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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 [NO FEE REQUIRED]
For the fiscal year ended September 30, 1996
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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, 1996, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 91,500, all of which
shares were held by Toyota Motor Sales, U.S.A., Inc.
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PART I
ITEM 1. BUSINESS.
General
Toyota Motor Credit Corporation ("TMCC") is a wholly-owned subsidiary of
Toyota Motor Sales, USA, Inc. ("TMS") which was incorporated in California in
1982 and commenced operations in 1983. 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 has six wholly-owned
subsidiaries, four of which are engaged in the insurance business, one limited
purpose subsidiary formed primarily to acquire and securitize retail finance
receivables and one newly formed corporation, established in January 1996, to
provide retail and wholesale financing and certain other financial services
to authorized Toyota and Lexus vehicle dealers and their customers in the
Commonwealth of Puerto Rico. See Item 14, Exhibit 21.1. TMCC and its
subsidiaries are collectively referred to as the "Company".
The Company's earnings are primarily impacted by the level of average earning
assets, comprised primarily of investments in operating leases and finance
receivables, and asset yields as well as outstanding borrowings and the cost
of funds. The Company's business is substantially dependent upon the sale of
Toyota and Lexus vehicles in the United States. Changes in the volume of
sales of such vehicles resulting from governmental action, changes in consumer
demand, changes in pricing of imported units due to currency fluctuations, or
other events, could impact 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.
An operating agreement between TMCC and TMS (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. 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 1.10 times such fixed charges in any
fiscal quarter; the Operating Agreement was amended on May 14, 1996 to reduce
the minimum fixed charge coverage ratio from 1.25 to 1.10. 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.
Retail Leasing
TMCC purchases primarily new and used vehicle lease contracts originated by
Toyota and Lexus dealers. TMCC assumes ownership of the leased vehicles and
is generally permitted to take possession of vehicles upon lessee default.
TMCC is responsible for contract collection and administration during the
lease period and for the value of the vehicle at lease maturity if the vehicle
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is not purchased by the lessee or dealer. Off-lease vehicles returned to TMCC
are sold through a network of auction sites located throughout the United
States. TMCC requires lessees to carry fire, theft, collision and liability
insurance on leased vehicles covering the interests of both TMCC and the
lessee. In recent years, TMS has sponsored special lease programs by
supporting reduced lease rates. Leasing revenues contributed 82%, 78% and 71%
to total financing revenues for the fiscal years ended September 30, 1996,
1995 and 1994, respectively.
Retail Financing
TMCC purchases primarily new and used vehicle installment contracts from
Toyota and Lexus dealers. These obligations must first meet TMCC's credit
standards and thereafter TMCC retains responsibility for contract collection
and administration. TMCC acquires security interests in the vehicles financed
and generally can repossess vehicles if customers fail to meet contract
obligations. Substantially all of TMCC's retail financings are non-recourse
which relieves the dealers from financial responsibility in the event of
repossession. 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 recent years, TMS has sponsored special retail
programs by supporting reduced interest rates. Retail financing revenues
contributed 14%, 18% and 24% to total financing revenues for the fiscal years
ended September 30, 1996, 1995 and 1994, respectively.
A summary of vehicle retail leasing and financing activity follows:
Years Ended September 30,
-------------------------------------------------
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
Contract volume:
New vehicles......... 430,000 303,000 350,000 256,000 237,000
Used vehicles*....... 75,000 46,000 64,000 56,000 56,000
--------- -------- -------- -------- --------
Total............. 505,000 349,000 414,000 312,000 293,000
========= ======== ======== ======== ========
Average amount financed:
New vehicles......... $21,100 $21,000 $19,900 $17,900 $16,700
Used vehicles*....... $14,400 $14,000 $12,600 $10,400 $9,400
Outstanding portfolio at
period end ($Millions):
New vehicles...... $15,741 $12,852 $11,603 $8,167 $6,910
Used vehicles*.... $1,270 $942 $1,128 $877 $837
Number of accounts 1,069,000 946,000 929,000 750,000 735,000
*Used vehicle data reflects primarily financing activity.
Finance receivables sold ($1.1 billion as of September 30, 1996) which TMCC
continues to service are excluded from the above table.
-3-
Wholesale Financing
TMCC provides wholesale financing primarily to qualified Toyota and Lexus
dealers to finance inventories of new and used Toyota and Lexus vehicles.
TMCC acquires security interests in vehicles financed at wholesale, and
substantially all such financings are backed by corporate or individual
guarantees from or on behalf of participating dealers. In the event of dealer
default, TMCC has the right to liquidate any assets acquired and seek legal
remedies pursuant to the guarantees. Pursuant to the Operating Agreement, TMS
will arrange for the repurchase of new Toyota and Lexus vehicles financed at
wholesale by TMCC at the aggregate cost financed in the event of dealer
default.
A summary of vehicle wholesale financing activity follows:
Years Ended September 30,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Dealer loans ($Millions)....... $8,017 $7,626 $7,055 $6,378 $4,903
Dealer repayments ($Millions).. $8,221 $7,444 $7,032 $6,152 $4,745
Outstanding portfolio at
period end ($Millions)...... $668 $886 $727 $703 $486
Average amount financed
per vehicle................. $19,926 $18,999 $17,530 $16,500 $15,400
TMCC also makes term loans to dealers for business acquisitions, facilities
refurbishing, real estate purchases and working capital. These loans are
typically secured with liens on real estate, other dealership assets and/or
personal guarantees of the dealers. Wholesale and other dealer financing
revenues contributed 4%, 4% and 5% to total financing revenues for the fiscal
years ended September 30, 1996, 1995 and 1994, respectively.
Insurance
TMCC's insurance subsidiaries provide certain insurance services along with
certain insurance and contractual coverages in connection with the sale and
lease of vehicles. In addition, the insurance subsidiaries insure and
reinsure certain TMS and TMCC risks.
Servicing
TMCC services retail installment obligations which have been sold to third
parties through its asset-backed securities program.
Funding
Funding to support the Company's level of earning assets is provided by access
to the capital markets as well as earning asset liquidations and funds
provided by operating activities. Debt issuances have generally been in the
form of commercial paper, United States and Euro medium-term notes, Eurobonds
and to a lesser extent, the sale of retail finance receivables.
-4-
The Company uses a variety of derivative financial instruments to manage
interest rate and foreign exchange exposures. The derivative instruments
utilized include cross currency and interest rate swap agreements, indexed
note swaps and option-based products. The Company does not use any of these
instruments for trading purposes.
Competition and Government Regulations
TMCC's primary competitors for retail leasing and financing are commercial
banks, savings and loan associations, credit unions, finance companies and
other captive automobile finance companies. 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. 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 the Company's operations in these states if the Company 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, 1996, the Company had approximately 2,090 full-time employees.
The Company considers its employee relations to be satisfactory.
-5-
Toyota Motor Sales, U.S.A., Inc.
TMS was established in 1957 and as of September 30, 1996 is a wholly-owned
subsidiary of Toyota Motor North America, Inc. ("TMA"). 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). Additionally, TMS exports automobiles and related
replacement parts and accessories to Europe, Asia and United States
territories. Through September 30, 1996, TMS manufactured certain automobiles
through Toyota Motor Manufacturing, U.S.A., Inc., and manufactured trucks
through Toyota Auto Body Corporation, Inc. ("TABC"), a wholly owned
subsidiary. Effective October 1, 1996, Toyota Motor Manufacturing North
America, Inc. ("TMMNA") was established to serve as the holding company for
all manufacturing operations in the United States and to coordinate and
support numerous manufacturing related administrative functions previously
carried out independently by various Toyota entities in North America and by
Toyota Motor Corporation ("TMC") in Japan. Both TMMNA and TMS are wholly-
owned subsidiaries of TMA, a holding company owned 100% by TMC which was
established on September 3, 1996.
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. The remaining two regions are serviced by private distributors which
purchase directly from TMS and distribute to Toyota dealers within their
respective regions. For the year ended September 30, 1996, these two
distributors, Gulf States Toyota, Inc. of Houston, Texas and Southeast Toyota
Distributors, Inc. of Deerfield Beach, Florida, accounted for approximately
32% 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, 1996, TMS sold approximately 1,109,000
automobiles and light trucks in the United States (excluding Hawaii), of which
approximately 682,000 were manufactured in the United States; TMS exported
approximately 62,000 automobiles. TMS sales represented approximately 27% of
TMC's worldwide sales volume for the year ended March 31, 1996. For the years
ended September 30, 1996 and 1995, Toyota and Lexus vehicles accounted for
approximately 7.5% and 7.2%, respectively, of all retail automobile and light
truck sales in the United States.
