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EXCEL - IDEA: XBRL DOCUMENT - TOYOTA MOTOR CREDIT CORPFinancial_Report.xls
EX-31.2 - EXHIBIT 31.2 - TOYOTA MOTOR CREDIT CORPdp48527_ex3102.htm
EX-31.1 - EXHIBIT 31.1 - TOYOTA MOTOR CREDIT CORPdp48527_ex3101.htm
EX-12.1 - EXHIBIT 12.1 - TOYOTA MOTOR CREDIT CORPdp48527_ex1201.htm
EX-32.1 - EXHIBIT 32.1 - TOYOTA MOTOR CREDIT CORPdp48527_ex3201.htm
EX-32.2 - EXHIBIT 32.2 - TOYOTA MOTOR CREDIT CORPdp48527_ex3202.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
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
(State or other jurisdiction of
incorporation or organization)
95-3775816
(I.R.S. Employer
Identification No.)
   
19001 S. Western Avenue
Torrance, California
(Address of principal executive offices)
90501
(Zip Code)

Registrant's telephone number, including area code: (310) 468-1310
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes x No ___

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

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

As of July 31, 2014, 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 Americas 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 June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOYOTA MOTOR CREDIT CORPORATION
(Unaudited)
 
 
Three Months Ended
 
 
 
June 30,
 
(Dollars in millions)
 
2014
   
2013
 
Financing revenues:
 
 
   
 
 
Operating lease
  $ 1,403     $ 1,209  
Retail
    456       478  
Dealer
    101       108  
Total financing revenues
    1,960       1,795  
 
               
Depreciation on operating leases
    1,100       951  
Interest expense
    130       536  
Net financing revenues
    730       308  
 
               
Insurance earned premiums and contract revenues
    153       139  
Investment and other income, net
    35       6  
Net financing revenues and other revenues
    918       453  
 
               
Expenses:
               
Provision for credit losses
    38       11  
Operating and administrative
    233       227  
Insurance losses and loss adjustment expenses
    70       71  
Total expenses
    341       309  
 
               
Income before income taxes
    577       144  
Provision for income taxes
    213       53  
 
               
Net income
  $ 364     $ 91  
   
 
 
 
Three Months Ended
 
 
 
June 30,
 
(Dollars in millions)
 
2014
   
2013
 
Net income
  $ 364     $ 91  
Other comprehensive income (loss), net of tax:
               
Net unrealized gains (losses) on available-for-sale
               
marketable securities [net of tax (provision) benefit of
               
($27) and $31, respectively]
    42       (54 )
Reclassification adjustment for net (gains) losses on
               
available-for-sale marketable securities
               
included in investment and other income, net [net of
               
tax provision (benefit) of $5 and ($10), respectively]
    (7 )     16  
Other comprehensive income (loss)
    35       (38 )
Comprehensive income
  $ 399     $ 53  
 
               
See accompanying Notes to Consolidated Financial Statements.
 
TOYOTA MOTOR CREDIT CORPORATION
(Unaudited)
(Dollars in millions)
 
June 30, 2014
   
March 31, 2014
 
ASSETS
 
 
   
 
 
 
 
 
   
 
 
Cash and cash equivalents
  $ 5,364     $ 3,815  
Restricted cash and cash equivalents
    992       1,721  
Investments in marketable securities
    5,036       5,389  
Finance receivables, net
    65,267       65,176  
Investments in operating leases, net
    26,518       24,769  
Other assets
    1,513       1,870  
Total assets
  $ 104,690     $ 102,740  
 
               
LIABILITIES AND SHAREHOLDER'S EQUITY
               
 
               
Debt
  $ 86,560     $ 85,367  
Deferred income taxes
    6,890       6,747  
Other liabilities
    3,103       2,888  
Total liabilities
    96,553       95,002  
 
               
Commitments and contingencies (See Note 12)
               
 
               
Shareholder's equity:
               
Capital stock, no par value (100,000 shares authorized; 91,500 issued
               
and outstanding) at June 30, 2014 and March 31, 2014
    915       915  
Additional paid-in capital
    2       2  
Accumulated other comprehensive income
    235       200  
Retained earnings
    6,985       6,621  
Total shareholder's equity
    8,137       7,738  
Total liabilities and shareholder's equity
  $ 104,690     $ 102,740  

The following table presents the assets and liabilities of our consolidated variable interest entities (See Note 10).

