tmcc-10q_20151231.htm

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 o

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 o

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.

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

As of January 31, 2016, 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.

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.

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2015		2014		2015		2014
Financing revenues:
Operating lease	$	1,795	$	1,581	$	5,280	$	4,481
Retail		484		430		1,406		1,347
Dealer		97		101		298		301
Total financing revenues		2,376		2,112		6,984		6,129
Depreciation on operating leases		1,503		1,248		4,309		3,544
Interest expense		277		161		988		506
Net financing revenues		596		703		1,687		2,079

Insurance earned premiums and contract revenues		181		159		533		472
Gain on sale of commercial finance business		197		-		197		-
Investment and other income, net		67		62		119		157
Net financing revenues and other revenues		1,041		924		2,536		2,708

Expenses:
Provision for credit losses		128		103		278		220
Operating and administrative		288		266		845		752
Insurance losses and loss adjustment expenses		73		63		230		200
Total expenses		489		432		1,353		1,172

Income before income taxes		552		492		1,183		1,536
Provision for income taxes		210		185		441		574

Net income	$	342	$	307	$	742	$	962

	December 31,		March 31,
	2015		2015
ASSETS
Cash and cash equivalents	$	2,959	$	2,407
Restricted cash		853		784
Investments in marketable securities		8,241		7,131
Finance receivables, net		65,763		65,893
Investments in operating leases, net		35,336		31,128
Other assets		2,303		2,282
Total assets	$	115,455	$	109,625

LIABILITIES AND SHAREHOLDER’S EQUITY
Debt	$	94,708	$	90,231
Deferred income taxes		7,848		7,519
Other liabilities		3,722		3,355
Total liabilities		106,278		101,105

Commitments and contingencies (See Note 12)

Shareholder’s equity:
Capital stock, no par value (100,000 shares authorized; 91,500 issued and outstanding) at December 31, 2015 and March 31, 2015		915		915
Additional paid-in capital		2		2
Accumulated other comprehensive income		135		220
Retained earnings		8,125		7,383
Total shareholder's equity		9,177		8,520
Total liabilities and shareholder's equity	$	115,455	$	109,625

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

					Accumulated
			Additional		other
	Capital		paid-in		comprehensive			Retained
	stock		capital		income			earnings			Total
Balance at March 31, 2014	$	915	$	2	$	200		$	6,621		$	7,738

Net income for the nine months ended December 31, 2014		-		-		-			962			962
Other comprehensive income, net of tax		-		-		6			-			6
Dividend		-		-		-			(435	)		(435	)
Balance at December 31, 2014	$	915	$	2	$	206		$	7,148		$	8,271

Balance at March 31, 2015	$	915	$	2	$	220		$	7,383		$	8,520

Net income for the nine months ended December 31, 2015		-		-		-			742			742
Other comprehensive loss, net of tax		-		-		(85	)		-			(85	)
Balance at December 31, 2015	$	915	$	2	$	135		$	8,125		$	9,177

	Nine Months Ended December 31,
	2015			2014
Cash flows from operating activities:
Net income	$	742		$	962
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,347			3,570
Recognition of deferred income		(1,277	)		(1,136	)
Provision for credit losses		278			220
Amortization of deferred costs		504			462
Foreign currency and other adjustments to the carrying value of debt, net		(2	)		(1,350	)
Net realized gains from sales and other-than-temporary impairment on securities		10			(55	)
Gain on sale of commercial finance business		(197	)		-
Net change in:
Restricted cash		(69	)		23
Derivative assets		-			(4	)
Other assets (Note 8) and accrued income		66			(298	)
Deferred income taxes		380			588
Derivative liabilities		(15	)		20
Other liabilities		410			358
Net cash provided by operating activities		5,177			3,360

Cash flows from investing activities:
Purchase of investments in marketable securities		(5,894	)		(2,808	)
Proceeds from sales of investments in marketable securities		641			557
Proceeds from maturities of investments in marketable securities		3,987			3,132
Acquisition of finance receivables		(19,665	)		(19,766	)
Collection of finance receivables		18,381			18,423
Net change in wholesale and certain working capital receivables		248			(35	)
Acquisition of investments in operating leases		(14,978	)		(12,690	)
Disposals of investments in operating leases		5,921			4,707
Proceeds from sale of commercial finance business		2,285			-
Net change in financing support provided to affiliates		58			351
Cash equivalents (restricted) un-restricted to acquire finance receivables and investment in operating leases, net		-			1,077
Other, net		(34	)		(36	)
Net cash used in investing activities		(9,050	)		(7,088	)

Cash flows from financing activities:
Proceeds from issuance of debt		19,562			15,756
Payments on debt		(14,958	)		(11,633	)
Net change in commercial paper		(159	)		(225	)
Net change in financing support provided by affiliates		(20	)		6
Dividend paid to TFSA		-			(435	)
Net cash provided by financing activities		4,425			3,469
Net increase (decrease) in cash and cash equivalents		552			(259	)
Cash and cash equivalents at the beginning of the period		2,407			3,815
Cash and cash equivalents at the end of the period	$	2,959		$	3,556
Supplemental disclosures:
Interest paid	$	905		$	810
Income taxes (received) paid, net	$	(189	)	$	153

The information furnished in these unaudited interim financial statements for the three and nine months ended December 31, 2015 and 2014 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 nine months ended December 31, 2015 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2016 (“fiscal 2016”).

These financial statements should be read in conjunction with the Consolidated Financial Statements, significant accounting policies, and other 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, 2015 (“fiscal 2015”), which was filed with the Securities and Exchange Commission on June 2, 2015. 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.

In December 2014, we entered into an agreement for the sale of certain assets and liabilities relating to our industrial equipment retail, lease and dealer portfolios (hereinafter the “commercial finance business” or “disposal group”) to Toyota Industries Commercial Finance, Inc. (“TICF”), a newly-formed subsidiary of Toyota Industries Corporation, which forms part of the group of companies known as the Toyota Group and is a related party to TMCC.

As of August 31, 2015, we reclassified our commercial finance business to held-for-sale as all of the following criteria were met: management, having the authority to approve the action, committed to a plan to sell the disposal group; the disposal group was available for immediate sale in its present condition subject only to terms that are usual and customary; we located a buyer; the sale of the disposal group was determined to be probable, and transfer of the disposal group was expected to qualify for recognition as a completed sale within one year; the disposal group was actively marketed for sale at a price that was reasonable in relation to its current fair value; and actions required to complete the plan indicated that it was unlikely significant changes to the plan would be made or that the plan would be withdrawn.

We initially measure a long-lived asset or disposal group that is classified as held-for-sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group, less any costs to sell, each reporting period it remains classified as held-for-sale. We report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held-for-sale.

On October 1, 2015, we completed the sale of our commercial finance business to TICF. The sale resulted in cash proceeds of $2.3 billion, which are expected to be utilized for general corporate purposes, including the purchase of retail and lease contracts and the payment of debt. The transaction resulted in a gain of $197 million that is reflected in our results of operations in the third quarter of fiscal 2016. We do not expect the sale of the commercial finance business to have a material impact on our revenue in the future. As the sale of our commercial finance business did not represent a strategic shift that will have a major effect on our operations and financial results, it did not meet the criteria to be presented as a discontinued operation.

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 standard applies to all contracts with customers except leases, insurance contracts, financial instruments, guarantees, and certain nonmonetary exchanges. In August 2015, the FASB issued a one-year deferral of the effective date, with early adoption as of the original effective date permitted. We expect to adopt the new guidance on its deferred effective date, which is April 1, 2018 for TMCC. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In February 2015, the FASB issued new guidance that amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. This accounting guidance is effective for us on April 1, 2016. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In April 2015, the FASB issued new guidance that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. In August 2015, the FASB issued an additional update which clarifies that debt issuance costs for line of credit agreements may continue to be deferred and amortized. This accounting guidance will be effective for us on April 1, 2016. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In April 2015, the FASB issued new guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. While similar guidance exists under current US GAAP for cloud service providers, this update provides explicit guidance for a customer's accounting. This accounting guidance will be effective for us on April 1, 2016. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In May 2015, the FASB issued new guidance that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This accounting guidance is limited to footnote disclosure and will be effective for us on April 1, 2016. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In May 2015, the FASB issued new guidance that requires additional disclosures related to short-duration insurance contracts. This accounting guidance will be effective for us for the annual period beginning April 1, 2016 and for interim periods within annual periods beginning April 1, 2017. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In January 2016, the FASB issued new guidance that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and will require entities to measure equity investments at fair value and recognize any changes in fair value in net income. This accounting guidance will be effective for us on April 1, 2018. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In April 2015, new FASB accounting guidance became effective that amends the requirements for the reporting of discontinued operations and requires certain additional disclosures. Under the new guidance, only disposals that represent a strategic shift and that have (or will have) a major effect on an entity’s operations and financial results should be presented as discontinued operations. This guidance was adopted by us in August 2015 when we reclassified certain assets and liabilities related to our commercial finance business as held-for-sale. Our adoption of this guidance did not have a material impact on our consolidated financial statements.

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. The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy.

	As of December 31, 2015
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	958	$	608		$	-		$	-		$	1,566
Certificates of deposit		-		1,000			-			-			1,000
Corporate debt securities		-		26			-			-			26
Cash equivalents total		958		1,634			-			-			2,592
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		4,061		55			2			-			4,118
Municipal debt securities		-		11			-			-			11
Certificates of deposit		675		650			-			-			1,325
Commercial paper		-		175			-			-			175
Corporate debt securities		27		333			8			-			368
Mortgage-backed securities:
U.S. government agency		-		50			-			-			50
Non-agency residential		-		-			3			-			3
Non-agency commercial		-		-			42			-			42
Asset-backed securities		-		-			36			-			36
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		-		180			-			-			180
U.S. government sector fund		-		255			-			-			255
Municipal sector fund		-		19			-			-			19
Investment grade corporate sector fund		-		244			-			-			244
High-yield sector fund		-		101			-			-			101
Real return sector fund		-		221			-			-			221
Mortgage sector fund		-		327			-			-			327
Asset-backed securities sector fund		-		124			-			-			124
Emerging market sector fund		-		95			-			-			95
International sector fund		-		145			-			-			145
Equity mutual fund		402		-			-			-			402
Available-for-sale securities total		5,165		2,985			91			-			8,241
Derivative assets:
Foreign currency swaps		-		163			-			-			163
Interest rate swaps		-		422			1			-			423
Counterparty netting and collateral		-		-			-			(533	)		(533	)
Derivative assets total		-		585			1			(533	)		53
Assets at fair value		6,123		5,204			92			(533	)		10,886
Derivative liabilities:
Foreign currency swaps		-		(1,868	)		(3	)		-			(1,871	)
Interest rate swaps		-		(232	)		(3	)		-			(235	)
Counterparty netting and collateral		-		-			-			2,031			2,031
Liabilities at fair value		-		(2,100	)		(6	)		2,031			(75	)
Net assets at fair value	$	6,123	$	3,104		$	86		$	1,498		$	10,811

Derivative assets were reduced by a counterparty credit valuation adjustment of $2 million and $1 million as of December 31, 2015 and March 31, 2015, respectively. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of March 31, 2015.

