tmcc-10q_20161231.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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of January 31, 2017, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services International Corporation.

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,
	2016			2015		2016		2015
Financing revenues:
Operating lease	$	1,946		$	1,795	$	5,762	$	5,280
Retail		468			484		1,383		1,406
Dealer		123			97		346		298
Total financing revenues		2,537			2,376		7,491		6,984
Depreciation on operating leases		1,722			1,503		4,994		4,309
Interest expense		701			277		1,305		988
Net financing revenues		114			596		1,192		1,687

Insurance earned premiums and contract revenues		202			181		594		533
Gain on sale of commercial finance business		-			197		-		197
Investment and other income, net		52			67		133		129
Realized gains (losses), net on investments in marketable securities		157			-		240		(10	)
Net financing revenues and other revenues		525			1,041		2,159		2,536

Expenses:
Provision for credit losses		183			128		396		278
Operating and administrative		325			288		921		845
Insurance losses and loss adjustment expenses		92			73		272		230
Total expenses		600			489		1,589		1,353

(Loss) income before income taxes		(75	)		552		570		1,183
(Benefit) provision for income taxes		(29	)		210		212		441

Net (loss) income	$	(46	)	$	342	$	358	$	742

	December 31,		March 31,
	2016		2016
ASSETS
Cash and cash equivalents	$	2,685	$	2,701
Restricted cash and cash equivalents		893		1,010
Investments in marketable securities		5,739		6,540
Finance receivables, net		68,018		65,636
Investments in operating leases, net		38,097		36,488
Other assets		2,209		2,217
Total assets	$	117,641	$	114,592

LIABILITIES AND SHAREHOLDER’S EQUITY
Debt	$	96,198	$	93,594
Deferred income taxes		8,065		8,016
Other liabilities		3,785		3,585
Total liabilities		108,048		105,195

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, 2016 and March 31, 2016		915		915
Additional paid-in capital		2		2
Accumulated other comprehensive income		3		165
Retained earnings		8,673		8,315
Total shareholder's equity		9,593		9,397
Total liabilities and shareholder's equity	$	117,641	$	114,592

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, 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

Balance at March 31, 2016	$	915	$	2	$	165		$	8,315	$	9,397

Net income for the nine months ended December 31, 2016		-		-		-			358		358
Other comprehensive loss, net of tax		-		-		(162	)		-		(162	)
Balance at December 31, 2016	$	915	$	2	$	3		$	8,673	$	9,593

	Nine Months Ended December 31,
	2016			2015
Cash flows from operating activities:
Net income	$	358		$	742
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,040			4,347
Recognition of deferred income		(1,328	)		(1,277	)
Provision for credit losses		396			278
Amortization of deferred costs		471			462
Foreign currency and other adjustments to the carrying value of debt, net		(1,065	)		40
Net realized (gains) losses from sales and other-than-temporary impairment on available-for-sale securities		(240	)		10
Gain on sale of commercial finance business		-			(197	)
Net change in:
Restricted cash and cash equivalents		117			(69	)
Derivative assets		17			-
Other assets (Note 8) and accrued interest		(220	)		66
Deferred income taxes		149			380
Derivative liabilities		(6	)		(15	)
Other liabilities		220			410
Net cash provided by operating activities		3,909			5,177

Cash flows from investing activities:
Purchase of investments in marketable securities		(2,837	)		(5,894	)
Proceeds from sales of investments in marketable securities		832			641
Proceeds from maturities of investments in marketable securities		2,770			3,987
Acquisition of finance receivables		(19,519	)		(19,665	)
Collection of finance receivables		18,151			18,381
Net change in wholesale and certain working capital receivables		(1,171	)		248
Acquisition of investments in operating leases		(13,825	)		(14,978	)
Disposals of investments in operating leases		7,786			5,921
Proceeds from sale of commercial finance business		-			2,285
Net change in financing support provided to affiliates		288			58
Other, net		(63	)		(34	)
Net cash used in investing activities		(7,588	)		(9,050	)

Cash flows from financing activities:
Proceeds from issuance of debt		18,790			19,562
Payments on debt		(17,509	)		(14,958	)
Net change in commercial paper		2,388			(159	)
Net change in financing support provided by affiliates		(6	)		(20	)
Net cash provided by financing activities		3,663			4,425
Net (decrease) increase in cash and cash equivalents		(16	)		552
Cash and cash equivalents at the beginning of the period		2,701			2,407
Cash and cash equivalents at the end of the period	$	2,685		$	2,959
Supplemental disclosures:
Interest paid, net	$	1,031		$	905
Income taxes paid (received), net	$	42		$	(189	)

The information furnished in these unaudited interim consolidated financial statements for the three and nine months ended December 31, 2016 and 2015 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, the unaudited consolidated financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and nine months ended December 31, 2016 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2017 (“fiscal 2017”).

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, 2016 (“fiscal 2016”), which was filed with the Securities and Exchange Commission on June 2, 2016. References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.

Certain prior period amounts have been reclassified to conform to current period presentation. Related party transactions are disclosed in Note 14 – Related Party Transactions.

On July 1, 2016, our parent company, Toyota Financial Services Americas Corporation, was renamed to Toyota Financial Services International Corporation.

