-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QDiKhdAh9JdQmLqb/1h8+Z6uHvdBFkLabVmXw4VoiWmz0frNLovGC4ngHZi74a4x BY9iME4slpPNb8IyFDB7Qw== 0000834071-95-000031.txt : 19950814 0000834071-95-000031.hdr.sgml : 19950814 ACCESSION NUMBER: 0000834071-95-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NYSE 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: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09961 FILM NUMBER: 95561344 BUSINESS ADDRESS: STREET 1: 19001 S WESTERN AVE CITY: TORRANCE STATE: CA ZIP: 90509-2958 BUSINESS PHONE: 3107153700 MAIL ADDRESS: STREET 1: 19001 S WESTERN AVE CITY: TORRANCE STATE: CA ZIP: 90509 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission file number 1-9961 ---------- TOYOTA MOTOR CREDIT CORPORATION - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3775816 - ---------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19001 S. Western Avenue Torrance, California 90509 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 787-1310 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of July 31, 1995, the number of outstanding shares of capital stock, par value $10,000 per share, of the registrant was 86,500, all of which shares were held by Toyota Motor Sales, U.S.A., Inc. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Millions)
June 30, September 30, June 30, 1995 1994 1994 ------------ ------------- ------------ (Unaudited) (Unaudited) ASSETS ------ Cash and cash equivalents................. $ 143 $ 277 $ 124 Investments in marketable securities...... 154 102 109 Finance receivables, net.................. 7,960 7,776 7,720 Investments in operating leases, net...... 7,496 6,215 5,069 Receivable from Parent.................... - 37 11 Other receivables......................... 688 235 174 Deferred charges.......................... 85 36 41 Other assets.............................. 73 55 54 ------- ------- ------- Total Assets........................ $16,599 $14,733 $13,302 ======= ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Notes and loans payable................... $13,388 $11,833 $10,744 Accrued interest.......................... 168 156 124 Accounts payable and accrued expenses..... 797 727 673 Unearned insurance premiums............... 66 73 79 Payable to Parent......................... 1 - - Income taxes payable...................... 8 31 20 Deferred income taxes..................... 509 386 365 ------- ------- ------- Total liabilities...................... 14,937 13,206 12,005 ------- ------- ------- Capital stock, $l0,000 par value (100,000 shares authorized; issued and outstanding 86,500 at June 30, 1995 and September 30, 1994, and 68,000 at June 30, 1994)......................... 865 865 680 Retained earnings......................... 797 662 617 ------- ------- ------- Total shareholder's equity............. 1,662 1,527 1,297 ------- ------- ------- Total Liabilities and Shareholder's Equity................ $16,599 $14,733 $13,302 ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements. -2- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Millions)
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------ 1995 1994 1995 1994 ------ ------ ------ ------ (Unaudited) Financing Revenues: Retail financing........................ $108 $100 $ 324 $ 306 Leasing................................. 487 322 1,381 843 Wholesale and other dealer financing.... 35 24 90 63 ---- ---- ------ ------ Total financing revenues................... 630 446 1,795 1,212 Interest expense........................ 189 125 525 347 Depreciation on operating leases........ 313 196 888 494 ---- ---- ------ ------ Net financing revenues..................... 128 125 382 371 Other revenues............................. 26 23 77 69 ---- ---- ------ ------ Net Financing Revenues and Other Revenues.. 154 148 459 440 ---- ---- ------ ------ Expenses: Operating and administrative............ 65 61 189 173 Provision for credit losses............. 13 22 46 51 ---- ---- ------ ------ Total Expenses............................. 78 83 235 224 ---- ---- ------ ------ Income before income taxes................. 76 65 224 216 Provision for income taxes................. 30 26 89 86 ---- ---- ------ ------ Net Income................................. $ 46 $ 39 $ 135 $ 130 ==== ==== ====== ======
See Accompanying Notes to Consolidated Financial Statements. -3- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Millions)
