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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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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Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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7.55% Fixed Rate Medium-Term
Notes due January 30, 1997 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of November 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
ITEM 1. BUSINESS.
General
Toyota Motor Credit Corporation ("TMCC") provides retail leasing, retail and
wholesale financing and certain other financial services to authorized Toyota
and Lexus vehicle and Toyota industrial equipment dealers and their customers
in the United States (excluding Hawaii). TMCC is a wholly owned subsidiary
of Toyota Motor Sales, U.S.A., Inc. ("TMS" or the "Parent"). TMS is primarily
engaged in the wholesale distribution of automobiles, light trucks, industrial
equipment and related replacement parts and accessories throughout the United
States (excluding Hawaii). Substantially all of TMS's products are either
manufactured by its subsidiaries or are purchased from Toyota Motor
Corporation ("TMC"), the parent of TMS, or its affiliates.
TMCC was incorporated in California on October 4, 1982, and commenced
operations in May 1983. TMCC currently has 34 branches in various locations
in the United States. TMCC's retail leasing and retail and wholesale
financing programs are currently available in 44 states for Toyota vehicles
and 49 states for Lexus vehicles. TMCC has five wholly owned subsidiaries,
four of which are engaged in the insurance business and one limited purpose
subsidiary formed primarily to acquire and securitize retail finance
receivables. See Item 14, Exhibit 21.1. TMCC and its subsidiaries are
collectively referred to as the "Company".
An operating agreement between TMCC and TMS (the "Operating Agreement"), dated
January 16, 1984, provides that TMCC will establish its own financing rates
and is under no obligation to TMS to finance wholesale obligations from any
dealers or retail obligations of any customers. In addition, pursuant to the
Operating Agreement, TMS will arrange for the repurchase of new Toyota and
Lexus vehicles financed at wholesale by TMCC at the aggregate cost financed
in the event of dealer default. The Operating Agreement also specifies that
TMS will retain 100% ownership of TMCC as long as TMCC has any funded debt
outstanding and that TMS will make necessary equity contributions or provide
other financial assistance TMS deems appropriate to ensure that TMCC maintains
a minimum coverage on fixed charges of 1.25 times such fixed charges in any
fiscal quarter. The Operating Agreement does not constitute a guarantee by
TMS of any obligations of TMCC. The fixed charge coverage provision of the
Operating Agreement is solely for the benefit of the holders of TMCC's
commercial paper, and the Operating Agreement may be amended or terminated at
any time without notice to, or the consent of, holders of other TMCC
obligations.
Vehicle Leasing and Retail Financing
Leasing consists primarily of purchasing new vehicles leased to retail
customers by Toyota and Lexus dealers and certain used vehicles. TMCC holds
title to vehicles it leases and generally is permitted to take possession of
a vehicle upon default by the lessee. TMCC does not normally finance more
than 105% of the vehicle's Manufacturer's Suggested Retail Price and
accessories plus taxes, license fees and other fees. The present program is
a closed-end program, with lease terms typically ranging from 24 to 60 months.
Under the program, the lessee is granted an option to purchase the vehicle at
lease termination, and the dealer is granted the same option if the lessee
elects to return the vehicle. The purchase price is established at the
-2-
beginning of the lease and is based upon the estimated residual value of the
vehicle. Residual value risk on leased vehicles, which is directly assumed
by TMCC, is a function of the number of off-lease vehicles returned to TMCC
for disposition, and the difference between the amount of disposition proceeds
and the estimated residual value on returned vehicles. Off-lease vehicles
returned to TMCC are transported to various auction sites throughout the
United States and sold. TMCC requires lessees to carry fire, theft and
collision insurance on leased vehicles covering the interests of both TMCC and
the lessee. In addition, TMCC requires lessees to carry specified levels of
liability insurance. New vehicle leases constituted approximately 99% of all
vehicle lease earning assets at September 30, 1995. Vehicle lease earning
assets represented approximately 57% of total assets at September 30, 1995.
Retail financing consists of purchasing installment contracts covering the
sales of new Toyota and Lexus vehicles and certain used vehicles. TMCC
acquires a security interest in the vehicles it finances and recovery of
vehicles typically is permitted upon default, subject to various requirements
of law. TMCC does not normally finance more than the dealer cost of a vehicle
and accessories plus taxes, license fees and other fees, and premiums
refundable to TMCC in the event of contract termination. Typically, contract
terms range from 36 to 60 months for new vehicles and from 24 to 60 months for
used vehicles depending on the age of the vehicle. TMCC has both recourse and
non-recourse retail financing programs available to dealers. Dealers
participating in the non-recourse program are charged a higher discount rate
but do not have any financial responsibility for repossessions. As a result
of competitive market factors, substantially all of TMCC's retail financings
have been non-recourse. TMCC requires retail financing customers to carry
fire, theft and collision insurance on financed vehicles covering the
interests of both TMCC and the customer. In the event the customer fails to
maintain such insurance, TMCC has the right to obtain collateral protection
insurance. New vehicle retail finance receivables constituted approximately
79% of all vehicle retail finance receivables at September 30, 1995. Vehicle
retail finance receivables represented approximately 28% of total assets at
September 30, 1995.
Effective November 1, 1994, the Company discontinued the origination of retail
finance receivables for Toyota vehicles through an independent finance company
in five southeastern states. The existing portfolio that was originated on
TMCC's behalf by the independent finance company will continue to be serviced
by the independent finance company. The Company does not expect the
discontinuation of Toyota retail installment contract originations in the five
states to have a material adverse effect on the Company's financial condition
or results of operations.
-3-
A summary of vehicle leasing and retail financing activity follows:
Years Ended September 30,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Contract volume:
New vehicles......... 303,000 350,000 256,000 237,000 192,000
Used vehicles........ 46,000 64,000 56,000 56,000 52,000
-------- -------- -------- -------- --------
Total............. 349,000 414,000 312,000 293,000 244,000
======== ======== ======== ======== ========
Average amount financed:
New vehicles......... $21,000 $19,900 $17,900 $16,700 $14,600
Used vehicles........ $14,000 $12,600 $10,400 $9,400 $8,500
Outstanding portfolio at
period end ($Millions):
New vehicles...... $12,852 $11,603 $8,167 $6,910 $5,285
Used vehicles..... $942 $1,128 $877 $837 $695
Number of accounts 946,000 929,000 750,000 735,000 638,000
The outstanding balance of the sold retail finance receivables which TMCC
continues to service (not included in the above table) totaled $762 million
and $251 million, representing approximately 101,000 and 41,000 accounts, at
September 30, 1995 and 1994, respectively.
Vehicle Wholesale Financing
TMCC provides wholesale financing through a floating interest rate program
that assists Toyota and Lexus dealers, with approved lines of credit, in
carrying inventories of new Toyota and Lexus vehicles. Typically, financing
is provided for up to 100% of the dealer invoice value of new vehicles.
Dealers are required to make principal reductions with respect to specific
vehicles financed based on time in inventory or use as a customer
demonstrator. Used vehicle inventory financing is also offered, but financing
is subject to certain limitations. TMCC acquires security interests in the
vehicles it finances at wholesale, and substantially all such financings are
backed by corporate or individual guarantees from or on behalf of
participating dealers. In the event of a dealer default, TMCC has the right
to liquidate any assets acquired and seek legal remedies pursuant to the
guarantees. TMCC has no right, however, to recover a vehicle sold by a dealer
to a bona fide retail buyer and is limited to the remedies under its wholesale
financing agreement with the dealer. Pursuant to the Operating Agreement, TMS
will arrange for the repurchase of new Toyota and Lexus vehicles financed at
wholesale by TMCC at the aggregate cost financed in the event of a dealer
default. At September 30, 1995, finance receivables related to new vehicle
inventory financing represented approximately 92% of TMCC's total vehicle
wholesale finance receivables. Vehicle wholesale finance receivables
represented approximately 5% of total assets at September 30, 1995.
-4-
A summary of vehicle wholesale financing activity follows:
Years Ended September 30,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Dealer loans ($Millions)....... $7,626 $7,055 $6,378 $4,903 $3,409
Dealer repayments ($Millions).. $7,444 $7,032 $6,152 $4,745 $3,264
Average amount financed
per vehicle................. $18,999 $17,530 $16,500 $15,400 $14,200
Outstanding portfolio at
period end ($Millions)...... $886 $727 $703 $486 $339
Credit Losses
Credit losses are an expected cost in the business of extending credit and are
considered in TMCC's rate-setting process. TMCC's objective is to minimize
credit losses while providing financing support for the sale of Toyota and
Lexus products. TMCC's credit losses to date have been primarily from lease
and retail installment contracts.
Allowances for credit losses are established based primarily on historical
loss experience. Other factors affecting collectibility are also evaluated
in determining the amount to be provided. Upon repossession of the collateral
for a delinquent account, losses are charged to the allowance for credit
losses and the estimated realizable value of the asset is reclassified to
Other Assets. When it has been determined that the collateral cannot be
recovered, losses are charged to the allowance for credit losses. Recoveries
are credited to the allowance for credit losses.
-5-
An analysis of the allowance for credit losses follows:
Years ended September 30,
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1995 1994 1993 1992 1991
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(Dollars in Millions)
Allowance for credit losses
at beginning of period......... $164 $121 $107 $ 89 $70
Provision for credit losses....... 58 78 54 68 68
Charge-offs, net of recoveries.... (51) (35) (40) (50) (49)
---- ---- ---- ---- ---
Allowance for credit losses
at end of period............... $171 $164 $121 $107 $89
==== ==== ==== ==== ===
Allowance as a percent of net
investments in operating
leases and net receivables
outstanding.................... 1.10% 1.16% 1.17% 1.22% 1.31%
Losses as a percent of average
net investments in operating
leases and average gross
receivables outstanding........ .33% .28% .37% .56% .69%
Aggregate balances at end of
period for lease rentals
and installments 60
or more days past due.......... $20 $15 $16 $23 $24
Aggregate balances at end of
period for lease rentals
and installments 60 or more
days past due as a percent
of net investments in operating
leases and gross receivables
outstanding.................... .12% .10% .14% .23% .31%
Other Activities
The Company considers its primary business to be retail leasing and retail and
wholesale financing of vehicles. During fiscal 1995, 1994 and 1993, the
Company derived approximately 8%, 9% and 10%, respectively, of its total
revenues from operations other than its primary business. Operations other
than the Company's primary business include business related to the Company's
insurance subsidiaries and non-vehicle financing programs. The insurance
subsidiaries provide certain insurance services along with certain insurance
and contractual coverages related to the sale of vehicles. In addition, the
insurance subsidiaries insure and reinsure certain TMS and TMCC risks. See
Item 13. In June 1993, a limited purpose subsidiary, Toyota Motor Credit
Receivables Corporation ("TMCRC"), was formed primarily to acquire retail
finance receivables from TMCC for the purpose of securitizing such
-6-
receivables. In the fourth quarter of fiscal 1995, the Company sold
approximately $679 million of retail finance receivables, subject to limited
recourse provisions. See Note 6 to the Consolidated Financial Statements in
Item 8. TMCC provides financing of new vehicles for daily rental fleets
belonging to Toyota and Lexus dealers, independent fleet operators and retail
leasing companies owned by Toyota and Lexus dealers. Real estate and working
capital loans are also provided by TMCC to Toyota and Lexus vehicle dealers.
TMCC also provides wholesale financing as well as retail installment financing
and leasing to authorized Toyota industrial equipment dealers and their
customers in the United States (excluding Hawaii).
Competition and Government Regulations
The automobile finance industry in the United States is very competitive.
Commercial banks, savings and loan associations, credit unions, finance
companies and other captive automobile finance companies provide leasing and
retail financing for new and used vehicles. Commercial banks and other
captive automobile finance companies also provide wholesale financing for
Toyota and Lexus dealers. TMCC's strategy is to supplement, with competitive
financing programs, the overall commitment of TMS to offer a complete package
of services to authorized Toyota and Lexus dealers and their customers.
The finance and insurance operations of the Company are regulated under both
federal and state law. The degree and nature of regulation varies from state
to state. A majority of the states have enacted legislation establishing
licensing requirements to conduct retail and other finance and insurance
activities. Most states also impose limits on the maximum rate of finance
charges. In certain states, the margin between the present statutory maximum
interest rates and borrowing costs is sufficiently narrow that, in periods of
rapidly increasing or high interest rates, there could be an adverse effect
on TMCC's operations in these states if TMCC is unable to pass on the
increased interest costs to its customers.
The Company's operations are also subject to regulation under federal and
state consumer protection statutes. The Company continually reviews its
operations to comply with applicable law. Future administrative rulings,
judicial decisions and legislation in this area may require modification of
the Company's business practices and documentation.
