<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, 1997
-------------
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, 1997, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 91,500, 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,
1997 1996 1996
----------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 158 $ 170 $ 88
Investments in marketable securities...... 299 354 192
Investments in operating leases, net...... 10,437 10,831 10,009
Finance receivables, net.................. 8,836 7,463 8,103
Receivable from Parent.................... - 78 51
Other receivables......................... 75 164 149
Deferred charges.......................... 167 131 111
Other assets.............................. 202 117 110
------- ------- -------
Total Assets..................... $20,174 $19,308 $18,813
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $15,236 $15,014 $14,878
Accrued interest.......................... 175 226 176
Accounts payable and accrued expenses..... 1,012 474 418
Due to Parent............................. 33 - -
Deposits.................................. 247 248 233
Income taxes payable...................... 130 16 3
Deferred income........................... 545 612 567
Deferred income taxes..................... 751 805 712
------- ------- -------
Total Liabilities................... 18,129 17,395 16,987
------- ------- -------
Commitments and Contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 91,500 at June 30, 1997
and September 30, 1996, and 86,500
at June 30, 1996)................... 915 915 865
Retained earnings...................... 1,130 998 961
------- ------- -------
Total Shareholder's Equity.......... 2,045 1,913 1,826
------- ------- -------
Total Liabilities and
Shareholder's Equity............. $20,174 $19,308 $18,813
======= ======= =======
</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,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Leasing................................. $ 684 $ 631 $2,075 $1,780
Retail financing........................ 105 109 328 313
Wholesale and other dealer financing.... 24 28 68 86
------ ------ ------ ------
Total financing revenues................... 813 768 2,471 2,179
Depreciation on operating leases........ 439 416 1,355 1,179
Interest expense........................ 228 210 680 599
------ ------ ------ ------
Net financing revenues..................... 146 142 436 401
Other revenues............................. 47 29 118 87
------ ------ ------ ------
Net financing revenues and other revenues.. 193 171 554 488
------ ------ ------ ------
Expenses:
Operating and administrative............ 81 76 232 215
Provision for credit losses............. 36 28 101 78
------ ------ ------ ------
Total expenses............................. 117 104 333 293
------ ------ ------ ------
Income before income taxes................. 76 67 221 195
Provision for income taxes................. 32 27 92 78
------ ------ ------ ------
Net Income................................. $ 44 $ 40 $ 129 $ 117
====== ====== ====== ======
</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,
--------------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 129 $ 117
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization....................... 1,387 1,189
Provision for credit losses......................... 101 78
Gain from sale of finance receivables, net.......... (9) -
Decrease in accrued interest........................ (51) (14)
(Decrease)Increase in deferred income taxes......... (54) 85
Increase in other assets............................ (18) (23)
Increase in other liabilities....................... 112 104
------ ------
Total adjustments......................................... 1,468 1,419
------ ------
Net cash provided by operating activities.................... 1,597 1,536
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities.......... (285) (41)
Disposition of investments in marketable securities....... 343 47
Addition to investments in operating leases............... (3,150) (4,252)
Disposition of investments in operating leases............ 2,158 1,174
Purchase of finance receivables........................... (11,423) (9,720)
Liquidation of finance receivables........................ 9,234 8,803
Proceeds from sale of finance receivables................. 754 -
------ ------
Net cash used in investing activities........................ (2,369) (3,989)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable......... 5,049 4,183
Payments on notes and loans payable....................... (3,385) (3,481)
Net (decrease) increase in commercial paper with original
maturities less than 90 days........................... (904) 1,738
------ ------
Net cash provided by financing activities.................... 760 2,440
------ ------
Net decrease in cash and cash equivalents.................... (12) (13)
Cash and cash equivalents at the beginning of the period..... 170 101
------ ------
Cash and cash equivalents at the end of the period........... $ 158 $ 88
====== ======
Supplemental disclosures:
Interest paid............................................. 711 615
Income taxes paid......................................... 5 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, 1997 and
1996 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, 1997 are not necessarily indicative of those expected for any
other interim period or for a full year. Certain June and September 1996
accounts have been reclassified to conform with the June 1997 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") 1996 Annual Report to the Securities and Exchange
Commission ("SEC")on Form 10-K.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Allowance for Residual Value Losses
- -----------------------------------
Allowances for estimated losses on lease vehicles returned to TMCC for
disposition at lease termination are established based upon projected vehicle
return rates and projected residual value losses on core models derived from
available historical and market information as well as general economic
factors. The provision for residual value losses is included in depreciation
expense for operating leases and in leasing revenues for direct finance
leases. Effective January 1997, TMCC reevaluated amounts provided for its
allowance for estimated residual value losses based on more favorable than
anticipated vehicle return rates and loss experience which resulted in a
decrease in depreciation expense of $10.9 million and a decrease in leasing
revenues of $1.7 million for a combined increase in net financing revenues of
$9.2 million for the six months ended June 30, 1997.