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. The FASB also subsequently issued guidance amending and clarifying various aspects of the new revenue recognition standard. We plan to adopt the new revenue guidance effective April 1, 2018 by recognizing the cumulative effect of implementing the new standard as an adjustment to the current period opening balance of shareholder’s equity. We do not expect the adoption of this standard to have a material impact on our operating lease, retail and dealer financing revenues as the majority of those revenues are outside the scope of the standard. However, certain products within our insurance operations fall within the scope of this guidance. We are currently evaluating the potential impact of this guidance on our consolidated financial statements and disclosures.

In May 2015, the FASB issued new guidance that requires additional disclosures related to short-duration insurance contracts. This accounting guidance is effective for us for the annual period beginning April 1, 2016 and for interim periods within annual periods beginning April 1, 2017. The adoption of this guidance is limited to disclosure and will not have an impact 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 earnings. 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 February 2016, the FASB issued new guidance that introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard. The new leasing standard represents a wholesale change to lease accounting for lessees. This accounting guidance will be effective for us on April 1, 2019. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In March 2016, the FASB issued new guidance which clarifies that a change in the counterparty to a designated derivative hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This accounting guidance will be effective for us on April 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued new guidance which clarifies whether an embedded contingent put or call option is clearly and closely related to the debt host when bifurcating an embedded derivative. This accounting guidance will be effective for us on April 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued new guidance that introduces a new impairment model based on expected losses rather than incurred losses for certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. This accounting guidance will be effective for us on April 1, 2020. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In August 2016, the FASB issued new guidance that is intended to reduce diversity in practice in the classification of certain items in the statement of cash flows. 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 October 2016, the FASB issued new guidance that further amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. The guidance specifically addresses interests held through related parties that are under common control. This accounting guidance will be effective for us on April 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued new guidance that clarifies how restricted cash and cash equivalents should be classified and presented in the statement of cash flows and requires new disclosures related to restricted cash and cash equivalents. This guidance was intended to reduce diversity in practice in the classification of restricted cash and cash equivalents on the statement of cash flows. This accounting guidance will be effective for us on April 1, 2018 at which time we will no longer report the change in restricted cash and cash equivalents in the operating section in our Consolidated Statement of Cash Flows, and cash and cash equivalents at the beginning and end of the period will include restricted cash and cash equivalents. These changes will be applied using a retrospective transition method to each period presented.

In April 2016, we adopted new FASB accounting guidance that amends the analysis a reporting entity must perform to determine whether it should consolidate certain legal entities. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2016, we adopted new FASB accounting 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. As a result of adopting this guidance, we have reclassified our debt issuance costs from Other assets to Debt on our Consolidated Balance Sheet and conformed applicable footnote disclosures for all periods presented. These amounts are not material to our consolidated financial statements.

In April 2016, we adopted new FASB accounting guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. While similar guidance existed previously under US GAAP for cloud service providers, this update provides explicit guidance for a customer's accounting. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2016, we adopted new FASB accounting 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. Note 2 – Fair Value Measurements has been updated, for all periods presented, to reflect the adoption of this guidance which 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 except for certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are excluded from the leveling information provided in the table below. Fair value amounts presented below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheet.

	December 31, 2016
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	276	$	958		$	-		$	-		$	1,234
Certificates of deposit		-		1,155			-			-			1,155
Commercial paper		-		15			-			-			15
Corporate debt securities		1		-			-			-			1
Cash equivalents total		277		2,128			-			-			2,405
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		2,672		41			2			-			2,715
Municipal debt securities		-		10			-			-			10
Certificates of deposit		205		200			-			-			405
Corporate debt securities		247		130			8			-			385
Mortgage-backed securities:
U.S. government agency		-		47			-			-			47
Non-agency residential		-		-			2			-			2
Non-agency commercial		-		-			34			-			34
Asset-backed securities		-		-			30			-			30
Equity instruments:
Fixed income mutual funds:
Fixed income mutual funds measured at net asset value		-		-			-			-			1,723
Total return bond funds		388		-			-			-			388
Available-for-sale securities total		3,512		428			76			-			5,739
Derivative assets:
Foreign currency swaps		-		57			-			-			57
Interest rate swaps		-		507			1			-			508
Interest rate floors		-		2			-			-			2
Counterparty netting and collateral		-		-			-			(516	)		(516	)
Derivative assets total		-		566			1			(516	)		51
Assets at fair value		3,789		3,122			77			(516	)		8,195
Derivative liabilities:
Foreign currency swaps		-		(1,361	)		(69	)		-			(1,430	)
Interest rate swaps		-		(293	)		(12	)		-			(305	)
Counterparty netting and collateral		-		-			-			1,734			1,734
Liabilities at fair value		-		(1,654	)		(81	)		1,734			(1	)
Net assets at fair value	$	3,789	$	1,468		$	(4	)	$	1,218		$	8,194

