========== Gross revenues: Financing operations.................... $ 3,759 $ 1,870 $ 3,424 $ 3,234 Insurance operations.................... 184 88 165 141 Eliminations............................ - - - - ---------- ---------- ---------- ---------- Total gross revenues.................. $ 3,943 $ 1,958 $ 3,589 $ 3,375 ========== ========== ========== ========== Depreciation and amortization: Financing operations.................... $ 1,556 $ 789 $ 1,556 $ 1,710 Insurance operations.................... - - 1 1 ---------- ---------- ---------- ---------- Total depreciation and amortization... $ 1,556 $ 789 $ 1,557 $ 1,711 ========== ========== ========== ========== Interest Expense: Financing operations.................... $ 1,030 $ 726 $ 1,289 $ 940 Insurance operations.................... - - - - ---------- ---------- ---------- ---------- Total interest expense $ 1,030 $ 726 $ 1,289 $ 940 ========== ========== ========== ========== Interest Income: Financing operations.................... $ 37 $ 32 $ 26 $ 9 Insurance operations.................... 26 14 23 20 ---------- ---------- ---------- ---------- Total interest income $ 63 $ 46 $ 49 $ 29 ========== ========== ========== ========== Income tax expense: Financing operations.................... $ 139 $ 18 $ 62 $ 87 Insurance operations.................... 20 9 3 11 ---------- ---------- ---------- ---------- Total income tax expense.............. $ 159 $ 27 $ 65 $ 98 ========== ========= ========== ========== Net Income: Financing operations.................... $ 199 $ 22 $ 70 $ 113 Insurance operations.................... 44 20 34 19 ---------- ---------- ---------- ---------- Net Income............................ $ 243 $ 42 $ 104 $ 132 ========== ========== ========== ========== Capital expenditures: Financing operations.................... $ 32 $ 14 $ 18 $ 33 Insurance operations.................... 2 - 2 4 ---------- ---------- ---------- ---------- Total capital expenditures............ $ 34 $ 14 $ 20 $ 37 ========== ========== ========== ==========
-88- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 19 - Selected Quarterly Financial Data (Unaudited) - -------------------------------------------------------
Total Financing Interest Depreciation Net Revenues Expense on Leases Income ---------- -------- ------------ -------- (Dollars in Millions) Year Ended March 31, 2002: First quarter.............. $ 874 $ 296 $ 374 $ 50 Second quarter............. 882 268 380 21 Third quarter.............. 909 244 415 62 Fourth quarter............. 917 222 411 110 ------ ------ ------ ------ Total................... $3,582 $1,030 $1,580 $ 243 ====== ====== ====== ====== Six Months Ended March 31, 2001: First quarter.............. $ 878 $ 383 $ 368 $ 18 Second quarter............. 882 343 385 24 ------ ------ ------ ------ Total................... $1,760 $726 $ 753 $ 42 ====== ====== ====== ====== Year Ended September 30, 2000: First quarter.............. $ 797 $ 277 $ 383 $ 32 Second quarter............. 830 317 367 25 Third quarter.............. 861 347 322 23 Fourth quarter............. 864 348 368 24 ------ ------ ------ ------ Total................... $3,352 $1,289 $1,440 $ 104 ====== ====== ====== ====== Year Ended September 30, 1999: First quarter.............. $ 805 $ 243 $ 431 $ 35 Second quarter............. 786 220 427 28 Third quarter.............. 788 230 410 39 Fourth quarter............. 786 247 396 30 ------ ------ ------ ------ Total................... $3,165 $ 940 $1,664 $ 132 ====== ====== ====== ======
-89- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 20 - Subsequent Events - --------------------------- During May 2002, TMCC sold retail finance receivables totaling $1.6 billion, subject to certain limited recourse provisions, to TAFR. TAFR in turn sold the receivables to specific trusts. TMCC continues to service the receivables and receives a servicing fee of 1% of the total principal balance of the total securitized retail receivables. In a subordinated capacity, TAFR retains excess cash flows, certain cash deposits and other related amounts that are held as restricted assets subject to limited recourse provisions. These restricted assets are not available to satisfy any obligations of TMCC. Securitization investors have recourse to the interest-only strips, restricted cash held by the securitization trusts, and any subordinated retained interest. Investors do not have recourse to other assets held by TMCC for failure of obligors to pay amounts due. As part of the transaction, TMCC entered into a revolving liquidity note agreement in lieu of a cash reserve fund to fund shortfalls of principal and interest payments to security holders. The maximum aggregate amount available under the revolving liquidity note is $8 million. The Trust will be obligated to repay amounts drawn and interest will be accrued at 4.69% per annum. Effective May 2002, TMCC has provided comfort letters to Mexican and Venezuelan banks on behalf of TSM and TSV as a condition to their extending local bank credit facilities to TSM and TSV. Under the comfort letters, TMCC agrees to exercise its influence to induce TSM and TSV to meet all their obligations under the credit facilities. Additionally, TMCC agrees not to pledge or sell stock in TSM or TSV as long as any TSM and/or TSV loans are outstanding. The bank facilities provide TSM and TSV with uncommitted bank lines of credit for a period of one year and allow advances in the maximum amounts of $35 million for TSM and $5 million for TSV. Maturities for TSM and TSV bank loan advances range from one month to 36 months. The comfort letters will remain in effect for as long as any TSM and/or TSV loans funded under the facilities are outstanding. The term of the comfort letters may be extended for additional periods by mutual agreement between TMCC and the banks. The comfort letters do not constitute a guarantee by TMCC of TSM's and TSV's obligations under the bank facilities. -90- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There is nothing to report with regard to this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information regarding the directors and executive officers of TMCC as of April 30, 2002. Name Age Position ---- --- -------- George Borst ............. 53 Director, President and Chief Executive Officer, TMCC; Director, Secretary and Chief Financial Officer, TFSA Nobukazu Tsurumi.......... 53 Director, Executive Vice President and Treasurer, TMCC David Pelliccioni......... 54 Director, Group Vice President and Secretary, TMCC John Stillo............... 49 Vice President and Chief Financial Officer, TMCC Ryuji Araki............... 62 Director, TMCC; Director, TFSC; Executive Vice President, TMC Board of Directors Hideto Ozaki.............. 56 Director, TMCC; Director and President, TFSA; President and Director, TFSC Yoshio Ishizaka........... 62 Director, TMCC; Executive Vice President, TMC Board of Directors Yoshimi Inaba............. 56 Director, TMCC Director, TMC James Press............... 55 Director, TMCC All directors of TMCC are elected annually and hold office until their successors are elected and qualified. Officers are elected annually and serve at the pleasure of the Board of Directors. Mr. Borst was named Director, President and Chief Executive Officer of TMCC in October 2000, and Director, Secretary and Chief Financial Officer of TFSA in August 2000. Mr. Borst was named Senior Vice President of TMS in June 1997. From April 1997 to September 2000, Mr. Borst was Director and Senior Vice President and General Manager of TMCC. From January 1993 to May 1997, Mr. Borst was Group Vice President of TMS. Mr. Borst has been employed with TMCC and TMS, in various positions, since 1985. -91- Mr. Tsurumi was named Director and Executive Vice President and Treasurer of TMCC in October 2000. From January 2000 to September 2000, Mr. Tsurumi was Director and Senior Vice President of TMCC and Group Vice President of TMS. From January 1999 to December 1999, Mr. Tsurumi was Group Vice President and Treasurer of TMCC and Vice President of TMS. From January 1996 to December 1998, Mr. Tsurumi was Managing Director for Toyota Finance Australia. Mr. Tsurumi has been employed with TMC, in various positions worldwide, since 1971. Mr. Pelliccioni was named Director, Group Vice President - Sales, Marketing and Operations, and Secretary of TMCC in January 2002. From August 2001 to January 2002, Mr. Pelliccioni was Vice President - Sales, Marketing and Operations of TMCC. From May 1999 to August 2001, Mr. Pelliccioni was Vice President - Field Operations of TMCC. From 1998 to August 2001, Mr. Pelliccioni was Vice President of TMS. Mr. Pelliccioni has been employed with TMCC and TMS, in various positions, since 1988. Mr. Stillo was named Vice President and Chief Financial Officer of TMCC in 2001. From June 2000 to January 2001, Mr. Stillo was Executive Vice President, Investments and Capital Planning at Associates First Capital Corporation. From August 1997 to June 2000, Mr. Stillo was Executive Vice President and Comptroller at Associates First Capital Corporation. Mr. Araki was named Director of TFSC in July 2000, and Director of TMCC in September 1995. Mr. Araki was named Executive Vice President of TMC's Board of Directors in June 2001. Mr. Araki was Director of TFSA from August 2000 to July 2001. Mr. Araki was Senior Managing Director of TMC's Board of Directors from June 1999 to June 2001 and has served on TMC's Board of Directors since September 1992. From June 1997 to June 1999, Mr. Araki was Managing Director of TMC. Mr. Araki has been employed with TMC, in various positions, since 1962. Mr. Ozaki was named Director and President of TFSA in August 2000, President and Director of TFSC in July 2000, and Director of TMCC in October 1999. From June 1999 to June 2000, Mr. Ozaki was Director of TMC. From September 1997 to June 1999, Mr. Ozaki was the general manager of the finance division of TMC. From January 1997 to August 1997, Mr. Ozaki was the Project General Manager of the Finance Division of TMC. From January 1994 to December 1996, Mr. Ozaki was the Project General Manager of the Accounting Division of TMC. Mr. Ozaki has been employed with TMC, in various positions, since 1968. Mr. Ishizaka was named Director of TMCC in October 2000, and Executive Vice President of TMC's Board of Directors in June 2001. Mr. Ishizaka was Senior Managing Director of TMC from June 1999 to June 2001. From June 1996 to June 1999, Mr. Ishizaka was President of TMS. From September 1992 to June 1999, Mr. Ishizaka was Director of TMC. Mr. Ishizaka has been employed with TMC, in various positions, since 1964. Mr. Inaba was named Director of TMCC and TMS and President of TMS in June 1999, and was named Director of TMC in June 1997. From June 1999 to September 2000, Mr. Inaba was President of TMCC. From June 1997 to June 1999, Mr. Inaba was the General Manager of the Europe, Africa and United Kingdom Division of TMC. From June 1996 to May 1997, Mr. Inaba was Senior Vice President of TMS. Mr. Inaba has been employed with TMC, in various positions worldwide, since 1968. Mr. Press was named Director of TMCC in July 1999. He is also Chief Operating Officer, a Director and Executive Vice President of TMS, positions he has held since February 2001, June 1996 and April 1999, respectively. From April 1998 to March 1999, he was a Senior Vice President of TMS. From April 1995 to March 1998, Mr. Press was Senior Vice President and General Manager of Lexus. Mr. Press has been employed with TMS, in various positions, since 1970. -92- ITEM 11. EXECUTIVE COMPENSATION. Summary Compensation Table The following table sets forth all compensation awarded to, earned by, or paid to the Company's Principal Executive Officer and the most highly compensated executive officers whose salary and bonus for the latest fiscal year exceeded $100,000, for services rendered in all capacities to the Company for the year ended March 31, 2002 and the six months ended March 31, 2001 and for the fiscal years ended September 30, 2000 and 1999. -93-
Annual Compensation ----------------------------------------------------- Other Annual All Name and Compensation Other Principal Position Period Salary ($) Bonus ($) ($) ($) - --------------------- ------ ---------- --------- ------------ ------- George Borst 2002 $355,440 $196,330 - $12,959 Chief Executive Officer 2001 $162,870 $170,350 - $ 6,059 Principal Executive 2000 $316,290 $179,200 - $10,300 Officer 1999 $273,400 $162,300 - $ 8,700 Nobukazu Tsurumi 2002 $293,249 $54,121 $45,080 - Executive 2001 $200,128 $25,588 $18,900 - Vice President 2000 $247,124 $55,948 $36,060 - 1999 $117,700 $25,300 $23,800 - Michael Deaderick 2002 $198,525 $ 77,000 - $7,272 Senior 2001 $127,920 $115,660 - $4,661 Vice President 2000 $236,025 $122,740 - $8,600 1999 $215,300 $120,000 - $7,900 David Pelliccioni 2002 $224,312 $ 99,075 - $8,259 Group Vice President John Stillo 2002 $186,947 $ 56,250 $72,105 $5,834 Chief Financial Officer - ------------ The amounts in this column represent housing allowances and relocation costs. The amounts in this column represent the Company's allocated contribution under the TMS Savings Plan (the "Plan"), a tax-qualified 401(k) Plan. Participants in the Plan may elect, subject to applicable law, to contribute up to 15% of their base compensation on a pre-tax basis to which the Company adds an amount equal to two-thirds of the first 6% of the employee's contribution. Participants are vested 25% each year with respect to the Company's contribution and are fully vested after four years. Subject to the limitations of the Plan, employee and Company contributions are invested in various investment options at the discretion of the employee. TMS also maintains a 401(k) Excess Plan, a non-qualified deferred compensation plan which has similar provisions to the Savings Plan. Effective January 1, 1999, Mr. Tsurumi was appointed as Group Vice President and Treasurer. The compensation presented for Mr. Tsurumi for fiscal year 1999 reflects amounts earned for services to the Company during the partial period of the fiscal year served. Effective December 31, 2001, Mr. Deaderick was no longer an employee of TMCC. The compensation presented for Mr. Deaderick for fiscal year 2002 reflects amounts earned for services to the Company during the partial period of the fiscal year served. During the fiscal year 2002, Mr. Pelliccioni was appointed as Group Vice President and member of the TMCC Board of Directors. The compensation presented for Mr. Pelliccioni for fiscal 2002 reflects amounts earned for services to the Company in all capacities for the full fiscal year. Mr. Stillo joined the Company during fiscal year 2002. The compensation presented for Mr. Stillo for fiscal year 2002 reflects amounts earned for services to the Company during the partial period of the fiscal year served.
-94- Employee Benefit Plan The following pension plan table presents typical annual retirement benefits under the TMS Pension Plan for various combinations of compensation and years of credited service for participants who retire at age 62, assuming no final average bonus and excluding Social Security offset amounts. The amounts are subject to Federal statutory limitations governing pension calculations and benefits.
Annual Benefits for Final Average Years of Credited Service Annual ------------------------------------ Compensation 15 20 25 ------------- -------- -------- -------- $50,000 $15,000 $20,000 $25,000 $100,000 $30,000 $40,000 $50,000 $150,000 $45,000 $60,000 $75,000 $200,000 $60,000 $80,000 $100,000 $250,000 $75,000 $100,000 $125,000 $300,000 $90,000 $120,000 $150,000 $350,000 $105,000 $140,000 $175,000 $400,000 $120,000 $160,000 $200,000 $450,000 $135,000 $180,000 $225,000 $500,000 $150,000 $200,000 $250,000 $550,000 $165,000 $220,000 $275,000 $600,000 $180,000 $240,000 $300,000 $650,000 $195,000 $260,000 $325,000 $700,000 $210,000 $280,000 $350,000
All full-time employees of the Company are eligible to participate in the TMS Pension Plan commencing on the first day of the month following hire. Benefits payable under this non-contributory defined benefit pension plan are based upon final average compensation, final average bonus and years of credited service. Final average compensation is defined as the average of the participant's base rate of pay, plus overtime, during the highest-paid 60 consecutive months prior to the earlier of termination or normal retirement. Final average bonus is defined as the highest average of the participant's fiscal year bonus, and basic seniority-based cash bonus for non-managerial personnel, over a period of 60 consecutive months prior to the earlier of termination or normal retirement. A participant generally becomes eligible for the normal retirement benefit at age 62, and may be eligible for early retirement benefits starting at age 55. The annual normal retirement benefit under the Pension Plan, payable monthly, is an amount equal to the number of years of credited service (up to 25 years) multiplied by the sum of (i) 2% of the participant's final average compensation less 2% of the estimated annual Social Security benefit payable to the participant at normal retirement and (ii) 1% of the participant's final average bonus. The normal retirement benefit is subject to reduction for certain benefits under any union-sponsored retirement plan and benefits attributable to employer contributions under any defined-contribution retirement plan maintained by TMS and its subsidiaries or any affiliate that has been merged into the TMS Pension Plan. -95- The TMS Supplemental Executive Retirement Plan (TMS SERP), a non-qualified non- contributing benefit plan, authorizes a benefit to be paid to eligible executives, including Mr. Borst, Mr. Deaderick, Mr. Stillo and Mr. Pelliccioni. Benefits under the TMS SERP, expressed as an annuity payable monthly, are based on 2% of the executive's compensation recognized under the plan multiplied by the years of service credited under the plan (up to a maximum of 30), offset by benefits payable under the TMS Pension Plan and the executive's primary Social Security benefit. A covered participant's compensation may include base pay and a percentage (not in excess of 100%) of bonus pay, depending on the executive's length of service in certain executive positions. Similarly, years of service credited under the plan are determined by reference, in part, to the executive's length of service in certain executive positions. No benefit is payable under the TMS SERP to an executive unless the executive's termination of employment occurs on a date, after the executive reaches age 55, that is agreed in writing by the President of TMS and the executive; and the executive is vested in benefits under the TMS Pension Plan, or unless the executive accepts an invitation to retire extended by the President of TMS. Mr. Borst is a participant in the TMS Pension Plan and the TMS SERP, and had 17 years of total credited service as of March 31, 2002. Based upon years of credited service allocable to TMCC, Mr. Borst may be entitled to receive approximately $64,652 in annual pension plan benefits when Mr. Borst reaches age 62. Mr. Borst also may be entitled to receive pension benefits from TMS based upon services to and compensation by TMS. Mr. Deaderick is a participant in the TMS Pension Plan and the TMS SERP, and had reached the maximum total credited service of 25 years under the TMS Pension Plan and reached 30 years of credited service under the TMS SERP as of March 31, 2002. Based upon years of credited service allocable to TMCC, Mr. Deaderick may be entitled to receive approximately $128,242 in annual pension plan benefits when Mr. Deaderick reaches age 62. Mr. Deaderick also may be entitled to receive pension benefits from TMS based upon services to and compensation by TMS. Mr. Pelliccioni is a participant in the TMS Pension Plan and the TMS SERP, and had 14 years of total credited service as of March 31, 2002. Based upon years of credited service allocable to TMCC, Mr. Pelliccioni may be entitled to receive approximately $15,472 in annual pension plan benefits when Mr. Pelliccioni reaches age 62. Mr. Pelliccioni also may be entitled to receive pension benefits from TMS based upon services to and compensated by TMS. Mr. Stillo is a participant in the TMS Pension Plan and the TMS SERP, and had less than one year of total credited service as of March 31, 2002. Based upon years of credited service allocable to TMCC, Mr. Stillo may be entitled to receive approximately $4,524 in annual pension plan benefits when Mr. Stillo reaches age 62. -96- Toyota Global Incentive Plan During fiscal year 2002, TMC implemented the Toyota Global Incentive Plan which granted options to acquire warrants exercisable for 2,000 shares of TMC stock to 58 global executives of TMC and TMC affiliated companies. Two executives of TMCC were recipients of the stock options, as presented in the tables below.