Derivative Financial Instruments
- --------------------------------
TMCC uses a variety of derivative financial instruments to manage funding
costs and risks associated with changes in interest and foreign currency
exchange rates. The derivative instruments used include interest rate, cross
currency interest rate and indexed note swap agreements and option-based
products. TMCC does not use any of these instruments for trading purposes.
Interest Rate Swap Agreements
- -----------------------------
Interest rate swap agreements are executed as an integral part of specific
debt transactions or on a portfolio basis. The differential paid or received
on interest rate swap agreements is recorded on an accrual basis as an
adjustment to Interest Expense over the term of the agreements.
-5-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Cross Currency Interest Rate Swap Agreements
- --------------------------------------------
Cross currency interest rate swap agreements are executed as an integral part
of foreign currency debt transactions. The differential between the contract
rates and the foreign currency spot exchange rates as of the reporting dates
is classified in Other Receivables or Accounts Payable and Accrued Expenses;
the differential paid or received on the interest rate swap portion of the
agreements is recorded on an accrual basis as an adjustment to Interest
Expense over the term of the agreements.
Indexed Note Swap Agreements
- ----------------------------
Indexed note swap agreements are executed as an integral part of indexed note
transactions. Any differential between contract rates and foreign currency
spot exchange rates as of the reporting dates is classified in Other
Receivables or Accounts Payable and Accrued Expenses; the interest
differential paid or received on the indexed note swap agreement is recorded
on an accrual basis as an adjustment to Interest Expense over the term of the
agreements.
Option-Based Products
- ---------------------
Option-based products are executed on a portfolio basis. Premiums paid for
option-based products are included in Deferred Charges and are amortized to
Interest Expense over the life of the instruments on a straight-line basis.
Amounts receivable under option-based products are recorded on an accrual
basis as a reduction to Interest Expense.
Note 3 - Investments in Operating Leases
- ----------------------------------------
Investments in operating leases, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles.................................. $12,888 $13,252 $12,278
Equipment and other....................... 319 268 250
------- ------- -------
13,207 13,520 12,528
Accumulated depreciation.................. (2,665) (2,582) (2,420)
Allowance for credit losses .............. (105) (107) (99)
------- ------- -------
Investments in operating leases, net... $10,437 $10,831 $10,009
======= ======= =======
</TABLE>
-6-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Retail..................................... $5,835 $5,501 $5,910
Finance leases............................. 2,648 1,525 1,503
Wholesale and other dealer loans........... 1,129 1,015 1,308
------ ------ ------
9,608 8,041 8,721
Unearned income............................ (661) (482) (517)
Allowance for credit losses................ (115) (96) (101)
------ ------ ------
Finance receivables, net................ $8,836 $7,463 $8,103
====== ====== ======
</TABLE>
Finance leases included estimated unguaranteed residual values of
$893 million, $658 million and $661 million at June 30, 1997, September 30,
1996 and June 30, 1996, respectively.
The aggregate balances related to finance receivables 60 or more days past due
totaled $23 million, $20 million and $19 million at June 30, 1997,
September 30, 1996 and June 30, 1996, respectively.