	March 31, 2016
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	360	$	1,209		$	-		$	-		$	1,569
U.S. government and agency obligations		450		105			-			-			555
Certificates of deposit		-		500			-			-			500
Cash equivalents total		810		1,814			-			-			2,624
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		2,777		56			2			-			2,835
Municipal debt securities		-		11			-			-			11
Certificates of deposit		300		200			-			-			500
Commercial paper		-		50			-			-			50
Corporate debt securities		228		252			7			-			487
Mortgage-backed securities:
U.S. government agency		-		59			-			-			59
Non-agency residential		-		-			3			-			3
Non-agency commercial		-		-			42			-			42
Asset-backed securities		-		-			37			-			37
Equity instruments:
Fixed income mutual funds:
Fixed income mutual funds measured at net asset value		-		-			-			-			1,747
Total return bond funds		380		-			-			-			380
Equity mutual fund		389		-			-			-			389
Available-for-sale securities total		4,074		628			91			-			6,540
Derivative assets:
Foreign currency swaps		-		329			-			-			329
Interest rate swaps		-		601			39			-			640
Interest rate floors		-		4			-			-			4
Counterparty netting and collateral		-		-			-			(905	)		(905	)
Derivative assets total		-		934			39			(905	)		68
Assets at fair value		4,884		3,376			130			(905	)		9,232
Derivative liabilities:
Foreign currency swaps		-		(821	)		(14	)		-			(835	)
Interest rate swaps		-		(475	)		-			-			(475	)
Counterparty netting and collateral		-		-			-			1,303			1,303
Liabilities at fair value		-		(1,296	)		(14	)		1,303			(7	)
Net assets at fair value	$	4,884	$	2,080		$	116		$	398		$	9,225

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. Transfers between levels of the fair value hierarchy during the three and nine months ended December 31, 2016 and 2015 resulted from changes in the transparency of inputs and were not significant.

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

	Three Months Ended December 31, 2016
																							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, 2016	$	2	$	8	$	41		$	34		$	85		$	33		$	(49	)	$	(16	)	$	69
Total gains (losses)
Included in earnings		-		-		-			-			-			(47	)		(17	)		(64	)		(64	)
Included in other comprehensive income		-		-		(1	)		1			-			-			-			-			-
Purchases, issuances, sales, and settlements
Purchases		-		-		-			-			-			-			-			-			-
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			-			-			-			-			-			-
Settlements		-		-		(4	)		(5	)		(9	)		3			(3	)		-			(9	)
Transfers in to Level 3		-		-		-			-			-			-			-			-			-
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2016	$	2	$	8	$	36		$	30		$	76		$	(11	)	$	(69	)	$	(80	)	$	(4	)
The amount of total gains (losses) included in earnings attributable to assets held at the reporting date														$	(47	)	$	(17	)		(64	)		(64	)

	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 gains (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 gains (losses) included in earnings attributable to assets held at the reporting date														$	(3	)	$	(9	)	$	(12	)	$	(12	)

	Nine Months Ended December 31, 2016
																							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, 2016	$	2	$	7	$	45		$	37		$	91		$	39		$	(14	)	$	25		$	116
Total gains (losses)
Included in earnings		-		-		-			-			-			(27	)		(49	)		(76	)		(76	)
Included in other comprehensive income		-		1		-			1			2			-			-			-			2
Purchases, issuances, sales, and settlements
Purchases		-		-		-			3			3			-			-			-			3
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			-			-			-			-			-			-
Settlements		-		-		(9	)		(11	)		(20	)		(23	)		(6	)		(29	)		(49	)
Transfers in to Level 3		-		-		-			-			-			-			-			-			-
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2016	$	2	$	8	$	36		$	30		$	76		$	(11	)	$	(69	)	$	(80	)	$	(4	)
The amount of total gains (losses) included in earnings attributable to assets held at the reporting date														$	(27	)	$	(49	)	$	(76	)	$	(76	)

	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 gains (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 gains (losses) included in earnings attributable to assets held at the reporting date															$	(4	)	$	(2	)	$	(6	)	$	(6	)

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, 2016 and March 31, 2016.

The Level 3 financial assets and liabilities recorded at fair value which are 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, 2016 and as of and for the year ended March 31, 2016.

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

	December 31, 2016
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	50,902	$	-	$	-	$	50,761	$	50,761
Wholesale		10,221		-		-		10,268		10,268
Real estate		4,624		-		-		4,400		4,400
Working capital		2,125		-		-		2,129		2,129

Financial liabilities
Commercial paper	$	29,023	$	-	$	29,023	$	-	$	29,023
Unsecured notes and loans payable		54,185		-		53,054		2,166		55,220
Secured notes and loans payable		12,990		-		-		13,001		13,001

	March 31, 2016
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	49,865	$	-	$	-	$	49,551	$	49,551
Wholesale		9,160		-		-		9,207		9,207
Real estate		4,590		-		-		4,277		4,277
Working capital		1,888		-		-		1,894		1,894

Financial liabilities
Commercial paper	$	26,608	$	-	$	26,608	$	-	$	26,608
Unsecured notes and loans payable		52,863		-		52,913		1,387		54,300
Secured notes and loans payable		14,123		-		-		14,125		14,125

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. Finance receivables, net, excludes related party transactions, for which the fair value approximates the carrying value, of $141 million and $128 million at December 31, 2016 and March 31, 2016, 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.

