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| Changes in general business, economic, and geopolitical conditions, as well as in consumer demand and the competitive environment in the automotive markets in the United States; A decline in TMS sales volume and the level of TMS sponsored subvention and other cash incentive programs; Increased competition from other financial institutions seeking to increase their share of financing Toyota and Lexus vehicles; Recalls announced by TMS and the perceived quality of Toyota and Lexus vehicles; Availability and cost of financing; Changes in our credit ratings and those of TMC; Changes in our financial position and liquidity, or changes or disruptions in our funding sources or access to the global capital markets; Revisions to the estimates and assumptions for our allowance for credit losses; Revisions to the estimates and assumptions that are used to determine the value of certain assets; Fluctuations in the value of our investment securities or market prices; Changes to existing, or adoption of new, accounting standards; Changes in prices of used vehicles and their effect on residual values of our off-lease vehicles and return rates; Failure of our customers or dealers to meet the terms of any contract with us, or otherwise perform as agreed; Fluctuations in interest rates and foreign currency exchange rates; Failure or interruption in our operations, including our communications and information systems; A security breach or a cyber-attack; Challenges related to the relocation of our corporate headquarters to Plano, Texas; Failure or changes in commercial soundness of our counterparties and other financial institutions; Insufficient establishment of reserves, or the failure of a reinsurer to meet its obligations, in our insurance operations; Compliance with current laws and regulations or becoming subject to more stringent laws, regulatory requirements and regulatory scrutiny; Changes in our business practices required by new regulatory requirements, such as those required by the consent orders we entered into in February 2016 with the CFPB and the United States Department of Justice with respect to our discretionary dealer compensation practices; Natural disasters, changes in fuel prices, manufacturing disruptions and production suspensions of Toyota and Lexus vehicle models and related parts supply;
| • | Changes in the economy or to laws in states where we have a high concentration of customers; |
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| A decline in TMS sales volume and the level of TMS sponsored subvention programs;
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Changes in business strategy, including expansion of product lines, credit risk appetite, and business acquisitions; and ·
The other risks and uncertainties set forth in “Part I, Item 1A. Risk Factors”. | A sale of all or a portion of our portfolio of loans and leases;
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| Increased competition from other financial institutions seeking to increase their share of financing Toyota, Scion and Lexus vehicles;
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| Fluctuations in interest rates and currency exchange rates;
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| Fluctuations in the value of our investment securities or market prices;
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| Changes or disruptions in our funding environment or access to the global capital markets;
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| Failure or changes in commercial soundness of our counterparties and other financial institutions;
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| Changes in our credit ratings and those of TMC;
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| Changes in the laws, regulatory requirements and regulatory scrutiny, including as a result of recent financial services legislation, and related costs;
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| Natural disasters, changes in fuel prices, manufacturing disruptions and production suspensions of Toyota, Lexus and Scion vehicle models and related parts supply;
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| Operational risks, including security breaches or cyber attacks;
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| Challenges related to the relocation of our corporate headquarters to Plano, Texas;
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| Revisions to the estimates and assumptions for our allowance for credit losses;
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| Changes in prices of used vehicles and their effect on residual values of our off-lease vehicles and return rates;
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| The failure of a customer or dealer to meet the terms of any contract with us, or otherwise fail to perform as agreed;
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| Recalls announced by TMS and the perceived quality of Toyota, Lexus and Scion vehicles; and
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·
| The other risks and uncertainties set forth in “Part I, Item 1A. Risk Factors”.
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Forward-looking statements speak only as of the date they are made. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.
OVERVIEW Key Performance Indicators and Factors Affecting Our Business In our finance operations, we generate revenue, income, and cash flows by providing retail, financing, leasing,lease, and dealer financing to vehicle and industrial equipment dealers and their customers. We measure the performance of our financing operations using the following metrics: financing volume, market share, financial leverage, financing margins, operating expense, residual value and credit loss metrics. In our insurance operations, we generate revenue through marketing, underwriting, and providing claims administration related to coveringfor products that cover certain risks of vehicle dealers and their customers. We measure the performance of our insurance operations using the following metrics: issued agreement volume, average number of agreements in force, loss metrics and investment income. Our financial results are affected by a variety of economic and industry factors including, but not limited to, new and used vehicle markets, Toyota Lexus and ScionLexus sales volume, new vehicle incentives, consumer behavior, employment levels, our ability to respond to changes in interest rates with respect to both contract pricing and funding, the actual or perceived quality, safety or reliability of Toyota Lexus and ScionLexus vehicles, the financial health of the dealers we finance, and competitive pressure. ChangesOur financial results may also be affected by the regulatory environment in which we operate, including compliance costs and the changes to our business practices required by the consent orders that we implemented in the second quarter of fiscal 2017 with respect to our discretionary dealer compensation practices. All of these factors can influence financingconsumer contract and lease contractdealer financing volume, the number of financingconsumer contracts and lease contractsdealers that default and the loss per occurrence, our inability to realize originally estimated contractual residual values on leased vehicles, the volume and performance of our insurance operations, and our gross margins on financingconsumer contract and leasingdealer financing volume. Changes in the volume of vehicle sales, vehicle dealers’ utilization of our insurance programs, or the level of coverage purchased by affiliates could materially and adversely impact our insurance operations. Additionally, our funding programs and related costs are influenced by changes in the global capital markets, prevailing interest rates, and our credit ratings and those of our parent companies, which may affect our ability to obtain cost effective funding to support earning asset growth.
Our primary competitors are other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, independent insurance service contract providers, finance companies and, to a lesser extent, other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail consumer contracts through Toyota and Lexus independent dealerships (“dealerships”).dealers. We strive to achieve the following: Exceptional Customer Service: Our relationship with Toyota and Lexus vehicle dealers and industrial equipment dealers and their customers offer us a competitive advantage. We seek to leverage this opportunity by providing exceptional service to the dealers and their customers. Through our DSSO network, we work closely with the dealershipsdealers to improve the quality of service we provide to them. We also focus on assisting the dealers with the quality of their customer service operations to enhance customer loyalty for the dealershipdealers and the Toyota Lexus and ScionLexus brands. By providing consistent and reliable support, training, and resources to our dealer network, we continue to develop and improve our dealer relationships. In addition to marketing programs targeted toward customer retention, we work closely with TMS TMHU, HINO and other third party distributors to offer special retail, lease, dealer financing, and insurance programs. We also focus on providing a positive customer experience to existing retail, lease, and insurance customers through our CSCs. Risk-Based Origination and Pricing: We price and structure our retail and lease contracts to compensate us for the credit risk we assume. The objective of this strategy is to maximize operating results and better match contract rates across a broad range of risk levels. To achieve this objective, we evaluate our existing portfolio for key opportunities to expand volume in targeted markets. We deliver timely strategic information to dealershipsthe dealers to assist them in benefiting from market opportunities. We continuously strive to refine our strategy and methodology for risk-based pricing.
Liquidity Strategy:Liquidity: Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in the event of adverse market conditions. This capacity is primarily arises from our credit ratings,driven by our ability to raise funds in the global capital markets and through loans, credit facilities, and other transactions, as well as our ability to generate liquidity from our balance sheet. Thisearnings assets. Our pursuit of this strategy has led us to develop a diversified borrowing base that is diversified by market and geographic distribution, investor type,distributed across a variety of markets, geographies, investors, and financing structure,structures, among other factors.
Fiscal 20152017 Operating Environment During fiscal 2015, economic growth2017, the U.S. economy experienced stability as the housing market remained strong and unemployment rates declined to pre-recession levels. Despite this stability, consumer debt levels continued to rise. As consumers assume higher debt levels, we could experience an increase in our delinquencies and credit losses. Industry-wide vehicle sales in the U.S. continued,remained relatively unchanged despite elevated sales incentives during fiscal 2017 as employment rates improved and home prices remained strong. In addition, sales of motor vehicles improved compared to fiscal 2014. While the2016. Vehicle sales by TMS decreased 3 percent in fiscal 2017 compared to fiscal 2016 due to lower consumer demand for Toyota and Lexus vehicles as compared to recent years. Financing volume decreased 5 percent and our overall U.S. economy has shown positive trendsmarket share decreased 3 percentage points for fiscal 2017 compared to fiscal 2016. The decreases in financing volume and market share are primarily due to a decline in demand for Toyota and Lexus vehicles and increased competition from financial institutions. Used vehicle values for Toyota and Lexus vehicles decreased during fiscal 2015, consumer debt levels rose as consumers experienced greater access2017 compared to credit. Conditionsfiscal 2016 due to an increase in the global capital markets were generally stable during mostsupply of fiscal 2015. However,used vehicles as a result of an increased industry-wide focus on leasing in recent years. Further declines in used vehicle values resulting from increases in the U.S. capital marketssupply of used vehicles, increases in new vehicle incentive programs and interest rate environment experienced periods of volatility duea larger lease portfolio resulting in higher future maturities could continue to uncertainty regarding future changesunfavorably impact return rates, residual values, depreciation expense and credit losses in U.S. monetary policy. Additionally, long term rates fell and oil prices fluctuated during that period. the future.
We continue to maintain broad global access to both domestic and international markets. Conditions in the global capital markets were generally stable during fiscal 2017. However, uncertainty regarding global economic growth and changing expectations of the future path of U.S. monetary policy led to intermittent periods of volatility. During fiscal 2017, our interest expense, including losses on our derivatives, increased as compared to fiscal 2016 as a result of increasing interest rates. Future changes in interest rates in the U.S. and foreign exchange ratesmarkets could result in further volatility in our interest expense, which could affect our results of operations. Industry-wide vehicle sales in the United States increased and sales incentives throughout the auto industry remained elevated during fiscal 2015 as compared to fiscal 2014. Vehicle sales by TMS increased 6 percent in fiscal 2015 compared to fiscal 2014. The increase in TMS sales was attributable to strong consumer demand for new vehicles. In addition, lease volume increased and retail volume decreased in fiscal 2015 due primarily to a higher focus by TMS on lease subvention. Despite the increase in TMS subvention, overall market share declined for fiscal 2015 due to increased competition for non-subvened contracts compared to the same period in fiscal 2014.
Used vehicle values fluctuated during fiscal 2015, but remained strong. However, it remains uncertain whether the used vehicle market will continue to be as strong as it has been in the past few years. Declines in used vehicle values and a higher proportion of lease volume as compared to retail volume could affect return rates, depreciation expense and credit losses.
RESULTS OF OPERATIONS | | | | | | | Years ended March 31, | | | Years Ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | 2017 | | | 2016 | | | 2015 | | Net income: | | | | | | | | | | | | | | | | | | | | | | | | | Finance operations1 | | $ | 1,038 | | | $ | 743 | | | $ | 1,183 | | | $ | 143 | | | $ | 797 | | | $ | 1,038 | | Insurance operations1 | | | 159 | | | | 114 | | | | 148 | | | | 124 | | | | 135 | | | | 159 | | Total net income | | $ | 1,197 | | | $ | 857 | | | $ | 1,331 | | | $ | 267 | | | $ | 932 | | | $ | 1,197 | |
1 | Refer to Note 16 – Segment Information of the Notes to Consolidated Financial Statement for the total asset balances of our finance and insurance operations. |
Fiscal 20152017 Compared to Fiscal 20142016 Our consolidated net income was $1,197$267 million in fiscal 2015,2017, compared to $857$932 million in fiscal 2014. Our consolidated2016. The decrease in net income forduring fiscal 2015 increased as compared to fiscal 20142017 was primarily due to an increase of $913 million in financing revenues and a decrease of $604 million in our interest expense primarily driven by gains on derivatives, as compared to losses in the prior year. This was partially offset by a $845$939 million increase in depreciation on operating leases, a $232$617 million increase in interest expense, a $141 million increase in the provision for credit losses and a $116 million increase in operating and administrative expenses. These decreases in net income were partially offset by a $643 million increase in total financing revenues primarily driven by an increase in operating lease revenues, a $438 million decrease in the provision for income taxes and a $138$220 million increase in realized gains, net on investments in marketable securities. Additionally, our results of operations for fiscal 2016 were higher due to a gain on the sale of our commercial finance business of $197 million. As discussed in our Form 10-K for fiscal 2016, we sold our commercial finance business on October 1, 2015. Our overall capital position increased $0.1 billion, bringing total shareholder’s equity to $9.5 billion at March 31, 2017, as compared to $9.4 billion at March 31, 2016. Our debt increased to $98.2 billion at March 31, 2017 from $93.6 billion at March 31, 2016 as a result of funding our earning asset growth. Our debt-to-equity ratio increased to 10.3 at March 31, 2017 from 10.0 at March 31, 2016. Fiscal 2016 Compared to Fiscal 2015 Our consolidated net income was $932 million in fiscal 2016, compared to $1,197 million in fiscal 2015. The decrease in net income during fiscal 2016 as compared to fiscal 2015 was primarily due to a $1,057 million increase in depreciation on operating leases, a $401 million increase in interest expense primarily driven by lower gains on derivatives, a $133 million increase in the provision for credit losses.losses and a $115 million increase in operating and administrative expenses. These decreases in net income were partially offset by a $1,093 million increase in total financing revenues primarily driven by an increase in operating lease revenues, a $197 million gain on the sale of our commercial finance business and a $149 million decrease in the provision for income taxes. Our overall capital position taking into account the payment of a $435 million dividend in September 2014 to our sole shareholder, Toyota Financial Services Americas Corporation (“TFSA”), increased by $782 million,$0.9 billion, bringing total shareholder’s equity to $9.4 billion at March 31, 2016, as compared to $8.5 billion at March 31, 2015, as compared2015. Our debt increased to $7.7$93.7 billion at March 31, 2014. Our debt increased to2016 from $90.2 billion at March 31, 2015 from $85.4 billion at March 31, 2014.2015. Our debt-to-equity ratio decreased to 10.0 at March 31, 2016 from 10.6 at March 31, 2015 from 11.0 at March 31, 2014.2015. Fiscal 2014 Compared to Fiscal 2013
Our consolidated net income was $857 million in fiscal 2014, compared to $1,331 million in fiscal 2013. Our consolidated net income for fiscal 2014 decreased as compared to fiscal 2013 primarily due to an increase of $444 million in depreciation on operating leases, an increase of $400 million in our interest expense driven by valuation losses on derivatives, an increase of $49 million in our provision for credit losses and a decline of $38 million in investment and other income, partially offset by an increase in total financing revenues of $153 million and a decline of $327 million in the provision for income taxes.
Our overall capital position, taking into account the payment of a $665 million dividend in September 2013 to TFSA, increased by $0.1 billion, bringing total shareholder’s equity to $7.7 billion at March 31, 2014, as compared to $7.6 billion at March 31, 2013. Our debt increased to $85.4 billion at March 31, 2014 from $78.8 billion at March 31, 2013. Our debt-to-equity ratio increased to 11.0 at March 31, 2014 from 10.4 at March 31, 2013.
Finance Operations The following table summarizes key results of our Finance Operations: | | Years ended March 31, | | | Percentage change | | | | | | | | | | | | | | | 2015 to | | 2014 to | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | 2014 | | 2013 | Financing revenues: | | | | | | | | | | | | | | | | | | | | | Operating lease | | $ | 6,113 | | | $ | 5,068 | | | $ | 4,748 | | | | 21 | % | | | 7 | % | Retail1 | | | 1,797 | | | | 1,897 | | | | 2,062 | | | | (5 | )% | | | (8 | )% | Dealer | | | 400 | | | | 406 | | | | 409 | | | | (1 | )% | | | (1 | )% | Total financing revenues | | | 8,310 | | | | 7,371 | | | | 7,219 | | | | 13 | % | | | 2 | % | | | | | | | | | | | | | | | | | | | | | | Investment and other income, net | | | 89 | | | | 98 | | | | 57 | | | | (9 | )% | | | 72 | % | Gross revenues from finance operations | | | 8,399 | | | | 7,469 | | | | 7,276 | | | | 12 | % | | | 3 | % | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 4,857 | | | | 4,012 | | | | 3,568 | | | | 21 | % | | | 12 | % | Interest expense | | | 736 | | | | 1,340 | | | | 940 | | | | (45 | )% | | | 43 | % | Provision for credit losses | | | 308 | | | | 170 | | | | 121 | | | | 81 | % | | | 40 | % | Operating and administrative expenses | | | 825 | | | | 767 | | | | 734 | | | | 8 | % | | | 4 | % | Provision for income taxes | | | 635 | | | | 437 | | | | 730 | | | | 45 | % | | | (40 | )% | Net income from finance operations | | $ | 1,038 | | | $ | 743 | | | $ | 1,183 | | | | 40 | % | | | (37 | )% |
1
| Includes direct finance lease revenues.
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| | | | | | | | | | | | | | | Years Ended March 31, | | | Percentage change | | | | | | | | | | | | | | | | | 2017 to | | | 2016 to | | | (Dollars in millions) | | 2017 | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | Financing revenues: | | | | | | | | | | | | | | | | | | | | | | Operating lease | | $ | 7,720 | | | $ | 7,141 | | | $ | 6,113 | | | | 8 | % | | | 17 | % | | Retail | | | 1,850 | | | | 1,859 | | | | 1,797 | | | | - | % | | | 3 | % | | Dealer | | | 476 | | | | 403 | | | | 400 | | | | 18 | % | | | 1 | % | | Total financing revenues | | | 10,046 | | | | 9,403 | | | | 8,310 | | | | 7 | % | | | 13 | % | | | | | | | | | | | | | | | | | | | | | | | | Investment and other income, net | | | 91 | | | | 59 | | | | 49 | | | | 54 | % | | | 20 | % | | Realized gains, net on investments in marketable securities | | | 241 | | | | 40 | | | | 40 | | | | 503 | % | | | - | % | | Gain on sale of commercial finance business | | | - | | | | 197 | | | | - | | | | (100 | )% | | | 100 | % | | Gross revenues from finance operations | | | 10,378 | | | | 9,699 | | | | 8,399 | | | | 7 | % | | | 15 | % | | | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 6,853 | | | | 5,914 | | | | 4,857 | | | | 16 | % | | | 22 | % | | Interest expense | | | 1,754 | | | | 1,137 | | | | 736 | | | | 54 | % | | | 54 | % | | Provision for credit losses | | | 582 | | | | 441 | | | | 308 | | | | 32 | % | | | 43 | % | | Operating and administrative expenses | | | 979 | | | | 909 | | | | 825 | | | | 8 | % | | | 10 | % | | Provision for income taxes | | | 67 | | | | 501 | | | | 635 | | | | (87 | )% | | | (21 | )% | | Net income from finance operations | | $ | 143 | | | $ | 797 | | | $ | 1,038 | | | | (82 | )% | | | (23 | )% | |
Our finance operations reported net income of $1,038$143 million and $743$797 million during fiscal 20152017 and 2014,2016, respectively. Finance operations results for fiscal 2015 increased as2017 decreased compared to fiscal 20142016, primarily due to an increase ofa $939 million in total financing revenues driven primarily by higher investments in operating leases and a decrease of $604 million in interest expense, partially offset by increases of $845 millionincrease in depreciation on operating leases, $198a $617 million increase in interest expense, a $141 million increase in the provision for credit losses and a $70 million increase in operating and administrative expenses. These decreases in net income were partially offset by a $643 million increase in total financing revenues primarily driven by an increase in operating lease revenues, a $434 million decrease in provision for income taxes and $138a $201 million increase in provisionrealized gains, net on investments in marketable securities. Additionally, our finance operations results for credit losses.fiscal 2016 included a gain on the sale of our commercial finance business of $197 million. Financing Revenues Total financing revenues increased 137 percent during fiscal 20152017 compared to fiscal 20142016 due to the following combination of factors:following: ·
| Operating lease revenues increased 21 percent in fiscal 2015 as compared to fiscal 2014, primarily due to higher average outstanding earning asset balances resulting from a higher focus by TMS on lease subvention in fiscal 2015 as compared to fiscal 2014, partially offset by lower portfolio yields.
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Operating lease revenues increased 8 percent in fiscal 2017 as compared to fiscal 2016, primarily due to higher average outstanding earning asset balances, partially offset by lower portfolio yields. ·
| Retail contract revenues decreased 5 percent in fiscal 2015 as compared to fiscal 2014, primarily due to a decrease in our average portfolio yields, partially offset by higher average outstanding earning asset balances.
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Retail financing revenues remained relatively unchanged in fiscal 2017 as compared to fiscal 2016 as earning assets and portfolio yields remained consistent. ·
| Dealer financing revenues decreased 1 percent in fiscal 2015 as compared to fiscal 2014, primarily due to a decrease in our portfolio yields, partially offset by higher average outstanding earning asset balances.
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Dealer financing revenues increased 18 percent in fiscal 2017 as compared to fiscal 2016, primarily due to an increase in our portfolio yields and higher average outstanding earning asset balances. Our total portfolio yield, which includes operating lease, retail and dealer financing had a yield of 3.7revenues, remained consistent at 3.5 percent duringfor both fiscal 2015 compared to 3.9 percent in fiscal 2014, due to decreases in our retail, operating lease2017 and dealer portfolio yields. Lower yields were the result of higher yielding earning assets being replaced by lower yielding earning assets during fiscal 2015.2016.
Depreciation on Operating Leases Depreciation on operating leases increased 2116 percent during fiscal 20152017 as compared to fiscal 2014.2016. The increase in depreciation during fiscal 2017 as compared to fiscal 2016 was primarily attributable to an increase in average operating lease units outstanding during fiscal 2015 as compared to fiscal 2014.well as deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles.
Interest Expense Our liabilities consist mainly of fixed and floating rate debt, denominated in U.S. dollars and various other currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps, interest rate floors, interest rate caps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. The following table summarizes the consolidated components of interest expense: | | | | | | | Years ended March 31, | | | Years Ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | 2017 | | | 2016 | | | 2015 | | Interest expense on debt | | $ | 1,213 | | | $ | 1,262 | | | $ | 1,330 | | | $ | 1,570 | | | $ | 1,308 | | | $ | 1,213 | | Interest income on derivatives | | | (67 | ) | | | (77 | ) | | | (2 | ) | | | (18 | ) | | | (7 | ) | | | (67 | ) | Interest expense on debt and derivatives | | | 1,146 | | | | 1,185 | | | | 1,328 | | | | 1,552 | | | | 1,301 | | | | 1,146 | | | | | | | | | | | | | | | | | | | | | | | | | | | Ineffectiveness related to hedge accounting derivatives | | | (1 | ) | | | (3 | ) | | | (10 | ) | | | - | | | | (2 | ) | | | (1 | ) | Gain on non-hedge accounting foreign currency transactions | | | (2,375 | ) | | | (45 | ) | | | (430 | ) | | Loss on non-hedge accounting foreign currency swaps | | | 2,248 | | | | 185 | | | | 431 | | | (Gain) loss on non-hedge accounting interest rate swaps | | | (282 | ) | | | 18 | | | | (379 | ) | | (Gain) loss on non-hedge accounting debt denominated in foreign currencies | | | | (652 | ) | | | 503 | | | | (2,375 | ) | Loss (gain) on non-hedge accounting foreign currency swaps | | | | 880 | | | | (573 | ) | | | 2,248 | | Gain on U.S. dollar non-hedge accounting interest rate swaps | | | | (26 | ) | | | (92 | ) | | | (282 | ) | Total interest expense | | $ | 736 | | | $ | 1,340 | | | $ | 940 | | | $ | 1,754 | | | $ | 1,137 | | | $ | 736 | |
During fiscal 2015,2017, total interest expense decreasedincreased to $736$1,754 million from $1,340$1,137 million during fiscal 2014.2016. The decreaseincrease in total interest expense can befor fiscal 2017 as compared to fiscal 2016 is primarily attributed to higher losses on non-hedge accounting debt denominated in foreign currencies net of non-hedge accounting foreign currency swaps and an increase in interest expense on debt. In addition, gains on ourU.S. dollar non-hedge accounting interest rate swaps resulting from a decreasewere lower in longer term U.S. dollar swap rates during 2015. Additionally, we experienced gains on non-hedge accounting foreign currency transactions, net of losses on the non-hedge accounting foreign currency swaps. These net gains resulted from a decrease in foreign currency swap rates. Conversely, during fiscal 2014, increases in longer term U.S. dollar and foreign currency swap rates resulted in losses on non-hedge accounting interest rate swaps and foreign currency swaps, net of the associated foreign currency transactions.2017 as compared to fiscal 2016. Interest expense on debt primarily represents contractual net interest settlements and changes in accruals on secured and unsecured notes and loans payable and commercial paper, and includes amortization of discount and premium,discounts, premiums, debt issuance costs, and basis adjustments. Interest expense on debt decreasedincreased to $1,213$1,570 million duringin fiscal 20152017 from $1,262$1,308 million duringin fiscal 2014 as a result of lower2016 primarily due to higher weighted average interest rates on our unsecuredcommercial paper and secured notes and loans payable, partially offset by higher debt balances.payable. Interest expenseincome on derivatives represents contractual net interest settlements and changes in accruals on both hedge and non-hedge accounting interest rate and foreign currency derivatives. During fiscal 2015,2017, we recorded net interest income on derivatives of $67$18 million compared to net interest income of $77$7 million during fiscal 2014.2016.
Gain or loss on non-hedge accounting debt denominated in foreign currency transactionscurrencies represents the revaluationimpact of foreign currency denominated debt transactions for which hedge accounting has not been elected.translation adjustments. We use non-hedge accounting foreign currency swaps to economically hedge thesethe debt denominated in foreign currency transactions.currencies. During fiscal 2015, the2017, we recorded a net gainsloss of $127$228 million on our debt denominated in foreign currency transactions,currencies, net of foreign currency swaps, as compared to a net gain of $70 million in fiscal 2016. The loss in fiscal 2017 resulted primarily from an increase in most foreign currency swap rates in which our debt is denominated, while the gain in fiscal 2016 resulted primarily from a decrease in most foreign currency swap rates. During fiscal 2014, we recorded losses of $140 millionrates in which our debt is denominated. Gain or loss on foreign currency transactions, net of foreign currency swaps, resulting from an increase in foreign currency swap rates. We recorded a gain of $282 million onU.S. dollar non-hedge accounting interest rate swaps duringrepresents the change in the valuation of interest rate swaps. During fiscal 20152017, we recorded gains of $26 million primarily as a result of a decreasean increase in longer term U.S. dollar swap rates which had a favorable impactacross all tenors, with the gains on our pay floathigher notional, shorter-term pay-fixed swaps exceeding the losses on our longer-term pay-float swaps. We recorded losses of $18 million on non-hedge accounting interest rate swaps duringDuring fiscal 2014 as a result of increases in2016, U.S. dollar swap rates. rates increased in the short tenors and decreased in longer tenors, which resulted in gains of $92 million.
Future changes in interest and foreign currency exchange rates could continue to result in significant volatility in our interest expense, thereby affecting our results of operations.
Provision for Credit Losses We recorded a provision for credit losses of $308$582 million for fiscal 2015,2017, compared to $170$441 million for fiscal 2014.2016. The increase in the provision for credit losses for fiscal 20152017 was due to higher default frequency and loss severity, and default frequency,overall portfolio growth, and provision associated with additional impairmentwhich was partially offset by a reduction in the dealer products portfolio comparedspecific reserves for certain impaired dealers due to the same periodsimprovement in fiscal 2014.their financial performance. Operating and Administrative Expenses Operating and administrative expenses increased 8 percent during fiscal 20152017 compared to fiscal 20142016 primarily reflecting an increaseincreases in salariesgeneral operating expenses and IT spending, as well as general business growth. During fiscal 2015, we incurred certaininformation technology expenditures including the continued development of future enhancements to our core servicing program. We continue to incur expenses associated with the planned relocation of our headquarters to Plano, Texas. To date, suchTexas including deferred compensation, employee relocation and other relocation expenses. We expect to incur additional expenses have not been significant. Costs incurred as a result of this planned relocation will be expensed as incurred over the next several years. We do not currently expect these amountsfew years relating to be significant.our planned relocation.
Insurance Operations The following table summarizes key results of our Insurance Operations: | | Years ended March 31, | | | Percentage change | | | | | | | | | | | | | | | | 2015 to | | | 2014 to | | (Dollars in millions) | | 2015 | | | 2014 1 | | | 2013 1 | | | 2014 | | | 2013 | | Agreements (units in thousands) | | | | | | | | | | | | | | | | | | | | | Issued | | | 1,940 | | | | 1,696 | | | | 1,451 | | | | 14 | % | | | 17 | % | Average in force | | | 5,859 | | | | 5,527 | | | | 5,570 | | | | 6 | % | | | (1 | )% | | | | | | | | | | | | | | | | | | | | | | Insurance earned premiums and contract revenues | | $ | 638 | | | $ | 593 | | | $ | 596 | | | | 8 | % | | | (1 | )% | Investment and other income, net | | | 105 | | | | 37 | | | | 116 | | | | 184 | % | | | (68 | )% | Revenues from insurance operations | | | 743 | | | | 630 | | | | 712 | | | | 18 | % | | | (12 | )% | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | | | | Insurance losses and loss adjustment expenses | | | 269 | | | | 258 | | | | 293 | | | | 4 | % | | | (12 | )% | Operating and administrative expenses | | | 221 | | | | 198 | | | | 177 | | | | 12 | % | | | 12 | % | Provision for income taxes | | | 94 | | | | 60 | | | | 94 | | | | 57 | % | | | (36 | )% | Net income from insurance operations | | $ | 159 | | | $ | 114 | | | $ | 148 | | | | 39 | % | | | (23 | )% |
1 Certain prior year amounts have been reclassified to conform to the current year presentation
| | | | | | | | | | | | | | | Years Ended March 31, | | | Percentage change | | | | | 2017 | | | 2016 | | | 2015 | | | 2017 to 2016 | | | 2016 to 2015 | | | Agreements (units in thousands) | | | | | | | | | | | | | | | | | | | | | | Issued | | | 2,415 | | | | 2,215 | | | | 1,940 | | | | 9 | % | | | 14 | % | | Average in force | | | 7,362 | | | | 6,464 | | | | 5,859 | | | | 14 | % | | | 10 | % | | | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | Insurance earned premiums and contract revenues | | $ | 804 | | | $ | 719 | | | $ | 638 | | | | 12 | % | | | 13 | % | | Investment and other income, net | | | 79 | | | | 99 | | | | 75 | | | | (20 | )% | | | 32 | % | | Realized (losses) gains, net on investments in marketable securities | | | (15 | ) | | | (34 | ) | | | 30 | | | | (56 | )% | | | (213 | )% | | Revenues from insurance operations | | | 868 | | | | 784 | | | | 743 | | | | 11 | % | | | 6 | % | | | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | | | | | Insurance losses and loss adjustment expenses | | | 371 | | | | 318 | | | | 269 | | | | 17 | % | | | 18 | % | | Operating and administrative expenses | | | 298 | | | | 252 | | | | 221 | | | | 18 | % | | | 14 | % | | Provision for income taxes | | | 75 | | | | 79 | | | | 94 | | | | (5 | )% | | | (16 | )% | | Net income from insurance operations | | $ | 124 | | | $ | 135 | | | $ | 159 | | | | (8 | )% | | | (15 | )% | |
Our insurance operations reported net income of $159$124 million for fiscal 20152017 compared to $114$135 million for fiscal 2014.2016. The increasedecrease in net income for fiscal 20152017 compared to fiscal 20142016 was attributableprimarily due to a $68$53 million increase in insurance losses and loss adjustment expenses, a $46 million increase in operating and administrative expenses, and a $20 million decrease in investment and other income, and a $45net. These decreases in net income were partially offset by an $85 million increase in insurance earned premiums and contract revenues partially offset byand a $34$19 million increasedecrease in provision for income taxes, a $23 million increaserealized losses, net on investments in operating and administrative expenses and an $11 million increase in insurance losses and loss adjustment expenses.marketable securities. Agreements issued increased by9 percent during fiscal 2017 compared to fiscal 2016. The average number of in force agreements increased 14 percent during fiscal 20152017 compared to fiscal 2014.2016. The increase wasincreases in the issued and the average in force agreements were primarily due to fiscal 2015 being the first full yearincreased sales of activity for ourprepaid maintenance agreements, certified pre-owned warranties and tire and wheel product, as well as an overall increase in TMS vehicle sales and improved sales effectiveness. The average number of agreements in force increased by 6 percent during fiscal 2015 compared to fiscal 2014 due to an increase in agreements issued relative to the number of agreements that have expired in the same period.protection agreements. Revenue from Insurance Operations Our insurance operations reported insurance earned premiums and contract revenues of $638$804 million for fiscal 20152017 compared to $593$719 million for fiscal 2014.2016. Insurance earned premiums and contract revenues represent revenues from agreements in force agreements, and are affected by sales volume as well as the level, age, and mix of agreements in force. Our insuranceforce agreements. Insurance earned premiums and contract revenues increased forare recognized over the term of the agreements in relation to the timing and level of anticipated claims and administrative expenses. The increase in fiscal 20152017 compared to fiscal 2014 in correlation with the2016 was due to an increase in the average number of agreements in force during the period.agreements.
Our insurance operations reported investment and other income, net of $105$79 million for fiscal 2015,2017, compared to $37$99 million for fiscal 2014.2016. Investment and other income, net consists primarily of dividend and interest income. The decrease in investment and other income, realized gains and losses and other-than-temporary impairments on available-for-sale securities, if any. Innet in fiscal 2015, we had an insignificant amount of other-than-temporary impairments on available-for-sale securities2017 as compared to $55 million of other-than-temporary impairmentsfiscal 2016 was primarily due to a decrease in fiscal 2014. The impairments recognized in fiscal 2014 resulted primarilydividends received from interest rate volatility. We also had an increase in net realized gains during fiscal 2015 primarily arising from the sale of a portion of our fixed income mutual funds. Our insurance operations reported realized losses, net on investments in marketable securities of $15 million for fiscal 2017, compared to losses of $34 million for fiscal 2016. The decrease in other-than-temporary impairments and increaserealized losses, net on investments in net realized gains duringmarketable securities for fiscal 2015 were partially offset by a decrease in dividend income2017 compared to fiscal 2016 was primarily due to overall lower yields and the sale ofdecreases in other-than-temporary impairment on our fixed income mutual funds mentioned above. funds.
Insurance Losses and Loss Adjustment Expenses Our insurance operations reported insurance losses and loss adjustment expenses of $269$371 million for fiscal 2015,2017, compared to $258$318 million for fiscal 2014.2016. Insurance losses and loss adjustment expenses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with the agreements in force agreements and the level of risk retained by our insurance operations. Insurance losses and loss adjustment expenses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses. The increase in insurance losses and loss adjustment expenses for fiscal 20152017 as compared to fiscal 20142016 was primarily due to an increase in losses onour prepaid maintenance contracts as a result ofand guaranteed auto protection losses. The increase in our prepaid maintenance losses in fiscal 2017 was due to an increase in the average number of prepaid maintenance contracts in force. This increase was partially offset by a decrease in losses on our vehicle service agreements and certified pre-owned vehicle programclaims as a result of a continued focus on loss mitigation.higher number of average in force agreements, as well as an increase in the severity of prepaid maintenance claims. The increase in our guaranteed auto protection losses in fiscal 2017 was driven by an increase in both the frequency and severity of claims. Operating and Administrative Expenses Our insurance operations reported operating and administrative expenses of $221$298 million for fiscal 2015,2017, compared to $198$252 million for fiscal 2014. The increase was attributable to higher product expenses, insurance dealer back-end program expenses and general operating expenses.2016. Insurance dealer back-end program expenses are incentives or expense reduction programs we provideoffer to dealers based on certain performance criteria. The increase in operating and administrative expenses in fiscal 2017 as compared to fiscal 2016 was attributable to higher insurance dealer back-end program expenses and product expenses driven by the continued growth of our insurance business. Provision for Income Taxes Our overall provision for income taxes for fiscal 20152017 was $729$142 million compared to $497$580 million for fiscal 2014.2016. Our effective tax rate was 37.934.7 percent and 36.738.4 percent for fiscal 20152017 and fiscal 2014,2016, respectively. The changedecrease in our provision for income taxes is consistent with the change in our income before taxeseffective tax rate for fiscal 20152017 compared to fiscal 2014.2016 is due to lower pretax income and an increase in benefits from federal plug-in, electric vehicle and fuel cell credits.
FINANCIAL CONDITION Vehicle Financing Volume and Net Earning Assets The composition of our vehicle contract volume and market share is summarized below: | | Years ended March 31, | | | Percentage change | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015 to | | | 2014 to | | | Years Ended March 31, | | | Percentage change | | | (units in thousands): | | 2015 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2017 | | | 2016 | | | 2015 | | | 2017 to 2016 | | | 2016 to 2015 | | | TMS new sales volume1 | | | 1,845 | | | | 1,735 | | | | 1,625 | | | | 6 | % | | | 7 | % | | | 1,839 | | | | 1,888 | | | | 1,845 | | | | (3 | )% | | | 2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vehicle financing volume:2 | | | | | | | | | | | | | | | | | | | | | | Vehicle financing volume2 | | | | | | | | | | | | | | | | | | | | | | | New retail contracts | | | 675 | | | | 700 | | | | 703 | | | | (4 | )% | | | - | % | | | 614 | | | | 628 | | | | 675 | | | | (2 | )% | | | (7 | )% | | Used retail contracts | | | 278 | | | | 302 | | | | 290 | | | | (8 | )% | | | 4 | % | | | 291 | | | | 288 | | | | 278 | | | | 1 | % | | | 4 | % | | Lease contracts | | | 533 | | | | 451 | | | | 333 | | | | 18 | % | | | 35 | % | | | 557 | | | | 622 | | | | 533 | | | | (10 | )% | | | 17 | % | | Total | | | 1,486 | | | | 1,453 | | | | 1,326 | | | | 2 | % | | | 10 | % | | | 1,462 | | | | 1,538 | | | | 1,486 | | | | (5 | )% | | | 3 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TMS subvened vehicle financing volume (units included in the above table): | TMS subvened vehicle financing volume (units included in the above table): | | TMS subvened vehicle financing volume (units included in the above table): | | | New retail contracts | | | 439 | | | | 414 | | | | 398 | | | | 6 | % | | | 4 | % | | | 380 | | | | 367 | | | | 439 | | | | 4 | % | | | (16 | )% | | Used retail contracts | | | 60 | | | | 82 | | | | 88 | | | | (27 | )% | | | (7 | )% | | | 84 | | | | 52 | | | | 60 | | | | 62 | % | | | (13 | )% | | Lease contracts | | | 484 | | | | 414 | | | | 272 | | | | 17 | % | | | 52 | % | | | 482 | | | | 541 | | | | 484 | | | | (11 | )% | | | 12 | % | | Total | | | 983 | | | | 910 | | | | 758 | | | | 8 | % | | | 20 | % | | | 946 | | | | 960 | | | | 983 | | | | (1 | )% | | | (2 | )% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TMS subvened vehicle financing volume as a percent of vehicle financing volume: | TMS subvened vehicle financing volume as a percent of vehicle financing volume: | | TMS subvened vehicle financing volume as a percent of vehicle financing volume: | | | New retail contracts | | | 65.0 | % | | | 59.1 | % | | | 56.6 | % | | | | | | | | | | | 61.9 | % | | | 58.4 | % | | | 65.0 | % | | | | | | | | | | Used retail contracts | | | 21.6 | % | | | 27.2 | % | | | 30.3 | % | | | | | | | | | | | 28.9 | % | | | 18.1 | % | | | 21.6 | % | | | | | | | | | | Lease contracts | | | 90.8 | % | | | 91.8 | % | | | 81.7 | % | | | | | | | | | | | 86.5 | % | | | 87.0 | % | | | 90.8 | % | | | | | | | | | | Overall subvened contracts | | | 66.2 | % | | | 62.6 | % | | | 57.2 | % | | | | | | | | | | | 64.7 | % | | | 62.4 | % | | | 66.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Market share:3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail contracts | | | 36.5 | % | | | 40.3 | % | | | 43.2 | % | | | | | | | | | | | 33.3 | % | | | 33.1 | % | | | 36.5 | % | | | | | | | | | | Lease contracts | | | 28.8 | % | | | 25.9 | % | | | 20.4 | % | | | | | | | | | | | 29.6 | % | | | 32.4 | % | | | 28.8 | % | | | | | | | | | | Total | | | 65.3 | % | | | 66.2 | % | | | 63.6 | % | | | | | | | | | | | 62.9 | % | | | 65.5 | % | | | 65.3 | % | | | | | | | | | |
1 | Represents total domestic TMS sales of new Toyota Lexus and ScionLexus vehicles excluding sales under dealer rental car and commercial fleet programs and sales of a private Toyota distributor. TMS new sales volume is comprised of approximately 84 percent Toyota and 16 percent Lexus for fiscal 2017. TMS new sales volume is comprised of approximately 83 percent Toyota and Scion and 17 percent Lexus vehicles for fiscal 2015, and 85 percent Toyota and Scion and 15 percent Lexus vehicles for both fiscal 20142016 and 2013.fiscal 2015. |
2 | Total financing volume is comprised of approximately 79 percent Toyota, and Scion, 18 percent Lexus, and 3 percent non-Toyota/Lexus for each of fiscal 2015, 80 percent Toyota2017, fiscal 2016 and Scion, 17 percent Lexus and 3 percent non-Toyota/Lexus for fiscal 2014 and 82 percent Toyota and Scion, 15 percent Lexus and 3 percent non-Toyota/Lexus for fiscal 2013.2015. |
3 | Represents the percentage of total domestic TMS sales of new Toyota Lexus and ScionLexus vehicles financed by us, excluding sales under dealer rental car and commercial fleet programs and sales of a private Toyota distributor. |
Vehicle Financing Volume The volume of our retail and lease contracts, which are acquired primarily from Toyota and Lexus vehicle dealers, is substantially dependent upon TMS new sales volume and subvention.volume. Vehicle sales by TMS increased 6decreased 3 percent for fiscal 20152017 compared to fiscal 2014 driven by higher consumer demand. 2016, primarily due to a decrease in demand for Toyota and Lexus vehicles as compared to recent years. Our financing volume increased 2decreased 5 percent and our overall market share decreased by 13 percent in fiscal 20152017 compared to fiscal 2014.2016. The increasedecreases in financing volume was drivenand market share are primarily by growth in TMS sales resulting from increased consumer demand and an increase in subvention. Lease volume increased and retail volume decreased in fiscal 2015 due primarily to a higher focus by TMS on lease subvention. Despite the increasedecline in TMS subvention, overall market share declineddemand for fiscal 2015 due toToyota and Lexus vehicles and increased competition for non-subvened contracts compared to the same period in fiscal 2014.from financial institutions. In addition to increased lease volume, there was a higher proportion of 24 month leases in fiscal 2015 as compared to fiscal 2014. The majority of our lease terms are 36 and 24 months, which represent 68 percent and 23 percent, respectively, of our lease originations for fiscal 2015 compared to 78 percent and 14 percent, respectively, for the same period in fiscal 2014.
The composition of our net earning assets is summarized below: | | As of March 31, | | | Percentage change | | | | | | | | | | | | | | | | | 2015 to | | 2014 to | (Dollars in millions) | | 2015 | | | 2014 | | | | | 2013 | | | 2014 | | 2013 | Net Earning Assets | | | | | | | | | | | | | | | | | | | | | | | Finance receivables, net | | | | | | | | | | | | | | | | | | | | | | | Retail finance receivables, net1 | | $ | 50,257 | | | $ | 49,340 | | | | | $ | 47,679 | | | | 2 | % | | | 3 | % | Dealer financing, net2 | | | 15,636 | | | | 15,836 | | | | | | 14,888 | | | | (1 | )% | | | 6 | % | Total finance receivables, net | | | 65,893 | | | | 65,176 | | | | | | 62,567 | | | | 1 | % | | | 4 | % | Investments in operating leases, net | | | 31,128 | | | | 24,769 | | | | | | 20,384 | | | | 26 | % | | | 22 | % | Net earning assets | | $ | 97,021 | | | $ | 89,945 | | | | | $ | 82,951 | | | | 8 | % | | | 8 | % | | | | | | | | | | | | | | | | | | | | | | | | Retail Financing (average original contract term in months) | | | | | | | | | | | | | | | | | | | | | | | Lease contracts3 | | | 36 | | | | 37 | | | | | | 38 | | | | | | | | | | Retail contracts4 | | | 63 | | | | 63 | | | | | | 63 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dealer Financing (Number of dealers serviced) | | | | | | | | | | | | | | | | | | | | | | | Toyota and Lexus dealers2 | | | 999 | | | | 1,001 | | | | | | 996 | | | | - | % | | | 1 | % | Vehicle dealers outside of the Toyota/Lexus dealer network | | | 456 | | | | 482 | | | | | | 480 | | | | (5 | )% | | | - | % | Industrial equipment dealers | | | 140 | | | | 137 | | | | | | 140 | | | | 2 | % | | | (2 | )% | Total number of dealers receiving wholesale financing | | | 1,595 | | | | 1,620 | | | | | | 1,616 | | | | (2 | )% | | | - | % | Dealer inventory outstanding (units in thousands) | | | 301 | | | | 327 | | | | | | 300 | | | | (8 | )% | | | 9 | % |
| | Years Ended March 31, | | | Percentage change | | | (Dollars in millions) | | 2017 | | | 2016 | | | 2015 | | | 2017 to 2016 | | | 2016 to 2015 | | | Net Earning Assets | | | | | | | | | | | | | | | | | | | | | | Finance receivables, net | | | | | | | | | | | | | | | | | | | | | | Retail finance receivables, net | | $ | 50,686 | | | $ | 49,870 | | | $ | 50,257 | | | | 2 | % | | | (1 | )% | | Dealer financing, net1 | | | 17,776 | | | | 15,766 | | | | 15,636 | | | | 13 | % | | | 1 | % | | Total finance receivables, net | | | 68,462 | | | | 65,636 | | | | 65,893 | | | | 4 | % | | | - | % | | Investments in operating leases, net | | | 38,152 | | | | 36,488 | | | | 31,128 | | | | 5 | % | | | 17 | % | | Net earning assets | | $ | 106,614 | | | $ | 102,124 | | | $ | 97,021 | | | | 4 | % | | | 5 | % | | | | | | | | | | | | | | | | | | | | | | | | Average original contract term in months | | | | | | | | | | | | | | | | | | | | | | Lease contracts2 | | | 37 | | | | 36 | | | | 36 | | | | | | | | | | | Retail contracts3 | | | 64 | | | | 63 | | | | 63 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dealer Financing | | | | | | | | | | | | | | | | | | | | | | (Number of dealers serviced) | | | | | | | | | | | | | | | | | | | | | | Toyota and Lexus dealers1 | | | 993 | | | | 998 | | | | 999 | | | | (1 | )% | | | - | % | | Dealers outside of the Toyota/Lexus dealer network | | | 371 | | | | 398 | | | | 456 | | | | (7 | )% | | | (13 | )% | | Industrial equipment dealers4 | | | - | | | | - | | | | 140 | | | | - | % | | | (100 | )% | | Total number of dealers receiving wholesale financing | | | 1,364 | | | | 1,396 | | | | 1,595 | | | | (2 | )% | | | (12 | )% | | | | | | | | | | | | | | | | | | | | | | | | Dealer inventory outstanding (units in thousands) | | | 340 | | | | 291 | | | | 301 | | | | 17 | % | | | (3 | )% | |
1 | Includes direct finance leases.
|
2
| Includes wholesale and other credit arrangements in which we participate as part of a syndicate of lenders. |
32
| Lease contract terms range from 24 months to 60 months. |
43
| Retail contract terms range from 24 months to 85 months. |
4 | The commercial finance business was sold on October 1, 2015. |
Retail Contract Volume and Earning Assets Our new and used retail contract volume decreased 42 percent and 8 percent, respectively, during fiscal 20152017 compared to fiscal 2014 primarily2016 due to the higher focus by TMS on lease subvention duringa decline in demand for Toyota and Lexus vehicles. Despite a decrease in new retail contract volume, our retail market share remained relatively consistent for fiscal 2015. Despite the2017 compared to fiscal 2016 due to a 4 percent increase in TMSretail subvention overall market share declined for fiscal 2015 due towhich was largely offset by increased competition for non-subvened contracts compared to the same period in fiscal 2014.from financial institutions. Our retail finance receivables, net increased 2 percent during fiscal 2015at March 31, 2017 as compared to 2014, due to higherMarch 31, 2016 as a result of an increase in the average amountsamount financed.