Note 5 - Notes and Loans Payable
- --------------------------------
Notes and loans payable consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
-------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................... $ 1,347 $ 2,360 $ 2,811
------- ------- -------
Other senior debt, due in the years
ending September 30,:
1996.................................. - - 855
1997.................................. 830 3,211 3,070
1998.................................. 2,808 2,760 2,470
1999.................................. 1,311 1,384 1,083
2000.................................. 2,554 2,137 1,717
2001.................................. 2,166 2,216 2,066
Thereafter............................ 4,102 864 733
------- ------- -------
13,771 12,572 11,994
Unamortized premium...................... 118 82 73
------- ------- -------
Total other senior debt............... 13,889 12,654 12,067
------- ------- -------
Notes and loans payable............ $15,236 $15,014 $14,878
======= ======= =======
</TABLE>
-7-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Notes and Loans Payable (Continued)
- --------------------------------
Short-term borrowings include commercial paper and certain medium-term notes
("MTNs"). The weighted average remaining term and weighted average interest
rate of commercial paper was 25 days and 5.64%, respectively, at June 30,
1997. Short-term MTNs with original terms of one year or less, included in
other senior debt, were $277 million at June 30, 1997. The weighted average
interest rate on these short-term MTNs was 5.48% at June 30, 1997, including
the effect of interest rate swap agreements.
The weighted average interest rate on other senior debt was 5.92% at June 30,
1997, including the effect of derivative financial instruments. This rate has
been calculated using rates in effect at June 30, 1997, some of which are
floating rates that reset daily. Approximately 8% of other senior debt at
June 30, 1997 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 5.89% at June 30, 1997.
Approximately 39% of other senior debt at June 30, 1997 had floating interest
rates that were covered by option-based products. The weighted average strike
rate on these option-based products was 5.93% at June 30, 1997. TMCC manages
interest rate risk via continuous adjustment of the mix of fixed and floating
rate debt through use of interest rate swap agreements and option-based
products.
Included in Notes and Loans Payable at June 30, 1997 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 $7.4 billion. TMCC's foreign currency
debt was translated into U.S. dollars in the financial statements at the
various foreign currency spot exchange rates in effect at June 30, 1997. The
receivables or payables arising as a result of the differences between the
June 30, 1997 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 $768 million at
June 30, 1997.
-8-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Sale of Finance Receivables
- ------------------------------------
During April 1997, the Company sold retail finance receivables aggregating
$784 million subject to certain limited recourse provisions. TMCC sold its
receivables to Toyota Motor Credit Receivables Corporation ("TMCRC") which in
turn sold them to a trust; TMCC remains as servicer and is paid a servicing
fee. In a subordinated capacity, TMCRC retains excess servicing cash flows,
certain cash deposits and other related amounts which are held as restricted
assets subject to limited recourse provisions. These restricted assets are
not available to satisfy any obligations of TMCC. Following is a summary of
amounts included in Investment in Marketable Securities and Other Receivables:
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------
Investment
Other in Marketable
Receivables Securities
----------- -------------
(Dollars in Millions)
<S> <C> <C>
Excess servicing.............................. $ - $ 39
Other restricted amounts:
Cash deposits.............................. 19 -
Allowance for estimated credit
losses on sold receivables................. - (8)
---- ----
Total................................... $ 19 $ 31
==== ====
</TABLE>
The net pretax gain resulting from the sale and repurchase of finance
receivables totaled $8.7 million for the nine months ended June 30, 1997.
The outstanding balance of the sold finance receivables which TMCC continues
to service at June 30, 1997 totaled $1.3 billion.
