-----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, Khxu8DdDltT4tpavof9duL89gC2pPEfWfWXMaPhChi19A6t76Rk6F6bmCse9TrCz ILy8MM6gx/PzU8CxTS7Rgw== 0000834071-96-000017.txt : 19960515 0000834071-96-000017.hdr.sgml : 19960515 ACCESSION NUMBER: 0000834071-96-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96562786 BUSINESS ADDRESS: STREET 1: 19001 S WESTERN AVE STREET 2: PO BOX 2958 FN12 CITY: TORRANCE STATE: CA ZIP: 90509-2958 BUSINESS PHONE: 3107873848 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 March 31, 1996 -------------- 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 April 30, 1996, 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. -1- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in Millions)
March 31, September 30, March 31, 1996 1995 1995 ----------- ------------- ----------- (Unaudited) (Unaudited) ASSETS ------ Cash and cash equivalents................. $ 137 $ 108 $ 312 Investments in marketable securities...... 172 169 139 Investments in operating leases, net...... 9,239 8,148 7,052 Finance receivables, net.................. 7,636 7,227 7,992 Receivable from Parent.................... 16 51 7 Other receivables......................... 247 350 755 Deferred charges.......................... 100 85 87 Income taxes receivable................... - 6 - Other assets.............................. 92 81 69 ------- ------- ------- Total Assets..................... $17,639 $16,225 $16,413 ======= ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Notes and loans payable................... $13,882 $12,696 $13,213 Accrued interest.......................... 166 190 158 Accounts payable and accrued expenses..... 369 298 283 Deposits.................................. 219 200 178 Income taxes payable...................... 12 - 18 Deferred income........................... 528 505 476 Deferred income taxes..................... 677 627 471 ------- ------- ------- Total liabilities................... 15,853 14,516 14,797 ------- ------- ------- Commitments and contingencies Shareholder's Equity: Capital stock, $l0,000 par value (100,000 shares authorized; issued and outstanding 86,500)............. 865 865 865 Retained earnings...................... 921 844 751 ------- ------- ------- Total shareholder's equity.......... 1,786 1,709 1,616 ------- ------- ------- Total Liabilities and Shareholder's Equity............. $17,639 $16,225 $16,413 ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements. -2- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in Millions)
Three Months Ended Six Months Ended March 31, March 31, ------------------ ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ (Unaudited) Financing Revenues: Leasing................................. $ 593 $ 465 $1,150 $ 894 Retail financing........................ 103 107 204 216 Wholesale and other dealer financing.... 28 29 58 55 ------ ------ ------ ------ Total financing revenues................... 724 601 1,412 1,165 Depreciation on operating leases........ 394 298 764 575 Interest expense........................ 196 175 389 336 ------ ------ ------ ------ Net financing revenues..................... 134 128 259 254 Other revenues............................. 29 26 58 51 ------ ------ ------ ------ Net Financing Revenues and Other Revenues.. 163 154 317 305 ------ ------ ------ ------ Expenses: Operating and administrative............ 74 64 139 124 Provision for credit losses............. 29 15 50 33 ------ ------ ------ ------ Total Expenses............................. 103 79 189 157 ------ ------ ------ ------ Income before income taxes................. 60 75 128 148 Provision for income taxes................. 24 30 51 59 ------ ------ ------ ------ Net Income................................. $ 36 $ 45 $ 77 $ 89 ====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements. -3- TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Millions)
Six Months Ended March 31, -------------------------- 1996 1995 ------- ------- (Unaudited) Cash flows from operating activities: Net income................................................ $ 77 $ 89 ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................... 762 598 Provision for credit losses......................... 50 33 Increase (decrease) in accrued interest............. (24) 2 Increase in deferred income taxes................... 50 85 Decrease in other assets............................ 30 23 Increase in other liabilities....................... 57 45 ------ ------ Total adjustments......................................... 925 786 ------ ------ Net cash provided by operating activities.................... 1,002 875 ------ ------ Cash flows from investing activities: Additions to investments in marketable securities......... (29) (51) Disposition of investments in marketable securities....... 27 12 Purchase of finance receivables........................... (5,960) (5,349) Liquidations of finance receivables....................... 