Lease Contract Volume and Earning Assets Our vehicle lease contract volume decreased 10 percent and our lease market share decreased approximately 3 percentage points during fiscal 2015 increased 18 percent2017 as compared to fiscal 2014.2016. Much of the increasedecrease in both lease financing volume and market share during fiscal 20152017 was attributable to an increasea decline in TMS salesthe volume of subvened lease contracts. Despite the decrease in lease financing volume and a higher focus by TMS on lease subvention, resulting in a 26 percent increase inmarket share, our investments in operating leases, net, increased 5 percent at March 31, 20152017 as compared to March 31, 2014.2016 due to lease portfolio growth in recent years. Dealer Financing and Earning Assets Dealer financing, net decreased 1at March 31, 2017, increased 13 percent from March 31, 2014,2016, due primarily due to a 2 percent declineincreases in the total number of dealers receiving wholesale financing from March 31, 2014.dealer inventory outstanding and an increase in working capital loans.
Residual Value Risk We are exposed to risk of loss on the disposition of leased vehicles and industrial equipment to the extent that sales proceeds realized upon the sale of returned lease assets are not sufficient to cover the residual value that was estimated at lease inception. Substantially all of our residual value risk relates to our vehicle lease portfolio. To date, we have not incurred material residual value losses related to our industrial equipment portfolios. Factors Affecting Exposure to Residual Value Risk Residual value represents an estimate of the end-of-term market value of a leased asset.vehicle. The primary factors affecting our exposure to residual value risk are the levels at which residual values are established at lease inception, current economic conditions and outlook, projected end-of-term market values, and the resulting impact on vehicledepreciation expense and lease return rates and loss severity.rates. The evaluation of these factors involves significant assumptions, complex analyses, and management judgment. Refer to “Critical Accounting Estimates” for further discussion of the estimates involved in the determination of residual values. Residual Values at Lease Inception Residual values of lease earning assetsvehicles are estimated at lease inception by examining external industry data, the anticipated Toyota Lexus and ScionLexus product pipeline and our own experience. Factors considered in this evaluation include, but are not limited to, local, regional and national economic forecasts, historical portfolio trends, new vehicle pricing, new vehicle incentive programs, new vehicle sales, future plans for new Toyota Lexus and ScionLexus product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix and level of used vehicle supply, the level of current used vehicle values, the actual or perceived quality, safety or reliability of Toyota Lexus and ScionLexus vehicles, buying and leasing behavior trends, and fuel prices. We use various channels to sell vehicles returned at lease end.lease-end. Refer to “Part 1, Item 1. “BusinessBusiness – Finance Operations – Retail and Lease Financing – Remarketing” for additional information on remarketing. End-of-term Market Values On a quarterly basis, we review the estimated end-of-term market values of leased vehicles to assess the appropriateness of our carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. Factors affecting the estimated end of termend-of-term market value are similar to those considered in the evaluation of residual values at lease inception discussed above. These factors are evaluated in the context of their historical trends to anticipate potential changes in the relationship among these factors in the future. For investments in operating leases, adjustments are made on a straight-line basis over the remaining terms of the lease contracts and are included in depreciationDepreciation on operating leases in theour Consolidated StatementStatements of Income as a change in accounting estimate. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included in our retail revenues in the Consolidated Statement of Income.
Vehicle Lease Return Rate
The vehicle lease return rate represents the number of leased vehicles returned to us for sale as a percentage of lease contracts that were originally scheduled to mature in the same period less certain qualified early terminations. When the market value of a leased vehicle at contract maturity is less than its contractual residual value (i.e., the price at which the lease customer may purchase the leased vehicle), there is a higher probability that the vehicle will be returned to us. In addition, a higher market supply of certain models of used vehicles generally results in a lower relative level of demand for those vehicles, resulting in a higher probability that the vehicle will be returned to us. A higher rate of vehicle returns exposes us to greater residual value risk of losswhich will impact depreciation expense at lease termination. Loss Severity
Loss severity is the extent to which the end-of-term market value realized at sale/disposition of a leased vehicle is less than the estimated residual value established at lease inception. Overall loss severity is driven by used vehicle price levels as well as vehicle return rates.
Impairment of Operating Leases We reviewevaluate our investment in operating leases portfolio for potential impairment whenever events or changes in circumstances indicate that the carrying value of the operating leases may not be recoverable. If such events or changes in circumstances are present,when we determine a triggering event has occurred. When a triggering event has occurred, we perform a test of recoverability by comparing the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms to the carrying value of the asset group. If the test of recoverability identifies a possible impairment, the asset group’s fair value is measured in accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value and iswould be recorded in the current periodour Consolidated StatementStatements of Income. As of March 31, 2015,2017 and 2016, and during the years then ended, there was no indication of impairment in our investment in operating leaseleases portfolio. Disposition of Off-Lease Vehicles The following table summarizes our vehicle sales at lease termination and our scheduled maturities related to our leased vehiclelease portfolio by period: | | Years ended March 31, | | | Percentage Change | | | Years ended March 31, | | | Percentage Change | | | | | | | | | | | | | | | | 2015 to | | 2014 to | | | | | | | | | | | | | | 2017 to | | | 2016 to | | (Units in thousands) | | 2015 | | | 2014 | | | 2013 | | | 2014 | | 2013 | | 2017 | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | Scheduled maturities | | | 266 | | | | 345 | | | | 282 | | | | (23 | )% | | | 22 | % | | | 508 | | | | 377 | | | | 266 | | | | 35 | % | | | 42 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vehicles sold through: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dealer Direct program | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grounding dealer | | | 30 | | | | 47 | | | | 21 | | | | (36 | )% | | | 124 | % | | | 96 | | | | 46 | | | | 30 | | | | 109 | % | | | 53 | % | Dealer Direct online program | | | 11 | | | | 15 | | | | 5 | | | | (27 | )% | | | 200 | % | | | 39 | | | | 15 | | | | 11 | | | | 160 | % | | | 36 | % | Physical auction | | | 41 | | | | 64 | | | | 33 | | | | (36 | )% | | | 94 | % | | | 126 | | | | 67 | | | | 41 | | | | 88 | % | | | 63 | % | Total vehicles sold at lease termination | | | 82 | | | | 126 | | | | 59 | | | | (35 | )% | | | 114 | % | | | 261 | | | | 128 | | | | 82 | | | | 104 | % | | | 56 | % |
Scheduled maturities decreased 23increased 35 percent in fiscal 20152017 as compared to fiscal 2014. Fiscal 2014 maturities reflected2016 as a result of a higher focus on leasing and related programs from priorin recent years. Vehicles sold at lease termination relative to scheduled maturities in fiscal 2015 decreased2017 increased 104 percent as compared to fiscal 2014.2016. The lowerhigher rate of vehicles sold at lease termination during fiscal 2015,2017, as compared to fiscal 2014,2016, was the result of loweradditional remarketing strategies in response to higher scheduled maturities as well as a decreasedue to the growth in our lease portfolio and higher return rate.rates driven by lower used vehicle values. Refer to “Part 1, Item 1. “BusinessBusiness – Finance Operations – Retail and Lease Financing - Remarketing” for additional information on lease disposition.
Depreciation on Operating Leases We record depreciation expense on the portion of our lease portfolio classified as operating leases. Depreciation expense is recorded on a straight-line basis over the lease term and is based upon the depreciable basis of the leased vehicle. The depreciable basis is originally established as the difference between a leased vehicle’s original acquisition valuecost and its residual value established at lease inception. Changes to residual values will have an effect on depreciation expense. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease-end will approximate the estimated end-of-term market value. Refer to “Critical Accounting Estimates” for a further discussion of the estimatesassumptions involved in the determination of residual values.
The following table provides information related to our depreciationDepreciation on operating leases:
leases and average operating lease units outstanding are as follows: | | Years ended March 31, | | | Percentage change | | | | | | | | | | | | | | | | 2015 to | | 2014 to | | | 2015 | | | 2014 | | | 2013 | | | 2014 | | 2013 | Depreciation on operating leases (dollars in millions) | | $ | 4,857 | | | $ | 4,012 | | | $ | 3,568 | | | | 21 | % | | | 12 | % | | | | | | | | | | | | | | | | | | | | | | Average operating lease units outstanding (in thousands) | | | 1,065 | | | | 870 | | | | 803 | | | | 22 | % | | | 8 | % |
| | | | | | | | | | | | | | | Years Ended March 31, | | | Percentage change | | | | | 2017 | | | 2016 | | | 2015 | | | 2017 to 2016 | | | 2016 to 2015 | | | Depreciation on operating leases (dollars in millions) | | $ | 6,853 | | | $ | 5,914 | | | $ | 4,857 | | | | 16 | % | | | 22 | % | | Average operating lease units outstanding (in thousands) | | | 1,421 | | | | 1,289 | | | | 1,065 | | | | 10 | % | | | 21 | % | |
Depreciation expense on operating leases increased 2116 percent during fiscal 20152017 as compared to fiscal 2014,2016, due primarily to an increase in the average operating lease units outstanding. We have recently experienced higheroutstanding as well as deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles. As a result of the increased focus on leasing volumein recent years by both us and the automotive finance industry, we expect that maturities will remain at a high level in the future, which will result in an increase in shorter term leases. This trendthe supply of used vehicles and could affectunfavorably impact used vehicle values. Higher average operating lease units outstanding and the resulting increase in future maturities, a higher supply of used vehicles, as well as further deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles could unfavorably impact return rates, residual value riskvalues, and depreciation expense.
Credit Risk We are exposed to credit risk on our earning assets.consumer and dealer portfolios. Credit risk on our earning assets is the risk of loss arising from the failure of customersconsumers or dealers to make contractual payments. The level of credit risk on our retail and leaseconsumer portfolio is influenced by two factors: default frequency and loss severity, which in turn are influenced by various factors such as economic conditions, the used vehicle market, purchase quality mix, and operational changes. The level of credit risk on our dealer financing portfolio is influenced by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors. The financial strength of dealers within our portfolio is influenced by, among other factors, general economic conditions, the overall demand for new and used vehicles and industrial equipment and the financial condition of automotive manufacturers in general. Factors Affecting Retail and LeaseConsumer Portfolio Credit Risk Economic Factors General economic conditions such as changes in unemployment rates, housing values, bankruptcy rates, consumer debt levels, fuel prices, consumer credit performance, interest rates, inflation, household disposable income and unforeseen events such as natural disasters, among other factors, can influence both default frequency and loss severity. Used Vehicle Market Changes in used vehicle pricesvalues directly affect the proceeds from sales of repossessed vehicles, and accordingly, the level of loss severity we experience. The supply of, and demand for, used vehicles, interest rates, inflation, the level of manufacturer incentivesincentive programs on new vehicles, the manufacturer’s actual or perceived reputation for quality, safety, andor reliability, and general economic outlook are some of the factors affecting the used vehicle market. Purchase Quality Mix A change in the mix of contracts acquired at various risk levels may change the amount of credit risk we assume. An increase in the number of contracts acquired with lower credit quality (as measured by scores that establish a consumer’s creditworthiness based on present financial condition, experience, and credit history) can increase the amount of credit risk. Conversely, an increase in the number of contracts with higher credit quality can lower credit risk. An increase in the mix of contracts with lower credit quality can also increase operational risk unless appropriate controls and procedures are established. We strive to price contracts to achieve an appropriate risk adjusted return on our investment. The average original contract term of retail and lease contracts influences credit losses. Longer term contracts generally experience a higher rate of default and thus affect default frequency. In addition, the carrying values of vehicles under longer term contracts decline at a slower rate, resulting in a longer period during which we may be subject to used vehicle market volatility, which may in turn lead to increased loss severity. The types and models of the vehicles in our retail and lease portfolios have an effect on loss severity. Vehicle product mix can be influenced by factors such as customer preferences, fuel efficiency and fuel prices. These factors impact the demand for and pricesvalues of used vehicles and consequently, loss severity.
Operational Changes Operational changes and ongoing implementation of new information and transaction systems and improved methods of consumer evaluation are designed to have a positive effect on the credit risk profile of our retail contract and lease portfolios.consumer portfolio. Customer service improvements in the management of delinquencies and credit losses increase operational efficiency and effectiveness. We remain focused on our service operations and credit loss mitigation methods. In an effort to mitigate credit losses, we regularly evaluate our purchasing practices. We limit our risk exposure by limiting approvals of lower credit quality contracts and requiring certain loan-to-value ratios. We continue to refine our credit risk management and analysis to ensure that the appropriate level of collection resources are aligned with portfolio risk, and we adjust capacity accordingly. We continue our focus on early stage delinquencies to increase the likelihood of resolution. We have also increased efficiency in our collections through the use of technology.
Factors Affecting Dealer Financing Portfolio Credit Risk The financial strength of dealers to which we extend credit directly affects our credit risk. Lending to dealers with lower credit quality, or a negative change in the credit quality of existing dealers, increases the risk of credit loss we assume. Extending a substantial amount of financing or commitments to a specific dealer or group of dealers creates a concentration of credit risk, particularly when the financing may not be secured by fully realizable collateral assets. Collateral quality influences credit risk in that lower quality collateral increases the risk that in the event of dealer default and subsequent liquidation of collateral, the value of the collateral may be less than the amount owed to us. We assign risk classifications to each of our dealers and dealer groups based on their financial condition, the strength of the collateral, and other quantitative and qualitative factors including input from our field personnel. Our monitoring processes of the dealers and dealer groups are based on these risk classifications. We periodically update the risk classifications based on changes in financial condition. As part of our monitoring processes, we require dealers to submit monthly financial statements. We also perform periodic physical audits of vehicle inventory and monitor the timeliness of dealer inventorywholesale financing payoffs in accordance with the agreed-upon terms in order to identify possible risks. We continue to enhance our risk management processes to mitigate dealer portfolio risk and to focus on higher risk dealers through enhanced risk governance, inventory audit,audits, and credit watch processes. Where appropriate, we increase the frequency of our audits and examine more closely the financial condition of the dealer or dealer group. We continue to be diligent in underwriting dealers and have conducted targeted personnel training to address dealer credit risk. Dealer financing portfolio credit risk is mitigated by a repurchase agreement between TMCC and TMS. Pursuant to this agreement, TMS will arrange for the repurchase of new Toyota Lexus and ScionLexus vehicles at the aggregate cost financed by TMCC in the event of vehiclea dealer default under floorplanwholesale financing. In addition, we provide other types of financing to certain Toyota and Lexus dealers and other third parties at the request of TMS or private Toyota distributors, and the credit risk associated with such financing is mitigated by guarantees from TMS or the applicable private distributors. We also provide financing for some dealerships which sell products not distributed by TMS or any of its affiliates. A significant adverse change in a non-Toyota/Lexus manufacturer such as restructuring and bankruptcy may increase the risk associated with the dealers we have financed that sell these products.
Credit Loss Experience Our credit loss experience may be affected by a number of factors including the economic environment, our purchasing and servicing practices, used vehicle market conditions and subvention. The overall credit quality ofWe continuously evaluate and refine our consumer portfolio in fiscal 2015 continued to benefit from our focus on purchasing practices and collection efforts.efforts to minimize risk. In addition, subvention contributes to our overall portfolio quality, as subvened contracts typically have higher credit scores than non-subvened contracts. For information regarding the potential impact of current market conditions, refer to “Part I. Item 1A. Risk Factors”. The following table provides information related to our credit loss experience: | | Years ended March 31, | | | Years Ended March 31, | | | | 2015 | | 2014 | | 2013 | | 2017 | | | 2016 | | | 2015 | | Net charge-offs as a percentage of average gross earning assets | | | | | | | | | | | | | | | | | | | | | | | | | Finance receivables | | | 0.32 | % | | | 0.31 | % | | | 0.29 | % | | | 0.52 | % | | | 0.42 | % | | | 0.32 | % | Operating leases | | | 0.23 | % | | | 0.19 | % | | | 0.18 | % | | | 0.39 | % | | | 0.31 | % | | | 0.23 | % | Total | | | 0.29 | % | | | 0.28 | % | | | 0.27 | % | | | 0.47 | % | | | 0.38 | % | | | 0.29 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Default frequency as a percentage of outstanding contracts | | | 1.21 | % | | | 1.17 | % | | | 1.23 | % | | | 1.53 | % | | | 1.27 | % | | | 1.21 | % | Average loss severity per unit1 | | $ | 6,632 | | | $ | 6,341 | | | $ | 5,737 | | | $ | 7,787 | | | $ | 6,934 | | | $ | 6,632 | | | | | | | | | | | | | | | | | | | | | | | | | | | Aggregate balances for accounts 60 or more days past due as a percentage of gross earning assets2 | | | | | | | | | | | | | | | | | | | | | | | | | Finance receivables3 | | | 0.23 | % | | | 0.19 | % | | | 0.19 | % | | | 0.28 | % | | | 0.29 | % | | | 0.23 | % | Operating leases3 | | | 0.17 | % | | | 0.15 | % | | | 0.18 | % | | | 0.25 | % | | | 0.22 | % | | | 0.17 | % | Total | | | 0.21 | % | | | 0.18 | % | | | 0.19 | % | | | 0.27 | % | | | 0.26 | % | | | 0.21 | % |
1 | Average loss per unit upon disposition of repossessed vehicles or charge-off prior to repossession. | |
2 | Substantially all retail direct finance lease and operating lease receivables do not involve recourse to the dealer in the event of customer default. | |
3 | Includes accounts in bankruptcy and excludes accounts for which vehicles have been repossessed. | |
The level of credit losses primarily reflects two factors: default frequency and loss severity. Net charge-offs as a percentage of average gross earning assets was slightly higher at 0.29increased to 0.47 percent at March 31, 2015 compared to 0.282017 from 0.38 percent at March 31, 20142016 due to increased default frequency and loss severity. Default frequency as a percentage of outstanding contracts increased to 1.211.53 percent duringfor fiscal 20152017 compared to 1.171.27 percent infor fiscal 2014.2016 as a result of rising consumer debt levels. Our average loss severity for fiscal 2015 was2017 increased to $7,787 from $6,934 in fiscal 2016 due primarily to declines in used vehicle values for Toyota and Lexus vehicles and higher average amount financed. Our delinquencies remained relatively consistent at 0.27 percent for fiscal 2017 compared to fiscal 2014. Our delinquencies0.26 percent for fiscal 2015 were 0.21 percent, an2016, however we continue to see increasing trends in rates of delinquency and default frequency. Further increases to consumer debt levels coupled with a rising supply of used vehicles and deterioration in actual and expected used vehicle values would increase from the fiscal 2014 level of 0.18 percent.our credit losses.
Allowance for Credit Losses We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date resulting from the non-performance of our customers and dealers under their contractual obligations. The determination of the allowance involves significant assumptions, complex analyses, and management judgment. Refer to “Critical Accounting Estimates” for further discussion of the estimates involved in determining the allowance.allowance for credit losses. The allowance for credit losses for our consumer portfolio is established through a process that estimates probable losses incurred as of the balance sheet date based upon consistently applied statistical analyses of portfolio data. This process utilizes delinquency migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, and incorporates current and expected trends and other relevant factors, including used vehicle market conditions, economic conditions, unemployment rates, purchase quality mix, and operational factors. This process, along with management judgment, is used to establish the allowance to cover probable and estimable losses incurred as of the balance sheet date. Movement in any of these factors would cause changes in estimated probable losses. The allowance for credit losses for our dealer portfolio is established by aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by either vehicles, and industrial equipment, real estate or dealership assets, or unsecured)assets). We analyze the dealerloan-risk pools using internally developed risk ratings for each dealer. In addition, we have established procedures that focus on managing high risk loans in our dealer portfolio. Our field operations management and special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established, as appropriate, and the loan is removed from the loan-risk pool for separate monitoring. The following table provides information related to our allowance for credit losses: | | | | | | | Years ended March 31, | | | Years Ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | 2017 | | | 2016 | | | 2015 | | Allowance for credit losses at beginning of period | | $ | 454 | | | $ | 527 | | | $ | 619 | | | $ | 535 | | | $ | 485 | | | $ | 454 | | Provision for credit losses | | | 308 | | | | 170 | | | | 121 | | | | 582 | | | | 441 | | | | 308 | | Charge-offs, net of recoveries1 | | | (277 | ) | | | (243 | ) | | | (213 | ) | | Transferred to held-for-sale1 | | | | - | | | | (7 | ) | | | - | | Charge-offs, net of recoveries2 | | | | (495 | ) | | | (384 | ) | | | (277 | ) | Allowance for credit losses at end of period | | $ | 485 | | | $ | 454 | | | $ | 527 | | | $ | 622 | | | $ | 535 | | | $ | 485 | |
1 | Amount relates to the commercial finance business which was sold on October 1, 2015. | |
2 | Charge-offs are shown net of recoveries of $86$79 million, $85$72 million, and $87$86 million in fiscal 2017, 2016, and 2015, 2014, and 2013, respectively. | |
| | Years ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | Allowance for credit losses as a percentage of gross earning assets | | | | | | | | | | | | | Finance receivables | | | 0.62 | % | | | 0.59 | % | | | 0.71 | % | Operating leases | | | 0.24 | % | | | 0.27 | % | | | 0.40 | % | Total | | | 0.50 | % | | | 0.50 | % | | | 0.63 | % |
| | Years Ended March 31, | | | | 2017 | | | 2016 | | | 2015 | | Allowance for credit losses as a percentage of gross earning assets | | | | | | | | | | | | | Finance receivables | | | 0.68 | % | | | 0.64 | % | | | 0.62 | % | Operating leases | | | 0.40 | % | | | 0.31 | % | | | 0.24 | % | Total | | | 0.58 | % | | | 0.52 | % | | | 0.50 | % |
During fiscal 2015,2017, our allowance for credit losses increased by $31 million from $454to $622 million at March 31, 2014 to $4852017 from $535 million at March 31, 2015.2016. The increase in the allowance for credit losses in fiscal 2017 as compared to fiscal 2016 was due primarily to additional provision for certain impaired dealer product finance receivables, general portfolio growth, and higher default frequency and loss severity and overall portfolio growth, which was partially offset by a reduction in the specific reserves for certain impaired dealers due to improvement in their financial performance. Further increases to consumer debt levels coupled with a rising supply of used vehicles and deterioration in actual and expected used vehicle values could result in further increases to our consumer portfolioallowance for credit losses. The total allowance for credit losses as a percentage of gross earning assets increased to 0.58 percent in fiscal 2017 as compared to 0.52 percent in fiscal 2014. 2016. The allowance for credit losses as a percentage of gross earning assets was consistent at 0.50for finance receivables increased to 0.68 percent in fiscal 2015 as compared to fiscal 2014, reflecting reserve amounts consistent with general portfolio growth. The slight increase in finance receivables2017 from 0.590.64 percent in fiscal 20142016, and the allowance for credit losses as a percentage of gross earning assets for operating leases increased to 0.620.40 percent in fiscal 2015 is2017 from 0.31 percent in fiscal 2016 primarily due to additional provision for certain impaired dealer finance receivables, while the slight decline in operating leases from 0.27 percent in fiscal 2014 to 0.24 percent in fiscal 2015 reflects portfolio growth of 26 percent in investments in operating leases, which is driven by TMS’s increased focus on lease subvention, which typically results in contracts with higher credit quality.default frequency and loss severity.
LIQUIDITY AND CAPITAL RESOURCES Liquidity risk is the risk relating to our ability to meet our financial obligations when they come due. Our liquidity strategy is to ensure that we maintain the ability to fund assets and repay liabilities in a timely and cost-effective manner, even in adverse market conditions. Our strategy includes raising funds via the global capital markets and through loans, credit facilities, and other transactions, as well as generating liquidity from our earning assets. This strategy has led us to develop a borrowing base that is diversified by market and geographic distribution, investor type,distributed across a variety of markets, geographies, investors, and financing structure,structures, among other factors. The following table summarizes the components of our outstanding funding sources at carrying value: | | March 31, | | | March 31, | | | March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2017 | | | 2016 | | Commercial paper1 | | $ | 27,006 | | | $ | 27,709 | | | $ | 26,632 | | | $ | 26,608 | | Unsecured notes and loans payable2 | | | 52,307 | | | | 49,075 | | | | 57,282 | | | | 52,863 | | Secured notes and loans payable | | | 10,837 | | | | 8,158 | | | Carrying value adjustment3 | | | 81 | | | | 425 | | | Secured notes and loans payable3 | | | | 14,319 | | | | 14,123 | | Total debt | | $ | 90,231 | | | $ | 85,367 | | | $ | 98,233 | | | $ | 93,594 | |
1 | Includes unamortized premium/discount. |
2 | Includes unamortized premium/discount, anddebt issuance costs, the effects of foreign currency transaction gains and losses due to foreign currency translation adjustments on non-hedged orand de-designated notes and loans payable which are denominated in foreign currencies.currencies and other carrying value adjustments. |
3 | Represents the effects of fair value adjustments toIncludes unamortized premium/discount and debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships.issuance costs.
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Liquidity management involves forecasting and maintaining sufficient capacity to meet our cash needs, including unanticipated events. To ensure adequate liquidity through a full range of potential operating environments and market conditions, we conduct our liquidity management and business activities in a manner that will preserve and enhance funding stability, flexibility and diversity. Key components of this operating strategy include a strong focus on developing and maintaining direct relationships with commercial paper investors and wholesale market funding providers, and maintaining the ability to sell certain assets when and if conditions warrant. We develop and maintain contingency funding plans and regularly evaluate our liquidity position under various operating circumstances, allowing us to assess how we will be able to operate through a period of stress when access to normal sources of capital is constrained. The plans project funding requirements during a potential period of stress, specify and quantify sources of liquidity, and outline actions and procedures for effectively managing through the problem period. In addition, we monitor the ratings and credit exposure of the lenders that participate in our credit facilities to ascertain any issues that may arise with potential draws on these facilities if that contingency becomes warranted. We maintain broad access to a variety of domestic and global markets and may choose to realign our funding activities depending upon market conditions, relative costs, and other factors. We believe that our funding sources, combined with operating and investing activities, provide sufficient liquidity to meet future funding requirements and business growth. Our funding volume is primarily based on the expected net change in earning assets and debt maturities. For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from $5.2$6.4 billion to $10.6$11.7 billion with an average balance of $7.5$8.9 billion forduring fiscal 2015.2017. We may lend to or borrow from affiliates on terms based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities.
Credit support is provided to us by our indirect parent Toyota Financial Services Corporation (“TFSC”),TFSC, and, in turn, to TFSC by Toyota Motor Corporation (“TMC”).TMC. Taken together, these credit support agreements provide an additional source of liquidity to us, although we do not rely upon such credit support in our liquidity planning and capital and risk management. The credit support agreements are not a guarantee by TMC or TFSC of any securities or obligations of TFSC or TMCC, respectively. The fees paid pursuant to these agreements are disclosed in Note 15 – Related Party Transactions.Transactions of the Notes to Consolidated Financial Statements.
TMC’s obligations under its credit support agreement with TFSC rank pari passu with TMC’s senior unsecured debt obligations. Refer to “Part I, Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements” for further discussion. We routinely monitor global financial conditions and our financial exposure to our global counterparties. Specifically, we focus oncounterparties, particularly in those countries experiencing significant economic, fiscal or political strain, and the corresponding likelihood of default. During the reporting period, we identified countries for which these conditions exist; Portugal, Ireland, Italy, Greece, Spain, Cyprus, Russia, Ukraine and certain other countries. We do not currently have exposure to thesesovereign counterparties in countries experiencing significant economic, fiscal or political strain or any other sovereign counterparties. As of March 31, 2015, our gross non-sovereign exposures to investments in marketable securities and derivatives counterparty positions in the countries identified were not material, either individually or collectively. We also maintained a total of $20.7 billion in committed syndicated and bilateral credit facilities for our liquidity purposes as of March 31, 2015. As of March 31, 2015, 3 percent of such commitments were from counterparties in the countries identified. Refer to the “Liquidity and Capital Resources - Liquidity Facilities and Letters of Credit” section and “Part I, Item 1A. Risk Factors - The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, operating results of operations or financial condition” for further discussion. Commercial Paper Short-term funding needs are met through the issuance of commercial paper in the United States.U.S. Commercial paper outstanding under our commercial paper programs ranged from approximately $24.8$26.4 billion to $29.8$30.0 billion during fiscal 2015,2017, with an average outstanding balance of $27.2$28.0 billion. Our commercial paper programs are supported by the liquidity facilities discussed under the heading “Liquidity Facilities and Letters of Credit.” We believe we have ample capacity to meet our short-term funding requirements and manage our liquidity.
Unsecured Notes and Loans Payable The following table summarizes the components of our unsecured notes and loans payable: | | | | | | | | | | | | | | | | | | | | | | | | | (Dollars in millions) | | U.S. medium term notes ("MTNs") and domestic bonds | | | | Euro MTNs ("EMTNs") | | | | Eurobonds | | | | Other | | Total unsecured notes and loans payable5 | | Balance at March 31, 20141 | | $ | 29,744 | | | | $ | 13,523 | | | | $ | 480 | | | | $ | 5,577 | | | | $ | 49,324 | | Issuances during fiscal 2015 | | | 12,481 | | 2 | | | 4,551 | | 3 | | | - | | | | | 1,250 | | 4 | | | 18,282 | | Maturities and terminations during fiscal 2015 | | | (9,503 | ) | | | | (1,974 | ) | | | | - | | | | | (1,605 | ) | | | | (13,082 | ) | Balance at March 31, 20151 | | $ | 32,722 | | | | $ | 16,100 | | | | $ | 480 | | | | $ | 5,222 | | | | $ | 54,524 | | Issuances during the one month ended April 30, 2015 | | $ | 1,900 | | 2 | | $ | - | | | | $ | - | | | | $ | - | | | | $ | 1,900 | |
(Dollars in millions) | | U.S. medium term notes ("MTNs") and domestic bonds | | | | Euro MTNs ("EMTNs") | | | | Eurobonds | | | Other | | | | Total unsecured notes and loans payable5 | | Balance at March 31, 2016¹ | | $ | 33,668 | | | | $ | 13,457 | | | | $ | 624 | | | $ | 5,222 | | | | $ | 52,971 | | Issuances | | | 12,741 | | 2 | | | 2,805 | | 3 | | | - | | | | 3,825 | | 4 | | | 19,371 | | Maturities and terminations | | | (10,876 | ) | | | | (1,106 | ) | | | | (479 | ) | | | (1,850 | ) | | | | (14,311 | ) | Non-cash changes in foreign currency rates | | | - | | | | | (470 | ) | | | | (145 | ) | | | 5 | | | | | (610 | ) | Balance at March 31, 2017¹ | | $ | 35,533 | | | | $ | 14,686 | | | | $ | - | | | $ | 7,202 | | | | $ | 57,421 | | Issuances during the one month ended April 30, 2017 | | $ | 2,250 | | | | $ | - | | | | $ | - | | | $ | - | | | | $ | 2,250 | |
1 | Amounts represent par values and as such exclude unamortized premium/discount, foreign currency transaction gains and losses on debt denominated in foreign currencies,issuance costs, fair value adjustments to debt in hedge accounting relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated hedge accounting relationships. Par values of non-U.S. currency denominated notes are determined using foreign exchange rates applicable as of the issuance dates. |
2 | MTNs and domestic bonds issued during fiscal 20152017 had terms to maturity ranging from approximately 1 year to 1530 years, and had interest rates at the time of issuance ranging from 0.21 percent to 3.13.2 percent. |
3 | EMTNs issued during fiscal 20152017 had terms to maturity ranging from approximately 1 year5 years to 86 years, and had interest rates at the time of issuance ranging from 0.31 percent to 3.93.4 percent. |
4 | Consists of long-term borrowings, with terms to maturity ranging from approximately 1 year to 5 years, and interest rates at the time of issuance ranging from 0.11.2 percent to 0.72.8 percent. |
5 | Consists of fixed and floating rate debt and other obligations. Upon the issuance of fixed rate debt and other obligations, we generally elect to enter into pay float interest rate swaps. Refer to “Derivative Instruments” for further discussion. |
We maintain a shelf registration statement with the SEC to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We qualify as a well-known seasoned issuer under SEC rules, which allows us to issue under our registration statement an unlimited amount of debt securities during the three year period ending February 2018. Debt securities issued under the U.S. shelf registration statement are issued pursuant to the terms of an indenture which requires TMCC to comply with certain covenants, including negative pledge and cross-default provisions. We are currently in compliance with these covenants. Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets. In September 2014,2016, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50.0 billion, or the equivalent in other currencies, of which €28.0€25.7 billion was available for issuance at April 30, 2015.2017. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time. Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions. We are currently in compliance with these covenants. TMCC has entered into term loan agreements with various banks. These term loan agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. We are currently in compliance with these covenants and conditions. In addition, we may issue other debt securities through the global capital markets or enter into other unsecured financing arrangements through the global capital markets.arrangements.
Secured Notes and Loans Payable Overview Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding. We securitize finance receivables and beneficial interests in investments in operating leases (“Securitized Assets”) using a variety of structures. Our securitization transactions involve the transfer of Securitized Assets to bankruptcy-remote special purpose entities. These bankruptcy-remote entities are used to ensure that the Securitized Assets are isolated from the claims of creditors of TMCC and that the cash flows from these assets are available solely for the benefit of the investors in these asset-backed securities. Investors in asset-backed securities do not have recourse to our other assets, and neither TMCC nor our affiliates guarantee these obligations. We are not required to repurchase or make reallocation payments with respect to the Securitized Assets that become delinquent or default after securitization. As seller and servicer of the Securitized Assets, we are required to repurchase or make a reallocation payment with respect to the underlying assets that are subsequently discovered not to have met specified eligibility requirements. This repurchase obligation is customary in securitization transactions. We service the Securitized Assets in accordance with our customary servicing practices and procedures. Our servicing duties include collecting payments on Securitized Assets and submitting them to a trustee for distribution to security holders and other interest holders. We prepare monthly servicer certificates on the performance of the Securitized Assets, including collections, investor distributions, delinquencies, and credit losses. We also perform administrative services for the special purpose entities. Our use of special purpose entities in securitizations is consistent with conventional practice in the securitization market. None of our officers, directors, or employees hold any equity interests or receive any direct or indirect compensation from our special purpose entities. These entities do not own our stock or the stock of any of our affiliates. Each special purpose entity has a limited purpose and generally is permitted only to purchase assets, issue asset-backed securities, and make payments to the security holders, other interest holders and certain service providers as required under the terms of the transactions. Our securitizations are structured to provide credit enhancement to reduce the risk of loss to security holders and other interest holders in the asset-backed securities. Credit enhancement may include some or all of the following: ·
| Overcollateralization: The principal of the Securitized Assets that exceeds the principal amount of the related secured debt.
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Overcollateralization: The principal of the Securitized Assets that exceeds the principal amount of the related secured debt. ·
| Excess spread: The expected interest collections on the Securitized Assets that exceed the expected fees and expenses of the special purpose entity, including the interest payable on the debt, net of swap settlements, if any.
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Excess spread: The expected interest collections on the Securitized Assets that exceed the expected fees and expenses of the special purpose entity, including the interest payable on the debt, net of swap settlements, if any. ·
| Cash reserve funds: A portion of the proceeds from the issuance of asset-backed securities may be held by the securitization trust in a segregated reserve fund and may be used to pay principal and interest to security holders and other interest holders if collections on the underlying receivables are insufficient.
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Cash reserve funds: A portion of the proceeds from the issuance of asset-backed securities may be held by the securitization trust in a segregated reserve fund and may be used to pay principal and interest to security holders and other interest holders if collections on the underlying receivables are insufficient. ·
| Yield supplement arrangements: Additional overcollateralization may be provided to supplement the future contractual interest payments from securitized receivables with relatively low contractual interest rates.
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Yield supplement arrangements: Additional overcollateralization may be provided to supplement the future contractual interest payments from securitized receivables with relatively low contractual interest rates. ·
| Subordinated notes: The subordination of principal and interest payments on subordinated notes may provide additional credit enhancement to holders of senior notes. |
In addition to the credit enhancement described above, we may enter into interest rate swaps with our special purpose entities that issue variable rate debt. Under the terms of these swaps, the special purpose entities are obligated to pay TMCC a fixed rate of interest on payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt. This arrangement enables the special purpose entities to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate Securitized Assets.
Securitized Assets and the related debt remain on our Consolidated Balance Sheet.Sheets. We recognize financing revenue on the Securitized Assets. We also recognize interest expense on the secured debt issued by the special purpose entities and maintain an allowance for credit losses on the Securitized Assets to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements. The following are asset-backed securitization transactions that we have executed.
Public Term Securitization
We maintain shelf registration statements with the SEC to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets. We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. Funding obtained from our public term securitization transactions is repaid as the underlying Securitized Assets amortize. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of March 31, 20152017 and 2014,2016, we did not have any outstanding lease securitization transactions registered with the SEC. During fiscal 2014, we enteredWe periodically enter into a public term securitization transactiontransactions whereby we agreedagree to use the proceeds solely to acquire retail and lease contracts financing new Toyota and Lexus vehicles of certain specified “green” models. The terms of the securitization transaction are consistent with the terms of our other similar transactions except that the proceeds we receivedreceive are included in Restricted cash and cash equivalents in our Consolidated Balance Sheet. As of March 31, 2015, there were no proceeds in Restricted cash and cash equivalents from this transaction, while as of March 31, 2014, the amount of proceeds in Restricted cash and cash equivalents from this transaction was $1.1 billion.
Amortizing Asset-backed Commercial Paper ConduitsSheets, when applicable.
We have executedalso regularly execute private securitization transactions of Securitized Assets with bank-sponsored multi-seller asset-backed conduits. The related debt will beFunding obtained from our private securitization transactions is repaid as the underlying Securitized Assets amortize.
Liquidity Facilities and Letters of Credit For additional liquidity purposes, we maintain syndicated credit facilities with certain banks. 364 Day Credit Agreement, Three Year Credit Agreement and Five Year Credit Agreement In November 2014,2016, TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility, a $5.0 billion three year syndicated bank credit facility and a $5.0 billion five year syndicated bank credit facility, expiring in fiscal 2016, 2018, 2020, and 2020,2022, respectively. The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These agreements may be used for general corporate purposes and none were drawn upon as of March 31, 2015.2017. We are currently in compliance with the covenants and conditions of the credit agreements described above. Other Unsecured Credit Agreements TMCC has entered into additional unsecured credit facilities with various banks. As of March 31, 2015,2017, TMCC had committed bank credit facilities totaling $5.7$5.4 billion, of which $3.2 billion, $2.1$2.7 billion and $375 million$2.7 billion mature in fiscal 2016, 2018 and 2020, respectively. These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of March 31, 20152017 and 2014.2016. We are currently in compliance with the covenants and conditions of the credit agreements described above. Credit Ratings The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning credit rating organization. Each credit rating organization may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each organization. Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC. Refer to “Part 1,I, Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements.” Credit Support Agreements Under the terms of a credit support agreement between TMC and TFSC, TMC has agreed to: ·
| maintain 100 percent ownership of TFSC;
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maintain 100 percent ownership of TFSC; ·
| cause TFSC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any intangible assets) of at least JPY 10 million, equivalent to $83,243 at March 31, 2015; and
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cause TFSC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any intangible assets) of at least JPY 10 million, equivalent to $89,775 at March 31, 2017; and ·
| make sufficient funds available to TFSC so that TFSC will be able to (i) service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper and (ii) honor its obligations incurred as a result of guarantees or credit support agreements that it has extended (collectively, “Securities”).
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make sufficient funds available to TFSC so that TFSC will be able to (i) service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper and (ii) honor its obligations incurred as a result of guarantees or credit support agreements that it has extended (collectively, “Securities”).
The agreement is not a guarantee by TMC of any securities or obligations of TFSC. TMC’s obligations under the credit support agreement rank pari passu with TMC’s senior unsecured debt obligations. Either party may terminate the agreement upon 30 days written notice to the other party. However, such termination cannot take effect unless and until (1) all Securities issued on or prior to the date of the termination notice have been repaid or (2) each rating agency that has issued a rating in respect of TFSC or any Securities upon the request of TMC or TFSC has confirmed to TFSC that the debt ratings of all such Securities will be unaffected by such termination. In addition, with certain exceptions, the agreement may be modified only by the written agreement of TMC and TFSC, and no modification or amendment can have any adverse effect upon any holder of any Securities outstanding at the time of such modification or amendment. The agreement is governed by, and construed in accordance with, the laws of Japan. Under the terms of a similar credit support agreement between TFSC and TMCC, TFSC has agreed to: ·
| maintain 100 percent ownership of TMCC;
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maintain 100 percent ownership of TMCC; ·
| cause TMCC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any intangible assets) of at least $100,000; and
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cause TMCC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any intangible assets) of at least $100,000; and ·
| make sufficient funds available to TMCC so that TMCC will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper (collectively, “TMCC Securities”).
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make sufficient funds available to TMCC so that TMCC will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper (collectively, “TMCC Securities”). The agreement is not a guarantee by TFSC of any TMCC Securities. The agreement contains termination and modification provisions that are similar to those in the agreement between TMC and TFSC as described above. The agreement is governed by, and construed in accordance with, the laws of Japan. TMCC Securities do not include the securities issued by securitization trusts in connection with TMCC’s securitization programs or any indebtedness under TMCC’s credit facilities or term loan agreements. Holders of TMCC Securities have the right to claim directly against TFSC and TMC to perform their respective obligations under the credit support agreements by making a written claim together with a declaration to the effect that the holder will have recourse to the rights given under the credit support agreements. If TFSC and/or TMC receives such a claim from any holder of TMCC Securities, TFSC and/or TMC shall indemnify, without any further action or formality, the holder against any loss or damage resulting from the failure of TFSC and/or TMC to perform any of their respective obligations under the credit support agreements. The holder of TMCC Securities who made the claim may then enforce the indemnity directly against TFSC and/or TMC. In addition, TMCC and TFSC are parties to a credit support fee agreement which requires TMCC to pay to TFSC a fee which is based upon the weighted average outstanding amount of TMCC Securities entitled to credit support. TCPR is the beneficiary of a credit support agreement with TFSC containing the same provisions as the credit support agreement between TFSC and TMCC but pertaining to TCPR bonds, debentures, notes and other investment securities and commercial paper (collectively, “TCPR Securities”). Holders of TCPR Securities have the right to claim directly against TFSC and TMC to perform their respective obligations as described above. This agreement is not a guarantee by TFSC of any securities or other obligations of TCPR. TCPR has agreed to pay TFSC a fee which is based upon the weighted average outstanding amount of TCPR Securities entitled to credit support.
DERIVATIVE INSTRUMENTS Risk Management Strategy Our liabilities consist mainly of fixed and floating rate debt, denominated in U.S dollars and various other currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps, interest rate floors, interest rate caps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in cash flows andthe fair value adjustments of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our management and our Asset-Liability Committee (“ALCO”), which provides a framework for financial controls and governance to manage market risk. Accounting for Derivative Instruments All derivative instruments are recorded on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to net settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Changes in the fair value of derivatives are recorded in interestInterest expense in theour Consolidated StatementStatements of Income. We categorize derivatives as those designated for hedge accounting (“hedge accounting derivatives”) and those that are not designated for hedge accounting (“non-hedge accounting derivatives”). At the inception of a derivative contract, we may elect to designate a derivative as a hedge accounting derivative. We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative which may require bifurcation. Changes in the fair value of the bifurcated embedded derivative are reported in interestInterest expense in theour Consolidated StatementStatements of Income. As of March 31, 2015,2017 and March 31, 2014,2016, we had no outstanding embedded derivatives that are required to be bifurcated. Refer to Note 1 – Summary of Significant Accounting Policies and Note 7 – Derivatives, Hedging Activities and Interest Expense of the Notes to the Consolidated Financial Statements for additional information.Statements. Derivative Assets and Liabilities The following table summarizes our derivative assets and liabilities, which are included in otherOther assets and otherOther liabilities in theour Consolidated Balance Sheet: Sheets: (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | Gross derivatives assets, net of credit valuation adjustment | | $ | 688 | | | $ | 1,235 | | Less: Counterparty netting and collateral | | | (635 | ) | | | (1,186 | ) | Derivative assets, net | | $ | 53 | | | $ | 49 | | | | | | | | | | | Gross derivative liabilities, net of credit valuation adjustment | | $ | 2,274 | | | $ | 805 | | Less: Counterparty netting and collateral | | | (2,184 | ) | | | (799 | ) | Derivative liabilities, net | | $ | 90 | | | $ | 6 | |
| | March 31, | | | March 31, | | (Dollars in millions) | | 2017 | | | 2016 | | Gross derivatives assets, net of credit valuation adjustment | | $ | 599 | | | $ | 973 | | Less: Counterparty netting and collateral | | | (548 | ) | | | (905 | ) | Derivative assets, net | | $ | 51 | | | $ | 68 | | | | | | | | | | | Gross derivative liabilities, net of credit valuation adjustment | | $ | 1,453 | | | $ | 1,310 | | Less: Counterparty netting and collateral | | | (1,407 | ) | | | (1,303 | ) | Derivative liabilities, net | | $ | 46 | | | $ | 7 | |
Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of March 31, 2015,2017, we held collateral of $145 million, which offset derivative assets, and posted collateral of $1,694 million, which offset derivative liabilities. We also held excess collateral of $10 million which we did not use to offset derivative assets, and we posted excess collateral of $2 million which we did not use to offset derivative liabilities. As of March 31, 2014, we held collateral of $718$154 million, which offset derivative assets, and we posted collateral of $331$1,013 million, which offset derivative liabilities. We also held excess collateral of $5 million which we did not use to offset derivative assets, and we posted excess collateral of $3$5 million which we did not use to offset derivative liabilities. ReferAs of March 31, 2016, we held collateral of $320 million, which offset derivative assets, and we posted collateral of $718 million which offset derivative liabilities. We also held excess collateral of $2 million which we did not use to the “Interest Expense” section for discussion on changes in derivatives.offset derivative assets, and we posted excess collateral of $22 million which we did not use to offset derivative liabilities.
