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, 20212022
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) (469) 486-9300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Medium-Term Notes, Series B | TM/28 | New York Stock Exchange |
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, a 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, 2021,2022, 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, 20212022
INDEX |
|
3 | |
3 | |
3 | |
3 | |
4 | |
5 | |
6 | |
7 | |
7 | |
8 | |
11 | |
17 | |
19 | |
Note 6. Derivatives, Hedging Activities and Interest Expense | 20 |
23 | |
25 | |
27 | |
30 | |
31 | |
33 | |
36 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
| |
| |
| |
| |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
| |
| |
| |
| |
|
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 |
|
| Three months ended |
|
| Six months ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Financing revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease |
| $ | 2,128 |
|
| $ | 2,114 |
|
| $ | 4,248 |
|
| $ | 4,243 |
|
| $ | 1,817 |
|
| $ | 2,128 |
|
| $ | 3,717 |
|
| $ | 4,248 |
|
Retail |
|
| 821 |
|
|
| 723 |
|
|
| 1,612 |
|
|
| 1,395 |
|
|
| 900 |
|
|
| 821 |
|
|
| 1,745 |
|
|
| 1,612 |
|
Dealer |
|
| 83 |
|
|
| 98 |
|
|
| 171 |
|
|
| 209 |
|
|
| 107 |
|
|
| 83 |
|
|
| 193 |
|
|
| 171 |
|
Total financing revenues |
|
| 3,032 |
|
|
| 2,935 |
|
|
| 6,031 |
|
|
| 5,847 |
|
|
| 2,824 |
|
|
| 3,032 |
|
|
| 5,655 |
|
|
| 6,031 |
|
Depreciation on operating leases |
|
| 1,499 |
|
|
| 1,349 |
|
|
| 2,940 |
|
|
| 3,034 |
|
|
| 1,305 |
|
|
| 1,499 |
|
|
| 2,714 |
|
|
| 2,940 |
|
Interest expense |
|
| 423 |
|
|
| 495 |
|
|
| 709 |
|
|
| 1,043 |
|
|
| 705 |
|
|
| 423 |
|
|
| 1,268 |
|
|
| 709 |
|
Net financing revenues |
|
| 1,110 |
|
|
| 1,091 |
|
|
| 2,382 |
|
|
| 1,770 |
|
|
| 814 |
|
|
| 1,110 |
|
|
| 1,673 |
|
|
| 2,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Voluntary protection contract revenues and insurance earned premiums |
|
| 254 |
|
|
| 238 |
|
|
| 503 |
|
|
| 473 |
|
|
| 263 |
|
|
| 254 |
|
|
| 522 |
|
|
| 503 |
|
Investment and other income, net |
|
| 7 |
|
|
| 90 |
|
|
| 163 |
|
|
| 266 |
| ||||||||||||||||
Investment and other (loss) income, net |
|
| (138 | ) |
|
| 7 |
|
|
| (444 | ) |
|
| 163 |
| ||||||||||||||||
Net financing revenues and other revenues |
|
| 1,371 |
|
|
| 1,419 |
|
|
| 3,048 |
|
|
| 2,509 |
|
|
| 939 |
|
|
| 1,371 |
|
|
| 1,751 |
|
|
| 3,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
|
| 68 |
|
|
| 65 |
|
|
| 65 |
|
|
| 248 |
|
|
| 213 |
|
|
| 68 |
|
|
| 291 |
|
|
| 65 |
|
Operating and administrative |
|
| 385 |
|
|
| 389 |
|
|
| 769 |
|
|
| 734 |
|
|
| 444 |
|
|
| 385 |
|
|
| 850 |
|
|
| 769 |
|
Voluntary protection contract expenses and insurance losses |
|
| 99 |
|
|
| 92 |
|
|
| 207 |
|
|
| 167 |
|
|
| 114 |
|
|
| 99 |
|
|
| 221 |
|
|
| 207 |
|
Total expenses |
|
| 552 |
|
|
| 546 |
|
|
| 1,041 |
|
|
| 1,149 |
|
|
| 771 |
|
|
| 552 |
|
|
| 1,362 |
|
|
| 1,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 819 |
|
|
| 873 |
|
|
| 2,007 |
|
|
| 1,360 |
|
|
| 168 |
|
|
| 819 |
|
|
| 389 |
|
|
| 2,007 |
|
Provision for income taxes |
|
| 197 |
|
|
| 218 |
|
|
| 464 |
|
|
| 331 |
|
|
| 49 |
|
|
| 197 |
|
|
| 100 |
|
|
| 464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 622 |
|
| $ | 655 |
|
| $ | 1,543 |
|
| $ | 1,029 |
|
| $ | 119 |
|
| $ | 622 |
|
| $ | 289 |
|
| $ | 1,543 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
(Unaudited)
|
| Three months ended |
|
| Six months ended |
|
| Three months ended |
|
| Six months ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net income |
| $ | 622 |
|
| $ | 655 |
|
| $ | 1,543 |
|
| $ | 1,029 |
|
| $ | 119 |
|
| $ | 622 |
|
| $ | 289 |
|
| $ | 1,543 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized (losses) gains on available-for-sale marketable securities [net of tax (benefit) provision of ($1), $1, $2 and $6, respectively] |
|
| (2 | ) |
|
| 1 |
|
|
| 7 |
|
|
| 24 |
| ||||||||||||||||
Reclassification adjustment for net gains on available-for-sale marketable securities included in investment and other income, net [net of tax provision of $0, $1, $0 and $4, respectively] |
|
| 0 |
|
|
| (2 | ) |
|
| 0 |
|
|
| (13 | ) | ||||||||||||||||
Net unrealized (losses) gains on available-for-sale |
|
| (25 | ) |
|
| (2 | ) |
|
| (51 | ) |
|
| 7 |
| ||||||||||||||||
Reclassification adjustment for net losses on |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
|
| - |
| ||||||||||||||||
Other comprehensive (loss) income |
|
| (2 | ) |
|
| (1 | ) |
|
| 7 |
|
|
| 11 |
|
|
| (23 | ) |
|
| (2 | ) |
|
| (49 | ) |
|
| 7 |
|
Comprehensive income |
| $ | 620 |
|
| $ | 654 |
|
| $ | 1,550 |
|
| $ | 1,040 |
|
| $ | 96 |
|
| $ | 620 |
|
| $ | 240 |
|
| $ | 1,550 |
|
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, |
|
| September 30, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 9,490 |
|
| $ | 8,195 |
|
| $ | 6,311 |
|
| $ | 7,670 |
|
Restricted cash and cash equivalents |
|
| 2,697 |
|
|
| 1,957 |
|
|
| 1,855 |
|
|
| 2,065 |
|
Investments in marketable securities |
|
| 4,835 |
|
|
| 4,820 |
|
|
| 4,388 |
|
|
| 4,953 |
|
Finance receivables, net of allowance for credit losses of $1,190 and $1,178 |
|
| 79,549 |
|
|
| 79,192 |
| ||||||||
Finance receivables, net of allowance for credit losses of $1,366 and $1,246 |
|
| 86,890 |
|
|
| 82,432 |
| ||||||||
Investments in operating leases, net |
|
| 37,946 |
|
|
| 37,091 |
|
|
| 32,114 |
|
|
| 35,455 |
|
Other assets |
|
| 2,460 |
|
|
| 2,473 |
|
|
| 2,794 |
|
|
| 2,466 |
|
Total assets |
| $ | 136,977 |
|
| $ | 133,728 |
|
| $ | 134,352 |
|
| $ | 135,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
LIABILITIES AND SHAREHOLDER’S EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Debt |
| $ | 111,709 |
|
| $ | 109,725 |
|
| $ | 108,873 |
|
| $ | 109,152 |
|
Deferred income taxes |
|
| 2,499 |
|
|
| 2,860 |
|
|
| 1,277 |
|
|
| 1,564 |
|
Other liabilities |
|
| 5,624 |
|
|
| 5,548 |
|
|
| 5,861 |
|
|
| 6,224 |
|
Total liabilities |
|
| 119,832 |
|
|
| 118,133 |
|
|
| 116,011 |
|
|
| 116,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commitments and contingencies (Refer to Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Shareholder’s equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital stock, no par value (100,000 shares authorized; 91,500 issued and outstanding) at September 30, 2021 and March 31, 2021 |
|
| 915 |
|
|
| 915 |
| ||||||||
Capital stock, no par value (100,000 shares authorized; 91,500 issued |
|
| 915 |
|
|
| 915 |
| ||||||||
Additional paid-in capital |
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Accumulated other comprehensive income |
|
| 15 |
|
|
| 8 |
| ||||||||
Accumulated other comprehensive loss |
|
| (70 | ) |
|
| (21 | ) | ||||||||
Retained earnings |
|
| 16,213 |
|
|
| 14,670 |
|
|
| 17,494 |
|
|
| 17,205 |
|
Total shareholder's equity |
|
| 17,145 |
|
|
| 15,595 |
|
|
| 18,341 |
|
|
| 18,101 |
|
Total liabilities and shareholder's equity |
| $ | 136,977 |
|
| $ | 133,728 |
|
| $ | 134,352 |
|
| $ | 135,041 |
|
The following table presents the assets and liabilities of our consolidated variable interest entities (Refer to Note 8)8).
|
| September 30, |
|
| March 31, |
|
| September 30, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Finance receivables, net |
| $ | 22,491 |
|
| $ | 21,745 |
|
| $ | 24,529 |
|
| $ | 20,932 |
|
Investments in operating leases, net |
|
| 10,014 |
|
|
| 6,599 |
|
|
| 12,227 |
|
|
| 11,886 |
|
Other assets |
|
| 65 |
|
|
| 89 |
|
|
| 77 |
|
|
| 66 |
|
Total assets |
| $ | 32,570 |
|
| $ | 28,433 |
|
| $ | 36,833 |
|
| $ | 32,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Debt |
| $ | 27,020 |
|
| $ | 24,212 |
|
| $ | 29,947 |
|
| $ | 26,864 |
|
Other liabilities |
|
| 9 |
|
|
| 14 |
|
|
| 23 |
|
|
| 10 |
|
Total liabilities |
| $ | 27,029 |
|
| $ | 24,226 |
|
| $ | 29,970 |
|
| $ | 26,874 |
|
Refer to the accompanying Notes to Consolidated Financial Statements.
4
TOYOTA MOTOR CREDIT CORPORATION
(Dollars in millions)
(Unaudited)
|
| Three months ended September 30, 2020 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Additional |
|
| other |
|
|
|
|
|
|
|
|
| ||
|
| Capital |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
|
|
|
| ||||
|
| stock |
|
| capital |
|
| income (loss) |
|
| earnings |
|
| Total |
| |||||
Balance at June 30, 2020 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 27 |
|
| $ | 13,727 |
|
| $ | 14,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 655 |
|
|
| 655 |
|
Other comprehensive loss, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
|
| 0 |
|
|
| (1 | ) |
Balance at September 30, 2020 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 26 |
|
| $ | 14,382 |
|
| $ | 15,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended September 30, 2020 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Additional |
|
| other |
|
|
|
|
|
|
|
|
| ||
|
| Capital |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
|
|
|
| ||||
|
| stock |
|
| capital |
|
| income |
|
| earnings |
|
| Total |
| |||||
Balance at March 31, 2020 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 15 |
|
| $ | 13,571 |
|
| $ | 14,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative-effect of adoption of ASU 2016-13 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (218 | ) |
|
| (218 | ) |
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,029 |
|
|
| 1,029 |
|
Other comprehensive income, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 11 |
|
|
| 0 |
|
|
| 11 |
|
Balance at September 30, 2020 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 26 |
|
| $ | 14,382 |
|
| $ | 15,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2022 |
| |||||||||||||||||
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||
|
|
|
|
| Additional |
|
| other |
|
|
|
|
|
|
| |||||
|
| Capital |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
|
|
| |||||
|
| stock |
|
| capital |
|
| loss |
|
| earnings |
|
| Total |
| |||||
Balance at June 30, 2022 |
| $ | 915 |
|
| $ | 2 |
|
| $ | (47 | ) |
| $ | 17,375 |
|
| $ | 18,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 119 |
|
|
| 119 |
|
Other comprehensive loss, net of tax |
|
| - |
|
|
| - |
|
|
| (23 | ) |
|
| - |
|
|
| (23 | ) |
Balance at September 30, 2022 |
| $ | 915 |
|
| $ | 2 |
|
| $ | (70 | ) |
| $ | 17,494 |
|
| $ | 18,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Six months ended September 30, 2022 |
| |||||||||||||||||
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||
|
|
|
|
| Additional |
|
| other |
|
|
|
|
|
|
| |||||
|
| Capital |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
|
|
| |||||
|
| stock |
|
| capital |
|
| loss |
|
| earnings |
|
| Total |
| |||||
Balance at March 31, 2022 |
| $ | 915 |
|
| $ | 2 |
|
| $ | (21 | ) |
| $ | 17,205 |
|
| $ | 18,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 289 |
|
|
| 289 |
|
Other comprehensive loss, net of tax |
|
| - |
|
|
| - |
|
|
| (49 | ) |
|
| - |
|
|
| (49 | ) |
Balance at September 30, 2022 |
| $ | 915 |
|
| $ | 2 |
|
| $ | (70 | ) |
| $ | 17,494 |
|
| $ | 18,341 |
|
|
| Three months ended September 30, 2021 |
|
| Three months ended September 30, 2021 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||
|
|
|
|
|
| Additional |
|
| other |
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| other |
|
|
|
|
| |||||||||||
|
| Capital |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
|
|
|
|
| Capital |
| paid-in |
| comprehensive |
| Retained |
|
|
| |||||||||||||
|
| stock |
|
| capital |
|
| income (loss) |
|
| earnings |
|
| Total |
|
| stock |
|
| capital |
|
| income (loss) |
|
| earnings |
|
| Total |
| ||||||||||
Balance at June 30, 2021 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 17 |
|
| $ | 15,591 |
|
| $ | 16,525 |
|
| $ | 915 |
|
| $ | 2 |
|
| $ | 17 |
|
| $ | 15,591 |
|
| $ | 16,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 622 |
|
|
| 622 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 622 |
|
|
| 622 |
|
Other comprehensive loss, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| (2 | ) |
|
| 0 |
|
|
| (2 | ) |
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| - |
|
|
| (2 | ) |
Balance at September 30, 2021 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 15 |
|
| $ | 16,213 |
|
| $ | 17,145 |
|
| $ | 915 |
|
| $ | 2 |
|
| $ | 15 |
|
| $ | 16,213 |
|
| $ | 17,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Six months ended September 30, 2021 |
|
| Six months ended September 30, 2021 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||
|
|
|
|
|
| Additional |
|
| other |
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| other |
|
|
|
|
| |||||||||||
|
| Capital |
|
| paid-in |
|
| comprehensive |
|
| Retained |
|
|
|
|
|
| Capital |
| paid-in |
| comprehensive |
| Retained |
|
|
| |||||||||||||
|
| stock |
|
| capital |
|
| income |
|
| earnings |
|
| Total |
|
| stock |
|
| capital |
|
| income |
|
| earnings |
|
| Total |
| ||||||||||
Balance at March 31, 2021 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 8 |
|
| $ | 14,670 |
|
| $ | 15,595 |
|
| $ | 915 |
|
| $ | 2 |
|
| $ | 8 |
|
| $ | 14,670 |
|
| $ | 15,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,543 |
|
|
| 1,543 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,543 |
|
|
| 1,543 |
|
Other comprehensive income, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 7 |
|
|
| 0 |
|
|
| 7 |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| - |
|
|
| 7 |
|
Balance at September 30, 2021 |
| $ | 915 |
|
| $ | 2 |
|
| $ | 15 |
|
| $ | 16,213 |
|
| $ | 17,145 |
|
| $ | 915 |
|
| $ | 2 |
|
| $ | 15 |
|
| $ | 16,213 |
|
| $ | 17,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
| Six months ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
| $ | 1,543 |
|
| $ | 1,029 |
|
| $ | 289 |
|
| $ | 1,543 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 3,001 |
|
|
| 3,093 |
|
|
| 2,756 |
|
|
| 3,001 |
|
Recognition of deferred income |
|
| (1,251 | ) |
|
| (1,228 | ) |
|
| (982 | ) |
|
| (1,251 | ) |
Provision for credit losses |
|
| 65 |
|
|
| 248 |
|
|
| 291 |
|
|
| 65 |
|
Amortization of deferred costs |
|
| 484 |
|
|
| 367 |
|
|
| 529 |
|
|
| 484 |
|
Foreign currency and other adjustments to the carrying value of debt, net |
|
| (150 | ) |
|
| 1,138 |
| ||||||||
Net gains from investments in marketable securities |
|
| (87 | ) |
|
| (168 | ) | ||||||||
Foreign currency and other adjustments to the carrying value of financial instruments, net |
|
| (729 | ) |
|
| (150 | ) | ||||||||
Net losses (gains) from investments in marketable securities |
|
| 592 |
|
|
| (87 | ) | ||||||||
Net change in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Derivative assets |
|
| (20 | ) |
|
| (15 | ) |
|
| (14 | ) |
|
| (20 | ) |
Other assets and accrued interest |
|
| (209 | ) |
|
| 146 |
|
|
| (154 | ) |
|
| (209 | ) |
Deferred income taxes |
|
| (363 | ) |
|
| (734 | ) |
|
| (273 | ) |
|
| (363 | ) |
Derivative liabilities |
|
| 17 |
|
|
| (39 | ) |
|
| 20 |
|
|
| 17 |
|
Other liabilities |
|
| 67 |
|
|
| 343 |
|
|
| (388 | ) |
|
| 67 |
|
Net cash provided by operating activities |
|
| 3,097 |
|
|
| 4,180 |
|
|
| 1,937 |
|
|
| 3,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchase of investments in marketable securities |
|
| (1,049 | ) |
|
| (1,198 | ) |
|
| (1,154 | ) |
|
| (1,049 | ) |
Proceeds from sales of investments in marketable securities |
|
| 852 |
|
|
| 348 |
|
|
| 1,036 |
|
|
| 852 |
|
Proceeds from maturities of investments in marketable securities |
|
| 268 |
|
|
| 537 |
|
|
| 27 |
|
|
| 268 |
|
Acquisition of finance receivables |
|
| (20,758 | ) |
|
| (19,006 | ) |
|
| (21,248 | ) |
|
| (20,758 | ) |
Collection of finance receivables |
|
| 16,887 |
|
|
| 13,202 |
|
|
| 17,313 |
|
|
| 16,887 |
|
Net change in wholesale and certain working capital receivables |
|
| 3,539 |
|
|
| 4,791 |
|
|
| (952 | ) |
|
| 3,539 |
|
Acquisition of investments in operating leases |
|
| (9,606 | ) |
|
| (6,937 | ) |
|
| (4,765 | ) |
|
| (9,606 | ) |
Disposals of investments in operating leases |
|
| 6,693 |
|
|
| 5,450 |
|
|
| 5,934 |
|
|
| 6,693 |
|
Long term loans to affiliates |
|
| (100 | ) |
|
| 0 |
|
|
| (300 | ) |
|
| (100 | ) |
Payments on long term loans from affiliates |
|
| 100 |
|
|
| 206 |
|
|
| 100 |
|
|
| 100 |
|
Net change in financing support provided to affiliates |
|
| 0 |
|
|
| (32 | ) |
|
| 26 |
|
|
| - |
|
Other, net |
|
| (29 | ) |
|
| (33 | ) |
|
| (40 | ) |
|
| (29 | ) |
Net cash used in investing activities |
|
| (3,203 | ) |
|
| (2,672 | ) |
|
| (4,023 | ) |
|
| (3,203 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Proceeds from issuance of debt |
|
| 21,677 |
|
|
| 26,113 |
|
|
| 18,694 |
|
|
| 21,677 |
|
Payments on debt |
|
| (20,138 | ) |
|
| (14,518 | ) |
|
| (18,068 | ) |
|
| (20,138 | ) |
Net change in commercial paper and other short-term financing |
|
| 596 |
|
|
| (4,570 | ) |
|
| (162 | ) |
|
| 596 |
|
Payment on loan from affiliate |
|
| 0 |
|
|
| (3,000 | ) | ||||||||
Net change in financing support provided by affiliates |
|
| 6 |
|
|
| (24 | ) |
|
| 53 |
|
|
| 6 |
|
Net cash provided by financing activities |
|
| 2,141 |
|
|
| 4,001 |
|
|
| 517 |
|
|
| 2,141 |
|
Net increase in cash and cash equivalents and restricted cash and cash equivalents |
|
| 2,035 |
|
|
| 5,509 |
| ||||||||
Net (decrease) increase in cash and cash equivalents and restricted cash and cash equivalents |
|
| (1,569 | ) |
|
| 2,035 |
| ||||||||
Cash and cash equivalents and restricted cash and cash equivalents at the beginning of the period |
|
| 10,152 |
|
|
| 8,529 |
|
|
| 9,735 |
|
|
| 10,152 |
|
Cash and cash equivalents and restricted cash and cash equivalents at the end of the period |
| $ | 12,187 |
|
| $ | 14,038 |
|
| $ | 8,166 |
|
| $ | 12,187 |
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest paid, net |
| $ | 876 |
|
| $ | 1,315 |
|
| $ | 802 |
|
| $ | 876 |
|
Income taxes paid, net |
| $ | 904 |
|
| $ | 702 |
|
| $ | 973 |
|
| $ | 904 |
|
Refer to the accompanying Notes to Consolidated Financial Statements.
6
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note(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, 20212022 and 20202021 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, 20212022, do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 20222023 (“fiscal 2022”2023”).
These financial statements should be read in conjunction with the Consolidated Financial Statements and 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, 20212022 (“fiscal 2021”2022”), which was filed with the Securities and Exchange Commission on June 3, 2021.2022. 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.
Other Matters
In fiscal 2021, we announced the restructuring of our customer service operations to better serve our customers by relocating and streamlining the customer service operation and investing in new technology. The restructuring is in progress, and we plan to complete the process of moving our three regional CSCs to be co-located with the regional DSCs to become regional experience centers by the end of fiscal 2023. Costs associated with this restructure are not expected to be significant.
In fiscal 2022, TMCC began providingannounced, in furtherance of its private label financial services to third-partyinitiative for third party automotive and mobility companies, commencingthat we entered into a nonbinding letter of intent with Great American Outdoors Group LLC, the provisionparent company of Bass Pro Shops, Cabela’s and the White River Marine Group (“Bass Pro Shops”) to provide private label financial services for Bass Pro Shop’s boats, all-terrain vehicle products, and other mobility products. The Company began to provide inventory financing for Bass Pro Shops, its affiliates, and authorized independent dealers in fiscal 2023, with additional private label services, including consumer financing and voluntary protection products and services, to Mazda Motor of America, Inc. (“Mazda”).be added over time. We are currently leveraging our existing processes and personnel to originate and service the new assets; however,assets, and we will continueexpect to evaluate the private label financial services business, which includes partnering with or transitioning a portion of the business to our affiliates, some of which are not consolidated with TMCC. We have also mademake certain technology investments to support the Mazda programBass Pro Shops program. We did not acquire any existing Bass Pro Shops assets or liabilities pursuant to the agreement, and future private label customers.we do not expect launch costs to be significant.
Recently Adopted Accounting Guidance
On April 1, 2021,2022, we adopted the following new accounting standards:
We adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, along with the subsequently issued guidance, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. The provisions of this update are available to us until December 31, 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
We adopted ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, which requires an entity to reevaluate the amortization period for callable debt securities held at a premium each reporting period. The premium is amortized to the earliest call date of the debt security. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
Accounting Guidance Issued But Not Yet Adopted
In July 2021, the FASB issued ASU 2021-05, Lessors-Certain Leases with Variable Lease Payments (Topic 842), which modifies the lease classification for certain leases. Lessors shouldrequires a lessor to classify and account for a lease with variable lease payments that do not depend on a reference index or rate as an operating lease if certain criteria are met. This ASU is effective for us on April 1, 2022, with early application permitted. The adoption of this guidance willdid not have a material impact on our consolidated financial statements and related disclosures.
Accounting Guidance Issued But Not Yet Adopted
In March 2022, the FASB issued ASU 2022-02, Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for Troubled Debt Restructurings by creditors that have adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, while enhancing disclosure requirements for certain loan refinancing and restructurings made to borrowers experiencing financial difficulty. Additionally, the ASU adds the requirement to disclose current period gross write-offs by year of origination for financing receivables. This ASU is effective for us on April 1, 2023, with early application permitted. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
7
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 2 – Investments in Marketable Securities
Investments in marketable securities consist of debt securities and equity investments. We classify all of our debt securities as available-for-sale (“AFS”). Except when the fair value option is elected, AFS debt securities are recorded at fair value with unrealized gains or losses included in accumulated other comprehensive income (“AOCI”), net of applicable taxes. All equity investmentsRealized gains and losses from sales of AFS debt securities are recorded at fair value with changesdetermined using the specific identification method or first in fair valuefirst out method and are included in Investment and other (loss) income, net in our Consolidated Statements of Income.
In fiscal 2022, we haveWe elected the fair value option for certain debt securities held within one of our affiliate investment portfolios for operational ease given the size and composition of this portfolio. All debt securities within this specific portfolio are recorded at fair value with changes in fair value included in Investment and other (loss) income, net in our Consolidated Statements of Income. We estimate the fair value of these securities using observed transaction prices, independent third-party pricing valuation vendors, and internal valuation models. AFS debt securities for which fair value option is elected are not subject to credit loss impairment. As of September 30, 2021,2022 and March 31, 2022, we held AFS debt securities for which the fair value option was elected of $722 million.$617 million and $674 million, respectively. The difference between the aggregate fair value and the aggregate unpaid principal balance of long-term AFS debt securities for which the fair value option was elected was not significant.an unrealized loss of $98 million and $41 million as of September 30, 2022 and March 31, 2022, respectively.
All equity investments are recorded at fair value with changes in fair value included in Investment and other (loss) income, net in our Consolidated Statements of Income. Realized gains and losses from sales of equity investments are determined using the first in first out method and are included in Investment and other (loss) income, net in our Consolidated Statements of Income.