OPTION / SAR GRANTS IN LAST FISCAL YEAR Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term - ---------------------------------------------------------------------------------------- % of Total Options/ Number of SARs Securities Granted to Exercise Underlying Employees or Base Options/SARs In Fiscal Price Expiration Name Granted(1) Year(2) ($/Sh)(3) Date 5% ($) 10% ($) - ---------------------------------------------------------------------------------------- George Borst 2,000 50% $33.68 7/31/2005 $35.36 $37.05 Mike Deaderick 2,000 50% $33.68 7/31/2005 $35.36 $37.05 (1) Pursuant to the Toyota Global Incentive Plan, the Company acquired certain warrants. Each warrant is exercisable for 100 shares of stock of Toyota Motor Corporation, the Company's ultimate parent. The Company granted each of the above-named individuals an option to acquire 20 warrants. (2) The percentages listed above reflect the relative percentages of the total options granted by the Company. Each of these grants amounted to 1.7% of the total option grants made during the last fiscal year to Toyota executives worldwide pursuant to the Toyota Global Incentive Plan. (3) The exercise price per share is equal to Yen 4,203 per share, the closing price of Toyota Motor Corporation shares on the Tokyo Stock Exchange on August 1, 2001 x 1.025. The exercise price per share included in the above table was calculated using the exchange rate of $1 = Yen 124.78 as in effect on August 1, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at FY-End (#) FY-End (#) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise Realized ($) Unexercisable Unexercisable - ----------------------------------------------------------------------------------------- George Borst None $0 0 Exercisable/ 0 Exercisable/ 2,000 Unexercisable 0 Unexercisable Mike Deaderick None $0 0 Exercisable/ 0 Exercisable/ 2,000 Unexercisable 0 Unexercisable
-97- Compensation of Directors No amounts are paid to members of the TMCC Board of Directors for their services as directors. Compensation Committee Interlocks and Insider Participation Members of the Executive Committee of the Board of Directors, which consists of the directors of TMCC other than Mr. Araki and Mr. Ishizaka, participate in decisions regarding the compensation of the executive officers of the Company. Certain of the members of the Executive Committee are current or former executive officers of the Company. Certain of the members of the Executive Committee are also current executive officers and directors of TFSC and TMS and its affiliates and participate in compensation decisions for those entities. -98- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of the date hereof, all of TMCC's capital stock is owned by TFSA. As of March 31, 2002, TMCC's directors and named executive officers, individually and as a group, owned less then 1% of the total outstanding stock of TMC, the Company's ultimate parent. ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS. Transactions between the Company, TFSA, TFSC, TMS TMMNA and others are included in Note 2 - Summary of Significant Accounting Policies, Note 12 - Pension and Other Benefit Plans, Note 15 - Related Party Transactions, Note 17 - Commitment and Contingent Liabilities and Note 20 - Subsequent Events of the Notes to the Consolidated Financial Statements as well as Item 1 and Item 7. Certain directors and executive officers of TMCC are also directors and executive officers of TFSA, TFSC, TMS and TMC as described in Item 10. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1)Financial Statements Included in Part II, Item 8 of this Form 10-K. See Index to Financial Statements on page 45. (2)Exhibits The exhibits listed on the accompanying Exhibit Index, starting on page 101, are filed as part of, or incorporated by reference into, this Report. (b)Reports on Form 8-K The following reports on Form 8-K were filed by the registrant during the quarter ended March 31, 2002: Date of Report Items Reported ----------------- ---------------------- February 8, 2002 Item 5. Other Events Item 7c. Exhibits -99- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Torrance, State of California, on the 30th day of May, 2002. TOYOTA MOTOR CREDIT CORPORATION By /s/ George E. Borst ------------------------------ George E. Borst President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on the 30th day of May, 2002. Signature Title --------- ----- President and Chief Executive Officer and Director /s/ George E. Borst (Principal Executive Officer) - ------------------------------------ George E. Borst Executive Vice President and /s/ Nobukazu Tsurumi Treasurer and Director - ------------------------------------ Nobukazu Tsurumi Vice President and Chief Financial Officer /s/ John F. Stillo (Principal Financial Officer) - ------------------------------------ John F. Stillo Corporate Controller /s/ Larry Spangler (Principal Accounting Officer) - ------------------------------------ Larry Spangler /s/ David Pelliccioni Director - ------------------------------------ David Pelliccioni /s/ Yoshimi Inaba Director - ------------------------------------ Yoshimi Inaba /s/ James Press Director - ------------------------------------ James Press -100- EXHIBIT INDEX Method Exhibit of Number Description Filing - ------- ----------- -------- 3.1(a) Articles of Incorporation filed with the California Secretary of State on October 4, 1982. (1) 3.1(b) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on January 24, 1984. (1) 3.1(c) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on January 25, 1985. (1) 3.1(d) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on September 6, 1985. (1) 3.1(e) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on February 28, 1986. (1) 3.1(f) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on December 3, 1986. (1) 3.1(g) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on March 9, 1987. (1) 3.1(h) Certificate of Amendment of Articles of Incorporation filed with the California Secretary of State on December 20, 1989. (2) 3.2 Bylaws as amended through December 8, 2000. (6) 4.1 Issuing and Paying Agency Agreement dated August 1, 1990 between TMCC and Bankers Trust Company. (3) 4.2(a) Indenture dated as of August 1, 1991 between TMCC and The Chase Manhattan Bank, N.A. (4) - ----------------- (1) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Registration Statement on Form S-1, File No. 33-22440. (2) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Report on Form 10-K for the year ended September 30, 1989, Commission File number 1-9961. (3) Incorporated herein by reference to Exhibit 4.2 filed with TMCC's Report on Form 10-K for the year ended September 30, 1990, Commission File number 1-9961. (4) Incorporated herein by reference to Exhibit 4.1(a), filed with TMCC's Registration Statement on Form S-3, File No. 33-52359. (6) Incorporated herein by reference to the same numbered Exhibit filed with TMCC's Report on Form 10-Q for the quarter ended December 31, 2000, Commission File number 1-9961. -101- EXHIBIT INDEX Method Exhibit of Number Description Filing - ------- ----------- ------ 4.2(b) First Supplemental Indenture dated as of October 1, 1991 among TMCC, Bankers Trust Company and The Chase Manhattan Bank, N.A. (5) 4.3 Third Amended and Restated Agency Agreement dated October 4, 2000 among TMCC, The Chase Manhattan Bank, and Chase Manhattan Bank Luxembourg S.A. (24) 4.4 Amendment No.1 dated October 3, 2001 to Third Amended and Restated Agency Agreement dated October 4, 2000 among TMCC, The Chase Manhattan Bank and Chase Filed Manhattan Bank Luxembourg S.A. Herewith 4.5 TMCC has outstanding certain long-term debt as set forth in Note 9 of the Notes to Consolidated Financial Statements. Not filed herein as an exhibit, pursuant to Item 601(b) (4)(iii)(A) of Regulation S-K under the Securities Act of 1933, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10% of the total assets of TMCC and its subsidiaries on a consolidated basis. TMCC agrees to furnish copies of all such instruments to the Securities and Exchange Commission upon request. - ----------------- (5) Incorporated herein by reference to Exhibit 4.1 filed with TMCC's Current Report on Form 8-K dated October 16, 1991, Commission File No. 1-9961. (24) Incorporated herein by reference to Exhibit 4.3 filed with TMCC's Report on Form 10-K for the year ended September 30, 2000, Commission File No. 1-9961. -102- EXHIBIT INDEX Method Exhibit of Number Description Filing - ------- ----------- ------ 10.1 Form of Indemnification Agreement between TMCC and its directors and officers. (12) 10.2(a) Three-year Credit Agreement (the "Three-year Agreement") dated as of September 29, 1994 among TMCC, Morgan Guaranty Trust Company of New York, as agent, and Bank of America National Trust and Savings Association, The Bank of Tokyo, Ltd., The Chase Manhattan Bank, N.A., Citicorp USA, Inc. and Credit Suisse, as Co-Agents. (13) 10.2(b) Amendment No. 1 dated September 28, 1995 to the Three-year Agreement. (14) 10.2(c) Amended and Restated Three-Year Credit Agreement dated September 24, 1996. (16) 10.2(d) Amended and Restated Three-Year Credit Agreement dated September 23, 1997. (17) 10.5(e) Amendment dated March 19, 1999 to the Three-year Agreement. (8) 10.5(f) Amended and Restated Three-Year Credit Agreement dated September 17, 1999. (9) 10.5(g) Fourth Amended and Restated Three-Year Credit Agreement dated September 14, 2000. (27) 10.5(h) Amendment dated February 19, 2002 to the Three Year Filed Credit Agreement Herewith - ---------------- (8) Incorporated herein by reference to Exhibit 10.5(e) filed with TMCC's Current Report on Form 10-K for the year ended September 30, 1999, Commission File No. 1-9961. (9) Incorporated herein by reference to Exhibit 10.5(f) filed with TMCC's Current Report on Form 10-K for the year ended September 30, 1999, Commission File No. 1-9961. (12) Incorporated herein by reference to Exhibit 10.6 filed with TMCC's Registration Statement on Form S-1, Commission File No. 33-22440. (13) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's Report on Form 10-K for the year ended September 30, 1994, Commission File No. 1-9961. (14) Incorporated herein by reference to Exhibit 10.10(a) filed with TMCC's Report on Form 10-K for the year ended September 30, 1995, Commission File No. 1-9961. (16) Incorporated herein by reference to Exhibit 10.9(d) filed with TMCC's Report on Form 10-K for the year ended September 30, 1996, Commission File No. 1-9961. (17) Incorporated herein by reference to Exhibit 10.5(f) filed with TMCC's Report on Form 10-K for the year ended September 30, 1997, Commission File No. 1-9961. (27) Incorporated herein by reference to Exhibit 10.5(g)filed with TMCC's Report on Form 10-K for the year ended September 30, 2000, Commission File No. 1-9961. -103- EXHIBIT INDEX Method Exhibit of Number Description Filing - ------- ----------- ------ 10.5(i) Fourth Amended and Restated 364-Day Credit Agreement dated September 17, 1999 among TMCC, Bank of America N.A. as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi Ltd., and Citicorp USA, Inc. as Documentation Agents, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the other Banks named therein. (23) 10.5(j) Fifth Amended and Restated 364-Day Credit Agreement dated September 14, 2000 among TMCC, Bank of America N.A. as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi Ltd., and Citicorp USA, Inc. as Documentation Agents, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the other Banks named therein. (28) 10.5(k) Sixth Amended and Restated 364-Day Credit Agreement dated September 13, 2001 ("364 Day Agreement") among TMCC, Bank of America N.A. as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi Ltd., and Citicorp USA, Inc. as Documentation Agents, Banc of America Securities LLC as Sole Lead Arranger and Sole Book Manager and the other Filed Banks named therein. Herewith 10.5(l) Amendment dated February 19, 2002 to the 364-Day Filed Agreement. Herewith 10.6 Toyota Motor Sales, U.S.A., Inc. Supplemental Executive Retirement Plan. * (10) 10.7 Toyota Motor Sales, U.S.A., Inc. 401(k) Excess Plan. * (11) 10.8 Form of Agreement for the Grant of an Option to Acquire Warrants to Subscribe for Common Stock of Toyota Motor Filed Corporation. * Herewith - ---------------- (10) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's Report on Form 10-Q for the quarter ended December 31, 1995, Commission File No. 1-9961. (11) Incorporated herein by reference to Exhibit 10.2 filed with TMCC's Report on Form 10-Q for the quarter ended December 31, 1995, Commission File No. 1-9961. *- Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission. (23) Incorporated herein by reference to Exhibit 10.5(g)filed with TMCC's Report on Form 10-K for the year ended September 30, 1999, Commission File No. 1-9961. (28) Incorporated herein by reference to Exhibit 10.5(i)filed with TMCC's Report on Form 10-K for the year ended September 30, 2000, Commission File No. 1-9961. -104- EXHIBIT INDEX Method Exhibit of Number Description Filing - ------- ----------- ------ 10.9 Amended and Restated Trust and Servicing Agreement dated as of October 1, 1996 by and among TMCC, TMTT, Inc., as titling trustee and U.S. Bank National Association, as trust agent. (18) 10.10 Credit Support Agreement dated July 14, 2000 between TFSC and TMC. (29) 10.11 Credit Support Agreement dated October 1, 2000 between TMCC and TFSC. (30) 10.12 Amended and Restated Repurchase Agreement dated effective as of October 1, 2000, between TMCC and TMS (33) 10.13 Shared Services Agreement dated October 1, 2000 between TMCC and TMS. (32) 10.14 Credit Support Fee Agreement dated March 30, 2001 between TMCC and TFSC (34) 12.1 Calculation of ratio of earnings to fixed charges. Filed Herewith 21.1 TMCC's list of subsidiaries. Filed Herewith 23.1 Consent of Independent Accountants. Filed Herewith - ---------------- (18) Incorporated herein by reference to Exhibit 4.1 filed with Toyota Auto Lease Trust 1997-A's Report on Form 8-A dated December 23, 1997, Commission File No. 333-26717 (29) Incorporated herein by reference to Exhibit 10.9 filed with TMCC's Report on Form 10-K for the year ended September 30, 2000, Commission File No. 1-9961. (30) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's Report on Form 10-K for the year ended September 30, 2000, Commission File No. 1-9961. (32) Incorporated herein by reference to Exhibit 10.12 filed with TMCC's Report on Form 10-K for the year ended September 30, 2000, Commission File No. 1-9961. (33) Incorporated herein by reference to Exhibit 10.11 filed with TMCC's Report on Form 10-K for the fiscal year ended March 31, 2001, Commission File No. 1-9961. (34) Incorporated herein by reference to Exhibit 10.13 filed with TMCC's Report on Form 10-K for the fiscal year ended March 31, 2001, Commission File No. 1-9961. -105- EX-4 4 exh44agency.txt Exhibit 4.4 AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED AGENCY AGREEMENT in respect of TOYOTA MOTOR CREDIT CORPORATION'S EURO MEDIUM-TERM NOTE PROGRAM This Amendment No. 1, dated October 3, 2001, is made to the Third Amended and Restated Agency Agreement, dated October 4, 2000 (the "Agreement"), by and among Toyota Motor Credit Corporation (the "Company"), The Chase Manhattan Bank, as Agent (the "Agent"), and Chase Manhattan Bank Luxembourg S.A., as Paying Agent (the "Paying Agent"), in respect of the Company's Euro Medium- Term Note Program (the "Program"). Except as otherwise defined herein, capitalized terms used herein shall have the same meanings ascribed to them in the Agreement. WHEREAS, the Company, the Agent and the Paying Agent desire to amend the Agreement to make certain changes to the Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to amend the Agreement as follows: A. Clause 1 of the Agreement (Definitions and Interpretations) is hereby amended as follows: 1. The definition of "Euroclear" is amended in its entirety as follows: "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear system, and references in this Agreement and each Appendix hereto to "Morgan Guaranty Trust Company of New York, Brussels Office" shall be read as "Euroclear Bank S.A./N.V." 2. The definition of "FSMA" is added as follows: "FSMA" means the Financial Services Markets Act 2000 of the United Kingdom. B. Subclause 11(1) of the Agreement (Duties of the Agent in Connection with Early Redemption) is hereby amended in its entirety as follows: If the Company decides to redeem any Notes for the time being outstanding prior to their Maturity Date in accordance with the Conditions, the Company shall give notice of such decision to the Agent not less than 5 days before the relevant redemption date or such shorter period that is acceptable to the Agent and is set forth in the applicable Pricing Supplement. C. Appendix A (Terms and Conditions of the Notes) is hereby replaced in its entirety with Appendix A attached hereto. D. Appendix B (Forms of Global and Definitive Notes, Coupons, Receipts and Talons) is hereby amended as follows: 1. The second paragraph on page B-1-2 of Appendix B-1 (Form of Temporary Global Note of Toyota Motor Credit Corporation) is amended in its entirety as follows: This Temporary Global Note is issued subject to, and with the benefit of, the Conditions and the Third Amended and Restated Agency Agreement dated as of October 4, 2000, as amended by Amendment No. 1 dated October 3, 2001 (the "Agency Agreement," which expression shall be construed as a reference to that agreement as the same may be amended or supplemented from time to time), between the Company and The Chase Manhattan Bank (the "Agent") and the other agents named therein; provided, however, that the reference to the Conditions shall mean the Conditions in effect on the date of this Temporary Global Note and shall not be affected by any amendments to the Conditions which occur thereafter. 2. The second paragraph on page B-2-2 of Appendix B-2 (Form of Permanent Global Note of Toyota Motor Credit Corporation) is amended in its entirety as follows: This Permanent Global Note is issued subject to, and with the benefit of, the Conditions and the Third Amended and Restated Agency Agreement dated as of October 4, 2000, as amended by Amendment No. 1 dated October 3, 2001 (the "Agency Agreement," which expression shall be construed as a reference to that agreement as the same may be amended or supplemented from time to time), between the Company and The Chase Manhattan Bank (the "Agent") and the other agents named therein; provided, however, that the reference to the Conditions shall mean the Conditions in effect on the date of issue of the Temporary Global Note that originally represented this Note and shall not be affected by any amendments to the Conditions which occur thereafter. 3. The second paragraph on page B-3-2 of Appendix B-3 (Definitive Note of Toyota Motor Credit Corporation) is amended in its entirety as follows: This Note is issued subject to, and with the benefit of, the Conditions and the Third Amended and Restated Agency Agreement dated as of October 4, 2000, as amended by Amendment No. 1 dated October 3, 2001 (the "Agency Agreement." which expression shall be construed as a reference to that agreement as the same may be amended or supplemented from time to time), between the Company and The Chase Manhattan Bank (the "Agent") and the other agents named therein; provided, however, that references to the Conditions shall mean the Conditions in effect on the date of issue of the Temporary Global Note that originally represented this Note and shall not be affected by any amendments to the Conditions which occur thereafter. E. Appendix C (Form of Calculation Agency Agreement) is hereby amended by replacing Recitals A and B as follows: WHEREAS: A. The Company has entered into the Third Amended and Restated Program Agreement with Merrill Lynch International, BNP Paribas, Credit Suisse First Boston (Europe) Limited, Goldman Sachs International, J.P. Morgan Securities Ltd., Morgan Stanley & Co. International Limited, Nomura International plc, and UBS AG, acting through its business group UBS Warburg, dated October 4, 2000, as amended by Amendment No. 1, dated October 3, 2001 (as amended, the "Program Agreement"), under which $16,000,000,000 (or its equivalent in other currencies) in aggregate principal amount of Notes ("Notes") may be outstanding. B. The Notes will be issued subject to and with the benefit of the Third Amended and Restated Agency Agreement, dated as October 4, 2000, as amended by Amendment No. 1, dated October 3, 2001 (as amended, the "Agency Agreement") among the Company, The Chase Manhattan Bank (the "Agent," which expression shall include its successor or successors for the time being under the Agency Agreement) and Chase Manhattan Bank Luxembourg S.A. (the "Paying Agent," which expression shall include its successor or successors for the time being under the Agency Agreement). F. Annex B (Form of Pricing Supplement) to Appendix D (Form of Operating & Administrative Procedures Memorandum) is hereby replaced in its entirety with Annex B to Appendix D attached hereto. G. Annex D (Trading Desk Information) to Appendix D (Form of Operating & Administrative Procedures Memorandum) is hereby replaced in its entirety with Annex D to Appendix D attached hereto. H. Appendix E (Form of the Notes) is hereby replaced in its entirety with Appendix E attached hereto. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Third Amended and Restated Agency Agreement as of the date first above written. The Company TOYOTA MOTOR CREDIT CORPORATION 19001 South Western Avenue Torrance, California 90509 Telephone: (310) 468-4001 Fax: (310) 468-6194 Attention: Vice President, Treasury By: /s/ George E. Borst ------------------- George E. Borst President and Chief Executive Officer The Agent The Chase Manhattan Bank Trinity Tower 9 Thomas More Street London E1W 1YT Telephone: 01202 347430 Fax: 01202 347438 Telex: 8954681 CMB G Attention: Manager, Institutional Trust Services By: /s/ Andrew Dellow ----------------- The Paying Agent Chase Manhattan Bank Luxembourg S.A. 5 Rue Plaetis L-2338 Luxembourg Telephone: 00 352 4626 85236 Fax: 00 352 4626 85380 Telex: 1233 CHASE LU Attention: Manager, Institutional Trust Services By: /s/ Andrew Dellow ----------------- APPENDIX A TERMS AND CONDITIONS OF THE NOTES APPENDIX A TERMS AND CONDITIONS OF THE NOTES The following are the Terms and Conditions (the "Terms and Conditions" or the "Conditions") of the Notes issued on or after the date of this Offering Circular which (subject to completion and amendment and to the extent applicable) will be attached to or incorporated by reference into each global Note and which will be incorporated by reference or endorsed upon each definitive Note. The applicable Pricing Supplement in relation to any Notes may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Notes. The applicable Pricing Supplement will be endorsed upon, or attached to, each temporary global Note, permanent global Note and definitive Note. Reference should be made to "Form of the Notes" in the Offering Circular dated October 3, 2001 (the "Offering Circular") for the form of Pricing Supplement which will include the definitions of certain terms used in the following Terms and Conditions. This Note is one of a Series (as defined below) of Notes (the "Notes," which expression shall mean (i) in relation to any Notes represented by a global Note, units of the lowest Specified Denomination in the Specified Currency of the relevant Notes, (ii) definitive Notes issued in exchange (or partial exchange) for a temporary or permanent global Note, and (iii) any global Note) issued subject to, and with the benefit of, a Third Amended and Restated Agency Agreement dated as of October 4, 2000, as amended (the "Agency Agreement"), and made between Toyota Motor Credit Corporation ("TMCC", which reference does not include the subsidiaries of TMCC) and The Chase Manhattan Bank, London Office, as issuing agent and (unless specified otherwise in the applicable Pricing Supplement) principal paying agent and (unless specified otherwise in the applicable Pricing Supplement) as calculation agent (the "Agent", which expression shall include any successor agent or any other Calculation Agent specified in the applicable Pricing Supplement) and the other paying agents named therein (together with the Agent, the "Paying Agents", which expression shall include any additional or successor paying agents). The Notes, Receipts and Coupons also have the benefits of certain Credit Support Agreements governed by Japanese law, one between Toyota Motor Corporation ("TMC") and Toyota Financial Services Corporation ("TFS") dated July 14, 2000 and the other between TFS and TMCC, dated October 1, 2000. Interest-bearing definitive Notes will (unless otherwise indicated in the applicable Pricing Supplement) have interest coupons ("Coupons") and, if indicated in the applicable Pricing Supplement, talons for further Coupons ("Talons") attached on issue. Any reference herein to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons. Definitive Notes repayable in installments will have receipts ("Receipts") for the payment of the installments of principal (other than the final installment) attached on issue. As used herein, "Series" means all Notes which are denominated in the same currency and which have the same Maturity Date, Interest Basis, Redemption/Payment Basis and Interest Payment Dates (if any) (all as indicated in the applicable Pricing Supplement) and the terms of which (except for the Issue Date or the Interest Commencement Date (as the case may be) and/or the Issue Price (as indicated as aforesaid)) are otherwise identical (including whether or not the Notes are listed) and the expressions "Notes of the relevant Series" and "holders of Notes of the relevant Series" and related expressions shall be construed accordingly. As used herein, "Tranche" means all Notes of the same Series with the same Issue Date and Interest Commencement Date (if applicable). The Pricing Supplement applicable to any particular Note or Notes is attached hereto or endorsed hereon and supplements these Terms and Conditions and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these Terms and Conditions, replace or modify these Terms and Conditions for the purposes of such Note or Notes. References herein to the "applicable Pricing Supplement" shall mean the Pricing Supplement attached hereto or endorsed hereon. Copies of the Agency Agreement (which contains the form of Pricing Supplement), the Offering Circular and the Pricing Supplement applicable to any particular Note or Notes (if listed) are available for inspection at the specified offices of the Agent and each of the other Paying Agents. The holders of the Notes (the "Noteholders"), which expression shall, in relation to any Notes represented by a global Note, be construed as provided in Condition 1, the holders of the Coupons (the "Couponholders") and the holders of Receipts (the "Receiptholders") are deemed to have notice of the Agency Agreement, the applicable Pricing Supplement and the Offering Circular, and are entitled to the benefit of all the provisions of the Agency Agreement and the applicable Pricing Supplement, which are binding on them. A temporary or permanent global Note will be exchangeable in whole, but not in part, for security printed definitive Notes with, where applicable, Receipts, Coupons and Talons attached not earlier than the date (the "Exchange Date") which is 40 days after completion of the distribution of the relevant Tranche, provided that certification of non-U.S. beneficial ownership has been received: (i) at the option of TMCC; (ii) unless stated otherwise in the applicable Pricing Supplement, at the option of holders of an interest in the temporary or permanent global Note upon such notice as is specified in the applicable Pricing Supplement from Euroclear Bank S.A./N.V., as operator of the Euroclear System ("Euroclear") or Clearstream Banking, societe anonyme, ("Clearstream, Luxembourg") (as the case may be) acting on instructions of the holders of interest in the temporary or permanent global Note and/or subject to the payment of costs in connection with the printing and distribution of the definitive Notes, if specified in the applicable Pricing Supplement; (iii) if, after the occurrence of an Event of Default, holders representing at least a majority of the outstanding principal amount of the Notes of a Series, acting together as a single class, advise the Agent through Euroclear and Clearstream, Luxembourg that they wish to receive definitive Notes; or (iv) Euroclear, Clearstream, Luxembourg and any other relevant clearance system for the temporary or permanent global Note are all no longer willing or able to discharge properly their responsibilities with respect to such Notes and the Agent and TMCC are unable to locate a qualified successor. Words and expressions defined in the Agency Agreement, defined elsewhere in the Offering Circular or used in the applicable Pricing Supplement shall have the same meanings where used in these Terms and Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between the Agency Agreement and the applicable Pricing Supplement, the applicable Pricing Supplement will prevail. 