Filed On 12/24/97 · SEC File 1-09961 · Accession Number 834071-97-31
As Of Filer Filing On/For/As Docs:Pgs
12/24/97 Toyota Motor Credit Corp 10-K405 9/30/97 9:214
Annual Report -- [X] Reg. S-K Item 405 · Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [X] Reg. S-K Item 405 65 283K
2: EX-4 Second Amended and Restated Agency Agreement 130 421K
3: EX-10 Ex 10.1c-Operating Agreement Amendment 2 11K
4: EX-10 Ex 10.5f-Three Year Agreement 6 22K
5: EX-10 Ex 10.5g-364 Day Agreement 6 22K
6: EX-12 Fixed Charge Ratio 1 9K
7: EX-21 Subsidiary List 1 5K
8: EX-23 Consent of Independent Accountants 1 6K
9: EX-27 Financial Data Schedule 2± 10K
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, 1997
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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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6.30% Fixed Rate Medium-Term
Notes due January 25, 1999 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
--- ---
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, 1997, the number of outstanding shares of capital
stock, par value $10,000 per share, of the registrant was 91,500, all of which
shares were held by Toyota Motor Sales, U.S.A., Inc.
-1-
PART I
ITEM 1. BUSINESS.
General
Toyota Motor Credit Corporation ("TMCC") is a wholly-owned subsidiary of
Toyota Motor Sales, USA, Inc. ("TMS") and 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)and the Commonwealth of
Puerto Rico. TMCC has seven 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, one limited
purpose subsidiary formed primarily to acquire and securitize lease finance
receivables and one subsidiary which provides 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. 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. Under the Operating Agreement, all loans by TMS to TMCC must
be subordinated to all other indebtedness of TMCC. As a result of the
reorganization of Toyota's manufacturing operations in the United States and
the accompanying establishment of Toyota Motor Manufacturing North America,
Inc. ("TMMNA") described below under "Toyota Motor Sales, U.S.A., Inc.", the
Operating Agreement was amended to require TMMNA, in addition to TMS, to
provide financial assistance as necessary to maintain TMCC's minimum fixed
charge coverage ratio and to require that any loans made by TMMNA to TMCC will
be subordinated at all times to other indebtedness of TMCC. The Operating
Agreement does not constitute a guarantee by TMS or TMMNA 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.
-2-
Retail Leasing
TMCC purchases primarily new vehicle lease contracts originated by Toyota and
Lexus dealers. Lease contracts purchased must first meet TMCC's credit
standards after which 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 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 83%, 82% and 78% to total financing
revenues for the fiscal years ended September 30, 1997, 1996 and 1995,
respectively.
In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust
(the "Titling Trust"), to act as lessor and to hold title to leased vehicles
in specified states in connection with a lease securitization program. TMCC
acts as the servicer for lease contracts purchased by the Titling Trust from
Toyota and Lexus dealers and services such lease contracts in the same manner
as contracts owned directly by TMCC. TMCC holds an undivided trust interest
in lease contracts owned by the Titling Trust, and such lease contracts are
included in TMCC's lease assets, until such time as the beneficial interests
in such contracts are transferred in connection with a securitization
transaction.
Retail Financing
TMCC purchases primarily new and used vehicle installment contracts from
Toyota and Lexus dealers. Certain of the used vehicle contracts purchased by
TMCC are "Certified" Toyota and Lexus used vehicle contracts which relate to
vehicles purchased by dealers, reconditioned and certified to meet certain
Toyota and Lexus standards, and sold or leased with an extended warranty from
the manufacturer. Installment contracts purchased 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%, 14% and 18% to total financing revenues
for the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
-3-
A summary of vehicle retail leasing and financing activity follows:
· Download Table
Years Ended September 30,
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1997 1996 1995 1994 1993
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Contract volume:
Lease................ 262,000 276,000 179,000 204,000 112,000
Retail............... 247,000 229,000 170,000 210,000 200,000
--------- -------- -------- -------- --------
Total............. 509,000 505,000 349,000 414,000 312,000
========= ======== ======== ======== ========
Average amount financed:
Lease................ $24,200 $23,300 $24,800 $23,700 $23,400
Retail............... $16,500 $16,200 $15,100 $14,000 $12,800
Outstanding portfolio at
period end ($Millions):
Lease............. $11,622 $11,917 $9,305 $7,569 $4,604
Retail............ $5,866 $5,105 $4,489 $5,162 $4,440
Number of accounts 1,061,000 1,069,000 946,000 929,000 750,000
Retail receivables and interests in lease finance receivables sold, totaling
$2.4 billion as of September 30, 1997 and $1.1 billion as of September 30,
1996, which TMCC continues to service, are excluded from the outstanding
portfolio amounts in the above table.
Wholesale Financing
TMCC provides wholesale financing primarily to qualified Toyota and Lexus
vehicle dealers to finance inventories of new Toyota and Lexus vehicles and
used Toyota, Lexus and other vehicles. TMCC acquires security interests in
vehicles financed at wholesale, and substantially all such financings are
backed by corporate or individual guarantees from or on behalf of
participating dealers. In the event of dealer default, TMCC has the right to
liquidate any assets acquired and seek legal remedies pursuant to the
guarantees. Pursuant to the Operating Agreement, TMS will arrange for the
repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at
the aggregate cost financed in the event of dealer default.
A summary of vehicle wholesale financing activity follows:
· Download Table
Years Ended September 30,
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1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Dealer loans ($Millions)..... $8,573 $8,017 $7,626 $7,055 $6,378
Dealer repayments ($Millions) $8,684 $8,221 $7,444 $7,032 $6,152
Outstanding portfolio at
period end ($Millions).... $563 $668 $886 $727 $703
Average amount financed
per vehicle............... $20,695 $19,926 $18,999 $17,530 $16,500
TMCC also makes term loans to dealers for business acquisitions, facilities
refurbishment, real estate purchases and working capital requirements. 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 3%, 4% and 4% to total financing revenues for
the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
-4-
Insurance
The principal activities of TMCC's insurance subsidiaries include marketing,
underwriting, claims administration and providing certain coverages related to
vehicle service agreements and contractual liability agreements sold by or
through Toyota and Lexus vehicle dealers and affiliates to customers. In
addition, the insurance subsidiaries insure and reinsure certain TMS and TMCC
risks. Income before income taxes from insurance operations contributed 12%,
7% and 6% to total income before income taxes for the fiscal years ended
September 30, 1997, 1996 and 1995, respectively.
Servicing
TMCC remains as servicer on accounts included in its asset-backed
securitization transactions and is paid a servicing fee.
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. Capital market funding has generally been
in the form of commercial paper, United States and Euro medium-term notes,
Eurobonds and transactions through the Company's asset-backed securitization
programs.
The Company uses a variety of derivative financial instruments to manage
interest rate and currency exchange exposures. The derivative instruments
utilized include cross currency and interest rate swap agreements, indexed
note swap agreements 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. Competition for the principal products and services
provided through the insurance operations is primarily from national and
regional independent service contract providers. TMCC's strategy is to
supplement, with competitive financing and insurance 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 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 were
unable to pass on increased interest costs to its customers. In addition,
state laws differ as to whether anyone suffering injury to person or property
involving a leased vehicle may bring an action against the owner of the
vehicle merely by virtue of that ownership. To the extent that applicable
state law permits such an action, TMCC may be subject to liability to such an
injured party. However, the laws of most states either do not permit such
suits or limit the lessor's liability to the amount of any liability insurance
that the lessee was required under applicable law to maintain (or, in some
states, the lessor was permitted to maintain), but failed to maintain. TMCC's
lease contracts contain provisions requiring the lessees to maintain levels of
insurance satisfying applicable state law and TMCC maintains certain levels of
contingent liability insurance for protection from catastrophic claims.
-5-
The Company's operations are also subject to regulation under federal and
state consumer protection statutes. The Company continually reviews its
operations for compliance with applicable laws. Future administrative
rulings, judicial decisions and legislation may require modification of the
Company's business practices and documentation.
Employee Relations
At November 30, 1997, the Company had approximately 2,400 full-time employees.
The Company considers its employee relations to be good.
Segment Information
Financial information regarding industry segments is set forth in Note 16 of
the Notes to Consolidated Financial Statements.
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Toyota Motor Sales, U.S.A., Inc.
TMS was established in 1957 and as of September 30, 1997 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 is located in Torrance, California. TMS has port
facilities, regional sales offices and parts distribution centers located
throughout the United States. Toyota vehicles are distributed in the United
States in twelve regional sales areas, ten of which are operated by or through
TMS and two which are serviced by private distributors who purchase vehicles
directly from TMS and distribute to Toyota dealers within their respective
regions. For the year ended September 30, 1997, these private distributors,
Gulf States Toyota, Inc. of Houston, Texas and Southeast Toyota Distributors,
Inc. of Deerfield Beach, Florida, accounted for approximately 31% of the
Toyota vehicles sold in the United States (excluding Hawaii). Lexus vehicles
are directly distributed by TMS to Lexus dealers throughout the United States
(excluding Hawaii).
For the year ended September 30, 1997, TMS sold approximately 1,190,000
automobiles and light trucks in the United States (excluding Hawaii), of which
approximately 731,000 were manufactured in the United States; TMS exported
approximately 39,000 automobiles. TMS sales represented approximately 27% of
TMC's worldwide sales volume for the year ended March 31, 1997. For the years
ended September 30, 1997 and 1996, Toyota and Lexus vehicles accounted for
approximately 8.0% and 7.5%, respectively, of all retail automobile and light
truck sales in the United States.
Total revenues for TMS for the fiscal years ended September 30, 1997, 1996 and
1995, aggregated approximately $28.8 billion, $27.5 billion and $26.2 billion,
respectively, of which approximately $25.3 billion, $24.4 billion and
$23.7 billion, respectively, were attributable to revenues other than those
associated with financial services. At September 30, 1997, 1996 and 1995, TMS
had total assets of approximately $23.6 billion, $25.1 billion and
$21.1 billion, respectively. TMS had net worth in excess of $4.1 billion and
net income in excess of $225 million for each of the fiscal years ended
September 30, 1997, 1996 and 1995.