Employee Relations
At November 30, 1995, the Company had approximately 1,969 full-time employees.
The Company considers its employee relations to be satisfactory.
-7-
Toyota Motor Sales, U.S.A., Inc.
TMS, a wholly owned subsidiary of TMC, was established in 1957 and is
primarily engaged in the wholesale distribution of automobiles, light trucks,
industrial equipment and related replacement parts and accessories throughout
the United States (excluding Hawaii). Additionally, TMS exports automobiles
and related replacement parts and accessories to Europe, Asia and United
States territories. TMS also manufactures certain automobiles through Toyota
Motor Manufacturing, U.S.A., Inc., a subsidiary owned 80% by TMS and 20% by
TMC, and began truck manufacturing operations in the United States in 1991
through TABC, Inc., a wholly owned subsidiary. TMS's corporate headquarters
are in Torrance, California, and TMS has port facilities, regional sales
offices and parts distribution centers at other locations in the United
States.
Toyota vehicles are distributed throughout the United States in twelve
regions, ten of which are operated by or through TMS. Previously, these ten
regions were operated by or through Toyota Motor Distributors, Inc. ("TMD"),
a wholly owned subsidiary of TMS. Effective October 1, 1995, TMD was merged
into TMS. The remaining two regions are serviced by private distributors who
purchase directly from TMS and distribute to Toyota dealers within their
respective regions. For the year ended September 30, 1995, these two
distributors, Gulf States Toyota, Inc. of Houston, Texas and Southeast Toyota
Distributors, Inc. of Deerfield Beach, Florida, accounted for approximately
31% of the Toyota vehicles sold in the United States (excluding Hawaii).
Lexus vehicles are directly distributed by TMS to Lexus dealers throughout the
United States (excluding Hawaii).
For the year ended September 30, 1995, TMS sold approximately 1,078,000
automobiles and light trucks in the United States (excluding Hawaii), of which
approximately 526,000 were manufactured in the United States, and exported
approximately 65,000 automobiles. TMS sales represented approximately 27% of
TMC's worldwide sales volume for the year ended March 31, 1995. For the years
ended September 30, 1995 and 1994, Toyota and Lexus vehicles accounted for
approximately 7.2% and 7.1%, respectively, of all retail automobile and light
truck sales in the United States.
Total revenues for TMS (together with its consolidated subsidiaries) for the
fiscal years ended September 30, 1995, 1994 and 1993, aggregated approximately
$26.2 billion, $23.3 billion and $20.9 billion, respectively, of which
approximately $23.7 billion, $21.5 billion and $19.5 billion, respectively,
were attributable to revenues other than those associated with financial
services. At September 30, 1995, 1994 and 1993, TMS had total assets of
approximately $21.1 billion, $19.5 billion and $15.8 billion, respectively,
and net worth in excess of $4.6 billion, $4.3 billion and $4.1 billion,
respectively. TMS had net income in excess of $250 million in each of its
last three fiscal years.
-8-
ITEM 2. PROPERTIES.
The headquarters of the Company is in Torrance, California and its 34 branch
offices are located in various cities throughout the United States. At
September 30, 1995, all of the Company's offices were in leased facilities and
were occupied. The Company has periodically expanded or relocated existing
offices to meet current or anticipated needs. From time to time, the Company
has also opened additional branch offices to better serve its customers. The
Company anticipates being able to continue to obtain adequate space to conduct
its business.
ITEM 3. LEGAL PROCEEDINGS.
Various legal actions, governmental proceedings and other claims are pending
or may be instituted or asserted in the future against TMCC and its
subsidiaries with respect to matters arising from the ordinary course of
business. Certain of these actions are or purport to be class action suits.
Certain of these actions are similar to suits which have been filed against
other financial institutions and captive finance companies. At this time, the
Company believes any resulting liability from the above legal actions,
proceedings and other claims will not materially affect its consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of TMCC's capital stock is owned by TMS and there is no trading market for
such stock. No dividends have been declared or paid to date.
-9-
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended September 30,
1995 has been derived from financial statements audited by Price Waterhouse
LLP, independent accountants. The following information should be read in
conjunction with the audited financial statements and notes thereto included
in Item 8 and with Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Years Ended September 30,
--------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(Dollars in Millions)
INCOME STATEMENT DATA
Financing Revenues:
Leasing........................... $1,904 $1,230 $ 747 $447 $216
Retail financing.................. 431 413 468 485 446
Wholesale and other
dealer financing............... 121 86 80 65 64
------ ------ ------ ---- ----
Total financing revenues.......... 2,456 1,729 1,295 997 726
Interest expense.............. 716 486 454 450 390
Depreciation on operating leases.. 1,232 735 381 178 42
------ ------ ------ ---- ----
Net financing revenues............ 508 508 460 369 294
Other revenues.................... 108 95 77 53 39
------ ------ ------ ---- ----
Net Financing Revenues
and Other Revenues............. 616 603 537 422 333
------ ------ ------ ---- ----
Expenses:
Operating and administrative...... 258 232 228 179 130
Provision for credit losses....... 58 78 54 68 68
------ ------ ------ ---- ----
Total Expenses.................... 316 310 282 247 198
------ ------ ------ ---- ----
Income before income taxes........ 300 293 255 175 135
Provision for income taxes........ 117 118 97 68 52
------ ------ ------ ---- ----
Net Income........................ $ 183 $ 175 $ 158 $107 $ 83
====== ====== ====== ==== ====
- -----------------
(Table Continued)
-10-
September 30,
------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------ ------ ------
(Dollars in Millions)
BALANCE SHEET DATA
Investments in operating
leases, net............ $8,148 $6,215 $3,050 $1,699 $604
Finance receivables, net.. $7,141 $7,776 $7,206 $6,983 $6,070
Total assets.............. $16,138 $14,733 $11,159 $9,444 $7,138
Notes and loans payable... $12,696 $11,833 $8,833 $7,705 $5,816
Capital stock......... $865 $865 $680 $630 $550
Retained earnings..... $844 $662 $487 $329 $222
RATIO OF EARNINGS TO
FIXED CHARGES.. 1.42 1.60 1.56 1.39 1.34
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To maintain the fixed charge coverage at the level specified in the
Operating Agreement, TMS on occasion, has made noninterest-bearing
advances and income maintenance payments to TMCC. No such
noninterest-bearing advances and income maintenance payments were made
in fiscal 1995, 1994, 1993, 1992 and 1991.
$10,000 par value per share.
The Company has paid no dividends to date.
The ratio of earnings to fixed charges was computed by dividing (i) the
sum of income before income taxes and fixed charges by (ii) fixed
charges. Fixed charges consist primarily of interest expense net of
the effect of noninterest-bearing advances. The ratio of earnings to
fixed charges for TMS and subsidiaries was 1.74, 1.90, 2.07, 1.83 and
2.54 for the years ended September 30, 1995, 1994, 1993, 1992 and 1991,
respectively. 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
September 30, 1995, 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. See Item 13.
-11-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Introduction
The earnings of TMCC are primarily affected by interest margins and the
average outstanding balance of earning assets and borrowing levels. The
interest rates implicit in leases and charged on retail finance receivables
are fixed at the time acquired. Yields on the majority of wholesale
receivables and other loans to dealers vary with changes in short-term
interest rates. Funding requirements are primarily met through net cash
provided by operating activities, earning asset liquidations and the issuance
of debt obligations of varying terms at both fixed and floating interest
rates. TMCC utilizes interest rate swap agreements and cross currency
interest rate swap agreements as part of its financing activities and in
managing its cost of borrowings.
The Company's business is dependent upon the sale of Toyota and Lexus vehicles
in the United States. Lower levels of sales of such vehicles resulting from
governmental action, decline in demand, changes in pricing due to the
appreciation of the Japanese yen against the United State 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.
Financial Condition and Results of Operations
TMCC's earning assets, consisting of investments in operating leases and
finance receivables, totaled $15.5 billion at September 30, 1995, compared to
$14.2 billion at September 30, 1994. The increase in earning assets was
primarily the result of growth in lease earning assets.
Lease earning assets, consisting of lease finance receivables, net of unearned
income, and investments in operating leases, net of accumulated depreciation,
totaled $9.5 billion and $7.7 billion at September 30, 1995 and 1994,
respectively. Lease earning assets increased from September 30, 1994
primarily due to operating lease additions exceeding operating lease
dispositions as a result of the effect of special lease programs sponsored by
TMS and the increased acceptance of leasing by retail consumers. The Company
anticipates further growth in lease earning assets as special lease programs
and the increased acceptance of leasing by retail consumers continue.
Retail finance receivables, net of unearned income, were $4.7 billion and
$5.4 billion at September 30, 1995 and 1994, respectively. Retail finance
receivables decreased from September 30, 1994 primarily due to the sale of
approximately $679 million of retail finance receivables in the fourth quarter
of fiscal 1995.
Wholesale receivables and other dealer loans were $1.2 billion at
September 30, 1995 and $1.1 billion at September 30, 1994. The increase in
these receivables resulted primarily from the higher average receivables
balance outstanding per dealer.
-12-
Contract volume related to TMCC's vehicle leasing and retail financing
programs is summarized below:
Years Ended September 30,
-----------------------------
1995 1994 1993
------- ------- -------
Contract volume:
Vehicle lease contracts............... 179,000 204,000 112,000
Vehicle retail installment contracts.. 170,000 210,000 200,000
------- ------- -------
Total.............................. 349,000 414,000 312,000
======= ======= =======
Total contract volume decreased in fiscal 1995 due to declines in vehicle
lease and retail installment contract volume. The vehicle lease contract
volume decrease was due to a decline in the level of Toyota special lease
programs sponsored by TMS which was partially offset by increases in the level
of vehicle lease contract volume under programs not sponsored by TMS. The
decrease in vehicle retail installment contract volume was primarily due to
increased competition in new and used vehicle financing, and to a lesser
extent, discontinuing the origination of Toyota retail installment contracts
through an independent finance company. Although further declines in new and
used vehicle financing are possible, the Company has taken various steps to
enhance both programs' competitive positions. Total contract volume increased
in fiscal 1994 due primarily to the increased leasing of both Toyota and Lexus
vehicles. The increased leasing was primarily attributable to the growth in
special lease programs sponsored by TMS and the increased acceptance of
leasing in the vehicle retail sales market.
Under special programs sponsored by TMS, TMCC offers reduced monthly payments
on certain Toyota and Lexus new vehicles and Toyota industrial equipment to
qualified lease and retail customers and receives an amount from TMS, and in
some cases, dealers, for each lease and retail installment contract. Amounts
received approximate the balances required by TMCC to maintain revenues at
standard program levels and are earned over the expected lease and retail
installment contract terms. The level of sponsored program activity varies
based on TMS marketing strategies. Revenues earned depend not only on the
level of TMS programs offered, but on the mix of Toyota and Lexus vehicles,
the timing of TMS programs, and the amount of reduced monthly payments
determined by TMS. TMCC's revenues earned in fiscal 1995, 1994 and 1993
related to all TMS programs were $134 million, $54 million and $25 million,
respectively.
-13-
TMCC leased or financed ("finance penetration") the following percentages of
new Toyota and Lexus vehicle deliveries (excluding fleet) in the United States
(excluding Hawaii):
Years Ended September 30,
-----------------------------
1995 1994 1993
------- ------- -------
Finance penetration...................... 31.8% 36.7% 27.1%
Total finance penetration decreased in fiscal 1995 primarily due to a decline
in the level of special lease programs and increased in fiscal 1994 primarily
due to an increase in the level of special lease programs.
Total financing revenues increased 42% in fiscal 1995 and 34% in fiscal 1994.
The increases resulted primarily from earning asset growth.
During fiscal 1995 and 1994, TMCC's primary source of revenue and earning
asset growth was leasing. Leasing revenues increased 55% and 65% in fiscal
1995 and 1994, respectively, primarily due to growth in average lease earning
assets. The Company anticipates further growth in leasing revenues as special
lease programs sponsored by TMS and the increased acceptance of leasing by
retail consumers are expected to continue to result in increases in lease
earning assets.
Retail financing revenues increased 4% in fiscal 1995 and decreased 12% in
fiscal 1994. The increase in revenues in fiscal 1995 resulted from the growth
in average retail finance receivables outstanding partially offset by a
decrease in portfolio yields. The decrease in revenues in fiscal 1994 was due
to a decrease in portfolio yields. The decrease in portfolio yields resulted
from lower yielding contracts replacing liquidating higher yielding contracts.
Lower yielding contracts are the result of the effect of competitive market
conditions.