1. Form, Denomination and Title The Notes in this Series are in bearer form and, in the case of definitive Notes, serially numbered in the Specified Currency (or Currencies in the case of Dual Currency Notes) and in the Specified Denomination(s) specified in the applicable Pricing Supplement. This Note may be a Note bearing interest on a fixed rate basis ("Fixed Rate Note"), a Note bearing interest on a floating rate basis ("Floating Rate Note"), a Note issued on a non-interest bearing basis ("Zero Coupon Note"), a Note with respect to which interest is calculated by reference to an index and/or a formula ("Index Linked Interest Note) or any combination of the foregoing, depending upon the Interest Basis specified in the applicable Pricing Supplement. This Note may be a Note with respect to which principal is calculated by reference to an index and/or a formula ("Index Linked Redemption Note"), a Note redeemable in installments ("Installment Note"), a Note with respect to which principal and/or interest is payable in one or more Specified Currencies other than the Specified Currency in which it is denominated ("Dual Currency Note"), a Note which is issued on a partly paid basis ("Partly Paid Note") or a combination of any of the foregoing, depending on the Redemption/Payment Basis shown in the applicable Pricing Supplement. (Where appropriate in the context, "Index Linked Interest Notes" and "Index Linked Redemption Notes" are referred to collectively as "Index Linked Notes".) The appropriate provisions of these Terms and Conditions will apply accordingly. Notes in definitive form are issued with Coupons attached, unless they are Zero Coupon Notes in which case references to interest (other than interest due after the Maturity Date), Coupons and Couponholders in these Terms and Conditions are not applicable. Wherever Dual Currency Notes or Index Linked Notes are issued to bear interest on a fixed or floating rate basis or on a non-interest bearing basis, the provisions in these Terms and Conditions relating to Fixed Rate Notes, Floating Rate Notes and Zero Coupon Notes, respectively, shall, where the context so admits, apply to such Dual Currency Notes or Index Linked Notes. Except as set out below, title to the Notes, Receipts and Coupons will pass by delivery. The holder of each Coupon or Receipt, whether or not such Coupon or Receipt is attached to a Note, in his capacity as such, shall be subject to and bound by all the provisions contained in the relevant Note. TMCC and any Paying Agent may deem and treat the bearer of any Note, Receipt or Coupon as the absolute owner thereof (whether or not overdue and notwithstanding any notice to the contrary, including any notice of ownership or writing thereon or notice of any previous loss or theft thereof) for all purposes but, in the case of any global Note, without prejudice to the provisions set out in the next succeeding paragraph. For so long as any of the Notes are represented by a global Note, each person who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular principal amount of Notes other than a clearing agency (including Clearstream, Luxembourg and Euroclear) that is itself an account holder of Clearstream, Luxembourg or Euroclear (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes except in the case of manifest error) shall be treated by TMCC, the Agent and any other Paying Agent as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal (including premium (if any)) or interest on the Notes, the right to which shall be vested, as against TMCC, the Agent and any other Paying Agent solely in the bearer of the relevant global Note in accordance with and subject to its terms (and the expressions "Noteholder" and "holder of Notes" and related expressions shall be construed accordingly). Notes which are represented by a global Note will be transferable only in accordance with the rules and procedures for the time being of Euroclear or of Clearstream, Luxembourg, as the case may be. Any reference herein to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearance system approved by TMCC and the Agent. If the Specified Currency of this Note is a currency of one of the member states participating in European economic and monetary union, and if specified in the applicable Pricing Supplement, this Note shall permit Redenomination, Exchange and Consolidation (as defined, and in the manner set forth, in Condition 17 below or in such other manner as set forth in the applicable Pricing Supplement) at the option of TMCC. 2. Status of the Notes and the Credit Support Agreements The Notes will be unsecured general obligations of TMCC and will rank pari passu with all other unsecured and unsubordinated indebtedness for borrowed money of TMCC from time to time outstanding. The Notes are not guaranteed by any affiliate of TMCC. Holders of the Notes, Receipts and Coupons have the benefits of the Credit Support Agreements governed by Japanese law, one between TMC and TFS dated July 14, 2000 and the other between TFS and TMCC dated October 1, 2000. 3. Further Issues If indicated in the applicable Pricing Supplement, TMCC may from time to time, without the consent of the holders of Notes, Receipts or Coupons of a Series, create and issue further Notes of the same Series having the same terms and conditions as the Notes (or the same terms and conditions save for the first payment of interest thereon and the Issue Date thereof) so that the same shall be consolidated and form a single Series with the outstanding Notes and references in the Conditions to "Notes" shall be construed accordingly. 4. Interest (a) Interest on Fixed Rate Notes and Business Day Convention for Notes other than Floating Rate Notes and Index Linked Interest Notes Each Fixed Rate Note bears interest on its outstanding nominal amount (or if it is a Partly Paid Note, the amount paid up) from (and including) the Interest Commencement Date which is specified in the applicable Pricing Supplement (or the Issue Date, if no Interest Commencement Date is separately specified) to but excluding the Maturity Date specified in the applicable Pricing Supplement at the rate(s) per annum equal to the Fixed Rate(s) of Interest specified in the applicable Pricing Supplement payable in arrears on the Interest Payment Date(s) in each year and on the Maturity Date so specified if it does not fall on a Interest Payment Date. Except as provided in the applicable Pricing Supplement, the amount of interest payable on each Interest Payment Date in respect of the Fixed Interest Period ending on such date will amount to the Fixed Coupon Amount as specified in the applicable Pricing Supplement. Payments of interest on any Interest Payment Date will, if so specified in the applicable Pricing Supplement, amount to the Broken Amount(s) so specified. As used in these Conditions, "Fixed Interest Period" means the period from (and including) an Interest Payment Date (or the Interest Commencement Date or Issue Date, as applicable) to (but excluding) the next (or first) Interest Payment Date or Maturity Date. Unless specified otherwise in the applicable Pricing Supplement, the "Following Business Day Convention" will apply to the payment of all Notes other than Floating Rate Notes or Indexed Linked Interest Notes, meaning that if the Interest Payment Date or Maturity Date would otherwise fall on a day which is not a Business Day (as defined in Condition 4(b)(i) below), the related payment of principal or interest will be made on the next succeeding Business Day as if made on the date such payment was due. If the "Modified Following Business Day Convention" is specified in the applicable Pricing Supplement for any Note (other than a Floating Rate Note or an Index Linked Interest Note), it shall mean that if the Interest Payment Date or Maturity Date would otherwise fall on a day which is not a Business Day (as defined in Condition 4(b)(i) below), the related payment of principal or interest will be made on the next succeeding Business Day as if made on the date such payment was due unless it would thereby fall into the next calendar month in which event the full amount of payment shall be made on the immediately preceding Business Day as if made on the day such payment was due. Unless specified otherwise in the applicable Pricing Supplement, the amount of interest due shall not be changed if payment is made on a day other than an Interest Payment Date or the Maturity Date as a result of the application of a Business Day Convention specified above or other Business Day Convention specified in the applicable Pricing Supplement. If interest is required to be calculated for a period ending other than on an Interest Payment Date (which for this purpose shall not include a period where a payment is made on a day other than an Interest Payment Date or the Maturity Date as a result of the application of a Business Day Convention as provided in the immediately preceding paragraph, unless specified otherwise in the applicable Pricing Supplement), such interest shall be calculated by applying the Fixed Rate of Interest to each Specified Denomination, multiplying such sum by the applicable Fixed Day Count Fraction or other Day Count Fraction specified in the Pricing Supplement, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. In these Conditions, "Fixed Day Count Fraction" means: 1)if "Actual/Actual (ISMA)" is specified in the applicable Pricing Supplement, the number of days in the relevant period from and including the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to but excluding the relevant payment date divided by (x) in the case of Notes where interest is scheduled to be paid only by means of regular annual payments, the number of days in the period from and including the most recent Interest Payment Date (or, if none, the Interest Commencement Date or Issue Date, as applicable) to but excluding the next scheduled Interest Payment Date or (y) in the case of Notes where interest is scheduled to be paid other than only by means of regular annual payments, the product of the number of days in the period from and including the most recent Interest Payment Date (or, if none, the Interest Commencement Date or Issue Date, as applicable) to but excluding the next scheduled Interest Payment Date and the number of Interest Payment Dates that would occur in one calendar year assuming interest was to be payable in respect of the whole of that year; (2)if "Actual/Actual (ISDA)" is specified in the applicable Pricing Supplement, the actual number of days in the relevant period from and including the most recent Interest Payment Date (or, if none, the Interest Commencement Date or Issue Date, as applicable) to but excluding the next scheduled Interest Payment Date divided by 365 (or, if any portion of that period falls in a leap year, the sum of (x) the actual number of days in that portion of the period falling in a leap year divided by 366; and (y) the actual number of days in that portion of the period falling in a non-leap year divided by 365); and (3)if "30/360" is specified in the applicable Pricing Supplement, the number of days in the period from and including the most recent Interest Payment Date (or, if none, the Interest Commencement Date or Issue Date, as applicable) to but excluding the next scheduled Interest Payment Date (such number of days being calculated on the basis of 12 30-day months) divided by 360 and, in the case of an incomplete month, the number of days elapsed; and "sub-unit" means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, means one cent. (b) Interest on Floating Rate Notes and Index Linked Interest Notes (i) Interest Payment Dates Each Floating Rate Note and Index Linked Interest Note bears interest on its outstanding nominal amount (or, if it is a Partly Paid Note, the amount paid up) from (and including) the Interest Commencement Date specified in the applicable Pricing Supplement (or the Issue Date, if no Interest Commencement Date is separately specified) and, unless specified otherwise in the applicable Pricing Supplement, such interest will be payable in arrears on the Maturity Date and on either: (A)the Specified Interest Payment Date(s) (each, together with the Maturity Date, an "Interest Payment Date") in each year specified in the applicable Pricing Supplement; or (B)if no Specified Interest Payment Date(s) is/are specified in the applicable Pricing Supplement, each date (each, together with the Maturity Date, an "Interest Payment Date") which falls the number of months or other period specified as the Specified Period in the applicable Pricing Supplement after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date or Issue Date, as applicable. Such interest will be payable in respect of each Interest Period (which expression shall, in these Terms and Conditions, mean the period from (and including) an Interest Payment Date (or the Interest Commencement Date or Issue Date, as applicable) to (but excluding) the next (or first) Interest Payment Date). If a Business Day Convention is specified in the applicable Pricing Supplement and (x) if there is no numerically corresponding day in the calendar month in which an Interest Payment Date should occur or (y) if any Interest Payment Date would otherwise fall on a day which is not a Business Day (as defined below), then, if the Business Day Convention specified is: (1)in any case where Specified Periods are specified in accordance with Condition 4(b)(i)(B) above, the Floating Rate Convention, such Interest Payment Date (i) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (B) below in this subparagraph (1) shall apply mutatis mutandis or (ii) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event (A) such Interest Payment Date shall be brought forward to the immediately preceding Business Day and (B) each subsequent Interest Payment Date shall be the last Business Day in the month which falls the Specified Period after the preceding applicable Interest Payment Date occurred; or (2)the Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day; or (3)the Modified Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Interest Payment Date shall be brought forward to the immediately preceding Business Day; or (4)the Preceding Business Day Convention, such Interest Payment Date shall be brought forward to the immediately preceding Business Day. If the accrual periods for calculating the amount of interest due on any Interest Payment Date are not to be changed even though an Interest Payment Date is changed because the originally scheduled Interest Payment Date falls on a day which is not a Business Day (as defined below), this will be specified in the Pricing Supplement by the notation "no adjustment for period end dates." In these Conditions, "Business Day" means (unless otherwise stated in the applicable Pricing Supplement) a day which is both: (A)a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London and any other Applicable Business Center specified in the applicable Pricing Supplement; and (B)either (1) in relation to Notes denominated in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the principal financial center of the country of the relevant Specified Currency (if other than London and any other Applicable Business Center specified in the applicable Pricing Supplement), or (2) in relation to Notes denominated in euro, a day on which the Trans- European Automated Real-Time Gross Settlement Express Transfer System (the "TARGET system") is open. Unless otherwise provided in the applicable Pricing Supplement, the principal financial center of any country for the purpose of these Terms and Conditions shall be as provided in the 2000 ISDA Definitions, (each as published by the International Swaps and Derivatives Association, Inc.), as amended and updated as of the first Issue Date of the Notes of this Series (the "ISDA Definitions") (except in the case of New Zealand and Australia, where the principal financial center will be as specified in the Pricing Supplement). (ii) Rate of Interest The Rate of Interest payable from time to time in respect of each Series of Floating Rate Notes and Index Linked Interest Notes shall be determined in the manner specified in the applicable Pricing Supplement. (iii) ISDA Determination (A)Where ISDA Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will be the relevant ISDA Rate plus or minus (as indicated in the applicable Pricing Supplement) the Margin (if any) as determined by the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement). For the purposes of this sub-paragraph (A), "ISDA Rate" for an Interest Period means a rate equal to the Floating Rate that would be determined under an interest rate swap transaction for that swap transaction governed by an agreement (regardless of any event of default or termination event thereunder) in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border)(the "ISDA Agreement")(copyright 1992) and evidenced by a Confirmation (as defined in the ISDA Agreement) incorporating the ISDA Definitions with the holder of the relevant Note and under which: (1)the manner in which the Rate of Interest is to be determined is the "Floating Rate Option" as specified in the applicable Pricing Supplement; (2)TMCC is the "Floating Rate Payer"; (3)the Agent or other person specified in the applicable Pricing Supplement is the "Calculation Agent"; (4)the Interest Commencement Date is the "Effective Date"; (5)the aggregate principal amount of the Series is the "Notional Amount"; (6)the relevant Interest Period is the "Designated Maturity" as specified in the applicable Pricing Supplement; (7)the Interest Payment Dates are the "Floating Rate Payer Payment Dates"; (8)the Margin is the "Spread"; (9)the relevant Reset Date is either (i) if the applicable Floating Rate Option is based on the London inter-bank offered rate ("LIBOR") or on the Euro-zone inter-bank offered rate ("EURIBOR") for a currency, the first day of that Interest Period or (ii) in any other case, as specified in the applicable Pricing Supplement; and (10)all other terms are as specified in the applicable Pricing Supplement. (B)When Condition 4(b)(iii)(A) applies, with respect to each relevant Interest Payment Date: (1)the amount of interest determined for such Interest Payment Date shall be the Interest Amount for the relevant Interest Period for the purposes of these Terms and Conditions as though calculated under Condition 4(b)(vi) below; and (2)(i) "Floating Rate", "Floating Rate Option", "Floating Rate Payer", "Effective Date", "Notional Amount", "Floating Rate Payer Payment Dates", "Spread", "Calculation Agent", "Designated Maturity" and "Reset Date" have the meanings given to those terms in the ISDA Definitions, (ii) the definition of "Banking Day" in the ISDA Definitions shall be amended to insert after the words "are open for" in the second line the word "general" and (iii) "Euro-zone" means the region comprised of Member States of the European Union that adopt the single currency in accordance with the Treaty establishing the European Communities, as amended by the Treaty on European Union (the "Treaty"). (iv) Screen Determination Where Screen Rate Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will, subject as provided below, be either: (x)the offered quotation; or (y)the arithmetic mean (rounded, if necessary, to the fifth decimal place with 0.000005 being rounded upwards) of the offered quotations, (expressed as a percentage rate per annum), for the Reference Rate (as specified in the applicable Pricing Supplement) which appears or appear, as the case may be, on the Relevant Screen Page (as set forth in the applicable Pricing Supplement) as at 11:00 a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date (as defined below) in question plus or minus (as specified in the applicable Pricing Supplement) the Margin (if any), all as determined by the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement). Unless specified otherwise in the applicable Pricing Supplement, if five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Agent for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations. In addition: (A)if, in the case of (x) above, no such rate appears or, in the case of (y) above, fewer than two of such offered rates appear at such time or if the offered rate or rates which appears or appear, as the case may be, as at such time do not apply to a period of a duration equal to the relevant Interest Period, the Rate of Interest for such Interest Period shall, subject as provided below and except as otherwise indicated in the applicable Pricing Supplement, be the arithmetic mean (rounded, if necessary, to the fifth decimal place with 0.000005 being rounded upwards) of the offered quotations (expressed as a percentage rate per annum), of which the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) is advised by all Reference Banks (as defined below) as at 11:00 a.m. (London time) on the Interest Determination Date plus or minus (as specified in the applicable Pricing Supplement) the Margin (if any), all as determined by the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement); (B)except as otherwise indicated in the applicable Pricing Supplement, if on any Interest Determination Date to which Condition 4(b)(iv)(A) applies two or three only of the Reference Banks advise the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) of such offered quotations, the Rate of Interest for the next Interest Period shall, subject as provided below, be determined as in Condition 4(b)(iv)(A) on the basis of the rates of those Reference Banks advising such offered quotations; (C)except as otherwise indicated in the applicable Pricing Supplement, if on any Interest Determination Date to which Condition 4(b)(iv)(A) applies one only or none of the Reference Banks advises the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) of such rates, the Rate of Interest for the next Interest Period shall, subject as provided below and except as otherwise indicated in the applicable Pricing Supplement, be whichever is the higher of: (1)the Rate of Interest in effect for the last preceding Interest Period to which Condition 4(b)(iv)(A) shall have applied (plus or minus (as specified in the applicable Pricing Supplement), where a different Margin is to be applied to the next Interest Period than that which applied to the last preceding Interest Period, the Margin relating to the next Interest Period in place of the Margin relating to the last preceding Interest Period); or (2)the reserve interest rate (the "Reserve Interest Rate") which shall be the rate per annum which the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) determines to be either (x) the arithmetic mean (rounded, if necessary, to the fifth decimal place with 0.000005 being rounded upwards) of the lending rates for the Specified Currency which banks selected by the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) in the principal financial center of the country of the Specified Currency (which, if Australian dollars, shall be Sydney, if New Zealand dollars, shall be Auckland and if euro, shall be London, unless specified otherwise in the applicable Pricing Supplement) are quoting on the relevant Interest Determination Date for the next Interest Period to the Reference Banks or those of them (being at least two in number) to which such quotations are, in the opinion of the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement), being so made plus or minus (as specified in the applicable Pricing Supplement) the Margin (if any), or (y) in the event that the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) can determine no such arithmetic mean, the lowest lending rate for the Specified Currency which banks selected by the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) in the principal financial center of the country of the Specified Currency (which, if Australian dollars, shall be Sydney, if New Zealand dollars, shall be Auckland and if euro, shall be London, unless specified otherwise in the applicable Pricing Supplement) are quoting on such Interest Determination Date to leading European banks for the next Interest Period plus or minus (as specified in the applicable Pricing Supplement) the Margin (if any), provided that if the banks selected as aforesaid by the Agent (or such other Calculation Agent specified in the applicable Pricing Supplement) are not quoting as mentioned above, the Rate of Interest shall be the Rate of Interest specified in (1) above; (D)the expression "Reference Screen Page" means such page, whatever its designation, on which the Reference Rate that is for the time being displayed on the Reuters Monitor Money Rates Service or Dow Jones Markets Limited or other such service, as specified in the applicable Pricing Supplement; (E)unless otherwise specified in the applicable Pricing Supplement, the Reference Banks will be the principal London offices of The Chase Manhattan Bank, National Westminster Bank PLC, UBS AG and The Bank of Tokyo-Mitsubishi International PLC. TMCC shall procure that, so long as any Floating Rate Note or Index Linked Interest Note to which Condition 4(b)(iv)(A) is applicable remains outstanding, in the case of any bank being unable or unwilling to continue to act as a Reference Bank, TMCC shall specify the London office of some other leading bank engaged in the eurodollar market to act as such in its place; (F)the expression "Interest Determination Date" means, unless otherwise specified in the applicable Pricing Supplement, (x) other than in the case of Condition 4(b)(iv)(A), with respect to Notes denominated in any Specified Currency other than Sterling or euro, the second Banking Day in London prior to the commencement of the relevant Interest Period and, in the case of Condition 4(b)(iv)(A), the second Banking Day in the principal financial center of the country of the Specified Currency (which, if Australian dollars, shall be Sydney, if New Zealand dollars, shall be Auckland and if euro, shall be London) prior to the commencement of the relevant Interest Period; (y) with respect to Notes denominated in Sterling, the first Banking Day in London of the relevant Interest Period; and (z) with respect