5,524 5,176 Additions to investments in operating leases.............. (2,565) (1,804) Disposition of investments in operating leases............ 687 374 ------ ------ Net cash used in investing activities........................ (2,316) (1,642) ------ ------ Cash flows from financing activities: Proceeds from issuance of notes and loans payable......... 2,273 3,458 Payments on notes and loans payable....................... (2,289) (2,254) Net increase (decrease) in commercial paper with original maturities less than 90 days.................. 1,359 (402) ------ ------ Net cash provided by financing activities.................... 1,343 802 ------ ------ Net increase in cash and cash equivalents.................... 29 35 Cash and cash equivalents at the beginning of the period..... 108 277 ------ ------ Cash and cash equivalents at the end of the period........... $ 137 $ 312 ====== ====== Supplemental disclosures: Interest paid............................................. $419 $320 Income taxes paid......................................... $2 $2
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 six months ended March 31, 1996 and 1995 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 six months ended March 31, 1996 are not necessarily indicative of those expected for any other interim period or for a full year. Certain March 1995 and September 1995 accounts have been reclassified to conform with the March 1996 presentation. Note 2 - Investments in Operating Leases - ---------------------------------------- Investments in operating leases, net consisted of the following:
March 31, September 30, March 31, 1996 1995 1995 --------- ------------- --------- (Dollars in Millions) Vehicles.................................. $11,360 $ 9,864 $8,408 Equipment, aircraft and other............. 223 201 175 ------- ------- ------ 11,583 10,065 8,583 Accumulated depreciation.................. (2,253) (1,838) (1,458) Allowance for credit losses .............. (91) (79) (73) ------- ------- ------ Investments in operating leases, net... $ 9,239 $ 8,148 $7,052 ======= ======= ======
Note 3 - Finance Receivables - ---------------------------- Finance receivables, net consisted of the following:
March 31, September 30, March 31, 1996 1995 1995 --------- ------------- --------- (Dollars in Millions) Retail..................................... $5,383 $5,050 $5,595 Finance leases............................. 1,498 1,567 1,695 Wholesale and other dealer loans........... 1,353 1,229 1,430 ------ ------ ------ 8,234 7,846 8,720 Unearned income............................ (501) (527) (627) Allowance for credit losses................ (97) (92) (101) ------ ------ ------ Finance receivables, net................ $7,636 $7,227 $7,992 ====== ====== ======
-5- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Finance Receivables (Continued) - ---------------------------- Finance leases included estimated unguaranteed residual values of $657 million, $673 million and $701 million at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. The aggregate balances related to finance receivables 60 or more days past due totaled $17 million, $16 million and $21 million at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. Note 4 - Notes and Loans Payable - -------------------------------- Notes and loans payable, which consisted of senior debt, included the following:
March 31, September 30, March 31, 1996 1995 1995 --------- ------------- --------- (Dollars in Millions) Commercial paper, net................... $ 2,282 $ 1,442 $ 1,402 ------- ------- ------- Other senior debt, due in the years ending September 30,: 1995................................. - - 2,172 1996................................. 1,922 3,252 2,717 1997................................. 2,959 2,722 2,833 1998................................. 2,451 2,371 1,644 1999................................. 939 529 371 2000................................. 1,749 1,723 1,540 Thereafter........................... 1,523 611 492 ------- ------- ------- 11,543 11,208 11,769 Unamortized premium..................... 57 46 42 ------- ------- ------- Total other senior debt.............. 11,600 11,254 11,811 ------- ------- ------- Notes and loans payable........... $13,882 $12,696 $13,213 ======= ======= =======