	As of March 31, 2015
								Counterparty
								netting &			Fair
	Level 1		Level 2			Level 3		collateral			value
Cash equivalents:
Money market instruments	$	249	$	820		$	-	$	-		$	1,069
U.S. government and agency obligations		40		-			-		-			40
Certificates of deposit		-		1,105			-		-			1,105
Cash equivalents total		289		1,925			-		-			2,214
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		4,215		142			2		-			4,359
Municipal debt securities		-		12			-		-			12
Certificates of deposit		-		175			-		-			175
Commercial paper		37		-			-		-			37
Corporate debt securities		-		131			14		-			145
Mortgage-backed securities:
U.S. government agency		-		59			-		-			59
Non-agency residential		-		-			4		-			4
Non-agency commercial		-		-			44		-			44
Asset-backed securities		-		-			39		-			39
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		-		148			-		-			148
Short-term sector fund		-		37			-		-			37
U.S. government sector fund		-		335			-		-			335
Municipal sector fund		-		20			-		-			20
Investment grade corporate sector fund		-		268			-		-			268
High-yield sector fund		-		55			-		-			55
Real return sector fund		-		232			-		-			232
Mortgage sector fund		-		399			-		-			399
Asset-backed securities sector fund		-		72			-		-			72
Emerging market sector fund		-		71			-		-			71
International sector fund		-		160			-		-			160
Equity mutual fund		460		-			-		-			460
Available-for-sale securities total		4,712		2,316			103		-			7,131
Derivative assets:
Foreign currency swaps		-		210			7		-			217
Interest rate swaps		-		470			1		-			471
Counterparty netting and collateral		-		-			-		(635	)		(635	)
Derivative assets total		-		680			8		(635	)		53
Assets at fair value		5,001		4,921			111		(635	)		9,398
Derivative liabilities:
Foreign currency swaps		-		(1,888	)		-		-			(1,888	)
Interest rate swaps		-		(386	)		-		-			(386	)
Counterparty netting and collateral		-		-			-		2,184			2,184
Liabilities at fair value		-		(2,274	)		-		2,184			(90	)
Net assets at fair value	$	5,001	$	2,647		$	111	$	1,549		$	9,308

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. During the first nine months of fiscal 2016, $47 million was transferred from Level 1 to Level 2, $15 million was transferred from Level 2 to Level 1 and $4 million was transferred from Level 3 to Level 2. During the three months ended December 31, 2015, $10 million was transferred from Level 1 to Level 2 and $15 million was transferred from Level 2 to Level 1. During the three and nine months ended December 31, 2014, certain corporate debt securities were transferred from Level 2 to Level 3. These transfers were due to changes in the transparency of inputs for determination of fair value for these instruments.

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs:

	Three Months Ended December 31, 2015
																							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
	obligations		securities		securities			securities			securities			swaps			swaps			(liabilities)
Fair value, October 1, 2015	$	2	$	8	$	45		$	36		$	91		$	(1	)	$	10		$	9		$	100
Total (losses)
Included in earnings		-		-		-			-			-			(3	)		(9	)		(12	)		(12	)
Included in other comprehensive income		-		-		-			(1	)		(1	)		-			-			-			(1	)
Purchases, issuances, sales, and settlements
Purchases		-		-		1			4			5			-			-			-			5
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			-			-			-			-			-			-
Settlements		-		-		(1	)		(3	)		(4	)		2			(4	)		(2	)		(6	)
Transfers in to Level 3		-		-		-			-			-			-			-			-			-
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2015	$	2	$	8	$	45		$	36		$	91		$	(2	)	$	(3	)	$	(5	)	$	86
The amount of total (losses) included in earnings attributable to assets held at the reporting date														$	(3	)	$	(9	)		(12	)		(12	)

	Three Months Ended December 31, 2014
																							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
	obligations		securities		securities			securities			securities			swaps			swaps			(liabilities)
Fair value, October 1, 2014	$	2	$	12	$	50		$	30		$	94		$	2		$	53		$	55		$	149
Total (losses)
Included in earnings		-		-		-			-			-			(1	)		(16	)		(17	)		(17	)
Included in other comprehensive income		-		-		-			-			-			-			-			-			-
Purchases, issuances, sales, and settlements
Purchases		-		-		-			1			1			-			-			-			1
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			(5	)		(5	)		-			-			-			(5	)
Settlements		-		-		(1	)		(1	)		(2	)		-			(4	)		(4	)		(6	)
Transfers in to Level 3		-		2		-			-			2			-			-			-			2
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2014	$	2	$	14	$	49		$	25		$	90		$	1		$	33		$	34		$	124
The amount of total (losses) included in earnings attributable to assets held at the reporting date														$	(1	)	$	(16	)	$	(17	)	$	(17	)

	Nine Months Ended December 31, 2015
																								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
	obligations		securities			securities			securities			securities			swaps			swaps			(liabilities)
Fair value, April 1, 2015	$	2	$	14		$	48		$	39		$	103		$	1		$	7		$	8		$	111
Total (losses)
Included in earnings		-		-			-			-			-			(4	)		(2	)		(6	)		(6	)
Included in other comprehensive income		-		-			(1	)		(1	)		(2	)		-			-			-			(2	)
Purchases, issuances, sales, and settlements
Purchases		-		-			1			4			5			-			-			-			5
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(2	)		-			(1	)		(3	)		-			-			-			(3	)
Settlements		-		-			(3	)		(5	)		(8	)		1			(8	)		(7	)		(15	)
Transfers in to Level 3		-		-			-			-			-			-			-			-			-
Transfers out of Level 3		-		(4	)		-			-			(4	)		-			-			-			(4	)
Fair value, December 31, 2015	$	2	$	8		$	45		$	36		$	91		$	(2	)	$	(3	)	$	(5	)	$	86
The amount of total (losses) included in earnings attributable to assets held at the reporting date															$	(4	)	$	(2	)	$	(6	)	$	(6	)

	Nine Months Ended December 31, 2014
																								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
	obligations		securities			securities			securities			securities			swaps			swaps			(liabilities)
Fair value, April 1, 2014	$	2	$	12		$	48		$	27		$	89		$	3		$	70		$	73		$	162
Total (losses)
Included in earnings		-		-			-			-			-			(1	)		(28	)		(29	)		(29	)
Included in other comprehensive income		-		-			1			-			1			-			-			-			1
Purchases, issuances, sales, and settlements
Purchases		-		3			12			7			22			-			-			-			22
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(3	)		(7	)		(5	)		(15	)		-			-			-			(15	)
Settlements		-		-			(5	)		(4	)		(9	)		(1	)		(9	)		(10	)		(19	)
Transfers in to Level 3		-		2			-			-			2			-			-			-			2
Transfers out of Level 3		-		-			-			-			-			-			-			-			-
Fair value, December 31, 2014	$	2	$	14		$	49		$	25		$	90		$	1		$	33		$	34		$	124
The amount of total (losses) included in earnings attributable to assets held at the reporting date															$	(1	)	$	(28	)	$	(29	)	$	(29	)

Nonrecurring fair value measurements include 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 when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of December 31, 2015 and March 31, 2015.

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 and nine months ended December 31, 2015 and as of and for the year ended March 31, 2015.

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

	As of December 31, 2015
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	50,690	$	-	$	-	$	50,137	$	50,137
Wholesale		8,428		-		-		8,469		8,469
Real estate		4,633		-		-		4,361		4,361
Working capital		1,884		-		-		1,849		1,849

Financial liabilities
Commercial paper	$	26,847	$	-	$	26,847	$	-	$	26,847
Unsecured notes and loans payable		53,831		-		53,409		1,383		54,792
Secured notes and loans payable		14,030		-		-		13,992		13,992

	As of March 31, 2015
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	49,734	$	-	$	-	$	49,887	$	49,887
Commercial		217		-		-		223		223
Wholesale		9,123		-		-		9,176		9,176
Real estate		4,602		-		-		4,564		4,564
Working capital		1,815		-		-		1,804		1,804

Financial liabilities
Commercial paper	$	27,006	$	-	$	27,006	$	-	$	27,006
Unsecured notes and loans payable		52,388		-		53,174		634		53,808
Secured notes and loans payable		10,837		-		-		10,832		10,832

The carrying value of each class of finance receivables includes accrued interest and deferred fees and costs, net of deferred income and the allowance for credit losses. The finance receivables, net amount excludes related party transactions, for which the fair value approximates the carrying value, of $108 million and $94 million at December 31, 2015 and March 31, 2015, respectively, and direct finance leases of $20 million and $308 million at December 31, 2015 and March 31, 2015, 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 of the Notes to Consolidated Financial Statements.

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:

	December 31, 2015
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations	$	4,126	$	1	$	(9	)	$	4,118
Municipal debt securities		10		1		-			11
Certificates of deposit		1,325		-		-			1,325
Commercial paper		175		-		-			175
Corporate debt securities		369		3		(4	)		368
Mortgage-backed securities:
U.S. government agency		49		1		-			50
Non-agency residential		2		1		-			3
Non-agency commercial		42		1		(1	)		42
Asset-backed securities		37		-		(1	)		36
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		180		-		-			180
U.S. government sector fund		259		-		(4	)		255
Municipal sector fund		19		-		-			19
Investment grade corporate sector fund		243		8		(7	)		244
High-yield sector fund		97		5		(1	)		101
Real return sector fund		225		-		(4	)		221
Mortgage sector fund		330		-		(3	)		327
Asset-backed securities sector fund		117		8		(1	)		124
Emerging market sector fund		101		-		(6	)		95
International sector fund		145		-		-			145
Equity mutual fund		169		233		-			402
Total investments in marketable securities	$	8,020	$	262	$	(41	)	$	8,241

	March 31, 2015
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations	$	4,357	$	3	$	(1	)	$	4,359
Municipal debt securities		10		2		-			12
Certificates of deposit		175		-		-			175
Commercial paper		37		-		-			37
Corporate debt securities		138		7		-			145
Mortgage-backed securities:
U.S. government agency		57		2		-			59
Non-agency residential		3		1		-			4
Non-agency commercial		43		1		-			44
Asset-backed securities		39		-		-			39
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		148		-		-			148
Short-term sector fund		35		2		-			37
U.S. government sector fund		311		24		-			335
Municipal sector fund		19		1		-			20
Investment grade corporate sector fund		256		15		(3	)		268
High-yield sector fund		50		6		(1	)		55
Real return sector fund		235		-		(3	)		232
Mortgage sector fund		390		9		-			399
Asset-backed securities sector fund		63		9		-			72
Emerging market sector fund		73		-		(2	)		71
International sector fund		146		14		-			160
Equity mutual fund		190		270		-			460
Total investments in marketable securities	$	6,775	$	366	$	(10	)	$	7,131

The fixed income mutual funds are investments in funds that are privately placed and managed by an open-end investment management company (the “Trust”). If we elect to redeem shares, the Trust will normally redeem all shares for cash, but may, in unusual circumstances, redeem amounts exceeding the lesser of $250 thousand or 1 percent of the Trust’s asset value by payment in kind of securities held by the respective fund during any 90-day period.

Investments in marketable securities in a consecutive loss position for less than twelve months and for greater than twelve months were not significant at December 31, 2015 and March 31, 2015.

Other-than-temporary impairment write-downs were not significant during the three and nine months ended December 31, 2014.

The amortized cost, fair value, and contractual maturities of available-for-sale debt instruments 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.

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. Securitized 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, as discussed further in Note 10 – Variable Interest Entities. Cash flows from these securitized 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.

On October 1, 2015, $1.1 billion of finance receivables, net related to our commercial finance business were sold to TICF. Finance receivables, net and retail receivables presented in the previous table include direct finance lease receivables, net of $20 million and $308 million at December 31, 2015 and March 31, 2015, respectively.

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 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 aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated monthly.

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 dealer 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 tables below present each credit quality indicator by class of finance receivable:

	Wholesale				Real Estate				Working Capital
	December 31,		March 31,		December 31,		March 31,		December 31,		March 31,
	2015		2015		2015		2015		2015		2015
Credit quality indicators:
Performing	$	7,602	$	7,993	$	3,918	$	3,782	$	1,682	$	1,643
Credit Watch		802		1,137		705		842		223		176
At Risk		85		60		66		37		13		32
Default		19		36		55		4		6		2
Total	$	8,508	$	9,226	$	4,744	$	4,665	$	1,924	$	1,853

The following table summarizes the information related to our impaired loans by class of finance receivables:

	Impaired								Individually Evaluated
	Finance Receivables				Unpaid Principal Balance				Allowance
	December 31,		March 31,		December 31,		March 31,		December 31,		March 31,
	2015		2015		2015		2015		2015		2015
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	78	$	76	$	78	$	76	$	11	$	14
Real estate		121		52		121		52		15		10
Working capital		35		34		35		34		33		31
Total	$	234	$	162	$	234	$	162	$	59	$	55

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	164	$	105	$	164	$	105
Real estate		99		91		99		91
Working capital		5		2		5		2
Total	$	268	$	198	$	268	$	198

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	237	$	264	$	234	$	261
Commercial		-		-		-		-
Total	$	237	$	264	$	234	$	261

Total impaired account balances:
Retail loan	$	237	$	264	$	234	$	261
Commercial		-		-		-		-
Wholesale		242		181		242		181
Real estate		220		143		220		143
Working capital		40		36		40		36
Total	$	739	$	624	$	736	$	621

As of December 31, 2015 and March 31, 2015, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $279 million and $172 million, respectively, and there were no charge-offs against the allowance for credit losses for these finance receivables. Therefore, the impaired finance receivables balance is equal to the unpaid principal balance. As of December 31, 2015 and March 31, 2015, impaired finance receivables in the retail portfolio segment recorded at the fair value of the collateral less estimated selling costs were insignificant and therefore excluded from the table above.