Note 7 - New Accounting Standard
- --------------------------------
Effective January 1, 1997, TMCC adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". SFAS No. 125 addresses
the accounting for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and the
accounting for and classification of previously recognized excess servicing
assets. In accordance with the requirements of this statement, the Company
has reclassified its previously recognized excess servicing receivables from
Other Receivables to Investments in Marketable Securities for all balance
sheet periods presented. Excess servicing receivables held are restricted
assets which are not available to satisfy any other obligations of the
Company.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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, 1997 and
June 30, 1996 are summarized below:
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
-------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Lease earning assets, net............ $12,740 $12,194 $11,352
Retail finance receivables, net...... 5,624 5,288 5,652
Wholesale receivables and other
dealer loans...................... 1,129 1,015 1,308
Allowance for credit losses.......... (220) (203) (200)
------- ------- -------
Total earning assets, net......... $19,273 $18,294 $18,112
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Contract volume:
Vehicle lease contracts............... 73,000 77,000 183,000 190,000
Vehicle retail installment contracts.. 67,000 70,000 174,000 158,000
------- ------- ------- -------
Total.............................. 140,000 147,000 357,000 348,000
======= ======= ======= =======
Finance penetration...................... 39.4% 43.9% 35.1% 39.6%
</TABLE>
TMCC's net earning assets increased to $19.3 billion at June 30, 1997 from
$18.3 billion at September 30, 1996 and $18.1 billion at June 30, 1996. Asset
growth from the prior year reflects primarily increased lease assets while
asset growth for the nine months ended June 30, 1997 reflects increases in
lease, retail and wholesale assets. The increase in allowance for credit
losses reflects asset growth as well as an increased mix of used vehicles in
the retail portfolio for which losses are provided at higher levels than new
vehicles.
-10-
<PAGE>
TMCC's lease contract volume declined for the quarter and nine months ended
June 30, 1997 as compared with June 30, 1996 as a result of lower finance
penetration attributable to reduced levels of lease programs sponsored by
Toyota Motor Sales, U.S.A., Inc. ("TMS" or "Parent"). Leases purchased under
TMS sponsored programs declined from 54,000 (70% of leases purchased) to
14,000 (19% of leases purchased) in the quarters ended June 30, 1996 and 1997,
respectively. For the nine months ended June 30, 1996 and 1997, leases
purchased under TMS sponsored programs declined from 128,000 (67% of leases
purchased) to 45,000 (25% of leases purchased), respectively. The decline in
TMCC's lease contract volume due to reduced TMS sponsored programs was
substantially offset by the impact of continued strong sales of Toyota and
Lexus vehicles as a result, in part, of consumer acceptance and competitive
pricing of new and redesigned 1997 Toyota and Lexus vehicle models and TMCC's
competitive leasing programs. TMCC's retail contract volume declined for the
quarter ended June 30, 1997 as compared with June 30, 1996 as a result of
lower finance penetration attributable to lower TMS sponsored special
programs, partially offset by higher volume of contracts on used vehicles.
Retail contracts purchased under TMS sponsored programs declined from 20,000
to 6,000 for the quarters ended June 30, 1996 and 1997, respectively. TMCC's
retail contract volume increased for the nine months ended June 30, 1997 as
compared with June 30, 1996 due to increased used vehicles financed from
50,000 at June 30, 1996 to 73,000 at June 30, 1997 as well as strong Toyota
and Lexus new vehicle sales, partially offset by reduced volume under TMS
sponsored retail programs from 37,000 units in fiscal 1996 to 12,000 units in
fiscal 1997. 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 or other events could result in a
reduction in the level of TMCC's operations.
TMCC's financing revenues increased 6% and 13% for the quarter and nine months
ended June 30, 1997, respectively, as compared with the same periods in 1996
due to higher levels of lease and retail earning assets partially offset by
lower wholesale assets and revenues primarily reflecting lower dealer
inventory levels attributable to strong vehicle sales.
TMCC is subject to residual value risk in connection with its lease portfolio;
TMCC's residual value risk is a function of the number of off-lease vehicles
returned for disposition and any shortfall between the net disposition
proceeds and the estimated unguaranteed residual values on returned vehicles.
Total unguaranteed residual values related to TMCC's vehicle lease portfolio
totaled approximately $9.2 billion and $8.2 billion at June 30, 1997 and 1996,
respectively. The percentage of lease vehicles returned to and disposed of by
TMCC which were originally scheduled to mature in the first nine months of
fiscal 1997 was 16% as compared to 13% for the first nine months of fiscal
1996. TMCC maintains an allowance for estimated losses on lease vehicles
returned to the Company for disposition at lease termination. The level of
allowance required to cover future vehicle disposition losses is based upon
projected vehicle return rates and projected residual value losses on core
models derived from market information on used vehicle sales, historical
information, including lease vehicle return trends, and general economic
factors. The provision for losses on returned lease vehicles as well as
actual vehicle disposition losses and gains are included in TMCC's
depreciation expense for operating leases and in leasing revenues for direct
finance leases. As the lease portfolio matures, the Company anticipates that
the level of vehicle lease returns will increase; however, the Company
actively manages disposition of its lease vehicles and believes that its lease
earning assets, net of the allowance for losses, are recorded at net
realizable value.
-11-
<PAGE>
Operating lease depreciation increased $23 million and $176 million for the
quarter and nine months ended June 30, 1997, respectively, as compared with
the same periods in 1996 primarily due to growth in operating lease assets.
Included in depreciation expense are: (i) straight-line depreciation expense
to the contractual residual value; (ii) provision for residual value losses
and (iii) actual vehicle disposition losses and gains. The provision for
losses on returned lease vehicles declined $19 million and $35 million for the
quarter and nine months ended June 30, 1997, respectively, as compared with
the same periods in 1996. The decline in loss provision reflects management's
reevaluation of amounts provided for estimated residual value losses based on
more favorable than anticipated vehicle return rates and loss experience as
described in Note 2 of the Notes to the Consolidated Financial Statements. In
addition, the reduction in the rate of growth of the allowance is consistent
with the slowing rate of growth in lease assets as well as the Company's
determination that the overall level of the allowance is appropriate. Vehicle
disposition losses increased $20 million and $40 million for the quarter and
nine months ended June 30, 1997 as compared with the same periods in 1996
reflecting primarily increased volume of returned units corresponding with a
higher level of scheduled maturities. TMCC's operating lease portfolio
includes contracts with terms ranging from 12 to 54 months; the average
original contract term in TMCC's operating lease portfolio was 35 months at
June 30, 1997 and 36 months at June 30, 1996, respectively.
Interest expense increased 9% and 14% during the quarter and nine months ended
June 30, 1997, compared with the same periods in fiscal 1996 due to higher
average borrowing levels required to fund the growth in earning assets,
partially offset by a slight decline in the average cost of borrowing. TMCC's
weighted average cost of borrowing was 5.87% and 5.89% for the nine months
ended June 30, 1997 and 1996, respectively.
Other revenues increased 62% and 36% during the quarter and nine months ended
June 30, 1997, compared with the same periods in fiscal 1996 due to growth in
the Company's insurance operations and increased income related to the sale and
servicing of finance receivables.
TMCC's operating and administrative expenses increased 7% and 8% during the
quarter and nine months ended June 30, 1997 as compared with the same periods
in 1996 primarily as a result of additional personnel and operating costs
required to support TMCC's increased customer base and from growth in TMCC's
insurance operations.
TMCC's provision for credit losses increased 29% during both the quarter and
nine months ended June 30, 1997 as compared with the same periods in fiscal
1996 primarily as a result of less favorable credit loss experience.
Increased credit losses reflect an increased number of repossessed accounts
and higher losses per repossessed account attributable to increased retail and
lease accounts outstanding, a higher mix of used vehicles in the retail
portfolio which historically produce higher losses than new business and aging
of the lease portfolio. TMCC has not significantly altered its underwriting
standards during the quarter and nine months ended June 30, 1997 as compared
with the same periods in 1996. Allowances for credit losses are evaluated
periodically, considering historical loss experience and other factors, and
are considered adequate to cover expected credit losses as of June 30, 1997.