-6- TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - Notes and Loans Payable (Continued) - -------------------------------- Short-term borrowings include commercial paper and certain medium-term notes ("MTNs"). The weighted average remaining term and weighted average interest rate of commercial paper was 25 days and 5.29%, respectively, at March 31, 1996. Short-term MTNs with original terms of one year or less, included in other senior debt, were $623 million at March 31, 1996. The weighted average interest rate on these short-term MTNs was 6.03% at March 31, 1996, including the effect of interest rate swap agreements. The weighted average interest rate on other senior debt was 5.77% at March 31, 1996, including the effect of interest rate swap agreements and option-based products. This rate has been calculated on the basis of rates in effect at March 31, 1996, some of which are floating rates that reset daily. Approximately 28% of other senior debt at March 31, 1996 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 5.86% at March 31, 1996. Approximately 44% of other senior debt at March 31, 1996 had floating interest rates that were covered by option-based products. The weighted average strike rate on these option-based products was 6.99% at March 31, 1996. 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 March 31, 1996 were unsecured notes denominated in various foreign currencies. Concurrent with the issuance of these unsecured notes denominated in foreign currencies, TMCC entered into cross currency interest rate swap agreements to convert these obligations at maturity into U.S. dollar obligations which aggregate to a principal amount of $5.4 billion. TMCC's foreign currency debt was translated into U.S. dollars in the financial statements at the various foreign currency spot exchange rates in effect at March 31, 1996. The receivables or payables, arising as a result of the differences between the March 31, 1996 foreign currency spot exchange rates and the contract rates applicable to the cross currency interest rate swap agreements, are classified in Other Receivables or Accounts Payable and Accrued Expenses, respectively, and would aggregate to a net payable position of $40 million at March 31, 1996. -7- 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 and the average outstanding balance of earning assets and borrowing levels. The interest rates implicit in leases and charged on retail finance receivables 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 cross currency interest rate swap agreements as part of its financing activities and in managing its cost of borrowings. The business of TMCC and its subsidiaries (collectively the "Company") is 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. Financial Condition and Results of Operations TMCC's earning assets, consisting of investments in operating leases and finance receivables, totaled $17.1 billion, $15.5 billion and $15.2 billion at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. The increases in earning assets were primarily due to the growth in lease earning assets. Lease earning assets, consisting of investments in operating leases, net of accumulated depreciation, and lease finance receivables, net of unearned income, totaled $10.6 billion, $9.5 billion and $8.5 billion at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. Lease earning assets increased from September 30, 1995 and March 31, 1995 primarily due to operating lease additions exceeding operating lease dispositions. This was primarily due to 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. The Company anticipates further growth in lease earning assets as special lease programs continue. Retail finance receivables, net of unearned income, were $5.1 billion, $4.8 billion and $5.3 billion at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. Retail finance receivables increased from September 30, 1995 to March 31, 1996 due to contract volume exceeding liquidations and decreased from March 31, 1995 to March 31, 1996 due to the sale of approximately $679 million of retail finance receivables in the fourth quarter of fiscal 1995. -8- Wholesale receivables and other dealer loans were $1.4 billion, $1.2 billion and $1.4 billion at March 31, 1996, September 30, 1995 and March 31, 1995, respectively. The increase in these receivables from September 30, 1995 to March 31, 1996 resulted primarily from an increase in wholesale dealers and from the higher average receivables balance outstanding per dealer. Contract volume related to TMCC's vehicle leasing and retail financing programs is summarized below:
Three Months Ended Six Months Ended March 31, March 31, ------------------- ------------------ 1996 1995 1996 1995 ------- ------- ------- ------- Contract volume: Vehicle lease contracts................ 66,000 39,000 114,000 80,000 Vehicle retail installment contracts... 48,000 38,000 87,000 76,000 ------- ------ ------- ------- Total............................... 114,000 77,000 201,000 156,000 ======= ====== ======= =======
