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, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9961
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TOYOTA MOTOR CREDIT CORPORATION
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(Exact name of registrant as specified in its charter)
California 95-3775816
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19001 S. Western Avenue
Torrance, California 90509
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 787-1310
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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, 1995, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 86,500, all of which
shares were held by Toyota Motor Sales, U.S.A., Inc.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
March 31, September 30, March 31,
1995 1994 1994
----------- ------------- -----------
(Unaudited) (Unaudited)
ASSETS
------
Cash and cash equivalents................. $ 312 $ 277 $ 153
Investments in marketable securities...... 139 102 108
Finance receivables, net.................. 7,922 7,776 7,471
Investments in operating leases, net...... 7,052 6,215 4,065
Receivable from Parent.................... 7 37 -
Other receivables......................... 755 235 98
Deferred charges.......................... 87 36 41
Other assets.............................. 69 55 51
------- ------- -------
Total Assets........................ $16,343 $14,733 $11,987
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $13,213 $11,833 $ 9,455
Accrued interest.......................... 158 156 129
Accounts payable and accrued expenses..... 795 727 696
Unearned insurance premiums............... 72 73 83
Payable to Parent......................... - - 13
Income taxes payable...................... 18 31 3
Deferred income taxes..................... 471 386 350
------- ------- -------
Total liabilities...................... 14,727 13,206 10,729
------- ------- -------
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 86,500 at
March 31, 1995 and
September 30, 1994, and 68,000 at
March 31, 1994)........................ 865 865 680
Retained earnings......................... 751 662 578
------- ------- -------
Total shareholder's equity............. 1,616 1,527 1,258
------- ------- -------
Total Liabilities and
Shareholder's Equity................ $16,343 $14,733 $11,987
======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
-2-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
(Unaudited)
Financing Revenues:
Retail financing........................ $107 $101 $ 216 $205
Leasing................................. 465 275 894 522
Wholesale and other dealer financing.... 29 20 55 39
---- ---- ------ ----
Total financing revenues................... 601 396 1,165 766
Interest expense........................ 175 112 336 222
Depreciation on operating leases........ 298 159 575 298
---- ---- ------ ----
Net financing revenues..................... 128 125 254 246
Other revenues............................. 26 23 51 46
---- ---- ------ ----
Net Financing Revenues and Other Revenues.. 154 148 305 292
---- ---- ------ ----
Expenses:
Operating and administrative............ 64 58 124 112
Provision for credit losses............. 15 15 33 29
---- ---- ------ ----
Total Expenses............................. 79 73 157 141
---- ---- ------ ----
Income before income taxes................. 75 75 148 151
Provision for income taxes................. 30 30 59 60
---- ---- ------ ----
Net Income................................. $ 45 $ 45 $ 89 $ 91
==== ==== ====== ====
See Accompanying Notes to Consolidated Financial Statements.
-3-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
Six Months Ended March 31,
--------------------------
1995 1994
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(Unaudited)
Cash flows from operating activities:
Net income.......................................... $ 89 $ 91
------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 598 301
Provision for credit losses................... 33 29
Increase (decrease) in accrued interest....... 2 (19)
Decrease in unearned insurance premiums....... (1) (6)
Increase in deferred income taxes............. 85 72
Decrease in other assets...................... 23 4
Increase in other liabilities................. 35 21
------ ------
Total adjustments................................... 775 402
------ ------
Net cash provided by operating activities.............. 864 493
------ ------
Cash flows from investing activities:
Addition to investments in marketable securities.... (51) (64)
Disposition of investments in marketable
securities....................................... 12 93
Purchase of finance receivables..................... (5,349) (4,866)
Liquidation of finance receivables.................. 5,187 4,586
Addition to investments in operating leases......... (1,804) (1,513)
Disposition of investments in operating leases...... 374 186
------ ------
Net cash used in investing activities.................. (1,631) (1,578)
------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable... 3,458 1,452
Payments on notes and loans payable................. (2,254) (1,168)
Net increase (decrease) in commercial paper
with original maturities less than 90 days....... (402) 380
------ ------
Net cash provided by financing activities.............. 802 664
------ ------
Net increase (decrease) in cash and cash equivalents... 35 (421)
Cash and cash equivalents at the beginning
of the period....................................... 277 574
------ ------
Cash and cash equivalents at the end of the period..... $ 312 $ 153
====== ======
Supplemental disclosures:
Interest paid....................................... $320 $241
Income taxes paid................................... $2 $67
See Accompanying Notes to Consolidated Financial Statements.
