<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, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-9961
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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, 1996, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 86,500, all of which
shares were held by Toyota Motor Sales, U.S.A., Inc.
-1-
<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,
1996 1995 1995
----------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 88 $ 101 $ 90
Investments in marketable securities...... 179 169 154
Investments in operating leases, net...... 10,009 8,148 7,496
Finance receivables, net.................. 8,103 7,227 8,037
Receivable from Parent.................... 51 58 53
Other receivables......................... 162 350 688
Deferred charges.......................... 111 85 85
Income taxes receivable................... - 6 -
Other assets.............................. 110 81 73
------- ------- -------
Total Assets..................... $18,813 $16,225 $16,676
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $14,878 $12,696 $13,388
Accrued interest.......................... 176 190 168
Accounts payable and accrued expenses..... 418 298 261
Deposits.................................. 233 200 189
Income taxes payable...................... 3 - 8
Deferred income........................... 567 505 491
Deferred income taxes..................... 712 627 509
------- ------- -------
Total Liabilities................... 16,987 14,516 15,014
------- ------- -------
Commitments and contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 86,500)............. 865 865 865
Retained earnings...................... 961 844 797
------- ------- -------
Total Shareholder's Equity.......... 1,826 1,709 1,662
------- ------- -------
Total Liabilities and
Shareholder's Equity............. $18,813 $16,225 $16,676
======= ======= =======
</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,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------- ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Leasing................................. $ 631 $ 487 $1,781 $1,381
Retail financing........................ 109 108 313 324
Wholesale and other dealer financing.... 28 35 86 90
------ ------ ------ ------
Total financing revenues................... 768 630 2,180 1,795
Depreciation on operating leases........ 416 313 1,180 888
Interest expense........................ 210 189 599 525
------ ------ ------ ------
Net financing revenues..................... 142 128 401 382
Other revenues............................. 29 26 87 77
------ ------ ------ ------
Net financing revenues and other revenues.. 171 154 488 459
------ ------ ------ ------
Expenses:
Operating and administrative............ 76 65 215 189
Provision for credit losses............. 28 13 78 46
------ ------ ------ ------
Total expenses............................. 104 78 293 235
------ ------ ------ ------
Income before income taxes................. 67 76 195 224
Provision for income taxes................. 27 30 78 89
------ ------ ------ ------
Net Income................................. $ 40 $ 46 $ 117 $ 135
====== ====== ====== ======
</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,
--------------------------
1996 1995
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 117 $ 135
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization....................... 1,189 926
Provision for credit losses......................... 78 46
Increase (decrease) in accrued interest............. (14) 12
Increase in deferred income taxes................... 85 123
(Increase) decrease in other assets................. (8) 120
Increase in other liabilities....................... 104 52
------ ------
Total adjustments......................................... 1,434 1,279
------ ------
Net cash provided by operating activities.................... 1,551 1,414
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities.......... (41) (68)
Disposition of investments in marketable securities....... 32 16
Addition to investments in operating leases............... (4,252) (2,820)
Disposition of investments in operating leases............ 1,174 626
Purchase of finance receivables........................... (9,720) (8,296)
Liquidation of finance receivables........................ 8,803 8,072
------ ------
Net cash used in investing activities........................ (4,004) (2,470)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable......... 4,183 4,734
Payments on notes and loans payable....................... (3,481) (3,904)
Net increase in commercial paper with original
maturities less than 90 days........................... 1,738 188
------ ------
Net cash provided by financing activities.................... 2,440 1,018
------ ------
Net decrease in cash and cash equivalents.................... (13) (38)
Cash and cash equivalents at the beginning of the period..... 101 128
------ ------
Cash and cash equivalents at the end of the period........... $ 88 $ 90
====== ======
Supplemental disclosures:
Interest paid............................................. $615 $497
Income taxes paid......................................... $3 $3
</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 and nine months ended June 30, 1996
and 1995 is unaudited. In the opinion of management, the unaudited
financial information reflects all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods presented. The results of operations
for the three and nine months ended June 30, 1996 are not necessarily
indicative of those expected for any other interim period or for a full
year. Certain June 1995 and September 1995 accounts have been
reclassified to conform with the June 1996 presentation.
