<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 December 31, 1996
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-9961
----------
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 January 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>
December 31, September 30, December 31,
1996 1996 1995
------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents...................... $ 198 $ 170 $ 58
Investments in marketable securities........... 262 325 179
Investments in operating leases, net........... 10,973 10,831 8,596
Finance receivables, net....................... 7,838 7,463 7,498
Receivable from Parent......................... - 78 33
Other receivables.............................. 154 193 304
Deferred charges............................... 158 131 94
Income taxes receivable........................ - - 12
Other assets................................... 162 117 91
------- ------- -------
Total Assets.......................... $19,745 $19,308 $16,865
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable........................ $15,342 $15,014 $13,253
Accrued interest............................... 174 226 171
Accounts payable and accrued expenses.......... 583 474 297
Due to Parent.................................. 3 - -
Deposits....................................... 251 248 209
Income taxes payable........................... 36 16 -
Deferred income................................ 596 612 524
Deferred income taxes.......................... 809 805 659
------- ------- -------
Total Liabilities........................ 17,794 17,395 15,113
------- ------- -------
Commitments and Contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 91,500 at December 31,
1996 and September 30, 1996, and
86,500 at December 31, 1995)............. 915 915 865
Retained earnings........................... 1,036 998 887
------- ------- -------
Total Shareholder's Equity............... 1,951 1,913 1,752
------- ------- -------
Total Liabilities and
Shareholder's Equity.................. $19,745 $19,308 $16,865
======= ======= =======
</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
December 31,
------------------
1996 1995
------ ------
(Unaudited)
<S> <C> <C>
Financing Revenues:
Leasing................................. $ 698 $ 557
Retail financing........................ 110 101
Wholesale and other dealer financing.... 22 30
------ ------
Total financing revenues................... 830 688
Depreciation on operating leases........ 471 370
Interest expense........................ 227 193
------ ------
Net financing revenues..................... 132 125
Other revenues............................. 36 29
------ ------
Net financing revenues and other revenues.. 168 154
------ ------
Expenses:
Operating and administrative............ 74 65
Provision for credit losses............. 30 21
------ ------
Total expenses............................. 104 86
------ ------
Income before income taxes................. 64 68
Provision for income taxes................. 26 27
------ ------
Net Income................................. $ 38 $ 41
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 38 $ 41
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 482 359
Provision for credit losses..................... 30 21
Decrease in accrued interest.................... (52) (19)
Increase in deferred income taxes............... 4 32
Decrease in other assets........................ 45 10
Increase in other liabilities................... 4 21
------ ------
Total adjustments..................................... 513 424
------ ------
Net cash provided by operating activities................ 551 465
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities...... (24) (21)
Disposition of investments in marketable securities... 88 12
Purchase of finance receivables....................... (3,354) (2,901)
Liquidation of finance receivables.................... 2,964 2,619
Addition to investments in operating leases........... (1,218) (1,137)
Disposition of investments in operating leases........ 596 309
------ ------
Net cash used in investing activities.................... (948) (1,119)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable..... 2,270 1,007
Payments on notes and loans payable................... (1,206) (1,289)
Net increase (decrease) in commercial paper with
original maturities less than 90 days.............. (639) 893
------ ------
Net cash provided by financing activities................ 425 611
------ ------
Net increase (decrease) in cash and cash equivalents..... 28 (43)
Cash and cash equivalents at the beginning
of the period......................................... 170 101
------ ------
Cash and cash equivalents at the end of the period....... $ 198 $ 58
====== ======
Supplemental disclosures:
Interest paid......................................... $271 $223
Income taxes paid..................................... $2 $1
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-4-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Interim Financial Data
- -------------------------------
Information pertaining to the three months ended December 31, 1996 and
1995 is unaudited. In the opinion of management, the unaudited financial
information reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the
interim periods presented. The results of operations for the three
months ended December 31, 1996 are not necessarily indicative of those
expected for any other interim period or for a full year. Certain
December 1995 and September 1996 accounts have been reclassified to
conform with the December 1996 presentation.