-12-
<PAGE>
Net credit loss experience, excluding net losses on receivables sold subject
to limited recourse provisions, for the three and nine months ended June 30,
1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
----- ----- ----- -----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Gross Credit Losses $30.2 $19.2 $83.7 $58.9
Recoveries (3.4) (3.2) (9.1) (9.5)
----- ----- ----- -----
Net Credit Losses............... $26.8 $16.0 $74.6 $49.4
===== ===== ===== =====
Annualized Net Credit Losses
as a % of Average Earning
Assets....................... .57% .37% .53% .40%
</TABLE>
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
--------- ------------- --------
(Dollars in Millions)
<S> <C> <C> <C>
Allowance for Credit Losses..... $220 $203 $200
Allowance for Credit Losses
as a % of Earning Assets..... 1.13% 1.10% 1.09%
</TABLE>
TMCC's net income increased 10% for both the three and nine months ended
June 30, 1997 as compared with the same periods in 1996. The growth in net
income reflects higher levels of retail and lease assets, increased revenues
associated with insurance operations and the sale and servicing of finance
receivables and the favorable impact of the reevaluation of allowances for
residual value losses on returned lease vehicles, partially offset by
increased operating and administrative expenses, credit losses and lower
wholesale revenues.
-13-
<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 and cash provided
by operating activities. Debt issuances have generally been in the form of
commercial paper, United States and Euro Medium Term Notes ("MTNs"),
Eurobonds, and the sale of retail finance receivables in the asset-backed
securities market. On occasion, this funding has been supplemented by loans
and equity contributions from TMS.
Commercial paper issuances are used to meet short-term funding needs.
Commercial paper outstanding under TMCC's commercial paper program ranged from
approximately $1.2 billion to $3.0 billion during the first nine months of
fiscal 1997, with an average outstanding balance of $2.0 billion. For
additional liquidity purposes, TMCC maintains syndicated bank credit
facilities with certain banks which aggregated $2.0 billion at June 30, 1997.
No loans were outstanding under any of these bank credit facilities during the
first nine months of fiscal 1997. 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, 1997, TMCC had
issued approximately $39 million in letters of credit, primarily related to
the Company's insurance operations.
Long-term funding requirements are met through the issuance of a variety of
debt securities underwritten in both the United States and international
capital markets. During the first nine months of fiscal 1997, TMCC issued
approximately $3.3 billion of MTNs all of which had original maturities of one
year or more. TMCC had approximately $11.2 billion of MTNs outstanding at
June 30, 1997, including the effect of foreign currency translations at
June 30, 1997 spot exchange rates; approximately $5.0 billion of the $11.2
billion in MTNs was denominated in foreign currencies. In addition to MTNs,
TMCC had approximately $2.7 billion of debt securities outstanding at June 30,
1997, including the effect of foreign currency translations at June 30, 1997
spot exchange rates; approximately $1.7 billion of the $2.7 billion in debt
securities was issued in the form of Eurobonds in the international capital
markets and was denominated in foreign currencies.
TMCC anticipates continued use of MTNs in both the United States and
international capital markets. At July 31, 1997, approximately $598 million
was available for issuance under TMCC's United States public MTN program, none
of which was committed for issue by the Company. The maximum aggregate
principal amount authorized to be outstanding at any time under TMCC's Euro
MTN program is $16.0 billion, which was increased in July 1997 from the prior
maximum of $12.0 billion. Approximately $4.9 billion was available for
issuance under the Euro MTN program as of July 31, 1997 of which the Company
has committed to issue approximately $56 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.
During April 1997, TMCC concluded the sale of a pool of retail receivables
totalling $784 million and the related offering of certificates backed by such
receivables. Additionally, TMCC has registered approximately $700 million of
securities, excluding MTNs, with the SEC which were available for issuance at
July 31, 1997.
-14-
<PAGE>
On October 1, 1996 Toyota Lease Trust ("TLT") was created as a Delaware
business trust for the purpose of purchasing leases of Toyota and Lexus
vehicles originated by Toyota and Lexus vehicle dealerships, taking and
holding title to the related vehicles and disposing of the related off-lease
vehicles, in each case in connection with development of a lease
securitization program. TMCC anticipates that the number and principal amount
of leases purchased by TLT will comprise a significant and increasing
percentage of what otherwise would have been TMCC's lease portfolio; however,
until leases are included in a securitization transaction, they will continue
to be classified as finance receivables on TMCC's balance sheet. A
registration statement relating to a proposed securitization transaction has
been filed with the SEC and TMCC anticipates that its first lease
securitization will occur in the last quarter of fiscal 1997.