Total revenues for TMS for the fiscal years ended September 30, 1996, 1995 and
1994, aggregated approximately $27.5 billion, $26.2 billion and $23.3 billion,
respectively, of which approximately $24.4 billion, $23.7 billion and $21.5
billion, respectively, were attributable to revenues other than those
associated with financial services. At September 30, 1996, 1995 and 1994, TMS
had total assets of approximately $25.1 billion, $21.1 billion and $19.5
billion, respectively, and net worth in excess of $4.7 billion, $4.6 billion
and $4.3 billion, respectively. TMS had net income of $229 million for the
fiscal year ended September 30, 1996 and net income in excess of $250 million
for the fiscal years ended September 30, 1995 and 1994.
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ITEM 2. PROPERTIES.
The headquarters of the Company are located in Torrance, California with 34
branch offices located in cities throughout the United States and one branch
office located in the Commonwealth of Puerto Rico. All premises are occupied
under lease.
ITEM 3. LEGAL PROCEEDINGS.
Various claims and actions are pending against TMCC and its subsidiaries with
respect to financing activities, taxes and other matters arising from the
ordinary course of business. Certain of these actions are or purport to be
class action suits, seeking sizeable damages. Management and internal and
external counsel perform periodic reviews of pending claims and actions to
determine the probability of adverse verdicts and resulting amounts of
liability. The amounts of liability on pending claims and actions as of
September 30, 1996 were not determinable; however, in the opinion of
management, the ultimate liability resulting therefrom should not have a
material adverse effect on TMCC's consolidated financial position or results
of operations.
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.
TMCC is a wholly-owned subsidiary of TMS and, accordingly, all shares of the
Company's stock are owned by TMS. There is no market for TMCC's stock.
No dividends have been declared or paid to date.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below were derived from the
audited consolidated financial statements of the Company. Certain prior
period amounts have been reclassified to conform with the current period
presentation.
Years Ended September 30,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in Millions)
INCOME STATEMENT DATA
Financing Revenues:
Leasing........................... $2,454 $1,904 $1,230 $ 747 $ 447
Retail financing.................. 415 431 413 468 485
Wholesale and other
dealer financing............... 109 121 86 80 65
------ ------ ------ ------ ------
Total financing revenues.......... 2,978 2,456 1,729 1,295 997
Depreciation on operating leases.. 1,626 1,232 735 381 178
Interest expense.................. 820 716 486 454 450
------ ------ ------ ------ ------
Net financing revenues............ 532 508 508 460 369
Other revenues.................... 136 113 95 80 53
------ ------ ------ ------ ------
Net financing revenues
and other revenues............. 668 621 603 540 422
------ ------ ------ ------ ------
Expenses:
Operating and administrative...... 293 255 232 225 179
Provision for credit losses....... 115 66 78 60 68
------ ------ ------ ------ ------
Total expenses.................... 408 321 310 285 247
------ ------ ------ ------ ------
Income before income taxes........ 260 300 293 255 175
Provision for income taxes........ 108 117 118 97 68
------ ------ ------ ------ ------
Net Income........................ $ 152 $ 183 $ 175 $ 158 $ 107
====== ====== ====== ====== ======
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(Table Continued)
-8-
September 30,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in Millions)
BALANCE SHEET DATA
Investments in operating
leases, net............ $10,831 $8,148 $6,215 $3,050 $1,699
Finance receivables, net.. $7,463 $7,227 $7,834 $7,226 $6,998
Total assets.............. $19,308 $16,225 $14,791 $11,179 $9,459
Notes and loans payable... $15,014 $12,696 $11,833 $8,833 $7,705
Capital stock......... $915 $865 $865 $680 $630
Retained earnings..... $998 $844 $662 $487 $329
RATIO OF EARNINGS TO
FIXED CHARGES...... 1.32 1.42 1.60 1.56 1.39
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$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 1.49, 1.74, 1.90, 2.07 and
1.83 for the years ended September 30, 1996, 1995, 1994, 1993 and 1992,
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, 1996, TMCC has not incurred any fixed charges in
connection with such guarantee and no amount is included in any ratio
of earnings to fixed charges.
-9-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Financial Condition and Results of Operations
The composition of TMCC's net earning assets as of the balance sheet dates
reported herein and TMCC's vehicle lease and retail contract volumes and
finance penetration for the fiscal years ended September 30, 1996, 1995 and
1994 are summarized below:
September 30, September 30,
1996 1995
------------- -------------
(Dollars in Millions)
Lease earning assets, net................ $12,194 $ 9,533
Retail finance receivables, net.......... 5,288 4,784
Wholesale receivables and other
dealer loans.......................... 1,015 1,229
Allowance for credit losses.............. (203) (171)
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Total earning assets, net............ $18,294 $15,375
======= =======
Years Ended September 30,
-----------------------------
1996 1995 1994
------- ------- -------
Contract volume:
Vehicle lease contracts............... 276,000 179,000 204,000
Vehicle retail installment contracts.. 229,000 170,000 210,000
------- ------- -------
Total.................................... 505,000 349,000 414,000
======= ======= =======
Finance penetration...................... 41.2% 31.8% 36.7%
TMCC's net earning assets as of September 30, 1996 increased from
September 30, 1995 primarily due to growth in lease earning assets. Lease
earning assets, consisting of investments in operating leases, net of
accumulated depreciation, and lease finance receivables, net of unearned
income, increased in fiscal 1996 from fiscal 1995 due to higher lease volume
attributable to special lease programs sponsored by TMS and the increased
acceptance of leasing by retail consumers.
TMS sponsors special lease and retail programs which allow TMCC to offer
reduced monthly payments on certain Toyota and Lexus new vehicles and Toyota
industrial equipment to qualified lease and retail customers. Support amounts
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received from TMS 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 and revenues earned vary based on the
mix of Toyota and Lexus vehicles, timing of programs and the level of support
provided. TMCC's revenues earned from TMS sponsored special lease and retail
programs totaled $174 million, $134 million and $54 million for fiscal years
1996, 1995 and 1994, respectively.
TMCC is subject to residual value risk related to all outstanding lease
contracts. TMCC's residual value risk is a function of the number of off-
lease vehicles returned for disposition, and the difference between the amount
of disposition proceeds and the estimated residual value on returned vehicles.
Residual value losses incurred by TMCC in each of the three years ended
September 30, 1996, 1995 and 1994 have not had a material adverse impact on
operations. TMCC actively manages disposition of its lease vehicles by
working with lessees, dealers and auctions through end-of-lease-term
remarketing programs. In addition, returned lease vehicles are inspected and
lessees are charged for excess wear and tear, excess mileage and any damage
to the vehicles. Unguaranteed residual values related to outstanding lease
contracts totaled approximately $8.8 billion and $6.6 billion at September 30,
1996 and 1995, respectively. The percentage of lease vehicles returned to
TMCC which were originally scheduled to mature in the following periods were
14%, 11% and 12% for fiscal 1996, 1995 and 1994, respectively. As the lease
portfolio matures, the Company anticipates that the level of vehicle lease
returns will increase; however, the Company believes that its lease earning
assets are recorded at net realizable value.
Retail finance receivables, net of unearned income, increased in fiscal 1996
from fiscal 1995 due to higher contract volume reflecting increased special
retail programs sponsored by TMS as well as increased average advances per
retail contract.
TMCC's finance penetration represents the percentage of new Toyota and Lexus
vehicle deliveries (excluding fleet) in the United States (excluding Hawaii)
leased or financed by TMCC. Increased penetration for fiscal 1996 as compared
with fiscal 1995 reflects increased volume primarily attributable to a higher
level of TMS sponsored special lease programs. The decline in finance
penetration from fiscal 1994 to 1995 reflects reduced contract volumes
attributable primarily to lower levels of TMS sponsored special lease programs
in fiscal 1995 as well as increased competition in retail financing.
TMCC's total financing revenues increased 21% in fiscal 1996 and 42% in fiscal
1995. The increase in fiscal 1996 reflects growth in operating lease revenues
due to continued growth in market acceptability of leasing as well as TMS
sponsored special lease programs, partially offset by reduced retail financing
and wholesale revenues. Retail financing revenues declined as a result of
reduced average retail receivables outstanding in fiscal 1996 as compared with
fiscal 1995 due to the sale of retail receivables in September 1995 and July
1996. Decline in wholesale revenues reflects reduced financing rates as well
as increased turnover of units financed. The increase in fiscal 1995 revenues
reflects primarily growth in operating lease revenues as well as growth in
retail financing and wholesale revenues.
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Depreciation expense increased 32% and 68% in fiscal 1996 and 1995,
respectively, primarily as a result of the growth in investments in operating
leases.
Interest expense increased 15% and 47% in fiscal 1996 and 1995, respectively.