These financial statements should be read in conjunction with the
consolidated financial statements, significant accounting policies and
other notes to the consolidated financial statements included in Toyota
Motor Credit Corporation's ("TMCC's") 1995 Annual Report to the
Securities and Exchange Commission on Form 10-K.
Note 2 - Investments in Operating Leases
- ----------------------------------------
Investments in operating leases, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1996 1995 1995
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles.................................. $12,278 $ 9,864 $9,026
Equipment and other....................... 250 201 188
------- ------- ------
12,528 10,065 9,214
Accumulated depreciation.................. (2,420) (1,838) (1,644)
Allowance for credit losses .............. (99) (79) (74)
------- ------- ------
Investments in operating leases, net... $10,009 $ 8,148 $7,496
======= ======= ======
</TABLE>
-5-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1996 1995 1995
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Retail..................................... $5,910 $5,050 $5,591
Finance leases............................. 1,503 1,567 1,625
Wholesale and other dealer loans........... 1,308 1,229 1,511
------ ------ ------
8,721 7,846 8,727
Unearned income............................ (517) (527) (592)
Allowance for credit losses................ (101) (92) (98)
------ ------ ------
Finance receivables, net................ $8,103 $7,227 $8,037
====== ====== ======
</TABLE>
Finance leases included estimated unguaranteed residual values of
$661 million, $673 million and $689 million at June 30, 1996,
September 30, 1995 and June 30, 1995, respectively.
The aggregate balances related to finance receivables 60 or more days
past due totaled $19 million, $16 million and $15 million at June 30,
1996, September 30, 1995 and June 30, 1995, respectively.
Note 4 - Notes and Loans Payable
- --------------------------------
Notes and loans payable consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1996 1995 1995
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................... $ 2,811 $ 1,442 $ 1,982
------- ------- -------
Other senior debt, due in the years
ending September 30,:
1995.................................. - - 703
1996.................................. 855 3,252 2,947
1997.................................. 3,070 2,722 2,838
1998.................................. 2,470 2,371 2,372
1999.................................. 1,083 529 411
2000.................................. 1,717 1,723 1,558
Thereafter............................ 2,799 611 536
------- ------- -------
11,994 11,208 11,365
Unamortized premium...................... 73 46 41
------- ------- -------
Total other senior debt............... 12,067 11,254 11,406
------- ------- -------
Notes and loans payable............ $14,878 $12,696 $13,388
======= ======= =======
</TABLE>
-6-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Notes and Loans Payable (Continued)
- --------------------------------
Short-term borrowings include commercial paper and certain medium-term
notes ("MTNs"). The weighted average remaining term and weighted
average interest rate of commercial paper was 33 days and 5.41%,
respectively, at June 30, 1996. Short-term MTNs with original terms of
one year or less, included in other senior debt, were $634 million at
June 30, 1996. The weighted average interest rate on these short-term
MTNs was 5.29% at June 30, 1996, including the effect of interest rate
swap agreements.
The weighted average interest rate on other senior debt was 5.96% at
June 30, 1996, including the effect of interest rate swap agreements
and option-based products; this rate was calculated using rates in
effect at June 30, 1996, some of which are floating rates which reset
daily. Approximately 25% of other senior debt at June 30, 1996 had
interest rates, including the effect of interest rate swap agreements,
that were fixed for a period of more than one year. The weighted
average of these fixed interest rates was 5.82% at June 30, 1996.
Approximately 43% of other senior debt at June 30, 1996 had floating
interest rates that were covered by option-based products. The
weighted average strike rate on these option-based products was 6.35%
at June 30, 1996. TMCC manages interest rate risk via continuous
adjustment of the mix of fixed and floating rate debt through use of
interest rate swaps and option-based products.