Nine Months Ended June 30, -------------------------- 1995 1994 -------- -------- (Unaudited) Cash flows from operating activities: Net income.......................................... $ 135 $ 130 ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 926 499 Provision for credit losses................... 46 51 Increase (decrease) in accrued interest....... 12 (24) Increase (decrease) in unearned insurance premiums................................... (7) 5 Increase in deferred income taxes............. 123 87 (Increase) decrease in other assets........... 23 (17) Increase in other liabilities................. 42 93 ------ ------ Total adjustments................................... 1,165 694 ------ ------ Net cash provided by operating activities.............. 1,300 824 ------ ------ Cash flows from investing activities: Addition to investments in marketable securities.... (68) (82) Disposition of investments in marketable securities....................................... 16 108 Purchase of finance receivables..................... (8,296) (7,867) Liquidation of finance receivables.................. 8,090 7,329 Addition to investments in operating leases......... (2,820) (2,890) Disposition of investments in operating leases...... 626 350 ------ ------ Net cash used in investing activities.................. (2,452) (3,052) ------ ------ Cash flows from financing activities: Proceeds from issuance of notes and loans payable... 4,734 3,233 Payments on notes and loans payable................. (3,904) (2,198) Net increase in commercial paper with original maturities less than 90 days............ 188 743 ------ ------ Net cash provided by financing activities.............. 1,018 1,778 ------ ------ Net decrease in cash and cash equivalents.............. (134) (450) Cash and cash equivalents at the beginning of the period....................................... 277 574 ------ ------ Cash and cash equivalents at the end of the period..... $ 143 $ 124 ====== ====== Supplemental disclosures: Interest paid....................................... $483 $368 Income taxes paid................................... $3 $70
See Accompanying Notes to Consolidated Financial Statements. -4- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Interim Financial Data - ------------------------------- Information pertaining to the three months and nine months ended June 30, 1995 and 1994 is unaudited. In the opinion of management, the unaudited financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three months and nine months ended June 30, 1995 are not necessarily indicative of those expected for any other interim period or for a full year. Certain June 1994 and September 1994 accounts have been reclassified to conform with the June 1995 presentation. Note 2 - Finance Receivables - ---------------------------- Finance receivables, net consisted of the following:
June 30, September 30, June 30, 1995 1994 1994 ------------ ------------- ------------ (Dollars in Millions) Retail............................... $5,591 $5,805 $5,439 Finance leases....................... 1,581 1,734 1,834 Wholesale and other dealer loans..... 1,511 1,054 1,282 ------ ------ ------ 8,683 8,593 8,555 Unearned income...................... (625) (716) (738) Allowance for credit losses.......... (98) (101) (97) ------ ------ ------ Finance receivables, net.......... $7,960 $7,776 $7,720 ====== ====== ======
Included in finance lease receivables were estimated unguaranteed residual values of $689 million, $694 million and $710 million at June 30, 1995, September 30, 1994 and June 30, 1994, respectively. The aggregate balances related to finance receivables 60 or more days past due totaled $15 million, $15 million and $14 million at June 30, 1995, September 30, 1994 and June 30, 1994, respectively. -5- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Investments in Operating Leases - ---------------------------------------- Investments in operating leases, net consisted of the following:
June 30, September 30, June 30, 1995 1994 1994 ------------ ------------- ------------ (Dollars in Millions) Vehicles................................. $9,026 $7,184 $5,869 Equipment, aircraft and other............ 188 148 136 ------ ------ ------ 9,214 7,332 6,005 Accumulated depreciation................. (1,644) (1,054) (886) Allowance for credit losses ............. (74) (63) (50) ------ ------ ------ Investments in operating leases, net.. $7,496 $6,215 $5,069 ====== ====== ======
Note 4 - Notes and Loans Payable - -------------------------------- Notes and loans payable, which consisted of senior debt, included the following:
June 30, September 30, June 30, 1995 1994 1994 ------------ ------------- ------------ (Dollars in Millions) Commercial paper, net.................... $ 1,982 $ 960 $ 1,170 ------- ------- ------- Other senior debt, due in the years ending September 30,: 1994.................................. - - 733 1995.................................. 703 4,010 3,926 1996.................................. 2,947 2,405 2,040 1997.................................. 2,838 2,014 1,844 1998.................................. 2,372 985 466 1999.................................. 411 233 229 Thereafter............................ 2,094 1,209 312 ------- ------- ------- 11,365 10,856 9,550 Unamortized premium...................... 41 17 24 ------- ------- ------- Total other senior debt............... 11,406 10,873 9,574 ------- ------- ------- Notes and loans payable............ $13,388 $11,833 $10,744 ======= ======= =======