Investments in marketable securities consisted of the following:
|
| September 30, 2021 |
|
| September 30, 2022 |
| ||||||||||||||||||||||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||||||
|
| cost |
|
| gains |
|
| losses |
|
| value |
|
| cost |
|
| gains |
|
| losses |
|
| value |
| ||||||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government and agency obligations |
| $ | 448 |
|
| $ | 5 |
|
| $ | (8 | ) |
| $ | 445 |
|
| $ | 642 |
|
| $ | - |
|
| $ | (78 | ) |
| $ | 564 |
|
Foreign government and agency obligations |
|
| 33 |
|
|
| 0 |
|
|
| 0 |
|
|
| 33 |
|
|
| 17 |
|
|
| - |
|
|
| (5 | ) |
|
| 12 |
|
Municipal debt securities |
|
| 9 |
|
|
| 2 |
|
|
| 0 |
|
|
| 11 |
|
|
| 9 |
|
|
| 1 |
|
|
| (1 | ) |
|
| 9 |
|
Commercial paper |
|
| 8 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8 |
| ||||||||||||||||
Corporate debt securities |
|
| 638 |
|
|
| 19 |
|
|
| (1 | ) |
|
| 656 |
|
|
| 513 |
|
|
| 1 |
|
|
| (85 | ) |
|
| 429 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government agency |
|
| 24 |
|
|
| 1 |
|
|
| 0 |
|
|
| 25 |
|
|
| 51 |
|
|
| - |
|
|
| (4 | ) |
|
| 47 |
|
Non-agency residential |
|
| 12 |
|
|
| 0 |
|
|
| 0 |
|
|
| 12 |
|
|
| 10 |
|
|
| - |
|
|
| (1 | ) |
|
| 9 |
|
Non-agency commercial |
|
| 71 |
|
|
| 3 |
|
|
| (1 | ) |
|
| 73 |
|
|
| 87 |
|
|
| 1 |
|
|
| (8 | ) |
|
| 80 |
|
Asset-backed securities |
|
| 88 |
|
|
| 3 |
|
|
| 0 |
|
|
| 91 |
|
|
| 75 |
|
|
| - |
|
|
| (8 | ) |
|
| 67 |
|
Total available-for-sale debt securities |
| $ | 1,331 |
|
| $ | 33 |
|
| $ | (10 | ) |
| $ | 1,354 |
|
| $ | 1,404 |
|
| $ | 3 |
|
| $ | (190 | ) |
| $ | 1,217 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,481 |
|
|
|
|
|
|
|
|
|
|
|
| 3,171 |
| |||
Total investments in marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4,835 |
|
|
|
|
|
|
|
|
|
|
| $ | 4,388 |
|
|
| March 31, 2021 |
| |||||||||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| cost |
|
| gains |
|
| losses |
|
| value |
| ||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
| $ | 217 |
|
| $ | 4 |
|
| $ | (10 | ) |
| $ | 211 |
|
Municipal debt securities |
|
| 8 |
|
|
| 2 |
|
|
| 0 |
|
|
| 10 |
|
Commercial paper |
|
| 196 |
|
|
| 0 |
|
|
| 0 |
|
|
| 196 |
|
Corporate debt securities |
|
| 177 |
|
|
| 12 |
|
|
| (2 | ) |
|
| 187 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency |
|
| 31 |
|
|
| 1 |
|
|
| 0 |
|
|
| 32 |
|
Non-agency residential |
|
| 1 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
Non-agency commercial |
|
| 47 |
|
|
| 2 |
|
|
| (2 | ) |
|
| 47 |
|
Asset-backed securities |
|
| 49 |
|
|
| 3 |
|
|
| 0 |
|
|
| 52 |
|
Total available-for-sale debt securities |
| $ | 726 |
|
| $ | 24 |
|
| $ | (14 | ) |
| $ | 736 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,084 |
|
Total investments in marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4,820 |
|
8
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 2 – Investments in Marketable Securities (Continued)
|
| March 31, 2022 |
| |||||||||||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||
|
| cost |
|
| gains |
|
| losses |
|
| value |
| ||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government and agency obligations |
| $ | 538 |
|
| $ | - |
|
| $ | (29 | ) |
| $ | 509 |
|
Foreign government and agency obligations |
|
| 26 |
|
|
| - |
|
|
| (3 | ) |
|
| 23 |
|
Municipal debt securities |
|
| 9 |
|
|
| 1 |
|
|
| - |
|
|
| 10 |
|
Corporate debt securities |
|
| 598 |
|
|
| 4 |
|
|
| (34 | ) |
|
| 568 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government agency |
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| 20 |
|
Non-agency residential |
|
| 11 |
|
|
| - |
|
|
| (1 | ) |
|
| 10 |
|
Non-agency commercial |
|
| 88 |
|
|
| 1 |
|
|
| (3 | ) |
|
| 86 |
|
Asset-backed securities |
|
| 82 |
|
|
| - |
|
|
| (4 | ) |
|
| 78 |
|
Total available-for-sale debt securities |
| $ | 1,372 |
|
| $ | 6 |
|
| $ | (74 | ) |
| $ | 1,304 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
| 3,649 |
| |||
Total investments in marketable securities |
|
|
|
|
|
|
|
|
|
| $ | 4,953 |
|
A portion of our equity investments 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$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-day90-day period.
We also invest in actively traded open-end mutual funds. Redemptions are subject to normal terms and conditions as described in each fund’s prospectus.
For the three and six months ended September 30, 2022, respectively, we had no non-cash investing activities related to in-kind redemptions. For the three months ended September 30, 2021, we had no non-cash investing activities related to in-kind redemptions. For the six months ended September 30, 2021, non-cash investing activities related to in-kind redemptions and subsequent purchases amounted to $1.1$1.1 billion. There were 0 non-cash investing activities related to in-kind redemptions for the three months ended September 30, 2021.
Unrealized Losses on Securities
Available-for-saleThe following table presents the aggregate fair value and unrealized losses on AFS debt securities in a continuous unrealized loss position:
|
| September 30, 2022 |
| |||||||||||||||||||||
|
| Less than 12 months |
|
| 12 months or longer |
|
| Total |
| |||||||||||||||
Available-for-sale debt securities: |
| Fair value |
|
| Unrealized losses |
|
| Fair value |
|
| Unrealized losses |
|
| Fair value |
|
| Unrealized losses |
| ||||||
U.S. government and agency obligations |
| $ | 429 |
|
| $ | (51 | ) |
| $ | 116 |
|
| $ | (27 | ) |
| $ | 545 |
|
| $ | (78 | ) |
Foreign government and agency obligations |
|
| 5 |
|
|
| (2 | ) |
|
| 7 |
|
|
| (3 | ) |
|
| 12 |
|
|
| (5 | ) |
Municipal debt securities |
|
| 2 |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| (1 | ) |
Corporate debt securities |
|
| 270 |
|
|
| (61 | ) |
|
| 147 |
|
|
| (24 | ) |
|
| 417 |
|
|
| (85 | ) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Government agency |
|
| 45 |
|
|
| (4 | ) |
|
| 1 |
|
|
| - |
|
|
| 46 |
|
|
| (4 | ) |
Non-agency residential |
|
| 5 |
|
|
| - |
|
|
| 4 |
|
|
| (1 | ) |
|
| 9 |
|
|
| (1 | ) |
Non-agency commercial |
|
| 55 |
|
|
| (6 | ) |
|
| 19 |
|
|
| (2 | ) |
|
| 74 |
|
|
| (8 | ) |
Asset-backed securities |
|
| 39 |
|
|
| (3 | ) |
|
| 28 |
|
|
| (5 | ) |
|
| 67 |
|
|
| (8 | ) |
Total available-for-sale debt securities |
| $ | 850 |
|
| $ | (128 | ) |
| $ | 322 |
|
| $ | (62 | ) |
| $ | 1,172 |
|
| $ | (190 | ) |
The aggregate unrealized losses on AFS debt securities in a continuous unrealized loss position for less than twelve months and greater than twelve monthsor longer were not significant as of September 30, 2021 and March 31, 2021.2022.
9
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 2 – Investments in Marketable Securities (Continued)
An allowance for credit losses is established when it is determined that a credit loss has occurred. As of September 30, 2021,2022 and March 31, 2022, management determined that credit losses did not exist for securities in an unrealized loss position. This analysis considered a variety of factors including, but not limited to, performance indicators of the issuer, default rates, industry analyst reports, credit ratings, and other relevant information, which indicated that contractual cash flows are expected to occur.
Gains and Losses on Securities
The following table represents gains and losses on our investments in marketable securities presented in our Consolidated Statements of Income:
|
| Three months ended |
|
| Six months ended |
|
| Three months ended |
|
| Six months ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized (losses) gains for securities for which the fair value option was elected |
| $ | (2 | ) |
| $ | 0 |
|
| $ | 7 |
|
| $ | 0 |
| ||||||||||||||||
Realized gains |
| $ | 0 |
|
| $ | 3 |
|
| $ | 0 |
|
| $ | 17 |
| ||||||||||||||||
Unrealized (losses) gains on securities for which the |
| $ | (22 | ) |
| $ | (2 | ) |
| $ | (57 | ) |
| $ | 7 |
| ||||||||||||||||
Realized losses on sales |
| $ | (11 | ) |
| $ | - |
|
| $ | (25 | ) |
| $ | - |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized (losses) gains |
| $ | (26 | ) |
| $ | 39 |
|
| $ | 58 |
|
| $ | 139 |
|
| $ | (188 | ) |
| $ | (26 | ) |
| $ | (495 | ) |
| $ | 58 |
|
Realized gains on sales |
| $ | 0 |
|
| $ | 1 |
|
| $ | 22 |
|
| $ | 12 |
| ||||||||||||||||
Realized (losses) gains on sales |
| $ | (5 | ) |
| $ | - |
|
| $ | (15 | ) |
| $ | 22 |
|
Contractual Maturities
The amortized cost and fair value by contractual maturities of available-for-sale debt securities 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.
|
| September 30, 2021 |
|
| September 30, 2022 |
| ||||||||||
|
| Amortized cost |
|
| Fair value |
|
| Amortized cost |
|
| Fair value |
| ||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Due within 1 year |
| $ | 28 |
|
| $ | 28 |
|
| $ | 77 |
|
| $ | 76 |
|
Due after 1 year through 5 years |
|
| 471 |
|
|
| 477 |
|
|
| 351 |
|
|
| 326 |
|
Due after 5 years through 10 years |
|
| 398 |
|
|
| 405 |
|
|
| 358 |
|
|
| 308 |
|
Due after 10 years |
|
| 239 |
|
|
| 243 |
|
|
| 395 |
|
|
| 304 |
|
Mortgage-backed and asset-backed securities 1 |
|
| 195 |
|
|
| 201 |
|
|
| 223 |
|
|
| 203 |
|
Total |
| $ | 1,331 |
|
| $ | 1,354 |
|
| $ | 1,404 |
|
| $ | 1,217 |
|
1 Mortgage-backed and asset-backed securities are shown separately from other maturity groupings as these securities have multiple maturity dates.
|
|
10
9
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 3 – Finance Receivables, Net
Finance receivables, net consists of the retail loan and dealer products portfolio segments, and includes deferred origination costs, deferred income, and allowance for credit losses. Finance receivables, net also includes securitized retail receivables, which represent retail 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 8 – Variable Interest Entities.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:
|
| September 30, |
|
| March 31, |
|
| September 30, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
| ||||
Retail receivables 1 |
| $ | 70,808 |
|
| $ | 66,991 |
|
| $ | 76,918 |
|
| $ | 73,152 |
|
Dealer financing |
|
| 9,950 |
|
|
| 13,642 |
|
|
| 11,065 |
|
|
| 10,298 |
|
|
|
| 80,758 |
|
|
| 80,633 |
|
|
| 87,983 |
|
|
| 83,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Deferred origination costs |
|
| 1,266 |
|
|
| 1,145 |
|
|
| 1,358 |
|
|
| 1,330 |
|
Deferred income |
|
| (1,285 | ) |
|
| (1,408 | ) |
|
| (1,085 | ) |
|
| (1,102 | ) |
Allowance for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Retail and securitized retail receivables |
|
| (1,135 | ) |
|
| (1,075 | ) | ||||||||
Retail receivables |
|
| (1,321 | ) |
|
| (1,195 | ) | ||||||||
Dealer financing |
|
| (55 | ) |
|
| (103 | ) |
|
| (45 | ) |
|
| (51 | ) |
Total allowance for credit losses |
|
| (1,190 | ) |
|
| (1,178 | ) |
|
| (1,366 | ) |
|
| (1,246 | ) |
Finance receivables, net |
| $ | 79,549 |
|
| $ | 79,192 |
|
| $ | 86,890 |
|
| $ | 82,432 |
|
1 Includes securitized retail receivables of $24.7 billion and $21.2 billion as of September 30, 2022 and March 31, 2022, respectively.
|
|
Accrued interest related to finance receivables is presented in Other assets on the Consolidated Balance Sheets and was $204$241 million and $187$214 million at September 30, 20212022 and March 31, 2021,2022, respectively.
1011
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 3 – 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 Portfolio Segment
The retail loan portfolio segment 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 portfolio 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 within the retail loan portfolio segment are segregated into aging categories based on the number of days past due. The aging of finance receivables is updated monthly.
The following tables present the amortized cost basis of our retail loan portfolio by origination fiscal year by credit quality indicator based on number of days past due:
|
| Amortized Cost Basis by Origination Fiscal Year at September 30, 2021 |
|
|
|
|
|
| Amortized Cost Basis by Origination Fiscal Year at September 30, 2022 |
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 and Prior |
|
| Total |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 and Prior |
|
| Total |
| ||||||||||||||
Aging of finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Current |
| $ | 17,865 |
|
| $ | 27,058 |
|
| $ | 12,422 |
|
| $ | 6,604 |
|
| $ | 4,172 |
|
| $ | 1,527 |
|
| $ | 69,648 |
|
| $ | 18,374 |
|
| $ | 27,031 |
|
| $ | 17,651 |
|
| $ | 7,349 |
|
| $ | 3,326 |
|
| $ | 1,834 |
|
| $ | 75,565 |
|
30-59 days past due |
|
| 99 |
|
|
| 290 |
|
|
| 172 |
|
|
| 119 |
|
|
| 84 |
|
|
| 59 |
|
|
| 823 |
|
|
| 103 |
|
|
| 406 |
|
|
| 317 |
|
|
| 142 |
|
|
| 84 |
|
|
| 69 |
|
|
| 1,121 |
|
60-89 days past due |
|
| 21 |
|
|
| 79 |
|
|
| 46 |
|
|
| 32 |
|
|
| 22 |
|
|
| 18 |
|
|
| 218 |
|
|
| 27 |
|
|
| 124 |
|
|
| 95 |
|
|
| 42 |
|
|
| 26 |
|
|
| 21 |
|
|
| 335 |
|
90 days or greater past due |
|
| 9 |
|
|
| 37 |
|
|
| 20 |
|
|
| 13 |
|
|
| 10 |
|
|
| 11 |
|
|
| 100 |
|
|
| 12 |
|
|
| 67 |
|
|
| 46 |
|
|
| 19 |
|
|
| 12 |
|
|
| 14 |
|
|
| 170 |
|
Total |
| $ | 17,994 |
|
| $ | 27,464 |
|
| $ | 12,660 |
|
| $ | 6,768 |
|
| $ | 4,288 |
|
| $ | 1,615 |
|
| $ | 70,789 |
|
| $ | 18,516 |
|
| $ | 27,628 |
|
| $ | 18,109 |
|
| $ | 7,552 |
|
| $ | 3,448 |
|
| $ | 1,938 |
|
| $ | 77,191 |
|
|
| Amortized Cost Basis by Origination Fiscal Year at March 31, 2022 |
|
|
|
| ||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 and Prior |
|
| Total |
| |||||||
Aging of finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Current |
| $ | 32,382 |
|
| $ | 21,917 |
|
| $ | 9,624 |
|
| $ | 4,774 |
|
| $ | 2,674 |
|
| $ | 718 |
|
| $ | 72,089 |
|
30-59 days past due |
|
| 275 |
|
|
| 304 |
|
|
| 153 |
|
|
| 101 |
|
|
| 63 |
|
|
| 36 |
|
|
| 932 |
|
60-89 days past due |
|
| 68 |
|
|
| 82 |
|
|
| 40 |
|
|
| 25 |
|
|
| 16 |
|
|
| 11 |
|
|
| 242 |
|
90 days or greater past due |
|
| 33 |
|
|
| 39 |
|
|
| 17 |
|
|
| 13 |
|
|
| 8 |
|
|
| 7 |
|
|
| 117 |
|
Total |
| $ | 32,758 |
|
| $ | 22,342 |
|
| $ | 9,834 |
|
| $ | 4,913 |
|
| $ | 2,761 |
|
| $ | 772 |
|
| $ | 73,380 |
|
|
| Amortized Cost Basis by Origination Fiscal Year at March 31, 2021 |
|
|
|
|
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 and Prior |
|
| Total |
| |||||||
Aging of finance receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
| $ | 32,026 |
|
| $ | 16,047 |
|
| $ | 8,972 |
|
| $ | 5,977 |
|
| $ | 2,435 |
|
| $ | 496 |
|
| $ | 65,953 |
|
30-59 days past due |
|
| 147 |
|
|
| 145 |
|
|
| 114 |
|
|
| 83 |
|
|
| 46 |
|
|
| 27 |
|
|
| 562 |
|
60-89 days past due |
|
| 37 |
|
|
| 39 |
|
|
| 28 |
|
|
| 21 |
|
|
| 11 |
|
|
| 8 |
|
|
| 144 |
|
90 days or greater past due |
|
| 18 |
|
|
| 18 |
|
|
| 13 |
|
|
| 9 |
|
|
| 5 |
|
|
| 6 |
|
|
| 69 |
|
Total |
| $ | 32,228 |
|
| $ | 16,249 |
|
| $ | 9,127 |
|
| $ | 6,090 |
|
| $ | 2,497 |
|
| $ | 537 |
|
| $ | 66,728 |
|
The amortized cost of retail loan portfolio excludes accrued interest of $183$208 million and $160$192 million at September 30, 20212022 and March 31, 2021,2022, respectively. The previous tables include contracts greater than 120 days past due, which are recorded at the fair value of collateral less estimated costs to sell, and contracts in bankruptcy.
12
11
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 3 – Finance Receivables, Net (Continued)
Dealer Products Portfolio Segment
The dealer products portfolio segment consists of three classes of finance receivables: 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; • 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; and • Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements.
|
|
|
|
|
|
|
|
The following tables present the amortized cost basis of our dealer products portfolio by credit quality indicator based on internal risk assessments by origination fiscal year:
|
| Amortized Cost Basis by Origination Fiscal Year at September 30, 2021 |
|
|
|
|
|
|
|
|
|
| Amortized Cost Basis by Origination Fiscal Year at September 30, 2022 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 and Prior |
|
| Revolving loans |
|
| Total |
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 and Prior |
|
| Revolving loans |
|
| Total |
| ||||||||||||||||
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 2,893 |
|
| $ | 2,893 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,444 |
|
| $ | 3,444 |
|
Credit Watch |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8 |
|
|
| 8 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16 |
|
|
| 16 |
|
At Risk |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 12 |
|
|
| 12 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Default |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Wholesale total |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 2,913 |
|
| $ | 2,913 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 3,460 |
|
| $ | 3,460 |
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing |
| $ | 712 |
|
| $ | 1,426 |
|
| $ | 326 |
|
| $ | 541 |
|
| $ | 340 |
|
| $ | 1,640 |
|
| $ | 0 |
|
| $ | 4,985 |
|
| $ | 558 |
|
| $ | 1,424 |
|
| $ | 1,149 |
|
| $ | 158 |
|
| $ | 335 |
|
| $ | 1,140 |
|
| $ | 138 |
|
| $ | 4,902 |
|
Credit Watch |
|
| 0 |
|
|
| 2 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13 |
|
|
| 0 |
|
|
| 15 |
|
|
| 5 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
At Risk |
|
| 9 |
|
|
| 13 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 25 |
|
|
| 0 |
|
|
| 47 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Default |
|
| 13 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Real estate total |
| $ | 734 |
|
| $ | 1,441 |
|
| $ | 326 |
|
| $ | 541 |
|
| $ | 340 |
|
| $ | 1,678 |
|
| $ | 0 |
|
| $ | 5,060 |
|
| $ | 563 |
|
| $ | 1,424 |
|
| $ | 1,149 |
|
| $ | 158 |
|
| $ | 335 |
|
| $ | 1,140 |
|
| $ | 138 |
|
| $ | 4,907 |
|
Working Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing |
| $ | 304 |
|
| $ | 415 |
|
| $ | 233 |
|
| $ | 172 |
|
| $ | 42 |
|
| $ | 234 |
|
| $ | 575 |
|
| $ | 1,975 |
|
| $ | 279 |
|
| $ | 520 |
|
| $ | 283 |
|
| $ | 155 |
|
| $ | 131 |
|
| $ | 136 |
|
| $ | 1,194 |
|
| $ | 2,698 |
|
Credit Watch |
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
At Risk |
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Default |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Working capital total |
| $ | 304 |
|
| $ | 417 |
|
| $ | 233 |
|
| $ | 172 |
|
| $ | 42 |
|
| $ | 234 |
|
| $ | 575 |
|
| $ | 1,977 |
|
| $ | 279 |
|
| $ | 520 |
|
| $ | 283 |
|
| $ | 155 |
|
| $ | 131 |
|
| $ | 136 |
|
| $ | 1,194 |
|
| $ | 2,698 |
|
Total |
| $ | 1,038 |
|
| $ | 1,858 |
|
| $ | 559 |
|
| $ | 713 |
|
| $ | 382 |
|
| $ | 1,912 |
|
| $ | 3,488 |
|
| $ | 9,950 |
|
| $ | 842 |
|
| $ | 1,944 |
|
| $ | 1,432 |
|
| $ | 313 |
|
| $ | 466 |
|
| $ | 1,276 |
|
| $ | 4,792 |
|
| $ | 11,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1213
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 3 – Finance Receivables, Net (Continued)
|
| Amortized Cost Basis by Origination Fiscal Year at March 31, 2021 |
|
|
|
|
|
|
|
|
|
| Amortized Cost Basis by Origination Fiscal Year at March 31, 2022 |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 and Prior |
|
| Revolving loans |
|
| Total |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2017 and Prior |
|
| Revolving loans |
|
| Total |
| ||||||||||||||||
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 5,893 |
|
| $ | 5,893 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,927 |
|
| $ | 2,927 |
|
Credit Watch |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 218 |
|
|
| 218 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16 |
|
|
| 16 |
|
At Risk |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 35 |
|
|
| 35 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Default |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11 |
|
|
| 11 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Wholesale total |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6,157 |
|
| $ | 6,157 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 2,943 |
|
| $ | 2,943 |
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing |
| $ | 1,874 |
|
| $ | 320 |
|
| $ | 596 |
|
| $ | 356 |
|
| $ | 312 |
|
| $ | 1,493 |
|
| $ | 0 |
|
| $ | 4,951 |
|
| $ | 1,614 |
|
| $ | 1,245 |
|
| $ | 264 |
|
| $ | 384 |
|
| $ | 260 |
|
| $ | 1,245 |
|
| $ | - |
|
| $ | 5,012 |
|
Credit Watch |
|
| 8 |
|
|
| 49 |
|
|
| 3 |
|
|
| 20 |
|
|
| 9 |
|
|
| 99 |
|
|
| 0 |
|
|
| 188 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
|
| 7 |
|
At Risk |
|
| 13 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 12 |
|
|
| 17 |
|
|
| 0 |
|
|
| 42 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Default |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 13 |
|
|
| 9 |
|
|
| 0 |
|
|
| 0 |
|
|
| 22 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Real estate total |
| $ | 1,895 |
|
| $ | 369 |
|
| $ | 599 |
|
| $ | 389 |
|
| $ | 342 |
|
| $ | 1,609 |
|
| $ | 0 |
|
| $ | 5,203 |
|
| $ | 1,616 |
|
| $ | 1,245 |
|
| $ | 264 |
|
| $ | 384 |
|
| $ | 260 |
|
| $ | 1,250 |
|
| $ | - |
|
| $ | 5,019 |
|
Working Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Performing |
| $ | 503 |
|
| $ | 334 |
|
| $ | 200 |
|
| $ | 41 |
|
| $ | 106 |
|
| $ | 176 |
|
| $ | 878 |
|
| $ | 2,238 |
|
| $ | 662 |
|
| $ | 321 |
|
| $ | 209 |
|
| $ | 158 |
|
| $ | 37 |
|
| $ | 173 |
|
| $ | 774 |
|
| $ | 2,334 |
|
Credit Watch |
|
| 1 |
|
|
| 0 |
|
|
| 6 |
|
|
| 1 |
|
|
| 0 |
|
|
| 19 |
|
|
| 9 |
|
|
| 36 |
|
|
| 1 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
At Risk |
|
| 1 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Default |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Working capital total |
| $ | 505 |
|
| $ | 334 |
|
| $ | 206 |
|
| $ | 42 |
|
| $ | 113 |
|
| $ | 195 |
|
| $ | 887 |
|
| $ | 2,282 |
|
| $ | 663 |
|
| $ | 322 |
|
| $ | 209 |
|
| $ | 158 |
|
| $ | 37 |
|
| $ | 173 |
|
| $ | 774 |
|
| $ | 2,336 |
|
Total |
| $ | 2,400 |
|
| $ | 703 |
|
| $ | 805 |
|
| $ | 431 |
|
| $ | 455 |
|
| $ | 1,804 |
|
| $ | 7,044 |
|
| $ | 13,642 |
|
| $ | 2,279 |
|
| $ | 1,567 |
|
| $ | 473 |
|
| $ | 542 |
|
| $ | 297 |
|
| $ | 1,423 |
|
| $ | 3,717 |
|
| $ | 10,298 |
|
The amortized cost of the dealer products portfolio excludes accrued interest of $21$33 million and $27$22 million at September 30, 20212022 and March 31, 2021,2022, respectively. As of September 30, 20212022 and March 31, 2021,2022, the amount of line-of-credit arrangements that are converted to term loans in each reporting period was insignificant, respectively.
1314
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 3 – Finance Receivables, Net (Continued)
Past Due Finance Receivables by Class
Substantially all finance receivables do not involve recourse to the dealer in the event of customer default. Finance receivables include contracts greater than 120 days past due, which are recorded at the fair value of collateral less estimated costs to sell, and contracts in bankruptcy. Contracts for which vehicles have been repossessed are excluded. For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 30 days past the contractual due date. For any customer who is granted a payment extension under an extension program, the aging of the receivable is adjusted for the number of days of the extension granted.
The following tables summarize the aging of the amortized cost basis of our finance receivables by class:
|
| September 30, 2021 |
| |||||||||||||||||||||||||
|
| 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 |
| $ | 823 |
|
| $ | 218 |
|
| $ | 100 |
|
| $ | 1,141 |
|
| $ | 69,648 |
|
| $ | 70,789 |
|
| $ | 64 |
|
Wholesale |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,913 |
|
|
| 2,913 |
|
|
| 0 |
|
Real estate |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,060 |
|
|
| 5,060 |
|
|
| 0 |
|
Working capital |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,977 |
|
|
| 1,977 |
|
|
| 0 |
|
Total |
| $ | 823 |
|
| $ | 218 |
|
| $ | 100 |
|
| $ | 1,141 |
|
| $ | 79,598 |
|
| $ | 80,739 |
|
| $ | 64 |
|
|
| March 31, 2021 |
| |||||||||||||||||||||||||
|
| 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 |
| $ | 562 |
|
| $ | 144 |
|
| $ | 69 |
|
| $ | 775 |
|
| $ | 65,953 |
|
| $ | 66,728 |
|
| $ | 39 |
|
Wholesale |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,157 |
|
|
| 6,157 |
|
|
| 0 |
|
Real estate |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,203 |
|
|
| 5,203 |
|
|
| 0 |
|
Working capital |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,282 |
|
|
| 2,282 |
|
|
| 0 |
|
Total |
| $ | 562 |
|
| $ | 144 |
|
| $ | 69 |
|
| $ | 775 |
|
| $ | 79,595 |
|
| $ | 80,370 |
|
| $ | 39 |
|
|
| September 30, 2022 |
| |||||||||||||||||||||||||
|
| 30 - 59 Days |
|
| 60 - 89 Days |
|
| 90 Days or |
|
| Total Past |
|
| Current |
|
| Total Finance |
|
| 90 Days or |
| |||||||
Retail loan |
| $ | 1,121 |
|
| $ | 335 |
|
| $ | 170 |
|
| $ | 1,626 |
|
| $ | 75,565 |
|
| $ | 77,191 |
|
| $ | 111 |
|
Wholesale |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,460 |
|
|
| 3,460 |
|
|
| - |
|
Real estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,907 |
|
|
| 4,907 |
|
|
| - |
|
Working capital |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,698 |
|
|
| 2,698 |
|
|
| - |
|
Total |
| $ | 1,121 |
|
| $ | 335 |
|
| $ | 170 |
|
| $ | 1,626 |
|
| $ | 86,630 |
|
| $ | 88,256 |
|
| $ | 111 |
|
14
|
| March 31, 2022 |
| |||||||||||||||||||||||||
|
| 30 - 59 Days |
|
| 60 - 89 Days |
|
| 90 Days or |
|
| Total Past |
|
| Current |
|
| Total Finance |
|
| 90 Days or |
| |||||||
Retail loan |
| $ | 932 |
|
| $ | 242 |
|
| $ | 117 |
|
| $ | 1,291 |
|
| $ | 72,089 |
|
| $ | 73,380 |
|
| $ | 65 |
|
Wholesale |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,943 |
|
|
| 2,943 |
|
|
| - |
|
Real estate |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,019 |
|
|
| 5,019 |
|
|
| - |
|
Working capital |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,336 |
|
|
| 2,336 |
|
|
| - |
|
Total |
| $ | 932 |
|
| $ | 242 |
|
| $ | 117 |
|
| $ | 1,291 |
|
| $ | 82,387 |
|
| $ | 83,678 |
|
| $ | 65 |
|
15
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 3 – Finance Receivables, Net (Continued)
Troubled Debt Restructuring
For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three and six months ended September 30, 20212022 and 20202021 was not significant for each class of finance receivables. Troubled debt restructurings for accounts not under bankruptcy protection within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer. 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 the three and six months ended September 30, 20212022 and 2020.2021.