The following table summarizes the average impaired loans by class of finance receivables as of the balance sheet date and the interest income recognized on these loans:

	Average Impaired Finance Receivables								Interest Income Recognized
	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,
	2015		2014		2015		2014		2015		2014		2015		2014
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	77	$	17	$	83	$	17	$	-	$	-	$	1	$	-
Real estate		103		14		87		20		1		-		2		-
Working capital		34		23		35		23		-		-		1		1
Total	$	214	$	54	$	205	$	60	$	1	$	-	$	4	$	1

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	136	$	62	$	119	$	56	$	1	$	-	$	2	$	1
Real estate		94		89		90		91		1		1		3		2
Working capital		5		3		4		3		-		-		-		-
Total	$	235	$	154	$	213	$	150	$	2	$	1	$	5	$	3

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	241	$	284	$	251	$	301	$	4	$	5	$	13	$	17
Commercial		-		1		-		1		-		-		-		-
Total	$	241	$	285	$	251	$	302	$	4	$	5	$	13	$	17

Total impaired account balances:
Retail loan	$	241	$	284	$	251	$	301	$	4	$	5	$	13	$	17
Commercial		-		1		-		1		-		-		-		-
Wholesale		213		79		202		73		1		-		3		1
Real estate		197		103		177		111		2		1		5		2
Working capital		39		26		39		26		-		-		1		1
Total	$	690	$	493	$	669	$	512	$	7	$	6	$	22	$	21

The primary source of interest income recognized on the loans in the table above is from performing troubled debt restructurings. In addition, interest income recognized using a cash-basis method of accounting during the three and nine months ended December 31, 2015 and 2014 was not significant.

For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three and nine months ended December 31, 2015 and 2014 was not significant for each class of finance receivables. Troubled debt restructurings for non-bankrupt accounts within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer. Troubled debt restructurings for accounts within the commercial portfolio class of finance receivables consist of contract term extensions, interest rate adjustments, or a combination of the two. For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three. Troubled debt restructurings of accounts not under bankruptcy protection did not include forgiveness of principal or interest rate adjustments during the three and nine months ended December 31, 2015 and 2014.

We consider finance receivables under bankruptcy protection within the retail loan and commercial classes to be troubled debt restructurings as of the date we receive notice of a customer filing for bankruptcy protection, regardless of the ultimate outcome of the bankruptcy proceedings. The bankruptcy court may impose modifications as part of the proceedings, including interest rate adjustments and forgiveness of principal. For the three and nine months ended December 31, 2015 and 2014, the financial impact of troubled debt restructurings related to accounts under bankruptcy protection was not significant to our Consolidated Statement of Income and Consolidated Balance Sheet.

Finance receivables modified as troubled debt restructurings for which there was a subsequent payment default during the three and nine months ended December 31, 2015 and 2014, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of such receivables.

Investments in operating leases, net consist of vehicle and equipment leases, net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Securitized investments in operating leases represent beneficial interests in a pool of certain vehicle leases that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements as discussed further in Note 10 - Variable Interest Entities. Cash flows from these securitized investments in operating leases 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.

On October 1, 2015, investments in operating leases related to our commercial finance business of $1.0 billion were sold to TICF.

The following table provides information related to our allowance for credit losses on finance receivables and investments in operating leases:

Charge-offs are shown net of recoveries of $15 million and $54 million for the three and nine months ended December 31, 2015, respectively, and recoveries of $21 million and $63 million for the three and nine months ended December 31, 2014.

The following tables provide information related to our allowance for credit losses and finance receivables by portfolio segment:

	Three Months Ended December 31, 2015
	Retail Loan			Commercial			Dealer Products			Total
Allowance for Credit Losses for Finance Receivables:
Beginning balance, October 1, 2015	$	263		$	-		$	114		$	377
Charge-offs		(95	)		-			-			(95	)
Recoveries		10			-			-			10
Provisions		80			-			9			89
Ending balance, December 31, 2015	$	258		$	-		$	123		$	381

	Nine Months Ended December 31, 2015
Beginning balance, April 1, 2015	$	299		$	2		$	108		$	409
Charge-offs		(237	)		(1	)		-			(238	)
Recoveries		37			-			-			37
Provisions		159			1			19			179
Transferred to held-for-sale		-			(2	)		(4	)		(6	)
Ending balance, December 31, 2015	$	258		$	-		$	123		$	381

Ending balance: Individually evaluated for impairment	$	-		$	-		$	59		$	59
Ending balance: Collectively evaluated for impairment	$	258		$	-		$	64		$	322

Finance Receivables:
Ending balance, December 31, 2015	$	51,207		$	-		$	15,176		$	66,383
Ending balance: Individually evaluated for impairment	$	-		$	-		$	502		$	502
Ending balance: Collectively evaluated for impairment	$	51,207		$	-		$	14,674		$	65,881

The ending balance of finance receivables collectively evaluated for impairment in the table above includes approximately $237 million of finance receivables within the retail loan segment that are specifically identified as impaired. These amounts are aggregated with their respective portfolio segments when determining the allowance for credit losses as of December 31, 2015, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses would not be materially different if the amounts had been individually evaluated for impairment. The ending balance of finance receivables for the dealer products portfolio segment collectively evaluated for impairment as of December 31, 2015 includes $979 million in receivables, which are guaranteed by Toyota Motor Sales, U.S.A., Inc. (“TMS”) and $140 million in receivables, which are guaranteed by third party private Toyota distributors. These receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of TMS or such private distributors.

	Three Months Ended December 31, 2014
	Retail Loan			Commercial			Dealer Products			Total
Allowance for Credit Losses for Finance Receivables:
Beginning balance, October 1, 2014	$	299		$	1		$	81		$	381
Charge-offs		(89	)		-		$	(1	)		(90	)
Recoveries		14			1			1			16
Provisions		72			-			(2	)		70
Ending balance, December 31, 2014	$	296		$	2		$	79		$	377

	Nine Months Ended December 31, 2014
Beginning balance, April 1, 2014	$	296		$	2		$	88		$	386
Charge-offs		(217	)		(1	)		(1	)		(219	)
Recoveries		45			1			1			47
Provisions		172			-			(9	)		163
Ending balance, December 31, 2014	$	296		$	2		$	79		$	377

Ending balance: Individually evaluated for impairment	$	-		$	-		$	28		$	28
Ending balance: Collectively evaluated for impairment	$	296		$	2		$	51		$	349

Finance Receivables:
Ending balance, December 31, 2014	$	50,637		$	503		$	16,060		$	67,200
Ending balance: Individually evaluated for impairment	$	-		$	-		$	209		$	209
Ending balance: Collectively evaluated for impairment	$	50,637		$	503		$	15,851		$	66,991

The ending balance of finance receivables collectively evaluated for impairment in the table above includes approximately $277 million and $1 million of finance receivables within the retail loan and commercial portfolio segments, respectively, that are specifically identified as impaired. These amounts are aggregated with their respective portfolio segments when determining the allowance for credit losses as of December 31, 2014, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses would not be materially different if the amounts had been individually evaluated for impairment. The ending balance of finance receivables for the dealer products portfolio segment collectively evaluated for impairment as of December 31, 2014 includes $913 million in receivables, which are guaranteed by TMS and $131 million in receivables, which are guaranteed by third party private Toyota distributors. These receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of TMS or such private distributors.

The following table shows aggregate balances of finance receivables and investments in operating leases 60 or more days past due:

Substantially all finance and operating lease receivables do not involve recourse to the dealer in the event of customer default. Finance and operating lease receivables 60 or more days past due include accounts in bankruptcy and accounts greater than 120 days past due, which are recorded at the fair value of collateral less estimated costs to sell. Accounts for which vehicles have been repossessed are excluded.

	As of March 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Finance Receivables		90 Days or Greater Past Due and Accruing
Retail loan	$	467	$	100	$	51	$	618	$	49,684	$	50,302	$	32
Commercial		8		2		-		10		511		521		-
Wholesale		-		-		-		-		9,226		9,226		-
Real estate		-		-		-		-		4,665		4,665		-
Working capital		-		-		-		-		1,853		1,853		-
Total	$	475	$	102	$	51	$	628	$	65,939	$	66,567	$	32

Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables. We enter into interest rate swaps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our use of derivative transactions is intended to reduce long-term fluctuations in cash flows and fair value adjustments of assets and liabilities caused by market movements. All of our derivative activities are authorized and monitored by our management and our Asset Liability Committee which provides a framework for financial controls and governance to manage market risk.

Our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements. Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold. As of December 31, 2015, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement. However, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives.

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at December 31, 2015 was $75 million, excluding adjustments made for our own non-performance risk. However, we would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2015 if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties.

The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported in the Consolidated Balance Sheet:

	As of December 31, 2015
	Hedge accounting				Non-hedge
	derivatives				accounting derivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps	$	-	$	-	$	44,447	$	423	$	44,447	$	423
Foreign currency swaps		271		20		630		143		901		163
Total	$	271	$	20	$	45,077	$	566	$	45,348	$	586

Counterparty netting and collateral held												(533	)
Carrying value of derivative contracts – Other assets											$	53

Other liabilities
Interest rate swaps	$	-	$	-	$	50,970	$	235	$	50,970	$	235
Interest rate caps		-		-		30		-		30		-
Foreign currency swaps		251		59		14,676		1,812		14,927		1,871
Total	$	251	$	59	$	65,676	$	2,047	$	65,927	$	2,106

Counterparty netting and collateral posted												(2,031	)
Carrying value of derivative contracts – Other liabilities											$	75

As of December 31, 2015, we held collateral of $120 million, which offset derivative assets, and posted collateral of $1,618 million, which offset derivative liabilities. We also held excess collateral of $3 million, which we did not use to offset derivative assets.

	As of March 31, 2015
	Hedge accounting				Non-hedge
	derivatives				accounting derivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps	$	190	$	4	$	26,549	$	467	$	26,739	$	471
Foreign currency swaps		271		24		913		193		1,184		217
Total	$	461	$	28	$	27,462	$	660	$	27,923	$	688

Counterparty netting and collateral held												(635	)
Carrying value of derivative contracts – Other assets											$	53

Other liabilities
Interest rate swaps	$	-	$	-	$	64,852	$	386	$	64,852	$	386
Interest rate caps		-		-		50		-		50		-
Foreign currency swaps		251		43		12,971		1,845		13,222		1,888
Total	$	251	$	43	$	77,873	$	2,231	$	78,124	$	2,274

Counterparty netting and collateral posted												(2,184	)
Carrying value of derivative contracts – Other liabilities											$	90

As of March 31, 2015, we held collateral of $145 million which offset derivative assets, and posted collateral of $1,694 million which offset derivative liabilities. We also held excess collateral of $10 million which we did not use to offset derivative assets, and we posted excess collateral of $2 million which we did not use to offset derivative liabilities.

The following table summarizes the components of interest expense, including the location and amount of gains and losses on derivative instruments and related hedged items, as reported in our Consolidated Statement of Income:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2015			2014			2015			2014
Interest expense on debt	$	334		$	304		$	964		$	923
Interest income on hedge accounting derivatives		(4	)		(10	)		(12	)		(35	)
Interest income on non-hedge accounting foreign currency swaps		(23	)		(37	)		(78	)		(129	)
Interest expense on non-hedge accounting interest rate swaps		28			30			86			94
Interest expense on debt and derivatives, net		335			287			960			853

Loss on hedge accounting derivatives:
Interest rate swaps		-			5			-			15
Foreign currency swaps		6			50			23			113
Loss on hedge accounting derivatives		6			55			23			128
Less hedged item: change in fair value of fixed rate debt		(7	)		(56	)		(25	)		(129	)
Ineffectiveness related to hedge accounting derivatives		(1	)		(1	)		(2	)		(1	)

(Gain) loss from foreign currency transactions and non-hedge accounting derivatives:
(Gain) loss on non-hedge accounting foreign currency transactions		(222	)		(567	)		(68	)		(1,354	)
Loss (gain) on non-hedge accounting foreign currency swaps		263			542			170			1,253
(Gain) loss on non-hedge accounting interest rate swaps		(98	)		(100	)		(72	)		(245	)
Total interest expense	$	277		$	161		$	988		$	506

Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses from hedge accounting derivatives and foreign currency transactions exclude net interest settlements and changes in accruals.

