<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 June 30, 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 July 31, 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.
- 1 -
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1994 1993 1993
------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents..................... $ 124 $ 574 $ 327
Investments in marketable securities.......... 109 138 145
Finance receivables, net...................... 7,720 7,206 7,653
Investments in operating leases, net.......... 5,069 3,050 2,669
Receivable from Parent........................ 11 - -
Other receivables............................. 158 105 33
Deferred charges.............................. 41 44 54
Other assets.................................. 54 42 46
------- ------- -------
Total Assets......................... $13,286 $11,159 $10,927
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable....................... $10,744 $ 8,833 $ 8,697
Accrued interest.............................. 124 148 138
Accounts payable and accrued expenses......... 640 560 485
Unearned insurance premiums................... 65 74 85
Amounts due dealers and distributors.......... 31 34 32
Payable to Parent............................. - 48 84
Income taxes payable.......................... 20 17 30
Deferred income taxes......................... 365 278 306
------- ------- -------
Total liabilities....................... 11,989 9,992 9,857
------- ------- -------
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 68,000 at
June 30, 1994 and September 30, 1993,
and 63,000 at June 30, 1993)............ 680 680 630
Retained earnings.......................... 617 487 440
------- ------- -------
Total shareholder's equity.............. 1,297 1,167 1,070
------- ------- -------
Total Liabilities and
Shareholder's Equity................. $13,286 $11,159 $10,927
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Retail financing and leasing............ $ 422 $ 312 $1,149 $ 890
Wholesale and other dealer financing.... 24 23 63 59
------ ------ ------ ------
Total financing revenues................... 446 335 1,212 949
Interest expense........................ 125 116 347 341
Depreciation on operating leases........ 196 101 494 264
------ ------ ------ ------
Net financing revenues..................... 125 118 371 344
Other revenues............................. 23 16 69 46
------ ------ ------ ------
Net Financing Revenues and Other Revenues.. 148 134 440 390
------ ------ ------ ------
Expenses:
Operating and administrative............ 61 55 173 162
Provision for credit losses............. 22 14 51 46
------ ------ ------ ------
Total Expenses............................. 83 69 224 208
------ ------ ------ ------
Income before income taxes................. 65 65 216 182
Provision for income taxes................. 26 25 86 71
------ ------ ------ ------
Net Income................................. $ 39 $ 40 $ 130 $ 111
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 130 $ 111
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 499 263
Provision for credit losses.................... 51 46
Increase (decrease) in accrued interest........ (24) 13
Decrease in unearned insurance premiums........ (9) (10)
Increase in deferred income taxes.............. 87 27
(Increase) decrease in other assets............ (1) 35
Increase in other liabilities.................. 91 203
------ ------
Total adjustments.................................... 694 577
------ ------
Net cash provided by operating activities............... 824 688
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities..... (82) (158)
Disposition of investments in marketable securities.. 108 116
Purchase of finance receivables...................... (7,867) (7,242)
Liquidation of finance receivables................... 7,329 6,532
Addition to investments in operating leases.......... (2,890) (1,395)
Disposition of investments in operating leases....... 350 149
------ ------
Net cash used in investing activities................... (3,052) (1,998)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable.... 3,233 2,382
Payments on notes and loans payable.................. (2,198) (916)
Net increase (decrease) in commercial paper.......... 743 (40)
------ ------
Net cash provided by financing activities............... 1,778 1,426
------ ------
Net increase (decrease) in cash and cash equivalents.... (450) 116
Cash and cash equivalents at the beginning
of the period........................................ 574 211
------ ------
Cash and cash equivalents at the end of the
period............................................... $ 124 $ 327
====== ======
Supplemental disclosures:
Interest paid........................................ $368 $331
Income taxes paid.................................... $ 70 -
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Interim Financial Data
- -------------------------------
Information pertaining to the three months and nine months ended
June 30, 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 presented. The results of
operations for the three months and nine months ended June 30, 1994 are
not necessarily indicative of those expected for any other interim
period or for a full year. Certain June 1993 accounts have been
reclassified to conform with the June 1994 presentation.