We consider finance receivables under bankruptcy protection within the retail loan class 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 the three and six months ended September 30, 20212022 and 2020,2021, the financial impact of troubled debt restructurings related to finance receivables under bankruptcy protection was not significant to our Consolidated Statements of Income and Consolidated Balance Sheets.
For a limited time during fiscal 2021, we offered several programs to provide relief to customers during the COVID-19 pandemic. These programs, which were broadly available to our customers, included retail loan payment extensions and lease payment deferrals. We concluded that these programs did not meet troubled debt restructuring criteria due to the short-term nature of the modifications with no change in the contractual interest rate. To provide relief for our dealers we offered certain temporary interest reductions, interest payment deferrals, and interest waivers on dealer floorplan financing, and principal payment deferrals on dealer floorplan financing, dealer real estate and working capital loans. We also concluded that these programs did not meet troubled debt restructuring criteria as the finance receivables from the dealers were current.
1516
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 4 – Allowance for Credit Losses
The following tables provide information related to our allowance for credit losses for finance receivables and certain off-balance sheet lending commitments by portfolio segment:
|
| Three months ended September 30, 2021 |
| |||||||||
|
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, July 1, 2021 |
| $ | 1,052 |
|
| $ | 144 |
|
| $ | 1,196 |
|
Charge-offs |
|
| (55 | ) |
|
| 0 |
|
|
| (55 | ) |
Recoveries |
|
| 15 |
|
|
| 0 |
|
|
| 15 |
|
Provision for credit losses |
|
| 123 |
|
|
| (55 | ) |
|
| 68 |
|
Ending balance, September 30, 2021 1 |
| $ | 1,135 |
|
| $ | 89 |
|
| $ | 1,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended September 30, 2021 |
| |||||||||
|
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
Beginning balance, April 1, 2021 |
| $ | 1,075 |
|
| $ | 140 |
|
| $ | 1,215 |
|
Charge-offs |
|
| (88 | ) |
|
| 0 |
|
|
| (88 | ) |
Recoveries |
|
| 32 |
|
|
| 0 |
|
|
| 32 |
|
Provision for credit losses |
|
| 116 |
|
|
| (51 | ) |
|
| 65 |
|
Ending balance, September 30, 2021 1 |
| $ | 1,135 |
|
| $ | 89 |
|
| $ | 1,224 |
|
|
|
|
| Three months ended September 30, 2020 |
| |||||||||
Allowance for Credit Losses for Finance Receivables: |
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, July 1, 2020 |
| $ | 933 |
|
| $ | 210 |
|
| $ | 1,143 |
|
Charge-offs |
|
| (46 | ) |
|
| 0 |
|
|
| (46 | ) |
Recoveries |
|
| 12 |
|
|
| 0 |
|
|
| 12 |
|
Provision for credit losses |
|
| 121 |
|
|
| (56 | ) |
|
| 65 |
|
Ending balance, September 30, 2020 2 |
| $ | 1,020 |
|
| $ | 154 |
|
| $ | 1,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended September 30, 2020 |
| |||||||||
Allowance for Credit Losses for Finance Receivables: |
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
Beginning balance, April 1, 2020 |
| $ | 486 |
|
| $ | 241 |
|
| $ | 727 |
|
Adoption of ASU 2016-13 1 |
|
| 281 |
|
|
| 11 |
|
|
| 292 |
|
Charge-offs |
|
| (115 | ) |
|
| 0 |
|
|
| (115 | ) |
Recoveries |
|
| 21 |
|
|
| 1 |
|
|
| 22 |
|
Provision for credit losses |
|
| 347 |
|
|
| (99 | ) |
|
| 248 |
|
Ending balance, September 30, 2020 2 |
| $ | 1,020 |
|
| $ | 154 |
|
| $ | 1,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2022 |
| |||||||||
|
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Beginning balance, July 1, 2022 |
| $ | 1,209 |
|
| $ | 65 |
|
| $ | 1,274 |
|
Charge-offs |
|
| (106 | ) |
|
| - |
|
|
| (106 | ) |
Recoveries |
|
| 14 |
|
|
| - |
|
|
| 14 |
|
Provision for credit losses |
|
| 204 |
|
|
| 9 |
|
|
| 213 |
|
Ending balance, September 30, 2022 ¹ |
| $ | 1,321 |
|
| $ | 74 |
|
| $ | 1,395 |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Six months ended September 30, 2022 |
| |||||||||
|
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
Beginning balance, April 1, 2022 |
| $ | 1,195 |
|
| $ | 77 |
|
| $ | 1,272 |
|
Charge-offs |
|
| (197 | ) |
|
| - |
|
|
| (197 | ) |
Recoveries |
|
| 29 |
|
|
| - |
|
|
| 29 |
|
Provision for credit losses |
|
| 294 |
|
|
| (3 | ) |
|
| 291 |
|
Ending balance, September 30, 2022 ¹ |
| $ | 1,321 |
|
| $ | 74 |
|
| $ | 1,395 |
|
1 Ending balance includes $29 million of allowance for credit losses related to off-balance sheet commitments in the dealer products portfolio which is included in Other liabilities on the Consolidated Balance Sheet.
16
|
| Three months ended September 30, 2021 |
| |||||||||
|
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Beginning balance, July 1, 2021 |
| $ | 1,052 |
|
| $ | 144 |
|
| $ | 1,196 |
|
Charge-offs |
|
| (55 | ) |
|
| - |
|
|
| (55 | ) |
Recoveries |
|
| 15 |
|
|
| - |
|
|
| 15 |
|
Provision for credit losses |
|
| 123 |
|
|
| (55 | ) |
|
| 68 |
|
Ending balance, September 30, 2021 ¹ |
| $ | 1,135 |
|
| $ | 89 |
|
| $ | 1,224 |
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
|
| Six months ended September 30, 2021 |
| |||||||||
|
| Retail loan |
|
| Dealer products |
|
| Total |
| |||
Beginning balance, April 1, 2021 |
| $ | 1,075 |
|
| $ | 140 |
|
| $ | 1,215 |
|
Charge-offs |
|
| (88 | ) |
|
| - |
|
|
| (88 | ) |
Recoveries |
|
| 32 |
|
|
| - |
|
|
| 32 |
|
Provision for credit losses |
|
| 116 |
|
|
| (51 | ) |
|
| 65 |
|
Ending balance, September 30, 2021 ¹ |
| $ | 1,135 |
|
| $ | 89 |
|
| $ | 1,224 |
|
|
|
|
|
|
|
|
|
|
|
1 Ending balance includes $34 million of allowance for credit losses related to off-balance sheet commitments in the dealer products portfolio which is included in Other liabilities on the Consolidated Balance Sheet.
17
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 4 – Allowance for Credit Losses (Continued)
We have elected to exclude accrued interest from the measurement of expected credit losses as we apply policies and procedures that result in the timely write-offs of accrued interest. Accrued interest is written off within 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.
Finance receivables for the dealer products portfolio segment as of September 30, 20212022, includes $1,016$976 million in finance receivables that are guaranteed by Toyota Motor North America, Inc. (“TMNA”), and $178$186 million in finance receivables that are guaranteed by third-party private Toyota distributors. Finance receivables for the dealer products portfolio segment as of September 30, 20202021, includes $995 million$1.0 billion in finance receivables that are guaranteed by TMNA, and $145$178 million in finance receivables that are guaranteed by third-party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of TMNA and third-party private Toyota distributors.
During the first half of fiscal 2022, the allowance for credit losses increased $9 million as the growth of our retail loan portfolio was largely offset by improvement in the financial performance of our dealers. In contrast, during the first half of fiscal 2021, the allowance for credit losses increased $447 million reflecting an increase to the allowance for credit losses of $292 million related to the adoption of ASU 2016-13, and an increase of $155 million primarily due to the increase in expected credit losses driven by economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, including stay-at-home orders, increased unemployment, and decreased consumer spending. In addition, the increase in the provision of credit losses was due to the adoption of ASU 2016-13 in fiscal 2021, which replaced the incurred loss impairment model with a model that reflects expected credit losses over the expected life of the finance receivables and certain off-balance sheet lending commitment.
1718
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 5 – Investments in Operating Leases, Net
Investments in operating leases, net consists of vehicle lease contracts acquired from dealers, and includes deferred origination fees and costs, deferred income, and accumulated depreciation. 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 8 - Variable Interest Entities.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:
|
| September 30, |
|
| March 31, |
|
| September 30, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
| ||||
Investments in operating leases 1 |
| $ | 48,666 |
|
| $ | 48,337 |
|
| $ | 41,659 |
|
| $ | 45,728 |
|
Deferred origination (fees) and costs, net |
|
| (68 | ) |
|
| (101 | ) |
|
| (39 | ) |
|
| (46 | ) |
Deferred income |
|
| (1,722 | ) |
|
| (1,759 | ) |
|
| (908 | ) |
|
| (1,272 | ) |
Accumulated depreciation |
|
| (8,930 | ) |
|
| (9,386 | ) |
|
| (8,598 | ) |
|
| (8,955 | ) |
Investments in operating leases, net |
| $ | 37,946 |
|
| $ | 37,091 |
|
| $ | 32,114 |
|
| $ | 35,455 |
|
1 Includes securitized investments in operating leases of $16.7 billion and $16.2 billion as of September 30, 2022 and March 31, 2022, respectively.
|
|
1819
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 6 – Derivatives, Hedging Activities and Interest Expense
Derivative Instruments
Our liabilities consist mainly of fixed and variable 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, and foreign currency swaps to economically 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 the fair value 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.
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 with the same counterparty on a net basis. Changes in the fair value of our derivative instruments are recorded in Interest expense in our Consolidated Statements of Income. The derivative instruments are included as a component of Other assets or Other liabilities on our Consolidated Balance Sheets.
Offsetting of Derivatives
Accounting guidance permits the net presentation on our Consolidated Balance Sheets of derivative receivables and derivative payables with the same counterparty and the related cash collateral when a legally enforceable master netting agreement exists, or when the derivative receivables and derivative payables meet all the conditions for the right of setoff to exist. When we meet this condition, we elect to present such balances on a net basis.
Over-the-Counter (“OTC”) Derivatives
Our International Swaps and Derivatives Association (“ISDA”) Master Agreements are our master netting agreements which permit multiple transactions to be cancelled and settled with a single net balance paid to either party for our OTC derivatives. The master netting agreements also contain reciprocal collateral agreements which require the transfer of cash collateral to the party in a net asset position across all transactions. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. Although we have daily valuation and collateral exchange arrangements with all of our counterparties, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives. We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at September 30, 2021,2022, if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties. In addition, as our collateral agreements include legal right of offset provisions, collateral amounts are netted against derivative assets or derivative liabilities, and the net amount is included in Other assets or Other liabilities on our Consolidated Balance Sheets.
Centrally Cleared Derivatives
For our centrally cleared derivatives, variation margin payments are legally characterized as settlement payments and accounted for with corresponding derivative positions as one unit of account as opposed to collateral. Initial margin payments are separately recorded in Other assets on our Consolidated Balance Sheets. We perform valuation and margin exchange on a daily basis. Similar to the OTC swaps, there may be a delay of up to one day between the exchange of margin payments and the valuation of our derivatives.
1920
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 6 – Derivatives, Hedging Activities and Interest Expense (Continued)
Derivative Activity Impact on Consolidated Financial Statements
The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported on our Consolidated Balance Sheets:
|
| September 30, 2021 |
|
| March 31, 2021 |
|
| September 30, 2022 |
|
| March 31, 2022 |
| ||||||||||||||||||||
|
|
|
|
|
| Fair |
|
|
|
|
|
| Fair |
|
|
|
|
| Fair |
|
|
|
| Fair |
| |||||||
|
| Notional |
|
| value |
|
| Notional |
|
| value |
|
| Notional |
|
| value |
|
| Notional |
|
| value |
| ||||||||
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
| $ | 52,147 |
|
| $ | 895 |
|
| $ | 44,125 |
|
| $ | 1,026 |
|
| $ | 62,895 |
|
| $ | 2,174 |
|
| $ | 64,327 |
|
| $ | 1,425 |
|
Foreign currency swaps |
|
| 2,637 |
|
|
| 124 |
|
|
| 7,274 |
|
|
| 330 |
|
|
| 129 |
|
|
| 20 |
|
|
| 1,594 |
|
|
| 55 |
|
Total |
| $ | 54,784 |
|
| $ | 1,019 |
|
| $ | 51,399 |
|
| $ | 1,356 |
|
| $ | 63,024 |
|
| $ | 2,194 |
|
| $ | 65,921 |
|
| $ | 1,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Counterparty netting |
|
|
|
|
|
| (613 | ) |
|
|
|
|
|
| (840 | ) |
|
|
|
| (1,162 | ) |
|
|
|
|
| (761 | ) | |||
Collateral held |
|
|
|
|
|
| (332 | ) |
|
|
|
|
|
| (462 | ) |
|
|
|
| (957 | ) |
|
|
|
|
| (658 | ) | |||
Carrying value of derivative contracts – Other assets |
|
|
|
|
| $ | 74 |
|
|
|
|
|
| $ | 54 |
|
|
|
| $ | 75 |
|
|
|
|
| $ | 61 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
| $ | 47,653 |
|
| $ | 723 |
|
| $ | 55,062 |
|
| $ | 1,142 |
|
| $ | 32,692 |
|
| $ | 1,452 |
|
| $ | 19,903 |
|
| $ | 822 |
|
Foreign currency swaps |
|
| 7,440 |
|
|
| 330 |
|
|
| 4,321 |
|
|
| 243 |
|
|
| 7,629 |
|
|
| 1,819 |
|
|
| 8,102 |
|
|
| 717 |
|
Total |
| $ | 55,093 |
|
| $ | 1,053 |
|
| $ | 59,383 |
|
| $ | 1,385 |
|
| $ | 40,321 |
|
| $ | 3,271 |
|
| $ | 28,005 |
|
| $ | 1,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Counterparty netting |
|
|
|
|
|
| (613 | ) |
|
|
|
|
|
| (840 | ) |
|
|
|
| (1,162 | ) |
|
|
|
|
| (761 | ) | |||
Collateral posted |
|
|
|
|
|
| (422 | ) |
|
|
|
|
|
| (544 | ) |
|
|
|
| (2,064 | ) |
|
|
|
|
| (753 | ) | |||
Carrying value of derivative contracts – Other liabilities |
|
|
|
|
| $ | 18 |
|
|
|
|
|
| $ | 1 |
|
|
|
| $ | 45 |
|
|
|
|
| $ | 25 |
|
As of September 30, 20212022 and March 31, 2021, we held2022, excess collateral of $2 million and $29 million, respectively,variation margin held, which we did not use to offset derivative assets and was recorded in Other liabilities on our Consolidated Balance Sheets.Sheets, was not significant. As of September 30, 20212022 and March 31, 2021,2022, we posted initial margin and excess collateral of $31$202 million and $10$132 million, respectively, which we did not use to offset derivative liabilities and was recorded in Other assets on our Consolidated Balance Sheets.
2021
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 6 – 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, as reported in our Consolidated Statements of Income:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Interest expense on debt |
| $ | 382 |
|
| $ | 495 |
|
| $ | 771 |
|
| $ | 1,071 |
|
Interest expense on derivatives |
|
| 48 |
|
|
| 122 |
|
|
| 114 |
|
|
| 231 |
|
Interest expense on debt and derivatives |
|
| 430 |
|
|
| 617 |
|
|
| 885 |
|
|
| 1,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses on debt denominated in foreign currencies |
|
| (287 | ) |
|
| 500 |
|
|
| (277 | ) |
|
| 1,048 |
|
Losses (gains) on foreign currency swaps |
|
| 333 |
|
|
| (503 | ) |
|
| 358 |
|
|
| (1,096 | ) |
Gains on U.S. dollar interest rate swaps |
|
| (53 | ) |
|
| (119 | ) |
|
| (257 | ) |
|
| (211 | ) |
Total interest expense |
| $ | 423 |
|
| $ | 495 |
|
| $ | 709 |
|
| $ | 1,043 |
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Interest expense on debt |
| $ | 623 |
|
| $ | 382 |
|
| $ | 1,069 |
|
| $ | 771 |
|
Interest (income) expense on derivatives |
|
| (120 | ) |
|
| 48 |
|
|
| (182 | ) |
|
| 114 |
|
Interest expense on debt and derivatives |
|
| 503 |
|
|
| 430 |
|
|
| 887 |
|
|
| 885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gains on debt denominated in |
|
| (590 | ) |
|
| (287 | ) |
|
| (1,181 | ) |
|
| (277 | ) |
Losses on foreign currency swaps |
|
| 743 |
|
|
| 333 |
|
|
| 1,456 |
|
|
| 358 |
|
Losses (gains) on U.S. dollar interest rate swaps |
|
| 49 |
|
|
| (53 | ) |
|
| 106 |
|
|
| (257 | ) |
Total interest expense |
| $ | 705 |
|
| $ | 423 |
|
| $ | 1,268 |
|
| $ | 709 |
|
Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses on derivatives and debt denominated in foreign currencies exclude net interest settlements and changes in accruals. Cash flows associated with derivatives are reported in Net cash provided by operating activities in our Consolidated Statements of Cash Flows.
22
21
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 7 – Debt and Credit Facilities
Debt and the related weighted average contractual interest rates are summarized as follows:
|
| September 30, 2021 |
|
| March 31, 2021 |
|
| September 30, 2022 |
| March 31, 2022 | ||||||||||||||||||||||||||||||||||
|
| Face value |
|
| Carrying value |
|
| Weighted average contractual interest rates |
|
| Face value |
|
| Carrying value |
|
| Weighted average contractual interest rates |
|
| Face value |
|
| Carrying value |
|
| Weighted average |
| Face value |
|
| Carrying value |
|
| Weighted average | ||||||||||
Unsecured notes and loans payable |
|
| 84,934 |
|
|
| 84,689 |
|
|
| 1.15 | % |
|
| 85,759 |
|
|
| 85,513 |
|
|
| 1.31 | % |
| $ | 79,252 |
|
| $ | 78,926 |
|
| 2.42% |
| $ | 82,542 |
|
| $ | 82,288 |
|
| 1.30% |
Secured notes and loans payable |
|
| 27,066 |
|
|
| 27,020 |
|
|
| 1.01 | % |
|
| 24,256 |
|
|
| 24,212 |
|
|
| 1.29 | % |
|
| 29,996 |
|
|
| 29,947 |
|
| 2.36% |
|
| 26,907 |
|
|
| 26,864 |
|
| 1.01% |
Total debt |
| $ | 112,000 |
|
| $ | 111,709 |
|
|
| 1.11 | % |
| $ | 110,015 |
|
| $ | 109,725 |
|
|
| 1.31 | % |
| $ | 109,248 |
|
| $ | 108,873 |
|
| 2.40% |
| $ | 109,449 |
|
| $ | 109,152 |
|
| 1.23% |
The carrying value of our debt includes unamortized premiums, discounts, debt issuance costs and the effects of foreign currency translation adjustments.
Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount and approximate the effective interest rates. Debt is callable at par value.
Unsecured Notes and Loans Payable
Our unsecured notes and loans payable consist of commercial paper and fixed and variable rate debt. Short-term funding needs are met through the issuance of commercial paper in the U.S. Amounts outstanding under our commercial paper programs were $17.0$17.4 billion and $16.9 billion as of September 30, 20212022 and March 31, 2021,2022, respectively.
Upon issuance of fixed rate debt, we generally elect to enter into pay-float swaps to convert fixed rate payments on debt to floating rate payments. Certain unsecured notes and loans payable are denominated in various foreign currencies. 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. Concurrent with the issuance of these foreign currency unsecured notes and loans payable, we enter into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments. Gains and losses related to foreign currency transactions are included in Interest expense in our Consolidated Statements of Income.
Certain of our 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.
Secured Notes and Loans Payable
Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt. Secured notes and loans payable are issued using on-balance sheet securitization trusts, as further discussed in Note 8 – 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. Some of our secured notes are backed by a revolving pool of finance receivables and cash collateral, with the ability to repay the notes in full after the revolving period ends, after which an amortization period begins.
2223
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 7 – Debt and Credit Facilities (Continued)
Credit Facilities and Letters of Credit
For additional liquidity purposes, we maintain credit facilities, which may be used for general corporate purposes, as described below:
364-Day Credit Agreement, Three-Year Credit Agreement and Five-Year Credit Agreement
TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates are party to a $5.0$5.0 billion 364-day syndicated bank credit facility, a $5.0$5.0 billion three-year syndicated bank credit facility, and a $5.0$5.0 billion five-year syndicated bank credit facility, expiring in fiscal 2022, 2023, 2025, and 2025,2027, 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 were 0tnot drawn upon and had 0no outstanding balances as of September 30, 20212022 and March 31, 2021.2022. We are currently in compliance with the covenants and conditions of the credit agreements described above.
Committed Revolving Asset-backed Facility
We are party to a 364-day revolving securitization facility with certain bank-sponsored asset-backed conduits and other financial institutions expiring in fiscal 2023.2024. Under the terms and subject to the conditions of this facility, the committed lenders under the facility have committed to make advances up to a facility limit of $7.0$8.0 billion backed by eligible retail finance receivables transferred by us to a special-purpose entity acting as borrower. We utilized $4.3$2.4 billion and $3.2$3.2 billion of this facility as of September 30, 20212022 and March 31, 2021,2022, respectively.
Other Unsecured Credit Agreements
TMCC is party to additional unsecured credit facilities with various banks. As of September 30, 2021,2022, TMCC had committed bank credit facilities totaling $4.6$4.6 billion, of which $1.9$1.9 billion, $2.1$425 million, $1.9 billion, $300 million, and $300$375 million mature in fiscal 2022, 2023, 2024, 2025, and 20252026 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 0tnot drawn upon and had 0no outstanding balances as of September 30, 20212022 and March 31, 2021.2022. We are currently in compliance with the covenants and conditions of the credit agreements described above.
TMCC is party to a $5.0$5.0 billion three-year revolving credit facility with Toyota Motor Sales U.S.A., Inc. expiring in fiscal 2025. This credit facility was 0tnot drawn upon and had 0no outstanding balance as of September 30, 20212022 and March 31, 2021.2022.
From time to time, we may borrow from affiliates based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities. Amounts borrowed from affiliates are recorded in Other liabilities on our Consolidated Balance Sheets.
2324
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 8 – Variable Interest Entities
Consolidated Variable Interest Entities
We use one or more special purpose entities that are considered Variable Interest Entities (“VIEs”) 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 on our Consolidated Balance Sheets:
|
| September 30, 2021 |
|
| September 30, 2022 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| VIE Assets |
|
| VIE Liabilities |
|
|
|
|
| VIE Assets |
|
| VIE Liabilities |
| |||||||||||||||||||||
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| ||||||
|
| Restricted cash |
|
| securitized assets |
|
| Other assets |
|
| Debt |
|
| Other liabilities |
|
| Restricted |
|
| securitized |
|
| Other |
|
| Debt |
|
| Other |
| ||||||||||
Retail finance receivables |
| $ | 1,293 |
|
| $ | 22,491 |
|
| $ | 49 |
|
| $ | 20,087 |
|
| $ | 8 |
|
| $ | 1,248 |
|
| $ | 24,529 |
|
| $ | 63 |
|
| $ | 21,316 |
|
| $ | 17 |
|
Investments in operating leases |
|
| 470 |
|
|
| 10,014 |
|
|
| 16 |
|
|
| 6,933 |
|
|
| 1 |
|
|
| 607 |
|
|
| 12,227 |
|
|
| 14 |
|
|
| 8,631 |
|
|
| 6 |
|
Total |
| $ | 1,763 |
|
| $ | 32,505 |
|
| $ | 65 |
|
| $ | 27,020 |
|
| $ | 9 |
|
| $ | 1,855 |
|
| $ | 36,756 |
|
| $ | 77 |
|
| $ | 29,947 |
|
| $ | 23 |
|
|
| March 31, 2022 |
| |||||||||||||||||
|
|
|
|
| VIE Assets |
|
| VIE Liabilities |
| |||||||||||
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| |||||
|
| Restricted |
|
| securitized |
|
| Other |
|
| Debt |
|
| Other |
| |||||
Retail finance receivables |
| $ | 1,284 |
|
| $ | 20,932 |
|
| $ | 51 |
|
| $ | 18,562 |
|
| $ | 8 |
|
Investments in operating leases |
|
| 645 |
|
|
| 11,886 |
|
|
| 15 |
|
|
| 8,302 |
|
|
| 2 |
|
Total |
| $ | 1,929 |
|
| $ | 32,818 |
|
| $ | 66 |
|
| $ | 26,864 |
|
| $ | 10 |
|
|
| March 31, 2021 |
| |||||||||||||||||
|
|
|
|
|
| VIE Assets |
|
| VIE Liabilities |
| ||||||||||
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Restricted cash |
|
| securitized assets |
|
| Other assets |
|
| Debt |
|
| Other liabilities |
| |||||
Retail finance receivables |
| $ | 1,521 |
|
| $ | 21,745 |
|
| $ | 46 |
|
| $ | 19,665 |
|
| $ | 13 |
|
Investments in operating leases |
|
| 436 |
|
|
| 6,599 |
|
|
| 43 |
|
|
| 4,547 |
|
|
| 1 |
|
Total |
| $ | 1,957 |
|
| $ | 28,344 |
|
| $ | 89 |
|
| $ | 24,212 |
|
| $ | 14 |
|
Restricted Cash, including cash equivalents, shown in the previous tables represent collections from the underlying Net securitized assets and certain reserve deposits held by TMCC for the VIEs and is included as part of Restricted cash and cash equivalents on our Consolidated Balance Sheets. Net securitized assets shown in the previous tables are presented net of deferred fees and costs, deferred income, accumulated depreciation and allowance for credit losses. Other assets represent accrued interests related to securitized retail finance receivables and used vehicles held-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 $1,617 million$1.6 billion and $1,409 million$1.7 billion of securities retained by TMCC at September 30, 20212022 and March 31, 2021,2022, respectively. Other liabilities represent accrued interest on the debt of the consolidated VIEs.
