<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, 1995
-------------
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, 1995, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 86,500, all of which
shares were held by Toyota Motor Sales, U.S.A., Inc.
<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,
1995 1994 1994
------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 143 $ 277 $ 124
Investments in marketable securities...... 154 102 109
Finance receivables, net.................. 7,960 7,776 7,720
Investments in operating leases, net...... 7,496 6,215 5,069
Receivable from Parent.................... - 37 11
Other receivables......................... 688 235 174
Deferred charges.......................... 85 36 41
Other assets.............................. 73 55 54
------- ------- -------
Total Assets........................ $16,599 $14,733 $13,302
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $13,388 $11,833 $10,744
Accrued interest.......................... 168 156 124
Accounts payable and accrued expenses..... 797 727 673
Unearned insurance premiums............... 66 73 79
Payable to Parent......................... 1 - -
Income taxes payable...................... 8 31 20
Deferred income taxes..................... 509 386 365
------- ------- -------
Total liabilities...................... 14,937 13,206 12,005
------- ------- -------
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 86,500 at
June 30, 1995 and
September 30, 1994, and 68,000 at
June 30, 1994)......................... 865 865 680
Retained earnings......................... 797 662 617
------- ------- -------
Total shareholder's equity............. 1,662 1,527 1,297
------- ------- -------
Total Liabilities and
Shareholder's Equity................ $16,599 $14,733 $13,302
======= ======= =======
</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 Nine Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Retail financing........................ $108 $100 $ 324 $ 306
Leasing................................. 487 322 1,381 843
Wholesale and other dealer financing.... 35 24 90 63
---- ---- ------ ------
Total financing revenues................... 630 446 1,795 1,212
Interest expense........................ 189 125 525 347
Depreciation on operating leases........ 313 196 888 494
---- ---- ------ ------
Net financing revenues..................... 128 125 382 371
Other revenues............................. 26 23 77 69
---- ---- ------ ------
Net Financing Revenues and Other Revenues.. 154 148 459 440
---- ---- ------ ------
Expenses:
Operating and administrative............ 65 61 189 173
Provision for credit losses............. 13 22 46 51
---- ---- ------ ------
Total Expenses............................. 78 83 235 224
---- ---- ------ ------
Income before income taxes................. 76 65 224 216
Provision for income taxes................. 30 26 89 86
---- ---- ------ ------
Net Income................................. $ 46 $ 39 $ 135 $ 130
==== ==== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 135 $ 130
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 926 499
Provision for credit losses................... 46 51
Increase (decrease) in accrued interest....... 12 (24)
Increase (decrease) in unearned insurance
premiums................................... (7) 5
Increase in deferred income taxes............. 123 87
(Increase) decrease in other assets........... 23 (17)
Increase in other liabilities................. 42 93
------ ------
Total adjustments................................... 1,165 694
------ ------
Net cash provided by operating activities.............. 1,300 824
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities.... (68) (82)
Disposition of investments in marketable
securities....................................... 16 108
Purchase of finance receivables..................... (8,296) (7,867)
Liquidation of finance receivables.................. 8,090 7,329
Addition to investments in operating leases......... (2,820) (2,890)
Disposition of investments in operating leases...... 626 350
------ ------
Net cash used in investing activities.................. (2,452) (3,052)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable... 4,734 3,233
Payments on notes and loans payable................. (3,904) (2,198)
Net increase in commercial paper with
original maturities less than 90 days............ 188 743
------ ------
Net cash provided by financing activities.............. 1,018 1,778
------ ------
Net decrease in cash and cash equivalents.............. (134) (450)
Cash and cash equivalents at the beginning
of the period....................................... 277 574
------ ------
Cash and cash equivalents at the end of the period..... $ 143 $ 124
====== ======
Supplemental disclosures:
Interest paid....................................... $483 $368
Income taxes paid................................... $3 $70
</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 nine months ended
June 30, 1995 and 1994 is unaudited. In the opinion of management, the
unaudited financial information reflects all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of
the results for the interim periods presented. The results of
operations for the three months and nine months ended June 30, 1995 are
not necessarily indicative of those expected for any other interim
period or for a full year. Certain June 1994 and September 1994
accounts have been reclassified to conform with the June 1995
presentation.
Note 2 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1995 1994 1994
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Retail............................... $5,591 $5,805 $5,439
Finance leases....................... 1,581 1,734 1,834
Wholesale and other dealer loans..... 1,511 1,054 1,282
------ ------ ------
8,683 8,593 8,555
Unearned income...................... (625) (716) (738)
Allowance for credit losses.......... (98) (101) (97)
------ ------ ------
Finance receivables, net.......... $7,960 $7,776 $7,720
====== ====== ======
</TABLE>
Included in finance lease receivables were estimated unguaranteed
residual values of $689 million, $694 million and $710 million at
June 30, 1995, September 30, 1994 and June 30, 1994, respectively.
The aggregate balances related to finance receivables 60 or more days
past due totaled $15 million, $15 million and $14 million at June 30,
1995, September 30, 1994 and June 30, 1994, respectively.
-5-
<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,
1995 1994 1994
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles................................. $9,026 $7,184 $5,869
Equipment, aircraft and other............ 188 148 136
------ ------ ------
9,214 7,332 6,005
Accumulated depreciation................. (1,644) (1,054) (886)
Allowance for credit losses ............. (74) (63) (50)
------ ------ ------
Investments in operating leases, net.. $7,496 $6,215 $5,069
====== ====== ======
</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,
1995 1994 1994
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................... $ 1,982 $ 960 $ 1,170
------- ------- -------
Other senior debt, due in the years
ending September 30,:
1994.................................. - - 733
1995.................................. 703 4,010 3,926
1996.................................. 2,947 2,405 2,040
1997.................................. 2,838 2,014 1,844
1998.................................. 2,372 985 466
1999.................................. 411 233 229
Thereafter............................ 2,094 1,209 312
------- ------- -------
11,365 10,856 9,550
Unamortized premium...................... 41 17 24
------- ------- -------
Total other senior debt............... 11,406 10,873 9,574
------- ------- -------
Notes and loans payable............ $13,388 $11,833 $10,744
======= ======= =======
</TABLE>
The weighted average remaining term of commercial paper was 123 days
and 45 days at June 30, 1995 and 1994, respectively. The weighted
average interest rate on commercial paper was 6.58% and 4.07% at
June 30, 1995 and 1994, respectively.
-6-
<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 5.78% at
June 30, 1995, including the effect of interest rate swap agreements.
This rate has been calculated on the basis of rates in effect at
June 30, 1995, some of which are floating rates that reset daily.
Approximately 30% of other senior debt at June 30, 1995 had interest
rates, including the effect of interest rate swap agreements, that were
fixed for a period of more than one year. The weighted average of
these fixed interest rates was 6.09% at June 30, 1995. Approximately
34% of other senior debt at June 30, 1995 had floating interest rates
that were covered by interest rate cap agreements with an average
strike rate of 7.57%. The mix of TMCC's fixed and floating rate debt
changes from time to time as a result of interest rate risk management.
Included in Notes and Loans Payable at June 30, 1995 were unsecured
notes payable in various foreign currencies. Concurrent with the
issuance of these unsecured notes, TMCC entered into foreign currency
swap agreements to convert these obligations into $5.0 billion fixed
U.S. dollar obligations. TMCC's foreign currency debt is translated
into U.S. dollars in the financial statements at the various foreign
currency spot exchange rates in effect at June 30, 1995. The
receivables or payables, arising as a result of the differences between
the June 30, 1995 foreign currency spot exchange rates and the contract
rates applicable to the foreign currency swap agreements, are
classified in Other Receivables or Accounts Payable and Accrued
Expenses, respectively, and would aggregate to a net receivable
position of $493 million at June 30, 1995.
Note 5 - Recently Adopted Accounting Standards
- ----------------------------------------------
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("Statement No. 112"). Statement No. 112 requires accrual,
during the years that the employee renders the necessary service or
when it is probable that a liability has been incurred, of the expected
cost of providing postemployment benefits to former or inactive
employees, their beneficiaries, and covered dependents after employment
but before retirement. This method differs from the Company's previous
practice of accounting for these benefits on a cash basis. The
cumulative effect of the change in accounting principle was not
material to the Company's financial position or results of operations.
Prior period financial statements have not been restated.