Total contract volume for the three months and six months ended March 31, 1996 increased as compared to the same periods in fiscal 1995 primarily due to the increase in vehicle lease contract volume. Vehicle lease contract volume increased primarily due to an increase in the level of special lease programs sponsored by TMS and the increased acceptance of leasing in the vehicle retail sales market. Under special programs sponsored by TMS, TMCC offers reduced monthly payments on certain Toyota and Lexus vehicles and Toyota industrial equipment to qualified lease and retail customers and receives an amount from TMS, and in some cases, dealers, for each lease and retail installment contract. Amounts received approximate the balances required by TMCC to maintain revenues at standard program levels and are earned over the expected lease and retail installment contract terms. The level of sponsored program activity varies based on TMS marketing strategies. Revenues earned depend not only on the level of TMS programs offered, but on the mix of Toyota and Lexus vehicles, the timing of TMS programs, and the amount of reduced monthly payments determined by TMS. TMCC's revenues earned from all TMS programs were $42 million and $31 million during the three months ended March 31, 1996 and 1995, respectively, and $83 million and $59 million during the six months ended March 31, 1996 and 1995, respectively. -9- TMCC leased or financed ("finance penetration") the following percentages of new Toyota and Lexus vehicle deliveries (excluding fleet) in the United States (excluding Hawaii):
Three Months Ended Six Months Ended March 31, March 31, ------------------ ----------------- 1996 1995 1996 1995 ------ ------ ------ ------ Finance penetration.......... 42.2% 32.4% 37.0% 31.7%
Total finance penetration for the three months and six months ended March 31, 1996 increased as compared to the same periods in fiscal 1995 primarily due to an increase in the level of special lease programs. Total financing revenues increased 20% and 21% during the three months and six months ended March 31, 1996 as compared to the same periods in fiscal 1995. The increase resulted primarily from earning asset growth. During the three months and six months ended March 31, 1996, TMCC's primary source of revenues was leasing. Leasing revenues increased 28% and 29% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995 primarily due to the growth in average lease earning assets. The Company anticipates further growth in leasing revenues as special lease programs sponsored by TMS are expected to continue to result in increases in lease earning assets. Retail financing revenues decreased 4% and 6% during the three months and six months ended March 31, 1996, respectively, as compared to the same periods in fiscal 1995. Retail financing revenues decreased as a result of the decline in average retail finance receivables outstanding primarily due to the sale of retail finance receivables in the fourth quarter of fiscal 1995. Wholesale and other dealer financing revenues decreased 3% and increased 5% during the three months and six months ended March 31, 1996, respectively from the same periods in fiscal 1995. The decreased revenues for the three months ended March 31, 1996 resulted primarily from decreases in wholesale financing rates. The increased revenues for the six months ended March 31, 1996 resulted primarily from higher average wholesale receivables and other dealer loans. Investments in operating leases are recorded at cost and depreciated, primarily on a straight-line basis, over the lease term to the estimated residual value. Finance leases are recorded at cost and amortized using the effective yield method to the estimated residual value. The estimated residual value may be less than the purchase option price established at lease inception. The estimated residual values are derived by vehicle model and lease term from, among other factors, market information on sales of used vehicles, historical information, including lease vehicle return trends, and economic factors. Residual values totaled approximately $7.5 billion and $5.5 billion at March 31, 1996 and 1995, respectively. TMCC's residual value risk is a function of the number of off-lease vehicles returned to TMCC for -10- disposition, and the difference between the amount of disposition proceeds and the estimated residual value on returned vehicles. TMCC actively manages the disposition of its lease vehicles by working with lessees, dealers and auction companies through end-of-lease-term remarketing programs. In addition, lease vehicles scheduled to mature are inspected and lessees are charged for excess wear and tear, excess mileage and any damage to the vehicles. The percentage of lease vehicles returned to TMCC which were originally scheduled to mature in the following periods were 14% and 11% for the three months ended March 31, 1996 and 1995, respectively, and 14% and 10% for the six months ended March 31, 1996 and 1995, respectively. The difference between the total disposition proceeds from off-lease vehicles returned to TMCC and their estimated residual values was not material to the results of operations for the three months and six months ended March 31, 1996 and 1995. As the lease portfolio matures, the Company anticipates that the level of vehicle lease returns will increase; however, the Company believes that its lease earning assets are recorded at net realizable value. Depreciation on operating