Included in Notes and Loans Payable at June 30, 1996 were unsecured
notes denominated in various foreign currencies; concurrent with the
issuance of these notes, TMCC entered into cross currency interest rate
swap agreements to convert these obligations at maturity into U.S.
dollar obligations which in aggregate total a principal amount of
$5.8 billion. TMCC's foreign currency debt was translated into U.S.
dollars in the financial statements at the various foreign currency
spot exchange rates in effect at June 30, 1996. The receivables or
payables arising as a result of the differences between the June 30,
1996 foreign currency spot exchange rates and the contract rates
applicable to the cross currency interest rate swap agreements are
classified in Other Receivables or Accounts Payable and Accrued
Expenses, respectively, and would in aggregate reflect a net payable
position of $162 million at June 30, 1996.
-7-
<PAGE>
Note 5 - Transactions with Parent
- ---------------------------------
The Operating Agreement between TMCC and Toyota Motor Sales U.S.A.,
Inc. ("TMS") was amended on May 14, 1996 to reduce the minimum fixed
charge coverage ratio. Under the amendment, TMS is required to make
necessary equity contributions or provide other assistance TMS deems
appropriate to ensure that TMCC maintains a minimum coverage on fixed
charges of 1.10 times such fixed charges in any fiscal quarter. The
previous minimum fixed charge ratio was 1.25 for any fiscal quarter.
The fixed charge coverage provision of the Operating Agreement is
solely for the benefit of the holders of TMCC's commercial paper; the
Operating Agreement may be amended or terminated at any time without
notice to, or the consent of, holders of other TMCC obligations.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Introduction
The earnings of TMCC are primarily affected by interest margins and the
average outstanding balances of both earning assets and borrowings. The
interest rates implicit in leases and charged on retail finance receivables
are fixed at the time acquired. Yields on the majority of wholesale
receivables and other loans to dealers vary with changes in short-term
interest rates. Funding requirements are primarily met through net cash
provided by operating activities, earning asset liquidations and the issuance
of debt obligations of varying terms at both fixed and floating interest
rates. TMCC utilizes interest rate swap agreements and cross currency
interest rate swap agreements as part of its financing activities and in
managing its cost of borrowings.
The business of TMCC and its subsidiaries (collectively the "Company") is
dependent upon the sale of Toyota and Lexus vehicles in the United States.
Lower levels of sales of such vehicles resulting from governmental action,
decline in demand, changes in pricing due to the appreciation of the Japanese
yen against the United States dollar, or other events, could result in a
reduction in the level of finance and insurance operations of the Company.
To date, the level of the Company's operations has not been restricted by the
level of sales of Toyota and Lexus vehicles.
-9-
<PAGE>
Financial Condition and Results of Operations
The composition of TMCC's net earning assets as of the balance sheet dates
reported herein and TMCC's vehicle lease and retail contract volumes and
finance penetration for the three and nine months ended June 30, 1996 and
June 30, 1995 are summarized below:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1996 1995 1995
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Lease earning assets, net............ $11,352 $ 9,533 $ 8,924
Retail finance receivables, net...... 5,652 4,784 5,270
Wholesale receivables and other
dealer loans...................... 1,308 1,229 1,511
Allowance for credit losses.......... (200) (171) (172)
------- ------- -------
Total earning assets, net......... $18,112 $15,375 $15,533
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Contract volume:
Vehicle lease contracts............... 77,000 43,000 190,000 123,000
Vehicle retail installment contracts.. 70,000 39,000 158,000 115,000
------- ------ ------- -------
Total.............................. 147,000 82,000 348,000 238,000
======= ====== ======= =======
Finance penetration....................... 43.9% 27.4% 39.6% 30.1%
</TABLE>
TMCC's net earning assets as of June 30, 1996 increased from June 30 and
September 30, 1995 primarily due to growth in lease earning assets. Lease
earning assets, consisting of investments in operating leases, net of
accumulated depreciation, and lease finance receivables, net of unearned
income, increased from June 30 and September 30, 1995 due to higher lease
volume attributable to special lease programs sponsored by TMS and the
increased acceptance of leasing by retail consumers. Retail finance
receivables, net of unearned income, increased from June 30 and September 30,
1995 on higher contract volume reflecting increased special retail programs
sponsored by TMS as well as increased average advances per retail contract;
the increase from June 30, 1995 was partially offset by the sale of
$679 million of retail finance receivables in the fourth quarter of fiscal
1995. The allowance for credit losses increased from June 30 and
September 30, 1995 primarily as a result of the growth in lease earning
assets.