Wholesale and other dealer financing revenues increased 41% in fiscal 1995 and
8% in fiscal 1994. The increased revenues in fiscal 1995 resulted primarily
from higher average wholesale receivable balances and increases in wholesale
financing rates. The increased revenues in fiscal 1994 resulted primarily
from higher average wholesale receivable balances.
Interest expense increased 47% in fiscal 1995, compared with a 7% increase in
fiscal 1994. The increase in fiscal 1995 resulted from higher average
borrowing levels required to fund the growth in earning assets and increases
in the average cost of borrowings. The increase in fiscal 1994 resulted from
higher average borrowing levels required to fund the growth in earning assets
which was substantially offset by decreases in the average cost of borrowings.
The decreases in the average cost of borrowings resulted primarily from lower
fixed rate borrowings replacing maturing higher fixed rate borrowings.
The weighted average cost of borrowings was 5.78%, 4.94% and 5.57% for the
years ended September 30, 1995, 1994 and 1993, respectively.
-14-
Depreciation on operating leases increased 68% and 93% in fiscal 1995 and
1994, respectively, as a result of growth in investments in operating leases.
The Company anticipates higher depreciation on operating leases in fiscal 1996
due to anticipated growth in investments in operating leases.
Investments in operating leases are recorded at cost and depreciated,
primarily on a straight-line basis over the lease term to the estimated
residual value. Finance leases are recorded at cost and amortized using the
effective yield method to the estimated residual value. The estimated residual
value may be less than the purchase option price established at lease
inception. The estimated residual values are derived by vehicle model and
lease term from, among other things, market information on sales of used
vehicles, historical information, including lease vehicle return trends, and
economic factors. Residual values totaled approximately $6.6 billion and
$4.8 billion at September 30, 1995 and 1994, respectively. TMCC's residual
value risk is a function of the number of off-lease vehicles returned to TMCC
for disposition, and the difference between the amount of disposition proceeds
and the estimated residual value on returned vehicles. TMCC actively manages
the disposition of its lease vehicles by working with lessees, dealers and
auctions through end-of-lease-term remarketing programs. In addition, lease
vehicles scheduled to mature are inspected and lessees are charged for excess
wear and tear, excess mileage and any damages to the vehicle. During fiscal
1995, 1994 and 1993, approximately 11%, 12% and 15%, respectively, of lease
vehicles originally scheduled to mature in those years were returned to TMCC.
The difference between the total disposition proceeds from off-lease vehicles
returned to TMCC and their estimated residual values was not material to the
results of operations for each of the three years ended September 30, 1995.
As the lease portfolio matures, management anticipates that the level of
vehicle lease returns will increase; however, management believes that its
lease earning assets are recorded at net realizable value.
Net financing revenues remained relatively level in fiscal 1995 as the
increase in the level of earning assets was offset by declining interest
margins. Net financing revenues increased 10% in fiscal 1994 as the growth
in the level of earning assets was partially offset by declining interest
margins. Interest margin is the excess of the combined interest rate yield
implicit in leases and on finance receivables over the effective interest rate
cost of total borrowings. Lower interest margins in fiscal 1995 were the
result of lower portfolio yields on lease and retail installment contracts and
higher average borrowing costs as compared to fiscal 1994. Lower interest
margins in fiscal 1994 were the result of portfolio yields on lease and retail
installment contracts decreasing more rapidly than the decline in average
borrowing costs.
Other revenues increased 14% in fiscal 1995 and 23% in fiscal 1994. The
increase in other revenues in fiscal 1995 was primarily due to growth in the
Company's insurance operations. The increase in other revenues in fiscal 1994
resulted from the growth in the Company's insurance operations and from
servicing and other income related to the retail finance receivables sold in
fiscal 1993.
Operating and administrative expenses increased 11% and 2% in fiscal 1995 and
1994, respectively. These increases reflected costs for the growth in the
Company's insurance operations and costs for additional personnel and other
-15-
resources required to service the Company's growing customer base. The
Company anticipates that operating and administrative expenses for fiscal 1996
will continue to increase as a result of the Company's growing customer base.
The provision for credit losses decreased 26% in fiscal 1995 and increased 44%
in fiscal 1994. The decrease in fiscal 1995 was due to the effect of the sale
of retail finance receivables, a decline in the level of earning asset growth
and a change in allowance levels. The provision for credit losses excludes
the limited recourse loss provision for the sold receivables which was netted
against the gain recognized on the sale of finance receivables. The allowance
levels declined as a result of changes in the mix of earning assets and the
Company's low credit loss experience. The provision for credit losses
increased 44% in fiscal 1994 as a result of the increased growth in the level
of earning assets partially offset by favorable credit loss experience. The
favorable trend in credit loss experience is attributable, in part, to
enhanced credit granting procedures, collection efforts and the mix in earning
assets. The Company continues to experience 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.
Operating profits (reflected as "Income before income taxes") increased 2% in
fiscal 1995 and 15% in fiscal 1994. The increase in operating profits and net
income in fiscal 1995 was primarily due to a decline in the provision for
credit losses offset by increases in operating expenses. The increase in
operating profits and net income in fiscal 1994 was primarily the result of
the growth in the level of earning assets, decreases in the average cost of
borrowings and favorable credit loss experience.
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 both fiscal 1995 and 1994, TMCC
did not receive any financial support from TMS. See Item 13.
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 to a lesser extent, the sale of retail finance receivables in the asset
backed securities market. On occasion, this funding has been supplemented by
loans and equity contributions from TMS.
Commercial paper 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
$2.6 billion during fiscal 1995, with an average outstanding balance of
$1.8 billion. For additional liquidity purposes, TMCC maintains syndicated
bank credit facilities with certain banks which aggregated $1.5 billion at
September 30, 1995. No loans were outstanding under any of these bank credit
facilities during fiscal 1995. TMCC also maintains, along with TMS,
uncommitted, unsecured lines of credit with banks totaling $300 million to
facilitate the issuance of letters of credit. At September 30, 1995,
approximately $86 million in letters of credit had been issued, primarily
related to the Company's insurance operations.
-16-
On occasion, 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. The average outstanding balance of loans from TMS
during fiscal 1995 was not material.
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. United States and Euro MTNs with original maturities ranging
from one to ten years have provided TMCC with a significant source of funding.
During fiscal 1995, TMCC issued approximately $3.8 billion of MTNs of which
approximately $3.4 billion had original maturities of more than one year.
TMCC had approximately $8.7 billion of MTNs outstanding at September 30, 1995,
including the effect of foreign currency translation at September 30, 1995
spot exchange rates. Approximately $3.6 billion of the $8.7 Billion in MTNs
was denominated in foreign currencies. In addition to MTNs, TMCC had
approximately $2.5 billion of debt securities outstanding in the international
capital markets at September 30, 1995, including the effect of foreign
currency translations at September 30, 1995 spot exchange rates, issued
principally in the form of Eurobonds. Approximately $2.0 billion of the
$2.5 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 November 30, 1995, approximately
$1.6 billion was available for issuance under TMCC's United States public MTN
program. In July 1995, the Company expanded the maximum aggregate principal
amount authorized to be outstanding at any time under TMCC's Euro MTN program
from $6.5 billion to $9.5 billion. Approximately $3.2 billion was available
for issuance under the Euro MTN program as of November 30, 1995, of which the
Company has committed to issue approximately $200 million. The United States
and Euro MTN programs may be expanded from time to time to allow for the
continued use of these sources of funding. In addition, approximately
$700 million of securities registered with the Securities and Exchange
Commission, excluding MTNs, were available for issuance at November 30, 1995.
Cash flows provided by operating, investing and financing activities have been
used primarily to support earning asset growth. Cash provided by the
liquidation of earning assets, totaling $11.9 billion and $10.8 billion during
fiscal 1995 and 1994, respectively, was used to purchase additional
investments in operating leases and finance receivables, totaling
$15.1 billion and $15.3 billion during fiscal 1995 and 1994, respectively.
Additionally, in the fourth quarter of fiscal 1995, the Company generated
proceeds of $653 million from the sale of a pool of retail finance
receivables. Investing activities resulted in a net use of cash of
$2.7 billion and $4.5 billion in fiscal 1995 and 1994, respectively, 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 totaling $1.8 billion and $1.3 billion during fiscal 1995 and 1994,
respectively, and net cash provided by financing activities totaling
$0.7 billion and $3.0 billion, during fiscal 1995 and 1994, respectively. 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.
-17-
TMCC utilizes derivative financial instruments to manage its currency
exchange rate risk arising as a result of borrowings denominated in foreign
currencies and its interest rate risk. The underlying notional amounts of the
derivative financial instruments are not exchanged and do not represent
exposure to credit loss. TMCC does not enter into these instruments for
trading purposes. TMCC manages counterparty risk through the use of credit
standard guidelines, counterparty diversification and financial condition
monitoring. At September 30, 1995, approximately 82% 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. The credit exposure of TMCC's derivative
financial instruments at September 30, 1995 was $509 million on an aggregate
notional amount of $17.4 billion.
TMCC utilizes cross currency interest rate swap agreements to manage exposure
to exchange rate fluctuations on principal and interest payments for
borrowings denominated in foreign currencies. Debt issued in foreign
currencies is hedged by concurrently executed cross currency interest rate
swap agreements. These cross currency interest rate swap agreements involve
agreements to exchange TMCC's foreign currency principal and interest
obligations for U.S. dollar obligations at agreed-upon currency exchange rates
and interest rates. In the event that a counterparty fails to perform, TMCC's
credit exposure is limited to the currency exchange and interest rate
differential between the non-performing swap and the corresponding debt
transaction.
TMCC utilizes interest rate swap agreements and option-based products in
managing its exposure to interest rate fluctuations. The mix of fixed and
floating interest rates on TMCC's debt outstanding is periodically adjusted
through the use of interest rate swap agreements and other option-based
products. Interest rate swap agreements are executed as an integral part of
specific debt transactions or on a portfolio basis. TMCC's interest rate swap
agreements involve agreements to pay at a certain fixed or floating rate and
to receive payments at a different rate, at specified intervals, calculated
on an agreed-upon notional amount. In the event that a counterparty fails to
perform, TMCC's credit exposure is limited to the interest rate differential.
Option-based products consist primarily of purchased interest rate cap
agreements and, to a lesser extent, corridor agreements. An interest rate
increase of 1% (100 basis points) would raise TMCC's weighted average interest
rate, including the effects of interest rate swap agreements and option-based
products, by .42%, from 5.96% to an estimated 6.38% at September 30, 1995.
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 .46%, from 5.96% to an estimated
5.50% at September 30, 1995.
-18-
A reconciliation of the activity of TMCC's derivative financial instruments
for the years ended September 30, 1995 and 1994 is as follows:
September 30,
------------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------ ------------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
Beginning Notional Amount....... $4.0 $2.8 $7.6 $6.0 $0.5 $0.4 $2.4 $1.4
Add:
New agreements............... 1.6 2.0 1.9 3.5 3.3 0.5 0.5 1.6
Less:
Terminated agreements........ - - - - - - - -
Expired agreements........... 0.8 0.8 2.4 1.9 - 0.4 1.2 0.6
---- ---- ---- ---- ---- ---- ---- ----
Ending Notional Amount.......... $4.8 $4.0 $7.1 $7.6 $3.8 $0.5 $1.7 $2.4
==== ==== ==== ==== ==== ==== ==== ====
For additional information regarding TMCC's use of derivatives financial
instruments, see Item 8 -- Notes 2, 9, 10 and 11 to the Consolidated Financial
Statements.
On occasion, 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 fiscal 1995. During the year ended September 30, 1994, TMS made
equity contributions to TMCC by purchasing, at par value, all newly issued
shares of TMCC's capital stock in the amount of $185 million.
Recently Enacted Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("Statement No. 121"). Statement No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used and long-lived assets and certain identifiable intangibles to be
disposed of. Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition,
Statement No. 121 requires that certain long-lived assets and intangibles to
be disposed of be reported at the lower of carrying amount or fair value less
cost to sell. Statement No. 121 is effective for fiscal years beginning after
December 15, 1995. The Company has not determined the impact that the
adoption of this accounting standard will have on its financial position or
results of operations. The Company plans to adopt Statement No. 121 in the
first interim period of fiscal 1997.
-19-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
-------
Report of Independent Accountants................................ 21
Consolidated Balance Sheet at September 30, 1995 and 1994........ 22
Consolidated Statement of Income for the
years ended September 30, 1995, 1994 and 1993................. 23
Consolidated Statement of Shareholder's Equity for
the years ended September 30, 1995, 1994 and 1993............. 24
Consolidated Statement of Cash Flows for the
years ended September 30, 1995, 1994 and 1993................. 25
Notes to Consolidated Financial Statements....................... 26 - 51
All schedules have been omitted because they are not required, not
applicable, or the information has been included elsewhere.