leases increased 32% and 33% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995 primarily as a result of the growth in investments in operating leases. The Company anticipates higher depreciation on operating leases in fiscal 1996 as compared to fiscal 1995 due to anticipated growth in investments in operating leases. Interest expense increased 12% and 16% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995 due to higher average borrowing levels required to fund the growth in earning assets and increases in the average cost of borrowings. The weighted average cost of borrowings was 5.85% compared to 5.78% for the three months ended March 31, 1996 and 1995, respectively, and 5.91% compared to 5.55% for the six months ended March 31, 1996 and 1995, respectively. Net financing revenues increased 5% and 2% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995. 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 implicit in leases and on finance receivables over the effective interest rate cost of total borrowings. Lower interest margins in fiscal 1996 were primarily the result of higher average borrowing costs as compared to the same periods in fiscal 1995. Other revenues increased 12% and 14% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995. The increases in other revenues resulted primarily from the continued growth in the Company's insurance operations and, to a lesser extent, from servicing and other income related to the retail finance receivables sold in fiscal 1995. Operating and administrative expenses increased 16% and 12% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995. The increases resulted primarily from additional personnel and operating costs required to support the Company's growing customer base and from the growth in the Company's insurance operations. The Company anticipates that operating and administrative expenses for fiscal 1996 will continue to increase as a result of the Company's growing customer base. -11- The provision for credit losses increased 93% and 52% during the three months and six months ended March 31, 1996, respectively, from the same periods in fiscal 1995. The increases were primarily related to the growth in earning assets and an increase in credit losses. The increase in credit losses is primarily due to the aging of lease earning assets added during high growth periods in fiscal 1995 and 1994. The Company will continue to monitor loss levels and place emphasis on controlling its credit loss exposure. 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 in the six months ended March 31, 1996 and 1995, TMCC did not receive any financial support from TMS. The Operating Agreement was amended on May 14, 1996 to reduce the minimum fixed charge coverage ratio. Under the amendment, TMS will be required to make necessary equity contributions or provide other financial assistance TMS deems appropriate to ensure that TMCC maintains a minimum coverage on fixed charges of 1.10 times such fixed charges in any fiscal quarter. The previous minimum fixed charge ratio was 1.25 for any fiscal quarter. The fixed charge coverage provision of the Operating Agreement is solely for the benefit of the holders of TMCC's commercial paper, and the Operating Agreement may be amended or terminated at any time without notice to, or the consent of, holders of other TMCC obligations. The amendment will become effective when all commercial paper issued prior to the date of the amendment has been repaid. Liquidity and Capital Resources The Company requires, in the normal course of business, substantial funding to support the level of its earning assets. Significant reliance is placed on the Company's ability to obtain debt funding in the capital markets in addition to funding provided by earning asset liquidations and cash provided by operating activities. Debt issuances have generally been in the form of commercial paper, United States and Euro MTNs, Eurobonds, and to a lesser extent, the sale of retail finance receivables in the asset-backed securities market. On occasion, 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 $1.1 billion to $2.7 billion during the first six months of fiscal 1996, with an average outstanding balance of $2.0 billion. No loans were outstanding from TMS during the first six months of fiscal 1996. For additional liquidity purposes, TMCC maintains syndicated bank credit facilities with certain banks which aggregated $1.5 billion at March 31, 1996. No loans were outstanding under any of these bank credit facilities during the first six months of fiscal 1996. TMCC also maintains, along with TMS, uncommitted, unsecured lines of credit with banks totaling $250 million to facilitate the issuance of letters of credit. At March 31, 1996, TMCC issued approximately $61 million in letters of credit, primarily related to the Company's insurance operations. 