Note 2 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Retail.................................. $5,439 $5,103 $5,498
Finance leases.......................... 1,834 2,046 1,940
Wholesale and other dealer loans........ 1,282 1,025 1,252
------ ------ ------
8,555 8,174 8,690
Unearned income......................... (738) (874) (936)
Allowance for credit losses............. (97) (94) (101)
------ ------ ------
Finance receivables, net............. $7,720 $7,206 $7,653
====== ====== ======
</TABLE>
Included in finance lease receivables were estimated unguaranteed
residual values of $710 million, $709 million and $638 million at
June 30, 1994, September 30, 1993 and June 30, 1993, respectively.
The aggregate balances related to finance receivable installments 60 or
more days past due totaled $27 million, $31 million and $25 million at
June 30, 1994, September 30, 1993 and June 30, 1993, respectively.
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<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>
June 30, September 30, June 30,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles............................... $5,869 $3,494 $3,027
Equipment, aircraft and other.......... 136 107 95
------ ------ ------
6,005 3,601 3,122
Accumulated depreciation............... (886) (524) (430)
Allowance for credit losses on
disposition of operating leases..... (50) (27) (23)
------ ------ ------
Investments in operating leases, net $5,069 $3,050 $2,669
====== ====== ======
</TABLE>
Note 4 - Notes and Loans Payable
- --------------------------------
Notes and loans payable, which consisted of senior debt, included the
following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1994 1993 1993
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................. $ 1,170 $ 350 $ 349
------- ------ ------
Other senior debt, due in the years
ending September 30:
1993................................ - - 300
1994................................ 733 2,847 2,744
1995................................ 3,926 3,112 3,004
1996................................ 2,040 1,185 1,125
1997................................ 1,844 735 730
1998................................ 466 367 203
Thereafter.......................... 541 202 202
------- ------ ------
9,550 8,448 8,308
Unamortized premium.................... 24 35 40
------- ------ ------
Total other senior debt............. 9,574 8,483 8,348
------- ------ ------
Notes and loans payable.......... $10,744 $8,833 $8,697
======= ====== ======
</TABLE>
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<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 4.81% at
June 30, 1994, including the effect of interest rate exchange
agreements. This rate has been calculated on the basis of rates in
effect at June 30, 1994, some of which are floating rates that reset
daily. Approximately 43% 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 June 30, 1994. The
weighted average of these fixed interest rates was 4.84%. The mix of
TMCC's fixed and floating rate debt changes from time to time as a
result of interest rate risk management.
Included in Notes and Loans Payable at June 30, 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 $3.4 billion. These obligations are translated in the
financial statements at the various foreign currency spot rates in
effect at June 30, 1994. The receivables or payables, arising as a
result of the differences between the June 30, 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 $56 million at June 30, 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.
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<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 $12.9 billion at June 30, 1994, compared to
$10.4 billion at September 30, 1993 and $10.4 billion at June 30, 1993. The
increases from September 30, 1993 and June 30, 1993 were primarily due to the
growth in leasing.
Retail finance receivables, net of unearned income, were $5.0 billion,
$4.6 billion, and $4.8 billion at June 30, 1994, September 30, 1993 and
June 30, 1993, respectively. Retail finance receivables at June 30, 1994
increased from September 30, 1993 as a result of contract volume exceeding
liquidations. Retail receivables at June 30, 1994 increased slightly from
June 30, 1993 as the increase in receivables from contract volume was nearly
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 $6.6 billion,
$4.8 billion, and $4.3 billion at June 30, 1994, September 30 1993, and
June 30, 1993, respectively. The increases from September 30, 1993 and
June 30, 1993 reflected the continuation of significant growth in lease
contract volume, primarily in operating leases. The growth in lease volume
was mainly attributable to the effect of special lease programs sponsored by
Toyota Motor Sales, U.S.A., Inc. ("TMS") and also to the broader acceptability
of leasing in the vehicle retail sales market.
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<PAGE>
Wholesale receivables and other dealer loans were $1.3 billion at
June 30, 1994, $1.0 billion at September 30, 1993 and $1.3 billion at June 30,
1993. The increase from September 30, 1993 and the constant level compared
to June 30, 1993 resulted primarily from the higher average wholesale
receivable balance per dealer offset by a decrease in the number of active
dealers. The number of active dealers participating in the Company's
Wholesale Flooring Program at June 30, 1994 decreased as compared to
September 30, 1993 and June 30, 1993, respectively. The decrease in the
number of dealers participating in the Wholesale Flooring Program was due
primarily to competitive reasons.