The assets of the VIEs and the restricted cash and cash equivalents 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.
24
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 8 – 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.
25
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 8 – Variable Interest Entities (Continued)
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 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 retail finance receivables 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 TMNA, which has an equity interest 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. Amounts due from these dealers under the TDIG Program that are classified as Finance receivables, net in our Consolidated Balance Sheets as ofat September 30, 20212022 and March 31, 20212022 and revenues earned from these dealers for the three and six months ended September 30, 20212022 and 20202021 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 from these lending relationships at September 30, 2022 and March 31, 2022 and revenues earned under these relationships as of and for the three and six months ended September 30, 20212022 and 20202021 were not significant.
2526
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 9 – 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:
|
| September 30, |
|
| March 31, |
|
| September 30, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
| ||||
Commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Credit facilities commitments with dealers |
| $ | 3,186 |
|
| $ | 2,338 |
|
| $ | 3,212 |
|
| $ | 3,289 |
|
Commitments under operating lease agreements |
|
| 126 |
|
|
| 141 |
|
|
| 113 |
|
|
| 119 |
|
Total commitments |
|
| 3,312 |
|
|
| 2,479 |
|
|
| 3,325 |
|
|
| 3,408 |
|
Guarantees of affiliate pollution control and solid waste disposal bonds |
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
Total commitments and guarantees |
| $ | 3,412 |
|
| $ | 2,579 |
|
| $ | 3,425 |
|
| $ | 3,508 |
|
Wholesale financing is not considered to be a contractual commitment as the arrangements are not binding arrangements under which TMCC is required to perform.
Commitments
We provide fixed and variable rate working capital loans, revolving lines of credit, and real estate financing to dealers and various multi-franchise organizations referred to as dealer groups for facilities construction and refurbishment, working capital requirements, real estate purchases, business acquisitions and other general business purposes. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate, and may be guaranteed by individual or corporate guarantees of affiliated dealers, dealer groups, or 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 pricing reflects market conditions, the competitive environment, the level of support dealers provide our retail, lease and voluntary protection 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. In addition to the total commitments and guarantees in the previous table, we also have extended credit facilities to affiliates as described in Note 12 – Related Party Transactions in our fiscal 20212022 Form 10-K.
Lease Commitments
Our operating lease portfolio consists of real estate leases. Total operating lease expense, including payments to affiliates, was $17$15 million and $8$7 million for the first half and second quarter of fiscal 2022,2023, as compared to $19$17 million and $10$8 million for the same periods in fiscal 2021.2022. We have a lease agreement through August 2032 with TMNA for our headquarters facility in Plano, Texas. Commitments under operating lease agreements in the previous table include $89$81 million and $93$84 million for facilities leases with affiliates at September 30, 20212022 and March 31, 2021,2022, respectively.
Lease terms may contain renewal and extension options or early termination features. Generally, these options do not impact the lease term because TMCC is not reasonably certain that it will exercise the options. These lease agreements do not impose restrictions on our ability to pay dividends, engage in debt or equity financing transactions or enter into further lease agreements, nor do they have residual value guarantees. We exclude from our Consolidated Balance Sheets leases with a term equal to one year or less and do not separate non-lease components from our real estate leases.
2627
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 9 – Commitments and Contingencies (Continued)
Our commitments under operating lease agreements are summarized below:
|
| September 30, |
|
| September 30, |
| ||
Years ending March 31, |
| 2021 |
|
| 2022 |
| ||
2022 |
| $ | 11 |
| ||||
2023 |
|
| 18 |
|
| $ | 9 |
|
2024 |
|
| 16 |
|
|
| 17 |
|
2025 |
|
| 13 |
|
|
| 15 |
|
2026 |
|
| 12 |
|
|
| 14 |
|
2027 |
|
| 13 |
| ||||
Thereafter |
|
| 56 |
|
|
| 45 |
|
Total |
| $ | 126 |
|
| $ | 113 |
|
Present value discount |
|
| (14 | ) |
|
| (12 | ) |
Total operating lease liability |
| $ | 112 |
|
| $ | 101 |
|
Operating lease liabilities and right-of-use (“ROU”) assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term. As the interest rate implicit in the lease contract is typically not readily determinable, we utilize our incremental borrowing rate at the lease commencement date for the duration of the lease term.
The following table provides additional information related to operating lease agreements for which we are the lessee:
|
| September 30, |
|
| September 30, |
| ||
|
| 2021 |
|
| 2022 |
| ||
ROU assets |
| $ | 102 |
|
| $ | 91 |
|
Weighted average remaining lease term (in years) |
| 8.59 |
|
|
| 7.7 |
| |
Weighted average discount rate |
| 2.78% |
|
|
| 2.68 | % | |
|
|
|
|
| ||||
Supplemental cash flow information |
|
|
|
| ||||
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows |
| $ | 15 |
|
Guarantees and Other Contingencies
TMCC has guaranteed bond obligations totaling $100$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$20 million; 2029 - $50$50 million; 2030 - $10$10 million; 2031 - $10$10 million; and 2032 - $10$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 a nominal annual fee for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of September 30, 20212022 and March 31, 2021.2022.
2728
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 9 – Commitments and Contingencies (Continued)
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, supplier and service agreements. Performance under these indemnities would generally occur upon a breach of the representations, warranties, covenants or other commitments made or given in the agreement, or as a result of 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 September 30, 2021,2022, we determined that it is not probable that we will be required to make any material payments in the future. As of September 30, 20212022 and March 31, 2021, 02022, no amounts have been recorded under these indemnification provisions.
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. In addition, we are subject to governmental and regulatory examinations, information-gathering requests, and investigations from time to time at the state and federal levels. It is inherently difficult to predict the course of such legal actions and governmental inquiries.
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 probable 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 probable 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.
On November 24, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a civil investigative demand to the Company seeking, among other things, certain information relating to the Company’s vehicle and payment protection products and credit reporting policies and procedures and reporting records. We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the amount or range of any potential loss arising from this investigation.
2829
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 10 – Income Taxes
Our provision for income taxes was $197$49 million and $464$100 million for the three and six months ended September 30, 2021,2022, respectively, compared to $218$197 million and $331$464 million for the same periods in fiscal 2021.2022. Our effective tax rate was 2429 percent and 2326 percent respectively, for the three and six months ended September 30, 2021,2022, respectively, compared to 2524 percent and 2423 percent for the same periods in fiscal 2021.2022. The changedecrease in the provision for income taxes for the three and six months ended September 30, 2021,2022, compared to the same periods in fiscal 2021,2022, was primarily due to the changedecrease in income before income taxes. The change in ourhigher effective tax rate for the three and six months ended September 30, 2021,2022, compared to the same periods in fiscal 2021,2022, was primarily attributable to the decrease in federal plug-in vehicle credits and the increase in unrecognized state tax benefit frombenefits in the current period.
In August 2022, the Inflation Reduction Act ("the Act") was signed into law. The Act modifies climate and clean energy corporate tax provisions, including amendments to the federal tax credits recognizedcredit for plug-in vehicles available under current tax law. The Act also includes a 15 percent corporate alternative minimum tax based on modified financial statement net income, applying to tax years beginning after December 31, 2022, which we expect to be applicable in fiscal 2022 as well as2024. As additional guidance related to the enacted state tax law changes that resulted in higher state tax expense inAct is issued, we will evaluate any impact to our consolidated financial statements. We do not expect the Act to have a material impact on our results of operations for fiscal 2021.2023.
Tax-related Contingencies
As of September 30, 2021,2022, we remain under IRS examination for fiscal 2018 through fiscal 2022. 2023.
We periodically review our uncertain tax positions. Our assessment is based on many factors including any ongoing IRS audits. For the three months ended September 30, 2021,2022, our assessment did not result in a material change in unrecognized tax benefits.
Our deferred tax assets include the deferred deduction of allowance for credit losses and residual value loss estimates, mark-to-market adjustment of investment in marketable securities, and other deferred costs. The total deferred tax liability, net of these deferred tax assets, was $2.5$1.3 billion and $2.9$1.6 billion at September 30, 20212022 and March 31, 2021,2022, respectively. Although realization of the deferred tax assets 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.
2930
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
In April 2021, TMCC increased financing support available to Toyota Finance New Zealand Limited to $250 million. In July 2021, TMCC entered into a services agreement with Toyota Financial Savings Bank (“TFSB”) to subservice loans on their behalf. In August 2021, TMCC increased financing support available to TFSB to $1.0 billion and entered into a financing support agreement with Toyota Finance Corporation (“TFC”) for $100 million. In November 2021, TFC borrowed from TMCC in accordance with the financing support agreement and for general corporate purposes a principal amount of $100 million with an interest rate of 0.0175% and repayment date of November 2023.
Except for the transactions mentioned above, asAs of September 30, 2021,2022, there were no material changes to our related party agreements or relationships as described in our fiscal 20212022 Form 10-K.The tables below show the financial statement line items and amounts included in our Consolidated Statements of Income and in our Consolidated Balance Sheets under various related party agreements or relationships:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net financing revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Manufacturer's subvention and other revenues |
| $ | 316 |
|
| $ | 457 |
|
| $ | 655 |
|
| $ | 936 |
|
Depreciation on operating leases |
| $ | 34 |
|
| $ | (25 | ) |
| $ | 56 |
|
| $ | (53 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit support fees, interest and other expenses |
| $ | 24 |
|
| $ | 27 |
|
| $ | 47 |
|
| $ | 51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues |
| $ | 39 |
|
| $ | 43 |
|
| $ | 79 |
|
| $ | 85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment and other income, net: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and other income |
| $ | 3 |
|
| $ | 2 |
|
| $ | (3 | ) |
| $ | 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating and administrative |
| $ | 16 |
|
| $ | 22 |
|
| $ | 37 |
|
| $ | 43 |
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net financing revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer's subvention and other revenues |
| $ | 457 |
|
| $ | 502 |
|
| $ | 936 |
|
| $ | 1,001 |
|
Depreciation on operating leases |
| $ | (25 | ) |
| $ | (26 | ) |
| $ | (53 | ) |
| $ | (49 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit support fees, interest and other expenses |
| $ | 27 |
|
| $ | 29 |
|
| $ | 51 |
|
| $ | 67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary protection contract revenues and insurance earned premiums: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary protection contract revenues and insurance earned premiums |
| $ | 43 |
|
| $ | 43 |
|
| $ | 85 |
|
| $ | 87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
| $ | 2 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | 13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and administrative expenses |
| $ | 22 |
|
| $ | 23 |
|
| $ | 43 |
|
| $ | 43 |
|
31 |
30
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 11 – Related Party Transactions (Continued)
|
| September 30, |
|
| March 31, |
|
| September 30, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commercial paper |
| $ | 8 |
|
| $ | 6 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Investments in marketable securities |
|
|
|
|
|
|
|
| ||||||||
Commercial paper |
| $ | 8 |
|
| $ | 196 |
|
| $ | - |
|
| $ | 100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Finance receivables, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
| $ | 81 |
|
| $ | 140 |
|
| $ | 27 |
|
| $ | 90 |
|
Deferred retail subvention income |
| $ | (1,018 | ) |
| $ | (1,156 | ) |
| $ | (858 | ) |
| $ | (875 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Investments in operating leases, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Investments in operating leases, net |
| $ | (241 | ) |
| $ | (236 | ) |
| $ | (252 | ) |
| $ | (212 | ) |
Deferred lease subvention income |
| $ | (1,354 | ) |
| $ | (1,528 | ) |
| $ | (624 | ) |
| $ | (923 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Notes receivable |
| $ | 869 |
|
| $ | 869 |
|
| $ | 948 |
|
| $ | 789 |
|
Other receivables, net |
| $ | 81 |
|
| $ | 83 |
|
| $ | 82 |
|
| $ | 80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Unearned voluntary protection contract revenues and insurance earned premiums |
| $ | 368 |
|
| $ | 352 |
|
| $ | 377 |
|
| $ | 374 |
|
Other payables, net |
| $ | 319 |
|
| $ | 306 |
|
| $ | 528 |
|
| $ | 394 |
|
Notes payable |
| $ | 25 |
|
| $ | 19 |
|
| $ | 61 |
|
| $ | 8 |
|
|
|
|
|
|
|
|
|
|
TMCC receives subvention payments from TMNA which results in a gross monthly subvention receivable. As of September 30, 20212022 and March 31, 2021,2022, the subvention receivable from TMNA was $94$98 million and $184$66 million, respectively. We have a master netting agreement with TMNA which allows us to net settle payments for shared services and subvention transactions. Under this agreement, as of September 30, 20212022 and March 31, 2021,2022, respectively, we had a net amount payable to TMNA which is recorded in Other payables, net in Other liabilities.
3132
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 12 – 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, 2022 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| 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 |
| $ | 560 |
|
| $ | 4 |
|
| $ | - |
|
| $ | - |
|
| $ | 564 |
|
Foreign government and agency obligations |
|
| - |
|
|
| 12 |
|
|
| - |
|
|
| - |
|
|
| 12 |
|
Municipal debt securities |
|
| - |
|
|
| 9 |
|
|
| - |
|
|
| - |
|
|
| 9 |
|
Corporate debt securities |
|
| - |
|
|
| 429 |
|
|
| - |
|
|
| - |
|
|
| 429 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government agency |
|
| - |
|
|
| 47 |
|
|
| - |
|
|
| - |
|
|
| 47 |
|
Non-agency residential |
|
| - |
|
|
| 6 |
|
|
| 3 |
|
|
| - |
|
|
| 9 |
|
Non-agency commercial |
|
| - |
|
|
| 75 |
|
|
| 5 |
|
|
| - |
|
|
| 80 |
|
Asset-backed securities |
|
| - |
|
|
| 65 |
|
|
| 2 |
|
|
| - |
|
|
| 67 |
|
Available-for-sale debt securities total |
|
| 560 |
|
|
| 647 |
|
|
| 10 |
|
|
| - |
|
|
| 1,217 |
|
Equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed income mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed income mutual funds measured at |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,021 |
| ||||
Total return bond funds |
|
| 1,411 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,411 |
|
Equity mutual funds |
|
| 739 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 739 |
|
Equity investments total |
|
| 2,150 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,171 |
|
Investments in marketable securities total |
|
| 2,710 |
|
|
| 647 |
|
|
| 10 |
|
|
| - |
|
|
| 4,388 |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate swaps |
|
| - |
|
|
| 2,174 |
|
|
| - |
|
|
| - |
|
|
| 2,174 |
|
Foreign currency swaps |
|
| - |
|
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| 20 |
|
Counterparty netting and collateral |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,119 | ) |
|
| (2,119 | ) |
Derivative assets total |
|
| - |
|
|
| 2,194 |
|
|
| - |
|
|
| (2,119 | ) |
|
| 75 |
|
Assets at fair value |
|
| 2,710 |
|
|
| 2,841 |
|
|
| 10 |
|
|
| (2,119 | ) |
|
| 4,463 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest rate swaps |
|
| - |
|
|
| (1,452 | ) |
|
| - |
|
|
| - |
|
|
| (1,452 | ) |
Foreign currency swaps |
|
| - |
|
|
| (1,819 | ) |
|
| - |
|
|
| - |
|
|
| (1,819 | ) |
Counterparty netting and collateral |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,226 |
|
|
| 3,226 |
|
Liabilities at fair value |
|
| - |
|
|
| (3,271 | ) |
|
| - |
|
|
| 3,226 |
|
|
| (45 | ) |
Net assets at fair value |
| $ | 2,710 |
|
| $ | (430 | ) |
| $ | 10 |
|
| $ | 1,107 |
|
| $ | 4,418 |
|
|
| September 30, 2021 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| $ | 439 |
|
| $ | 6 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 445 |
|
Foreign government and agency obligations |
|
| 0 |
|
|
| 33 |
|
|
| 0 |
|
|
| 0 |
|
|
| 33 |
|
Municipal debt securities |
|
| 0 |
|
|
| 11 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11 |
|
Commercial paper |
|
| 0 |
|
|
| 8 |
|
|
| 0 |
|
|
| 0 |
|
|
| 8 |
|
Corporate debt securities |
|
| 0 |
|
|
| 656 |
|
|
| 0 |
|
|
| 0 |
|
|
| 656 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency |
|
| 0 |
|
|
| 25 |
|
|
| 0 |
|
|
| 0 |
|
|
| 25 |
|
Non-agency residential |
|
| 0 |
|
|
| 9 |
|
|
| 3 |
|
|
| 0 |
|
|
| 12 |
|
Non-agency commercial |
|
| 0 |
|
|
| 69 |
|
|
| 4 |
|
|
| 0 |
|
|
| 73 |
|
Asset-backed securities |
|
| 0 |
|
|
| 80 |
|
|
| 11 |
|
|
| 0 |
|
|
| 91 |
|
Available-for-sale debt securities total |
|
| 439 |
|
|
| 897 |
|
|
| 18 |
|
|
| 0 |
|
|
| 1,354 |
|
Equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income mutual funds measured at net asset value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,132 |
|
Total return bond funds |
|
| 1,416 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,416 |
|
Equity mutual funds |
|
| 933 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 933 |
|
Equity investments total |
|
| 2,349 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,481 |
|
Investments in marketable securities total |
|
| 2,788 |
|
|
| 897 |
|
|
| 18 |
|
|
| 0 |
|
|
| 4,835 |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
| 0 |
|
|
| 895 |
|
|
| 0 |
|
|
| 0 |
|
|
| 895 |
|
Foreign currency swaps |
|
| 0 |
|
|
| 124 |
|
|
| 0 |
|
|
| 0 |
|
|
| 124 |
|
Counterparty netting and collateral |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (945 | ) |
|
| (945 | ) |
Derivative assets total |
|
| 0 |
|
|
| 1,019 |
|
|
| 0 |
|
|
| (945 | ) |
|
| 74 |
|
Assets at fair value |
|
| 2,788 |
|
|
| 1,916 |
|
|
| 18 |
|
|
| (945 | ) |
|
| 4,909 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
| 0 |
|
|
| (723 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (723 | ) |
Foreign currency swaps |
|
| 0 |
|
|
| (330 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (330 | ) |
Counterparty netting and collateral |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,035 |
|
|
| 1,035 |
|
Liabilities at fair value |
|
| 0 |
|
|
| (1,053 | ) |
|
| 0 |
|
|
| 1,035 |
|
|
| (18 | ) |
Net assets at fair value |
| $ | 2,788 |
|
| $ | 863 |
|
| $ | 18 |
|
| $ | 90 |
|
| $ | 4,891 |
|
3233
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 12 – Fair Value Measurements (Continued)
|
| March 31, 2021 |
|
| March 31, 2022 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Counterparty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Counterparty |
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| netting & |
|
| Fair |
|
|
|
|
|
|
|
| netting & |
| Fair |
| |||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| collateral |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| collateral |
|
| value |
| ||||||||||
Investments in marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
U.S. government and agency obligations |
| $ | 209 |
|
| $ | 2 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 211 |
|
| $ | 504 |
|
| $ | 5 |
|
| $ | - |
|
| $ | - |
|
| $ | 509 |
|
Foreign government and agency obligations |
|
| - |
|
|
| 23 |
|
|
| - |
|
|
| - |
|
|
| 23 |
| ||||||||||||||||||||
Municipal debt securities |
|
| 0 |
|
|
| 10 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10 |
|
|
| - |
|
|
| 10 |
|
|
| - |
|
|
| - |
|
|
| 10 |
|
Commercial paper |
|
| 20 |
|
|
| 176 |
|
|
| 0 |
|
|
| 0 |
|
|
| 196 |
| ||||||||||||||||||||
Corporate debt securities |
|
| 0 |
|
|
| 187 |
|
|
| 0 |
|
|
| 0 |
|
|
| 187 |
|
|
| - |
|
|
| 568 |
|
|
| - |
|
|
| - |
|
|
| 568 |
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
U.S. government agency |
|
| 0 |
|
|
| 32 |
|
|
| 0 |
|
|
| 0 |
|
|
| 32 |
|
|
| - |
|
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| 20 |
|
Non-agency residential |
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
|
| 1 |
|
|
| - |
|
|
| 7 |
|
|
| 3 |
|
|
| - |
|
|
| 10 |
|
Non-agency commercial |
|
| 0 |
|
|
| 5 |
|
|
| 42 |
|
|
| 0 |
|
|
| 47 |
|
|
| - |
|
|
| 78 |
|
|
| 8 |
|
|
| - |
|
|
| 86 |
|
Asset-backed securities |
|
| 0 |
|
|
| 19 |
|
|
| 33 |
|
|
| 0 |
|
|
| 52 |
|
|
| - |
|
|
| 75 |
|
|
| 3 |
|
|
| - |
|
|
| 78 |
|
Available-for-sale debt securities total |
|
| 229 |
|
|
| 431 |
|
|
| 76 |
|
|
| 0 |
|
|
| 736 |
|
|
| 504 |
|
|
| 786 |
|
|
| 14 |
|
|
| - |
|
|
| 1,304 |
|
Equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fixed income mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fixed income mutual funds measured at net asset value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 772 |
|
|
|
|
|
|
|
|
|
|
| 1,137 |
| ||||||||
Total return bond funds |
|
| 2,429 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,429 |
|
|
| 1,576 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,576 |
|
Equity mutual funds |
|
| 883 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 883 |
|
|
| 936 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 936 |
|
Equity investments total |
|
| 3,312 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,084 |
|
|
| 2,512 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,649 |
|
Investments in marketable securities total |
|
| 3,541 |
|
|
| 431 |
|
|
| 76 |
|
|
| 0 |
|
|
| 4,820 |
|
|
| 3,016 |
|
|
| 786 |
|
|
| 14 |
|
|
| - |
|
|
| 4,953 |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps |
|
| 0 |
|
|
| 1,026 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,026 |
|
|
| - |
|
|
| 1,425 |
|
|
| - |
|
|
| - |
|
|
| 1,425 |
|
Foreign currency swaps |
|
| 0 |
|
|
| 330 |
|
|
| 0 |
|
|
| 0 |
|
|
| 330 |
|
|
| - |
|
|
| 55 |
|
|
| - |
|
|
| - |
|
|
| 55 |
|
Counterparty netting and collateral |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,302 | ) |
|
| (1,302 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,419 | ) |
|
| (1,419 | ) |
Derivative assets total |
|
| 0 |
|
|
| 1,356 |
|
|
| 0 |
|
|
| (1,302 | ) |
|
| 54 |
|
|
| - |
|
|
| 1,480 |
|
|
| - |
|
|
| (1,419 | ) |
|
| 61 |
|
Assets at fair value |
|
| 3,541 |
|
|
| 1,787 |
|
|
| 76 |
|
|
| (1,302 | ) |
|
| 4,874 |
|
|
| 3,016 |
|
|
| 2,266 |
|
|
| 14 |
|
|
| (1,419 | ) |
|
| 5,014 |
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps |
|
| 0 |
|
|
| (1,142 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (1,142 | ) |
|
| - |
|
|
| (822 | ) |
|
| - |
|
|
| - |
|
|
| (822 | ) |
Foreign currency swaps |
|
| 0 |
|
|
| (243 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (243 | ) |
|
| - |
|
|
| (717 | ) |
|
| - |
|
|
| - |
|
|
| (717 | ) |
Counterparty netting and collateral |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,384 |
|
|
| 1,384 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,514 |
|
|
| 1,514 |
|
Liabilities at fair value |
|
| 0 |
|
|
| (1,385 | ) |
|
| 0 |
|
|
| 1,384 |
|
|
| (1 | ) |
|
| - |
|
|
| (1,539 | ) |
|
| - |
|
|
| 1,514 |
|
|
| (25 | ) |
Net assets at fair value |
| $ | 3,541 |
|
| $ | 402 |
|
| $ | 76 |
|
| $ | 82 |
|
| $ | 4,873 |
|
| $ | 3,016 |
|
| $ | 727 |
|
| $ | 14 |
|
| $ | 95 |
|
| $ | 4,989 |
|
Level 3 Fair Value Measurements
The Level 3 financial assets and liabilities recorded at fair value which are subject to recurring and nonrecurring fair value measurement, and the corresponding activity and change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance Sheets as of September 30, 2021and2022 and March 31, 2021,2022, or Consolidated Statements of Income for the three and six months ended September 30, 20212022 and 2020.2021.
Nonrecurring Fair Value Measurements
Nonrecurring fair value measurements include 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 when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of September 30, 20212022 and March 31, 2021.2022.
3334
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 12 – Fair Value Measurements (Continued)
Financial Instruments
The following tables provide information about assets and liabilities not carried at fair value on a recurring basis on our Consolidated Balance Sheets:
|
| September 30, 2021 |
|
| September 30, 2022 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Fair |
|
| Carrying |
|
|
|
|
|
|
| Total Fair |
| |||||||||||
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| value |
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| value |
| ||||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Finance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Retail loan |
| $ | 69,833 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 73,449 |
|
| $ | 73,449 |
|
| $ | 76,073 |
|
| $ | - |
|
| $ | - |
|
| $ | 74,924 |
|
| $ | 74,924 |
|
Wholesale |
|
| 2,911 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,927 |
|
|
| 2,927 |
|
|
| 3,465 |
|
|
| - |
|
|
| - |
|
|
| 3,442 |
|
|
| 3,442 |
|
Real estate |
|
| 5,040 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,403 |
|
|
| 5,403 |
|
|
| 4,899 |
|
|
| - |
|
|
| - |
|
|
| 4,788 |
|
|
| 4,788 |
|
Working capital |
|
| 1,885 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,870 |
|
|
| 1,870 |
|
|
| 2,661 |
|
|
| - |
|
|
| - |
|
|
| 2,566 |
|
|
| 2,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Unsecured notes and loans payable |
| $ | 84,689 |
|
| $ | 0 |
|
| $ | 85,834 |
|
| $ | 25 |
|
| $ | 85,859 |
|
| $ | 78,926 |
|
| $ | - |
|
| $ | 75,908 |
|
| $ | - |
|
| $ | 75,908 |
|
Secured notes and loans payable |
|
| 27,020 |
|
|
| 0 |
|
|
| 0 |
|
|
| 27,270 |
|
|
| 27,270 |
|
|
| 29,947 |
|
|
| - |
|
|
| - |
|
|
| 29,113 |
|
|
| 29,113 |
|
|
| March 31, 2022 |
| |||||||||||||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
| Total Fair |
| |||||
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| value |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Finance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Retail loan |
| $ | 72,369 |
|
| $ | - |
|
| $ | - |
|
| $ | 73,385 |
|
| $ | 73,385 |
|
Wholesale |
|
| 2,940 |
|
|
| - |
|
|
| - |
|
|
| 2,931 |
|
|
| 2,931 |
|
Real estate |
|
| 4,985 |
|
|
| - |
|
|
| - |
|
|
| 4,961 |
|
|
| 4,961 |
|
Working capital |
|
| 2,256 |
|
|
| - |
|
|
| - |
|
|
| 2,171 |
|
|
| 2,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unsecured notes and loans payable |
| $ | 82,288 |
|
| $ | - |
|
| $ | 80,980 |
|
| $ | - |
|
| $ | 80,980 |
|
Secured notes and loans payable |
| $ | 26,864 |
|
| $ | - |
|
| $ | - |
|
| $ | 26,500 |
|
| $ | 26,500 |
|
|
| March 31, 2021 |
| |||||||||||||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Fair |
| ||
|
| value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| value |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail loan |
| $ | 65,808 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 69,007 |
|
| $ | 69,007 |
|
Wholesale |
|
| 6,132 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,158 |
|
|
| 6,158 |
|
Real estate |
|
| 5,142 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,224 |
|
|
| 5,224 |
|
Working capital |
|
| 2,154 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,171 |
|
|
| 2,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured notes and loans payable |
| $ | 85,513 |
|
| $ | 0 |
|
| $ | 86,205 |
|
| $ | 555 |
|
| $ | 86,760 |
|
Secured notes and loans payable |
|
| 24,212 |
|
|
| 0 |
|
|
| 0 |
|
|
| 24,478 |
|
|
| 24,478 |
|
Accrued interest related to finance receivables is in Other assets in the Consolidated Balance Sheets; however, TMCC measures the fair value of each class of finance receivables using scheduled principal and interest payments. Therefore, accrued interest has been included in the carrying value of each class of finance receivables in the previous tables, along with the finance receivables, deferred origination costs, deferred income, and allowance for credit losses. Finance receivables in the previous tables excludes related party transactions, for which the fair value approximates the carrying value, of $81$27 million and $140$90 million at September 30, 20212022 and March 31, 2021,2022, respectively. Fair values of related party finance receivables, net are classified as Level 3 within the fair value hierarchy.
