Toyota Motor Credit Earnings 2019-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2019

OR

For the transition period from _______________ to _______________

Commission File Number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

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.

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, 2019, 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, 2019

2

TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions)

(Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

(Unaudited)

Refer to the accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in millions except share data)

(Unaudited)

The following table presents the assets and liabilities of our consolidated variable interest entities (Refer to Note 8).

Refer to the accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

(Dollars in millions)

(Unaudited)

Refer to the accompanying Notes to Consolidated Financial Statements.

5

TOYOTA MOTOR CREDIT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

Refer to the accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

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, 2019 and 2018 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, 2019 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2020 (“fiscal 2020”).

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, 2019 (“fiscal 2019”), which was filed with the Securities and Exchange Commission on June 4, 2019.  References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.

Certain prior period amounts have been reclassified to conform to current period presentation.  Related party transactions are disclosed in Note 11 – Related Party Transactions.

Other Matters

On April 16, 2019, we announced that we will restructure our field operations over the next two years to better serve our dealer partners by streamlining our field office structure into three regional locations and investing in new technology.  Costs associated with this restructure are not expected to be significant.

TMCC has commenced preparations to launch private label finance services for third-party automotive and mobility companies.  In furtherance of this new business initiative, on August 28, 2019, we entered into an agreement with Mazda Motor of America, Inc. (“Mazda”) pursuant to which we will offer exclusive private label automotive retail, lease, and dealer financing products and services, and vehicle protection products and services, to Mazda customers and dealers in the United States, launching at various times through fiscal year 2021 for an initial term of approximately five years.  We intend to leverage our existing processes and personnel to service the newly originated assets, and we expect to make certain technology investments to support the Mazda program.  TMCC will not acquire any existing Mazda assets or liabilities pursuant to the agreement and we do not expect launch costs to be significant through fiscal year 2021.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

Note 1 – Interim Financial Data (Continued)

Recently Adopted Accounting Guidance

On April 1, 2019, we adopted the following new accounting standards:

Leases

We adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), along with the subsequently issued guidance amending and clarifying various aspects of the new lease guidance, using the modified retrospective method.  In accordance with that method, the comparative period’s information has not been restated and continues to be reported under the lease accounting guidance in effect for that period.  We also elected to apply the package of practical expedients permitted under the transition guidance of the new standard which allowed us to not reassess our historical lease classification, initial direct costs, and whether or not contracts entered into prior to adoption are or contain leases.  As a lessor, the adoption of ASU 2016-02, did not have a significant impact on our financial statements.  As a lessee, the adoption of ASU 2016-02 added right-of-use (“ROU”) assets of $115 million and operating lease liabilities of $122 million, which are included in Other assets, and in Other liabilities, respectively, in our Consolidated Balance Sheet.  The adoption of this new guidance did not impact our Consolidated Statement of Income and did not result in a cumulative-effect adjustment to opening retained earnings.

Refer to Note 4 – Investments in Operating Leases, Net and Note 9 – Commitments and Contingencies for additional information.

Other Recently Adopted Standards

We adopted ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs, which requires certain premiums on callable debt securities to be amortized to the earliest call date.  The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

We adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  The adoption of this guidance did not have an impact on our consolidated financial statements and related disclosures as we no longer have hedge accounting derivatives.

In the second quarter of fiscal 2020, we adopted ASU 2019-07, Codification Updates to Securities and Exchange Commission (“SEC”) Sections – Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, “Disclosure Update and Simplification,” and Nos. 33-10231 and 33-10442, “Investment Company Reporting Modernization,” and Miscellaneous Updates.  This guidance was effective upon issuance in July 2019 and aligns the guidance in various SEC sections to the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) with the requirements of certain already effective SEC final rules.  While most of the amendments in this release eliminate outdated or duplicative disclosure requirements, the final rule release amends the interim financial statement requirements to include a reconciliation of changes in shareholder’s equity for each period for which an income statement is required to be filed.  We have disclosed the required information in the Consolidated Statements of Shareholder’s Equity.  The other eliminations or amendments did not have a material impact on our consolidated financial statements and related disclosures.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

Note 1 – Interim Financial Data (Continued)

Accounting Guidance Issued But Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This guidance introduces a new impairment model based on expected losses rather than incurred losses for certain types of financial instruments.  It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.  The FASB subsequently issued guidance amending and clarifying aspects of the new impairment model.  This ASU is effective for us on April 1, 2020.  We are in the process of developing, refining and testing the models and procedures that will be used to calculate the credit loss reserves in accordance with this new accounting guidance.  We expect this new guidance will result in an increase in our allowance for credit losses with a cumulative-effect adjustment to our opening retained earnings in the period of adoption.  The magnitude of the increase in our allowance for credit losses is under evaluation.  We are currently evaluating the other potential impacts of this guidance on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which modifies disclosure requirements related to fair value measurement.  This ASU is effective for us on April 1, 2020.  The adoption of this guidance will not have a material impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software, which aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software.  This ASU is effective for us on April 1, 2020.  We are currently evaluating the potential impacts of this guidance on our consolidated financial statements and related disclosures.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810), which requires indirect interests held through related parties in common control arrangements to be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.  This ASU is effective for us on April 1, 2021.  The adoption of this guidance will not have a material impact on our consolidated financial statements and related disclosures.   

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The applicable provisions of this ASU are effective for us on April 1, 2020. We are currently evaluating the potential impacts of this guidance on our consolidated financial statements and related disclosures.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

(Unaudited)

Investments in marketable securities consist of debt securities and equity investments.  We classify all of our debt securities as available-for-sale.  All equity investments are recorded at fair value with changes in fair value included in Investment and other income, net within our Consolidated Statements of Income.

Investments in marketable securities consisted of the following: