Toyota 2006 Annual Report Download - page 81

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breach of a covenant by the servicer with respect to the receiv-
able that materially and adversely affects the interest of the
securitization trust or of an extension or modification of a
receivable as to which Toyota, as servicer, does not commit to
make advances to fund reductions in interest payments. The
repurchase price is generally the outstanding principal balance
of the receivable and accrued interest. These provisions are
customary for securitization transactions.
Advancing requirements
As the servicer, Toyota is required to advance certain shortfalls
in obligor payments to the securitization trust to the extent it
believes the advance will be recovered from future collections of
that receivable. Generally, the securitization trust is required to
reimburse Toyota for these advances from collections on all
receivables before making other required payments. These pro-
visions are customary for securitization transactions.
Lending Commitments
Credit facilities with credit card holders
Toyota’s financial services operation issues credit cards to cus-
tomers. As customary for credit card businesses, Toyota main-
tains credit facilities with holders of credit cards issued by
Toyota. These facilities are used upon each holders’ requests up
to the limits established on an individual holder basis. Although
loans made to customers through this facility are not secured,
for the purposes of minimizing credit risks and of appropriately
establishing credit limits for each individual credit card holder,
Toyota employs its own risk management policy which includes
an analysis of information provided by financial institutions in
alliance with Toyota. Toyota periodically reviews and revises, as
appropriate, these credit limits. Outstanding credit facilities with
credit card holders were ¥2,350.8 billion as of March 31, 2006.
Credit facilities with dealers
Toyota’s financial services operation maintains credit facilities
with dealers. These credit facilities may be used for business
acquisitions, facilities refurbishment, real estate purchases, and
working capital requirements. These loans are typically collater-
alized with liens on real estate, vehicle inventory, and/or other
dealership assets, as appropriate. Toyota obtains a personal
guarantee from the dealer or corporate guarantee from the
dealership when deemed prudent. Although the loans are typi-
cally collateralized or guaranteed, the value of the underlying
collateral or guarantees may not be sufficient to cover Toyota’s
exposure under such agreements. Toyota prices the credit facili-
ties according to the risks assumed in entering into the credit
facility. Toyota’s financial services operation also provides
financing to various multi-franchise dealer organizations,
referred to as dealer groups, often as part of a lending consor-
tium, for wholesale inventory financing, business acquisitions,
facilities refurbishment, real estate purchases, and working capi-
tal requirements. Toyota’s outstanding credit facilities with deal-
ers totaled ¥1,334.4 billion as of March 31, 2006.
Guarantees
Toyota enters into certain guarantee contracts with its dealers
to guarantee customers’ payments of their installment payables
that arise from installment contracts between customers and
Toyota dealers, as and when requested by Toyota dealers.
Guarantee periods are set to match the maturity of installment
payments, and at March 31, 2006 range from one month to 35
years; however, they are generally shorter than the useful lives
of products sold. Toyota is required to execute its guarantee pri-
marily when customers are unable to make required payments.
The maximum potential amount of future payments as of
March 31, 2006 is ¥1,236.9 billion. Liabilities for these guaran-
tees of ¥3.3 billion have been provided as of March 31, 2006.
Under these guarantee contracts, Toyota is entitled to recover
any amounts paid by it from the customers whose obligations it
guaranteed.
Tabular Disclosure of Contractual Obligations
For information regarding debt obligations, capital lease obliga-
tions, operating leases, and other obligations, including
amounts maturing in each of the next five years, see notes 13,
22 and 23 to the consolidated financial statements. In addition,
as part of Toyota’s normal business practices, Toyota enters into
long-term arrangements with suppliers for purchases of certain
raw materials, components and services. These arrangements
may contain fixed/minimum quantity purchase requirements.
Toyota enters into such arrangements to facilitate an adequate
supply of these materials and services.
The following tables summarize Toyota’s contractual obliga-
tions and commercial commitments as of March 31, 2006: