Note 12 – 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,
	2017		2017
Commitments:
Credit facilities commitments with dealers	$	1,322	$	1,199
Minimum lease commitments		173		59
Total commitments		1,495		1,258
Guarantees of affiliate pollution control and solid waste disposal bonds		100		100
Total commitments and guarantees	$	1,595	$	1,358

Wholesale financing is not considered to be a contractual commitment as the arrangements are not binding arrangements under which TMCC is required to perform.

In July 2017, we entered into a 15-year lease agreement, which expires in August 2032, with Toyota Motor North America, Inc. (“TMNA”) for our new headquarters facility in Plano, Texas. Minimum lease commitments in the table above include $114 million and $10 million for facilities leases with affiliates at September 30, 2017 and March 31, 2017, respectively. At September 30, 2017, minimum future commitments under lease agreements to which we are a lessee, including those with affiliates, are as follows:

	Future minimum
Years ending March 31,	lease payments
2018	$	15
2019		24
2020		20
2021		15
2022		18
Thereafter		81
Total	$	173

Note 12 – Commitments and Contingencies (Continued)

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 insurance 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.

We are in the process of moving our corporate headquarters operations from Torrance, California to Plano, Texas as part of Toyota Motor Corporation’s consolidation of its three North American headquarters for manufacturing, sales and marketing, and finance operations to a single new headquarters facility. The relocation of our headquarters operations is expected to be substantially complete by the end of calendar year 2017. Relocation costs for employees and other relocation expenses are currently estimated to be approximately $120 million and are being expensed as incurred. To date, the Company has incurred $96 million in relocation expenses. The relocation costs incurred during the three and six months ended September 30, 2017 were $23 million and $34 million, respectively, compared to $11 million and $17 million during the same periods of fiscal 2017. We have not incurred significant lease termination costs as a result of our relocation.

Guarantees and Other Contingencies

TMCC has guaranteed bond obligations totaling $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 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $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 an annual fee of $78 thousand for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of September 30, 2017 and March 31, 2017.

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 and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or 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, 2017, we determined that it is not probable that we will be required to make any material payments in the future. As of September 30, 2017 and March 31, 2017, no amounts have been recorded under these indemnification provisions.

Note 12 – Commitments and Contingencies (Continued)

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. 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 possible 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 possible 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.

We have received a request for documents and information from the New York State Department of Financial Services relating to our lending practices (including fair lending), and a request for documents and information pursuant to a civil investigative demand from the Commonwealth of Massachusetts Office of the Attorney General relating to our financing of guaranteed auto protection insurance products on retail contracts. We will continue to cooperate with these requests, but are unable to predict their outcome given their preliminary status.