Total revenues for TMMNA for the fiscal year ended September 30, 1997
aggregated approximately $10.6 billion, all of which was attributable to
revenues other than those associated with financial services. At
September 30, 1997, TMMNA had total assets of approximately $3.5 billion, and
net worth in excess of $2.1 billion. TMMNA had net income in excess of
$100 million for the fiscal year ended September 30, 1997.
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ITEM 2. PROPERTIES.
The headquarters of the Company is located in Torrance, California, with 33
branch offices in cities throughout the United States and one branch office in
the Commonwealth of Puerto Rico. A financial service center is located in
Cedar Rapids, Iowa. 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. 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, 1997 were not determinable;
however, in the opinion of management, the ultimate liability resulting
therefrom should not have a material adverse effect on TMCC's consolidated
financial position or results of operations.
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.
-8-
ITEM 6. SELECTED FINANCIAL DATA.
· Download Table
Years Ended September 30,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in Millions)
INCOME STATEMENT DATA
Financing Revenues:
Leasing.......................... $ 2,739 $ 2,454 $ 1,902 $ 1,230 $ 751
Retail financing................. 446 415 431 413 468
Wholesale and other
dealer financing.............. 89 109 121 86 80
------- ------- ------- ------- -------
Total financing revenues......... 3,274 2,978 2,454 1,729 1,299
Depreciation on leases........... 1,790 1,626 1,230 735 385
Interest expense................. 918 820 716 486 454
------- ------- ------- ------- -------
Net financing revenues........... 566 532 508 508 460
Other revenues................... 176 136 113 95 80
------- ------- ------- ------- -------
Net financing revenues
and other revenues............ 742 668 621 603 540
------- ------- ------- ------- -------
Expenses:
Operating and administrative..... 323 293 255 232 225
Provision for credit losses...... 136 115 66 78 60
------- ------- ------- ------- -------
Total expenses................... 459 408 321 310 285
------- ------- ------- ------- -------
Income before income taxes....... 283 260 300 293 255
Provision for income taxes....... 121 108 117 118 97
------- ------- ------- ------- -------
Net Income....................... $ 162 $ 152 $ 183 $ 175 $ 158
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges................. 1.31 1.32 1.42 1.60 1.56
BALANCE SHEET DATA
Investments in operating
leases, net.................... $10,257 $10,831 $8,148 $6,215 $3,050
Finance receivables, net......... $8,452 $7,474 $7,227 $7,834 $7,226
Total assets..................... $19,830 $19,309 $16,225 $14,791 $11,179
Notes and loans payable.......... $14,745 $15,014 $12,696 $11,833 $8,833
Capital stock.................... $915 $915 $865 $865 $680
Retained earnings................ $1,159 $997 $844 $662 $487
Certain prior period amounts have been reclassified to conform with the
current period presentation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Income
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The following table summarizes TMCC's net income by business segment for the
fiscal years ended September 30, 1997, 1996 and 1995:
· Download Table
Years Ended September 30,
------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Net income:
Financing operations................ $142 $140 $171
Insurance operations................ 20 12 12
---- ---- ----
Total net income................. $162 $152 $183
==== ==== ====
The increase in TMCC's consolidated net income in fiscal 1997 is primarily
attributable to earnings growth in TMCC's insurance operations, while the
decline in fiscal 1996 net income reflects primarily higher provisions for
vehicle disposition and credit losses and lower net interest margins in TMCC's
financing operations. Net interest margins reflect the difference between
interest rates implicit in leases and charged on retail, wholesale and other
finance receivables, and interest rates paid on borrowings.
Net income from financing operations increased 1% in fiscal 1997 and decreased
18% in fiscal 1996. The increase in fiscal 1997 reflects higher net financing
revenues attributable to earning asset growth and increased income from asset-
backed securitization transactions, substantially offset by lower net interest
margins, higher vehicle disposition and credit losses and increased personnel
and operating expenses attributable to the increased account base. The
decrease in fiscal 1996 reflects higher provisions for credit and vehicle
disposition losses, lower net interest margins and higher personnel and
operating expenses partially offset by higher financing revenues from earning
asset growth and increased income from asset-backed securitization
transactions.
Net income from insurance operations increased 67% in fiscal 1997 and remained
stable in fiscal 1996. The increase in fiscal 1997 reflects increased
underwriting profit from providing coverage under various agreements as well
as higher investment income.
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Earning Assets
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The composition of TMCC's net earning assets (excluding retail receivables and
interests in lease finance receivables sold through securitization
transactions), contract volume and finance penetration as of and for the years
ended September 30, 1997, 1996, and 1995 are as follows:
· Download Table
September 30,
---------------------------
1997 1996 1995
------- ------- -------
(Dollars in Millions)
Vehicle lease
Investment in operating leases, net........ $10,124 $10,745 $8,084
Finance leases, net........................ 1,498 1,172 1,221
------- ------- -------
Total vehicle leases......................... 11,622 11,917 9,305
Vehicle retail finance receivables, net...... 5,866 5,105 4,489
Vehicle wholesale and other receivables...... 1,434 1,486 1,752
Allowance for credit losses.................. (213) (203) (171)
------- ------- -------
Total net earning assets..................... $18,709 $18,305 $15,375
======= ======= =======
· Download Table
Years Ended September 30,
---------------------------
1997 1996 1995
------- ------- -------
Contract volume:
Vehicle lease............................. 262,000 276,000 179,000
Vehicle retail............................ 247,000 229,000 170,000
------- ------- -------
Total........................................ 509,000 505,000 349,000
======= ======= =======
TMS sponsored contract volume:
Vehicle lease............................. 72,000 190,000 111,000
Vehicle retail............................ 17,000 52,000 48,000
------- ------- -------
Total........................................ 89,000 242,000 159,000
======= ======= =======
Retail volume:
New volume................................ 144,000 157,000 125,000
Used volume............................... 103,000 72,000 45,000
------- ------- -------
Total........................................ 247,000 229,000 170,000
======= ======= =======
Finance penetration (excluding fleet)........ 36.2% 41.2% 31.8%
-11-
TMCC's net earning assets as of September 30, 1997 increased from
September 30, 1996 due to growth in retail earning assets, partially offset by
a decline in lease and wholesale earning assets. Retail earning assets
increased from 1996 primarily due to a higher level of used vehicle (primarily
increased Toyota and Lexus Certified used vehicles) financing in 1997,
partially offset by the sale of finance receivables totaling $784 million in
April 1997. Lease earning assets, consisting of investment in operating
leases, net of accumulated depreciation, and lease finance receivables, net of
unearned income, declined in 1997 from 1996 due to a higher level of lease
maturities and the sale of $1.3 billion of interests in lease finance
receivables during September 1997 in connection with a securitization
transaction. The decline in wholesale earning assets from 1996 levels is
attributable primarily to lower dealer inventories as a result of strong
demand for certain Toyota and Lexus vehicles. The increase in allowance for
credit losses reflects asset growth as well as an increased mix of used
vehicles in the retail portfolio for which loss reserves are provided at
higher levels than new vehicles.
In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust
(the "Titling Trust"), to act as a lessor and to hold title to leased vehicles
in specified states. The value of the lease contracts purchased by the
Titling Trust in fiscal 1997 represented approximately 22% of all lease
contracts purchased by both TMCC and the Titling Trust. Substantially all
leases owned by the Titling Trust are classified as finance receivables due to
certain residual value insurance arrangements in place with respect to such
leases, while leases of similar nature originated outside of the Titling Trust
are classified as operating leases. The continued acquisition of leases by
the Titling Trust is expected to cause a shift in the composition of earning
assets from operating leases to finance receivables due to the classification
differences described above.
TMCC's net earning assets as of September 30, 1996 increased from
September 30, 1995 primarily due to growth in lease earning assets due to
higher lease volume attributable to special lease programs sponsored by TMS.
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
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
contracts outstanding totaled $174 million, $174 million and $134 million for
fiscal years 1997, 1996 and 1995, respectively.
TMCC's lease contract volume for the year ended September 30, 1997 declined
from 1996 levels as a result of lower finance penetration attributable to
reduced levels of lease programs sponsored by TMS. This decline was
substantially offset by the strong sales of Toyota and Lexus vehicles as a
result, in part, of consumer acceptance and competitive pricing of certain new
and redesigned 1997 Toyota and Lexus models and TMCC's competitive leasing
programs.
TMCC's retail contract volume for the year ended September 30, 1997 increased
from 1996 levels as a result of higher used contract volume and strong Toyota
and Lexus sales, partially offset by slightly lower finance penetration
attributable to reduced TMS sponsored special retail programs.
Higher contract volume and finance penetration in 1996 compared to 1995
reflected increased volume primarily attributable to the TMS sponsored special
lease programs.
-12-
Financing Revenue and Other Revenues
------------------------------------
TMCC's total financing revenues increased 10% in fiscal 1997 and 21% in fiscal
1996. The increase in fiscal 1997 reflects growth in average retail and lease
earning assets, partially offset by a decline in average wholesale earning
assets. The increase in fiscal 1996 reflects growth in average lease earning
assets, partially offset by a decline in average retail and wholesale earning
assets. TMCC's continued use of the Titling Trust to purchase leases, which
may be sold in connection with securitization transactions, is expected to
shift the composition of earning assets from operating leases to finance
receivables, as discussed earlier, and will result in increased revenues from
finance leases (until such interests in leases are sold in securitization
transactions) and reduced operating lease revenues and depreciation expense.
The following table summarizes TMCC's other income for the fiscal years ended
September 30, 1997, 1996 and 1995:
· Download Table
Years Ended September 30,
--------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Insurance operations revenues............... $130 $110 $98
Gains and servicing fees on assets sold..... 40 23 13
Investment and other income................. 6 3 2
---- ---- ----
Total other income....................... $176 $136 $113
==== ==== ====
Insurance operations revenues increased 19% in fiscal 1997 due to higher
underwriting revenues associated with in-force agreements as well as increased
investment income. The increase in such revenues in fiscal 1996 is due
primarily to higher underwriting revenues associated with in-force agreements.