The relative fair value allocation of derivative credit value adjustments for counterparty and non-performance credit risk within interest expense is not significant for the three and nine months ended December 31, 2015 and 2014 as we fully collateralize our derivatives without regard to credit ratings.

Debt and the related weighted average contractual interest rates are summarized as follows:

The commercial paper balance includes unamortized premiums and discounts. As of December 31, 2015, our commercial paper had a weighted average remaining maturity of 80 days, while our notes and loans payable mature on various dates through fiscal 2047. Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount.

The carrying value of our unsecured notes and loans payable at December 31, 2015 included $18.4 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 3.5 percent and $35.4 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.8 percent to 9.4 percent. The carrying value of our unsecured notes and loans payable at March 31, 2015 included $17.4 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 3.3 percent and $35.0 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.8 percent to 9.4 percent. Upon issuance of fixed rate notes, we generally elect to enter into interest rate swaps to convert fixed rate payments on notes to floating rate payments.

Included in unsecured notes and loans payable are notes and loans denominated in various foreign currencies, unamortized premiums and discounts and the effects of foreign currency transaction gains and losses on non-hedged or de-designated foreign currency denominated notes and loans payable. At December 31, 2015 and March 31, 2015, the carrying values of these foreign currency denominated notes payable were $13.8 billion and $12.4 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments.

Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt with interest rates ranging from 0.4 percent to 1.7 percent at December 31, 2015 and 0.4 percent to 1.5 percent at March 31, 2015. Secured notes and loans are issued by on-balance sheet securitization trusts, as further discussed in Note 10 – Variable Interest Entities. These notes are repayable only from collections on the underlying securitized retail finance receivables and the beneficial interests in investments in operating leases and from related credit enhancements.

The carrying value adjustment on debt represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships. The carrying value adjustment on debt decreased by $34 million at December 31, 2015 compared to March 31, 2015 primarily as a result of a stronger U.S. dollar relative to certain other currencies in which our hedged debt is denominated.

We use one or more special purpose entities that are considered Variable Interest Entities (“VIEs”) to issue asset-backed securities to third party bank-sponsored asset-backed securitization vehicles and to investors in securitization transactions. The securities issued by these VIEs are backed by the cash flows related to retail finance receivables and beneficial interests in investments in operating leases (“Securitized Assets”). We hold variable interests in the VIEs that could potentially be significant to the VIEs. We determined that we are the primary beneficiary of the securitization trusts because (i) our servicing responsibilities for the Securitized Assets give us the power to direct the activities that most significantly impact the performance of the VIEs, and (ii) our variable interests in the VIEs give us the obligation to absorb losses and the right to receive residual returns that could potentially be significant.

The following tables show the assets and liabilities related to our VIE securitization transactions that were included in our financial statements:

Restricted cash shown in the table above represents collections from the underlying Securitized Assets and certain reserve deposits held by TMCC for the VIEs and is included as part of the Restricted Cash and Cash Equivalents on our Consolidated Balance Sheet. Gross Securitized Assets represent finance receivables and beneficial interests in investments in operating leases securitized for the asset-backed securities issued. Net Securitized Assets are presented net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Other Assets represent used vehicles held-for-sale that were repossessed by or returned to TMCC for the benefit of the VIEs. The related debt of these consolidated VIEs is presented net of $1,074 million and $1,275 million of securities retained by TMCC at December 31, 2015 and March 31, 2015, respectively. Other Liabilities represents accrued interest on the debt of the consolidated VIEs.

The assets of the VIEs and the restricted cash held by TMCC serve as the sole source of repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities.

As the primary beneficiary of these entities, we are exposed to credit, residual value, interest rate, and prepayment risk from the Securitized Assets in the VIEs. However, our exposure to these risks did not change as a result of the transfer of the assets to the VIEs. We may also be exposed to interest rate risk arising from the secured notes issued by the VIEs.

In addition, we entered into interest rate swaps with certain special purpose entities that issue variable rate debt. Under the terms of these swaps, the special purpose entities are obligated to pay TMCC a fixed rate of interest on certain payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt.

This arrangement enables the special purpose entities to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate Securitized Assets.

The transfers of the Securitized Assets to the special purpose entities in our securitizations are considered to be sales for legal purposes. However, the Securitized Assets and the related debt remain on our Consolidated Balance Sheet. We recognize financing revenue on the Securitized Assets and interest expense on the secured debt issued by the special purpose entities. We also maintain an allowance for credit losses on the Securitized Assets to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements.

We provide lending to Toyota dealers through the Toyota Dealer Investment Group’s Dealer Capital Program (“TDIG Program”) operated by our affiliate TMS, which has an equity position in these dealerships. Dealers participating in this program have been determined to be VIEs. We do not consolidate the dealerships in this program as we are not the primary beneficiary and any exposure to loss is limited to the amount of the credit facility. At December 31, 2015 and March 31, 2015, amounts due from these dealers under the TDIG Program that are classified as finance receivables, net in the Consolidated Balance Sheet and revenues received during the three and nine months ended December 31, 2015 and 2014 were not significant.

We also have other lending relationships, which have been determined to be VIEs, but these relationships are not consolidated as we are not the primary beneficiary. Amounts due under these relationships as of December 31, 2015 and March 31, 2015 were not significant.

For additional liquidity purposes, we maintain syndicated bank credit facilities with certain banks.

364 Day Credit Agreement, Three Year Credit Agreement and Five Year Credit Agreement

In November 2015, TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”) and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility, a $5.0 billion three year syndicated bank credit facility and a $5.0 billion five year syndicated bank credit facility, expiring in fiscal 2017, 2019, and 2021, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These agreements may be used for general corporate purposes and none were drawn upon as of December 31, 2015 and March 31, 2015. We are in compliance with the covenants and conditions of the credit agreements described above.

TMCC has entered into additional unsecured credit facilities with various banks. As of December 31, 2015, TMCC had committed bank credit facilities totaling $5.6 billion of which $300 million, $2.5 billion, $375 million, $2.0 billion and $375 million mature in fiscal 2016, 2017, 2018, 2019 and 2020, respectively.

These credit agreements contain covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on certain consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of December 31, 2015 and March 31, 2015. We are in compliance with the covenants and conditions of the credit agreements described above.

We have entered into certain commitments and guarantees for which the maximum unfunded amounts are summarized in the table below:

Wholesale financing demand note facilities are not considered to be contractual commitments as they are not binding arrangements under which TMCC is required to perform.

We are party to a 15-year lease agreement, which expires in 2018, with TMS for our headquarters location in the TMS headquarters complex in Torrance, California. Minimum lease commitments in the table below include $18 million and $23 million for facilities leases with affiliates at December 31, 2015 and March 31, 2015, respectively. At December 31, 2015, minimum future commitments under lease agreements to which we are a lessee, including those under the TMS lease, are as follows:

We provide fixed and variable rate credit facilities to vehicle dealers. These credit facilities are typically used for facilities refurbishment, real estate purchases, and working capital requirements. These loans are generally collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee from the vehicle dealer or a corporate guarantee from the dealership when deemed prudent. 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 credit facility pricing reflects market conditions, the competitive environment, the level of dealer support required for the facility, 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 also provide financing to various multi-franchise dealer organizations, often as part of a lending consortium, for wholesale, working capital, real estate, and business acquisitions.

On April 28, 2014, the Company announced that our corporate headquarters will move from Torrance, California to Plano, Texas beginning in 2017 as part of TMC’s planned consolidation of its three North American headquarters for manufacturing, sales and marketing to a single new headquarters facility. To date, the Company has not incurred significant costs related to employees, lease termination or other related relocation expenses as a result of this planned headquarters move. These moving costs are currently estimated to be approximately $80 million and will be expensed as incurred over the next several years.

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 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 December 31, 2015 and March 31, 2015.

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 December 31, 2015, we determined that it is not probable that we will be required to make any material payments in the future. As of December 31, 2015 and March 31, 2015, no amounts have been recorded under these indemnification provisions.

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.

On February 2, 2016 (the “Effective Date”), we reached a settlement with the Consumer Financial Protection Bureau and the U.S. Department of Justice (the “Agencies”) related to the Agencies’ previously disclosed investigation of, and allegations regarding, our purchases of auto finance contracts from dealers and related discretionary dealer compensation practices. We entered into a consent order with each of the Agencies to reflect this settlement. Pursuant to the consent orders, we have agreed to implement a new dealer compensation policy within 180 days of the Effective Date. In connection with the implementation of such policy, we have agreed to maintain general compliance management systems reasonably designed to assure compliance with all relevant federal consumer financial laws. Additionally, we have agreed to pay an amount in consumer restitution that is not material to our financial condition or results of operations and within the amount we had previously recorded as a loss contingency. In addition, 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 we are fully cooperating with this request. We cannot predict the outcome of this request given its preliminary status.

Our effective tax rate was 37 percent for the first nine months of fiscal 2016 and fiscal 2015, respectively and 38 percent for the third quarter of fiscal 2016 and fiscal 2015, respectively. Our provision for income taxes for the first nine months of fiscal 2016 was $441 million compared to $574 million for the same period in fiscal 2015 and $210 million for the third quarter of fiscal 2016 compared to $185 million for same period in fiscal 2015. The decrease in the provision for the first nine months of fiscal 2016 is consistent with the decrease in our income before tax compared to the first nine months of fiscal 2015. The increase in the provision for the third quarter of fiscal 2016 is consistent with the increase in our income before tax compared to the third quarter of fiscal 2015.

As of December 31, 2015, we remain under IRS examination for fiscal 2016 and 2015. The IRS examination for fiscal 2014 was concluded in the second quarter of fiscal 2016.

We periodically review our uncertain tax positions. Our assessment is based on many factors including the ongoing IRS audits. For the quarter ended December 31, 2015, our assessment did not result in a material change in unrecognized tax benefits.

Our deferred tax assets were $1.9 billion and $2.2 billion at December 31, 2015 and March 31, 2015, and were primarily due to the deferred deduction of allowance for credit losses and cumulative federal tax loss carryforwards that expire in varying amounts beginning in fiscal 2029 through fiscal 2035. The total deferred tax liability at December 31, 2015, net of these deferred tax assets, was $7.8 billion compared with $7.5 billion at March 31, 2015. Realization with respect to the federal tax loss carryforwards is dependent on sufficient income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

On October 1, 2015, TMCC sold its commercial finance business to TICF. Pursuant to the sale agreement with TICF, TMCC recognized a taxable gain that resulted in a current federal and state income tax liability of $87 million in the third quarter of fiscal 2016.

As of December 31, 2015, there were no material changes to our related party agreements or relationships as described in our fiscal 2015 Form 10-K. The tables below summarize amounts included in our Consolidated Statement of Income and in our Consolidated Balance Sheet under various related party agreements or relationships:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2015			2014			2015			2014
Net financing revenues:
Manufacturers’ subvention support and other revenues	$	335		$	315		$	982		$	884
Origination costs paid to affiliates	$	-		$	-		$	(1	)	$	-
Credit support fees incurred	$	(24	)	$	(23	)	$	(69	)	$	(66	)
Interest and other expenses paid to affiliates	$	(1	)	$	(1	)	$	(3	)	$	(2	)

Insurance earned premiums and contract revenues:
Affiliate insurance premiums and contract revenues	$	33		$	32		$	98		$	97

Investments and other income, net:
Interest earned on notes receivable from affiliates	$	1		$	1		$	4		$	3
Gain on sale of commercial finance business	$	197		$	-		$	197		$	-

Expenses:
Shared services charges and other expenses	$	7		$	16		$	34		$	48
Employee benefits expense	$	8		$	5		$	24		$	18
Insurance losses and loss adjustment expenses	$	1		$	-		$	1		$	-

	December 31,			March 31,
	2015			2015
Assets:
Investments in marketable securities
Investments in affiliates’ commercial paper	$	-		$	37

Finance receivables, net
Accounts receivable from affiliates	$	99		$	83
Direct finance lease receivables from affiliates	$	-		$	6
Notes receivable under home loan programs	$	9		$	11
Deferred retail origination costs paid to affiliates	$	1		$	1
Deferred retail subvention income from affiliates	$	(828	)	$	(802	)

Investments in operating leases, net
Leases to affiliates	$	2		$	7
Deferred lease origination costs paid to affiliates	$	1		$	1
Deferred lease subvention income from affiliates	$	(1,068	)	$	(950	)

Other assets
Notes receivable from affiliates	$	1,126		$	1,184
Other receivables from affiliates	$	41		$	6
Subvention support receivable from affiliates	$	139		$	126

Liabilities:
Other liabilities
Unearned affiliate insurance premiums and contract revenues	$	265		$	252
Accounts payable to affiliates	$	81		$	136
Notes payable to affiliates	$	5		$	24

Shareholder’s Equity:
Stock-based compensation	$	2		$	2

In September 2015, TMCC entered into a promissory note with Toyota Financial Services Securities USA Corporation, an affiliate, under which TMCC can borrow up to $15 million. As of December 31, 2015, no amounts have been borrowed on this promissory note.

On October 1, 2015, we completed the sale of our commercial finance business to TICF. As part of this transaction, we entered into an Expense Reimbursement Agreement with TICF relating to certain expenses incurred by TMCC and a Transition Services Agreement relating to certain post-close services to be provided by TMCC to TICF.

Financial information for our reportable operating segments is summarized as follows:

	Three Months Ended December 31, 2015
	Finance		Insurance		Intercompany
	operations		operations		eliminations			Total

Total financing revenues	$	2,376	$	-	$	-		$	2,376
Insurance earned premiums and contract revenues		-		181		-			181
Investment and other income, net		27		40		-			67
Gain on sale of commercial finance business		197		-		-			197
Total gross revenues		2,600		221		-			2,821

Less:
Depreciation on operating leases		1,503		-		-			1,503
Interest expense		277		-		-			277
Provision for credit losses		128		-		-			128
Operating and administrative expenses		223		65		-			288
Insurance losses and loss adjustment expenses		-		73		-			73
Provision for income taxes		179		31		-			210
Net income	$	290	$	52	$	-		$	342


	Nine Months Ended December 31, 2015
	Finance		Insurance		Intercompany
	operations		operations		eliminations			Total

Total financing revenues	$	6,984	$	-	$	-		$	6,984
Insurance earned premiums and contract revenues		-		533		-			533
Investment and other income, net		70		49		-			119
Gain on sale of commercial finance business		197		-		-			197
Total gross revenues		7,251		582		-			7,833

Less:
Depreciation on operating leases		4,309		-		-			4,309
Interest expense		988		-		-			988
Provision for credit losses		278		-		-			278
Operating and administrative expenses		657		188		-			845
Insurance losses and loss adjustment expenses		-		230		-			230
Provision for income taxes		380		61		-			441
Net income	$	639	$	103	$	-		$	742

Total assets at December 31, 2015	$	112,354	$	4,085	$	(984	)	$	115,455

	Three Months Ended December 31, 2014
	Finance		Insurance		Intercompany
	operations		operations		eliminations			Total

Total financing revenues	$	2,112	$	-	$	-		$	2,112
Insurance earned premiums and contract revenues		-		159		-			159
Investment and other income, net		20		42		-			62
Total gross revenues		2,132		201		-			2,333

Less:
Depreciation on operating leases		1,248		-		-			1,248
Interest expense		161		-		-			161
Provision for credit losses		103		-		-			103
Operating and administrative expenses		209		57		-			266
Insurance losses and loss adjustment expenses		-		63		-			63
Provision for income taxes		155		30		-			185
Net income	$	256	$	51	$	-		$	307


	Nine Months Ended December 31, 2014
	Finance		Insurance		Intercompany
	operations		operations		eliminations			Total

Total financing revenues	$	6,129	$	-	$	-		$	6,129
Insurance earned premiums and contract revenues		-		472		-			472
Investment and other income, net		67		90		-			157
Total gross revenues		6,196		562		-			6,758

Less:
Depreciation on operating leases		3,544		-		-			3,544
Interest expense		506		-		-			506
Provision for credit losses		220		-		-			220
Operating and administrative expenses		589		163		-			752
Insurance losses and loss adjustment expenses		-		200		-			200
Provision for income taxes		500		74		-			574
Net income	$	837	$	125	$	-		$	962

Total assets at December 31, 2014	$	104,068	$	3,683	$	(903	)	$	106,848

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Form 10-Q or incorporated by reference herein are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2015 (“fiscal 2015”), including the following:

Forward-looking statements speak only as of the date they are made. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

In our finance operations, we generate revenue, income, and cash flows by providing retail financing, leasing, and dealer financing to vehicle dealers and their customers. We measure the performance of our financing operations using the following metrics: financing volume, market share, financial leverage, financing margins, operating expense, residual value and credit loss metrics.

In our insurance operations, we generate revenue through marketing, underwriting, and claims administration related to covering certain risks of vehicle dealers and their customers. We measure the performance of our insurance operations using the following metrics: issued agreement volume, number of agreements in force, loss metrics, and investment income.

Our financial results are affected by a variety of economic and industry factors, including but not limited to, new and used vehicle markets, Toyota, Lexus and Scion sales volume, new vehicle incentives, consumer behavior, employment levels, our ability to respond to changes in interest rates with respect to both contract pricing and funding, the actual or perceived quality, safety or reliability of Toyota, Lexus and Scion vehicles, the financial health of the dealers we finance, and competitive pressure. Our financial results may also be affected by the regulatory environment in which we operate, including compliance costs and changes to our business practices such as those required by the consent orders we entered into in February 2016 with respect to our dealer compensation policies. These factors can influence financing and lease contract volume, the number of financing and lease contracts that default and the loss per occurrence, our inability to realize originally estimated contractual residual values on leased vehicles, the volume and performance of our insurance operations, and our gross margins on financing and leasing volume. Changes in the volume of vehicle sales, vehicle dealers’ utilization of our insurance programs, or the level of coverage purchased by affiliates could materially and adversely impact our insurance operations. Additionally, our funding programs and related costs are influenced by changes in the global capital markets, prevailing interest rates, and our credit ratings and those of our parent companies, which may affect our ability to obtain cost effective funding to support earning asset growth.

During the first nine months of the fiscal year ending March 31, 2016 (“fiscal 2016”), slow economic growth in the United States (“U.S.”) has continued as employment rates improved, consumer spending increased, and the housing market remained strong. While the overall U.S. economy has continued to show positive trends during the first nine months of fiscal 2016, consumer debt levels continued to rise as consumers experienced greater access to credit.

Conditions in the global capital markets experienced volatility during the latter part of the first nine months of fiscal 2016 due to continued concerns regarding global economic growth as well as uncertainty regarding the future path of U.S. monetary policy. We continue to maintain broad global access to both domestic and international markets. Future changes in interest rates in the U.S. and foreign markets could result in volatility in our interest expense, which could affect our results of operations.

Industry-wide vehicle sales in the United States increased and sales incentives throughout the auto industry remained elevated during the first nine months of fiscal 2016 as compared to the same period in fiscal 2015. Vehicle sales by Toyota Motor Sales, USA, Inc. (“TMS”) increased 4 percent in the first nine months of fiscal 2016 compared to the same period in fiscal 2015. The increase in TMS sales was attributable to strong consumer demand for new vehicles. In addition, lease volume increased and retail volume decreased during the first nine months of fiscal 2016 due primarily to a higher focus by TMS on lease subvention. Overall market share remained relatively consistent for the first nine months of fiscal 2016 compared to the same period in fiscal 2015.

Used vehicle values remained strong during the first nine months of fiscal 2016 but deteriorated slightly compared to the same period in fiscal 2015. However, it remains uncertain whether used vehicle values will continue to be as strong as they have been in the past few years. Declines in used vehicle values and a higher proportion of lease volume as compared to retail volume could affect return rates, depreciation expense and credit losses.

The following table summarizes total net income by our reportable operating segments:

Our consolidated net income was $742 million and $342 million for the first nine months and third quarter of fiscal 2016, respectively, compared to $962 million and $307 million for the same periods in fiscal 2015. The decrease for the first nine months of fiscal 2016 was primarily due to a $765 million increase in depreciation on operating leases, a $482 million increase in interest expense, a $58 million increase in provision for credit losses and a $93 million increase in operating and administrative expenses, partially offset by a $855 million increase in total financing revenues primarily driven by an increase in operating lease revenues, a $197 million gain on the sale of the commercial finance business (as defined below) and a $133 million decrease in provision for income taxes. The increase in net income for the third quarter of fiscal 2016 was primarily due to a $264 million increase in total financing revenues driven by an increase in operating lease revenues and a $197 million gain on the sale of the commercial finance business, partially offset by a $255 million increase in depreciation on operating leases, a $116 million increase in interest expense, a $25 million increase in provision for credit losses and a $25 million increase in provision for income taxes.

On October 1, 2015, we completed the sale of certain assets and liabilities related to our industrial equipment retail, lease and dealer portfolios (the “commercial finance business”) to Toyota Industries Commercial Finance, Inc. (“TICF”), a newly-formed subsidiary of Toyota Industries Corporation, which forms part of the group of companies known as the Toyota Group and is a related party to TMCC. The sale resulted in cash proceeds of $2.3 billion, which are expected to be utilized for general corporate purposes, including the purchase of retail and lease contracts and the payment of debt. The transaction resulted in a gain of $197 million that is reflected in our results of operations in the third quarter of fiscal 2016. We do not expect the sale of the commercial finance business to have a material impact on our revenue in the future.

On February 2, 2016 (the “Effective Date”), we entered into consent orders with the Consumer Financial Protection Bureau and the U.S. Department of Justice (the “Agencies”) related to the Agencies’ previously disclosed investigation of, and allegations regarding, our purchases of auto finance contracts from dealers and related discretionary dealer compensation practices. Pursuant to the consent orders, we have agreed to pay an amount in consumer restitution that is not material to our financial condition or results of operations for the third quarter of fiscal 2016 and within the amount we had previously recorded as a loss contingency. Additionally, we have agreed to implement a new dealer compensation policy within 180 days of the Effective Date, which includes, among other things, limits on dealer participation caps of 125 basis points (1.25%) for contracts of 60 months or less and 100 basis points (1.00%) for contracts with longer terms. Compliance costs and the changes to our business practices required by the consent orders may adversely affect our future results of operations and financial condition, including our financing volume, market share, and financing margins.

Our overall capital position increased $0.7 billion, bringing total shareholder’s equity to $9.2 billion at December 31, 2015. Our debt increased to $94.7 billion at December 31, 2015 from $90.2 billion at March 31, 2015. Our debt-to-equity ratio decreased to 10.3 at December 31, 2015 from 10.6 at March 31, 2015.

	Three Months Ended							Nine Months Ended
	December 31,				Percentage			December 31,				Percentage
(Dollars in millions)	2015		2014		Change			2015		2014		Change
Financing revenues:
Operating lease	$	1,795	$	1,581		14	%	$	5,280	$	4,481		18	%
Retail¹		484		430		13	%		1,406		1,347		4	%
Dealer		97		101		(4	)%		298		301		(1	)%
Total financing revenues		2,376		2,112		13	%		6,984		6,129		14	%

Investment and other income, net		27		20		35	%		70		67		4	%
Gain on sale of commercial finance business		197		-		100	%		197		-		100	%
Gross revenues from finance operations		2,600		2,132		22	%		7,251		6,196		17	%

Less:
Depreciation on operating leases		1,503		1,248		20	%		4,309		3,544		22	%
Interest expense		277		161		72	%		988		506		95	%
Provision for credit losses		128		103		24	%		278		220		26	%
Operating and administrative expenses		223		209		7	%		657		589		12	%
Provision for income taxes		179		155		15	%		380		500		(24	)%
Net income from finance operations	$	290	$	256		13	%	$	639	$	837		(24	)%

Our finance operations reported net income of $639 million and $290 million for the first nine months and third quarter of fiscal 2016, respectively, compared to $837 million and $256 million for the same periods in fiscal 2015. Finance operations results for the first nine months of fiscal 2016 decreased compared to the same period in fiscal 2015, driven by a $765 million increase in depreciation on operating leases, a $482 million increase in interest expense, a $68 million increase in operating and administrative expenses and a $58 million increase in provision for credit losses, partially offset by a $799 million increase in operating lease revenues, a $197 million gain on the sale of our commercial finance business, a $120 million decrease in provision for income taxes and a $59 million increase in retail revenues. Finance operations results for the third quarter of fiscal 2016 increased compared to the same period in fiscal 2015, primarily due to a $214 million increase in operating lease revenues and a $197 million gain on the sale of our commercial finance business, partially offset by a $255 million increase in depreciation on operating leases and a $116 million increase in interest expense.