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Interim Financial Data
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Information pertaining to the three months and six months ended
March 31, 1995 and 1994 is unaudited. In the opinion of management,
the unaudited financial information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods presented. The
results of operations for the three months and six months ended
March 31, 1995 are not necessarily indicative of those expected for any
other interim period or for a full year. Certain March 1994 and
September 1994 accounts have been reclassified to conform with the
March 1995 presentation.
Note 2 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
March 31, September 30, March 31,
1995 1994 1994
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(Dollars in Millions)
Retail............................... $5,595 $5,805 $5,175
Finance leases....................... 1,653 1,734 1,933
Wholesale and other dealer loans..... 1,430 1,054 1,238
------ ------ ------
8,678 8,593 8,346
Unearned income...................... (655) (716) (780)
Allowance for credit losses.......... (101) (101) (95)
------ ------ ------
Finance receivables, net.......... $7,922 $7,776 $7,471
====== ====== ======
Included in finance lease receivables were estimated unguaranteed
residual values of $701 million, $694 million and $722 million at
March 31, 1995, September 30, 1994 and March 31, 1994, respectively.
The aggregate balances related to finance receivables 60 or more days
past due totaled $21 million, $15 million and $21 million at March 31,
1995, September 30, 1994 and March 31, 1994, respectively.
-5-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Operating Leases
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Investments in operating leases, net consisted of the following:
March 31, September 30, March 31,
1995 1994 1994
------------ ------------- ------------
(Dollars in Millions)
Vehicles................................ $8,408 $7,184 $4,731
Equipment, aircraft and other........... 175 148 125
------ ------ ------
8,583 7,332 4,856
Accumulated depreciation................ (1,458) (1,054) (753)
Allowance for credit losses ............ (73) (63) (38)
------ ------ ------
Investments in operating leases, net. $7,052 $6,215 $4,065
====== ====== ======
Note 4 - Notes and Loans Payable
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Notes and loans payable, which consisted of senior debt, included the
following:
March 31, September 30, March 31,
1995 1994 1994
------------ ------------- ------------
(Dollars in Millions)
Commercial paper, net................... $ 1,402 $ 960 $ 779
------- ------- ------
Other senior debt, due in the years
ending September 30,:
1994.................................. - - 1,679
1995.................................. 2,172 4,010 3,719
1996.................................. 2,717 2,405 1,496
1997.................................. 2,833 2,014 1,035
1998.................................. 1,644 985 353
1999.................................. 371 233 60
Thereafter............................ 2,032 1,209 306
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11,769 10,856 8,648
Unamortized premium...................... 42 17 28
------- ------- ------
Total other senior debt.............. 11,811 10,873 8,676
------- ------- ------
Notes and loans payable........... $13,213 $11,833 $9,455
======= ======= ======
The weighted average remaining term of commercial paper was 162 days
and 45 days at March 31, 1995 and 1994, respectively. The weighted
average interest rate on commercial paper was 6.60% and 3.55% at
March 31, 1995 and 1994, respectively.
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Notes and Loans Payable (Continued)
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The weighted average interest rate on other senior debt was 5.67% at
March 31, 1995, including the effect of interest rate exchange
agreements. This rate has been calculated on the basis of rates in
effect at March 31, 1995, some of which are floating rates that reset
daily. Approximately 31% of other senior debt at March 31, 1995 had
interest rates, including the effect of interest rate exchange
agreements, that were fixed for a period of more than one year. The
weighted average of these fixed interest rates was 5.91% at March 31,
1995. Approximately 32% of other senior debt at March 31, 1995 had
floating interest rates that were covered by interest rate cap
agreements with an average strike rate of 7.63%. The mix of TMCC's
fixed and floating rate debt changes from time to time as a result of
interest rate risk management.
Included in Notes and Loans Payable at March 31, 1995 were unsecured
notes payable in various foreign currencies. Concurrent with the
issuance of these unsecured notes, TMCC entered into foreign currency
exchange agreements to convert these foreign currency obligations into
fixed U.S. dollar obligations for $5.4 billion. TMCC's foreign
currency debt is translated into U.S. dollars in the financial
statements at the various foreign currency spot rates in effect at
March 31, 1995. The receivables or payables, arising as a result of
the differences between the March 31, 1995 foreign currency spot rates
and the contract rates applicable to the foreign currency exchange
agreements, are classified in Other Receivables or Accounts Payable and
Accrued Expenses, respectively, and would aggregate to a net receivable
position of $546 million at March 31, 1995.