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, 2016
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations	$	2,721	$	1	$	(7	)	$	2,715
Municipal debt securities		9		1		-			10
Certificates of deposit		405		-		-			405
Corporate debt securities		384		2		(1	)		385
Mortgage-backed securities:
U.S. government agency		47		1		(1	)		47
Non-agency residential		2		-		-			2
Non-agency commercial		34		1		(1	)		34
Asset-backed securities		30		-		-			30
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		39		-		-			39
U.S. government sector fund		396		-		(17	)		379
Municipal sector fund		21		-		(1	)		20
Investment grade corporate sector fund		254		8		(5	)		257
High-yield sector fund		83		5		-			88
Real return sector fund		147		5		-			152
Mortgage sector fund		393		-		(6	)		387
Asset-backed securities sector fund		141		8		(1	)		148
Emerging market sector fund		106		8		-			114
International sector fund		136		3		-			139
Total return bond funds		386		3		(1	)		388
Total investments in marketable securities	$	5,734	$	46	$	(41	)	$	5,739

	March 31, 2016
	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations	$	2,833	$	3	$	(1	)	$	2,835
Municipal debt securities		10		1		-			11
Certificates of deposit		500		-		-			500
Commercial paper		50		-		-			50
Corporate debt securities		482		7		(2	)		487
Mortgage-backed securities:
U.S. government agency		57		2		-			59
Non-agency residential		2		1		-			3
Non-agency commercial		42		1		(1	)		42
Asset-backed securities		38		-		(1	)		37
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		178		-		-			178
U.S. government sector fund		353		6		(1	)		358
Municipal sector fund		19		-		-			19
Investment grade corporate sector fund		243		8		(5	)		246
High-yield sector fund		67		-		(1	)		66
Real return sector fund		201		11		-			212
Mortgage sector fund		297		5		-			302
Asset-backed securities sector fund		117		8		(1	)		124
Emerging market sector fund		101		1		-			102
International sector fund		145		-		(5	)		140
Total return bond funds		376		4		-			380
Equity mutual fund		162		227		-			389
Total investments in marketable securities	$	6,273	$	285	$	(18	)	$	6,540

The Fixed income mutual funds, exclusive of the Total return bond 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.

The Total return bond funds are investments in actively traded open-end mutual funds. Redemptions are subject to normal terms and conditions as described in each fund’s prospectus.

Investments in marketable securities in a continuous loss position for less than twelve months and for greater than twelve months were not significant as of December 31, 2016 and March 31, 2016.

The following table represents realized gains and losses on our available-for-sale securities presented in our Consolidated Statement of Income:

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 receivables and dealer financing, which includes accrued interest and deferred fees and costs, net of the allowance for credit losses and deferred income. Finance receivables, net include securitized retail receivables, which represent retail 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 retail 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.

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.

The retail loan portfolio segment consists of one class of finance receivables. While we use various credit quality metrics to develop our allowance for credit losses on the retail loan portfolio segment, 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 within the retail loan segment 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 receivables:

	Wholesale				Real Estate				Working Capital
	December 31,		March 31,		December 31,		March 31,		December 31,		March 31,
	2016		2016		2016		2016		2016		2016
Credit quality indicators:
Performing	$	9,100	$	8,099	$	3,981	$	3,822	$	1,952	$	1,686
Credit Watch		1,140		1,041		660		763		181		229
At Risk		90		113		85		109		11		17
Default		9		9		10		10		-		1
Total	$	10,339	$	9,262	$	4,736	$	4,704	$	2,144	$	1,933

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,
	2016		2016		2016		2016		2016		2016

Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	79	$	98	$	79	$	98	$	5	$	9
Real estate		95		119		95		119		12		15
Working capital		32		37		32		37		9		30
Total	$	206	$	254	$	206	$	254	$	26	$	54

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	126	$	185	$	126	$	185
Real estate		106		98		106		98
Working capital		-		3		-		3
Total	$	232	$	286	$	232	$	286

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	219	$	226	$	216	$	223
Total	$	219	$	226	$	216	$	223

Total impaired account balances:
Retail loan	$	219	$	226	$	216	$	223
Wholesale		205		283		205		283
Real estate		201		217		201		217
Working capital		32		40		32		40
Total	$	657	$	766	$	654	$	763

As of December 31, 2016 and March 31, 2016, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $235 million and $299 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, 2016 and March 31, 2016, impaired finance receivables in the retail portfolio segment recorded at the fair value of the collateral less estimated selling costs were not significant and therefore excluded from the table above. Refer to Note 6 – Allowance for Credit Losses for detail about the impaired account balances which are aggregated and evaluated for impairment when determining the allowance for credit losses.

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,
	2016		2015		2016		2015		2016		2015		2016		2015

Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	78	$	77	$	73	$	83	$	-	$	-	$	1	$	1
Real estate		89		103		97		87		1		1		2		2
Working capital		33		34		34		35		-		-		1		1
Total	$	200	$	214	$	204	$	205	$	1	$	1	$	4	$	4

Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	125	$	136	$	158	$	119	$	1	$	1	$	3	$	2
Real estate		112		94		107		90		1		1		4		3
Working capital		-		5		1		4		-		-		-		-
Total	$	237	$	235	$	266	$	213	$	2	$	2	$	7	$	5

Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	221	$	241	$	223	$	251	$	4	$	4	$	12	$	13
Total	$	221	$	241	$	223	$	251	$	4	$	4	$	12	$	13

Total impaired account balances:
Retail loan	$	221	$	241	$	223	$	251	$	4	$	4	$	12	$	13
Wholesale		203		213		231		202		1		1		4		3
Real estate		201		197		204		177		2		2		6		5
Working capital		33		39		35		39		-		-		1		1
Total	$	658	$	690	$	693	$	669	$	7	$	7	$	23	$	22

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, 2016 and 2015 was not significant. Average impaired finance receivables and interest income recognized during the three and nine months ended December 31, 2015 related to our commercial finance business were not significant. As discussed in our Form 10-K for fiscal 2016, we sold our commercial finance business on October 1, 2015.