-20-
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholder of
Toyota Motor Credit Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Toyota
Motor Credit Corporation (a wholly owned subsidiary of Toyota Motor Sales,
U.S.A., Inc.) and its subsidiaries at September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Toyota Motor Credit Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/S/ PRICE WATERHOUSE LLP
Los Angeles, California
October 31, 1995
-21-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
September 30,
-----------------------
1995 1994
-------- --------
ASSETS
------
Cash and cash equivalents................. $ 108 $ 277
Investments in marketable securities...... 169 102
Investments in operating leases, net...... 8,148 6,215
Finance receivables, net.................. 7,141 7,776
Receivable from Parent.................... 50 37
Other receivables......................... 350 235
Deferred charges.......................... 85 36
Income taxes receivable................... 6 -
Other assets.............................. 81 55
------- -------
Total Assets..................... $16,138 $14,733
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $12,696 $11,833
Accrued interest.......................... 190 156
Accounts payable and accrued expenses..... 857 727
Unearned insurance premiums............... 59 73
Income taxes payable...................... - 31
Deferred income taxes..................... 627 386
------- -------
Total liabilities................... 14,429 13,206
------- -------
Commitments and contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 86,500 in 1995 and
1994)............................... 865 865
Retained earnings...................... 844 662
------- -------
Total shareholder's equity.......... 1,709 1,527
------- -------
Total Liabilities and
Shareholder's Equity............. $16,138 $14,733
======= =======
See Accompanying Notes to Consolidated Financial Statements.
-22-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
Years ended September 30,
----------------------------------
1995 1994 1993
------ ------ ------
Financing Revenues:
Leasing................................. $1,904 $1,230 $ 747
Retail financing........................ 431 413 468
Wholesale and other dealer financing.... 121 86 80
------ ------ ------
Total financing revenues................... 2,456 1,729 1,295
Interest expense........................ 716 486 454
Depreciation on operating leases........ 1,232 735 381
------ ------ ------
Net financing revenues..................... 508 508 460
Other revenues............................. 108 95 77
------ ------ ------
Net Financing Revenues and Other Revenues.. 616 603 537
------ ------ ------
Expenses:
Operating and administrative............ 258 232 228
Provision for credit losses............. 58 78 54
------ ------ ------
Total Expenses............................. 316 310 282
------ ------ ------
Income before income taxes................. 300 293 255
Provision for income taxes................. 117 118 97
------ ------ ------
Net Income................................. $ 183 $ 175 $ 158
====== ====== ======
See Accompanying Notes to Consolidated Financial Statements.
-23-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)
Capital Retained
Stock Earnings Total
------- -------- -------
Balance at September 30, 1992.......... $630 $329 $ 959
Issuance of capital stock.............. 50 - 50
Net income in 1993..................... - 158 158
---- ---- ------
Balance at September 30, l993.......... 680 487 1,167
Issuance of capital stock.............. 185 - 185
Net income in 1994..................... - 175 175
---- ---- ------
Balance at September 30, 1994.......... 865 662 1,527
Net income in 1995..................... - 183 183
Net unrealized holding losses on
marketable securities............... - (1) (1)
---- ---- ------
Balance at September 30, 1995.......... $865 $844 $1,709
==== ==== ======
See Accompanying Notes to Consolidated Financial Statements.
-24-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
Years ended September 30,
---------------------------------
1995 1994 1993
------ ------ ------
Cash flows from operating activities:
Net income.......................................... $ 183 $ 175 $ 158
------ ------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 1,286 743 382
Provision for credit losses.................... 58 78 54
Gain from sale of finance receivables.......... (6) - (12)
Increase in accrued interest................... 34 8 24
Decrease in unearned insurance premiums........ (14) (13) (21)
Increase (decrease) in deferred
income taxes................................ 241 108 (1)
(Increase) decrease in other assets............ (45) (24) 47
Increase in other liabilities.................. 85 180 215
------ ------ ------
Total adjustments................................... 1,639 1,080 688
------ ------ ------
Net cash provided by operating activities.............. 1,822 1,255 846
------ ------ ------
Cash flows from investing activities:
Additions to investments in marketable
securities....................................... (90) (86) (174)
Disposition of investments in marketable
securities....................................... 24 120 139
Purchase of finance receivables..................... (11,005) (10,868) (9,936)
Liquidations of finance receivables................. 10,941 10,263 9,159
Proceeds from sale of finance receivables........... 653 - 466
Additions to investments in operating leases........ (4,123) (4,468) (1,974)
Disposition of investments in operating leases...... 927 525 225
------ ------ ------
Net cash used in investing activities.................. (2,673) (4,514) (2,095)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of capital stock............. - 185 50
Proceeds from issuance of notes and loans payable... 5,733 5,150 2,848
Payments on notes and loans payable................. (4,989) (2,955) (1,246)
Net increase (decrease) in commercial paper,
with original maturities less than 90 days....... (62) 582 (40)
------ ------ ------
Net cash provided by financing activities.............. 682 2,962 1,612
------ ------ ------
Net increase (decrease) in cash and cash equivalents... (169) (297) 363
Cash and cash equivalents at the beginning
of the period....................................... 277 574 211
------ ------ ------
Cash and cash equivalents at the end of the
period.............................................. $ 108 $ 277 $ 574
====== ====== ======
Supplemental disclosures:
Interest paid....................................... $643 $475 $440
Income taxes paid................................... $2 $64 -
See Accompanying Notes to Consolidated Financial Statements.
-25-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations
- -----------------------------
Toyota Motor Credit Corporation ("TMCC") provides retail and wholesale
financing, retail leasing and certain other financial services to
authorized Toyota and Lexus vehicle and Toyota industrial equipment
dealers and their customers in the United States (excluding Hawaii).
TMCC is a wholly owned subsidiary of Toyota Motor Sales, U.S.A., Inc.
("TMS" or the "Parent"). TMS is primarily engaged in the wholesale
distribution of automobiles, trucks, industrial equipment and related
replacement parts and accessories throughout the United States
(excluding Hawaii). Substantially all of TMS's products are either
manufactured by its subsidiaries or are purchased from Toyota Motor
Corporation (the parent of TMS) or its affiliates.
TMCC has five wholly owned subsidiaries, Toyota Motor Insurance
Services, Inc. ("TMIS"), Toyota Motor Insurance Corporation of Vermont
("TMICV"), Toyota Motor Insurance Company ("TMIC"), Toyota Motor Life
Insurance Company ("TLIC") and Toyota Motor Credit Receivables
Corporation ("TMCRC"). TMCC and its wholly owned subsidiaries are
collectively referred to as the "Company". The insurance subsidiaries
provide certain insurance services along with certain insurance and
contractual coverages related to the sale of vehicles. In addition,
the insurance subsidiaries insure and reinsure certain TMS and TMCC
risks. TMCRC, a limited purpose subsidiary, was formed in June 1993
primarily to acquire retail finance receivables from TMCC for the
purpose of securitizing such receivables.
The Company's business 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.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of TMCC and
its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
Revenue Recognition
-------------------
Revenue from retail financing contracts and finance leases is
recognized using the effective yield method. Revenue from operating
leases is recognized on a straight-line basis over the lease term.
-26-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Cash and Cash Equivalents
-------------------------
Cash equivalents, consisting primarily of money market instruments and
debt securities, represent highly liquid investments with original
maturities of three months or less.
Investments in Marketable Securities
------------------------------------
Investments in marketable securities consist of debt and equity
securities. Debt securities designated as held-to-maturity are carried
at amortized cost and are reduced to net realizable value for other
than temporary declines in market value. Debt and equity securities
designated as available-for-sale are carried at fair value with
unrealized gains or losses included in shareholder's equity, net of
applicable taxes. Realized investment gains and losses, which are
determined on the specific identification method, are reflected in
income.
Investments in Operating Leases
-------------------------------
Vehicle and equipment leases to third parties are originated by dealers
and acquired by TMCC, which assumes ownership of the property. TMCC is
also the lessor on certain property that it acquires directly.
Investments in operating leases are recorded at cost and depreciated,
primarily on a straight-line basis, over the lease term to the
estimated residual value.
Allowance for Credit Losses
---------------------------
Allowances for credit losses are established based primarily on
historical loss experience. Other factors affecting collectibility are
also evaluated in determining the amount to be provided. Upon
repossession of the collateral for a delinquent account, losses are
charged to the allowance for credit losses and the estimated realizable
value of the asset is reclassified to Other Assets. When it has been
determined that the collateral cannot be recovered, losses are charged
to the allowance for credit losses. Recoveries are credited to the
allowance for credit losses.
Deferred Charges
----------------
Deferred charges consist primarily of premiums paid for option-based
products, underwriters' commissions and other long-term debt issuance
expenses, which are amortized to Interest Expense over the life of the
related instruments on a straight-line basis.
-27-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Insurance Operations
--------------------
Revenues from insurance premiums and from providing coverage under
various contractual agreements are earned over the terms of the
respective policies and agreements in proportion to estimated claims
activity. Certain costs of acquiring new business, consisting of
commissions, premium taxes and other costs, are deferred and amortized
over the terms of the related policies on the same bases as revenues
are earned. The liability for reported losses and the estimate of
unreported losses is recorded in Accounts Payable and Accrued Expenses.
Commission income and fee income are recognized in relation to the
level of services performed.
Interest Rate Swap Agreements
-----------------------------
TMCC utilizes interest rate swap agreements in managing its exposure to
interest rate risk. 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 as an adjustment to Interest Expense over the term of the
agreements. Master netting agreements, with all interest rate swap
agreement counterparties, also exist allowing the net difference
between counterparties to be exchanged in the event of default.
Cross Currency Interest Rate Swap Agreements
--------------------------------------------
TMCC's senior debt issued in foreign currencies is hedged by
concurrently executed cross currency interest rate swap agreements.
These cross currency interest rate swap agreements involve the exchange
of foreign currency principal and interest obligations for U.S. dollar
principal and interest obligations. TMCC's foreign currency debt is
translated into U.S. dollars in the financial statements at the various
foreign currency spot exchange rates in effect at the balance sheet
date. The receivables or payables, arising as a result of the
differences between the September 30, 1995 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.
-28-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Income Taxes
------------
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement
No. 109"). The adoption of Statement No. 109 changed the method of
accounting for income taxes from a deferred method to a liability
method. This method differs from the previously used method in that
deferred tax assets and liabilities are adjusted to reflect changes in
tax rates and laws in the period such changes are enacted resulting in
adjustments to the current period's income statement. The cumulative
effect of the change in accounting principle was not material to the
Company. In addition, there was no material effect on fiscal 1994
income. The fiscal 1993 financial statements have not been restated.
The Company joins with TMS in filing consolidated federal income tax
returns and combined or consolidated income tax returns in certain
states. Federal and state income tax is provided on a separate return
basis. Prior to October 1, 1994, for states where a combined or
consolidated income tax return was filed, state income taxes were
allocated to the Company by TMS based upon the Company's apportionment
factors and income in those states. There was no material effect to
the financial position or results of operations as a result of the
change in the method of allocating state income taxes.
Reclassifications
-----------------
Certain 1994 accounts have been reclassified to conform with the 1995
presentation.
Note 3 - Investments in Marketable Securities
- ---------------------------------------------
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.
-29-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities (Continued)
- ---------------------------------------------
The fair value of marketable securities was estimated using quoted
market prices as of September 30, 1995.
Information with respect to the Company's investments in marketable
securities was as follows:
September 30, 1995
-------------------------------------
Gross Unrealized
Fair -----------------
Cost Value Gains Losses
-------- ------ ----- ---------
(Dollars in Millions)
Available-for-sale securities:
Equity securities................... $115 $114 $(1) $2
Mortgage-backed securities.......... 33 33 - -
U.S. debt securities................ 12 12 - -
---- ---- ----- ---
Total available-for-sale securities.... 160 159 $(1) $2
===== ===
Excess of cost over fair value...... (1)
----
Available-for-sale securities.......... $159 $159
==== ====
Held-to-maturity securities:
U.S. debt securities................ $ 10 $ 10
==== ====
Total marketable securities...... $169 $169
==== ====
The contractual maturities of investments in marketable securities at
September 30, 1995 are summarized as follows:
Available-for-Sale Held-to-Maturity
Securities Securities
------------------ ----------------
Fair Fair
Cost Value Cost Value
---- ----- ---- -------
(Dollars in Millions)
Within one year..................... $ 11 $ 11 $ 9 $ 9
After one year through five years... 1 1 1 1
After five years through ten years.. - - - -
Mutual funds........................ 115 114 - -
Mortgage-backed securities.......... 33 33 - -
---- ---- --- ---
Total............................ $160 $159 $10 $10
==== ==== === ===
The proceeds from sales of available-for-sale securities were $7 million
for the year ended September 30, 1995.