For Cash and cash equivalents and Restricted cash and cash equivalents on our Consolidated Balance Sheets, the fair value approximates the carrying value and these instruments are classified as Level 1 within the fair value hierarchy.
3435
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 13 – Segment Information
Financial information for our reportable operating segments, which includes allocated corporate expenses, is summarized as follows:
|
| Three months ended September 30, 2021 |
|
| Three months ended September 30, 2022 |
| ||||||||||||||||||||||||||
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
|
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
| |||||||
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total financing revenues |
| $ | 3,032 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 3,032 |
|
| $ | 2,824 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,824 |
|
Depreciation on operating leases |
|
| 1,499 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,499 |
|
|
| 1,305 |
|
|
| - |
|
|
| - |
|
|
| 1,305 |
|
Interest expense |
|
| 423 |
|
|
| 0 |
|
|
| 0 |
|
|
| 423 |
|
|
| 705 |
|
|
| - |
|
|
| - |
|
|
| 705 |
|
Net financing revenues |
|
| 1,110 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,110 |
|
|
| 814 |
|
|
| - |
|
|
| - |
|
|
| 814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues and insurance earned premiums |
|
| 0 |
|
|
| 254 |
|
|
| 0 |
|
|
| 254 |
|
|
| - |
|
|
| 263 |
|
|
| - |
|
|
| 263 |
|
Investment and other income (loss), net |
|
| 9 |
|
|
| (2 | ) |
|
| 0 |
|
|
| 7 |
|
|
| 55 |
|
|
| (193 | ) |
|
| - |
|
|
| (138 | ) |
Net financing and other revenues |
|
| 1,119 |
|
|
| 252 |
|
|
| 0 |
|
|
| 1,371 |
|
|
| 869 |
|
|
| 70 |
|
|
| - |
|
|
| 939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
|
| 68 |
|
|
| 0 |
|
|
| 0 |
|
|
| 68 |
|
|
| 213 |
|
|
| - |
|
|
| - |
|
|
| 213 |
|
Operating and administrative expenses |
|
| 287 |
|
|
| 98 |
|
|
| 0 |
|
|
| 385 |
|
|
| 339 |
|
|
| 105 |
|
|
| - |
|
|
| 444 |
|
Voluntary protection contract expenses and insurance losses |
|
| 0 |
|
|
| 99 |
|
|
| 0 |
|
|
| 99 |
|
|
| - |
|
|
| 114 |
|
|
| - |
|
|
| 114 |
|
Total expenses |
|
| 355 |
|
|
| 197 |
|
|
| 0 |
|
|
| 552 |
|
|
| 552 |
|
|
| 219 |
|
|
| - |
|
|
| 771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 764 |
|
|
| 55 |
|
|
| 0 |
|
|
| 819 |
| ||||||||||||||||
Provision for income taxes |
|
| 185 |
|
|
| 12 |
|
|
| 0 |
|
|
| 197 |
| ||||||||||||||||
Income (loss) before income taxes |
|
| 317 |
|
|
| (149 | ) |
|
| - |
|
|
| 168 |
| ||||||||||||||||
Provision (benefit) for income taxes |
|
| 86 |
|
|
| (37 | ) |
|
| - |
|
|
| 49 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 579 |
|
| $ | 43 |
|
| $ | 0 |
|
| $ | 622 |
| ||||||||||||||||
Net income (loss) |
| $ | 231 |
|
| $ | (112 | ) |
| $ | - |
|
| $ | 119 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Six months ended September 30, 2021 |
|
| Six months ended September 30, 2022 |
| ||||||||||||||||||||||||||
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
|
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
| |||||||
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total financing revenues |
| $ | 6,031 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6,031 |
|
| $ | 5,655 |
|
| $ | - |
|
| $ | - |
|
| $ | 5,655 |
|
Depreciation on operating leases |
|
| 2,940 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,940 |
|
|
| 2,714 |
|
|
| - |
|
|
| - |
|
|
| 2,714 |
|
Interest expense |
|
| 709 |
|
|
| 0 |
|
|
| 0 |
|
|
| 709 |
|
|
| 1,268 |
|
|
| - |
|
|
| - |
|
|
| 1,268 |
|
Net financing revenues |
|
| 2,382 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,382 |
|
|
| 1,673 |
|
|
| - |
|
|
| - |
|
|
| 1,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues and insurance earned premiums |
|
| 0 |
|
|
| 503 |
|
|
| 0 |
|
|
| 503 |
|
|
| - |
|
|
| 522 |
|
|
| - |
|
|
| 522 |
|
Investment and other income, net |
|
| 28 |
|
|
| 135 |
|
|
| 0 |
|
|
| 163 |
| ||||||||||||||||
Investment and other income (loss), net |
|
| 88 |
|
|
| (532 | ) |
|
| - |
|
|
| (444 | ) | ||||||||||||||||
Net financing and other revenues |
|
| 2,410 |
|
|
| 638 |
|
|
| 0 |
|
|
| 3,048 |
|
|
| 1,761 |
|
|
| (10 | ) |
|
| - |
|
|
| 1,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
|
| 65 |
|
|
| 0 |
|
|
| 0 |
|
|
| 65 |
|
|
| 291 |
|
|
| - |
|
|
| - |
|
|
| 291 |
|
Operating and administrative expenses |
|
| 579 |
|
|
| 190 |
|
|
| 0 |
|
|
| 769 |
| ||||||||||||||||
Operating and administrative |
|
| 638 |
|
|
| 212 |
|
|
| - |
|
|
| 850 |
| ||||||||||||||||
Voluntary protection contract expenses and insurance losses |
|
| 0 |
|
|
| 207 |
|
|
| 0 |
|
|
| 207 |
|
|
| - |
|
|
| 221 |
|
|
| - |
|
|
| 221 |
|
Total expenses |
|
| 644 |
|
|
| 397 |
|
|
| 0 |
|
|
| 1,041 |
|
|
| 929 |
|
|
| 433 |
|
|
| - |
|
|
| 1,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 1,766 |
|
|
| 241 |
|
|
| 0 |
|
|
| 2,007 |
| ||||||||||||||||
Provision for income taxes |
|
| 406 |
|
|
| 58 |
|
|
| 0 |
|
|
| 464 |
| ||||||||||||||||
Income (loss) before income taxes |
|
| 832 |
|
|
| (443 | ) |
|
| - |
|
|
| 389 |
| ||||||||||||||||
Provision (benefit) for income taxes |
|
| 211 |
|
|
| (111 | ) |
|
| - |
|
|
| 100 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 1,360 |
|
| $ | 183 |
|
| $ | 0 |
|
| $ | 1,543 |
| ||||||||||||||||
Net income (loss) |
| $ | 621 |
|
| $ | (332 | ) |
| $ | - |
|
| $ | 289 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets at September 30, 2021 |
| $ | 130,544 |
|
| $ | 6,571 |
|
| $ | (138 | ) |
| $ | 136,977 |
| ||||||||||||||||
Total assets at September 30, 2022 |
| $ | 128,403 |
|
| $ | 6,077 |
|
| $ | (128 | ) |
| $ | 134,352 |
|
35
36
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 13 – Segment Information (Continued)
|
| Three months ended September 30, 2020 |
|
| Three months ended September 30, 2021 |
| ||||||||||||||||||||||||||
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
|
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
| |||||||
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total financing revenues |
| $ | 2,935 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 2,935 |
|
| $ | 3,032 |
|
| $ | - |
|
| $ | - |
|
| $ | 3,032 |
|
Depreciation on operating leases |
|
| 1,349 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,349 |
|
|
| 1,499 |
|
|
| - |
|
|
| - |
|
|
| 1,499 |
|
Interest expense |
|
| 495 |
|
|
| 0 |
|
|
| 0 |
|
|
| 495 |
|
|
| 423 |
|
|
| - |
|
|
| - |
|
|
| 423 |
|
Net financing revenues |
|
| 1,091 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,091 |
|
|
| 1,110 |
|
|
| - |
|
|
| - |
|
|
| 1,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues and insurance earned premiums |
|
| 0 |
|
|
| 238 |
|
|
| 0 |
|
|
| 238 |
|
|
| - |
|
|
| 254 |
|
|
| - |
|
|
| 254 |
|
Investment and other income, net |
|
| 23 |
|
|
| 67 |
|
|
| 0 |
|
|
| 90 |
| ||||||||||||||||
Investment and other income (loss), net |
|
| 9 |
|
|
| (2 | ) |
|
| - |
|
|
| 7 |
| ||||||||||||||||
Net financing and other revenues |
|
| 1,114 |
|
|
| 305 |
|
|
| 0 |
|
|
| 1,419 |
|
|
| 1,119 |
|
|
| 252 |
|
|
| - |
|
|
| 1,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
|
| 65 |
|
|
| 0 |
|
|
| 0 |
|
|
| 65 |
|
|
| 68 |
|
|
| - |
|
|
| - |
|
|
| 68 |
|
Operating and administrative expenses |
|
| 294 |
|
|
| 95 |
|
|
| 0 |
|
|
| 389 |
|
|
| 287 |
|
|
| 98 |
|
|
| - |
|
|
| 385 |
|
Voluntary protection contract expenses and insurance losses |
|
| 0 |
|
|
| 92 |
|
|
| 0 |
|
|
| 92 |
|
|
| - |
|
|
| 99 |
|
|
| - |
|
|
| 99 |
|
Total expenses |
|
| 359 |
|
|
| 187 |
|
|
| 0 |
|
|
| 546 |
|
|
| 355 |
|
|
| 197 |
|
|
| - |
|
|
| 552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 755 |
|
|
| 118 |
|
|
| 0 |
|
|
| 873 |
|
|
| 764 |
|
|
| 55 |
|
|
| - |
|
|
| 819 |
|
Provision for income taxes |
|
| 189 |
|
|
| 29 |
|
|
| 0 |
|
|
| 218 |
|
|
| 185 |
|
|
| 12 |
|
|
| - |
|
|
| 197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 566 |
|
| $ | 89 |
|
| $ | 0 |
|
| $ | 655 |
|
| $ | 579 |
|
| $ | 43 |
|
| $ | - |
|
| $ | 622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Six months ended September 30, 2020 |
|
| Six months ended September 30, 2021 |
| ||||||||||||||||||||||||||
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
|
|
| Finance |
|
| Voluntary protection |
|
| Intercompany |
|
|
|
| |||||||
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
|
| operations |
|
| operations |
|
| eliminations |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total financing revenues |
| $ | 5,847 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 5,847 |
|
| $ | 6,031 |
|
| $ | - |
|
| $ | - |
|
| $ | 6,031 |
|
Depreciation on operating leases |
|
| 3,034 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,034 |
|
|
| 2,940 |
|
|
| - |
|
|
| - |
|
|
| 2,940 |
|
Interest expense |
|
| 1,043 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,043 |
|
|
| 709 |
|
|
| - |
|
|
| - |
|
|
| 709 |
|
Net financing revenues |
|
| 1,770 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,770 |
|
|
| 2,382 |
|
|
| - |
|
|
| - |
|
|
| 2,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues and insurance earned premiums |
|
| 0 |
|
|
| 473 |
|
|
| 0 |
|
|
| 473 |
|
|
| - |
|
|
| 503 |
|
|
| - |
|
|
| 503 |
|
Investment and other income, net |
|
| 55 |
|
|
| 211 |
|
|
| 0 |
|
|
| 266 |
|
|
| 28 |
|
|
| 135 |
|
|
| - |
|
|
| 163 |
|
Net financing and other revenues |
|
| 1,825 |
|
|
| 684 |
|
|
| 0 |
|
|
| 2,509 |
|
|
| 2,410 |
|
|
| 638 |
|
|
| - |
|
|
| 3,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
|
| 248 |
|
|
| 0 |
|
|
| 0 |
|
|
| 248 |
|
|
| 65 |
|
|
| - |
|
|
| - |
|
|
| 65 |
|
Operating and administrative expenses |
|
| 550 |
|
|
| 184 |
|
|
| 0 |
|
|
| 734 |
| ||||||||||||||||
Operating and administrative |
|
| 579 |
|
|
| 190 |
|
|
| - |
|
|
| 769 |
| ||||||||||||||||
Voluntary protection contract expenses and insurance losses |
|
| 0 |
|
|
| 167 |
|
|
| 0 |
|
|
| 167 |
|
|
| - |
|
|
| 207 |
|
|
| - |
|
|
| 207 |
|
Total expenses |
|
| 798 |
|
|
| 351 |
|
|
| 0 |
|
|
| 1,149 |
|
|
| 644 |
|
|
| 397 |
|
|
| - |
|
|
| 1,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 1,027 |
|
|
| 333 |
|
|
| 0 |
|
|
| 1,360 |
|
|
| 1,766 |
|
|
| 241 |
|
|
| - |
|
|
| 2,007 |
|
Provision for income taxes |
|
| 251 |
|
|
| 80 |
|
|
| 0 |
|
|
| 331 |
|
|
| 406 |
|
|
| 58 |
|
|
| - |
|
|
| 464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 776 |
|
| $ | 253 |
|
| $ | 0 |
|
| $ | 1,029 |
|
| $ | 1,360 |
|
| $ | 183 |
|
| $ | - |
|
| $ | 1,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets at September 30, 2020 |
| $ | 125,277 |
|
| $ | 5,925 |
|
| $ | (135 | ) |
| $ | 131,067 |
| ||||||||||||||||
Total assets at September 30, 2021 |
| $ | 130,544 |
|
| $ | 6,571 |
|
| $ | (138 | ) |
| $ | 136,977 |
|
37
36
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 13 – Segment Information (Continued)
Voluntary protection operations – Contract revenues
For the three and six months ended September 30, 2022 and 2021, and 2020, approximately 8283 percent and 8382 percent, respectively, of voluntary protection contract revenues in the Voluntary protection operations segment were accounted for under the guidance for revenue from contracts with customers.
The Voluntary protection operations segment defers contractually determined incentives paid to dealers as contract costs for selling voluntary protection products. These costs are recorded in Other assets on our Consolidated Balance Sheets and are amortized to Operating and administrative expenses in the Consolidated Statements of Income using a methodology consistent with the recognition of revenue. The amount of capitalized dealer incentives and the related amortization was not significant to our consolidated financial statements as of and for the three and six months ended September 30, 20212022 and 2020.2021.
We had $2.4$2.5 billion and $2.5$2.7 billion of unearned voluntary protection contract revenues from contracts with customers included in Other liabilities on our Consolidated Balance Sheets as of March 31, 20202021 and March 31, 2021,2022, respectively. We recognized $182$200 million and $374$400 million of these balances in voluntary protection contract revenues in our Consolidated Statements of Income during the three and six months ended September 30, 2021,2022, respectively, compared to $180$182 million and $368$374 million recognized during the same periods in fiscal 2021.2022. As of September 30, 2021,2022, we had unearned voluntary protection contract revenues of $2.6$2.8 billion included in Other liabilities on our Consolidated Balance Sheets, and with respect to this balance we expect to recognize revenue of $389$414 million during fiscal 20222023, and $2.2$2.4 billion thereafter.thereafter. At September 30, 2020,2021, we had unearned voluntary protection contract revenues of $2.4$2.6 billion associated with outstanding contracts.
38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this Form 10-Q are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in “Part II. Other Information – Item 1A. Risk Factors” and “Item 1A. Risk Factors” of our Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 20212022 (“fiscal 2021”2022”), including the following:
Risks related to health epidemics and other outbreaks; Changes in general business, economic, and geopolitical conditions, including trade policy, as well as in consumer demand and the competitive environment in the automotive markets in the United States; A decline in Toyota Motor North America, Inc. (“TMNA”) or any private label sales volume and the level of TMNA or any private label sponsored subvention, cash, and contractual residual value support incentive programs; Extreme weather conditions, natural disasters, changes in fuel prices, manufacturing disruptions and production suspensions of Toyota, Lexus, and private label vehicles and related parts supply; Increased competition from other financial institutions seeking to increase their share of financing Toyota, Lexus, and private label vehicles; Changes in consumer behavior; Recalls announced by TMNA or private label companies and the perceived quality of Toyota, Lexus, and any private label vehicles; Availability and cost of financing; Failure or interruption in our operations, including our communications and information systems, or as a result of our failure to retain existing or to attract new key personnel; Increased cost, credit and operating risk exposure, or our failure to realize the anticipated benefits, from our private label financial services to third-party automotive and mobility companies, including Mazda and Bass Pro Shops; Changes in our credit ratings and those of our ultimate parent, Toyota Motor Corporation (“TMC”) and changes in our credit support arrangements; 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; Flaws in the design, implementation and use of quantitative models and revisions to the estimates and assumptions that are used to determine the value of certain assets; Fluctuations in the value or market prices of our investment securities; 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 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 voluntary protection operations; Changes to existing, or adoption of new, accounting standards; A security breach or a cyber-attack; 39 Failure to maintain compliant enterprise data practices, including the collection, use, sharing, and security of personally identifiable and financial information of our customers and employees; Compliance with current laws and regulations or becoming subject to more stringent laws, regulatory requirements and regulatory scrutiny; and Changes in the economies and applicable laws in the states where we have concentration risk. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
40
OVERVIEW
Key Performance Indicators and Factors Affecting Our Business
In our finance operations, we generate revenue, income, and cash flows by providing retail, lease, and dealer financing to dealers and their customers. We measure the performance of our finance operations using the following metrics: financing volume, market share, netNet financing revenues, operatingOperating and administrative expense, residual value and credit loss metrics.
In our voluntary protection operations, we generate revenue primarily through marketing, underwriting, and providing claims administration for products that cover certain risks of customers. We measure the performance of our voluntary protection operations using the following metrics: issued contract volume, average number of contracts 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 private label new vehicle production and sales volume, vehicle inventory levels, vehicle sales and financing incentive programs, 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 private label vehicles, the financial health of the dealers we finance, and competitive pressure. Our financial results may also be affected by the regulatory environment in which we operate, including as a result of new legislation or changes in regulation and any compliance costs or changes we may be required to make to our business practices. All of these factors can influence consumer contract and dealer financing volume, the number of consumer contracts and dealers 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 voluntary protection operations, and our netNet financing revenues on consumer and dealer financing volume. Changes in the volume of vehicle sales, sales of our voluntary protection products, or the level of voluntary protection expenses and insurance losses could materially and adversely impact our voluntary protection 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.
41
Fiscal 20222023 First Six Months Operating Environment
During the first half of the fiscal year ending March 31, 20222023 (“fiscal 2022”2023”), the United States (“U.S.”) economy continued to be impacted by the global coronavirus and related variants (“COVID-19”) pandemic and the extraordinary governmental measures intendedconflict in Ukraine, in addition to slow its spread. In conjunction with increases in vaccination ratesinflationary pressures and the easing of restrictive measures in the current fiscal year, there has been improvement in unemployment levels and consumer confidence from fiscal 2021 pandemic lows, but neither have returned to pre-pandemic levels. There remains uncertainty around the duration and the severity of the COVID-19 pandemic, the timing and strength of the economy’s recovery, and the impacts of government support and lender relief programs ending. In addition, along with the reopening of the US economy, inflation has increased in fiscal 2022 from pandemic lows in fiscal 2021. The impact of the COVID-19 pandemic on our future operations is difficult to predict, but the curtailment of economic activities as a result of further outbreak of COVID-19, extended or additional government restrictions intended to slow the spread of the virus, ending of government support programs, delayed consumer response to the lifting of restrictive measures, or permanent behavior changes in consumer spending could have further negative impact on consumer economics, dealerships, and auction sites, which could have a material adverse impact on our business, financial condition, and future results of operations. In addition, changes in the economy that adversely impact the consumer, such as inflation, higher interest rates, elevated debt levels and an increase in unemployment from the current levels could adversely impact our results of operations.
Economicrates. The ongoing challenging economic conditions caused by the COVID-19 pandemic and geopolitical conflicts, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistics networks, have resulted in a decrease in dealerthe availability of new vehicles from pre-pandemic levels. The lack of availability of new vehicles resulted in decreases in industry-wide vehicle inventory levels. This includessales and sales incentives in the global shortageU.S. the first half of semiconductor chips and other parts and raw materials the automotive industry continues to face. The duration and severity of the supply chain disruptions and shortages, including but not limitedfiscal 2023, compared to the semiconductor chips, are difficultsame period in fiscal 2022. For more information regarding the potential impact of current market conditions, refer to predict, but should these persist or become more severe,Part I. Item 1A. Risk Factors in our Form 10-K for the negative impact to the manufacturers’ vehicle production and new dealer inventory levels could adversely impact our results of operations. fiscal year ended March 31, 2022.
Average used vehicle values continued to increase in the first half of fiscal 20222023 remained elevated compared to historically highhistorical levels, primarily due to the lack of availability of new vehicles. Future declines in used vehicle values resulting from increases in the supply of new and used vehicles and increases in new vehicle sales incentives could unfavorably impact return rates, residual values, depreciation expense and credit losses in the future.
Conditions inDuring the first half of fiscal 2023, the global capital markets were generally stableexperienced periods of heightened volatility in response to the ongoing conflict in Ukraine, increases in the inflation rate, and uncertainty regarding the path of U.S. monetary policy. U.S. benchmark interest rates and credit spreads both increased during the first half of the fiscal 2022, as the economy and capital markets continuedyear. While we continue to recover from the COVID-19 pandemic. We maintain broad global access to both domestic and international markets. However, uncertainty regarding the course of the pandemic or future changes in U.S. monetary policymarkets, these events could causelead to further disruptions in the capital markets and increaseincreases in our funding costs during the remainder of the fiscal year.costs. Future changes in interest rates in the U.S. and foreign markets could result in volatility in our interest expense, which could affect our results of operations.
42
RESULTS OF OPERATIONS
The following table summarizes total net income by our reportable operating segments:
|
| Three months ended |
|
| Six months ended |
|
| Three months ended |
| Six months ended |
| |||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
(Dollars in millions) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Finance operations 1 |
| $ | 579 |
|
| $ | 566 |
|
| $ | 1,360 |
|
| $ | 776 |
|
| $ | 231 |
|
| $ | 579 |
|
| $ | 621 |
|
| $ | 1,360 |
|
Voluntary protection operations 1 |
|
| 43 |
|
|
| 89 |
|
|
| 183 |
|
|
| 253 |
|
|
| (112 | ) |
|
| 43 |
|
|
| (332 | ) |
|
| 183 |
|
Total net income |
| $ | 622 |
|
| $ | 655 |
|
| $ | 1,543 |
|
| $ | 1,029 |
|
| $ | 119 |
|
| $ | 622 |
|
| $ | 289 |
|
| $ | 1,543 |
|
1 Refer to Note 13 - Segment Information of the Notes to Consolidated Financial Statements for the total asset balances of our finance and voluntary protection operations.
|
|
Our consolidated net income was $1,543$289 million and $622$119 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $1,029$1,543 million and $655$622 million for the same periods in fiscal 2021.2022. The increasedecrease in net income for the first half of fiscal 2022,2023, compared to the same period in fiscal 2021,2022, was primarily due to a $334 million decrease in interest expense, a $184 million increase in total financing revenues, a $183 million decrease in provision for credit losses, and a $94 million decrease in depreciation on operating leases, partially offset by a $133 million increase in provision for income taxes, a $103$607 million decrease in investment and other income, net, and a $40$559 million increase in voluntary protection contract expensesinterest expense, a $376 million decrease in total financing revenues, a $226 million increase in provision for credit losses, and insurance losses.an $81 million increase in operating and administrative expense, partially offset by a $364 million decrease in provision for income taxes, and a $226 million decrease in depreciation on operating leases. The decrease in net income for the second quarter of fiscal 2022,2023, compared to the same period in fiscal 2021,2022, was primarily due to a $150$282 million increase in depreciation on operating leases and an $83interest expense, a $208 million decrease in total financing revenues, a $145 million decrease in investment and other income, net, a $145 million increase in provision for credit losses, and a $59 million increase in operating and administrative expense, partially offset by a $97 million increase in total financing revenues, a $72$194 million decrease in interest expense,depreciation on operating leases, and a $21$148 million decrease in provision for income taxes.
Our overall capital position increased $1.5$0.2 billion, bringing total shareholder’s equity to $17.1$18.3 billion at September 30, 20212022 as compared to $15.6$18.1 billion at March 31, 2021.2022. Our debt increaseddecreased to $111.7$108.9 billion at September 30, 20212022 from $109.7$109.2 billion at March 31, 2021.2022. Our debt-to-equity ratio decreased to 6.55.9 at September 30, 20212022 from 7.06.0 at March 31, 2021.2022.