(Dollars in millions)
 
June 30, 2014
   
March 31, 2014
 
ASSETS
 
 
   
 
 
Finance receivables, net
  $ 10,754     $ 9,501  
Investments in operating leases, net
    -       156  
Other assets
    3       7  
Total assets
  $ 10,757     $ 9,664  
                 
LIABILITIES
               
Debt
  $ 9,112     $ 8,158  
Other liabilities
    2       2  
Total liabilities
  $ 9,114     $ 8,160  
                 
See accompanying Notes to Consolidated Financial Statements.
 
TOYOTA MOTOR CREDIT CORPORATION
(Unaudited)
(Dollars in millions)
 
Capital
stock
   
Additional
paid-in capital
   
Accumulated
other
comprehensive
income
   
Retained
earnings
   
Total
 
 
 
 
   
 
   
 
   
 
   
 
 
Balance at March 31, 2013
  $ 915     $ 2     $ 211     $ 6,429     $ 7,557  
 
                                       
Net income for the three months ended
                                       
June 30, 2013
    -       -       -       91       91  
Other comprehensive loss, net of tax
    -       -       (38 )     -       (38 )
Balance at June 30, 2013
  $ 915     $ 2     $ 173     $ 6,520     $ 7,610  
 
                                       
Balance at March 31, 2014
  $ 915     $ 2     $ 200     $ 6,621     $ 7,738  
 
                                       
Net income for the three months ended
                                       
June 30, 2014
    -       -       -       364       364  
Other comprehensive income, net of tax
    -       -       35       -       35  
Balance at June 30, 2014
  $ 915     $ 2     $ 235     $ 6,985     $ 8,137  
 
                                       
See accompanying Notes to Consolidated Financial Statements.
         
TOYOTA MOTOR CREDIT CORPORATION
(Unaudited)
 
 
Three Months Ended June 30,
 
(Dollars in millions)
 
2014
   
2013
 
Cash flows from operating activities:
 
 
   
 
 
Net income
  $ 364     $ 91  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    1,108       960  
Recognition of deferred income
    (352 )     (300 )
Provision for credit losses
    38       11  
Amortization of deferred costs
    150       140  
Foreign currency and other adjustments to the carrying value of debt, net
    75       (494 )
Net realized (gain) loss from sales and other-than-temporary impairment on securities
    (12 )     26  
Net change in:
               
Restricted cash
    (31 )     (13 )
Derivative assets
    (38 )     11  
Other assets (Note 8) and accrued income
    9       27  
Deferred income taxes
    121       76  
Derivative liabilities
    (3 )     48  
Other liabilities
    220       114  
Net cash provided by operating activities
    1,649       697  
Cash flows from investing activities:
               
Purchase of investments in marketable securities
    (919 )     (1,055 )
Proceeds from sales of investments in marketable securities
    81       155  
Proceeds from maturities of investments in marketable securities
    1,258       1,255  
Acquisition of finance receivables
    (6,591 )     (6,505 )
Collection of finance receivables
    6,270       5,957  
Net change in wholesale and certain working capital receivables
    243       (800 )
Acquisition of investments in operating leases
    (4,297 )     (3,370 )
Disposals of investments in operating leases
    1,610       1,817  
Advances to affiliates
    (728 )     (1,152 )
Repayments from affiliates
    1,110       832  
Cash un-restricted/(restricted) to acquire finance receivables and investment in operating leases
    760       -  
Other, net
    (4 )     (9 )
Net cash used in investing activities
    (1,207 )     (2,875 )
Cash flows from financing activities:
               
Proceeds from issuance of debt
    5,645       5,336  
Payments on debt
    (2,356 )     (4,350 )
Net change in commercial paper
    (2,183 )     (713 )
Advances from affiliates
    1       -  
Net cash provided by financing activities
    1,107       273  
Net increase (decrease) in cash and cash equivalents
    1,549       (1,905 )
Cash and cash equivalents at the beginning of the period
    3,815       4,723  
Cash and cash equivalents at the end of the period
  $ 5,364     $ 2,818  
Supplemental disclosures:
               
Interest paid
  $ 299     $ 325  
Income taxes paid (received), net
  $ 19     $ (24 )
 
               
See accompanying Notes to Consolidated Financial Statements.
 