-7-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Recently Adopted Accounting Standards (Continued)
- ----------------------------------------------
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("Statement No. 114") and its amendment Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" ("Statement
No. 118"). Statement No. 114 requires a creditor to evaluate the
collectibility of both contractual interest and principal of certain
impaired receivables when assessing the need for a loss accrual and to
measure loans that are restructured in a troubled debt restructuring to
reflect the time value of money. Statement No. 114 is not applicable
to leases and large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment. Statement No. 118 amends
Statement No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan. Statement No. 118
also amends the disclosure requirements in Statement No. 114 to require
information about the recorded investment in certain impaired loans and
about how a creditor recognizes interest income related to those
impaired loans. The impact of adoption was not material to the
Company's financial position or results of operations. Prior period
financial statements have not been restated.
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("Statement No. 115"). Statement No. 115
addresses the accounting and reporting for investments in all debt
securities and for investments in equity securities that have readily
determinable fair values. The cumulative effect of the change in
accounting principle was not material to the Company's financial
position or results of operations. Prior period financial statements
have not been restated.
-8-
<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, the average outstanding balance of earning
assets and borrowing levels. The interest rates charged on retail finance
receivables and implicit in leases are fixed at the time acquired. Yields on
the majority of wholesale receivables and other loans to dealers vary with
changes in short-term interest rates. Funding requirements are primarily met
through net cash provided by operating activities, earning asset liquidations
and the issuance of debt obligations of varying terms at both fixed and
floating interest rates. TMCC utilizes interest rate swap agreements and
foreign currency swap agreements in managing the cost of borrowed funds.
The business of TMCC and its subsidiaries (collectively the "Company") is
substantially dependent upon the sale of Toyota and Lexus vehicles in the
United States. Lower levels of sales of such vehicles resulting from
governmental action, decline in demand, changes in pricing due to the
appreciation of the Japanese yen against the United States dollar, or other
events, could result in a reduction in the level of finance and insurance
operations of the Company. To date, the level of the Company's operations has
not been restricted by the level of sales of Toyota and Lexus vehicles. On
June 28, 1995, the Office of the United States Trade Representative announced
it would not impose trade sanctions on specified vehicles imported from Japan
as previously announced on May 16, 1995. The Company's operations were not
materially impacted by the proposed trade sanctions.
Financial Condition and Results of Operations
TMCC's earning assets, consisting of finance receivables and investments in
operating leases, totaled $15.6 billion, $14.2 billion and $12.9 billion at
June 30, 1995, September 30, 1994 and June 30, 1994, respectively. The growth
in earning assets was primarily the result of growth in lease earning assets.
Retail finance receivables, net of unearned income, were $5.2 billion,
$5.4 billion and $5.0 billion at June 30, 1995, September 30, 1994 and
June 30, 1994, respectively. Retail finance receivables decreased from
September 30, 1994 to June 30, 1995 due to liquidations exceeding contract
volume and increased from June 30, 1994 to June 30, 1995 due to contract
volume exceeding liquidations.
Lease earning assets, consisting of lease finance receivables, net of unearned
income, and investments in operating leases, net of accumulated depreciation,
totaled $8.9 billion, $7.7 billion and $6.6 billion at June 30, 1995,
September 30, 1994 and June 30, 1994, respectively. Lease earning assets
increased from September 30, 1994 and June 30, 1994 primarily due to operating
lease additions exceeding operating lease dispositions as a result of the
effect of special lease programs sponsored by Toyota Motor Sales, U.S.A., Inc.
("TMS") and the increased acceptance of leasing by retail consumers.
Management of the Company anticipates further growth in lease earning assets
as special lease programs and the increased acceptability of leasing by retail
consumers continue.
-9-
<PAGE>
Wholesale receivables and other dealer loans were $1.5 billion, $1.1 billion
and $1.3 billion at June 30, 1995, September 30, 1994 and June 30, 1994,
respectively. The increase in these receivables from June 30, 1994 to
June 30, 1995 and from September 30, 1994 to June 30, 1995 resulted primarily
from the higher average wholesale receivables balance per dealer.
