<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 30, 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>
March 31, September 30, March 31,
1997 1996 1996
----------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 276 $ 170 $ 115
Investments in marketable securities...... 190 354 189
Investments in operating leases, net...... 10,690 10,831 9,239
Finance receivables, net.................. 8,427 7,463 7,636
Receivable from Parent.................... - 78 38
Other receivables......................... 64 164 230
Deferred charges.......................... 162 131 100
Other assets.............................. 184 117 92
------- ------- -------
Total Assets..................... $19,993 $19,308 $17,639
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $15,152 $15,014 $13,882
Accrued interest.......................... 190 226 166
Accounts payable and accrued expenses..... 943 474 369
Due to Parent............................. 51 - -
Deposits.................................. 248 248 219
Income taxes payable...................... 64 16 12
Deferred income........................... 562 612 528
Deferred income taxes..................... 785 805 677
------- ------- -------
Total Liabilities................... 17,995 17,395 15,853
------- ------- -------
Commitments and Contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 91,500 at March 31,1997
and September 30, 1996, and 86,500
at March 31, 1996).................. 915 915 865
Retained earnings...................... 1,083 998 921
------- ------- -------
Total Shareholder's Equity.......... 1,998 1,913 1,786
------- ------- -------
Total Liabilities and
Shareholder's Equity............. $19,993 $19,308 $17,639
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Financing Revenues:
Leasing................................. $ 694 $ 592 $1,391 $1,149
Retail financing........................ 113 103 223 204
Wholesale and other dealer financing.... 22 28 44 58
------ ------ ------ ------
Total financing revenues................... 829 723 1,658 1,411
Depreciation on operating leases........ 446 393 916 763
Interest expense........................ 225 196 452 389
------ ------ ------ ------
Net financing revenues..................... 158 134 290 259
Other revenues............................. 35 29 71 58
------ ------ ------ ------
Net financing revenues and other revenues.. 193 163 361 317
------ ------ ------ ------
Expenses:
Operating and administrative............ 77 74 151 139
Provision for credit losses............. 35 29 65 50
------ ------ ------ ------
Total expenses............................. 112 103 216 189
------ ------ ------ ------
Income before income taxes................. 81 60 145 128
Provision for income taxes................. 34 24 60 51
------ ------ ------ ------
Net Income................................. $ 47 $ 36 $ 85 $ 77
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 85 $ 77
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization....................... 937 762
Provision for credit losses......................... 65 50
Decrease in accrued interest........................ (36) (24)
Increase (decrease)in deferred income taxes......... (20) 50
Decrease in other assets............................ 20 4
Increase in other liabilities....................... 33 57
------ ------
Total adjustments......................................... 999 899
------ ------
Net cash provided by operating activities.................... 1,084 976
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities.......... (36) (29)
Disposition of investments in marketable securities....... 201 38
Addition to investments in operating leases............... (2,102) (2,565)
Disposition of investments in operating leases............ 1,306 687
Purchase of finance receivables........................... (4,452) (5,960)
Liquidation of finance receivables........................ 3,443 5,524
------ ------
Net cash used in investing activities........................ (1,640) (2,305)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable......... 3,864 2,273
Payments on notes and loans payable....................... (2,675) (2,289)
Net increase (decrease) in commercial paper with original
maturities less than 90 days........................... (527) 1,359
------ ------
Net cash provided by financing activities.................... 662 1,343
------ ------
Net increase in cash and cash equivalents.................... 106 14
Cash and cash equivalents at the beginning of the period..... 170 101
------ ------
Cash and cash equivalents at the end of the period........... $ 276 $ 115
====== ======
Supplemental disclosures:
Interest paid............................................. 475 419
Income taxes paid......................................... 4 2
</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 six months ended March 31, 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 six months
ended March 31, 1997 are not necessarily indicative of those expected for any
other interim period or for a full year. Certain March and September 1996
accounts have been reclassified to conform with the March 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. During the current quarter, 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 $14.2 million and a decrease in leasing
revenues of $1.3 million for a combined increase in net financing revenues of
$12.9 million for the quarter ended March 31, 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>
March 31, September 30, March 31,
1997 1996 1996
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles.................................. $13,231 $13,252 $11,360
Equipment and other....................... 301 268 223
------- ------- -------
13,532 13,520 11,583
Accumulated depreciation.................. (2,735) (2,582) (2,253)
Allowance for credit losses .............. (107) (107) (91)
------- ------- -------
Investments in operating leases, net... $10,690 $10,831 $ 9,239
======= ======= =======
</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>
March 31, September 30, March 31,
1997 1996 1996
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Retail..................................... $6,030 $5,501 $5,383
Finance leases............................. 1,959 1,525 1,498
Wholesale and other dealer loans........... 1,127 1,015 1,353
------ ------ ------
9,116 8,041 8,234
Unearned income............................ (575) (482) (501)
Allowance for credit losses................ (114) (96) (97)
------ ------ ------
Finance receivables, net................ $8,427 $7,463 $7,636
====== ====== ======
</TABLE>
Finance leases included estimated unguaranteed residual values of
$771 million, $658 million and $657 million at March 31, 1997, September 30,
1996 and March 31, 1996, respectively.