The increases in gains and servicing fee income in fiscal 1997 and 1996
reflect an increase in the amount of assets sold through the Company's asset-
backed securitization programs. Gains recognized on asset-backed
securitization transactions generally accelerate the recognition of income on
lease and retail contracts, net of servicing fees and other related deferrals,
into the period the assets are sold. Numerous factors can affect the timing
and amounts of these gains, such as the type and amount of assets sold, the
structure of the sale and current financial market conditions.
-13-
Lease Depreciation
------------------
Included in lease depreciation expense are: (i) straight-line depreciation
expense on operating leases to the contractual residual value (ii) provision
for residual value losses on operating leases and (iii) actual vehicle
disposition losses and gains. Operating lease depreciation expense increased
$164 million and $394 million during fiscal 1997 and fiscal 1996,
respectively, primarily due to growth in average operating lease assets. The
provision for losses on returned operating lease vehicles declined $48 million
in fiscal 1997 and increased $34 million during fiscal 1996. The reduction in
the rate of growth of the allowance in 1997 is consistent with the slowing
rate of growth in lease assets and the Company's determination that the
overall level of the allowance is appropriate. The increase in provision in
1996 was consistent with the high growth in operating lease assets from 1995
levels. Vehicle disposition losses increased $61 million and $22 million
during fiscal 1997 and fiscal 1996, respectively, reflecting primarily
increased volume of returned units corresponding with a higher level of
scheduled maturities and a higher vehicle return rate. TMCC's operating lease
portfolio includes contracts with terms ranging from 12 to 54 months; the
average original contract term in TMCC's operating lease portfolio was
35 months at September 30, 1997 and 36 months at September 30, 1996,
respectively. As discussed earlier, the continued acquisition of leases by
the Titling Trust is expected to shift the composition of earning assets from
operating leases to finance receivables which will result in increased
revenues from finance leases (until such interests in leases are sold in
securitization transactions) and reduced operating lease revenues and
depreciation expense.
TMCC is subject to residual value risk in connection with its lease portfolio;
TMCC's residual value risk is a function of the number of off-lease vehicles
returned for disposition and any shortfall between the net disposition
proceeds and the estimated unguaranteed residual values on returned vehicles.
Total unguaranteed residual values related to TMCC's vehicle lease portfolio
totaled approximately $9.0 billion and $8.8 billion at September 30, 1997 and
1996, respectively. The percentage of lease vehicles returned to and disposed
of by TMCC which were originally scheduled to mature during fiscal 1997 was
18% as compared to 14% and 11% during fiscal 1996 and 1995, respectively.
TMCC maintains an allowance for estimated losses on lease vehicles returned to
the Company for disposition at lease termination. The level of allowance
required to cover future vehicle disposition losses is based upon projected
vehicle return rates and projected residual value losses on core models
derived from market information on used vehicle sales, historical factors,
including lease return trends, and general economic factors. The provision
for losses on returned lease vehicles is included in TMCC's depreciation
expense for operating leases and in leasing revenues for direct finance
leases. Actual vehicle disposition losses and gains are included in
depreciation expense. As the lease portfolio has matured the level of vehicle
lease returns have increased; however, the Company actively manages
disposition of its lease vehicles and believes that its lease earning assets,
net of the allowance for losses, are recorded at net realizable value.
Interest Expense
----------------
Interest expense increased 12% and 15% in fiscal 1997 and 1996, respectively.
The increase in fiscal 1997 reflects higher average borrowings outstanding
required to fund the growth in average earning assets, slightly offset by a
decline in the average cost of borrowings. The increase in fiscal 1996
reflects higher average borrowings outstanding and an increase in the average
cost of borrowings. The weighted average cost of borrowings was 5.87%, 5.90%
and 5.78% for the years ended September 30, 1997, 1996 and 1995, respectively.
-14-
Operating and Administrative Expenses
-------------------------------------
Operating and administrative expenses increased 10% and 15% in fiscal 1997 and
1996, 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. TMCC anticipates continued
growth in expenses reflecting increasing headcount and operating costs
associated with portfolio growth and expanded customer service activities as
well as costs in connection with computer system and software modifications to
address year 2000 issues.
Provision for Credit Losses
---------------------------
TMCC's provision for credit losses increased 18% and 74% during fiscal 1997
and fiscal 1996, respectively. The increase in fiscal 1997 reflects higher
credit losses, increasing mix of used vehicles in the retail portfolio and
earning asset growth. The increase in fiscal 1996 was primarily related to
the growth in earning assets and higher credit losses. Higher credit losses
in 1997 reflect an increasing number of repossessed vehicles and higher losses
per repossessed vehicle attributable to greater lease and retail accounts
outstanding, higher mix of used vehicles in the retail portfolio which
historically produce higher losses than new business and maturing of the lease
portfolio. TMCC has not significantly altered its underwriting standards.
Allowances for credit losses are evaluated periodically, considering
historical loss experience and other factors, and are considered adequate to
cover expected credit losses as of September 30, 1997.
-15-
An analysis of credit losses and the related allowance follows, excluding net
losses on receivables sold subject to limited recourse provisions:
· Download Table
Years ended September 30,
------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Millions)
Allowance for credit losses
at beginning of period......... $203 $171 $164 $121 $107
Provision for credit losses....... 136 115 66 78 60
Charge-offs....................... (116) (81) (63) (47) (51)
Recoveries........................ 12 12 12 12 11
Other Adjustments................. (22) (14) (8) - (6)
---- ---- ---- ---- ----
Allowance for credit losses
at end of period............... $213 $203 $171 $164 $121
==== ==== ==== ==== ====
Allowance as a percent of net
investments in operating
leases and net receivables
outstanding.................... 1.13% 1.10% 1.10% 1.15% 1.16%
Losses as a percent of average
net investments in operating
leases and average net
receivables outstanding........ .55% .41% .34% .30% .41%
Aggregate balances at end of
period for lease rentals
and installments 60
or more days past due.......... $30 $29 $20 $15 $16
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% .15% .12% .10% .14%
-16-
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 as well as transactions through the Company's asset-
backed securities programs. Debt issuances have generally been in the form of
commercial paper, United States and Euro medium-term notes ("MTNs") and
Eurobonds. 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 $1.2 billion to $3.0 billion during fiscal 1997, with an average
outstanding balance of $1.9 billion. For additional liquidity purposes, TMCC
maintains syndicated bank credit facilities with certain banks which
aggregated $2.0 billion at September 30, 1997. No loans were outstanding
under any of these bank credit facilities during fiscal 1997. TMCC also
maintains, along with TMS, uncommitted, unsecured lines of credit with banks
totaling $250 million. At September 30, 1997, TMCC had issued approximately
$24 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 and Eurobonds have provided TMCC
with significant sources of funding. During fiscal 1997, TMCC issued
approximately $4.6 billion of MTNs and Eurobonds of which approximately
$4.4 billion had original maturities greater than one year.
The original maturities of all MTNs and Eurobonds outstanding at September 30,
1997 ranged from one to eleven years. At September 30, 1997, the amounts
outstanding under MTNs and Eurobonds, including the effect of foreign currency
translations at September 30, 1997 spot exchange rates, are as follows:
· Download Table
Total
U.S. and
Foreign Foreign
Currency Currency
Denominated Denominated
------------- -------------
MTNs.............................. $10.6 billion $4.5 billion
Eurobonds......................... 2.5 billion 1.5 billion
------------- ------------
$13.1 billion $6.0 billion
============= ============
-17-
TMCC anticipates continued use of MTNs in both the United States and
international capital markets. At November 30, 1997, approximately
$483 million was available for issuance under TMCC's United States public MTN
program, $15 million 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 $16.0 billion, which was increased in July
1997 from the prior maximum of $12.0 billion. Approximately $5.6 billion was
available for issuance under the Euro MTN program as of November 30, 1997, of
which the Company has committed to issue approximately $21 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, 1997.
Additionally, TMCC utilizes its asset-backed securitization programs to
generate funds for investment in earning assets. During the year ended
September 30, 1997, TMCC sold retail finance receivables totaling $784 million
and interests in lease finance receivables totaling $1,283 million as
described in Note 7 of the Notes to the Consolidated Financial Statements. On
October 1, 1996, Toyota Lease Trust was created as a Delaware business trust
for the purpose of titling leases, originated in certain states, in connection
with the lease securitization program. TMCC anticipates that the number and
principal amount of leases purchased by the Toyota Lease Trust will comprise a
significant and increasing percentage of what otherwise would have been TMCC's
lease portfolio; however, until leases are included in a securitization
transaction, they will continue to be classified as finance receivables on
TMCC's balance sheet.
TMCC utilizes a variety of interest rate and currency derivative financial
instruments to manage interest rate and currency 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. The total notional amount of TMCC's
derivative financial instruments at September 30, 1997 and 1996 was
$20.8 billion and $20.5 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. The only market rate
risk related to TMCC's portfolio is interest rate risk as foreign currency
risks are entirely hedged through cross currency interest rate swap
agreements.
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.
-18-
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. Option-based
products are agreements which either grant TMCC the right to receive or
require TMCC to make payments at specified interest rate levels.
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.
TMCC utilizes cross currency interest rate swap agreements to entirely hedge
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.
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. TMCC does not
currently anticipate non-performance by any of its counterparties and has no
reserves related to non-performance as of September 30, 1997; TMCC has not
experienced any counterparty default during the three years ended
September 30, 1997.
Changes in interest rates may impact TMCC's future weighted average interest
rate on outstanding debt as a result of floating rate liabilities. As of
September 30, 1997, an interest rate increase of 1% (100 basis points) would
raise TMCC's weighted average interest rate, including the effects of interest
rate swap agreements and option-based products, by .58%, from 5.72% to an
estimated 6.30%. 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 .77%,
from 5.72% to an estimated 4.95% at September 30, 1997.