The weighted average remaining term of commercial paper was 123 days and 45 days at June 30, 1995 and 1994, respectively. The weighted average interest rate on commercial paper was 6.58% and 4.07% at June 30, 1995 and 1994, respectively. -6- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Notes and Loans Payable (Continued) - -------------------------------- The weighted average interest rate on other senior debt was 5.78% at June 30, 1995, including the effect of interest rate swap agreements. This rate has been calculated on the basis of rates in effect at June 30, 1995, some of which are floating rates that reset daily. Approximately 30% of other senior debt at June 30, 1995 had interest rates, including the effect of interest rate swap agreements, that were fixed for a period of more than one year. The weighted average of these fixed interest rates was 6.09% at June 30, 1995. Approximately 34% of other senior debt at June 30, 1995 had floating interest rates that were covered by interest rate cap agreements with an average strike rate of 7.57%. The mix of TMCC's fixed and floating rate debt changes from time to time as a result of interest rate risk management. Included in Notes and Loans Payable at June 30, 1995 were unsecured notes payable in various foreign currencies. Concurrent with the issuance of these unsecured notes, TMCC entered into foreign currency swap agreements to convert these obligations into $5.0 billion fixed U.S. dollar obligations. TMCC's foreign currency debt is translated into U.S. dollars in the financial statements at the various foreign currency spot exchange rates in effect at June 30, 1995. The receivables or payables, arising as a result of the differences between the June 30, 1995 foreign currency spot exchange rates and the contract rates applicable to the foreign currency swap agreements, are classified in Other Receivables or Accounts Payable and Accrued Expenses, respectively, and would aggregate to a net receivable position of $493 million at June 30, 1995. Note 5 - Recently Adopted Accounting Standards - ---------------------------------------------- Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("Statement No. 112"). Statement No. 112 requires accrual, during the years that the employee renders the necessary service or when it is probable that a liability has been incurred, of the expected cost of providing postemployment benefits to former or inactive employees, their beneficiaries, and covered dependents after employment but before retirement. This method differs from the Company's previous practice of accounting for these benefits on a cash basis. The cumulative effect of the change in accounting principle was not material to the Company's financial position or results of operations. Prior period financial statements have not been restated. -7- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Recently Adopted Accounting Standards (Continued) - ---------------------------------------------- Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("Statement No. 114") and its amendment Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" ("Statement No. 118"). Statement No. 114 requires a creditor to evaluate the collectibility of both contractual interest and principal of certain impaired receivables when assessing the need for a loss accrual and to measure loans that are restructured in a troubled debt restructuring to reflect the time value of money. Statement No. 114 is not applicable to leases and large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment. Statement No. 118 amends Statement No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. Statement No. 118 also amends the disclosure requirements in Statement No. 114 to require information about the recorded investment in certain impaired loans and about how a creditor recognizes interest income related to those impaired loans. The impact of adoption was not material to the Company's financial position or results of operations. Prior period financial statements have not been restated. Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("Statement No. 115"). Statement No. 115 addresses the accounting and reporting for investments in all debt securities and for investments in equity securities that have readily determinable fair values. The cumulative effect of the change in accounting principle was not material to the Company's financial position or results of operations. Prior period financial statements have not been restated. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Introduction The earnings of Toyota Motor Credit Corporation ("TMCC") are primarily affected by interest margins, the average outstanding balance of earning assets and borrowing levels. The interest rates charged on retail finance receivables and implicit in leases are fixed at the time acquired. Yields on the majority of wholesale receivables and other loans to dealers vary with changes in short-term interest rates. Funding requirements are primarily met through net cash provided by operating activities, earning asset liquidations and the issuance of debt obligations of varying terms at both fixed and floating interest rates. TMCC utilizes interest rate swap agreements and foreign currency swap agreements in managing the cost of borrowed funds. The business of TMCC and its subsidiaries (collectively the "Company") is substantially dependent upon the sale of Toyota and Lexus vehicles in the United States. Lower levels of sales of such vehicles resulting from governmental action, decline in demand, changes in pricing due to the appreciation of the Japanese yen against the United States dollar, or other events, could result in a reduction in 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. On June 28, 1995, the Office of the United States Trade Representative announced it would not impose trade sanctions on specified vehicles imported from Japan as previously announced on May 16, 1995. The Company's operations were not materially impacted by the proposed trade sanctions. Financial Condition and Results of Operations TMCC's earning assets, consisting of finance receivables and investments in operating leases, totaled $15.6 billion, $14.2 billion and $12.9 billion at June 30, 1995, September 30, 1994 and June 30, 1994, respectively. The growth in earning assets was primarily the result of growth in lease earning assets. Retail finance receivables, net of unearned income, were $5.2 billion, $5.4 billion and $5.0 billion at June 30, 1995, September 30, 1994 and June 30, 1994, respectively. Retail finance receivables decreased from September 30, 1994 to June 30, 1995 due to liquidations exceeding contract volume and increased from June 30, 1994 to June 30, 1995 due to contract volume exceeding liquidations. Lease earning assets, consisting of lease finance receivables, net of unearned income, and investments in operating leases, net of accumulated depreciation, totaled $8.9 billion, $7.7 billion and $6.6 billion at June 30, 1995, September 30, 1994 and June 30, 1994, respectively. Lease earning assets increased from September 30, 1994 and June 30, 1994 primarily due to operating lease additions exceeding operating lease dispositions as a result of the effect of special lease programs sponsored by Toyota Motor Sales, U.S.A., Inc. ("TMS") and the increased acceptance of leasing by retail consumers. Management of the Company anticipates further growth in lease earning assets as special lease programs and the increased acceptability of leasing by retail consumers continue. -9- Wholesale receivables and other dealer loans were $1.5 billion, $1.1 billion and $1.3 billion at June 30, 1995, September 30, 1994 and June 30, 1994, respectively. The increase in these receivables from June 30, 1994 to June 30, 1995 and from September 30, 1994 to June 30, 1995 resulted primarily from the higher average wholesale receivables balance per dealer. Contract volume related to TMCC's vehicle retail installment financing and leasing programs is summarized below:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 1995 1994 1995 1994 ------ ------- ------- ------- Contract Volume: Vehicle retail installment contracts........ 39,000 54,000 115,000 141,000 Vehicle lease contracts..................... 43,000 63,000 123,000 134,000 ------ ------- ------- ------- Total.................................... 82,000 117,000 238,000 275,000 ====== ======= ======= =======
The vehicle retail installment contract volume decreased during the three months and nine months ended June 30, 1995 as compared to the same periods in fiscal 1994 primarily due to increased competition in new and used vehicle financing. Although further declines in new and used vehicle financing are possible, management of the Company has taken various steps to enhance both programs' competitive position. The vehicle lease contract volume also decreased during the three months and nine months ended June 30, 1995 due to a decline in the level of Toyota special lease programs sponsored by TMS as compared to the same periods in fiscal 1994. Under these special lease programs, TMCC offers reduced monthly payments on certain new vehicles to qualified lessees and receives an amount from TMS and, in some cases, dealers for each vehicle leased. Amounts received approximate the balances required by TMCC to maintain revenues at standard program levels and are earned over the expected lease terms. The level of sponsored program activity varies based on TMS marketing strategies. TMCC recognized revenues related to all amounts received under various TMS programs of $37 million and $14 million during the three months ended June 30, 1995 and 1994, respectively, and $96 million and $33 million during the nine months ended June 30, 1995 and 1994, respectively. TMCC financed or leased ("finance penetration") the following percentages of new Toyota and Lexus vehicle deliveries in the United States, excluding Hawaii:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------ 1995 1994 1995 1994 ------ ------ ------ ------ Finance penetration........ 27.4% 38.6% 30.1% 33.8%