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, 2016 and 2015 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. 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, 2016 and 2015.

We consider finance receivables under bankruptcy protection within the retail loan class 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, 2016 and 2015, the financial impact of troubled debt restructurings related to finance receivables 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, 2016 and 2015, 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 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.

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

¹ Amount relates to the commercial finance business which was sold on October 1, 2015.

Charge-offs are shown net of recoveries of $19 million and $59 million for the three and nine months ended December 31, 2016, respectively, and recoveries of $15 million and $54 million for the three and nine months ended December 31, 2015, respectively.

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

	Three Months Ended December 31, 2016
	Retail Loan			Dealer Products			Total
Allowance for Credit Losses for Finance Receivables:
Beginning balance, October 1, 2016	$	295		$	94		$	389
Charge-offs		(113	)		-			(113	)
Recoveries		12			-			12
Provisions		120			13			133
Ending balance, December 31, 2016	$	314		$	107		$	421

	Nine Months Ended December 31, 2016
	Retail Loan			Dealer Products			Total
Beginning balance, April 1, 2016	$	289		$	132		$	421
Charge-offs		(294	)		-			(294	)
Recoveries		38			-			38
Provisions		281			(25	)		256
Ending balance, December 31, 2016	$	314		$	107		$	421

Ending balance: Individually evaluated for impairment	$	-		$	26		$	26
Ending balance: Collectively evaluated for impairment	$	314		$	81		$	395

Finance Receivables:
Ending balance, December 31, 2016	$	51,570		$	17,219		$	68,789
Ending balance: Individually evaluated for impairment	$	-		$	438		$	438
Ending balance: Collectively evaluated for impairment	$	51,570		$	16,781		$	68,351

The ending balance of finance receivables collectively evaluated for impairment in the above table includes approximately $219 million of finance receivables within the retail loan portfolio segment that are specifically identified as impaired. These amounts are aggregated within their respective portfolio segment when determining the allowance for credit losses as of December 31, 2016, as they are deemed to be insignificant for individual evaluation, and we have determined that the allowance for credit losses is not significant and 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, 2016 includes $1,071 million in finance receivables that are guaranteed by Toyota Motor Sales, U.S.A., Inc. (“TMS”), and $173 million in finance receivables that are guaranteed by third party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of TMS and third party private Toyota distributors.

	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
	Retail Loan			Commercial			Dealer Products			Total
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

Included in the tables above are the allowance for credit losses and finance receivables from our commercial portfolio segment related to the commercial finance business that was sold on October 1, 2015.

The ending balance of finance receivables collectively evaluated for impairment in the above table includes approximately $237 million of finance receivables within the retail loan portfolio segment that are specifically identified as impaired. These amounts are aggregated within 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 is not significant and 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 finance receivables that are guaranteed by TMS, and $140 million in finance receivables that are guaranteed by third party private Toyota distributors. These finance receivables are related to certain Toyota and Lexus dealers and other third parties to whom we provided financing at the request of TMS and third party private Toyota distributors.

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

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

	December 31, 2016
	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	$	850	$	204	$	85	$	1,139	$	50,431	$	51,570	$	63
Wholesale		-		-		-		-		10,339		10,339		-
Real estate		-		-		-		-		4,736		4,736		-
Working capital		-		-		-		-		2,144		2,144		-
Total	$	850	$	204	$	85	$	1,139	$	67,650	$	68,789	$	63

	March 31, 2016
	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	$	584	$	129	$	60	$	773	$	49,590	$	50,363	$	35
Wholesale		-		-		-		-		9,262		9,262		-
Real estate		-		-		-		-		4,704		4,704		-
Working capital		-		-		-		-		1,933		1,933		-
Total	$	584	$	129	$	60	$	773	$	65,489	$	66,262	$	35

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, interest rate floors, interest rate caps 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 the fair value 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, 2016, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral agreements with substantially all of 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. We would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2016 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:

	December 31, 2016
	Hedge accounting				Non-hedge
	derivatives				accounting derivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets:
Interest rate swaps	$	-	$	-	$	59,033	$	508	$	59,033	$	508
Interest rate floors		-		-		1,673		2		1,673		2
Foreign currency swaps		271		19		763		38		1,034		57
Total	$	271	$	19	$	61,469	$	548	$	61,740	$	567

Counterparty netting and collateral held												(516	)
Carrying value of derivative contracts – Other assets											$	51

Other liabilities:
Interest rate swaps	$	-	$	-	$	45,235	$	305	$	45,235	$	305
Interest rate caps		-		-		30		-		30		-
Foreign currency swaps		93		4		13,900		1,426		13,993		1,430
Total	$	93	$	4	$	59,165	$	1,731	$	59,258	$	1,735

Counterparty netting and collateral posted												(1,734	)
Carrying value of derivative contracts – Other liabilities											$	1

As of December 31, 2016, we held collateral of $111 million, which offset derivative assets, and posted collateral of $1,329 million, which offset derivative liabilities. We also held excess collateral of $4 million, which we did not use to offset derivative assets, and we posted excess collateral of $33 million which we did not use to offset derivative liabilities.

