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