Contract volume related to TMCC's vehicle retail installment financing and
leasing programs is summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
------ ------- ------- -------
<S> <C> <C> <C> <C>
Contract Volume:
Vehicle retail installment contracts........ 39,000 54,000 115,000 141,000
Vehicle lease contracts..................... 43,000 63,000 123,000 134,000
------ ------- ------- -------
Total.................................... 82,000 117,000 238,000 275,000
====== ======= ======= =======
</TABLE>
The vehicle retail installment contract volume decreased during the three
months and nine months ended June 30, 1995 as compared to the same periods in
fiscal 1994 primarily due to increased competition in new and used vehicle
financing. Although further declines in new and used vehicle financing are
possible, management of the Company has taken various steps to enhance both
programs' competitive position. The vehicle lease contract volume also
decreased during the three months and nine months ended June 30, 1995 due to
a decline in the level of Toyota special lease programs sponsored by TMS as
compared to the same periods in fiscal 1994. Under these special lease
programs, TMCC offers reduced monthly payments on certain new vehicles to
qualified lessees and receives an amount from TMS and, in some cases, dealers
for each vehicle leased. Amounts received approximate the balances required
by TMCC to maintain revenues at standard program levels and are earned over
the expected lease terms. The level of sponsored program activity varies
based on TMS marketing strategies. TMCC recognized revenues related to all
amounts received under various TMS programs of $37 million and $14 million
during the three months ended June 30, 1995 and 1994, respectively, and
$96 million and $33 million during the nine months ended June 30, 1995 and
1994, respectively.
TMCC financed or leased ("finance penetration") the following percentages of
new Toyota and Lexus vehicle deliveries in the United States, excluding
Hawaii:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Finance penetration........ 27.4% 38.6% 30.1% 33.8%
</TABLE>
-10-
<PAGE>
Total finance penetration for the three months and nine months ended June 30,
1995 decreased as compared to the same periods in fiscal 1994 primarily due
to a decline in the level of special lease programs.
Total financing revenues increased 41% and 48% during the three months and
nine months ended June 30, 1995, respectively, as compared to the same periods
in fiscal 1994. The increases resulted primarily from earning asset growth.
Retail financing revenues increased 8% and 6% during the three months and nine
months ended June 30, 1995, respectively, as compared to the same periods in
fiscal 1994. The increase in revenues for the three months ended June 30,
1995 as compared to the same period in fiscal 1994 resulted primarily from the
growth in average retail finance receivables outstanding. The increase in
revenues for the nine months ended June 30, 1995 as compared to the same
period in fiscal 1994 resulted from the growth in average retail finance
receivables outstanding partially offset by a decline in portfolio yield
resulting from lower yielding contracts replacing liquidating higher yielding
contracts. Management of the Company expects that the level of retail
financing revenues in fiscal 1995 will approximate those of fiscal 1994.
During the three months and nine months ended June 30, 1995, TMCC's primary
source of revenue and earning asset growth was leasing. Leasing revenues
increased 51% and 64% during the three months and nine months ended June 30,
1995, respectively, as compared to the same periods in fiscal 1994 primarily
due to the growth in average lease earning assets. Management of the Company
anticipates further growth in leasing revenues as special lease programs
sponsored by TMS and increased acceptability of leasing by retail consumers
are expected to continue to result in increases in lease earning assets.
Wholesale and other dealer financing revenues increased 46% and 43% during the
three months and nine months ended June 30, 1995, respectively, as compared
to the same periods in fiscal 1994. The increased revenues resulted from
higher average wholesale receivable balances and increases in wholesale
financing rates. Management of the Company anticipates that yields and
revenues will increase in fiscal 1995 as compared to fiscal 1994 due to higher
short-term market interest rates to which such financing is indexed and due
to earning asset growth.
Interest expense increased 51% for each of the three month and nine month
periods ended June 30, 1995 from the same periods in fiscal 1994. The
increases in interest expense resulted from higher average borrowing levels
required to fund the growth in earning assets and increases in market interest
rates. The weighted average cost of borrowings was 6.02% and 5.71% for the
three months and nine months ended June 30, 1995, respectively, compared to
4.88% and 4.90% for the same period in fiscal 1994. Management anticipates
that both the weighted average cost of borrowings and interest expense will
increase in fiscal 1995 as compared to fiscal 1994 as a result of increases
in average market interest rates and increases in the average level of debt
outstanding.
Depreciation on operating leases increased 60% and 80% during the three months
and nine months ended June 30, 1995, respectively, as compared to the same
periods in fiscal 1994 as a result of the growth in investments in operating
leases. Management anticipates higher depreciation on operating leases in
fiscal 1995 as compared to fiscal 1994 due to anticipated growth in
investments in operating leases.
-11-
<PAGE>
Unguaranteed vehicle residual values were approximately $6.0 billion and
$4.0 billion at June 30, 1995 and 1994, respectively. To date, TMCC has
incurred no material losses as a result of residual value risk. Although
TMCC's experience has been somewhat limited, management of the Company
believes that the aggregate residual values of its leases reflected in the
financial statements represent realizable values.