OFF-BALANCE-SHEET ARRANGEMENTS Guarantees TMCC has guaranteed the payments of principal and interest with respect to the bond obligations that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the applicable affiliates for any amounts paid. TMCC receives an annual fee of $78 thousand for guaranteeing such payments. Other than this fee, there are no corresponding expenses or cash flows arising from our guarantees. The nature, business purpose, and amounts of these guarantees are described in Note 14 – Commitments and Contingencies of the Notes to Consolidated Financial Statements. Commitments We provide fixed and variable rate credit facilities to vehicledealers and industrial equipment dealers.various multi-franchise organizations referred to as dealer groups. These credit facilities are typically used for facilities refurbishment, real estate purchases, business acquisitions, and working capital requirements. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee fromappropriate, and may be guaranteed by the vehicle or industrial equipment dealerindividual or corporate guarantee fromguarantees of the dealershipaffiliated dealers, dealer groups, or dealer principals when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. Our credit facility pricing reflects market conditions, the competitive environment, the level of dealer support required for the facility and the credit worthiness of each dealer. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses. We also provide financing to various multi-franchise dealer organizations, often as part of a lending consortium, for wholesale, working capital, real estate, and business acquisitions. We have also extended credit facilities to affiliates as described in Note 14 – Commitments and Contingencies of the Notes to Consolidated Financial Statements. Indemnification Refer to Note 14 – Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions. We have not made any material payments in the past as a result of these provisions, and as of March 31, 2015,2017, we determined that it is not probable that we will be required to make any material payments in the future. As of March 31, 20152017 and 2014,2016, no amounts have been recorded under these indemnification provisions.
CONTRACTUAL OBLIGATIONS AND CREDIT-RELATED COMMITMENTS We have certain obligations to make future payments under contracts and credit-related financial instruments and commitments. Aggregate contractual obligations and credit-related commitments in existence at March 31, 20152017 are summarized as follows (dollars in millions):follows: | | Payments due by period | | | (Dollars in millions) | | | Payments due by period | | Contractual obligations | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | | Debt 1 | | $ | 92,401 | | | $ | 48,304 | | | $ | 23,954 | | | $ | 9,702 | | | $ | 10,441 | | | $ | 99,777 | | | $ | 50,252 | | | $ | 25,235 | | | $ | 17,253 | | | $ | 7,037 | | Estimated interest payments for debt 2 | | | 3,715 | | | | 974 | | | | 1,264 | | | | 716 | | | | 761 | | | | 4,927 | | | | 1,248 | | | | 1,576 | | | | 859 | | | | 1,244 | | Estimated net receipts under interest rate swap agreements2 | | | (1,295 | ) | | | (116 | ) | | | (298 | ) | | | (328 | ) | | | (553 | ) | | | (792 | ) | | | (37 | ) | | | (54 | ) | | | (113 | ) | | | (588 | ) | Lending commitments 3 | | | 7,555 | | | | 7,555 | | | | - | | | | - | | | | - | | | | 8,083 | | | | 8,083 | | | | - | | | | - | | | | - | | Premises occupied under lease | | | 60 | | | | 19 | | | | 33 | | | | 8 | | | | - | | | | 59 | | | | 21 | | | | 23 | | | | 13 | | | | 2 | | Purchase obligations 4 | | | 11 | | | | 10 | | | | 1 | | | | - | | | | - | | | | 5 | | | | 5 | | | | - | | | | - | | | | - | | Total | | $ | 102,447 | | | $ | 56,746 | | | $ | 24,954 | | | $ | 10,098 | | | $ | 10,649 | | | $ | 112,059 | | | $ | 59,572 | | | $ | 26,780 | | | $ | 18,012 | | | $ | 7,695 | |
1 | Debt reflects the remaining principal obligation. Our foreign currency debt is stated in USDU.S. dollars at amounts representing our contractual obligations under the foreign currency swaps that are used to hedge the corresponding debt. Excludes unamortized premium/discount of $136$161 million, debt issuance costs of $146 million as well as foreign currency and fair value adjustments of $2,034$1,237 million. |
2 | Interest payments for debt and swap agreements payable in foreign currencies or based on variable interest rates are estimated using the applicable current rates as of March 31, 2015.2017. |
3 | Lending commitments represent term loans and revolving lines of credit we extended to vehicle and industrial equipment dealers and affiliates. Of the amount shown above, $6.4$6.9 billion was outstanding as of March 31, 2015.2017. The amount shown above excludes $12.8$13.4 billion of wholesale financing lines not considered to be contractual commitments at March 31, 2015,2017, of which $8.9$10.6 billion was outstanding at March 31, 2015.2017. The above lending commitments have various expiration dates. |
4 | Purchase obligations represent fixed or minimum payment obligations under supplier contracts. The amounts included herein represent the minimum contractual obligations in certain situations; however, actual amounts incurred may be substantially higher depending on the particular circumstance, including in the case of information technology contracts, the amount of usage once we have implemented it. Contracts that do not specify fixed payments or provide for a minimum payment are not included. The contracts noted herein contain voluntary provisions under which the contract may be terminated for a specified fee depending upon the contract. |
NEW ACCOUNTING GUIDANCE Refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. CRITICAL ACCOUNTING ESTIMATES We have identified the estimates below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these estimates on business operations are discussed throughout this report where such estimates affect reported and expected financial results. The evaluation of the factors used in determining each of our critical accounting estimates involves significant assumptions, complex analyses, and management judgment. Changes in the evaluation of these factors may significantly impact the consolidated financial statements. Different assumptions or changes in economic circumstances could result in additional changes to the determination of residual values, the determination of the allowance for credit losses, the determination of residual values, the valuation of our derivative instruments, the fair value of financial instruments, and our results of operations and financial condition. Our other significant accounting policies are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. Determination of Residual Values The determination of residual values on our lease portfolio involves estimating end-of-term market values of leased vehicles and industrial equipment.vehicles. Establishing these estimates involves various assumptions, complex analyses, and management judgment. Actual losses incurred at lease termination could be significantly different from expected losses. Substantially all of our residual value risk relates to our vehicle lease portfolio. For further discussion of the accounting treatment of residual values on our lease earning assets,portfolio, refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. Nature of Estimates and Assumptions Required Residual values are estimated at lease inception by examining external industry data, the anticipated Toyota Lexus and ScionLexus product pipeline and our own experience. Factors considered in this evaluation include, but are not limited to, local, regional and national economic forecasts, new vehicle pricing, new vehicle incentive programs, new vehicle sales, future plans for new Toyota Lexus and ScionLexus product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix and level of used vehicle supply, the level of current used vehicle values, the actual or perceived quality, safety or reliability of Toyota Lexus and ScionLexus vehicles, buying and leasing behavior trends, and fuel prices. We periodically review the estimated end-of-term market values of leased vehicles to assess the appropriateness of their carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. Factors affecting the estimated end-of-term market value are similar to those considered in the evaluation of residual values at lease inception. These factors are evaluated in the context of their historical trends to anticipate potential changes in the relationship among those factors in the future. For operating leases, adjustmentsAdjustments are made on a straight-line basis over the remaining terms of the leases and are included in depreciationDepreciation on operating leases in theour Consolidated StatementStatements of Income. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included under our retail revenues in the Consolidated Statement of Income.
Sensitivity Analysis Estimated return rates and end-of-term market values represent two of the key assumptions involved in determining the amount and timing of depreciation expense to be recorded in theour Consolidated StatementStatements of Income. The vehicle lease return rate represents the number of end-of-term leased vehicles returned to us for sale as a percentage of lease contracts that were originally scheduled to mature in the same period less certain qualified early terminations. When the market value of a leased vehicle at contract maturity is less than its contractual residual value (i.e., the price at which the lease customer may purchase the leased vehicle), there is a higher probability that the vehicle will be returned to us.returned. In addition, a higher market supply of certain models of used vehicles generally results in a lower relative level of demand for those vehicles, resulting in a higher probability that the vehicle will be returned to us.returned. A higher rate of vehicle returns exposes us to greater risk of loss at lease termination. At March 31, 2015,2017, holding other estimates constant, if the return rate for our existing lease portfolio of leased vehicles were to increase by one percentage point from our present estimates, the effect would be to increase depreciation on these vehicles by approximately $15$41 million. This increase in depreciation would be charged to depreciationDepreciation on operating leases in theour Consolidated StatementStatements of Income on a straight-line basis over the remaining terms of the operating leases. End-of-term market values determine the amount of loss severity at lease maturity. Loss severity is the extent to whichIf the end-of-term market value of a leased vehicle is less than the estimated residual value. We may incur losses to the extent the end-of-term market value, of a leased vehicleadditional depreciation expense is less than the estimated residual value.recorded. At March 31, 2015,2017, holding other estimates constant, if end-of-term market values for returned units of leased vehicles were to decrease by one percent from our present estimates, the effect would be to increase depreciation on these vehicles by approximately $78$106 million. This increase in depreciation would be charged to depreciationDepreciation on operating leases in theour Consolidated StatementStatements of Income on a straight-line basis over the remaining terms of the operating leases.
Determination of the Allowance for Credit Losses We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date on our earning assets resulting from the failure of customers or dealers to make required payments. The level of credit losses is influenced by two factors: default frequency and loss severity. For evaluation purposes, exposures to credit losses are segmented into the two primary categories of “consumer” and “dealer”. Our consumer portfolio is further segmented intoconsists for accounting purposes of our retail finance receivablesloan portfolio segment and our investment in operating leases portfolio, both of which are characterized by smaller contract balances than our dealer portfolio. Our dealer portfolio consists for accounting purposes of loans related toour dealer financing.products portfolio segment. The overall allowance is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable and estimable losses as of the balance sheet date. For further discussion of the accounting treatment of our allowance for credit losses, refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
Nature of Estimates and Assumptions Required The evaluation of the appropriateness of the allowance for credit losses and our exposure to credit losses involves estimates and requires significant judgment. Consumer Portfolio The consumer portfolio is evaluated using methodologies such as roll rate, credit risk grade/tier, and vintage analysis. We review and analyze external factors, such as changes in economic conditions, actual or perceived quality, safety and reliability of Toyota Lexus and ScionLexus vehicles, unemployment levels, the used vehicle market, and consumer behavior. In addition, internal factors, such as purchase quality mix and operational changes are considered in the review. The majority of our credit losses are related to our consumer portfolio. The level of consumer credit losses is influenced by two factors: default frequency and loss severity. Dealer Portfolio We evaluate the dealer portfolio by aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g., whether the loan is secured by either vehicles and industrial equipment,vehicle inventory, real estate, or dealership assets, or is unsecured)assets). We analyze the dealerloan-risk pools using internally developed risk ratings for each dealer. In addition, field operations management and our special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established as appropriate, and the loan is removed from the loan-risk pool for separate monitoring.
Sensitivity Analysis The assumptions used in evaluating our exposure to credit losses involve estimates and significant judgment. The expected loss severity and default frequency on the vehicle retail and lease portfoliosconsumer portfolio represent two of the key assumptions involved in determining the allowance for credit losses. Holding other estimates constant, a 10 percent increase or decrease in either the estimated loss severity or the estimated default frequency on the vehicle retail and lease portfoliosconsumer portfolio would have resulted in a change in the allowance for credit losses of $38$50 million as of March 31, 2015.2017. Valuation of Derivative Instruments We manage our exposure to market risks such as interest rate and foreign currency risks with derivative instruments. These instruments include interest rate swaps, foreign currency swaps, interest rate floors, and interest rate caps. Our use of derivatives is limited to the management of interest rate and foreign currency risks. For further discussion of the accounting treatment of our derivatives, refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. Nature of Estimates and Assumptions Required We determine the application of derivatives accounting through the identification of hedging instruments, hedged items, and the nature of the risk being hedged, as well as the methodology used to assess the hedging instrument's effectiveness. The fair values of our over-the-counter derivative assets and liabilities are determined using quantitative models that require the use of multiple market inputs including interest and foreign exchange rates, prices and indices to generate yield or pricing curves and volatility factors, which are used to value the position. Market inputs are validated through external sources, including brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case quantitative based extrapolations of rate, price or index scenarios are used in determining fair values.
Fair Value of Financial Instruments A portion of our assets and liabilities is carried at fair value, including cash equivalents, available-for-salemarketable securities and derivatives.other financial instruments. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that primarily use as inputs market-based or independently sourced market parameters. We ensure that all applicable inputs are appropriately calibrated to market data, including but not limited to yield curves, interest rates, and foreign exchange rates. In addition to market information, the models also incorporate transaction details, such as maturity. Fair value adjustments, including those made for credit (counterparties and TMCC), liquidity, and input parameter uncertainty are included, as appropriate, to the model value to arrive at a fair value measurement. During fiscal 2015,2017, no material changes were made to the valuation models. For a description of the definition of fair value, refer to Note 1 – Summary of Significant Accounting Policies – Fair Value Measurements. For a description of the assets and liabilities carried at fair value, and the controls over valuation, refer to Note 2 -1 – Summary of Significant Accounting Policies – Fair Value Measurements of the Notes to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK Market risk is the sensitivity of our financial instruments to changes in market prices, interest and foreign exchange rates. Market risk is inherent in the financial instruments associated with our operations, including debt, cash equivalents, available-for-sale securities, finance receivables and derivatives. Our business and global capital market activities give rise to market sensitive assets and liabilities. ALCO is responsible for the execution of our market risk management strategies and their activities are governed by written policies and procedures. The principal objective of asset and liability management is to manage the sensitivity of net interest margin to changing interest rates. When evaluating risk management strategies, we consider a variety of factors, including, but not limited to, management’s risk tolerance, market conditions and portfolio composition. We manage our exposure to certain market risks through our regular operating and financing activities and when deemed appropriate, through the use of derivative instruments. These instruments are used to manage underlying exposures; we do not use derivatives for trading, market making or speculative purposes. Refer to “Derivative Instruments” within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for information on risk management strategies, corporate governance and derivatives usage. Interest Rate Risk Interest rate risk can result from timing differences in the maturity or re-pricing of assets and liabilities. Changes in the level and volatility of market interest rate curves also create interest rate risk as the re-pricing of assets and liabilities are a function of implied forward interest rates. We are also exposed to basis risk, which is the difference in re-pricing characteristics of two floating rate indices. We use sensitivity simulations to assess and manage interest rate risk. Our simulations allow us to analyze the sensitivity of our existing portfolio as well as the expected sensitivity of our new business. We measure the potential volatility in our net interest cash flows and manage our interest rate risk by assessing the dollar impact given a 100 basis point increase or decrease in the implied yield curve. ALCO reviews the amount at risk and prescribes steps, if needed, to mitigate our exposure. Sensitivity Model Assumptions Interest rate scenarios were derived from implied forward curves based on market expectations. Internal and external data sources were used for the reinvestment of maturing assets, refinancing of maturing debt
and replacement of maturing derivatives. The prepayment of retail and lease receivablescontracts was based on our historical experience and attrition projections, voluntary or involuntary. We monitor our balance sheet positions, economic trends and market conditions, internal forecasts and expected business growth in an effort to maintain the reasonableness of the sensitivity model. The table below reflects the potential 12-month change in pre-tax cash flows based on hypothetical movements in future market interest rates. The sensitivity analysis assumes instantaneous, parallel shifts in interest rate yield curves. These interest rate scenarios do not represent management’s view of future interest rate movements. In reality, interest ratesrate movements are rarely instantaneous or parallel and rates could move more or less than the rate scenarios reflected in the table below. In situations where existing interest rates are below one percent, the assumption of a 100 basis point decrease in interest rates is subject to a floor of zero percent, which is reflected in the “-100bp” scenario for both March 31, 20152017 and 2014.2016. Sensitivity analysis | | Immediate change in rates | | | Immediate change in rates | | (in millions) | | +100bp | | | -100bp | | | +100bp | | | -100bp | | March 31, 2015 | | $ | (3.1 | ) | | $ | (45.2 | ) | | March 31, 2014 | | $ | 7.3 | | | $ | (85.4 | ) | | March 31, 2017 | | | $ | 6.0 | | | $ | (6.3 | ) | March 31, 2016 | | | $ | 11.1 | | | $ | (11.3 | ) |
Our net interest cash flow sensitivity results from the “+100bp” scenario show a slightly liability-sensitive position on March 31, 2015 and a slightly asset-sensitive position on March 31, 2014.2017 and 2016. We regularly assess the viability of our business and hedging strategies to reduce unacceptable risks to earnings and implement such strategies to protect our net interest margins from the potential negative effects of changes in interest rates. We have established risk limits to monitor and control our exposures. Our current exposure is considered within tolerable limits.
Foreign currency risk Foreign currency risk represents exposure to changes in the values of our current holdings and future cash flows denominated in other currencies. To meet our funding objectives, we issue fixed and floating rate debt denominated in a number of different currencies. Our policy is to minimize exposures to changes in foreign exchange rates. Currency exposure related to foreign currency debt is hedged at issuance through the execution of foreign currency swaps which effectively convert our obligations on foreign denominated debt into U.S. dollar denominated 3-month LIBOR based payments. As a result, our economic exposure to foreign currency risk is minimized. Our debt is accounted for at amortized cost in our Consolidated Balance Sheet.Sheets. We may elect to designate our debt in hedge accounting relationships for changes in interest rate risk, foreign currency risk or both. IfThe effects of foreign currency changes to our debt is hedgedare recognized in a fair value hedge accounting relationship, we adjust the carrying value of our debt to reflect changes in the fair value attributable to interest and foreign currency risks with an offsetting amount recorded in interestInterest expense in theour Consolidated Statement of Income. If the debt is not in a hedge accounting relationship, the debt is translated into U.S. dollars using the applicable exchange rate at the transaction date and retranslated at each balance sheet date using the exchange rate in effect at that date. Additionally, we also recognize changes in the fair value of derivatives designated as hedges in interest expense in the Consolidated StatementStatements of Income. Certain fixed income mutual funds in our investment securities portfolio are exposed to foreign currency risk. The funds may invest directly in foreign currencies, in securities that trade in and receive revenues in foreign currencies, or in financial derivatives that provide exposure to foreign currencies. The funds may also enter into foreign currency derivative contracts to hedge the currency exposure associated with some or all of the fund’s securities. The market value of these holdings is translated into U.S. dollars based on the current exchange rates each business day. The effect of changes in foreign currency on our portfolio is reflected in the net asset value of the fund.
Derivative Counterparty Credit Risk We manage derivative counterparty credit risk by maintaining policies for entering into derivative contracts, exercising our rights under our derivative contracts, requiring the posting of collateral and actively monitoring our exposure to counterparties. All of our derivativesderivative counterparties to which we had credit exposure at March 31, 20152017 were assigned investment grade ratings by a credit rating organization. Our counterparty credit risk could be adversely affected by deterioration of the global economy and financial distress in the banking industry. Our International Swaps and Derivatives Association (“ISDA”) Master Agreements contain reciprocal collateral arrangements which help mitigate our exposure to the credit risk associated with our counterparties. As of March 31, 2015,2017, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization requirement, which has significantly reduced counterparty credit risk exposure. Under our ISDA Master Agreements, cash is the only permissible form of collateral. Neither we nor our counterparties are required to hold collateral in a segregated account. Our collateral agreements include legal right of offset provisions, pursuant to which collateral amounts are netted against derivative assets or derivative liabilities, the net amount of which is included in otherOther assets or otherOther liabilities in our Consolidated Balance Sheet.Sheets. In addition, many of our ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement and related transactions at market value in the event of a ratings downgrade below a specified threshold. Refer to “Part I, Item 1A. Risk Factors” for further discussion. A summary of our net counterparty credit exposure by credit rating (net of collateral held) is presented below: | | March 31, | | | March 31, | | | March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2017 | | | 2016 | | Credit Rating | | | | | | | | | | | | | | | | | AA | | | $ | 1 | | | $ | 2 | | A | | $ | 54 | | | $ | 49 | | | | 52 | | | | 63 | | BBB | | | - | | | | 1 | | | | - | | | | 5 | | Total net counterparty credit exposure | | $ | 54 | | | $ | 50 | | | $ | 53 | | | $ | 70 | |
We exclude from the table above credit valuation adjustments of $1$2 million at March 31, 20152017 and 20142016 related to non-performance risk of our counterparties. All derivative credit valuation adjustments are recorded in interestInterest expense in our Consolidated StatementStatements of Income. Refer to Note 2 – Fair Value Measurements of the Notes to the Consolidated Financial Statements for further discussion.
Issuer Credit Risk Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Changes in economic conditions may expose us to issuer credit risk where the value of an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration, or by defaults. The following tables summarize our fixed income holding distribution by credit rating as of March 31, 2015 and 2014 (dollars in millions):of: | | As of March 31, 2015 | | | March 31, 2017 | | | | | | | | | | | | Distribution by credit rating | | | | | | | | | | | Distribution by credit rating | | | | Amortized | | | Fair | | | | | | | | | | | | | | | | | | | BB | | | (Dollars in millions) | | | Amortized | | | Fair | | | | | | | | | | | | | | | | | | | BB | | Available-for-sale securities: | | cost | | | value | | | AAA | | | AA | | | A | | | BBB | | | or below | | | cost | | | value | | | AAA | | | AA | | | A | | | BBB | | | or below | | U.S. government and agency obligations | | $ | 4,357 | | | $ | 4,359 | | | $ | 4,230 | | | $ | 129 | | | $ | - | | | $ | - | | | $ | - | | | $ | 2,314 | | | $ | 2,308 | | | $ | 2,139 | | | $ | 169 | | | $ | - | | | $ | - | | | $ | - | | Municipal debt securities | | | 10 | | | | 12 | | | | 3 | | | | 8 | | | | 1 | | | | - | | | | - | | | | 10 | | | | 11 | | | | 3 | | | | 7 | | | | 1 | | | | - | | | | - | | Certificates of deposit | | | 175 | | | | 175 | | | | - | | | | 175 | | | | - | | | | - | | | | - | | | | 755 | | | | 755 | | | | - | | | | 100 | | | | 655 | | | | - | | | | - | | Commercial paper | | | 37 | | | | 37 | | | | - | | | | 37 | | | | - | | | | - | | | | - | | | Corporate debt securities | | | 138 | | | | 145 | | | | - | | | | 5 | | | | 50 | | | | 76 | | | | 14 | | | | 368 | | | | 369 | | | | 4 | | | | 45 | | | | 212 | | | | 108 | | | | - | | Mortgage-backed securities | | | 103 | | | | 107 | | | | 15 | | | | 67 | | | | 17 | | | | 6 | | | | 2 | | | | 84 | | | | 84 | | | | 7 | | | | 54 | | | | 19 | | | | - | | | | 4 | | Asset-backed securities | | | 39 | | | | 39 | | | | 6 | | | | 1 | | | | 18 | | | | 14 | | | | - | | | | 31 | | | | 31 | | | | 8 | | | | 3 | | | | 10 | | | | 9 | | | | 1 | | Fixed income mutual funds | | | 1,726 | | | | 1,797 | | | | - | | | | 1,294 | | | | 376 | | | | 127 | | | | - | | | | 2,090 | | | | 2,134 | | | | 389 | | | | 738 | | | | 917 | | | | - | | | | 90 | | Total | | $ | 6,585 | | | $ | 6,671 | | | $ | 4,254 | | | $ | 1,716 | | | $ | 462 | | | $ | 223 | | | $ | 16 | | | $ | 5,652 | | | $ | 5,692 | | | $ | 2,550 | | | $ | 1,116 | | | $ | 1,814 | | | $ | 117 | | | $ | 95 | |
| | As of March 31, 2014 | | | March 31, 2016 | | | | | | | | | | | | Distribution by credit rating | | | | | | | | | | | Distribution by credit rating | | | | Amortized | | | Fair | | | | | | | | | | | | | | | | | | | BB | | | (Dollars in millions) | | | Amortized | | | Fair | | | | | | | | | | | | | | | | | | | BB | | Available-for-sale securities: | | cost | | | value | | | AAA | | | AA | | | A | | | BBB | | | or below | | | cost | | | value | | | AAA | | | AA | | | A | | | BBB | | | or below | | U.S. government and agency obligations | | $ | 652 | | | $ | 652 | | | $ | 571 | | | $ | 76 | | | $ | 5 | | | $ | - | | | $ | - | | | $ | 2,833 | | | $ | 2,835 | | | $ | 2,688 | | | $ | 147 | | | $ | - | | | $ | - | | | $ | - | | Municipal debt securities | | | 10 | | | | 11 | | | | 3 | | | | 7 | | | | 1 | | | | - | | | | - | | | | 10 | | | | 11 | | | | 3 | | | | 7 | | | | 1 | | | | - | | | | - | | Certificates of deposit | | | 1,599 | | | | 1,599 | | | | - | | | | 815 | | | | 784 | | | | - | | | | - | | | | 500 | | | | 500 | | | | - | | | | 325 | | | | 175 | | | | - | | | | - | | Commercial paper | | | 507 | | | | 507 | | | | - | | | | 347 | | | | 135 | | | | 25 | | | | - | | | | 50 | | | | 50 | | | | - | | | | 50 | | | | - | | | | - | | | | - | | Corporate debt securities | | | 164 | | | | 169 | | | | - | | | | 14 | | | | 59 | | | | 82 | | | | 14 | | | | 482 | | | | 487 | | | | - | | | | 186 | | | | 181 | | | | 110 | | | | 10 | | Mortgage-backed securities | | | 108 | | | | 108 | | | | 17 | | | | 69 | | | | 18 | | | | 2 | | | | 2 | | | | 101 | | | | 104 | | | | 14 | | | | 68 | | | | 15 | | | | 5 | | | | 2 | | Asset-backed securities | | | 27 | | | | 27 | | | | 9 | | | | 3 | | | | 11 | | | | 4 | | | | - | | | | 38 | | | | 37 | | | | 4 | | | | 1 | | | | 18 | | | | 14 | | | | - | | Fixed income mutual funds | | | 1,781 | | | | 1,835 | | | | 1,121 | | | | 172 | | | | 448 | | | | 94 | | | | - | | | | 2,097 | | | | 2,127 | | | | - | | | | 1,190 | | | | 645 | | | | 226 | | | | 66 | | Total | | $ | 4,848 | | | $ | 4,908 | | | $ | 1,721 | | | $ | 1,503 | | | $ | 1,461 | | | $ | 207 | | | $ | 16 | | | $ | 6,111 | | | $ | 6,151 | | | $ | 2,709 | | | $ | 1,974 | | | $ | 1,035 | | | $ | 355 | | | $ | 78 | |
Equity Price Risk
We are exposed to equity price risk related to our investments in equity mutual funds included in our investment portfolio. These investments, classified as available-for-sale in our Consolidated Balance Sheet, consist of passively managed mutual funds that are designed to track the performance of major equity market indices. Fair market values of the equity investments are determined using a net asset value that is quoted in an active market.
We utilize the Value at Risk (“VaR”) methodology to simulate the potential loss in fair value of our investment portfolio due to adverse market movements. The model is based on historical data for the previous two years assuming a 30-day holding period and a loss methodology approximating a 99% confidence interval. The table below shows the VaR, excluding taxation impact, of our equity investment portfolio as of and for the periods ending:
| | March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | Average | | $ | 53 | | | $ | 68 | | Minimum | | $ | 52 | | | $ | 48 | | Maximum | | $ | 56 | | | $ | 83 | |
These hypothetical scenarios, derived from historical market price fluctuations, represent an estimate of reasonably possible net losses and are not necessarily indicative of actual results that may occur. Additionally, the hypothetical scenarios do not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from estimates.
ITEM 8. FINANCIAL STATEMENTSSTATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholder of Toyota Motor Credit Corporation: In our opinion, the accompanying consolidated balance sheetsheets and the related consolidated statements of income, and comprehensive income, of shareholder’s equity, and cash flows present fairly, in all material respects, the financial position of Toyota Motor Credit Corporation (the “Company”) and its subsidiaries (the “Company”) atas of March 31, 20152017 and March 31, 2014,2016, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 20152017 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 our opinion. /S/ PRICEWATERHOUSECOOPERSs/ PricewaterhouseCoopers LLP Los Angeles, California June 2, 20151, 2017
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENTSTATEMENTS OF INCOME (Dollars in millions) | | Years ended March 31, | | | | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | | | | Years ended March 31, | | | | | 2017 | | | 2016 | | | 2015 | | Financing revenues: | | | | | | | | | | | | | | | | | | | | | | | | | Operating lease | | $ | 6,113 | | | $ | 5,068 | | | $ | 4,748 | | | $ | 7,720 | | | $ | 7,141 | | | $ | 6,113 | | Retail | | | 1,797 | | | | 1,897 | | | | 2,062 | | | | 1,850 | | | | 1,859 | | | | 1,797 | | Dealer | | | 400 | | | | 432 | | | | 434 | | | | 476 | | | | 403 | | | | 400 | | Total financing revenues | | | 8,310 | | | | 7,397 | | | | 7,244 | | | | 10,046 | | | | 9,403 | | | | 8,310 | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 4,857 | | | | 4,012 | | | | 3,568 | | | | 6,853 | | | | 5,914 | | | | 4,857 | | Interest expense | | | 736 | | | | 1,340 | | | | 940 | | | | 1,754 | | | | 1,137 | | | | 736 | | Net financing revenues | | | 2,717 | | | | 2,045 | | | | 2,736 | | | | 1,439 | | | | 2,352 | | | | 2,717 | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance earned premiums and contract revenues | | | 638 | | | | 567 | | | | 571 | | | | 804 | | | | 719 | | | | 638 | | Gain on sale of commercial finance business | | | | - | | | | 197 | | | | - | | Investment and other income, net | | | 194 | | | | 135 | | | | 173 | | | | 170 | | | | 158 | | | | 124 | | Realized gains, net on investments in marketable securities | | | | 226 | | | | 6 | | | | 70 | | Net financing revenues and other revenues | | | 3,549 | | | | 2,747 | | | | 3,480 | | | | 2,639 | | | | 3,432 | | | | 3,549 | | | | | | | | | | | | | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Provision for credit losses | | | 308 | | | | 170 | | | | 121 | | | | 582 | | | | 441 | | | | 308 | | Operating and administrative | | | 1,046 | | | | 965 | | | | 911 | | | | 1,277 | | | | 1,161 | | | | 1,046 | | Insurance losses and loss adjustment expenses | | | 269 | | | | 258 | | | | 293 | | | | 371 | | | | 318 | | | | 269 | | Total expenses | | | 1,623 | | | | 1,393 | | | | 1,325 | | | | 2,230 | | | | 1,920 | | | | 1,623 | | | | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | 1,926 | | | | 1,354 | | | | 2,155 | | | | 409 | | | | 1,512 | | | | 1,926 | | Provision for income taxes | | | 729 | | | | 497 | | | | 824 | | | | 142 | | | | 580 | | | | 729 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 1,197 | | | $ | 857 | | | $ | 1,331 | | | $ | 267 | | | $ | 932 | | | $ | 1,197 | |
CONSOLIDATED STATEMENTSTATEMENTS OF COMPREHENSIVE INCOME | | Years ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | Net income | | $ | 1,197 | | | $ | 857 | | | $ | 1,331 | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | Net unrealized gains (losses) on available-for-sale marketable securities [net of tax (provision) benefit of ($38), $5 and ($40), respectively] | | | 64 | | | | (11 | ) | | | 64 | | Reclassification adjustment for net (gains) on available-for-sale marketable securities included in investment and other income, net [net of tax provision of $26, $0, and $8, respectively] | | | (44 | ) | | | - | | | | (13 | ) | Other comprehensive income (loss) | | | 20 | | | | (11 | ) | | | 51 | | Comprehensive income | | $ | 1,217 | | | $ | 846 | | | $ | 1,382 | |
| | | | | | Years ended March 31, | | | | 2017 | | | 2016 | | | 2015 | | Net income | | $ | 267 | | | $ | 932 | | | $ | 1,197 | | Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | Net unrealized (losses) gains on available-for-sale marketable securities [net of tax benefit (provision) of $0, $32 and ($38), respectively] | | | (1 | ) | | | (51 | ) | | | 64 | | Reclassification adjustment for net gains on available-for-sale marketable securities included in realized gains, net on investments in marketable securities [net of tax provision of $87, $2 and $26, respectively] | | | (139 | ) | | | (4 | ) | | | (44 | ) | Other comprehensive (loss) income | | | (140 | ) | | | (55 | ) | | | 20 | | Comprehensive income | | $ | 127 | | | $ | 877 | | | $ | 1,217 | |
SeeRefer to the accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED BALANCE SHEETSHEETS (Dollars in millions) (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 2,407 | | | $ | 3,815 | | | $ | 4,198 | | | $ | 2,701 | | Restricted cash and cash equivalents | | | 784 | | | | 1,721 | | | Restricted cash | | | | 1,087 | | | | 1,010 | | Investments in marketable securities | | | 7,131 | | | | 5,389 | | | | 5,692 | | | | 6,540 | | Finance receivables, net | | | 65,893 | | | | 65,176 | | | | 68,462 | | | | 65,636 | | Investments in operating leases, net | | | 31,128 | | | | 24,769 | | | | 38,152 | | | | 36,488 | | Other assets | | | 2,282 | | | | 1,870 | | | | 2,044 | | | | 2,217 | | Total assets | | $ | 109,625 | | | $ | 102,740 | | | $ | 119,635 | | | $ | 114,592 | | | | | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDER'S EQUITY | | | | | | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDER’S EQUITY | | | | | | | | | | Debt | | $ | 90,231 | | | $ | 85,367 | | | $ | 98,233 | | | $ | 93,594 | | Deferred income taxes | | | 7,519 | | | | 6,747 | | | | 7,926 | | | | 8,016 | | Other liabilities | | | 3,355 | | | | 2,888 | | | | 3,952 | | | | 3,585 | | Total liabilities | | | 101,105 | | | | 95,002 | | | | 110,111 | | | | 105,195 | | | | | | | | | | | | | | | | | | | Commitments and contingencies (See Note 14) | | | | | | | | | | Commitments and contingencies (Refer to Note 14) | | | | | | | | | | | | | | | | | | | | | | | | | | | Shareholder's equity: | | | | | | | | | | Capital stock, no par value (100,000 shares authorized; 91,500 issued and outstanding) at March 31, 2015 and 2014 | | | 915 | | | | 915 | | | Shareholder’s equity: | | | | | | | | | | Capital stock, no par value (100,000 shares authorized; 91,500 issued and outstanding) at March 31, 2017 and 2016 | | | | 915 | | | | 915 | | Additional paid-in capital | | | 2 | | | | 2 | | | | 2 | | | | 2 | | Accumulated other comprehensive income | | | 220 | | | | 200 | | | | 25 | | | | 165 | | Retained earnings | | | 7,383 | | | | 6,621 | | | | 8,582 | | | | 8,315 | | Total shareholder's equity | | | 8,520 | | | | 7,738 | | | | 9,524 | | | | 9,397 | | Total liabilities and shareholder's equity | | $ | 109,625 | | | $ | 102,740 | | | $ | 119,635 | | | $ | 114,592 | |
The following table presents the assets and liabilities of our consolidated variable interest entities. (See(Refer to Note 10). (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | ASSETS | | | | | | | | | | | | | | | | | Finance receivables, net | | $ | 11,509 | | | $ | 9,501 | | | $ | 12,865 | | | $ | 14,130 | | Investments in operating leases, net | | | 1,193 | | | | 156 | | | | 4,888 | | | | 2,504 | | Other assets | | | 15 | | | | 7 | | | | 87 | | | | 84 | | Total assets | | $ | 12,717 | | | $ | 9,664 | | | $ | 17,840 | | | $ | 16,718 | | | | | | | | | | | | | | | | | | | LIABILITIES | | | | | | | | | | | | | | | | | Debt | | $ | 10,837 | | | $ | 8,158 | | | $ | 14,319 | | | $ | 14,123 | | Other liabilities | | | 3 | | | | 2 | | | | 6 | | | | 5 | | Total liabilities | | $ | 10,840 | | | $ | 8,160 | | | $ | 14,325 | | | $ | 14,128 | |
SeeRefer to the accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENTSTATEMENTS OF SHAREHOLDER’S EQUITY (Dollars in millions) | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | Additional | | | other | | | | | | | | | | | | | | | Additional | | | other | | | | | | | | | | | | Capital | | | paid-in | | | comprehensive | | | Retained | | | | | | | Capital | | | paid-in | | | comprehensive | | | Retained | | | | | | (Dollars in millions) | | stock | | | capital | | | income | | | earnings | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | stock | | | capital | | | income | | | earnings | | | Total | | Balance at March 31, 2012 | | $ | 915 | | | $ | 2 | | | $ | 160 | | | $ | 6,585 | | | $ | 7,662 | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year ended March 31, 2013 | | | - | | | | - | | | | - | | | | 1,331 | | | | 1,331 | | | Other comprehensive income, net of tax | | | - | | | | - | | | | 51 | | | | - | | | | 51 | | | Dividends | | | - | | | | - | | | | - | | | | (1,487 | ) | | | (1,487 | ) | | Balance at March 31, 2013 | | $ | 915 | | | $ | 2 | | | $ | 211 | | | $ | 6,429 | | | $ | 7,557 | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year ended March 31, 2014 | | | - | | | | - | | | | - | | | | 857 | | | | 857 | | | Other comprehensive loss, net of tax | | | - | | | | - | | | | (11 | ) | | | - | | | | (11 | ) | | Dividends | | | - | | | | - | | | | - | | | | (665 | ) | | | (665 | ) | | Balance at March 31, 2014 | | $ | 915 | | | $ | 2 | | | $ | 200 | | | $ | 6,621 | | | $ | 7,738 | | | $ | 915 | | | $ | 2 | | | $ | 200 | | | $ | 6,621 | | | $ | 7,738 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income for the year ended March 31, 2015 | | | - | | | | - | | | | - | | | | 1,197 | | | | 1,197 | | | Net income | | | | - | | | | - | | | | - | | | | 1,197 | | | | 1,197 | | Other comprehensive income, net of tax | | | - | | | | - | | | | 20 | | | | - | | | | 20 | | | | - | | | | - | | | | 20 | | | | - | | | | 20 | | Dividends | | | - | | | | - | | | | - | | | | (435 | ) | | | (435 | ) | | | - | | | | - | | | | - | | | | (435 | ) | | | (435 | ) | Balance at March 31, 2015 | | $ | 915 | | | $ | 2 | | | $ | 220 | | | $ | 7,383 | | | $ | 8,520 | | | $ | 915 | | | $ | 2 | | | $ | 220 | | | $ | 7,383 | | | $ | 8,520 | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | - | | | | - | | | | - | | | | 932 | | | | 932 | | Other comprehensive loss, net of tax | | | | - | | | | - | | | | (55 | ) | | | - | | | | (55 | ) | Balance at March 31, 2016 | | | $ | 915 | | | $ | 2 | | | $ | 165 | | | $ | 8,315 | | | $ | 9,397 | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | - | | | | - | | | | - | | | | 267 | | | | 267 | | Other comprehensive loss, net of tax | | | | - | | | | - | | | | (140 | ) | | | - | | | | (140 | ) | Balance at March 31, 2017 | | | $ | 915 | | | $ | 2 | | | $ | 25 | | | $ | 8,582 | | | $ | 9,524 | |
SeeRefer to the accompanying Notes to Consolidated Financial Statements.
TOYOTA MOTOR CREDIT CORPORATION CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS (Dollars in millions) | | Years ended March 31, | | | Years Ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 1 | | | 2013 1 | | | | | | 2017 | | | 2016 | | | 2015 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 1,197 | | | $ | 857 | | | $ | 1,331 | | | $ | 267 | | | $ | 932 | | | $ | 1,197 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 4,895 | | | | 4,045 | | | | 3,604 | | | | 6,916 | | | | 5,965 | | | | 4,895 | | Recognition of deferred income | | | (1,539 | ) | | | (1,278 | ) | | | (1,191 | ) | | | (1,779 | ) | | | (1,713 | ) | | | (1,539 | ) | Provision for credit losses | | | 308 | | | | 170 | | | | 121 | | | | 582 | | | | 441 | | | | 308 | | Amortization of deferred costs | | | 628 | | | | 589 | | | | 541 | | | | 625 | | | | 620 | | | | 569 | | Foreign currency and other adjustments to the carrying value of debt, net | | | (2,380 | ) | | | (205 | ) | | | (1,103 | ) | | | (704 | ) | | | 1,195 | | | | (2,321 | ) | Net realized (gains) from sales and other-than-temporary impairment on securities | | | (70 | ) | | | - | | | | (21 | ) | | Net realized gains from sales and other-than-temporary impairment on available-for-sale securities | | | | (226 | ) | | | (6 | ) | | | (70 | ) | Gain on sale of commercial finance business | | | | - | | | | (197 | ) | | | - | | Net change in: | | | | | | | | | | | | | | | | | | | | | | | | | Restricted cash | | | (140 | ) | | | (153 | ) | | | 191 | | | | (77 | ) | | | (226 | ) | | | (140 | ) | Derivative assets | | | (4 | ) | | | 9 | | | | 12 | | | | 17 | | | | (15 | ) | | | (4 | ) | Other assets (Note 8) and accrued income | | | (350 | ) | | | 87 | | | | 37 | | | Other assets (Note 8) and accrued interest | | | | (167 | ) | | | 66 | | | | (350 | ) | Deferred income taxes | | | 760 | | | | 516 | | | | 792 | | | | (3 | ) | | | 531 | | | | 760 | | Derivative liabilities | | | 84 | | | | (11 | ) | | | (50 | ) | | | 39 | | | | (83 | ) | | | 84 | | Other liabilities | | | 378 | | | | 248 | | | | 134 | | | | 347 | | | | 329 | | | | 378 | | Net cash provided by operating activities | | | 3,767 | | | | 4,874 | | | | 4,398 | | | | 5,837 | | | | 7,839 | | | | 3,767 | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Purchases of investments in marketable securities | | | (6,164 | ) | | | (5,114 | ) | | | (5,279 | ) | | Purchase of investments in marketable securities | | | | (3,702 | ) | | | (7,447 | ) | | | (6,164 | ) | Proceeds from sales of investments in marketable securities | | | 991 | | | | 596 | | | | 385 | | | | 875 | | | | 914 | | | | 991 | | Proceeds from maturities of investments in marketable securities | | | 3,529 | | | | 4,510 | | | | 4,261 | | | | 3,656 | | | | 7,026 | | | | 3,529 | | Acquisition of finance receivables | | | (25,584 | ) | | | (25,790 | ) | | | (25,604 | ) | | | (25,497 | ) | | | (24,956 | ) | | | (25,584 | ) | Collection of finance receivables | | | 24,602 | | | | 23,961 | | | | 22,941 | | | | 24,324 | | | | 24,523 | | | | 24,602 | | Net change in wholesale and certain working capital receivables | | | 222 | | | | (804 | ) | | | (1,887 | ) | | | (1,859 | ) | | | (512 | ) | | | 222 | | Acquisition of investments in operating leases | | | (16,969 | ) | | | (14,410 | ) | | | (10,395 | ) | | | (17,947 | ) | | | (19,917 | ) | | | (16,969 | ) | Disposals of investments in operating leases | | | 6,444 | | | | 6,636 | | | | 5,603 | | | | 10,230 | | | | 8,283 | | | | 6,444 | | Net change in financing support provided (to) from affiliates | | | (12 | ) | | | (241 | ) | | | 120 | | | Cash equivalents un-restricted (restricted) to acquire finance receivables and investment in operating leases | | | 1,077 | | | | (1,077 | ) | | | - | | | Proceeds from sale of commercial finance business | | | | - | | | | 2,317 | | | | - | | Net change in financing support provided to affiliates | | | | 354 | | | | 7 | | | | (12 | ) | Cash equivalents unrestricted to acquire finance receivables and investment in operating leases, net | | | | - | | | | - | | | | 1,077 | | Other, net | | | (57 | ) | | | (45 | ) | | | (31 | ) | | | (110 | ) | | | (68 | ) | | | (57 | ) | Net cash used in investing activities | | | (11,921 | ) | | | (11,778 | ) | | | (9,886 | ) | | | (9,676 | ) | | | (9,830 | ) | | | (11,921 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | | Proceeds from issuance of debt | | | 25,817 | | | | 20,226 | | | | 22,230 | | | | 28,817 | | | | 25,564 | | | | 25,817 | | Payments on debt | | | (17,934 | ) | | | (16,662 | ) | | | (16,929 | ) | | | (23,463 | ) | | | (22,865 | ) | | | (17,934 | ) | Net change in commercial paper | | | (704 | ) | | | 3,123 | | | | 3,349 | | | | (12 | ) | | | (410 | ) | | | (704 | ) | Net change in financing support provided by affiliates | | | 2 | | | | (26 | ) | | | (2,012 | ) | | | (6 | ) | | | (4 | ) | | | 2 | | Dividend paid to TFSA | | | (435 | ) | | | (665 | ) | | | (1,487 | ) | | Dividend paid to TFSIC | | | | - | | | | - | | | | (435 | ) | Net cash provided by financing activities | | | 6,746 | | | | 5,996 | | | | 5,151 | | | | 5,336 | | | | 2,285 | | | | 6,746 | | Net decrease in cash and cash equivalents | | | (1,408 | ) | | | (908 | ) | | | (337 | ) | | Net increase (decrease) in cash and cash equivalents | | | | 1,497 | | | | 294 | | | | (1,408 | ) | Cash and cash equivalents at the beginning of the period | | | 3,815 | | | | 4,723 | | | | 5,060 | | | | 2,701 | | | | 2,407 | | | | 3,815 | | Cash and cash equivalents at the end of the period | | $ | 2,407 | | | $ | 3,815 | | | $ | 4,723 | | | $ | 4,198 | | | $ | 2,701 | | | $ | 2,407 | | Supplemental disclosures: | | | | | | | | | | | | | | | | | | | | | | | | | Interest paid | | $ | 1,048 | | | $ | 1,102 | | | $ | 1,258 | | | Interest paid, net | | | $ | 1,406 | | | $ | 1,190 | | | $ | 1,048 | | Income taxes paid (received), net | | $ | 143 | | | $ | (30 | ) | | $ | 21 | | | $ | 53 | | | $ | (95 | ) | | $ | 143 | |
SeeRefer to the accompanying Notes to Consolidated Financial Statements.
1
| Certain prior period amounts have been reclassified to conform to the current period presentation.
|
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies Nature of Operations Toyota Motor Credit Corporation was incorporated in California in 1982 and commenced operations in 1983. References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries. We are(“TMCC”) is wholly-owned by Toyota Financial Services AmericasInternational Corporation (“TFSA”TFSIC”), a California corporation, which is a wholly-owned subsidiary of Toyota Financial Services Corporation (“TFSC”), a Japanese corporation. Prior to July 1, 2016, TFSIC was known as Toyota Financial Services Americas Corporation. TFSC, in turn, is a wholly-owned subsidiary of Toyota Motor Corporation (“TMC”), a Japanese corporation. TFSC manages TMC’s worldwide financial services operations. References herein to “we”, “our”, and “us” denote TMCC and its consolidated subsidiaries. TMCC is marketed under the brands of Toyota Financial Services and Lexus Financial Services. We provide a variety of finance and insurance products to authorized Toyota (including Scion) and Lexus vehicle dealers or dealer groups and, to a lesser extent, other domestic and import franchise dealers (collectively referred to as “vehicle dealers”“dealers”) and their customers in the United States of America (excluding Hawaii) (the “U.S.”) includingand Puerto Rico. Our business is substantially dependent upon the sale of Toyota and Lexus andvehicles. Vehicles manufactured under the Scion vehicles.brand were transitioned to the Toyota brand in August 2016. Our products fall primarily into the following product categories: ·
| Finance - We acquire a broad range of retail finance products including consumer and commercial installment sales contracts (“retail contracts”) in the U.S. and Puerto Rico and leasing contracts accounted for as either direct finance leases or operating leases (“lease contracts”) from vehicle and industrial equipment dealers in the U.S. We also provide dealer financing, including wholesale financing (also referred to as floorplan financing), working capital loans, revolving lines of credit and real estate financing to vehicle and industrial equipment dealers in the U.S. and Puerto Rico.
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Finance - We acquire retail installment sales contracts from dealers in the U.S. and Puerto Rico (“retail contracts”) and leasing contracts accounted for as operating leases (“lease contracts”) from dealers in the U.S. We collectively refer to our retail and lease contracts as the “consumer portfolio”. We also provide dealer financing, including wholesale financing, working capital loans, revolving lines of credit and real estate financing to dealers in the U.S. and Puerto Rico. We collectively refer to our dealer financing portfolio as the “dealer portfolio”. ·
| Insurance - Through Toyota Motor Insurance Services, Inc., a wholly-owned subsidiary, and its insurance company subsidiaries (collectively referred to as “TMIS”), we provide marketing, underwriting, and claims administration related to covering certain risks of vehicle dealers and their customers. We also provide coverage and related administrative services to certain of our affiliates in the U.S.
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Insurance - Through Toyota Motor Insurance Services, Inc., a wholly-owned subsidiary, and its insurance company subsidiaries (collectively referred to as “TMIS”), we provide marketing, underwriting, and claims administration for products that cover certain risks of dealers and their customers in the U.S. We also provide coverage and related administrative services to certain of our affiliates in the U.S. Our primary finance operations are located in the U.S. and Puerto Rico with earning assets principally sourced through Toyota and Lexus vehicle dealers. As of March 31, 2015,2017, approximately 2122 percent of vehicle retail contracts and lease assetscontracts were concentrated in California, 1011 percent in Texas, 8 percent in New York, and 65 percent in New Jersey. Our insurance operations are located in the U.S. As of March 31, 2015,2017, approximately 26 percent of insurance policies and contracts were concentrated in California, 7 percent in New York and 65 percent in New Jersey. Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our financial condition and results of operations. In December 2014, we entered into an agreement for the sale of certain assets and liabilities related to our industrial equipment retail, lease, and dealer portfolios (hereinafter the “commercial finance business”) to Toyota Industries Commercial Finance, Inc. (“TICF”), a newly-formed subsidiary of Toyota Industries Corporation, which forms part of the group of companies known as the Toyota Group and is a related party to TMCC. As discussed in our Form 10-K for fiscal 2016, the sale was completed on October 1, 2015 and resulted in cash proceeds of $2.3 billion and a gain of $197 million that was reflected in our results of operations in fiscal 2016. The sale of our commercial finance business did not meet the criteria to be presented as a discontinued operation.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Basis of Presentation Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (U.S. GAAP)(“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to the current year presentation. Related party transactions presented in the Consolidated Financial Statements are disclosed in Note 15 – Related Party Transactions. 74
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Principles of Consolidation The consolidated financial statements include the accounts of TMCC, its wholly-owned subsidiaries and all variable interest entities (“VIE”) of which we are the primary beneficiary. All intercompany transactions and balances have been eliminated. Variable Interest Entities A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE. To assess whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider all the facts and circumstances including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of athe VIE. To assess whether we have the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, we consider all of our economic interests, including debt and equity interests, servicing rights and fee arrangements, and any other variable interests in the VIE. If we determine that we are the party with the power to make the most significant decisions affecting the VIE, and we have an obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, then we consolidate the VIE. We perform ongoing reassessments, usually quarterly, of whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired or divested the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs, based on new events, and therefore arecould be subject to the VIE consolidation framework. Refer to Note 10 – Variable Interest Entities for additional discussion and disclosure.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. Because of inherent uncertainty involved in making estimates, actual results could differ from those estimates and assumptions. The accounting estimates that are most important to our business are the determination of residual value relating to our investments in operating leases and the allowance for credit losses as well as estimates related to the fair value of our derivative instruments, marketable securities and marketable securities. 75
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)other financial instruments.
Revenue Recognition Retail and Dealer Financing Revenues
Revenues associated with retail and dealer financing are recognized so as to approximate a constant effective yield over the contract term. Incremental direct fees and costs incurred in connection with the acquisition of retail contracts and dealer financing receivables, including incentive and rate participation payments made to vehicle and industrial equipment dealers, are capitalized and amortized so as to approximate a constant effective yield over the expected term of the related contracts. Expected term is based on historical experience. Payments received on affiliate sponsored special rate programs (“subvention”) are deferred and recognized to approximate a constant effective yield over the term of the related contracts. Included in financing revenues are other fees, including late fees and other service charges, the amounts of which are not significant to total financing revenues.
Operating Lease Revenues Operating lease revenues are recorded to income on a straight-line basis over the term of the lease. Incremental direct fees and costs received or paid in connection with the acquisition of operating leases, including incentive and rate participation payments made to vehicle and industrial equipment dealers and acquisition fees collected from customers, are capitalized or deferred and amortized on a straight-line basis over the expected term of the related contract. Expected term is based on historical experience.contracts. Payments received on subventionaffiliate sponsored special rate programs (“subvention”) are deferred and recognized on a straight-line basis over the term of the related contracts. Operating lease revenue is recorded net of sales taxes collected from customers. Included in operating lease revenues are other fees, including late fees and other service charges, the amounts of which are not significant to total operating lease revenue. Direct Finance LeaseRetail and Dealer Financing Revenues
Revenue isRevenues associated with retail and dealer financing are recognized over the lease term so as to approximate a constant effective yield onover the outstanding net investment.contract term. Incremental direct fees and costs and fees paid or receivedincurred in connection with the acquisition of direct finance leases,retail contracts and dealer financing receivables, including incentive and rate participation payments made to vehicle and industrial equipment dealers, and acquisition fees collected from customers, are capitalized or deferred and amortized so as to approximate a constant effective yield over the term of the related contracts. Payments received on subvention programs are deferred and recognized to approximate a constant effective yield over the term of the related contracts. Included in direct finance leasefinancing revenues are other fees, including late fees and other service charges, the amounts of which are not significant to total direct finance lease revenue.financing revenues.
7673
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Insurance Earned Premiums and Contract Revenues Revenues from providing coverage under various contractual agreements are recognized over the term of the coverage in relation to the timing and level of anticipated claims and administrative expenses. Revenues from insurance policies, net of premiums ceded to reinsurers, are earned over the terms of the respective policies in proportion to the estimated loss development. Management relies on historical loss experience as a basis for establishing earnings factors used to recognize revenue over the term of the contract or policy. The portion of premiums and contract revenues applicable to the unexpired terms of the agreements is recorded as unearned insurance premiums and contract revenues. AgreementsPolicies and contracts sold range in term from 3 to 120 months. Certain costs of acquiring new business,policies and contracts, consisting primarily of dealer commissions and premium taxes, are deferred and amortized over the term of the related policies on the same basis as the revenues are earned. The effect of subsequent cancellations is recorded as an offset to unearned insurance premiums and contract revenues. Service commissions and fees are recognized over the term of the coverage in relation to the timing of services performed. The effect of subsequent cancellations is recorded as an offset to unearned insurance premiums and contract revenues. Depreciation on Operating Leases Depreciation on vehicle operating leases is recognized using the straight-line method over the lease term, typically two to five years. The depreciable basis is the original acquisition cost of the vehicle less the estimated residual value of the vehicle at the end of the lease term. During the lease term, adjustments to depreciation expense reflecting revised estimates of expected residual values at the end of the lease terms are recorded prospectively on a straight-line basis.basis over the remaining lease term.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Allowance for Credit Losses We maintain an allowance for credit losses to cover probable and estimable losses incurred on our finance receivables and investments in operating leases resulting from the failure of customers or dealers to make contractual payments. Management evaluates the allowance at least quarterly, considering a variety of factors and assumptions to determine whether the allowance is considered adequate to cover probable and estimable losses incurred as of the balance sheet date. The allowance for credit losses is management’s estimate of the amount of probable incurred credit losses in our existing finance receivables and investment in operating leases portfolios. 77
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Management develops and documents the allowance for credit losses on finance receivables based on threetwo portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of our business operations and the characteristics of the underlying finance receivables. On October 1, 2015, we completed the sale of our commercial finance business segment to TICF. Subsequent to this sale we have the following two portfolio segments within finance receivables: Retail Loan Portfolio Segment – The retail loan portfolio segment consists of retail contracts acquired from dealers in the U.S. and Puerto Rico. Under a retail contract, we are granted a security interest in the underlying collateral which consists primarily of Toyota and Lexus vehicles. Based on the common risk characteristics associated with the finance receivables, the retail loan portfolio segment is considered a single class of finance receivable. Dealer Products Portfolio Segment – The dealer products portfolio segment consists of wholesale financing, working capital loans, revolving lines of credit and real estate loans to dealers in the U.S. and Puerto Rico. Wholesale financing is primarily collateralized by new or used vehicle inventory with the outstanding balance fluctuating based on the level of inventory. Working capital loans and revolving lines of credit are granted for working capital purposes and are secured by dealership assets. Real estate loans are collateralized by the underlying real estate, are underwritten primarily on a loan-to-value basis and are typically for a fixed term. Based on the risk characteristics associated with the underlying finance receivables, the dealer products portfolio segment consists of three classes of finance receivables: wholesale, working capital (including revolving lines of credit), and real estate. We also separately develop and document the allowance for credit losses for investments in operating leases. Investments in operating leases are not within the scope of accounting guidance governing the disclosure of portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of our business operations and the characteristics of the underlying finance receivables. The three portfolio segments within finance receivables, net are: ·
| Retail Loan Portfolio Segment – The retail loan portfolio segment consists of retail contracts acquired from vehicle dealers in the U.S. and Puerto Rico (“retail loan contracts”). Under a retail loan contract, we are granted a security interest in the underlying collateral which consists primarily of Toyota, Scion or Lexus vehicles. Based on the common risk characteristics associated with the finance receivables, the retail loan portfolio segment is considered a single class of finance receivable.
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| Commercial Portfolio Segment – The commercial portfolio segment consists of commercial contracts (“commercial loan contracts”) and leasing contracts accounted for as direct finance leases acquired from commercial truck and industrial equipment dealers in the U.S. Under commercial loan and direct finance leases, we are granted a security interest in the underlying collateral which consists of various types of commercial trucks and industrial equipment. Based on the common risk characteristics associated with the finance receivables and the similarity of the credit risk with respect to the two types of contracts, the commercial portfolio segment is considered a single class of finance receivable.
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| Dealer Products Portfolio Segment – The dealer products portfolio segment consists of wholesale financing (also referred to as floorplan financing), working capital loans, revolving lines of credit and real estate financing to vehicle and industrial equipment dealers in the U.S. and Puerto Rico. Wholesale loans are primarily collateralized by new or used vehicle or equipment inventory with the outstanding balance fluctuating based on the level of inventory. Real estate loans are collateralized by the underlying real estate, are underwritten on a loan-to-value basis and are typically for a fixed term. Working capital loans and revolving lines of credit are granted for working capital purposes and are secured by dealership assets. Based on the risk characteristics associated with the underlying finance receivables, the dealer products portfolio segment consists of three classes of finance receivables: wholesale, real estate, and working capital.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Methodology Used to Develop the Allowance for Credit Losses Retail Loan Portfolio Segment and Investments in Operating Leases The level of credit risk in our retail loan portfolio segment and our investments in operating leases is influenced primarily by two factors: default frequency and loss severity, which in turn are influenced by various factors such as economic conditions, the used vehicle market, purchase quality mix, contract term length, and operational changes.collection strategies and practices. We evaluate the retail loan portfolio segment and investments in operating leases using methodologies that include roll rate, credit risk grade/tier, and vintage analysis. We review and analyze external factors, including changes in economic conditions, actual or perceived quality, safety and reliability of Toyota Lexus and ScionLexus vehicles, unemployment levels, the used vehicle market, and consumer behavior. In addition, internal factors, such as purchase quality mix and operational changes are also considered in the reviews. Commercial Portfolio Segment
The level of credit risk in our commercial portfolio segment is influenced primarily by two factors: default frequency and loss severity, which in turn are influenced by various economic factors, the used equipment and truck markets, purchase quality mix, contract term length, and operational changes.analyses.
We evaluateutilize a loss emergence period assumption in developing our allowance for credit losses. This assumption represents the commercial portfolio segmentaverage length of time between when a loss event first occurs and when the account is charged off. We apply judgment in estimating the loss emergence period using methodologies that include product grouping analysis, historical lossavailable credit information and loss frequency by product. We review and analyze external factors, including changes in economic conditions, unemployment level, and the used equipment and truck markets. In addition, internal factors, such as purchase quality mix and operational changes, are also considered in the reviews.trends. Dealer Products Portfolio Segment The level of credit risk in our dealer products portfolio segment is influenced primarily by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors. The financial strength of dealers within our portfolio is influenced by, among other factors, general economic conditions, the overall demand for new and used vehicles and industrial equipment and the financial condition of automotive manufacturers in general.manufacturers. We evaluate the dealer portfolio by aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by either vehicles, and industrial equipment, real estate or dealership assets, or unsecured)assets). We analyze the dealerloan-risk pools using internally developed risk ratings for each dealer. We also utilize a loss emergence period assumption in developing our allowance for credit losses. The loss emergence period represents the time period between the date at which the loss event is estimated to have occurred and the ultimate realization of that loss through charge-off. In addition, field operations management and our special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established, as appropriate, and the loan is removed from the loan-risk pool for separate monitoring. 7976
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Accounting for the Allowance for Credit Losses and Impaired Receivables The majority of the allowance for credit losses covers estimated losses on the retail loan portfolio segment which is collectively evaluated for impairment. The remainder of the allowance for credit losses covers the estimated losses on investments in operating leases and the dealer products portfolio segment, and the commercial portfolio segment. Within the dealer products portfolio segment, we establish specific reserves to cover the estimated losses on individual impaired loans (including loans modified in a troubled debt restructuring). The specific reserves are assessed based on discounted cash flows, the loan’s observable market price, or the fair value of the underlying collateral if the loan is collateral dependent. Troubled debt restructurings in the retail loan and commercial portfolio segmentssegment are aggregated with their respective portfolio segments when determining the allowance for credit losses. These loans are homogenous in nature and insignificant for individual evaluation and we have determined that the allowance for credit losses for each of the retail loan and commercial portfolio segmentssegment would not be materially different if theythe loans had been individually evaluated for impairment. Increases to the allowance for credit losses are accompanied by corresponding charges to the provisionProvision for credit losses on theour Consolidated StatementStatements of Income. The uncollectible portion of finance receivables and investments in operating leases is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is greater than 120 days past due. In the event we repossess the collateral, the receivable is charged-off and we record the collateral at its estimated fair value less costs to sell and report it in Other Assetsassets in theour Consolidated Balance Sheet.Sheets. Recoveries of finance receivables and investments in operating leases previously charged off as uncollectible are credited to the allowance for credit losses. Refer to Note 6 – Allowance for Credit Losses for additional discussion and disclosure. Insurance Losses and Loss Adjustment Expenses Insurance losses and loss adjustment expenses include amounts paid and accrued for loss events that are known and have been recorded as claims, estimates of losses incurred but not reported that are based on actuarial estimates and historical loss development patterns, and loss adjustment expenses that are expected to be incurred in connection with settling and paying these claims. Accruals for unpaid losses, losses incurred but not reported, and loss adjustment expenses are included in otherOther liabilities in theour Consolidated Balance Sheet.Sheets. These accruals arising from contractual agreements entered into by TMIS are not significant as of March 31, 2017 and 2016. Estimated liabilities are reviewed regularly, and we recognize any adjustments in the periods in which they are determined. If anticipated losses, loss adjustment expenses, and unamortized acquisition and maintenance costs exceed the recorded unearned premium, a premium deficiency is recognized by first charging any unamortized acquisition costs to expense and then by recording a liability for any excess deficiency. Cash Equivalents Cash equivalents which consist of money market instruments, commercial paper and certificates of deposit, represent highly liquid investments with maturities of three months or less at purchase.purchase and may include money market instruments, commercial paper, certificates of deposit or similar instruments. Restricted Cash and Cash Equivalents Restricted cash represents proceeds from certain debt issuances for which the use of the cash is restricted, as well asincludes customer collections on securitized receivables to be distributed to investors as payments on the related secured debt, and certain reserve deposits held forwhich are primarily related to securitization trusts. Restricted cash equivalents representmay also contain amounts unrelated to financing activities which are restricted as to use and proceeds from certain debt issuances for which the issuanceuse of debt secured by retail loans in March 2014. The proceeds from this issuance were restricted to be used solely to acquire retail and lease contracts financing new Toyota and Lexus vehicles of certain specified “green” models. These amounts were fully utilized as of March 31, 2015.the cash is restricted. 8077
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Investments in Marketable Securities Investments in marketable securities consist of debt and equity securities. Debt and equity securities designated as available-for-sale (“AFS”) are recorded at fair value using quoted market prices where available with unrealized gains or losses included in accumulated other comprehensive income (“AOCI”), net of applicable taxes in the Consolidated Statement of Shareholder’s Equity.taxes. Realized gains and losses are determined using either the specific identification method or first in first out method, depending on the type of investment in our portfolio. Realized investment gains and losses are reflected in Investment and other income, net in the Consolidated Statement of Income. Other-than-Temporary Impairment An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in AOCI. We conduct periodic reviews of securities in unrealized loss positions for the purpose of evaluating whether the impairment is other-than-temporary. As part of our ongoing assessment of other-than-temporary impairment (“OTTI”), we consider a variety of factors. Such factors include the length of time and extent to which the market value of a security has been less than amortized cost, adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of the security and the volatility of the fair value changes. An OTTI loss with respect to debt securities must be recognized in earnings if we have the intent to sell the debt security or it is more likely than not that we will be required to sell the debt security before recovery of its amortized cost basis. If we have the intent to sell, the cost basis of the security is written down to fair value and the write downloss is reflected in Investment and other income,Realized gains, net on investments in themarketable securities in our Consolidated StatementStatements of Income. If we have no intent to sell and we believe that it is more likely than not we will not be required to sell these securities prior to recovery, the credit loss component of the unrealized losses is recognized in Investment and other income,Realized gains, net on investments in themarketable securities in our Consolidated StatementStatements of Income, while the remainder of the loss is recognized in AOCI. The credit loss component recognized in Investment and other income,Realized gains, net on investments in themarketable securities in our Consolidated StatementStatements of Income is identified as the portion of the amortized cost of the security not expected to be collected over the remaining term as projected using a cash flow analysis for debt securities. We perform periodic reviews of our AFS equity securities to determine whether unrealized losses are temporary in nature. We consider our intent and ability to hold the security for a period of time sufficient for recovery of fair value. Where we lack that intent or ability, the equity security’s decline in fair value is deemed to be other-than-temporary. If losses are considered to be other-than-temporary, the cost basis of the security is written down to fair value and the write downloss is reflected in Investment and other income,Realized gains, net on investments in themarketable securities in our Consolidated StatementStatements of Income. Refer to Note 3 – Investments in Marketable Securities for additional discussion and disclosure. 81
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Finance Receivables Our finance receivables consist of the retail loan commercial and the dealer products portfolio segments. Finance receivables recorded on our balance sheet include accrued interest and deferred fees and costs, net of the allowance for credit losses, certain other dealer funds and deferred income. Direct finance leases are recorded on our balance sheet as the aggregate future minimum lease payments, contractual residual value of the leased vehicle or industrial equipment, and deferred income. Finance receivables are classified as held-for-investment if the Company has the intent and ability to hold the receivables for the foreseeable future or until maturity or payoff. As of March 31, 20152017 and 2014,2016, all finance receivables were classified as held-for-investment. Impaired Finance Receivables A finance receivable account balance is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying loan agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether a loanfinance receivable is impaired. Troubled Debt Restructurings A troubled debt restructuring occurs when an accounta finance receivable is modified through a concession to a borrower experiencing financial difficulty. An accountA finance receivable modified under a troubled debt restructuring is considered to be impaired. In addition, troubled debt restructurings include accountsfinance receivables for which the customer has filed for bankruptcy protection. For such accounts,finance receivables, we no longer have the ability to modify the terms of the agreement without the approval of the bankruptcy court and the court may impose term modifications that we are obligated to accept. Nonaccrual Policy Retail Loan Portfolio Segment The accrual of revenue is discontinued at the time a retail loan finance receivable is determined to be uncollectible. These finance receivables may be restored to accrual status only when a customer settles all past due deficiency balances and future payments are reasonably assured. For these finance receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are applied first to outstanding interest and then to the unpaid principal balance. Dealer Products Portfolio Segment Impaired receivables in the dealer productproducts portfolio segment are placed on nonaccrual status if full payment of principal or interest is in doubt, or when principal or interest is 90 days or more past due. Interest accrued, but not collected at the date a receivable is placed on nonaccrual status, is reversed against interest income. In addition, the amortization of net deferred fees is suspended. Interest income on nonaccrual receivables is recognized only to the extent it is received in cash. AccountsFinance receivables are restored to accrual status only when interest and principal payments are brought current and future payments are reasonably assured. Receivable balancesFinance receivables in the dealer products portfolio segment are charged off against the allowance for credit losses when the loss has been realized. Retail LoanRefer to Note 4 – Finance Receivables, Net for additional discussion and Commercial Portfolio Segments
The accrual of revenue is discontinued at the time a receivable is determined to be uncollectible (generally after 120 days past due). Accounts may be restored to accrual status only when a customer settles all past due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.disclosure.
8279
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Investments in Operating Leases We record our investments in operating leases at acquisition cost, net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Nonaccrual Policy The accrual of revenue on investments in operating leases is discontinued at the time an account is determined to be uncollectible (generally after 120 daysuncollectible. Operating leases may be restored to accrual status only when a customer settles all past due).due deficiency balances and future payments are reasonably assured. For investments in operating leases in non-accrual status, subsequent operating lease revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance. Determination of Residual Value Substantially all of our residual value risk relates to our vehicle lease portfolio. Residual values of lease earning assetscontracts are estimated at lease inception by examining external industry data, the anticipated Toyota Lexus and ScionLexus product pipeline and our own experience. Factors considered in this evaluation include, but are not limited to, local, regional and national economic forecasts, new vehicle pricing, new vehicle incentive programs, new vehicle sales, future plans for new Toyota Lexus and ScionLexus product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix and level of used vehicle supply, the level of current used vehicle values, buying and leasing behavior trends, and fuel prices. We use various channels to sell vehicles returned at lease end.lease-end.
On a quarterly basis, we review the estimated end-of-term market values of leased vehicles to assess the appropriateness of the carrying values at lease end.lease-end. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward, thereby adjusting depreciation expense, so that the carrying value at lease end will approximate the estimated end-of-term market value. Factors affecting the estimated end-of-term market value are similar to those considered in the evaluation of residual values at lease inception discussed above. These factors are evaluated in the context of their historical trends to anticipate potential future changes in the relationship among these factors. For investments in operating leases, adjustments to depreciation expense are made prospectively on a straight-line basis over the remaining terms of the leases and are included in depreciationDepreciation on operating leases in theour Consolidated StatementStatements of Income. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included under our retail revenues in the Consolidated Statement of Income. We reviewevaluate our investmentsinvestment in operating leases portfolio for potential impairment whenever events or changes in circumstances indicate that the carrying value of the operating leases may not be recoverable. If such events or changes in circumstances are present,when we determine a triggering event has occurred. When a triggering event has occurred, we perform a test forof recoverability by comparing the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms to the carrying value of the asset group. If the test forof recoverability identifies a possible impairment, the asset group'sgroup’s fair value is measured in accordance with the fair value measurement framework. An impairment charge iswould be recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value and iswould be recorded in the current periodour Consolidated StatementStatements of Income. Refer to Note 5 – Investments in Operating Leases, Net for additional discussion and disclosure. 83
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Used Vehicles Held for Sale Used vehicles held for sale, reported in Other assets in our Consolidated Balance Sheets, consist of off-lease vehicles and repossessed vehicles. These vehicles are recorded at the lower of their carrying value or estimated fair value less costs to sell. These vehicles are sold promptly after grounding or repossession. Debt Issuance Costs Costs that are direct and incremental to debt issuance are capitalizeddeferred and amortized to interest expense on an effective yield basis over the contractual term of the debt. These costs are presented as a direct deduction from the carrying value of the related debt liability and reported in Debt in our Consolidated Balance Sheets. All other costs related to debt issuance are expensed as incurred. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If quoted prices in an active market are available, fair value is determined by reference to these prices. If quoted prices are not available, fair value is determined by valuation models that primarily use, as inputs, market-based or independently sourced parameters, including but not limited to interest rates, volatilities, foreign exchange rates and credit curves. Additionally, we may reference prices for similar instruments, quoted prices or recent transactions in less active markets. We use prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the availability of prices and inputs may be reduced for certain financial instruments. This condition could result in a financial instrument being reclassified from Level 1 to Level 2 or from Level 2 to Level 3. Level 1: Quoted (unadjusted) prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices in active markets for similar assets and liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Unobservable inputs that are supported by little or no market activity and may require significant judgment in order to determine the fair value of the assets and liabilities. The use of observable and unobservable inputs is reflected in the fair value hierarchy assessment disclosed in the tables within this document. The availability of observable inputs can vary based upon the financial instrument and other factors, such as instrument type, market liquidity and other specific characteristics particular to the financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires additional judgment by management. The degree of unobservable inputs can result in financial instruments being classified as or transferred to the Level 3 category. 8481
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Valuation Methods We maintain policies and procedures to value financial instruments using the best and most relevant data available. Our Treasury Risk and Analytics Group (“TR&A”) is responsible for determining the fair value of our financial instruments. TR&A consists of quantitative analysts and risk and accounting professionals. Using benchmarking techniques, TR&A reviews our valuation pricing models at least annually to assess their ongoing propriety. As markets and products develop and the pricing for certain products becomes more or less transparent, TR&A refines its valuation methodologies. TR&A reviews the appropriateness of fair value measurements including validation processes, key model inputs, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. Where possible, valuations, including both internally and externally obtained transaction prices, are validated against independent valuation sources. Our Fair Value Working Group (“FVWG”) reviews and approves the fair value measurement results and other relevant data quarterly. The FVWG consists of a cross-section of internal stakeholders who are knowledgeable in the area of financial valuations. All changes to our valuation methodologies are reviewed and approved by the FVWG. We conduct reviews of our primary pricing vendors to understand and assess the reasonableness of inputs used in their pricing process. While we do not have access to our vendors’ proprietary models, we perform detailed reviews of the pricing process, methodologies and control procedures for each asset class for which prices are provided. Our reviews include examination of the underlying inputs and assumptions for a sample of individual securities selected based on the nature and complexity of the securities. In addition, our pricing vendors have established processes in place for all valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that theThe prices received from our pricing vendors, which represent fair value, are representative of prices that would be received to sell the assets or paid to transfer the liabilities at the measurement date and are classified appropriately in the hierarchy. Valuation Adjustments We may make valuation adjustments to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, our own creditworthiness, as well as constraints due to market illiquidity or unobservable parameters. Counterparty Credit Valuation Adjustments – Adjustments are required when the market price (or parameter) is not indicative of the credit quality of the counterparty. Non-Performance Credit Valuation Adjustments – Adjustments reflect our own non-performance risk when our liabilities are measured at fair value. Liquidity Valuation Adjustments – Adjustments are necessary when we are unable to observe prices for a financial instrument due to market illiquidity.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Recurring Fair Value Measurements Cash Equivalents Cash equivalents include money market instruments, commercial paper and certificates of deposits,deposit, U.S. government and agency obligations or similar instruments, which represent highly liquid investments with maturities of three months or less at purchase. Where money market fundscash equivalent instruments produce a daily net asset value in an active market, we use this value to determine the fair value of the fund investment and classify the investment in Level 1 of the fair value hierarchy. All other types of cash equivalents are classified in Level 2 of the fair value hierarchy.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies (Continued)
Investments in Marketable Securities The marketable securities portfolio consists of debt and equity securities. We estimate the value of our debt securities using observed transaction prices, independent pricing vendors, and internal pricing models. Pricing methodologies and inputs to valuation models used by the pricing vendors depend on the security type. Where possible, quoted prices in active markets for identical securities are used to determine the fair value of the investment securities; these securities are classified in Level 1 of the fair value hierarchy. Where quoted prices in active markets are not available, the pricing vendor uses various pricing models for each asset class that are consistent with what market participants use. The inputs and assumptions to the models of the pricing vendors are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the pricing vendors use applicable available information, such as benchmark curves, benchmarking of similar securities, sector groupings, and matrix pricing. These investments are classified in Level 2 of the fair value hierarchy. Our pricing vendors may provide us with valuations that are based on significant unobservable inputs; in such circumstances, we classify these investments in Level 3 of the fair value hierarchy. Valuations obtained from third party pricing vendors are validated to assess their reasonableness. We may hold investments in actively traded open-end equity and fixed income mutual funds, andas well as private placement fixed income mutual funds. Where the funds produce a daily net asset value that is quoted in an active market, we use this value to determine the fair value of the fund investment and classify the investment in Level 1 of the fair value hierarchy. Where theThe fair value of funds that produce a daily net asset value that is not quoted in an active market we estimate the fair value of the investmentis estimated using the net asset value per share and we classify such funds in Level 2 ofhave appropriately been excluded from the fair value hierarchy as we have the ability to redeem our investment at the net asset value per share at the balance sheet date.hierarchy. Derivatives We estimate the fair value of our derivatives using industry standard valuation models that require observable market inputs, including market prices, yield curves, credit curves, interest rates, foreign exchange rates, volatilities and the contractual terms of the derivative instruments. For derivatives that trade in liquid markets, model inputs can generally be verified and do not require significant management judgment. These derivative instruments are classified in Level 2 of the fair value hierarchy. Certain other derivative transactions trade in less liquid markets with limited pricing information. For such derivatives, key inputs to the valuation process include quotes from counterparties and other market data used to corroborate and adjust values where appropriate. Other market data includes values obtained from a market participant that serves as a third party pricing vendor. Inputs obtained from counterparties and third party pricing vendors are internally validated using valuation models to assess the reasonableness of changes in factors such as market prices, yield curves, credit curves, interest rates, foreign exchange rates and volatilities. These derivative instruments are classified in Level 3 of the fair value hierarchy. Our derivative fair value measurements consider assumptions about counterparty credit risk and our own non-performance risk. We consider counterparty credit risk and our own non-performance risk through credit valuation adjustments.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Nonrecurring Fair Value Measurements Impaired Dealer Finance Receivables For finance receivables within the dealer products portfolio segment for which there is evidence of impairment, we may measure impairment based on discounted cash flows, the loan’s observable market price or the fair value of the underlying collateral if the loan is collateral-dependent. If the loan is collateral-dependent, the fair values of impaired finance receivables are reported at fair value on a nonrecurring basis. The methods used to estimate the fair value of the underlying collateral depends on the specific class of finance receivable. For finance receivables within the wholesale class of finance receivables, the collateral value is generally based on wholesale market value or liquidation value for new and used vehicles. For finance receivables within the real estate class of finance receivables, the collateral value is generally based on appraisals. For finance receivables within the working capital class of finance receivables, the collateral value is generally based on the expected liquidation value of the underlying dealership assets. Adjustments may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information. As these valuations utilize unobservable inputs, our impaired finance receivables are classified in Level 3 of the fair value hierarchy. Impaired Retail Receivables Retail contractsfinance receivables greater than 120 days past due are measured at fair value based on the fair value of the underlying collateral less costs to sell. The fair value of collateral is based on the current average selling prices for like vehicles at wholesale used vehicle auctions. Vehicles are sold promptly upon repossession. Financial Instruments Not Carried at Fair Value Finance Receivables Our finance receivables consist of retail loans comprised of retail loan contracts and commercial loan contracts, and dealer loans,financing, which is comprised of wholesale, real estate and working capital financing. Retail loansfinance receivables are primarily valued using a securitization model that incorporates expected cash flows. Cash flows expected to be collected are estimated using contractual principal and interest payments adjusted for specific factors, such as prepayments, default rates, loss severity, credit scores, and collateral type. The securitization model utilizes quoted secondary market rates if available, or estimated market rates that incorporate management's best estimate of investor assumptions about the portfolio. Dealer loans areThe dealer financing portfolio is valued using a discounted cash flow model. Discount rates are derived based on market rates for equivalent portfolio bond ratings. As these valuations utilize unobservable inputs, our finance receivables are classified in Level 3 of the fair value hierarchy. Commercial Paper The carrying value of commercial paper issued is assumed to approximate fair value due to its short duration and generally negligible credit risk. We validate this assumption by recalculating the fair value of our commercial paper using quoted market rates. Commercial paper is classified in Level 2 of the fair value hierarchy. 8784
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Unsecured Notes and Loans Payable Unsecured notes and loans payable are primarily valued using current market rates and credit spreads for debt with similar maturities. Our valuation models utilize observable inputs such as standard industry curves; therefore, we classify these unsecured notes and loans payables in Level 2 of the fair value hierarchy. Where observable inputs are not available, we use quoted market prices to estimate the fair value of unsecured notes and loans payable. These unsecured notes and loans payable are classified in Level 3 of the fair value hierarchy since the market for these instruments is not active. In a limited number of instances, where neither observable inputs nor quoted market prices are available, we estimate the fair value of unsecured notes and loans payable using quotes from counterparties or a third party pricing vendor. We review the appropriateness of these fair value measurements by assessing the reasonableness of period over period fluctuations. Since the valuations utilize unobservable inputs, we classify thethese unsecured notes and loans payable in Level 3 of the fair value hierarchy. Secured Notes and Loans Payable Fair value is estimated based on current market rates and credit spreads for debt with similar maturities. We also use internal assumptions, including prepayment speeds and expected credit losses on the underlying securitized assets, to estimate the timing of cash flows to be paid on these instruments. As these valuations utilize unobservable inputs, our secured notes and loans payables are classified in Level 3 of the fair value hierarchy. Refer to Note 2 – Fair Value Measurements for additional discussion and disclosure. Derivative Instruments All derivative instruments are recorded on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to net settle asset and liability positions and offset cash collateral held with the same counterparty on a net basis. Changes in the fair value of derivatives are recorded in interestInterest expense in theour Consolidated StatementStatements of Income. We categorize derivatives as those designated for hedge accounting (“hedge accounting derivatives”) and those that are not designated for hedge accounting (“non-hedge accounting derivatives”). At the inception of a derivative contract, we may elect to designate a derivative as a hedge accounting derivative if certain criteria are met. Hedge accounting derivatives are not widely used as a part of our risk management strategy. Hedge Accounting Derivatives We use derivatives to reduce the risk of changes in the fair value of debt. We occasionally designate certain derivatives as hedge accounting derivatives. In these instances, the risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate. In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged. When we designate a derivative in a hedging relationship, we contemporaneously document the risk management objective and strategy. This documentation includes the identification of the hedging instrument, the hedged item and the risk exposure, how we will assess effectiveness prospectively and retrospectively, and how often we will carry out this assessment. We use the “long-haul” method of assessing effectiveness for our fair value hedges, except for certain types of existing hedge relationships that meet stringent criteria where we apply the shortcut method. The shortcut method provides an assumption of zero ineffectiveness that results in equal and offsetting changes in fair value in the Consolidated Statement of Income for both the hedged debt and the hedge accounting derivative. When the shortcut method is not applied, anyhedges. Any ineffective portion of the derivative that is designated as a fair value hedge is recognized as a component of interestInterest expense in theour Consolidated StatementStatements of Income. We recognize changes in the fair value of derivatives designated in fair value hedging relationships (including foreign currency fair value hedging relationships) in interestInterest expense in theour Consolidated StatementStatements of Income along with the fair value changes of the related hedged item. 8885
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) If we elect not to designate a derivative instrument in a hedging relationship, or the relationship does not qualify for hedge accounting treatment, the full change in the fair value of the derivative instrument is recognized as a component of interest expense in the Consolidated Statement of Income with no offsetting adjustment for the economically hedged item.
We review the effectiveness of our hedging relationships at least quarterly to determine whether the relationships have been and continue to be effective. We use regression analysis to assess the effectiveness of our hedges. When we determine that a hedging relationship is not or has not been effective, hedge accounting is no longer applied. If hedge accounting is discontinued, we continue to carry the derivative instrument as a component of otherOther assets or otherOther liabilities in theour Consolidated Balance SheetSheets at fair value, with changes in fair value reported in interestInterest expense in theour Consolidated StatementStatements of Income. Additionally, for discontinued fair value hedges, we cease to adjust the hedged item for changes in fair value and amortize the cumulative fair value adjustments recognized in prior periods over the remaining term of the hedged item. We will also discontinue the use of hedge accounting if a derivative is sold, terminated, or if management determines that designating a derivative under hedge accounting is no longer deemed appropriate based on current investment strategy (“de-designated derivatives”). De-designated derivatives are included within the category of non-hedge accounting derivatives. We alsoNon-hedge accounting derivatives
Our non-hedge accounting derivatives are carried at fair value. The full change in the fair value of the derivative instrument is recognized as a component of Interest expense in our Consolidated Statements of Income with no offsetting adjustment for the economically hedged item. The derivative instrument is included as a component of Other assets or Other liabilities in our Consolidated Balance Sheets. Embedded Derivatives Periodically, we issue debt instruments which isare considered a “hybrid financial instrument”instruments”. These debt instruments are assessed to determine whether they contain embedded derivatives requiring separate reportingaccounting and accounting.reporting. The embedded derivative may be bifurcated and recorded on the balance sheet at fair value or the entire financial instrument may be recorded at fair value. ChangesAs applicable, changes in the fair value of the bifurcated embedded derivative or the entire hybrid financial instrument are reported in interestInterest expense in theour Consolidated StatementStatements of Income. We had no embedded derivatives that required bifurcation as of March 31, 2017 and 2016. Offsetting of Derivatives The accounting guidance permits the net presentation on theour Consolidated Balance SheetSheets of derivative receivables and derivative payables with the same counterparty and the related cash collateral when a legally enforceable master netting agreement exists. When we meet this condition, we elect to present such balances on a net basis. Our embedded derivative contracts do not meet the accounting guidance permitting netting and therefore balances are presented on a gross basis. We use master netting agreements to mitigate counterparty credit risk in derivative transactions. A master netting agreement is a contract with a counterparty that permits multiple transactions governed by that contract to be cancelled and settled with a single net balance paid to either party in the event of default or other termination event outside the normal course of business, such as a ratings downgrade of either party to the contract. Our reciprocal collateral agreements require the transfer of cash collateral to the party in a net asset position across all transactions governed by the master netting agreement. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. Upon default, the collateral agreement grants the party in a net asset position the right to set-off amounts receivable against any posted collateral. Refer to Note 7 – Derivatives, Hedging Activities and Interest Expense for additional discussion and disclosure. 89
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) Foreign Currency Transactions Certain of our debt transactions we have entered into related to debt are denominated in foreign currencies. If the debt is not in a designated hedge accounting relationship, the debt is translated into U.S. dollars using the applicable exchange rate at the transaction date and retranslated at each balance sheet date using the exchange rate in effect at that date. Gains and losses related to foreign currency transactions are included in interestInterest expense in theour Consolidated StatementStatements of Income. Payments on debt in theour Consolidated StatementStatements of Cash Flows include repayment of principal and the net amount of exchange of notional on currency swaps that economically hedge these transactions. Proceeds from issuance of debt in theour Consolidated StatementStatements of Cash Flows include both the proceeds from the initial issuance of debt and the net amount of exchange of notional on currency swaps that economically hedge these transactions. Risk Transfer Our insurance operations transfer certain risks to protect us against the impact of unpredictable high severity losses. The amounts recoverable from reinsurers and other companies that assume liabilities relating to our insurance operations are determined in a manner consistent with the related reinsurance or risk transfer agreement. Amounts recoverable from reinsurers and other companies on unpaid losses are recorded as a receivable but are not collectible until the losses are paid. Revenues related to risks transferred are recognized on the same basis as the related revenues from the underlying agreements. Covered losses are recorded as a reduction to insurance losses and loss adjustment expenses. Income Taxes We use 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 fiscal year’s provision for income taxes. TMCC files a consolidated federal income tax return with its subsidiaries and TFSA.TFSIC. TMCC files either separate or consolidated/combined state income tax returns with Toyota Motor North America, Inc. (“TMNA”), TFSA,TFSIC, or subsidiaries of TMCC. State income tax expense is generally recognized as if TMCC and its subsidiaries filed their tax returns on a stand-alone basis. In those states where TMCC and its subsidiaries join in the filing of consolidated or combined income tax returns, TMCC and its subsidiaries are allocated their share of the total income tax expense based on combined allocation/apportionment factors and separate company income or loss. Based on the federal and state tax sharing agreements, TFSATFSIC and TMCC and its subsidiaries pay for their share of the income tax expense and are reimbursed for the benefit of any of their tax losses utilized in the federal and state income tax returns. 90
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) New Accounting Guidance In May 2014, the Financial Accounting Standards Board ("FASB") issued new guidance on the recognition of revenue from contracts with customers. This comprehensive standard will supersede virtually all existing revenue recognition guidance. In August 2015, the FASB issued a one-year deferral of the effective date, with early adoption as of the original effective date permitted. The FASB also subsequently issued guidance amending and clarifying various aspects of the new revenue recognition standard. We plan to adopt the new revenue guidance effective April 1, 2018 with a cumulative-effect adjustment to the current period opening balance of retained earnings. We do not expect the adoption of this standard to have a material impact on our operating lease, retail and dealer financing revenues as the majority of those revenues are outside the scope of the standard. However, certain products within our insurance operations fall within the scope of this guidance. Our evaluation of contracts related to those products identified changes to both the timing of recognition and classification of revenues and expenses. While our assessment is not complete, we do not expect these changes to have a material impact on our pretax income. We continue to assess the impact of this guidance on our consolidated financial statements and related disclosures. In January 2016, the FASB issued new guidance that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and will require entities to measure equity investments at fair value and recognize any changes in fair value in earnings. This accounting guidance is expected to be effective for us on April 1, 2018 with optional early adoption on April 1, 2017.2018. This guidance also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from changes in instrument-specific credit risk for instruments where the entity has elected the fair value option. We are currently evaluating the potential impact of this guidance on our consolidated financial statements. In February 2015,2016, the FASB issued new guidance that introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard. The new leasing standard represents a wholesale change to lease accounting for lessees. Upon adoption, we expect to recognize lease liabilities and right-of-use assets (at their present value) in our Consolidated Balance Sheets related to predominantly all of the future minimum lease payments disclosed in Note 14 – Commitments and Contingencies. This accounting guidance is effective for us on April 1, 2019. We are continuing to evaluate the other potential impacts of this guidance on our consolidated financial statements and related disclosures. In March 2016, the FASB issued new guidance which clarifies that a change in the counterparty to a designated derivative hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This accounting guidance is effective for us on April 1, 2017. The adoption of this guidance is not expected to have an impact on our consolidated financial statements. In March 2016, the FASB issued new guidance which clarifies whether an embedded contingent put or call option is clearly and closely related to the debt host when bifurcating an embedded derivative. This accounting guidance is effective for us on April 1, 2017. The adoption of this guidance is not expected to have an impact on our consolidated financial statements. In June 2016, the FASB issued new guidance that introduces a new impairment model based on expected losses rather than incurred losses for certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. We expect this new guidance will result in an increase in our allowance for credit losses; the magnitude of which is under evaluation. This accounting guidance is effective for us on April 1, 2020. We are currently evaluating other potential impacts of this guidance on our consolidated financial statements. In August 2016, the FASB issued new guidance that is intended to reduce diversity in practice in the classification of certain items in the statement of cash flows. This accounting guidance is effective for us on April 1, 2018. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements and related disclosures. In October 2016, the FASB issued new guidance that further amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. The guidance specifically addresses interests held through related parties that are under common control. This accounting guidance is effective for us on April 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 1 – Summary of Significant Accounting Policies (Continued) In November 2016, the FASB issued new guidance that clarifies how restricted cash and cash equivalents should be classified and presented in the statement of cash flows and requires new disclosures related to restricted cash and cash equivalents. This guidance was intended to reduce diversity in practice in the classification of restricted cash and cash equivalents on the statement of cash flows. This accounting guidance is effective for us on April 1, 2018 at which time we will no longer report the change in restricted cash and cash equivalents in the operating section in our Consolidated Statements of Cash Flows, and cash and cash equivalents at the beginning and end of the period will include restricted cash and cash equivalents. These changes will be applied using a retrospective transition method to each period presented. In March 2017, the FASB issued new guidance that requires certain premiums on callable debt securities to be amortized to the earliest call date. This accounting guidance is effective for us on April 1, 2019. We are currently evaluating the potential impact of this guidance on our consolidated financial statements. Recently Adopted Accounting Guidance In April 2016, we adopted new FASB accounting guidance that amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. This accounting guidance is effective for us on April 1, 2016. We are currently evaluating the potential impactThe adoption of this guidance did not have a material impact on our consolidated financial statements. In April 2015, the2016, we adopted new FASB issued newaccounting guidance that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. This accounting guidance will be effective for us on April 1, 2016. We are currently evaluating the potential impactAs a result of adopting this guidance, we have reclassified our debt issuance costs from Other assets to Debt on our Consolidated Balance Sheets and conformed applicable footnote disclosures for all periods presented. These amounts are not material to our consolidated financial statements. In April 2015, the2016, we adopted new FASB issued newaccounting guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. While similar guidance existsexisted previously under current U.S.US GAAP for cloud service providers, this update provides explicit guidance for a customer's accounting. This accounting guidance will be effective for us on April 1, 2016. We are currently evaluating the potential impactThe adoption of this guidance did not have a material impact on our consolidated financial statements. In May 2015, theApril 2016, we adopted new FASB issued newaccounting guidance that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This accounting guidance will be effectiveNote 2 – Fair Value Measurements has been updated, for us on April 1, 2016. We are currently evaluatingall periods presented, to reflect the potential impactadoption of this guidance which did not have a material impact on our consolidated financial statements. In May 2015, theMarch 2017, we adopted new FASB issued new guidance that requires additional disclosures related to short-duration insurance contracts. This accounting guidance will be effective for us for the annual period beginning April 1, 2016 and for interim periods within annual periods beginning April 1, 2017. We are currently evaluating the potential impact of this guidance on our consolidated financial statements. Recently Adopted Accounting Guidance
In April 2014, we adopted new FASB accounting guidance which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The adoption of this guidance did not have an impact on our consolidated financial statements.
In April 2014, we adopted new FASB accounting guidancestatements and related to the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. Pursuant to the new guidance, an entity is required to measure these obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. Additionally, the guidance requires each reporting entity to disclose the nature and amount of each obligation as well as other information about those obligations in the footnotes to its financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements.
disclosures.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 2 – Fair Value Measurements The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2015 and 2014, by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Derivative The following tables summarize our financial assets were reducedand financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy except for certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a counterparty credit valuation adjustmentpractical expedient and are excluded from the leveling information provided in the tables below. Fair value amounts presented below are intended to permit reconciliation of $1 million as of March 31, 2015 and 2014. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of March 31, 2015 and 2014.
As of March 31, 2015the fair value hierarchy to the amounts presented in our Consolidated Balance Sheets.
| | Fair value measurements on a recurring basis | | | March 31, 2017 | | | | | | | | | | | | | | | | Counterparty | | | | | | | | | | | | | | | | | | | Counterparty | | | | | | | | | | | | | | | | | | | | netting & | | | Fair | | | | | | | | | | | | | | | netting & | | | Fair | | (Dollars in millions) | | Level 1 | | | Level 2 | | | Level 3 | | | collateral | | | value | | | | | | Level 1 | | | Level 2 | | | Level 3 | | | collateral | | | value | | Cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Money market instruments | | $ | 249 | | | $ | 820 | | | $ | - | | | $ | - | | | $ | 1,069 | | | $ | 287 | | | $ | 1,045 | | | $ | - | | | $ | - | | | $ | 1,332 | | U.S. government and agency obligations | | | 40 | | | | - | | | | - | | | | - | | | | 40 | | | Certificates of deposit | | | - | | | | 1,105 | | | | - | | | | - | | | | 1,105 | | | | - | | | | 2,630 | | | | - | | | | - | | | | 2,630 | | Cash equivalents total | | | 289 | | | | 1,925 | | | | - | | | | - | | | | 2,214 | | | | 287 | | | | 3,675 | | | | - | | | | - | | | | 3,962 | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government and agency obligations | | | 4,215 | | | | 142 | | | | 2 | | | | - | | | | 4,359 | | | | 2,273 | | | | 33 | | | | 2 | | | | - | | | | 2,308 | | Municipal debt securities | | | - | | | | 12 | | | | - | | | | - | | | | 12 | | | | - | | | | 11 | | | | - | | | | - | | | | 11 | | Certificates of deposit | | | - | | | | 175 | | | | - | | | | - | | | | 175 | | | | 105 | | | | 650 | | | | - | | | | - | | | | 755 | | Commercial paper | | | 37 | | | | - | | | | - | | | | - | | | | 37 | | | Corporate debt securities | | | - | | | | 131 | | | | 14 | | | | - | | | | 145 | | | | 211 | | | | 150 | | | | 8 | | | | - | | | | 369 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agency | | | - | | | | 59 | | | | - | | | | - | | | | 59 | | | | - | | | | 45 | | | | - | | | | - | | | | 45 | | Non-agency residential | | | - | | | | - | | | | 4 | | | | - | | | | 4 | | | | - | | | | - | | | | 2 | | | | - | | | | 2 | | Non-agency commercial | | | - | | | | - | | | | 44 | | | | - | | | | 44 | | | | - | | | | - | | | | 37 | | | | - | | | | 37 | | Asset-backed securities | | | - | | | | - | | | | 39 | | | | - | | | | 39 | | | | - | | | | - | | | | 31 | | | | - | | | | 31 | | Equity instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income mutual funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term floating NAV fund II | | | - | | | | 148 | | | | - | | | | - | | | | 148 | | | Short-term sector fund | | | - | | | | 37 | | | | - | | | | - | | | | 37 | | | U.S. government sector fund | | | - | | | | 335 | | | | - | | | | - | | | | 335 | | | Municipal sector fund | | | - | | | | 20 | | | | - | | | | - | | | | 20 | | | Investment grade corporate sector fund | | | - | | | | 268 | | | | - | | | | - | | | | 268 | | | High-yield sector fund | | | - | | | | 55 | | | | - | | | | - | | | | 55 | | | Real return sector fund | | | - | | | | 232 | | | | - | | | | - | | | | 232 | | | Mortgage sector fund | | | - | | | | 399 | | | | - | | | | - | | | | 399 | | | Asset-backed securities sector fund | | | - | | | | 72 | | | | - | | | | - | | | | 72 | | | Emerging market sector fund | | | - | | | | 71 | | | | - | | | | - | | | | 71 | | | International sector fund | | | - | | | | 160 | | | | - | | | | - | | | | 160 | | | Equity mutual fund | | | 460 | | | | - | | | | - | | | | - | | | | 460 | | | Fixed income mutual funds measured at net asset value | | | | - | | | | - | | | | - | | | | - | | | | 1,740 | | Total return bond funds | | | | 394 | | | | - | | | | - | | | | - | | | | 394 | | Available-for-sale securities total | | | 4,712 | | | | 2,316 | | | | 103 | | | | - | | | | 7,131 | | | | 2,983 | | | | 889 | | | | 80 | | | | - | | | | 5,692 | | Derivative assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | | - | | | | 474 | | | | 1 | | | | - | | | | 475 | | Interest rate floors | | | | - | | | | 2 | | | | - | | | | - | | | | 2 | | Foreign currency swaps | | | - | | | | 210 | | | | 7 | | | | - | | | | 217 | | | | - | | | | 122 | | | | - | | | | - | | | | 122 | | Interest rate swaps | | | - | | | | 470 | | | | 1 | | | | - | | | | 471 | | | Counterparty netting and collateral | | | - | | | | - | | | | - | | | | (635 | ) | | | (635 | ) | | | - | | | | - | | | | - | | | | (548 | ) | | | (548 | ) | Derivative assets total | | | - | | | | 680 | | | | 8 | | | | (635 | ) | | | 53 | | | | - | | | | 598 | | | | 1 | | | | (548 | ) | | | 51 | | Assets at fair value | | | 5,001 | | | | 4,921 | | | | 111 | | | | (635 | ) | | | 9,398 | | | | 3,270 | | | | 5,162 | | | | 81 | | | | (548 | ) | | | 9,705 | | Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | | - | | | | (271 | ) | | | (6 | ) | | | - | | | | (277 | ) | Foreign currency swaps | | | - | | | | (1,888 | ) | | | - | | | | - | | | | (1,888 | ) | | | - | | | | (1,114 | ) | | | (62 | ) | | | - | | | | (1,176 | ) | Interest rate swaps | | | - | | | | (386 | ) | | | - | | | | - | | | | (386 | ) | | Counterparty netting and collateral | | | - | | | | - | | | | - | | | | 2,184 | | | | 2,184 | | | | - | | | | - | | | | - | | | | 1,407 | | | | 1,407 | | Liabilities at fair value | | | - | | | | (2,274 | ) | | | - | | | | 2,184 | | | | (90 | ) | | | - | | | | (1,385 | ) | | | (68 | ) | | | 1,407 | | | | (46 | ) | Net assets at fair value | | $ | 5,001 | | | $ | 2,647 | | | $ | 111 | | | $ | 1,549 | | | $ | 9,308 | | | $ | 3,270 | | | $ | 3,777 | | | $ | 13 | | | $ | 859 | | | $ | 9,659 | |
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 2 – Fair Value Measurements (Continued) As of March 31, 2014
| | Fair value measurements on a recurring basis | | | March 31, 2016 | | | | | | | | | | | | | | | | Counterparty | | | | | | | | | | | | | | | | | | | Counterparty | | | | | | | | | | | | | | | | | | | | netting & | | | Fair | | | | | | | | | | | | | | | netting & | | | Fair | | (Dollars in millions) | | Level 1 | | | Level 2 | | | Level 3 | | | collateral | | | value | | | | | | Level 1 | | | Level 2 | | | Level 3 | | | collateral | | | value | | Cash equivalents: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Money market instruments | | $ | 730 | | | $ | 694 | | | $ | - | | | $ | - | | | $ | 1,424 | | | $ | 360 | | | $ | 1,209 | | | $ | - | | | $ | - | | | $ | 1,569 | | U.S. government and agency obligations | | | | 450 | | | | 105 | | | | - | | | | - | | | | 555 | | Certificates of deposit | | | - | | | | 1,437 | | | | - | | | | - | | | | 1,437 | | | | - | | | | 500 | | | | - | | | | - | | | | 500 | | Commercial paper | | | - | | | | 708 | | | | - | | | | - | | | | 708 | | | Cash equivalents total | | | 730 | | | | 2,839 | | | | - | | | | - | | | | 3,569 | | | | 810 | | | | 1,814 | | | | - | | | | - | | | | 2,624 | | Restricted Cash Equivalents- money market instruments | | | 1,077 | | | | - | | | | - | | | | - | | | | 1,077 | | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government and agency obligations | | | 398 | | | | 252 | | | | 2 | | | | - | | | | 652 | | | | 2,777 | | | | 56 | | | | 2 | | | | - | | | | 2,835 | | Municipal debt securities | | | - | | | | 11 | | | | - | | | | - | | | | 11 | | | | - | | | | 11 | | | | - | | | | - | | | | 11 | | Certificates of deposit | | | - | | | | 1,599 | | | | - | | | | - | | | | 1,599 | | | | 300 | | | | 200 | | | | - | | | | - | | | | 500 | | Commercial paper | | | - | | | | 507 | | | | - | | | | - | | | | 507 | | | | - | | | | 50 | | | | - | | | | - | | | | 50 | | Corporate debt securities | | | - | | | | 157 | | | | 12 | | | | - | | | | 169 | | | | 228 | | | | 252 | | | | 7 | | | | - | | | | 487 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agency | | | - | | | | 60 | | | | - | | | | - | | | | 60 | | | | - | | | | 59 | | | | - | | | | - | | | | 59 | | Non-agency residential | | | - | | | | - | | | | 5 | | | | - | | | | 5 | | | | - | | | | - | | | | 3 | | | | - | | | | 3 | | Non-agency commercial | | | - | | | | - | | | | 43 | | | | - | | | | 43 | | | | - | | | | - | | | | 42 | | | | - | | | | 42 | | Asset-backed securities | | | - | | | | - | | | | 27 | | | | - | | | | 27 | | | | - | | | | - | | | | 37 | | | | - | | | | 37 | | Equity instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income mutual funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term sector fund | | | - | | | | 44 | | | | - | | | | - | | | | 44 | | | U.S. government sector fund | | | - | | | | 327 | | | | - | | | | - | | | | 327 | | | Municipal sector fund | | | - | | | | 22 | | | | - | | | | - | | | | 22 | | | Investment grade corporate sector fund | | | - | | | | 316 | | | | - | | | | - | | | | 316 | | | High-yield sector fund | | | - | | | | 45 | | | | - | | | | - | | | | 45 | | | Real return sector fund | | | - | | | | 274 | | | | - | | | | - | | | | 274 | | | Mortgage sector fund | | | - | | | | 520 | | | | - | | | | - | | | | 520 | | | Asset-backed securities sector fund | | | - | | | | 50 | | | | - | | | | - | | | | 50 | | | Emerging market sector fund | | | - | | | | 66 | | | | - | | | | - | | | | 66 | | | International sector fund | | | - | | | | 171 | | | | - | | | | - | | | | 171 | | | Fixed income mutual funds measured at net asset value | | | | - | | | | - | | | | - | | | | - | | | | 1,747 | | Total return bond funds | | | | 380 | | | | - | | | | - | | | | - | | | | 380 | | Equity mutual fund | | | 481 | | | | - | | | | - | | | | - | | | | 481 | | | | 389 | | | | - | | | | - | | | | - | | | | 389 | | Available-for-sale securities total | | | 879 | | | | 4,421 | | | | 89 | | | | - | | | | 5,389 | | | | 4,074 | | | | 628 | | | | 91 | | | | - | | | | 6,540 | | Derivative assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | | - | | | | 601 | | | | 39 | | | | - | | | | 640 | | Interest rate floors | | | | - | | | | 4 | | | | - | | | | - | | | | 4 | | Foreign currency swaps | | | - | | | | 804 | | | | 70 | | | | - | | | | 874 | | | | - | | | | 329 | | | | - | | | | - | | | | 329 | | Interest rate swaps | | | - | | | | 358 | | | | 3 | | | | - | | | | 361 | | | Counterparty netting and collateral | | | - | | | | - | | | | - | | | | (1,186 | ) | | | (1,186 | ) | | | - | | | | - | | | | - | | | | (905 | ) | | | (905 | ) | Derivative assets total | | | - | | | | 1,162 | | | | 73 | | | | (1,186 | ) | | | 49 | | | | - | | | | 934 | | | | 39 | | | | (905 | ) | | | 68 | | Assets at fair value | | | 2,686 | | | | 8,422 | | | | 162 | | | | (1,186 | ) | | | 10,084 | | | | 4,884 | | | | 3,376 | | | | 130 | | | | (905 | ) | | | 9,232 | | Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | | | - | | | | (475 | ) | | | - | | | | - | | | | (475 | ) | Foreign currency swaps | | | - | | | | (252 | ) | | | - | | | | - | | | | (252 | ) | | | - | | | | (821 | ) | | | (14 | ) | | | - | | | | (835 | ) | Interest rate swaps | | | - | | | | (553 | ) | | | - | | | | - | | | | (553 | ) | | Counterparty netting and collateral | | | - | | | | - | | | | - | | | | 799 | | | | 799 | | | | - | | | | - | | | | - | | | | 1,303 | | | | 1,303 | | Liabilities at fair value | | | - | | | | (805 | ) | | | - | | | | 799 | | | | (6 | ) | | | - | | | | (1,296 | ) | | | (14 | ) | | | 1,303 | | | | (7 | ) | Net assets at fair value | | $ | 2,686 | | | $ | 7,617 | | | $ | 162 | | | $ | (387 | ) | | $ | 10,078 | | | $ | 4,884 | | | $ | 2,080 | | | $ | 116 | | | $ | 398 | | | $ | 9,225 | |
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 2 – Fair Value Measurements (Continued) Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. During fiscal 2015Transfers between levels of the fair value hierarchy during the years ended March 31, 2017 and 2014, certain corporate debt securities were transferred2016 resulted from Level 2 to Level 3 due to reducedchanges in the transparency of inputs for determination of fair value for these instruments. Additionally, during fiscal 2014 there was a $2 million transfer from the corporate debt securities asset class to the U.S. government and agency obligations asset class within the Level 3 debt instruments due to a reclassification of an existing debt instrument. were not significant. The following tables summarize the reconciliation forrollforward of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs for fiscal 2015 and 2014: Year Ended March 31, 2015inputs:
| | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | | Year Ended March 31, 2017 | | | | Available-for-sale securities | | | Derivatives | | | Total net assets (liabilities) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | assets | | | | U.S. | | | | | | | | | | | | | | | Total | | | | | | | | | | | Total | | | | | | | Available-for-sale securities | | | Derivative instruments, net | | | (liabilities) | | | | government | | | Corporate | | | Mortgage | | | Asset- | | | available- | | | Interest | | | Foreign | | | derivative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | and agency | | | debt | | | backed | | | backed | | | for-sale | | | rate | | | currency | | | assets | | | | | | | U.S. | | | | | | | | | | | | | | | Total | | | | | | | | | | | Total | | | | | | (Dollars in millions) | | obligations | | | securities | | | securities | | | securities | | | securities | | | swaps | | | swaps | | | (liabilities) | | | | | | | Fair value, April 1, 2014 | | $ | 2 | | | $ | 12 | | | $ | 48 | | | $ | 27 | | | $ | 89 | | | $ | 3 | | | $ | 70 | | | $ | 73 | | | $ | 162 | | | Total (losses) gains | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | government | | | Corporate | | | Mortgage- | | | Asset- | | | available- | | | Interest | | | Foreign | | | derivative | | | | | | | | | and agency | | | debt | | | backed | | | backed | | | for-sale | | | rate | | | currency | | | assets | | | | | | | | | obligations | | | securities | | | securities | | | securities | | | securities | | | swaps | | | swaps | | | (liabilities) | | | | | | Fair value, April 1, 2016 | | | $ | 2 | | | $ | 7 | | | $ | 45 | | | $ | 37 | | | $ | 91 | | | $ | 39 | | | $ | (14 | ) | | $ | 25 | | | $ | 116 | | Total gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Included in earnings | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (54 | ) | | | (54 | ) | | | (54 | ) | | - | | | - | | | - | | | - | | | | - | | | | (24 | ) | | | (43 | ) | | | (67 | ) | | | (67 | ) | Included in other comprehensive income | | | - | | | | - | | | | 2 | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 2 | | | - | | | | 1 | | | - | | | | 1 | | | | 2 | | | | - | | | | - | | | | - | | | | 2 | | Purchases, issuances, sales, and settlements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchases | | | - | | | | 3 | | | | 12 | | | | 22 | | | | 37 | | | | - | | | | - | | | | - | | | | 37 | | | - | | | - | | | | 4 | | | | 6 | | | | 10 | | | | - | | | | - | | | | - | | | | 10 | | Issuances | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | - | | | - | | | - | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Sales | | | - | | | | (3 | ) | | | (7 | ) | | | (5 | ) | | | (15 | ) | | | - | | | | - | | | | - | | | | (15 | ) | | - | | | - | | | - | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Settlements | | | - | | | | - | | | | (7 | ) | | | (5 | ) | | | (12 | ) | | | (2 | ) | | | (9 | ) | | | (11 | ) | | | (23 | ) | | - | | | - | | | | (10 | ) | | | (13 | ) | | | (23 | ) | | | (20 | ) | | | (5 | ) | | | (25 | ) | | | (48 | ) | Transfers in to Level 3 | | | - | | | | 2 | | | | - | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 2 | | | - | | | - | | | - | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Transfers out of Level 3 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | - | | | - | | | - | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Fair value, March 31, 2015 | | $ | 2 | | | $ | 14 | | | $ | 48 | | | $ | 39 | | | $ | 103 | | | $ | 1 | | | $ | 7 | | | $ | 8 | | | $ | 111 | | | The amount of total (losses) gains included in earnings attributable to assets still held at the reporting date | | | | | | | | | | | | | | | | | | | | | | $ | - | | | $ | (54 | ) | | $ | (54 | ) | | $ | (54 | ) | | Fair value, March 31, 2017 | | | $ | 2 | | | $ | 8 | | | $ | 39 | | | $ | 31 | | | $ | 80 | | | $ | (5 | ) | | $ | (62 | ) | | $ | (67 | ) | | $ | 13 | | The amount of total gains (losses) included in earnings attributable to assets held at the reporting date | | | | | | | | | | | | | | | | | | | | | | | $ | (24 | ) | | $ | (43 | ) | | $ | (67 | ) | | $ | (67 | ) |
| | Year Ended March 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | assets | | | | Available-for-sale securities | | | Derivative instruments, net | | | (liabilities) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. | | | | | | | | | | | | | | | Total | | | | | | | | | | | Total | | | | | | | | government | | | Corporate | | | Mortgage- | | | Asset- | | | available- | | | Interest | | | Foreign | | | derivative | | | | | | | | and agency | | | debt | | | backed | | | backed | | | for-sale | | | rate | | | currency | | | assets | | | | | | | | obligations | | | securities | | | securities | | | securities | | | securities | | | swaps | | | swaps | | | (liabilities) | | | | | | Fair value, April 1, 2015 | | $ | 2 | | | $ | 14 | | | $ | 48 | | | $ | 39 | | | $ | 103 | | | $ | 1 | | | $ | 7 | | | $ | 8 | | | $ | 111 | | Total gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Included in earnings | | | - | | | | - | | | | - | | | | - | | | | - | | | | 34 | | | | (13 | ) | | | 21 | | | | 21 | | Included in other comprehensive income | | | - | | | | (1 | ) | | | (2 | ) | | | (1 | ) | | | (4 | ) | | | - | | | | - | | | | - | | | | (4 | ) | Purchases, issuances, sales, and settlements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchases | | | - | | | | - | | | | 2 | | | | 5 | | | | 7 | | | | - | | | | - | | | | - | | | | 7 | | Issuances | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Sales | | | - | | | | (2 | ) | | | - | | | | (1 | ) | | | (3 | ) | | | - | | | | - | | | | - | | | | (3 | ) | Settlements | | | - | | | | - | | | | (3 | ) | | | (5 | ) | | | (8 | ) | | | 4 | | | | (8 | ) | | | (4 | ) | | | (12 | ) | Transfers in to Level 3 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Transfers out of Level 3 | | | - | | | | (4 | ) | | | - | | | | - | | | | (4 | ) | | | - | | | | - | | | | - | | | | (4 | ) | Fair value, March 31, 2016 | | $ | 2 | | | $ | 7 | | | $ | 45 | | | $ | 37 | | | $ | 91 | | | $ | 39 | | | $ | (14 | ) | | $ | 25 | | | $ | 116 | | The amount of total gains (losses) included in earnings attributable to assets held at the reporting date | | | | | | | | | | | | | | | | | | | | | | $ | 34 | | | $ | (13 | ) | | $ | 21 | | | $ | 21 | |
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 2 – Fair Value Measurements (Continued) Year Ended March 31, 2014
| | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | | | Available-for-sale securities | | | Derivatives | | | Total net assets (liabilities) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. | | | | | | | | | | | | | | | Total | | | | | | | | | | | | | | | Total | | | | | | | | government | | | Corporate | | | Mortgage | | | Asset- | | | available- | | | Interest | | | Foreign | | | Embedded | | | derivative | | | | | | | | and agency | | | debt | | | backed | | | backed | | | for-sale | | | rate | | | currency | | | derivatives, | | | assets | | | | | | (Dollars in millions) | | obligations | | | securities | | | securities | | | securities | | | securities | | | swaps | | | swaps | | | net | | | (liabilities) | | | | | | Fair value, April 1, 2013 | | $ | - | | | $ | 4 | | | $ | 56 | | | $ | 13 | | | $ | 73 | | | $ | 12 | | | $ | 55 | | | $ | (12 | ) | | $ | 55 | | | $ | 128 | | Total gains | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Included in earnings | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5 | | | | 17 | | | | 12 | | | | 34 | | | | 34 | | Included in other comprehensive income | | | - | | | | - | | | | (2 | ) | | | - | | | | (2 | ) | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | Purchases, issuances, sales, and settlements | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Purchases | | | - | | | | 3 | | | | 7 | | | | 16 | | | | 26 | | | | - | | | | - | | | | - | | | | - | | | | 26 | | Issuances | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Sales | | | - | | | | - | | | | (8 | ) | | | - | | | | (8 | ) | | | - | | | | - | | | | - | | | | - | | | | (8 | ) | Settlements | | | - | | | | - | | | | (5 | ) | | | (2 | ) | | | (7 | ) | | | (14 | ) | | | (2 | ) | | | - | | | | (16 | ) | | | (23 | ) | Transfers in to Level 3 | | | 2 | | | | 7 | | | | - | | | | - | | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | 9 | | Transfers out of Level 3 | | | | | | | (2 | ) | | | - | | | | - | | | | (2 | ) | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | Fair value, March 31, 2014 | | $ | 2 | | | $ | 12 | | | $ | 48 | | | $ | 27 | | | $ | 89 | | | $ | 3 | | | $ | 70 | | | $ | - | | | $ | 73 | | | $ | 162 | | The amount of total (losses)/gains included in earnings attributable to assets still held at the reporting date | | | | | | | | | | | | | | | | | | | | | | $ | (2 | ) | | $ | 23 | | | $ | - | | | $ | 21 | | | $ | 21 | |
Nonrecurring Fair Value Measurements Nonrecurring fair value measurements consist ofinclude Level 3 net finance receivables that are not measured at fair value on a recurring basis, but are subject to fair value adjustments utilizing the fair value of the underlying collateral less estimated costs to sell, when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of March 31, 20152017 and 2014. 95
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Fair Value Measurements (Continued)2016.
Level 3 Fair Value Measurements The fair value measurements of Level 3 financial assets and liabilities recorded at fair value which are subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance SheetSheets or Consolidated StatementStatements of Income as of and for the years ended March 31, 20152017 and 2014.2016. 93
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 2 – Fair Value Measurements (Continued) Financial Instruments The following tables provide information about financial assets and liabilities not carried at fair value on a recurring basis inon our Consolidated Balance Sheet:Sheets: | | | | | | Fair value measurement hierarchy | | | March 31, 2017 | | | | Carrying | | | | | | | | | | | | | | | Total Fair | | | Carrying | | | | | | | | | | | | | | | Total Fair | | (Dollars in millions) | | value | | | Level 1 | | | Level 2 | | | Level 3 | | | Value | | | As of March 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | | value | | | Level 1 | | | Level 2 | | | Level 3 | | | Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance receivables, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail loan | | $ | 49,734 | | | $ | - | | | $ | - | | | $ | 49,887 | | | $ | 49,887 | | | $ | 50,682 | | | $ | - | | | $ | - | | | $ | 50,733 | | | $ | 50,733 | | Commercial | | | 217 | | | | - | | | | - | | | | 223 | | | | 223 | | | Wholesale | | | 9,123 | | | | - | | | | - | | | | 9,176 | | | | 9,176 | | | | 10,819 | | | | - | | | | - | | | | 10,881 | | | | 10,881 | | Real estate | | | 4,602 | | | | - | | | | - | | | | 4,564 | | | | 4,564 | | | | 4,602 | | | | - | | | | - | | | | 4,459 | | | | 4,459 | | Working capital | | | 1,815 | | | | - | | | | - | | | | 1,804 | | | | 1,804 | | | | 2,218 | | | | - | | | | - | | | | 2,222 | | | | 2,222 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial paper | | $ | 27,006 | | | $ | - | | | $ | 27,006 | | | $ | - | | | $ | 27,006 | | | $ | 26,632 | | | $ | - | | | $ | 26,632 | | | $ | - | | | $ | 26,632 | | Unsecured notes and loans payable | | | 52,388 | | | | - | | | | 53,174 | | | | 634 | | | | 53,808 | | | | 57,282 | | | | - | | | | 55,838 | | | | 2,385 | | | | 58,223 | | Secured notes and loans payable | | | 10,837 | | | | - | | | | - | | | | 10,832 | | | | 10,832 | | | | 14,319 | | | | - | | | | - | | | | 14,322 | | | | 14,322 | |
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Fair Value Measurements (Continued)
| | | | | | Fair value measurement hierarchy | | | March 31, 2016 | | | | Carrying | | | | | | | | | | | | | | | Total Fair | | | Carrying | | | | | | | | | | | | | | | Total Fair | | (Dollars in millions) | | value | | | Level 1 | | | Level 2 | | | Level 3 | | | Value | | | As of March 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | value | | | Level 1 | | | Level 2 | | | Level 3 | | | Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance receivables, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail loan | | $ | 48,892 | | | $ | - | | | $ | - | | | $ | 49,392 | | | $ | 49,392 | | | $ | 49,865 | | | $ | - | | | $ | - | | | $ | 49,551 | | | $ | 49,551 | | Commercial | | | 174 | | | | - | | | | - | | | | 160 | | | | 160 | | | Wholesale | | | 9,344 | | | | - | | | | - | | | | 9,391 | | | | 9,391 | | | | 9,160 | | | | - | | | | - | | | | 9,207 | | | | 9,207 | | Real estate | | | 4,601 | | | | - | | | | - | | | | 4,552 | | | | 4,552 | | | | 4,590 | | | | - | | | | - | | | | 4,277 | | | | 4,277 | | Working capital | | | 1,802 | | | | - | | | | - | | | | 1,807 | | | | 1,807 | | | | 1,888 | | | | - | | | | - | | | | 1,894 | | | | 1,894 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial paper | | $ | 27,709 | | | $ | - | | | $ | 27,709 | | | $ | - | | | $ | 27,709 | | | $ | 26,608 | | | $ | - | | | $ | 26,608 | | | $ | - | | | $ | 26,608 | | Unsecured notes and loans payable | | | 49,500 | | | | - | | | | 49,697 | | | | 736 | | | | 50,433 | | | | 52,863 | | | | - | | | | 52,913 | | | | 1,387 | | | | 54,300 | | Secured notes and loans payable | | | 8,158 | | | | - | | | | - | | | | 8,165 | | | | 8,165 | | | | 14,123 | | | | - | | | | - | | | | 14,125 | | | | 14,125 | |
The carrying value of each class of finance receivables includes accrued interest and deferred fees and costs, net of deferred income and the allowance for credit losses. The amountFinance receivables, net excludes related party transactions, for which the fair value approximates the carrying value, of $94$136 million and $89$128 million at March 31, 20152017 and 2014, respectively, and direct finance leases of $308 million and $274 million at March 31, 2015 and 2014,2016, respectively. The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment as described in Note 9 – Debt.
9794
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 3 – Investments in Marketable Securities We classify all of our investments in marketable securities as available-for-sale. The amortized cost and estimated fair value of investments in marketable securities and related unrealized gains and losses were as follows: | | March 31, 2015 | | | March 31, 2017 | | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | (Dollars in millions) | | cost | | | gains | | | losses | | | value | | | | | | cost | | | gains | | | losses | | | value | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government and agency obligations | | $ | 4,357 | | | $ | 3 | | | $ | (1 | ) | | $ | 4,359 | | | $ | 2,314 | | | $ | 1 | | | $ | (7 | ) | | $ | 2,308 | | Municipal debt securities | | | 10 | | | | 2 | | | | - | | | | 12 | | | | 10 | | | | 1 | | | - | | | | 11 | | Certificates of deposit | | | 175 | | | | - | | | | - | | | | 175 | | | | 755 | | | - | | | - | | | | 755 | | Commercial paper | | | 37 | | | | - | | | | - | | | | 37 | | | Corporate debt securities | | | 138 | | | | 7 | | | | - | | | | 145 | | | | 368 | | | | 2 | | | | (1 | ) | | | 369 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agency | | | 57 | | | | 2 | | | | - | | | | 59 | | | | 45 | | | | 1 | | | | (1 | ) | | | 45 | | Non-agency residential | | | 3 | | | | 1 | | | | - | | | | 4 | | | | 2 | | | - | | | - | | | | 2 | | Non-agency commercial | | | 43 | | | | 1 | | | | - | | | | 44 | | | | 37 | | | | 1 | | | | (1 | ) | | | 37 | | Asset-backed securities | | | 39 | | | | - | | | | - | | | | 39 | | | | 31 | | | - | | | - | | | | 31 | | Equity instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income mutual funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term floating NAV fund II | | | 148 | | | | - | | | | - | | | | 148 | | | | 39 | | | - | | | - | | | | 39 | | Short-term sector fund | | | 35 | | | | 2 | | | | - | | | | 37 | | | U.S. government sector fund | | | 311 | | | | 24 | | | | - | | | | 335 | | | | 389 | | | - | | | - | | | | 389 | | Municipal sector fund | | | 19 | | | | 1 | | | | - | | | | 20 | | | | 20 | | | - | | | - | | | | 20 | | Investment grade corporate sector fund | | | 256 | | | | 15 | | | | (3 | ) | | | 268 | | | | 252 | | | | 9 | | | - | | | | 261 | | High-yield sector fund | | | 50 | | | | 6 | | | | (1 | ) | | | 55 | | | | 83 | | | | 6 | | | - | | | | 89 | | Real return sector fund | | | 235 | | | | - | | | | (3 | ) | | | 232 | | | | 147 | | | | 5 | | | - | | | | 152 | | Mortgage sector fund | | | 390 | | | | 9 | | | | - | | | | 399 | | | | 390 | | | | 2 | | | - | | | | 392 | | Asset-backed securities sector fund | | | 63 | | | | 9 | | | | - | | | | 72 | | | | 140 | | | | 10 | | | - | | | | 150 | | Emerging market sector fund | | | 73 | | | | - | | | | (2 | ) | | | 71 | | | | 105 | | | | 7 | | | - | | | | 112 | | International sector fund | | | 146 | | | | 14 | | | | - | | | | 160 | | | | 136 | | | - | | | - | | | | 136 | | Equity mutual fund | | | 190 | | | | 270 | | | | - | | | | 460 | | | Total return bond funds | | | | 389 | | | | 5 | | | - | | | | 394 | | Total investments in marketable securities | | $ | 6,775 | | | $ | 366 | | | $ | (10 | ) | | $ | 7,131 | | | $ | 5,652 | | | $ | 50 | | | $ | (10 | ) | | $ | 5,692 | |
9895
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 3 – Investments in Marketable Securities (Continued) | | March 31, 2014 | | | March 31, 2016 | | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | | Amortized | | | Unrealized | | | Unrealized | | | Fair | | (Dollars in millions) | | cost | | | gains | | | losses | | | value | | | | | | cost | | | gains | | | losses | | | value | | Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government and agency obligations | | $ | 652 | | | $ | 1 | | | $ | (1 | ) | | $ | 652 | | | $ | 2,833 | | | $ | 3 | | | $ | (1 | ) | | $ | 2,835 | | Municipal debt securities | | | 10 | | | | 1 | | | | - | | | | 11 | | | | 10 | | | | 1 | | | | - | | | | 11 | | Certificates of deposit | | | 1,599 | | | | - | | | | - | | | | 1,599 | | | | 500 | | | | - | | | | - | | | | 500 | | Commercial paper | | | 507 | | | | - | | | | - | | | | 507 | | | | 50 | | | | - | | | | - | | | | 50 | | Corporate debt securities | | | 164 | | | | 6 | | | | (1 | ) | | | 169 | | | | 482 | | | | 7 | | | | (2 | ) | | | 487 | | Mortgage-backed securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agency | | | 60 | | | | 1 | | | | (1 | ) | | | 60 | | | | 57 | | | | 2 | | | | - | | | | 59 | | Non-agency residential | | | 4 | | | | 1 | | | | - | | | | 5 | | | | 2 | | | | 1 | | | | - | | | | 3 | | Non-agency commercial | | | 44 | | | | 1 | | | | (2 | ) | | | 43 | | | | 42 | | | | 1 | | | | (1 | ) | | | 42 | | Asset-backed securities | | | 27 | | | | - | | | | - | | | | 27 | | | | 38 | | | | - | | | | (1 | ) | | | 37 | | Equity instruments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed income mutual funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term sector fund | | | 41 | | | | 3 | | | | - | | | | 44 | | | Short-term floating NAV fund II | | | | 178 | | | | - | | | | - | | | | 178 | | U.S. government sector fund | | | 329 | | | | - | | | | (2 | ) | | | 327 | | | | 353 | | | | 6 | | | | (1 | ) | | | 358 | | Municipal sector fund | | | 21 | | | | 1 | | | | - | | | | 22 | | | | 19 | | | | - | | | | - | | | | 19 | | Investment grade corporate sector fund | | | 283 | | | | 33 | | | | - | | | | 316 | | | | 243 | | | | 8 | | | | (5 | ) | | | 246 | | High-yield sector fund | | | 38 | | | | 7 | | | | - | | | | 45 | | | | 67 | | | | - | | | | (1 | ) | | | 66 | | Real return sector fund | | | 275 | | | | - | | | | (1 | ) | | | 274 | | | | 201 | | | | 11 | | | | - | | | | 212 | | Mortgage sector fund | | | 519 | | | | 1 | | | | - | | | | 520 | | | | 297 | | | | 5 | | | | - | | | | 302 | | Asset-backed securities sector fund | | | 40 | | | | 10 | | | | - | | | | 50 | | | | 117 | | | | 8 | | | | (1 | ) | | | 124 | | Emerging market sector fund | | | 65 | | | | 1 | | | | - | | | | 66 | | | | 101 | | | | 1 | | | | - | | | | 102 | | International sector fund | | | 170 | | | | 2 | | | | (1 | ) | | | 171 | | | | 145 | | | | - | | | | (5 | ) | | | 140 | | Total return bond funds | | | | 376 | | | | 4 | | | | - | | | | 380 | | Equity mutual fund | | | 217 | | | | 264 | | | | - | | | | 481 | | | | 162 | | | | 227 | | | | - | | | | 389 | | Total investments in marketable securities | | $ | 5,065 | | | $ | 333 | | | $ | (9 | ) | | $ | 5,389 | | | $ | 6,273 | | | $ | 285 | | | $ | (18 | ) | | $ | 6,540 | |
The fixedFixed income mutual funds, exclusive of the Total return bond funds, are investments in funds that are privately placed and managed by an open-end investment management company (the “Trust”). If we elect to redeem shares, the Trust will normally redeem all shares for cash, but may, in unusual circumstances, redeem amounts exceeding the lesser of $250 thousand or 1 percent of the Trust’s asset value by payment in kind of securities held by the respective fund during any 90-day period. The Total return bond funds are investments in actively traded open-end mutual funds. Redemptions are subject to normal terms and conditions as described in each fund’s prospectus.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 3 – Investments in Marketable Securities (Continued) Unrealized Losses on Securities Investments in marketable securities atin a consecutivecontinuous loss position for less than twelve months and for greater than twelve months were not significant at March 31, 20152017 and 2014.2016. Realized Gains and Losses on Securities The following table represents realized gains and losses by transaction type foron our available-for-sale securities presented in our Consolidated Statements of Income: | | | | | | Years Ended March 31, | | | | 2017 | | | 2016 | | | 2015 | | Available-for-sale securities: | | | | | | | | | | | | | Realized gains on sales | | $ | 251 | | | $ | 59 | | | $ | 71 | | Realized losses on sales | | $ | (1 | ) | | $ | (3 | ) | | $ | (1 | ) | Other-than-temporary impairment | | $ | (24 | ) | | $ | (50 | ) | | $ | - | |
The other-than-temporary impairment write-downs of $24 million and $50 million during the following: | | Years Ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | Available-for-sale securities: | | | | | | | | | | | | | Realized gains on sales | | $ | 71 | | | $ | 59 | | | $ | 23 | | Realized losses on sales | | $ | (1 | ) | | $ | (4 | ) | | $ | (2 | ) | Other-than-temporary impairment | | $ | - | | | $ | (55 | ) | | $ | - | |
years ended March 31, 2017 and 2016, respectively, were related to our fixed income mutual funds. Other-than-temporary impairment write-downs were not significant during the year ended March 31, 2015. Substantially all In April 2017, we sold a portion of the other-than-temporary impairment write-downs of $55 million during the year ended March 31, 2014 were related to fixedour Fixed income mutual funds. Forfund portfolio to take advantage of favorable market conditions. The sale resulted in cash proceeds of approximately $1.1 billion and realized gains of approximately $40 million, which will be reflected in our results of operations for the first quarter of fiscal 2013, there2018. The proceeds were no available-for-sale securities with unrealized losses that were deemed to be other-than-temporarily impaired.utilized for reinvestment in marketable securities. Contractual Maturities The amortized cost, fair value and contractual maturities of available-for-sale debt instruments at March 31, 2015 are summarized in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations. | | March 31, 2015 | | | March 31, 2017 | | (Dollars in millions) | | Amortized Cost | | | Fair Value | | | | | | Amortized Cost | | | Fair Value | | Available-for-sale debt instruments: | | | | | | | | | | | | | | | | | Due within 1 year | | $ | 4,452 | | | $ | 4,451 | | | $ | 2,303 | | | $ | 2,302 | | Due after 1 year through 5 years | | | 121 | | | | 124 | | | | 926 | | | | 926 | | Due after 5 years through 10 years | | | 82 | | | | 85 | | | | 126 | | | | 125 | | Due after 10 years | | | 62 | | | | 68 | | | | 92 | | | | 90 | | Mortgage-backed and asset-backed securities1 | | | 142 | | | | 146 | | | | 115 | | | | 115 | | Total | | $ | 4,859 | | | $ | 4,874 | | | $ | 3,562 | | | $ | 3,558 | |
1 Mortgage-backed and asset-backed securities are shown separately from other maturity groupings as these securities do not have a single maturity date. Securities on Deposit
In accordance with statutory requirements, we had on deposit with state insurance authorities U.S. debt securities with amortized cost and fair value of $6 million at March 31, 2015 and 2014.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 4 – Finance Receivables, Net Finance receivables, net consist of retail receivables and dealer accounts includingfinancing, which includes accrued interest and deferred fees and costs, net of the allowance for credit losses and deferred income. SecuritizedFinance receivables, net also includes securitized retail receivables, which represent retail loan receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements, as discussed further in Note 10 – Variable Interest Entities. Cash flows from these securitized retail receivables are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors. Finance receivables, net consisted of the following: (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | Retail receivables | | $ | 39,141 | | | $ | 40,216 | | | $ | 38,338 | | | $ | 36,020 | | Securitized retail receivables | | | 11,682 | | | | 9,633 | | | | 13,071 | | | | 14,343 | | Dealer financing | | | 15,744 | | | | 15,925 | | | | 17,899 | | | | 15,899 | | | | | 66,567 | | | | 65,774 | | | | 69,308 | | | | 66,262 | | | | | | | | | | | | | | | | | | | Deferred origination (fees) and costs, net | | | 646 | | | | 651 | | | | 644 | | | | 663 | | Deferred income | | | (911 | ) | | | (863 | ) | | | (1,023 | ) | | | (868 | ) | Allowance for credit losses | | | | | | | | | | | | | | | | | Retail and securitized retail receivables | | | (301 | ) | | | (298 | ) | | | (344 | ) | | | (289 | ) | Dealer financing | | | (108 | ) | | | (88 | ) | | | (123 | ) | | | (132 | ) | Total allowance for credit losses | | | (409 | ) | | | (386 | ) | | | (467 | ) | | | (421 | ) | Finance receivables, net | | $ | 65,893 | | | $ | 65,176 | | | $ | 68,462 | | | $ | 65,636 | |
Contractual maturities on retail receivables and dealer financing are as follows (dollars in millions): follows: | | Contractual maturities | | | Contractual maturities | | Years ending March 31, | | Retail receivables | | | Dealer financing | | | Retail receivables | | | Dealer financing | | 2016 | | $ | 14,461 | | | $ | 11,224 | | | 2017 | | | 13,043 | | | | 1,718 | | | 2018 | | | 10,726 | | | | 954 | | | $ | 14,357 | | | $ | 13,548 | | 2019 | | | 7,426 | | | | 806 | | | | 12,723 | | | | 1,739 | | 2020 | | | 3,883 | | | | 524 | | | | 10,498 | | | | 753 | | 2021 | | | | 7,571 | | | | 576 | | 2022 | | | | 4,402 | | | | 657 | | Thereafter | | | 1,278 | | | | 518 | | | | 1,858 | | | | 626 | | Total | | $ | 50,817 | | | $ | 15,744 | | | $ | 51,409 | | | $ | 17,899 | |
Finance receivables, net and retail receivables presented in the previous tables include direct finance lease receivables, net of $308 million and $274 million at March 31, 2015 and 2014, respectively. Contractual maturities of retail receivables exclude $6 million of estimated unguaranteed residual values related to direct finance leases.
A significant portion of our finance receivables has historically settled prior to contractual maturity. Contractual maturities shown above should not be considered indicative of future cash collections.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 4 – Finance Receivables, Net (Continued) Credit Quality Indicators We are exposed to credit risk on our finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with us or otherwise fail to perform as agreed. Retail Loan and Commercial Portfolio SegmentsSegment RetailThe retail loan and commercial portfolio segments each consistsegment consists of one class of finance receivables. While we use various credit quality metrics to develop our allowance for credit losses on the retail loan and commercial portfolio segments,segment, we primarily utilize the aging of the individual accounts to monitor the credit quality of these finance receivables. Based on our experience, the payment status of borrowers is the strongest indicator of the credit quality of the underlying receivables. Payment status also impacts charge-offs.
