0001564590-18-027834.txt : 20181107 0001564590-18-027834.hdr.sgml : 20181107 20181107123134 ACCESSION NUMBER: 0001564590-18-027834 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 92 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181107 DATE AS OF CHANGE: 20181107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOYOTA MOTOR CREDIT CORP CENTRAL INDEX KEY: 0000834071 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 953775816 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09961 FILM NUMBER: 181165368 BUSINESS ADDRESS: STREET 1: 6565 HEADQUARTERS DRIVE, W2-3D CITY: PLANO STATE: TX ZIP: 75024 BUSINESS PHONE: (469) 486-9013 MAIL ADDRESS: STREET 1: 6565 HEADQUARTERS DRIVE, W2-3D CITY: PLANO STATE: TX ZIP: 75024 10-Q 1 tmcc-10q_20180930.htm 10-Q tmcc-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number 1-9961

 

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

California

 

95-3775816

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

6565 Headquarters Drive

Plano, Texas

 

75024

(Address of principal executive offices)

 

(Zip Code)

 

 

 

Registrant's telephone number, including area code: (469) 486-9300

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 31, 2018, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services International Corporation.

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

 


TOYOTA MOTOR CREDIT CORPORATION

FORM 10-Q

For the quarter ended September 30, 2018

 

INDEX

 

PART I

3

Item 1. Financial Statements

3

Consolidated Statements of Income

3

Consolidated Statements of Comprehensive Income

3

Consolidated Balance Sheets

4

Consolidated Statements of Shareholder’s Equity

5

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

45

Item 3. Quantitative and Qualitative Disclosures About Market Risk

71

Item 4. Controls and Procedures

71

PART II

72

Item 1. Legal Proceedings

72

Item 1A. Risk Factors

72

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 3. Defaults Upon Senior Securities

72

Item 4. Mine Safety Disclosures

72

Item 5. Other Information

72

Item 6. Exhibits

72

Exhibit Index

73

Signatures

74

 

2


PART I. FINANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS

TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Financing revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease

 

$

2,167

 

 

$

2,016

 

 

$

4,293

 

 

$

3,997

 

Retail

 

 

547

 

 

 

490

 

 

 

1,082

 

 

 

964

 

Dealer

 

 

176

 

 

 

141

 

 

 

351

 

 

 

284

 

Total financing revenues

 

 

2,890

 

 

 

2,647

 

 

 

5,726

 

 

 

5,245

 

Depreciation on operating leases

 

 

1,662

 

 

 

1,719

 

 

 

3,428

 

 

 

3,400

 

Interest expense

 

 

702

 

 

 

452

 

 

 

1,384

 

 

 

900

 

Net financing revenues

 

 

526

 

 

 

476

 

 

 

914

 

 

 

945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance earned premiums and contract revenues

 

 

226

 

 

 

221

 

 

 

450

 

 

 

437

 

Investment and other income, net

 

 

56

 

 

 

56

 

 

 

96

 

 

 

144

 

Net financing revenues and other revenues

 

 

808

 

 

 

753

 

 

 

1,460

 

 

 

1,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

67

 

 

 

127

 

 

 

156

 

 

 

212

 

Operating and administrative

 

 

348

 

 

 

337

 

 

 

672

 

 

 

650

 

Insurance losses and loss adjustment expenses

 

 

112

 

 

 

102

 

 

 

237

 

 

 

216

 

Total expenses

 

 

527

 

 

 

566

 

 

 

1,065

 

 

 

1,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

281

 

 

 

187

 

 

 

395

 

 

 

448

 

Provision for income taxes

 

 

87

 

 

 

70

 

 

 

109

 

 

 

166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

194

 

 

$

117

 

 

$

286

 

 

$

282

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Net income

 

$

194

 

 

$

117

 

 

$

286

 

 

$

282

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale

  marketable securities  [net of tax provision

  of ($1), ($5), ($1) and ($15), respectively]

 

 

1

 

 

 

9

 

 

 

(3

)

 

 

26

 

 

Reclassification adjustment for net losses (gains) on

  available-for-sale marketable securities included in

  investment and other income, net

  [net of tax provision of $0, $0, $0 and $16, respectively]

 

 

1

 

 

 

(1

)

 

 

1

 

 

 

(26

)

 

Other comprehensive income (loss)

 

 

2

 

 

 

8

 

 

 

(2

)

 

 

-

 

 

Comprehensive income

 

$

196

 

 

$

125

 

 

$

284

 

 

$

282

 

 

Refer to the accompanying Notes to Consolidated Financial Statements.