43
Finance Operations
The following table summarizes key results of our finance operations:
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| Three months ended |
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| Six months ended |
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| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
| September 30, |
|
| Percentage | ||||||||||||||||||||||
(Dollars in millions) |
| 2021 |
|
| 2020 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| change |
|
| 2022 |
|
| 2021 |
|
| Change |
| 2022 |
|
| 2021 |
|
| change | ||||||||||
Financing revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease |
| $ | 2,128 |
|
| $ | 2,114 |
|
|
| 1 | % |
| $ | 4,248 |
|
| $ | 4,243 |
|
| -% |
|
| $ | 1,817 |
|
| $ | 2,128 |
|
| (15)% |
| $ | 3,717 |
|
| $ | 4,248 |
|
| (13)% | |
Retail |
|
| 821 |
|
|
| 723 |
|
|
| 14 | % |
|
| 1,612 |
|
|
| 1,395 |
|
|
| 16 | % |
|
| 900 |
|
|
| 821 |
|
| 10% |
|
| 1,745 |
|
|
| 1,612 |
|
| 8% |
Dealer |
|
| 83 |
|
|
| 98 |
|
|
| (15 | )% |
|
| 171 |
|
|
| 209 |
|
|
| (18 | )% |
|
| 107 |
|
|
| 83 |
|
| 29% |
|
| 193 |
|
|
| 171 |
|
| 13% |
Total financing revenues |
|
| 3,032 |
|
|
| 2,935 |
|
|
| 3 | % |
|
| 6,031 |
|
|
| 5,847 |
|
|
| 3 | % |
|
| 2,824 |
|
|
| 3,032 |
|
| (7)% |
|
| 5,655 |
|
|
| 6,031 |
|
| (6)% |
Depreciation on operating leases |
|
| 1,499 |
|
|
| 1,349 |
|
|
| 11 | % |
|
| 2,940 |
|
|
| 3,034 |
|
|
| (3 | )% |
|
| 1,305 |
|
|
| 1,499 |
|
| (13)% |
|
| 2,714 |
|
|
| 2,940 |
|
| (8)% |
Interest expense |
|
| 423 |
|
|
| 495 |
|
|
| (15 | )% |
|
| 709 |
|
|
| 1,043 |
|
|
| (32 | )% |
|
| 705 |
|
|
| 423 |
|
| 67% |
|
| 1,268 |
|
|
| 709 |
|
| 79% |
Net financing revenues |
|
| 1,110 |
|
|
| 1,091 |
|
|
| 2 | % |
|
| 2,382 |
|
|
| 1,770 |
|
|
| 35 | % |
|
| 814 |
|
|
| 1,110 |
|
| (27)% |
|
| 1,673 |
|
|
| 2,382 |
|
| (30)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investment and other income, net |
|
| 9 |
|
|
| 23 |
|
|
| (61 | )% |
|
| 28 |
|
|
| 55 |
|
|
| (49 | )% |
|
| 55 |
|
|
| 9 |
|
| 511% |
|
| 88 |
|
|
| 28 |
|
| 214% |
Net financing and other revenues |
|
| 1,119 |
|
|
| 1,114 |
|
|
| - | % |
|
| 2,410 |
|
|
| 1,825 |
|
|
| 32 | % |
|
| 869 |
|
|
| 1,119 |
|
| (22)% |
|
| 1,761 |
|
|
| 2,410 |
|
| (27)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provision for credit losses |
|
| 68 |
|
|
| 65 |
|
|
| 5 | % |
|
| 65 |
|
|
| 248 |
|
|
| (74 | )% |
|
| 213 |
|
|
| 68 |
|
| 213% |
|
| 291 |
|
|
| 65 |
|
| 348% |
Operating and administrative expenses |
|
| 287 |
|
|
| 294 |
|
|
| (2 | )% |
|
| 579 |
|
|
| 550 |
|
|
| 5 | % | ||||||||||||||||||||
Operating and administrative |
|
| 339 |
|
|
| 287 |
|
| 18% |
|
| 638 |
|
|
| 579 |
|
| 10% | ||||||||||||||||||||||||
Total expenses |
|
| 355 |
|
|
| 359 |
|
|
| (1 | )% |
|
| 644 |
|
|
| 798 |
|
|
| (19 | )% |
|
| 552 |
|
|
| 355 |
|
| 55% |
|
| 929 |
|
|
| 644 |
|
| 44% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 764 |
|
|
| 755 |
|
|
| 1 | % |
|
| 1,766 |
|
|
| 1,027 |
|
|
| 72 | % |
|
| 317 |
|
|
| 764 |
|
| (59)% |
|
| 832 |
|
|
| 1,766 |
|
| (53)% |
Provision for income taxes |
|
| 185 |
|
|
| 189 |
|
|
| (2 | )% |
|
| 406 |
|
|
| 251 |
|
|
| 62 | % |
|
| 86 |
|
|
| 185 |
|
| (54)% |
|
| 211 |
|
|
| 406 |
|
| (48)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income from finance operations |
| $ | 579 |
|
| $ | 566 |
|
|
| 2 | % |
| $ | 1,360 |
|
| $ | 776 |
|
|
| 75 | % |
| $ | 231 |
|
| $ | 579 |
|
| (60)% |
| $ | 621 |
|
| $ | 1,360 |
|
| (54)% |
Our finance operations reported net income of $1,360$621 million and $579$231 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $776$1,360 million and $566$579 million for the same periods in fiscal 2021.2022. The increasedecrease in net income from finance operations for the first half of fiscal 2022,2023, compared to the same period in fiscal 20212022 was primarily due to a $334$559 million decreaseincrease in interest expense, a $184$376 million increasedecrease in total financing revenues, and a $183$226 million decreaseincrease in provision for credit losses, andpartially offset by a $94$226 million decrease in depreciation on operating leases partially offset byand a $155$195 million increasedecrease in provision for income taxes, a $29 million increase in operating and administrative expenses, and a $27 milliontaxes. The decrease in investment and other income, net. The increase in net income from finance operations for the second quarter of fiscal 2022,2023, compared to the same period in fiscal 20212022 was primarily due to a $97$282 million increase in interest expense, a $208 million decrease in total financing revenues, and a $72$145 million decreaseincrease in interest expense,provision for credit losses, partially offset by a $150$194 million increasedecrease in depreciation on operating leases.leases, and a $99 million decrease in provision for income taxes.
Financing Revenues
Total financing revenues increased 3decreased 6 percent and 7 percent during the first half and second quarter of fiscal 2023, as compared to the same periods in fiscal 2022 due to the following:
first half and second quarter of fiscal 2023, respectively, as compared to the same periods in fiscal 2022, primarily due to higher yields.
|
|
|
|
|
|
As a result of the above, our total portfolio yield, which includes operating lease, retail and dealer financing revenues, was 5.14.8 percent and 5.0 percent for the first half and second quarter of fiscal 2022,2023, respectively, compared to 5.1 percent, and 5.7 percentrespectively, for the same periods in fiscal 2021.2022.
44
Depreciation on Operating Leases
We reportedrecorded depreciation on operating leases of $2,940$2,714 million and $1,305 million for the first half and second quarter of fiscal 2022,2023, compared to $3,034$2,940 million and $1,499 million for the same periodperiods in fiscal 2021,2022, primarily due to lower residual value losses as a result of an increase in average used vehicle values. We reported depreciation on operating leases of $1,499 million for the second quarter of fiscal 2022, compared to $1,349 million for the same period in fiscal 2021. In the second quarter of fiscal 2021, average used vehicle values increased compared to the previously expected values which resulted in lower residual value losses for the period. lease units outstanding.
The ongoing challenging economic conditions caused by the COVID-19 pandemic, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistics networks, have resulted in a decrease in the availability of new vehicles which has led tofrom pre-pandemic levels. The lower levels of new vehicle inventory and higher off-lease vehicle purchases by dealers duehave led to increasedhistorically high levels of average used vehicle values. Declines in used vehicle values resulting from increases in the supply of new vehicles and decreasedincreases in new vehicle inventory supply.sales incentives could unfavorably impact return rates, residual values, and depreciation expense in the future.
Interest Expense
Our liabilities consist mainly of fixed and variable 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 and foreign currency swaps to economically hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. The following table summarizes the components of interest expense:
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| Three months ended |
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| Six months ended |
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|
| September 30, |
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| September 30, |
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| September 30, |
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| September 30, |
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(Dollars in millions) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Interest expense on debt |
| $ | 382 |
|
| $ | 495 |
|
| $ | 771 |
|
| $ | 1,071 |
|
| $ | 623 |
|
| $ | 382 |
|
| $ | 1,069 |
|
| $ | 771 |
|
Interest expense on derivatives |
|
| 48 |
|
|
| 122 |
|
|
| 114 |
|
|
| 231 |
| ||||||||||||||||
Interest (income) expense on derivatives |
|
| (120 | ) |
|
| 48 |
|
|
| (182 | ) |
|
| 114 |
| ||||||||||||||||
Interest expense on debt and derivatives |
|
| 430 |
|
|
| 617 |
|
|
| 885 |
|
|
| 1,302 |
|
|
| 503 |
|
|
| 430 |
|
|
| 887 |
|
|
| 885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Gains) losses on debt denominated in foreign currencies |
|
| (287 | ) |
|
| 500 |
|
|
| (277 | ) |
|
| 1,048 |
| ||||||||||||||||
Losses (gains) on foreign currency swaps |
|
| 333 |
|
|
| (503 | ) |
|
| 358 |
|
|
| (1,096 | ) | ||||||||||||||||
Gains on U.S. dollar interest rate swaps |
|
| (53 | ) |
|
| (119 | ) |
|
| (257 | ) |
|
| (211 | ) | ||||||||||||||||
Gains on debt denominated in foreign currencies |
|
| (590 | ) |
|
| (287 | ) |
|
| (1,181 | ) |
|
| (277 | ) | ||||||||||||||||
Losses on foreign currency swaps |
|
| 743 |
|
|
| 333 |
|
|
| 1,456 |
|
|
| 358 |
| ||||||||||||||||
Losses (gains) on U.S. dollar interest rate swaps |
|
| 49 |
|
|
| (53 | ) |
|
| 106 |
|
|
| (257 | ) | ||||||||||||||||
Total interest expense |
| $ | 423 |
|
| $ | 495 |
|
| $ | 709 |
|
| $ | 1,043 |
|
| $ | 705 |
|
| $ | 423 |
|
| $ | 1,268 |
|
| $ | 709 |
|
During the first half and second quarter of fiscal 2022,2023, total interest expense decreasedincreased to $1,268 million and $705 million, respectively, from $709 million and $423 million, respectively, from $1,043 million and $495 million for the same periods in fiscal 2021.2022. The decreaseincrease in total interest expense for the first half of fiscal 20222023, compared to the same period in fiscal 20212022 is primarily attributable to a decrease in interest expense on debt and derivatives combined and higher gains on the U.S. dollar interest rate swaps, partially offset by losses on foreign currency swaps net of gains from debt denominated in foreign currencies. The decrease in total interest expense for the second quarter of fiscal 2022, compared to the same period in fiscal 2021 is primarily attributable to decrease in interest expense on debt and derivatives combined, partially offset by lower gains on U.S. dollar interest rate swaps and losses on foreign currency swaps net of gains from debt denominated in foreign currencies. The increase in total interest expense for the second quarter of fiscal 2023, compared to the same period in fiscal 2022 is primarily attributable to losses on U.S. dollar interest rate swaps, losses on foreign currency swaps net of gains from debt denominated in foreign currencies, and an increase in interest expense on debt.
Interest expense on debt and derivatives primarily represents contractual net interest settlements and changes in accruals on secured and unsecured notes and loans payable and derivatives, and includes amortization of discounts, premiums, and debt issuance costs. During the first half and second quarter of fiscal 2022,2023, interest expense on debt and derivatives decreasedcombined increased to $887 million and $503 million, respectively, from $885 million and $430 million from $1,302 million and $617 million for the same periods in fiscal 2021.2022. The decreaseincrease in interest expense on debt is due to a decreasean increase in weighted average interest rates, partially offset by an increasea decrease in portfolio size.average debt outstanding. The decrease in interest expense on derivatives is primarily due to a decrease in interest expense on pay-fixed swaps, partially offset by an increase in interest expense on pay-float swaps..
Gains or losses on debt denominated in foreign currencies represent the impact of translation adjustments. We use foreign currency swaps to economically hedge the debt denominated in foreign currencies. During the first half and second quarter of fiscal 2022,2023, we recorded net losses of $275 million and $153 million, respectively, compared to $81 million and $46 million, respectively,for the same periods in fiscal 2022, primarily as a result ofdue to increases in foreign currency swap rates across various currencies in which our debt is denominated. During the first half and second quarter of fiscal 2021, we recorded net gains of $48 million and $3 million, respectively, primarily as a result of decreases in foreign currency swap rates across various currencies in which our debt is denominated.
45
Gains or losses on U.S. dollar interest rate swaps represent the change in the valuation of interest rate swaps. During the first half and second quarter of fiscal 2023, we recorded losses of $106 million and $49 million, respectively, as losses on pay-float swaps exceeded gains on pay-fixed swaps, primarily due to increases in U.S. dollar swap rates. During the first half and second quarter of fiscal 2022, we recorded gains of $257 million and $53 million, respectively, as the impact from net interest income outweighed the impact attributable to the shifting of U.S. dollar swap rates. During the first half and second quarter of fiscal 2021, we recorded gains of $211 million and $119 million, respectively, as the impact from net interest income outweighed the losses attributed to the downward shift of U.S. dollar swap rates.
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.
Investment and Other Income, Net
We recorded investment and other income, net of $28$88 million and $9$55 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $55$28 million and $23$9 million for the same periods in fiscal 2021.2022. The decreaseincrease in investment and other income, net for the first half and second quarter of fiscal 2022,2023, compared to the same periods in fiscal 2021,2022, was primarily due to lower average balances inhigher yields on our cash equivalents and investment in marketable securities portfolio.
Provision for Credit Losses
We recorded a provision for credit losses of $291 million and $213 million for the first half and second quarter of fiscal 2023, respectively, compared to a provision for credit losses of $65 million and $68 million for the same periods in fiscal 2022. The increase in the provision for credit losses for the first half and second quarter of fiscal 2022, respectively,2023, compared to a provision for credit losses of $248 million and $65 million for the same periods in fiscal 2021. During2022, was primarily due to the first half of fiscal 2022, the provision for credit losses increased slightly as the growthincrease in size of our retail loan portfolio was largely offset by the improvementand an increase in the financial performance of our dealers. In contrast, in the first half of fiscal 2021, we increased the expected credit losses for our retail loan portfolio due to a decline in economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, which resulted in stay-at-home orders, increased unemployment, and decreased consumer spending.delinquencies.
Operating and Administrative Expenses
We recorded operating and administrative expenses of $579$638 million and $287$339 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $550$579 million and $294$287 million for the same periods in fiscal 2021.2022. The increase in operating and administrative expenses for the first half and second quarter of fiscal 2022,2023, compared to the same periodperiods in fiscal 2021,2022, respectively, was primarily due to an increase inhigher technology expenses and employee expenses. The decrease in operating and administrative expenses for the second quarter of fiscal 2022 compared to the same period in fiscal 2021, was primarily due to a decrease in general operating expenses and technology expenses.
46
Voluntary Protection Operations
The following table summarizes key results of our voluntary protection operations:
|
| Three months ended |
|
|
|
|
|
| Six months ended |
|
|
|
|
|
| Three months ended |
|
|
|
| Six months ended |
|
|
| ||||||||||||||||||||
|
| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
| September 30, |
|
| Percentage | ||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| change |
|
| 2022 |
|
| 2021 |
|
| Change |
| 2022 |
|
| 2021 |
|
| change | ||||||||||
Contracts (units in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Issued |
|
| 796 |
|
|
| 714 |
|
|
| 11 | % |
|
| 1,692 |
|
|
| 1,211 |
|
|
| 40 | % |
|
| 756 |
|
|
| 796 |
|
| (5)% |
|
| 1,526 |
|
|
| 1,692 |
|
| (10)% |
Average in force |
|
| 9,942 |
|
|
| 9,434 |
|
|
| 5 | % |
|
| 9,732 |
|
|
| 9,414 |
|
|
| 3 | % |
|
| 10,329 |
|
|
| 9,942 |
|
| 4% |
|
| 10,180 |
|
|
| 9,732 |
|
| 5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract revenues and insurance earned premiums |
| $ | 254 |
|
| $ | 238 |
|
|
| 7 | % |
| $ | 503 |
|
| $ | 473 |
|
|
| 6 | % |
| $ | 263 |
|
| $ | 254 |
|
| 4% |
| $ | 522 |
|
| $ | 503 |
|
| 4% |
Investment and other (loss) income, net |
|
| (2 | ) |
|
| 67 |
|
|
| (103 | )% |
|
| 135 |
|
|
| 211 |
|
|
| (36 | )% |
|
| (193 | ) |
|
| (2 | ) |
| 9550% |
|
| (532 | ) |
|
| 135 |
|
| (494)% |
Revenues from voluntary protection operations |
|
| 252 |
|
|
| 305 |
|
|
| (17 | )% |
|
| 638 |
|
|
| 684 |
|
|
| (7 | )% |
|
| 70 |
|
|
| 252 |
|
| (72)% |
|
| (10 | ) |
|
| 638 |
|
| (102)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Voluntary protection contract expenses and insurance losses |
|
| 99 |
|
|
| 92 |
|
|
| 8 | % |
|
| 207 |
|
|
| 167 |
|
|
| 24 | % |
|
| 114 |
|
|
| 99 |
|
| 15% |
|
| 221 |
|
|
| 207 |
|
| 7% |
Operating and administrative expenses |
|
| 98 |
|
|
| 95 |
|
|
| 3 | % |
|
| 190 |
|
|
| 184 |
|
|
| 3 | % | ||||||||||||||||||||
Operating and administrative |
|
| 105 |
|
|
| 98 |
|
| 7% |
|
| 212 |
|
|
| 190 |
|
| 12% | ||||||||||||||||||||||||
Total expenses |
|
| 197 |
|
|
| 187 |
|
|
| 5 | % |
|
| 397 |
|
|
| 351 |
|
|
| 13 | % |
|
| 219 |
|
|
| 197 |
|
| 11% |
|
| 433 |
|
|
| 397 |
|
| 9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
| 55 |
|
|
| 118 |
|
|
| (53 | )% |
|
| 241 |
|
|
| 333 |
|
|
| (28 | )% | ||||||||||||||||||||
Provision for income taxes |
|
| 12 |
|
|
| 29 |
|
|
| (59 | )% |
|
| 58 |
|
|
| 80 |
|
|
| (28 | )% | ||||||||||||||||||||
(Loss) income before income taxes |
|
| (149 | ) |
|
| 55 |
|
| (371)% |
|
| (443 | ) |
|
| 241 |
|
| (284)% | ||||||||||||||||||||||||
(Benefit) provision for income taxes |
|
| (37 | ) |
|
| 12 |
|
| (408)% |
|
| (111 | ) |
|
| 58 |
|
| (291)% | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income from voluntary protection operations |
| $ | 43 |
|
| $ | 89 |
|
|
| (52 | )% |
| $ | 183 |
|
| $ | 253 |
|
|
| (28 | )% | ||||||||||||||||||||
Net (loss) income from voluntary protection operations |
| $ | (112 | ) |
| $ | 43 |
|
| (360)% |
| $ | (332 | ) |
| $ | 183 |
|
| (281)% |
Our voluntary protection operations reported net loss of $332 million and $112 million for the first half and second quarter of fiscal 2023, respectively, compared to net income of $183 million and $43 million for the first half and second quarter of fiscal 2022, respectively, compared to $253 million and $89 million for the same periods in fiscal 2021.2022. The decrease in net income from voluntary protection operations for the first half of fiscal 2022,2023, compared to the same period in fiscal 2021,2022, was primarily due to a $76$667 million decrease in investment and other (loss) income, net, and a $40$22 million increase in voluntary protection contractoperating and administrative expenses, and insurance losses, partially offset by a $30 million increase in voluntary protection contract revenues and insurance earned premiums and a $22$169 million decrease in provision for income taxes. The decrease in net income from voluntary protection operations for the second quarter of fiscal 2022,2023, compared to the same periodperiods in fiscal 2021,2022, was primarily due to a $69$191 million decrease in investment and other (loss) income, net, and a $15 million increase in voluntary protection contract expenses and insurance losses, partially offset by a $17$49 million decrease in provision for income taxes and a $16 million increase in voluntary protection contract revenues and insurance earned premiums. taxes.
Contracts issued increased 40decreased 10 percent and 115 percent in the first half and second quarter of fiscal 2022,2023, respectively, compared to the same periods in fiscal 2021. The higher contract issuances was mainly2022, primarily due to the continued growtha decrease in financing contract volumes as a result of our private label services and our issuances were negatively impacted in fiscal year 2021 by the decline in economic conditions caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19. The average number of contracts in force increased 3 percent for the first half of fiscal 2022, compared to the same period in fiscal 2021, due to net growth in the voluntary protection portfolio in recent prior years, most notably in guaranteed auto protection, prepaid maintenance, and tire and wheel contracts.lower new vehicles inventory levels. The average number of contracts in force increased 5 percent and 4 percent for the first half and second quarter of fiscal 2022,2023, respectively, compared to the same periodperiods in fiscal 2021,2022, due to net growth in the voluntary protection portfolio in recentcompared to prior years, most notablyprimarily in guaranteed auto protection, prepaid maintenance and vehicle serviceservices contracts.
Revenue from Voluntary Protection Operations
Our voluntary protection operations reported voluntary protection contract revenues and insurance earned premiums of $503$522 million and $254$263 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $473$503 million and $238$254 million for the same periods in fiscal 2021.2022. Voluntary protection contract revenues and insurance earned premiums represent revenues from in force contracts and are affected by issuances as well as the level of coverage, age, and mix of in force contracts. Voluntary protection contract revenues and insurance earned premiums are recognized over the term of the contracts in relation to the timing and level of anticipated claims. The increase in voluntary protection contract revenues and insurance earned premiums for the first half and second quarter of fiscal 2022,2023, compared to the same periods in fiscal 2021,2022, was primarily due to an increase in our average in force contracts resulting from net growth in the voluntary protection portfolio growth fromcompared to prior yearsyears..
47
Investment and Other (Loss) Income, Net
Our voluntary protection operations reported investment and other loss, net of $532 million and $193 million the first half and second quarter of fiscal 2023, respectively, compared to investment and other income, net of $135 million for the first half of fiscal 2022, compared to $211 million for the same period in fiscal 2021. Our voluntary protection operations reportedand investment and other loss, net of $2 million for the second quarter of fiscal 2022, compared to investment and other income, net of $67 million for the same period in fiscal 2021.2022. Investment and other (loss) income, net, consists primarily of dividend and interest income, realized gains and losses on investments in marketable securities, changes in fair value from equity and available-for-sale debt securities for which the fair value option was elected, and credit loss expense on available-for-sale debt securities, if any. The decrease in investment and other (loss) income, net for the first half and second quarter of fiscal 2022,2023, compared to the same periodperiods in fiscal 2021, was primarily due to losses from changes in fair value on our equity securities and from sales of fixed income securities, partially offset by increased interest income and gains from changes in fair value on our fixed income securities for which the fair value option was elected. The decrease in investment and other income, net the second quarter of fiscal 2022, compared to the same period in fiscal 2021, was primarily due to losses from changes in fair value on our equity investments and our fixed incomeavailable-for-sale debt securities for which the fair value option was elected partially offset by increased interest income.and losses from sales of marketable securities as a result of market volatility. Should market volatility persist or become more severe, it could continue to negatively impact results from voluntary protection operations.
Voluntary Protection Contract Expenses and Insurance Losses
Our voluntary protection operations reported voluntary protection contract expenses and insurance losses of $207$221 million and $99$114 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $167$207 million and $92$99 million for the same periods in fiscal 2021.2022. Voluntary protection contract expenses and insurance losses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with in force contracts and the level of risk retained by our voluntary protection operations. Voluntary protection contract expenses and insurance losses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses. The increase in voluntary protection contract expenses and insurance losses for the first half and second quarter of fiscal 2022,2023, compared to the same periods in fiscal 2021,2022, was primarily due to an increase in frequency of claims in our prepaid maintenance and tire and wheel contracts, and an increase in severity of claims in our vehicle service contracts and tire and wheel contracts. Our voluntaryThese increases were partially offset by a decrease in frequency and severity of claims in guaranteed auto protection contract expenses and insurance losses in fiscal 2021 were impacted by lower claims as a result of changes in consumer driving patterns caused by the COVID-19 pandemic, including restrictions and other changes in behavior.contracts.
Operating and Administrative Expenses
Our voluntary protection operations operating and administrative expenses increased to $190$212 million and $98$105 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $184$190 million and $95$98 million for the same periods in fiscal 2021. 2022. The increase in operating and administrative expenses for the first half and second quarter of fiscal 2023, compared to the same periods in fiscal 2022, was primarily attributable to higher product expenses driven by the continued growth of our voluntary protection product business.
48
Provision for Income Taxes
We recorded a provision for income taxes of $464$100 million and $197$49 million for the first half and second quarter of fiscal 2022,2023, respectively, compared to $331$464 million and $218$197 million for the same periods in fiscal 2021.2022. Our effective tax rate was 2326 percent and 2429 percent for the first half and second quarter of fiscal 2022, respectively,2023, compared to 2423 percent and 2524 percent for the same periods in fiscal 2021.2022. The changedecrease in the provision for income taxes for the first half and second quarter of fiscal 2022,2023, compared to the same periods in fiscal 2021,2022, was primarily due to the changedecrease in income before income taxes. The change in ourhigher effective tax rate for the first half and second quarter of fiscal 2022,2023, compared to the same periods in fiscal 2021,2022, was primarily attributable to the tax benefit fromdecrease in federal plug-in vehicle credits and the federal tax credits recognizedincrease in fiscal 2022 as well as the enactedunrecognized state tax law changes that resultedbenefits in higher state tax expense in fiscal 2021.the current period.
49
FINANCIAL CONDITION
Vehicle Financing Volume and Net Earning Assets
The composition of our vehicle contract volume and market share is summarized below:
|
| Three months ended |
|
|
|
| Six months ended |
|
|
| ||||||||||
|
| September 30, |
|
| Percentage |
| September 30, |
|
| Percentage | ||||||||||
(units in thousands): |
| 2022 |
|
| 2021 |
|
| change |
| 2022 |
|
| 2021 |
|
| Change | ||||
Vehicle financing volume 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
New retail contracts |
|
| 185 |
|
|
| 173 |
|
| 7% |
|
| 360 |
|
|
| 365 |
|
| (1)% |
Used retail contracts |
|
| 101 |
|
|
| 123 |
|
| (18)% |
|
| 225 |
|
|
| 249 |
|
| (10)% |
Lease contracts |
|
| 61 |
|
|
| 123 |
|
| (50)% |
|
| 124 |
|
|
| 277 |
|
| (55)% |
Total |
|
| 347 |
|
|
| 419 |
|
| (17)% |
|
| 709 |
|
|
| 891 |
|
| (20)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
TMNA subvened vehicle financing volume 2: |
|
|
| |||||||||||||||||
New retail contracts |
|
| 125 |
|
|
| 57 |
|
| 119% |
|
| 218 |
|
|
| 111 |
|
| 96% |
Used retail contracts |
|
| 8 |
|
|
| 7 |
|
| 14% |
|
| 16 |
|
|
| 13 |
|
| 23% |
Lease contracts |
|
| 34 |
|
|
| 64 |
|
| (47)% |
|
| 70 |
|
|
| 165 |
|
| (58)% |
Total |
|
| 167 |
|
|
| 128 |
|
| 30% |
|
| 304 |
|
|
| 289 |
|
| 5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Market share of TMNA sales 3: |
|
| 55.0 | % |
|
| 55.0 | % |
|
|
|
| 54.2 | % |
|
| 55.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
|
|
|
|
|
| Six months ended |
|
|
|
|
| ||||||||||
|
| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
| ||||||||||||
(units in thousands): |
| 2021 |
|
| 2020 |
|
| change |
|
| 2021 |
|
| 2020 |
|
| Change |
| ||||||
Vehicle financing volume 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New retail contracts |
|
| 173 |
|
|
| 211 |
|
|
| (18 | )% |
|
| 365 |
|
|
| 372 |
|
|
| (2 | )% |
Used retail contracts |
|
| 123 |
|
|
| 138 |
|
|
| (11 | )% |
|
| 249 |
|
|
| 240 |
|
|
| 4 | % |
Lease contracts |
|
| 123 |
|
|
| 130 |
|
|
| (5 | )% |
|
| 277 |
|
|
| 213 |
|
|
| 30 | % |
Total |
|
| 419 |
|
|
| 479 |
|
|
| (13 | )% |
|
| 891 |
|
|
| 825 |
|
|
| 8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TMNA subvened vehicle financing volume 2: |
|
|
|
|
| |||||||||||||||||||
New retail contracts |
|
| 57 |
|
|
| 87 |
|
|
| (34 | )% |
|
| 111 |
|
|
| 166 |
|
|
| (33 | )% |
Used retail contracts |
|
| 7 |
|
|
| 20 |
|
|
| (65 | )% |
|
| 13 |
|
|
| 42 |
|
|
| (69 | )% |
Lease contracts |
|
| 64 |
|
|
| 89 |
|
|
| (28 | )% |
|
| 165 |
|
|
| 150 |
|
|
| 10 | % |
Total |
|
| 128 |
|
|
| 196 |
|
|
| (35 | )% |
|
| 289 |
|
|
| 358 |
|
|
| (19 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market share of TMNA sales 3: |
|
| 55.0 | % |
|
| 62.2 | % |
|
|
|
|
|
| 55.4 | % |
|
| 63.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Represents the percentage of total domestic TMNA sales of new Toyota and Lexus vehicles financed by us, excluding sales under dealer rental car and commercial fleet programs, sales of a private Toyota distributor and private label vehicles financed.
|
|
|
|
|
|
Vehicle Financing Volume
The volume of our retail and lease contracts, which are acquired primarily from Toyota, Lexus, and private label dealers, is dependent upon TMNA and private label sales volume, the level of TMNA, private label, and third-party sponsored subvention and other incentive programs, as well as TMCC competitive rate and other incentive programs.