The aggregate balances related to finance receivables 60 or more days past due
totaled $24 million, $20 million and $17 million at March 31, 1997,
September 30, 1996 and March 31, 1996, respectively.
Note 5 - Notes and Loans Payable
- --------------------------------
Notes and loans payable consisted of the following:
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1997 1996 1996
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................... $ 1,913 $ 2,360 $ 2,282
------- ------- -------
Other senior debt, due in the years
ending September 30,:
1996.................................. - - 1,922
1997.................................. 1,235 3,211 2,959
1998.................................. 2,762 2,760 2,451
1999.................................. 1,315 1,384 939
2000.................................. 2,505 2,137 1,749
2001.................................. 2,158 2,216 1,141
Thereafter............................ 3,153 864 382
------- ------- -------
13,128 12,572 11,543
Unamortized premium...................... 111 82 57
------- ------- -------
Total other senior debt............... 13,239 12,654 11,600
------- ------- -------
Notes and loans payable............ $15,152 $15,014 $13,882
======= ======= =======
</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 35 days and 5.45%, respectively, at March 31,
1997. Short-term MTNs with original terms of one year or less, included in
other senior debt, were $328 million at March 31, 1997. The weighted average
interest rate on these short-term MTNs was 5.59% at March 31, 1997, including
the effect of interest rate swap agreements.
The weighted average interest rate on other senior debt was 5.87% at March 31,
1997, including the effect of derivative financial instruments. This rate has
been calculated using rates in effect at March 31, 1997, some of which are
floating rates that reset daily. Approximately 13% of other senior debt at
March 31, 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 5.76% at March 31, 1997.
Approximately 40% of other senior debt at March 31, 1997 had floating interest
rates that were covered by option-based products. The weighted average strike
rate on these option-based products was 5.94% at March 31, 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 March 31, 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 $7.5 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 March 31, 1997. The
receivables or payables arising as a result of the differences between the
March 31, 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 $743 million at
March 31, 1997.
Note 6 - 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.
-8-
<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 six months ended March 31, 1997 and
March 31, 1996 are summarized below:
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1997 1996 1996
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Lease earning assets, net............ $12,414 $12,194 $10,580
Retail finance receivables, net...... 5,797 5,288 5,130
Wholesale receivables and other
dealer loans...................... 1,127 1,015 1,353
Allowance for credit losses.......... (221) (203) (188)
------- ------- -------
Total earning assets, net......... $19,117 $18,294 $16,875
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Contract volume:
Vehicle lease contracts............... 54,000 66,000 110,000 114,000
Vehicle retail installment contracts.. 54,000 48,000 107,000 87,000
------- ------- ------- -------
Total.............................. 108,000 114,000 217,000 201,000
======= ======= ======= =======
Finance penetration...................... 31.1% 42.2% 32.8% 37.0%
</TABLE>
TMCC's net earning assets increased to $19.1 billion at March 31, 1997 from
$18.3 billion at September 30, 1996 and $16.9 billion at March 31, 1996.
Asset growth from the prior year reflects primarily increased investment in
operating lease assets while asset growth for the six months ended March 31,
1997 reflects increases in lease, retail and wholesale assets. The increase
in allowance for credit losses corresponds with asset growth.
-9-
<PAGE>
TMCC's lease contract volume declined for the quarter and six months ended
March 31, 1997 as compared with March 31, 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 46,000 (70% of leases purchased) to
13,000 (24% of leases purchased) in the quarters ended March 31, 1996 and
1997, respectively. For the six months ended March 31, 1996 and 1997, leases
purchased under TMS sponsored programs declined from 74,000 (65% of leases
purchased) to 31,000 (28% 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 of consumer acceptance and competitive pricing of
new and redesigned 1997 Toyota and Lexus vehicle models. TMCC's retail
contract volume increased for the quarter and six months ended March 31, 1997
as compared with March 31, 1996 on strong Toyota and Lexus vehicle sales,
despite reductions in volume under TMS sponsored retail programs from 17,000
units in fiscal 1996 to 6,000 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 15% and 18% for the quarter and six months
ended March 31, 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.