The Company's net financing revenues and other revenues are summarized as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
------ ------ ------ ------
(Dollars in Millions/Percent
of Total Financing Revenues)
<S> <C> <C> <C> <C>
Financing Revenues:
Retail financing and leasing............ $422 $312 $1,149 $890
95% 93% 95% 94%
Wholesale and other dealer financing.... 24 23 63 59
5% 7% 5% 6%
---- ---- ------ ----
Total financing revenues................... 446 335 1,212 949
100% 100% 100% 100%
Interest expense........................ 125 116 347 341
28% 35% 29% 36%
Depreciation on operating leases........ 196 101 494 264
44% 30% 41% 28%
---- ---- ------ ----
Net financing revenues..................... 125 118 371 344
28% 35% 30% 36%
Other revenues............................. 23 16 69 46
5% 5% 6% 5%
---- ---- ------ ----
Net Financing Revenues and Other Revenues.. $148 $134 $ 440 $390
33% 40% 36% 41%
==== ==== ====== ====
</TABLE>
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<PAGE>
Total financing revenues increased 33% and 28% for the three months and nine
months ended June 30, 1994, respectively, 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 installment financing
and leasing programs are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
1994 1993 1994 1993
------- ------ ------- -------
<S> <C> <C> <C> <C>
Contracts booked:
Vehicle retail installment contracts..... 54,000 49,000 141,000 142,000
Vehicle lease contracts.................. 63,000 28,000 134,000 77,000
------- ------ ------- -------
Total................................. 117,000 77,000 275,000 219,000
======= ====== ======= =======
Finance penetration......................... 38.6% 26.2% 33.8% 26.7%
</TABLE>
During the three months and nine months ended June 30, 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 primarily attributable to the growth in special lease programs
sponsored by TMS. 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 $14 million and
$6 million during the three months ended June 30, 1994 and 1993, respectively,
and $33 million and $18 million during the nine months ended June 30, 1994 and
1993, respectively. Management of the Company anticipates a higher level of
lease contract volume as TMS sponsored programs are expected to continue for
some time and as the broader acceptability of leasing as a financing option
for retail customers increases.
Uninsured vehicle residual values were approximately $4.0 billion and
$2.3 billion at June 30, 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 nine months ended June 30, 1994, TMCC's primary
source of revenue and earning asset growth was leasing. Leasing revenues
increased 64% to $321 million and 58% to $843 million in the three months and
nine months ended June 30, 1994, respectively, from the same periods in fiscal
1993. The growth in leasing revenues was attributable to an 88% and an
86% increase in average investments in operating leases during the three
months and nine months ended June 30, 1994, respectively, from the same
periods in fiscal 1993. Retail financing revenues decreased 13% to $101
million and 14% to $306 million during the three months and nine months ended
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<PAGE>
June 30, 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
installment contracts and lease contracts replacing liquidating higher
yielding retail installment contracts and lease contracts. Management of the
Company is continuing to monitor the decline in yield on average earning
assets; however, management anticipates that the decline in yield will
continue through fiscal 1994.
Wholesale and other dealer financing revenues increased 4% and 7% during the
three months and nine months ended June 30, 1994, respectively, as compared
to the same periods in fiscal 1993. The increase in revenues for the three
months ended June 30, 1994 as compared to the three months ended
June 30, 1993, resulted primarily from the increases in wholesale financing
rates. The increase in revenues for the nine months ended June 30, 1994 as
compared to the nine months ended June 30, 1993, resulted primarily from the
higher average wholesale receivable balance per dealer.
Interest expense increased 8% and 2% during the three months and nine months
ended June 30, 1994, respectively, as compared to the same periods in fiscal
1993. The increases in interest expense resulting from higher average
borrowing balances required to fund the growth in earning assets were
substantially offset by the decreases attributable to lower market interest
rates. The weighted average cost of borrowings was 4.88% and 4.90% for the
three months and nine months ended June 30, 1994, respectively, compared to
5.52% and 5.71% 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 nine 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 94% and 87% for the three months
and nine months ended June 30, 1994, respectively, 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 8% to $371 million
during the three months and nine months ended June 30, 1994, respectively, as
compared to the same periods in fiscal 1993. The increases were attributable
primarily to growth in the level of earning assets partially 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 nine months of fiscal 1994 from 1993 as a result of the
decline in yield on retail installment contracts and lease contracts
decreasing more rapidly than the decline in borrowing costs. Management
anticipates some continued decline in the interest margin primarily due to the
expected continuing decline in average earning asset yields in fiscal 1994.