Our financing volume increased 8decreased 20 percent and 17 percent for the first half and second quarter of fiscal 2022,2023, respectively, compared to the same periodperiods in fiscal 2021, driven by increases in lease contracts2022, primarily due to lower new vehicles inventory levels and used retail contracts,increased competition from other financial institutions, partially offset by a decrease inincentives and subvention on new retail contracts. In the first half of fiscal 2021, our financing volume was negatively impacted by the decline inThe ongoing challenging economic conditions, caused by the COVID-19 pandemic and the restrictions designed to slow the spread of COVID-19, which resulted in an unprecedented increase in unemployment claims and a significant decline in consumer spending. The increase in lease contracts was also driven by an increased level of incentive and subvention programs, primarily in the first quarter of fiscal 2022, and continued growth in volume from our private label financial services. The increase in used retail contract volume was driven by the availability of used vehicles relative to new vehicles. Economic conditions caused by the COVID-19 pandemic, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistics networks, have resulted in a decrease in the availability of new vehicles. As a result, our new retail contracts decreased for the first half of fiscal 2022, compared to the same period in fiscal 2021. vehicles from pre-pandemic levels.
Our financing volume decreased 13 percent for the second quarter of fiscal 2022, compared to same period in fiscal 2021, due the economic conditions caused by the COVID-19 pandemic which has resulted in a decrease in the availability of new vehicles. This has led to lower levels of incentive and subvention on new and used retail contracts and lease contracts, which has resulted in increased competition from other financial institutions.
Our market share of TMNA sales decreased approximately 8 percentage points and approximately 7 percentage points for the first half and second quarter of fiscal 2022,2023, respectively, compared to the same periods in fiscal 2021, due to lower levels of incentive and subvention on new and used retail contracts and increased competition from other financial institutions.2022, was relatively consistent.
50
The composition of our net earning assets is summarized below:
|
| September 30, |
|
| March 31, |
|
| Percentage |
|
| September 30, |
|
| March 31, |
|
| Percentage | |||||
(Dollars in millions) |
| 2021 |
|
| 2021 |
|
| change |
|
| 2022 |
|
| 2022 |
|
| change | |||||
Net Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Finance receivables, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Retail finance receivables, net |
| $ | 69,654 |
|
| $ | 65,653 |
|
|
| 6 | % |
| $ | 75,870 |
|
| $ | 72,185 |
|
| 5% |
Dealer financing, net 1 |
|
| 9,895 |
|
|
| 13,539 |
|
|
| (27 | )% |
|
| 11,020 |
|
|
| 10,247 |
|
| 8% |
Total finance receivables, net |
|
| 79,549 |
|
|
| 79,192 |
|
|
| - | % |
|
| 86,890 |
|
|
| 82,432 |
|
| 5% |
Investments in operating leases, net |
|
| 37,946 |
|
|
| 37,091 |
|
|
| 2 | % |
|
| 32,114 |
|
|
| 35,455 |
|
| (9)% |
Net earning assets |
| $ | 117,495 |
|
| $ | 116,283 |
|
|
| 1 | % |
| $ | 119,004 |
|
| $ | 117,887 |
|
| 1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Dealer Financing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Number of dealers serviced) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Toyota, Lexus, and private label dealers1 |
|
| 1,013 |
|
|
| 1,002 |
|
|
| 1 | % |
|
| 1,238 |
|
|
| 966 |
|
| 28% |
Dealers outside of the Toyota/Lexus/private label dealer network |
|
| 408 |
|
|
| 395 |
|
|
| 3 | % |
|
| 385 |
|
|
| 399 |
|
| (4)% |
Total number of dealers receiving wholesale financing |
|
| 1,421 |
|
|
| 1,397 |
|
|
| 2 | % |
|
| 1,623 |
|
|
| 1,365 |
|
| 19% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Dealer inventory outstanding (units in thousands) |
|
| 66 |
|
|
| 185 |
|
|
| (64 | )% |
|
| 84 |
|
|
| 64 |
|
| 31% |
1 Includes wholesale and other credit arrangements in which we participate as part of a syndicate of lenders.
|
|
Retail Contract Volume and Earning Assets
Despite higher levels of incentives and subvention, our new retail contract volume was relatively consistent for the first half of fiscal 2023 compared to the same period in fiscal 2022, due to lower new vehicles inventory levels and increased competition from other financial institutions. Our new retail contract volume increased 7 percent for the second quarter of fiscal 2023, compared to the same period in fiscal 2022, primarily due to higher levels of incentives and subvention.
Our used retail contracts decreased 210 percent and 18 percent for the first half and second quarter of fiscal 2022,2023, respectively, compared to the same periods in fiscal 2021,2022, due to increased competition in the used vehicle marketplace caused by the reduction in new vehicle inventory levels.
Our retail finance receivables, net increased 5 percent at September 30, 2022 as compared to March 31, 2022 due to higher retail contracts outstanding and higher average amount financed.
Lease Contract Volume and Earning Assets
Our lease contract volume decreased 55 percent and 50 percent for the first half and second quarter of fiscal 2023, respectively, compared to the same periods in fiscal 2022, primarily due to athe decrease in the availability of new vehicles and lower levels of incentivesincentive and subvention onprograms. Our investments in operating leases, net, decreased 9 percent at September 30, 2022, as compared to March 31, 2022 due to lower average operating lease units outstanding, partially offset by higher vehicle values.
Dealer Financing and Earning Assets
Dealer financing, net increased 8 percent at September 30, 2022, as compared to March 31, 2022, primarily due to an increase in revolving credit financing as well as the new contracts. Economicinventory financing volume we gained from the launch of our private label financial services to Bass Pro Shops in fiscal 2023.
The ongoing challenging economic conditions, caused by the COVID-19 pandemic, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistics networks, have resulted in a decrease in the availability of new vehicles.
Our used retail contracts increased by 4 percent for the first half of fiscal 2022, compared to the same period in fiscal 2021, primarily due to the availability of used vehicles relative to new vehicles, resulting from economic conditions caused by the COVID-19 pandemic, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistic networks. Our used retail contracts decreased by 11 percent for the second quarter of fiscal 2022, compared to same period in fiscal 2021, due to increased competition in the used vehicle marketplace stemming from lower levels of incentives and subvention on used retail contracts relative to new retail contracts.
Our retail finance receivables, net increased 6 percent at September 30, 2021 as compared to March 31, 2021 due to an increase in the average amount financed.
Lease Contract Volume and Earning Assets
Our lease contract volume increased 30 percent for the first half of fiscal 2022, compared to the same period in fiscal 2021, due to the recovering economy, an increased level of incentive and subvention programs, as well as the continued growth in lease contract volume from our private label financial services. Our lease contract volume decreased 5 percent for second quarter of fiscal 2022, compared to the same period in fiscal 2021, primarily due to the decrease in the availability of new vehicles and lower levels of incentive and subvention programs.
Our investments in operating leases, net, increased 2 percent at September 30, 2021, as compared to March 31, 2021, due to increased vehicle values, including the additional investment in operating leases from our private label financial services.
Dealer Financing and Earning Assets
Dealer financing, net decreased 27 percent at September 30, 2021, as compared to March 31, 2021, primarily due to a decrease in dealer inventory and related financing. Economic conditions caused by the COVID-19 pandemic, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistics networks, have resulted in a temporary decrease in dealer new vehicle inventory levels.
51
Residual Value Risk
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 depreciation expense and lease return rates. Higher average operating lease units outstanding and the resulting increase in maturities, a higher supply of used vehicles, as well as deterioration in actual and expected used vehicle values for Toyota, Lexus, and private label vehicles could unfavorably impact return rates, residual values, and depreciation expense.
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. 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 Depreciation on operating leases in our Consolidated Statements of Income as a change in accounting estimate.
Depreciation on Operating Leases
Depreciation on operating leases and average operating lease units outstanding are as follows:
|
| Three months ended |
|
|
|
|
|
| Six months ended |
|
|
|
| Three months ended |
|
|
|
| Six months ended |
|
|
| ||||||||||||||||||||||
|
| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
|
| September 30, |
|
| Percentage |
| September 30, |
|
| Percentage | ||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| change |
|
| 2021 |
|
| 2020 |
|
| change |
|
| 2022 |
|
| 2021 |
|
| change |
| 2022 |
|
| 2021 |
|
| change | ||||||||||
Depreciation on operating leases (dollars in millions) |
| $ | 1,499 |
|
| $ | 1,349 |
|
|
| 11 | % |
| $ | 2,940 |
|
| $ | 3,034 |
|
|
| (3 | )% |
| $ | 1,305 |
|
| $ | 1,499 |
|
| (13)% |
| $ | 2,714 |
|
| $ | 2,940 |
|
| (8)% |
Average operating lease units outstanding (in thousands) |
|
| 1,341 |
|
|
| 1,338 |
|
| -% |
|
|
| 1,341 |
|
|
| 1,343 |
|
| -% |
|
|
| 1,161 |
|
|
| 1,341 |
|
| (13)% |
|
| 1,190 |
|
|
| 1,341 |
|
| (11)% |
Depreciation expense on operating leases decreased 38 percent duringand 13 percent for the first half and second quarter of fiscal 2022, as2023, respectively, compared to the same periodperiods in fiscal 2021,2022, primarily due to lower residual value losses as a result of an increase in average used vehicle values. Depreciation expense on operating leases increased 11 percent during the second quarter of fiscal 2022, as compared to the same period in fiscal 2021. In the second quarter of fiscal 2021, average used vehicle values increased compared to the previously expected values which resulted in lower residual values losses for the period. lease units outstanding.
The ongoing challenging economic conditions caused by the COVID-19 pandemic, including production halts and supply shortages affecting the automotive industry and additional delays affecting the supply chain and logistics networks, have resulted in a decrease in the availability of new vehicles which has led tofrom pre-pandemic levels. The lower levels of new vehicle inventory and higher off-lease vehicle purchases by dealers duehave led to increasedhistorically high levels of average used vehicle values. Declines in used vehicle values resulting from increases in the supply of new vehicles and decreasedincreases in new vehicle inventory supply. sales incentives could unfavorably impact return rates, residual values, and depreciation expense in the future.
52
Origination, Credit Loss, and Delinquency Experience
Our credit loss experience may be affected by a number of factors including the economic environment, our purchasing, servicing and collections practices, used vehicle market conditions and subvention. Changes in the economy that impact the consumer such as increasing interest rates, and a rise in the unemployment rate as well as higher debt balances, coupled with deterioration in actual and expected used vehicle values, could increase our credit losses. In addition, a decline in the effectiveness of our collection practices could also increase our credit losses. We continuously evaluate and refine our purchasing practices and collection 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.
The following table provides information related to our origination experience:
|
| September 30, |
|
| March 31, |
|
| September 30, |
| |||
|
| 2021 |
|
| 2021 |
|
| 2020 |
| |||
Average consumer portfolio origination FICO score |
|
| 740 |
|
|
| 744 |
|
|
| 743 |
|
Average retail loan origination term (months) 1 |
|
| 69 |
|
|
| 68 |
|
|
| 68 |
|
1 Retail loan origination greater than or equal to 78 months was 10% as of September 30, 2022, 10% as of March 31, 2022, and 9% as of September 30, 2021.
|
|
While we have included the average origination FICO score to illustrate origination trends, we also use a proprietary credit scoring system to evaluate an applicant’s risk profile. Refer to Part I. Item 1. Business “Finance Operations” in our fiscal 20212022 Form 10-K for further discussion of the proprietary manner in which we evaluate risk.
The following table provides information related to our consumer finance receivables and investment in operating leases:
|
| September 30, |
|
| March 31, |
|
| September 30, |
| |||
|
| 2021 |
|
| 2021 |
|
| 2020 |
| |||
Net charge-offs as a percentage of average finance receivables 1 |
|
| 0.17 | % |
|
| 0.29 | % |
|
| 0.25 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Default frequency as a percentage of outstanding finance receivables contracts 1 |
|
| 0.79 | % |
|
| 0.90 | % |
|
| 0.86 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average finance receivables loss severity per unit 2 |
| $ | 8,083 |
|
| $ | 10,035 |
|
| $ | 9,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate balances for accounts 60 or more days past due as a percentage of earning assets 3, 4 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables |
|
| 0.39 | % |
|
| 0.27 | % |
|
| 0.37 | % |
Operating leases |
|
| 0.23 | % |
|
| 0.20 | % |
|
| 0.34 | % |
1 The ratio for net charge-offs and the ratio for default frequency have been annualized using six month results for the periods ended September 30, 2022 and 2021. Net charge-off includes the write-offs of accounts deemed to be uncollectable and accounts greater than 120 days past due. 2 Average loss per unit upon disposition of repossessed vehicles or charge-off prior to repossession. 3 Substantially all retail receivables do not involve recourse to the dealer in the event of customer default. 4 Includes accounts in bankruptcy and excludes accounts for which vehicles have been repossessed. 5 Excludes accrued interest from average finance receivables.
|
|
|
|
|
|
|
|
Management considers historical credit loss information when assessing the allowance for credit losses. Historical credit losses are primarily driven by two factors: default frequency and loss severity. Our net charge-offs as a percentage of average finance receivables for the first half of fiscal 2022 decreased2023 increased to 0.36 percent from 0.17 percent at September 30, 2021 from 0.25 percent at September 30, 2020.for the same period in fiscal 2022. Our average finance receivables loss severity per unit for the first half of fiscal 2022 decreased2023 increased to $8,083$11,087 from $9,658$8,083 in the first half of fiscal 2021.2022. The increase in net charge-offs and loss severity per unit were due to higher average amounts financed, a higher percentage of used vehicles financed, and higher delinquencies. Our default frequency as a percentage of outstanding finance receivable contracts decreased towas relatively consistent at 0.79 percent for the first half of fiscal 2023 and 2022, compared to 0.86 percent in the same period in fiscal 2021. The changes in our net charge-offs, loss severity per unit, and default frequency were primarily due to higher average used vehicle values, which reduced net charge-offs, loss per unit, and default frequency.respectively.
Our aggregate balances for accounts 60 or more days past due onas a percentage of finance receivables increasedwas 0.57 percent at September 30, 2022, compared to 0.39 percent at September 30, 2021,, compared to 0.37 percent at September 30, 2020, and 0.270.43 percent at March 31, 2021, as the balances in fiscal 2021 were impacted by our retail payment extension program offered to customers and dealers impacted by COVID-19, as well as influenced by government stimulus and other external programs.2022. Our aggregate balances for accounts 60 or more days past due onas a percentage of operating leases was 0.38 percent at September 30, 2022, compared to 0.23 percent at September 30, 2021, compared to 0.34 percent at September 30, 2020, and 0.200.26 percent at March 31, 2021. In2022. Our delinquencies increased at September 30, 2022, compared to September 30, 2021 and March 31, 2022 due to the first half of fiscal 2021, government restrictions on repossession activities in certain states
for which we have a high percentage of lease contracts resulted in higher delinquencies for that period. If the negativeongoing challenging economic conditions caused by the COVID-19 pandemic continue, delinquencies and charge-offs could increase.conditions.
53
Allowance for Credit Losses
We maintain an allowance for credit losses which is measured by an impairment model that reflects lifetime expected losses.
The allowance for credit losses for our retail consumer portfolio is measured on a collective basis when loans have similar risk characteristics such as loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type, contract term, and other relevant factors. We use statistical models to estimate lifetime expected credit losses of our retail loan portfolio segment by applying probability of default and loss given default to the exposure at default on a loan level basis. Probability of default models are developed from internal risk scoring models which consider variables such as delinquency status, historical default frequency, and other credit quality indicators. Other credit quality indicators include loan-to-value ratio, book payment-to-income ratio, FICO score at origination, collateral type (new or used, Lexus, Toyota, or private label), and contract term. Loss given default models forecast the extent of losses given that a default has occurred and consider variables such as collateral, trends in recoveries, historical loss severity, and other contract structure variables. Exposure at default represents the expected outstanding principal balance, including the effects of expected prepayment when applicable. The lifetime expected credit losses incorporate the probability-weighted forward-looking macroeconomic forecasts for baseline, favorable, and adverse scenarios. The loan lifetime is regarded by management as the reasonable and supportable period. We use macroeconomic forecasts from a third party and update such forecasts quarterly. On an ongoing basis, we review our models, including macroeconomic factors, the selection of macroeconomic scenarios and their weighting to ensure they reflect the risk of the portfolio.
For the allowance for credit losses for our dealer portfolio, an allowance for credit losses is established for both outstanding dealer finance receivables and certain unfunded off-balance sheet lending commitments. The allowance for credit losses is measured on a collective basis when loans have similar risk characteristics such as dealer group internal risk rating and loan-to-value ratios. We measure lifetime expected credit losses of our dealer products portfolio segment by applying probability of default and loss given default to the exposure at default on a loan level basis. Probability of default is primarily established based on internal risk assessments. The probability of default model also considers qualitative factors related to macroeconomic outlooks. Loss given default is established based on the nature and market value of the collateral, loan-to-value ratios and other credit quality indicators. Exposure at default represents the expected outstanding principal balance. The lifetime of the loan or lending commitment is regarded by management as the reasonable and supportable period. On an ongoing basis, we review our models, including macroeconomic outlooks, to ensure they reflect the risk of the portfolio.
If management does not believe the models reflect lifetime expected credit losses, a qualitative adjustment is made to reflect management judgment regarding observable changes in recent or expected economic trends and conditions, portfolio composition, and other relevant factors.
The following table provides information related to our allowance for credit losses for finance receivables and certain off-balance sheet lending commitments:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Allowance for credit losses at beginning of period |
| $ | 1,196 |
|
| $ | 1,143 |
|
| $ | 1,215 |
|
| $ | 727 |
|
Adoption of ASU 2016-13 1 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 292 |
|
Charge-offs |
|
| (55 | ) |
|
| (46 | ) |
|
| (88 | ) |
|
| (115 | ) |
Recoveries |
|
| 15 |
|
|
| 12 |
|
|
| 32 |
|
|
| 22 |
|
Provision for credit losses |
|
| 68 |
|
|
| 65 |
|
|
| 65 |
|
|
| 248 |
|
Allowance for credit losses at end of period 2 |
| $ | 1,224 |
|
| $ | 1,174 |
|
| $ | 1,224 |
|
| $ | 1,174 |
|
1Ending balance as of September 30, 2022 and 2021 includes allowance for credit losses related to off-balance-sheet commitments of $29 million and $34 million, respectively, which is included in Other liabilities on the Consolidated Balance Sheet.
|
|
|
|
Our allowance for credit losses increased by $50$171 million from $1,174 million at September 30, 2020 to $1,224 million at September 30, 2021. The increase in the allowance for credit losses was primarily2021 to $1,395 million at September 30, 2022, due to the increase in size of our retail loan portfolio and an increase in delinquencies, partially offset by lower expected credit lossesthe continued improved dealer financial performance in response to improvements in the macroeconomic forecast as well as a decrease in size of our dealer products portfolio.fiscal 2023.
Future changes in the economy that impact the consumer and consumer confidence such as increasing interest rates and a rise in the unemployment rate as well as higher debt balances, coupled with deterioration in actual and expected used vehicle values, could result in further increases to our allowance for credit losses. In addition, a decline in the effectiveness of our collection practices could also increase our allowance for credit losses.
54
LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements
Our primary material cash requirements include the acquisition of finance receivables and investment in operating leases from dealers, providing various financing to dealers, payments related to debt and swaps, operating expenses, voluntary protection contract expenses, income taxes, and dividend payments.
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. Refer to Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.
Commitments
A description of our lending commitments is included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements” and Note 12 - Related Party Transactions of the Notes to Consolidated Financial Statements in our fiscal 2022 Form 10-K, as well as in Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.
Indemnification
Refer to Note 9 - Commitments and Contingenciesof the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions.
Liquidity
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 diversified borrowing base that is distributed across a variety of markets, geographies, investors and financing structures.
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.
WeWe 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. 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 as well as certain available-for-sale debt securities, 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 $6.6$5.8 billion to $11.7$11.3 billion with an average balance of $9.4$8.5 billion during the quarter ended September 30, 2021.2022. The amount of excess funds we hold may fluctuate, depending on market conditions and other factors. We also have access to liquidity under the $5.0 billion credit facility with Toyota Motor Sales U.S.A., Inc. (“TMS”), which as of September 30, 20212022, was not drawn upon and had no outstanding balance as further described in Note 7 – Debt and Credit Facilities of the Notes to the Consolidated Financial Statements. We believe we have sufficient capacity to meet our short-term funding requirements and manage our liquidity.
55
Credit support is provided to us by our indirect parent Toyota Financial Services Corporation (“TFSC”), and, in turn to TFSC by 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 11 – Related Party 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 II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our fiscal 20212022 Form 10-K for further discussion.
We routinely monitor global financial conditions and our financial exposure to our global counterparties, particularly in those countries experiencing significant economic, fiscal or political strain, and the corresponding likelihood of default. As of September 30, 2021,2022, our exposure to foreign sovereign and non-sovereign counterparties was not significant. Refer to the “Liquidity and Capital Resources - Credit 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, results of operations or financial condition” in our fiscal 20212022 Form 10-K for further discussion.
Funding
Funding
The following table summarizes the components of our outstanding debt which includes unamortized premiums, discounts, debt issuance costs and the effects of foreign currency translation adjustments:
|
| September 30, 2021 |
|
| March 31, 2021 |
|
| September 30, 2022 |
| March 31, 2022 | ||||||||||||||||||||||||||||||||||
(Dollars in millions) |
| Face value |
|
| Carrying value |
|
| Weighted average contractual interest rates |
|
| Face value |
|
| Carrying value |
|
| Weighted average contractual interest rates |
|
| Face value |
|
| Carrying value |
|
| Weighted average |
| Face value |
|
| Carrying value |
|
| Weighted average | ||||||||||
Unsecured notes and loans payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Commercial paper |
| $ | 17,005 |
|
| $ | 17,000 |
|
|
| 0.13 | % |
| $ | 17,027 |
|
| $ | 17,021 |
|
|
| 0.20 | % |
| $ | 17,494 |
|
| $ | 17,395 |
|
| 2.72% |
| $ | 16,896 |
|
| $ | 16,876 |
|
| 0.43% |
U.S. medium term note ("MTN") program |
|
| 47,762 |
|
|
| 47,611 |
|
|
| 1.39 | % |
|
| 44,294 |
|
|
| 44,149 |
|
|
| 1.64 | % |
|
| 45,677 |
|
|
| 45,524 |
|
| 2.37% |
|
| 46,387 |
|
|
| 46,235 |
|
| 1.55% |
Euro medium term note ("EMTN") program |
|
| 14,762 |
|
|
| 14,677 |
|
|
| 1.56 | % |
|
| 16,262 |
|
|
| 16,173 |
|
|
| 1.57 | % |
|
| 11,289 |
|
|
| 11,217 |
|
| 1.84% |
|
| 13,891 |
|
|
| 13,813 |
|
| 1.54% |
Other debt |
|
| 5,405 |
|
|
| 5,401 |
|
|
| 1.06 | % |
|
| 8,176 |
|
|
| 8,170 |
|
|
| 1.33 | % |
|
| 4,792 |
|
|
| 4,790 |
|
| 3.11% |
|
| 5,368 |
|
|
| 5,364 |
|
| 1.28% |
Total Unsecured notes and loans payable |
|
| 84,934 |
|
|
| 84,689 |
|
|
| 1.15 | % |
|
| 85,759 |
|
|
| 85,513 |
|
|
| 1.31 | % |
|
| 79,252 |
|
|
| 78,926 |
|
| 2.42% |
|
| 82,542 |
|
|
| 82,288 |
|
| 1.30% |
Secured notes and loans payable |
|
| 27,066 |
|
|
| 27,020 |
|
|
| 1.01 | % |
|
| 24,256 |
|
|
| 24,212 |
|
|
| 1.29 | % |
|
| 29,996 |
|
|
| 29,947 |
|
| 2.36% |
|
| 26,907 |
|
|
| 26,864 |
|
| 1.01% |
Total debt |
| $ | 112,000 |
|
| $ | 111,709 |
|
|
| 1.11 | % |
| $ | 110,015 |
|
| $ | 109,725 |
|
|
| 1.31 | % |
| $ | 109,248 |
|
| $ | 108,873 |
|
| 2.40% |
| $ | 109,449 |
|
| $ | 109,152 |
|
| 1.23% |
Unsecured notes and loans payable
The following table summarizes the significant activities by program of our Unsecured notes and loans payable:
(Dollars in millions) |
| Commercial paper 1 |
|
| MTNs |
|
| EMTNs |
|
| Other |
|
| Total Unsecured notes and loans payable |
| |||||
Balance at March 31, 2021 |
| $ | 17,027 |
|
| $ | 44,294 |
|
| $ | 16,262 |
|
| $ | 8,176 |
|
| $ | 85,759 |
|
Issuances |
|
| - |
|
|
| 9,605 |
|
|
| 1,509 |
|
|
| 1,418 |
|
|
| 12,532 |
|
Maturities and terminations |
|
| (22 | ) |
|
| (6,137 | ) |
|
| (2,799 | ) |
|
| (4,185 | ) |
|
| (13,143 | ) |
Non-cash changes in foreign currency rates |
|
| - |
|
|
| - |
|
|
| (210 | ) |
|
| (4 | ) |
|
| (214 | ) |
Balance at September 30, 2021 |
| $ | 17,005 |
|
| $ | 47,762 |
|
| $ | 14,762 |
|
| $ | 5,405 |
|
| $ | 84,934 |
|
|
1Changes in |
Commercial paper are shown net due to its short duration.
56
Commercial paper
Short-term funding needs are met through the issuance of commercial paper in the U.S. Commercial paper outstanding under our commercial paper programs ranged from approximately $16.9$17.0 billion to $17.7$18.0 billion during the quarter ended September 30, 2021,2022, with an average outstanding balance of $17.2$17.6 billion. Our commercial paper programs are supported by the credit facilities discussed under the heading “Credit Facilities and Letters of Credit.” We believe we have sufficient capacity to meet our short-term funding requirements and manage our liquidity.