Note 5 - Recently Adopted Accounting Standards
- ----------------------------------------------
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("Statement No. 112"). Statement No. 112 requires accrual,
during the years that the employee renders the necessary service or
when it is probable that a liability has been incurred, of the expected
cost of providing postemployment benefits to former or inactive
employees, their beneficiaries, and covered dependents after employment
but before retirement. This method differs from the Company's previous
practice of accounting for these benefits on a cash basis. The
cumulative effect of the change in accounting principle was not
material to the Company's financial position or results of operations.
Prior period financial statements have not been restated.
-7-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Recently Adopted Accounting Standards (Continued)
- ----------------------------------------------
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("Statement No. 114") and its amendment Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" ("Statement
No. 118"). Statement No. 114 requires a creditor to evaluate the
collectibility of both contractual interest and principal of certain
impaired receivables when assessing the need for a loss accrual and to
measure loans that are restructured in a troubled debt restructuring to
reflect the time value of money. Statement No. 114 is not applicable
to leases and large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment. Statement No. 118 amends
Statement No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan. Statement No. 118
also amends the disclosure requirements in Statement No. 114 to require
information about the recorded investment in certain impaired loans and
about how a creditor recognizes interest income related to those
impaired loans. The impact of adoption was not material to the
Company's financial position or results of operations. Prior period
financial statements have not been restated.
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("Statement No. 115"). Statement No. 115
addresses the accounting and reporting for investments in all debt
securities and for investments in equity securities that have readily
determinable fair values. The cumulative effect of the change in
accounting principle was not material to the Company's financial
position or results of operations. Prior period financial statements
have not been restated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Introduction
The earnings of Toyota Motor Credit Corporation ("TMCC") are primarily
affected by interest margins, the average outstanding balance of earning
assets and borrowing levels. The interest rates charged on retail finance
receivables and implicit in leases are fixed at the time acquired. Yields on
the majority of wholesale receivables and other loans to dealers vary with
changes in short-term interest rates. Funding requirements are primarily met
through net cash provided by operating activities, earning asset liquidations
and the issuance of debt obligations of varying terms at both fixed and
floating interest rates. TMCC utilizes interest rate exchange agreements and
foreign currency exchange agreements in managing the cost of borrowed funds.
The business of TMCC and its subsidiaries (collectively the "Company") is
substantially dependent upon the sale of Toyota and Lexus vehicles in the
United States. Lower levels of sales of such vehicles resulting from
governmental action, decline in demand, changes in pricing due to the
appreciation of the Japanese yen against the United States dollar, or other
events, could result in a reduction in the level of finance and insurance
operations of the Company. To date, the level of the Company's operations has
not been restricted by the level of sales of Toyota and Lexus vehicles.
However, the Office of the United States Trade Representative has recently
announced its intention to publish for public comment a proposed list of as
yet unspecified products imported from Japan which may be the subject of
trade sanctions. Trade sanctions, if any, depending on their nature, could
adversely impact some segments of the Company's operations.
Financial Condition and Results of Operations
TMCC's earning assets, consisting of finance receivables and investments in
operating leases, totaled $15.1 billion, $14.2 billion and $11.7 billion at
March 31, 1995, September 30, 1994 and March 31, 1994, respectively. The
growth in earning assets was primarily the result of growth in lease earning
assets and an increase in the average amount financed per contract resulting
from higher lease volume, new volume mix and higher new vehicle prices.
Retail finance receivables, net of unearned income, were $5.2 billion,
$5.4 billion and $4.8 billion at March 31, 1995, September 30, 1994 and
March 31, 1994, respectively. Retail finance receivables decreased from
September 30, 1994 to March 31, 1995 due to liquidations exceeding contract
volume and increased from March 31, 1994 to March 31, 1995 due to contract
volume exceeding liquidations.
