<PAGE>
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, 1994
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9961
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TOYOTA MOTOR CREDIT CORPORATION
- - ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3775816
- - ---------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19001 S. Western Avenue
Torrance, California 90509
- - ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 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, 1994, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 68,000, all of which
shares were held by Toyota Motor Sales, U.S.A., Inc.
Exhibit Index is on page 19
Page 1 of 20
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1994 1993 1993
------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents.................... $ 153 $ 574 $ 76
Investments in marketable securities......... 108 138 141
Finance receivables, net..................... 7,471 7,206 7,576
Investments in operating leases, net......... 4,065 3,050 2,297
Receivable from Parent....................... - - 8
Other receivables............................ 81 105 60
Deferred charges............................. 41 44 57
Other assets................................. 51 42 46
------- ------- -------
Total Assets........................ $11,970 $11,159 $10,261
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable...................... $ 9,455 $ 8,833 $ 8,209
Accrued interest............................. 129 148 141
Accounts payable and accrued expenses........ 664 560 379
Unearned insurance premiums.................. 68 74 90
Amounts due dealers and distributors......... 30 34 32
Payable to Parent............................ 13 48 -
Income taxes payable......................... 3 17 39
Deferred income taxes........................ 350 278 341
------- ------- -------
Total liabilities...................... 10,712 9,992 9,231
------- ------- -------
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 68,000 at
March 31, 1994 and September 30, 1993,
and 63,000 at March 31, 1993).......... 680 680 630
Retained earnings......................... 578 487 400
------- ------- -------
Total shareholder's equity............. 1,258 1,167 1,030
------- ------- -------
Total Liabilities and
Shareholder's Equity................ $11,970 $11,159 $10,261
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1994 1993 1994 1993
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Retail financing and leasing.......... $ 376 $ 296 $ 727 $ 578
Wholesale and other dealer financing.. 20 20 39 36
------ ------ ------ ------
Total financing revenues................. 396 316 766 614
Interest expense...................... 112 111 222 225
Depreciation on operating leases...... 159 87 298 163
------ ------ ------ ------
Net financing revenues................... 125 118 246 226
Other revenues........................... 23 16 46 30
------ ------ ------ ------
Net Financing Revenues and Other Revenues 148 134 292 256
------ ------ ------ ------
Expenses:
Operating and administrative.......... 58 57 112 107
Provision for credit losses........... 15 17 29 32
------ ------ ------ ------
Total Expenses........................... 73 74 141 139
------ ------ ------ ------
Income before income taxes............... 75 60 151 117
Provision for income taxes............... 30 24 60 46
------ ------ ------ ------
Net Income............................... $ 45 $ 36 $ 91 $ 71
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 91 $ 71
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 301 162
Provision for credit losses................ 29 32
Increase (decrease) in accrued interest.... (19) 16
Decrease in unearned insurance premiums.... (6) (5)
Increase in deferred income taxes.......... 72 61
Decrease in other assets................... 4 28
Increase in other liabilities.............. 21 93
------ ------
Total adjustments............................... 402 387
------ ------
Net cash provided by operating activities.......... 493 458
------ ------
Cash flows from investing activities:
Addition to investments in marketable
securities.................................... (64) (123)
Disposition of investments in marketable
securities.................................... 93 85
Purchase of finance receivables................. (4,866) (4,658)
Liquidation of finance receivables.............. 4,586 4,035
Addition to investments in operating leases..... (1,513) (854)
Disposition of investments in operating leases.. 186 85
------ ------
Net cash used in investing activities.............. (1,578) (1,430)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans
payable....................................... 1,452 1,390
Payments on notes and loans payable............. (1,168) (623)
Net increase in commercial paper................ 380 70
------ ------
Net cash provided by financing activities.......... 664 837
------ ------
Net decrease in cash and cash equivalents.......... (421) (135)
Cash and cash equivalents at the beginning
of the period................................... 574 211
------ ------
Cash and cash equivalents at the end of the
period.......................................... $ 153 $ 76
====== ======
Supplemental disclosures:
Interest paid................................... $ 241 $ 210
Income taxes paid............................... $ 67 -
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
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, 1994 and 1993 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. The results of operations for the
three months and six months ended March 31, 1994 are not necessarily
indicative of those expected for any other interim period or for a full
year. Certain March 1993 accounts have been reclassified to conform
with the March 1994 presentation.