-10-
<PAGE>
TMCC's finance penetration represents the percentage of new Toyota and Lexus
vehicle deliveries (excluding fleet) in the United States (excluding Hawaii)
leased or financed by TMCC. Increased penetration for the three and nine
months ended June 30, 1996 as compared with the same periods in 1995 reflects
increased volume primarily attributable to a higher level of TMS sponsored
special programs.
TMCC's total financing revenues increased 22% and 21% for the three and nine
months ended June 30, 1996, respectively, as compared with the same periods
in fiscal 1995 as a result of growth in operating lease revenues. TMCC
anticipates further growth in leasing revenues as a result of continued growth
in market acceptability of leasing as well as continued TMS sponsored special
programs.
TMCC's revenues earned from TMS sponsored special lease and retail programs
totaled $43 and $35 million for the three months ended June 30, 1996 and 1995,
respectively, and $124 and $94 million for the nine months ended June 30, 1996
and 1995, respectively.
Unguaranteed residual values totaled approximately $8.2 billion and
$5.9 billion at June 30, 1996 and 1995, respectively. TMCC's residual value
risk is a function of the number of off-lease vehicles returned for
disposition, and the difference between the amount of disposition proceeds and
the estimated residual value on returned vehicles. TMCC continues to actively
manage disposition of its lease vehicles. The percentage of lease vehicles
returned to TMCC which were originally scheduled to mature in the following
periods were 12% and 10% for the three months ended June 30, 1996 and 1995,
respectively, and 13% and 10% for the nine months ended June 30, 1996 and
1995, respectively. The difference between the total disposition proceeds
from off-lease vehicles returned to TMCC and their estimated residual values
was not material to the results of operations for the three months and nine
months ended June 30, 1996 and 1995. As the lease portfolio matures, the
Company anticipates that the level of vehicle lease returns will increase;
however, the Company believes that its lease earning assets are recorded at
net realizable value.
Depreciation expense increased 33% during the three and nine months ended
June 30, 1996 as compared with the same periods in fiscal 1995 primarily as
a result of the growth in investments in operating leases.
Interest expense increased 11% and 14% during the three and nine months ended
June 30, 1996, respectively, as compared with the same periods in fiscal 1995.
The increase for the three months ended June 30, 1996 compared to the same
period in fiscal 1995 was due to higher average borrowing levels required to
fund the growth in earning assets partially offset by a decline in the average
cost of borrowings. The increase for the nine months ended June 30, 1996
compared to the same period in fiscal 1995 was due to higher average borrowing
levels as well as an increase in the average cost of borrowings. The weighted
average cost of borrowings was 5.86% compared to 6.02% for the three months
ended June 30, 1996 and 1995, respectively, and 5.89% compared to 5.71% for
the nine months ended June 30, 1996 and 1995, respectively.
Operating and administrative expenses increased 17% and 14% during the three
and nine months ended June 30, 1996, respectively, from the same periods in
fiscal 1995. The increases resulted primarily from additional personnel and
operating costs required to support TMCC's growing customer base and from the
growth in TMCC's insurance operations.
-11-
<PAGE>
The provision for credit losses increased 115% and 70% during the three and
nine months ended June 30, 1996, respectively, from the same periods in fiscal
1995. The increases were primarily related to the growth in earning assets
and an increase in credit losses related to the aging of lease earning assets
added during high growth periods in fiscal 1995 and 1994. TMCC will continue
to monitor loss levels and place emphasis its credit loss exposure.
Liquidity and Capital Resources
The Company requires, in the normal course of business, substantial funding
to support the level of its earning assets. Significant reliance is placed
on the Company's ability to obtain debt funding in the capital markets in
addition to funding provided by earning asset liquidations and cash provided
by operating activities. Debt issuances have generally been in the form of
commercial paper, United States and Euro MTNs, Eurobonds, and to a lesser
extent, the sale of retail finance receivables in the asset-backed
securities market. On occasion, this funding has been supplemented by loans
and equity contributions from TMS.