	March 31, 2016
	Hedge accounting				Non-hedge
	derivatives				accounting derivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets:
Interest rate swaps	$	-	$	-	$	29,469	$	640	$	29,469	$	640
Interest rate floors		-		-		1,679		4		1,679		4
Foreign currency swaps		364		39		4,337		290		4,701		329
Total	$	364	$	39	$	35,485	$	934	$	35,849	$	973

Counterparty netting and collateral held												(905	)
Carrying value of derivative contracts – Other assets											$	68

Other liabilities:
Interest rate swaps	$	-	$	-	$	68,383	$	475	$	68,383	$	475
Interest rate caps		-		-		30		-		30		-
Foreign currency swaps		-		-		9,340		835		9,340		835
Total	$	-	$	-	$	77,753	$	1,310	$	77,753	$	1,310

Counterparty netting and collateral posted												(1,303	)
Carrying value of derivative contracts – Other liabilities											$	7

As of March 31, 2016, we held collateral of $320 million which offset derivative assets, and posted collateral of $718 million which offset derivative liabilities. We also held excess collateral of $2 million which we did not use to offset derivative assets, and we posted excess collateral of $22 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,
	2016			2015			2016			2015
Interest expense on debt	$	397		$	334		$	1,133		$	964
Interest expense (income) on derivatives		2			1			(5	)		(4	)
Interest expense on debt and derivatives, net		399			335			1,128			960

Loss on hedge accounting derivatives:
Foreign currency swaps		62			6			25			23
Loss on hedge accounting derivatives		62			6			25			23
Less hedged item: change in fair value of fixed rate debt denominated in a foreign currency		(62	)		(7	)		(25	)		(25	)
Ineffectiveness related to hedge accounting derivatives		-			(1	)		-			(2	)

(Gain) loss on debt denominated in foreign currencies and U.S. dollar non-hedge accounting derivatives:
Gain on non-hedge accounting debt denominated in foreign currencies		(907	)		(222	)		(969	)		(68	)
Loss on non-hedge accounting foreign currency swaps		1,127			263			1,159			170
Loss (gain) on U.S. dollar non-hedge accounting interest rate swaps		82			(98	)		(13	)		(72	)
Total interest expense	$	701		$	277		$	1,305		$	988

Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses on hedge accounting derivatives and debt dominated in foreign currencies exclude net interest settlements and changes in accruals. Cash flows associated with hedge accounting, non-hedge accounting, and de-designated derivatives are reported in Net cash provided by operating activities in our Consolidated Statement of Cash Flows.

The relative fair value allocation of derivative credit value adjustments for counterparty and non-performance credit risk within interest expense was not significant for the three and nine months ended December 31, 2016 and 2015 as we are fully collateralized on substantially all of our derivatives without regard to credit ratings.

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

Included in the carrying value of our debt are unamortized premiums, discounts and debt issuance costs of $309 million and $280 million as of December 31, 2016 and March 31, 2016, respectively. The face value of commercial paper, unsecured notes and loans payable and secured notes and loans payable was $29.1 billion, $54.3 billion, and $13.0 billion, respectively, as of December 31, 2016, and $26.6 billion, $53.0 billion and $14.1 billion, respectively, as of March 31, 2016.

As of December 31, 2016, our commercial paper had a weighted average remaining maturity of 107 days, while our unsecured and secured 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.

Our unsecured notes and loans payable consist of both fixed and variable rate debt with contractual interest rates ranging from 0 percent to 9.4 percent at December 31, 2016 and March 31, 2016. 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.

Our unsecured notes and loans payable 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. We are currently in compliance with these covenants and conditions.

Certain unsecured notes and loans payable are denominated in various foreign currencies, and include the impact of translation adjustments. At December 31, 2016 and March 31, 2016, the carrying values of these foreign currency denominated notes and loans payable were $13.4 billion and $13.1 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes and loans payable, we entered into foreign 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 contractual interest rates ranging from 0.7 percent to 1.7 percent at December 31, 2016 and 0.5 percent to 1.7 percent at March 31, 2016. Secured notes and loans payable are issued using 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 $38 million at December 31, 2016 compared to March 31, 2016 primarily as a result of changes in U.S. dollar rates 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 Gross 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 $1,360 million and $1,264 million of securities retained by TMCC at December 31, 2016 and March 31, 2016, 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 secured 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 and Lexus dealers through the Toyota Dealer Investment Group’s Dealer Capital Program (“TDIG Program”) operated by our affiliate TMS, which has an equity interest 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. Amounts due from these dealers under the TDIG Program that are classified as Finance receivables, net in the Consolidated Balance Sheet as of December 31, 2016 and March 31, 2016 and revenues received from these dealers during the three and nine months ended December 31, 2016 and 2015 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, 2016 and March 31, 2016 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 2016, 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 2018, 2020, and 2022, 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, 2016 and March 31, 2016. We are currently in compliance with the covenants and conditions of the credit agreements described above.