 
 
TOYOTA MOTOR CREDIT CORPORATION
 
Note 1 – Interim Financial Data

Basis of Presentation

The information furnished in these unaudited interim financial statements for the three months ended June 30, 2014 and 2013 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, the unaudited 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 months ended June 30, 2014 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2015 (“fiscal 2015”).
 
These financial statements should be read in conjunction with the Consolidated Financial Statements, significant accounting policies, and other notes to the 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, 2014 (“fiscal 2014”), which was filed with the Securities and Exchange Commission (“SEC”) on May 29, 2014. References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.

Certain prior period amounts have been reclassified to conform to the current period presentation. Related party transactions presented in the Consolidated Financial Statements are disclosed in Note 14 – Related Party Transactions of the Notes to Consolidated Financial Statements.

New Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance on the recognition of revenue from contracts with customers. This comprehensive standard will replace all existing revenue recognition guidance. This accounting guidance is effective for us on April 1, 2017. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Recently Adopted Accounting Guidance

In April 2014, we adopted new FASB accounting guidance that requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2014, we adopted new FASB accounting guidance related to the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. Pursuant to the new guidance, an entity is required to measure these obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. Additionally, the guidance requires disclosure of the nature and amount of the obligation as well as other information about those obligations within the footnotes to its financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements.
 
7

 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
 
Note 2 – Fair Value Measurements

Recurring Fair Value Measurements

The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2014 and March 31, 2014, by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million as of June 30, 2014 and March 31, 2014. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of June 30, 2014 and March 31, 2014.
 
As of June 30, 2014
 
 
 
Fair value measurements on a recurring basis
 
 
 
 
   
 
   
 
   
Counterparty
   
 
 
 
 
 
   
 
   
 
   
netting &
   
Fair
 
(Dollars in millions)
 
Level 1
   
Level 2
   
Level 3
   
collateral
   
value
 
Cash equivalents:
 
 
   
 
   
 
   
 
   
 
 
Money market instruments
  $ 805     $ 950     $ -     $ -     $ 1,755  
U.S. government and agency obligations
    -       337       -       -       337  
Certificates of deposit
    -       2,931       -       -       2,931  
Commercial paper
    -       157       -       -       157  
Cash equivalents total
    805       4,375       -       -       5,180  
Restricted cash equivalents - money market instruments
    317       -       -       -       317  
Available-for-sale securities:
                                       
Debt instruments:
                                       
U.S. government and agency obligations
    507       623       2       -       1,132  
Municipal debt securities
    -       12       -       -       12  
Certificates of deposit
    -       914       -       -       914  
Commercial paper
    -       329       -       -       329  
Corporate debt securities
    -       132       12       -       144  
Mortgage-backed securities:
                                       
U.S. government agency
    -       59       -       -       59  
Non-agency residential
    -       -       5       -       5  
Non-agency commercial
    -       -       40       -       40  
Asset-backed securities
    -       -       29       -       29  
Equity instruments:
                                       
Fixed income mutual funds:
                                       
Short-term sector fund
    -       45       -       -       45  
U.S. government sector fund
    -       337       -       -       337  
Municipal sector fund
    -       23       -       -       23  
Investment grade corporate sector fund
    -       323       -       -       323  
High-yield sector fund
    -       46       -       -       46  
Real return sector fund
    -       285       -       -       285  
Mortgage sector fund
    -       533       -       -       533  
Asset-backed securities sector fund
    -       51       -       -       51  
Emerging market sector fund
    -       69       -       -       69  
International sector fund
    -       173       -       -       173  
Equity mutual fund
    487       -       -       -       487  
Available-for-sale securities total
    994       3,954       88       -       5,036  
Derivative assets:
                                       
Foreign currency swaps
    -       944       78       -       1,022  
Interest rate swaps
    -       375       3       -       378  
Counterparty netting and collateral
    -       -       -       (1,313 )     (1,313 )
Derivative assets total
    -       1,319       81       (1,313 )     87  
Assets at fair value
    2,116       9,648       169       (1,313 )     10,620  
Derivative liabilities:
                                       