Commercial paper outstanding under TMCC's commercial paper program ranged from
approximately $1.1 billion to $3.2 billion during the first nine months of
fiscal 1996, with an average outstanding balance of $2.2 billion. For
additional liquidity purposes, TMCC maintains syndicated bank credit
facilities with certain banks which aggregated $1.5 billion at June 30, 1996.
No loans were outstanding under any of these bank credit facilities during the
first nine months of fiscal 1996. TMCC also maintains, along with TMS,
uncommitted, unsecured lines of credit with banks totaling $250 million to
facilitate the issuance of letters of credit. At June 30, 1996, TMCC had
issued approximately $59 million in letters of credit, primarily related to
the Company's insurance operations.
During the first nine months of fiscal 1996, TMCC issued approximately
$3.6 billion of MTNs of which approximately $3.2 billion had original
maturities of more than one year. TMCC had approximately $9.7 billion of MTNs
outstanding at June 30, 1996, including the effect of foreign currency
translations at June 30, 1996 spot exchange rates; approximately $3.9 billion
of the $9.7 billion in MTNs was denominated in foreign currencies. In
addition to MTNs, TMCC had approximately $2.3 billion of debt securities
outstanding issued principally in the form of Eurobonds in the international
capital markets at June 30, 1996, including the effect of foreign currency
translations at June 30, 1996 spot exchange rates; approximately $1.8 billion
of the $2.3 billion in debt securities was denominated in foreign currencies.
TMCC anticipates continued use of MTNs in both the United States and
international capital markets. At July 31, 1996 approximately $1.1 billion
was available for issuance under TMCC's United States public MTN program of
which the Company has committed to issue approximately $15 million. The
maximum aggregate principal amount authorized to be outstanding at any time
under TMCC's Euro MTN program is $12.0 billion, which was increased in July
1996 from the prior maximum of $9.5 billion. Approximately $4.1 billion was
available for issuance under the Euro MTN program as of July 31, 1996 of which
the Company has committed to issue approximately $394 million. The United
States and Euro MTN programs may be expanded from time to time to allow for
the continued use of these sources of funding. In addition, approximately
$700 million of securities registered with the Securities and Exchange
Commission ("SEC"), excluding MTNs, were available for issuance at July 31,
1996.
-12-
<PAGE>
In July 1996, TMCC's shelf registration statement relating to $1.5 billion of
asset-backed notes and certificates was declared effective by the SEC. On
July 24, 1996, TMCC received proceeds of approximately $754 million from the
sale of a pool of retail receivables and the related offering of certificates
backed by such receivables. Approximately $750 million under the shelf
registration remains available for issuance as of July 31, 1996.
Cash flows provided by operating, investing and financing activities have been
used primarily to support earning asset growth. During the first nine months
of fiscal 1996, investing activities resulted in a net use of cash of
$4.0 billion, as the purchase of additional earning assets totaling
$14.0 billion exceeded cash provided by the liquidation of earning assets
totaling $10.0 billion. Investing activities were also supported by net cash
provided by operating and financing activities totaling $1.6 billion and
$2.4 billion, respectively, during the first nine months of fiscal 1996. The
Company believes that cash provided by operations, access to domestic and
international capital markets and issuance of commercial paper will provide
sufficient liquidity to meet its funding requirements.
As discussed more fully in TMCC's 1995 Annual Report on Form 10-K, TMCC uses
a variety of interest rate and currency derivative instruments in managing its
interest rate and foreign currency exchange exposures. TMCC does not utilize
these instruments for trading purposes. At June 30, 1996, approximately 80%
of TMCC's derivative financial instruments, based on notional amounts, were
with commercial banks and investment banking firms assigned investment grade
ratings of "AA" or better by national rating agencies. TMCC does not
anticipate non-performance by any of its counterparties. Credit exposure of
derivative financial instruments is represented by the fair value of contracts
with a positive fair value at June 30, 1996 reduced by the effects of master
netting agreements. The credit exposure of TMCC's derivative financial
instruments at June 30, 1996 was $205 million on an aggregate notional amount
of $19.1 billion.