-30-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Investments in Operating Leases
- ----------------------------------------
Investments in operating leases, net consisted of the following:
September 30,
---------------------
1995 1994
------ ------
(Dollars in Millions)
Vehicles................................. $9,864 $7,184
Equipment, aircraft and other............ 201 148
------ ------
10,065 7,332
Accumulated depreciation................. (1,838) (1,054)
Allowance for credit losses.............. (79) (63)
------ ------
Investments in operating leases, net.. $8,148 $6,215
====== ======
Rental income from operating leases was $1,734 million, $1,056 million
and $572 million for the years ended September 30, 1995, 1994 and 1993,
respectively. Future minimum rentals on operating leases are due in
installments as follows: years ending September 30, 1996 -
$1,687 million; 1997 - $1,178 million; 1998 - $380 million; 1999 -
$26 million; and 2000 - $3 million. A substantial portion of TMCC's
operating leases is generally paid prior to maturity. The future
minimum rentals as shown above should not be considered as necessarily
indicative of future cash collections.
Note 5 - Finance Receivables
- ----------------------------
Finance receivables, net consisted of the following:
September 30,
---------------------
1995 1994
------ ------
(Dollars in Millions)
Retail............................... $5,050 $5,805
Finance leases....................... 1,519 1,734
Wholesale and other dealer loans..... 1,229 1,054
------ ------
7,798 8,593
Unearned income...................... (565) (716)
Allowance for credit losses.......... (92) (101)
------ ------
Finance receivables, net.......... $7,141 $7,776
====== ======
-31-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Finance Receivables (Continued)
- ----------------------------
The contractual maturities of retail finance receivables and wholesale
and other dealer loans and the future minimum lease payments on finance
leases at September 30, 1995 are summarized as follows:
Due in the Wholesale
Years Ending Finance and Other
September 30, Retail Leases Dealer Loans
------------- ---------- ---------- ------------
(Dollars in Millions)
1996.................. $1,854 $322 $1,017
1997.................. 1,467 244 72
1998.................. 960 160 65
1999.................. 571 102 27
2000.................. 187 18 36
Thereafter............ 11 - 12
------ ---- ------
Total.............. $5,050 $846 $1,229
====== ==== ======
Finance leases, net consisted of the following:
September 30,
---------------------
1995 1994
------- -------
(Dollars in Millions)
Minimum lease payments.................. $ 846 $1,040
Estimated unguaranteed residual values.. 673 694
------ ------
Finance leases....................... 1,519 1,734
Unearned income......................... (261) (302)
Allowance for credit losses............. (17) (21)
------ ------
Finance leases, net.................. $1,241 $1,411
====== ======
The aggregate balances related to finance receivables 60 or more days
past due totaled $16 million and $14 million at September 30, 1995 and
1994, respectively.
A substantial portion of TMCC's finance receivables is generally paid
prior to maturity. Contractual maturities and future minimum lease
payments as shown above should not be considered as necessarily
indicative of future cash collections. The majority of retail and
finance lease receivables do not involve recourse to the dealer in the
event of customer default.
-32-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Sale of Finance Receivables
- ------------------------------------
In the fourth quarters of fiscal 1995 and 1993, the Company sold retail
finance receivables aggregating $679 million and $521 million,
respectively, subject to certain limited recourse provisions. In each
case, TMCC sold its receivables to TMCRC which in turn sold them to a
trust. TMCC remains as servicer and is paid a servicing fee. In a
subordinated capacity, TMCRC retains excess servicing cash flows,
certain cash deposits and, in connection with the fiscal 1993 sale of
finance receivables, a limited interest in the trust.
TMCRC's subordinated interests in excess servicing cash flows, cash
deposits, limited interest in the 1993 trust and other related amounts
are held as restricted assets which are subject to limited recourse
provisions. These restricted assets are not available to satisfy any
obligations of TMCC. The following is a summary of these amounts
included in Other Receivables:
September 30,
---------------------
1995 1994
---- ----
(Dollars in Millions)
Excess servicing....................... $32 $13
Other restricted amounts:
Cash deposits....................... 14 4
Limited interest in 1993 trust...... 7 16
Allowance for estimated credit
losses on sold receivables.......... (4) (2)
--- ---
Total............................ $49 $31
=== ===
The pretax gain resulting from the sale of finance receivables totaled
$6 million and $12 million in fiscal 1995 and 1993, respectively, after
providing for an allowance for estimated credit losses. In determining
the gain in connection with the fiscal 1993 sale of finance
receivables, the book value of the sold receivables pool was allocated
between the portion sold and the portion retained based on their
relative fair values on the date of the sale.
The outstanding balance of the sold receivables which TMCC continues to
service at September 30, 1995 and 1994 totaled $762 million and
$251 million, respectively.
-33-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Allowance for Credit Losses
- ------------------------------------
An analysis of the allowance for credit losses follows:
Years ended September 30,
-------------------------
1995 1994 1993
---- ---- ----
(Dollars in Millions)
Allowance for credit losses
at beginning of period......... $164 $121 $107
Provision for credit losses....... 58 78 54
Charge-offs, net of recoveries.... (51) (35) (40)
---- ---- ----
Allowance for credit losses
at end of period............... $171 $164 $121
==== ==== ====
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. 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 Company's loans consist primarily of large groups of
smaller-balance homogeneous loans, namely retail finance receivables,
which are collectively evaluated for impairment, and leases to which
these standards do not apply. 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.
-34-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Transactions with Parent
- ---------------------------------
An operating agreement with TMS (the "Operating Agreement") provides
that 100% ownership of TMCC will be retained by TMS as long as TMCC has
any funded debt outstanding. Additionally, TMS will provide necessary
equity contributions or other financial assistance it deems appropriate
to ensure that TMCC maintains a minimum coverage on fixed charges of
1.25 times such charges in any fiscal quarter. Fixed charges are
primarily interest on borrowed funds. To maintain such coverage,
pursuant to the Operating Agreement, TMS from time to time has made
noninterest-bearing advances and income maintenance payments to TMCC.
No such noninterest-bearing advances or income maintenance payments
were made in fiscal 1995, 1994 or 1993. The coverage provision of the
Operating Agreement is solely for the benefit of the holders of TMCC's
commercial paper and the Operating Agreement may be amended or
terminated at any time without notice to, or the consent of, holders of
other TMCC obligations. The Operating Agreement does not constitute a
guarantee by TMS of any obligations of TMCC.
TMS provides certain technical and administrative services and incurs
certain expenses on the Company's behalf and, accordingly, allocates
these charges to the Company. The charges, reimbursed by TMCC to TMS,
totaled $8 million, $7 million and $6 million for the years ended
September 30, 1995, 1994 and 1993, respectively.
TMCC has an arrangement to borrow funds from TMS at rates which
approximate the Federal Reserve Board's one-month commercial paper
composite rates for firms whose bonds are rated AA. For the years
ended September 30, 1995, 1994 and 1993, the highest amounts of
borrowings from TMS outstanding at any one time were $34 million,
$161 million and $117 million, respectively. The average amounts of
borrowings from TMS were $6 million and $7 million for the years ended
September 30, 1994 and 1993, respectively. Interest charges related to
these interest-bearing borrowings from TMS were $0.3 million and
$0.2 million for the years ended September 30, 1994 and 1993,
respectively. The average amount of borrowings from TMS and the
interest charges related to interest-bearing borrowings from TMS were
immaterial for the year ended September 30, 1995. The Operating
Agreement provides that borrowings from TMS are subordinated to all
other indebtedness of TMCC.
In the second quarter of fiscal 1993, the Company began leasing its
headquarters facility from TMS. The amount of rent expense paid to TMS
totaled $3 million, $3 million and $2 million for the years ended
September 30, 1995, 1994 and 1993, respectively.
-35-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Transactions with Parent (Continued)
- ---------------------------------
TMIS and TMICV provide certain insurance services, and insurance and
reinsurance coverages, respectively, to TMS. Insurance premiums,
commissions and fees earned during the years ended September 30, 1995,
1994 and 1993 included $4 million, $7 million and $9 million,
respectively, related to these services and coverages.
TMCC provides retail financing and leasing services related to various
programs sponsored from time to time by TMS for the sale and lease of
Toyota and Lexus vehicles and Toyota industrial equipment. During the
years ended September 30, 1995, 1994 and 1993, TMCC recognized revenue
of $134 million, $54 million and $25 million, respectively, related to
the amounts received from TMS for these programs.
TMCC provides certain leasing and financing services to TMS. For each
of the years ended September 30, 1995, 1994 and 1993, TMCC recognized
revenue of $3 million related to these services.
TMCC's cash equivalents, which are invested along with TMS, consist
primarily of money market instruments. For the years ended
September 30, 1995, 1994 and 1993, the highest amounts of cash
equivalents, invested along with TMS, at month end were $603 million,
$326 million and $515 million, respectively. The average amounts of
cash equivalents, invested along with TMS, at month end were
$205 million, $119 million and $224 million for the years ended
September 30, 1995, 1994 and 1993, respectively. Interest earned
related to these cash equivalents was $16 million, $5 million and
$6 million for the years ended September 30, 1995, 1994 and 1993,
respectively.
-36-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable
- --------------------------------
Notes and loans payable at September 30, 1995 and 1994, which consisted
of senior debt, included the following:
September 30,
----------------------
1995 1994
------- -------
(Dollars in Millions)
Commercial paper, net................... $ 1,442 $ 960
------- -------
Other senior debt, due in the years
ending September 30,:
1995.............................. - 4,010
1996.............................. 3,252 2,405
1997.............................. 2,722 2,014
1998.............................. 2,371 985
1999.............................. 529 233
2000.............................. 1,723 949
Thereafter........................ 611 260
------- -------
11,208 10,856
Unamortized premium..................... 46 17
------- -------
Total other senior debt........... 11,254 10,873
------- -------
Notes and loans payable........ $12,696 $11,833
======= =======
Short-term borrowings include commercial paper and certain medium-term
notes ("MTNs"). The weighted average remaining term of commercial
paper was 27 days and 14 days at September 30, 1995 and 1994,
respectively. The weighted average interest rate on commercial paper
was 6.53% and 4.43% at September 30, 1995 and 1994, respectively.
Short-term MTNs with original terms from nine months to one year,
included in other senior debt, were $444 million and $622 million at
September 30, 1995 and 1994, respectively. The weighted average
interest rate on these short-term MTNs was 5.86% and 4.77% at
September 30, 1995 and 1994, respectively, including the effects of
interest rate swap agreements.
The weighted average interest rate on other senior debt was 5.75% and
4.84% at September 30, 1995 and 1994, respectively, including the
effects of interest rate swap agreements. The rates have been
calculated on the basis of rates in effect at September 30, 1995 and
1994, some of which are floating rates that reset daily. Approximately
24% of other senior debt at September 30, 1995 had interest rates,
including the effects of interest rate swap agreements, that were fixed
for a period of more than one year. The weighted average of these
-37-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable (Continued)
- --------------------------------
fixed interest rates was 6.16% at September 30, 1995. Approximately
34% of other senior debt at September 30, 1995 had floating interest
rates that were covered by option-based products with an average strike
rate of 7.53%. 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 September 30, 1995 and 1994 were
unsecured notes payable in foreign currencies as follows:
September 30,
------------------------------
1995 1994
----------- -----------
Australian dollars.................. 250 million 125 million
Canadian dollars.................... 775 million 1 billion
Dutch guilders...................... 555 million 55 million
European currency units............. 45 million 36 million
French francs....................... 1 billion 4 billion
German deutsche marks............... 760 million 550 million
Hong Kong dollars................... 150 million -
Italian lire........................ 470 billion 485 billion
Japanese yen........................ 218 billion 190 billion
Swedish kronor...................... 110 million 110 million
Swiss francs........................ 1 billion 785 million
Concurrent with the issuance of the unsecured notes denominated in
foreign currencies, included in Notes and Loans Payable at September
30, 1995, TMCC entered into cross currency interest rate swap agreements
to convert these obligations at maturity into U.S. dollar
obligations which aggregate to a principal amount of $5.5 billion.
TMCC's foreign currency debt is translated into U.S. dollars in the
financial statements at the various foreign currency spot exchange
rates in effect at September 30, 1995. The receivables or payables,
arising as a result of the differences between the September 30, 1995
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 aggregate to a net receivable position of
$126 million at September 30, 1995.