-9-
Lease earning assets, consisting of lease finance receivables, net of unearned
income, and investments in operating leases, net of accumulated depreciation,
totaled $8.5 billion, $7.7 billion and $5.7 billion at March 31, 1995,
September 30, 1994 and March 31, 1994, respectively. The increases in lease
earning assets from September 30, 1994 and March 31, 1994 reflected the
continuation of significant growth in lease contract volume, primarily in
operating leases. The growth in lease contract volume was primarily
attributable to the effect of special lease programs sponsored by Toyota Motor
Sales, U.S.A., Inc. ("TMS") and also to the broader acceptability of leasing
in the vehicle retail sales market. Management of the Company anticipates
further growth in lease earning assets as special lease programs are expected
to continue and as the broader acceptability of leasing as a financing option
for retail consumers continues.
Wholesale receivables and other dealer loans were $1.4 billion, $1.1 billion
and $1.2 billion at March 31, 1995, September 30, 1994 and March 31, 1994,
respectively. The increases in these receivables from September 30, 1994 and
March 31, 1994 resulted primarily from the higher average wholesale
receivables balance per dealer.
Contract volume related to TMCC's vehicle retail installment financing and
leasing programs are summarized below:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1995 1994 1995 1994
------ ------ ------- --------
Contracts booked:
Vehicle retail installment contracts........ 38,000 43,000 76,000 87,000
Vehicle lease contracts..................... 39,000 39,000 80,000 71,000
------ ------ ------- -------
Total.................................... 77,000 82,000 156,000 158,000
====== ====== ======= =======
Total contract volume for the three months and six months ended March 31, 1995
decreased as compared to the same periods in fiscal 1994 primarily due to
lower used vehicle retail installment contract volume. The decrease in used
vehicle retail installment contract volume was due primarily to competitive
reasons. Although a further decline in used vehicle financing is possible,
management of the Company has taken various steps to enhance the program's
competitive position. The comparable level and growth in lease contract
volume for the three months and six months ended March 31, 1995, respectively,
as compared to the same periods in fiscal 1994 was primarily attributable to
the effect of special lease programs sponsored by TMS and also to the broader
acceptability of leasing in the vehicle retail sales market. Under these
special lease programs, TMCC offered reduced monthly payments on certain new
vehicles to qualified lessees and received an amount from TMS for each vehicle
leased. Amounts received approximate the balances required by TMCC to
maintain revenues at standard program levels and are earned over the expected
lease terms. The level of sponsored program activity varies based on TMS
marketing strategies. TMCC recognized revenues related to all amounts
received under various TMS programs of $31 million and $10 million during the
three months ended March 31, 1995 and 1994, respectively, and $59 million and
$19 million during the six months ended March 31, 1995 and 1994, respectively.
-10-
TMCC financed or leased ("finance penetration") the following percentages of
new Toyota and Lexus vehicle deliveries in the United States, excluding
Hawaii:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1995 1994 1995 1994
------ ------ ------ ------
Finance penetration........ 32.4% 32.0% 31.7% 30.8%
Total financing revenues increased 52% for each of the three month and six
month periods ended March 31, 1995 from the same periods in fiscal 1994. The
increases resulted primarily from earning asset growth.
Retail financing revenues increased 6% and 5% during the three months and six
months ended March 31, 1995, respectively, as compared to the same periods in
fiscal 1994. Retail financing revenues increased due to the growth in average
retail finance receivables outstanding partially offset by a decline in
portfolio yield resulting from lower yielding contracts replacing liquidating
higher yielding contracts. Management of the Company expects that the level
of retail financing revenues in fiscal 1995 will approximate those of fiscal
1994.
During the three months and six months ended March 31, 1995, TMCC's primary
source of revenue and earning asset growth was leasing. Leasing revenues
increased 69% and 71% during the three months and six months ended March 31,
1995, respectively, as compared to the same periods in fiscal 1994 primarily
due to the growth in average lease earning assets. Management of the Company
anticipates further growth in leasing revenues as special lease programs
sponsored by TMS are expected to continue to result in increases in lease
earning assets.
Wholesale and other dealer financing revenues increased 45% and 41% during the
three months and six months ended March 31, 1995, respectively, as compared
to the same periods in fiscal 1994. The increased revenues resulted from
higher average wholesale receivable balances and increases in wholesale
financing rates. Management of the Company anticipates that yields and
revenues will increase in fiscal 1995 as compared to fiscal 1994 due to higher
short-term market interest rates to which such financing is indexed and due
to earning asset growth.
Interest expense increased 56% and 51% during the three months and six months
ended March 31, 1995, respectively, as compared to the same periods in fiscal
1994. The increases in interest expense resulted from higher average
borrowing levels required to fund the growth in earning assets and increases
in market interest rates. The weighted average cost of borrowings was 5.78%
and 5.55% for the three months and six months ended March 31, 1995,
respectively, compared to 4.84% and 4.92% for the same period in fiscal 1994.