Foreign currency swaps
    -       (180 )     -       -       (180 )
Interest rate swaps
    -       (454 )     -       -       (454 )
Counterparty netting and collateral
    -       -       -       631       631  
Liabilities at fair value
    -       (634 )     -       631       (3 )
Net assets at fair value
  $ 2,116     $ 9,014     $ 169     $ (682 )   $ 10,617  
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 2 – Fair Value Measurements (Continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value measurements on a recurring basis
 
 
 
 
   
 
   
 
   
Counterparty
   
 
 
 
 
 
   
 
   
 
   
netting &
   
Fair
 
(Dollars in millions)
 
Level 1
   
Level 2
   
Level 3
   
collateral
   
value
 
Cash equivalents:
 
 
   
 
   
 
   
 
   
 
 
Money market instruments
  $ 730     $ 694     $ -     $ -     $ 1,424  
Certificates of deposit
    -       1,437       -       -       1,437  
Commercial paper
    -       708       -       -       708  
Cash equivalents total
    730       2,839       -       -       3,569  
Restricted cash equivalents - money market instruments
    1,077       -       -       -       1,077  
Available-for-sale securities:
                                       
Debt instruments:
                                       
U.S. government and agency obligations
    398       252       2       -       652  
Municipal debt securities
    -       11       -       -       11  
Certificates of deposit
    -       1,599       -       -       1,599  
Commercial paper
    -       507       -       -       507  
Corporate debt securities
    -       157       12       -       169  
Mortgage-backed securities:
                                       
U.S. government agency
    -       60       -       -       60  
Non-agency residential
    -       -       5       -       5  
Non-agency commercial
    -       -       43       -       43  
Asset-backed securities
    -       -       27       -       27  
Equity instruments:
                                       
Fixed income mutual funds:
                                       
Short-term sector fund
    -       44       -       -       44  
U.S. government sector fund
    -       327       -       -       327  
Municipal sector fund
    -       22       -       -       22  
Investment grade corporate sector fund
    -       316       -       -       316  
High-yield sector fund
    -       45       -       -       45  
Real return sector fund
    -       274       -       -       274  
Mortgage sector fund
    -       520       -       -       520  
Asset-backed securities sector fund
    -       50       -       -       50  
Emerging market sector fund
    -       66       -       -       66  
International sector fund
    -       171       -       -       171  
Equity mutual fund
    481       -       -       -       481  
Available-for-sale securities total
    879       4,421       89       -       5,389  
Derivative assets:
                                       
Foreign currency swaps
    -       804       70       -       874  
Interest rate swaps
    -       358       3       -       361  
Counterparty netting and collateral
    -       -       -       (1,186 )     (1,186 )
Derivative assets total
    -       1,162       73       (1,186 )     49  
Assets at fair value
    2,686       8,422       162       (1,186 )     10,084  
Derivative liabilities:
                                       
Foreign currency swaps
    -       (252 )     -       -       (252 )
Interest rate swaps
    -       (553 )     -       -       (553 )
Counterparty netting and collateral
    -       -       -       799       799  
Liabilities at fair value
    -       (805 )     -       799       (6 )
Net assets at fair value
  $ 2,686     $ 7,617     $ 162     $ (387 )   $ 10,078  
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. There were no transfers between levels during the three months ended June 30, 2014 and 2013.
 
The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs for the three months ended June 30, 2014 and 2013:

Three Months Ended June 30, 2014
 
  Fair value measurements using significant unobservable inputs (Level 3)  
                                                                         
                                                                     
Total net
 
                                                                     
assets
 
    Available-for-sale securities     Derivative instruments, net      
(liabilities)
 
                                                                         
    U.S.                             Total                      Total           
    government      Corporate      Mortgage-      Asset-      available-     Interest      Foreign      derivative           
    and agency      debt      backed      backed      for-sale      rate      currency      assets           
(Dollars in millions)   obligations      securities      securities      securities      securities      swaps      swaps      (liabilities)           
Fair value, April 1, 2014
  $ 2     $ 12     $ 48     $ 27     $ 89     $ 3     $ 70     $ 73     $ 162  
Total gains
                                                                       