-10- Total finance penetration for the three months and nine months ended June 30, 1995 decreased as compared to the same periods in fiscal 1994 primarily due to a decline in the level of special lease programs. Total financing revenues increased 41% and 48% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994. The increases resulted primarily from earning asset growth. Retail financing revenues increased 8% and 6% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994. The increase in revenues for the three months ended June 30, 1995 as compared to the same period in fiscal 1994 resulted primarily from the growth in average retail finance receivables outstanding. The increase in revenues for the nine months ended June 30, 1995 as compared to the same period in fiscal 1994 resulted from the growth in average retail finance receivables outstanding partially offset by a decline in portfolio yield resulting from lower yielding contracts replacing liquidating higher yielding contracts. Management of the Company expects that the level of retail financing revenues in fiscal 1995 will approximate those of fiscal 1994. During the three months and nine months ended June 30, 1995, TMCC's primary source of revenue and earning asset growth was leasing. Leasing revenues increased 51% and 64% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994 primarily due to the growth in average lease earning assets. Management of the Company anticipates further growth in leasing revenues as special lease programs sponsored by TMS and increased acceptability of leasing by retail consumers are expected to continue to result in increases in lease earning assets. Wholesale and other dealer financing revenues increased 46% and 43% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994. The increased revenues resulted from higher average wholesale receivable balances and increases in wholesale financing rates. Management of the Company anticipates that yields and revenues will increase in fiscal 1995 as compared to fiscal 1994 due to higher short-term market interest rates to which such financing is indexed and due to earning asset growth. Interest expense increased 51% for each of the three month and nine month periods ended June 30, 1995 from the same periods in fiscal 1994. The increases in interest expense resulted from higher average borrowing levels required to fund the growth in earning assets and increases in market interest rates. The weighted average cost of borrowings was 6.02% and 5.71% for the three months and nine months ended June 30, 1995, respectively, compared to 4.88% and 4.90% for the same period in fiscal 1994. Management anticipates that both the weighted average cost of borrowings and interest expense will increase in fiscal 1995 as compared to fiscal 1994 as a result of increases in average market interest rates and increases in the average level of debt outstanding. Depreciation on operating leases increased 60% and 80% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994 as a result of the growth in investments in operating leases. Management anticipates higher depreciation on operating leases in fiscal 1995 as compared to fiscal 1994 due to anticipated growth in investments in operating leases. -11- Unguaranteed vehicle residual values were approximately $6.0 billion and $4.0 billion at June 30, 1995 and 1994, respectively. To date, TMCC has incurred no material losses as a result of residual value risk. Although TMCC's experience has been somewhat limited, management of the Company believes that the aggregate residual values of its leases reflected in the financial statements represent realizable values. Net financing revenues increased 2% and 3% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994. The increases were primarily attributable to the growth in the level of earning assets which was substantially offset by declining interest margins. Interest margin is the excess of the combined interest rate yield on finance receivables and implicit in leases over the effective interest rate cost of total borrowings. Lower interest margins in fiscal 1995 were the result of lower portfolio yields on retail installment and lease contracts and higher average borrowing costs as compared to fiscal 1994. Management anticipates slightly higher net financing revenues in fiscal 1995 as compared to fiscal 1994 as increased financing revenues resulting from earning asset growth are expected to be substantially offset by lower portfolio yields and higher borrowing costs. Other revenues increased 13% and 12% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994. The increases in other revenues resulted from the continued growth in the Company's insurance operations offset by declines in servicing and other income related to the retail finance receivables sold in fiscal 1993. Operating and administrative