Note 15 – Related Party Transactions

The tables below summarize amounts included in our Consolidated Statements of Income and in our Consolidated Balance Sheets under various related party agreements or relationships:


	Years Ended March 31,
	2018			2017		2016
Total financing revenues:
Manufacturers’ subvention and other revenues	$	1,602		$	1,374	$	1,315

Interest expense:
Credit support fees incurred	$	94		$	92	$	91
Interest and other expenses	$	1		$	3	$	4

Insurance earned premiums and contract revenues:
Insurance premiums and contract revenues	$	182		$	149	$	132

Investment and other income, net:
Gain on sale of commercial finance business	$	-		$	-	$	197
Interest and other income	$	13		$	9	$	8

Expenses:
Operating and administrative	$	80		$	73	$	81
Insurance losses and loss adjustment expenses¹	$	(3	)	$	-	$	-

¹	Amount includes the transfer of insurance losses and loss adjustment expenses under a reinsurance contract.

Note 15 – Related Party Transactions (Continued)

	March 31,			March 31,
	2018			2017
Assets:
Cash and cash equivalents
Commercial paper	$	255		$	-

Investments in marketable securities
Commercial paper	$	52		$	-

Finance receivables, net
Accounts receivable	$	191		$	138
Deferred retail subvention income	$	(1,279	)	$	(967	)

Investments in operating leases, net
Investments in operating leases, net	$	6		$	4
Deferred lease subvention income	$	(1,682	)	$	(1,174	)

Other assets
Notes receivable	$	68		$	823
Other receivables, net	$	310		$	202

Liabilities:
Other liabilities
Unearned affiliate insurance premiums and contract revenues	$	328		$	332
Other payables, net	$	74		$	74
Notes payable	$	18		$	13

TMCC receives subvention payments from TMNA which results in a gross monthly subvention receivable. As of March 31, 2018 and 2017, the subvention receivable from TMNA was $279 million and $165 million, respectively. The subvention receivable is recorded in Other receivables, net in Other assets as of March 31, 2018 and 2017. We have a master netting agreement with TMNA, which allows us to net settle payments for shared services and subvention transactions.

Note 15 – Related Party Transactions (Continued)

Financing Support Arrangements with Affiliates

TMCC is party to a credit support agreement with TFSC (the “TMCC Credit Support Agreement”). The TMCC Credit Support Agreement requires TFSC to maintain certain ownership, net worth maintenance, and debt service provisions with respect to TMCC, but is not a guarantee by TFSC of any securities or obligations of TMCC. In conjunction with this credit support agreement, TMCC has agreed to pay TFSC a semi-annual fee based on a fixed rate applied to the weighted average outstanding amount of securities entitled to credit support.

TCPR is the beneficiary of a credit support agreement with TFSC containing provisions similar to the TMCC Credit Support Agreement described above.

In addition, TMCC receives support from and provides financing support to TFSC and other affiliates in the form of promissory notes, conduit finance agreements and various loan and credit facility agreements. As of March 31, 2018, total financing support available from affiliates totaled approximately $3.6 billion and total financing support available to affiliates totaled approximately $5.6 billion. The amounts outstanding under these agreements are recorded in Other assets and Other liabilities in our Consolidated Balance Sheets at March 31, 2018 and 2017.

Other Financing Support Provided to Affiliates

•

TMCC provides home loans to certain employees. In addition, we also provide home equity advances through a relocation provider to certain employees relocating to Texas. TMCC executive officers and directors are not eligible for the home loan or home equity advance programs.

•

TMCC provides wholesale financing, real estate and working capital loans to certain dealerships that were consolidated with another affiliate under the accounting guidance for variable interest entities. TMCC also pays these dealers origination fees. These costs represent direct costs incurred in connection with the acquisition of retail and lease contracts, including subvention and other cash incentive programs.

•

TMCC has guaranteed the payments of principal and interest with respect to the bonds of manufacturing facilities of certain affiliates. The nature, business purpose, and amounts of these guarantees are described in Note 14 – Commitments and Contingencies.