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 lease portfolio totaled
approximately $9.2 billion and $7.5 billion at March 31, 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 six months of
fiscal 1997 and 1996 was 14% in both periods. 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.
-10-
<PAGE>
Operating lease depreciation increased $53 million and $153 million for the
quarter and six months ended March 31, 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 $20 million and $16 million for the
quarter and six months ended March 31, 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 $14 million and $20 million for the quarter and
six months ended March 31, 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 36 months at
March 31, 1997 and 1996.
Interest expense increased 15% and 16% during the quarter and six months ended
March 31, 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 decline in the average cost of borrowing. TMCC's
weighted average cost of borrowing was 5.85% and 5.91% for the six months
ended March 31, 1997 and 1996, respectively.
Other revenues increased 21% and 22% during the quarter and six months ended
March 31, 1997, compared with the same period in fiscal 1996 due to growth in
the Company's insurance operations and increased income related to receivables
sold.
TMCC's operating and administrative expenses increased 4% and 9% during the
quarter and six months ended March 31, 1997, respectively, as compared with
the same periods in 1996 primarily as a result of additional personnel and
operating costs required to support TMCC's growing customer base and from
growth in TMCC's insurance operations.
TMCC's provision for credit losses increased 21% and 30% during the quarter
and six months ended March 31, 1997, respectively, as compared with the same
periods in fiscal 1996 primarily as a result of less favorable credit loss
experience. Increased credit losses reflect both increased volume of
delinquent accounts and higher losses per account. Higher credit losses are
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. The trend of
higher credit losses is consistent with recent experience in the consumer
finance industry. TMCC has not significantly altered its underwriting
standards or product mix during the quarter and six months ended March 31,
1997 as compared with the same periods in 1996. TMCC maintains allowances for
credit losses sufficient to absorb approximately two years of credit losses at
current loss rates as of March 31, 1997; the allowance levels are evaluated
periodically, considering historical loss experience and other factors, and
are considered adequate to cover expected credit losses as of March 31, 1997.
-11-
<PAGE>
Net credit loss experience, excluding net losses on receivables sold subject
to limited recourse provisions, for the three and six months ended March 31,
1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1997 1996 1997 1996
----- ----- ----- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Gross Credit Losses $30.8 $21.8 $53.5 $39.7
Recoveries (2.9) (3.3) (5.7) (6.3)
----- ----- ----- -----
Net Credit Losses............... $27.9 $18.5 $47.8 $33.4
===== ===== ===== =====
Annualized Net Credit Losses
as a % of Average Earning
Assets....................... .59% .45% .51% .42%
</TABLE>
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1997 1996 1996
--------- ------------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Allowance for Credit Losses..... $221 $203 $188
Allowance for Credit Losses
as a % of Earning Assets..... 1.14% 1.10% 1.10%
</TABLE>
TMCC's net income increased 31% and 10% for the three and six months ended
March 31, 1997, respectively, as compared with the same periods in 1996. The
growth in net income reflects higher levels of retail and lease assets as well
as the favorable impact of the reevaluation of allowances for residual value
losses on returned lease vehicles, partially offset by increased operating and
administrative expenses and credit losses.
-12-
<PAGE>
Liquidity and Capital Resources
- --------------------------------
The Company requires, in the normal course of business, substantial funding to
support the level of its earning assets. Significant reliance is placed on
the Company's ability to obtain debt funding in the capital markets in
addition to funding provided by earning asset liquidations 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 $1.8 billion to $3.0 billion during the first six months of
fiscal 1997, with an average outstanding balance of $2.1 billion. For
additional liquidity purposes, TMCC maintains syndicated bank credit
facilities with certain banks which aggregated $2.0 billion at March 31, 1997.
No loans were outstanding under any of these bank credit facilities during the
first six 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 March 31, 1997, TMCC had
issued approximately $41 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 six months of fiscal 1997, TMCC issued
approximately $3.2 billion of MTNs all of which had original maturities of one
year or more. TMCC had approximately $11.4 billion of MTNs outstanding at
March 31, 1997, including the effect of foreign currency translations at
March 31, 1997 spot exchange rates; approximately $5.0 billion of the
$11.4 billion in MTNs was denominated in foreign currencies. In addition to
MTNs, TMCC had approximately $1.9 billion of debt securities outstanding
issued principally in the form of Eurobonds in the international capital
markets at March 31, 1997, including the effect of foreign currency
translations at March 31, 1997 spot exchange rates; all of which was
denominated in foreign currencies.