The increases in fiscal 1996 and 1995 reflect higher average borrowings
outstanding required to fund the growth in earning assets and an increase in
the average cost of borrowings. The weighted average cost of borrowings was
5.90%, 5.78% and 4.94% for the years ended September 30, 1996, 1995 and 1994,
respectively.
Other revenues increased 20% and 19% in fiscal 1996 and 1995, respectively.
The increases in other revenues for fiscal 1996 and 1995 reflect growth in the
Company's insurance operations and increased servicing and other income
related to retail receivables sold.
Operating and administrative expenses increased 15% and 10% in fiscal 1996 and
1995, respectively. The increases reflect primarily additional personnel and
operating costs required to support TMCC's growing customer base as well as
growth in the Company's insurance operations.
-12-
The provision for credit losses increased 74% and decreased 15% during fiscal
1996 and fiscal 1995, respectively. The increase in fiscal 1996 was primarily
related to the substantial growth in earning assets as well as less favorable
credit loss experience. The decrease in fiscal 1995 reflects a decline in the
level of earning asset growth and a reduction in allowance levels due to
changes in the mix of earning assets and TMCC's favorable credit loss
experience. TMCC will continue to monitor loss levels and place emphasis on
its credit loss exposure.
An analysis of credit losses and the related allowance follows (certain prior
period amounts have been reclassified to conform with the current period
presentation):
Years ended September 30,
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Millions)
Allowance for credit losses
at beginning of period......... $171 $164 $121 $107 $ 89
Provision for credit losses....... 115 66 78 60 68
Charge-offs, net of recoveries.... (83) (59) (35) (46) (50)
---- ---- ---- ---- ----
Allowance for credit losses
at end of period............... $203 $171 $164 $121 $107
==== ==== ==== ==== ====
Allowance as a percent of net
investments in operating
leases and net receivables
outstanding.................... 1.10% 1.10% 1.15% 1.16% 1.22%
Losses as a percent of average
net investments in operating
leases and average gross
receivables outstanding........ .47% .38% .27% .42% .56%
Aggregate balances at end of
period for lease rentals
and installments 60
or more days past due.......... $29 $20 $15 $16 $23
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.................... .15% .12% .10% .14% .23%
-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 are utilized to meet short-term funding needs.
Commercial paper outstanding under TMCC's commercial paper program ranged from
approximately $1.1 billion to $3.2 billion during fiscal 1996. For additional
liquidity purposes, TMCC maintains syndicated bank credit facilities with
certain banks which aggregated $2.0 billion at September 30, 1996. No loans
were outstanding under any of these bank credit facilities during fiscal 1996.
TMCC also maintains, along with TMS, uncommitted, unsecured lines of credit
with banks totaling $250 million to facilitate the issuance of letters of
credit. At September 30, 1996, TMCC had issued approximately $44 million in
letters of credit, primarily related to the Company's insurance operations.
Long-term funding requirements are met through the issuance of a variety of
debt securities underwritten in both the United States and international
capital markets. United States and Euro MTNs with original maturities ranging
from one to eleven years have provided TMCC with a significant source of
funding. During fiscal 1996, TMCC issued approximately $4.7 billion of MTNs
of which approximately $4.1 billion had original maturities of more than one
year. TMCC had approximately $10.1 billion of MTNs outstanding at
September 30, 1996 including the effect of foreign currency translations at
September 30, 1996 spot exchange rates; approximately $4.0 billion of the
$10.1 billion in MTNs was denominated in foreign currencies. In addition to
MTNs, TMCC had approximately $2.6 billion of debt securities outstanding
issued principally in the form of Eurobonds in the international capital
markets at September 30, 1996, including the effect of foreign currency
translations at September 30, 1996 spot exchange rates; approximately $2.1
billion of the $2.6 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, 1996, approximately
$780 million was available for issuance under TMCC's United States public MTN
program, none of which was committed for issue by the Company. The maximum
aggregate principal amount authorized to be outstanding at any time under
TMCC's Euro MTN program is $12.0 billion, which was increased in July 1996
from the prior maximum of $9.5 billion. Approximately $2.3 billion was
available for issuance under the Euro MTN program as of November 30, 1996, of
which the Company has committed to issue approximately $250 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, 1996.
In July 1996, TMCC's shelf registration statement relating to $1.5 billion of
asset-backed notes and certificates was declared effective by the SEC. On
July 24, 1996, TMCC received proceeds of approximately $754 million from the
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sale of a pool of retail receivables and the related offering of certificates
backed by such receivables. Approximately $750 million under the shelf
registration remains available for issuance as of November 30, 1996. The
Company's sale of finance receivables is discussed in Note 6 of the Notes to
the Consolidated Financial Statements.
On October 1, 1996 Toyota Lease Trust ("TLT") was created as a Delaware
business trust for the purpose of titling leases, originated in certain
states, in connection with development of a lease securitization program.
TMCC anticipates its first lease securitization to occur in fiscal 1997.
TMCC utilizes a variety of interest rate and currency derivative financial
instruments to manage interest rate and foreign exchange exposures. The
derivative instruments utilized include cross currency and interest rate
swaps, indexed note swaps and option-based products. TMCC does not use any
of these instruments for trading purposes.
Derivative financial instruments utilized by TMCC involve, to varying degrees,
elements of credit risk in the event a counterparty should default and market
risk as the instruments are subject to rate and price fluctuations. Credit
risk is managed through the use of credit standard guidelines, counterparty
diversification, monitoring of counterparty financial condition and master
netting agreements in place with all derivative counterparties. Market risk
is limited to interest rate risk as foreign currency denominated instruments
are entirely hedged. TMCC uses a value-at-risk methodology, in connection
with other management tools, to assess and manage the interest rate risk of
aggregated loan and lease assets and financial liabilities, including
derivatives and option-based products.
The total notional amount of TMCC's derivative financial instruments at
September 30, 1996 and 1995 was $20.5 billion and $17.4 billion, respectively.
The notional amounts of interest rate and indexed note swap agreements and
option-based products do not represent amounts exchanged by the parties and,
thus, are not a measure of the Company's exposure through its use of
derivatives.
Descriptions of derivative instruments utilized and risk management procedures
as well as a reconciliation of the Company's derivative activities for the
years ended September 30, 1996 and 1995 are included in Note 11 of the Notes
to the Consolidated Financial Statements.
On occasion, TMS has made equity contributions to maintain TMCC's equity
capitalization at certain levels. During the year ended September 30, 1996,
TMS made an equity contribution to TMCC by purchasing, at par value, newly
issued shares of TMCC's capital stock in the amount of $50 million. No equity
contributions were made during fiscal 1995. Also, on occasion, TMS makes
interest-bearing loans to TMCC. There were no loans from TMS during fiscal
1996.
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 $13.6 billion and $11.9 billion during
fiscal 1996 and 1995, respectively, was used to purchase additional
investments in operating leases and finance receivables, totaling $19.2
billion and $15.1 billion during fiscal 1996 and 1995, respectively.
Investing activities resulted in a net use of cash of $4.8 billion and
$2.7 billion in fiscal 1996 and 1995, respectively, as the purchase of
-15-
additional earning assets, primarily investments in operating leases, exceeded
cash provided by the liquidation of earning assets. Net cash provided by
operating activities totaled $2.3 billion and $2.0 billion during fiscal 1996
and 1995, respectively, and net cash provided by financing activities totaled
$2.6 billion and $0.7 billion, during fiscal 1996 and 1995, respectively. The
Company believes that cash provided by operating and investing activities as
well as access to domestic and international capital markets and issuance of
commercial paper will provide sufficient liquidity to meet its future funding
requirements.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The foregoing Business description and Management's Discussion and Analysis
contain various "forward looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which represent the Company's expectations
or beliefs concerning future events, including the following: potential
adverse effect on the Company's operations as a result of governmental
regulations; that the Company considers its employee relations to be
satisfactory; the level of lease vehicle returns; that the lease earning
assets on the Company's books are recorded at net realizable value; that the
ultimate liability resulting from pending claims and actions should not have
a material adverse effect on the Company's consolidated financial position or
results of operations; the Company's continued use of MTNs in the United
States and the international capital markets; that the first lease
securitization is expected in fiscal 1997; the sufficiency of the Company's
cash provided by operating, investing and financing activities for the
Company's future liquidity and capital resource needs. The Company cautions
that these statements are further qualified by important factors that could
cause actual results to differ materially from those in the forward looking
statements, including, without limitation, the following: decline in demand
for Toyota and Lexus products; the effect of economic conditions; a decline
in the market acceptability of leasing; the effect of competitive pricing on
interest margins; increases in prevailing interest rates; changes in pricing
due to the appreciation of the Japanese yen against the United States dollar;
the effect of governmental actions; the effect of competitive pressures on the
used car market and residual values; the continuation of, and if continued,
the level and type of special programs offered by TMS; the ability of the
Company to successfully access the United States and international capital
markets; increased costs associated with the Company's debt funding efforts;
and the ability of the Company's counterparties to perform under interest rate
and cross currency swap agreements. Results actually achieved thus may differ
materially from expected results included in these statements.