to Notes denominated in euro, the second day on which the TARGET system is open prior to the commencement of the relevant Interest Period. (G)the expression "Banking Day" means, in respect of any place, any day on which commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits) in that place or, as the case may be, as indicated in the applicable Pricing Supplement; and (H)if the Reference Rate from time to time in respect of Floating Rate Notes or Index Linked Interest Notes is specified in the applicable Pricing Supplement as being other than LIBOR or EURIBOR, any additional provisions relevant in determining the Rate of Interest in respect of such Notes will be set forth in the applicable Pricing Supplement. (v) Minimum and/or maximum Rate of Interest If the applicable Pricing Supplement specifies a Minimum Rate of Interest for any Interest Period, then in no event shall the Rate of Interest for such Interest Period be less than such Minimum Rate of Interest. If the applicable Pricing Supplement specifies a Maximum Rate of Interest for any Interest Period, then in no event shall the Rate of Interest for such Interest Period be greater than such Maximum Rate of Interest. (vi) Determination of Rate of Interest and calculation of Interest Amount The Agent (or, if the Agent is not the Calculation Agent, the Calculation Agent specified in the applicable Pricing Supplement) will, at or as soon as practicable after each time at which the Rate of Interest is to be determined, determine the Rate of Interest (subject to any Minimum or Maximum Rate of Interest specified in the applicable Pricing Supplement) and calculate the amount of interest (the "Interest Amount") payable on the Floating Rate Notes or Index Linked Interest Notes in respect of each Specified Denomination for the relevant Interest Period. Each Interest Amount shall be calculated by applying the Rate of Interest to each Specified Denomination, multiplying such product by the applicable Day Count Fraction, as specified in the applicable Pricing Supplement, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any sub-unit being rounded upwards or otherwise in accordance with applicable market convention or as specified in the applicable Pricing Supplement. "Day Count Fraction" means, in respect of the calculation of an amount of interest for any Interest Period: (i)if "Actual/365" or "Actual/Actual" is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365 (or, if any portion of that Interest Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Interest Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Interest Period falling in a non-leap year divided by 365); (ii)if "Actual/365 (Fixed)" is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365; (iii)if "Actual/360" is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 360; (iv)if "30/360", "360/360" or "Bond Basis" is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months (unless (a) the last day in the Interest Period is the 31st day of a month but the first day of the Interest Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or (b) the last day of the Interest Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month); (v)if "30E/360" or "Eurobond Basis" is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months, without regard to the date of the first day or last day of the Interest Period unless, in the case of an Interest Period ending on the Maturity Date, the Maturity Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month); and (vi)if "Sterling/FRN" is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 365 or, in the case of an Interest Payment Date falling in a leap year, 366. (vii) Notification of Rate of Interest and Interest Amount The Agent will notify or cause to be notified TMCC and any stock exchange on which the relevant Floating Rate Notes or Index Linked Interest Notes are listed of the Rate of Interest and each Interest Amount for each Interest Period and the relevant Interest Payment Date and will cause the same to be published in accordance with Condition 16 as soon as possible after their determination but in no event later than the fourth London Business Day after their determination. Each Interest Amount and Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without publication as aforesaid or prior notice in the event of an extension or shortening of the Interest Period in accordance with the provisions hereof. Each stock exchange on which the relevant Floating Rate Notes or Index Linked Interest Notes are for the time being listed will be promptly notified of any such amendment. For the purposes of this subparagraph (vii), the expression "London Business Day" means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for general business in London. (viii) Certificates to be final All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this paragraph (b), whether by the Agent or other Calculation Agent, shall (in the absence of willful default, bad faith or manifest error) be binding on TMCC, the Agent, the Calculation Agent the other Paying Agents and all Noteholders, Receiptholders and Couponholders and (in the absence as aforesaid) no liability to TMCC, the Noteholders, the Receiptholders or the Couponholders shall attach to the Agent or the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant to such provisions. (ix) Limitations on Interest In addition to any Maximum Rate of Interest which may be applicable to any Floating Rate Note or Index Linked Interest Notes pursuant to Condition 4(b)(v) above, the interest rate on Floating Rate Notes or Index Linked Interest Notes shall in no event be higher than the maximum rate permitted by New York law, as the same may be modified by United States law of general application. (c) Index Linked Notes and Dual Currency Notes In the case of Index Linked Notes or Dual Currency Notes, if the Rate of Interest or Interest Amount cannot be determined by reference to an index and/or a formula or, as the case may be, an exchange rate, such Rate of Interest or Interest Amount payable shall be determined in the manner specified in the applicable Pricing Supplement. (d) Zero Coupon Notes When a Zero Coupon Note becomes due and repayable prior to the Maturity Date and is not paid when due, the amount due and repayable shall be the Amortized Face Amount of such Note as determined in accordance with Condition 5(f)(iii). As from the Maturity Date, any overdue principal of such Note shall bear interest at a rate per annum equal to the Accrual Yield set forth in the applicable Pricing Supplement. (e) Partly Paid Notes In the case of Partly Paid Notes (other than Partly Paid Notes which are Zero Coupon Notes), interest will accrue as aforesaid on the paid up nominal amount of such Notes and otherwise as specified in the applicable Pricing Supplement. (f) Accrual of Interest Each Note (or in the case of the redemption in part only of a Note, such part to be redeemed) will cease to bear interest (if any) from the due date for its redemption unless, upon due presentation thereof, payment of principal is improperly withheld or refused. In such event, interest will continue to accrue (as well after as before judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the holder of such Note; and (ii) the day on which the Agent has notified the holder thereof (either in accordance with Condition 16 or individually) of receipt of all sums due in respect thereof up to that date. 5. Redemption and Purchase (a) At Maturity Unless otherwise indicated in the applicable Pricing Supplement and unless previously redeemed or purchased and cancelled as specified below, Notes will be redeemed by TMCC at their Final Redemption Amount specified in, or determined in the manner specified in, the applicable Pricing Supplement in the relevant Specified Currency on the Maturity Date specified in the applicable Pricing Supplement. (b) Redemption for Tax Reasons TMCC may redeem the Notes of this Series as a whole but not in part at any time at their Early Redemption Amount, together, if appropriate, with accrued interest to but excluding the date fixed for redemption, if TMCC shall determine that as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of the United States of America or of any political subdivision or taxing authority thereof or therein affecting taxation, or any change in application or official interpretation of such laws, regulations or rulings, which amendment or change is effective on or after the latest Issue Date of the Notes of this Series, TMCC would be required to pay Additional Amounts, as provided in Condition 9, on the occasion of the next payment due in respect of the Notes of this Series. The Notes of this Series are also subject to redemption as a whole but not in part in the other circumstances described in Condition 9. Notice of intention to redeem Notes will be given at least once in accordance with Condition 16 not less than 30 days nor more than 60 days prior to the date fixed for redemption, provided that no such notice of redemption shall be given earlier than 90 days prior to the effective date of such change or amendment and that at the time notice of such redemption is given, such obligation to pay such Additional Amounts remains in effect. From and after any redemption date, if monies for the redemption of Notes shall have been made available for redemption on such redemption date, such Notes shall cease to bear interest, if applicable, and the only right of the holders of such Notes and any Receipts or Coupons appertaining thereto shall be to receive payment of the Early Redemption Amount and, if appropriate, all unpaid interest accrued to such redemption date. (c) Pricing Supplement The Pricing Supplement applicable to the Notes of this Series shall indicate either: (i)that the Notes of this Series cannot be redeemed prior to their Maturity Date (except as otherwise provided in paragraph (b) above and in Condition 13); or (ii)that such Notes will be redeemable at the option of TMCC and/or the holders of the Notes prior to such Maturity Date in accordance with the provisions of paragraphs (d) and/or (e) below on the date or dates and at the amount or amounts indicated in the applicable Pricing Supplement. (d) Redemption at the Option of TMCC If so specified in the applicable Pricing Supplement, TMCC may, having given: (i)not more than 60 nor less than 30 days notice to the holders of the Notes of this Series in accordance with Condition 16, or such other notice as is specified in the applicable Pricing Supplement; and (ii)not less than 5 days before the date the notice referred to in (i) is required to be given (or such other notice as is specified in the applicable Pricing Supplement), notice to the Agent; (which notice shall be irrevocable), repay all or some only of the Notes of this Series then outstanding on the Optional Redemption Date(s) and at the Optional Redemption Amount(s) indicated in the applicable Pricing Supplement together, if appropriate, with accrued interest. In the event of a redemption of some only of such Notes of this Series, such redemption must be for an amount being the Minimum Redemption Amount or a Higher Redemption Amount, as indicated in the applicable Pricing Supplement. In the case of a partial redemption of definitive Notes of this Series, the Notes of this Series to be repaid will be selected individually by lot not more than 60 days prior to the date fixed for redemption and a list of the Notes of this Series called for redemption will be published in accordance with Condition 16 not less than 30 days prior to such date, or such other period as is specified in the applicable Pricing Supplement. In the case of a partial redemption of Notes which are represented by a global Note, the relevant Notes will be redeemed in accordance with the rules of Euroclear and/or Clearstream, Luxembourg. Unless specified otherwise in the applicable Pricing Supplement, if an Optional Redemption Date would otherwise fall on a day which is not a Business Day (as defined in Condition 4(b)(i)), it shall be subject to adjustment in accordance with the Business Day Convention applicable to the Notes or such other Business Day Convention specified in the applicable Pricing Supplement. (e) Redemption at the Option of the Noteholders Unless otherwise specified in the applicable Pricing Supplement, the Notes will not be subject to repayment at the option of the Noteholders. The term of any such option shall be set forth in the applicable Pricing Supplement. (f) Early Redemption Amounts For the purposes of paragraph (b) above and Condition 13, Notes will be redeemed at an amount (the "Early Redemption Amount") calculated as follows: (i)in the case of Notes with a Final Redemption Amount equal to the Issue Price, at the Final Redemption Amount thereof; or (ii)in the case of Notes (other than Zero Coupon Notes) with a Final Redemption Amount which is or may be greater or less than the Issue Price or which is payable in a Specified Currency other than that in which the Notes are denominated, at the amount set out in, or determined in the manner set out in, the applicable Pricing Supplement or, if no such amount or manner is set out in the applicable Pricing Supplement, at their nominal amount; or (iii)in the case of Zero Coupon Notes, at an amount (the "Amortized Face Amount") equal to: (A)the sum of (x) the Reference Price specified in the applicable Pricing Supplement and (y) the product of the Accrual Yield specified in the applicable Pricing Supplement (compounded annually) being applied to the Reference Price from (and including) the Issue Date of the first Tranche of the Notes to (but excluding) the date fixed for redemption or (as the case may be) the date upon which such Note becomes due and repayable; or (B)if the amount payable in respect of any Zero Coupon Note upon redemption of such Zero Coupon Note pursuant to paragraph (b) above or upon its becoming due and repayable as provided in Condition 13 is not paid or available for payment when due, the amount due and repayable in respect of such Zero Coupon Note shall be the Amortized Face Amount of such Zero Coupon Note calculated as provided above as though the references in sub-paragraph (A) to the date fixed for redemption or the date upon which the Zero Coupon Note becomes due and repayable were replaced by references to the date (the "Reference Date") which is the earlier of: (1)the date on which all amounts due in respect of the Note have been paid; and (2)the date on which the full amount of the moneys repayable has been received by the Agent and notice to that effect has been given in accordance with Condition 16. The calculation of the Amortized Face Amount in accordance with this sub-paragraph (B) will continue to be made, after as well as before judgment, until the Reference Date unless the Reference Date falls on or after the Maturity Date, in which case the amount due and repayable shall be the nominal amount of such Note together with interest at a rate per annum equal to the Accrual Yield. Unless specified otherwise in the applicable Pricing Supplement, where any such calculation is to be made for a period which is not a whole number of years, it shall be made (I) in the case of a Zero Coupon Note other than a Zero Coupon Note payable in euro, on the basis of a 360-day year consisting of 12 months of 30 days each (or 365/366 days in the case of Notes denominated in Sterling) and, in the case of an incomplete month, the number of days elapsed or (II) in the case of a Zero Coupon Note payable in euro, on the basis of the actual number of days elapsed divided by 365 (or, if any of the days elapsed falls in a leap year, the sum of (x) the number of those days falling in a leap year divided by 366 and (y) the number of those days falling in a non-leap year divided by 365) or (in either case) on such other calculation basis as may be specified in the applicable Pricing Supplement. (g) Installments Any Note which is repayable in installments will be redeemed in the Installment Amounts and on the Installment Dates specified in the applicable Pricing Supplement. (h) Partly Paid Notes If the Notes are Partly Paid Notes, they will be redeemed, whether at maturity, early redemption or otherwise in accordance with the provisions of this Condition 5 as amended or varied by the applicable Pricing Supplement. (i) Purchases TMCC may at any time purchase or otherwise acquire Notes in the open market or otherwise at any price. If purchases are made by tender, tenders must be available to all holders of Notes of a Series alike. (j) Cancellation, Resale or Reissuance at the Option of TMCC All Notes redeemed shall be, and all Notes purchased or otherwise acquired as aforesaid (together, in the case of definitive Notes, with all unmatured Coupons or Receipts attached thereto or purchased or acquired therewith) may, at the option of TMCC, either be (i) resold or reissued, or held by TMCC for subsequent resale or reissuance, or (ii) cancelled, in which event such Notes, Receipts and Coupons may not be resold or reissued. 6. Payments (a) Method of Payment Subject as provided below, payments in a currency other than euro will be made by transfer to an account in the Specified Currency (which, in the case of a payment in Yen to a non-resident of Japan, shall be a non-resident account) maintained by the payee with, or by a check in the Specified Currency drawn on, a bank (which, in the case of a payment in Yen to a non-resident of Japan, shall be an authorized foreign exchange bank) in the principal financial center of the country of such Specified Currency (which, if Australian dollars, shall be Sydney and if New Zealand dollars, shall be Auckland). Payments in euro will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or by euro check. Notwithstanding the above provisions of this Condition 6(a), a check may not be delivered to an address in, and an amount may not be transferred to an account at a bank located in, the United States of America or its possessions by any office or agency of TMCC, the Agent or any Paying Agent, except as provided in Condition 6(b). Payments will be subject in all cases to any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 9. (b) Presentation of Notes, Receipts, Coupons and Talons Payments of principal in respect of definitive Notes will (subject as provided below) be made in the Specified Currency in the manner provided in paragraph (a) against presentation and surrender (or, in the case of part payment of a sum due only, endorsement) of definitive Notes and payments of interest in respect of the definitive Notes will (subject as provided below) be made in the Specified Currency in the manner provided in paragraph (a) against presentation and surrender (or, in the case of part payment of a sum due only, endorsement) of Coupons, in each case at the specified office of any Paying Agent outside the United States of America and its possessions. In the case of definitive Notes, payments of principal with respect to installments (if any), other than the final installment, will (subject as provided below) be made in the manner provided in paragraph (a) against presentation and surrender (or, in the case of part payment of a sum due only, endorsement) of the relevant Receipt. Each Receipt must be presented for payment of the relevant installment together with the relevant definitive Note against which the amount will be payable with respect to that installment. If any definitive Note is redeemed or becomes repayable prior to the stated Maturity Date, principal will be payable in the manner provided in paragraph (a) on presentation and surrender of such definitive Note together with all unmatured Receipts appertaining thereto. Receipts presented without the definitive Note to which they appertain and unmatured Receipts do not constitute valid obligations of TMCC. Upon the date on which any definitive Note becomes due and repayable, unmatured Receipts (if any) appertaining thereto (whether or not attached) shall become void and no payment shall be made in respect thereof. Upon the date on which any Fixed Rate Notes in definitive form (other than Dual Currency Notes or Index Linked Notes) become due and repayable, such Notes should be presented for payment together with all unmatured Coupons appertaining thereto (which expression shall for this purpose include Coupons to be issued on exchange of matured Talons) failing which the amount of any missing unmatured Coupon (or, in the case of payment not being made in full, the same proportion of the aggregate amount of such missing unmatured Coupon as the sum so paid bears to the sum due) will be deducted from the sum due for payment. Unless otherwise specified in the applicable Pricing Supplement, each amount of principal so deducted will be paid in the manner mentioned above against surrender of the related missing Coupon at any time before the expiry of five years after the Relevant Date (as defined in Condition 15) in respect of such principal (whether or not such Coupon would otherwise have become void under Condition 15). Upon any Fixed Rate Note becoming due and repayable prior to its Maturity Date, all unmatured Talons (if any) appertaining thereto will become void and no further Coupons will be issued in respect thereof. Upon the date on which any Floating Rate Note, Dual Currency Note or Index Linked Note in definitive form becomes due and repayable, all unmatured Coupons and Talons (if any) relating thereto (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons, shall be made in respect thereof. If the due date for redemption of any Note in definitive form is not an Interest Payment Date, interest (if any) accrued with respect to such Note from and including the preceding Interest Payment Date or, as the case may be, the Interest Commencement Date or Issue Date (as applicable) shall be payable only against surrender of the relevant definitive Note. Payments of principal and interest (if any) in respect of Notes of this Series represented by any global Note will (subject as provided below) be made in the manner specified above and otherwise in the manner specified in the relevant global Note against presentation or surrender, as the case may be, of such global Note at the specified office of any Paying Agent located outside the United States except as provided below. A record of each payment made against presentation or surrender of such global Note, distinguishing between any payment of principal and any payment of interest, will be made on such global Note by the Agent and such record shall be prima facie evidence that the payment in question has been made. The holder of the relevant global Note shall be the only person entitled to receive payments in respect of Notes represented by such global Note and TMCC will be discharged by payment to, or to the order of, the holder of such global Note with respect to each amount so paid. Each of the persons shown in the records of Euroclear or Clearstream, Luxembourg as the beneficial holder of a particular nominal amount of Notes must look solely to Euroclear and/or Clearstream, Luxembourg, as the case may be, for his share of each payment so made by TMCC to, or to the order of, the holder of the relevant global Note. No person other than the holder of the relevant global Note shall have any claim against TMCC in respect of payments due on that global Note. Notwithstanding the foregoing, payments in respect of the Notes denominated in U.S. dollars will only be made at the specified office of a Paying Agent in the United States (which expression, as used herein, means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction) if: (i)TMCC has appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment at such specified offices outside the United States of the full amount owing in respect of the Notes in the manner provided above when due; (ii)payment of the full amount owing in respect of the Notes at such specified offices outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions; and (iii)such payment is then permitted under United States law without involving, in the opinion of TMCC, adverse tax consequences to TMCC. (c) Payment Business Day Unless specified otherwise in the applicable Pricing Supplement, if the date for payment of any amount in respect of any Note, Receipt or Coupon is not a Payment Business Day in a place of presentation, the holder thereof shall not be entitled to payment until the next following Payment Business Day in the relevant place and shall not be entitled to further interest or other payment in respect of such delay. For these purposes, unless otherwise specified in the applicable Pricing Supplement, "Payment Business Day" means any day which is: (i)a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in: (A)the relevant place of presentation; (B)London; and (C)any other Applicable Business Center specified in the applicable Pricing Supplement; and (ii)either (A) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the principal financial center of the country of the relevant Specified Currency (if other than the place of presentation, London and any other Applicable Business Center and which if the Specified Currency is Australian dollars or New Zealand dollars shall be Sydney or Auckland, respectively, unless specified otherwise in the applicable Pricing Supplement) or (B) in relation to any sum payable in euro, a day on which the TARGET system is open. (d) Interpretation of Principal and Interest Any reference in these Terms and Conditions to principal in respect of the Notes shall be deemed to include, as applicable: (i)any Additional Amounts which may be payable under Condition 9 in respect of principal; (ii)the Final Redemption Amount of the Notes; (iii)the Early Redemption Amount of the Notes; (iv)in relation to Notes redeemable in installments, the Installment Amounts; (v)any premium and any other amounts which may be payable under or in respect of the Notes; (vi)in relation to Zero Coupon Notes, the Amortized Face Amount; and (vii)the Optional Redemption Amount(s) (if any) of the Notes. Any reference in these Terms and Conditions to interest in respect of the Notes shall be deemed to include, as applicable, any Additional Amounts which may be payable under Condition 9, except as provided in clause (i) above. 