MTN program
We maintain a shelf registration statement with the Securities and Exchange Commission (“SEC”) to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We currently 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 January 2024. 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.
EMTN program
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 2021,2022, 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 €60.0 billion or the equivalent in other currencies, of which €27.0€29.6 billion was available for issuance at September 30, 2021.2022. 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. We are currently in compliance with these covenants.
We may issue other debt securities through the global capital markets or enter into other unsecured financing arrangements, including those in which we agree to use the proceeds solely to acquire retail or lease contracts financing new Toyota and Lexus vehicles of specified “green” models. The terms of these “green” bond transactions have been consistent with the terms of other similar transactions except that the proceeds we receive are included in Restricted cash and cash equivalents on our Consolidated Balance Sheets, when applicable.
Other debt
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.
We may 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. Amounts borrowed from affiliates are recorded in Other liabilities on our Consolidated Balance Sheets and are therefore excluded from Debt amounts.
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Secured Notes and Loans Payable
Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding. We regularly execute public or private securitization transactions.
The following table summarizes the significant activities of our Secured notes and loans payable:
(Dollars in millions) |
| Secured notes and loans payable |
|
| Secured |
| ||
Balance at March 31, 2021 |
| $ | 24,256 |
| ||||
Balance at March 31, 2022 |
| $ | 26,907 |
| ||||
Issuances |
|
| 9,822 |
|
|
| 10,019 |
|
Maturities and terminations |
|
| (7,012 | ) |
|
| (6,930 | ) |
Balance at September 30, 2021 |
| $ | 27,066 |
| ||||
Balance at September 30, 2022 |
| $ | 29,996 |
|
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. With the exception of our revolving asset-backed securitization program, funding obtained from our securitization transactions is repaid as the underlying Securitized Assets amortize.
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. • 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. • 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. 58
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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 notes and loans payable. 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 Sheets. We recognize financing revenue on the Securitized Assets. We also recognize interest expense on the secured notes and loans payable issued by the special purpose entities and maintain an allowance for credit losses on the Securitized Assets to cover estimated lifetime expected 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.
We periodically enter into term securitization transactions whereby we agree 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 these “green” securitization transactions have been consistent with the terms of our other similar transactions except that the proceeds we receive are included in Restricted cash and cash equivalents on our Consolidated Balance Sheets, when applicable.
Our secured notes also include a revolving asset-backed securitization program backed by a revolving pool of finance receivables and cash collateral. Cash flows from these receivables during the revolving period in excess of what is needed to pay certain expenses of the securitization trust and contractual interest payments on the related secured notes may be used to purchase additional receivables, provided that certain conditions are met following the purchase. The secured notes feature a scheduled revolving period, with the ability to repay the secured notes in full, after which an amortization period begins. The revolving period may also end with the amortization period beginning upon the occurrence of certain events that include certain segregated account balances falling below their required levels, credit losses or delinquencies on the pool of assets supporting the secured notes exceeding specified levels, the adjusted pool balance falling to less than 50% of the initial principal amount of the secured notes, or interest not being paid on the secured notes.
Public Securitization
We maintain a shelf registration statement with the SEC to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets during the three-year period ending December 2021.2024. We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of September 30, 20212022 and March 31, 2021,2022, we did not have any outstanding lease securitization transactions registered with the SEC.
59
Credit Facilities and Letters of Credit
For additional liquidity purposes, we maintain credit facilities, which may be used for general corporate purposes, as described below:
364-Day Credit Agreement, Three-Year Credit Agreement and Five-Year Credit Agreement
TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates are party to 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 2022, 2023, 2025 and 2025,2027, 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 were not drawn upon and had no outstanding balances as of September 30, 20212022 and March 31, 2021.2022. We are currently in compliance with the covenants and conditions of the credit agreements described above.
Committed Revolving Asset-backed Facility
We are party to a 364-day revolving securitization facility with certain bank-sponsored asset-backed conduits and other financial institutions expiring in fiscal 2023.2024. Under the terms and subject to the conditions of this facility, the committed lenders under the facility have committed to make advances up to a facility limit of $7.0$8.0 billion backed by eligible retail finance receivables transferred by us to a special-purpose entity acting as borrower. As of September 30, 2021, $4.3We utilized $2.4 billion and $3.2 billion of this facility was utilized.as of September 30, 2022 and March 31, 2022, respectively.
Other Unsecured Credit Agreements
TMCC is party to additional unsecured credit facilities with various banks. As of September 30, 2021,2022, TMCC had committed bank credit facilities totaling $4.6 billion of which $1.9 billion, $2.1$425 million, $1.9 billion, $300 million, and $300$375 million mature in fiscal 2022, 2023, 2024, 2025, and 20252026, 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 and had no outstanding balances as of September 30, 20212022 and March 31, 2021.2022. We are currently in compliance with the covenants and conditions of the credit agreements described above.
TMCC is party to a $5.0 billion three-year revolving credit facility with TMS expiring in fiscal 2025. This credit facility was not drawn upon and had no outstanding balance as of September 30, 20212022 and March 31, 2021.2022.
From time to time, we may borrow from affiliates based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities.
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 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” in our fiscal 20212022 Form 10-K.
DERIVATIVE INSTRUMENTS60
Derivative Instruments
Risk Management Strategy
Our liabilities consist mainly of fixed and variable 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 and foreign currency swaps to economically 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 the fair value 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.
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 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 Interest expense in our Consolidated Statements of Income. The derivative instruments are included as a component of Other assets or Other liabilities on our Consolidated Balance Sheets.
Accounting guidance permits the net presentation on our Consolidated Balance Sheets of derivative receivables and derivative payables with the same counterparty and the related cash collateral when a legally enforceable master netting agreement exists, or when the derivative receivables and derivative payables meet all the conditions for the right of setoff to exist. When we meet this condition, we elect to present such balances on a net basis.
Our International Swaps and Derivatives Association (“ISDA”) Master Agreements are our master netting agreements which permit multiple transactions to be cancelled and settled with a single net balance paid to either party for our OTC derivatives. The master netting agreements also contain reciprocal collateral agreements which require the transfer of cash collateral to the party in a net asset position across all transactions. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. Although we have daily valuation and collateral exchange arrangements with all of our counterparties, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives. We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at September 30, 2021, if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties. In addition, as our collateral agreements include legal right of offset provisions, collateral amounts are netted against derivative assets or derivative liabilities.
For our centrally cleared derivatives, variation margin payments are legally characterized as settlement payments and accounted for with corresponding derivative positions as one unit of account as opposed to collateral. Initial margin payments are separately recorded in Other Assets on our Consolidated Balance Sheets. We perform valuation and margin exchange on a daily basis. Similar to the OTC swaps, there may be a delay of up to one day between the exchange of margin payments and the valuation of our derivatives.
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 had no hedge accounting derivatives as of September 30, 2021 and March 31, 2021, respectively.
Refer to Note 6 – Derivatives, Hedging Activities and Interest Expense of the Notes to Consolidated Financial Statements.
Derivative AssetsStatements for further discussion and Liabilities
The following table summarizes ourdisclosure on derivative assets and liabilities, which are included in Other assets and Other liabilities on our Consolidated Balance Sheets:
|
| September 30, |
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| March 31, |
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(Dollars in millions) |
| 2021 |
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| 2021 |
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Gross derivatives assets, net of credit valuation adjustment |
| $ | 1,019 |
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| $ | 1,356 |
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Less: Counterparty netting |
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| (613 | ) |
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| (840 | ) |
Less: Collateral held |
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| (332 | ) |
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| (462 | ) |
Derivative assets, net |
| $ | 74 |
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| $ | 54 |
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Gross derivative liabilities, net of credit valuation adjustment |
| $ | 1,053 |
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| $ | 1,385 |
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Less: Counterparty netting |
|
| (613 | ) |
|
| (840 | ) |
Less: Collateral posted |
|
| (422 | ) |
|
| (544 | ) |
Derivative liabilities, net |
| $ | 18 |
|
| $ | 1 |
|
Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of September 30, 2021 and March 31, 2021, we held excess collateral of $2 million and $29 million, respectively, which we did not use to offset derivative assets. As of September 30, 2021 and March 31, 2021, we posted initial margin and excess collateral of $31 million and $10 million, respectively, which we did not use to offset derivative liabilities.instruments.
LIBOR TRANSITION
In July 2017, the United Kingdom Financial Conduct Authority (“FCA”), which regulates the London Inter-bank Offered Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. In November 2020, ICE Benchmark Administration, the administrator of LIBOR, announced its intention to continueThe publication of overnightnon-U.S. dollar LIBOR rates on a representative basis, as well as the publication of the lesser used 1-week and one-, three-, six- and 12- month2-month U.S. dollar LIBOR rates throughtenors, ceased as of the end of December 2021. While the most commonly used U.S. dollar LIBOR tenors are expected to continue to be published until June 30, 2023. However, the United States Federal Reserve and other regulatory2023, U.S. banking agencies issued guidance encouraging banks tothat financial institutions should cease entering into new contracts that useusing U.S. dollar LIBOR as a reference rate as soon as practicable and in any event bynew contracts after December 31, 2021. On March 5, 2021, the FCA announced that certain LIBOR rates will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 (or, in the case of overnight and one-, three-, six- and 12-month U.S. dollar LIBOR rates, immediately after June 30, 2023). We are exposed to LIBOR-based financial instruments, including through our dealer financing activities, derivative contracts, secured and unsecured debt, and investment securities. To facilitate an orderly transition from LIBOR to alternative reference rates (“ARRs”), we have established an initiative led by senior management, with Board and committee oversight, to assess, monitor and mitigate risks associated with the expected discontinuation of LIBOR, to achieve operational readiness and engage impacted borrowers and counterparties in connection with the transition to ARRs. Our efforts under this initiative include monitoring developments and the usage of ARRs, monitoring the regulatory and financial reporting guidance, as well as reviewing and updating current legal contracts, internal systems and processes to accommodate the use of ARRs. For example, we are evaluating thehave committed to using Secured Overnight Financing Rate (“SOFR”) linked rates in connection with various borrowing arrangements and Prime amongin connection with various lending arrangements and we continue to evaluate other alternatives and actions, as potential ARRs to LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Although we have issued SOFR-linked debt, at this time it is not possible to predict whether SOFR will be the primary, or sole, LIBOR replacement index.
We are also continuously assessing how the expected discontinuation of LIBOR will impact accounting and financial reporting. For example, on April 1, 2021, we adopted ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as further discussed in Note 1 – Interim Financial Data of the Notes to Consolidated Financial Statements.
Refer to Part I, Item 1A. Risk Factors – “Uncertainty about the transition away from the London Interbank Offered Rate (“LIBOR”) and the adoption of alternative reference rates could adversely impact our business and results of operations” in our fiscal 20212022 Form 10-K for further discussion.
61
NEW ACCOUNTING STANDARDS
Refer to Note 1 – Interim Financial Data of the Notes to Consolidated Financial Statements.Statements.
OFF-BALANCE SHEET ARRANGEMENTSCRITICAL ACCOUNTING ESTIMATES
Guarantees
TMCC has guaranteedThe preparation of financial statements in accordance with accounting principles generally accepted in the paymentsUnited States of principal and interest with respectAmerica (U.S. GAAP) requires management 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 ofmake certain TMCC affiliates. Refer to Note 9 - Commitments and Contingenciesestimates which affect reported financial results. The evaluation of the Notes to Consolidated Financial Statements for further discussion.
Commitments
A descriptionfactors used in determining each of our lending commitments is included under “Itemcritical accounting estimates involves significant assumptions, complex analyses, and management judgment. Changes in the evaluation of these factors may have a significant impact on the consolidated financial statements. Additionally, due to inherent uncertainties in making estimates, actual results could differ from those estimates, and those differences could be material. The critical accounting estimates that affect the consolidated financial statements and the judgment and assumptions used are consistent with those described in Item 7. Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements” and Note 12 - Related Party Transactions of the Notes to Consolidated Financial StatementsCritical Accounting Estimates” in our fiscal 20212022 Form 10-K, as well as in Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.10-K.
Indemnification
Refer to Note 9 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions.
62
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have omitted this section pursuant to General Instruction H(2) of Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
As 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 (the principal executive officer) and Chief Financial Officer (the principal financial officer), of the effectiveness of our “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) concluded that the disclosure controls and procedures were effective as of September 30, 2021,2022, to ensure that information required to be disclosed in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the SEC’s rules, regulations, and forms and that such information is accumulated and communicated to our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
There have been no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
For a discussion of legal proceedings, see “Part I. Financial Information – Item 1. Financial Statements - Note 9 – Commitments and Contingencies of the Notes to Consolidated Financial Statements – Litigation and Governmental Proceedings.Proceedings.”
ITEM 1A. RISK FACTORS
The following risk factors have changedThere are no material changes from the risk factors set forth under “Item 1A. Risk Factors” in our fiscal 20212022 Form 10-K.
Our results of operations and financial condition are substantially dependent upon the sale of Toyota, Lexus, and private label vehicles, as well as our ability to offer competitive financing and voluntary protection products.
We primarily provide a variety of finance and voluntary protection products to authorized Toyota, Lexus, and private label dealers and their customers in the U.S. Accordingly, our business is substantially dependent upon the sale of Toyota, Lexus, and private label vehicles in the U.S. Changes in the volume of sales may result from governmental action or changes in governmental regulation or trade policies, changes in consumer demand, new vehicle incentive programs, recalls, the actual or perceived quality, safety or reliability of Toyota, Lexus, and private label vehicles, economic conditions, increased competition, increases in the price of vehicles due to increased raw material costs, changes in import fees or tariffs on raw materials or imported vehicles, changes to or withdrawals from trade agreements, currency fluctuations, fluctuations in interest rates, decreased or delayed vehicle production due to extreme weather conditions, natural disasters, supply chain interruptions, including shortages of parts, components or raw materials, or other events. For example, the severe weather that many parts of the U.S. experienced during the fourth quarter of fiscal 2021, resulted in a shortage of petrochemicals that affected the production at certain of TMNA’s production facilities. Any negative impact on the volume of Toyota, Lexus, and private label vehicle sales in the U.S. could have a material adverse effect on our business, results of operations, and financial condition.
TMS, a subsidiary of TMNA, is the primary distributor of Toyota and Lexus vehicles in the U.S. While TMNA conducts extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside TMNA’s control affect the success of new or existing products and services in the marketplace. Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of product mix, price, quality, styling, safety, overall value, fuel efficiency, or other attributes) and the level of availability of products and services that are desirable can exacerbate these risks. With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility, or other key attributes can negatively impact TMNA’s reputation or market acceptance of its products or services, even where such allegations prove to be inaccurate or unfounded.
In addition, the volume of TMNA sales may also be affected by Toyota’s ability to successfully grow through investments in the area of emerging opportunities such as mobility and connected services, vehicle electrification, fuel cell technology and autonomy, which depends on many factors, including advancements in technology, regulatory changes, and other factors that are difficult to predict.
We operate in a highly competitive environment and compete with other financial institutions and, to a lesser extent, other automobile manufacturers’ affiliated finance companies primarily through service, quality, our relationship with TMNA, and financing rates. TMNA sponsors subvention, cash, and contractual residual value support incentive programs offered by us on certain new and used Toyota and Lexus vehicles. Our ability to offer competitive financing and voluntary protection products in the U.S. depends in part on the level of TMNA sponsored subvention, cash, and contractual residual value support incentive program activity, which varies based on TMNA marketing strategies, economic conditions, and the volume of vehicle sales, among other factors. Any negative impact on the level of TMNA sponsored subvention, cash, and contractual residual value support incentive programs could in turn have a material adverse effect on our business, results of operations, and financial condition.
A failure or interruption in our operations could adversely affect our results of operations and financial condition.
Operational risk is the risk of loss resulting from, among other factors, lack of established processes, inadequate or failed processes, systems or internal controls, theft, fraud, extreme weather conditions, natural disasters (such as wildfires, floods, tornadoes, earthquakes, hurricanes (including an increase in the frequency of such conditions and disasters as the result of climate change)) or other catastrophes (including without limitation, explosions, terrorist attacks, riots, civil disturbances and
health epidemics and other outbreaks). Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, failure of systems or other technology, deficiencies in our voluntary protection product operations risk management program, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements. We have established business recovery plans to address interruptions in our operations, but we can give no assurance that these plans will be adequate to remediate all events that we may face. A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations. These events can potentially result in financial losses or other damage to us, including damage to our reputation.
We rely on a framework of internal controls designed to provide a sound and well-controlled operating environment. Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material adverse effect on our operations.
We are currently in the process of restructuring our customer service operations to better serve our customers by relocating and streamlining the customer service operation, moving our three regional CSCs to be co-located with the regional DSCs, and investing in new technology. We can give no assurance that the restructuring of our customer service operations will be completed as planned or within the expected timing or budget, and the expected benefits may not be fully realized due to associated disruption to customer service operations and personnel.
In addition, many parts of our business are dependent on key personnel. Our future success depends on our ability to retain existing, and attract, hire and integrate new key personnel and other necessary employees. Any failure to do so could adversely affect our business, results of operations and financial condition.
We are exposed to customer and dealer credit risk, which could negatively affect our results of operations and financial condition.
Credit risk is the risk of loss arising from the failure of a customer or dealer to meet the terms of any retail, lease or dealer financing contract with us or otherwise fail to perform as agreed. An increase in credit risk would increase our provision for credit losses, which would have a negative impact on our results of operations and financial condition. There can be no assurance that our monitoring of credit risk and our efforts to mitigate credit risk are or will be sufficient to prevent an adverse effect on our results of operations and financial condition.
The level of credit risk in our retail loan portfolio is influenced primarily by two factors: the total number of contracts that experience default (“default frequency”) and the amount of loss per occurrence (“loss severity”), which in turn are influenced by various economic factors, the used vehicle market, purchase quality mix, contract term length, and operational changes. The used vehicle market is impacted by the supply of, and demand for, used vehicles, interest rates, inflation, new vehicle incentive programs, the manufacturer’s actual or perceived reputation for quality, safety, and reliability, and the general economic outlook.
The level of credit risk in our dealer portfolio 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 general macroeconomic conditions, the overall demand for new and used vehicles, and the financial condition of automotive manufacturers, among other factors.
Economic slowdown and recession in the U.S., extreme weather conditions, natural disasters, health epidemics, and other factors increase the risk that a customer or dealer may not meet the terms of a retail, lease or dealer financing contract with us or may otherwise fail to perform as agreed. A weak economic environment evidenced by, among other things, unemployment, underemployment, and consumer bankruptcy filings, may affect some of our customers’ and dealers’ ability to make their scheduled payments.
The regulatory environment in which we operate could have a material adverse effect on our business and results of operations.
Regulatory risk includes risk arising from failure or alleged failure to comply with applicable regulatory requirements and risk of liability and other costs imposed under various laws and regulations, including changes in applicable law, regulation and regulatory guidance. For example, laws or regulations intended to mitigate factors contributing to, or intended to address the potential impacts of, climate change, could have a material adverse effect on our business, results of operations and financial condition.
Consumer Finance Regulation
As a provider of finance and voluntary protection products, we operate in a highly regulated environment. We are subject to state licensing requirements and state, and federal laws and regulations. In addition, we are subject to governmental and regulatory examinations, information-gathering requests, and investigations from time to time at the state and federal levels.
Compliance with applicable law is costly and can affect our results of operations. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers. Changes in laws and regulations could restrict our ability to operate our business as currently operated, could impose substantial additional costs or require us to implement new processes, which could adversely affect our business, prospects, financial performance or financial condition. The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorney or legal fees and costs, restrictions on our ability to operate our business, possible revocation of licenses and damage to our reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect our business, prospects, results of operations or financial condition.
Our principal consumer finance regulator at the federal level is the CFPB, which has broad regulatory, supervisory and enforcement authority over us. The CFPB’s supervisory authority allows it, among other things, to conduct comprehensive and rigorous examinations to assess our compliance with consumer financial protection laws, which could result in enforcement actions, regulatory fines and mandated changes to our business products, policies and procedures.
The CFPB’s rulemaking authority includes the authority to promulgate rules regarding, among other practices, debt collection practices that would apply to third-party collectors and first-party collectors, such as ourselves, and rules regarding consumer credit reporting practices. The timing and impact of these rules on our business remain uncertain. In addition, the CFPB has focused on the area of auto finance, particularly with respect to indirect financing arrangements, dealer compensation and fair lending compliance, and questioned the value and increased scrutiny of the marketing and sale of certain ancillary or add-on products, including products similar to those we finance or sell through TMIS.
The CFPB and FTC may investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. As a result of such investigations, the CFPB and FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to us or the products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material adverse effect on our results of operations, financial condition, and liquidity. Supervision and investigations by these agencies may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.
Refer to “Item 1. Business, Regulatory Environment of our fiscal 2021 Form 10-K” for further discussion of the CFPB’s authority and activities.
At the state level, state regulators are taking a more stringent approach to supervising and regulating financial products and services subject to their jurisdiction. For example, certain states have proposed rate cap bills that would put limits on the maximum rate of finance charges. We expect to continue to face greater supervisory scrutiny and enhanced supervisory requirements for the foreseeable future.
Other Federal Regulation
Under the Volcker Rule companies affiliated with U.S. insured depository institutions are generally prohibited from engaging in “proprietary trading” and certain transactions with certain privately offered funds. The activities prohibited by the Volcker Rule are not core activities for us. However, the federal financial regulatory agencies charged with implementing the Volcker Rule could further amend the rule or change their approach to administering, enforcing or interpreting the rule, which could negatively affect us and potentially require us to limit or change our activities or operations.
The Dodd-Frank Act amended the CEA to establish a framework for the regulation of certain OTC derivatives referred to as swaps. The OTC derivatives provisions of the CEA, as amended by the Dodd-Frank Act, impose clearing, trading and margin requirements on certain contracts. At present, we qualify for exceptions from these requirements for the swaps that we enter into to hedge our commercial risks. However, if we were to no longer qualify for such exceptions, we could become subject to some or all of these requirements, which would increase our cost of entering into and maintaining such hedging positions.
If we reduce our use of OTC derivatives as a result of the Dodd-Frank Act and resulting regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
Refer to “Item 1. Business, Regulatory Environment of our fiscal 2021 Form 10-K” for additional information on our regulatory environment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have omitted this section pursuant to General Instruction H(2) of Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have omitted this section pursuant to General Instruction H(2) of Form 10-Q.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Indemnification AgreementsNone.
On November 3, 2021, we entered into new indemnification agreements with each of our current directors and officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under California law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.64
The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the form of Indemnification Agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
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.
Because the Securities and Exchange Commission (“SEC”) defines the term “affiliate” broadly, our affiliates include any entity controlled by us as well as any person or entity that controls us or is under common control with us (“control” is also construed broadly by the SEC). For affiliates that we do not control and that are our affiliates solely due to their common control by TMC, we have relied upon TMC for information regarding their activities, transactions and dealings.
Quarterly Period Ended September 30, 2021
We are not aware of any activity, transaction or dealing by us or any of our affiliates during the quarter ended September 30, 2021 that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below. TMC has provided us with the following information for the quarterly period ended September 30, 2021:
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This activity contributed an insignificant amount of gross revenues and net profit to TMC.
Prior Periods
TMC has informed us that it has amended or supplemented its disclosure, the text of which is reproduced below, to disclose information relating to certain activities of TOYOTA Mobility Tokyo Inc. (“TMT,” formerly known as Tokyo Toyopet Motor Sales Co., Ltd.), a wholly-owned subsidiary of TMC (the “TMT Disclosure”) in its Amendments No. 1 to its Annual Reports on Form 20-F for the fiscal years ended March 31, 2020, March 31, 2019 and March 31, 2018, March 31, 2016 and Amendment No. 2 to its Annual Report on Form 20-F for the fiscal year ended March 31, 2017, each as filed with the SEC on November 4, 2021. We have no involvement in, or control over, the activities of TMT and we have not independently verified or participated in the preparation of the TMT Disclosure. The TMT Disclosure does not relate to any activities conducted by us and does not involve us or our management.
Amendment No. 1 to TMC’s Annual Report on Form 20-F for the fiscal year ended March 31, 2020:
“During the fiscal year ended March 31, 2020:
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This activity contributed an insignificant amount of gross revenues and net profit to Toyota.”
Amendment No. 1 to TMC’s Annual Report on Form 20-F for the fiscal year ended March 31, 2019:
“During the fiscal year ended March 31, 2019:
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This activity contributed an insignificant amount of gross revenues and net profit to Toyota.”
Amendment No. 1 to TMC’s Annual Report on Form 20-F for the fiscal year ended March 31, 2018:
“During the fiscal year ended March 31, 2018:
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The above activities contributed in aggregate approximately ¥9.0 million in gross revenues and an insignificant amount of net profit to Toyota.”
Amendment No. 2 to TMC’s Annual Report on Form 20-F for the fiscal year ended March 31, 2017:
“During the fiscal year ended March 31, 2017:
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The above activities contributed in aggregate approximately ¥3.0 million in gross revenues and an insignificant amount of net profit to Toyota.”
Amendment No. 1 to TMC’s Annual Report on Form 20-F for the fiscal year ended March 31, 2016:
“During the fiscal year ended March 31, 2016:
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This activity contributed an insignificant amount of gross revenues and net profit to Toyota.”
TMC believes that none of the above transactions subject it or its affiliates to U.S. sanctions. TMC has informed us that, as of October 23, 2017, TKM intended to cease conducting its activity described above. TMC has also informed us that, as of November 4, 2021, TMT intends to cease conducting its activities described above, except that it intends to provide to the Iranian embassy necessary repair services in case of a recall or other safety measures in accordance with applicable laws and regulations. We have no involvement in, or control over, the activities of TKM or TMT and we have not independently verified this information. This information does not relate to any activities conducted by us and does not involve us or our management.
ITEM 6. EXHIBITS
Exhibit Number |
| Description |
| Method of Filing |
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3.1 |
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| (1) | |
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3.2 |
| Bylaws of Toyota Motor Credit Corporation as amended through December 8, 2000 |
| (2) |
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4.1 |
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| (3) | |
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4.2 |
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| (4) | |
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10.1 |
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| Filed Herewith | |
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31.1 |
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| Filed Herewith | |
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31.2 |
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| Filed Herewith | |
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32.1 |
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| Furnished Herewith | |
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32.2 |
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| Furnished Herewith | |
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101.INS |
| Inline XBRL instance document |
| Filed Herewith |
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101.CAL |
| Inline XBRL taxonomy extension calculation linkbase document |
| Filed Herewith |
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101.DEF |
| Inline XBRL taxonomy extension definition linkbase document |
| Filed Herewith |
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101.LAB |
| Inline XBRL taxonomy extension labels linkbase document |
| Filed Herewith |
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101.PRE |
| Inline XBRL taxonomy extension presentation linkbase document |
| Filed Herewith |
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101.SCH |
| Inline XBRL taxonomy extension schema document |
| Filed Herewith |
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104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| Filed Herewith |
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(1) Incorporated herein by reference to Exhibit 3.1, 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 Exhibit 3.2, 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, filed with our Current Report on Form 8-K filed September 19, 2022, Commission File Number 1-9961. 65 SIGNATURES
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SIGNATURES
Pursuant to the requirements 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) | ||
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Date: November | By | /s/ Mark S. Templin | |
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| Mark S. Templin | |
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| President and Chief Executive Officer | |
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| (Principal Executive Officer) | |
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Date: November | By | /s/ Scott Cooke | |
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| Scott Cooke | |
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Chief Financial Officer (Principal Financial Officer) | |
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7166