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. United States and Euro MTNs with original maturities ranging from one to eleven years have provided TMCC with a significant source of funding. During the first six months of fiscal 1996, TMCC issued approximately $2.1 billion of MTNs of which approximately $1.7 billion had -12- original maturities of more than one year. TMCC had approximately $9.1 billion of MTNs outstanding at March 31, 1996 including the effect of foreign currency translations at March 31, 1996 spot exchange rates. Approximately $3.4 billion of the $9.1 billion in MTNs was denominated in foreign currencies. In addition to MTNs, TMCC had approximately $2.5 billion of debt securities outstanding issued principally in the form of Eurobonds in the international capital markets at March 31, 1996, including the effect of foreign currency translations at March 31, 1996 spot exchange rates. Approximately $2.0 billion of the $2.5 billion in debt securities was denominated in foreign currencies. TMCC anticipates continued use of MTNs in both the United States and international capital markets. At April 30, 1996, approximately $1.3 billion was available for issuance under TMCC's United States public MTN program. The maximum aggregate principal amount authorized to be outstanding at any time under TMCC's Euro MTN program is $9.5 billion. Approximately $2.5 billion was available for issuance under the Euro MTN program as of April 30, 1996, of which the Company has committed to issue approximately $154 million. 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, approximately $700 million of securities registered with the Securities and Exchange Commission, excluding MTNs, were available for issuance at April 30, 1996. On May 2, 1996, TMCC filed a shelf registration statement with the Securities and Exchange Commission relating to $1 million of asset-backed notes and certificates. TMCC anticipates increasing the amount registered to $1.5 billion prior to the effectiveness of the registration statement. Cash flows provided by operating, investing and financing activities have been used primarily to support earning asset growth. During the first six months of fiscal 1996, investing activities resulted in a net use of cash of $2.3 billion, as the purchase of additional earning assets totaling $8.5 billion exceeded cash provided by the liquidation of earning assets totaling $6.2 billion. Investing activities were also supported by net cash provided by operating and financing activities totaling $1.0 billion and $1.3 billion, respectively, during the first six months of fiscal 1996. 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. TMCC utilizes derivative financial instruments to manage its currency exchange rate risk arising as a result of borrowings denominated in foreign currencies and its interest rate risk. TMCC does not enter into these instruments for trading purposes. TMCC manages counterparty risk through the use of credit standard guidelines, counterparty diversification and financial condition monitoring. At March 31, 1996, approximately 83% of TMCC's derivative financial instruments, based on notional amounts, were with commercial banks and investment banking firms assigned investment grade ratings of "AA" or better by national rating agencies. TMCC does not anticipate non-performance by any of its counterparties. Credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at March 31, 1996 reduced by the effects of master netting agreements. The credit exposure of TMCC's derivative financial instruments at March 31, 1996 was $365 million on an aggregate notional amount of $18.8 billion. -13- TMCC utilizes cross currency interest rate swap agreements to manage exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Debt issued in foreign currencies is hedged by concurrently executed cross currency interest rate swap agreements. These cross currency interest rate swap agreements involve agreements to exchange TMCC's foreign currency principal and interest obligations for U.S. dollar obligations at agreed-upon currency exchange rates and interest rates. In the event that a counterparty fails to perform, TMCC's credit exposure is limited to the currency exchange and interest rate differential between the non-performing swap and the corresponding debt transaction. TMCC utilizes interest rate swap agreements and option-based products in managing its exposure to interest rate fluctuations. The mix of fixed and floating interest rates on TMCC's debt outstanding is periodically adjusted through the use of interest rate swap agreements and other option-based products. 