Recently Enacted Accounting Standards
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,
-16-
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.
In June 1996, the Financial Accounting Standard Board issued Statement of
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. The Company will adopt this Standard during fiscal
1997, as required. Adoption of this Standard is not expected to have a
material impact on the Company's results of operations and financial position.
-17-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
-------
Report of Independent Accountants................................ 19
Consolidated Balance Sheet at September 30, 1996 and 1995........ 20
Consolidated Statement of Income for the
years ended September 30, 1996, 1995 and 1994................. 21
Consolidated Statement of Shareholder's Equity for
the years ended September 30, 1996, 1995 and 1994............. 22
Consolidated Statement of Cash Flows for the
years ended September 30, 1996, 1995 and 1994................. 23
Notes to Consolidated Financial Statements....................... 24 - 50
All schedules have been omitted because they are not required, not
applicable, or the information has been included elsewhere.
-18-
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, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1996, 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, 1996
-19-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
September 30,
-----------------------
1996 1995
-------- --------
ASSETS
------
Cash and cash equivalents................. $ 170 $ 101
Investments in marketable securities...... 325 169
Investments in operating leases, net...... 10,831 8,148
Finance receivables, net.................. 7,463 7,227
Receivable from Parent.................... 78 58
Other receivables......................... 193 350
Deferred charges.......................... 131 85
Income taxes receivable................... - 6
Other assets.............................. 117 81
------- -------
Total Assets..................... $19,308 $16,225
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $15,014 $12,696
Accrued interest.......................... 226 190
Accounts payable and accrued expenses..... 474 298
Deposits.................................. 248 200
Income taxes payable...................... 16 -
Deferred income........................... 612 505
Deferred income taxes..................... 805 627
------- -------
Total Liabilities................... 17,395 14,516
------- -------
Commitments and Contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 91,500 in 1996 and
86,500 in 1995)..................... 915 865
Retained earnings...................... 998 844
------- -------
Total Shareholder's Equity.......... 1,913 1,709
------- -------
Total Liabilities and
Shareholder's Equity............. $19,308 $16,225
======= =======
See Accompanying Notes to Consolidated Financial Statements.
-20-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
Years ended September 30,
----------------------------------
1996 1995 1994
------ ------ ------
Financing Revenues:
Leasing................................. $2,454 $1,904 $1,230
Retail financing........................ 415 431 413
Wholesale and other dealer financing.... 109 121 86
------ ------ ------
Total financing revenues................... 2,978 2,456 1,729
Depreciation on operating leases........ 1,626 1,232 735
Interest expense........................ 820 716 486
------ ------ ------
Net financing revenues..................... 532 508 508
Other revenues............................. 136 113 95
------ ------ ------
Net financing revenues and other revenues.. 668 621 603
------ ------ ------
Expenses:
Operating and administrative............ 293 255 232
Provision for credit losses............. 115 66 78
------ ------ ------
Total expenses............................. 408 321 310
------ ------ ------
Income before income taxes................. 260 300 293
Provision for income taxes................. 108 117 118
------ ------ ------
Net Income................................. $ 152 $ 183 $ 175
====== ====== ======
See Accompanying Notes to Consolidated Financial Statements.
-21-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)
Capital Retained
Stock Earnings Total
------- -------- -------
Balance at September 30, 1993.......... $680 $487 $1,167
Issuance of capital stock.............. 185 - 185
Net income in 1994..................... - 175 175
---- ---- ------
Balance at September 30, l994.......... 865 662 1,527
Net income in 1995..................... - 183 183
Net unrealized holding loss on
marketable securities............... - (1) (1)
---- ---- ------
Balance at September 30, 1995.......... 865 844 1,709
Issuance of capital stock.............. 50 - 50
Net income in 1996..................... - 152 152
Net unrealized holding gain on
marketable securities............... - 2 2
---- ---- ------
Balance at September 30, 1996.......... $915 $998 $1,913
==== ==== ======
See Accompanying Notes to Consolidated Financial Statements.
-22-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
Years ended September 30,
---------------------------------
1996 1995 1994
------ ------ ------
Cash flows from operating activities:
Net income.......................................... $ 152 $ 183 $ 175
------ ------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 1,646 1,286 743
Provision for credit losses.................... 115 66 78
Gain from sale of finance receivables, net..... (15) (11) -
Increase in accrued interest................... 36 34 8
Increase in deferred income taxes.............. 178 241 108
(Increase) decrease in other assets............ (70) 97 328
Increase in other liabilities.................. 220 99 220
------ ------ ------
Total adjustments................................... 2,110 1,812 1,485
------ ------ ------
Net cash provided by operating activities.............. 2,262 1,995 1,660
------ ------ ------
Cash flows from investing activities:
Addition to investments in marketable
securities....................................... (199) (90) (86)
Disposition of investments in marketable
securities....................................... 45 24 120
Purchase of finance receivables..................... (13,136) (11,005) (10,868)
Liquidation of finance receivables.................. 11,949 10,913 10,224
Proceeds from sale of finance receivables........... 905 650 -
Addition to investments in operating leases......... (6,081) (4,123) (4,468)
Disposition of investments in operating leases...... 1,718 927 525
------ ------ ------
Net cash used in investing activities.................. (4,799) (2,704) (4,553)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of capital stock............. 50 - 185
Proceeds from issuance of notes and loans payable... 5,894 5,733 5,150
Payments on notes and loans payable................. (4,587) (4,989) (2,955)
Net increase (decrease) in commercial paper,
with original maturities less than 90 days....... 1,249 (62) 582
------ ------ ------
Net cash provided by financing activities.............. 2,606 682 2,962
------ ------ ------
Net increase (decrease) in cash and cash equivalents... 69 (27) 69
Cash and cash equivalents at the beginning
of the period....................................... 101 128 59
------ ------ ------
Cash and cash equivalents at the end of the
period.............................................. $ 170 $ 101 $ 128
====== ====== ======
Supplemental disclosures:
Interest paid....................................... $778 $643 $475
Income taxes paid................................... $3 $2 $64
See Accompanying Notes to Consolidated Financial Statements.
-23-
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 purchased
from Toyota Motor Corporation ("TMC") or its affiliates. TMC
restructured its North American organizations with the establishment of
Toyota Motor Manufacturing North America, Inc. ("TMMNA") on October 1,
1996. TMMNA functions to coordinate and support numerous manufacturing
related administrative functions previously carried out independently
by various Toyota entities in North America and by TMC in Japan. Both
TMMNA and TMS are wholly-owned subsidiaries of Toyota Motor North
America, Inc., a holding company owned 100% by TMC which was
established on September 3, 1996.
TMCC has six 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"), Toyota Motor Credit Receivables Corporation
("TMCRC") and Toyota Credit De Puerto Rico Corp. ("TCPR"). 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 in
connection with the sale and lease 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. TCPR was established in January 1996 to
provide retail and wholesale financing and certain other financial
services to authorized Toyota and Lexus vehicle dealers and their
customers in Puerto Rico; TCPR commenced operations in October 1996.
The Company's business is substantially dependent upon the sale of
Toyota and Lexus vehicles in the United States. Changes in the volume
of sales of such vehicles resulting from governmental action, changes
in consumer demand, changes in pricing of imported units due to
currency fluctuations, or other events could impact the level of
finance and insurance operations of the Company.
-24-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
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.
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.
-25-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Investments in Operating Leases
-------------------------------
TMCC acquires retail leases from Toyota and Lexus vehicle and Toyota
industrial equipment dealers. 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. Gains or
losses on disposal and adjustments to the residual value of underlying
assets are also included in Depreciation Expense.
Allowance for Credit Losses
---------------------------
Allowances for credit losses are established during the period in which
receivables are acquired and are maintained in amounts considered by
management to be appropriate in relation to receivables outstanding
based upon historical loss experience and other factors. Losses are
charged to the allowance for credit losses when it has been determined
that collateral cannot be recovered and any shortfall between proceeds
received and carrying cost of repossessed collateral is charged to the
allowance. 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 debt issuance costs
which are amortized to Interest Expense over the life of the related
instruments on a straight-line basis.
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
primarily of commissions and premium taxes, are deferred and amortized
over the terms of the related policies on the same basis as revenues
are earned. The liability for reported losses and the estimate of
unreported losses is recorded in Accounts Payable and Accrued Expenses.
Commission and fee income are recognized in relation to the level of
services performed.
-26-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
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.
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
which 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,
reflecting the differences between the September 30, 1996 foreign
currency spot exchange rates and the contract rates applicable to the
cross currency interest rate swap agreements, are classified in Other
Receivables or Accounts Payable and Accrued Expenses, respectively.