Management anticipates that as a result of higher market interest rates and
increases in the level of debt outstanding, the weighted average cost of
borrowings and interest expense will increase in fiscal 1995 as compared to
fiscal 1994.
-11-
Depreciation on operating leases increased 87% and 93% during the three months
and six months ended March 31, 1995, respectively, as compared to the same
periods in fiscal 1994 as a result of the growth in investments in operating
leases. Management anticipates higher depreciation on operating leases in
fiscal 1995 as compared to fiscal 1994 due to anticipated growth in
investments in operating leases.
Uninsured vehicle residual values were approximately $5.6 billion and
$3.4 billion at March 31, 1995 and 1994, respectively. To date, TMCC has
incurred no material losses as a result of residual value risk. Although
TMCC's experience has been somewhat limited, management of the Company
believes that the aggregate residual values of its leases reflected in the
financial statements represent realizable values.
Net financing revenues increased 2% and 3% during the three months and six
months ended March 31, 1995, respectively, as compared to the same periods in
fiscal 1994. The increases were primarily attributable to the growth in the
level of earning assets which was substantially offset by declining interest
margins. Interest margin is the excess of the combined interest rate yield
on finance receivables and implicit in leases over the effective interest rate
cost of total borrowings. Lower interest margins in fiscal 1995 were the
result of lower portfolio yields on retail installment and lease contracts and
higher average borrowing costs as compared to fiscal 1994. Management
anticipates slightly higher net financing revenues in fiscal 1995 as compared
to fiscal 1994 as increased financing revenues resulting from earning asset
growth are expected to be substantially offset by lower portfolio yields and
higher borrowing costs.
Other revenues increased 13% and 11% during the three months and six months
ended March 31, 1995, respectively, as compared to the same periods in fiscal
1994. The increases in other revenues resulted from the continued growth in
the Company's insurance operations offset by declines in servicing and other
income related to the retail finance receivables sold in fiscal 1993.
Operating and administrative expenses increased 10% and 11% during the three
months and six months ended March 31, 1995, respectively, as compared to the
same periods in fiscal 1994. These increases reflected increased costs
required to service the Company's growing customer base and for the growth in
the Company's insurance operations.
The provision for credit losses is largely a function of changes in the level
and mix of earning assets. The provision for credit losses remained
essentially level and increased 14% during the three months and six months
ended March 31, 1995, respectively, as compared to the same periods in fiscal
1994 as a result of the growth in the level of earning assets. The Company
continues to experience very low credit loss levels and will continue to place
emphasis on controlling its credit loss exposure; however, there are no
assurances that the low credit loss levels will continue.
-12-
Operating profits (reflected as "Income before income taxes") remained level
and decreased 2% during the three months and six months ended March 31, 1995,
respectively, as compared to the same period in fiscal 1994. The decrease in
operating profits and net income during the first six months of fiscal 1995
was primarily due to decreases in the Company's interest margin and increases
in operating and administrative expenses and the provision for credit losses.
Management of the Company anticipates that fiscal 1995 operating profits will
approximate those of fiscal 1994.
Financial support is provided by TMS, as necessary, to maintain TMCC's minimum
fixed charge coverage at the level specified in the Operating Agreement. As
a result of the favorable operating profits in the six months ended March 31,
1995 and 1994, TMCC did not receive any financial support from TMS.
Liquidity and Capital Resources
The Company requires, in the normal course of business, substantial funding
to support the level of its earning assets. Significant reliance is placed
on the Company's ability to obtain debt funding in the capital markets in
addition to funding provided by earning asset liquidations, cash provided by
operating activities, and growth in retained earnings. Debt funding has been
obtained primarily from the issuance of debt securities in the European and
United States capital markets. Debt issuances have generally been in the form
of commercial paper, medium-term notes ("MTNs") and other debt securities.
From time to time, this funding has been supplemented by loans and equity
contributions from TMS.