Note 2 - Finance Receivables
- - ----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Retail.................................. $5,175 $5,103 $5,449
Finance leases.......................... 1,933 2,046 1,972
Wholesale and other dealer loans........ 1,238 1,025 1,237
------ ------ ------
8,346 8,174 8,658
Unearned income......................... (780) (874) (982)
Allowance for credit losses............. (95) (94) (100)
------ ------ ------
Finance receivables, net............. $7,471 $7,206 $7,576
====== ====== ======
</TABLE>
Finance leases, net consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Minimum lease payments.................. $1,211 $1,337 $1,345
Estimated unguaranteed residual values.. 722 709 627
------ ------ ------
Finance leases....................... 1,933 2,046 1,972
Unearned income......................... (348) (388) (390)
Allowance for credit losses............. (22) (22) (22)
------ ------ ------
Finance leases, net.................. $1,563 $1,636 $1,560
====== ====== ======
</TABLE>
The aggregate balances related to finance receivable instalments 60 or
more days past due totaled $28 million, $31 million and $21 million
at March 31, 1994, September 30, 1993 and March 31, 1993,
respectively.
-5-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Operating Leases
- - ----------------------------------------
Investments in operating leases, net consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles............................... $4,731 $3,494 $2,577
Equipment, aircraft and other.......... 125 107 89
------ ------ ------
4,856 3,601 2,666
Accumulated depreciation............... (753) (524) (350)
Allowance for credit losses on
disposition of operating leases..... (38) (27) (19)
------ ------ ------
Investments in operating leases, net $4,065 $3,050 $2,297
====== ====== ======
</TABLE>
Note 4 - Notes and Loans Payable
- - --------------------------------
Notes and loans payable, which consisted of senior debt, included the
following:
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................. $ 779 $ 350 $ 461
------ ------ ------
Other senior debt, due in the years
ending September 30:
1993................................ - - 562
1994................................ 1,679 2,847 2,603
1995................................ 3,719 3,112 2,585
1996................................ 1,496 1,185 1,115
1997................................ 1,035 735 557
1998................................ 353 367 180
Thereafter.......................... 366 202 102
------ ------ ------
8,648 8,448 7,704
Unamortized premium.................... 28 35 44
------ ------ ------
Total other senior debt............. 8,676 8,483 7,748
------ ------ ------
Notes and loans payable.......... $9,455 $8,833 $8,209
====== ====== ======
</TABLE>
-6-
<PAGE>
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 4.79% at
March 31, 1994, including the effect of interest rate exchange
agreements. This rate has been calculated on the basis of rates in
effect at March 31, 1994, some of which are floating rates that reset
daily. Approximately 51% of other senior debt had interest rates,
including the effect of interest rate exchange agreements, that were
fixed for a period of more than one year at March 31, 1994. The
weighted average of these fixed interest rates was 4.65%. 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, 1994 were unsecured
notes payable in various foreign currencies. Concurrent with the
issuance of these unsecured notes, TMCC entered into foreign currency
exchange agreements to convert these foreign currency obligations into
fixed U.S. dollar liabilities which translate at the forward rates at
maturity for $2.8 billion. These obligations are translated in the
financial statements at the various foreign currency spot rates in
effect at March 31, 1994. The receivables or payables, arising as a
result of the differences between the March 31, 1994 foreign currency
spot rates and the forward rates at maturity applicable to the foreign
currency exchange agreements, are classified in Other Receivables or
Accounts Payable and Accrued Expenses, respectively, and would
aggregate to a net payable position of $230 million at March 31, 1994.