7. Agent and Paying Agents The names of the initial Agent and the other initial Paying Agent and their initial specified offices are set out on the inside back cover page of the Offering Circular. In acting under the Agency Agreement, the Agent and the Paying Agents will act solely as agents of TMCC and do not assume any obligations or relationships of agency or trust to or with the Noteholders, Receiptholders or Couponholders, except that (without affecting the obligations of TMCC to the Noteholders, Receiptholders and Couponholders to repay Notes and pay interest thereon) funds received by the Agent for the payment of the principal of or interest on the Notes shall be held in trust by it for the Noteholders and/or Receiptholders and/or Couponholders until the expiration of the relevant period of prescription under Condition 15. TMCC agrees to perform and observe the obligations imposed upon it under the Agency Agreement and to use its best efforts to cause the Agent and the Paying Agents to perform and observe the obligations imposed upon them under the Agency Agreement. The Agency Agreement contains provisions for the indemnification of the Agent and the Paying Agents and for relief from responsibility in certain circumstances, and entitles any of them to enter into business transactions with TMCC without being liable to account to the Noteholders, Receiptholders or the Couponholders for any resulting profit. TMCC is entitled to vary or terminate the appointment of any Paying Agent or any other Paying Agent appointed under the terms of the Agency Agreement and/or appoint additional or other Paying Agents and/or approve any change in the specified office through which any Paying Agent acts, provided that: (i)so long as the Notes of this Series are listed on any stock exchange, there will at all times be a Paying Agent with a specified office in each location required by the rules and regulations of the relevant stock exchange or listing authority; (ii)there will at all times be a Paying Agent with a specified office in a city approved by the Agent in continental Europe; (iii)there will at all times be an Agent; and (iv)if any tax, assessment or other governmental charge required to be withheld or deducted by any Paying Agent from any payment of principal or interest in respect of any Note, Receipt or Coupon, where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26th-27th November 2000, the proposal presented by the Commission of the European Communities on July 18, 2001 for a Council Directive to ensure effective taxation of savings income in the form of interest payments within the Community, or any law implementing or complying with, or introduced to conform to, such Directive or law, TMCC will ensure that it maintains a Paying Agent in a Member State of the European Union that will not be obliged to withhold or deduct tax pursuant to any such Directive or law. In addition, with respect to Notes denominated in U.S. dollars, TMCC shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in the final paragraph of Condition 6(b). Any variation, termination, appointment or change shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than 45 days prior notice thereof shall have been given to the Agent and the Noteholders in accordance with Condition 16. 8. Exchange of Talons On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of the Agent or any other Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to, and including, the final date for the payment of interest due in respect of the Note to which it appertains) a further Talon, subject to the provisions of Condition 15. Each Talon shall, for the purposes of these Terms and Conditions, be deemed to mature on the Interest Payment Date on which the final Coupon comprised in the relative Coupon sheet matures. 9. Payment of Additional Amounts TMCC will, subject to certain limitations and exceptions (set forth below), pay to a Noteholder, Receiptholder or Couponholder who is a United States Alien (as defined below) such amounts ("Additional Amounts") as may be necessary so that every net payment of principal or interest in respect of the Notes, Receipts or Coupons, after deduction or withholding for or on account of any present or future tax, assessment or other governmental charge imposed upon such Noteholder, Receiptholder or Couponholder, or by reason of the making of such payment, by the United States or any political subdivision or taxing authority thereof or therein, will not be less than the amount provided for in the Notes, Receipts or Coupons. However, TMCC shall not be required to make any payment of Additional Amounts for or on account of: (a)any tax, assessment or other governmental charge which would not have been imposed but for (i) the existence of any present or former connection between such Noteholder, Receiptholder or Couponholder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over, such Noteholder, Receiptholder or Couponholder, if such Noteholder, Receiptholder or Couponholder is an estate, trust, partnership or corporation) and the United States, including, without limitation, such Noteholder, Receiptholder or Couponholder (or such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or having been a citizen or resident thereof or being or having been present or engaged in trade or business therein or having or having had a permanent establishment therein, or (ii) such Noteholder's, Receiptholder's or Couponholder's past or present status as a personal holding company, foreign personal holding company or controlled foreign corporation or a private foundation (as those terms are defined for United States tax purposes) or as a corporation which accumulates earnings to avoid United States federal income tax; (b)any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or other governmental charge; (c)any tax, assessment or other governmental charge that would not have been so imposed but for the presentation of a Note, Receipt or Coupon for payment on a date more than 15 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (d)any tax, assessment or other governmental charge which is payable otherwise than by withholding from payments of principal or interest in respect of the Notes, Receipts or Coupons; (e)any tax, assessment or other governmental charge imposed on interest received by (i) a 10% shareholder of TMCC within the meaning of Internal Revenue Code Section 871(h)(3)(b) or Section 881(c)(3)(b) or (ii) a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business; (f)any tax, assessment or other governmental charge required to be withheld or deducted by any Paying Agent from any payment of principal or interest in respect of any Note, Receipt or Coupon, if such payment can be made without such withholding or deduction by any other Paying Agent with respect to the Notes in a Western European city; (g)any tax, assessment or other governmental charge which would not have been imposed but for the failure to comply with certification, information, documentation, or other reporting requirements concerning the nationality, residence, identity or connection with the United States of the Noteholder, Receiptholder or Couponholder or of the beneficial owner of such Note, Receipt or Coupon, if such compliance is required by statute or by regulation of the United States Treasury Department as a precondition to relief or exemption from such tax, assessment or other governmental charge; or (h)any tax, assessment or other governmental charge required to be withheld or deducted by any Paying Agent from any payment of principal or interest in respect of any Note, Receipt or Coupon, where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26th - 27th November 2000, the proposal presented by the Commission of the European Communities on July 18, 2001 for a Council Directive to ensure effective taxation of savings income in the form of interest payments within the Community, or any law implementing or complying with, or introduced to conform to, such Directive or law; or (i) any combination of items (a), (b), (c), (d), (e), (f), (g) and (h); nor shall Additional Amounts be paid to any Noteholder, Receiptholder or Couponholder who is a fiduciary or partnership or other than the sole beneficial owner of the Note, Receipt or Coupon to the extent a beneficiary or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner of the Note, Receipt or Coupon would not have been entitled to payment of the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the holder of the Note, Receipt or Coupon. The term "United States Alien" means any corporation, individual, fiduciary or partnership that for United States federal income tax purposes is a foreign corporation, nonresident alien individual, nonresident alien fiduciary of a foreign estate or trust, or foreign partnership one or more members of which is a foreign corporation, nonresident alien individual or nonresident alien fiduciary of a foreign estate or trust. If TMCC shall determine that any payment made outside the United States by TMCC or any of its Paying Agents of the full amount of the next scheduled payment of either principal or interest due in respect of any Note, Receipt or Coupon of this Series would, under any present or future laws or regulations of the United States affecting taxation or otherwise, be subject to any certification, information or other reporting requirements of any kind, the effect of which requirements is the disclosure to TMCC, any of its Paying Agents or any governmental authority of the nationality, residence or identity (as distinguished from status as a United States Alien) of a beneficial owner of such Note, Receipt or Coupon who is a United States Alien (other than such requirements which (i) would not be applicable to a payment made to a custodian, nominee or other agent of the beneficial owner, or which can be satisfied by such a custodian, nominee or other agent certifying to the effect that such beneficial owner is a United States Alien; provided, however, in each case that payment by such custodian, nominee or agent to such beneficial owner is not otherwise subject to any requirements referred to in this sentence, (ii) are applicable only to payment by a custodian, nominee or other agent of the beneficial owner to or on behalf of such beneficial owner, or (iii) would not be applicable to a payment made by any other paying agent of TMCC), TMCC shall redeem the Notes of this Series as a whole but not in part at a redemption price equal to the Early Redemption Amount together, if appropriate, with accrued interest to, but excluding, the date fixed for redemption, such redemption to take place on such date not later than one year after the publication of notice of such determination. If TMCC becomes aware of an event that might give rise to such certification, information or other reporting requirements, TMCC shall, as soon as practicable, solicit advice of independent counsel selected by TMCC to establish whether such certification, information or other reporting requirements will apply and, if such requirements will apply, TMCC shall give prompt notice of such determination (a "Tax Notice") in accordance with Condition 16 stating in such notice the effective date of such certification, information or other reporting requirements and, if applicable, the date by which the redemption shall take place. Notwithstanding the foregoing, TMCC shall not redeem Notes if TMCC shall subsequently determine not less than 30 days prior to the date fixed for redemption that subsequent payments would not be subject to any such requirements, in which case TMCC shall give prompt notice of such determination in accordance with Condition 16 and any earlier redemption notice shall thereby be revoked and of no further effect. Notwithstanding the foregoing, if and so long as the certification, information or other reporting requirements referred to in the preceding paragraph would be fully satisfied by payment of a backup withholding tax or similar charge, TMCC may elect prior to publication of the Tax Notice to have the provisions described in this paragraph apply in lieu of the provisions described in the preceding paragraph, in which case the Tax Notice shall state the effective date of such certification, information or reporting requirements and that TMCC has elected to pay Additional Amounts rather than redeem the Notes. In such event, TMCC will pay as Additional Amounts such amounts as may be necessary so that every net payment made following the effective date of such certification, information or reporting requirements outside the United States by TMCC or any of its Paying Agents of principal or interest due in respect of a Note, Receipt or Coupon to a holder who certifies to the effect that the beneficial owner of such Note, Receipt or Coupon is a United States Alien (provided that such certification shall not have the effect of communicating to TMCC or any of its Paying Agents or any governmental authority the nationality, residence or identity of such beneficial owner) after deduction or withholding for or on account of such backup withholding tax or similar charge (other than a backup withholding tax or similar charge which (i) is imposed as a result of certification, information or other reporting requirements referred to in the second parenthetical clause of the first sentence of the preceding paragraph, or (ii) is imposed as a result of the fact that TMCC or any of its Paying Agents has actual knowledge that the holder or beneficial owner of such Note, Receipt or Coupon is not a United States Alien but is within the category of persons, corporations or other entities described in clause (a)(i) of the third preceding paragraph, or (iii) is imposed as a result of presentation of such Note, Receipt or Coupon for payment more than 15 days after the date on which such payment becomes due and payable or on which payment thereof is duly provided for, whichever occurs later), will not be less than the amount provided for in such Note, such Receipt or such Coupon to be then due and payable. In the event TMCC elects to pay such Additional Amounts, TMCC will have the right, at its sole option, at any time, to redeem the Notes of this Series, as a whole but not in part at a redemption price equal to their Early Redemption Amount, together, if appropriate, with accrued interest to the date fixed for redemption including any Additional Amounts required to be paid under this paragraph. If TMCC has made the determination described in the preceding paragraph with respect to certification, information or other reporting requirements applicable to interest only and subsequently makes a determination in the manner and of the nature referred to in such preceding paragraph with respect to such requirements applicable to principal, TMCC will redeem the Notes of this Series in the manner and on the terms described in the preceding paragraph (except as provided below), unless TMCC elects to have the provisions of this paragraph apply rather than the provisions of the immediately preceding paragraph. If in such circumstances the Notes are to be redeemed, TMCC will be obligated to pay Additional Amounts with respect to interest, if any, accrued to the date of redemption. If TMCC has made the determination described in the preceding paragraph and subsequently makes a determination in the manner and of the nature referred to in such preceding paragraph that the level of withholding applicable to principal or interest has been increased, TMCC will redeem the Notes of this Series in the manner and on the terms described in the preceding paragraph (except as provided below), unless TMCC elects to have the provisions of this paragraph apply rather than the provisions of the immediately preceding paragraph. If in such circumstances the Notes are to be redeemed, TMCC will be obligated to pay Additional Amounts with respect to the original level of withholding on principal and interest, if any, accrued to the date of redemption. 10. Negative Pledge The Notes will not be secured by any mortgage, pledge or other lien. TMCC shall not pledge or otherwise subject to any lien any property or assets of TMCC unless the Notes are secured by such pledge or lien equally and ratably with all other obligations secured thereby so long as such obligations shall be so secured; provided, however, that such covenant will not apply to liens securing obligations which do not in the aggregate at any one time outstanding exceed 5 percent of Consolidated Net Tangible Assets (as defined below) of TMCC and its consolidated subsidiaries and also will not apply to: (a)the pledge of any assets of TMCC to secure any financing by TMCC of the exporting of goods to or between, or the marketing thereof in, countries other than the United States in connection with which TMCC reserves the right, in accordance with customary and established banking practice, to deposit, or otherwise subject to a lien, cash, securities or receivables, for the purpose of securing banking accommodations or as the basis for the issuance of bankers' acceptances or in aid of other similar borrowing arrangements; (b)the pledge of receivables payable in currencies other than United States dollars to secure borrowings in countries other than the United States; (c)any deposit of assets of TMCC with any surety company or clerk of any court, or in escrow, as collateral in connection with, or in lieu of, any bond on appeal by TMCC from any judgment or decree against it, or in connection with other proceedings in actions at law or in equity by or against TMCC or in favor of any governmental bodies to secure progress, advance or other payments in the ordinary course of TMCC's business; (d)any lien or charge on any property of TMCC, tangible or intangible, real or personal, existing at the time of acquisition or construction of such property (including acquisition through merger or consolidation) or given to secure the payment of all or any part of the purchase or construction price thereof or to secure any indebtedness incurred prior to, at the time of, or within one year after, the acquisition or completion of construction thereof for the purpose of financing all or any part of the purchase or construction price thereof; (e)any lien in favor of the United States of America or any state thereof or the District of Columbia, or any agency, department or other instrumentality thereof, to secure progress, advance or other payments pursuant to any contract or provisions of any statute; (f)any lien securing the performance of any contract or undertaking not directly or indirectly in connection with the borrowing of money, obtaining of advances or credit or the securing of debt, if made and continuing in the ordinary course of business; (g)any lien to secure non-recourse obligations in connection with TMCC's engaging in leveraged or single- investor lease transactions; and (h)any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any lien, charge or pledge referred to in clauses (a) through (g) above; provided, however, that the amount of any and all obligations and indebtedness secured thereby will not exceed the amount thereof so secured immediately prior to the time of such extension, renewal or replacement, and that such extension, renewal or replacement will be limited to all or a part of the property which secured the charge or lien so extended, renewed or replaced (plus improvements on such property). "Consolidated Net Tangible Assets" means the aggregate amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom (i) all current liabilities and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles of TMCC and its consolidated subsidiaries, all as set forth on the most recent balance sheet of TMCC and its consolidated subsidiaries prepared in accordance with generally accepted accounting principles as practiced in the United States. 11. Consolidation or Merger TMCC may consolidate with, or sell, lease or convey all or substantially all of its assets as an entirety to, or merge with or into any other corporation provided that in any such case, (i) either TMCC shall be the continuing corporation, or the successor corporation shall be a corporation organized and existing under the laws of the United States of America or any state thereof and such successor corporation shall expressly assume the due and punctual payment of the principal of and interest (including Additional Amounts as provided in Condition 9) on all the Notes, Receipts and Coupons, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Note to be performed by TMCC by an amendment to the Agency Agreement executed by such successor corporation, TMCC and the Agent, and (ii) immediately after giving effect to such transaction, no Event of Default under Condition 13, and no event which, with notice or lapse of time or both, would become such an Event of Default shall have happened and be continuing. In case of any such consolidation, merger, sale, lease or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for TMCC, with the same effect as if it had been named herein as TMCC, and the predecessor corporation, except in the event of a conveyance by way of lease, shall be relieved of any further obligation under this Note and the Agency Agreement. 12. Meetings, Modifications and Waivers The Agency Agreement contains provisions which, unless otherwise provided in the Pricing Supplement, are binding on TMCC, the Noteholders, the Receiptholders and the Couponholders, for convening meetings of holders of Notes, Receipts and Coupons to consider matters affecting their interests, including the modification or waiver of the Terms and Conditions applicable to the Notes. The Agency Agreement, the Notes and any Receipts and Coupons attached to the Notes may be amended by TMCC (and, in the case of the Agency Agreement, the Agent) (i) for the purpose of curing any ambiguity, or for curing, correcting or supplementing any defective provision contained therein, or to evidence the succession of another corporation to TMCC as provided in Condition 11, (ii) to make any further modifications of the terms of the Agency Agreement necessary or desirable to allow for the issuance of any additional Notes (which modifications shall not be materially adverse to holders of outstanding Notes) or (iii) in any manner which TMCC (and, in the case of the Agency Agreement, the Agent) may deem necessary or desirable and which shall not materially adversely affect the interests of the holders of the Notes, Receipts and Coupons, to all of which each holder of Notes, Receipts and Coupons shall, by acceptance thereof, consent. In addition, with the written consent of the holders of not less than a majority in aggregate principal amount of the Notes then outstanding affected thereby, or by a resolution adopted by a majority in aggregate principal amount of such outstanding Notes affected thereby present or represented at a meeting of such holders at which a quorum is present, as provided in the Agency Agreement (provided that such resolution shall be approved by the holders of not less than 25 percent of the aggregate principal amount of Notes affected thereby then outstanding), TMCC and the Agent may from time to time and at any time enter into agreements modifying or amending the Agency Agreement or the terms and conditions of the Notes, Receipts and Coupons for the purpose of adding any provisions to or changing in any manner or eliminating any provisions of the Agency Agreement or of modifying in any manner the rights of the holders of Notes, Receipts and Coupons; provided, however, that no such agreement shall, without the consent or the affirmative vote of the holder of each Note affected thereby, (i) change the stated maturity of the principal of or any installment of interest on any Note, (ii) reduce the principal amount of or interest on any Note, (iii) change the obligation of TMCC to pay Additional Amounts as provided in Condition 9, (iv) reduce the percentage in principal amount of outstanding Notes the consent of the holders of which is necessary to modify or amend the Agency Agreement or the terms and conditions of the Notes or to waive any future compliance or past default, or (v) reduce the percentage in principal amount of outstanding Notes the consent of the holders of which is required at any meeting of holders of Notes at which a resolution is adopted. The quorum at any meeting called to adopt a resolution will be persons holding or representing a majority in aggregate principal amount of the Notes at the time outstanding affected thereby and at any adjourned meeting will be one or more persons holding or representing 25 percent in aggregate principal amount of such Notes at the time outstanding affected thereby. Any instrument given by or on behalf of any holder of a Note in connection with any consent to any such modification, amendment or waiver will be irrevocable once given and will be conclusive and binding on all subsequent holders of such Note. Any modifications, amendments or waivers to the Agency Agreement or to the terms and conditions of the Notes, Receipts and Coupons will be conclusive and binding on all holders of Notes, Receipts and Coupons, whether or not they have given such consent or were present at any meeting, and whether or not notation of such modifications, amendments or waivers is made upon the Notes, Receipts and Coupons. It shall not be necessary for the consent of the holders of Notes under this Condition 12 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. Notes authenticated and delivered after the execution of any amendment to the Agency Agreement, Notes, Receipts or Coupons may bear a notation in form approved by the Agent as to any matter provided for in such amendment to the Agency Agreement. New Notes so modified as to conform, in the opinion of the Agent and TMCC, to any modification contained in any such amendment may be prepared by TMCC, authenticated by the Agent and delivered in exchange for the Notes then outstanding. For the purposes of this Condition 12 and Condition 13 below, the term "outstanding" means, in relation to the Notes, all Notes issued under the Agency Agreement other than (i) those which have been redeemed in full in accordance with the Agency Agreement or these Terms and Conditions, (ii) those in respect of which the date for redemption in accordance with these Terms and Conditions has occurred and the redemption moneys therefor (including all interest (if any) accrued thereon to the date for such redemption and any interest (if any) payable under these Terms and Conditions after such date) have been duly paid to the Agent as provided in the Agency Agreement (and, where appropriate, notice has been given to the Noteholders in accordance with Condition 16) and remain available for payment against presentation of the Notes, (iii) those which have become void under Condition 15, (iv) those which have been purchased or otherwise acquired and cancelled as provided in Condition 5, and those which have been purchased or otherwise acquired and are being held by TMCC for subsequent resale or reissuance as provided in Condition 5 during the time so held, (v) those mutilated or defaced Notes which have been surrendered in exchange for replacement Notes pursuant to Condition 14, (vi) (for the purposes only of determining how many Notes are outstanding and without prejudice to their status for any other purpose) those Notes alleged to have been lost, stolen or destroyed and in respect of which replacement Notes have been issued pursuant to Condition 14 and (vii) temporary global Notes to the extent that they shall have been duly exchanged in whole for permanent global Notes or definitive Notes and permanent global Notes to the extent that they shall have been duly exchanged in whole for definitive Notes, in each case pursuant to their respective provisions. 