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 interest rate derivatives
and option-based products. Value-at-risk represents the potential losses for
a portfolio from adverse changes in market factors for a specified period of
time and likelihood of occurrence (i.e. level of confidence). TMCC's value-
at-risk methodology incorporates the impact from adverse changes in market
interest rates but does not incorporate any impact from other market changes,
such as foreign currency exchange rates or commodity prices, which do not
affect the value of TMCC's portfolio. The methodology assumes that changes in
interest rates are lognormally distributed. For options and instruments with
non-linear returns, the model uses the Black Scholes method to approximate
changes in fair value. The value-at-risk methodology excludes changes in fair
values related to investments in marketable securities as these amounts are
not significant. TMCC estimates value-at-risk using historical interest rate
volatilities for the past two years and a stratified random sampling
methodology.
-19-
The value at risk of TMCC's portfolio as of September 30, 1997, measured as
the potential 30 day loss in fair value from assumed adverse changes in
interest rates is as follows:
· Download Table
As of
September 30, 1997
------------------
Mean portfolio value...................... $3,640.0 million
Value at risk............................. $51.8 million
Percentage of the mean portfolio value.... 1.4%
Confidence level.......................... 95.0%
TMCC's calculated value-at-risk exposure represents an estimate of reasonably
possible net losses that would be recognized on its portfolio of financial
instruments assuming hypothetical movements in future market rates and is not
necessarily indicative of actual results which may occur. It does not
represent the maximum possible loss nor any expected loss that may occur,
since actual future gains and losses will differ from those estimated, based
upon actual fluctuations in market rates, operating exposures, and the timing
thereof, and changes in the composition of TMCC's portfolio of financial
instruments during the year.
On occasion, TMS has made equity contributions to maintain TMCC's equity
capitalization at certain levels. No equity contributions were made during
fiscal 1997. Also, on occasion, TMS makes interest-bearing loans to TMCC.
There were no loans from TMS during fiscal 1997.
TMCC's ratio of earnings to fixed charges was 1.31, 1.32 and 1.42 in the years
ended September 30, 1997, 1996, and 1995, respectively. The decline in the
ratio from 1995 levels reflects increased interest expense corresponding with
higher debt levels to support earning asset growth. Additionally, earnings
have declined from 1995 levels due to higher vehicle disposition losses on
off-lease vehicles, higher credit losses and increased operating expenses
attributable to TMCC's growing customer base. TMCC management does not
believe that the declining ratio of earnings to fixed charges is indicative of
a material decline in the liquidity of the Company.
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 $15.6 billion and $13.6 billion during
fiscal 1997 and 1996, respectively, was used to purchase additional
investments in operating leases and finance receivables, totaling
$19.9 billion and $19.2 billion during fiscal 1997 and 1996, respectively.
Investing activities resulted in a net use of cash of $2.3 billion and
$4.8 billion in fiscal 1997 and 1996, respectively, as the purchase of
additional earning assets, primarily investments in operating leases, exceeded
cash provided by the liquidation of earning assets. Net cash provided by
operating activities totaled $2.0 billion and $2.3 billion during fiscal 1997
and 1996, respectively, and net cash provided by financing activities totaled
$0.3 billion and $2.6 billion, during fiscal 1997 and 1996, respectively. The
Company believes that cash provided by operating and investing activities as
well as access to domestic and international capital markets, the issuance of
commercial paper and asset-backed securitization transactions will provide
sufficient liquidity to meet its future funding requirements.
-20-
Year 2000 Computer Issue
------------------------
Several of the computer systems and software packages currently used by TMCC
will not function properly in the year 2000 without modification; potential
year 2000 malfunctions include erroneous system calculations and/or complete
system failure. The Company has developed an action plan to utilize both
internal resources and outside contractors to perform the necessary system and
program modifications. The Company expects to substantially resolve year 2000
issues in fiscal year 1998 and 1999 and does not anticipate any related
business interruptions.
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: that the Company
considers its employee relations to be good; that the lease earning assets on
the Company's books are recorded at net realizable value; that allowances for
credit losses are considered adequate to cover expected credit losses; 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; that TMCC anticipates continued growth in
operating expenses associated with portfolio growth, expanded customer service
activities and computer system and software modifications to address year 2000
issues; that the Company expects to substantially resolve year 2000 issues in
fiscal year 1998 and 1999 and does not anticipate any related business
interruptions; that the number and principal amount of leases purchased by the
Toyota Lease Trust will comprise a significant and increasing percentage of
what otherwise would have been TMCC's lease portfolio; that the purchase of
leases by the Titling Trust is expected to cause a shift in the composition of
earning assets from operating leases to finance receivables, resulting in
increased revenues from finance leases (until such interests in leases are
sold in securitization transactions) and reduced operating lease revenues and
depreciation expense; that the Company does not currently anticipate non-
performance by any of its counterparties; that TMCC anticipates the continued
use of the Titling Trust in connection with securitization transactions; the
Company's continued use of MTNs in the United States and the international
capital markets; that the declining ratio of earnings to fixed charges is not
indicative of a material decline in the liquidity of the Company; that cash
provided by operating and investing activities as well as access to domestic
and international capital markets, the issuance of commercial paper and asset-
backed securitization transactions will provide sufficient liquidity to meet
the Company's future funding requirements.
-21-
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; the failure of the Company's action
plan to resolve timely year 2000 issues due to non-performance by outside
contractors or other factors; increased costs associated with the Company's
debt funding efforts; with respect to the effects of litigation matters, the
discovery of facts not presently known to the Company or determination by
judges, juries or other finders of fact which do not accord with the Company's
evaluation of the possible liability from existing litigation; 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.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements as well as separate
disclosure of other components of comprehensive income in the equity section
of the balance sheet. The Company has not determined the impact that adoption
of this standard will have on its consolidated financial statement
disclosures. The Company plans to adopt this accounting standard by
October 1, 1998, as required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, major customers and geographic areas. The Company has not
determined the impact that adoption of this standard will have on its
consolidated financial statement disclosures. The Company plans to adopt this
accounting standard by October 1, 1998, as required.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
-------
Report of Independent Accountants................................ 24
Consolidated Balance Sheet at September 30, 1997 and 1996........ 25
Consolidated Statement of Income for the
years ended September 30, 1997, 1996 and 1995................. 26
Consolidated Statement of Shareholder's Equity for
the years ended September 30, 1997, 1996 and 1995............. 27
Consolidated Statement of Cash Flows for the
years ended September 30, 1997, 1996 and 1995................. 28
Notes to Consolidated Financial Statements....................... 29-55
All schedules have been omitted because they are not required, not applicable,
or the information has been included elsewhere.
-23-
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997, 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, 1997
-24-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
· Download Table
September 30,
-----------------------
1997 1996
-------- --------
ASSETS
------
Cash and cash equivalents................. $ 177 $ 170
Investments in marketable securities...... 305 355
Investments in operating leases, net...... 10,257 10,831
Finance receivables, net.................. 8,452 7,474
Receivable from Parent.................... 112 78
Other receivables......................... 137 164
Deferred charges.......................... 164 131
Other assets.............................. 183 106
Income taxes receivable................... 43 -
------- -------
Total Assets..................... $19,830 $19,309
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable................... $14,745 $15,014
Accrued interest.......................... 213 226
Accounts payable and accrued expenses..... 1,072 474
Deposits.................................. 248 248
Income taxes payable...................... - 16
Deferred income........................... 517 612
Deferred income taxes..................... 954 805
------- -------
Total Liabilities................... 17,749 17,395
------- -------
Commitments and Contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 91,500 in 1997 and
1996)............................... 915 915
Retained earnings...................... 1,159 997
Net unrealized gains on marketable
securities.......................... 7 2
------- -------
Total Shareholder's Equity.......... 2,081 1,914
------- -------
Total Liabilities and
Shareholder's Equity............. $19,830 $19,309
======= =======
See Accompanying Notes to Consolidated Financial Statements.
-25-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
· Download Table
Years ended September 30,
----------------------------
1997 1996 1995
------ ------ ------
Financing Revenues:
Leasing................................. $2,739 $2,454 $1,902
Retail financing........................ 446 415 431
Wholesale and other dealer financing.... 89 109 121
------ ------ ------
Total financing revenues................... 3,274 2,978 2,454
Depreciation on leases.................. 1,790 1,626 1,230
Interest expense........................ 918 820 716
------ ------ ------
Net financing revenues..................... 566 532 508
Other revenues............................. 176 136 113
------ ------ ------
Net financing revenues and other revenues.. 742 668 621
------ ------ ------
Expenses:
Operating and administrative............ 323 293 255
Provision for credit losses............. 136 115 66
------ ------ ------
Total expenses............................. 459 408 321
------ ------ ------
Income before income taxes................. 283 260 300
Provision for income taxes................. 121 108 117
------ ------ ------
Net Income................................. $ 162 $ 152 $ 183
====== ====== ======
See Accompanying Notes to Consolidated Financial Statements.
-26-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)
· Download Table
Net
Capital Retained Unrealized
Stock Earnings Gain/(Loss) Total
------- -------- ---------- -------
Balance at September 30, l994... $ 865 $ 662 $ - $1,527
Net income in 1995.............. - 183 - 183
Change in net unrealized gain
on available-for-sale
marketable securities........ - - (1) (1)
------ -------- --------- -------
Balance at September 30, 1995... 865 845 (1) 1,709
Issuance of capital stock....... 50 - - 50
Net income in 1996.............. - 152 - 152
Change in net unrealized gain
on available-for-sale
marketable securities........ - - 3 3
------ ------- --------- -------
Balance at September 30, 1996... 915 997 2 1,914
Net income in 1997.............. - 162 - 162
Change in net unrealized gain
on available-for-sale
marketable securities........ - - 5 5
------ ------- --------- -------
Balance at September 30, 1997... $ 915 $1,159 $ 7 $2,081
====== ====== ========= =======
See Accompanying Notes to Consolidated Financial Statements.