3


TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in millions except share data)

(Unaudited)

 

 

 

September 30,

 

 

March 31,

 

 

 

2018

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,740

 

 

$

3,540

 

Restricted cash and cash equivalents

 

 

991

 

 

 

1,219

 

Investments in marketable securities

 

 

4,603

 

 

 

5,829

 

Finance receivables, net

 

 

69,328

 

 

 

69,647

 

Investments in operating leases, net

 

 

38,883

 

 

 

38,697

 

Other assets

 

 

1,515

 

 

 

1,614

 

Total assets

 

$

121,060

 

 

$

120,546

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

 

 

 

 

 

 

 

 

Debt

 

$

98,228

 

 

$

98,353

 

Deferred income taxes

 

 

5,373

 

 

 

5,326

 

Other liabilities

 

 

4,405

 

 

 

3,987

 

Total liabilities

 

 

108,006

 

 

 

107,666

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Refer to Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholder’s equity:

 

 

 

 

 

 

 

 

Capital stock, no par value (100,000 shares authorized; 91,500 issued

   and outstanding) at September 30, 2018 and March 31, 2018

 

 

915

 

 

 

915

 

Additional paid-in capital

 

 

2

 

 

 

2

 

Accumulated other comprehensive loss

 

 

(19

)

 

 

(29

)

Retained earnings

 

 

12,156

 

 

 

11,992

 

Total shareholder's equity

 

 

13,054

 

 

 

12,880

 

Total liabilities and shareholder's equity

 

$

121,060

 

 

$

120,546

 

 

The following table presents the assets and liabilities of our consolidated variable interest entities (Refer to Note 9).

  

 

 

September 30,

 

 

March 31,

 

 

 

2018

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Finance receivables, net

 

$

11,658

 

 

$

11,927

 

Investments in operating leases, net

 

 

7,557

 

 

 

5,706

 

Other assets

 

 

164

 

 

 

125

 

Total assets

 

$

19,379

 

 

$

17,758

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Debt

 

$

14,529

 

 

$

13,638

 

Other liabilities

 

 

12

 

 

 

10

 

Total liabilities

 

$

14,541

 

 

$

13,648

 

 

Refer to the accompanying Notes to Consolidated Financial Statements.

 

4


TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

(Dollars in millions)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

paid-in

 

 

comprehensive

 

 

Retained

 

 

 

 

 

 

 

stock

 

 

capital

 

 

income (loss)

 

 

earnings

 

 

Total

 

Balance at March 31, 2017

 

$

915

 

 

$

2

 

 

$

25

 

 

$

8,582

 

 

$

9,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the six months ended

   September 30, 2017

 

 

-

 

 

 

-

 

 

 

-

 

 

 

282

 

 

 

282

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at September 30, 2017

 

$

915

 

 

$

2

 

 

$

25

 

 

$

8,864

 

 

$

9,806

 

 

 

Balance at March 31, 2018

 

$

915

 

 

$

2

 

 

$

(29

)

 

$

11,992

 

 

$

12,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative-effect of change in accounting policy

 

 

-

 

 

 

-

 

 

 

12

 

 

 

(122

)

 

 

(110

)

Net income for the six months ended

   September 30, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

286

 

 

 

286

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

(2

)

Balance at September 30, 2018

 

$

915

 

 

$

2

 

 

$

(19

)

 

$

12,156

 

 

$

13,054

 

Refer to the accompanying Notes to Consolidated Financial Statements.