Other revenues increased 44% and 50% during the three months and nine months
ended June 30, 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.
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<PAGE>
The Company's earnings are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Net Financing Revenues
and Other Revenues............ $148 $134 $440 $390
Expenses:
Operating and administrative.. 61 55 173 162
Provision for credit losses... 22 14 51 46
---- ---- ---- ----
Total Expenses................... 83 69 224 208
---- ---- ---- ----
Income before income taxes....... 65 65 216 182
Provision for income taxes....... 26 25 86 71
---- ---- ---- ----
Net Income....................... $ 39 $ 40 $130 $111
==== ==== ==== ====
</TABLE>
Operating and administrative expenses increased 11% and 7% during the three
months and nine months ended June 30, 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 nine months ended June 30, 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 increased 57% and
11% during the three months and nine months ended June 30, 1994, respectively,
from the same periods in fiscal 1993. The increases during this period
resulted primarily from the significant continued growth in the level of
earning assets, primarily leasing, partially offset by favorable credit 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") remained level
during the three months ended June 30, 1994 and increased 19% to $216 million
during the nine months ended June 30, 1994. The increase in net financing
revenues and other revenues for the three months ended June 30, 1994 as
compared to the three months ended June 30, 1993 was offset by the increase
in operating and administrative expenses and the provision for credit losses
as previously mentioned, resulting in essentially level operating profits and
slightly lower net income for the period. The increase in operating profits
and net income for the nine months ended June 30, 1994 as compared to the nine
months ended June 30, 1993 was primarily the result of the growth in the level
of earning assets.
-12-
<PAGE>
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 favorable operating profits in the nine
months ended June 30, 1994 and 1993, TMCC did not receive any financial
support from TMS.
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
$1.9 billion during the first nine months of fiscal 1994, with an average
outstanding balance of $817 million. To support the commercial paper program,
along with other uses, TMCC, jointly with TMS, maintains committed and
uncommitted unsecured credit lines with banks totalling $775 million. At June
30, 1994, no loans were outstanding under any of these lines; however,
approximately $129 million in letters of credit had been issued, primarily
related to the Company's insurance operations, which reduced the availability
of the lines to $646 million. TMCC plans to establish $1.5 billion in
syndicated bank credit facilities to replace the joint unsecured credit lines
with banks. The syndicated bank credit facilities will be used as a back-up
facility for the commercial paper program. Borrowings from TMS ranged from
zero to $60 million during the first nine months of fiscal 1994, with an
average outstanding balance of $4 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 nine months
of fiscal 1994, TMCC issued approximately $2.8 billion of MTNs of which
approximately $2.2 billion had maturity dates on the date of issuance of more
than one year. MTNs outstanding at June 30, 1994, including the effect of
foreign currency translations at spot rates in effect at June 30, 1994,
totaled approximately $5.4 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 July 31, 1994,
approximately $3.3 billion under TMCC's United States public MTN program was
available for issuance, of which the Company has committed to issue
approximately $40 million. In July 1994, the Company expanded the maximum
aggregate principal amount authorized to be outstanding at any time under
TMCC's Euro MTN program from $4.0 billion to $6.5 billion. As of July 31,
1994, $2.9 billion was available for issuance under the Euro MTN program, of
which the Company has committed to issue approximately $390 million. The
United States and Euro MTN programs may from time to time be expanded to allow
for the continued use of these sources of funding.
-13-
<PAGE>
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 June 30, 1994, approximately $3.6 billion of debt
securities, including the effect of foreign currency translations at spot
rates in effect at June 30, 1994, were outstanding in the European capital
markets. Of the $3.6 billion in debt securities, $2.2 billion was denominated
in foreign currencies. Underwritten debt securities outstanding in the United
States public market totaled approximately $600 million at June 30, 1994. At
July 31, 1994, approximately $700 million of securities registered with the
Securities and Exchange Commission ("SEC"), excluding MTNs, were available for
issuance.
TMCC utilizes a variety of financial instruments to manage its foreign
currency exchange rate risk and interest rate risk. TMCC does not enter into
these instruments for purposes of speculative trading.