Note 5 - Provision for Income Taxes
- - -----------------------------------
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
No. 109"). The adoption of Statement No. 109 changed the method of
accounting for income taxes from a deferred method to a liability
method. This method differs from the previously used method in that
deferred tax assets and liabilities are adjusted to reflect changes in
tax rates and laws in the period such changes are enacted resulting in
adjustments to the current period's income statement. 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-
<PAGE>
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. 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 exchange agreements and foreign currency
exchange 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 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 totaled $11.7 billion at March 31, 1994, compared to
$10.4 billion at September 30, 1993 and $10.0 billion at March 31, 1993. The
increases from September 30, 1993 and March 31, 1993 were primarily due to the
growth in leasing.
Retail finance receivables, net of unearned income, were $4.8 billion,
$4.6 billion, and $4.9 billion at March 31, 1994, September 30, 1993 and
March 31, 1993, respectively. Retail receivables at March 31, 1994 increased
slightly from September 30, 1993 as the increase in receivables from contract
volume was nearly offset by liquidations. Retail receivables at March 31,
1994 remained relatively level from March 31, 1993 as the increase in
receivables from contract volume was offset by the sale of retail finance
receivables in the fourth quarter of fiscal 1993 and liquidations.
Lease finance receivables, net of unearned income, and investments in
operating leases, net of accumulated depreciation, totaled $5.7 billion,
$4.8 billion, and $3.9 billion at March 31, 1994, September 30 1993, and
March 31, 1993, respectively. The increases from September 30, 1993 and
March 31, 1993 reflected the significant growth in lease contract volume,
primarily in operating leases, due to the continuation of special lease
programs sponsored by Toyota Motor Sales, U.S.A., Inc. ("TMS") and increasing
consumer acceptance of leasing.
Wholesale receivables and other dealer loans were $1.2 billion at March 31,
1994, $1.0 billion at September 30, 1993 and $1.2 billion at March 31, 1993.
The increase from September 30, 1993 resulted primarily from the higher
average wholesale receivable balance per dealer.
-8-
<PAGE>
The Company experienced continued growth in net financing revenues and other
revenues for the three months and six months ended March 31, 1994 as compared
to the same periods in fiscal 1993. The results are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
(Dollars in Millions/Percent
of Total Financing Revenues)
<S> <C> <C> <C> <C>
Financing Revenues:
Retail financing and leasing.......... $376 $296 $727 $578
95% 94% 95% 94%
Wholesale and other dealer financing.. 20 20 39 36
5% 6% 5% 6%
---- ---- ---- ----
Total financing revenues................. 396 316 766 614
100% 100% 100% 100%
Interest expense...................... 112 111 222 225
28% 35% 29% 37%
Depreciation on operating leases...... 159 87 298 163
40% 28% 39% 26%
---- ---- ---- ----
Net financing revenues................... 125 118 246 226
32% 37% 32% 37%
Other revenues........................... 23 16 46 30
5% 5% 6% 5%
---- ---- ---- ----
Net Financing Revenues and
Other Revenues..................... $148 $134 $292 $256
37% 42% 38% 42%
==== ==== ==== ====
</TABLE>
Total financing revenues increased 25% for each of the three month and six
month periods ended March 31, 1994 from the same periods in fiscal 1993. The
increase in total financing revenues was attributable to the continued growth
in earning assets, primarily from leases. Contract volume and finance
penetration related to TMCC's vehicle retail financing and leasing programs
are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ --------------------
1994 1993 1994 1993
------ ------ ------- -------
<S> <C> <C> <C> <C>
Contracts booked:
Retail instalment sales contracts....... 43,000 49,000 87,000 93,000
Leases.................................. 39,000 28,000 71,000 49,000
------ ------ ------- -------
Total................................ 82,000 77,000 158,000 142,000
====== ====== ======= =======
Finance penetration........................ 32.0% 30.3% 30.8% 27.0%
</TABLE>
-9-
<PAGE>
During the three months and six months ended March 31, 1994, the growth in
total contract volume and finance penetration was due to the increased leasing
of both Toyota and Lexus vehicles. Finance penetration represents the
percentage of new Toyota and Lexus vehicle deliveries in the United States
(excluding Hawaii) financed or leased by TMCC. The increase in lease contract
volume was attributable primarily to the effect of the growth in special lease
programs sponsored by TMS during the three months and six months ended
March 31, 1994 and also to the broader acceptability of leasing as a financing
option in the vehicle retail sales market. Under these special lease
programs, TMCC offered reduced monthly payments on certain new vehicles to
qualified lessees and received an amount from TMS 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 $10 million and $7 million during the three months
ended March 31, 1994 and 1993, respectively, and $19 million and $12 million
during the six months ended March 31, 1994 and 1993, respectively. Management
of the Company anticipates that the higher level of lease contract volume will
continue as TMS-sponsored programs are expected to continue for some time and
to the extent the acceptability of leasing as a financing option for retail
customers increases further.