Commercial paper issuances and borrowings from TMS are specifically utilized
to meet short-term funding needs. Commercial paper outstanding under TMCC's
commercial paper program ranged from approximately $1.0 billion to
$1.7 billion at any month end during the first six months of fiscal 1995, with
an average outstanding balance of $1.5 billion. The Company anticipates
increased use of commercial paper during the remainder of fiscal 1995. To
support its commercial paper program, TMCC also maintains syndicated bank
credit facilities with certain banks which aggregated $1.5 billion at
March 31, 1995. No loans were outstanding under any of these bank credit
facilities during the first six months of fiscal 1995. TMCC also maintains
uncommitted, unsecured lines of credit with banks totalling $300 million to
facilitate issuances of letters of credit. At March 31, 1995, approximately
$83 million in letters of credit had been issued, primarily related to the
Company's insurance operations.
From time to time, TMS makes interest-bearing loans to TMCC. The interest
rate charged by TMS to TMCC for these interest-bearing loans approximates the
Federal Reserve Board's one-month commercial paper composite rate for firms
whose bonds are rated AA. No loans were outstanding from TMS during the first
six months of fiscal 1995.
MTNs, with original terms ranging from one year to ten years, have been issued
in the European and United States capital markets to meet a portion of
long-term and short-term funding requirements. During the first six months
of fiscal 1995, TMCC issued approximately $2.1 billion of MTNs almost all of
which had maturity dates on the date of issuance of more than one year. MTNs
outstanding at March 31, 1995, including the effect of foreign currency
translations at spot rates in effect at March 31, 1995, totaled approximately
$8.1 billion. At April 30, 1995, approximately $2.0 billion under TMCC's
United States public MTN program was available for issuance. The maximum
-13-
aggregate principal amount authorized to be outstanding at any time under
TMCC's Euro MTN program is $6.5 billion. As of April 30, 1995, $1.3 billion
was available for issuance under the Euro MTN program, of which the Company
has committed to issue approximately $61 million. The United States and Euro
MTN programs may from time to time be expanded to allow for the continued use
of these sources of funding.
Long-term funding requirements have also been met through the issuance of
other forms of debt securities underwritten in the European and United States
capital markets. At March 31, 1995, approximately $3.4 billion of debt
securities (excluding MTNs), including the effect of foreign currency
translations at spot rates in effect at March 31, 1995, were outstanding in
the European capital markets. Of the $3.4 billion in debt securities,
$2.4 billion was denominated in foreign currencies. Underwritten debt
securities outstanding in the United States public market, excluding MTNs,
totaled approximately $300 million at March 31, 1995. At April 30, 1995,
approximately $700 million of securities registered with the Securities and
Exchange Commission, excluding MTNs, were available for issuance.
TMCC utilizes a variety of financial instruments to manage its foreign
currency exchange rate risk and interest rate risk. TMCC does not enter into
these instruments for trading purposes. During the six months ended March 31,
1995 and 1994, TMCC held its derivative financial instruments to maturity of
the underlying debt instruments.
TMCC utilizes foreign currency exchange agreements and interest rate exchange
agreements to manage exposure to exchange rate fluctuations on principal and
interest payments for borrowings denominated in foreign currencies. Notes and
loans payable issued in foreign currencies are hedged by concurrently executed
foreign currency exchange agreements. These exchange agreements involve
agreements to exchange TMCC's foreign currency principal obligations for U.S.
dollar obligations at agreed-upon currency exchange rates and to exchange
fixed and floating interest rate obligations. The aggregate notional amounts
of foreign currency exchange agreements at March 31, 1995 and 1994 were
$4.8 billion and $2.4 billion, respectively. In the event that a counterparty
fails to perform, TMCC's exposure is limited to the currency exchange and
interest rate differential. TMCC does not anticipate nonperformance by any
of its counterparties.
TMCC utilizes interest rate exchange agreements and other option-based
products in managing its exposure to interest rate fluctuations. TMCC's
interest rate exchange agreements involve agreements to pay fixed and receive
a floating rate, or receive fixed and pay a floating rate, at specified
intervals, calculated on an agreed-upon notional amount. Interest rate
exchange agreements may also involve basis swap contracts, which are
agreements to exchange the difference between certain floating interest
amounts, such as the net payment based on the commercial paper rate and the
London Interbank Offered Rate ("LIBOR"), calculated on an agreed-upon notional
amount. TMCC also enters into option-based contracts where TMCC is a fixed
rate payor when an underlying floating indice is within a prespecified range,
and a floating rate payor otherwise. The underlying notional amounts are not
exchanged and do not represent exposure to credit loss. In the event that a
counterparty fails to perform, TMCC's exposure is limited to the interest rate
differential. TMCC does not anticipate nonperformance by any of its
counterparties. The aggregate notional amounts of interest rate exchange
agreements outstanding at March 31, 1995 and 1994, were $11.0 billion and
$7.0 billion, respectively. At March 31, 1995, TMCC was the fixed rate payor
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on $4.8 billion of interest rate exchange agreements, floating rate payor on
$1.3 billion of such agreements, counterparty to $1.4 billion of basis swap
contracts, and counterparty to $3.5 billion of option-based contracts.