expenses increased 7% and 9% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994. These increases reflected increased costs required to service the Company's growing customer base and for the growth in the Company's insurance operations. The provision for credit losses decreased 41% and 10% during the three months and nine months ended June 30, 1995, respectively, as compared to the same periods in fiscal 1994 as a result of a decline in the level of earning asset growth and a change in allowance levels. The allowance levels declined as a result of changes in the mix of earning assets and the Company's low credit loss experience. The Company continues to experience low credit loss levels and will continue to place emphasis on controlling its credit loss exposure; however, there are no assurances that the low credit loss levels will continue. Operating profits (reflected as "Income before income taxes") increased 17% and 4% during the three months and nine months ended June 30, 1995, respectively, as compared to the same period in fiscal 1994. The increase in operating profits and net income was primarily due to increases in net financing revenues due to the growth in earning assets and a decline in the provision for credit losses. Management of the Company anticipates that fiscal 1995 operating profits will approximate those of fiscal 1994. Financial support is provided by TMS, as necessary, to maintain TMCC's minimum fixed charge coverage at the level specified in the Operating Agreement. As a result of the favorable operating profits during the nine months ended June 30, 1995 and 1994, TMCC did not receive any financial support from TMS. -12- Liquidity and Capital Resources The Company requires, in the normal course of business, substantial funding to support the level of its earning assets. Significant reliance is placed on the Company's ability to obtain debt funding in the capital markets in addition to funding provided by earning asset liquidations, cash provided by operating activities, and growth in retained earnings. Debt funding has been obtained primarily from the issuance of debt securities in the International and United States capital markets. Debt issuances have generally been in the form of commercial paper, medium-term notes ("MTNs") and other debt securities. From time to time, this funding has been supplemented by loans and equity contributions from TMS. Commercial paper issuances and borrowings from TMS are specifically utilized to meet short-term funding needs. Commercial paper outstanding under TMCC's commercial paper program ranged from approximately $1.0 billion to $2.0 billion at any month end during the first nine months of fiscal 1995, with an average outstanding balance of $1.6 billion. To support its commercial paper program, TMCC also maintains syndicated bank credit facilities with certain banks which aggregated $1.5 billion at June 30, 1995. No loans were outstanding under any of these bank credit facilities during the first nine months of fiscal 1995. TMCC also maintains uncommitted, unsecured lines of credit with banks totaling $300 million to facilitate issuances of letters of credit. At June 30, 1995, approximately $87 million in letters of credit had been issued, primarily related to the Company's insurance operations. From time to time, TMS makes interest-bearing loans to TMCC. The interest rate charged by TMS to TMCC for these interest-bearing loans approximates the Federal Reserve Board's one-month commercial paper composite rate for firms whose bonds are rated AA. The average outstanding balance of loans from TMS during the first nine months of fiscal 1995 was not material. MTNs, with original terms ranging from one year to ten years, have been issued in the International and United States capital markets to meet a portion of long-term and short-term funding requirements. During the first nine months of fiscal 1995, TMCC issued approximately $3.2 billion of MTNs almost all of which had maturity dates on the date of issuance of more than one year. MTNs outstanding at June 30, 1995, including the effect of foreign currency translations at spot exchange rates in effect at June 30, 1995, totaled approximately $8.6 billion. At July 31, 1995, approximately $1.9 billion under TMCC's United States public MTN program was available for issuance. In July 1995, the Company expanded the maximum aggregate principal amount authorized to be outstanding at any time under TMCC's Euro MTN program from $6.5 billion to $9.5 billion. As of July 31, 1995, approximately $3.9 billion was available for issuance under the Euro MTN program, of which the Company has committed to issue approximately $114 million. The United States and Euro MTN programs may from time to time be expanded to allow for the continued use of these sources of funding. -13- Long-term funding requirements have also been met through the issuance of other forms of debt securities underwritten in the International and United States