As of June 30, 1996, an interest rate increase of 1% (100 basis points) would
raise TMCC's weighted average interest rate, including the effects of interest
rate swap agreements and option-based products, by .47%, from 5.75% to an
estimated 6.22% at June 30, 1996. Conversely, an interest rate decrease of
1% (100 basis points) would lower TMCC's weighted average interest rate,
including the effects of interest rate swap agreements and option-based
products, by .57%, from 5.75% to an estimated 5.18% at June 30, 1996.
-13-
<PAGE>
A reconciliation of the activity of TMCC's derivative financial instruments
for the nine months ended June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------ ------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning notional amount....... $4.8 $4.0 $7.1 $7.6 $3.8 $0.5 $1.7 $2.4
Add:
New agreements............... 1.1 1.3 2.3 1.7 2.0 3.2 0.9 0.4
Less:
Terminated agreements........ - - - - - - - -
Expired agreements........... 0.6 0.8 2.7 2.1 0.6 - 0.7 0.9
---- ---- ---- ---- ---- ---- ---- ----
Ending notional amount.......... $5.3 $4.5 $6.7 $7.2 $5.2 $3.7 $1.9 $1.9
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
-14-
<PAGE>
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including the following: statements regarding the further
growth in leasing revenues; the level of lease vehicle returns; that the lease
earning assets on the Company's books are recorded at net realizable value;
the growth in operating and administrative expenses as a result of a growing
customer base; the Company's continued use of MTNs in the United States and
the international capital markets; the sufficiency of the Company's cash
provided by operating, investing and financing activities for the Company's
future liquidity and capital resource needs; and the continued performance of
the Company's counterparties under interest rate and cross currency swap
agreements and option-based products. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements,
including, without limitation, the following: decline in demand for Toyota
and Lexus products; the effect of economic conditions; a decline in the market
acceptability of leasing; the effect of competitive pricing on interest
margins; increases in prevailing interest rates; changes in pricing due to the
appreciation of the Japanese yen against the United States dollar; the effect
of governmental actions; the effect of competitive pressures on the used car
market and residual values; the continuation of, and if continued, the level
and type of special programs offered by TMS; the ability of the Company to
successfully access the United States and international capital markets;
increased costs associated with the Company's debt funding efforts; and the
ability of the Company's counterparties to perform under interest rate and
cross currency swap agreements. Results actually achieved thus may differ
materially from expected results included in these statements.
Recently Enacted Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company has not determined
the impact that the adoption of this accounting standard will have on its
results of operations or financial position. The Company will adopt this
accounting standard during fiscal 1997, as required.
Review by Independent Public Accountants
With respect to the unaudited consolidated financial information of Toyota
Motor Credit Corporation for the three-month and nine-month periods ended
June 30, 1996 and 1995, Price Waterhouse LLP ("Price Waterhouse") reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
dated August 12, 1996 appearing herein, states that they did not audit and
they do not express an opinion on that unaudited consolidated financial
information. Price Waterhouse has not carried out any significant or
additional audit tests beyond those which would have been necessary if their
report had not been included. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
-15-
<PAGE>
of the review procedures applied. Price Waterhouse is not subject to the
liability provisions of section 11 of the Securities Act of 1933 for their
report on the unaudited consolidated financial information because that report
is not a "report" or a "part" of the registration statement prepared or
certified by Price Waterhouse within the meaning of sections 7 and 11 of the
Act.
-16-
<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. Certain of these
actions are similar to suits which have been filed against other
financial institutions and captive finance companies. At this
time, the Company believes any resulting liability from the above
legal actions, proceedings and other claims will not materially
affect its consolidated financial position or results of
operations. The foregoing is a forward looking statement within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represents the Company's expectations and
beliefs concerning future events. The Company cautions that its
discussion of Legal Proceedings is further qualified by important
factors that could cause actual results to differ materially from
those in the forward looking statement, including but not limited
to the discovery of facts not presently known to the Company or
determinations by judges, juries or other finders of fact which
do not accord with the Company's evaluation of the possible
liability from existing litigation.