Interest rate exchange agreements and other option-based products are executed
as an integral part of specific debt transactions and on a portfolio basis.
The differential paid or received on such agreements is recorded as an
adjustment to Interest Expense over the term of the underlying debt. Master
netting agreements, with all interest rate exchange agreement counterparties,
also exist allowing the net difference between counterparties to be exchanged
in the event of default.
TMCC utilizes indexed note swap agreements in managing its exposure to indexed
notes. Indexed notes are debt instruments whose interest rate and/or
principal redemption amounts are derived from other underlying instruments.
Indexed note swap agreements involve agreements to receive interest and/or
principal amounts associated with the indexed notes, denominated in either
U.S. dollars or a foreign currency, and to pay fixed or floating rates on
fixed U.S. dollar liabilities. In the event that a counterparty fails to
perform, TMCC's exposure is limited to the difference between the indexed
amounts that should have been received and the amounts that should have been
paid. TMCC does not anticipate nonperformance by any of its counterparties.
At March 31, 1995, TMCC was the counterparty to $1.9 billion of indexed note
swap agreements, of which $0.6 billion was denominated in foreign currencies
and $1.3 billion was denominated in U.S. dollars. At March 31, 1994, TMCC was
the counterparty to $1.9 billion of indexed note swap agreements, of which
$0.4 billion was denominated in foreign currencies and $1.5 billion was
denominated in U.S. dollars.
For all of its derivative financial instruments, TMCC manages counterparty
risk through the use of credit standard guidelines, counterparty
diversification and financial condition monitoring.
From time to time, TMS has made equity contributions to maintain TMCC's equity
capitalization at certain levels. Such levels have been periodically
established by TMS as it deems appropriate. No such equity contributions were
made during the first six months of fiscal 1995.
Cash flows provided by operating, investing and financing activities have been
used primarily to support growth in earning assets. During the six months
ended March 31, 1995, cash provided by the liquidation of earning assets,
totalling $5.6 billion was used to purchase additional finance receivables and
investments in operating leases, totalling $7.2 billion. Investing activities
resulted in a net use of cash of $1.6 billion as the purchase of additional
earning assets, primarily investments in operating leases, exceeded cash
provided by the liquidation of earning assets. Investing activities were also
supported by net cash provided by operating activities and net cash provided
by financing activities which totaled $864 million and $802 million,
respectively, during the first six months of fiscal 1995. Management of the
Company believes that cash provided by operating, investing and financing
activities will be sufficient to meet the Company's liquidity and capital
resource needs in the future.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Various legal actions, governmental proceedings and other claims
are pending or may be instituted or asserted in the future
against TMCC and its subsidiaries with respect to matters arising
from the ordinary course of business. Certain of these actions
are or purport to be class action suits. Two such suits involve
collateral protection practices and are similar to suits which
have been filed against other financial institutions and captive
finance companies. Court approval of a settlement agreement is
pending as to both collateral protection practices suits. At
this time, the Company believes any resulting liability from the
above legal actions, proceedings and other claims will not
materially affect its consolidated financial position or results
of operations.
ITEM 2. CHANGES IN SECURITIES.
There is nothing to report with regard to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There is nothing to report with regard to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
There is nothing to report with regard to this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed on the accompanying Exhibit Index, on page
18, are filed as part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
quarter ended March 31, 1995.
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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 12, 1995 By /S/ WOLFGANG JAHN
-------------------------------
Wolfgang Jahn
Group Vice President
and General Manager
(principal executive officer)
Date: May 12, 1995 By /S/ PATRICK BREENE
------------------------------
Patrick Breene
Corporate Manager -
Finance and Administration
(principal accounting officer)
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EXHIBIT INDEX
Exhibit Method
Number Description of Filing
- ------- ----------- ---------
12.1 Calculation of ratio of earnings to fixed charges. Filed
Herewith
27.1 Financial Data Schedule. Filed
Herewith
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