Included in earnings
    -       -       -       -       -       1       13       14       14  
Included in other
comprehensive income
    -       -       1       -       1       -       -       -       1  
Purchases, issuances, sales, and
                                                                       
settlements
                                                                       
Purchases
    -       -       1       3       4       -       -       -       4  
Issuances
    -       -       -       -       -       -       -       -       -  
Sales
    -       -       (2 )     -       (2 )     -       -       -       (2 )
Settlements
    -       -       (3 )     (1 )     (4 )     (1 )     (5 )     (6 )     (10 )
Transfers in to Level 3
    -       -       -       -       -       -       -       -       -  
Transfers out of Level 3
    -       -       -       -       -       -       -       -       -  
Fair value, June 30, 2014
  $ 2     $ 12     $ 45     $ 29     $ 88     $ 3     $ 78     $ 81     $ 169  
The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at the reporting date
                                          $ 1     $ 13     $ 14     $ 14  
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 2 – Fair Value Measurements (Continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013
 
 
 
Fair value measurements using significant unobservable inputs (Level 3)
 
 
 
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Total net
 
 
 
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
assets
 
 
 
Available-for-sale securities
   
Derivative instruments, net
   
(liabilities)
 
 
 
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
Total
   
 
   
 
   
 
   
Total
   
 
 
 
 
Corporate
   
Mortgage-
   
Asset-
   
available-
   
Interest
   
Foreign
   
 
   
derivative
   
 
 
 
 
debt
   
backed
   
backed
   
for-sale
   
rate
   
currency
   
Embedded
   
assets
   
 
 
(Dollars in millions)
 
securities
   
securities1
   
securities
   
securities
   
swaps
   
swaps
   
derivatives
   
(liabilities)
   
 
 
Fair value, April 1, 2013
  $ 4     $ 56     $ 13     $ 73     $ 12     $ 55     $ (12 )   $ 55     $ 128  
Total (losses)/ gains
                                                                       
Included in earnings
    -       -       -       -       (1 )     (22 )     5       (18 )     (18 )
Included in other comprehensive income
    -       (3 )     -       (3 )     -       -       -       -       (3 )
Purchases, issuances, sales, and settlements
                                                                       
Purchases
    -       -       7       7       -       -       -       -       7  
Issuances
    -       -       -       -       -       -       -       -       -  
Sales
    -       -       -       -       -       -       -       -       -  
Settlements
    -       -       (1 )     (1 )     -       (10 )     -       (10 )     (11 )
Transfers in to Level 3
    -       -       -       -       -       -       -       -       -  
Transfers out of Level 3
    -       -       -       -       -       -       -       -       -  
Fair value, June 30, 2013
  $ 4     $ 53     $ 19     $ 76     $ 11     $ 23     $ (7 )   $ 27     $ 103  
The amount of total losses for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at the reporting date
                                  $ (1 )   $ (19 )   $ (1 )   $ (21 )   $ (21 )
 
                                                                       
1 Certain prior period amounts have been reclassified to conform to the current year presentation.
                             

Nonrecurring Fair Value Measurements

Nonrecurring fair value measurements consist of 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, if collateral dependent, when there is evidence of impairment. For these assets, we record the fair value on a nonrecurring basis and disclose changes in fair value during the reporting period. These nonrecurring fair value measurements were not significant as of June 30, 2014 and March 31, 2014.
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements

The fair value measurements of Level 3 financial assets and liabilities subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance Sheet or Consolidated Statement of Income as of and for the three months ended June 30, 2014 and as of and for the year ended March 31, 2014.

Financial Instruments

The following tables provide information about assets and liabilities not carried at fair value on a recurring basis in our Consolidated Balance Sheet:

 
 
 
   
Fair value measurement hierarchy
 
 
 
Carrying
   
 
   
 
   
 
   
Total Fair
 
(Dollars in millions)
 
value
   
Level 1
   
Level 2
   
Level 3
   
Value
 
As of June 30, 2014
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
 
Financial assets
 
 
   
 
   
 
   
 
   
 
 
Finance receivables, net
 
 
   
 
   
 
   
 
   
 
 
Retail loan
  $ 49,228     $ -     $ -     $ 49,675     $ 49,675  
Commercial
    184       -       -       169       169  
Wholesale
    9,056       -       -       9,094       9,094  
Real estate
    4,591       -       -       4,603       4,603  
Working capital
    1,845       -       -       1,837       1,837  
 