Total financing revenues increased 14 percent and 13 percent during the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015 due to the following:

Our total portfolio yield, which includes operating lease, retail and dealer financing, remained relatively flat at 3.7 percent and 3.6 percent during the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015.

Depreciation on operating leases increased 22 percent and 20 percent during the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015. The increase in depreciation was primarily attributable to an increase in average operating lease units outstanding during the first nine months and third quarter of fiscal 2016 as compared to the same periods in fiscal 2015.

During the first nine months of fiscal 2016, total interest expense increased to $988 million from $506 million in the same period in fiscal 2015. The increase in total interest expense for the first nine months of fiscal 2016 can be primarily attributed to losses of $102 million on foreign currency transactions, net of foreign currency swaps, as compared to gains of $101 million in the same period of fiscal 2015, as well as lower gains of $72 million on non-hedge accounting interest rate swaps in the first nine months of fiscal 2016 compared to gains of $245 million for the same period in fiscal 2015. In addition, in the first nine months of fiscal 2016 interest expense on debt and derivatives increased to $960 million from $853 million for the same period in fiscal 2015. During the third quarter of fiscal 2016, total interest expense increased to $277 million from $161 million in the same period of fiscal 2015 driven by losses of $41 million on foreign currency transactions, net of foreign currency swaps as compared to gains of $25 million in the same period in fiscal 2015. In addition, in the third quarter of fiscal 2016 interest expense on debt and derivatives increased to $335 million from $287 million for the same period in fiscal 2015.

Interest expense on debt primarily represents net interest settlements and changes in accruals on secured and unsecured notes and loans payable and commercial paper, and includes amortization of discount and premium, debt issuance costs, and basis adjustments. Interest expense on debt in the first nine months and third quarter of fiscal 2016 increased to $964 million and $334 million, respectively, from $923 million and $304 million in the same periods in fiscal 2015 due to an increase in the amount of outstanding debt and the impact of higher weighted average interest rates on our commercial paper and our secured notes and loans payable.

Interest expense on derivatives represents net interest settlements and changes in accruals on both hedge and non-hedge accounting interest rate and foreign currency derivatives. During the first nine months and third quarter of fiscal 2016, we recorded net interest income of $4 million and net interest expense of $1 million, respectively, compared to net interest income of $70 million and $17 million in the same periods in fiscal 2015.

Gain or loss on non-hedge accounting foreign currency transactions represents the revaluation of foreign currency denominated debt transactions for which hedge accounting has not been elected. We use non-hedge accounting foreign currency swaps to economically hedge these foreign currency transactions. During the first nine months and third quarter of fiscal 2016, the net losses of $102 million and $41 million, respectively, on our foreign currency transactions, net of foreign currency swaps, resulted primarily from an increase in certain foreign currency swap rates. During the first nine months and third quarter of fiscal 2015, we recorded net gains of $101 million and $25 million, respectively, on foreign currency transactions, net of foreign currency swaps, resulting from a decrease in foreign currency swap rates.

Gain or loss on non-hedge accounting interest rate swaps represents the revaluation of U.S. dollar interest rate swaps. During the first nine months of fiscal 2016, we recorded a gain of $72 million on non-hedge accounting interest rate swaps. During the third quarter of fiscal 2016, U.S. dollar swap rates increased resulting in net gains of $98 million. During the first nine months and third quarter of fiscal 2015, we recorded gains of $245 million and $100 million, respectively, on non-hedge accounting interest rate swaps as a result of an increase in medium term U.S. dollar swap rates.

Future changes in interest and foreign exchange rates could continue to result in significant volatility in our interest expense, thereby affecting our results of operations.

We recorded a provision for credit losses of $278 million and $128 million for the first nine months and third quarter of fiscal 2016, respectively, compared to $220 million and $103 million for the same periods in fiscal 2015. The increase in the provision for credit losses for the first nine months and third quarter of fiscal 2016 was due to higher default frequency and loss severity, and overall portfolio growth.

Operating and administrative expenses increased 12 percent and 8 percent during the first nine months and third quarter of fiscal 2016, respectively, compared to the same periods in fiscal 2015 primarily reflecting increases in employee and general operating expenses and certain expenses associated with the planned relocation of our headquarters to Plano, Texas. We expect to incur additional expenses over the next several years relating to our planned relocation.

	Three Months Ended							Nine Months Ended
	December 31,				Percentage			December 31,				Percentage
(Dollars in millions)	2015		2014		Change			2015		2014		Change
Agreements (units in thousands)
Issued		534		464		15	%		1,654		1,442		15	%
Average in force		6,553		5,907		11	%		6,360		5,801		10	%

Insurance earned premiums and contract revenues	$	181	$	159		14	%	$	533	$	472		13	%
Investment and other income, net		40		42		(5	)%		49		90		(46	)%
Revenues from insurance operations		221		201		10	%		582		562		4	%

Less:
Insurance losses and loss adjustment expenses		73		63		16	%		230		200		15	%
Operating and administrative expenses		65		57		14	%		188		163		15	%
Provision for income taxes		31		30		3	%		61		74		(18	)%
Net income from insurance operations	$	52	$	51		2	%	$	103	$	125		(18	)%

Our insurance operations reported net income of $103 million and $52 million for the first nine months and third quarter of fiscal 2016, respectively, compared to $125 million and $51 million for the same periods in fiscal 2015. The decrease in net income for the first nine months of fiscal 2016 was primarily attributable to a $41 million decrease in investment and other income, net, a $30 million increase in insurance losses and loss adjustment expenses and a $25 million increase in operating and administrative expenses, partially offset by a $61 million increase in insurance earned premiums and contract revenues. Net income for the third quarter of fiscal 2016 increased slightly from the prior year primarily due to a $22 million increase in insurance earned premiums and contract revenues, which was mostly offset by a $10 million increase in insurance losses and loss adjustment expenses and an $8 million increase in operating and administrative expenses.

Agreements issued increased 15 percent during the first nine months and third quarter of fiscal 2016, respectively, compared to the same periods in fiscal 2015. The average number of agreements in force increased 10 percent and 11 percent during the first nine months and third quarter of fiscal 2016, respectively, compared to the same periods in fiscal 2015. The increase in the issued and the average in force agreements in both periods was primarily due to increased sales of prepaid maintenance contracts and tire and wheel agreements. The increase in prepaid maintenance agreements was primarily due to the continued sales growth of product offerings introduced in fiscal 2014. The volume of issued and average in force tire and wheel agreements has increased as the product continues to mature.

Our insurance operations reported insurance earned premiums and contract revenues of $533 million and $181 million for the first nine months and third quarter of fiscal 2016, respectively, compared to $472 million and $159 million for the same periods in fiscal 2015. Insurance earned premiums and contract revenues represent revenues from in force agreements and are affected by sales volume as well as the level, age, and mix of in force agreements. Insurance earned premiums and contract revenues are recognized over the term of the agreements in relation to the timing and level of anticipated claims and administrative expenses. The increase in the first nine months and third quarter of fiscal 2016 compared to the same periods in fiscal 2015 was due to an increase in the average in force agreements.

Our insurance operations reported investment and other income, net of $49 million and $40 million for the first nine months and third quarter of fiscal 2016, respectively, compared to income of $90 million and $42 million for the same periods in fiscal 2015. Investment and other income, net consist primarily of dividend and interest income, realized gains and losses and other-than-temporary impairment on available-for-sale securities, if any. The decrease in investment and other income, net in the first nine months of fiscal 2016 was primarily due to an increase of $50 million of other-than-temporary impairment and a decrease in net realized gains compared to the same period in fiscal 2015, partially offset by an increase in dividend income. The decrease in investment and other income, net in the third quarter of fiscal 2016 was primarily due to an increase of $15 million of other-than-temporary impairment compared to the same period in fiscal 2015, which was mostly offset by an increase in net realized gains and an increase in dividend income. The other-than-temporary impairment incurred in the first nine months and third quarter of fiscal 2016 was due to interest rate volatility on our fixed income mutual funds.

Our insurance operations reported insurance losses and loss adjustment expenses of $230 million and $73 million for the first nine months and third quarter of fiscal 2016, compared to $200 million and $63 million for the same periods in fiscal 2015. Insurance losses and loss adjustment expenses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with in force agreements and the level of risk retained by our insurance operations. Insurance losses and loss adjustment expenses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses. The increase in the first nine months and third quarter of fiscal 2016 compared to the same periods in fiscal 2015 was primarily due to an increase in the number of prepaid maintenance claims as a result of a higher number of average in force agreements and an increase in the severity of prepaid maintenance claims.

Our insurance operations reported operating and administrative expenses of $188 million and $65 million for the first nine months and third quarter of fiscal 2016, respectively, compared to $163 million and $57 million for the same periods in fiscal 2015. The increase in the first nine months and third quarter of fiscal 2016 compared to the same periods in fiscal 2015 was attributable to higher product expenses driven by the continued growth of our insurance business, insurance dealer back-end program expenses and general operating expenses. Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on certain performance criteria.

Our overall provision for income taxes for the first nine months and third quarter of fiscal 2016 was $441 million and $210 million, respectively, compared to $574 million and $185 million for the same periods in fiscal 2015. Our effective tax rate was 37 percent for the first nine months of fiscal 2016 and fiscal 2015 and 38 percent for the third quarter of fiscal 2016 and fiscal 2015. The decrease in the provision for the first nine months of fiscal 2016 is consistent with the decrease in our income before tax compared to the first nine months of fiscal 2015. The increase in the provision for the third quarter of fiscal 2016 is consistent with the increase in our income before tax compared to the third quarter of fiscal 2015.

The composition of our vehicle contract volume and market share is summarized below:

	Three Months Ended									Nine Months Ended
	December 31,						Percentage			December 31,						Percentage
(units in thousands):	2015			2014			Change			2015			2014			Change
TMS new sales volume¹		495			447			11	%		1,489			1,433			4	%

Vehicle financing volume²
New retail contracts		147			150			(2	)%		502			527			(5	)%
Used retail contracts		67			67			-	%		215			210			2	%
Lease contracts		153			118			30	%		467			403			16	%
Total		367			335			10	%		1,184			1,140			4	%

TMS subvened vehicle financing volume (units included in the above table):
New retail contracts		82			95			(14	)%		300			347			(14	)%
Used retail contracts		14			16			(13	)%		36			47			(23	)%
Lease contracts		131			104			26	%		412			368			12	%
Total		227			215			6	%		748			762			(2	)%

TMS subvened vehicle financing volume as a percent of vehicle financing volume:
New retail contracts		55.8	%		63.3	%					59.8	%		65.8	%
Used retail contracts		20.9	%		23.9	%					16.7	%		22.4	%
Lease contracts		85.6	%		88.1	%					88.2	%		91.3	%
Overall subvened contracts		61.9	%		64.2	%					63.2	%		66.8	%

Market share:³
Retail contracts		29.5	%		33.6	%					33.6	%		36.6	%
Lease contracts		30.7	%		26.2	%					31.1	%		28.1	%
Total		60.2	%		59.8	%					64.7	%		64.7	%

The volume of our retail and lease contracts, which are acquired primarily from Toyota and Lexus vehicle dealers, is substantially dependent upon TMS sales volume and subvention. Vehicle sales by TMS increased 4 percent for the first nine months of fiscal 2016 as compared to the same period in fiscal 2015.