-27-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
· Enlarge/Download Table
Years ended September 30,
---------------------------------
1997 1996 1995
------ ------ ------
Cash flows from operating activities:
Net income.......................................... $ 162 $ 152 $ 183
------ ------ ------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 1,835 1,646 1,286
Provision for credit losses.................... 136 115 66
Gain from sale of finance receivables, net..... (23) (15) (11)
(Decrease) increase in accrued interest........ (13) 36 34
Increase in deferred income taxes.............. 149 178 241
(Increase) decrease in other assets............ (198) (59) 114
(Decrease) increase in other liabilities....... (74) 220 99
------ ------ ------
Total adjustments................................... 1,812 2,121 1,829
------ ------ ------
Net cash provided by operating activities.............. 1,974 2,273 2,012
------ ------ ------
Cash flows from investing activities:
Addition to investments in marketable
securities....................................... (581) (222) (116)
Disposition of investments in marketable
securities....................................... 638 68 33
Addition to investments in operating leases......... (4,269) (6,081) (4,123)
Disposition of investments in operating leases...... 3,044 1,718 927
Purchase of finance receivables..................... (15,595) (13,136) (11,005)
Liquidation of finance receivables.................. 12,553 11,938 10,913
Proceeds from sale of finance receivables........... 1,956 905 650
------ ------ ------
Net cash used in investing activities.................. (2,254) (4,810) (2,721)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of capital stock............. - 50 -
Proceeds from issuance of notes and loans payable... 5,482 5,894 5,733
Payments on notes and loans payable................. (4,510) (4,587) (4,989)
Net (decrease) increase in commercial paper,
with original maturities less than 90 days....... (685) 1,249 (62)
------ ------ ------
Net cash provided by financing activities.............. 287 2,606 682
------ ------ ------
Net increase (decrease) in cash and cash equivalents... 7 69 (27)
Cash and cash equivalents at the beginning
of the period....................................... 170 101 128
------ ------ ------
Cash and cash equivalents at the end of the
period.............................................. $ 177 $ 170 $ 101
====== ====== ======
Supplemental disclosures:
Interest paid....................................... $906 $778 $643
Income taxes paid................................... $5 $3 $2
See Accompanying Notes to Consolidated Financial Statements.
-28-
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) and Puerto Rico. 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.
TMCC has seven 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"), Toyota
Leasing, Inc. ("TLI") 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,
operates primarily to acquire retail finance receivables from TMCC for the
purpose of securitizing such receivables. TLI, a limited purpose subsidiary,
was formed in April 1997 primarily to acquire lease finance receivables from
TMCC for the purpose of securitizing such leases. 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.
-29-
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.
-30-
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. 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 the carrying cost
of repossessed collateral is charged to the allowance. Recoveries are
credited to the allowance for credit losses.
Allowance for Residual Value Losses
-----------------------------------
Allowances for estimated losses on lease vehicles returned to TMCC for
disposition at lease termination are established based upon projected vehicle
return rates and projected residual value losses on core models derived from
available historical and market information as well as general economic
factors. The provision for residual value losses is included in depreciation
expense for operating leases and in leasing revenues for direct finance
leases. Effective January 1997, and at each subsequent quarter end, TMCC
reevaluated amounts provided for its allowance for estimated residual value
losses based on recent vehicle return rates and loss experience which resulted
in increased depreciation expense of $9.7 million and decreased leasing
revenues of $2.4 million for a combined decrease in net financing revenues of
$12.1 million for the nine months ended September 30, 1997.
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.
-31-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
---------------------------------------------------
Insurance Operations
--------------------
Revenues from insurance premiums and from providing coverage under various
contractual agreements are earned over the terms of the respective policies
and agreements in proportion to estimated claims activity. Certain costs of
acquiring new business, consisting 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 are recorded in accounts payable and accrued
expenses. Commission and fee income are recognized in relation to the level
of services performed.
Derivative Financial Instruments
--------------------------------
TMCC uses a variety of derivative financial instruments to manage funding
costs and risks associated with changes in interest and foreign currency
exchange rates. The derivative instruments used include interest rate, cross
currency interest rate and indexed note swap agreements and option-based
products. TMCC does not use any of these instruments for trading purposes.
The derivative financial instruments are specifically designated to the
underlying debt obligations or to portfolio level risks. Cash flows related
to these instruments are classified in the same categories as cash flows from
related borrowing activities.
Interest Rate Swap Agreements
-----------------------------
Interest rate swap agreements are executed as an integral part of specific
debt transactions or on a portfolio basis. The differential paid or received
on interest rate swap agreements is recorded on an accrual basis as an
adjustment to interest expense over the term of the agreements.
Cross Currency Interest Rate Swap Agreements
--------------------------------------------
Cross currency interest rate swap agreements are executed as an integral part
of foreign currency debt transactions. The differential between the contract
rates and the foreign currency spot exchange rates as of the reporting dates
is classified in other receivables or accounts payable and accrued expenses;
the differential paid or received on the interest rate swap portion of the
agreements is recorded on an accrual basis as an adjustment to interest
expense over the term of the agreements.
Indexed Note Swap Agreements
----------------------------
Indexed note swap agreements are executed as an integral part of indexed note
transactions. Any differential between contract rates and foreign currency
spot exchange rates as of the reporting dates is classified in other
receivables or accounts payable and accrued expenses; the interest
differential paid or received on indexed note swap agreements is recorded on
an accrual basis as an adjustment to interest expense over the term of the
agreements.
Option-Based Products
---------------------
Option-based products are executed on a portfolio basis. Premiums paid for
option-based products are included in deferred charges and are amortized to
interest expense over the life of the instruments on a straight-line basis.
Amounts receivable under option-based products are recorded on an accrual
basis as a reduction to interest expense.
-32-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
---------------------------------------------------
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 provision for income taxes.
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 expense is generally recognized as if the Company filed
its tax returns on a stand alone basis. In those states where TMCC joins in
the filing of consolidated or combined income tax returns, TMCC is allocated
its share of the total income tax expense based on the Company's income or
loss which would be allocable to such states if the Company filed separate
returns. Based on an informal tax sharing agreement with TMS and other
members of the TMS group, the Company pays TMS for its share of the
consolidated federal and consolidated or combined state income tax expense and
is reimbursed for the benefit of any of its tax basis losses utilized in the
consolidated federal and consolidated or combined state income tax returns.
Reclassifications
-----------------
Certain 1996 and 1995 amounts have been reclassified to conform with the 1997
presentation.
-33-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities
---------------------------------------------
TMCC records its investments in marketable securities which are designated as
available-for-sale at fair value estimated using quoted market prices or
discounted cash flow analysis. Unrealized gains, net of income taxes, related
to available-for-sale securities are included as a separate component of
shareholder's equity. Securities designated as held-to-maturity are recorded
at amortized cost.
The estimated fair value and amortized cost of investments in marketable
securities are as follows:
· Download Table
September 30, 1997
---------------------------
Gross
Fair Unrealized
Cost Value Gains
---- ----- ----------
(Dollars in Millions)
Available-for-sale securities:
Equity securities................... $ 50 $ 58 $ 8
Asset-backed securities............. 161 164 3
U.S. debt securities................ 46 46 -
Corporate debt securities........... 21 21 -
---- ---- ---
Total available-for-sale securities.... $278 $289 $11
===
Held-to-maturity securities:
U.S. debt securities................ 16 16
---- ----
Total marketable securities............ $294 $305
==== ====
· Download Table
September 30, 1996
---------------------------
Gross
Fair Unrealized
Cost Value Gains
---- ----- ----------
(Dollars in Millions)
Available-for-sale securities:
Equity securities................... $133 $135 $ 2
Asset-backed securities............. 206 207 1
U.S. debt securities................ 2 2 -
---- ---- ---
Total available-for-sale securities.... $341 $344 $ 3
===
Held-to-maturity securities:
U.S. debt securities................ 11 11
---- ----
Total marketable securities............ $352 $355
==== ====
-34-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities (Continued)
---------------------------------------------
The contractual maturities of investments in marketable securities at
September 30, 1997 are as follows:
· Download Table
Available-for-Sale Held-to-Maturity
Securities Securities
------------------ ----------------
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
(Dollars in Millions)
Within one year...................... $ - $ - $ 12 $ 12
After one year through five years.... 21 21 4 4
After five years through ten years... 29 29 - -
After ten years...................... 17 17 - -
Mutual funds......................... 50 58 - -
Asset-backed securities.............. 161 164 - -
---- ---- --- ---
Total............................. $278 $289 $ 16 $ 16
==== ==== ==== =====
The proceeds from sales of available-for-sale securities were $416 million and
$3 million for the years ended September 30, 1997 and 1996, respectively.
Realized gains and losses on sales of available-for-sale securities were
$5 million and $2 million, respectively, for the year ended September 30,
1997, and were immaterial for the years ended September 30, 1996 and 1995.