The Company's ratio of earnings to fixed charges was 1.32 for the first nine
months of fiscal 1997 compared to 1.32, 1.42 and 1.60 for fiscal years 1996,
1995 and 1994, respectively. The decline in the ratio from 1995 and 1994
levels has not affected the Company's ability to maintain its liquidity or its
access to its outside funding sources. The decline in the ratio is due to
several factors, including higher interest, depreciation and operating
expenses as well as increased provision for credit losses for the year ended
September 30, 1996 and the first nine months of fiscal year 1997. The ratio
of earnings to fixed charges has remained level for the nine months ended
June 30, 1997 as compared with the same period in 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 1997, cash used to purchase additional investments in operating
leases and finance receivables, totaling $14.6 billion, was partially provided
by the liquidation and sale of earning assets, totaling $12.1 billion.
Investing activities resulted in a net cash use of $2.4 billion during the
first nine months of fiscal 1997, as the purchase of additional earning assets
exceeded cash provided by the liquidation and sale of earning assets.
Investing activities were also supported by net cash provided by operating and
finance activities totaling $1.6 billion and $0.8 billion, respectively,
during the first nine months of fiscal 1997. The Company believes that cash
provided by operating and investing activities as well as access to domestic
and international capital markets and issuance of commercial paper will
provide sufficient liquidity to meet its future funding requirements.
As discussed more fully in TMCC's 1996 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. Derivative financial instruments used
by TMCC involve, to varying degrees, elements of credit risk in the event a
counterparty should default and market risk as the instruments are subject to
rate and price fluctuations.
Credit exposure of derivative financial instruments is represented by the fair
value of contracts with a positive fair value at June 30, 1997 reduced by the
effects of master netting agreements. The credit exposure of TMCC's
derivative financial instruments at June 30, 1997 was $68 million on an
aggregate notional amount of $22.2 billion. At June 30, 1997 approximately
88% 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.
-15-
<PAGE>
TMCC uses a value-at-risk methodology, in connection with other management
tools, to assess the interest rate risk of aggregated loan and lease assets
and financial liabilities, including derivatives and option-based products.
TMCC is not subject to currency exchange rate risk as foreign currency
denominated instruments are entirely hedged; however, risk of counterparty
default exists. Value-at-risk represents the potential losses for a portfolio
from adverse changes in market factors for a specified period of time and
level of confidence. TMCC estimates value-at-risk using historical interest
rate volatilities for the past two years. The value at risk of TMCC's
portfolio as of June 30, 1997, measured as the potential 30 day loss in value
from assumed adverse changes in interest rates that are estimated to cover 95%
of likely market movements, totals $51.4 million on a mean portfolio value of
$3.6 billion; alternatively, the value at risk represents 1.4% of the mean
portfolio value.
As of June 30, 1997, 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 .42% from 5.90% to an
estimated 6.32% at June 30, 1997. 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 .61% from 5.90% to an estimated 5.29% at June 30, 1997.