-38-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments
- ---------------------------------------------
In accordance with the requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" and its amendment, Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments", the Company has
provided the estimated fair value of financial instruments using
available market information at September 30, 1995 and 1994, and the
valuation methodologies described below. However, considerable
judgement was required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on
the estimated fair value amounts of such financial instruments.
The carrying amounts and estimated fair values of the Company's
financial instruments at September 30, 1995 and 1994 are as follows:
September 30,
---------------------------------------------------
1995 1994
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ----------- ----------
(Dollars in Millions)
Balance sheet financial
instruments:
Assets:
Cash and cash equivalents......... $108 $108 $277 $277
Investments in marketable
securities..................... $169 $169 $102 $102
Finance receivables, net.......... $5,900 $5,971 $6,365 $6,395
Other receivables................. $70 $71 $53 $54
Receivables from cross currency
interest rate swap agreements.. $280 $426 $182 $519
Liabilities:
Notes and loans payable........... $12,696 $12,736 $11,833 $12,040
Payables from cross currency
interest rate swap agreements.. $154 $65 $145 $241
-39-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- ---------------------------------------------
September 30,
---------------------------------------------------
1995 1994
------------------------ ------------------------
Contract or Unrealized Contract or Unrealized
Notional Gains/ Notional Gains/
Amount (Losses) Amount (Losses)
----------- ---------- ----------- ----------
(Dollars in Millions)
Off-balance sheet financial
instruments:
Inventory lines of credit......... $773 - $736 -
Cross currency interest rate
swap agreements................ $4,804 $342 $4,024 $249
Interest rate swap agreements..... $7,049 $29 $7,613 $101
Option-based products............. $3,820 $(1) $500 $1
Indexed note swap agreements...... $1,721 $11 $2,407 $(162)
The fair value estimates presented herein are based on pertinent
information available to management as of September 30, 1995 and 1994.
Although the Company is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts
have not been comprehensively reevaluated for purposes of these
financial statements since September 30, 1995 and 1994 and, therefore,
current estimates of fair value may differ significantly from the
amounts presented herein.
The methods and assumptions used to estimate the fair value of
financial instruments are summarized as follows:
Cash and Cash Equivalents
-------------------------
The carrying amount of cash and cash equivalents approximates market
value due to the short maturity of these investments.
Investments in Marketable Securities
------------------------------------
The fair value of marketable securities was estimated using quoted
market prices as of September 30, 1995 and 1994.
-40-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- ---------------------------------------------
Finance Receivables
-------------------
The carrying amount of finance receivables, net excludes $1.2 billion
and $1.4 billion of direct finance leases at September 30, 1995 and
1994, respectively. The carrying amount of $1.2 billion and
$1.1 billion of variable rate finance receivables at September 30, 1995
and 1994, respectively, was assumed to approximate fair value as they
repriced at prevailing market rates. The fair value of fixed rate
finance receivables was estimated by discounting expected cash flows
using the rates at which loans of similar credit quality and maturity
would be made as of September 30, 1995 and 1994.
Other Receivables
-----------------
The carrying amount and fair value of other receivables are presented
excluding the receivables arising from cross currency interest rate
swap agreements. The fair value of excess servicing and the limited
interest in the trust was estimated by discounting cash flows using
quoted market interest rates as of September 30, 1995 and 1994. The
carrying amount of the remaining other receivables approximates market
value due to the short maturity of these instruments.
Notes and Loans Payable
-----------------------
The fair value of notes and loans payable was estimated using quoted
market prices where available as of September 30, 1995 and 1994. The
fair value of notes and loans payable where market prices were not
available was estimated by discounting cash flows using the interest
rates at which debt of similar credit quality and maturity would be
made as of September 30, 1995 and 1994. The carrying amount of
commercial paper was assumed to approximate fair value due to the short
maturity of these instruments.
Inventory Lines of Credit
-------------------------
Inventory floorplan lines of credit are variable rate commitments that
reprice at market rates.
-41-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- ---------------------------------------------
Cross Currency Interest Rate Swap Agreements
--------------------------------------------
The estimated fair value of TMCC's existing cross currency interest
rate swap agreements was derived by discounting expected cash flows
over the remaining term of the agreements using quoted market exchange
rates and quoted market interest rates as of September 30, 1995 and
1994.
Interest Rate Swap Agreements
-----------------------------
The estimated fair value of TMCC's existing interest rate swap
agreements was derived by discounting expected cash flows using quoted
market interest rates as of September 30, 1995 and 1994.
Option-based Products
-----------------------
The estimated fair value of TMCC's existing option-based products was
derived using quoted market prices as of September 30, 1995 and 1994.
Indexed Note Swap Agreements
----------------------------
The estimated fair value of TMCC's existing indexed note swap
agreements was derived by discounting expected cash flows over the
remaining term of the agreements using market exchange rates and market
interest rates as of September 30, 1995 and 1994.
Note 11 - Financial Instruments with Off-Balance Sheet Risk
- -----------------------------------------------------------
Inventory Lines of Credit
-------------------------
TMCC has extended inventory floorplan lines of credit to dealers, the
unused portion of which amounted to $773 million and $736 million at
September 30, 1995 and 1994, respectively. Security interests are
acquired in the vehicles and equipment financed, and substantially all
such financings are backed by corporate or individual guarantees from
or on behalf of the participating dealers.
-42-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Derivative Financial Instruments
--------------------------------
TMCC utilizes a variety of derivative financial instruments to manage
its currency exchange rate risk arising as a result of borrowings
denominated in foreign currencies and its interest rate risk. TMCC
does not enter into these instruments for trading purposes. For all of
its derivative financial instruments, TMCC manages counterparty risk
through the use of credit standard guidelines, counterparty
diversification and financial condition monitoring. At September 30,
1995, approximately 82% of TMCC's derivative financial instruments,
based on notional amounts, are 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. There were no reserves related to
derivative counterparty non-performance, nor were there any
non-performing counterparties, during the three years ended
September 30, 1995.
TMCC utilizes cross currency interest rate swap 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 cross currency interest rate swap agreements. These cross
currency interest rate swap agreements involve agreements to exchange
TMCC's foreign currency principal and interest obligations for U.S.
dollar obligations at agreed-upon currency exchange rates and interest
rates. The aggregate notional amounts of cross currency interest rate
swap agreements at September 30, 1995 and 1994 were $4.8 billion and
$4.0 billion, respectively. The original maturities of the cross
currency interest rate swap agreements ranged from one to seven years
at September 30, 1995. In the event that a counterparty fails to
perform, TMCC's credit exposure is limited to the currency exchange and
interest rate differential between the non-performing swap and the
corresponding debt transaction.
TMCC utilizes interest rate swap agreements in managing its exposure to
interest rate fluctuations. Interest rate swap agreements are executed
as an integral part of specific debt transactions or on a portfolio
basis. TMCC's interest rate swap 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 swap 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. In the event that a
counterparty fails to perform, TMCC's credit exposure is limited to the
interest rate differential. The underlying notional amounts are not
exchanged and do not represent exposure to credit loss. The
-43-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Derivative Financial Instruments (Continued)
--------------------------------
differential paid or received on such agreements is recorded as an
adjustment to Interest Expense over the term of the agreements. Master
netting agreements, with all interest rate swap agreement
counterparties, also exist allowing the net difference between
counterparties to be exchanged in the event of default. The original
maturities of the interest rate swap agreements ranged from one to
seven years at September 30, 1995.
TMCC also utilizes option-based products in managing its exposure to
interest rate fluctuations. Option-based products are executed as an
integral part of specific debt transactions or on a portfolio basis.
Option-based products consist primarily of purchased interest rate cap
agreements and to a lesser extent corridor agreements. Option-based
products are agreements which either grant TMCC the right, for a
premium payment, to receive a payment when interest rates exceed a
specified level, or require TMCC, in receipt of a premium, to make a
payment when interest rates exceed or go below a specified level.
Approximately 34% of TMCC's other senior debt at September 30, 1995 had
floating interest rates that were covered by option-based products
which had an average strike rate of 7.53%. The 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 as a reduction to Interest Expense. The original
maturities of the option-based products ranged from two to three years
at September 30, 1995. The underlying notional amounts for option-
based products do not represent exposure to credit loss.
-44-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Derivative Financial Instruments (Continued)
--------------------------------
The aggregate notional amounts of interest rate swap agreements and
option-based products outstanding at September 30, 1995 and 1994 were
as follows:
September 30,
----------------------
1995 1994
---- ----
(Dollars in Billions)
Fixed rate swaps............................... $4.2 $4.8
Floating rate swaps............................ 1.3 1.4
Basis swaps.................................... 1.6 1.4
---- ----
Total interest rate swap agreements........ $7.1 $7.6
==== ====
Option-based products.......................... $3.8 $0.5
==== ====
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 credit exposure is
limited to the difference between the indexed amounts that should have
been received and the amounts that TMCC is required to pay. At
September 30, 1995, TMCC was the counterparty to $1.7 billion of
indexed note swap agreements, of which $0.7 billion was denominated in
foreign currencies and $1.0 billion was denominated in U.S. dollars.
At September 30, 1994, TMCC was the counterparty to $2.4 billion of
indexed note swap agreements, of which $0.9 was denominated in foreign
currencies and $1.5 billion was denominated in U.S. dollars. The
original maturities of the indexed note swap agreements ranged from one
to ten years at September 30, 1995.
-45-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Derivative Financial Instruments (Continued)
--------------------------------
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, by .42%, from 5.96% to an estimated 6.38% at
September 30, 1995. 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, by .46%, from
5.96% to an estimated 5.50% at September 30, 1995.
Credit exposure of derivative financial instruments is represented by
the fair value of contracts with a positive fair value at September 30,
1995 reduced by the effects of master netting agreements. The credit
exposure of TMCC's derivative financial instruments at September 30,
1995 was $509 million on an aggregate notional amount of $17.4 billion.
A reconciliation of the activity of TMCC's derivative financial
instruments for the years ended September 30, 1995 and 1994 is as
follows:
September 30,
-----------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------- ------------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
Beginning Notional Amount $4.0 $2.8 $7.6 $6.0 $0.5 $0.4 $2.4 $1.4
Add:
New agreements........ 1.6 2.0 1.9 3.5 3.3 0.5 0.5 1.6
Less:
Terminated agreements - - - - - - - -
Expired agreements.... 0.8 0.8 2.4 1.9 - 0.4 1.2 0.6
---- ---- ---- ---- ---- ---- ---- ----
Ending Notional Amount... $4.8 $4.0 $7.1 $7.6 $3.8 $0.5 $1.7 $2.4
==== ==== ==== ==== ==== ==== ==== ====
-46-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Pension and Other Benefit Plans
- -----------------------------------------
All full-time employees of the Company are eligible to participate in
the TMS pension plan commencing on the first day of the month following
hire. Benefits payable under this non-contributory defined benefit
pension plan are based upon the employees' years of credited service
and the highest sixty consecutive months' compensation, reduced by a
percentage of social security benefits. For the years ended
September 30, 1995, 1994 and 1993, the Company's pension expense was
$2 million, $3 million and $3 million, respectively. At
September 30, 1995, 1994 and 1993, the accumulated benefit obligation
and plan net assets for employees of the Company were not determined
separately from TMS; however, the plan's net assets available for
benefits exceeded the accumulated benefit obligation. TMS funding
policy is to contribute annually the maximum amount deductible for
federal income tax purposes.
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.
-47-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Provision for Income Taxes
- ------------------------------------
The provision for income taxes consisted of the following:
Years ended September 30,
--------------------------
1995 1994 1993
---- ---- ----
(Dollars in Millions)
Current
Federal........................... $(97) $ 6 $ 94
State............................. (27) 4 4
---- ---- ----
Total current ................. (124) 10 98
---- ---- ----
Deferred
Federal........................... 173 86 (9)
State............................. 68 22 8
---- ---- ----
Total deferred................. 241 108 (1)
---- ---- ----
Provision for income taxes.. $117 $118 $ 97
==== ==== ====
The deferred income tax liabilities by jurisdictions are as follows:
September 30,
---------------------
1995 1994
---- ----
(Dollars in Millions)
Federal........................................ $513 $340
State.......................................... 114 46
---- ----
Net deferred income tax liability........... $627 $386
==== ====
-48-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Provision for Income Taxes (Continued)
- ------------------------------------
The Company's deferred tax assets and liabilities consisted of the
following:
September 30,
---------------------
1995 1994
----- ----
(Dollars in Millions)
Assets:
Alternative minimum tax..................... $ 339 $248
Provision for losses........................ 87 76
Deferred administrative fees................ 47 41
NOL carryforwards........................... 22 27
Deferred acquisition costs.................. 14 10
Unearned insurance premiums................. 4 4
Revenue recognition......................... 2 3
Other....................................... 3 2
----- ----
518 411
Valuation allowance......................... 0 0
----- ----
Deferred tax assets...................... 518 411
----- ----
Liabilities:
Lease transactions.......................... 1,049 740
State taxes................................. 96 57
----- ----
Deferred tax liabilities................. 1,145 797
----- ----
Net deferred income tax liability..... $ 627 $386
===== ====
TMCC has state tax net operating loss carryforwards of $536 million
expiring from fiscal 1996 through 2008.