13. Default and Acceleration (a) In the event that (each an "Event of Default"): (i)default shall be made in the payment when due of any installment of interest or any Additional Amounts on any of the Notes continued for a period of 30 days after the date when due; or (ii)default shall be made for more than three days in the payment when due of the principal of any Note (whether at maturity or upon redemption or otherwise); or (iii)default in the deposit of any sinking fund payment with respect to any Note when and as due; or (iv)TMCC shall fail to perform or observe any other term, covenant or agreement contained in the Terms and Conditions applicable to any of the Notes or in the Agency Agreement for a period of 60 days after the date on which written notice of such failure, requiring TMCC to remedy the same, first shall have been given to the Agent and TMCC by the holders of at least 25 percent in aggregate principal amount of the Notes then outstanding; or (v)there is an acceleration of, or failure to pay when due and payable, any indebtedness for money borrowed of TMCC exceeding $10,000,000 and such acceleration is not rescinded or annulled, or such indebtedness is not discharged, within 10 days after written notice thereof has first been given to TMCC and the Agent by the holders of not less than 10 percent in aggregate principal amount of Notes then outstanding; or (vi)the entry by a court having competent jurisdiction of (a) a decree or order granting relief in respect of TMCC in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) a decree or order adjudging TMCC to be insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of TMCC and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (c) a final and non-appealable order appointing a custodian, receiver, liquidator, assignee, trustee or other similar official of TMCC or of any substantial part of the property of TMCC, or ordering up the winding up or liquidation of the offices of TMCC; or (vii)the commencement by TMCC of a voluntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or of a voluntary proceeding seeking to be adjudicated insolvent or the consent of TMCC to the entry of a decree or order for relief in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any insolvency proceedings against it, or the filing by TMCC of a petition or answer or consent seeking reorganization or relief under any applicable law, or the consent by TMCC to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or similar official of TMCC or any substantial part of the property of TMCC or the making by TMCC of an assignment for the benefit of creditors, or the taking of corporate action by TMCC in furtherance of any such action; then the holder of any Note may, at its option, declare the principal of such Note and the interest, if any, accrued thereon to be due and payable immediately by written notice to TMCC and the Agent at its main office in London, and unless all such defaults shall have been cured by TMCC prior to receipt of such written notice, the principal of such Note and the interest, if any, accrued thereon shall become and be immediately due and payable. At any time after such a declaration of acceleration with respect to the Notes has been made and before a judgment or decree for payment of the money due with respect to any Note has been obtained by any Noteholder, such declaration and its consequences may be rescinded and annulled upon the written consent of holders of a majority in aggregate principal amount of the Notes then outstanding, or by resolution adopted by a majority in aggregate principal amount of the Notes present or represented at a meeting of holders of the Notes at which a quorum is present, as provided in the Agency Agreement, if: (1) TMCC has paid or deposited with the Agent a sum sufficient to pay (A)all overdue installments of interest on the Notes, and (B)the principal of Notes which has become due otherwise than by such declaration of acceleration; and (2) all Events of Default with respect to the Notes, other than the non-payment of the principal of such Notes which has become due solely by such declaration of acceleration, have been cured or waived as provided in paragraph (b) below. No such rescission shall affect any subsequent default or impair any right consequent thereon. (b) Any Events of Default by TMCC, other than the events described in paragraph (a)(i) or (a)(ii) above or in respect of a covenant or provision which cannot be modified and amended without the written consent of the holders of all outstanding Notes, may be waived by the written consent of holders of a majority in aggregate principal amount of the Notes then outstanding affected thereby, or by resolution adopted by the holders of a majority in aggregate principal amount of such Notes then outstanding present or represented at a meeting of holders of the Notes affected thereby at which a quorum is present, as provided in the Agency Agreement. 14. Replacement of Notes, Receipts, Coupons and Talons Should any Note, Receipt, Coupon or Talon be mutilated, defaced or destroyed or be lost or stolen, it may be replaced at the specified office of the Agent in London (or such other place outside the United States as may be notified to the Noteholders), in accordance with all applicable laws and regulations, upon payment by the claimant of the expenses incurred by TMCC and the Agent in connection therewith and on such terms as to evidence, indemnity, security or otherwise as TMCC and the Agent may require. Mutilated or defaced Notes, Receipts, Coupons or Talons must be surrendered before replacements will be issued. 15. Prescription Unless provided otherwise in the applicable Pricing Supplement, the Notes, Receipts and Coupons will become void unless presented for payment within a period of five years from the Relevant Date (as defined below) relating thereto. Any moneys paid by TMCC to the Agent for the payment of principal or interest in respect of the Notes and remaining unclaimed for a period of five years shall forthwith be repaid to TMCC and holders shall thereafter look only to TMCC for payment thereof. All liability with respect thereto shall cease when the Notes, Receipts and Coupons become void. As used herein, the "Relevant Date" means: (A)the date on which such payment first becomes due; or (B)if the full amount of the moneys payable has not been received by the Agent on or prior to such due date, the date on which the full amount of such moneys having been so received, notice to that effect shall have been given to the Noteholders in accordance with Condition 16. 16. Notices All notices regarding the Notes shall be published in one leading English language daily newspaper with circulation in the United Kingdom (which is expected to be the Financial Times) or, if this is not practicable, one other such English language newspaper as TMCC, in consultation with the Agent, shall decide. TMCC shall also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange on which the Notes are for the time being listed or any other relevant authority. Any such notice shall be deemed to have been given on the date of the first publication. Any notice published as aforesaid shall be deemed to have been given on the date of such publication or, if published more than once, on the date of the first such publication. Receiptholders and Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the holders of the Notes in accordance with this Condition. Until such time as any definitive Notes are issued, there may, so long as the global Notes for this Series are held in their entirety on behalf of Euroclear and Clearstream, Luxembourg, be substituted for such publication in such newspaper the delivery of the relevant notice to Euroclear and Clearstream, Luxembourg for communication by them to the holders of the Notes of this Series. Any such notice shall be deemed to have been given to the holders of the Notes of this Series on the seventh day after the day on which the said notice was given to Euroclear and Clearstream, Luxembourg, or on such other day as is specified in the applicable Pricing Supplement. Notices to be given by any holder of the Notes of this Series shall be in writing and given by lodging the same, together with the relevant Note or Notes, with the Agent. While any of the Notes of this Series are represented by a global Note, such notice may be given by any holder of a Note of this Series to the Agent via Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this purpose. 17. Redenomination and Exchange TMCC may (if so specified in the applicable Pricing Supplement) without the consent of the holder of any Note, Receipt, Coupon or Talon, redenominate all, but not some only, of the Notes of any Series on or after the date on which the member state of the European Union in whose national currency such Notes are denominated has become a participant member in the third stage of the European economic and monetary union as more fully set out in the applicable Pricing Supplement. TMCC may (if so specified in the applicable Pricing Supplement) without the consent of the holder of any Note, Receipt, Coupon or Talon, elect that the Notes shall be exchangeable for Notes expressed to be denominated in euro in accordance with such arrangements as TMCC may decide. 18. Governing Law The Agency Agreement and the Notes, the Receipts and the Coupons are governed by, and shall be construed in accordance with, the laws of the State of New York, United States of America, applicable to agreements made and to be performed wholly within such jurisdiction. ANNEX B TO APPENDIX D FORM OF PRICING SUPPLEMENT (to be completed by the head Manager /Dealer and executed by the Company) Toyota Motor Credit Corporation Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] under the U.S. $16,000,000,000 Euro Medium-Term Note Program [The Notes constitute [commercial paper/shorter term debt securities/longer term debt securities]* issued in accordance with regulations made under section 4 of the Banking Act 1987. The Issuer of the Notes is not an authorized institution or a European authorized institution (as such terms are defined in the Banking Act 1987 (Exempt Transactions) Regulations 1997). Repayment of the principal and payment of any interest or premium in connection with the Notes has not been guaranteed].** This document constitutes the Pricing Supplement relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions set forth in the Offering Circular dated October 3, 2001. This Pricing Supplement must be read in conjunction with such Offering Circular, including all documents incorporated by reference therein. [Include whichever of the following apply or specify as "Not Applicable" (N/A). Note that the numbering should remain as set out below, even if "Not Applicable" is indicated for individual paragraphs or sub-paragraphs. Italics denote directions for completing the Pricing Supplement.] 1. [(i)] Series Number [ ] [(ii) Tranche Number:] [Delete if not applicable] (If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible) 2. Specified Currency (or Currencies in the case of Dual Currency Notes): [ ] 3.Aggregate Nominal Amount [i] Series: [ ] [ii Tranche: ] [Delete if not applicable] 4.Issue Price of Tranche: [ ] per cent. 5.Specified Denominations: [ ] 6.[(i)] Issue Date: [ ] [(ii) Interest Commencement Date (if different from the Issue Date):] [ ] 7.Maturity Date: [ ] 8.Interest Basis [Fixed Rate] [Floating Rate] [Zero Coupon] [Index Linked Interest] [specify other] (further particulars specified below) 9.Redemption/Payment Basis: [Redemption at par] [Index Linked Redemption] [Dual Currency] [Partly Paid] [Installment] [specify other] 10.Change of Interest Basis or [Specify details of any provision Redemption/Payment Basis: for change of Notes into another Interest Basis or Redemption/Payment Basis] 11.Listing: [London/specify other/None] 12.Method of distribution: [Syndicated/Non-syndicated] PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 13.Fixed Rate Note Provisions (and, to the extent applicable, Dual Currency [Applicable/Not Applicable] Notes, Index Linked Redemption Notes, (If not applicable, delete the Partly Paid Notes and Installment remaining sub-paragraphs of this Notes): paragraph) (i) Fixed Rate [(s)] of Interest: [ ] per cent. per annum [payable [annually/semi-annually/ quarterly] in arrear] (ii) Interest Payment Date(s): [ ] in each year (iii) Fixed Coupon Amount(s): [ ] per [ ] in nominal amount (iv) Broken Amount(s): [Insert particulars of any initial or final broken interest amounts which do not correspond with the Fixed Coupon Amount] (v) Fixed Day Count Fraction: [30/360 or Actual/Actual (ISMA) or Actual/Actual (ISDA) or specify other] (vi) Business Day Convention: [Following Business Day Convention/Modified Following Business Day Convention/specify other] (vii) Applicable Business Centers for purposes of "Business Day" Definition: [London/specify others] (viii)Other terms relating to the method of calculating interest for Fixed Rate Notes: [None/Give details] 14.Floating Rate Note Provisions (and, to the extent applicable, Dual [Applicable/Not Applicable] Currency Notes, Index Linked Notes, (If not applicable, delete the Partly Paid Notes and Installment remaining sub-paragraphs of this Notes): paragraph) (i) Specified Period(s)/Specified Interest. Payment Dates: [ ] (ii) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/ [specify other]] (iii) Applicable Business Centers for purposes of "Business Day" Definition: [London/specify others] (iv) Manner in which the Rate of Interest and Interest Amount is to be [Screen Rate Determination/ISDA determined: Determination/[specify others]] (v) Calculation Agent responsible for calculating the Rate of Interest and Interest Amount (if not the Agent): [ ] (vi) Screen Rate Determination - -Reference Rate [ ] (Either LIBOR, EURIBOR or other, although additional information may be required if other - including any amendment to fallback provisions in the Conditions) - -Relevant Screen Page: [ ] (In the case of EURIBOR, if not Telerate 248 ensure it is a page which shows a composite rate) - -Applicable "Reference Banks" Definition (if different from that [Same as Condition In Condition 4(b)(iv)(E): 4(b)(iv)(E)/specify other] - -Applicable "Interest Determination Date" definition (if different from [Same as Condition that in Condition 4(b)(iv)(F)): 4(b)(iv)(F)/specify other] (vii) ISDA Determination - -Floating Rate Option: [ ] - -Designated Maturity: [ ] - -Reset Date: [ ] (viii)Margin(s): [+/-][ ] per cent. per annum (ix) Minimum Rate of Interest: [ ] per cent. per annum (x) Maximum Rate of Interest [ ] per cent. per annum (xi) Day Count Fraction: [Actual/365, Actual/Actual, Actual/365(Fixed), Actual/360, 30/360, 360/360, Bond Basis, 30E/360 or Eurobond Basis/specify other] (xii) Rounding provisions and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions: [ ] 15.Zero Coupon Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Accrual Yield: [ ] per cent. per annum (ii) Reference Price: [ ] (iii) Any other formula/basis of determining amount payable: [ ] (iv) Business Day Convention: [Following Business Day Convention/Modified Following Business Day Convention/specify other] (v) Applicable Business Centers for purposes of "Business Day" Definition: [London/specify others] (vi) Calculation Agent responsible for calculating the amount due (if not the Agent): [ ] 16.Index Linked Interest Note [Applicable/Not Applicable] Provisions: (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Index/Formula: [give or annex details] (ii) Calculation Agent responsible for calculating the principal and/or interest due (if not the Agent): [ ] (iii) Provisions for determining Coupon where calculation by reference to Index and/or Formula is impossible or impracticable: [ ] (iv) Specified Period(s)/Specified Interest Payment Dates: [ ] (v) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/specify other] (vi) Applicable Business Centers for purposes of "Business Day" definition: [London/specify other] (vii) Minimum Rate of Interest: [ ] per cent. per annum (viii) Maximum Rate of Interest: [ ] per cent. Per annum. (ix) Day Count Fraction: [ ] 17.Index Linked Redemption Note [Applicable/Not Applicable] Provisions: (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Index/Formula: [give or annex details] (ii) Calculation Agent responsible for calculating the principal and/or interest due (if not the Agent): [ ] (iii) Provisions for determining payments where calculation by reference to Index and/or Formula is impossible or impractical: [ ] 18.Dual Currency Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Rate of Exchange/method of calculating Rate of Exchange: [give details] (ii) Calculation Agent, if any, responsible for calculating the principal and/or interest payable (if not the Agent): [ ] (iii) Provisions applicable where calculation by reference to Rate(s) of Exchange impossible or impractical: [ ] (iv) Person at whose option Specified Currency(ies) is/are payable: [ ] PROVISIONS RELATING TO REDEMPTION 19.TMCC's Optional Redemption: [Yes/No] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Optional Redemption Date(s): [ ] (ii) Optional Redemption Amount(s) and method, if any, of calculation of such amount(s): [ ] (iii) If redeemable in part: (a) Minimum Redemption Amount: [ ] (b) Higher Redemption Amount: [ ] (iv) The applicable period for notice to Noteholders (if different from that set out in Condition [Same as Condition 5(d)/specify 5(d)): other] (v) The applicable period for notice to the Agent (if different from that set out in Condition 5(d)): [Same as Condition 5(d)/specify other] 20.Redemption at the option of the [Yes/No] Noteholders: (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Optional Redemption Date(s): [ ] (ii) Optional Redemption Amount(s) and method, if any, of calculation of such amount(s): [ ] (iii) Other details: [ ] 21.Final Redemption Amount: [Par/specify other/see Appendix] 22.Early Redemption Amount(s) payable on redemption for taxation reasons or on event of default and/or the method of calculating the same (if required or if different from that set out in Condition 5(f)): [ ] GENERAL PROVISIONS APPLICABLE TO THE NOTES 23.Form of Notes: [Temporary global Note exchangeable for a permanent global Note which is exchangeable for definitive Notes [only if (as described more fully in the Conditions) (a) there should be an Event of Default; (b) Euroclear, Clearstream, Luxembourg and any other relevant clearance system are all no longer willing or able to properly discharge their responsibilities and the Agent and TMCC are unable to locate a qualified successor; (c) upon the election of TMCC; or (d) upon 90 days written notice of any Noteholder, all as set forth more fully in the Conditions/specify other] [Temporary Global Note exchangeable for Definitive Notes on and after the Exchange Date.] 24.Other special provisions relating to Payment Dates: [Not Applicable/give details] 25.Talons for future Coupons to be attached to definitive Notes (and dates on which such Talons mature): [Yes/No.] (If yes, give details) 26.Details relating to Partly Paid Notes: including, without limitation, amount of each payment comprising the Issue Price and date on which each payment is to be made and consequences (if any) of failure to pay, including any right of TMCC to forfeit the Notes and interest due on late payment: [Not Applicable/give details] 27.Details relating to Installment Notes: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph) (i) Installment Amounts: [ ] (ii) Installment Dates: [ ] (iii) Other details: [ ] 28.Whether the Notes will be subject to [Yes/No](If yes, specify redenomination or exchange into particular provision(s) euro: applicable in full) 29.Whether Notes are convertible at option of TMCC/Holder into Notes of another Interest/Payment Basis, Date of Conversion or Option Exercise/Interest Payment Basis/other relevant terms: [ ] 30.Further Issues and Consolidation: [TMCC may from time to time, without the consent of the holders of Notes, Receipts or Coupons of this Series, create and issue further Notes of this Series having the same terms and conditions as the Notes (or the same terms and conditions save for the first payment of interest thereon and the Issue Date thereof) so that the same shall be consolidated and form a single Series with the outstanding Notes and references in the Conditions to "Notes" shall be construed accordingly.] 31.Cost, if any, to be borne by Noteholders in connection with exchanges for security printed definitive Notes: [ ] 32.Other terms or special conditions: [Not Applicable/give details] DISTRIBUTION 33.(i) If syndicated, names of Managers: [Not Applicable/give names] (ii) Stabilizing Manager (if any): [Not Applicable/give name] 34.If non-syndicated, name of relevant Dealer: [ ] 35.Additional selling restrictions: Selling restrictions, including those applicable to the United States and United Kingdom are set out in the Offering Circular and Appendix B to the Third Amended and Restated Program Agreement dated October 4, 2000, as amended [and the Syndicate Purchase Agreement dated [ ], among the Dealers and the Company]. OPERATIONAL INFORMATION 36.Any clearing system(s) other than Euroclear and Clearstream, Luxembourg and the relevant [Not Applicable/give name(s) and identification numbers(s): number(s)] 37.Delivery: Delivery [against/free of] payment 38.Additional Paying Agent(s) (if any): [ ] 39.Purchaser's account number with [Euroclear/Clearstream, Luxembourg] to which the Notes are to be credited: [ ] 40.The text set out below is required only for Notes in respect of which the issue proceeds are accepted by TMCC in the United Kingdom and which are to be listed on the Official List and admitted for trading by the London Stock Exchange. The text set out below may be deleted if TMCC is relying on any of Regulation 13(4)(c) to (g) of the Banking Act 1987 (Exempt Transactions) Regulations 1997. TMCC confirms that: (a) as of the date hereof, it has complied with its obligations under the relevant rules (as defined in the Banking Act 1987 (Exempt Transactions) Regulations 1997) in relation to the admission to and continuing listing of the Program and of any previous issues made under it and listed on the same exchange as the Program; (b) it will have complied with its obligations under the relevant rules in relation to the admission to listing of the Notes by the time when the Notes are so admitted; and (c) as of the date hereof, it has not, since the last publication, if any, in compliance with the relevant rules of information about the Program, any previous issues made under it and listed on the same exchange as the Program, or the Notes, having made all reasonable enquires, become aware of any change in circumstances which could reasonably be regarded as significantly and adversely affecting its ability to meet its obligations as issuer in respect of the Notes as they fall due. ISIN: [ ] Common Code: [ ] Acceptance on behalf of TMCC of the terms of the Pricing Supplement as of the date above first written: TOYOTA MOTOR CREDIT CORPORATION By: The following information is to be included only in the version of the Pricing Supplement which is submitted to the UK Listing Authority and the London Stock Exchange in the case of Notes to be listed on the Official List and admitted for trading by the London Stock Exchange: Application is hereby made to list this issue of Notes pursuant to the listing of the U.S. $16,000,000,000 Euro Medium-Term Note Program of Toyota Motor Credit Corporation (as from [insert date of or prior to Settlement date for the issuance of the Notes]). THE CHASE MANHATTAN BANK (As Agent) By: cc: The Chase Manhattan Bank ANNEX D TRADING DESK INFORMATION The Company TOYOTA MOTOR CREDIT CORPORATION 19001 South Western Avenue Torrance, California 90509 Telephone No: (310) 468-4001; Fax No: (310) 468-6194 Attention: Vice President, Treasury The Dealers MERRILL LYNCH BNP PARIBAS CREDIT SUISSE FIRST INTERNATIONAL 10 Harewood Avenue BOSTON Merrill Lynch Financial London NW1 6AA (EUROPE) LIMITED Centre 2 King Edward Street Telephone:0207 595 2000 One Cabot Square London EC1A 1HQ Telefax: 0207 595 2555 Canary Wharf Telephone: 0207 995 3995 Attn: Euro Medium Term London E14 4QJ Telefax: 0207 995 4327 Note Desk Telephone:0207 888 4021 Attn: EMTN Trading and Telefax: 0207 888 3719 Distribution Desk Attn: MTN Trading Desk GOLDMAN SACHS J.P.MORGAN SECURITIES MORGAN STANLEY & CO. INTERNATIONAL LTD INTERNATIONAL LIMITED Peterborough Court 60 Victoria Embankment 25 Cabot Square 133 Fleet Street London EC4Y 0JP Canary Wharf London EC4A 2BB Telephone: 0207 779 3469 London E14 4QA Telephone: 0207 744 1000 Telefax: 0207 325 8225 Telephone:0207 677 7799 Telefax:0207 774 4123 Attn: Euro Medium Term Telefax:0207 677 7999 Attn: Euro Medium Term Note Desk Attn: Debt Capital Note Desk Markets-Head of Transaction Management Group NOMURA UBS AG, acting through INTERNATIONAL its business group Nomura House UBS WARBURG 1 St. Martin's le-Grand 1 Finsbury Avenue London EC1A 4NP London EC2M 2PP Telephone:0207 236 8056 Telephone:0207 576 2479 Telefax:0207 521 2616 Telefax:0207 568 3349 Attn: MTN Trading Attn: MTNs and Private Placements APPENDIX E FORM OF THE NOTES Each Tranche of Notes will initially be represented by one or more temporary global Notes, without receipts, interest coupons or talons, which will be delivered to a common depositary for Euroclear and Clearstream. While any Note is represented by a temporary global Note, payments of principal and interest (if any) due prior to the Exchange Date (as defined below) will be made against presentation of the temporary global Note only to the extent that certification of non-U.S. beneficial ownership (in the form set out in the temporary global Note) has been received by Euroclear or Clearstream. Interests in the temporary global Note will be exchangeable for interests in a permanent global Note and/or for security printed definitive Notes (as specified under "Terms and Conditions of the Notes" and in the applicable Pricing Supplement) not earlier than the date (the "Exchange Date") which is 40 days after completion of the distribution of the relevant Tranche, provided that certification of non-U.S. beneficial ownership has been received. No interest or principal payments will be made on a temporary global Note after the Exchange Date. Payments of principal or interest (if any) in respect of a permanent global Note will be made through Euroclear and Clearstream against presentation or surrender, as the case may be, of the permanent global Note without any requirement for further certification. A permanent global Note will be exchangeable in whole, but not in part, for security printed definitive Notes with, where applicable, receipts, interest coupons and talons attached not earlier than the Exchange Date (i) at the option of TMCC; (ii) at the option of Noteholders, unless specified otherwise in the applicable Pricing Supplement and (iii) under certain other limited circumstances set forth under "Terms and Conditions of the Notes". If a portion of the Notes continue to be represented by the temporary global Note after the issuance of definitive Notes, the temporary global Note shall thereafter be exchangeable only for definitive Notes, subject to certification of non-U.S. beneficial ownership. Unless specified in the applicable Pricing Supplement, investors shall have the right to require the delivery of definitive Notes; provided, however, that such delivery may be conditioned on written notice, as specified in the applicable Pricing Supplement, from Euroclear or Clearstream (as the case may be) acting on instructions of the holders of interest in the temporary or permanent global Note and/or on the payment of costs in connection with the printing and distribution of the definitive Notes. No definitive Note delivered in exchange for a permanent or temporary global Note shall be mailed or otherwise delivered to any locations in the United States of America in connection with such exchange. Temporary and permanent global Notes and definitive Notes will be issued by The Chase Manhattan Bank, London Office, as issuing and (unless specified otherwise in the applicable Pricing Supplement) principal paying agent and, unless specified otherwise in the applicable Pricing Supplement, as calculation agent (the "Agent", which expression includes any successor agents or any other Calculation Agent specified in the applicable Pricing Supplement) pursuant to a Third Amended and Restated Agency Agreement dated as of October 4, 2000, as amended by Amendment No. 1 dated as of October 3, 2001 (as amended, the "Agency Agreement"), and made between TMCC, the Agent and the other paying agents named therein (together with the Agent, the "Paying Agents", which expression includes any additional or successor paying agents). If specified in the applicable Pricing Supplement, other clearance systems capable of complying with the certification requirements set forth in the