These financial statements should be read in conjunction with the
consolidated financial statements, significant accounting policies and
other notes to the consolidated financial statements included in Toyota
Motor Credit Corporation's ("TMCC's") 1996 Annual Report to the
Securities and Exchange Commission ("SEC") on Form 10-K.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
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.
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.
-5-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
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 terms 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>
December 31, September 30, December 31,
1996 1996 1995
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Vehicles............................... $13,511 $13,252 $10,509
Equipment and other.................... 286 268 220
------- ------- -------
13,797 13,520 10,729
Accumulated depreciation............... (2,715) (2,582) (2,050)
Allowance for credit losses ........... (109) (107) (83)
------- ------- -------
Investments in operating leases, net $10,973 $10,831 $ 8,596
======= ======= =======
</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>
December 31, September 30, December 31,
1996 1996 1995
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Retail.............................. $5,733 $5,497 $5,211
Finance leases...................... 1,573 1,520 1,501
Wholesale and other dealer loans.... 1,129 1,015 1,380
------ ------ ------
8,435 8,032 8,092
Unearned income..................... (505) (482) (507)
Allowance for credit losses......... (92) (87) (87)
------ ------ ------
Finance receivables, net......... $7,838 $7,463 $7,498
====== ====== ======
</TABLE>
Finance leases included estimated unguaranteed residual values of
$687 million at December 31, 1996 and $658 million at September 30, 1996
and December 31, 1995.
The aggregate balances related to finance receivables 60 or more days
past due totaled $27 million, $20 million and $19 million at
December 31, 1996, September 30, 1996 and December 31, 1995,
respectively.
-7-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Notes and Loans Payable
- --------------------------------
Notes and loans payable, which consisted of senior debt, included the
following:
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Commercial paper, net.................... $ 1,795 $ 2,360 $ 1,746
------- ------- -------
Other senior debt, due in the years
ending September 30,:
1996.................................. - - 2,767
1997.................................. 2,402 3,211 2,678
1998.................................. 2,769 2,760 2,185
1999.................................. 1,366 1,384 729
2000.................................. 2,314 2,137 1,687
2001.................................. 2,189 2,216 1,145
Thereafter............................ 2,401 864 265
------- ------- -------
13,441 12,572 11,456
Unamortized premium...................... 106 82 51
------- ------- -------
Total other senior debt............... 13,547 12,654 11,507
------- ------- -------
Notes and loans payable............ $15,342 $15,014 $13,253
======= ======= =======
</TABLE>
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 56 days and 5.40%, respectively, at
December 31, 1996. Short-term MTNs with original terms of one year or
less, included in other senior debt, were $595 million at December 31,
1996. The weighted average interest rate on these short-term MTNs was
5.75% at December 31, 1996, including the effect of interest rate swap
agreements.
The weighted average interest rate on other senior debt was 6.05% at
December 31, 1996, including the effect of interest rate swap agreements
and option-based products. This rate has been calculated using rates in
effect at December 31, 1996, some of which are floating rates that reset
daily. Approximately 20% of other senior debt at December 31, 1996 had
interest rates, including the effect of interest rate swap agreements,
that were fixed for a period of more than one year. The weighted average
of these fixed interest rates was 5.79% at December 31, 1996.
Approximately 41% of other senior debt at December 31, 1996 had floating
interest rates that were covered by option-based products. The weighted
average strike rate on these option-based products was 6.10%. TMCC
manages interest rate risk via continuous adjustment of the mix of fixed
and floating rate debt through the use of interest rate swap agreements
and option-based products.