Another factor contributing to the significant growth in leasing was a trend
toward shorter-term leases for Toyota and Lexus vehicles. Shorter-term leases
have been utilized as a method of accelerating the return of retail lease
customers to the new vehicle market, and management of the Company intends to
continue its emphasis on shorter terms.
Uninsured vehicle residual values were approximately $3.4 billion and
$2.1 billion at March 31, 1994 and 1993, respectively. To date, TMCC has
incurred no material losses as a result of residual value risk. Although
TMCC's experience has been limited, management of the Company believes that
the residual values of its leases reflected in the financial statements
represent realizable values.
During the three months and six months ended March 31, 1994, TMCC's primary
source of revenue and earning asset growth was leasing. Leasing revenues
increased 54% to $275 million and 55% to $522 million in the three months and
six months ended March 31, 1994, respectively, from the same periods in fiscal
1993. The growth in leasing revenues is attributable to an 82% and an
84% increase in average investments in operating leases during the three
months and six months ended March 31, 1994, respectively. Retail financing
revenues decreased 14% to $101 million and 15% to $205 million during the
three months and six months ended March 31, 1994, respectively, as compared
to the same periods in fiscal 1993 due to a continuing decline in yield and
a decrease in the level of average retail finance receivables outstanding.
Average retail finance receivables outstanding declined primarily due to the
effect of the sale of finance receivables in the fourth quarter of fiscal
1993. The decline in yield on average earning assets reflected the effect of
competitive market conditions and a sustained period of lower interest rates,
with lower yielding retail instalment sales contracts and leases replacing
liquidating higher yielding retail instalment sales contracts and leases.
Management of the Company is continuing to monitor the decline in yield on
average earning assets; however management anticipates that this trend in
declining yields will continue during fiscal 1994.
-10-
<PAGE>
Wholesale and other dealer financing revenues remained essentially level and
increased 8% during the three months and six months ended March 31, 1994,
respectively, as compared to the same periods in fiscal 1993. The increase in
revenues resulted primarily from the higher average wholesale receivable
balance. The total average wholesale receivable balance increased during the
six months ended March 31, 1994 largely due to the higher average wholesale
receivable balance per dealer.
Interest expense remained essentially level in the three months and six months
ended March 31, 1994 as compared to the same periods in fiscal 1993. The
decrease in interest expense resulting from lower market interest rates offset
the higher average borrowing balances required to fund the growth in earning
assets. The weighted average cost of borrowings was 4.84% and 4.92% for the
three months and six months ended March 31, 1994, respectively, compared to
5.63% and 5.81% for the same periods in fiscal 1993. Management anticipates
that as a result of current changes in market interest rates, the declines in
the weighted average cost of borrowings in the first six months of fiscal 1994
may not necessarily be indicative of those expected for any other interim
period or for a full year.