ITEM 2. CHANGES IN SECURITIES.
There is nothing to report with regard to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There is nothing to report with regard to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-17-
<PAGE>
ITEM 5. OTHER INFORMATION.
There is nothing to report with regard to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on page 20,
are filed as part of this report.
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the
quarter ended June 30, 1996:
Financial Statements
Date of Report Item Filed
-------------- ---- --------------------
May 3, 1996 Item 5 - Other Events None
-18-
<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 13, 1996 By /S/ WOLFGANG JAHN
-------------------------------
Wolfgang Jahn
Senior Vice President and
General Manager
(principal executive officer)
Date: August 13, 1996 By /S/ PATRICK BREENE
-------------------------------
Patrick Breene
Vice President -
Finance and Administration
(principal accounting officer)
-19-
<PAGE>
EXHIBIT INDEX
Exhibit Method
Number Description of Filing
- ------- ----------- ---------
12.1 Calculation of Ratio of Earnings to Fixed Charges. Filed
Herewith
15.1 Report of Independent Accountants. Filed
Herewith
15.2 Letter regarding unaudited interim financial Filed
information. Herewith
27.1 Financial Data Schedule. Filed
Herewith
-20-
<PAGE>
EXHIBIT 12.1
TOYOTA MOTOR CREDIT CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES<F1>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes.......... $ 67 $ 76 $195 $224
---- ---- ---- ----
Fixed charges:
Interest..................... 210 189 599 525
Portion of rent expense
representative of the
interest factor
(deemed to be
one-third)................ 1 1 3 3
---- ---- ---- ----
Total fixed charges............. 211 190 602 528
---- ---- ---- ----
Earnings available
for fixed charges............ $278 $266 $797 $752
==== ==== ==== ====
Ratio of earnings to
fixed charges<F2>............ 1.32 1.40 1.32 1.42
==== ==== ==== ====
<FN>
- -----------------
<F1> TMCC did not receive any financial support from TMS during the three
months or nine months ended June 30, 1996 and 1995.
<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, 1996,
TMCC has not incurred any fixed charges in connection with such
guarantee and no amount is included in any ratio of earnings to fixed
charges.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15.1
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholder of
Toyota Motor Credit Corporation
We have reviewed the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows of Toyota Motor Credit
Corporation (a wholly owned subsidiary of Toyota Motor Sales, U.S.A., Inc.)
and its subsidiaries as of and for the three-month and nine-month periods
ended June 30, 1996 and 1995. This financial information is the
responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1995, and the
related consolidated statements of income, of shareholder's equity and of cash
flows for the year then ended (not presented herein), and in our report dated
October 31, 1995, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of September 30, 1995,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/S/ PRICE WATERHOUSE LLP
Los Angeles, California
August 12, 1996
<PAGE>
EXHIBIT 15.2
August 12, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Toyota Motor Credit Corporation has incorporated by
reference our report dated August 12, 1996 (issued pursuant to the provisions
of Statement on Auditing Standards No. 71) in the Prospectus constituting part
of its Registration Statement on Form S-3 (No. 33-52359). We are also aware
of our responsibility under the Securities Act of 1933.
Yours very truly,
/S/ PRICE WATERHOUSE LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOYOTA
MOTOR CREDIT CORPORATION'S JUNE 30, 1996 FINANCIAL STATEMENTS AND
NOTES THRETO 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-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 88
<SECURITIES> 179
<RECEIVABLES> 18,312<F1>
<ALLOWANCES> 200
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,813
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 14,878
0
0
<COMMON> 865
<OTHER-SE> 961
<TOTAL-LIABILITY-AND-EQUITY> 18,813
<SALES> 0
<TOTAL-REVENUES> 2,267
<CGS> 0
<TOTAL-COSTS> 1,779<F3>
<OTHER-EXPENSES> 215
<LOSS-PROVISION> 78
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> 195
<INCOME-TAX> 78
<INCOME-CONTINUING> 117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117
<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 includes Interest Expense and Depreciation on Operating
Leases.
</FN>
</TABLE>