TMCC has entered into additional unsecured bank credit facilities with various banks. As of December 31, 2016, TMCC had committed bank credit facilities totaling $5.4 billion of which $200 million, $2.4 billion, $150 million, and $2.6 billion mature in fiscal 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, 2016 and March 31, 2016. We are currently 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 is not considered to be a contractual commitment as the arrangements 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 above include $12 million and $16 million for facilities leases with affiliates at December 31, 2016 and March 31, 2016, respectively. At December 31, 2016, 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 working capital loans, revolving lines of credit, and real estate financing to dealers and various multi-franchise organizations referred to as dealer groups for facilities construction and refurbishment, working capital requirements, real estate purchases, business acquisitions and other general business purposes. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate, and may be guaranteed by individual or corporate guarantees of affiliated dealers, dealer groups, or dealer principals. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. Our pricing reflects market conditions, the competitive environment, the level of support dealers provide our retail, lease and insurance business and the credit worthiness of each dealer. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses.

On April 28, 2014, the Company announced that our corporate headquarters will move from Torrance, California to Plano, Texas as part of TMC’s planned consolidation of its three North American headquarters for manufacturing, sales and marketing to a single new headquarters facility. Relocation costs for employees and other relocation expenses are currently estimated to be approximately $118 million and are being expensed as incurred over the next few years. To date, the Company has incurred $48 million in relocation expenses. The relocation costs incurred during the three months and nine months ended December 31, 2016 were $13 million and $29 million, respectively. We have not incurred any significant lease termination costs as a result of our planned relocation.

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, 2016 and March 31, 2016.

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, 2016, we determined that it is not probable that we will be required to make any material payments in the future. As of December 31, 2016 and March 31, 2016, 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.

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

Our effective tax rate was 39 percent and 37 percent for the three and nine months ended December 31, 2016, respectively, compared to 38 percent and 37 percent for the same periods in fiscal 2016, respectively. Our provision for income taxes was $212 million for the first nine months of fiscal 2017, compared to $441 million for the same period in fiscal 2016. Our benefit for income taxes was $29 million for the third quarter of fiscal 2017 compared to a provision for income taxes of $210 million for the same period in fiscal 2016. The decrease in the provision for income taxes for the three and nine months ended December 31, 2016 is consistent with the decrease in our income before tax compared to the same periods in fiscal 2016.

As of December 31, 2016, we remain under IRS examination for fiscal 2016 and 2017. The IRS examination for fiscal 2015 was concluded in the second quarter of fiscal 2017.

We periodically review our uncertain tax positions. Our assessment is based on many factors including any ongoing IRS audits. For the quarter ended December 31, 2016, our assessment did not result in a material change in unrecognized tax benefits.

Our deferred tax assets were $1.1 billion and $1.9 billion at December 31, 2016 and March 31, 2016, and were primarily due to the deferred deduction of allowance for credit and residual value losses and federal tax loss carryforwards that expire in fiscal 2035. The total deferred tax liability, net of these deferred tax assets, was $8.1 billion and $8.0 billion at December 31, 2016 and March 31, 2016, respectively. 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.

As of December 31, 2016, there were no material changes to our related party agreements or relationships as described in our fiscal 2016 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,
	2016			2015			2016			2015
Net financing revenues:
Manufacturers’ subvention support and other revenues	$	349		$	335		$	1,020		$	982
Origination costs paid to affiliates	$	-		$	-		$	(1	)	$	(1	)
Credit support fees incurred	$	(22	)	$	(24	)	$	(68	)	$	(69	)
Interest and other expenses paid to affiliates	$	-		$	(1	)	$	(1	)	$	(3	)

Insurance earned premiums and contract revenues:
Affiliate insurance premiums and contract revenues	$	36		$	33		$	105		$	98

Investments and other income, net:
Gain on sale of commercial finance business	$	-		$	197		$	-		$	197
Interest earned on notes receivable from affiliates	$	1		$	1		$	5		$	4
Other income from affiliates	$	-		$	-		$	1		$	-

Expenses:
Shared services charges and other expenses	$	12		$	7		$	34		$	34
Employee benefits expense	$	6		$	8		$	18		$	24
Insurance losses and loss adjustment expenses	$	-		$	1		$	1		$	1

	December 31,			March 31,
	2016			2016
Assets:
Cash and cash equivalents
Investments in affiliates' commercial paper	$	15		$	-

Finance receivables, net
Accounts receivable from affiliates	$	137		$	119
Notes receivable under home loan programs	$	4		$	9
Deferred retail origination costs paid to affiliates	$	2		$	1
Deferred retail subvention income from affiliates	$	(944	)	$	(794	)

Investments in operating leases, net
Leases to affiliates	$	3		$	2
Deferred lease origination costs paid to affiliates	$	1		$	1
Deferred lease subvention income from affiliates	$	(1,134	)	$	(1,057	)

Other assets
Notes receivable from affiliates	$	889		$	1,177
Other receivables from affiliates, net	$	204		$	7

Liabilities:
Other liabilities
Unearned affiliate insurance premiums and contract revenues	$	325		$	278
Other payables to affiliates, net	$	51		$	82
Notes payable to affiliates	$	13		$	20

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

TMCC receives subvention payments from TMS which results in a gross monthly subvention receivable. As of December 31, 2016 and March 31, 2016, the subvention receivable from TMS was $172 million and $127 million, respectively. The subvention receivable is recorded in other receivables from affiliates, net in Other assets as of December 31, 2016. We have a settlement arrangement with TMS which allows us to net settle payments for shared services and subvention transactions. Under this arrangement, we had a net payable to TMS which resulted in the subvention receivable being recorded in other payables to affiliates, net as of March 31, 2016.