-8-
<PAGE>
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Notes and Loans Payable (Continued)
- --------------------------------
Included in Notes and Loans Payable at December 31, 1996 were unsecured
notes denominated in various foreign currencies; concurrent with the
issuance of these notes, TMCC entered into cross currency interest rate
swap agreements to convert these obligations at maturity into U.S. dollar
obligations which in aggregate total a principal amount of $7.1 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 December 31, 1996. The receivables or payables arising as a
result of the differences between the December 31, 1996 foreign currency
spot exchange rates and the contract rates applicable to the cross
currency interest rate swap agreements are classified in Other
Receivables or Accounts Payable and Accrued Expenses, respectively, and
would in aggregate reflect a net payable position of $306 million at
December 31, 1996.
-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 months ended December 31, 1996 and
December 31, 1995 are summarized below:
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Lease earning assets, net............ $12,375 $12,188 $ 9,932
Retail finance receivables, net...... 5,508 5,285 4,952
Wholesale receivables and other
dealer loans...................... 1,129 1,015 1,380
Allowance for credit losses.......... (201) (194) (170)
------- ------- -------
Total earning assets, net............ $18,811 $18,294 $16,094
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------
1996 1995
------- ------
<S> <C> <C>
Contract volume:
Vehicle lease contracts......................... 56,000 48,000
Vehicle retail installment contracts............ 53,000 39,000
------- ------
Total........................................ 109,000 87,000
======= ======
Finance penetration................................ 34.5% 31.7%
</TABLE>
TMCC's net earning assets increased to $18.8 billion at December 31, 1996 from
$18.3 billion at September 30, 1996 and $16.1 billion at December 31, 1995.
Asset growth from the prior year primarily reflects increased investment in
operating lease assets while asset growth for the quarter reflects increases in
lease, retail and wholesale assets. The increase in allowance for credit
losses corresponds with asset growth.
TMCC's contract volume increased for the quarter ended December 31, 1996
compared with December 31, 1995 as a result of higher finance penetration as
well as increased Toyota and Lexus vehicle sales reflecting strong consumer
acceptance and competitive pricing of new and redesigned 1997 Toyota and Lexus
vehicle models. 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.
-10-
<PAGE>
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 $9.0 billion and $6.9 billion at December 31, 1996 and 1995,
respectively. The percentages of lease vehicles returned to TMCC which were
originally scheduled to mature in the first quarters of fiscal 1997 and 1996
were 11% and 14%, respectively. 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 are recorded at net realizable value.
TMCC's financing revenues increased 21% from $688 million in the first quarter
of fiscal 1996 to $830 million in the first quarter of fiscal l997 as a result
of the increased level of earning assets. Wholesale revenues declined in the
first quarter of fiscal 1997 as compared with the same period in fiscal 1996
due to lower average wholesale receivables outstanding as well as reduced
yields on wholesale activity. The increase in depreciation on operating leases
corresponds with the growth in investments in operating lease assets.
Interest expense increased 18% during the first quarter of fiscal 1997 compared
with the same period 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
5.90% and 5.98% for the three months ended December 31, 1996 and 1995,
respectively.
TMCC's operating and administrative expenses increased 14% during the first
quarter of fiscal 1997 from the same period in fiscal 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.
-11-
<PAGE>
TMCC's provision for credit losses increased 43% during the first quarter of
fiscal 1997 as compared with the same period in fiscal 1996 primarily as a
result of the growth in earning assets as well as less favorable credit loss
experience. TMCC will continue to monitor loss levels and place emphasis on
controlling its credit loss exposure.
Net credit loss experience, excluding net losses on receivables sold subject to
limited recourse provisions, for the three months ended December 31, 1996 and
1995 was as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1996 1995
----- -----
(Dollars in Millions)
<S> <C> <C>
Net Credit Losses................... $19.9 $14.9
Annualized Net Credit Losses
as a % of Average Earning
Assets.......................... .43% .38%
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
------------ ------------- ------------
(Dollars in Millions)
<S> <C> <C> <C>
Allowance for Credit Losses..... $201 $194 $170
Allowance for Credit Losses
as a % of Earning Assets..... 1.06% 1.05% 1.05%
</TABLE>
-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 Toyota Motor Sales U.S.A., Inc. ("TMS" or the "Parent").