Depreciation on operating leases increased 83% for each of the three month and
six month periods ended March 31, 1994 from the same periods in fiscal 1993 as
a result of the growth in investments in operating leases.
Net financing revenues increased 6% to $125 million and 9% to $246 million
during the three months and six months ended March 31, 1994, respectively.
The increase was primarily attributable to growth in the level of earning
assets offset by the decline in yield on average earning assets. 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. Interest margins decreased in the first six months of
fiscal 1994 from 1993 as a result of the decline in yield on retail instalment
sales contracts and leases decreasing more rapidly than the decline in
borrowing costs. Management anticipates continued decline in the interest
margin primarily due to the expected continuing decline in yields on average
earning assets in fiscal 1994.
Other revenues increased 44% and 53% during the three months and six months
ended March 31, 1994, respectively as compared to the same periods in fiscal
1993. The increase in other revenues resulted from the continued growth in
the Company's insurance operations and from servicing and other income related
to the sold retail finance receivables.
-11-
<PAGE>
The Company's earnings increased in the three months and six months ended
March 31, 1994 as summarized below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Net Financing Revenues
and Other Revenues............ $148 $134 $292 $256
Expenses:
Operating and administrative.. 58 57 112 107
Provision for credit losses... 15 17 29 32
---- ---- ---- ----
Total Expenses............. 73 74 141 139
---- ---- ---- ----
Income before income taxes....... 75 60 151 117
Provision for income taxes....... 30 24 60 46
---- ---- ---- ----
Net Income.............. $ 45 $ 36 $ 91 $ 71
==== ==== ==== ====
</TABLE>
Operating and administrative expenses increased 2% and 5% during the three
months and six months ended March 31, 1994, respectively. These increases
reflected costs for additional personnel required to service the Company's
growing customer base and for the growth in the Company's insurance operations
during the three months and six months ended March 31, 1994.
The provision for credit losses is largely a function of changes in the level
and mix of earning assets. The provision for credit losses decreased 12% and
9% during the three months and six months ended March 31, 1994, respectively,
from the same periods in fiscal 1993 as the effect of the increase in growth
in earning assets was more than offset by favorable loss experience. The
favorable trend in credit loss experience is attributable, in part, to
improved credit granting procedures, collection efforts, and the mix of
earning assets. The Company will continue to place emphasis on controlling
its credit loss exposure; however, there are no assurances that this favorable
trend will continue.
Operating profits (reflected as "Income before income taxes") increased 25%
to $75 million, and 29% to $151 million during the three months and six months
ended March 31, 1994, respectively, primarily due to the increase in financing
revenues as a result of the growth in the level of earning assets. Net income
increased 25% and 28% during the three months and six months ended
March 31, 1994, respectively, due to the higher level of operating profits.
Financial support is provided by TMS, as necessary, to maintain TMCC's minimum
fixed charge coverage at the level specified in the Operating Agreement
between TMCC and TMS. As a result of the favorable operating profits in the
six months ended March 31, 1994 and 1993, TMCC did not receive any financial
support from TMS.
-12-
<PAGE>
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 European 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 $349 million to
$1.1 billion during the first six months of fiscal 1994. To support the
commercial paper program, along with other uses, TMCC, in conjunction with
TMS, maintains committed and uncommitted unsecured credit lines with banks
totaling $775 million. At March 31, 1994, no loans were outstanding under any
of these lines; however, approximately $138 million in letters of credit had
been issued, primarily related to the Company's insurance operations, which
reduced the availability of the lines to $637 million. Borrowings from TMS
ranged from zero to $60 million during the first six months of fiscal 1994,
with an average outstanding balance of $5 million. The interest rate charged
by TMS to TMCC for interest-bearing loans approximates the Federal Reserve
Board's one-month commercial paper composite rate for firms whose bonds are
rated AA.