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 at a certain fixed or floating rate and to receive payments at a different rate, at specified intervals, calculated on an agreed-upon notional amount. In the event that a counterparty fails to perform, TMCC's credit exposure is limited to the interest rate differential. The underlying notional amounts of the interest rate swap agreements are not exchanged and do not represent exposure to credit loss. Option-based products consist primarily of purchased interest rate cap agreements and, to a lesser extent, corridor agreements. Option-based products are agreements which either grant TMCC the right, for a premium payment, to receive a payment when interest rates exceed a specified level, or require TMCC, in receipt of a premium, to make a payment when interest rates exceed or go below a specified level. The underlying notional amounts for option-based products do not represent exposure to credit loss. An interest rate increase of 1% (100 basis points) would raise TMCC's weighted average interest rate, including the effects of interest rate swap agreements and option-based products, by .40%, from 5.71% to an estimated 6.11% at March 31, 1996. Conversely, an interest rate decrease of 1% (100 basis points) would lower TMCC's weighted average interest rate, including the effects of interest rate swap agreements and option-based products, by .50%, from 5.71% to an estimated 5.21% at March 31, 1996. -14- A reconciliation of the activity of TMCC's derivative financial instruments for the six months ended March 31, 1996 and 1995 is as follows:
March 31, ----------------------------------------------------------- Cross Currency Interest Interest Indexed Rate Swap Rate Swap Option-based Note Swap Agreements Agreements Products Agreements ------------ ------------ ------------ ------------ 1996 1995 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- ---- ---- (Dollars in Billions) Beginning notional amount....... $4.8 $4.0 $7.1 $7.6 $3.8 $0.5 $1.7 $2.4 Add: New agreements............... 0.4 1.1 2.1 0.8 1.6 3.0 - 0.3 Less: Terminated agreements........ - - - - - - - - Expired agreements........... 0.3 0.4 1.5 0.9 0.3 - 0.6 0.7 ---- ---- ---- ---- ---- ---- ---- ---- Ending notional amount.......... $4.9 $4.7 $7.7 $7.5 $5.1 $3.5 $1.1 $2.0 ==== ==== ==== ==== ==== ==== ==== ====
On occasion, 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 six months of fiscal 1996. -15- Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including the following: statements regarding the further growth in lease earning assets (including investments in operating leases); the further growth in leasing revenues; the level of leased vehicle returns; that the lease earning assets on the Company's books are recorded at net realizable value; higher depreciation on operating leases; the growth in operating and administrative expenses as a result of a growing customer base; the Company's continued use of MTNs in the United States and the international capital markets; the sufficiency of the Company's cash provided by operating, investing and financing activities for the Company's future liquidity and capital resource needs; and the continued performance of the Company's counterparties under interest rate and cross currency swap agreements and option-based products. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the following: decline in demand for Toyota and Lexus products; the effect of economic conditions; a decline in the market acceptability of leasing; the effect of competitive pricing on interest margins; increases in prevailing interest rates; changes in pricing due to the appreciation of the Japanese yen against the United States dollar; the effect of governmental actions; the effect of competitive pressures on the used car market and residual values; 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; increased costs associated with the Company's debt funding efforts; and the ability of the Company's counterparties to perform under interest rate and cross currency swap agreements. Results actually achieved thus may differ materially from expected results included in these statements. Recently Enacted Accounting Standards In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of" ("Statement No. 121"). Statement No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and long-lived assets and certain identifiable intangibles to be disposed of. Statement No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, Statement No. 121 requires that certain long-lived assets and intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. Statement No. 121 is effective for fiscal years beginning after December 15, 1995. The Company plans to adopt Statement No. 121 during fiscal 1997. The impact of adoption on the financial position or results of operations is not expected to be material. -16- 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 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. 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 Exchange Act of 1934, as amended, which represents the Company's expectations and beliefs concerning future events. The Company cautions that its discussion of Legal Proceedings is further qualified by important factors that could cause actual results to differ materially from those in the forward looking statement, including but not limited to the discovery of facts not presently known to the Company or determinations by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation. ITEM 2. CHANGES IN SECURITIES. 