-35-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Investments in Operating Leases
----------------------------------------
Investments in operating leases, net consisted of the following:
· Download Table
September 30,
----------------------
1997 1996
------- -------
(Dollars in Millions)
Vehicles................................. $12,557 $13,252
Equipment and other...................... 338 268
------- -------
12,895 13,520
Accumulated depreciation................. (2,535) (2,582)
Allowance for credit losses.............. (103) (107)
------- -------
Investments in operating leases, net.. $10,257 $10,831
======= =======
Rental income from operating leases was $2,568 million, $2,292 million and
$1,734 million for the years ended September 30, 1997, 1996 and 1995,
respectively. Future minimum rentals on operating leases for each of the five
succeeding years ending September 30, are: 1998 - $1,873 million; 1999 -
$1,114 million; 2000 - $366 million; 2001 - $42 million; and 2002 -
$4 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:
· Download Table
September 30,
---------------------
1997 1996
------ ------
(Dollars in Millions)
Retail............................... $6,315 $5,501
Finance leases....................... 1,938 1,536
Wholesale and other dealer loans..... 885 1,015
------ ------
9,138 8,052
Unearned income...................... (576) (482)
Allowance for credit losses.......... (110) (96)
------ ------
Finance receivables, net.......... $8,452 $7,474
====== ======
-36-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Finance Receivables (Continued)
----------------------------
Contractual maturities are as follows:
· Download Table
Due in the Wholesale
Years Ending and Other
September 30, Retail Dealer Loans
------------- ------ ------------
(Dollars in Millions)
1998.................. $1,907 $ 671
1999.................. 1,639 37
2000.................. 1,443 54
2001.................. 949 61
2002.................. 358 50
Thereafter............ 19 12
------ ------
Total.............. $6,315 $ 885
====== ======
Finance leases, net consisted of the following:
· Download Table
September 30,
---------------------
1997 1996
------ ------
(Dollars in Millions)
Minimum lease payments.................. $1,260 $ 878
Estimated unguaranteed residual values.. 678 658
------ ------
Finance leases....................... 1,938 1,536
Unearned income......................... (336) (270)
Allowance for credit losses............. (24) (19)
------ ------
Finance leases, net.................. $1,578 $1,247
====== ======
The aggregate balances related to finance receivables 60 or more days past due
totaled $17 million and $20 million at September 30, 1997 and 1996,
respectively. Future minimum finance lease payments for each of the five
succeeding years ending September 30, are: 1998 - $374 million; 1999 -
$329 million; 2000 - $305 million; 2001 - $174 million and 2002 - $78 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.
-37-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Allowance for Credit Losses
------------------------------------
An analysis of the allowance for credit losses follows:
· Download Table
Years ended September 30,
--------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Allowance for credit losses
at beginning of period........... $203 $171 $164
Provision for credit losses......... 136 115 66
Charge-offs......................... (116) (81) (63)
Recoveries.......................... 12 12 12
Other adjustments................... (22) (14) (8)
---- ---- ----
Allowance for credit losses
at end of period................. $213 $203 $171
==== ==== ====
Note 7 - Sale of Retail Receivables and Interests in Lease Finance Receivables
------------------------------------------------------------------------------
Effective January 1, 1997, TMCC adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS No. 125 addresses
the accounting for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and the
accounting for and classification of previously recognized excess servicing
assets. In accordance with the requirements of this statement, the Company
has reclassified its previously recognized excess servicing receivables from
other receivables to investments in marketable securities for all balance
sheet periods presented.
In April 1997, and July 1996, TMCC sold retail finance receivables totaling
$784 million and $782 million, respectively, to TMCRC which in turn sold them
to a trust; TMCC continues to act as servicer and is paid a servicing fee.
TMCC holds an undivided trust interest ("UTI") in leases held in a titling
trust established by TMCC. In September 1997, TMCC identified certain leases
included in the UTI to be allocated to a separate portfolio represented by a
special unit of beneficial interest ("SUBI") totaling $1,283 million and sold
the SUBI to TLI. TLI in turn contributed substantially all of the SUBI to a
trust; TMCC continues to act as servicer for all assets represented by the UTI
and the SUBI and is paid a servicing fee. TMCRC and TLI retain subordinated
interests in the excess cash flows of these transactions, certain cash
deposits and other related amounts which are held as restricted assets subject
to limited recourse provisions. None of the retail finance receivables sold
to TMCRC, the lease assets represented by the SUBI or the restricted assets
are available to satisfy any obligations of TMCC.
-38-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Retail Receivables and Interests in Lease Finance Receivables
------------------------------------------------------------------------------
(Continued)
Following is a summary of amounts included in investment in marketable
securities and other receivables:
· Download Table
September 30,
---------------------
1997 1996
---- ----
(Dollars in Millions)
Investment in marketable securities
Excess servicing.................... $ 77 $ 35
Allowance for estimated credit and
residual value losses on sold
receivables....................... (28) (5)
---- ----
Total........................... $ 49 $ 30
==== ====
Other receivables
Cash deposits....................... $ 51 $ 20
Undivided interest in trust......... 24 2
---- ----
Total........................... $ 75 $ 22
==== ====
The pretax gain resulting from the sale of retail receivables and interests in
lease finance receivables totaled $23 million and $15 million in fiscal 1997
and 1996, respectively, after providing for an allowance for estimated credit
and residual value losses.
The outstanding balance of sold retail finance receivables which TMCC
continues to service at September 30, 1997 and 1996 totaled $1.1 billion for
both periods. The outstanding balance of the lease finance receivables
represented by the sold SUBI which TMCC continues to service at September 30,
1997 totaled $1.3 billion.
-39-
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. 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,
$12 million and $8 million for the years ended September 30, 1997, 1996 and
1995, respectively. In addition, TMS sponsors special retail and lease
programs offered by TMCC; for the years ended September 30, 1997, 1996 and
1995, TMCC recognized revenue of $174 million, $174 million and $134 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 years ended September 30, 1997 and 1996, TMCC did not
borrow from TMS. For the year ended September 30, 1995, the highest amount of
borrowings from TMS was $34 million; 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
ended September 30, 1997, 1996 and 1995, the highest amounts of funds invested
with TMS were $817 million, $224 million and $603 million, respectively;
interest earned on these investments totaled $5 million, $5 million and
$16 million for the years ended September 30, 1997, 1996 and 1995,
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, 1997, 1996 and 1995. TMCC leases a corporate aircraft to TMS
and provides wholesale financing for TMS affiliates; TMCC recognized revenue
related to these arrangements of $5 million, $3 million and $3 million for the
years ended September 30, 1997, 1996 and 1995, respectively.
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, 1997, 1996 and 1995
totaled $12 million, $7 million and $4 million, respectively.
-40-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable
--------------------------------
Notes and loans payable at September 30, 1997 and 1996, which consisted of
senior debt, included the following:
· Download Table
September 30,
----------------------
1997 1996
------- -------
(Dollars in Millions)
Commercial paper, net................... $1,512 $ 2,360
------- -------
Other senior debt, due in the years
ending September 30,:
1997.............................. - 3,211
1998.............................. 2,868 2,760
1999.............................. 1,324 1,384
2000.............................. 2,505 2,137
2001.............................. 2,154 2,216
2002.............................. 2,660 491
Thereafter........................ 1,606 373
------- -------
13,117 12,572
Unamortized premium..................... 116 82
------- -------
Total other senior debt........... 13,233 12,654
------- -------
Notes and loans payable........ $14,745 $15,014
======= =======
Short-term borrowings include commercial paper and certain medium-term notes
("MTNs"). The weighted average remaining term of commercial paper was 23 days
and 31 days at September 30, 1997 and 1996, respectively. The weighted
average interest rate on commercial paper was 5.58% and 5.41% at September 30,
1997 and 1996, respectively. Short-term MTNs with original terms of one year
or less, included in other senior debt, were $221 million and $559 million at
September 30, 1997 and 1996, respectively. The weighted average interest rate
on these short-term MTNs was 5.46% and 5.19% at September 30, 1997 and 1996,
respectively, including the effect of interest rate swap agreements.
The weighted average interest rate on other senior debt was 5.85% and 5.98% at
September 30, 1997 and 1996, 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, 1997 and 1996, some of which are
floating rates that reset daily. Approximately 8% of other senior debt at
September 30, 1997 had interest rates, including the effect of interest rate
swap agreements, that were fixed for a period of more than one year. The
weighted average of these fixed interest rates was 5.89% at September 30,
1997. Approximately 40% of other senior debt at September 30, 1997 had
floating interest rates that were covered by option-based products. The
weighted average strike rate on these option-based products was 6.02% at
September 30, 1997. TMCC manages interest rate risk via continuous adjustment
of the mix of fixed and floating rate debt through use of interest rate swap
agreements and option-based products.
-41-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable (Continued)
--------------------------------
Included in notes and loans payable at September 30, 1997 and 1996 were
unsecured notes denominated in various foreign currencies as follows:
· Download Table
September 30,
------------------------------
1997 1996
----------- -----------
(Amounts in Millions)
Australian dollar................... 250 250
British pound sterling.............. 150 150
Canadian dollar..................... 300 300
Czech koruna........................ 2,000 -
Danish kroner....................... 400 -
Dutch guilder....................... 500 555
French franc........................ 1,545 2,545
German deutsche mark................ 2,772 1,052
Hong Kong dollar.................... 150 150
Italian lire........................ 927,300 493,300
Japanese yen........................ 187,502 197,699
Luxembourg franc.................... 2,000 -
New Zealand dollar.................. 200 100
South African rand.................. 400 250
Swedish kronor...................... 670 670
Swiss franc......................... 1,950 1,940
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 $6.8 billion at September 30, 1997. 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, 1997. The
receivables or payables arising as a result of the differences between the
September 30, 1997 foreign currency spot exchange rates and the contract rates
applicable to the cross currency interest rate swap agreements are classified
in other receivables or accounts payable and accrued expenses, respectively,
and would in aggregate total a net payable position of $791 million at
September 30, 1997.
-42-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments
---------------------------------------------
The fair value of financial instruments at September 30, 1997 and 1996, was
estimated using 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
could 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, 1997 and 1996 are as follows:
· Enlarge/Download Table
September 30,
---------------------------------------------------
1997 1996
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ----------- ----------
(Dollars in Millions)
Balance sheet financial
instruments:
Assets:
Cash and cash equivalents........... $177 $177 $170 $170
Investments in marketable
securities....................... $305 $305 $355 $355
Retail finance receivables, net..... $6,875 $6,724 $6,228 $6,121
Other receivables................... $121 $121 $48 $49
Receivables from cross currency
interest rate swap agreements.... $10 $20 $116 $152
Liabilities:
Notes and loans payable............. $14,745 $15,290 $15,014 $15,398
Payables from cross currency
interest rate swap agreements.... $801 $543 $287 $108
Other payables...................... $271 $271 $187 $187
-43-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
---------------------------------------------
· Download Table
September 30,
-------------------------------------------------
1997 1996
----------------------- ------------------------
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..... $6,534 $(491) $5,642 $72
Interest rate swap
agreements............... $6,318 $127 $6,759 $37
Option-based products....... $5,600 $16 $6,220 $26
Indexed note swap
agreements............... $2,340 $(1) $1,924 $(37)
The fair value estimates presented herein are based on information available
to management as of September 30, 1997 and 1996. 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, 1997 and 1996 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.