-49-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Provision for Income Taxes (Continued)
- ------------------------------------
A reconciliation between the provision for income taxes computed by
applying the federal statutory tax rate to income before income taxes
and actual income taxes provided is as follows:
Years ended September 30,
-------------------------
1995 1994 1993
---- ---- ----
(Dollars in Millions)
Provision for income taxes at
federal statutory tax rate......... $105 $103 $88
State and local taxes (net of
federal tax benefit)............... 26 17 8
Other, including changes in
applicable state tax rates......... (14) (2) 1
---- ---- ---
Provision for income taxes......... $117 $118 $97
==== ==== ===
Effective tax rate.................... 39.12% 40.24% 38.01%
Note 14 - Lines of Credit/Standby Letters of Credit
- ---------------------------------------------------
To support its commercial paper program, TMCC maintains syndicated bank
credit facilities with certain banks which aggregated $1.5 billion at
September 30, 1995. Interest is charged at certain market rates, at
the option of TMCC. No loans were outstanding under any of these bank
credit facilities.
To facilitate and maintain letters of credit, TMCC maintains, along
with TMS, uncommitted, unsecured lines of credit with banks totaling
$300 million. At September 30, 1995, approximately $86 million in
letters of credit had been issued, primarily related to the Company's
insurance operations. The letters of credit for the insurance
companies are used to satisfy requirements of certain insurance
carriers and state insurance regulatory agencies, consistent with
insurance industry practices.
-50-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Commitments and Contingent Liabilities
- ------------------------------------------------
At September 30, 1995, the Company was a lessee under lease agreements
for facilities which provide minimum annual rental as follows: years
ending September 30, 1996 - $8 million; 1997 - $7 million; 1998 -
$6 million; 1999 - $5 million; 2000 - $3 million; and thereafter -
$5 million.
TMCC has guaranteed payments of principal and interest on $58 million
principal amount of flexible rate demand pollution control revenue
bonds maturing in 2006, issued in connection with the Kentucky
manufacturing facility of an affiliate.
Various legal actions, governmental proceedings and other claims are
pending or may be instituted or asserted in the future against TMCC and
its subsidiaries with respect to matters arising from the ordinary
course of business. Certain of these actions are or purport to be
class action suits. Certain of these actions are similar to suits
which have been filed against other financial institutions and captive
finance companies. At this time, the Company believes any resulting
liability from the above legal actions, proceedings and other claims
will not materially affect its consolidated financial position or
results of operations.
Note 16 - Selected Quarterly Financial Data (Unaudited)
- -------------------------------------------------------
Total Depreciation
Financing Interest on Operating Net
Revenues Expense Leases Income
---------- -------- ------------ --------
(Dollars in Millions)
Year Ended September 30, 1995:
First quarter.............. $ 564 $161 $ 277 $ 44
Second quarter............. 601 175 298 45
Third quarter.............. 630 189 313 46
Fourth quarter............. 661 191 344 48
------ ---- ------ ----
Total................... $2,456 $716 $1,232 $183
====== ==== ====== ====
Year Ended September 30, 1994:
First quarter.............. $ 370 $110 $139 $ 46
Second quarter............. 396 112 159 45
Third quarter.............. 446 125 196 39
Fourth quarter............. 517 139 241 45
------ ---- ---- ----
Total................... $1,729 $486 $735 $175
====== ==== ==== ====
-51-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to report with regard to this item.
-52-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the directors
and executive officers of TMCC.
Name Age Position
---- --- --------
Shinji Sakai.............. 58 Director and President, TMCC;
Director and President, TMS;
Director, TMC
Nobu Shigemi.............. 51 Director, Senior Vice President
and Treasurer, TMCC; Group Vice
President, TMS
John McGovern............. 55 Director, Senior Vice President
and Secretary, TMCC; Senior
Vice President and Secretary,
TMS
Wolfgang Jahn............. 56 Director, Senior Vice President
and General Manager, TMCC;
Group Vice President, TMS
Robert Pitts.............. 47 Director and Assistant Secretary,
TMCC; Group Vice President, TMS
Yale Gieszl............... 53 Director, TMCC; Director and
Executive Vice President, TMS
Takashi Nishiyama......... 52 Director, TMCC; Senior Vice
President and Treasurer, TMS
Ryuji Araki............... 55 Director, TMCC; Director, TMC
All directors of TMCC are elected annually and hold office until their
successors are elected and qualified. Officers are elected annually and serve
at the pleasure of the Board of Directors.
Mr. Sakai was named Director and President of TMCC in June 1992. He is also
a Director and President of TMS, positions he has held since June 1992. In
September 1988, Mr. Sakai was named a Director of TMC, and from September 1988
to May 1992, he was General Manager of the North American Division of TMC.
Mr. Sakai has been employed with TMC, in various positions, since 1961.
Mr. Shigemi was named Director, Senior Vice President and Treasurer of TMCC
and Group Vice President of TMS in September 1994. From January 1994 to
August 1994, Mr. Shigemi was General Manager of TMC's Finance Division. From
January 1993 to December 1993, he was the Project General Manager of the
Accounting Division of TMC. From February 1982 to December 1992, he worked
in the Tokyo Secretarial Division having been named a manager in February 1983
and Deputy General Manager in February 1990. Mr. Shigemi has been employed
with TMC, in various positions, since 1968.
-53-
Mr. McGovern was named Director, Senior Vice President and Secretary of TMCC
in January 1993. He is also a Senior Vice President and Secretary of TMS,
positions he has held since January 1993. From January 1987 to November 1989,
he was a Vice President and a General Manager of TMS, and from December 1989
to December 1992, he was a Group Vice President of TMS. Mr. McGovern has been
employed with TMS, in various positions, since 1970.
Mr. Jahn was named Director and Group Vice President of TMCC in April 1993.
In December 1994, Mr. Jahn was also named General Manager of TMCC and Group
Vice President of TMS and, in July 1995, Senior Vice President of TMCC. From
January 1985 to March 1993, he was a Vice President of TMCC, and from
September 1988 to March 1993, he was also the Assistant Secretary of TMCC.
From January 1987 to March 1993, he held the position of Vice President of
TMS. Mr. Jahn has been employed with TMS and TMCC, in various positions,
since 1973.
Mr. Pitts was named Director and Assistant Secretary of TMCC in April 1993.
He is also a Group Vice President of TMS, a position he has held since April
1993. From January 1984 to March 1993, he was an executive with TMCC having
been named General Manager in January 1984 and Vice President in April 1989.
Mr. Pitts has been employed with TMS and TMCC, in various positions, since
1971.
Mr. Gieszl was named Director of TMCC in September 1988. He is also a
Director and Executive Vice President of TMS, positions he has held since
December 1989 and June 1992, respectively. From January 1982 to May 1992, he
was a Senior Vice President of TMS. From October 1982 to May 1992, he held
the position of Senior Vice President of TMCC, and from September 1988 to May
1992, he also held the position of Secretary of TMCC. Mr. Gieszl has been
employed with TMS, in various positions, since 1970.
Mr. Nishiyama was named Director of TMCC in January 1994. He was also named
a Senior Vice President and Treasurer of TMS in January 1994. From February
1989 to December 1993, he was General Manager of the Europe and Africa Project
Division of TMC. From February 1986 to January 1989, he was Executive Vice
President of Salvador Caetano S.A. Portugal. Mr. Nishiyama has been employed
with TMC, in various positions, since 1965.
Mr. Araki was named Director of TMCC in September 1995. He has served on
TMC's Board of Directors since September 1992. Mr. Araki has been employed
with TMC, in various positions, since 1962.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or paid
to the Company's principal executive officer and the most highly compensated
executive officers whose salary and bonus for the latest fiscal year exceeded
$100,000, for services rendered in all capacities to the Company for the three
years ended September 30, 1995, 1994 and 1993.
-54-
Annual Compensation
--------------------------------------------
Other Annual
Name and Fiscal Compensation All
Principal Position Year Salary ($) Bonus ($) ($) Other ($)
- --------------------- ------ ---------- --------- ------------ -------------
Wolfgang Jahn 1995 $213,800 $98,700 $6,000
Senior Vice President 1994 $199,800 $91,300 $7,500
1993 $123,900 $57,500 $7,000
Nobu Shigemi 1995 $199,000 $40,500 $47,300
Senior Vice President
- ------------
Mr. Jahn has worked full-time for the Company since April 1993. Mr. Jahn's cash
compensation for the periods prior to April 1993, included in the above table, represents
an allocated amount of his total compensation based on his time spent working for the
Company. Mr. Shigemi has worked full-time for the Company beginning in September 1994.
This amount represents a housing allowance and relocation costs.
The amounts in this column represent the Company's allocated contribution under the TMS
Savings Plan. Mr. Jahn also received contributions from TMS, no portion of which is
attributable to the Company. Under the TMS Savings Plan, which is open to all eligible
employees, eligible participants may elect, subject to applicable law, to have up to 6% of
their base compensation paid to the plan on a pre-tax basis and the Company will make a
matching contribution equal to two-thirds of the employee's contribution. Participants are
vested 25% each year with respect to the Company's contribution. Participants are fully
vested after four years. Subject to the limitations of the TMS Savings Plan, employee and
Company contributions are invested at the discretion of the employee in various investment
options.
Employee Benefit Plan
All full-time employees of the Company are eligible to participate in the TMS
Pension Plan commencing on the first day of the month following hire.
Benefits payable under this non-contributory defined benefit pension plan are
based upon final average compensation, final average bonus and years of
credited service. Final average compensation is defined as the average of the
participant's base rate of pay, plus overtime, during the highest-paid 60
consecutive months prior to the earlier of termination or normal retirement.
Final average bonus is defined as the highest average of the participant's
fiscal year bonus, and basic seniority-based cash bonus for non-managerial
personnel, over a period of 60 consecutive months prior to the earlier of
termination or normal retirement. A participant generally becomes eligible
for the normal retirement benefit at age 62, and may be eligible for early
retirement benefits starting at age 55.
-55-
The annual normal retirement benefit, payable monthly, is an amount equal to
the number of years of credited service (up to 25 years) multiplied by the sum
of (i) 2% of the participant's final average compensation less 2% of the
estimated annual Social Security benefit payable to the participant at normal
retirement and (ii) 1% of the participant's final average bonus. The normal
retirement benefit is subject to reduction for certain benefits under any
union-sponsored retirement plan and benefits attributable to employer
contributions under any defined-contribution retirement plan maintained by TMS
and its subsidiaries or any affiliate.
The following pension plan table presents typical annual retirement benefits
under the TMS Pension Plan for various combinations of compensation and years
of credited service for participants who retire at age 62, assuming no final
average bonus and excluding Social Security offset amounts. The amounts are
subject to Federal statutory limitations governing pension calculations and
benefits.
Annual Benefits for
Final Average Years of Credited Service
Annual -------------------------------------
Compensation 15 20 25
------------ ------- -------- --------
$50,000 $15,000 $20,000 $25,000
$100,000 $30,000 $40,000 $50,000
$150,000 $45,000 $60,000 $75,000
$200,000 $60,000 $80,000 $100,000
$250,000 $75,000 $100,000 $125,000
$300,000 $90,000 $120,000 $150,000
$350,000 $105,000 $140,000 $175,000
$400,000 $120,000 $160,000 $200,000
Mr. Jahn is a participant in the TMS Pension Plan and has 22 years of credited
service as of September 30, 1995. Based upon years of credited service and
the portion of earnings allocable to the Company, Mr. Jahn would be entitled
to receive approximately $24,000 in annual pension benefit payments at age 62.
Mr. Jahn would also be entitled to receive pension benefits from TMS based
upon services to and compensation by TMS, no portion of which is attributable
to the Company.
Compensation of Directors
No fees are paid to members of the Board of Directors of TMCC for their
services as directors.
Compensation Committee Interlocks and Insider Participation
Members of the Executive Committee of the Board of Directors, which consists
of the directors of the Company other than Mr. Araki, participate in decisions
regarding the compensation of the executive officers of the Company. Certain
of the members of the Executive Committee are current or former executive
officers of the Company. Certain of the members of the Executive Committee
are also current executive officers and directors of TMS and its affiliates
and participate in compensation decisions for those entities.