temporary global Note may be used in addition to or in lieu of Euroclear and Clearstream, and any reference herein to Euroclear and/or Clearstream shall, whenever the context so permits, be deemed to include such other additional or alternative clearing system. The Pricing Supplement will contain such information (if any) as is necessary to comply with the Banking Act 1987 (Exempt Transactions) Regulations 1997. Temporary and permanent global Notes and definitive Notes will be issued in bearer form only. The following legend will appear on all global Notes, definitive Notes, receipts and interest coupons for Notes with a maturity of more than 183 days: "Any United States person (as defined in the Internal Revenue Code of the United States) who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue Code." The following legend will appear on all global Notes, definitive Notes, receipts and interest coupons for Notes with maturities at issuance of 183 days or less: "By accepting this obligation, the holder represents and warrants that it is not a United States person (other than an exempt recipient described in Section 6049(b)(4) of the Internal Revenue Code and the regulations thereunder) and that it is not acting for or on behalf of a United States person (other than an exempt recipient described in Section 6049(b)(4) of the Internal Revenue Code and the regulations thereunder)." The sections referred to provide that United States holders, with certain exceptions, will not be entitled to deduct any loss on Notes, receipts or interest coupons and will not be entitled to capital gains treatment of any gain on any sale, disposition or payment of principal in respect of Notes, receipts or interest coupons. Applicable Pricing Supplement Set out below is the form of Pricing Supplement which will be completed for each Tranche of Notes issued under the Program. [See Annex B to Appendix D (Form of Operating & Administrative Procedures Memorandum) for the form of Pricing Supplement.] EX-10 5 exh105h.txt FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED THREE-YEAR CREDIT AGREEMENT FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED THREE-YEAR CREDIT AGREEMENT, dated as of February 19, 2002 (this "Amendment"), is entered into by and among TOYOTA MOTOR CREDIT CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and BANK OF AMERICA, N.A., as Agent (the "Agent"), and amends that certain Fourth Amended and Restated Three-Year Credit Agreement, dated as of September 14, 2000 (as the same is in effect immediately prior to the effectiveness of this Amendment, the "Existing Credit Agreement" and as the same may be amended, supplemented or modified and in effect from time to time, the "Credit Agreement"), among the Borrower, the Banks and the Agent. W I T N E S S E T H WHEREAS, the Borrower has requested that the Agent and the Banks delete one of the representations and warranties contained in the Existing Credit Agreement as set forth below; and WHEREAS, the Agent and the Banks are willing to agree to so amend the Existing Credit Agreement on the terms and subject to the conditions set forth below; NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Existing Credit Agreement shall have the meaning assigned to such term in the Existing Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Existing Credit Agreement shall from and after the date hereof refer to the Existing Credit Agreement as amended hereby. SECTION 2. Amendment of the Existing Credit Agreement. (a) Section 3.02(d) of the Existing Credit Agreement is hereby amended by replacing "Sections 4.04(c) and 4.05" with "Section 4.05". (b) Section 4.04(c) of the Existing Credit Agreement is hereby deleted in its entirety. SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Existing Credit Agreement, both before and after giving effect to this Amendment, is true and correct as though made on and as of such date. SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts, Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Agent shall have received (a) duly executed counterparts hereof signed by the Borrower and the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) all documents the Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Amendment, and any other matters relevant hereto, all in form and substance satisfactory to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TOYOTA MOTOR CREDIT CORPORATION By: /s/ George E. Borst Name: George E. Borst Title: President and Chief Executive Officer BANK OF AMERICA, N.A., as Agent By: /s/ David Price Name: David Price Title: Vice President BANK OF AMERICA, N.A. By: /s/ Alan H. Roche Name: Alan H. Roche Title: Managing Director JP MORGAN CHASE BANK By: /s/ Peter M. Hayes Name: Peter M. Hayes Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LTD. LOS ANGELES BRANCH By: /s/ Takeo Sato Name: Takeo Sato Title: Deputy General Manager CITICORP USA, INC. By: /s/ Brian Ike Name: Brian Ike Title: Director CREDIT SUISSE FIRST BOSTON By: /s/ Vitaly G. Butenko Name: Vitaly G. Butenko Title: Associate By: /s/ Bill O'Daly Name: Bill O'Daly Title: Director ABN AMRO BANK N.V. By: /s/ John J. Mack Name: John J. Mack Title: Group Vice President By: /s/ James M. Sumoski Name: James M. Sumoski Title: Vice President BNP PARIBAS By: /s/ Sean T. Conlon Name: Sean T. Conlon Title: Managing Director By: /s/ James P. Culhane Name: James P. Culhane, CFA Title: Vice President BARCLAYS BANK PLC By: /s/ L. Peter Yetman Name: L. Peter Yetman Title: Director DEUTSCHE BANK AG, NEW YORK BRANCH and/or CAYMAN ISLAND BRANCH By: /s/ Stephan G. Peetzen Name: Stephan G. Peetzen Title: Director By: /s/ Oliver Schwarz Name: Oliver Schwarz Title: Vice President UFJ BANK, LIMITED By: /s/ Satoru Kojima Name: Satoru Kojima Title: Senior Vice President & Deputy General Manager UBS AG, STAMFORD BRANCH By: /s/ Wilfred V. Saint Name: Wilfred V. Saint Title: Associate Director, Banking Products Services US By: /s/ Anthony N. Joseph Name: Anthony N. Joseph Title: Associate Director, Banking Products Services US SUMITOMO MITSUI BANKING CORP. By: /s/ Kenichi Shimura Name: Kenichi Shimura Title: Senior Vice President EX-10 6 exh105k.txt SIXTH AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT SIXTH AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT dated as of September 13, 2001 among TOYOTA MOTOR CREDIT CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and BANK OF AMERICA, N.A., as Administrative Agent (the "Administrative Agent"). W I T N E S S E T H WHEREAS, the parties hereto have heretofore entered into a Fifth Amended and Restated 364-Day Credit Agreement dated as of September 14, 2000 (the "Existing Agreement"); WHEREAS, no Loans are outstanding under the Existing Agreement on the date hereof; and WHEREAS, the parties hereto desire to amend the Existing Agreement as set forth herein and to restate the Existing Agreement in its entirety to read as set forth in the Existing Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Existing Agreement shall have the meaning assigned to such term in the Existing Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Existing Agreement shall from and after the date hereof refer to the Existing Agreement as amended hereby. SECTION 2. Amendment and Restatement of the Existing Agreement. (a) The Existing Agreement shall be amended as set forth in this Section 2 and restated in its entirety to read as set forth in the Existing Agreement with the amendments specified in this Section 2. (b) The definition of "Borrower's 1999 Form 10-K" set forth in Section 1.1 of the Existing Agreement is hereby deleted and the following definition is inserted in lieu thereof: "Borrower's 2001 Form 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ending March 31, 2001, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. (c) The date "June 30, 2000" appearing in the definition of "Borrower's Latest Form 10-Q" set forth in Section 1.1 of the Existing Agreement is hereby changed to "June 30, 2001". (d) The definition of "Commitment" set forth in Section 1.1 of the Existing Agreement is amended to read in its entirety as follows: "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on Schedule I hereof, as such amount may be reduced from time to time pursuant to Section 2.9. (e) The date "September 13, 2001" appearing in the definition of "Termination Date" set forth in Section 1.1 of the Existing Agreement is hereby changed to "September 12, 2002". (f) The reference to "Borrower's 1999 Form 10-K" in Section 4.4(a) of the Existing Agreement is hereby changed to "Borrower's 2001 Form 10-K". (g) The date "September 30, 1999" in Sections 4.4(a) and (c) of the Existing Agreement is hereby changed to "March 31, 2001". (h) The date "June 30, 2000" in Section 4.4(b) of the Existing Agreement is hereby changed to "June 30, 2001". (i) Schedule I to the Existing Agreement is hereby replaced with Schedule I hereto. SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Existing Agreement, both before and after giving effect to this Sixth Amended and Restated 364-Day Credit Agreement, is true and correct as though made on and as of such date. SECTION 4. Governing Law. This Sixth Amended and Restated 364-Day Credit Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts, Effectiveness. This Sixth Amended and Restated 364-Day Credit Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Sixth Amended and Restated 364-Day Credit Agreement shall become effective as of the date hereof when (a) the Administrative Agent shall have received (i) duly executed counterparts hereof signed by the Borrower and the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party), (ii) a duly executed Note for the account of each Bank dated on or before the date hereof complying with the provisions of Section 2.6 of the Existing Agreement, (iii) all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Sixth Amended and Restated 364-Day Credit Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent and (iv) an opinion of the General Counsel of the Borrower (or such other counsel for the Borrower as may be acceptable to the Administrative Agent) substantially in the form of Exhibit E to the Existing Agreement with reference to this Sixth Amended and Restated 364-Day Credit Agreement and the Existing Agreement as amended and restated hereby and (b) all accrued but unpaid fees under the Existing Agreement shall have been paid in full. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TOYOTA MOTOR CREDIT CORPORATION By: /s/ George E. Borst Name: George E. Borst Title: President and Chief Executive Officer BANK OF AMERICA, N.A., as Administrative Agent By: /s/ David Price Name: David Price Title: Vice President BANK OF AMERICA, N.A. By: /s/ Alan Roche Name: Alan Roche Title: Managing Director THE BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ Takeo Sato Name: Takeo Sato Title: Deputy General Manager CITICORP USA, INC. By: /s/ Brian Ike Name: Brian Ike Title: Vice President THE CHASE MANHATTAN BANK By: /s/ Peter M. Hayes Name: Peter M. Hayes Title: Vice President ING (U.S.) CAPITAL LLC By: /s/ Pamela Kaye Name: Pamela Kaye Title: Vice President CREDIT SUISSE FIRST BOSTON By: /s/ Vitaly G. Butenko Name: Vitaly G. Butenko Title: Asst. Vice President By: /s/ William S. Lutkins Name: William S. Lutkins Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Mark van der Griend Name: Mark van der Griend Title: Director THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ Yoshiaki Fujikawa Name: Yoshiaki Fujikawa Title: SVP & Sr. Manager THE SANWA BANK, LIMITED, LOS ANGELES BRANCH By: /s/ Satoru Kojima Name: Satoru Kojima Title: Senior Vice President and Deputy General Manager SUMITOMO MITSUI BANKING CORPORATION By: /s/ Toshihiko Ogata Name: Toshihiko Ogata Title: General Manager ABN AMRO BANK N.V. By: /s/ Mitsoo Iravani Name: Mitsoo Iravani Title: Vice President By: /s/ John A. Miller Name: John A. Miller Title: Senior Vice President BANK ONE, NA By: /s/ John N. Place Name: John N. Place Title: Vice President BARCLAYS BANK PLC By: /s/ L. Peter Yetman Name: L. Peter Yetman Title: Director BNP PARIBAS By: /s/ Mitchell M. Ozawa Name: Mitchell M. Ozawa Title: Director By: /s/ James P. Culhane Name: James P. Culhane Title: Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Oliver Schwarz Name: Oliver Schwarz Title: Vice President By: /s/ Christian Dallwitz Name: Christian Dallwitz Title: Vice President MELLON BANK, N.A. By: /s/ Andrew T. Kim Name: Andrew T. Kim Title: Assistant Vice President THE NORINCHUKIN BANK, NEW YORK BRANCH By: /s/ Toshiyuki Futaoka Name: Toshiyuki Futaoka Title: Joint General Manager UBS AG, STAMFORD BRANCH By: /s/ Gregory H. Raue Name: Gregory H. Raue Title: Executive Director, Leverage Finance By: /s/ Wilfred V. Saint Name: Wilfred V. Saint Title: Associate Director, Banking Products Services, US THE BANK OF NEW YORK By: /s/ Mehrasa Raygani Name: Mehrasa Raygani Title: Vice President HSBC BANK USA By: /s/ Michael C. Cutlip Name: Michael C. Cutlip Title: Senior Vice President MERRILL LYNCH BANK USA By: /s/ D. Kevin Imlay Name: D. Kevin Imlay Title: Senior Credit Officer U.S. BANK NATIONAL ASSOCIATION By: /s/ Aaron J. Gordon Name: Aaron J. Gordon Title: Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Vanessa Meyer Name: Vanessa Meyer Title: Vice President STATE STREET BANK AND TRUST COMPANY By: /s/ C. Jaynelle A. Landy Name: C. Jaynelle A. Landy Title: Assistant Vice President SCHEDULE I COMMITMENTS Name of Bank Commitment % Share Bank of America, N.A. $215,000,000.00 8.60% The Bank of Tokyo-Mitsubishi, Ltd. 190,000,000.00 7.60 Citicorp USA, Inc. 190,000,000.00 7.60 The Chase Manhattan Bank 190,000,000.00 7.60 ING (U.S.) Capital LLC 120,000,000.00 4.80 Credit Suisse First Boston 120,000,000.00 4.80 Dresdner Bank AG, New York and Grand Cayman Branches 120,000,000.00 4.80 The Industrial Bank of Japan, Limited 120,000,000.00 4.80 The Sanwa Bank, Limited, Los Angeles Branch 120,000,000.00 4.80 Sumitomo Mitsui Banking Corporation 120,000,000.00 4.80 ABN AMRO Bank N.V. 90,000,000.00 3.60 Bank One, NA 90,000,000.00 3.60 Barclays Bank PLC 90,000,000.00 3.60 BNP Paribas 90,000,000.00 3.60 Deutsche Bank AG, New York Branch and/or Cayman Islands Branch 90,000,000.00 3.60 Mellon Bank, N.A. 90,000,000.00 3.60 The Norinchukin Bank, New York Branch 90,000,000.00 3.60 UBS AG, Stamford Branch 90,000,000.00 3.60 The Bank of New York 50,000,000.00 2.00 HSBC Bank USA 50,000,000.00 2.00 Merrill Lynch Bank USA 50,000,000.00 2.00 U.S. Bank National Association 50,000,000.00 2.00 Wells Fargo Bank, National Association 50,000,000.00 2.00 State Street Bank and Trust Company 25,000,000.00 1.00 Total $2,500,000,000.00 100.00% DOCSLA1:393526.3 2 DOCSLA1:393526.3 DOCSLA1:393526 DOCSLA1:393526.3 DOCSLA1:393526.3 1 DOCSLA1:393526.3 EX-10 7 exh105l.txt FIRST AMENDMENT TO SIXTH AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT FIRST AMENDMENT TO SIXTH AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT, dated as of February 19, 2002 (this "Amendment"), is entered into by and among TOYOTA MOTOR CREDIT CORPORATION (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and BANK OF AMERICA, N.A., as Administrative Agent (the "Administrative Agent"), and amends that certain Sixth Amended and Restated 364-Day Credit Agreement, dated as of September 13, 2001 (as the same is in effect immediately prior to the effectiveness of this Amendment, the "Existing Credit Agreement" and as the same may be amended, supplemented or modified and in effect from time to time, the "Credit Agreement"), among the Borrower, the Banks and the Administrative Agent. W I T N E S S E T H WHEREAS, the Borrower has requested that the Administrative Agent and the Banks delete one of the representations and warranties contained in the Existing Credit Agreement as set forth below; and WHEREAS, the Administrative Agent and the Banks are willing to agree to so amend the Existing Credit Agreement on the terms and subject to the conditions set forth below; NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Existing Credit Agreement shall have the meaning assigned to such term in the Existing Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Existing Credit Agreement shall from and after the date hereof refer to the Existing Credit Agreement as amended hereby. SECTION 2. Amendment of the Existing Credit Agreement. (a) Section 3.2(d) of the Existing Credit Agreement is hereby amended by replacing "Sections 4.4(c), 4.5 and 4.12" with "Sections 4.5 and 4.12". (b) Section 4.4(c) of the Existing Credit Agreement is hereby deleted in its entirety. SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Existing Credit Agreement, both before and after giving effect to this Amendment, is true and correct as though made on and as of such date. SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts, Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Administrative Agent shall have received (a) duly executed counterparts hereof signed by the Borrower and the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party) and (b) all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Amendment, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TOYOTA MOTOR CREDIT CORPORATION By: /s/George E. Borst Name: George E. Borst Title: President and Chief Executive Officer BANK OF AMERICA, N.A., as Administrative Agent By: /s/ David Price Name: David Price Title: Vice President BANK OF AMERICA, N.A. By: /s/ Alan H. Roche Name: Alan H. Roche Title: Managing Director THE BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ Takeo Sato Name: Takeo Sato Title: Deputy General Manager CITICORP USA, INC. By: /s/ Brian Ike Name: Brian Ike Title: Director JP MORGAN CHASE BANK By: /s/ Peter M. Hayes Name: Peter M. Hayes Title: Vice President ING (U.S.) CAPITAL LLC By: /s/ Jan Flinterman Name: Jan Flinterman Title: Managing Director CREDIT SUISSE FIRST BOSTON By: /s/ Vitaly G. Butenko Name: Vitaly G. Butenko Title: Associate By: /s/ Bill O'Daly Name: Bill O'Daly Title: Director DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ J. Curtin Beaudouin Name: J. Curtin Beaudouin Title: Director By: /s/ Stephen A. Kovach Name: Stephen A. Kovach Title: Associate THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ Genichi Ishikawa Name: Genichi Ishikawa Title: Vice President & Manager UFJ BANK LIMITED By: /s/ Satoru Kojima Name: Satoru Kojima Title: Senior Vice President & Deputy General Manager SUMITOMO MITSUI BANKING CORPORATION By: /s/ Kenichi Shimura Name: Kenichi Shimura Title: Senior Vice President ABN AMRO BANK N.V. By: /s/ John J. Mack Name: John J. Mack Title: Group Vice President By: /s/ James M. Sumoski Name: James M. Sumoski Title: Vice President BANK ONE, NA By: /s/ Tohru Yasumaru Name: Tohru Yasumaru Title: Director BARCLAYS BANK PLC By: /s/ L. Peter Yetman Name: L. Peter Yetman Title: Director BNP PARIBAS By: /s/ Sean T. Conlon Name: Sean T. Conlon Title: Managing Director By: /s/ James P. Culhane Name: James P. Culhane, CFA Title: Vice President DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Oliver Schwarz Name: Oliver Schwarz Title: Vice President By: /s/ Stephan G. Peetzen Name: Stephan G. Peetzen Title: Director MELLON BANK, N.A. By: /s/ Lawrence C. Ivey Name: Lawrence C. Ivey Title: First Vice President THE NORINCHUKIN BANK, NEW YORK BRANCH By: /s/ Toshiyuki Futaoka Name: Toshiyuki Futaoka Title: Joint General Manager UBS AG, STAMFORD BRANCH By: /s/ Wilfred V. Saint Name: Wilfred V. Saint Title: Associate Director, Banking Products Services, US By: /s/ Anthony N. Joseph Name: Anthony N. Joseph Title: Associate Director, Banking Products Services, US THE BANK OF NEW YORK By: /s/ Mehrasa Raygani Name: Mehrasa Raygani Title: Vice President HSBC BANK USA By: /s/ Christopher M. Samms Name: Christopher M. Samms Title: First Vice President MERRILL LYNCH BANK USA By: /s/ Louis Alder Name: Louis Alder Title: Vice President U.S. BANK NATIONAL ASSOCIATION By: Name: Title: WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Vanessa Meyer Name: Vanessa Meyer Title: Vice President STATE STREET BANK AND TRUST COMPANY By: /s/ C. Jaynelle A. Landy Name: C. Jaynelle A. Landy Title: Assistant Vice President DOCSLA1:407772.4 1033-141 ARJ 2 DOCSLA1:407772.4 1033-141 ARJ DOCSLA1:407772.4 1033-141 ARJ DOCSLA1:407772.4 1033-141 ARJ EX-10 8 exh108.txt THIS OPTION AGREEMENT is made in September 2001 BETWEEN (1)Toyota Motor Credit Corporation, a company registered or organized in California, USA and whose registered office/principal place of business is at 19001 South Western Avenue, Torrance, California, 90509 (the Company) and (2)_____ of 19001 South Western Avenue, Torrance, California, 90509 (the Grantee) IT IS AGREED as follows: 1. INTERPRETATION 1.1 In this Agreement, the words and expressions set out below shall bear the following meanings: Board means the board of directors from time to time of the Company or a duly authorized committee thereof; Common Stock means common shares in the capital of Parent; Date of Grant means the date on which the Option is granted by the Company to the Grantee being the date of this Agreement; Group means the Company, the Parent and any subsidiary (being a company in which there is direct or indirect ownership of at least 50% of the issued share capital) of the Company or the Parent and member of the Group shall be construed accordingly; Option means an option to acquire 20 Warrants (or such number as may be reduced on exercise of the Option in part pursuant to clause 4.1); Option Period means the period from 1 August 2003 to 31 July 2005 during normal business hours (Eastern Standard Time) and provided that the final date of the period shall be the last normal business day of the Company preceding 31 July 2005; Parent means Toyota Motor Corporation; Warrant means a warrant issued by the Parent on 17 August 2001 containing the right to subscribe for shares of Common Stock pursuant to the warrant terms set out in the Appendix (as amended from time to time pursuant to such terms); and Warrant Exercise Price means the price payable to exercise each Warrant in accordance with the terms of the Warrant. 1.2 Any reference herein to the provisions of any statute or subordinate legislation shall be deemed to refer to the same in force from time to time including any modification, amendment or re-enactment thereof. 1.3 Clause headings are inserted for ease of reference only and shall not affect the construction of this Agreement. 1.4 Where the context permits the singular shall include the plural and vice versa and the masculine shall include the feminine. Words importing individuals shall be treated as importing bodies corporate, corporations, unincorporated associations and partnerships and vice-versa. 1.5 References to Clauses and the Appendix are to the clauses and appendix of this Agreement. 1.6 The Appendix forms part of this Agreement. 2. GRANT OF OPTIONS 2.1 The Company hereby grants to the Grantee the Option subject to the terms and conditions of this Agreement. 2.2 No payment is required for the grant of the Option. 2.3 The Option is personal to the Grantee and may not be transferred, assigned or charged to or exercised by any other person and any attempt to do so will result in the Option lapsing. 2.4 The benefit of the Option is not part of the Grantee's base salary or remuneration and will not be taken into account in determining any other employment-related rights that the Grantee may have, such as for the purpose of calculating any pension entitlements, severance pay or notice for termination of employment. 3. EXERCISE AND LAPSE OF OPTIONS 3.1 The Grantee may exercise the Option only during the Option Period. 3.2 Notwithstanding any other provision in this Agreement, the Option shall lapse automatically and become of no effect on the earlier of: (a) the expiry of the Option Period; (b) the death of the Grantee; (c) the Grantee being declared bankrupt or entering into any general composition with or for the benefit of his creditors; and (d) the Warrants being declared void or becoming such that they may no longer be exercised in accordance with the terms thereof, including, without limitation, in the circumstance referred to in paragraph 1(1) of the terms of the Warrant. 3.3 Subject to Clause 3.4, the Option shall lapse automatically and become of no effect upon the Grantee ceasing to be a director or an employee of a member of the Group. For the avoidance of doubt, the Grantee shall not be treated for such purposes as ceasing to be a director or employee of a member of the Group if the Grantee remains or simultaneously becomes a director or an employee of another member of the Group. 3.4 Where a Grantee ceases to be a director or an employee of a member of the Group by reason of: (a) injury, disability or ill-health (as determined by the Board); (b) retirement at or after the date on which he is entitled to retire under his contract of employment or otherwise; (c) the company of which he is a director or employee ceasing to be a member of the Group; (d) the business (or part of a business) in which he is employed or of which he is a director being transferred to a transferee which is not a member of the Group; or (e) any other reason at the Board's absolute discretion, the Grantee may, subject always to the provisions of Clause 3.1, exercise the Option during the period of six months following such cessation of office or employment as set out in sub-clauses (a) to (e) above, and failing such exercise the Option shall lapse automatically. 3.5 For the purposes of Clauses 3.3 and 3.4 a Grantee shall not be treated as ceasing to be an employee of a member of the Group if absent from work solely as a result of an authorized leave of absence until such time as such Grantee ceases to be entitled to exercise any statutory or contractual right to return to work. 4. MANNER OF EXERCISE OF OPTION 4.1 The Grantee may exercise the Option in whole or in part (provided that only whole Warrants may be exercised as a result of a partial exercise of the Option), by giving notice to the Company in such form as the Company may from time to time prescribe. The Grantee may obtain the requisite form from the Company at any time during the Option Period. The date of exercise shall be the date of the receipt by the Company of such notice determined in accordance with Clause 6.1. If the Option is exercised in respect of some only of the Warrants comprised in the Option, the Company shall procure the issue of a notice to the Grantee stating the balance of the Warrants in respect of which the Option may subsequently be exercised. 4.2 The Company shall have the right to require the Grantee entitled to receive Warrants or shares of Common Stock pursuant to the exercise of the Option and of the Warrants to remit to the Company, prior to the delivery of any Warrants or certificates evidencing such shares of Common Stock, any amount sufficient to satisfy any income tax, capital gains tax, social security contributions or other tax, charge or duty ("Taxation Liabilities"). In the case of exercise of Warrants, prior to the Company's determination of such Taxation Liabilities, such Grantee may make an irrevocable election to satisfy, in whole or in part, such obligation to remit taxes, by directing the Company to cause shares of Common Stock to be withheld (but not in excess of the Company's minimum statutory withholding) that would otherwise be received by such Grantee. Such election may be denied by the Board at its discretion, or may be made subject to certain conditions specified by the Board, including, without limitation, conditions intended to avoid the imposition of liability against the individual under Section 16(b) of the Securities Exchange Act of 1934. The Grantee shall indemnify the Company and any member of the Group in respect of any Taxation Liabilities payable in respect of the Option and the Warrants and for which the Company or any member of the Group is liable whether pursuant to any withholding obligations or otherwise. 