TOYOTA MOTOR CREDIT CORP - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - 302 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_31-2.htm
EX-32.1 - EXHIBIT 32.1 - 906 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_32-1.htm
EX-32.2 - EXHIBIT 32.2 - 906 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_32-2.htm
EX-12.1 - EXHIBIT 12.1 - RATIO OF EARNINGS TO FIXED CHARGES - TOYOTA MOTOR CREDIT CORP	exhibit_12-1.htm
EXCEL - IDEA: XBRL DOCUMENT - TOYOTA MOTOR CREDIT CORP	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - 302 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_31-1.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 September 30, 2014

[ ] 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 October 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 September 30, 2014

INDEX
PART I ...................................................................................................................................................................................................................	3

Item 1. Financial Statements...............................................................................................................................................................................

Consolidated Statement of Income........................................................................................................................................................................

Consolidated Statement of Comprehensive Income..............................................................................................................................................

Consolidated Balance Sheet...................................................................................................................................................................................

Consolidated Statement of Shareholder’s Equity..................................................................................................................................................

Consolidated Statement of Cash Flows.................................................................................................................................................................

Notes to Consolidated Financial Statements.........................................................................................................................................................

Item 2. Management’s Discussion and Analysis...............................................................................................................................................

Item 3. Quantitative and Qualitative Disclosures About Market Risk...............................................................................................................

Item 4. Controls and Procedures........................................................................................................................................................................

PART II................................................................................................................................................................................................................	72

Item 1. Legal Proceedings...................................................................................................................................................................................

Item 1A. Risk Factors.............................................................................................................................................................................................

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

Item 3. Defaults Upon Senior Securities.............................................................................................................................................................

Item 4. Mine Safety Disclosures..........................................................................................................................................................................

Item 5. Other Information...................................................................................................................................................................................

Item 6. Exhibits....................................................................................................................................................................................................

Signatures................................................................................................................................................................................................................

Exhibit Index...........................................................................................................................................................................................................

- 2 -

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
			Three Months Ended				Six Months Ended
			September 30,				September 30,
(Dollars in millions)			2014		2013		2014		2013
Financing revenues:
	Operating lease	$	1,497	$	1,255	$	2,900	$	2,464
	Retail		461		483		917		961
	Dealer		99		107		200		215
Total financing revenues			2,057		1,845		4,017		3,640

	Depreciation on operating leases		1,196		966		2,296		1,917
	Interest expense		215		314		345		850
Net financing revenues			646		565		1,376		873

Insurance earned premiums and contract revenues			160		143		313		282
Investment and other income, net			60		14		95		20
Net financing revenues and other revenues			866		722		1,784		1,175

Expenses:
	Provision for credit losses		79		28		117		39
	Operating and administrative		253		233		486		460
	Insurance losses and loss adjustment expenses		67		68		137		139
Total expenses			399		329		740		638

Income before income taxes			467		393		1,044		537
Provision for income taxes			176		149		389		202

Net income		$	291	$	244	$	655	$	335

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
			Three Months Ended				Six Months Ended
			September 30,				September 30,
(Dollars in millions)			2014		2013		2014		2013
Net income		$	291	$	244	$	655	$	335
Other comprehensive (loss) income, net of tax:
Net unrealized (losses) gains on available-for-sale
	marketable securities [net of tax benefit
	(provision) of $5, ($10), ($22),
	and $21, respectively]		(6)		16		36		(38)
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 $11, ($5), $16 and ($15), respectively]		(21)		9		(28)		25
Other comprehensive (loss) income			(27)		25		8		(13)
Comprehensive income		$	264	$	269	$	663	$	322
See accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)

(Dollars in millions)		September 30, 2014		March 31, 2014
ASSETS

Cash and cash equivalents		$	5,197	$	3,815
Restricted cash and cash equivalents			534		1,721
Investments in marketable securities			5,071		5,389
Finance receivables, net			65,484		65,176
Investments in operating leases, net			28,436		24,769
Other assets			1,293		1,870
Total assets		$	106,015	$	102,740