A reconciliation of the activity of TMCC's derivative financial instruments
for the nine months ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
------------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------ ------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning notional amount....... $5.6 $4.8 $6.8 $7.1 $6.2 $3.8 $1.9 $1.7
Add:
New agreements............... 1.6 1.1 1.9 2.3 1.9 2.0 0.8 0.9
Less:
Terminated agreements........ - - - - - - - -
Expired agreements........... 0.3 0.6 1.6 2.7 2.4 0.6 0.2 0.7
---- ---- ---- ---- ---- ---- ---- ----
Ending notional amount.......... $6.9 $5.3 $7.1 $6.7 $5.7 $5.2 $2.5 $1.9
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
-16-
<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: that the level of lease vehicle
returns will increase; that the lease earning assets on the Company's books
are recorded at net realizable value; that allowances for credit losses are
considered adequate to cover expected credit losses; the Company's continued
use of MTNs in the United States and the international capital markets; that
the number and principal amount of leases purchased by TLT will comprise a
significant and increasing percentage of TMCC's lease portfolio; that TMCC's
first lease securitization will occur in the last quarter of fiscal 1997; that
the cash provided by operating, investing and financing activities will
provide sufficient liquidity to meet TMCC's future funding requirements; and the
continued performance of the Company's counterparties under derivative
financial instruments. 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
Effective January 1, 1997, TMCC adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". SFAS No. 125 addresses
the accounting for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and the
accounting for and classification of previously recognized excess servicing
assets. In accordance with the requirements of this statement, the Company
has reclassified its previously recognized excess servicing receivables from
Other Receivables to Investments in Marketable Securities for all balance
sheet periods presented. Excess servicing receivables held are restricted
assets which are not available to satisfy any other obligations of the
Company.
-17-
<PAGE>
New Accounting Standards
In June, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements as well as separate
disclosure of other components of comprehensive income in the equity section
of the balance sheet. The Company has not determined the impact that adoption
of this standard will have on its consolidated financial statements. The
Company plans to adopt this accounting standard on October 1, 1998, as
required.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, major customers and geographic areas. The Company has not
determined the impact that adoption of this standard will have on its
consolidated financial statement disclosures. The Company plans to adopt this
accounting standard on October 1, 1998, 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, 1997 and 1996, 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, 1997 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
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.
-18-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Various claims and actions are pending against TMCC and its subsidiaries with
respect to financing activities, taxes and other matters arising from the
ordinary course of business. Certain of these actions are or purport to be
class action suits. Management and internal and external counsel perform
periodic reviews of pending claims and actions to determine the probability of
adverse verdicts and resulting amounts of liability. The amounts of liability
on pending claims and actions as of June 30, 1997 were not determinable;
however, in the opinion of management, the ultimate liability resulting
therefrom should not have a material adverse effect on TMCC's 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 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.
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 21,
are filed as part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant during
the quarter ended June 30, 1997.
-19-
<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 12, 1997 By /S/ GEORGE BORST
-------------------------------
George Borst
Senior Vice President and
General Manager
(Principal Executive Officer)
Date: August 12, 1997 By /S/ GREGORY WILLIS
-------------------------------
Gregory Willis
Vice President
Finance and Administration
(Principal Accounting Officer)
-20-
<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
-21-
<PAGE>
EXHIBIT 12.1
TOYOTA MOTOR CREDIT CORPORATION
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes.............. $ 76 $ 67 $221 $195
---- ---- ---- ----
Fixed charges:
Interest......................... 228 210 680 599
Portion of rent expense
representative of the
interest factor (deemed
to be one-third).............. 1 1 2 2
---- ---- ---- ----
Total fixed charges................. 229 211 682 601
---- ---- ---- ----
Earnings available
for fixed charges................ $305 $278 $903 $796
==== ==== ==== ====
Ratio of earnings to
fixed charges<F1>................ 1.33 1.32 1.32 1.32
==== ==== ===== =====
<FN>
- -----------------
<F1> 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, 1997,
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, 1997 and 1996. 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, 1996, 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, 1996 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, 1996,
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, 1997
<PAGE>
EXHIBIT 15.2
August 12, 1997
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, 1997 (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, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 158
<SECURITIES> 299
<RECEIVABLES> 19,493<F1>
<ALLOWANCES> 220
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 20,174
<CURRENT-LIABILITIES> 15,236
<BONDS> 0
0
0
<COMMON> 915
<OTHER-SE> 1,130
<TOTAL-LIABILITY-AND-EQUITY> 20,174
<SALES> 0
<TOTAL-REVENUES> 2,539
<CGS> 0
<TOTAL-COSTS> 2,035<F3>
<OTHER-EXPENSES> 232
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> 221
<INCOME-TAX> 92
<INCOME-CONTINUING> 129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129
<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>