capital markets. At June 30, 1995, approximately $2.8 billion of debt securities (excluding MTNs), including the effect of foreign currency translations at spot exchange rates in effect at June 30, 1995, were outstanding in the International capital markets. Of the $2.8 billion in debt securities, $1.8 billion was denominated in foreign currencies. At July 31, 1995, approximately $700 million of securities registered with the Securities and Exchange Commission, excluding MTNs, were available for issuance. TMCC utilizes a variety of financial instruments to manage its foreign currency exchange rate risk and interest rate risk. TMCC does not enter into these instruments for trading purposes. During the nine months ended June 30, 1995 and 1994, TMCC held its derivative financial instruments to maturity of the underlying debt instruments. TMCC utilizes foreign currency swap agreements and interest rate swap agreements to manage exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Notes and loans payable issued in foreign currencies are hedged by concurrently executed foreign currency swap agreements. These swap agreements involve agreements to exchange TMCC's foreign currency principal obligations for U.S. dollar obligations at agreed-upon currency exchange rates and to exchange fixed and floating interest rate obligations. The aggregate notional amounts of foreign currency swap agreements at June 30, 1995 and 1994 were $4.5 billion and $2.9 billion, respectively. In the event that a counterparty fails to perform, TMCC's exposure is limited to the currency exchange and interest rate differential. TMCC does not anticipate nonperformance by any of its counterparties. TMCC utilizes interest rate swap agreements and other option-based products in managing its exposure to interest rate fluctuations. TMCC's interest rate swap agreements involve agreements to pay fixed and receive a floating rate, or receive fixed and pay a floating rate, at specified intervals, calculated on an agreed-upon notional amount. Interest rate swap agreements may also involve basis swap contracts, which are agreements to exchange the difference between certain floating interest amounts, such as the net payment based on the commercial paper rate and the London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional amount. TMCC also enters into option-based contracts where TMCC is a fixed rate payor when the underlying floating indices are within a prespecified range, and a floating rate payor otherwise. The underlying notional amounts are not exchanged and do not represent exposure to credit loss. In the event that a counterparty fails to perform, TMCC's exposure is limited to the interest rate differential. TMCC does not anticipate nonperformance by any of its counterparties. The aggregate notional amounts of interest rate swap agreements outstanding at June 30, 1995 and 1994, were $11.0 billion and $7.7 billion, respectively. At June 30, 1995, TMCC was the fixed rate payor on $4.4 billion of interest rate swap agreements, floating rate payor on $1.4 billion of such agreements, counterparty to $1.5 billion of basis swap contracts, and counterparty to $3.7 billion of option-based contracts. Interest rate swap agreements and other option-based products are executed as an integral part of specific debt transactions and on a portfolio basis. The differential paid or received on such agreements is recorded as an adjustment to Interest Expense over the term of the underlying debt. Master netting agreements, with all interest rate swap agreement counterparties, also exist allowing the net difference between counterparties to be exchanged in the event of default. -14- TMCC utilizes indexed note swap agreements in managing its exposure to indexed notes. Indexed notes are debt instruments whose interest rate and/or principal redemption amounts are derived from other underlying instruments. Indexed note swap agreements involve agreements to receive interest and/or principal amounts associated with the indexed notes, denominated in either U.S. dollars or a foreign currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities. In the event that a counterparty fails to perform, TMCC's exposure is limited to the difference between the indexed amounts that should have been received and the amounts that should have been paid. TMCC does not anticipate nonperformance by any of its counterparties. At June 30, 1995 and 1994, TMCC was the counterparty to $1.8 billion of indexed note swap agreements, of which $0.5 billion was denominated in foreign currencies and $1.3 billion was denominated in U.S. dollars. For all of its derivative financial instruments, TMCC manages counterparty risk through the use of credit standard guidelines, counterparty diversification and financial condition monitoring. From time to time, TMS has made equity contributions to maintain TMCC's equity capitalization at certain levels. Such levels have been periodically established by TMS as it deems