Commercial paper issuances are utilized 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 three months of
fiscal 1997, with an average outstanding balance of $2.3 billion. For
additional liquidity purposes, TMCC maintains syndicated bank credit facilities
with certain banks which aggregated $2.0 billion at December 31, 1996. No
loans were outstanding under any of these bank credit facilities during the
first three 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 December 31, 1996, TMCC had
issued approximately $44 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 three months of fiscal 1997 TMCC issued
approximately $1.9 billion of MTNs, all of which had original maturities of one
year or more. TMCC had approximately $11.3 billion of MTNs outstanding at
December 31, 1996, including the effect of foreign currency translations at
December 31, 1996 spot exchange rates; approximately $4.8 billion of the $11.3
billion in MTNs was denominated in foreign currencies. In addition to MTNs,
TMCC had approximately $2.3 billion of debt securities outstanding issued
principally in the form of Eurobonds in the international capital markets at
December 31, 1996, including the effect of foreign currency translations at
December 31, 1996 spot exchange rates; approximately $2.0 billion of the $2.3
billion in debt securities was denominated in foreign currencies.
TMCC anticipates continued use of MTNs in both the United States and
international capital markets. At January 31, 1997 approximately $765 million
was available for issuance under TMCC's United States public MTN program of
which the Company has committed to issue approximately $15 million. The
maximum aggregate principal amount authorized to be outstanding at any time
under TMCC's Euro MTN program is $12.0 billion. Approximately $2.0 billion was
available for issuance under the Euro MTN program as of January 31, 1997 of
which the Company has committed to issue approximately $486 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.
TMCC maintains a shelf registration with the SEC for $1.5 billion of asset-
backed notes and certificates. As of January 31, 1997, approximately $750
million of asset-backed securities remain available for issuance.
Additionally, TMCC has registered approximately $700 million of securities,
excluding MTNs, with the SEC which were available for issuance at January 31,
1997.
-13-
<PAGE>
On October 1, 1996 Toyota Lease Trust ("TLT") was created as a Delaware
business trust for the purposes 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.
Cash flows provided by operating, investing and financing activities have been
used primarily to support earning asset growth. During the first three months
of fiscal 1997, cash used to purchase additional investments in operating
leases and finance receivables, totaling $4.6 billion, was partially provided
by the liquidation of earning assets, totaling $3.6 billion. Investing
activities resulted in a net cash use of $0.9 billion during the first three
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 financing activities
totaling $0.6 billion and $0.4 billion, respectively, during the first three
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 December 31, 1996 reduced by
the effects of master netting agreements. The credit exposure of TMCC's
derivative financial instruments at December 31, 1996 was $236 million on an
aggregate notional amount of $21.2 billion. At December 31, 1996,
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.
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 December 31, 1996, measured as the potential 30 day loss in value from
assumed adverse changes in interest rates that are estimated to cover 90% of
likely market movements, totals $42.9 million on a mean portfolio value of $3.8
billion; alternatively, the value at risk represents 1.1% of the mean portfolio
value.
-14-
<PAGE>
As of December 31, 1996, an interest rate increase of 1% (100 basis points)
would raise TMCC's weighted average interest rate, including the effects of
interest rate swap agreements and option-based products, by .31%, from 5.83% to
an estimated 6.14% at December 31, 1996. Conversely, an interest rate decrease
of 1% (100 basis points) would lower TMCC's weighted average interest rate,
including the effects of interest rate swap agreements and option-based
products, by .47%, from 5.83% to an estimated 5.36% at December 31, 1996.