Net financing revenues increased 2% and 3% during the three months and nine
months ended June 30, 1995, respectively, as compared to the same periods in
fiscal 1994. The increases were primarily attributable to the growth in the
level of earning assets which was substantially offset by declining interest
margins. Interest margin is the excess of the combined interest rate yield
on finance receivables and implicit in leases over the effective interest rate
cost of total borrowings. Lower interest margins in fiscal 1995 were the
result of lower portfolio yields on retail installment and lease contracts and
higher average borrowing costs as compared to fiscal 1994. Management
anticipates slightly higher net financing revenues in fiscal 1995 as compared
to fiscal 1994 as increased financing revenues resulting from earning asset
growth are expected to be substantially offset by lower portfolio yields and
higher borrowing costs.
Other revenues increased 13% and 12% during the three months and nine months
ended June 30, 1995, respectively, as compared to the same periods in fiscal
1994. The increases in other revenues resulted from the continued growth in
the Company's insurance operations offset by declines in servicing and other
income related to the retail finance receivables sold in fiscal 1993.
Operating and administrative expenses increased 7% and 9% during the three
months and nine months ended June 30, 1995, respectively, as compared to the
same periods in fiscal 1994. These increases reflected increased costs
required to service the Company's growing customer base and for the growth in
the Company's insurance operations.
The provision for credit losses decreased 41% and 10% during the three months
and nine months ended June 30, 1995, respectively, as compared to the same
periods in fiscal 1994 as a result of a decline in the level of earning asset
growth and a change in allowance levels. The allowance levels declined as a
result of changes in the mix of earning assets and the Company's low credit
loss experience. The Company continues to experience low credit loss levels
and will continue to place emphasis on controlling its credit loss exposure;
however, there are no assurances that the low credit loss levels will
continue.
Operating profits (reflected as "Income before income taxes") increased 17%
and 4% during the three months and nine months ended June 30, 1995,
respectively, as compared to the same period in fiscal 1994. The increase in
operating profits and net income was primarily due to increases in net
financing revenues due to the growth in earning assets and a decline in the
provision for credit losses. Management of the Company anticipates that
fiscal 1995 operating profits will approximate those of fiscal 1994.
Financial support is provided by TMS, as necessary, to maintain TMCC's minimum
fixed charge coverage at the level specified in the Operating Agreement. As
a result of the favorable operating profits during the nine months ended
June 30, 1995 and 1994, TMCC did not receive any financial support from TMS.
-12-
<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 International
and United States capital markets. Debt issuances have generally been in the
form of commercial paper, medium-term notes ("MTNs") and other debt
securities. From time to time, this funding has been supplemented by loans
and equity contributions from TMS.
Commercial paper issuances and borrowings from TMS are specifically utilized
to meet short-term funding needs. Commercial paper outstanding under TMCC's
commercial paper program ranged from approximately $1.0 billion to
$2.0 billion at any month end during the first nine months of fiscal 1995,
with an average outstanding balance of $1.6 billion. To support its
commercial paper program, TMCC also maintains syndicated bank credit
facilities with certain banks which aggregated $1.5 billion at June 30, 1995.
No loans were outstanding under any of these bank credit facilities during the
first nine months of fiscal 1995. TMCC also maintains uncommitted, unsecured
lines of credit with banks totaling $300 million to facilitate issuances of
letters of credit. At June 30, 1995, approximately $87 million in letters of
credit had been issued, primarily related to the Company's insurance
operations.
From time to time, TMS makes interest-bearing loans to TMCC. The interest
rate charged by TMS to TMCC for these interest-bearing loans approximates the
Federal Reserve Board's one-month commercial paper composite rate for firms
whose bonds are rated AA. The average outstanding balance of loans from TMS
during the first nine months of fiscal 1995 was not material.