-56-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of the date hereof, all of TMCC's capital stock is owned by TMS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company enters into various transactions with TMS as described below.
Certain of the directors and executive officers of TMCC are also directors and
executive officers of TMS.
To maintain fixed charge coverage at the level specified in the Operating
Agreement, TMS, on occasion, has made noninterest-bearing advances and income
maintenance payments to TMCC. No such noninterest-bearing advances and income
maintenance payments were made in fiscal 1995, 1994, 1993, 1992 and 1991. TMS
also provides certain technical and administrative services and incurs certain
expenses on the Company's behalf and, accordingly, allocates these charges to
the Company. The charges, reimbursed by TMCC to TMS, totaled $8 million,
$7 million, $6 million, $5 million and $4 million for the years ended
September 30, 1995, 1994, 1993, 1992 and 1991, respectively.
The Operating Agreement provides that TMCC will establish its own financing
rates and is under no obligation to TMS to finance wholesale obligations from
any dealers or retail obligations of any customers. TMCC may extend, reduce
or cancel credit to dealers and to customers based upon TMCC's own credit
criteria. Pursuant to the Operating Agreement, TMS will arrange for the
repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at
the aggregate cost financed in the event of dealer default.
TMS made equity contributions to TMCC by purchasing at par value all of the
newly issued shares of TMCC's capital stock in the amount of $185 million,
$50 million and $80 million for the years ended September 30, 1994, 1993 and
1992, respectively. TMS made no equity contributions to TMCC during fiscal
1995 or 1991.
TMCC has an arrangement to borrow funds from TMS at rates which approximate
the Federal Reserve Board's one-month commercial paper composite rate for
firms whose bonds are rated AA. For the years ended September 30, 1995, 1994,
1993, 1992 and 1991, the highest amounts of borrowings from TMS outstanding
at any one time were $34 million, $161 million, $117 million, $360 million and
$81 million, respectively. The average amounts of borrowings from TMS were
$6 million, $7 million, $56 million and $6 million for the years ended
September 30, 1994, 1993, 1992 and 1991, respectively. Interest charges
related to these interest-bearing borrowings from TMS were $0.3 million,
$0.2 million, $2.3 million and $0.4 million for the years ended September 30,
1994, 1993, 1992, and 1991, respectively. The average amount of borrowings
from TMS and the interest charges related to interest-bearing borrowings from
TMS were immaterial for the year ended September 30, 1995. The Operating
Agreement provides that borrowings from TMS are subordinated to all other
indebtedness of TMCC.
In the second quarter of fiscal 1993, the Company began leasing its
headquarters facility from TMS. The amount of rent expense paid to TMS
totaled $3 million, $3 million and $2 million for the years ended
September 30, 1995, 1994 and 1993, respectively.
-57-
TMIS and TMICV provide certain insurance services, and insurance and
reinsurance coverages, respectively, to TMS. Insurance premiums, commissions
and fees earned during the years ended September 30, 1995, 1994, 1993, 1992
and 1991 included $4 million, $7 million, $9 million, $7 million and
$5 million, respectively, related to these services and coverages.
TMCC provides retail financing and leasing services related to various
programs sponsored from time to time by TMS for the sale and lease of Toyota
and Lexus vehicles and Toyota industrial equipment. During the years ended
September 30, 1995, 1994, 1993, 1992 and 1991, TMCC recognized revenue of
$134 million, $54 million, $25 million, $16 million and $7 million,
respectively, related to the amounts received from TMS and, in some cases,
dealers for these programs.
TMCC provides certain leasing and financing services to TMS. For the years
ended September 30, 1995, 1994, 1993, 1992 and 1991, TMCC recognized revenue
of $3 million, $3 million, $3 million, $4 million and $7 million,
respectively, related to these services.
TMCC has guaranteed payments of principal and interest on $58 million
principal amount of flexible rate demand pollution control revenue bonds
maturing in 2006, issued in connection with the Kentucky manufacturing
facility of an affiliate.
The Company joins with TMS in filing consolidated federal income tax returns
and combined or consolidated income tax returns in certain states. See
Item 8, Note 2 to the Consolidated Financial Statements.
TMCC's cash equivalents, which are invested along with TMS, consist primarily
of money market instruments. For the years ended September 30, 1995, 1994,
1993, 1992 and 1991, the highest amounts of cash equivalents, invested along
with TMS, were $603 million, $326 million, $515 million, $153 million and
$328 million, respectively. The average amounts of cash equivalents, invested
along with TMS, were $205 million, $119 million, $224 million, $36 million and
$127 million for the years ended September 30, 1995, 1994, 1993, 1992 and
1991, respectively. Interest earned related to these cash equivalents was
$16 million, $5 million, $6 million, $2 million and $12 million for the years
ended September 30, 1995, 1994, 1993, 1992 and 1991, respectively.
On occasion, the Company enters into various other transactions with TMS. The
Company believes that the terms of such transactions have been established as
if negotiated on an "arms-length" basis, and that all such transactions are
not, in the aggregate, material to either TMS or the Company.
-58-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Financial Statements
Included in Part II, Item 8 of this Form 10-K. See Index to
Financial Statements on page 20.
(2)Exhibits
The exhibits listed on the accompanying Exhibit Index, starting on
page 61, are filed as part of, or incorporated by reference into,
this Report.
(b)Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant during the
quarter ended September 30, 1995.
-59-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Torrance,
State of California, on the 22nd day of December, 1995.
TOYOTA MOTOR CREDIT CORPORATION
By /S/ WOLFGANG JAHN
------------------------------
Wolfgang Jahn
Senior Vice President and
General Manager
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 22nd day of December, 1995.
Signature Title
--------- -----
Senior Vice President and General
Manager and Director
/S/ WOLFGANG JAHN (principal executive officer)
- ------------------------------------
Wolfgang Jahn
Senior Vice President/
Treasurer and Director
/S/ NOBU SHIGEMI (principal financial officer)
- ------------------------------------
Nobu Shigemi
Corporate Manager - Finance
and Administration
/S/ PATRICK BREENE (principal accounting officer)
- ------------------------------------
Patrick Breene
/S/ SHINJI SAKAI Director
- ------------------------------------
Shinji Sakai
/S/ JOHN MCGOVERN Director
- ------------------------------------
John McGovern
/S/ TAKASHI NISHIYAMA Director
- ------------------------------------
Takashi Nishiyama
-60-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- --------
3.1(a) Articles of Incorporation filed with the California
Secretary of State on October 4, 1982. (1)
3.1(b) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
January 24, 1984. (1)
3.1(c) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
January 25, 1985. (1)
3.1(d) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
September 6, 1985. (1)
3.1(e) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
February 28, 1986. (1)
3.1(f) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
December 3, 1986. (1)
3.1(g) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
March 9, 1987. (1)
3.1(h) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
December 20, 1989. (2)
3.2 Bylaws as amended through January 16, 1993. (11)
4.2 Issuing and Paying Agency Agreement dated August 1,
1990 between TMCC and Bankers Trust Company. (3)
4.3(a) Indenture dated as of August 1, 1991 between TMCC and
The Chase Manhattan Bank, N.A. (4)
- -----------------
(1) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Registration Statement on Form S-1, File No. 33-22440.
(2) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1989.
(3) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1990.
(4) Incorporated herein by reference to Exhibit 4.1(a), filed with TMCC's
Registration Statement on Form S-3, File No. 33-52359.
(11) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1993.
-61-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
4.3(b) First Supplemental Indenture dated as of
October 1, 1991 among TMCC, Bankers Trust Company
and The Chase Manhattan Bank, N.A. (5)
4.4(a) Amended and Restated Agency Agreement dated as of
July 28, 1994, among TMCC, The Chase Manhattan Bank,
N.A. and Chase Manhattan Bank Luxembourg S.A. (12)
4.4(b) Amendment No. 1 dated July 27, 1995 to the Amended Filed
and Restated Agency Agreement among TMCC, The Chase Herewith
Manhattan Bank, N.A. and Chase Manhattan Bank
Luxenburg S.A.
4.5 TMCC has outstanding certain long-term debt as set
forth in Note 9 of the Notes to Consolidated Financial
Statements. Not filed herein as an exhibit, pursuant to
Item 601(b) (4)-(iii)(A) of Regulation S-K under the
Securities Act of 1933, is any instrument which defines
the rights of holders of such long-term debt where the
total amount of securities authorized thereunder does
not exceed 10% of the total assets of TMCC and its
subsidiaries on a consolidated basis. TMCC agrees to
furnish copies of all such instruments to the Securities
and Exchange Commission upon request.
10.1 Operating Agreement dated January 16, 1984 between
TMCC and TMS. (1)
10.2 Financial Service Agreement dated December 21, 1984
between TMCC and World Omni Financial Corporation,
as amended June 6, 1988. (1)
10.2(a) Addendum to Financial Services Agreement dated
January 1, 1991, between TMCC and World Omni Financial
Corporation. (6)
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(1) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Registration Statement on Form S-1, File No. 33-22440.
(5) Incorporated herein by reference to Exhibit 4.1 filed with TMCC's
Current Report on Form 8-K dated October 16, 1991.
(6) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1991.
(12) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1994.
-62-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.2(b) Amendment to Financial Services Agreement dated
March 1, 1992, between TMCC and World Omni Financial
Corporation. (7)
10.2(c) Amendment to Financial Services Agreement dated
March 1, 1994, between TMCC and World Omni Financial
Corporation. (12)
10.4 Pooling and Servicing Agreement among TMCRC,
as Seller, TMCC, as Servicer, and Bankers Trust Company,
as Trustee (including forms of Class A and Class B
Certificates) dated as of September 1, 1995. (13)
10.5 Receivables Purchase Agreement dated as of September 1,
1995 between TMCC, as seller, and TMCRC Corporation,
as purchaser. (14)
10.6 Form of Indemnification Agreement between TMCC and
its directors and officers. (1)
10.7 Form of Pooling and Servicing Agreement among TMCRC
as Seller, TMCC as Servicer, and the Chase Manhattan Bank
N.A. as Trustee (including forms of Class A and Class B
Certificates). (8)
10.8 Form of Standard Terms and Conditions of Pooling and
Servicing Agreement. (9)
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(1) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Registration Statement on Form S-1, File No. 33-22440.
(7) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1992.
(8) Incorporated herein by reference to Exhibit 4.1 filed with Toyota Auto
Receivables 1993-A Grantor Trust's Registration Statement on Form S-1,
File No. 33-65348.
(9) Incorporated herein by reference to Exhibit 4.2 filed with Toyota Auto
Receivables 1993-A Grantor Trust's Registration Statement on Form S-1,
File No. 33-65348.
(12) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1994.
(13) Incorporated herein by reference to Exhibit 4.1 filed with Toyota Auto
Receivables 1995-A Grantor Trust's Current Report on Form 8-K dated
November 10, 1995, File No. 33-96006.
(14) Incorporated herein by reference to Exhibit 10.1 filed with Toyota
Auto Receivables 1995-A Grantor Trust's Current Report on Form 8-K
dated November 10, 1995, File No. 33-96006.
-63-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.9 Form of Receivables Purchase Agreement. (10)
10.10 Three-year Credit Agreement (the "Three-year Agreement")
dated as of September 29, 1994 among TMCC, Morgan
Guaranty Trust Company of New York, as agent, and
Bank of America National Trust and Savings Association,
The Bank of Tokyo, Ltd., The Chase Manhattan Bank, N.A.,
Citicorp USA, Inc. and Credit Suisse, as Co-Agents.
Not filed herein as an exhibit, pursuant to Instruction 2
to Item 601 of Regulation S-K under the Securities Act of
1933, is the 364-day Credit Agreement (the "364-day
Agreement") among TMCC and the banks who are party to the
Three-year Agreement. Filed herewith is a
Schedule identifying the 364-day Agreement and setting
forth the material details in which the 364-day
Agreement differs from the Three-year Agreement. TMCC
agrees to furnish a copy of the 364-day Agreement to
the Securities and Exchange Commission upon request. (12)
10.10(a) Amendment No. 1 dated September 28, 1995 to the Filed
Three-year Agreement. Herewith
10.10(b) Amendment No. 1 dated September 28, 1995 to the Filed
364-day Agreement. Herewith
- ----------------
(10) Incorporated herein by reference to Exhibit 10.1 filed with Toyota
Auto Receivables 1993-A Grantor Trust's Registration Statement on Form
S-1, File No. 33-65348.
(12) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1994.
-64-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
12.1 Calculation of ratio of earnings to fixed charges. Filed
Herewith
21.1 TMCC's list of subsidiaries. Filed
Herewith
23.1 Consent of Independent Accountants. Filed
Herewith
27.1 Financial Data Schedule. Filed
Herewith
-65-