Income Taxes
------------
TMCC uses the liability method of accounting for income taxes under
which 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 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.
-27-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
- ---------------------------------------------------
Reclassifications
-----------------
Certain 1995 and 1994 accounts have been reclassified to conform with
the 1996 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 fair value of securities was estimated
using quoted market prices or discounted cash flow analysis.
The estimated fair value and amortized cost of investments in
marketable securities are as follows:
September 30, 1996
--------------------------------
Fair Gross
Cost Value Unrealized Gains
---- ----- ----------------
(Dollars in Millions)
Available-for-sale securities:
Equity securities................... $133 $135 $2
Asset-backed securities............. 177 177 -
U.S. debt securities................ 2 2 -
---- ---- -----
Total available-for-sale securities.... 312 314 $2
=====
Excess of fair value over cost...... 2 -
---- ----
Available-for-sale securities.......... 314 314
Held-to-maturity securities:
U.S. debt securities................ 11 11
---- ----
Total marketable securities...... $325 $325
==== ====
-28-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities (Continued)
- ---------------------------------------------
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, 1996 are as follows:
Available-for-Sale Held-to-Maturity
Securities Securities
------------------ ----------------
Fair Fair
Cost Value Cost Value
---- ----- ---- -------
(Dollars in Millions)
Within one year..................... $ - $ - $ 2 $ 2
After one year through five years... 2 2 9 9
Mutual funds........................ 133 135 - -
Asset-backed securities............. 177 177 - -
---- ---- --- ---
Total............................ $312 $314 $11 $11
==== ==== === ===
The proceeds from sales of available-for-sale securities were $3 million
and $7 million for the years ended September 30, 1996 and 1995,
respectively. Realized gains and losses on sales of available-for-sale
securities were immaterial for the years ended September 30, 1996 and
1995.
-29-
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,
----------------------
1996 1995
------- ------
(Dollars in Millions)
Vehicles................................. $13,252 $9,864
Equipment and other...................... 268 201
------- ------
13,520 10,065
Accumulated depreciation................. (2,582) (1,838)
Allowance for credit losses.............. (107) (79)
------- ------
Investments in operating leases, net.. $10,831 $8,148
======= ======
Rental income from operating leases was $2,292 million, $1,734 million
and $1,056 million for the years ended September 30, 1996, 1995 and
1994, respectively. Future minimum rentals on operating leases are as
follows: years ending September 30, 1997 - $2,055 million; 1998 -
$1,274 million; 1999 - $461 million; 2000 - $38 million; and 2001 -
$3 million. A substantial portion of TMCC's operating lease contracts
have historically been terminated prior to maturity; 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,
---------------------
1996 1995
------ ------
(Dollars in Millions)
Retail............................... $5,501 $5,050
Finance leases....................... 1,525 1,567
Wholesale and other dealer loans..... 1,015 1,229
------ ------
8,041 7,846
Unearned income...................... (482) (527)
Allowance for credit losses.......... (96) (92)
------ ------
Finance receivables, net.......... $7,463 $7,227
====== ======
-30-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Finance Receivables (Continued)
- ----------------------------
Contractual maturities at September 30, 1996 are as follows:
Due in the Wholesale
Years Ending and Other
September 30, Retail Dealer Loans
------------- ------ ------------
(Dollars in Millions)
1997.................. $2,043 $ 814
1998.................. 1,373 63
1999.................. 1,068 36
2000.................. 747 43
2001.................. 260 47
Thereafter............ 10 12
------ ------
Total.............. $5,501 $1,015
====== ======
Finance leases, net consisted of the following:
September 30,
---------------------
1996 1995
------- -------
(Dollars in Millions)
Minimum lease payments.................. $ 867 $ 894
Estimated unguaranteed residual values.. 658 673
------ ------
Finance leases....................... 1,525 1,567
Unearned income......................... (270) (261)
Allowance for credit losses............. (19) (17)
------ ------
Finance leases, net.................. $1,236 $1,289
====== ======
The aggregate balances related to finance receivables 60 or more days
past due totaled $20 million and $16 million at September 30, 1996 and
1995, respectively. Future minimum finance lease payments for each of
the five succeeding years ending September 30, are: 1997 - $309
million; 1998 - $231 million; 1999 - $178 million; 2000 - $118
million and 2001 - $31 million. A substantial portion of TMCC's
finance receivables have historically been repaid prior to contractual
maturity dates; 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.
-31-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Sale of Finance Receivables
- ------------------------------------
In June 1996, the Financial Accounting Standard Board issued Statement
of Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities",
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The
Company will adopt this Standard during fiscal 1997, as required.
Adoption of this Standard is not expected to have a material impact on
the Company's results of operations and financial position.
In the fourth quarters of fiscal 1996 and 1995, the Company sold retail
finance receivables aggregating $782 million and $679 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. Following is a summary of amounts included in Other Receivables:
September 30,
---------------------
1996 1995
---- ----
(Dollars in Millions)
Excess servicing....................... $34 $32
Other restricted amounts:
Cash deposits....................... 20 14
Limited interest in trust........... 2 7
Allowance for estimated credit
losses on sold receivables.......... (5) (4)
--- ---
Total............................ $51 $49
=== ===
The pretax gain resulting from the sale of finance receivables totaled
$15 million and $11 million in fiscal 1996 and 1995, respectively,
after providing for an allowance for estimated credit losses. In
addition to the above described transactions, in August 1996 TMCC sold
approximately $150 million of retail finance receivables to World Omni
Retail Funding Inc. in exchange for an interest bearing certificate
secured by a 100% interest in the same receivables.
The outstanding balance of the sold finance receivables which TMCC
continues to service at September 30, 1996 and 1995 totaled $1.1
billion and $762 million, respectively.
-32-
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,
-------------------------
1996 1995 1994
---- ---- ----
(Dollars in Millions)
Allowance for credit losses
at beginning of period......... $171 $164 $121
Provision for credit losses....... 115 66 78
Charge-offs, net of recoveries.... (83) (59) (35)
---- ---- ----
Allowance for credit losses
at end of period............... $203 $171 $164
==== ==== ====
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"). The Statements apply to loans individually evaluated for
impairment and do not apply to portfolios of small dollar homogenous
loans, such as retail finance receivables, which are collectively
evaluated for impairment. The amount of impaired loans and related
allowance for credit losses as of September 30, 1996 is not material.
-33-
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 and that 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 1.10
times such charges in any fiscal quarter. To maintain TMCC's minimum
coverage pursuant to the Operating Agreement, TMS has made noninterest-
bearing advances and income maintenance payments to TMCC though no such
advances were made in fiscal 1996, 1995 or 1994. 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 $12 million, $8 million and $7 million for the years ended
September 30, 1996, 1995 and 1994, respectively. TMS sponsors special
retail and lease programs offered by TMCC; for the years ended
September 30, 1996, 1995 and 1994, TMCC recognized revenue of
$174 million, $134 million and $54 million, respectively, related to
TMS sponsored programs.
TMCC has an arrangement to borrow and invest funds with TMS at short
term market rates. For the year ended September 30, 1996, TMCC had no
borrowings from TMS. For the years ended September 30, 1995 and 1994,
the highest amounts of borrowings from TMS were $34 million and
$161 million, respectively; interest charges related to these
borrowings were immaterial. The Operating Agreement provides that
borrowings from TMS are subordinated to all other indebtedness of TMCC.
For the years September 30, 1996, 1995 and 1994, the highest amounts of
funds invested with TMS were $224 million, $603 million and $326
million, respectively; interest earned on these investments totaled
$5 million, $16 million and $5 million for the years ended
September 30, 1996, 1995 and 1994, respectively.
The Company leases its headquarters facility from TMS; rent expense
paid to TMS for this facility totaled $3 million for each of the years
ended September 30, 1996, 1995 and 1994. TMCC leases a corporate
aircraft to TMS and provides wholesale financing for a TMS affiliate;
for each of the years ended September 30, 1996, 1995 and 1994, TMCC
recognized revenue of $3 million related to these arrangements.
TMIS and TMICV provide certain insurance services, and insurance and
reinsurance coverages, respectively, to TMS. Premiums, commissions and
fees earned on these services for the years ended September 30, 1996,
1995 and 1994 totaled $7 million, $4 million and $7 million,
respectively.