5. IMMEDIATE EXERCISE OF THE WARRANTS UPON EXERCISE OF THE OPTION 5.1 Upon exercise of the Option, the Grantee shall forthwith exercise all of the Warrants which he acquires pursuant to such exercise (the "Relevant Warrants"), by delivery of such notice of exercise and the payment of the aggregate Warrant Exercise Price payable in respect of such exercise, in such manner and in accordance with such procedures and requirements as may be prescribed by the Parent. For this purpose, the Grantee will be required to appoint an individual within the Parent as the Grantee's attorney with full power and authority on his behalf to exercise the Relevant Warrants forthwith. Details of such procedures and requirements shall be made available to the Grantee prior to the Option Period and any relevant forms or notices may be obtained by the Grantee from the Company or the Parent at any time during the Option Period. 5.2 Subject to the Grantee complying with the provisions of Clause 4 and 5.1 and also subject to the provisions of Clause 6.2, the Company shall procure that the number of Warrants in respect of which the Option has been exercised are duly delivered and transferred for exercise on behalf of the Grantee in the manner prescribed by the Parent or the Company from time to time. 5.3 On exercise of the Warrants, Common Stock will be issued to the Grantee in accordance with the terms of the Warrants. 6. ADMINISTRATION Notices 6.1 Any notice or other document required to be given under or in connection with this Agreement may be delivered to the Grantee or sent by post to him at his home address according to the records of the Company or such other address as may appear to the Company or the Parent to be appropriate. Any notice or other document required to be given to the Company or the Parent under or in connection with the Agreement may be delivered or sent by post to it at its registered office (or such other place or places as the Company or the Parent, as the case may be, may from time to time determine and notify to the Grantee). Notices sent by post shall be deemed to have been given on the day following the date of posting. Securities Laws 6.2 No Option or Warrant may be granted or exercised at a time when such Option or Warrant, or the granting or exercise thereof, may result in the violation of any law or governmental order or regulation. In addition the Option and Warrants shall not be exercisable unless the offer and sale of the shares of Common Stock subject to the Warrants have been registered under the Securities Act of 1933 and qualified under applicable state "blue sky" laws, or the Company has determined that an exemption from registration under the Securities Act of 1933 and from qualification under such state "blue sky" laws is available. The Company, may at its discretion, impose such conditions on the exercise of the Options and Warrants as it shall deem necessary in order for such exercise to comply with such U.S. securities laws, including, but not limited to, the requirement that an investment representation be given by the Grantee or that certificates for shares of Common Stock be subject to a legend describing restrictions on transfer. Neither the Company nor the Parent shall be bound to take any action or obtain the consent of any governmental authority to such grant, exercise or issue or to take any action to ensure that any such grant, exercise or issue is in accordance with any such enactment or regulation if such action would, in the opinion of the Company or the Parent (as the case may be), be unduly onerous and neither the Company nor the Parent shall have any liability in respect thereof to the Grantee. General 6.3 No Grantee shall have any claim or right to receive grants of Options or Warrants under this Agreement. 6.4 The existence of the Option shall not affect in any way the right or power of the Parent or its shareholders to make or authorize any or all adjustments, recapitalisations, reorganizations or other changes in the Parent's capital structure, or any merger or consolidation of the Parent, or any issue of shares, bonds, debentures, preferred or prior preference stocks ahead of or convertible into, or otherwise affecting the shares of common stock of the Parent or the rights thereof, or the dissolution or liquidation of the Parent or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 6.5 The rights, obligations and status of the Grantee under the terms and conditions of his office or employment with the Company shall not be affected by this Agreement. Neither this Agreement nor any action taken or omitted to be taken hereunder shall be deemed to create or confer any rights: a) guaranteeing the Grantee's office or employment by the Company, which may be terminated at any time; or b) to continue or be re-instated in his office or the employ of the Company whether before during or after the Option Period. 6.6 The Grantee hereby acknowledges that he waives all and any rights to compensation or damages in consequence of the termination of his office or employment with any company for any reason whatsoever insofar as those rights arise, or may arise, from his ceasing to have rights under or be entitled to exercise the Option pursuant to this Agreement as a result of such termination or from the loss or diminution in value of such rights or entitlements. If necessary, the Grantee's terms of employment shall be varied accordingly. 6.7 The Grantee shall have no rights as a stockholder with respect to any Common Stock issuable upon exercise of a Warrant until a certificate or certificates evidencing such shares shall have been issued to such Grantee, and no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date upon which the Grantee shall become the holder of record thereof. The Grantee acknowledges that the Group has no duty to disclose confidential information to the Grantee that is not generally available to holders of Common Stock. 6.8 The decisions of the Board shall be final and binding with respect to all matters relating to this Agreement and the Option. Data Processing Consent 6.9 The Company may retain payroll, address, demographic, service period and similar personnel information relating to each Grantee under this Agreement, and may at any time utilize such information as necessary for the proper implementation, management and administration of this Agreement and the Option, provided such use is not prohibited by law. Subject to any applicable prohibitions of law, the Company may, at any time, make such information available to other persons who are retained to assist in the administration of this Agreement, but only as necessary for the proper administration of this Agreement and the Option. The Grantee hereby irrevocably consents to such utilization of such information for the purposes described above. 7. AMENDMENTS AND WAIVERS 7.1 No amendment to the provisions of this Agreement shall be effective unless made in writing and signed by the parties hereto or their duly authorized representatives. 7.2 All rights, remedies and powers conferred upon the parties hereto are cumulative and shall not be deemed or construed to be exclusive of any other rights, remedies or powers now or hereafter conferred upon the parties hereto or either of them by law or otherwise. 7.3 Any failure at any time to insist upon or enforce any such right, remedy or power shall not be construed as a waiver thereof. 8. GOVERNING LAW 8.1 This Agreement shall be governed by and construed in all respects in accordance with the laws of Japan. 8.2 Each of the parties hereto hereby irrevocably submits to the jurisdiction of the courts of Japan. 9. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties relating to the subject matter of this Agreement and supersedes all prior representations, writings, negotiations and understandings with respect hereto. 10. SEVERABILITY Any provision of this Agreement that is invalid, illegal or unenforceable in any jurisdiction shall as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provision of this Agreement invalid, illegal or unenforceable in any other jurisdiction. IN WITNESS whereof this Agreement has been executed the day and year first before written Toyota Financial Services by: _____ _____ _____ Name: Joan Smith Title: Corporate Manager, Compensation and Benefits by: _____ _____ _____ Name: ________ APPENDIX Warrant Terms (English translation) [Note: The following English translation is not a literal translation but is provided for convenience only and the original terms and conditions of the Warrants in Japanese will prevail in all circumstances. All references to dates in the following translation are to Tokyo time. Explanatory notes is italics and square brackets are not part of the translation and are also provided for convenience only.] 1. Exercise period and manner of exercise of the Warrant Rights[1] (1) The holders of the Warrants[2] (the Holders) may exercise the Warrant Rights at any time during the period from 1 August 2003 to 3 August 2005 pursuant to the conditions set out in these terms; provided, however, that no Warrant Rights may be exercised after an acceleration of the Bonds[3] occurs. (2) The Warrants attached to the Bonds may be detached and transferred separately. [Note: 194 warrants shall be attached to each Bond on issue of the Bonds.] (3) The aggregate amount of the issue price of the common shares to be issued upon exercise of the Warrant Rights [in respect of all the 194 Warrants attached to each Bond shall be Yen 81,538,200 which] is 81.5382 % [of the principal amount of] each Bond (each Bond having a par value of Yen 100 million each). [The amount of the issue price of the common shares to be issued upon exercise of the Warrant Rights in respect of each Warrant shall be Yen 420,300 as set out in paragraph 9.] (the Allotment Amount of each Warrant) (4) The Warrant Rights in respect of an individual Warrant may not be partially exercised[4]. 2. Shares issued pursuant to the exercise of the Warrant Rights The shares issued pursuant to the exercise of the Warrant Rights shall be common shares of the Company[5] with a par value of - -------------------------------------------------- [1] Defined in the Bond terms as "the pre-emptive right to subscribe for new common shares of Toyota Motor Corporation with par value". [2] Defined in the Bond terms as "warrants representing the pre- emptive right to subscribe for new common shares of Toyota Motor Corporation with par value". [3] Defined in the Bond terms as The 6th Unsecured Bonds with Warrants of Toyota Motor Corporation issued on 17 August 2001. (The circumstances in which an acceleration of the Bonds will occur, include, but are not limited to, a default in payment by the Company under the Bonds, the Company entering various bankruptcy procedures and cross-default under other indebtedness of the Company.) [4] [This provision does not prevent partial exercise of the Option, which grants the rights to 20 warrants, but does mean that the Option must be exercised in units that correspond to a whole number of warrants. [5] The term "Company" (when used in this Appendix only) refers to Toyota Motor Corporation. Yen 50, or if the Company issues common shares with no par-value, the Warrant Rights shall be for common shares with no par-value (the Common Shares). 3. Exercise Price The exercise price in respect of each Common Share issued pursuant to the exercise of a Warrant shall be Yen 4,203 [as adjusted from time to time pursuant to paragraph 4] (the Exercise Price). 4. Adjustment of the Exercise Price (1)(a) The Exercise Price shall be adjusted in accordance with the following formula if the events set out in 4(2)(a)-(d) below occur after the Warrants are issued: Number Amount Number of of new to be Issued shares X paid per And + to be [new] Pre- outstand- issued share Adjusted adjusted X ing shares --------------------- Exercise = Exercise Current market price Price Price per share ------------------------------------ Number of + Number of new Issued and shares to be Outstanding issued Shares (b) The "Pre-adjusted Exercise Price" used in the formula above shall be the Exercise Price effective on the day prior to the date on which the Adjusted Exercise Price is applied pursuant to 4(2). The "Number of issued and outstanding shares" used in the formula above shall be the total number of issued and outstanding shares of the Company on the allotment date of the new shares being issued. If such allotment date is not specified, the "Number of issued and outstanding shares" shall be the total number of issued and outstanding shares on the date one month prior to the date on which the Adjusted Exercise Price is applied; provided, however, that in the event of a stock split the "Number of issued and outstanding shares" shall be the total number of issued and outstanding shares on the expiry of the period provided for in clause 1 of Article 215 of the Commercial Code as applied by Article 220 of the Commercial Code (Law No. 48 of 1899 as amended). (c) The "Current market price per share" used in the formula above shall be the average daily closing price (including the trend quotations) on the Tokyo Stock Exchange for the 30 day period starting on the 45th dealing day before the date on which the Adjusted Exercise Price is applied, excluding any days on which the closing price is not reported. The average daily closing price shall be calculated to two decimal places and rounded off to one decimal place. (d) The Adjusted Exercise Price shall be calculated to two decimal places and rounded off to one decimal place. (e) If the Adjusted Exercise Price calculated in accordance with the formula above is lower than the par value of the Common Shares, such par value shall be regarded as the Adjusted Exercise Price. (2) If the Exercise Price is adjusted in accordance with the formula above, the date on which the Adjusted Exercise Price shall be applied shall be as follows: (a)If Common Shares are issued at an amount which is less than the current market price used in the formula above: the Adjusted Exercise Price shall be applied from the date following the allotment date of the Common Shares if such allotment date is specified, or from the date following the payment date for the Common Shares. (b)If Common Shares are issued pursuant to a stock split: The Adjusted Exercise Price shall be applied from the date following the allotment date if an allotment date is specified. If an allotment date is not specified, the Adjusted Exercise Price shall be applied from the date following the expiry of the period provided for in clause 1 of Article 215 of the Commercial Code as applied by Article 220 of the Commercial Code (Law No. 48 of 1899 as amended). Provided, however, that where the Board of Directors decides that the Common Shares issued pursuant to a stock split will be issued on the condition that the distributable profit will be counted as capital and the allotment date for the stock split is specified as a date prior to the date of a shareholders' meeting which approves such capitalisation, the Adjusted Exercise Price shall be applied from the date following the date of such shareholders' meeting. If the proviso immediately above applies, the number of additional Common Shares calculated in accordance with the following formula shall be issued to any Holder who has exercised its Warrant Rights during the period between the allotment date specified for the stock split and the date of the shareholders' meeting which approves the capitalisation of the distributable profit: Number of shares issued at the pre- adjusted Pre-adjusted Adjusted exercise price Exercise - Exercise X pursuant to Number Price Price the exercise of = of warrant Shares rights for a period ----------------------------------------------- Adjusted Exercise Price If a fraction of less than one share arises under the formula above, the amount calculated by multiplying such fraction by the Adjusted Exercise Price as set out above shall be paid in cash to the Holder. Share certificates shall be issued pursuant to the provision set out in 7(3) below. (c) If convertible debt securities are issued which may be converted into Common Shares at a conversion price which is less than the "Current market price per share" used in the formula as set out in 4(1)(a) above: The "Amount to be paid per [new] share" in that formula shall be deemed to be the conversion price of the debt securities and the "Number of new shares to be issued" shall be calculated on the assumption that all the debt securities have been converted at the end of the issuing date or at the end of the allotment date, if such allotment date is specified. The Adjusted Exercise Price shall be applied from the date following the issuing date or allotment date. (d) If new warrants are issued with an exercise price which is less than the "Current market price per share" used in the formula as set out in 4(1)(a) above: The "Amount to be paid per [new] share" to be used in that formula shall be the exercise price of the shares specified in the new warrants and the "Number of new shares to be issued" shall be calculated on the assumption that all the warrants have been exercised at the end of the issue date of the warrants or at the end of the allotment date if such allotment date for subscription is specified. The Adjusted Exercise Price shall be applied on and after the date following the issuing date or allotment date. (3)If the difference between the Adjusted Exercise Price and the Pre- adjusted Exercise Price is less than 1 Yen , the Exercise Price shall not be adjusted on that occasion; provided, however, that the exact Adjusted Exercise Price originally calculated in accordance with the formula set out in 4(1)(a) above shall be used as the Pre-adjusted Exercise Price on the subsequent occasion that an adjustment occurs. (4)Save as otherwise provided in 4(2) above, the Company shall adjust the Exercise Price, as the Company considers appropriate: (a)in the event of a stock split, share consolidation, capital decrease or merger; or (b)if an event occurs which otherwise causes a change (or potential change) in the number of issued and outstanding shares. (5)If the Exercise Price is adjusted, the Company shall issue a public notice or an individual notice (as appropriate) prior to the date that the Adjusted Exercise Price is applied as specified in 4(2) above. Provided, however, that in the event of a stock split as set out in the proviso to 4(2)(b) or where the Company is unable to issue a public notice prior to the date that the Adjusted Exercise Price is applied, the Company shall issue a public notice or an individual notice (as appropriate) promptly after such date. (6)A public notice shall be issued in the manner set out in paragraph 18 of the Bond terms [which sets out that all public notices shall be published in the newspapers stipulated in the Articles of Incorporation of the Company unless otherwise provided by law]. 5.The total number of Common Shares issued pursuant to the exercise of the Warrant Rights [in respect of each Warrant] shall be calculated as follows: Aggregate amount of the "Allotment Amount Total of each Warrant" submitted by the Holder Number of = for exercise [see also paragraph 9 below] Common ----------------------------------------- Shares Exercise Price Any fractions, which result from the application of this formula, shall be disregarded. 6.Request for exercise of the Warrant Rights and method of payment (1) The amount to be paid pursuant to the exercise of each Warrant by the Holder (the Payment) shall be determined by multiplying the total number of shares (determined pursuant to paragraph 5) by the Exercise Price (determined pursuant to paragraphs 3 and 4). Any fraction resulting from such calculation that amounts to less than 1 Yen shall be disregarded. (2) No payment in connection with the redemption of a Bond may be set off against the Payment required in the preceding paragraph. (3) The Payment shall be handled by Sumitomo Mitsui Banking Corporation (the Payment Handling Bank) and the conditions and procedures of that appointment shall be provided for separately. (4) Requests for exercise of the Warrant Rights shall be accepted at the headquarters of The Nomura Securities Co., Ltd. (the Place Handling Applications). The conditions and procedures of that appointment shall be provided for separately. (5) In order to exercise a Warrant, a Holder must complete and sign the exercise notice as prescribed by the Company and submit such form together with the Warrant and the Payment to the Place Handling Applications during the period set out in paragraph 1(1). (6) Once a Holder submits the necessary documents for exercise of the Warrant Rights such exercise shall be irrevocable. 7. Effectiveness of exercise of the Warrant Rights (1) The exercise of a Warrant becomes effective when the Warrant and the Payment are delivered to the Payment Handling Bank. (2) The first annual dividends (and any interim dividends declared pursuant to Article 293-5 of the Japanese Commercial Code) shall be paid on the Common Shares issued upon exercise of the Warrant on the assumption that the Warrant Rights were exercised and the relevant Common Shares issued and registered: (a) on 1 April if the exercise is made (in accordance with paragraph 7(1)) during the period from 1 April to 30 September; or (b) on 1 October if the exercise is made (in accordance with paragraph 7(1)) during the period from 1 October to 31 March of the following year. (3) The Company shall issue share certificates through the head office of The Toyo Trust and Banking Co., Ltd, once the procedures for the exercise of a Warrant are completed; provided, however, that no share certificates shall be issued for any fraction of a full share arising upon such exercise. 8.Amount not accounted for as paid-in capital The portion of the issue price of the shares issued upon exercise of the Warrant Rights which will not be accounted for as paid-in capital shall be the amount of the Exercise Price (or the Adjusted Exercise Price where the Exercise Price is adjusted pursuant to paragraph 4) less the amount which will be accounted for as paid-in capital. The amount to be accounted for as paid-in capital shall be the amount calculated by multiplying the Exercise Price (or the Adjusted Exercise Price in case the Exercise Price is adjusted) by 0.5 and any fraction less than 1 Yen resulting from such calculation shall be rounded up to the nearest Yen ; provided, however, that if the Company issues par-value Common Shares the minimum amount that is accounted for as paid-in capital shall be the par-value if the calculation above results in an amount below such par-value. 9.The Warrants Each Warrant represents the right to subscribe for Common Shares up to an amount in Yen equal to Yen 420,300 at a price per Common Share equal to the Exercise Price. 10.Loss of Warrants (1) If a Holder loses a Warrant, the Company may issue a replacement warrant upon request, provided that the Company is notified of the details of the loss and such request is submitted together with a copy of an official "confirmation of the judgment of nullification", following which the Holder completes the process for the official announcement, notification and the declaration of nullification. (2) If a warrant is damaged or stained, the Company may issue a replacement warrant upon the request of the Holder and the submission of the relevant Warrant; provided, however, that the procedures provided for in 10(1) above shall apply if the validity of such Warrant is difficult to establish. 11.Fees and expenses for the issuance of a replacement warrant If the Company issues a replacement warrant, the Company may charge and the Holder shall pay any fees in connection therewith. 12. Share fractions In the event that clause 1 of Article 230-2 of the Japanese Commercial Code applies to any fractions of Common Shares after the Warrants are issued, the Company may take any reasonable and appropriate action in accordance with the provisions of the Commercial Code and terms of these Warrants. September 2001 Toyota Financial Services and - ----------- - --------------------------------------------------------------------- AGREEMENT FOR THE GRANT OF AN OPTION TO ACQUIRE WARRANTS TO SUBSCRIBE FOR COMMON STOCK OF TOYOTA MOTOR CORPORATION - --------------------------------------------------------------------- EX-12 9 exh121.txt EXHIBIT 12.1 TOYOTA MOTOR CREDIT CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Six Months Years Ended Ended Ended March 31, March 31, September 30, --------- --------- --------------------------------------- 2002 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ ------ (Dollars in Millions) Consolidated income before equity in net loss of subsidiary, income taxes and cumulative effect of change in accounting principle.................. $ 402 $ 71 $ 170 $ 230 $ 251 $ 283 ------ ------ ------ ------ ------ ------ Fixed Charges Interest................... 1,030 726 1,289 940 994 918 Portion of rent expense representative of the interest factor (deemed to be one-third)........ 7 3 6 6 5 4 ------ ------ ------ ------ ------ ------ Total fixed charges........... 1,037 729 1,295 946 999 922 ------ ------ ------ ------ ------ ------ Earnings available for fixed charges.......... 1,439 $ 800 $1,465 $1,176 $1,250 $1,205 ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges.......... 1.39 1.10 1.13 1.24 1.25 1.31 ====== ====== ====== ====== ====== ====== - ----------------- TMCC has guaranteed certain obligations of affiliates and subsidiaries as discussed in Note 17 of the Consolidated Financial Statements. In February 2002, the Argentine government established measures to re-denominate the entire Argentine economy into pesos and has permitted the peso to float freely against other global currencies. This re-denomination policy adversely affected TCA's financial condition and its ability to fully satisfy its offshore dollar loans. Consequently for the year ended March 31, 2002, TMCC has included a charge against income of $31 million to write-off its $5 million investment in TCA and to establish a reserve of $26 million relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt. TMCC will continue to monitor the situation.
EX-21 10 exh211.txt EXHIBIT 21.1 TOYOTA MOTOR CREDIT CORPORATION LIST OF SUBSIDIARIES State or Country of Subsidiary Incorporation/Formation - ---------- ----------------------- Toyota Motor Insurance Services, Inc. California Toyota Motor Insurance Company Iowa Toyota Motor Insurance Corporation of Vermont Vermont Toyota Motor Insurance Agency of Ohio, Inc. Ohio Toyota Motor Insurance Services of Kentucky, Inc. Kentucky Toyota Motor Insurance Agency of Massachusetts, Inc. Massachusetts Toyota Motor Insurance Services of Rhode Island, Inc. Rhode Island Toyota Motor Insurance Services of Wyoming, Inc. Wyoming Toyota Motor Credit Receivables Corporation California Toyota Leasing, Inc. California Toyota Auto Finance Receivables LLC Delaware Toyota Credit De Puerto Rico Corporation California Toyota Services de Mexico, S.A. de C.V. Mexico TFSM Servicios de Mexico, S.A. de C.V. Mexico Toyota Services de Venezuela, C.A. Venezuela EX-23 11 exh231.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-74872 and 333-84692) of Toyota Motor Credit Corporation of our report dated April 10, 2002 relating to the financial statements and financial statement schedules, which appears in this Form 10-K. /S/ PRICEWATERHOUSECOOPERS LLP Los Angeles, California May 30, 2002 -----END PRIVACY-ENHANCED MESSAGE-----