Individual borrower accounts for each class of finance receivables within the retail loan and commercial portfolio segmentssegment are segregated into aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated monthly. Dealer Products Portfolio Segment For the three classes of finance receivables within the dealer products portfolio segment (wholesale, real estate and working capital), all loans outstanding for an individual dealer or dealer group, which includes affiliated entities, are aggregated and evaluated collectively by dealer or dealer group. This reflects the interconnected nature of financing provided to our individual dealer and dealer group customers, and their affiliated entities. When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four categories representing distinct credit quality indicators based on internal risk assessments. The internal risk assessments for all finance receivables within the dealer products portfolio segment are updated on a monthly basis. The four credit quality indicators are: ·
| Performing – Account not classified as either Credit Watch, At Risk or Default
|
Performing – Account not classified as either Credit Watch, At Risk or Default ·
| Credit Watch – Account designated for elevated attention
|
Credit Watch – Account designated for elevated attention ·
| At Risk – Account where there is an increased likelihood that default may exist based on qualitative and quantitative factors
|
At Risk – Account where there is an increased likelihood that default may exist based on qualitative and quantitative factors ·
| Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements
|
Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements
10299
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 4 – Finance Receivables, Net (Continued) The tables below present each credit quality indicator by class of finance receivable as of March 31, 2015 and 2014:receivables: | | Retail Loan | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | | Aging of finance receivables: | | | | | | | | | | Current | | $ | 50,631 | | | $ | 49,590 | | | 30-59 days past due | | | 586 | | | | 584 | | | 60-89 days past due | | | 129 | | | | 129 | | | 90 days or greater past due | | | 63 | | | | 60 | | | Total | | $ | 51,409 | | | $ | 50,363 | | |
| | Retail Loan | | | Commercial | | | | | | | | | | | (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | March 31, 2015 | | | March 31, 2014 | | | | | | | | | | | Aging of finance receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | Current | | $ | 49,684 | | | $ | 48,828 | | | $ | 511 | | | $ | 432 | | | | | | | | | | | 30-59 days past due | | | 467 | | | | 459 | | | | 8 | | | | 6 | | | | | | | | | | | 60-89 days past due | | | 100 | | | | 90 | | | | 2 | | | | 1 | | | | | | | | | | | 90 days or greater past due | | | 51 | | | | 33 | | | | - | | | | - | | | | | | | | | | | Total | | $ | 50,302 | | | $ | 49,410 | | | $ | 521 | | | $ | 439 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale | | | Real Estate | | | Working Capital | | | | Wholesale | | | Real Estate | | | Working Capital | | | March 31, | | | March 31, | | | March 31, | | | March 31, | | | March 31, | | | March 31, | | (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | March 31, 2015 | | | March 31, 2014 | | | March 31, 2015 | | | March 31, 2014 | | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Credit quality indicators: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performing | | $ | 7,993 | | | $ | 8,129 | | | $ | 3,782 | | | $ | 3,791 | | | $ | 1,643 | | | $ | 1,642 | | | $ | 9,592 | | | $ | 8,099 | | | $ | 4,010 | | | $ | 3,822 | | | $ | 2,082 | | | $ | 1,686 | | Credit Watch | | | 1,137 | | | | 1,282 | | | | 842 | | | | 855 | | | | 176 | | | | 158 | | | | 1,269 | | | | 1,041 | | | | 613 | | | | 763 | | | | 143 | | | | 229 | | At Risk | | | 60 | | | | 24 | | | | 37 | | | | 12 | | | | 32 | | | | 25 | | | | 12 | | | | 113 | | | | 45 | | | | 109 | | | | 5 | | | | 17 | | Default | | | 36 | | | | 1 | | | | 4 | | | | - | | | | 2 | | | | 6 | | | | 78 | | | | 9 | | | | 45 | | | | 10 | | | | 5 | | | | 1 | | Total | | $ | 9,226 | | | $ | 9,436 | | | $ | 4,665 | | | $ | 4,658 | | | $ | 1,853 | | | $ | 1,831 | | | $ | 10,951 | | | $ | 9,262 | | | $ | 4,713 | | | $ | 4,704 | | | $ | 2,235 | | | $ | 1,933 | |
103100
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 4 – Finance Receivables, Net (Continued) Impaired Finance Receivables The following table summarizes the information related to our impaired loans by class of finance receivable as of March 31, 2015 and 2014: receivables: | | Impaired Finance Receivables | | | Unpaid Principal Balance | | | Individually Evaluated Allowance | | | Impaired | | | | | | | | | | | Individually Evaluated | | (Dollars in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | | | | Finance Receivables | | | Unpaid Principal Balance | | | Allowance | | | | | March 31, | | | March 31, | | | March 31, | | | March 31, | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired account balances individually evaluated for impairment with an allowance: | Impaired account balances individually evaluated for impairment with an allowance: | | Impaired account balances individually evaluated for impairment with an allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale | | $ | 76 | | | $ | 13 | | | $ | 76 | | | $ | 13 | | | $ | 14 | | | $ | 1 | | | $ | 93 | | | $ | 98 | | | $ | 93 | | | $ | 98 | | | $ | 12 | | | $ | 9 | | Real estate | | | 52 | | | | 27 | | | | 52 | | | | 27 | | | | 10 | | | | 8 | | | | 94 | | | | 119 | | | | 94 | | | | 119 | | | | 12 | | | | 15 | | Working capital | | | 34 | | | | 23 | | | | 34 | | | | 23 | | | | 31 | | | | 22 | | | | 31 | | | | 37 | | | | 31 | | | | 37 | | | | 9 | | | | 30 | | Total | | $ | 162 | | | $ | 63 | | | $ | 162 | | | $ | 63 | | | $ | 55 | | | $ | 31 | | | $ | 218 | | | $ | 254 | | | $ | 218 | | | $ | 254 | | | $ | 33 | | | $ | 54 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired account balances individually evaluated for impairment without an allowance: | Impaired account balances individually evaluated for impairment without an allowance: | | Impaired account balances individually evaluated for impairment without an allowance: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Wholesale | | $ | 105 | | | $ | 51 | | | $ | 105 | | | $ | 51 | | | | | | | | | | | $ | 134 | | | $ | 185 | | | $ | 134 | | | $ | 185 | | | | | | | | | | Real estate | | | 91 | | | | 90 | | | | 91 | | | | 90 | | | | | | | | | | | | 105 | | | | 98 | | | | 105 | | | | 98 | | | | | | | | | | Working capital | | | 2 | | | | 4 | | | | 2 | | | | 4 | | | | | | | | | | | | - | | | | 3 | | | | - | | | | 3 | | | | | | | | | | Total | | $ | 198 | | | $ | 145 | | | $ | 198 | | | $ | 145 | | | | | | | | | | | $ | 239 | | | $ | 286 | | | $ | 239 | | | $ | 286 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired account balances aggregated and evaluated for impairment: | Impaired account balances aggregated and evaluated for impairment: | | Impaired account balances aggregated and evaluated for impairment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail loan | | $ | 264 | | | $ | 322 | | | $ | 261 | | | $ | 318 | | | | | | | | | | | $ | 220 | | | $ | 226 | | | $ | 217 | | | $ | 223 | | | | | | | | | | Commercial | | | - | | | | 1 | | | | - | | | | 1 | | | | | | | | | | | Total | | $ | 264 | | | $ | 323 | | | $ | 261 | | | $ | 319 | | | | | | | | | | | $ | 220 | | | $ | 226 | | | $ | 217 | | | $ | 223 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired account balances: | Total impaired account balances: | | Total impaired account balances: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail loan | | $ | 264 | | | $ | 322 | | | $ | 261 | | | $ | 318 | | | | | | | | | | | $ | 220 | | | $ | 226 | | | $ | 217 | | | $ | 223 | | | | | | | | | | Commercial | | | - | | | | 1 | | | | - | | | | 1 | | | | | | | | | | | Wholesale | | | 181 | | | | 64 | | | | 181 | | | | 64 | | | | | | | | | | | | 227 | | | | 283 | | | | 227 | | | | 283 | | | | | | | | | | Real estate | | | 143 | | | | 117 | | | | 143 | | | | 117 | | | | | | | | | | | | 199 | | | | 217 | | | | 199 | | | | 217 | | | | | | | | | | Working capital | | | 36 | | | | 27 | | | | 36 | | | | 27 | | | | | | | | | | | | 31 | | | | 40 | | | | 31 | | | | 40 | | | | | | | | | | Total | | $ | 624 | | | $ | 531 | | | $ | 621 | | | $ | 527 | | | | | | | | | | | $ | 677 | | | $ | 766 | | | $ | 674 | | | $ | 763 | | | | | | | | | |
As of March 31, 20152017 and 2014,2016, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $172$251 million and $54$299 million, respectively, and there were no charge-offs against the allowance for credit losses for these finance receivables. Therefore, the impaired finance receivables balance is equal to the unpaid principal balance. As of March 31, 2015,2017 and 2016, impaired finance receivables in the retail portfolio segment recorded at the fair value of the collateral less estimated selling costs are insignificantwere not significant and therefore excluded from the table above. Refer to Note 6 – Allowance for Credit Losses for details related to the retail loan portfolio segment’s impaired account balances which are aggregated and evaluated for impairment when determining the allowance for credit losses. 104101
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 4 – Finance Receivables, Net (Continued) The following table summarizes the average impaired loans by class of finance receivables as of the balance sheet date and the interest income recognized on these loans during fiscal 2015 and 2014: loans: | | Average Impaired Finance Receivables | | | Interest Income Recognized | | | Average Impaired Finance Receivables | | | Interest Income Recognized | | | | Years ended March 31, | | | Years ended March 31, | | | Years Ended March 31, | | | Years Ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired account balances individually evaluated for impairment with an allowance: | Impaired account balances individually evaluated for impairment with an allowance: | | Impaired account balances individually evaluated for impairment with an allowance: | | | | | | | | | | | | | | | | | | | | Wholesale | | $ | 29 | | | $ | 16 | | | $ | - | | | $ | - | | | $ | 77 | | | $ | 86 | | | $ | 2 | | | $ | 1 | | Real estate | | | 26 | | | | 32 | | | | 1 | | | | 1 | | | | 96 | | | | 93 | | | | 3 | | | | 2 | | Working capital | | | 25 | | | | 24 | | | | 1 | | | | 2 | | | | 33 | | | | 35 | | | | 2 | | | | 2 | | Total | | $ | 80 | | | $ | 72 | | | $ | 2 | | | $ | 3 | | | $ | 206 | | | $ | 214 | | | $ | 7 | | | $ | 5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired account balances individually evaluated for impairment without an allowance: | Impaired account balances individually evaluated for impairment without an allowance: | | Impaired account balances individually evaluated for impairment without an allowance: | | | | | | | | | | | | | | | | | | | | Wholesale | | $ | 66 | | | $ | 59 | | | $ | 1 | | | $ | 1 | | | $ | 153 | | | $ | 132 | | | $ | 4 | | | $ | 3 | | Real estate | | | 91 | | | | 93 | | | | 3 | | | | 4 | | | | 107 | | | | 92 | | | | 5 | | | | 4 | | Working capital | | | 3 | | | | 4 | | | | - | | | | - | | | | 1 | | | | 4 | | | | - | | | | - | | Total | | $ | 160 | | | $ | 156 | | | $ | 4 | | | $ | 5 | | | $ | 261 | | | $ | 228 | | | $ | 9 | | | $ | 7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired account balances aggregated and evaluated for impairment: | Impaired account balances aggregated and evaluated for impairment: | | Impaired account balances aggregated and evaluated for impairment: | | | | | | | | | | | | | | | | | | | | Retail loan | | $ | 294 | | | $ | 368 | | | $ | 22 | | | $ | 27 | | | $ | 223 | | | $ | 246 | | | $ | 16 | | | $ | 18 | | Commercial | | | 1 | | | | 1 | | | | - | | | | - | | | Total | | $ | 295 | | | $ | 369 | | | $ | 22 | | | $ | 27 | | | $ | 223 | | | $ | 246 | | | $ | 16 | | | $ | 18 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total impaired account balances: | Total impaired account balances: | | Total impaired account balances: | | | | | | | | | | | | | | | | | | | | Retail loan | | $ | 294 | | | $ | 368 | | | $ | 22 | | | $ | 27 | | | $ | 223 | | | $ | 246 | | | $ | 16 | | | $ | 18 | | Commercial | | | 1 | | | | 1 | | | | - | | | | - | | | Wholesale | | | 95 | | | | 75 | | | | 1 | | | | 1 | | | | 230 | | | | 218 | | | | 6 | | | | 4 | | Real estate | | | 117 | | | | 125 | | | | 4 | | | | 5 | | | | 203 | | | | 185 | | | | 8 | | | | 6 | | Working capital | | | 28 | | | | 28 | | | | 1 | | | | 2 | | | | 34 | | | | 39 | | | | 2 | | | | 2 | | Total | | $ | 535 | | | $ | 597 | | | $ | 28 | | | $ | 35 | | | $ | 690 | | | $ | 688 | | | $ | 32 | | | $ | 30 | |
The primary source of interest income recognized on the loans in the table above is from performing troubled debt restructurings. In addition, interestInterest income recognized using a cash-basis method of accounting during fiscal 20152017 and 20142016 was not significant.
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Average impaired finance receivables and interest income recognized during the year ended March 31, 2016 related to our commercial finance business were not significant. As discussed in Note 41 – Finance Receivables, Net (Continued)Summary of Significant Accounting Policies, we sold our commercial finance business on October 1, 2015. Troubled Debt Restructuring For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during fiscal 20152017 and 20142016 was not significant for each class of finance receivables. Troubled debt restructurings for non-bankrupt accounts within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer. Troubled debt restructurings for accounts within the commercial class of finance receivables consist of contract term extensions, interest rate adjustments, or a combination of the two. For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three. Troubled debt restructurings of accounts not under bankruptcy protection did not include forgiveness of principal or interest rate adjustments during fiscal 20152017 and 2014.2016. We consider finance receivables under bankruptcy protection within the retail loan and commercial classesclass to be troubled debt restructurings as of the date we receive notice of a customer filing for bankruptcy protection, regardless of the ultimate outcome of the bankruptcy proceedings. The bankruptcy court may impose modifications as part of the proceedings, including interest rate adjustments and forgiveness of principal. For fiscal 20152017 and 2014,2016, the financial impact of troubled debt restructurings related to accountsfinance receivables under bankruptcy protection was not significant to our Consolidated StatementStatements of Income and Consolidated Balance Sheet.Sheets. Payment Defaults Finance receivables modified as troubled debt restructurings for which there was a subsequent payment default during fiscal 20152017 and 2014,2016, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of such receivables.
106102
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 5 – Investments in Operating Leases, Net Investments in operating leases, net consist of vehicle and equipment leases, net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Securitized investments in operating leases represent beneficial interests in a pool of certain vehicle leases that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements as discussed further in Note 10 – Variable Interest Entities. Cash flows from these securitized investments in operating leases are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors. Investments in operating leases, net consisted of the following: (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | Investments in operating leases | | $ | 37,555 | | | $ | 31,023 | | | $ | 41,874 | | | $ | 42,220 | | Securitized investments in operating leases | | | 1,571 | | | | 248 | | | | 6,502 | | | | 3,364 | | | | | 39,126 | | | | 31,271 | | | | 48,376 | | | | 45,584 | | Deferred origination (fees) and costs, net | | | (169 | ) | | | (146 | ) | | | (201 | ) | | | (190 | ) | Deferred income | | | (968 | ) | | | (826 | ) | | | (1,196 | ) | | | (1,080 | ) | Accumulated depreciation | | | (6,785 | ) | | | (5,462 | ) | | | (8,672 | ) | | | (7,712 | ) | Allowance for credit losses | | | (76 | ) | | | (68 | ) | | | (155 | ) | | | (114 | ) | Investments in operating leases, net | | $ | 31,128 | | | $ | 24,769 | | | $ | 38,152 | | | $ | 36,488 | |
Future minimum rentals on investments in operating leases are as follows (dollars in millions): follows: Years ending March 31, | | Future minimum rentals on operating leases | | | Future minimum rentals on operating leases | | 2016 | | $ | 5,065 | | | 2017 | | | 3,214 | | | 2018 | | | 1,274 | | | $ | 5,991 | | 2019 | | | 229 | | | | 3,961 | | 2020 | | | 29 | | | | 1,425 | | Thereafter | | | 1 | | | 2021 | | | | 146 | | 2022 | | | | 11 | | Total | | $ | 9,812 | | | $ | 11,534 | |
A portion of our operating lease contracts has historically terminated prior to maturity. Future minimum rentals shown above should not be considered indicative of future cash collections. As of March 31, 2017 and 2016, there was no impairment in our investment in operating leases portfolio.
107
103
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 6 – Allowance for Credit Losses The following table provides information related to our allowance for credit losses on finance receivables and investments in operating leases: | | Years ended March 31, | | | | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | | | | Years Ended March 31, | | | | | 2017 | | | 2016 | | | 2015 | | Allowance for credit losses at beginning of period | | $ | 454 | | | $ | 527 | | | $ | 619 | | | $ | 535 | | | $ | 485 | | | $ | 454 | | Provision for credit losses | | | 308 | | | | 170 | | | | 121 | | | | 582 | | | | 441 | | | | 308 | | Transferred to held-for-sale1 | | | | - | | | | (7 | ) | | | - | | Charge-offs, net of recoveries | | | (277 | ) | | | (243 | ) | | | (213 | ) | | | (495 | ) | | | (384 | ) | | | (277 | ) | Allowance for credit losses at end of period | | $ | 485 | | | $ | 454 | | | $ | 527 | | | $ | 622 | | | $ | 535 | | | $ | 485 | |
1 Amount relates to the commercial finance business which was sold on October 1, 2015. Charge-offs are shown net of recoveries of $86$79 million, $85$72 million and $87$86 million for fiscal 2015, 20142017, 2016 and 2013,2015, respectively. Allowance for Credit Losses and Finance Receivables by Portfolio Segment The following tables provide information related to our allowance for credit losses and finance receivables by portfolio segment for fiscal 2015 and 2014: Fiscal Year Ended March 31, 2015
segment: (Dollars in millions) | | Retail Loan | | | Commercial | | | Dealer Products | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Credit Losses for Finance Receivables: | | | | | | | | | | | | | | | | | | | | | Year Ended March 31, 2017 | | Beginning balance, April 1, 2014 | | $ | 296 | | | $ | 2 | | | $ | 88 | | | $ | 386 | | | | | | Retail Loan | | | Dealer Products | | | Total | | Beginning balance, April 1, 2016 | | | $ | 289 | | | $ | 132 | | | $ | 421 | | Charge-offs | | | (273 | ) | | | (2 | ) | | | (1 | ) | | | (276 | ) | | | (399 | ) | | | - | | | | (399 | ) | Recoveries | | | 61 | | | | 1 | | | | 1 | | | | 63 | | | | 50 | | | | - | | | | 50 | | Provisions | | | 215 | | | | 1 | | | | 20 | | | | 236 | | | | 404 | | | | (9 | ) | | | 395 | | Ending balance, March 31, 2015 | | $ | 299 | | | $ | 2 | | | $ | 108 | | | $ | 409 | | | Ending balance, March 31, 2017 | | | $ | 344 | | | $ | 123 | | | $ | 467 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: Individually evaluated for impairment | | $ | - | | | $ | - | | | $ | 55 | | | $ | 55 | | | $ | - | | | $ | 33 | | | $ | 33 | | Ending balance: Collectively evaluated for impairment | | $ | 299 | | | $ | 2 | | | $ | 53 | | | $ | 354 | | | $ | 344 | | | $ | 90 | | | $ | 434 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance Receivables: | Finance Receivables: | | | | | | | | | | | | | | Ending balance, March 31, 2015 | | $ | 50,302 | | | $ | 521 | | | $ | 15,744 | | | $ | 66,567 | | | Ending balance, March 31, 2017 | | | $ | 51,409 | | | $ | 17,899 | | | $ | 69,308 | | Ending balance: Individually evaluated for impairment | | $ | - | | | $ | - | | | $ | 360 | | | $ | 360 | | | $ | - | | | $ | 457 | | | $ | 457 | | Ending balance: Collectively evaluated for impairment | | $ | 50,302 | | | $ | 521 | | | $ | 15,384 | | | $ | 66,207 | | | $ | 51,409 | | | $ | 17,442 | | | $ | 68,851 | |
The ending balance of finance receivables collectively evaluated for impairment in the above table includes approximately $264$220 million of finance receivables within the retail loan and commercial portfolio segmentssegment that are specifically identified as impaired. These amounts are aggregated withwithin their respective portfolio segmentssegment when determining the allowance for credit losses as of March 31, 2015,2017, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses is not significant and would not be materially different if the amounts had been individually evaluated for impairment. The ending balance of finance receivables for the dealer products portfolio segment collectively evaluated for impairment as of March 31, 20152017 includes $917$1,051 million in finance receivables whichthat are guaranteed by Toyota Motor Sales, U.S.A., Inc. (“TMS”) and $122$166 million in finance receivables whichthat are guaranteed by third party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whichwhom we provided financing at the request of TMS or suchand third party private Toyota distributors. 108104
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 6 – Allowance for Credit Losses (Continued) Fiscal Year Ended March 31, 2014
(Dollars in millions) | | Retail Loan | | | Commercial | | | Dealer Products | | | Total | | | Allowance for Credit Losses for Finance Receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance, April 1, 2013 | | $ | 333 | | | $ | 5 | | | $ | 107 | | | $ | 445 | | | | | | Year Ended March 31, 2016 | | | | | Retail Loan | | | Commercial | | | Dealer Products | | | Total | | Beginning balance, April 1, 2015 | | | $ | 299 | | | $ | 2 | | | $ | 108 | | | $ | 409 | | Charge-offs | | | (263 | ) | | | (2 | ) | | | - | | | | (265 | ) | | | (328 | ) | | | (1 | ) | | | - | | | | (329 | ) | Recoveries | | | 64 | | | | 1 | | | | - | | | | 65 | | | | 49 | | | | - | | | | - | | | | 49 | | Provisions | | | 162 | | | | (2 | ) | | | (19 | ) | | | 141 | | | | 269 | | | | 1 | | | | 28 | | | | 298 | | Ending balance, March 31, 2014 | | $ | 296 | | | $ | 2 | | | $ | 88 | | | $ | 386 | | | Transferred to held-for-sale | | | | - | | | | (2 | ) | | | (4 | ) | | | (6 | ) | Ending balance, March 31, 2016 | | | $ | 289 | | | $ | - | | | $ | 132 | | | $ | 421 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: Individually evaluated for impairment | | $ | - | | | $ | - | | | $ | 31 | | | $ | 31 | | | $ | - | | | $ | - | | | $ | 54 | | | $ | 54 | | Ending balance: Collectively evaluated for impairment | | $ | 296 | | | $ | 2 | | | $ | 57 | | | $ | 355 | | | $ | 289 | | | $ | - | | | $ | 78 | | | $ | 367 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finance Receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance, March 31, 2014 | | $ | 49,410 | | | $ | 439 | | | $ | 15,925 | | | $ | 65,774 | | | Ending balance, March 31, 2016 | | | $ | 50,363 | | | $ | - | | | $ | 15,899 | | | $ | 66,262 | | Ending balance: Individually evaluated for impairment | | $ | - | | | $ | - | | | $ | 208 | | | $ | 208 | | | $ | - | | | $ | - | | | $ | 540 | | | $ | 540 | | Ending balance: Collectively evaluated for impairment | | $ | 49,410 | | | $ | 439 | | | $ | 15,717 | | | $ | 65,566 | | | $ | 50,363 | | | $ | - | | | $ | 15,359 | | | $ | 65,722 | |
The ending balance of finance receivables collectively evaluated for impairment in the above table includes approximately $322 million and $1$226 million of finance receivables within the retail loan and commercial portfolio segments, respectively,segment that are specifically identified as impaired. These amounts are aggregated withwithin their respective portfolio segmentssegment when determining the allowance for credit losses as of March 31, 2014,2016, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses is not significant and would not be materially different if the amounts had been individually evaluated for impairment. The ending balance of finance receivables for the dealer products portfolio segment collectively evaluated for impairment as of March 31, 20142016 includes $836$982 million in finance receivables whichthat are guaranteed by TMS and $144$136 million in finance receivables whichthat are guaranteed by third party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whichwhom we provided financing at the request of TMS or suchand third party private Toyota distributors.
109105
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 6 – Allowance for Credit Losses (Continued) Past Due Finance Receivables and Investments in Operating Leases The following table shows aggregate balances of finance receivables and investments in operating leases 60 or more days past due: (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | Aggregate balances 60 or more days past due: | | | | | | | | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | Aggregate balances 60 or more days past due | | | | | | | | | | Finance receivables | | $ | 153 | | | $ | 125 | | | $ | 192 | | | $ | 189 | | Investments in operating leases | | | 52 | | | | 36 | | | | 95 | | | | 80 | | Total | | $ | 205 | | | $ | 161 | | | $ | 287 | | | $ | 269 | |
Substantially all finance receivables and investments in operating lease receivablesleases do not involve recourse to the dealer in the event of customer default. Finance receivables and investments in operating lease receivablesleases 60 or more days past due include accountscontracts in bankruptcy and accountscontracts greater than 120 days past due, which are recorded at the fair value of collateral less estimated costs to sell. AccountsContracts for which vehicles arehave been repossessed are excluded. Past Due Finance Receivables by Class The following tables summarize the aging of finance receivables by class as of March 31, 2015 and 2014:class: (Dollars in millions) | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | 90 Days or Greater Past Due | | | Total Past Due | | | Current | | | Total Finance Receivables | | | 90 Days or Greater Past Due and Accruing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2017 | | As of March 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 30 - 59 Days Past Due | | | 60 - 89 Days Past Due | | | 90 Days or Greater Past Due | | | Total Past Due | | | Current | | | Total Finance Receivables | | | 90 Days or Greater Past Due and Accruing | | Retail loan | | $ | 467 | | | $ | 100 | | | $ | 51 | | | $ | 618 | | | $ | 49,684 | | | $ | 50,302 | | | $ | 32 | | | $ | 586 | | | $ | 129 | | | $ | 63 | | | $ | 778 | | | $ | 50,631 | | | $ | 51,409 | | | $ | 41 | | Commercial | | | 8 | | | | 2 | | | | - | | | | 10 | | | | 511 | | | | 521 | | | | - | | | Wholesale | | | - | | | | - | | | | - | | | | - | | | | 9,226 | | | | 9,226 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 10,951 | | | | 10,951 | | | | - | | Real estate | | | - | | | | - | | | | - | | | | - | | | | 4,665 | | | | 4,665 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,713 | | | | 4,713 | | | | - | | Working capital | | | - | | | | - | | | | - | | | | - | | | | 1,853 | | | | 1,853 | | | | - | | | | 3 | | | | - | | | | - | | | | 3 | | | | 2,232 | | | | 2,235 | | | | - | | Total | | $ | 475 | | | $ | 102 | | | $ | 51 | | | $ | 628 | | | $ | 65,939 | | | $ | 66,567 | | | $ | 32 | | | $ | 589 | | | $ | 129 | | | $ | 63 | | | $ | 781 | | | $ | 68,527 | | | $ | 69,308 | | | $ | 41 | |
(Dollars in millions) | | 30-59 Days Past Due | | | 60-89 Days Past Due | | | 90 Days or Greater Past Due | | | Total Past Due | | | Current | | | Total Finance Receivables | | | 90 Days or Greater Past Due and Accruing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2016 | | As of March 31, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 30 - 59 Days Past Due | | | 60 - 89 Days Past Due | | | 90 Days or Greater Past Due | | | Total Past Due | | | Current | | | Total Finance Receivables | | | 90 Days or Greater Past Due and Accruing | | Retail loan | | $ | 459 | | | $ | 90 | | | $ | 33 | | | $ | 582 | | | $ | 48,828 | | | $ | 49,410 | | | $ | 33 | | | $ | 584 | | | $ | 129 | | | $ | 60 | | | $ | 773 | | | $ | 49,590 | | | $ | 50,363 | | | $ | 35 | | Commercial | | | 6 | | | | 1 | | | | - | | | | 7 | | | | 432 | | | | 439 | | | | - | | | Wholesale | | | - | | | | - | | | | - | | | | - | | | | 9,436 | | | | 9,436 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 9,262 | | | | 9,262 | | | | - | | Real estate | | | 4 | | | | 1 | | | | - | | | | 5 | | | | 4,653 | | | | 4,658 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,704 | | | | 4,704 | | | | - | | Working capital | | | - | | | | - | | | | - | | | | - | | | | 1,831 | | | | 1,831 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,933 | | | | 1,933 | | | | - | | Total | | $ | 469 | | | $ | 92 | | | $ | 33 | | | $ | 594 | | | $ | 65,180 | | | $ | 65,774 | | | $ | 33 | | | $ | 584 | | | $ | 129 | | | $ | 60 | | | $ | 773 | | | $ | 65,489 | | | $ | 66,262 | | | $ | 35 | |
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 7 – Derivatives, Hedging Activities and Interest Expense Derivative Instruments Our liabilities consist mainly of fixed and floating rate debt, denominated in U.S. dollars and various other currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps, interest rate floors, interest rate caps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in cash flows andthe fair value adjustments of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our management and our Asset-Liability Committee, which provides a framework for financial controls and governance to manage market risk. Credit Risk Related Contingent Features Our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements. Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold. As of March 31, 2015,2017, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. However, due to the time required to move collateral, there may be a delay of up to one day between whenthe exchange of collateral is exchanged and whenthe valuation of our derivatives are valued. The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at March 31, 2015 was $90 million, excluding adjustments made for our own non-performance risk. However, wederivatives. We would not be required to post additional collateral to the counterparties with whichwhom we were in a net liability position at March 31, 20152017, if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued) Derivative Activity Impact on Financial Statements The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported in theour Consolidated Balance Sheet at March 31, 2015 and 2014. Sheets: | | | | | | | | | | | | | | | | March 31, 2017 | | As of March 31, 2015 | | Hedge accounting derivatives | | | Non-hedge accounting derivatives | | | Total | | | | | | | | | Fair | | | | | | | Fair | | | | | | | Fair | | | Hedge accounting | | | Non-hedge | | | | | | | | | | (Dollars in millions) | | Notional | | | value | | | Notional | | | value | | | Notional | | | value | | | Other assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | derivatives | | | accounting derivatives | | | Total | | | | | | | | | Fair | | | | | | | Fair | | | | | | | Fair | | | | | Notional | | | value | | | Notional | | | value | | | Notional | | | value | | Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | 190 | | | $ | 4 | | | $ | 26,549 | | | $ | 467 | | | $ | 26,739 | | | $ | 471 | | | $ | - | | | $ | - | | | $ | 62,525 | | | $ | 475 | | | $ | 62,525 | | | $ | 475 | | Interest rate floors | | | | - | | | | - | | | | 1,673 | | | | 2 | | | | 1,673 | | | | 2 | | Foreign currency swaps | | | 271 | | | | 24 | | | | 913 | | | | 193 | | | | 1,184 | | | | 217 | | | | 271 | | | | 28 | | | | 1,648 | | | | 94 | | | | 1,919 | | | | 122 | | Total | | $ | 461 | | | $ | 28 | | | $ | 27,462 | | | $ | 660 | | | $ | 27,923 | | | $ | 688 | | | $ | 271 | | | $ | 28 | | | $ | 65,846 | | | $ | 571 | | | $ | 66,117 | | | $ | 599 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Counterparty netting and collateral held | | | | | | | | | | | | | | | | | | | | | | | (635 | ) | | | | | | | | | | | | | | | | | | | | | | | (548 | ) | Carrying value of derivative contracts – Other assets | Carrying value of derivative contracts – Other assets | | | $ | 53 | | | | | | | | | | | | | | | | | | | | | | | $ | 51 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | Other liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | - | | | $ | - | | | $ | 64,852 | | | $ | 386 | | | $ | 64,852 | | | $ | 386 | | | $ | - | | | $ | - | | | $ | 45,297 | | | $ | 277 | | | $ | 45,297 | | | $ | 277 | | Interest rate caps | | | - | | | | - | | | | 50 | | | | - | | | | 50 | | | | - | | | | - | | | | - | | | | 30 | | | | - | | | | 30 | | | | - | | Foreign currency swaps | | | 251 | | | | 43 | | | | 12,971 | | | | 1,845 | | | | 13,222 | | | | 1,888 | | | | 93 | | | | 1 | | | | 12,570 | | | | 1,175 | | | | 12,663 | | | | 1,176 | | Total | | $ | 251 | | | $ | 43 | | | $ | 77,873 | | | $ | 2,231 | | | $ | 78,124 | | | $ | 2,274 | | | $ | 93 | | | $ | 1 | | | $ | 57,897 | | | $ | 1,452 | | | $ | 57,990 | | | $ | 1,453 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Counterparty netting and collateral held | | | | | | | | | | | | | | | | | | | | | | | (2,184 | ) | | Counterparty netting and collateral posted | | | | | | | | | | | | | | | | | | | | | | | | (1,407 | ) | Carrying value of derivative contracts – Other liabilities | Carrying value of derivative contracts – Other liabilities | | | $ | 90 | | | | | | | | | | | | | | | | | | | | | | | $ | 46 | |
As of March 31, 2015,2017, we held collateral of $145$154 million which offset derivative assets, and posted collateral of $1,694 million which offset derivative liabilities. We also held excess collateral of $10 million which we did not use to offset derivative assets, and we posted excess collateral of $2 million which we did not use to offset derivative liabilities.
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)
| | | | | | | | | | | | | | | As of March 31, 2014 | | Hedge accounting derivatives | | | Non-hedge accounting derivatives | | | Total | | | | | | | | Fair | | | | | | | Fair | | | | | | | Fair | | (Dollars in millions) | | Notional | | | value | | | Notional | | | value | | | Notional | | | value | | Other Assets | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | 465 | | | $ | 25 | | | $ | 25,942 | | | $ | 336 | | | $ | 26,407 | | | $ | 361 | | Foreign currency swaps | | | 852 | | | | 342 | | | | 7,374 | | | | 532 | | | | 8,226 | | | | 874 | | Total | | $ | 1,317 | | | $ | 367 | | | $ | 33,316 | | | $ | 868 | | | $ | 34,633 | | | $ | 1,235 | | | | | | | | | | | | | | | | | | | | | | | | | | | Counterparty netting and collateral held | | | | | | | | | | | | | | | | | | | | | | | (1,186 | ) | Carrying value of derivative contracts – Other assets | | | $ | 49 | | | | | | | | | | | | | | | | | | | | | | | | | | | Other liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | - | | | $ | - | | | $ | 57,689 | | | $ | 553 | | | $ | 57,689 | | | $ | 553 | | Interest rate caps | | | - | | | | - | | | | 50 | | | | - | | | | 50 | | | | - | | Foreign currency swaps | | | 157 | | | | 14 | | | | 3,822 | | | | 238 | | | | 3,979 | | | | 252 | | Total | | $ | 157 | | | $ | 14 | | | $ | 61,561 | | | $ | 791 | | | $ | 61,718 | | | $ | 805 | | | | | | | | | | | | | | | | | | | | | | | | | | | Counterparty netting and collateral held | | | | | | | | | | | | | | | | | | | | | | | (799 | ) | Carrying value of derivative contracts – Other liabilities | | | $ | 6 | |
As of March 31, 2014, we held collateral of $718 million which offset derivative assets, and posted collateral of $331$1,013 million which offset derivative liabilities. We also held excess collateral of $5 million which we did not use to offset derivative assets, and we posted excess collateral of $3$5 million which we did not use to offset derivative liabilities.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued) | | March 31, 2016 | | | | Hedge accounting | | | Non-hedge | | | | | | | | | | | | derivatives | | | accounting derivatives | | | Total | | | | | | | | Fair | | | | | | | Fair | | | | | | | Fair | | | | Notional | | | value | | | Notional | | | value | | | Notional | | | value | | Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | - | | | $ | - | | | $ | 29,469 | | | $ | 640 | | | $ | 29,469 | | | $ | 640 | | Interest rate floors | | | - | | | | - | | | | 1,679 | | | | 4 | | | | 1,679 | | | | 4 | | Foreign currency swaps | | | 364 | | | | 39 | | | | 4,337 | | | | 290 | | | | 4,701 | | | | 329 | | Total | | $ | 364 | | | $ | 39 | | | $ | 35,485 | | | $ | 934 | | | $ | 35,849 | | | $ | 973 | | | | | | | | | | | | | | | | | | | | | | | | | | | Counterparty netting and collateral held | | | | | | | | | | | | | | | | | | | | | | | (905 | ) | Carrying value of derivative contracts – Other assets | | | | | | | | | | | | | | | | | | | | | | $ | 68 | | | | | | | | | | | | | | | | | | | | | | | | | | | Other liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate swaps | | $ | - | | | $ | - | | | $ | 68,383 | | | $ | 475 | | | $ | 68,383 | | | $ | 475 | | Interest rate caps | | | - | | | | - | | | | 30 | | | | - | | | | 30 | | | | - | | Foreign currency swaps | | | - | | | | - | | | | 9,340 | | | | 835 | | | | 9,340 | | | | 835 | | Total | | $ | - | | | $ | - | | | $ | 77,753 | | | $ | 1,310 | | | $ | 77,753 | | | $ | 1,310 | | | | | | | | | | | | | | | | | | | | | | | | | | | Counterparty netting and collateral posted | | | | | | | | | | | | | | | | | | | | | | | (1,303 | ) | Carrying value of derivative contracts – Other liabilities | | | | | | | | | | | | | | | | | | | | | | $ | 7 | |
As of March 31, 2016, we held collateral of $320 million which offset derivative assets, and posted collateral of $718 million which offset derivative liabilities. We also held excess collateral of $2 million which we did not use to offset derivative assets, and we posted excess collateral of $22 million which we did not use to offset derivative liabilities.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued) The following table summarizes the components of interest expense, including the location and amount of gains and losses on derivative instruments and related hedged items, for fiscal 2015, 2014 and 2013 as reported in our Consolidated StatementStatements of Income: | | Years ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | Interest expense on debt | | $ | 1,213 | | | $ | 1,262 | | | $ | 1,330 | | Interest income on hedge accounting derivatives | | | (43 | ) | | | (85 | ) | | | (103 | ) | Interest income on non-hedge accounting foreign currency swaps | | | (147 | ) | | | (202 | ) | | | (258 | ) | Interest expense on non-hedge accounting interest rate swaps | | | 123 | | | | 210 | | | | 359 | | Interest expense on debt and derivatives, net | | | 1,146 | | | | 1,185 | | | | 1,328 | | | | | | | | | | | | | | | Loss on hedge accounting derivatives: | | | | | | | | | | | | | Interest rate swaps | | | 19 | | | | 20 | | | | 15 | | Foreign currency swaps | | | 122 | | | | 8 | | | | 274 | | Loss on hedge accounting derivatives | | | 141 | | | | 28 | | | | 289 | | Less hedged item: change in fair value of fixed rate debt | | | (142 | ) | | | (31 | ) | | | (299 | ) | Ineffectiveness related to hedge accounting derivatives | | | (1 | ) | | | (3 | ) | | | (10 | ) | | | | | | | | | | | | | | (Gain) loss from foreign currency transactions and non-hedge accounting derivatives: | | | | | | | | | | | | | Gain on non-hedge accounting foreign currency transactions | | | (2,375 | ) | | | (45 | ) | | | (430 | ) | Loss on non-hedge accounting foreign currency swaps | | | 2,248 | | | | 185 | | | | 431 | | (Gain) loss on non-hedge accounting interest rate swaps | | | (282 | ) | | | 18 | | | | (379 | ) | Total interest expense | | $ | 736 | | | $ | 1,340 | | | $ | 940 | |
| | | | | | Years Ended March 31, | | | | 2017 | | | 2016 | | | 2015 | | Interest expense on debt | | $ | 1,570 | | | $ | 1,308 | | | $ | 1,213 | | Interest income on derivatives | | | (18 | ) | | | (7 | ) | | | (67 | ) | Interest expense on debt and derivatives, net | | | 1,552 | | | | 1,301 | | | | 1,146 | | | | | | | | | | | | | | | Loss on hedge accounting derivatives: | | | | | | | | | | | | | Interest rate swaps | | | - | | | | - | | | | 19 | | Foreign currency swaps | | | 11 | | | | - | | | | 122 | | Loss on hedge accounting derivatives | | | 11 | | | | - | | | | 141 | | Less hedged item: change in fair value of fixed rate debt denominated in a foreign currency | | | (11 | ) | | | (2 | ) | | | (142 | ) | Ineffectiveness related to hedge accounting derivatives | | | - | | | | (2 | ) | | | (1 | ) | | | | | | | | | | | | | | (Gain) loss on debt denominated in foreign currencies and U.S. dollar non-hedge accounting derivatives: | | | | | | | | | | | | | (Gain) loss on non-hedge accounting debt denominated in foreign currencies | | | (652 | ) | | | 503 | | | | (2,375 | ) | Loss (gain) on non-hedge accounting foreign currency swaps | | | 880 | | | | (573 | ) | | | 2,248 | | Gain on U.S. dollar non-hedge accounting interest rate swaps | | | (26 | ) | | | (92 | ) | | | (282 | ) | Total interest expense | | $ | 1,754 | | | $ | 1,137 | | | $ | 736 | |
Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses fromon hedge accounting derivatives and debt denominated in foreign currency transactionscurrencies exclude net interest settlements and changes in accruals. Cash flows associated with hedge accounting, non-hedge accounting, and de-designated derivatives are reported in Net cash provided by operating activities in our Consolidated Statements of Cash Flows. The relative fair value allocation of derivative credit value adjustments for counterparty and non-performance credit risk within interest expense iswas not significant for the years ended March 31, 2015, 20142017, 2016 and 2013,2015, as we are fully collateralizecollateralized on substantially all of our derivatives without regard to credit ratings. 114110
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 8 – Other Assets and Other Liabilities Other assets and other liabilities consisted of the following: (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | Other assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Notes receivable from affiliates | | $ | 1,184 | | | $ | 1,172 | | | $ | 823 | | | $ | 1,177 | | Used vehicles held for sale | | | 188 | | | | 139 | | | | 264 | | | | 319 | | Deferred charges | | | 122 | | | | 116 | | | Income taxes receivable | | | 174 | | | | - | | | | - | | | | 31 | | Derivative assets | | | 53 | | | | 49 | | | | 51 | | | | 68 | | Other assets | | | 561 | | | | 394 | | | | 906 | | | | 622 | | Total other assets | | $ | 2,282 | | | $ | 1,870 | | | $ | 2,044 | | | $ | 2,217 | | | | | | | | | | | | | | | | | | | Other liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | Unearned insurance premiums and contract revenues | | $ | 1,825 | | | $ | 1,665 | | | $ | 2,154 | | | $ | 1,985 | | Derivative liabilities | | | 90 | | | | 6 | | | Accounts payable and accrued expenses | | | 855 | | | | 746 | | | | 1,057 | | | | 939 | | Deferred income | | | 405 | | | | 332 | | | | 468 | | | | 462 | | Income taxes payable | | | | 62 | | | | - | | Derivative liabilities | | | | 46 | | | | 7 | | Other liabilities | | | 180 | | | | 139 | | | | 165 | | | | 192 | | Total other liabilities | | $ | 3,355 | | | $ | 2,888 | | | $ | 3,952 | | | $ | 3,585 | |
Included in total other assets is a non-cash movement related to used vehicles held for sale that was excluded from operating activities and investing activities in the consolidated statement of cash flows. The amount of non-cash movement was $58 million, $147 million and $183 million at March 31, 2015, 2014 and 2013, respectively.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 9 – Debt Debt and the related weighted average contractual interest rates are summarized as follows: | | | | | | | | | | Weighted average | | | | | | | | | | Weighted average | | | | | | | | | | | | contractual interest rates | | | | | | | | | | contractual interest rates | | | | March 31, | | | March 31, | | March 31, | | | March 31, | | | March 31, | | | March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2015 | | 2014 | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Commercial paper | | $ | 27,006 | | | $ | 27,709 | | | | 0.21 | % | | | 0.18 | % | | $ | 26,632 | | | $ | 26,608 | | | | 1.11 | % | | | 0.60 | % | Unsecured notes and loans payable | | | 52,307 | | | | 49,075 | | | | 1.86 | % | | | 1.99 | % | | | 57,282 | | | | 52,863 | | | | 1.91 | % | | | 1.76 | % | Secured notes and loans payable | | | 10,837 | | | | 8,158 | | | | 0.60 | % | | | 0.54 | % | | | 14,319 | | | | 14,123 | | | | 1.32 | % | | | 0.91 | % | Carrying value adjustment | | | 81 | | | | 425 | | | | | | | | | | | Total debt | | $ | 90,231 | | | $ | 85,367 | | | | 1.22 | % | | | 1.26 | % | | $ | 98,233 | | | $ | 93,594 | | | | 1.60 | % | | | 1.30 | % |
The commercial paper balancecarrying value of our debt includes unamortized premiums, discounts and discounts. debt issuance costs of $307 million and $280 million as of March 31, 2017 and 2016, respectively. The face value of commercial paper, unsecured notes and loans payable and secured notes and loans payable was $26.7 billion, $57.4 billion and $14.3 billion, respectively, as of March 31, 2017 and $26.6 billion, $53.0 billion and $14.1 billion, respectively, as of March 31, 2016. As of March 31, 2015,2017, our commercial paper had a weighted average remaining maturity of 8197 days, while our unsecured and secured notes and loans payable mature on various dates through fiscal 2047. Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount. The carrying value of ourOur unsecured notes and loans payable at March 31, 2015 included $17.4 billionconsist of unsecured floatingboth fixed and variable rate debt with contractual interest rates ranging from 0 percent to 3.35.8 percent at March 31, 2017 and $35.0 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.80 percent to 9.4 percent. The carrying value of our unsecured notes and loans payablepercent at March 31, 2014 included $17.6 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 3.3 percent and $31.9 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.5 percent to 9.4 percent.2016. Upon issuance of fixed rate notes, we generally elect to enter into interest rate swaps to convert fixed rate payments on notes to floating rate payments.
IncludedOur unsecured notes and loans payable contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. We are currently in compliance with these covenants and conditions.
Certain unsecured notes and loans payable are notes and loans denominated in various foreign currencies, unamortized premiums and discounts andinclude the effectsimpact of foreign currency transaction gains and losses on non-hedged or de-designated foreign currency denominated notes and loans payable.translation adjustments. At March 31, 20152017 and 2014,2016, the carrying values of these foreign currency denominated unsecured notes and loans payable were $12.4$13.3 billion and $12.6$13.1 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes and loans payable, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments. Unsecured notes and loans payable include a carrying value adjustment, which represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships. The carrying value adjustment on debt decreased to $102 million at March 31, 2017 from $122 million at March 31, 2016 primarily as a result of a weaker U.S. dollar relative to certain other currencies in which our hedged debt is denominated. Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt with contractual interest rates ranging from 0.40.8 percent to 1.52.1 percent at March 31, 20152017 and 0.40.5 percent to 1.61.7 percent at March 31, 2014.2016. Secured notes and loans payable are issued byusing on-balance sheet securitization trusts, as further discussed in Note 10 – Variable Interest Entities. These notes are repayable only from collections on the underlying securitized retail finance receivables and the beneficial interests in investments in operating leases and from related credit enhancements. The carrying value adjustment on debt represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships. The carrying value adjustment on debt decreased by $344 million at March 31, 2015 compared to March 31, 2014 primarily as a result of a stronger U.S. dollar relative to certain other currencies in which some of our debt is denominated.