 

5


TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

 

 

Six Months Ended September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

286

 

 

$

282

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,484

 

 

 

3,439

 

Recognition of deferred income

 

 

(1,142

)

 

 

(951

)

Provision for credit losses

 

 

156

 

 

 

212

 

Amortization of deferred costs

 

 

310

 

 

 

307

 

Foreign currency and other adjustments to the carrying value of

  debt, net

 

 

(748

)

 

 

1,035

 

Net losses (gains) from investments in marketable securities

 

 

41

 

 

 

(42

)

Net change in:

 

 

 

 

 

 

 

 

Derivative assets

 

 

12

 

 

 

(11

)

Other assets and accrued interest

 

 

76

 

 

 

(154

)

Deferred income taxes

 

 

81

 

 

 

224

 

Derivative liabilities

 

 

25

 

 

 

(30

)

Other liabilities

 

 

167

 

 

 

11

 

Net cash provided by operating activities

 

 

2,748

 

 

 

4,322

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of investments in marketable securities

 

 

(798

)

 

 

(5,757

)

Proceeds from sales of investments in marketable securities

 

 

71

 

 

 

1,248

 

Proceeds from maturities of investments in marketable securities

 

 

1,908

 

 

 

4,107

 

Acquisition of finance receivables

 

 

(12,322

)

 

 

(12,638

)

Collection of finance receivables

 

 

12,035

 

 

 

12,004

 

Net change in wholesale and certain working capital receivables

 

 

781

 

 

 

1,651

 

Acquisition of investments in operating leases

 

 

(8,680

)

 

 

(8,612

)

Disposals of investments in operating leases

 

 

5,808

 

 

 

4,938

 

Long term loans to affiliates

 

 

(200

)

 

 

-

 

Payments of long term loans from affiliates

 

 

20

 

 

 

-

 

Net change in financing support provided to affiliates

 

 

-

 

 

 

232

 

Other, net

 

 

(19

)

 

 

(37

)

Net cash used in investing activities

 

 

(1,396

)

 

 

(2,864

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

15,032

 

 

 

11,707

 

Payments on debt

 

 

(12,380

)

 

 

(11,380

)

Net change in commercial paper

 

 

(2,029

)

 

 

(1,371

)

Net change in financing support provided by affiliates

 

 

(3

)

 

 

11

 

Net cash provided by (used in) financing activities

 

 

620

 

 

 

(1,033

)

Net increase in cash and cash equivalents and restricted cash and cash equivalents

 

 

1,972

 

 

 

425

 

Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the

   period

 

 

4,759

 

 

 

5,285

 

Cash and cash equivalents and restricted cash and cash equivalents at the end of the period

 

$

6,731

 

 

$

5,710

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Interest paid, net

 

$

1,048

 

 

$

851

 

Income taxes paid, net

 

$

15

 

 

$

85

 

Refer to the accompanying Notes to Consolidated Financial Statements.

 

6


TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

 

Note 1 – Interim Financial Data

Basis of Presentation

The information furnished in these unaudited interim consolidated financial statements as of and for the three and six months ended September 30, 2018 and 2017 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).  In the opinion of management, the unaudited consolidated financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented.  The results of operations for the three and six months ended September 30, 2018 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2019 (“fiscal 2019”).

These financial statements should be read in conjunction with the Consolidated Financial Statements, significant accounting policies, and other Notes to Consolidated Financial Statements included in Toyota Motor Credit Corporation’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2018 (“fiscal 2018”), which was filed with the Securities and Exchange Commission on June 4, 2018.  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.

Certain prior period amounts have been reclassified to conform to current period presentation.  Related party transactions are disclosed in Note 13 – Related Party Transactions.


7


TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

 

Note 1 – Interim Financial Data (Continued)

Recently Adopted Accounting Guidance

On April 1, 2018, we adopted the following new accounting standards:

Revenue Recognition

We adopted new guidance related to the recognition of revenue from contracts with customers (“revenue recognition guidance”). We utilized the modified retrospective approach and applied it to active agreements at the time of adoption. As such, the comparative information in this Form 10-Q has not been restated and continues to be reported under the accounting standards in effect for those periods. The majority of our total consolidated revenues are outside the scope of the standard; however, the majority of revenue reported by our Insurance operations segment falls within the scope of the revenue recognition guidance. Upon adoption, fees collected for administering certain vehicle and payment protection products are now recognized using the same measure as the related product revenue and certain dealer incentives are now capitalized and amortized over the contract term instead of expensed as incurred.

While the adoption of the revenue recognition guidance has changed the timing of recognition of certain revenues and expenses, the total revenue and expense recognized over the contract term will not change as a result of adopting the standard. We do not expect the adoption to be significant to our net income on an ongoing basis.