Retail Finance Receivables
--------------------------
The carrying amounts of $800 million and $900 million of variable rate finance
receivables at September 30, 1997 and 1996, 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 originated as of September 30, 1997 and
1996.
-44-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
---------------------------------------------
Other Receivables and Other Payables
------------------------------------
The carrying amount and fair value of other receivables and other payables are
presented separately from the receivables and payables 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, 1997 and
1996. The carrying amount of the remaining other receivables and payables
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 issued as of September 30, 1997 and 1996. The
carrying amount of commercial paper was assumed to approximate fair value due
to the short maturity of these instruments.
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 using quoted
market exchange rates and quoted market interest rates as of September 30,
1997 and 1996.
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, 1997 and 1996.
Option-based Products
-----------------------
The estimated fair value of TMCC's outstanding option-based products was
derived by discounting expected cash flows using market exchange rates and
market interest rates as of September 30, 1997 and 1996.
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, 1997 and 1996.
-45-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1,163 million and $1,119 million at
September 30, 1997 and 1996, 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.
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 arrangements for trading purposes.
A reconciliation of the activity of TMCC's derivative financial instruments
for the years ended September 30, 1997 and 1996 is as follows:
· Enlarge/Download Table
September 30,
----------------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------- ------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
Beginning Notional Amount... $5.6 $4.8 $6.8 $7.1 $6.2 $3.8 $1.9 $1.7
Add:
New agreements........... 2.0 1.7 2.0 3.1 2.6 3.4 1.0 1.2
Less:
Expired agreements....... 1.1 0.9 2.5 3.4 3.2 1.0 0.5 1.0
---- ---- ---- ---- ---- ---- ---- ----
Ending Notional Amount...... $6.5 $5.6 $6.3 $6.8 $5.6 $6.2 $2.4 $1.9
==== ==== ==== ==== ==== ==== ==== ====
-46-
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 interest rate swap agreements ranged from one to seven
years at September 30, 1997.
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. 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 40% of TMCC's other senior debt at September 30, 1997 had
floating interest rates that were covered by option-based products which had
an average strike rate of 6.02%. 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 option-based products ranged from two to three
years at September 30, 1997.
The aggregate notional amounts of interest rate swap agreements and option-
based products outstanding at September 30, 1997 and 1996 were as follows:
· Download Table
September 30,
---------------------
1997 1996
---- ----
(Dollars in Billions)
Fixed rate swaps............................... $1.5 $2.3
Floating rate swaps............................ 4.1 3.1
Basis swaps.................................... 0.7 1.4
---- ----
Total interest rate swap agreements........ $6.3 $6.8
==== ====
Option-based products.......................... $5.6 $6.2
==== ====
-47-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
-----------------------------------------------------------
Interest Rate Risk Management (Continued)
-----------------------------
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, 1997, TMCC was the counterparty to $2.4 billion
of indexed note swap agreements, of which $0.3 billion was denominated in
foreign currencies and $2.1 billion was denominated in U.S. dollars. 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. The original maturities of
indexed note swap agreements ranged from one to eleven years at September 30,
1997.
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.
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, 1997 and 1996 were
$6.5 billion and $5.6 billion, respectively. The original maturities of cross
currency interest rate swap agreements ranged from one to seven years at
September 30, 1997.
-48-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Financial Instruments with Off-Balance Sheet Risk (Continued)
-----------------------------------------------------------
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, 1997, approximately 90% 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, 1997; TMCC has not experienced
any counterparty default during the three years ended September 30, 1997.
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, 1997 reduced by
the effects of master netting agreements. The credit exposure of TMCC's
derivative financial instruments at September 30, 1997 was $39 million on an
aggregate notional amount of $20.8 billion.
-49-
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, 1997, 1996 and 1995, the
Company's pension expense was $4 million, $4 million and $2 million,
respectively. At September 30, 1997, 1996 and 1995, 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.
Note 13 - Provision for Income Taxes
------------------------------------
The provision for income taxes consisted of the following:
· Download Table
Years ended September 30,
--------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Current
Federal........................... $(14) $(47) $(97)
State............................. (14) (23) (27)
---- ---- ----
Total current ................. (28) (70) (124)
---- ---- ----
Deferred
Federal........................... 109 129 173
State............................. 40 49 68
---- ---- ----
Total deferred................. 149 178 241
---- ---- ----
Provision for income taxes.. $121 $108 $117
==== ==== ====
-50-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Provision for Income Taxes (Continued)
------------------------------------
The deferred federal and state income tax liabilities are as follows:
· Download Table
September 30,
---------------------
1997 1996
---- ----
(Dollars in Millions)
Federal........................................ $831 $643
State.......................................... 123 162
---- ----
Net deferred income tax liability........... $954 $805
==== ====
The Company's deferred tax assets and liabilities consisted of the following:
· Download Table
September 30,
---------------------
1997 1996
----- -----
(Dollars in Millions)
Assets:
Alternative minimum tax..................... $ 472 $ 436
Provision for losses........................ 148 116
Deferred administrative fees................ 63 54
NOL carryforwards........................... 56 49
Deferred acquisition costs.................. 8 12
Unearned insurance premiums................. 3 4
Revenue recognition......................... 3 2
Other....................................... - 3
----- -----
Deferred tax assets...................... 753 676
----- -----
Liabilities:
Lease transactions.......................... 1,511 1,330
State taxes................................. 190 151
Other....................................... 6 -
----- -----
Deferred tax liabilities................. 1,707 1,481
----- -----
Valuation allowance...................... - -
----- -----
Net deferred income tax liability..... $ 954 $ 805
===== =====
TMCC has state tax net operating loss carryforwards of $756 million which
expire beginning in fiscal 1998 through 2010.
-51-
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:
· Download Table
Years ended September 30,
-------------------------
1997 1996 1995
---- ---- ----
(Dollars in Millions)
Provision for income taxes at
federal statutory tax rate......... $ 99 $ 91 $105
State and local taxes (net of
federal tax benefit)............... 17 17 26
Other, including changes in
applicable state tax rates......... 5 - (14)
---- ---- ----
Provision for income taxes......... $121 $108 $117
==== ==== ====
Effective tax rate.................... 42.69% 41.52% 39.12%
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, 1997 and 1996. No loans were outstanding under any of these bank
credit facilities as of September 30, 1997 or 1996.
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, 1997. Approximately $24 million in letters of credit had been
issued, primarily related to the Company's insurance operations as of
September 30, 1997, compared to $44 million as of September 30, 1996. The
letters of credit for the insurance companies are used to satisfy requirements
of certain insurance carriers and state insurance regulatory agencies.
-52-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Commitments and Contingent Liabilities
------------------------------------------------
At September 30, 1997, the Company was a lessee under lease agreements for
facilities with minimum future commitments as follows: years ending
September 30, 1998 - $9 million; 1999 - $7 million; 2000 - $4 million; 2001 -
$3 million; 2002 - $2 million; thereafter - $1 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.
TMCC has guaranteed the obligations of TMIS relating to vehicle service
insurance agreements issued on or after July 1, 1997, in the Commonwealth of
Virginia. This guarantee has been given without regard to any security and
without any limitation as to duration or amount. TMCC has also guaranteed the
obligations of TMIS under an ISDA master agreement relating to swap
transactions and other financial instruments.
An operating agreement between TMCC and TCPR (the "Agreement"), provides that
TMCC will make necessary equity contributions or provide other financial
assistance TMCC deems appropriate to ensure that TCPR maintains a minimum
coverage on fixed charges of 1.10 times such fixed charges in any fiscal
quarter. The Agreement does not constitute a guarantee by TMCC of any
obligations of TCPR. The fixed charge coverage provision of the Agreement is
solely for the benefit of the holders of TCPR's commercial paper, and the
Agreement may be amended or terminated at any time without notice to, or the
consent of, holders of other TCPR obligations.
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, 1997 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.
-53-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 - Segment Information
-----------------------------
TMCC's business operations include primarily financing and insurance
activities. Following are gross revenues, income before taxes, assets and
other information applicable to financing and insurance operations:
· Download Table
September 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
(Dollars in Millions)
Gross revenues:
Financing operations.................... $ 3,320 $ 3,004 $ 2,469
Insurance operations.................... 138 115 102
Eliminations (a)........................ (8) (5) (4)
--------- --------- ---------
Total gross revenues.................. $ 3,450 $ 3,114 $ 2,567
========= ========= =========
Income before income taxes:
Financing operations.................... $ 250 $ 241 $ 281
Insurance operations.................... 33 19 19
--------- --------- ---------
Total income before income taxes...... $ 283 $ 260 $ 300
========= ========= =========
Assets:
Financing operations.................... $ 19,519 $ 19,052 $ 15,990
Insurance operations.................... 334 275 253
Eliminations (b)........................ (23) (18) (18)
--------- --------- ---------
Total assets.......................... $ 19,830 $ 19,309 $ 16,225
========= ========= =========
Depreciation and amortization:
Financing operations.................... $ 1,834 $ 1,645 $ 1,285
Insurance operations.................... 1 1 1
--------- --------- ---------
Total depreciation and amortization... $ 1,835 $ 1,646 $ 1,286
========= ========= =========
Capital expenditures:
Financing operations.................... $ 14 $ 6 $ 5
Insurance operations.................... 1 1 -
--------- --------- ---------
Total capital expenditures............ $ 15 $ 7 $ 5
========= ========= =========
(a) Intersegment insurance tracking revenues.
(b) Primarily investment in insurance subsidiary.
TMCC conducts substantially all of its business in the United States.