Our financing volume increased 4 percent and 10 percent in the first nine months and third quarter of fiscal 2016, respectively, compared to the same periods in fiscal 2015. The increase in financing volume was driven primarily by growth in TMS sales. Lease volume increased 16 percent and 30 percent and retail volume decreased 5 percent and 2 percent in the first nine months and third quarter of fiscal 2016, respectively, due primarily to a higher focus by TMS on lease subvention. Market share for lease increased for the first nine months and third quarter of fiscal 2016 as dealers have increased their utilization of the leasing programs offered. Despite a decline in retail market share in the first nine months and third quarter of fiscal 2016, overall market share remained relatively consistent compared to the same periods in fiscal 2015.

The majority of our lease terms are 36 and 24 months, which represent 81 percent and 10 percent, respectively, of our lease originations for the first nine months of fiscal 2016 compared to 65 percent and 26 percent, respectively, for the same period in fiscal 2015.


	December 31,		March 31,		Percentage
(Dollars in millions)	2015		2015		Change
Net Earning Assets
Finance receivables, net
Retail finance receivables, net¹	$	50,711	$	50,257		1	%
Dealer financing, net²		15,052		15,636		(4	)%
Total finance receivables, net		65,763		65,893		-	%
Investments in operating leases, net		35,336		31,128		14	%
Net earning assets	$	101,099	$	97,021		4	%

Dealer Financing
(Number of dealers serviced)
Toyota and Lexus dealers²		997		999		-	%
Vehicle dealers outside of the Toyota/Lexus dealer network		400		456		(12	)%
Industrial equipment dealers³		-		140		(100	)%
Total number of dealers receiving wholesale financing		1,397		1,595		(12	)%

Dealer inventory outstanding (units in thousands)		275		301		(9	)%

Our retail contract volume decreased 5 percent and 2 percent during the first nine months and third quarter of fiscal 2016, respectively, compared to the same periods in fiscal 2015 primarily due to the higher focus by TMS on lease subvention as compared to retail subvention. Market share decreased 3 percent and 4 percent during the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015 due to the decrease in retail subvention. Our retail finance receivables, net increased 1 percent from March 31, 2015, due to higher average amounts financed.

Our vehicle lease contract volume increased 16 percent and 30 percent during the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015. Much of the increase during the first nine months and third quarter of fiscal 2016 was attributable to a higher focus by TMS on lease subvention in comparison to retail subvention, resulting in an increase of 14 percent in investments in operating leases, net at December 31, 2015, as compared to the balance at March 31, 2015. Market share increased 3 percent and 5 percent for the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015 due to the increase in lease subvention.

Dealer financing, net decreased 4 percent from March 31, 2015, primarily due to decreases in dealer inventory outstanding and the sale of the commercial finance business.

The primary factors affecting our exposure to residual value risk are the levels at which residual values are established at lease inception, current economic conditions and outlook, projected end-of-term market values, and the resulting impact on vehicle lease return rates and loss severity.

On a quarterly basis, we review the estimated end-of-term market values of leased vehicles to assess the appropriateness of our carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. For operating leases, adjustments are made on a straight-line basis over the remaining terms of the lease contracts and are included in depreciation on operating leases in the Consolidated Statement of Income as a change in accounting estimate. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included in our retail revenues in the Consolidated Statement of Income.

Depreciation on operating leases and average operating lease units outstanding are as follows:

Depreciation expense on operating leases increased 22 percent and 20 percent during the first nine months and third quarter of fiscal 2016, respectively, as compared to the same periods in fiscal 2015, due primarily to an increase in the average operating lease units outstanding. We continue to experience higher leasing volume which will result in an increase in our maturities in future years. In addition, the higher volume of shorter term leases in the last few years will result in increased maturities in the next twelve months. We also expect these trends to affect return rates, residual values and depreciation expense.

Our credit loss experience may be affected by a number of factors including the economic environment, our purchasing and servicing practices, used vehicle market conditions and subvention. We continuously evaluate and refine our purchasing practices and collection efforts to minimize risk. In addition, subvention contributes to our overall portfolio quality, as subvened contracts typically have higher credit scores than non-subvened contracts.

The level of credit losses primarily reflects two factors: default frequency and loss severity. Net charge-offs as a percentage of average gross earning assets increased from 0.32 percent at December 31, 2014 to 0.36 percent at December 31, 2015 due to increased default frequency, loss severity and lower recoveries. Default frequency as a percentage of outstanding contracts increased slightly to 1.19 percent for the first nine months of fiscal 2016 compared to 1.18 percent in the same period in fiscal 2015. Our average loss severity for the first nine months of fiscal 2016 increased to $6,702 from $6,580 in the first nine months of fiscal 2015. Our delinquencies increased to 0.35 percent for the first nine months of fiscal 2016 compared to 0.27 percent in the same period in fiscal 2015 as a result of rising consumer debt levels as customers experienced greater access to credit. The increase in our delinquencies from March 31, 2015 to December 31, 2015 reflects our typical seasonal pattern for delinquency.

We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date resulting from the non-performance of our customers and dealers under their contractual obligations. The determination of the allowance involves significant assumptions, complex analyses, and management judgment.

The allowance for credit losses for our consumer portfolio is established through a process that estimates probable losses incurred as of the balance sheet date based upon consistently applied statistical analyses of portfolio data. This process utilizes delinquency migration analysis, in which historical delinquency and credit loss experience is applied to the current aging of the portfolio, and incorporates current and expected trends and other relevant factors, including used vehicle market conditions, economic conditions, unemployment rates, purchase quality mix, and operational factors. This process, along with management judgment, is used to establish the allowance to cover probable and estimable losses incurred as of the balance sheet date. Movement in any of these factors would cause changes in estimated probable losses.

The allowance for credit losses for our dealer portfolio is established by aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by either vehicles, real estate or dealership assets, or unsecured). We analyze the dealer pools using internally developed risk ratings for each dealer. In addition, we have established procedures that focus on managing high risk loans in our dealer portfolio. Our field operations management and special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established, as appropriate, and the loan is removed from the loan-risk pool for separate monitoring.

The following table provides information related to our allowance for credit losses:

Our allowance for credit losses increased $36 million from $450 million at December 31, 2014 to $486 million at December 31, 2015 due to higher default frequency and loss severity, lower recoveries, and overall portfolio growth. In the nine months ended December 31, 2015, our allowance for credit losses increased slightly, as the impacts of higher frequency and severity and lower recoveries were partially offset by a decrease in the allowance related to the sale of the commercial finance business.

Liquidity risk is the risk relating to our ability to meet our financial obligations when they come due. Our liquidity strategy is to ensure that we maintain the ability to fund assets and repay liabilities in a timely and cost-effective manner, even in adverse market conditions. Our strategy includes raising funds via the global capital markets and through loans, credit facilities, and other transactions as well as generating liquidity from our earning assets. This strategy has led us to develop a borrowing base that is diversified by market and geographic distribution, investor type and financing structure, among other factors.

The following table summarizes the components of our outstanding funding sources at carrying value:

Liquidity management involves forecasting and maintaining sufficient capacity to meet our cash needs, including unanticipated events. To ensure adequate liquidity through a full range of potential operating environments and market conditions, we conduct our liquidity management and business activities in a manner that will preserve and enhance funding stability, flexibility and diversity. Key components of this operating strategy include a strong focus on developing and maintaining direct relationships with commercial paper investors and wholesale market funding providers and maintaining the ability to sell certain assets when and if conditions warrant.

We develop and maintain contingency funding plans and regularly evaluate our liquidity position under various operating circumstances, allowing us to assess how we will be able to operate through a period of stress when access to normal sources of capital is constrained. The plans project funding requirements during a potential period of stress, specify and quantify sources of liquidity, and outline actions and procedures for effectively managing through the problem period. In addition, we monitor the ratings and credit exposure of the lenders that participate in our credit facilities to ascertain any issues that may arise with potential draws on these facilities if that contingency becomes warranted.

We maintain broad access to a variety of domestic and global markets and may choose to realign our funding activities depending upon market conditions, relative costs, and other factors. We believe that our funding sources, combined with operating and investing activities, provide sufficient liquidity to meet future funding requirements and business growth. Our funding volume is primarily based on expected net change in earning assets and debt maturities.

For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from $8.6 billion to $14.6 billion with an average balance of $10.8 billion during the quarter ended December 31, 2015.

We may lend to or borrow from affiliates on terms based upon a number of business factors such as funds availability, cash flow timing, relative cost of funds, and market access capabilities.

Credit support is provided to us by our indirect parent Toyota Financial Services Corporation (“TFSC”), and, in turn to TFSC by Toyota Motor Corporation (“TMC”). Taken together, these credit support agreements provide an additional source of liquidity to us, although we do not rely upon such credit support in our liquidity planning and capital and risk management. The credit support agreements are not a guarantee by TMC or TFSC of any securities or obligations of TFSC or TMCC, respectively. The fees paid pursuant to these agreements are disclosed in Note 14 – Related Party Transactions of the Notes to Consolidated Financial Statements.

TMC’s obligations under its credit support agreement with TFSC rank pari passu with TMC’s senior unsecured debt obligations. Refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015 for further discussion.

We routinely monitor global financial conditions and our financial exposure to our global counterparties. Specifically, we focus on those countries experiencing significant economic, fiscal or political strain and the corresponding likelihood of default. During the reporting period, we identified the following countries for which these conditions exist: Portugal, Ireland, Italy, Greece, Spain, Cyprus, Russia, Ukraine and certain other countries. We do not currently have exposure to these or other sovereign counterparties. As of December 31, 2015, our gross non-sovereign exposures to investments in marketable securities and derivatives counterparty positions in the countries identified were not material, either individually or collectively. We also maintained a total of $20.6 billion in committed syndicated and bilateral credit facilities for our liquidity purposes as of December 31, 2015. As of December 31, 2015, approximately 3 percent of such commitments were from counterparties in the countries identified. Refer to the “Liquidity and Capital Resources - Liquidity Facilities and Letters of Credit” section and “Part I, Item 1A. Risk Factors - The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, operating results or financial condition” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015 for further discussion.

Short-term funding needs are met through the issuance of commercial paper in the United States. Commercial paper outstanding under our commercial paper programs ranged from approximately $26.2 billion to $29.0 billion during the quarter ended December 31, 2015, with an average outstanding balance of $27.2 billion. Our commercial paper programs are supported by the liquidity facilities discussed under the heading “Liquidity Facilities and Letters of Credit.” We believe we have ample capacity to meet our short-term funding requirements and manage our liquidity.

The following table summarizes the components of our unsecured notes and loans payable:

We maintain a shelf registration statement with the SEC to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We qualify as a well-known seasoned issuer under SEC rules, which allows us to issue under our registration statement an unlimited amount of debt securities during the three year period ending February 2018. Debt securities issued under the U.S. shelf registration statement are issued pursuant to the terms of an indenture which requires TMCC to comply with certain covenants, including negative pledge provisions. We are in compliance with these covenants.

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets. In September 2015, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50 billion or the equivalent in other currencies, of which €26.5 billion was available for issuance at December 31, 2015. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time. Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions. We are in compliance with these covenants.

In addition, we may issue other debt securities or enter into other unsecured financing arrangements through the global capital markets.

Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding. We securitize finance receivables and beneficial interests in investments in operating leases (“Securitized Assets”) using a variety of structures. Our securitization transactions involve the transfer of Securitized Assets to bankruptcy-remote special purpose entities. These bankruptcy-remote entities are used to ensure that the Securitized Assets are isolated from the claims of creditors of TMCC and that the cash flows from these assets are available solely for the benefit of the investors in these asset-backed securities. Investors in asset-backed securities do not have recourse to our other assets, and neither TMCC nor our affiliates guarantee these obligations. We are not required to repurchase or make reallocation payments with respect to the Securitized Assets that become delinquent or default after securitization. As seller and servicer of the Securitized Assets, we are required to repurchase or make a reallocation payment with respect to the underlying assets that are subsequently discovered not to have met specified eligibility requirements. This repurchase obligation is customary in securitization transactions.

We service the Securitized Assets in accordance with our customary servicing practices and procedures. Our servicing duties include collecting payments on Securitized Assets and submitting them to a trustee for distribution to security holders and other interest holders. We prepare monthly servicer certificates on the performance of the Securitized Assets, including collections, investor distributions, delinquencies, and credit losses. We also perform administrative services for the special purpose entities.