A reconciliation of the activity of TMCC's derivative financial instruments for
the first quarters of fiscal 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------ ------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 1 notional amount....... $5.6 $4.8 $6.8 $7.1 $6.2 $3.8 $1.9 $1.7
Add:
New agreements............... 1.1 0.1 0.3 1.6 1.1 0.6 0.6 -
Less:
Terminated agreements........ - - - - - - - -
Expired agreements........... 0.1 0.3 0.5 0.4 1.7 - 0.1 0.3
---- ---- ---- ---- ---- ---- ---- ----
December 31 notional amount..... $6.6 $4.6 $6.6 $8.3 $5.6 $4.4 $2.4 $1.4
==== ==== ==== ==== ==== ==== ==== ====
</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: statements regarding the level of
leased vehicle returns; that the lease earning assets on the Company's books
are recorded at net realizable value; the Company's continued use of MTNs in
the United States and the international capital markets; the anticipated lease
securitization; the sufficiency of the Company's cash provided by operating,
investing and financing activities for the Company's future liquidity and
capital resource needs; and the continued performance of the Company's
counterparties under interest rate and cross currency swap agreements and
option-based products. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, without
limitations, 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; the effect of governmental actions; the effect of
competitive pressures on the used car market and residual values; 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 any change or impairment in 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.
Review by Independent Public Accountants
With respect to the unaudited consolidated financial information of TMCC for
the three-month periods ended December 31, 1996 and 1995, Price Waterhouse LLP
("Price Waterhouse") reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated February 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.
-16-
<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 December 31, 1996 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 Exchange Act of 1934, as amended, which represents the
Company's expectations and beliefs concerning future events. The
Company cautions that its discussion of Legal Proceedings is
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statement, including but not limited to the discovery of facts not
presently known to the Company or determinations by judges, juries
or other finders of fact which do not accord with the Company's
evaluation of the possible liability from existing litigation.
ITEM 2. CHANGES IN SECURITIES.
There is nothing to report with regard to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There is nothing to report with regard to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-17-
<PAGE>
ITEM 5. OTHER INFORMATION.
There is nothing to report with regard to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on
page 20, are filed as part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant
during the quarter ended December 31, 1996.
-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: February 12, 1997 By /S/ WOLFGANG JAHN
-------------------------------
Wolfgang Jahn
Senior Vice President and
General Manager
(Principal Executive Officer)
Date: February 12, 1997 By /S/ PATRICK BREENE
------------------------------
Patrick Breene
Vice President -
Finance and Administration
(Principal Accounting Officer)
-19-
<PAGE>
EXHIBIT INDEX
Exhibit Method of
Number Description 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
December 31,
---------------------
1996 1995
---- ----
(Dollars in Millions)
<S> <C> <C>
Consolidated income
before income taxes................................. $ 64 $ 68
---- ----
Fixed charges:
Interest............................................ 227 193
Portion of rent expense
representative of the
interest factor
(deemed to be
one-third)....................................... 1 1
---- ----
Total fixed charges.................................... 228 194
---- ----
Earnings available
for fixed charges................................... $292 $262
==== ====
Ratio of earnings to
fixed charges<F1>................................... 1.28 1.35
==== ====
<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 December 31,
1996, TMCC has not incurred any fixed charges in connection with such
guarantee and no amount is included in any ratio of earnings to fixed
charges.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15.1
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholder of
Toyota Motor Credit Corporation
We have reviewed the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows of Toyota Motor Credit
Corporation (a wholly owned subsidiary of Toyota Motor Sales, U.S.A., Inc.) and
its subsidiaries as of and for the three-month periods ended December 31, 1996
and 1995. This financial information is the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards
the consolidated balance sheet as of September 30, 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
February 12, 1997
<PAGE>
EXHIBIT 15.2
February 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 February 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 198
<SECURITIES> 262
<RECEIVABLES> 19,012<F1>
<ALLOWANCES> 201
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 19,745
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 15,342
0
0
<COMMON> 915
<OTHER-SE> 1,036
<TOTAL-LIABILITY-AND-EQUITY> 19,745
<SALES> 0
<TOTAL-REVENUES> 866
<CGS> 0
<TOTAL-COSTS> 698<F3>
<OTHER-EXPENSES> 74
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> 64
<INCOME-TAX> 26
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<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>