116112
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 9 – Debt (Continued) Scheduled maturities of our debt portfolio are summarized below (dollars in millions).below. Actual repayment of secured debt will vary based on the repayment activity on the related pledged assets. | | Future | | | Future | | Years ending March 31, | | debt maturities | | | debt maturities | | 2016 | | $ | 47,675 | | | 2017 | | | 11,379 | | | 2018 | | | 12,087 | | | $ | 49,824 | | 2019 | | | 4,517 | | | | 16,037 | | 2020 | | | 5,021 | | | | 9,027 | | 2021 | | | | 6,613 | | 2022 | | | | 10,229 | | Thereafter | | | 9,552 | | | | 6,708 | | Unamortized discounts, costs and carrying value adjustment | | | | (205 | ) | Total debt | | $ | 90,231 | | | $ | 98,233 | |
Interest payments on commercial paper and debt, including net settlements on interest rate swaps, were $1.0 billion, $1.1 billion and $1.3 billion in fiscal 2015, 2014 and 2013, respectively.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 10 – Variable Interest Entities Consolidated Variable Interest Entities We use one or more special purpose entities that are considered Variable Interest Entities to issue asset-backed securities to third party bank-sponsored asset-backed securitization vehicles and to investors in securitization transactions. The securities issued by these VIEs are backed by the cash flows related to retail finance receivables and beneficial interests in investments in operating leases (“Securitized Assets”). We hold variable interests in the VIEs that could potentially be significant to the VIEs. We determined that we are the primary beneficiary of the securitization trusts because (i) our servicing responsibilities for the Securitized Assets give us the power to direct the activities that most significantly impact the performance of the VIEs, and (ii) our variable interests in the VIEs give us the obligation to absorb losses and the right to receive residual returns that could potentially be significant. The following tables show the assets and liabilities related to our VIE securitization transactions that were included in our financial statements as of March 31, 2015 and 2014: Consolidated Balance Sheets: | | March 31, 2015 | | | March 31, 2017 | | | | | | | | VIE Assets | | | VIE Liabilities | | | | | | | VIE Assets | | | VIE Liabilities | | (Dollars in millions) | | Restricted Cash | | | Gross Securitized Assets | | | Net Securitized Assets | | | Other Assets | | | Debt | | | Other Liabilities | | | | | | | | | | Gross | | | Net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted Cash | | | Securitized Assets | | | Securitized Assets | | | Other Assets | | | Debt | | | Other Liabilities | | Retail finance receivables | | $ | 730 | | | $ | 11,682 | | | $ | 11,509 | | | $ | 4 | | | $ | 9,980 | | | $ | 3 | | | $ | 856 | | | $ | 13,071 | | | $ | 12,865 | | | $ | 7 | | | $ | 11,017 | | | $ | 5 | | Investments in operating leases | | | 54 | | | | 1,571 | | | | 1,193 | | | | 11 | | | | 857 | | | | - | | | | 211 | | | | 6,502 | | | | 4,888 | | | | 80 | | | | 3,302 | | | | 1 | | Total | | $ | 784 | | | $ | 13,253 | | | $ | 12,702 | | | $ | 15 | | | $ | 10,837 | | | $ | 3 | | | $ | 1,067 | | | $ | 19,573 | | | $ | 17,753 | | | $ | 87 | | | $ | 14,319 | | | $ | 6 | |
| | March 31, 2014 | | | March 31, 2016 | | | | | | | | VIE Assets | | | VIE Liabilities | | | | | | | VIE Assets | | | VIE Liabilities | | (Dollars in millions) | | Restricted Cash | | | Gross Securitized Assets | | | Net Securitized Assets | | | Other Assets | | | Debt | | | Other Liabilities | | | | | | | | | | Gross | | | Net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted Cash | | | Securitized Assets | | | Securitized Assets | | | Other Assets | | | Debt | | | Other Liabilities | | Retail finance receivables | | $ | 624 | | | $ | 9,633 | | | $ | 9,501 | | | $ | 3 | | | $ | 8,146 | | | $ | 2 | | | $ | 853 | | | $ | 14,343 | | | $ | 14,130 | | | $ | 6 | | | $ | 12,434 | | | $ | 4 | | Investment in operating leases | | | 20 | | | | 248 | | | | 156 | | | | 4 | | | | 12 | | | | - | | | Investments in operating leases | | | | 136 | | | | 3,364 | | | | 2,504 | | | | 78 | | | | 1,689 | | | | 1 | | Total | | $ | 644 | | | $ | 9,881 | | | $ | 9,657 | | | $ | 7 | | | $ | 8,158 | | | $ | 2 | | | $ | 989 | | | $ | 17,707 | | | $ | 16,634 | | | $ | 84 | | | $ | 14,123 | | | $ | 5 | |
Restricted cashCash shown in the table above represents collections from the underlying Gross Securitized Assets shown in the table above and certain reserve deposits held by TMCC for the VIEs and is included as part of the Restricted Cash and Cash Equivalentscash on our Consolidated Balance Sheet.Sheets. Gross Securitized Assets represent finance receivables and beneficial interests in investments in operating leases securitized for the asset-backed securities issued. Net Securitized Assets shown in the table above are presented net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Other Assets represent used vehicles held for saleheld-for-sale that were repossessed by or returned to TMCC for the benefit of the VIEs. The related debt of these consolidated VIEs is presented net of $1,275$1,526 million and $1,169$1,264 million of securities retained by TMCC at March 31, 20152017 and 2014,2016, respectively. Other Liabilities represents accrued interest on the debt of the consolidated VIEs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Variable Interest Entities (Continued)
The assets of the VIEs and the restricted cash held by TMCC serve as the sole source of repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities. As the primary beneficiary of these entities, we are exposed to credit, residual value, interest rate, and prepayment risk from the Securitized Assets in the VIEs. However, our exposure to these risks did not change as a result of the transfer of the assets to the VIEs. We may also be exposed to interest rate risk arising from the secured notes issued by the VIEs. 114
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 10 – Variable Interest Entities (Continued) In addition, we entered into interest rate swaps with certain special purpose entities that issue variable rate debt. Under the terms of these swaps, the special purpose entities are obligated to pay TMCC a fixed rate of interest on certain payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt. This arrangement enables the special purpose entities to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate Securitized Assets. The transfers of the Securitized Assets to the special purpose entities in our securitizations are considered to be sales for legal purposes. However, the Securitized Assets and the related debt remain on our Consolidated Balance Sheet.Sheets. We recognize financing revenue on the Securitized Assets and interest expense on the secured debt issued by the special purpose entities. We also maintain an allowance for credit losses on the Securitized Assets to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements. Non-consolidated Variable Interest Entities We provide lending to Toyota and Lexus dealers through the Toyota Dealer Investment Group’s Dealer Capital Program (“TDIG Program”) operated by our affiliate TMS, which has an equity positioninterest in these dealerships. Dealers participating in this program have been determined to be VIEs. We do not consolidate the dealerships in this program as we are not the primary beneficiary and any exposure to loss is limited to the amount of the credit facility. At March 31, 2015 and 2014, amountsAmounts due from these dealers that are classified as finance receivables, net in the Consolidated Balance Sheet and revenues received during each of fiscal 2015, 2014 and 2013 from these dealers under the TDIG Program that are classified as Finance receivables, net in our Consolidated Balance Sheets at March 31, 2017 and 2016 and revenues earned from these dealers during fiscal 2017, 2016 and 2015 were not significant. We also have other lending relationships which have been determined to be VIEs, but these relationships are not consolidated as we are not the primary beneficiary. Amounts due and revenues earned under these relationships as of March 31, 2017 and 2016 were not significant. 119115
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 11 – Liquidity Facilities and Letters of Credit For additional liquidity purposes, we maintain syndicated bank credit facilities with certain banks. 364 Day Credit Agreement, Three Year Credit Agreement and Five Year Credit Agreement In November 2014,2016, TMCC, TCPRToyota Credit de Puerto Rico Corp. (“TCPR”) and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility, a $5.0 billion three year syndicated bank credit facility and a $5.0 billion five year syndicated bank credit facility, expiring in fiscal 2016, 2018, 2020, and 2020,2022, respectively. The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These agreements may be used for general corporate purposes and none were drawn upon as of March 31, 2015.2017. We are currently in compliance with the covenants and conditions of the credit agreements described above. Other Unsecured Credit Agreements TMCC has entered into additional unsecured credit facilities with various banks. As of March 31, 2015,2017, TMCC had committed bank credit facilities totaling $5.7$5.4 billion, of which $3.2 billion, $2.1$2.7 billion and $375 million$2.7 billion mature in fiscal 2016, 2018 and 2020, respectively. These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of March 31, 20152017 and 2014.2016. We are currently in compliance with the covenants and conditions of the credit agreements described above. 120116
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 12 – Pension and Other Benefit Plans We are a participating employer in certain retirement and post-employment health care, life insurance, and other benefits sponsored by TMS,TMNA, an affiliate. In connection with TMC’s planned consolidation of its three North American headquarters for manufacturing, sales and marketing, and finance operations to a single new headquarters facility in Plano, Texas, the sponsorship of these benefits was transferred from TMS to TMNA in fiscal 2017. Costs of each plan are generally allocated to us by TMSTMNA based on relative payroll costs associated with participating or eligible employees at TMCC as compared to the plan as a whole. Defined Benefit Plan Prior to January 1, 2015, our employees were generally eligible to participate in the Toyota Motor Sales, U.S.A., Inc. Pension Plan sponsored by TMS(the “Pension Plan”) commencing on the first day of the month following hire and were vested after 5 years of continuous employment. Effective January 1, 2015, except for certain collectively bargained employees, TMS-sponsored benefit pension plans werethe Pension Plan was closed to employees first employed or reemployed on or after such date. Benefits payable under this non-contributory defined benefit pension plan are based, generally, upon the employees' years of credited service (up to a maximum of 25 years), the highest average annual compensation (as defined in the plan) for any 60 consecutive month period out of the last 120 months of employment (the “Applicable Years”), and one-half of eligible bonus/gift payments for the Applicable Years (recalculated to determine the annual average of such amount), reduced by a percentage of the estimated amount of social security benefits. Pension costsCosts allocated to TMCC for our employees in the TMS pension planPension Plan and certain other non-qualified plans were $4$5 million, $15$11 million and $8$4 million for fiscal 2015, 20142017, 2016 and 2013,2015, respectively.
Defined Contribution Plan Employees meeting certain eligibility requirements, as defined in the plan documents, may participate in the Toyota Motor SalesNorth America, Inc. Retirement Savings Plan sponsored by TMS.Plan. Under these plans,this plan, eligible employees may elect to contribute between 1 percent and 30 percent of their eligible pre-tax compensation, subject to federal tax regulation limits. We match 66 2/3 cents for each dollar the participant contributes, up to 6 percent of base pay. Participants are vested 25 percent each year with respect to our contributions and are fully vested after four years. TheGenerally, contributions are funded bi-weekly by payments to the plans’plan’s administrator. Certain employees hired on or after January 1, 2015, may be eligible to receive an annually fundedadditional Company contribution to the plansplan calculated based on their age and compensation. TMCC employer contributions to the TMS savings plan were $10 million, $8 million and $7 million for fiscal 2015, 20142017, 2016 and 2013,2015, respectively. Other Post-Retirement Benefit Plans In addition, employeesEmployees are generally eligible to participate in other post-retirement benefits sponsored by TMSTMNA which provide certain health care and life insurance benefits to eligible retired employees. In order to be eligible for these benefits, the employee must retire with at least ten years of service and in some cases be at least 55 years of age.
Other post-retirement benefit costs allocated to TMCC were $10 million, $13 million $16 million and $15$13 million for fiscal 2015, 20142017, 2016 and 2013,2015, respectively. 121117
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 13 – Income Tax Provision The provision for income taxes consisted of the following: | | Years ended March 31, | | | Years ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | | | | | 2017 | | | 2016 | | | 2015 | | Current | | | | | | | | | | | | | | | | | | | | | | | | | Federal | | $ | (25 | ) | | $ | (24 | ) | | $ | (15 | ) | | $ | 136 | | | $ | 73 | | | $ | (25 | ) | State | | | (15 | ) | | | (3 | ) | | | 41 | | | | 2 | | | | (33 | ) | | | (15 | ) | Foreign | | | 9 | | | | 8 | | | | 6 | | | | 7 | | | | 9 | | | | 9 | | Total current | | | (31 | ) | | | (19 | ) | | | 32 | | | Total | | | | 145 | | | | 49 | | | | (31 | ) | | | | | | | | | | | | | | | Deferred | | | | | | | | | | | | | | | | | | | | | | | | | Federal | | | 644 | | | | 460 | | | | 721 | | | | (9 | ) | | | 420 | | | | 644 | | State | | | 117 | | | | 54 | | | | 69 | | | | 5 | | | | 111 | | | | 117 | | Foreign | | | (1 | ) | | | 2 | | | | 2 | | | | 1 | | | | - | | | | (1 | ) | Total deferred | | | 760 | | | | 516 | | | | 792 | | | Total | | | | (3 | ) | | | 531 | | | | 760 | | Provision for income taxes | | $ | 729 | | | $ | 497 | | | $ | 824 | | | $ | 142 | | | $ | 580 | | | $ | 729 | |
A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows: | | Years ended March 31, | | | Years ended March 31, | | | | 2015 | | | 2014 | | | 2013 | | | 2017 | | | 2016 | | | 2015 | | Provision for income taxes at U.S. federal statutory tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | State and local taxes (net of federal tax benefit) | | | 3.2 | % | | | 3.1 | % | | | 3.2 | % | | | 3.6 | % | | | 3.2 | % | | | 3.2 | % | Other | | | (0.3 | )% | | | (1.4 | )% | | | - | % | | Other, net | | | | (3.9 | )% | | | 0.2 | % | | | (0.3 | )% | Effective tax rate | | | 37.9 | % | | | 36.7 | % | | | 38.2 | % | | | 34.7 | % | | | 38.4 | % | | | 37.9 | % |
For fiscal 2015, 2014, and 2013 theThe amounts in Other, net in the table above include benefits from fuel cell credits for fiscal 2017 and 2016, federal plug-in and electric vehicle credits offset byfor fiscal 2017, 2016, and 2015, and adjustments for the differences between the income tax accrued in the prior year as compared with the actual liability on the income tax returns as filed.
The net deferred income tax liabilities, by tax jurisdiction, are as follows:
| | March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | Federal | | $ | 6,873 | | | $ | 6,217 | | State | | | 646 | | | | 529 | | Foreign | | | - | | | | 1 | | Net deferred income tax liability | | $ | 7,519 | | | $ | 6,747 | |
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 13 – Income Tax Provision (Continued) Our net deferred income tax liability consistsconsisted of the following deferred tax liabilities and assets: | | March 31, | | | March 31, | | (Dollars in millions) | | 2015 | | | 20141 | | | | | | 2017 | | | 2016 | | Liabilities: | | | | | | | | | | | | | | | | | Lease transactions | | $ | 8,576 | | | $ | 7,115 | | | $ | 7,647 | | | $ | 8,579 | | State taxes | | | 570 | | | | 482 | | | State taxes, net of federal tax benefit | | | | 640 | | | | 642 | | Mark-to-market of investments in marketable securities and derivatives | | | 292 | | | | 138 | | | | 267 | | | | 316 | | Other | | | 329 | | | | 295 | | | | 383 | | | | 344 | | Deferred tax liabilities | | $ | 9,767 | | | $ | 8,030 | | | $ | 8,937 | | | $ | 9,881 | | | | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | | | Provision for credit and residual value losses | | | 328 | | | | 292 | | | | 593 | | | | 431 | | Deferred costs and fees | | | 258 | | | | 211 | | | | 306 | | | | 292 | | Net operating loss and tax credit carryforwards | | | 1,615 | | | | 742 | | | | 67 | | | | 1,097 | | Other | | | 67 | | | | 56 | | | | 66 | | | | 67 | | Deferred tax assets | | | 2,268 | | | | 1,301 | | | | 1,032 | | | | 1,887 | | Valuation allowance | | | (20 | ) | | | (18 | ) | | | (21 | ) | | | (22 | ) | Net deferred tax assets | | $ | 2,248 | | | $ | 1,283 | | | $ | 1,011 | | | $ | 1,865 | | Net deferred income tax liability2 | | $ | 7,519 | | | $ | 6,747 | | | Net deferred income tax liability1 | | | $ | 7,926 | | | $ | 8,016 | |
1Certain prior period amounts have been reclassified to conform to the current period presentation. 2 Balance includes deferred tax liabilities attributable to unrealized gaingains or losslosses included in accumulated other comprehensive income or loss, net of $136$15 million and $124$102 million at March 31, 20152017 and 2014,2016, respectively. The change in this deferred liability is not included in total deferred tax expense.
We have no deferred tax assets related to cumulative federal net operating loss carryforwards at March 31, 2017, compared to deferred tax assets related to our cumulative federal net operating loss carryforwards of $1,435 million and $591$912 million available at March 31, 20152016. The federal net operating loss carryforwards were utilized based on our determination of taxable income for the year ended March 31, 2017. We have deferred tax assets for state tax net operating loss carryforwards of $59 million and 2014,$67 million at March 31, 2017 and 2016, respectively. The federalstate tax net operating loss carryforwards will expire beginning in fiscal 20292018 through fiscal 2035. At March 31, 2015, we2036. We have a deferred tax asset of $71 million for state tax net operating loss carryforwards which will expire in fiscal 2016 through fiscal 2035. At March 31, 2014, we had deferred tax assets of $56 million for state tax net operating loss carryforwards which will expire in fiscal 2015 through fiscal 2034. For fiscal 2014, we reclassified lease-related charge-offs of $18 million from Provision for credit and residual value losses to Lease transactions for comparative purposes to these items for fiscal 2015. On December 19, 2014, the Tax Increase Prevention Act of 2014 (the “Act”) was enacted which extended bonus depreciation. The impact of the Act is reflected in our federal tax loss carryforwards. Realization with respect to the federal tax loss carryforwards is dependent on generating sufficient income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Income Tax Provision (Continued)
In addition, at March 31, 2015 and 2014, we haveno deferred tax assets for federal and state hybridalternative fuel vehicle credits at March 31, 2017, compared to deferred tax assets for federal and state alternative fuel vehicle credits of $96$99 million and $80 million, respectively. at March 31, 2016.
The deferred tax assets related to state tax net operating lossesloss and state hybrid creditscapital loss carryforwards are reduced by a valuation allowance of $20$21 million at March 31, 2015.2017. The deferred tax assets related to state tax net operating lossesloss carryforwards and charitable contributionsstate alternative minimum tax credits were reduced by a valuation allowance of $18$22 million at March 31, 2014.2016. The determination of the valuation allowance is based on Management’smanagement’s estimate of future taxable income during the respective carryforward periods. Apart from the valuation allowance, we believe that the remaining deferred tax assets will be realized in full. We made net On October 1, 2015, TMCC sold its commercial finance business to TICF. Pursuant to the sale agreement with TICF, TMCC recognized a taxable gain that resulted in current federal and state income tax paymentsexpense of $143 million for fiscal 2015 and received a net tax refund of $30$89 million in fiscal 2014.2016.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 13 – Income Tax Provision (Continued) We have made an assertion of permanent reinvestment of earnings from our foreign subsidiary; as a result, U.S. taxes have not been provided for unremitted earnings of our foreign subsidiary. At March 31, 2015,2017 and 2016, these unremitted earnings totaled $196 million.$220 million and $208 million, respectively. Determination of the amount of the deferred tax liability is not practicable, and accordingly no estimate of the unrecorded deferred tax liability is provided. Although there are no foreseeable events causing repatriation of earnings, possible examples may include but are not be limited to parent company capital needs or exiting the business in the foreign country. At March 31, 2015, we had a receivable of $13 million for ourOur share of the income tax in those states where we filed consolidatedpayable or combined returns with TMNA and its subsidiaries. At March 31, 2014, the payable for our share of the income taxreceivable in those states where we filed consolidated or combined returns with TMNA and its subsidiaries was $11 million. Atnot significant at March 31, 2015 we had a receivable of $5 million for2017 and 2016, respectively. Additionally, our federal and state income tax payable or receivable from TMCC affiliated companies. At March 31, 2014, we had a receivable of less than $1 million for federal and state income tax from TMCC affiliated companies. Such TMCC affiliated companies, include TFSA,including TFSIC, Toyota Financial Savings Bank (“TFSB”), and Toyota Financial Services Securities USA Corporation.Corporation, was not significant at March 31, 2017 and 2016, respectively.
The guidance for the accounting and reporting for income taxes requires us to assess tax positions in cases where the interpretation of the tax law may be uncertain. The change in unrecognized Unrecognized tax benefits in fiscal 2015, 2014 and 2013 arewere not significant as follows:
| | March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | 2013 | | Balance at beginning of the year | | $ | 6 | | | $ | 7 | | | $ | 8 | | Increases related to positions taken during the current year | | | - | | | | - | | | | 1 | | Decreases related to positions taken during the prior years | | | - | | | | (1 | ) | | | - | | Settlements | | | (6 | ) | | | - | | | | (2 | ) | Balance at end of year | | $ | - | | | $ | 6 | | | $ | 7 | |
Atof March 31, 2015, less than $1 million of the respective unrecognized tax benefits would, if recognized, have an effect on the effective tax rate. At March 31, 20142017, 2016 and 2013, approximately $1 million of the respective unrecognized tax benefits at each year end would, if recognized, have an effect on the effective tax rate. There are no amounts remaining in the respective unrecognized tax benefits at March 31, 2015 and 2014 that are related to the timing of deductibility. During fiscal 2015, $1 million of the decrease in unrecognized tax benefits had an effect on the effective tax rate.2015. We do not have any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months.
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Income Tax Provision (Continued)
We accrue interest, if applicable, related to uncertain income tax positions in interest expense. Statutory penalties, if applicable, accrued with respect to uncertain income tax positions are recognized as an addition to the income tax liability. For each of fiscal 2017, 2016, and 2015, 2014, and 2013, less than $1 millionaccrued interest was accrued for interestnot significant and no penalties were accrued. Tax-related Contingencies As of March 31, 2015,2017, we remain under IRS examination for fiscal 20152017 and 2014.2016. The IRS examinationsexamination for fiscal 2013 and 2012 were2015 was concluded in the firstsecond quarter of fiscal 2015. On August 1, 2014, the New Jersey Tax Court issued its opinion in a case involving TMCC which was favorable to TMCC. While it is possible that the State of New Jersey may appeal this decision, the FIN 48 liability and related accrued interest were released in the second quarter. This decision did not have a significant impact on the effective tax rate or on our Consolidated Statement of Income and our Consolidated Balance Sheet.2016.
125120
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 14 – Commitments and Contingencies Commitments and Guarantees We have entered into certain commitments and guarantees for which the maximum unfunded amounts are summarized in the table below: (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | | | | | March 31, | | | March 31, | | | | | 2017 | | | 2016 | | Commitments: | | | | | | | | | | | | | | | | | Credit facilities commitments with vehicle and industrial equipment dealers | | $ | 1,137 | | | $ | 1,295 | | | Credit facilities commitments with dealers | | | $ | 1,199 | | | $ | 1,168 | | Minimum lease commitments | | | 60 | | | | 62 | | | | 59 | | | | 55 | | Total commitments | | | 1,197 | | | | 1,357 | | | | 1,258 | | | | 1,223 | | Guarantees of affiliate pollution control and solid waste disposal bonds | | | 100 | | | | 100 | | | | 100 | | | | 100 | | Total commitments and guarantees | | $ | 1,297 | | | $ | 1,457 | | | $ | 1,358 | | | $ | 1,323 | |
Wholesale financing demand note facilities areis not considered to be a contractual commitmentscommitment as theythe arrangements are not binding arrangements under which TMCC is required to perform. We are party to a 15-year lease agreement, which expires in 2018, with TMS for our headquarters location in the TMS headquarters complex in Torrance, California. Total rental expense, including payments to affiliates, was $26$27 million, $25 million, and $22$26 million for fiscal 2015, 2014,2017, 2016, and 2013,2015, respectively. Minimum lease commitments in the table above include $23$10 million and $16 million for facilities leases with affiliates at March 31, 2015.2017 and 2016, respectively. At March 31, 2015,2017, minimum future commitments under lease agreements to which we are a lessee, including those under the TMS lease, are as follows (dollars in millions):follows: | | Future minimum | | | Future minimum | | Years ending March 31, | | lease payments | | | lease payments | | 2016 | | $ | 19 | | | 2017 | | | 19 | | | 2018 | | | 14 | | | $ | 21 | | 2019 | | | 6 | | | | 14 | | 2020 | | | 2 | | | | 9 | | 2021 | | | | 5 | | 2022 | | | | 8 | | Thereafter | | | - | | | | 2 | | Total | | $ | 60 | | | $ | 59 | |
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TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Commitments and Contingencies (Continued)
Commitments We provide fixed and variable rate working capital loans, revolving lines of credit, facilitiesand real estate financing to vehicledealers and industrial equipment dealers. These credit facilities are typically usedvarious multi-franchise organizations referred to as dealer groups for facilities construction and refurbishment, working capital requirements, real estate purchases, business acquisitions and working capital requirements.other general business purposes. These loans are generally collateralizedtypically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee from the vehicleappropriate, and may be guaranteed by individual or industrial equipmentcorporate guarantees of affiliated dealers, dealer groups, or a corporate guarantee from the dealership when deemed prudent.dealer principals. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. Our credit facility pricing reflects market conditions, the competitive environment, the level of dealer support required for the facility,dealers provide our retail, lease and insurance business and the credit worthiness of each dealer. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses.
121
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 14 – Commitments and Contingencies (Continued) We also provide financing to various multi-franchise dealer organizations, often as partare in the process of a lending consortium, for wholesale, working capital, real estate, and business acquisitions. On April 28, 2014, the Company announced thatmoving our corporate headquarters will move from Torrance, California to Plano, Texas beginning in 2017 as part of TMC’s planned consolidation of its three North American headquarters for manufacturing, sales and marketing, and finance operations to a single new headquarters facility. The relocation of our headquarters is expected to be substantially complete by the end of calendar year 2017. We are currently leasing temporary offices in Plano, Texas in advance of the completion of construction on our new corporate headquarters, which will be leased from TMNA. Relocation costs for employees and other relocation expenses are currently estimated to be approximately $124 million and are being expensed as incurred. To date, the Company has incurred $62 million in relocation expenses. The relocation costs incurred during the years ended March 31, 2017, 2016 and 2015 were $43 million, $15 million and $4 million, respectively. We have not incurred any significant costs related to employees, lease termination or other related relocation expensescosts as a result of thisour planned headquarters move. These moving costs will be expensed as incurred over the next several years. We do not currently expect these amounts to be significant.relocation.
Guarantees and Other Contingencies TMCC has guaranteed bond obligations totaling $100 million in principal that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. The bonds mature in the following fiscal years ending March 31: 2028 - $20 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $10 million. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the applicable affiliates for any amounts paid. TMCC receives an annual fee of $78 thousand for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of March 31, 20152017 and 2014.2016. Indemnification In the ordinary course of business, we enter into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and our vendor and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or a third party claim. In addition, we have agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. In addition, certain of our funding arrangements may require us to pay lenders for increased costs due to certain changes in laws or regulations. Due to the difficulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, we are not able to estimate our maximum exposure to future payments that could result from claims made under such provisions. We have not made any material payments in the past as a result of these provisions, and as of March 31, 2015,2017, we determined that it is not probable that we will be required to make any material payments in the future. As of March 31, 20152017 and 2014,2016, no amounts have been recorded under these indemnification provisions.
127122
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 14 – Commitments and Contingencies (Continued) Litigation and Governmental Proceedings Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices. Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies. We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. When we are able, we also determine estimates of reasonably possible loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established. Based on available information and established accruals, we do not believe it is reasonably possible that the results of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial condition or results of operations. As previously disclosed, we continue to engage in communications with the Consumer Financial Protection Bureau and the U.S. Department of Justice (together, the “Agencies”) regarding our purchases of auto finance contracts from dealers and related discretionary dealer compensation practices. At March 31, 2015, we recorded as a loss contingency an amount that was not material to our consolidated financial condition or results of operations for the year ended March 31, 2015. Based on the current state of discussions with the Agencies, we believe the range of reasonably possible losses in excess of the amount accrued is not material. We are continuing discussions with the Agencies and intend to achieve a mutually satisfactory resolution to these matters. However, if such resolution does not occur, we may be subject to an enforcement action. In addition, we have received a request for documents and information from the New York State Department of Financial Services relating to our lending practices (including fair lending), and wea request for documents and information pursuant to a civil investigative demand from the Commonwealth of Massachusetts Office of the Attorney General relating to our financing of guaranteed auto protection insurance products on retail contracts. We are fully cooperating with this request. We cannotthese requests, but are unable to predict thetheir outcome of this request given itstheir preliminary status.
128123
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 15 – Related Party Transactions The tables below summarize amounts included in our Consolidated StatementStatements of Income and in our Consolidated Balance SheetSheets under various related party agreements or relationships: | | Years ended March 31, | | (Dollars in millions) | | 2015 | | | 2014 | | | | | 2013 | | Net financing revenues: | | | | | | | | | | | | | | | Manufacturers’ subvention support and other revenues | | $ | 1,196 | | | $ | 994 | | | | | $ | 940 | | Origination costs paid to affiliates | | $ | (1 | ) | | $ | - | | | | | $ | - | | Credit support fees incurred | | $ | (88 | ) | | $ | (82 | ) | | | | $ | (72 | ) | Foreign exchange loss on loans payable to affiliates | | $ | - | | | $ | - | | | | | $ | (39 | ) | Interest expense on loans payable to affiliates | | $ | (2 | ) | | $ | (3 | ) | | | | $ | (6 | ) | | | | | | | | | | | | | | | | Insurance earned premiums and contract revenues: | | | | | | | | | | | | | | | Affiliate insurance premiums and contract revenues | | $ | 129 | | | $ | 131 | | | | | $ | 161 | | | | | | | | | | | | | | | | | Investments and other income, net: | | | | | | | | | | | | | | | Interest earned on notes receivable from affiliates | | $ | 4 | | | $ | 6 | | | | | $ | 6 | | | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | | | Shared services charges and other expenses | | $ | 63 | | | $ | 61 | | | | | $ | 64 | | Employee benefits expense | | $ | 24 | | | $ | 38 | | | | | $ | 30 | | Insurance losses and loss adjustment expenses | | $ | 1 | | | $ | - | | | | | $ | - | |
| | | | | | Years Ended March 31, | | | | 2017 | | | 2016 | | | 2015 | | Net financing revenues: | | | | | | | | | | | | | Manufacturers’ subvention and other revenues | | $ | 1,374 | | | $ | 1,315 | | | $ | 1,196 | | Credit support fees incurred | | $ | (92 | ) | | $ | (91 | ) | | $ | (88 | ) | Interest and other expenses | | $ | (3 | ) | | $ | (4 | ) | | $ | (3 | ) | | | | | | | | | | | | | | Insurance earned premiums and contract revenues: | | | | | | | | | | | | | Insurance premiums and contract revenues | | $ | 149 | | | $ | 132 | | | $ | 129 | | | | | | | | | | | | | | | Investments and other income, net: | | | | | | | | | | | | | Gain on sale of commercial finance business | | $ | - | | | $ | 197 | | | $ | - | | Interest and other income | | $ | 9 | | | $ | 8 | | | $ | 4 | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | Shared services charges and other expenses | | $ | 48 | | | $ | 48 | | | $ | 64 | | Employee benefits expense | | $ | 25 | | | $ | 33 | | | $ | 24 | |
129124
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 15 – Related Party Transactions (Continued) (Dollars in millions) | | March 31, 2015 | | | March 31, 2014 | | Assets: | | | | | | | | | Investments in marketable securities | | | | | | | | | Investments in affiliates' commercial paper | | $ | 37 | | | $ | - | | | | | | | | | | | Finance receivables, net | | | | | | | | | Accounts receivable from affiliates | | $ | 83 | | | $ | 74 | | Direct finance lease receivables from affiliates | | $ | 6 | | | $ | 6 | | Notes receivable under home loan programs | | $ | 11 | | | $ | 15 | | Deferred retail origination costs paid to affiliates | | $ | 1 | | | $ | 1 | | Deferred retail subvention income from affiliates | | $ | (802 | ) | | $ | (768 | ) | | | | | | | | | | Investments in operating leases, net | | | | | | | | | Leases to affiliates | | $ | 7 | | | $ | 7 | | Deferred lease origination costs paid to affiliates | | $ | 1 | | | $ | - | | Deferred lease subvention income from affiliates | | $ | (950 | ) | | $ | (806 | ) | | | | | | | | | | Other assets | | | | | | | | | Notes receivable from affiliates | | $ | 1,184 | | | $ | 1,172 | | Other receivables from affiliates | | $ | 6 | | | $ | 2 | | Subvention support receivable from affiliates | | $ | 126 | | | $ | 159 | | | | | | | | | | | Liabilities: | | | | | | | | | Other liabilities | | | | | | | | | Unearned affiliate insurance premiums and contract revenues | | $ | 252 | | | $ | 244 | | Accounts payable to affiliates | | $ | 136 | | | $ | 216 | | Notes payable to affiliates | | $ | 24 | | | $ | 22 | | | | | | | | | | | Shareholder’s Equity: | | | | | | | | | Stock-based compensation | | $ | 2 | | | $ | 2 | |
| | March 31, | | | March 31, | | | | 2017 | | | 2016 | | Assets: | | | | | | | | | Finance receivables, net | | | | | | | | | Accounts receivable | | $ | 136 | | | $ | 120 | | Notes receivable under home loan programs | | $ | 2 | | | $ | 9 | | Deferred retail subvention income | | $ | (967 | ) | | $ | (794 | ) | | | | | | | | | | Investments in operating leases, net | | | | | | | | | Investments in operating leases, net | | $ | 4 | | | $ | 3 | | Deferred lease subvention income | | $ | (1,174 | ) | | $ | (1,057 | ) | | | | | | | | | | Other assets | | | | | | | | | Notes receivable | | $ | 823 | | | $ | 1,177 | | Other receivables, net | | $ | 202 | | | $ | 7 | | | | | | | | | | | Liabilities: | | | | | | | | | Other liabilities | | | | | | | | | Unearned affiliate insurance premiums and contract revenues | | $ | 332 | | | $ | 278 | | Other payables, net | | $ | 74 | | | $ | 82 | | Notes payable | | $ | 13 | | | $ | 20 | | | | | | | | | | |
TMCC receives subvention payments from TMS which results in a gross monthly subvention receivable. As of March 31, 2017 and 2016, the subvention receivable from TMS was $165 million and $127 million, respectively. The subvention receivable is recorded in Other receivables, net in Other assets as of March 31, 2017. We have a master netting agreement with TMS and TMNA, which allows us to net settle payments for shared services and subvention transactions. Under this arrangement, we had a net payable to TMS and TMNA, which resulted in the subvention receivable being recorded in Other payables, net in Other liabilities as of March 31, 2016.
130125
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 15 – Related Party Transactions (Continued) Financing Support Arrangements with Affiliates TMCC is party to a credit support agreement with TFSC (the “TMCC Credit Support Agreement”). The agreementTMCC Credit Support Agreement requires TFSC to maintain certain ownership, net worth maintenance, and debt service provisions in respect ofto TMCC, but is not a guarantee by TFSC of any securities or obligations of TMCC. In conjunction with this credit support agreement, TMCC has agreed to pay TFSC a semi-annual fee based on a fixed rate applied to the weighted average outstanding amount of securities entitled to credit support. Credit support fees incurred under this agreement were $88 million, $82 million, and $72 million for fiscal 2015, 2014, and 2013, respectively. Toyota Credit de Puerto Rico Corp. (“TCPR”)TCPR is the beneficiary of a credit support agreement with TFSC containing provisions similar to the TMCC Credit Support Agreement described above.
In addition, TMCC receives and provides financing support from TFSC and other affiliates in the form of promissory notes, conduit finance agreements and various loan and credit facility agreements. Total financing support received and provided, along with the amounts currently outstanding under those agreements, is summarized below. All foreign currency amounts have been translated at the exchange rates in effect as of March 31, 2015.2017 and 2016. Financing Support Provided by Parent and Affiliates (amounts in millions):Affiliates: | | | | | Amounts outstanding (USD) at | | | | | | Amounts outstanding (USD) at | | Affiliate | | Financing available to TMCC | | | March 31, 2015 | | | March 31, 2014 | | | Financing available to TMCC | | | March 31, 2017 | | | March 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Toyota Credit Canada Inc. | | CAD | | | 1,500 | | | $ | - | | | $ | - | | | CAD | | | 1,500 | | | $ | - | | | $ | - | | Toyota Motor Finance (Netherlands) B.V. | | Euro | | | 1,000 | | | | - | | | | - | | | Euro | | | 1,000 | | | | - | | | | - | | Toyota Financial Services Americas Corporation | | USD | | | 200 | | | | 24 | | | | 22 | | | Toyota Financial Services International Corporation | | | USD | | | 200 | | | | 5 | | | | 12 | | Toyota Finance Australia Limited | | USD | | | 1,000 | | | | - | | | | - | | | USD | | | 1,000 | | | | - | | | | - | | Toyota Financial Services Securities USA Corporation | | | USD | | | 15 | | | | 8 | | | | 8 | | Total | | | | | | | | $ | 24 | | | $ | 22 | | | | | | | | | $ | 13 | | | $ | 20 | |
Financing Support Provided to Parent and Affiliates (amounts in millions):Affiliates: | | | | | Amounts outstanding (USD) at | | | | | | Amounts outstanding (USD) at | | Affiliate | | Financing made available by TMCC | | | March 31, 2015 | | | March 31, 2014 | | | Financing made available by TMCC | | | March 31, 2017 | | | March 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Toyota Financial Savings Bank | | USD | | | 400 | | | $ | 25 | | | $ | 40 | | | USD | | | 400 | | | $ | - | | | $ | - | | Toyota Credit Canada Inc. | | CAD | | | 2,500 | | | | - | | | | - | | | CAD | | | 2,500 | | | | - | | | | 220 | | Toyota Motor Finance (Netherlands) B.V. | | Euro | | | 1,000 | | | | 778 | | | | 827 | | | Euro | | | 1,000 | | | | 407 | | | | 619 | | Toyota Financial Services Americas Corporation | | USD | | | 200 | | | | - | | | | - | | | Toyota Financial Services International Corporation | | | USD | | | 200 | | | | - | | | | - | | Toyota Financial Services Mexico, S.A. de C.V. | | USD | | | 500 | | | | - | | | | - | | | USD | | | 500 | | | | - | | | | - | | Banco Toyota do Brasil | | USD | | | 300 | | | | 81 | | | | 105 | | | USD | | | 300 | | | | 116 | | | | 58 | | Toyota Finance Australia Limited | | USD | | | 1,000 | | | | 300 | | | | 200 | | | USD | | | 1,000 | | | | 300 | | | | 280 | | Total | | | | | | | | $ | 1,184 | | | $ | 1,172 | | | | | | | | | $ | 823 | | | $ | 1,177 | |
131126
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 15 – Related Party Transactions (Continued) Other Financing Support Provided to Affiliates ·
| TMCC and TFSC entered into conduit finance agreements under which TFSC passed along to TMCC certain funds that TFSC received from other financial institutions solely for the benefit of TMCC. The last of these agreements expired in April 2012 and there were no amounts payable under these agreements as of March 31, 2015 and 2014, respectively.
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TMCC provides home loans to certain employees. In addition, we also provide home equity advances through a relocation provider to certain employees relocating to Texas. TMCC executive officers and directors are not eligible for the home loan or home equity advance programs. ·
| TMCC provides home loans to relocated employees as well as certain officers, directors, and other members of management. Loans to directors and executive officers were made prior to July 30, 2002 and were grandfathered under the Sarbanes Oxley Act of 2002.
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TMCC provides wholesale financing, real estate and working capital loans to certain dealerships that were consolidated with another affiliate under the accounting guidance for variable interest entities. TMCC also pays these dealers origination fees. These costs represent direct costs incurred in connection with the acquisition of retail and lease contracts, including incentive and rate participation. ·
| TMCC provides wholesale financing, real estate and working capital loans to certain dealerships that were consolidated with another affiliate under the accounting guidance for variable interest entities. TMCC also pays these dealers origination fees. These costs represent direct costs incurred in connection with the acquisition of retail and lease contracts, including incentive and rate participation.
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TMCC has guaranteed the payments of principal and interest with respect to the bonds of manufacturing facilities of certain affiliates. The nature, business purpose, and amounts of these guarantees are described in Note 14 – Commitments and Contingencies. ·
TMCC and TFSB are parties to a master participation agreement pursuant to which TMCC agreed to purchase up to $60 million per year of residential mortgage loans originated by TFSB that meet specified credit underwriting guidelines. At March 31, 2017 and 2016, there were $33 million and $37 million, respectively, in loan participations outstanding that had been purchased by TMCC under this agreement. | TMCC has guaranteed the payments of principal and interest with respect to the bonds of manufacturing facilities of certain affiliates. The nature, business purpose, and amounts of these guarantees are described in Note 14 – Commitments and Contingencies.
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| TMCC and TFSB are parties to a master participation agreement pursuant to which TMCC agreed to purchase up to $60 million per year of residential mortgage loans originated by TFSB that meet specified credit underwriting guidelines, not to exceed $150 million over a three year period. At March 31, 2015 and 2014, there were $47 million and $52 million, respectively, in loan participations outstanding that had been purchased by TMCC under this agreement.
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Shared Service Arrangements with Affiliates TMCC is subject to the following shared service agreements: ·
| TMCC and TCPR incur costs under various shared service agreements with our affiliates. Services provided by affiliates under the shared service arrangement include marketing, technological and administrative services, as well as services related to our funding and risk management activities and our bank and investor relationships.
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TMCC and TCPR incur costs under various shared service agreements with our affiliates. Services provided by affiliates under the shared service agreements include marketing, technological, facilities, and administrative services, as well as services related to our funding and risk management activities and our bank and investor relationships. ·
| TMCC provides various services to our financial services affiliates, including certain administrative, systems and operational support.
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TMCC provides various services to our financial services affiliates, including certain administrative, systems and operational support. ·
| TMCC provides various services to TFSB, including marketing, administrative, systems, and operational support in exchange for TFSB making available certain financial products and services to TMCC’s customers and dealers meeting TFSB’s credit standards.
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TMCC provides various services to TFSB, including marketing, administrative, systems, and operational support in exchange for TFSB making available certain financial products and services to TMCC’s customers and dealers meeting TFSB’s credit standards. TMCC is party to a master netting agreement with TFSB, which allows TMCC to net settle payments for shared services between TMCC and TFSB. ·
| TMCC is subject to expense reimbursement agreements related to costs incurred by TFSB, TFSA, and TMS in connection with our affiliates providing certain financial products and services to our customers and dealers in support of TMCC’s customer loyalty strategy and programs, costs related to TFSB’s credit card rewards program, and other brand and sales support.
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TMCC is a party to expense reimbursement agreements with TFSB and TFSC related to costs incurred by TMCC or these affiliates on behalf of the other party in connection with TMCC’s provision of services to these affiliates or the provision by these affiliates of certain financial products and services to our customers and dealers in support of TMCC’s customer loyalty strategy and programs, and other brand and sales support. TMCC is also party to an expense reimbursement agreement with TFSIC that reimbursed expenses incurred by TFSIC with respect to costs related to TFSB’s credit card rewards program. TFSB sold its credit card rewards portfolio in October 2015 and no credit card reward program costs have been incurred after such date.
132127
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 15 – Related Party Transactions (Continued) Operational Support Arrangements with Affiliates ·
| TMCC and TCPR provide various wholesale financing to vehicle and industrial equipment dealers, which result in our having payables to TMS, Toyota de Puerto Rico Corp (“TDPR”), Toyota Material Handling, U.S.A., Inc. (“TMHU”) and Hino Motor Sales, U.S.A., Inc. (“HINO”).
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TMCC and TCPR provide various wholesale financing to dealers, which result in our having payables to TMS and Toyota de Puerto Rico Corp (“TDPR”). ·
| TMCC is party to a lease agreement, expiring in 2018, with TMS for our headquarters location in the TMS headquarters complex in Torrance, California. The lease commitments are described in Note 14 – Commitments and Contingencies.
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TMCC is party to a lease agreement with TMS for our headquarters location in the TMS headquarters complex in Torrance, California, expiring in 2018, and our Customer Service Center located in Cedar Rapids, Iowa, expiring in 2019. The lease commitments are described in Note 14 – Commitments and Contingencies. ·
| Subvention receivables represent amounts due from TMS and other affiliates in support of retail, lease, and industrial equipment subvention programs offered by TMCC. Deferred subvention income represents the unearned portion of amounts received from these transactions, and manufacturers’ subvention support and other revenues primarily represent the earned portion of such amounts.
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Subvention receivable represents amounts due from TMS and other affiliates in support of retail and lease subvention and other cash incentive programs offered by TMCC. Deferred subvention income represents the unearned portion of amounts received from these transactions, and manufacturers’ subvention and other revenues primarily represent the earned portion of such amounts. ·
| Leases to affiliates represent the investment in operating leases of vehicle and industrial equipment leased to affiliates.
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Leases represent the investment in operating leases of vehicles leased to affiliates. ·
| TMCC is a participating employer in certain retirement, postretirement health care and life insurance sponsored by TMS as well as share-based compensation plans sponsored by TMC. See Note 12 – Pension and Other Benefit Plans for additional information.
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TMCC is a participating employer in certain retirement, postretirement health care and life insurance benefits, previously sponsored by TMS. In connection with TMC’s planned consolidation of its three North American headquarters for manufacturing, sales and marketing, and finance operations to a single new headquarters facility in Plano, Texas, the sponsorship of these benefits was transferred from TMS to TMNA in fiscal 2017. Refer to Note 12 – Pension and Other Benefit Plans for additional information. TMCC also participates in share-based compensation plans sponsored by TMC. ·
| Affiliate insurance premiums and contract revenues primarily represent revenues from TMIS for administrative services and various types of coverage provided to TMS and affiliates. This includes contractual indemnity coverage and related administrative services for TMS’ certified pre-owned vehicle program and umbrella liability policy. TMIS provides umbrella liability insurance to TMS and affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. On all layers in which TMIS has provided coverage, 99 percent of the risk has been ceded to various reinsurers. During fiscal 2012, TMIS began providing property deductible reimbursement insurance to TMS and affiliates covering losses incurred under their primary policy.
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Affiliate insurance premiums and contract revenues primarily represent revenues from TMIS for administrative services and various types of coverage provided to TMS and affiliates. This includes contractual indemnity coverage for limited warranties on certified Toyota and Lexus pre-owned vehicles and related administrative services for TMS’ certified pre-owned vehicle program and umbrella liability policy. TMIS provides umbrella liability insurance to TMS and affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. On all layers in which TMIS has provided coverage, 99 percent of the risk has been ceded to various reinsurers. Up until April 30, 2016, TMIS also provided property deductible reimbursement insurance to TMS and affiliates covering losses incurred under their primary policy. ·
| TMIS provided prepaid maintenance and vehicle service coverage to TMS in support of special sales and customer loyalty efforts until the programs were discontinued in fiscal 2011. All contract revenue was fully recognized as of March 31, 2013.
|
Other Arrangements with Affiliates
In December 2014, TMCC entered into an agreement forOn October 1, 2015, we completed the sale of certain assets relating to itsour commercial finance business to a newly-formed subsidiary of Toyota Industries Corporation, which formsTICF. As part of the group of companies known as the Toyota Group. The closing date of thethis transaction, has not yet been determinedwe entered into an Expense Reimbursement Agreement with TICF relating to certain expenses incurred by TMCC and the assetsa Transition Services Agreement relating to certain post-close services to be sold are not available for immediate sale in their present condition, as the transaction is subjectprovided by TMCC to several closing conditions that have not yet been satisfied.TICF. The assets represent approximately $984 million of finance receivables, net and $923 million of investments in operating leases, nettransition services were completed as of March 31, 2015.2017.