-34-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable
- --------------------------------
Notes and loans payable at September 30, 1996 and 1995, which consisted
of senior debt, included the following:
September 30,
----------------------
1996 1995
------- -------
(Dollars in Millions)
Commercial paper, net................... $ 2,360 $ 1,442
------- -------
Other senior debt, due in the years
ending September 30,:
1996.............................. - 3,252
1997.............................. 3,211 2,722
1998.............................. 2,760 2,371
1999.............................. 1,384 529
2000.............................. 2,137 1,723
2001.............................. 2,216 330
Thereafter........................ 864 281
------- -------
12,572 11,208
Unamortized premium..................... 82 46
------- -------
Total other senior debt........... 12,654 11,254
------- -------
Notes and loans payable........ $15,014 $12,696
======= =======
Short-term borrowings include commercial paper and certain medium-term
notes ("MTNs"). The weighted average remaining term of commercial
paper was 31 days and 27 days at September 30, 1996 and 1995,
respectively. The weighted average interest rate on commercial paper
was 5.41% and 6.53% at September 30, 1996 and 1995, respectively.
Short-term MTNs with original terms of one year or less, included in
other senior debt, were $559 million and $444 million at September 30,
1996 and 1995, respectively. The weighted average interest rate on
these short-term MTNs was 5.19% and 5.86% at September 30, 1996 and
1995, respectively, including the effect of interest rate swap
agreements.
The weighted average interest rate on other senior debt was 5.98% and
5.75% at September 30, 1996 and 1995, respectively, including the
effect of interest rate swap agreements and option-based products. The
rates have been calculated using rates in effect at September 30, 1996
and 1995, some of which are floating rates that reset daily.
Approximately 24% of other senior debt at September 30, 1996 had
interest rates, including the effect of interest rate swap agreements,
that were fixed for a period of more than one year. The weighted
-35-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable (Continued)
- --------------------------------
average of these fixed interest rates was 5.83% at September 30, 1996.
Approximately 49% of other senior debt at September 30, 1996 had
floating interest rates that were covered by option-based products. The
weighted average strike rate on these option-based products was 6.18%
at September 30, 1996. TMCC manages interest rate risk via continuous
adjustment of the mix of fixed and floating rate debt through use of
interest rate swap agreements and option-based products.
Included in Notes and Loans Payable at September 30, 1996 and 1995 were
unsecured notes denominated in various foreign currencies as follows:
September 30,
----------------------------
1996 1995
----------- -----------
Australian dollars.................. 250 million 250 million
British pound sterling.............. 150 million -
Canadian dollars.................... 300 million 775 billion
Dutch guilders...................... 555 million 555 million
European currency units............. - 45 million
French francs....................... 3 billion 1 billion
German deutsche marks............... 1 billion 760 million
Hong Kong dollars................... 150 million 150 million
Italian lire........................ 493 billion 470 billion
Japanese yen........................ 198 billion 218 billion
New Zealand dollar.................. 100 million -
South African rand.................. 250 million -
Swedish kronor...................... 670 million 110 million
Swiss francs........................ 2 billion 1 billion
Concurrent with the issuance of these unsecured notes, TMCC entered
into cross currency interest rate swap agreements to convert these
obligations at maturity into U.S. dollar obligations which in aggregate
total a principal amount of $6.2 billion. TMCC's foreign currency debt
was translated into U.S. dollars in the financial statements at the
various foreign currency spot exchange rates in effect at September 30,
1996. The receivables or payables arising as a result of the
differences between the September 30, 1996 foreign currency spot
exchange rates and the contract rates applicable to the cross currency
interest rate swap agreements are classified in Other Receivables or
Accounts Payable and Accrued Expenses, respectively, and would in
aggregate total a net payable position of $171 million at
September 30, 1996.
-36-
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, 1996 and 1995, and the
valuation methodologies described below. Considerable judgement was
employed in interpreting market data to develop 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.
The carrying amounts and estimated fair values of the Company's
financial instruments at September 30, 1996 and 1995 are as follows:
September 30,
---------------------------------------------------
1996 1995
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ----------- ----------
(Dollars in Millions)
Balance sheet financial
instruments:
Assets:
Cash and cash equivalents......... $170 $170 $101 $101
Investments in marketable
securities..................... $325 $325 $169 $169
Retail finance receivables, net... $6,228 $6,121 $5,938 $6,003
Other receivables................. $77 $79 $70 $71
Receivables from cross currency
interest rate swap agreements.. $116 $152 $280 $426
Liabilities:
Notes and loans payable........... $15,014 $15,398 $12,696 $12,736
Payables from cross currency
interest rate swap agreements.. $287 $108 $154 $65
-37-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- ---------------------------------------------
September 30,
---------------------------------------------------
1996 1995
------------------------ ------------------------
Contract or Unrealized Contract or Unrealized
Notional Gains/ Notional Gains/
Amount (Losses) Amount (Losses)
----------- ---------- ----------- ----------
(Dollars in Millions)
Off-balance sheet financial
instruments:
Cross currency interest rate
swap agreements................ $5,642 $72 $4,804 $342
Interest rate swap agreements..... $6,759 $37 $7,049 $29
Option-based products............. $6,220 $26 $3,820 $(1)
Indexed note swap agreements...... $1,924 $(37) $1,721 $11
The fair value estimates presented herein are based on information
available to management as of September 30, 1996 and 1995. 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, 1996 and 1995 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 or discounted cash flow analysis.
-38-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- ---------------------------------------------
Retail Finance Receivables
--------------------------
The carrying amounts of $900 million and $1.1 billion of variable rate
finance receivables at September 30, 1996 and 1995, respectively, were
assumed to approximate fair value as these receivables reprice 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, 1996 and 1995.
Other Receivables
-----------------
The carrying amount and fair value of other receivables are presented
separately from the receivables arising from cross currency interest
rate swap agreements. The fair value of amounts associated with the
sale of finance receivables was estimated by discounting expected cash
flows using quoted market interest rates as of September 30, 1996 and
1995. The carrying amount of the remaining other receivables
approximate market value due to the short maturity of these
instruments.
Notes and Loans Payable
-----------------------
The fair value of notes and loans payable was estimated by discounting
expected cash flows using the interest rates at which debt of similar
credit quality and maturity would be made as of September 30, 1996 and
1995. The carrying amount of commercial paper was assumed to
approximate fair value due to the short maturity of these instruments.
-39-
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 outstanding 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, 1996 and
1995.
Interest Rate Swap Agreements
-----------------------------
The estimated fair value of TMCC's outstanding interest rate swap
agreements was derived by discounting expected cash flows using quoted
market interest rates as of September 30, 1996 and 1995.
Option-based Products
-----------------------
The estimated fair value of TMCC's outstanding option based products
was derived by discounting expected cash flows over the remaining term
of the instruments using market exchange rates and market interest
rates as of September 30, 1996 and 1995.
Indexed Note Swap Agreements
----------------------------
The estimated fair value of TMCC's outstanding indexed note swap
agreements was derived using quoted market prices as of September 30,
1996 and 1995.
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 $1,119 million and $773 million at
September 30, 1996 and 1995, respectively. Security interests are
acquired in vehicles and equipment financed and substantially all such
financings are backed by corporate or individual guarantees from or on
behalf of the participating dealers.
-40-
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 as
explained in this note. TMCC does not enter into these instruments for
trading purposes.
A reconciliation of the activity of TMCC's derivative financial
instruments for the years ended September 30, 1996 and 1995 is as
follows:
September 30,
-----------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------- ------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
Beginning Notional Amount $4.8 $4.0 $7.1 $7.6 $3.8 $0.5 $1.7 $2.4
Add:
New agreements........ 1.7 1.6 3.1 1.9 3.4 3.3 1.2 0.5
Less:
Expired agreements.... 0.9 0.8 3.4 2.4 1.0 - 1.0 1.2
---- ---- ---- ---- ---- ---- ---- ----
Ending Notional Amount... $5.6 $4.8 $6.8 $7.1 $6.2 $3.8 $1.9 $1.7
==== ==== ==== ==== ==== ==== ==== ====
-41-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Interest Rate Risk Management
-----------------------------
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. The original maturities
of the interest rate swap agreements ranged from one to ten years at
September 30, 1996.
TMCC also utilizes option-based products in managing its exposure to
interest rate fluctuations. Option-based products are executed on a
portfolio basis and 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 to receive or
require TMCC to make payments at specified interest rate levels.
Approximately 49% of TMCC's other senior debt at September 30, 1996 had
floating interest rates that were covered by option-based products
which had an average strike rate of 6.18%. 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, 1996.
-42-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Interest Rate Risk Management (Continued)
-----------------------------
The aggregate notional amounts of interest rate swap agreements and
option-based products outstanding at September 30, 1996 and 1995 were
as follows:
September 30,
---------------------
1996 1995
---- ----
(Dollars in Billions)
Fixed rate swaps............................... $2.3 $4.2
Floating rate swaps............................ 3.1 1.3
Basis swaps.................................... 1.4 1.6
---- ----
Total interest rate swap agreements........ $6.8 $7.1
==== ====
Option-based products.......................... $6.2 $3.8
==== ====
TMCC utilizes indexed note swap agreements in managing its exposure in
connection with 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. At September 30,
1996, TMCC was the counterparty to $1.9 billion of indexed note swap
agreements, of which $0.6 billion was denominated in foreign currencies
and $1.3 billion was denominated in U.S. dollars. At 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. The original
maturities of the indexed note swap agreements ranged from one to
eleven years at September 30, 1996.
The notional amounts of interest rate and indexed note swap agreements
and option-based products do not represent amounts exchanged by the
parties and, thus, are not a measure of the Company's exposure through
its use of derivatives. The amounts exchanged are calculated based on
the notional amounts and other terms of the derivatives which relate to
interest rates or financial or other indexes.
-43-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Foreign Exchange Risk Management
--------------------------------
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 which involve the
exchange of foreign currency principal and interest obligations for
U.S. dollar obligations at agreed-upon currency exchange and interest
rates. The aggregate notional amounts of cross currency interest rate
swap agreements at September 30, 1996 and 1995 were $5.6 billion and
$4.8 billion, respectively. The original maturities of the cross
currency interest rate swap agreements ranged from one to ten years at
September 30, 1996.
Credit Risk Management
----------------------
TMCC manages the risk of counterparty default through the use of credit
standard guidelines, counterparty diversification and monitoring of
counterparty financial condition. At September 30, 1996, approximately
80% 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 and has no reserves related to non-performance as of
September 30, 1996; TMCC has not experienced any counterparty default
during the three years ended September 30, 1996. Additionally, TMCC's
loss in the event of counterparty default is partially mitigated as a
result of master netting agreements in place with all derivative
counterparties which allow the net difference between TMCC and each
counterparty to be exchanged in the event of default.
Credit exposure of derivative financial instruments is represented by
the fair value of contracts with a positive fair value at September 30,
1996 reduced by the effects of master netting agreements. The credit
exposure of TMCC's derivative financial instruments at September 30,
1996 was $205 million on an aggregate notional amount of $20.5 billion.
-44-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
- -----------------------------------------------------------
Market Risk
-----------
TMCC's loan and lease portfolios consist of a series of contractually
defined cash flows over the life of the portfolios. The value to TMCC
of the cash flows changes as market interest rates change. TMCC's
asset portfolios are funded by various debt instruments whose cash
flows are modified or hedged by a variety of derivative and option-
based products. The value of TMCC's liability and derivative cash
flows also change as market interest rates change.
TMCC uses a value-at-risk methodology, in connection with other
management tools, to assess the interest rate risk of aggregated loan
and lease assets and financial liabilities, including derivatives and
option based products. TMCC is not subject to currency exchange rate
risk as foreign currency denominated instruments are entirely hedged.
Value-at-risk represents the potential losses for a portfolio from
adverse changes in market factors for a specified period of time and
level of confidence. TMCC estimates value-at-risk using historical
interest rate volatilities for the past two years. The value at risk
of TMCC's portfolio as of September 30, 1996, measured as the potential
30 day loss in value from assumed adverse changes in interest rates
that are estimated to cover 90% of likely market movements, totals
$45.6 million on a mean portfolio value of $3.8 billion; alternatively,
the value at risk represents 1.2% of the mean portfolio value.
As of September 30, 1996, an interest rate increase of 1% (100 basis
points) would raise TMCC's weighted average interest rate, including
the effects of interest rate swap agreements and option-based products,
by .30%, from 5.80% to an estimated 6.10% at September 30, 1996.
Conversely, an interest rate decrease of 1% (100 basis points) would
lower TMCC's weighted average interest rate, including the effects of
interest rate swap agreements and option based products, by .43%, from
5.80% to an estimated 5.37% at September 30, 1996.
-45-
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, 1996, 1995 and 1994, the Company's pension expense was
$4 million, $2 million and $3 million, respectively. At
September 30, 1996, 1995 and 1994, 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.
-46-
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,
--------------------------
1996 1995 1994
---- ---- ----
(Dollars in Millions)
Current
Federal........................... $(47) $(97) $ 6
State............................. (23) (27) 4
---- ---- ----
Total current ................. (70) (124) 10
---- ---- ----
Deferred
Federal........................... 129 173 86
State............................. 49 68 22
---- ---- ----
Total deferred................. 178 241 108
---- ---- ----
Provision for income taxes.. $108 $117 $118
==== ==== ====
The deferred income tax liabilities by jurisdictions are as follows:
September 30,
---------------------
1996 1995
---- ----
(Dollars in Millions)
Federal........................................ $643 $513
State.......................................... 162 114
---- ----
Net deferred income tax liability........... $805 $627
==== ====
-47-
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,
---------------------
1996 1995
----- -----
(Dollars in Millions)
Assets:
Alternative minimum tax..................... $ 436 $ 339
Provision for losses........................ 116 87
Deferred administrative fees................ 54 47
NOL carryforwards........................... 49 22
Deferred acquisition costs.................. 12 14
Unearned insurance premiums................. 4 4
Revenue recognition......................... 2 2
Other....................................... 3 3
----- -----
Deferred tax assets...................... 676 518
----- -----
Liabilities:
Lease transactions.......................... 1,330 1,049
State taxes................................. 151 96
----- -----
Deferred tax liabilities................. 1,481 1,145
----- -----
Net deferred income tax liability..... $ 805 $ 627
===== =====
TMCC has state tax net operating loss carryforwards of $609 million
which expire beginning in fiscal 1997 through 2009.
-48-
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,
-------------------------
1996 1995 1994
---- ---- ----
(Dollars in Millions)
Provision for income taxes at
federal statutory tax rate......... $ 91 $105 $103
State and local taxes (net of
federal tax benefit)............... 17 26 17
Other, including changes in
applicable state tax rates......... - (14) (2)
---- ---- ----
Provision for income taxes......... $108 $117 $118
==== ==== ====
Effective tax rate.................... 41.52% 39.12% 40.24%
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 $2.0 billion at
September 30, 1996, compared to $1.5 billion as of September 30, 1995.
No loans were outstanding under any of these bank credit facilities as
of September 30, 1996 or 1995.
To facilitate and maintain letters of credit, TMCC maintains, along
with TMS, uncommitted, unsecured lines of credit with banks totaling
$250 million as of September 30, 1996. Approximately $44 million in
letters of credit had been issued, primarily related to the Company's
insurance operations as of September 30, 1996, compared to $86 million
as of September 30, 1995. The letters of credit for the insurance
companies are used to satisfy requirements of certain insurance
carriers and state insurance regulatory agencies.
-49-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Commitments and Contingent Liabilities
- ------------------------------------------------
At September 30, 1996, the Company was a lessee under lease agreements
for facilities with minimum future commitments as follows: years
ending September 30, 1997 - $9 million; 1998 - $8 million; 1999 -
$6 million; 2000 - $4 million; 2001 - $3 million; thereafter -
$3 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, seeking sizeable damages. Certain of these actions
are similar to suits which have been filed against other financial
institutions and captive finance companies. The amounts of liability
on these claims and actions as of September 30, 1996 were not
determinable; however, in the opinion of management, the ultimate
liability resulting therefrom should not materially affect TMCC's
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, 1996:
First quarter.............. $ 688 $193 $ 370 $ 41
Second quarter............. 724 196 394 36
Third quarter.............. 768 210 416 40
Fourth quarter............. 798 221 446 35
------ ---- ------ ----
Total................... $2,978 $820 $1,626 $152
====== ==== ====== ====
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
====== ==== ====== ====
-50-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to report with regard to this item.
-51-
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 as of November 30, 1996.
Name Age Position
---- --- --------
Yoshio Ishizaka........... 56 Director and President, TMCC;
Director and President, TMS;
Director, TMC
Nobu Shigemi.............. 52 Director, Senior Vice President
and Treasurer, TMCC; Group Vice
President, TMS
Douglas West.............. 51 Director, Senior Vice President
and Secretary, TMCC; Senior Vice
President and Secretary, TMS
Wolfgang Jahn............. 58 Director, Senior Vice President
and General Manager, TMCC;
Group Vice President, TMS
Robert Pitts.............. 48 Director and Assistant Secretary,
TMCC; Group Vice President, TMS
Yale Gieszl............... 54 Director, TMCC; Director and
Executive Vice President, TMS
Takashi Nishiyama......... 54 Director, TMCC; Senior Vice
President and Treasurer, TMS
Ryuji Araki............... 56 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. Ishizaka was named Director and President of TMCC and TMS in June 1996.
From January 1990 to May 1996, Mr. Ishizaka was General Manager of the Europe
Division of TMC, and in September 1992, he was named a Director of TMC.
Mr. Ishizaka has been employed with TMC, in various positions, since 1964.
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.