Our use of special purpose entities in securitizations is consistent with conventional practice in the securitization market. None of our officers, directors, or employees hold any equity interests or receive any direct or indirect compensation from our special purpose entities. These entities do not own our stock or the stock of any of our affiliates. Each special purpose entity has a limited purpose and generally is permitted only to purchase assets, issue asset-backed securities, and make payments to the security holders, other interest holders and certain service providers as required under the terms of the transactions.

Our securitizations are structured to provide credit enhancement to reduce the risk of loss to security holders and other interest holders in the asset-backed securities. Credit enhancement may include some or all of the following:

In addition to the credit enhancement described above, we may enter into interest rate swaps with our special purpose entities that issue variable rate debt. Under the terms of these swaps, the special purpose entities are obligated to pay TMCC a fixed rate of interest on payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt. This arrangement enables the special purpose entities to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate Securitized Assets.

Securitized Assets and the related debt remain on our Consolidated Balance Sheet. We recognize financing revenue on the Securitized Assets. We also recognize interest expense on the secured debt issued by the special purpose entities and maintain an allowance for credit losses on the Securitized Assets to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements.

The following are asset-backed securitization transactions that we have executed.

We maintain shelf registration statements with the Securities and Exchange Commission (“SEC”) to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets. We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. Funding obtained from our public term securitization transactions is repaid as the underlying Securitized Assets amortize. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of December 31, 2015 and March 31, 2015, we did not have any outstanding lease securitization transactions registered with the SEC.

We periodically enter into public term securitization transactions whereby we agree to use the proceeds solely to acquire retail and lease contracts financing new Toyota and Lexus vehicles of certain specified “green” models. The terms of the securitization transactions are consistent with the terms of our other similar transactions except that the proceeds we receive are included in Restricted cash and cash equivalents in our Consolidated Balance Sheet.

We have executed private securitization transactions of Securitized Assets with bank-sponsored multi-seller asset-backed conduits. The related debt will be repaid as the underlying Securitized Assets amortize.

For additional liquidity purposes, we maintain syndicated credit facilities with certain banks.

364 Day Credit Agreement, Three Year Credit Agreement and Five Year Credit Agreement

In November 2015, TMCC, Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility, a $5.0 billion three year syndicated bank credit facility and a $5.0 billion five year syndicated bank credit facility, expiring in fiscal 2017, 2019, and 2021, respectively.

TMCC has entered into additional unsecured credit facilities with various banks. As of December 31, 2015, TMCC had committed bank credit facilities totaling $5.6 billion of which $300 million, $2.5 billion, $375 million, $2.0 billion, and $375 million mature in fiscal 2016, 2017, 2018, 2019, and 2020, respectively.

The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning credit rating organization. Each credit rating organization may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each organization. Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC. Refer to “Part I, Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements” in our fiscal 2015 Form 10-K.

All derivative instruments are recorded on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to net settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. Changes in the fair value of derivatives are recorded in interest expense in the Consolidated Statement of Income.

We categorize derivatives as those designated for hedge accounting (“hedge accounting derivatives”) and those that are not designated for hedge accounting (“non-hedge accounting derivatives”). At the inception of a derivative contract, we may elect to designate a derivative as a hedge accounting derivative.

We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative which may require bifurcation. Changes in the fair value of the bifurcated embedded derivative are reported in interest expense in the Consolidated Statement of Income. As of December 31, 2015 and March 31, 2015, we had no outstanding embedded derivatives that are required to be bifurcated. Refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, and Note 7 – Derivatives, Hedging Activities and Interest Expense of the Notes to Consolidated Financial Statements in this Form 10-Q for additional information.

The following table summarizes our derivative assets and liabilities, which are included in other assets and other liabilities in the Consolidated Balance Sheet:

Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of December 31, 2015, we held collateral of $120 million, which offset derivative assets, and we posted collateral of $1,618 million, which offset derivative liabilities. We also held excess collateral of $3 million which we did not use to offset derivative assets. As of March 31, 2015, we held collateral of $145 million, which offset derivative assets, and we posted collateral of $1,694 million which offset derivative liabilities. We held excess collateral of $10 million, which we did not use to offset derivative assets, and we posted excess collateral of $2 million which we did not use to offset derivative liabilities. Refer to the “Interest Expense” section for discussion on changes in derivatives.

We manage derivatives counterparty credit risk by maintaining policies for entering into derivative contracts, exercising our rights under our derivative contracts, requiring the posting of collateral and actively monitoring our exposure to counterparties.

All of our derivative counterparties to which we had credit exposure at December 31, 2015 were assigned investment grade ratings by a credit rating organization. Our counterparty credit risk could be adversely affected by deterioration of the global economy and financial distress in the banking industry.

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements contain reciprocal collateral arrangements which help mitigate our exposure to the credit risk associated with our counterparties. As of December 31, 2015, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization requirement, which has significantly reduced counterparty credit risk exposure. Under our ISDA Master Agreements, cash is the only permissible form of collateral. Neither we nor our counterparties are required to hold collateral in a segregated account. Our collateral agreements include legal right of offset provisions, pursuant to which collateral amounts are netted against derivative assets or derivative liabilities, the net amount of which is included in other assets or other liabilities in our Consolidated Balance Sheet.

In addition, many of our ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement and related transactions at market value in the event of a ratings downgrade below a specified threshold. Refer to “Part I. Item 1A. Risk Factors” in our fiscal 2015 Form 10-K for further discussion.

A summary of our net counterparty credit exposure by credit rating (net of collateral held) is presented below:

We exclude from the table above credit valuation adjustments of $2 million and $1 million as of December 31, 2015 and March 31, 2015, respectively, related to non-performance risk of our counterparties. All derivative credit valuation adjustments are recorded in interest expense in our Consolidated Statement of Income. Refer to Note 2 – Fair Value Measurements of the Notes to Consolidated Financial Statements for further discussion.

Refer to Note 1 – Interim Financial Data of the Notes to Consolidated Financial Statements.

TMCC has guaranteed the payments of principal and interest with respect to the bond obligations 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. Refer to Note 12 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.

A description of our lending commitments is included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements” and Note 15 - Related Party Transactions of the Notes to Consolidated Financial Statements in our fiscal 2015 Form 10-K, as well as above in Note 12 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Refer to Note 12 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions.

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of our “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of December 31, 2015, to ensure that information required to be disclosed in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the SEC’s rules, regulations, and forms and that such information is accumulated and communicated to our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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. See Note 12 – Commitments and Contingencies. 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.

There are no material changes from the risk factors set forth under “Item 1A. Risk Factors” in our fiscal 2015 Form 10-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

California		95-3775816
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

19001 S. Western Avenue Torrance, California		90501
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x	Smaller reporting company	¨

INDEX
PART I	3
Item 1. Financial Statements	3
Consolidated Statement of Income	3
Consolidated Statement of Comprehensive Income	3
Consolidated Balance Sheet	4
Consolidated Statement of Shareholder’s Equity	5
Consolidated Statement of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis	44
Item 3. Quantitative and Qualitative Disclosures About Market Risk	68
Item 4. Controls and Procedures	68
PART II	69
Item 1. Legal Proceedings	69
Item 1A. Risk Factors	69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3. Defaults Upon Senior Securities	69
Item 4. Mine Safety Disclosures	69
Item 5. Other Information	69
Item 6. Exhibits	69
Signatures	70
Exhibit Index	71

	December 31, 2015
	Amortized Cost		Fair Value
Available-for-sale debt instruments:
Due within 1 year	$	4,550	$	4,544
Due after 1 year through 5 years		1,281		1,278
Due after 5 years through 10 years		81		80
Due after 10 years		93		95
Mortgage-backed and asset-backed securities¹		130		131
Total	$	6,135	$	6,128

	December 31,			March 31,
	2015			2015
Retail receivables	$	37,413		$	39,141
Securitized retail receivables		13,794			11,682
Dealer financing		15,176			15,744
		66,383			66,567

Deferred origination (fees) and costs, net		666			646
Deferred income		(905	)		(911	)
Allowance for credit losses
Retail and securitized retail receivables		(258	)		(301	)
Dealer financing		(123	)		(108	)
Total allowance for credit losses		(381	)		(409	)
Finance receivables, net	$	65,763		$	65,893

					Weighted average
					contractual interest rates
	December 31,		March 31,		December 31,			March 31,
	2015		2015		2015			2015
Commercial paper	$	26,847	$	27,006		0.42	%		0.21	%
Unsecured notes and loans payable		53,784		52,307		1.89	%		1.86	%
Secured notes and loans payable		14,030		10,837		0.75	%		0.60	%
Carrying value adjustment		47		81
Total debt	$	94,708	$	90,231		1.30	%		1.22	%

	December 31, 2015
			VIE Assets						VIE Liabilities
			Gross		Net
	Restricted Cash		Securitized Assets		Securitized Assets		Other Assets		Debt		Other Liabilities
Retail finance receivables	$	741	$	13,794	$	13,611	$	7	$	12,068	$	3
Investments in operating leases		111		3,657		2,797		48		1,962		1
Total	$	852	$	17,451	$	16,408	$	55	$	14,030	$	4

	Future minimum
Years ending March 31,	lease payments
2016	$	5
2017		21
2018		17
2019		9
2020		4
Thereafter		3
Total	$	59

(Dollars in millions)	U.S. medium term notes ("MTNs") and domestic bonds				Euro MTNs ("EMTNs")				Eurobonds		Other				Total unsecured notes and loans payable⁵
Balance at March 31, 2015¹	$	32,722			$	16,100			$	480	$	5,222			$	54,524
Issuances during the nine months ended
December 31, 2015		8,266		²		2,013		³		-		1,250		⁴		11,529
Maturities and terminations during the
nine months ended December 31, 2015		(7,815	)			(1,028	)			-		(1,250	)			(10,093	)
Balance at December 31, 2015¹	$	33,173			$	17,085			$	480	$	5,222			$	55,960

	TOYOTA MOTOR CREDIT CORPORATION
	(Registrant)

Date: February 10, 2016	By	/s/ Michael Groff
		Michael Groff
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: February 10, 2016	By	/s/ Chris Ballinger
		Chris Ballinger
		Senior Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit Number	Description	Method of Filing

3.1	Restated Articles of Incorporation filed with the California Secretary of State on April 1, 2010	(1)

3.2	Bylaws as amended through December 8, 2000	(2)

4.1(a)	Indenture dated as of August 1, 1991 between TMCC and The Chase Manhattan Bank, N.A.	(3)

4.1(b)	First Supplemental Indenture dated as of October 1, 1991 among TMCC, Bankers Trust Company and The Chase Manhattan Bank, N.A.	(4)

4.1(c)	Second Supplemental Indenture, dated as of March 31, 2004, among TMCC, JPMorgan Chase Bank (as successor to The Chase Manhattan Bank, N.A.) and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company)	(5)

4.1(d)	Third Supplemental Indenture, dated as of March 8, 2011 among TMCC, The Bank of New York Mellon Trust Company, N.A., as trustee, and Deutsche Bank Trust Company Americas, as trustee	(6)

4.1(e)	Agreement of Resignation and Acceptance dated as of April 26, 2010 between Toyota Motor Credit Corporation, The Bank of New York Mellon and The Bank of New York Trust Company, N.A.	(1)

4.2(a)	Amended and Restated Agency Agreement, dated September 11, 2015, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited and The Bank of New York Mellon	(7)

4.2(b)	Amended and Restated Note Agency Agreement, dated September 11, 2015, among Toyota Motor Credit Corporation, The Bank of New York Mellon (Luxembourg) S.A. and The Bank of New York Mellon, acting through its London branch	(8)

4.3(a)	Sixth Amended and Restated Agency Agreement dated September 28, 2006, among TMCC, JP Morgan Chase Bank, N.A. and J.P. Morgan Bank Luxembourg S.A.	(9)

4.3(b)	Amendment No.1, dated as of March 4, 2011, to the Sixth Amended and Restated Agency Agreement among TMCC, The Bank of New York Mellon, acting through its London branch, as agent, and The Bank of New York Luxembourg S.A., as paying agent	(10)

4.4	TMCC has outstanding certain long-term debt as set forth in Note 9 - Debt of the Notes to Consolidated Financial Statements. Not filed herein as an exhibit, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of TMCC and its subsidiaries on a consolidated basis. TMCC agrees to furnish copies of all such instruments to the Securities and Exchange Commission upon request