As of March 31, 2015, we held $37 million of investments in commercial paper issued by Toyota Credit Canada Inc. These investments are included in Investments in Marketable Securities in the Consolidated Balance Sheet.
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 16 – Segment Information Our reportable segments includeare finance and insurance operations. Finance operations include retail, leasing, and dealer financing provided to authorized vehicle and industrial equipment dealers and their customers in the U.S. and Puerto Rico. Insurance operations are performed by TMIS and its subsidiaries. The principal activities of TMIS include marketing, underwriting, and claims administration related to coveringfor products that cover certain risks of vehicle dealers and their customers in the U.S. The finance and insurance operations segment information presented below includes allocated corporate expenses for the respective segments. The accounting policies of the operating segments are the same as those described in Note 1 – Summary of Significant Accounting Policies. Financial information for our reportable operating segments for the years ended March 31 is summarized as follows: | | Finance | | | Insurance | | | Intercompany | | | | | | | Year ended March 31, 2017 | | (Dollars in millions) | | operations | | | operations | | | eliminations | | | Total | | | Fiscal 2015: | | | | | | | | | | | | | | | | | | | | | Finance | | | Insurance | | | Intercompany | | | | | | | | | operations | | | operations | | | eliminations | | | Total | | | | | | | | | | | | | | | | | | | | Total financing revenues | | $ | 8,310 | | | $ | - | | | $ | - | | | $ | 8,310 | | | $ | 10,046 | | | $ | - | | | $ | - | | | $ | 10,046 | | Insurance earned premiums and contract revenues | | | - | | | | 638 | | | | - | | | | 638 | | | | - | | | | 804 | | | | - | | | | 804 | | Investment and other income, net | | | 89 | | | | 105 | | | | - | | | | 194 | | | | 96 | | | | 79 | | | | (5 | ) | | | 170 | | Realized gains (losses), net on investments in marketable securities | | | | 241 | | | | (15 | ) | | | - | | | | 226 | | Total gross revenues | | | 8,399 | | | | 743 | | | | - | | | | 9,142 | | | | 10,383 | | | | 868 | | | | (5 | ) | | | 11,246 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 4,857 | | | | - | | | | - | | | | 4,857 | | | | 6,853 | | | | - | | | | - | | | | 6,853 | | Interest expense | | | 736 | | | | - | | | | - | | | | 736 | | | | 1,759 | | | | - | | | | (5 | ) | | | 1,754 | | Provision for credit losses | | | 308 | | | | - | | | | - | | | | 308 | | | | 582 | | | | - | | | | - | | | | 582 | | Operating and administrative expenses | | | 825 | | | | 221 | | | | - | | | | 1,046 | | | | 979 | | | | 298 | | | | - | | | | 1,277 | | Insurance losses and loss adjustment expenses | | | - | | | | 269 | | | | - | | | | 269 | | | | - | | | | 371 | | | | - | | | | 371 | | Provision for income taxes | | | 635 | | | | 94 | | | | - | | | | 729 | | | | 67 | | | | 75 | | | | - | | | | 142 | | Net income | | $ | 1,038 | | | $ | 159 | | | $ | - | | | $ | 1,197 | | | $ | 143 | | | $ | 124 | | | $ | - | | | $ | 267 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 106,653 | | | $ | 3,891 | | | $ | (919 | ) | | $ | 109,625 | | | $ | 116,242 | | | $ | 4,476 | | | $ | (1,083 | ) | | $ | 119,635 | |
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 16 – Segment Information (Continued) | | Finance | | | Insurance | | | Intercompany | | | | | | | Year ended March 31, 2016 | | (Dollars in millions) | | operations | | | operations | | | eliminations | | | Total | | | Fiscal 2014: | | | | | | | | | | | | | | | | | | | | | Finance | | | Insurance | | | Intercompany | | | | | | | | | operations | | | operations | | | eliminations | | | Total | | | | | | | | | | | | | | | | | | | | Total financing revenues | | $ | 7,371 | | | $ | - | | | $ | 26 | | | $ | 7,397 | | | $ | 9,403 | | | $ | - | | | $ | - | | | $ | 9,403 | | Insurance earned premiums and contract revenues | | | - | | | | 593 | | | | (26 | ) | | | 567 | | | | - | | | | 719 | | | | - | | | | 719 | | Investment and other income, net | | | 98 | | | | 37 | | | | - | | | | 135 | | | | 59 | | | | 99 | | | | - | | | | 158 | | Realized gains (losses), net on investments in marketable securities | | | | 40 | | | | (34 | ) | | | - | | | | 6 | | Gain on sale of commercial finance business | | | | 197 | | | | - | | | | - | | | | 197 | | Total gross revenues | | | 7,469 | | | | 630 | | | | - | | | | 8,099 | | | | 9,699 | | | | 784 | | | | - | | | | 10,483 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 4,012 | | | | - | | | | - | | | | 4,012 | | | | 5,914 | | | | - | | | | - | | | | 5,914 | | Interest expense | | | 1,340 | | | | - | | | | - | | | | 1,340 | | | | 1,137 | | | | - | | | | - | | | | 1,137 | | Provision for credit losses | | | 170 | | | | - | | | | - | | | | 170 | | | | 441 | | | | - | | | | - | | | | 441 | | Operating and administrative expenses | | | 767 | | | | 198 | | | | - | | | | 965 | | | | 909 | | | | 252 | | | | - | | | | 1,161 | | Insurance losses and loss adjustment expenses | | | - | | | | 258 | | | | - | | | | 258 | | | | - | | | | 318 | | | | - | | | | 318 | | Provision for income taxes | | | 437 | | | | 60 | | | | - | | | | 497 | | | | 501 | | | | 79 | | | | - | | | | 580 | | Net income | | $ | 743 | | | $ | 114 | | | $ | - | | | $ | 857 | | | $ | 797 | | | $ | 135 | | | $ | - | | | $ | 932 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 99,737 | | | $ | 3,728 | | | $ | (725 | ) | | $ | 102,740 | | | $ | 111,496 | | | $ | 4,161 | | | $ | (1,065 | ) | | $ | 114,592 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal 2013: | | | | | | | | | | | | | | | | | | Total financing revenues | | $ | 7,219 | | | $ | - | | | $ | 25 | | | $ | 7,244 | | | Insurance earned premiums and contract revenues | | | - | | | | 596 | | | | (25 | ) | | | 571 | | | Investment and other income, net | | | 57 | | | | 116 | | | | - | | | | 173 | | | Total gross revenues | | | 7,276 | | | | 712 | | | | - | | | | 7,988 | | | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 3,568 | | | | - | | | | - | | | | 3,568 | | | Interest expense | | | 940 | | | | - | | | | - | | | | 940 | | | Provision for credit losses | | | 121 | | | | - | | | | - | | | | 121 | | | Operating and administrative expenses | | | 734 | | | | 177 | | | | - | | | | 911 | | | Insurance losses and loss adjustment expenses | | | - | | | | 293 | | | | - | | | | 293 | | | Provision for income taxes | | | 730 | | | | 94 | | | | - | | | | 824 | | | Net income | | $ | 1,183 | | | $ | 148 | | | $ | - | | | $ | 1,331 | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 92,504 | | | $ | 3,502 | | | $ | (704 | ) | | $ | 95,302 | | |
| | Year ended March 31, 2015 | | | | Finance | | | Insurance | | | Intercompany | | | | | | | | operations | | | operations | | | eliminations | | | Total | | | | | | | | | | | | | | | | | | | Total financing revenues | | $ | 8,310 | | | $ | - | | | $ | - | | | $ | 8,310 | | Insurance earned premiums and contract revenues | | | - | | | | 638 | | | | - | | | | 638 | | Investment and other income, net | | | 49 | | | | 75 | | | | - | | | | 124 | | Realized gains, net on investments in marketable securities | | | 40 | | | | 30 | | | | - | | | | 70 | | Total gross revenues | | | 8,399 | | | | 743 | | | | - | | | | 9,142 | | | | | | | | | | | | | | | | | | | Less: | | | | | | | | | | | | | | | | | Depreciation on operating leases | | | 4,857 | | | | - | | | | - | | | | 4,857 | | Interest expense | | | 736 | | | | - | | | | - | | | | 736 | | Provision for credit losses | | | 308 | | | | - | | | | - | | | | 308 | | Operating and administrative expenses | | | 825 | | | | 221 | | | | - | | | | 1,046 | | Insurance losses and loss adjustment expenses | | | - | | | | 269 | | | | - | | | | 269 | | Provision for income taxes | | | 635 | | | | 94 | | | | - | | | | 729 | | Net income | | $ | 1,038 | | | $ | 159 | | | $ | - | | | $ | 1,197 | | | | | | | | | | | | | | | | | | | Total assets | | $ | 106,531 | | | $ | 3,891 | | | $ | (919 | ) | | $ | 109,503 | |
135
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TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 17 – Selected Quarterly Financial Data | | Unaudited | | | | First | | | Second | | | Third | | | Fourth | | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | Year ended March 31, 2017: | | | | | | | | | | | | | | | | | Financing revenues: | | | | | | | | | | | | | | | | | Operating lease | | $ | 1,891 | | | $ | 1,925 | | | $ | 1,946 | | | $ | 1,958 | | Retail | | | 456 | | | | 459 | | | | 468 | | | | 467 | | Dealer | | | 111 | | | | 112 | | | | 123 | | | | 130 | | Total financing revenues | | | 2,458 | | | | 2,496 | | | | 2,537 | | | | 2,555 | | Depreciation on operating leases | | | 1,589 | | | | 1,683 | | | | 1,722 | | | | 1,859 | | Interest expense | | | 307 | | | | 297 | | | | 701 | | | | 449 | | Net financing revenues | | | 562 | | | | 516 | | | | 114 | | | | 247 | | | | | | | | | | | | | | | | | | | Insurance earned premiums and contract revenues | | | 193 | | | | 199 | | | | 202 | | | | 210 | | Investment and other income, net | | | 39 | | | | 42 | | | | 52 | | | | 37 | | Realized gains (losses), net on investments in marketable securities | | | 13 | | | | 70 | | | | 157 | | | | (14 | ) | Net financing revenues and other revenues | | | 807 | | | | 827 | | | | 525 | | | | 480 | | | | | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | | | | | Provision for credit losses | | | 52 | | | | 161 | | | | 183 | | | | 186 | | Operating and administrative | | | 279 | | | | 317 | | | | 325 | | | | 356 | | Insurance losses and loss adjustment expenses | | | 89 | | | | 91 | | | | 92 | | | | 99 | | Total expenses | | | 420 | | | | 569 | | | | 600 | | | | 641 | | | | | | | | | | | | | | | | | | | Income (loss) before income taxes | | | 387 | | | | 258 | | | | (75 | ) | | | (161 | ) | Provision (benefit) for income taxes | | | 146 | | | | 95 | | | | (29 | ) | | | (70 | ) | Net income (loss) | | $ | 241 | | | $ | 163 | | | $ | (46 | ) | | $ | (91 | ) | | | | | | | | | | | | | | | | | |
131
TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) Note 17 – Selected Quarterly Financial Data (Unaudited)(Continued) | | First | | | Second | | | Third | | | Fourth | | | Unaudited | | (Dollars in millions) | | Quarter | | | Quarter | | | Quarter | | | Quarter | | | Fiscal 2015: | | | | | | | | | | | | | | | | | | | | | First | | | Second | | | Third | | | Fourth | | | | | Quarter | | | Quarter | | | Quarter | | | Quarter | | Year ended March 31, 2016: | | | | | | | | | | | | | | | | | | Financing revenues: | | | | | | | | | | | | | | | | | | Operating lease | | | $ | 1,696 | | | $ | 1,789 | | | $ | 1,795 | | | $ | 1,861 | | Retail | | | | 457 | | | | 465 | | | | 484 | | | | 453 | | Dealer | | | | 102 | | | | 99 | | | | 97 | | | | 105 | | Total financing revenues | | $ | 1,960 | | | $ | 2,057 | | | $ | 2,112 | | | $ | 2,181 | | | | 2,255 | | | | 2,353 | | | | 2,376 | | | | 2,419 | | Depreciation on operating leases | | | 1,100 | | | | 1,196 | | | | 1,248 | | | | 1,313 | | | | 1,360 | | | | 1,446 | | | | 1,503 | | | | 1,605 | | Interest expense | | | 130 | | | | 215 | | | | 161 | | | | 230 | | | | 508 | | | | 203 | | | | 277 | | | | 149 | | Net financing revenues | | | 730 | | | | 646 | | | | 703 | | | | 638 | | | | 387 | | | | 704 | | | | 596 | | | | 665 | | Other income | | | 188 | | | | 220 | | | | 221 | | | | 203 | | | | | | | | | | | | | | | | | | | | | Insurance earned premiums and contract revenues | | | | 174 | | | | 178 | | | | 181 | | | | 186 | | Gain on sale of commercial finance business | | | | - | | | | - | | | | 197 | | | | - | | Investment and other income, net | | | | 27 | | | | 35 | | | | 67 | | | | 29 | | Realized gains (losses), net on investments in marketable securities | | | | 11 | | | | (21 | ) | | | - | | | | 16 | | Net financing revenues and other revenues | | | | 599 | | | | 896 | | | | 1,041 | | | | 896 | | | | | | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | | | | | | Provision for credit losses | | | 38 | | | | 79 | | | | 103 | | | | 88 | | | | 45 | | | | 105 | | | | 128 | | | | 163 | | Expenses | | | 303 | | | | 320 | | | | 329 | | | | 363 | | | Income before income tax expense | | | 577 | | | | 467 | | | | 492 | | | | 390 | | | Operating and administrative | | | | 270 | | | | 287 | | | | 288 | | | | 316 | | Insurance losses and loss adjustment expenses | | | | 79 | | | | 78 | | | | 73 | | | | 88 | | Total expenses | | | | 394 | | | | 470 | | | | 489 | | | | 567 | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | | 205 | | | | 426 | | | | 552 | | | | 329 | | Provision for income taxes | | | 213 | | | | 176 | | | | 185 | | | | 155 | | | | 70 | | | | 161 | | | | 210 | | | | 139 | | Net income | | $ | 364 | | | $ | 291 | | | $ | 307 | | | $ | 235 | | | $ | 135 | | | $ | 265 | | | $ | 342 | | | $ | 190 | | | | | | | | | | | | | | | | | | | | Fiscal 2014: | | | | | | | | | | | | | | | | | | Total financing revenues | | $ | 1,795 | | | $ | 1,845 | | | $ | 1,876 | | | $ | 1,881 | | | Depreciation on operating leases | | | 951 | | | | 966 | | | | 1,033 | | | | 1,062 | | | Interest expense | | | 536 | | | | 314 | | | | 386 | | | | 104 | | | Net financing revenues | | | 308 | | | | 565 | | | | 457 | | | | 715 | | | Other income | | | 145 | | | | 157 | | | | 209 | | | | 191 | | | Provision for credit losses | | | 11 | | | | 28 | | | | 63 | | | | 68 | | | Expenses | | | 298 | | | | 301 | | | | 297 | | | | 327 | | | Income before income tax expense | | | 144 | | | | 393 | | | | 306 | | | | 511 | | | Provision for income taxes | | | 53 | | | | 149 | | | | 113 | | | | 182 | | | Net income | | $ | 91 | | | $ | 244 | | | $ | 193 | | | $ | 329 | | |
Other income is comprised of insurance earned premiums and contract revenues as well as net investment and other income. Expenses include operating and administrative expenses as well as insurance losses and loss adjustment expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There is nothing to report with regard to this item. ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the rules and regulations of the SEC. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including our Chief Executive Officer (“CEO”)(the principal executive officer and principal financial officer) and Chief FinancialAccounting Officer (“CFO”)(the principal accounting officer), as appropriate, to allow timely decisions regarding required disclosure. Our CEO and CFO evaluated the effectiveness of our disclosure controls and procedures asAs of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management including our Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”), of the effectiveness of our “disclosure controls and procedures’ as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our CEO and CAO concluded that our disclosure controls and procedures were effective as of March 31, 2015.2017.
Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate. Management conducted, under the supervision of our CEO and CFO,CAO, an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on the assessment performed, management concluded that our internal control over financial reporting was effective as of March 31, 2015.2017. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our independent registered public accounting firm. There have been no changes in our internal control over financial reporting that occurred during the three months ended March 31, 20152017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.
As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates during the fiscal year ended March 31, 2015 that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below. For affiliates that we do not control and that are our affiliates solely due to their common control by our parent Toyota Motor Corporation (“TMC”), a Japanese corporation, we have relied upon TMC for information regarding their activities, transactions and dealings. TMC has provided us with the following information for the fiscal year ended March 31, 2015:
·
| Toyota Tourist International, Inc., (“Toyota Tourist”) a majority-owned subsidiary of TMC, obtained three visas from the Iranian embassy in Japan in connection with certain travel arrangements.
|
·
| Tokyo Toyota Motor Co., Ltd. (“Tokyo Toyota Motor”) a wholly owned indirect subsidiary of TMC, performed maintenance services for Toyota vehicles owned by the Iranian embassy in Japan.
|
These activities contributed an insignificant amount in gross revenues and net profit to TMC. TMC believes that these transactions would not subject it or its affiliates to U.S. sanctions. As of the date of this report, TMC has informed us that Toyota Tourist intends to cease conducting the activities described above, and that Tokyo Toyota Motor may, if requested by the Iranian embassy in Japan, continue to perform maintenance services relating to vehicles owned by such embassy, in accordance with applicable laws and regulations, in order to honor TMC’s commitment to the safety and reliability of its vehicles.
None.
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE TMCC has omitted certain information in this section pursuant to General Instruction I(2) of Form 10-K. The following table sets forth certain information regarding the directors and executive officers of TMCC as of April 30, 2015.May 31, 2017. Name | | Age | | Position | Michael Groff | | 6062
| | Director, President and Chief Executive Officer, TMCC; Director, TFSA;
Director, TFSCRegional Chief Executive Officer, Americas, TFSIC
| | | | | | Toshiaki Kawai | | 5355
| | Director Executive Vice President and Treasurer, TMCC; Director, Executive Vice PresidentOfficer, Management Office and
Treasurer, TFSA | | | | | | Chris Ballinger
| | 58
| | Director, Senior Vice President and Chief Financial Officer, TMCC;
Director, Executive Vice President and Chief Financial Officer, TFSATFSIC
| | | | | | Ron Chu | | 5759
| | Group Vice President and Chief Accounting & Tax,Officer, TMCC; Vice President,Officer, Tax, TFSATFSIC
| | | | | | Kazuo OharaRiki Inuzuka
| | 5758
| | Director, TMCC; Senior Vice President, TMNA;Director, Chairman and Chief Executive Officer, TFSIC;
Director, President and Chief Executive Officer, TMS;TFSC; Managing Officer and Chief Officer, Sales Finance Business Group, TMC | | | | | | James E. Lentz III | | 5961
| | Director, TMCC; Director, President and Chief Operating Officer, TMNA; Senior Managing Officer, TMC | | | | | | Yasuhiro YomodaMark Templin
| | 5956
| | Director TMCC; Managing Officer, TFSC
| | | | | | Yoshimasa Ishii
| | 62
| | Director,and Chairman, TMCC;
Director, President and Chief ExecutiveOperating Officer, TFSIC; Director and Chief Marketing Officer, TFSC; Director, Chairman of the BoardManaging Officer and President, TFSA
Deputy Chief Officer, Sales Finance Business Group, 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 discretion of the Board of Directors. Mr. Groff was named President and Chief Executive Officer of TMCC in October 2013 and has served as a Director of TFSATMCC since January 2013. Mr. Groff was named Regional Chief Executive Officer, Americas of TFSIC in April 2016. He previously held the positions of President and Chief Executive Officer of TFSIC from June 2015 to April 2016 and served as a Director of TFSC inTFSIC from October 2013. He was named2013 to April 2016. From October 2013 to June 2015, Mr. Groff also served as a Director of TFSC. From January 2013 to October 2013, he served as Senior Vice President, Sales, Product and Marketing of TMCC and a Director of TMCC inTMCC. From 2008 to January 2013. He2013, he served as Group Vice President, Sales, Marketing and Product Development from 2008 to January 2013.Development. Mr. Groff has been employed with TMCC in various positions since 1983. Mr. Kawai was named Director and Treasurer of TMCC in January 2014. He also previously held the position of Executive Vice President of TMCC from January 2014 to July 2016. Mr. Kawai was named Officer, Management Office and Treasurer of TFSIC in January 2017. He previously held the positions of Chief Officer Management Office and Chief Financial Officer of TFSIC from July 2016 to January 2017, Executive Vice President and TreasurerChief Financial Officer of TMCCTFSIC from April 2016 to July 2016, and Director, Executive Vice President and Treasurer of TFSA inTFSIC from January 2014.2014 to April 2016. From January 2013 to December 2013, Mr. Kawai served as Senior Vice President, Corporate Planning Group, Planning and Accounting Team of TFSC and, (fromfrom January 2013 to June 2013)2013, he also served as Senior Vice President, General Administration Group of TFSC. From January 2008 to December 2012, Mr. Kawai served as Group Vice President of TFSC and, from February 2002 to December 2007, he served as Vice President of TFSC. Mr. Kawai first joined TMC in 1998. Mr. Ballinger was named Director of TMCC and Director and Executive Vice President of TFSA in October 2013. Mr. Ballinger was named Senior Vice President and Chief Financial Officer of TMCC in January 2013. Mr. BallingerChu was named Group Vice President and Chief FinancialAccounting Officer of TMCC in September 2008 and Group Vice President and Chief Financial Officer of TFSA in October 2008. Mr. Ballinger was promoted to Group Vice President of TMCC in December 2006, and he also assumed the responsibility for Global Treasury for Toyota Financial Services Corporation at that time. Mr. Ballinger joined TMCC in September 2003 as Corporate Manager – Treasury, overseeing the Financial Risk Management, Sales and Trading, Capital Markets and Cash Management groups. Prior to joining TMCC, heJanuary 2017. He previously served as Assistant Treasurer for Providian Financial and Senior Vice President of Treasury for Bank of America. Mr. Chu was named Vice President, Accounting & Tax of TMCC infrom June 2010.2010 to January 2017. Mr. Chu was named Officer, Tax of TFSIC in January 2017 and previously served as Vice President, Tax of TFSA inTFSIC from April 2011.2011 to January 2017. From September 2007 to June 2010, Mr. Chu served as Corporate Manager, Tax. Mr. Chu joined TMCC in March 2002 as National Manager, Tax. Prior to joining TMCC, he served as Director of Tax for Asia Global Crossing and Senior Manager for KPMG, LLP, in Los Angeles. Mr. Chu is a Certified Public Accountant licensed in California.
Mr. OharaInuzuka was named as a Director of TMCC in September 2015. In June 2013.2015, Mr. Inuzuka was named Director of TFSIC and, in April 2016, he was also named Chairman and Chief Executive Officer of TFSIC. In April 2013,2015, Mr. OharaInuzuka became an Advisor to TFSC and in May 2015 was named Director, President and Chief Executive Officer of TMS and Senior Vice President of Toyota Motor North America, Inc.TFSC. Mr. OharaInuzuka has also served as a Managing Officer of TMC since June 2010.April 2011, and in April 2016, he was also named Chief Officer, Sales Finance Business Group of TMC. From January 2004 to March 2011, Mr. Ohara was aInuzuka served as General Manager of TMC from June 2008 to June 2010.TMC. Mr. OharaInuzuka first joined TMCToyota Motor Co., Ltd. (currently TMC) in April 1980.1982. Mr. Lentz was named as a Director of TMCC in June 2006. He was named a Director, President and Chief Operating Officer of TMNA in April 2013. Mr. Lentz has also served as a Senior Managing Officer of TMC since April 2013. Prior to this, he held the position of Managing Officer of TMC from June 2008 to April 2013. Mr. Lentz served as President and Chief Executive Officer of TMS from April 2012 until March 2013 after having served as President and Chief Operating Officer of TMS since November 2007. Mr. Lentz is currently a Director of TMCC and TMS and priorPrior to his promotion to President of TMS, he served as Executive Vice President of TMS from July 2006 to November 2007. He also served as a Director of TMS from June 2006 to April 2017. Prior to this, heMr. Lentz held the following positions ofat TMS: Group Vice President - Toyota Division from April 2005 to July 2006, Group Vice President Marketing from April 2004 to April 2005 and Vice President Marketing from December 2002 to March 2004. In addition, from 2001 to 2002, Mr. Lentz was the Vice President of Scion. From 2000 to 2001, Mr. Lentz was the Vice President and General Manager of the Los Angeles Region. Mr. Lentz has been employed withfirst joined TMS in various positions, since 1982. Mr. YomodaTemplin was named as a Director and Chairman of TMCC in July 2014. HeMay 2016. Mr. Templin was named Director, President and Chief Operating Officer of TFSIC and Director and Chief Marketing Officer of TFSC in April 2016. Mr. Templin has also served as a Managing Officer of TFSTMC since July 2013. HeApril 2013, and in April 2016, he was a Senioralso named Deputy Chief Officer of TMC’s Sales Finance Business Group. From April 2013 to April 2016, Mr. Templin served as Executive Vice President Sales Finance Group of TFS since January 2012.TMC’s Lexus International Company, and from April 2012 to March 2013, Mr. YomodaTemplin also served as General Manager of a divisionTMC’s Lexus Planning Division. From October 2007 to March 2016, he served as Group Vice President and General Manager of TMC from January 2003 to December 2011.TMS’s Lexus Division. Mr. YomodaTemplin first joined TMCTMS in 1978.January 1990.
Mr. Ishii was named as a Director of TMCC and Director, Chairman of the Board and Chief Executive Officer of TFSA in June 2013. In June 2014, he became the Chairman of the Board and President of TFSA. In April 2013, Mr. Ishii was named Director, President and CEO of TFSC and in June 2013, became a member of the Board of TMC. Mr. Ishii served as a Senior Managing Officer of TMC from June 2011 to April 2013, a Senior Managing Director of TMC from June 2009 to June 2011, and a Managing Officer of TMC from June 2005 to June 2009. Mr. Ishii first joined TMC in April 1976. Effective May 31, 2015, Mr. Ishii is no longer a Director of TMCC.
ITEM 11. EXECUTIVEEXECUTIVE COMPENSATION TMCC has omitted this section pursuant to General Instruction I(2) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS TMCC has omitted this section pursuant to General Instruction I(2) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE TMCC has omitted this section pursuant to General Instruction I(2) of Form 10-K. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The following table represents aggregate fees billed to us by PricewaterhouseCoopers LLP, an independent registered public accounting firm. | | Years ended March 31, | | | Years ended March 31, | | (Dollars in thousands) | | 2015 | | | 2014 | | | 2017 | | | 2016 | | Audit fees | | $ | 8,319 | | | $ | 7,326 | | | $ | 9,714 | | | $ | 8,960 | | Audit related fees | | | - | | | | 209 | | | | 64 | | | | 113 | | Tax fees | | | 448 | | | | 498 | | | | 549 | | | | 494 | | All other fees | | | 47 | | | | 68 | | | | 413 | | | | 591 | | Total fees | | $ | 8,814 | | | $ | 8,101 | | | $ | 10,740 | | | $ | 10,158 | |
Audit fees include the audits of our consolidated financial statements included in our Annual Reports on Form 10-K, reviews of our consolidated financial statements included in our Quarterly Reports on Form 10-Q, and providing comfort letters, consents and other attestation reports in connection with our funding transactions. Audit related fees primarily include reviews performed in conjunction with ourprocedures related to funding programs. Tax fees primarily include tax reporting software license fees, tax planning services, assistance in connection with tax audits, and tax compliance system license fees. Other fees include industry research, information technology risk and process assessment review, and translation services performed in connection with our funding transactions, and information systems review.transactions. Auditor Fees Pre-approval Policy The Audit Committee charter requires pre-approval of both audit and non-audit services to be provided by our independent registered public accounting firm. The charter requires that all services provided to us by PricewaterhouseCoopers LLP, our independent registered public accounting firm, including audit services and permitted audit-related and non-audit services, be pre-approved by the Audit Committee. All the services provided in fiscal 20152017 and 20142016 were pre-approved by the Audit Committee.
PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)(1)Financial Statements Included in Part II, “Item 8. Financial Statements and Supplementary Data” of this Form 10-K on pages 69 through 136. (a)(2)Financial Statements Schedules Schedules have been omitted because they are not applicable, the information required to be contained in them is disclosed in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Credit Risk” and “Item 8. Financial Statements and Supplementary Data” of this Form 10-K or the amounts involved are not sufficient to require submission. (b)Exhibits See Exhibit Index on page 145.139. ITEM 16. FORM 10-K SUMMARY None.
SIGNATURESSIGNATURES
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. | TOYOTA MOTOR CREDIT CORPORATION | | (Registrant) | | | Date: June 2, 20151, 2017 | By /s/ Michael Groff | | Michael Groff | | President and Chief Executive Officer | | (Principal Executive Officer and Principal Financial Officer) |
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 and in the capacities and on the dates indicated. Signature | | Title | | Date | | | | | | /s/ Michael Groff Michael Groff | | Director, President and Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer) | | June 2, 20151, 2017 | | | | | | /s/ Toshiaki Kawai Toshiaki Kawai | | Director Executive Vice President and Treasurer | | June 2, 2015 | | | | | | /s/ Chris Ballinger
Chris Ballinger
| | Director,
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
| | June 2, 20151, 2017
| | | | | | /s/ Ron Chu Ron Chu | | Group Vice President, and Chief Accounting and TaxOfficer (Principal Accounting Officer) | | June 2, 20151, 2017 | | | | | | ____________ Kazuo OharaRiki Inuzuka
| | Director | | June 2, 20151, 2017 | | | | | | /s/ James E. Lentz III James E. Lentz III | | Director | | June 2, 20151, 2017 | | | | | | ____________________________
Yasuhiro YomodaMark Templin
| | Director and Chairman | | June 2, 20151, 2017 | | | | | |
EXHIBIT INDEX Exhibit Number | | Description | | Method of Filing | | Description | | Method of Filing | | | | | | | | | | 3.1 | | Restated Articles of Incorporation filed with the California Secretary of State on April 1, 2010 | | (1) | | Restated Articles of Incorporation filed with the California Secretary of State on April 1, 2010 | | (1) | | | | | | | | | | 3.2 | | Bylaws as amended through December 8, 2000 | | (2) | | Bylaws as amended through December 8, 2000 | | (2) | | | | | | | | | | 4.1(a) | | Indenture dated as of August 1, 1991 between TMCC and The Chase Manhattan Bank, N.A | | (3) | | Indenture dated as of August 1, 1991 between TMCC and The Chase Manhattan Bank, N.A | | (3) | | | | | | | | | | 4.1(b) | | First Supplemental Indenture dated as of October 1, 1991 among TMCC, Bankers Trust Company and The Chase Manhattan Bank, N.A | | (4) | | First Supplemental Indenture dated as of October 1, 1991 among TMCC, Bankers Trust Company and The Chase Manhattan Bank, N.A | | (4) | | | | | | | | | | 4.1(c) | | Second Supplemental Indenture, dated as of March 31, 2004, among TMCC, JPMorgan Chase Bank (as successor to The Chase Manhattan Bank, N.A.) and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company) | | (5) | | Second Supplemental Indenture, dated as of March 31, 2004, among TMCC, JPMorgan Chase Bank (as successor to The Chase Manhattan Bank, N.A.) and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company) | | (5) | | | | | | | | | | 4.1(d) | | Third Supplemental Indenture, dated as of March 8, 2011 among TMCC, The Bank of New York Mellon Trust Company, N.A., as trustee, and Deutsche Bank Trust Company Americas, as trustee. | | (6) | | Third Supplemental Indenture, dated as of March 8, 2011 among TMCC, The Bank of New York Mellon Trust Company, N.A., as trustee, and Deutsche Bank Trust Company Americas, as trustee. | | (6) | | | | | | | | | | 4.1(e) | | Agreement of Resignation and Acceptance dated as of April 26, 2010 between Toyota Motor Credit Corporation, The Bank of New York Mellon and The Bank of New York Trust Company, N.A. | | (1) | | Agreement of Resignation and Acceptance dated as of April 26, 2010 between Toyota Motor Credit Corporation, The Bank of New York Mellon and The Bank of New York Trust Company, N.A. | | (1) | | | | | | | | | | 4.2(a) | | Amended and Restated Agency Agreement, dated September 12, 2014, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited and The Bank of New York Mellon. | | (7) | | Amended and Restated Agency Agreement, dated September 9, 2016, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited and The Bank of New York Mellon | | (7) |
(1) | Incorporated herein by reference to the same numbered Exhibit filed with our Annual Report on Form 10-K for the fiscal year ended March 31, 2010, Commission File Number 1-9961. |
(2) | Incorporated herein by reference to the same numbered Exhibit filed with our Quarterly Report on Form 10-Q for the three months ended December 31, 2000, Commission File Number 1-9961. |
(3) | Incorporated herein by reference to Exhibit 4.1(a), filed with our Registration Statement on Form S-3, Commission File Number 33-52359. |
(4) | Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated October 16, 1991, Commission File Number 1-9961. |
(5) | Incorporated herein by reference to Exhibit 4.1(c) filed with our Registration Statement on Form S-3, Commission File No. 333-113680. |
(6) | Incorporated herein by reference to Exhibit 4.2 filed with our Current Report on Form 8-K dated March 9,4, 2011, Commission File Number 1-9961. |
(7) | Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 12, 2014,9, 2016, Commission File Number 1-9961. |
EXHIBIT INDEX Exhibit Number | | Description | | Method of Filing | | Description | | Method of Filing | | | | | | | | | | 4.2(b) | | Amended and Restated Note Agency Agreement, dated September 12, 2014, among Toyota Motor Credit Corporation, The Bank of New York Mellon (Luxembourg) S.A. and The Bank of New York Mellon, acting through its London branch. | | (8) | | Amended and Restated Note Agency Agreement dated September 9, 2016, among Toyota Motor Credit Corporation, The Bank of New York Mellon (Luxembourg) S.A. and The Bank of New York Mellon, acting through its London Branch | | (8) | | | | | | | | | | 4.3(a) | | Sixth Amended and Restated Agency Agreement dated September 28, 2006, among TMCC, JP Morgan Chase Bank, N.A. and J.P. Morgan Bank Luxembourg S.A. | | (9) | | Sixth Amended and Restated Agency Agreement dated September 28, 2006, among TMCC, JP Morgan Chase Bank, N.A. and J.P. Morgan Bank Luxembourg S.A. | | (9) | | | | | | | | | | 4.3(b) | | Amendment No.1, dated as of March 4, 2011, to the Sixth Amended and Restated Agency Agreement among TMCC, The Bank of New York Mellon, acting through its London branch, as agent, and The Bank of New York Luxembourg S.A., as paying agent. | | (10) | | Amendment No.1, dated as of March 4, 2011, to the Sixth Amended and Restated Agency Agreement among TMCC, The Bank of New York Mellon, acting through its London branch, as agent, and The Bank of New York Luxembourg S.A., as paying agent. | | (10) | | | | | | | | | | 4.4 | | TMCC has outstanding certain long-term debt as set forth in Note 9 - Debt of the Notes to Consolidated Financial Statements. Not filed herein as an exhibit, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10 percent 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. | | | | TMCC has outstanding certain long-term debt as set forth in Note 9 - Debt of the Notes to Consolidated Financial Statements. Not filed herein as an exhibit, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10 percent 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 | | 364 Day Credit Agreement, dated as of November 20, 2014, among Toyota Motor Credit Corporation, (“TMCC”), Toyota Credit de Puerto Rico Corp. (“TCPR”), Toyota Motor Finance (Netherlands) B.V. (“TMFNL”), Toyota Financial Services (UK) PLC (“TFS(UK)”), Toyota Leasing GMBH (“TLG”), Toyota Credit Canada Inc. (“TCCI”) and Toyota Kreditbank GMBH (“TKG”), and Toyota Finance Australia Limited (“TFA”), as Borrowers, each lender party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNP Paribas Securities Corp. (“BNPP Securities”) Citigroup Global Markets Inc. (“CGMI”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”) and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”) as Joint Lead Arrangers and Joint Book Managers, Citibank, N.A. (“Citibank”) and Bank of America, N.A. (“Bank of America”), as Swing Line Lenders, and Citibank, Bank of America, and BTMU as Syndication Agents. | | (11) | | 364 Day Credit Agreement, dated as of November 15, 2016, among Toyota Motor Credit Corporation (“TMCC”), Toyota Motor Finance (Netherlands) B.V. (“TMFNL”), Toyota Financial Services (UK) PLC (“TFS(UK)”), Toyota Leasing GMBH (“TLG”), Toyota Credit de Puerto Rico Corp. (“TCPR”), Toyota Credit Canada Inc. (“TCCI”), Toyota Kreditbank GMBH (“TKG”) and Toyota Finance Australia Limited (“TFA”), as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNP Paribas Securities Corp. (“BNPP Securities”), Citigroup Global Markets Inc. (“CGMI”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”) and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as Joint Lead Arrangers and Joint Book Managers, Citibank, N.A. (“Citibank”) and Bank of America, N.A. (“Bank of America”), as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents. | | (11) |
(8) | Incorporated herein by reference to Exhibit 4.2 filed with our Current Report on Form 8-K dated September 12, 2014,9, 2016, Commission File No. 1-9961. |
(9) | Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 28, 2006, Commission File No. 1-9961. |
(10) | Incorporated herein by reference to Exhibit 4.1 of our Current Report on Form 8-K dated March 4, 2011, Commission File No. 1-9961. |
(11) | Incorporated herein by reference to Exhibit 10.1 filed with our Current Report on Form 8-K dated November 20, 2014,15, 2016, Commission File No. 1-9961. |
EXHIBIT INDEX
Exhibit Number | | Description | | Method of Filing | | | | | | 10.2 | | Three Year Credit Agreement, dated as of November 20, 2014, among TMCC, TCPR, TMFNL, TFS(UK), TLG, TCCI and TKG, and TFA, as Borrowers, each lender party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, MLPFS, and BTMU, as Joint Lead Arrangers and Joint Book Managers, Citibank and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, and BTMU as Syndication Agents. | | (12) | | | | | | 10.3 | | Five Year Credit Agreement, dated as of November 20, 2014, among TMCC, TCPR, TMFNL, TFS(UK), TLG, TCCI and TKG, and TFA, as Borrowers, each lender party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, MLPFS, and BTMU, as Joint Lead Arrangers and Joint Book Managers, Citibank and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents. | | (13) | | | | | | 10.4 | | Credit Support Agreement dated July 14, 2000 between TFSC and TMC. | | (14) | | | | | | 10.5 | | Credit Support Agreement dated October 1, 2000 between TMCC and TFSC. | | (15) | | | | | | 10.6 | | Amended and Restated Repurchase Agreement dated effective as of October 1, 2000, between TMCC and TMS. | | (16) | | | | | | 10.7 | | Shared Services Agreement dated October 1, 2000 between TMCC and TMS. | | (17) | | | | | | 10.8(a) | | Credit Support Fee Agreement dated March 30, 2001 between TMCC and TFSC. | | (18) |
EXHIBIT INDEX Exhibit Number | | Description | | Method of Filing | | | | | | 10.2 | | Three Year Credit Agreement, dated as of November 15, 2016, among TMCC, TMFNL, TFS(UK), TLG, TCPR, TCCI, TKG and TFA, as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, MLPFS, and BTMU, as Joint Lead Arrangers and Joint Book Managers, Citibank and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents. | | (12) | | | | | | 10.3 | | Five Year Credit Agreement, dated as of November 15, 2016, among TMCC, TMFNL, TFS(UK), TLG, TCPR, TCCI, TKG and TFA, as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, MLPFS, and BTMU, as Joint Lead Arrangers and Joint Book Managers, Citibank and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents. | | (13) | | | | | | 10.4 | | Credit Support Agreement dated July 14, 2000 between TFSC and TMC. | | (14) | | | | | | 10.5 | | Credit Support Agreement dated October 1, 2000 between TMCC and TFSC. | | (15) | | | | | | 10.6 | | Amended and Restated Repurchase Agreement dated effective as of October 1, 2000, between TMCC and TMS. | | (16) | | | | | | 10.7 | | Shared Services Agreement dated October 1, 2000 between TMCC and TMS. | | (17) | | | | | | 10.8(a) | | Credit Support Fee Agreement dated March 30, 2001 between TMCC and TFSC. | | (18) |
(12) | Incorporated herein by reference to Exhibit 10.2 filed with our Current Report on Form 8-K dated November 20, 2014,15, 2016, Commission File No. 1-9961. |
(13) | Incorporated herein by reference to Exhibit 10.3 filed with our Current Report on Form 8-K dated November 20, 2014,15, 2016, Commission File No. 1-9961. |
(14) | Incorporated herein by reference to Exhibit 10.9 filed with our Annual Report on Form 10-K for the fiscal year ended September 30, 2000, Commission File No. 1-9961. |
(15) | Incorporated herein by reference to Exhibit 10.10 filed with our Annual Report on Form 10-K for the fiscal year ended September 30, 2000, Commission File No. 1-9961. |
(16) | Incorporated herein by reference to Exhibit 10.11 filed with our Annual Report on Form 10-K for the fiscal year ended March 31, 2011,2001, Commission File No. 1-9961. |
(17) | Incorporated herein by reference to Exhibit 10.12 filed with our Annual Report on Form 10-K for the fiscal year ended September 30, 2000, Commission File No. 1-9961. |
(18)(18)
| Incorporated herein by reference to Exhibit 10.13(a) filed with our Annual Report on Form 10-K for the fiscal year ended March 31, 2001, Commission File No. 1-9961. |
EXHIBIT INDEX Exhibit Number | | Description | | Method of Filing | | Description | | Method of Filing | | | | | | | | | | 10.8(b) | | Amendment No. 1 to Credit Support Fee Agreement dated June 17, 2005 between TMCC and TFSC. | | (19) | | Amendment No. 1 to Credit Support Fee Agreement dated June 17, 2005 between TMCC and TFSC. | | (19) | | | | | | | | | | 10.8(c) | | Amendment No. 2 dated as of September 7, 2012 to the Credit Support Fee Agreement dated as of March 30, 2001, as amended on June 17, 2005. | | (20) | | Amendment No. 2 dated as of September 7, 2012 to the Credit Support Fee Agreement dated as of March 30, 2001, as amended on June 17, 2005. | | (20) | | | | | | | | | | 10.9 | | Form of Indemnification Agreement between TMCC and its directors and officers. | | (21) | | Form of Indemnification Agreement between TMCC and its directors and officers. | | (21) | | | | | | | | | | 12.1 | | Calculation of ratio of earnings to fixed charges | | Filed Herewith | | Calculation of ratio of earnings to fixed charges | | Filed Herewith | | | | | | | | | | 23.1 | | Consent of Independent Registered Public Accounting Firm | | Filed Herewith | | Consent of Independent Registered Public Accounting Firm | | Filed Herewith | | | | | | | | | | 31.1 | | Certification of Chief Executive Officer | | Filed Herewith | | Certification of Chief Executive Officer | | Filed Herewith | | | | | | | | | | 31.2 | | Certification of Chief Financial Officer | | Filed Herewith | | Certification of Chief accounting Officer | | Filed Herewith | | | | | | | | | | 32.1 | | Certification pursuant to 18 U.S.C. Section 1350 | | Furnished Herewith | | Certification pursuant to 18 U.S.C. Section 1350 | | Furnished Herewith | | | | | | | | | | 32.2 | | Certification pursuant to 18 U.S.C. Section 1350 | | Furnished Herewith | | Certification pursuant to 18 U.S.C. Section 1350 | | Furnished Herewith | | | | | | | | | | 99.1 | | | Consent Order pursuant to the Equal Credit Opportunity Act, dated February 2, 2016, between Toyota Motor Credit Corporation and the U.S. Department of Justice. | | (22) | | | | | | | 99.2 | | | Consent Order pursuant to the Equal Credit Opportunity Act and the Consumer Financial Protection Act of 2010, dated February 2, 2016, between Toyota Motor Credit Corporation and the Consumer Financial Protection Bureau, including the Stipulation and Consent to the Issuance of a Consent Order, dated February 2, 2016, by Toyota Motor Credit Corporation. | | (23) | | | | | | | 101.INS | | XBRL instance document | | Filed Herewith | | XBRL instance document | | Filed Herewith | | | | | | | | | | 101.CAL | | XBRL taxonomy extension calculation linkbase document | | Filed Herewith | | XBRL taxonomy extension calculation linkbase document | | Filed Herewith | | | | | | | | | | 101.DEF | | XBRL taxonomy extension definition linkbase document | | Filed Herewith | | XBRL taxonomy extension definition linkbase document | | Filed Herewith | | | | | | | 101.LAB | | | XBRL taxonomy extension labels linkbase document | | Filed Herewith | | | | | | | 101.PRE | | | XBRL taxonomy extension presentation linkbase document | | Filed Herewith | | | | | | | 101.SCH | | | XBRL taxonomy extension schema linkbase document | | Filed Herewith |
(19) | Incorporated herein by reference to Exhibit 10.13(b) filed with our Annual Report on Form 10-K for the fiscal year ended March 31, 2005, Commission File No. 1-9961. |
(20) | Incorporated herein by reference to Exhibit 10.1 filed with our Current Report on Form 8-K date September 7, 2012, Commission File No. 1-9961. |
(21) | Incorporated herein by reference to Exhibit 10.6 filed with our Registration Statement on Form S-1, Commission File No. 33-22440. |
EXHIBIT INDEX
Exhibit
Number(22)
| Incorporated herein by reference to Exhibit 99.2 filed with our Current Report on Form 8-K dated February 2, 2016, Commission File No. 1-9961. |
(23) | Description
| | Method of
Filing
| | | | | | 101.LAB
| | XBRL taxonomy extension labels linkbase document
| | Filed Herewith
| | | | | | 101.PRE
| | XBRL taxonomy extension presentation linkbase document
| | Filed Herewith
| | | | | | 101.SCH
| | XBRL taxonomy extension schema linkbase document
| | Filed HerewithIncorporated herein by reference to Exhibit 99.3 filed with our Current Report on Form 8-K dated February 2, 2016, Commission File No. 1-9961.
|
142 149
|