-54-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Selected Quarterly Financial Data (Unaudited)
-------------------------------------------------------
· Download Table
Total
Financing Interest Depreciation Net
Revenues Expense on Leases Income
---------- -------- ------------ --------
(Dollars in Millions)
Year Ended September 30, 1997:
First quarter.............. $ 829 $227 $ 470 $ 38
Second quarter............. 829 225 446 47
Third quarter.............. 813 228 439 44
Fourth quarter............. 803 238 435 33
------ ---- ------ ----
Total................... $3,274 $918 $1,790 $162
====== ==== ====== ====
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
====== ==== ====== ====
-55-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to report with regard to this item.
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, 1997.
Name Age Position
---- --- --------
Yoshio Ishizaka........... 57 Director and President, TMCC;
Director and President, TMS;
Director, TMC
Nobu Shigemi.............. 53 Director, Senior Vice President
and Treasurer, TMCC; Group Vice
President, TMS
George Borst ............. 49 Director, Senior Vice President
and General Manager, TMCC;
Senior Vice President, TMS
Robert Pitts.............. 49 Director and Secretary, TMCC;
Group Vice President, TMS
Yale Gieszl............... 55 Director, TMCC; Director and
Executive Vice President, TMS
Takashi Nishiyama......... 55 Director, TMCC; Senior Vice
President and Treasurer, TMS
Douglas West.............. 52 Director, TMCC; Senior Vice
President and Secretary, TMS
Ryuji Araki............... 57 Director, TMCC; Managing 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.
Mr. Borst was named Director and Senior Vice President and General Manager of
TMCC in April 1997 and Senior Vice President of TMS in June 1997. From
January 1993 to May 1997, Mr. Borst was Group Vice President of TMS. From
April 1989 to December 1992, Mr. Borst was a Vice President of TMS. Mr. Borst
has been employed with TMS, in various positions, since 1985.
-56-
Mr. Pitts was named Director of TMCC and Group Vice President of TMS in April
1993 and Secretary of TMCC in April 1997. 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. West was named Director of TMCC and Senior Vice President and Secretary of
TMS in June 1996. From June 1996 to March 1997, Mr. West was also a Senior
Vice President and Secretary of TMCC. 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. Araki was named Director of TMCC in September 1995. He was named Managing
Director of TMC's Board of Directors in June 1997 and has served on TMC's
Board of Directors since September 1992. Mr. Araki has been employed with
TMC, in various positions, since 1962.
-57-
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
$100,000, for services rendered in all capacities to the Company for the
fiscal years ended September 30, 1997, 1996 and 1995.
· Download Table
Annual Compensation
--------------------------------------------
Other Annual All
Name and Fiscal Compensation Other
Principal Position Year Salary ($) Bonus ($) ($)<F1> ($)<F2>
--------------------- ------ ---------- --------- ------------ -------
George Borst 1997 $115,500 $56,700 - $3,300
Principal Executive 1996 N/A N/A N/A N/A
Officer <F3> 1995 N/A N/A N/A N/A
Wolfgang Jahn 1997 $119,460 $55,000 - $4,300
Principal Executive 1996 $233,100 $94,500 - $8,500
Officer <F3> 1995 $213,800 $98,700 - $6,000
Nobu Shigemi 1997 $415,500 $49,600 $44,000 -
Senior Vice President 1996 $316,000 $50,900 $51,700 -
1995 $199,000 $40,500 $47,300 -
<FN>
------------
<F1> The amounts in this column represent housing allowances and relocation
costs.
<F2> 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.
<F3> Mr. Jahn served as Principal Executive Officer during the current fiscal
year through March 1997. Effective April 1, 1997, Mr. Borst was appointed as
Principal Executive Officer in place of Mr. Jahn. The compensation presented
for Mr. Jahn and Mr. Borst reflect amounts earned for services to the Company
during the partial periods of the fiscal year each served as Principal
Executive Officer.
</FN>
Employee Benefit Plan
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.
-58-
· Download Table
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
$450,000 $135,000 $180,000 $225,000
$500,000 $150,000 $200,000 $250,000
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.
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. Borst and 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.
-59-
Mr. Borst is a participant in the TMS Pension Plan and the TMS SERP and had
13 years of total credited service as of September 30, 1997, 6 months of which
have been allocated to the Company. Based upon years of credited service
allocable to the Company, Mr. Borst would be entitled to receive and the
Company would be required to pay approximately $2,000 in annual pension
benefits when Mr. Borst reaches age 62. Mr. Borst would also be entitled to
receive pension benefits from TMS based upon services to and compensation by
TMS.
Mr. Jahn is a participant in the TMS Pension Plan and the TMS SERP and had
24 years of total credited service as of September 30, 1997, 8 years of which
have been allocated to the Company. Based upon years of credited service
allocable to the Company, Mr. Jahn would be entitled to receive and the
Company would be required to pay approximately $34,000 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 amounts are paid to members of the TMCC Board of Directors 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.
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, TMS, are included in Note 2,
Note 8, and Note 15 of the Notes to the Consolidated Financial Statements.
Certain directors and executive officers of TMCC are also directors and
executive officers of TMS. In addition, see Item 1, Business - General, for a
description of certain obligations of TMMNA to TMCC.
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 23.
(2)Exhibits
The exhibits listed on the accompanying Exhibit Index, starting on
page 62, 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, 1997.
-60-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Torrance,
State of California, on the 22nd day of December, 1997.
TOYOTA MOTOR CREDIT CORPORATION
By /S/ GEORGE BORST
------------------------------
George Borst
Senior Vice President
and General Manager
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 22nd day of December, 1997.
Signature Title
--------- -----
Senior Vice President and General
Manager and Director
/S/ GEORGE BORST (Principal Executive Officer)
------------------------------------
George Borst
Senior Vice President/
Treasurer and Director
/S/ NOBU SHIGEMI (Principal Financial Officer)
------------------------------------
Nobu Shigemi
Vice President - Finance
and Administration
/S/ GREGORY WILLIS (Principal Accounting Officer)
------------------------------------
Gregory Willis
/S/ YOSHIO ISHIZAKA Director
------------------------------------
Yoshio Ishizaka
/S/ DOUGLAS WEST Director
------------------------------------
Douglas West
/S/ TAKASHI NISHIYAMA Director
------------------------------------
Takashi Nishiyama
-61-
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. (6)
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,
Commission File number 1-9961.
(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,
Commission File number 1-9961.
(4) Incorporated herein by reference to Exhibit 4.1(a), filed with TMCC's
Registration Statement on Form S-3, File No. 33-52359.
(6) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1993,
Commission File number 1-9961.
-62-
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) Second Amended and Restated Agency Agreement dated Filed
July 24, 1997 among TMCC, The Chase Manhattan Bank Herewith
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 and certain demand notes issued under an
Indenture dated September 1, 1997. 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 or demand notes, 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. (16)
10.1(b) Amendment No. 1 to Operating Agreement dated May 14, 1996
between TMCC and TMS. (11)
10.1(c) Amendment No. 2 to Operating Agreement dated December 1, Filed
1997 between TMCC, TMS and TMMNA Herewith
-----------------
(5) Incorporated herein by reference to Exhibit 4.1 filed with TMCC's
Current Report on Form 8-K dated October 16, 1991, Commission File
No. 1-9961.
(11) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Report on Form 10-Q for the quarter ended March 31, 1996, Commission
File No. 1-9961.
(16) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Registration Statement on Form S-1, File No. 33-22440.
-63-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
------- ----------- ------
10.2 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. (7)
10.3 Receivables Purchase Agreement dated as of September 1,
1995 between TMCC, as Seller, and TMCRC Corporation,
as Purchaser. (8)
10.4 Form of Indemnification Agreement between TMCC and
its directors and officers. (12)
10.5(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. (13)
10.5(b) Amendment No. 1 dated September 28, 1995 to the
Three-year Agreement. (14)
10.5(c) Amendment No. 1 dated September 28, 1995 to the
364-day Agreement. (15)
----------------
(7) 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, Commission File No. 33-96006.
(8) 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, Commission File No. 33-96006.
(12) Incorporated herein by reference to Exhibit 10.6 filed with TMCC's
Registration Statement on Form S-1, Commission File No. 33-22440.
(13) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's
Report on Form 10-K for the year ended September 30, 1994,
Commission File No. 1-9961.
(14) 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,
Commission File No. 1-9961.
(15) 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, Commission
File No. 1-9961.
-64-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
------- ----------- ------
10.5(d) Amended and Restated Credit Agreement dated
September 24, 1996 to the Three-year Agreement. (17)
10.5(e) Amended and Restated Credit Agreement dated
September 24, 1996 to the 364-day Agreement. (18)
10.5(f) Amended and Restated Credit Agreement dated Filed
September 23, 1997 to the Three-year Agreement. Herewith
10.5(g) Amended and Restated Credit Agreement dated Filed
September 23, 1997 to the 364-day Agreement. Herewith
10.6 Toyota Motor Sales, U.S.A., Inc. Supplemental
Executive Retirement Plan. * (9)
10.7 Toyota Motor Sales, U.S.A., Inc. 401(k)
Excess Plan. * (10)
10.8 Amended and Restated Trust and Servicing Agreement
dated as of October 1, 1996 by and among TMCC,
TMTT, Inc., as titling trustee and U.S. Bank National
Association, as trust agent. (19)
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
----------------
(9) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Report on Form 10-Q for the quarter ended December 31, 1995, Commission
File No. 1-9961.
(10) Incorporated herein by reference to Exhibit 10.2 filed with TMCC's
Report on From 10-Q for the quarter ended December 31, 1995, Commission
File No. 1-9961.
(17) Incorporated herein by reference to Exhibit 10.9(d) filed with TMCC's
Report on Form 10-K for the year ended September 30, 1996, Commission
File No. 1-9961.
(18) Incorporated herein by reference to Exhibit 10.9(e) filed with TMCC's
Report on Form 10-K for the year ended September 30, 1996, Commission
File No. 1-9961.
(19) Incorporated herein by reference to Exhibit 4.1 filed with Toyota Auto
Lease Trust 1997-A's Report on Form 8-A dated December 23, 1997,
Commission File No. 333-26717
*- Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.
-65-
Dates Referenced Herein and Documents Incorporated By Reference
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