The cumulative effect of the changes made to our Consolidated Balance Sheet as of April 1, 2018 for the adoption of the revenue recognition guidance was as follows:

 

 

March 31,

 

 

Adjustments related

 

 

April 1,

 

 

 

2018

 

 

to adoption

 

 

2018

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

$

1,614

 

 

$

73

 

 

$

1,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholder's equity:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

$

5,326

 

 

$

(36

)

 

$

5,290

 

Other liabilities

 

 

3,987

 

 

 

219

 

 

 

4,206

 

Retained earnings

 

 

11,992

 

 

 

(110

)

 

 

11,882

 

The impact on our Consolidated Statement of Income for the adoption of the revenue recognition guidance was as follows:

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

Effect of

 

 

Balances without

 

 

 

As reported

 

 

adoption

 

 

adoption

 

Insurance earned premiums and contract revenues

 

$

226

 

 

$

1

 

 

$

227

 

Operating and administrative expenses

 

 

348

 

 

 

1

 

 

 

349

 

 

 

 

Six Months Ended September 30, 2018

 

 

 

 

 

 

 

Effect of

 

 

Balances without

 

 

 

As reported

 

 

adoption

 

 

adoption

 

Insurance earned premiums and contract revenues

 

$

450

 

 

$

5

 

 

$

455

 

Operating and administrative expenses

 

 

672

 

 

 

1

 

 

 

673

 

Provision for income taxes

 

 

109

 

 

 

1

 

 

 

110

 

Net income

 

 

286

 

 

 

3

 

 

 

289

 

Comprehensive income

 

 

284

 

 

 

3

 

 

 

287

 

 

 


8


TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

 

Note 1 – Interim Financial Data (Continued)

The impact on our Consolidated Balance Sheet for the adoption of revenue recognition guidance was as follows:

 

 

 

September 30, 2018

 

 

 

 

 

 

 

Effect of

 

 

Balances without

 

 

 

As reported

 

 

adoption

 

 

adoption

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

$

1,515

 

 

$

(74

)

 

$

1,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholder's equity:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

$

5,373

 

 

$

37

 

 

$

5,410

 

Other liabilities

 

 

4,405

 

 

 

(224

)

 

 

4,181

 

Retained earnings

 

 

12,156

 

 

 

113

 

 

 

12,269

 

 

In connection with the adoption of revenue recognition guidance, we have updated our accounting policies as follows:

Revenue Recognition

Insurance Contract Revenues

The Insurance operations segment offers vehicle and payment protection products on Toyota, Lexus and other domestic and import vehicles that are sold by dealers along with the sale of a vehicle.

We receive the contractually determined dealer cost at the inception of the contract.  Revenue is then deferred and recognized over the term of the contract according to earnings factors established by management that are based upon historical loss experience.  Contracts sold range in term from 3 to 120 months and are typically cancellable at any time. The effect of subsequent cancellations is recorded as an offset to unearned contract revenues in Other liabilities on our Consolidated Balance Sheets.


9


TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

 

Note 1 – Interim Financial Data (Continued)

Recognition and Measurement

We adopted new guidance addressing certain aspects of recognition, measurement, presentation, and disclosure of financial instruments that requires entities to measure equity investments at fair value and recognize any changes in fair value in net income.  On April 1, 2018, we recognized the cumulative effect of adoption by recording a reduction to our opening retained earnings of approximately $12 million, net of income taxes.  

In connection with the adoption of the new recognition and measurement guidance, we have updated our accounting policies as follows:

Investments in Marketable Securities

Available-for-Sale (“AFS”) Debt Securities

Debt securities designated as available-for-sale 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.  Realized gains and losses are determined using the specific identification method and are included in Investment and other income, net within our Consolidated Statements of Income.

Equity Investments

Beginning on April 1, 2018, equity investments are recorded at fair value using quoted market prices where available, with changes in fair value included in Investment and other income, net within our Consolidated Statements of Income. Realized gains and losses from sales are determined using the first in first out method.  

Other Recently Adopted Standards

We adopted new guidance intended to reduce diversity in practice in the classification of certain cash receipts and cash payments in the statement of cash flows. The adoption of this guidance did not have an impact on our consolidated financial statements and related disclosures.

We adopted new guidance clarifying how restricted cash and cash equivalents should be classified and presented on the statement of cash flows. This guidance was intended to reduce diversity in practice in the classification of restricted cash and cash equivalents on the statement of cash flows.  Effective April 1, 2018, we no longer report the change in restricted cash and cash equivalents in the operating and investing sections in our Consolidated Statements of Cash Flows.  Restricted cash and cash equivalents are now included in the beginning and end of the period cash and cash equivalents on the Consolidated Statements of Cash Flows. These changes have been applied using a retrospective transition method to each period presented.