-52-
Mr. West was named Director, Senior Vice President and Secretary of TMCC and
Senior Vice President and Secretary of TMS in June 1996. From April 1993 to
May 1996, Mr. West was a Group Vice President of TMS. From April 1989 to
March 1993, Mr. West was a Vice President of TMS. Mr. West has been employed
with TMS, in various positions, since 1982.
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 and Group Vice
President of TMS in 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 and 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
$100,000, for services rendered in all capacities to the Company for the
fiscal years ended September 30, 1996, 1995 and 1994.
-53-
Annual Compensation
--------------------------------------------
Other Annual
Name and Fiscal Compensation All
Principal Position Year Salary ($) Bonus ($) ($) Other ($)
- --------------------- ------ ---------- --------- ------------ -------------
Wolfgang Jahn 1996 $233,100 $94,500 $8,500
Principal Executive 1995 $213,800 $98,700 $6,000
Officer 1994 $199,800 $91,300 $7,000
Nobu Shigemi 1996 $316,000 $50,900 $51,700
Senior Vice President 1995 $199,000 $40,500 $47,300
- ------------
The amounts in this column represent housing allowances and relocation costs.
The amounts in this column represent the Company's allocated contribution under the TMS
Savings Plan (the "Plan"), a tax-qualified 401(k) Plan. Participants in the Plan may
elect, subject to applicable law, to contribute up to 6% of their base compensation on a
pre-tax basis to which the Company adds an amount equal to two-thirds of the employee's
contribution. Participants are vested 25% each year with respect to the Company's
contribution and are fully vested after four years. Subject to the limitations of the
Plan, employee and Company contributions are invested in various investment options at the
discretion of the employee. TMS also maintains a 401(k) Excess Plan, a non-qualified
deferred compensation plan which has similar provisions to the Saving Plan.
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.
-54-
The annual normal retirement benefit under the Pension Plan, 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 that
has been merged into the TMS Pension Plan.
The TMS Supplemental Executive Retirement Plan (TMS SERP) authorizes a benefit
to be paid to eligible executives, including Mr. Jahn. Benefits under the TMS
SERP, expressed as an annuity payable monthly, are based on 2% of the
executive's compensation recognized under the plan after deducting the
executive's primary Social Security benefit, multiplied by the years of
service credited under the plan (up to a maximum of 25), offset by benefits
payable under the TMS Pension Plan. A covered participant's compensation may
include base pay and a percentage (not in excess of 100%) of bonus pay,
depending on the executive's length of service in certain executive positions.
Similarly, years of service credited under the plan are determined by
reference, in part, to the executive's length of service in certain executive
positions. No benefit is payable under the TMS SERP to an executive unless
the executive's termination of employment occurs on a date, after the
executive reaches age 55, that is agreed in writing by the President of TMS
and the executive; and the executive is vested in benefits under the TMS
Pension Plan, or unless the executive accepts an invitation to retire extended
by the President of TMS.
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 the TMS SERP and has 23
years of total credited service as of September 30, 1996, 7 years of which
have been allocated to the Company. Based upon years of credited service
-55-
allocable to the Company, Mr. Jahn would be entitled to receive and the
Company would be required to pay approximately $26,000 in annual pension
benefits when Mr. Jahn reaches age 62. Mr. Jahn would also be entitled to
receive pension benefits from TMS based upon services to and compensation by
TMS.
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 TRANSACTIONS.
Transactions between the Company and its Parent are included in Note 8 of the
Notes to the Consolidated Financial Statements.
-57-
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 18.
(2)Exhibits
The exhibits listed on the accompanying Exhibit Index, starting on
page 60, 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, 1996.
-58-
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 23rd day of December, 1996.
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 23rd day of December, 1996.
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
Vice President - Finance
and Administration
/S/ PATRICK BREENE (Principal Accounting Officer)
- ------------------------------------
Patrick Breene
/S/ YOSHIO ISHIZAKA Director
- ------------------------------------
Yoshio Ishizaka
/S/ DOUG WEST Director
- ------------------------------------
Doug West
/S/ TAKASHI NISHIYAMA Director
- ------------------------------------
Takashi Nishiyama
-59-
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)
4.1 Issuing and Paying Agency Agreement dated August 1,
1990 between TMCC and Bankers Trust Company. (3)
4.2(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 Exhibit 4.2 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.
-60-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
4.2(b) First Supplemental Indenture dated as of
October 1, 1991 among TMCC, Bankers Trust Company
and The Chase Manhattan Bank, N.A. (5)
4.3(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)
4.3(b) Amendment No. 1 dated July 27, 1995 to the Amended
and Restated Agency Agreement among TMCC, The Chase
Manhattan Bank, N.A. and Chase Manhattan Bank
Luxembourg S.A. (15)
4.3(c) Amendment No. 2 dated July 19, 1996 to the Amended Filed
and Restated Agency Agreement among TMCC, The Chase Herewith
Manhattan Bank, N.A. and Chase Manhattan Bank
Luxembourg S.A.
4.4 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(a) Operating Agreement dated January 16, 1984 between
TMCC and TMS. (24)
10.1(b) Amendment No. 1 to Operating Agreement dated
May 14, 1996 between TMCC and TMS. (18)
- -----------------
(5) Incorporated herein by reference to Exhibit 4.1 filed with TMCC's
Current Report on Form 8-K dated October 16, 1991.
(12) Incorporated herein by reference to Exhibit 4.4(a) filed
with TMCC's Report on Form 10-K for the year ended September 30, 1994.
(15) Incorporated herein by reference to Exhibit 4.4(b) filed
with TMCC's Report on Form 10-K for the year ended September 30, 1995.
(18) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Report on Form 10-Q for the quarter ended March 31, 1996.
(24) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Registration Statement on Form S-1, File No. 33-22440.
-61-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.2(a) Financial Service Agreement dated December 21, 1984
between TMCC and World Omni Financial Corporation,
as amended June 6, 1988. (25)
10.2(b) Addendum to Financial Services Agreement dated
January 1, 1991, between TMCC and World Omni Financial
Corporation. (6)
10.2(c) Amendment to Financial Services Agreement dated
March 1, 1992, between TMCC and World Omni Financial
Corporation. (7)
10.2(d) Amendment to Financial Services Agreement dated
March 1, 1994, between TMCC and World Omni Financial
Corporation. (19)
10.2(e) Termination of Financial Services Agreement dated Filed
August 29, 1996 between TMCC and World Omni Financial Herewith
Corporation.
10.3 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)
10.4 Form of Standard Terms and Conditions of Pooling and
Servicing Agreement. (9)
10.5 Form of Receivables Purchase Agreement. (10)
- ----------------
(6) Incorporated herein by reference to Exhibit 10.2(a) filed with
TMCC's Report on Form 10-K for the year ended September 30, 1991.
(7) Incorporated herein by reference to Exhibit 10.2(b) 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.
(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.
(19) Incorporated herein by reference to Exhibit 10.2(c) filed with
TMCC's Report on Form 10-K for the year ended September 30, 1994.
(25) Incorporated herein by reference to Exhibit 10.2 filed with
TMCC's Registration Statement on Form S-1, File No. 33-22440.
-62-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.6 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)
10.7 Receivables Purchase Agreement dated as of September 1,
1995 between TMCC, as Seller, and TMCRC Corporation,
as Purchaser. (14)
10.8 Form of Indemnification Agreement between TMCC and
its directors and officers. (20)
10.9(a) 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. (21)
10.9(b) Amendment No. 1 dated September 28, 1995 to the
Three-year Agreement. (22)
10.9(c) Amendment No. 1 dated September 28, 1995 to the
364-day Agreement. (23)
- ----------------
(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.
(20) Incorporated herein by reference to Exhibit 10.6 filed with TMCC's
Registration Statement on Form S-1, File No. 33-22440.
(21) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's
Report on Form 10-K for the year ended September 30, 1994.
(22) Incorporated herein by reference to Exhibit 10.10(a) filed
with TMCC's Report on Form 10-K for the year ended September 30, 1995.
(23) Incorporated herein by reference to Exhibit 10.10(b) filed with TMCC's
Report on Form 10-K for the year ended September 30, 1995.
-63-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.9(d) Amendment No. 2 dated September 24, 1996 to the Three- Filed
year Agreement. Herewith
10.9(e) Amendment No. 2 dated September 24, 1996 to the 364-day Filed
Agreement. Herewith
10.10 Toyota Motor Sales, U.S.A., Inc. Supplemental
Executive Retirement Plan. (16)
10.11 Toyota Motor Sales, U.S.A., Inc. 401(k)
Excess Plan. (17)
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
- ----------------
(16) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Report on Form 10-Q for the quarter ended December 31, 1995.
(17) Incorporated herein by reference to Exhibit 10.2 filed with TMCC's
Report on From 10-Q for the quarter ended December 31, 1995.
-64-