TMCC anticipates continued use of MTNs in both the United States and
international capital markets. At April 30, 1997 approximately $610 million
was available for issuance under TMCC's United States public MTN program. The
maximum aggregate principal amount authorized to be outstanding at any time
under TMCC's Euro MTN program is $12.0 billion. Approximately $1.2 billion
was available for issuance under the Euro MTN program as of April 30, 1997 of
which the Company has committed to issue approximately $10 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 approximately $750 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 April 30, 1997.
-13-
<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. TMCC
currently anticipates that its first lease securitization will occur in the
latter part of fiscal 1997.
The Company's ratio of earnings to fixed charges was 1.32 for the first six
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 has not affected the
Company's ability to maintain its liquidity or 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 six
months of fiscal year 1997. The ratio of earnings to fixed charges has
remained level for the six months ended March 31, 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 six months
of fiscal 1997, cash used to purchase additional investments in operating
leases and finance receivables, totaling $6.6 billion, was partially provided
by the liquidation of earning assets, totaling $4.7 billion. Investing
activities resulted in a net cash use of $1.6 billion during the first six
months of fiscal 1997, as the purchase of additional earning assets exceeded
cash provided by the liquidation of earning assets. Investing activities were
also supported by net cash provided by operating and finance activities
totaling $1.1 billion and $0.7 billion, respectively, during the first six
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 March 31, 1997 reduced by the
effects of master netting agreements. The credit exposure of TMCC's
derivative financial instruments at March 31, 1997 was $92 million on an
aggregate notional amount of $21.3 billion. At March 31, 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.
-14-
<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 March 31, 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 $57.4 million on a mean portfolio value of
$3.7 billion; alternatively, the value at risk represents 1.5% of the mean
portfolio value.
As of March 31, 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 .41% from 5.82% to an
estimated 6.23% at March 31, 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 .58% from 5.82% to an estimated 5.24% at March 31, 1997.
A reconciliation of the activity of TMCC's derivative financial instruments
for the six months ended March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------------------------------------
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............... 1.5 0.4 0.9 2.1 1.6 1.6 0.8 -
Less:
Terminated agreements........ - - - - - - - -
Expired agreements........... 0.1 0.3 1.4 1.5 2.3 0.3 0.2 0.6
---- ---- ---- ---- ---- ---- ---- ----
Ending notional amount.......... $7.0 $4.9 $6.3 $7.7 $5.5 $5.1 $2.5 $1.1
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
-15-
<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: 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; 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 latter part of fiscal 1997; that
the decline in the Company's ratio of earnings to fixed charges has not
affected the Company's ability to maintain its liquidity or access to its
outside funding sources; that the cash provided by operating, investing and
financing activities will provide sufficient liquidity to meet its future
funding requirements; 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
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.
-16-
<PAGE>
Review by Independent Public Accountants
With respect to the unaudited consolidated financial information of Toyota
Motor Credit Corporation for the three-month and six-month periods ended
March 31, 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 May 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.
-17-
<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, seeking sizeable damages. 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
March 31, 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 20,
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 March 31, 1997.
-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: May 13, 1997 By /S/ GEORGE BORST
-------------------------------
George Borst
Senior Vice President and
General Manager
(Principal Executive Officer)
Date: May 13, 1997 By /S/ GREGORY WILLIS
-------------------------------
Gregory Willis
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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Consolidated income
before income taxes.............. $ 81 $ 60 $145 $128
---- ---- ---- ----
Fixed charges:
Interest......................... 224 196 452 389
Portion of rent expense
representative of the
interest factor
(deemed to be
one-third).................... 1 1 1 1
---- ---- ---- ----
Total fixed charges................. 225 197 453 390
---- ---- ---- ----
Earnings available
for fixed charges................ $306 $257 $598 $518
==== ==== ==== ====
Ratio of earnings to
fixed charges<F1>................ 1.36 1.30 1.32 1.33
==== ==== ===== =====
<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 March 31, 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 six-month periods ended
March 31, 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
May 12, 1997
<PAGE>
EXHIBIT 15.2
May 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 May 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 DECEMBER 31, 1996 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 276
<SECURITIES> 190
<RECEIVABLES> 19,338<F1>
<ALLOWANCES> 221
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 19,993
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 15,152
0
0
<COMMON> 915
<OTHER-SE> 1,083
<TOTAL-LIABILITY-AND-EQUITY> 19,993
<SALES> 0
<TOTAL-REVENUES> 864
<CGS> 0
<TOTAL-COSTS> 671<F3>
<OTHER-EXPENSES> 77
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> 81
<INCOME-TAX> 34
<INCOME-CONTINUING> 47
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47
<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>