MTNs, with original terms ranging from nine months to ten years, have been
issued in the European and United States capital markets to meet a portion of
long-term and short-term funding requirements. During the first six months
of fiscal 1994, TMCC issued approximately $1.3 billion of MTNs of which
approximately $700 million had maturity dates on the date of issuance of more
than one year. MTNs outstanding at March 31, 1994, including the effect of
foreign currency translations, totaled approximately $4.1 billion. In March
1994, the Company expanded the maximum aggregate principal amount available
for issuance under its United States public MTN program by an additional
$4.0 billion. At April 30, 1994, approximately $3.8 billion under TMCC's
United States public MTN program was available for issuance. The maximum
aggregate principal amount authorized to be outstanding at any time under
TMCC's Euro MTN program is $4.0 billion. As of April 30, 1994, $2.0 billion
was available for issuance under the Euro MTN program. 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.
Long-term funding requirements have also been met through the issuance of
other forms of debt securities underwritten in the European and United States
capital markets. At March 31, 1994, approximately $4.0 billion of debt
securities, including the effect of foreign currency translations, was
outstanding in the European capital markets. Of the $4.0 billion in debt
securities, $2.3 billion was denominated in foreign currencies. Underwritten
debt securities outstanding in the United States public market totaled
approximately $600 million at March 31, 1994. At April 30, 1994,
approximately $700 million of securities registered with the Securities and
Exchange Commission ("SEC"), excluding MTNs, were available for issuance.
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<PAGE>
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 purposes of speculative trading.
Long-term debt issued in foreign currencies is hedged by concurrently executed
foreign currency exchange agreements. These exchange agreements involve
agreements to exchange TMCC's foreign currency obligations for U.S. dollar
obligations at agreed-upon currency exchange rates at maturity and to exchange
fixed and floating interest rate obligations in U.S. dollars. The foreign
currency exchange agreements convert TMCC's foreign currency obligations into
fixed U.S. dollar liabilities which translate at the forward rates at maturity
for $2.8 billion. In the event that a counterparty fails to perform, TMCC's
exposure is limited to the currency exchange differential. TMCC does not
anticipate nonperformance by any of its counterparties.
TMCC utilizes interest rate exchange agreements and to a lesser extent floors,
caps and option-related products in managing its exposure to interest rate
fluctuations. TMCC's interest rate exchange 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 exchange agreements may also involve basis-swap contracts, which
are agreements to exchange the difference between certain floating interest
amounts, such as the net payment based on the commercial paper rate and the
London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional
amount. The 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. At March 31,
1994, TMCC was the fixed rate payor on $4.3 billion of interest rate exchange
agreements, floating rate payor on $1.6 billion of such agreements, and a
counterparty to $500 million of basis swap contracts. Interest rate exchange
agreements are executed as an integral part of specific debt transactions and
on a portfolio basis. Master netting agreements, with various counterparties,
also exist allowing the net difference between the fixed and floating interest
amounts, or between the two specified floating interest amounts, to be
exchanged. The differential paid or received on such agreements is recorded
as an adjustment to interest expense over the term of the underlying debt
agreement.
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 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 March 31, 1994, TMCC was the counterparty to
$2.0 billion of indexed note swap agreements.
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 six months of fiscal 1994.
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<PAGE>
Cash flows provided by operating, investing and financing activities have been
used primarily to support earning asset growth. Cash provided by the
liquidation of earning assets, totaling $4.8 billion during the first six
months of fiscal 1994, was used to purchase additional finance receivables and
investments in operating leases. Investing activities resulted in a net use
of cash in the first six months of fiscal 1994 as the growth in earning assets
exceeded the cash provided by earning asset liquidations. Net cash used in
investing activities was $1.6 billion in the first six months of fiscal 1994
compared to $1.4 billion in the same period in fiscal 1993.
The growth in earning assets was also supported by net cash provided by
operating activities which totaled $493 million in the first six months of
fiscal 1994. Additionally, cash available at the beginning of the period was
utilized resulting in a lower level of net cash required from financing
activities to support the growth in earning assets. Net cash provided by
financing activities totaled $664 million in the first six months of fiscal
1994, representing a $173 million decrease from March 31, 1993.