LIABILITIES AND SHAREHOLDER'S EQUITY

Debt		$	87,769	$	85,367
Deferred income taxes			7,152		6,747
Other liabilities			3,128		2,888
Total liabilities			98,049		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 September 30, 2014 and March 31, 2014		915		915
Additional paid-in capital			2		2
Accumulated other comprehensive income			208		200
Retained earnings			6,841		6,621
Total shareholder's equity			7,966		7,738
Total liabilities and shareholder's equity		$	106,015	$	102,740

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

(Dollars in millions)	September 30, 2014		March 31, 2014
ASSETS
Finance receivables, net	$	9,018	$	9,501
Investments in operating leases, net		-		156
Other assets		4		7
Total assets	$	9,022	$	9,664

LIABILITIES
Debt	$	7,887	$	8,158
Other liabilities		1		2
Total liabilities	$	7,888	$	8,160

See accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY
(Unaudited)

						Accumulated
						other
		Capital		Additional		comprehensive		Retained
(Dollars in millions)		stock		paid-in capital		income		earnings		Total

Balance at March 31, 2013		$	915	$	2	$	211	$	6,429	$	7,557

Net income for the six months ended
	September 30, 2013		-		-		-		335		335
Other comprehensive loss, net
	of tax		-		-		(13)		-		(13)
Dividend			-		-		-		(665)		(665)
Balance at September 30, 2013		$	915	$	2	$	198	$	6,099	$	7,214

Balance at March 31, 2014		$	915	$	2	$	200	$	6,621	$	7,738

Net income for the six months ended
	September 30, 2014		-		-		-		655		655
Other comprehensive income, net
	of tax		-		-		8		-		8
Dividend			-		-		-		(435)		(435)
Balance at September 30, 2014		$	915	$	2	$	208	$	6,841	$	7,966

See accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
			Six Months Ended September 30,
(Dollars in millions)			2014		2013
Cash flows from operating activities:
	Net income		$	655	$	335
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		2,313		1,933
		Recognition of deferred income		(733)		(621)
		Provision for credit losses		117		39
		Amortization of deferred costs		307		280
		Foreign currency and other adjustments to the carrying value of debt, net		(828)		(122)
	Net realized (gain) loss from sales and other-than-temporary impairment on securities			(44)		40
	Net change in:
		Restricted cash		110		(10)
		Derivative assets		-		(4)
		Other assets (Note 8) and accrued income		(259)		12
		Deferred income taxes		399		231
		Derivative liabilities		16		(7)
		Other liabilities		208		203
Net cash provided by operating activities				2,261		2,309
Cash flows from investing activities:
	Purchase of investments in marketable securities			(2,427)		(1,539)
	Proceeds from sales of investments in marketable securities			463		286
	Proceeds from maturities of investments in marketable securities			2,339		2,227
	Acquisition of finance receivables			(13,775)		(13,847)
	Collection of finance receivables			12,446		12,019
	Net change in wholesale and certain working capital receivables			1,000		179
	Acquisition of investments in operating leases			(8,800)		(7,297)
	Disposals of investments in operating leases			3,198		3,617
	Advances to affiliates			(1,065)		(2,111)
	Repayments from affiliates			1,901		1,755
	Cash un-restricted/(restricted) to acquire finance receivables and investment in operating leases			1,077		-
	Other, net			(18)		(15)
Net cash used in investing activities				(3,661)		(4,726)
Cash flows from financing activities:
	Proceeds from issuance of debt			10,718		9,644
	Payments on debt			(6,940)		(9,772)
	Net change in commercial paper			(572)		2,930
	Advances from affiliates			51		37
	Repayments to affiliates			(40)		(32)
	Dividend paid to TFSA			(435)		(665)
Net cash provided by financing activities				2,782		2,142
Net increase (decrease) in cash and cash equivalents				1,382		(275)
Cash and cash equivalents at the beginning of the period				3,815		4,723
Cash and cash equivalents at the end of the period			$	5,197	$	4,448
Supplemental disclosures:
	Interest paid		$	529	$	572
	Income taxes paid (received), net		$	164	$	(35)

See accompanying Notes to Consolidated Financial Statements.