                                       
Financial liabilities
                                       
Commercial paper
  $ 25,524     $ -     $ 25,524     $ -     $ 25,524  
Unsecured notes and loans payable
    51,924       -       52,333       745       53,078  
Secured notes and loans payable
    9,112       -       -       9,119       9,119  
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 2 - Fair Value Measurements (Continued)
 
 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
Fair value measurement hierarchy
 
 
 
Carrying
   
 
   
 
   
 
   
Total Fair
 
(Dollars in millions)
 
value
   
Level 1
   
Level 2
   
Level 3
   
Value
 
As of March 31, 2014
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
 
Financial assets
 
 
   
 
   
 
   
 
   
 
 
Finance receivables, net
 
 
   
 
   
 
   
 
   
 
 
Retail loan
  $ 48,892     $ -     $ -     $ 49,392     $ 49,392  
Commercial
    174       -       -       160       160  
Wholesale
    9,344       -       -       9,391       9,391  
Real estate
    4,601       -       -       4,552       4,552  
Working capital
    1,802       -       -       1,807       1,807  
 
                                       
Financial liabilities
                                       
Commercial paper
  $ 27,709     $ -     $ 27,709     $ -     $ 27,709  
Unsecured notes and loans payable
    49,500       -       49,697       736       50,433  
Secured notes and loans payable
    8,158       -       -       8,165       8,165  

The carrying value of each class of finance receivables is presented including accrued interest and deferred fees and costs, net of deferred income and the allowance for credit losses. The amount excludes related party receivables of $90 million and $89 million at June 30, 2014 and March 31, 2014 and direct finance leases of $273 million and $274 million at June 30, 2014 and March 31, 2014, respectively.

The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment as described in Note 9 - Debt.
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 3 – Investments in Marketable Securities

We classify all of our investments in marketable securities as available-for-sale. The amortized cost and estimated fair value of investments in marketable securities and related unrealized gains and losses were as follows:
 
 
 
June 30, 2014
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(Dollars in millions)
 
cost
   
gains
   
losses
   
value
 
Available-for-sale securities:
 
 
   
 
   
 
   
 
 
Debt instruments:
 
 
   
 
   
 
   
 
 
U.S. government and agency obligations
  $ 1,130     $ 2     $ -     $ 1,132  
Municipal debt securities
    11       1       -       12  
Certificates of deposit
    914       -       -       914  
Commercial paper
    329       -       -       329  
Corporate debt securities
    138       6       -       144  
Mortgage-backed securities:
                               
U.S. government agency
    57       2       -       59  
Non-agency residential
    4       1       -       5  
Non-agency commercial
    40       1       (1 )     40  
Asset-backed securities
    29       -       -       29  
Equity instruments:
                               
Fixed income mutual funds:
                               
Short-term sector fund
    41       4       -       45  
U.S. government sector fund
    330       7       -       337  
Municipal sector fund
    21       2       -       23  
Investment grade corporate sector fund
    286       37       -       323  
High-yield sector fund
    38       8       -       46  
Real return sector fund
    278       7       -       285  
Mortgage sector fund
    523       10       -       533  
Asset-backed securities sector fund
    41       10       -       51  
Emerging market sector fund
    64       5       -       69  
International sector fund
    171       2       -       173  
Equity mutual fund
    210       277       -       487  
Total investments in marketable securities
  $ 4,655     $ 382     $ (1 )   $ 5,036  
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 3 – Investments in Marketable Securities (Continued)
 
 
 
 
   
 
   
 
   
 
 
 
 
March 31, 2014
 
 
 
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(Dollars in millions)
 
cost
   
gains
   
losses
   
value
 
Available-for-sale securities:
 
 
   
 
   
 
   
 
 
Debt instruments:
 
 
   
 
   
 
   
 
 
U.S. government and agency obligations
  $ 652     $ 1     $ (1 )   $ 652  
Municipal debt securities
    10       1       -       11  
Certificates of deposit
    1,599       -       -       1,599  
Commercial paper
    507       -       -       507  
Corporate debt securities
    164       6       (1 )     169  
Mortgage-backed securities:
                               
U.S. government agency
    60       1       (1 )     60  
Non-agency residential
    4       1       -       5  
Non-agency commercial
    44       1       (2 )     43  
Asset-backed securities
    27       -       -       27  
Equity instruments:
                               
Fixed income mutual funds:
                               
Short-term sector fund
    41       3       -       44  
U.S. government sector fund
    329       -       (2 )     327  
Municipal sector fund
    21       1       -       22  
Investment grade corporate sector fund
    283       33       -       316  
High-yield sector fund
    38       7       -       45  
Real return sector fund
    275       -       (1 )     274  
Mortgage sector fund
    519       1       -       520  
Asset-backed securities sector fund
    40       10       -       50  
Emerging market sector fund
    65       1       -       66  
International sector fund
    170       2       (1 )     171  
Equity mutual fund
    217       264       -       481  
Total investments in marketable securities
  $ 5,065     $ 333     $ (9 )   $ 5,389  

The fixed income mutual funds include investments in funds that are privately placed and managed by an open-end investment management company (the “Trust”). The total fair value of private placement fixed income mutual funds was $1.9 billion and $1.8 billion at June 30, 2014 and March 31, 2014, respectively. We may redeem shares during any 90 day period solely in cash up to the lesser of $250 thousand or 1 percent of the Trust’s asset value at the beginning of such period. Although the Trust will normally redeem all shares for cash, it may, in unusual circumstances, redeem amounts exceeding the lesser of the two amounts described above, in whole or in part, by payment in kind of securities held by the respective fund.
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 3 – Investments in Marketable Securities (Continued)

Unrealized Losses on Securities

At June 30, 2014 and March 31, 2014, the unrealized losses of investments in marketable securities in a loss position were not significant. These unrealized losses are recorded in accumulated other comprehensive income, net of applicable taxes in our Consolidated Statement of Shareholder's Equity.

Realized Gains and Losses on Securities
 
The following table represents realized gains and losses by transaction type for the following:
 
Three Months Ended
 
 
June 30,
 
(Dollars in millions)
2014
 
2013
 
Available-for-sale securities:
 
 
   
 
 
Realized gains on sales
  $ 12     $ 5  
Realized losses on sales
  $ -     $ (1 )
Other-than-temporary impairment
  $ -     $ (30 )

Other-than-temporary impairment write-downs were not significant during the three months ended June 30, 2014. Substantially all of the other-than-temporary impairment write-downs of $30 million during the three months ended June 30, 2013, were related to fixed income mutual funds.

Contractual Maturities

The fair value and contractual maturities of available-for-sale debt instruments at June 30, 2014 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.

 
 
June 30, 2014
 
(Dollars in millions)
 
Amortized cost
   
Fair value
 
Available-for-sale debt instruments:
 
 
   
 
 
Due within 1 year
  $ 2,249     $ 2,251  
Due after 1 year through 5 years
    154       156  
Due after 5 years through 10 years
    66       67  
Due after 10 years
    53       57  
Mortgage-backed and asset-backed securities1
    130       133  
Total
  $ 2,652     $ 2,664  
 
               
1 Mortgage-backed and asset-backed securities are shown separately because these securities do not have a single maturity date.
 

Securities on Deposit

In accordance with statutory requirements, we had on deposit with state insurance authorities U.S. debt securities with amortized cost and fair value of $6 million at both June 30, 2014 and March 31, 2014.
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 4 – Finance Receivables, Net

Finance receivables, net consist of retail and dealer accounts including accrued interest and deferred fees and costs, net of the allowance for credit losses and deferred income. Pledged receivables represent retail loan receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements. Cash flows from these pledged 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.

(Dollars in millions)
 
June 30, 2014
   
March 31, 2014
 
Retail receivables
  $ 39,305     $ 40,216  
Pledged retail receivables
    10,908       9,633  
Dealer financing
    15,670       15,925  
 
    65,883       65,774  
 
               
Deferred origination (fees) and costs, net
    648       651  
Deferred income
    (883 )     (863 )
Allowance for credit losses
               
Retail and pledged retail receivables
    (293 )     (298 )
Dealer financing
    (88 )     (88 )
Total allowance for credit losses
    (381 )     (386 )
Finance receivables, net
  $ 65,267     $ 65,176  

Finance receivables, net and retail receivables presented in the previous table includes direct finance leases, net of $273 million and $274 million at June 30, 2014 and March 31, 2014, respectively.