appropriate. No such equity contributions were made during the first nine months of fiscal 1995. Cash flows provided by operating, investing and financing activities have been used primarily to support growth in earning assets. During the nine months ended June 30, 1995, cash provided by the liquidation of earning assets, totaling $8.7 billion was used to purchase additional finance receivables and investments in operating leases, totaling $11.1 billion. Investing activities resulted in a net use of cash of $2.5 billion as the purchase of additional earning assets, primarily investments in operating leases, exceeded cash provided by the liquidation of earning assets. Investing activities were also supported by net cash provided by operating activities and net cash provided by financing activities which totaled $1.3 billion and $1.0 billion, respectively, during the first nine months of fiscal 1995. Management of the Company believes that cash provided by operating, investing and financing activities will be sufficient to meet the Company's liquidity and capital resource needs in the future. -15- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against TMCC and its subsidiaries with respect to certain matters arising from the ordinary course of business. Certain of these actions are or purport to be class action suits. Certain of these actions are similar to suits which have been filed against other financial institutions and captive finance companies. At this time, the Company believes any resulting liability from the above legal actions, proceedings and other claims will not materially affect its consolidated financial position or results of operations. ITEM 2. CHANGES IN SECURITIES. There is nothing to report with regard to this item. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. There is nothing to report with regard to this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. There is nothing to report with regard to this item. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The exhibits listed on the accompanying Exhibit Index, on page 18, are filed as part of this report. (b) Reports on Form 8-K The Company filed the following report on Form 8-K during the quarter ended June 30, 1995: Financial Statements Date of Report Item Filed -------------- ---- -------------------- May 16, 1995 Item 5 - Other Events None -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOYOTA MOTOR CREDIT CORPORATION ------------------------------- (Registrant) Date: August 11, 1995 By /S/ WOLFGANG JAHN ------------------------------- Wolfgang Jahn Senior Vice President and General Manager (principal executive officer) Date: August 11, 1995 By /S/ PATRICK BREENE ------------------------------- Patrick Breene Corporate Manager - Finance and Administration (principal accounting officer) -17- EXHIBIT INDEX Exhibit Method Number Description of Filing - ------- ----------- --------- 12.1 Calculation of ratio of earnings to fixed charges. Filed Herewith 27.1 Financial Data Schedule. Filed Herewith -18- EX-12 2 EXHIBIT 12.1 TOYOTA MOTOR CREDIT CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ------------------ 1995 1994 1995 1994 ---- ---- ---- ---- (Dollars in Millions) Consolidated income before income taxes...................... $ 76 $ 65 $224 $216 ---- ---- ---- ---- Fixed charges: Interest................................. 189 125 525 347 Portion of rent expense representative of the interest factor (deemed to be one-third)............................ 1 1 3 2 ---- ---- ---- ---- Total fixed charges......................... 190 126 528 349 ---- ---- ---- ---- Earnings available for fixed charges........................ $266 $191 $752 $565 ==== ==== ==== ==== Ratio of earnings to fixed charges........................ 1.40 1.52 1.42 1.62 ==== ==== ==== ==== - ----------------- TMCC did not receive any financial support from TMS during the three months or nine months ended June 30, 1995 and 1994. In March 1987, TMCC guaranteed payments of principal and interest on $58 million principal amount of bonds issued in connection with the Kentucky manufacturing facility of an affiliate. As of June 30, 1995, TMCC has not incurred any fixed charges in connection with such guarantee and no amount is included in any ratio of earnings to fixed charges.
EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYOTA MOTOR CREDIT CORPORATION'S JUNE 30, 1995 FINANCIAL STATEMENTS AND NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS SEP-30-1995 JUN-30-1995 143 154 15,628 172 0 0 0 0 16,599 0 13,388 865 0 0 797 16,599 0 1,872 0 1,413 189 46 0 224 89 135 0 0 0 135 0 0 Receivables include Investments in Operating Leases net of Accumulated Depreciation and Finance Receivables net of Unearned Income. Toyota Motor Credit Corporation's Balance Sheet is not classified into Current and Long-Term Assets and Liabilities. Total Costs include Interest Expense and Depreciation on Operating Leases.
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