•

TMCC and TFSB are parties to a master participation agreement pursuant to which TMCC agreed to purchase up to $60 million per year of residential mortgage loans originated by TFSB that meet specified credit underwriting guidelines. At March 31, 2018 and 2017, we had $30 million and $33 million, respectively, in loan participations outstanding that had been purchased by TMCC under this agreement.

Note 15 – Related Party Transactions (Continued)

Shared Service Arrangements with Affiliates

TMCC is subject to the following shared service agreements:

•

TMCC and TCPR incur costs under various shared service agreements with our affiliates. Services provided by affiliates under the shared service agreements include marketing, technological, facilities, and administrative services, as well as services related to our funding and risk management activities and our bank and investor relationships.

•

TMCC provides various services to our financial services affiliates, including certain administrative, systems and operational support.

•

TMCC provides various services to TFSB, including marketing, administrative, systems, and operational support in exchange for TFSB making available certain financial products and services to TMCC’s customers and dealers meeting TFSB’s credit standards. TMCC is party to a master netting agreement with TFSB, which allows TMCC to net settle payments for shared services between TMCC and TFSB.

•

TMCC is a party to expense reimbursement agreements with TFSB and TFSC related to costs incurred by TMCC or these affiliates on behalf of the other party in connection with TMCC’s provision of services to these affiliates or the provision by these affiliates of certain financial products and services to our customers and dealers in support of TMCC’s customer loyalty strategy and programs, and other brand and sales support. TMCC is also party to an expense reimbursement agreement with TFSIC that reimbursed expenses incurred by TFSIC with respect to costs related to TFSB’s credit card rewards program. TFSB sold its credit card rewards portfolio in October 2015 and no credit card reward program costs have been incurred after such date.

Note 15 – Related Party Transactions (Continued)

Operational Support Arrangements with Affiliates

•

TMCC and TCPR provide various wholesale financing to dealers, which result in our having payables to TMNA and Toyota de Puerto Rico Corp (“TDPR”).

•

TMCC is party to a lease agreement with TMNA for our new headquarters facility in Plano, Texas, expiring in 2032 and our Customer Service Center located in Cedar Rapids, Iowa, expiring in 2019. TMCC was party to a lease agreement with TMNA for our former headquarters location in the TMS headquarters complex in Torrance, California, that was terminated in the third quarter of fiscal 2018. The lease commitments are described in Note 14 – Commitments and Contingencies.

•

Subvention receivable represents amounts due from TMNA and other affiliates in support of retail and lease subvention and other cash incentive programs offered by TMCC. Deferred subvention income represents the unearned portion of amounts received from these transactions, and manufacturers’ subvention and other revenues primarily represent the earned portion of such amounts.

•

Leases represent the investment in operating leases of vehicles leased to affiliates.

•

TMCC is a participating employer in certain retirement, postretirement health care and life insurance benefits sponsored by TMNA. Refer to Note 12 – Pension and Other Benefit Plans for additional information. TMCC also participates in share-based compensation plans sponsored by TMC.

•

TMCC is party to agreements with TMNA and other affiliates relating to the team member vehicle benefit program, which allows team members to lease Toyota and Lexus vehicles on terms exclusive to the benefit program. TMNA serves as the chief administrator of the program. TMCC acquires and services team member leases entered into after the third quarter of fiscal 2018. A portion of the vehicles used for the team member vehicle benefit program are acquired from TMNA. TMCC receives a per vehicle contribution from participating affiliates to assist with the costs of its contribution to the benefit program, and TMCC pays a per vehicle participation fee to TMNA to participate in the benefit program.

•

Affiliate insurance premiums and contract revenues primarily represent revenues from TMIS for administrative services and various types of coverage provided to TMNA and affiliates. This includes contractual indemnity coverage for limited warranties on certified Toyota and Lexus pre-owned vehicles and related administrative services for TMNA’s certified pre-owned vehicle program and umbrella liability policy. TMIS provides umbrella liability insurance to TMNA and affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. On all layers in which TMIS has provided coverage, 99 percent of the risk has been ceded to various reinsurers. Up until April 30, 2016, TMIS also provided property deductible reimbursement insurance to TMNA and affiliates covering losses incurred under their primary policy.