- 6 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data

Basis of Presentation

The information furnished in these unaudited interim financial statements for the three and six months ended September 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 and six months ended September 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.

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 supersede virtually 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.

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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 September 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 September 30, 2014 and March 31, 2014. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of September 30, 2014 and March 31, 2014.

As of September 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			$	955	$	1,019	$	-	$	-	$	1,974
	U.S. government and agency obligations				-		181		-		-		181
	Certificates of deposit				-		2,350		-		-		2,350
	Commercial paper				-		300		-		-		300
	Cash equivalents total				955		3,850		-		-		4,805
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			1,077		1,167		2		-		2,246
		Municipal debt securities			-		12		-		-		12
		Certificates of deposit			-		30		-		-		30
		Commercial paper			-		271		-		-		271
		Corporate debt securities			-		155		12		-		167
		Mortgage-backed securities:
			U.S. government agency		-		57		-		-		57
			Non-agency residential		-		-		4		-		4
			Non-agency commercial		-		-		46		-		46
		Asset-backed securities			-		-		30		-		30
	Equity instruments:
		Fixed income mutual funds:
			Short-term floating NAV fund II		-		190		-		-		190
			Short-term sector fund		-		37		-		-		37
			U.S. government sector fund		-		274		-		-		274
			Municipal sector fund		-		19		-		-		19
			Investment grade corporate sector fund		-		265		-		-		265
			High-yield sector fund		-		37		-		-		37
			Real return sector fund		-		229		-		-		229
			Mortgage sector fund		-		441		-		-		441
			Asset-backed securities sector fund		-		42		-		-		42
			Emerging market sector fund		-		55		-		-		55
			International sector fund		-		146		-		-		146
		Equity mutual fund			473		-		-		-		473
	Available-for-sale securities total				1,550		3,427		94		-		5,071
	Derivative assets:
		Foreign currency swaps			-		367		53		-		420
		Interest rate swaps			-		334		2		-		336
		Counterparty netting and collateral			-		-		-		(707)		(707)
	Derivative assets total				-		701		55		(707)		49
Assets at fair value					2,505		7,978		149		(707)		9,925
	Derivative liabilities:
		Foreign currency swaps			-		(517)		-		-		(517)
		Interest rate swaps			-		(366)		-		-		(366)
		Counterparty netting and collateral			-		-		-		861		861
Liabilities at fair value					-		(883)		-		861		(22)
Net assets at fair value				$	2,505	$	7,095	$	149	$	154	$	9,903

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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

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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. During the three and six months ended September 30, 2014, there were no transfers between levels. During the three and six months ended September 30, 2013, there was a $2 million transfer from the Corporate debt securities asset class to the U.S. government and agency obligations asset class within the Level 3 debt instruments due to a reclassification of an existing debt instrument.

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 and six months ended September 30, 2014 and 2013:

Three Months Ended September 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, July 1, 2014			$	2	$	12	$	45	$	29	$	88	$	3	$	78	$	81	$	169
Total gains (losses)
		Included in earnings		-		-		-		-		-		(1)		(25)		(26)		(26)
		Included in other comprehensive income		-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		3		11		3		17		-		-		-		17
		Issuances		-		-		-		-		-		-		-		-		-
		Sales		-		(3)		(5)		-		(8)		-		-		-		(8)
		Settlements		-		-		(1)		(2)		(3)		-		-		-		(3)
Transfers in to Level 3				-		-		-		-		-		-		-		-		-
Transfers out of Level 3				-		-		-		-		-		-		-		-		-
Fair value, September 30, 2014			$	2	$	12	$	50	$	30	$	94	$	2	$	53	$	55	$	149
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)	$	(25)	$	(26)	$	(26)

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Three Months Ended September 30, 2013
				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		Embedded		assets
(Dollars in millions)		obligations		securities		securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, July 1, 2013		$	-	$	4	$	53	$	19	$	76	$	11	$	23	$	(7)	$	27	$	103
Total gains (losses)
	Included in earnings		-		-		-		-		-		2		28		(2)		28		28
	Included in other comprehensive income		-		-		-		-		-		-		-

TOYOTA MOTOR CREDIT CORP - FORM 10-Q - November 13, 2014

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