MTNs, with original terms ranging from one year to ten years, have been issued
in the International and United States capital markets to meet a portion of
long-term and short-term funding requirements. During the first nine months
of fiscal 1995, TMCC issued approximately $3.2 billion of MTNs almost all of
which had maturity dates on the date of issuance of more than one year. MTNs
outstanding at June 30, 1995, including the effect of foreign currency
translations at spot exchange rates in effect at June 30, 1995, totaled
approximately $8.6 billion. At July 31, 1995, approximately $1.9 billion
under TMCC's United States public MTN program was available for issuance. In
July 1995, the Company expanded the maximum aggregate principal amount
authorized to be outstanding at any time under TMCC's Euro MTN program from
$6.5 billion to $9.5 billion. As of July 31, 1995, approximately $3.9 billion
was available for issuance under the Euro MTN program, of which the Company
has committed to issue approximately $114 million. The United States and Euro
MTN programs may from time to time be expanded to allow for the continued use
of these sources of funding.
-13-
<PAGE>
Long-term funding requirements have also been met through the issuance of
other forms of debt securities underwritten in the International and United
States capital markets. At June 30, 1995, approximately $2.8 billion of debt
securities (excluding MTNs), including the effect of foreign currency
translations at spot exchange rates in effect at June 30, 1995, were
outstanding in the International capital markets. Of the $2.8 billion in debt
securities, $1.8 billion was denominated in foreign currencies. At
July 31, 1995, approximately $700 million of securities registered with the
Securities and Exchange Commission, excluding MTNs, were available for
issuance.
TMCC utilizes a variety of financial instruments to manage its foreign
currency exchange rate risk and interest rate risk. TMCC does not enter into
these instruments for trading purposes. During the nine months ended June 30,
1995 and 1994, TMCC held its derivative financial instruments to maturity of
the underlying debt instruments.
TMCC utilizes foreign currency swap agreements and interest rate swap
agreements to manage exposure to exchange rate fluctuations on principal and
interest payments for borrowings denominated in foreign currencies. Notes and
loans payable issued in foreign currencies are hedged by concurrently executed
foreign currency swap agreements. These swap agreements involve agreements
to exchange TMCC's foreign currency principal obligations for U.S. dollar
obligations at agreed-upon currency exchange rates and to exchange fixed and
floating interest rate obligations. The aggregate notional amounts of foreign
currency swap agreements at June 30, 1995 and 1994 were $4.5 billion and
$2.9 billion, respectively. In the event that a counterparty fails to
perform, TMCC's exposure is limited to the currency exchange and interest rate
differential. TMCC does not anticipate nonperformance by any of its
counterparties.
TMCC utilizes interest rate swap agreements and other option-based products
in managing its exposure to interest rate fluctuations. TMCC's interest rate
swap agreements involve agreements to pay fixed and receive a floating rate,
or receive fixed and pay a floating rate, at specified intervals, calculated
on an agreed-upon notional amount. Interest rate swap agreements may also
involve basis swap contracts, which are agreements to exchange the difference
between certain floating interest amounts, such as the net payment based on
the commercial paper rate and the London Interbank Offered Rate ("LIBOR"),
calculated on an agreed-upon notional amount. TMCC also enters into
option-based contracts where TMCC is a fixed rate payor when the underlying
floating indices are within a prespecified range, and a floating rate payor
otherwise. The underlying notional amounts are not exchanged and do not
represent exposure to credit loss. In the event that a counterparty fails to
perform, TMCC's exposure is limited to the interest rate differential. TMCC
does not anticipate nonperformance by any of its counterparties. The
aggregate notional amounts of interest rate swap agreements outstanding at
June 30, 1995 and 1994, were $11.0 billion and $7.7 billion, respectively.
At June 30, 1995, TMCC was the fixed rate payor on $4.4 billion of interest
rate swap agreements, floating rate payor on $1.4 billion of such agreements,
counterparty to $1.5 billion of basis swap contracts, and counterparty to
$3.7 billion of option-based contracts. Interest rate swap agreements and
other option-based products are executed as an integral part of specific debt
transactions and on a portfolio basis. The differential paid or received on
such agreements is recorded as an adjustment to Interest Expense over the term
of the underlying debt. Master netting agreements, with all interest rate
swap agreement counterparties, also exist allowing the net difference between
counterparties to be exchanged in the event of default.
-14-
<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, 1995 and 1994, TMCC was the counterparty to $1.8 billion of
indexed note swap agreements, of which $0.5 billion was denominated in foreign
currencies and $1.3 billion was denominated in U.S. dollars.
For all of its derivative financial instruments, TMCC manages counterparty
risk through the use of credit standard guidelines, counterparty
diversification and financial condition monitoring.