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. -17- 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 20, are filed as part of this report. (b) Reports on Form 8-K There were no reports on Form 8-K filed by the Company during the quarter ended March 31, 1996. -18- 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: May 14, 1996 By /S/ WOLFGANG JAHN ------------------------------- Wolfgang Jahn Senior Vice President and General Manager (principal executive officer) Date: May 14, 1996 By /S/ PATRICK BREENE ------------------------------- Patrick Breene Vice President - Finance and Administration (principal accounting officer) -19- EXHIBIT INDEX Exhibit Method Number Description of Filing - ------- ----------- --------- 10.1 Amendment No. 1 to Operating Agreement dated Filed May 14, 1996 between TMCC and TMS. Herewith 12.1 Calculation of ratio of earnings to fixed charges. Filed Herewith 27.1 Financial Data Schedule. Filed Herewith -20- EX-10.1 2 EXHIBIT 10.1 AMENDMENT NO. 1 TO OPERATING AGREEMENT This Amendment No. 1 dated May 14, 1996 (the "Amendment") to the Operating Agreement dated January 16, 1984 (the "Agreement") between Toyota Motor Sales, U.S.A., Inc. ("TMS USA"), a California corporation, and Toyota Motor Credit Corporation ("TMCC"), a California corporation, both parties having as their principal place of business 19001 South Western Avenue, Torrance, California 90509, is entered into with reference to the following facts: WHEREAS, the Agreement requires TMS USA to assure that TMCC maintains a minimum coverage on fixed charges of 1.25 times such charges in any fiscal quarter. WHEREAS, the parties now desire to amend the Agreement to change the required minimum fixed charge coverage ratio. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties hereto agree as follows: 1. Section 6 of the Agreement is hereby amended in its entirety as follows: "TMS USA will provide necessary equity contributions or any other financial mechanism it deems appropriate under the circumstances to assure that TMCC, on a consolidated basis, maintains a minimum coverage on fixed charges of 1.10 times such charges in any fiscal quarter." 2. Section 12 of the Agreement is hereby amended in its entirety as follows: "This agreement will not be amended or terminated at any time during which TMCC commercial paper notes are outstanding, unless such amendments apply only to commercial paper notes issued after the effective date of any such amendment. 3. Except as specifically set forth herein, all other provisions of the Agreement shall remain in full force and effect. 4. The provisions of this Amendment shall become effective only at such time as all TMCC commercial paper issued prior to the date of this Amendment ceases to be outstanding. Until such time, the provisions of the Agreement, without taking into account the changes effected by this Amendment, shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. TOYOTA MOTOR SALES, U.S.A., INC. TOYOTA MOTOR CREDIT CORPORATION By: /S/ JOHN MCGOVERN By: /S/ WOLFGANG JAHN ---------------------------- ----------------------------- Name: John McGovern Name: Wolfgang Jahn Title: Senior Vice President Title: Senior Vice President and General Manager EX-12.1 3 EXHIBIT 12.1 TOYOTA MOTOR CREDIT CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Six Months Ended March 31, March 31, ------------------ ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- (Dollars in Millions) Consolidated income before income taxes.......... $ 60 $ 75 $128 $148 ---- ---- ---- ---- Fixed charges: Interest..................... 196 175 389 336 Portion of rent expense representative of the interest factor (deemed to be one-third)................ 1 1 2 2 ---- ---- ---- ---- Total fixed charges............. 197 176 391 338 ---- ---- ---- ---- Earnings available for fixed charges............ $257 $251 $519 $486 ==== ==== ==== ==== Ratio of earnings to fixed charges............ 1.30 1.43 1.33 1.44 ==== ==== ==== ==== - ----------------- TMCC did not receive any financial support from TMS during the three months or six months ended March 31, 1996 and 1995. 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 March 31, 1996, 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-27.1 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYOTA MOTOR CREDIT CORPORATION'S MARCH 31, 1996 FINANCIAL STATEMENTS AND NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS SEP-30-1996 MAR-31-1996 137 172 17,063 188 0 0 0 0 17,639 0 13,882 0 0 865 921 17,639 0 1,470 0 1,153 139 50 0 128 51 77 0 0 0 77 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 includes Interest Expense and Depreciation on Operating Leases.
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