Notes and loans payable issued in foreign currencies are 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 translated at the forward
rates at maturity totaled $3.4 billion, of which $0.5 billion is included in
indexed note swap agreements as discussed below. In the event that a
counterparty fails to perform, TMCC's exposure is limited to the currency
exchange and interest rate differential. TMCC does not anticipate
nonperformance by any of its counterparties.
TMCC utilizes interest rate exchange agreements and to a lesser extent floors,
caps and other option-based 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 June 30,
1994, TMCC was the fixed rate payor on $4.6 billion of interest rate exchange
agreements, floating rate payor on $1.6 billion of such agreements,
counterparty to $1.0 billion of basis swap contracts, and counterparty to
$0.5 billion of corridor contracts. Under a corridor contract, TMCC is a
fixed rate payor when an underlying floating indice is within a prespecified
range, and a floating rate payor otherwise. Interest rate exchange agreements
are executed as an integral part of specific debt transactions and on a
portfolio basis. The differential paid or received on such agreements is
recorded as an adjustment to interest expense over the term of the underlying
debt agreement. Master netting agreements, with substantially all interest
rate exchange agreement counterparties, also exist allowing the net difference
between counterparties to be exchanged in the event of default.
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<PAGE>
TMCC utilizes indexed note swap agreements in managing its exposure to indexed
notes. Indexed notes are debt instruments whose interest rate and/or
principal redemption amounts are derived from other underlying instruments.
Indexed note swap agreements involve agreements to receive interest and/or
principal amounts associated with the indexed notes, denominated in either
U.S. dollars or a foreign currency, and to pay fixed or floating rates on
fixed U.S. dollar liabilities. In the event that a counterparty fails to
perform, TMCC's exposure is limited to the difference between the indexed
amounts that should have been received and the amounts that should have been
paid. TMCC does not anticipate nonperformance by any of its counterparties.
At June 30, 1994, TMCC was the counterparty to $1.8 billion of indexed note
swap agreements, of which $0.5 billion is denominated in foreign currencies
and $1.3 billion is denominated in U.S. dollars.
From time to time, TMS has made equity contributions to maintain TMCC's equity
capitalization at certain levels. Such levels have been periodically
established by TMS as it deems appropriate. No such equity contributions were
made during the first nine months of fiscal 1994.
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, totalling $7.7 billion during the first nine
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 nine 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 $3.1 billion in the first nine months of
fiscal 1994 compared to $2.0 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 $824 million in the first nine months of
fiscal 1994. Net cash provided by financing activities totaled $1.8 billion
in the first nine months of fiscal 1994, representing a $352 million increase
from June 30, 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.
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<PAGE>
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.
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. Two such suits involve
collateral protection practices and are similar to suits which
have been filed against other financial institutions and captive
finance companies. Court approval of a settlement agreement is
pending relating to one of the two collateral protection
practices suits; and TMCC is engaged in settlement negotiations
in the other. 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
There were no reports on Form 8-K filed by the Company during the
quarter ended June 30, 1994.
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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: August 11, 1994 By /S/ WOLFGANG JAHN
-------------------------------
Wolfgang Jahn
Group Vice President
(principal executive officer)
Date: August 11, 1994 By /S/ PATRICK BREENE
-------------------------------
Patrick Breene
Corporate Manager -
Finance and Administration
(principal accounting officer)
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<PAGE>
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- --------
12.1 Calculation of ratio of earnings to fixed charges. Attached
Page 20
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<PAGE>
<TABLE>
EXHIBIT 12.1
TOYOTA MOTOR CREDIT CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
------ ------ ------ ------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes.................... $ 65 $ 65 $216 $182
---- ---- ---- ----
Fixed charges:
Interest............................... 125 116 347 341
Portion of rent expense
representative of the
interest factor
(deemed to be
one-third).......................... 1 1 2 2
---- ---- ---- ----
Total fixed charges....................... 126 117 349 343
---- ---- ---- ----
Earnings available
for fixed charges...................... $191 $182 $565 $525
==== ==== ==== ====
Ratio of earnings to
fixed charges(2)....................... 1.52 1.56 1.62 1.53
==== ==== ==== ====
<FN>
- -----------------
(1) TMCC did not receive any financial support from TMS during the three months or nine months
ended June 30, 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 June 30, 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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<PAGE>