Credit Quality Indicators

We are exposed to credit risk on our finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with us or otherwise fail to perform as agreed.

Retail Loan and Commercial Portfolio Segments

Retail loan and commercial portfolio segments each consist of one class of finance receivables. While we use various credit quality metrics to develop our allowance for credit losses on the retail loan and commercial portfolio segments, we primarily utilize the aging of the individual accounts to monitor the credit quality of these finance receivables. Based on our experience, the payment status of borrowers is the strongest indicator of the credit quality of the underlying receivables. Payment status also impacts charge-offs.

Individual borrower accounts for each class of finance receivables within the retail loan and commercial portfolio segments are segregated into one of four aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated quarterly.
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Finance Receivables, Net (Continued)

Dealer Products Portfolio Segment

For the three classes of finance receivables within the dealer products portfolio segment (wholesale, real estate and working capital), all loans outstanding for an individual dealer or dealership 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
 
·
Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements

The tables below present each credit quality indicator by class of finance receivables as of June 30, 2014 and March 31, 2014:

 
Retail Loan
 
Commercial
   
 
   
 
 
(Dollars in millions)
June 30, 2014
 
March 31, 2014
 
June 30, 2014
 
March 31, 2014
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Aging of finance receivables:
 
 
   
 
   
 
   
 
   
 
   
 
 
Current
  $ 49,078     $ 48,828     $ 446     $ 432    
 
   
 
 
30-59 days past due
    522       459       8       6    
 
   
 
 
60-89 days past due
    121       90       1       1    
 
   
 
 
90 days or greater past due
    37       33       -       -    
 
   
 
 
Total
  $ 49,758     $ 49,410     $ 455     $ 439    
 
   
 
 
 
                                 
 
   
 
 
 
Wholesale
 
Real Estate
 
Working Capital
 
(Dollars in millions)
June 30, 2014
 
March 31, 2014
 
June 30, 2014
 
March 31, 2014
 
June 30, 2014
 
March 31, 2014
 
 
                                 
 
   
 
 
Credit quality indicators:
                                 
 
   
 
 
Performing
  $ 8,145     $ 8,129     $ 3,977     $ 3,791     $ 1,741     $ 1,642  
Credit Watch
    972       1,282       644       855       104       158  
At Risk
    31       24       23       12       25       25  
Default
    1       1       5       -       2       6  
Total
  $ 9,149     $ 9,436     $ 4,649     $ 4,658     $ 1,872     $ 1,831  
 
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
Note 4 – Finance Receivables, Net (Continued)
 
   
Impaired Finance Receivables
 
   
 
   
 
   
 
   
 
   
 
   
 
 
The following table summarizes the information related to our impaired loans by class of finance receivables as of June 30, 2014 and March 31, 2014:
 
   
 
   
 
   
 
   
 
   
 
   
 
 
 
Impaired
   
 
   
 
 
Individually Evaluated
 
 
Finance Receivables
 
Unpaid Principal Balance
 
Allowance
 
 
June 30,
 
March 31,
 
June 30,
 
March 31,
 
June 30,
   
March 31,
 
(Dollars in millions)
2014
 
2014
 
2014
 
2014
 
2014
   
2014
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Impaired account balances individually evaluated for impairment with an allowance:
   
 
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Wholesale
  $ 21     $ 13     $ 21     $ 13     $ 2     $ 1  
Real estate
    27       27       27       27       7       8  
Working capital
    22       23       22       23       22       22  
Total
  $ 70     $ 63     $ 70     $ 63     $ 31     $ 31  
                                                 
Impaired account balances individually evaluated for impairment without an allowance:
         
                                                 
Wholesale
  $ 49     $ 51     $ 49     $ 51                  
Real estate
    96       90       96       90                  
Working capital
    4       4       4       4                  
Total
  $ 149     $ 145     $ 149     $ 145                  
                                                 
Impaired account balances aggregated and evaluated for impairment:
         
                                                 
Retail loan
  $ 312     $ 322     $ 308     $ 318                  
Comme