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.
Recently Enacted Accounting Standards
In November 1992, the Financial Accounting Standards Board issued Statement
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. The Company's current practice of
accounting for these benefits is on a cash basis. Statement No. 112 is
effective for fiscal years beginning after December 15, 1993. At this time,
the Company has not elected early adoption of Statement No. 112; however, the
estimated impact of adoption on the financial position or results of
operations is not considered to be material.
In May 1993, the Financial Accounting Standards Board issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan" ("Statement
No. 114"), which requires a creditor to evaluate the collectibility of both
contractual interest and principal of certain 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. On
March 31, 1994, the Financial Accounting Standards Board issued an Exposure
Draft to amend Statement No. 114. The proposal will simplify Statement
No. 114 by allowing a creditor to use existing methods for recognizing
interest income on impaired loans. It is expected that this proposal would
generally affect only the classification of income (or expense) that results
from changes in the net carrying amount of the loan, not the total amount of
income (or expense) recognized. Statement No. 114 applies to financial
statements for fiscal years beginning after December 15, 1994. At this time,
the Company has not elected early adoption of Statement No. 114; however, the
estimated impact of adoption on the financial position or results of
operations is not considered to be material.
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<PAGE>
In May 1993, the Financial Accounting Standards Board issued Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"), which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities. These investments will be
categorized as held-to-maturity securities and reported at amortized cost;
trading securities and reported at fair value, with unrealized gains and
losses included in earnings; or available-for-sale securities and reported at
fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of shareholders' equity. Statement No. 115
is effective for fiscal years beginning after December 15, 1993. The Company
will adopt Statement No. 115 beginning in fiscal 1995. The estimated impact
of adoption on the financial position or results of operation is not
considered to be material.
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<PAGE>
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, including two suits
involving collateral protection practices similar to suits which
have been filed against various other financial institutions and
captive finance companies. TMCC is awaiting court approval of
the settlement agreement relating to one of the two collateral
protection practices suits and is engaged in settlement
negotiations in the other. It is possible that TMCC may become
a defendant in other similar actions. 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 exhibit listed on the accompanying Exhibit Index, on page 19,
is 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 March 31, 1994.
Financial Statements
Date of Report Item Filed
-------------- ---- --------------------
March 9, 1994 Item 7 - Financial None
Statements and Exhibits
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<PAGE>
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 13, 1994 By /S/ WOLFGANG JAHN
-------------------------------
Wolfgang Jahn
Group Vice President
(principal executive officer)
Date: May 13, 1994 By /S/ PATRICK BREENE
-------------------------------
Patrick Breene
Corporate Manager -
Finance and Administration
(principal accounting officer)
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<PAGE>
EXHIBIT INDEX
Exhibit Numbered
Number Description Page
- - ------- ----------- --------
12.1 Calculation of ratio of earnings to fixed charges. 20
-19-
<PAGE>
<PAGE>
<TABLE>
EXHIBIT 12.1
TOYOTA MOTOR CREDIT CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
1994 1993 1994 1993
------ ------ ------ ------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes.................... $ 75 $ 60 $151 $117
---- ---- ---- ----
Fixed charges:
Interest............................... 112 111 222 225
Portion of rent expense
representative of the
interest factor
(deemed to be
one-third)........................... 1 1 2 1
---- ---- ---- ----
Total fixed charges...................... 113 112 224 226
---- ---- ---- ----
Earnings available
for fixed charges...................... $188 $172 $375 $343
==== ==== ==== ====
Ratio of earnings to
fixed charges(2)....................... 1.66 1.54 1.67 1.52
==== ==== ==== ====
<FN>
- - -----------------
(1) TMCC did not receive any financial support from TMS during the three months or six months
ended March 31, 1994 and 1993.
(2) 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, 1994, 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.
</TABLE>
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