We early adopted new guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cut and Jobs Act of 2017 (“TCJA”).  The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.  


10


TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

 

Note 1 – Interim Financial Data (Continued)

Accounting Guidance Issued But Not Yet Adopted

In February 2016, the Financial Accounting Standards Board ("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 FASB also subsequently issued guidance amending and clarifying various aspects of the new leases guidance.  The new leasing standard represents a wholesale change to lease accounting for lessees and requires additional disclosures regarding leasing arrangements. We plan to adopt the new lease guidance on April 1, 2019 using the optional transition method that allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  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 as disclosed in Note 11 – Commitments and Contingencies.  We are currently evaluating the potential impacts of this guidance from both a lessee and lessor perspective on our consolidated financial statements and related disclosures.

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.  This accounting guidance is effective for us on April 1, 2020.  We expect this new guidance will result in an increase in our allowance for credit losses with a cumulative-effect adjustment to our opening retained earnings in the period of adoption.  The magnitude of the increase in our allowance for credit losses is under evaluation. We are currently evaluating the potential impacts of this guidance on our consolidated financial statements and related disclosures.

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 impacts of this guidance on our consolidated financial statements and related disclosures.

In August 2017, the FASB issued new guidance that makes targeted improvements to accounting for hedging activities. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance provides new alternatives for applying hedge accounting and measuring the hedged item in fair value hedges of interest rate risk.  This accounting guidance is effective for us on April 1, 2019.  The adoption of this guidance will not have an impact on our consolidated financial statements and related disclosures as we no longer have hedge accounting derivatives as of September 30, 2018.

In August 2018, the FASB issued new guidance that modifies disclosure requirements related to fair value measurement guidance. This accounting guidance is effective for us on April 1, 2020.  We are currently evaluating the potential impacts of this guidance on our disclosures.

In August 2018, the FASB issued new guidance that aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This accounting guidance is effective for us on April 1, 2020.  We are currently evaluating the potential impacts of this guidance on our consolidated financial statements and related disclosures.

In October 2018, the FASB issued new guidance that requires indirect interests held through related parties in common control arrangements to be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This accounting guidance is effective for us on April 1, 2021.  We are currently evaluating the potential impacts of this guidance on our consolidated financial statements and related disclosures.

 

 

11


TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

 

Note 2 – Fair Value Measurements

Recurring Fair Value Measurements

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.  The following tables summarize our financial assets and 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 practical expedient and are excluded from the leveling information provided in the tables below.  Fair value amounts presented below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in our Consolidated Balance Sheets.  

 

 

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

netting &

 

 

Fair

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

collateral

 

 

value

 

Investments in marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

2,112

 

 

$

18

 

 

$

-

 

 

$

-

 

 

$

2,130

 

Municipal debt securities

 

-

 

 

 

10

 

 

 

-

 

 

 

-

 

 

 

10

 

Corporate debt securities

 

-

 

 

 

176

 

 

 

-

 

 

 

-

 

 

 

176

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency

 

-

 

 

 

35

 

 

 

-

 

 

 

-

 

 

 

35

 

Non-agency residential

 

-

 

 

-

 

 

 

2

 

 

 

-

 

 

 

2

 

Non-agency commercial

 

-

 

 

-

 

 

 

28

 

 

 

-

 

 

 

28

 

Asset-backed securities

 

-

 

 

-

 

 

 

46

 

 

 

-

 

 

 

46

 

Available-for-sale debt securities total

 

 

2,112

 

 

 

239

 

 

 

76

 

 

 

-

 

 

 

2,427

 

Equity investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income mutual funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income mutual funds measured at

   net asset value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

657

 

Total return bond funds

 

 

1,519

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,519

 

Equity investments total

 

 

1,519

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,176

 

Investments in marketable securities total

 

 

3,631

 

 

 

239

 

 

 

76

 

 

 

-

 

 

 

4,603

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

-

 

 

 

889

 

 

 

-

 

 

 

-

 

 

 

889

 

Foreign currency swaps

 

 

-

 

 

 

105

 

 

 

-

 

 

 

-