From time to time, TMS has made equity contributions to maintain TMCC's equity
capitalization at certain levels. Such levels have been periodically
established by TMS as it deems appropriate. No such equity contributions were
made during the first nine months of fiscal 1995.
Cash flows provided by operating, investing and financing activities have been
used primarily to support growth in earning assets. During the nine months
ended June 30, 1995, cash provided by the liquidation of earning assets,
totaling $8.7 billion was used to purchase additional finance receivables and
investments in operating leases, totaling $11.1 billion. Investing activities
resulted in a net use of cash of $2.5 billion as the purchase of additional
earning assets, primarily investments in operating leases, exceeded cash
provided by the liquidation of earning assets. Investing activities were also
supported by net cash provided by operating activities and net cash provided
by financing activities which totaled $1.3 billion and $1.0 billion,
respectively, during the first nine months of fiscal 1995. Management of the
Company believes that cash provided by operating, investing and financing
activities will be sufficient to meet the Company's liquidity and capital
resource needs in the future.
-15-
<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 certain matters
arising from the ordinary course of business. Certain of these
actions are or purport to be class action suits. Certain of these
actions are similar to suits which have been filed against other
financial institutions and captive finance companies. At this
time, the Company believes any resulting liability from the above
legal actions, proceedings and other claims will not materially
affect its consolidated financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES.
There is nothing to report with regard to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There is nothing to report with regard to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
There is nothing to report with regard to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on page
18, are filed as part of this report.
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the
quarter ended June 30, 1995:
Financial Statements
Date of Report Item Filed
-------------- ---- --------------------
May 16, 1995 Item 5 - Other Events None
-16-
<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, 1995 By /S/ WOLFGANG JAHN
-------------------------------
Wolfgang Jahn
Senior Vice President
and General Manager
(principal executive officer)
Date: August 11, 1995 By /S/ PATRICK BREENE
-------------------------------
Patrick Breene
Corporate Manager -
Finance and Administration
(principal accounting officer)
-17-
<PAGE>
EXHIBIT INDEX
Exhibit Method
Number Description of Filing
- ------- ----------- ---------
12.1 Calculation of ratio of earnings to fixed charges. Filed
Herewith
27.1 Financial Data Schedule. Filed
Herewith
-18-
<PAGE>
<TABLE>
EXHIBIT 12.1
TOYOTA MOTOR CREDIT CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES<F1>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes...................... $ 76 $ 65 $224 $216
---- ---- ---- ----
Fixed charges:
Interest................................. 189 125 525 347
Portion of rent expense
representative of the
interest factor
(deemed to be
one-third)............................ 1 1 3 2
---- ---- ---- ----
Total fixed charges......................... 190 126 528 349
---- ---- ---- ----
Earnings available
for fixed charges........................ $266 $191 $752 $565
==== ==== ==== ====
Ratio of earnings to
fixed charges<F2>........................ 1.40 1.52 1.42 1.62
==== ==== ==== ====
<FN>
- -----------------
<F1> TMCC did not receive any financial support from TMS during the three months or nine
months ended June 30, 1995 and 1994.
<F2> In March 1987, TMCC guaranteed payments of principal and interest on $58 million
principal amount of bonds issued in connection with the Kentucky manufacturing facility
of an affiliate. As of June 30, 1995, TMCC has not incurred any fixed charges in
connection with such guarantee and no amount is included in any ratio of earnings to
fixed charges.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYOTA
MOTOR CREDIT CORPORATION'S JUNE 30, 1995 FINANCIAL STATEMENTS AND
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 143
<SECURITIES> 154
<RECEIVABLES> 15,628<F1>
<ALLOWANCES> 172
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 16,599
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 13,388
<COMMON> 865
0
0
<OTHER-SE> 797
<TOTAL-LIABILITY-AND-EQUITY> 16,599
<SALES> 0
<TOTAL-REVENUES> 1,872
<CGS> 0
<TOTAL-COSTS> 1,413<F3>
<OTHER-EXPENSES> 189
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> 224
<INCOME-TAX> 89
<INCOME-CONTINUING> 135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include Investments in Operating Leases net of Accumulated
Depreciation and Finance Receivables net of Unearned Income.
<F2>Toyota Motor Credit Corporation's Balance Sheet is not classified into
Current and Long-Term Assets and Liabilities.
<F3>Total Costs include Interest Expense and Depreciation on Operating
Leases.
</FN>
</TABLE>