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

	Three Months Ended December 31, 2016
	Finance			Insurance			Intercompany
	operations			operations			eliminations			Total

Total financing revenues	$	2,537		$	-		$	-		$	2,537
Insurance earned premiums and contract revenues		-			202			-			202
Investment and other income, net		20			32			-			52
Realized gains (losses), net on investments in marketable securities		155			2			-			157
Total gross revenues		2,712			236			-			2,948


Less:
Depreciation on operating leases		1,722			-			-			1,722
Interest expense		701			-			-			701
Provision for credit losses		183			-			-			183
Operating and administrative expenses		250			75			-			325
Insurance losses and loss adjustment expenses		-			92			-			92
(Benefit) provision for income taxes		(55	)		26			-			(29	)
Net (loss) income	$	(89	)	$	43		$	-		$	(46	)

	Nine Months Ended December 31, 2016
	Finance			Insurance			Intercompany
	operations			operations			eliminations			Total

Total financing revenues	$	7,491		$	-		$	-		$	7,491
Insurance earned premiums and contract revenues		-			594			-			594
Investment and other income, net		68			65			-			133
Realized gains (losses), net on investments in marketable securities		241			(1	)		-			240
Total gross revenues		7,800			658			-			8,458

Less:
Depreciation on operating leases		4,994			-			-			4,994
Interest expense		1,305			-			-			1,305
Provision for credit losses		396			-			-			396
Operating and administrative expenses		702			219			-			921
Insurance losses and loss adjustment expenses		-			272			-			272
Provision for income taxes		150			62			-			212
Net income	$	253		$	105		$	-		$	358

Total assets at December 31, 2016	$	114,292		$	4,421		$	(1,072	)	$	117,641

	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		17		50			-			67
Realized gains (losses), net on investments in marketable securities		10		(10	)		-			-
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		40		89			-			129
Realized gains (losses), net on investments in marketable securities		30		(40	)		-			(10	)
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	$	112,238	$	4,085		$	(984	)	$	115,339

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, 2016 (“fiscal 2016”), 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, lease, and dealer financing to 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 providing claims administration for products that cover certain risks of vehicle dealers and their customers. We measure the performance of our insurance operations using the following metrics: issued agreement volume, average 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 and Lexus 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. All of these factors can influence consumer contract and dealer financing volume, the number of consumer contracts and dealers 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 consumer contract and dealer financing volume. Changes in the volume of vehicle sales, 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.

Our financial results may also be affected by the regulatory environment in which we operate, including compliance costs and changes to our business practices required by the consent orders we entered into in February 2016 with the CFPB and the Department of Justice with respect to our discretionary dealer compensation practices. The compliance costs and the changes to our business practices required by the consent orders, including our implementation of the reduced dealer participation caps, which occurred in the second quarter of fiscal 2017, may adversely affect our future results of operations and financial condition, including our financing volume, market share, financing margins, and net earning assets.

During the first nine months of the fiscal year ending March 31, 2017 (“fiscal 2017”), the United States (“U.S.”) economy experienced stability as the housing market remained strong and unemployment rates were relatively consistent. However, consumer debt levels remained elevated as a result of increased consumer spending. As consumers assume higher debt levels and as interest rates increase, we could experience an increase in our delinquencies and credit losses.

Used vehicle values for Toyota and Lexus vehicles decreased during the first nine months of fiscal 2017 compared to the same period in fiscal 2016 due to an increase in the supply of used vehicles as a result of an increased industry-wide focus on leasing in recent years. Further declines in used vehicle values, continued increases in the supply of used vehicles and a larger lease portfolio resulting in higher future maturities could continue to unfavorably impact return rates, depreciation expense and credit losses in the future.

We continue to maintain broad global access to both domestic and international markets. Conditions in the global capital markets were generally stable during the first nine months of fiscal 2017. However, uncertainty regarding global economic growth and changing expectations of the future path of U.S. monetary policy led to intermittent periods of volatility. During the first nine months of fiscal 2017, interest rates increased which resulted in an increase in our interest expense and also contributed to higher losses on our derivatives as compared to the same period in fiscal 2016. Future changes in interest rates in the U.S. and foreign markets could result in further volatility in our interest expense, which could affect our results of operations.

Industry-wide vehicle sales in the U.S. were relatively unchanged despite elevated sales incentives during the first nine months of fiscal 2017 as compared to the same period in fiscal 2016. Vehicle sales by TMS decreased 2 percent in the first nine months of fiscal 2017 compared to the same period in fiscal 2016 due to lower consumer demand for Toyota and Lexus vehicles. Financing volume decreased 5 percent and our overall market share decreased 3 percentage points for the first nine months of fiscal 2017 compared to the same period in fiscal 2016. The decreases in financing volume and market share are primarily due to increased competition from financial institutions and a decline in demand for Toyota and Lexus vehicles.

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

Our consolidated net income was $358 million and a net loss of $46 million for the first nine months and third quarter of fiscal 2017, respectively, compared to net income of $742 million and $342 million for the same periods in fiscal 2016. The decrease in net income for the first nine months of fiscal 2017 compared to the same period in fiscal 2016 was primarily due to a $685 million increase in depreciation on operating leases, a $317 million increase in interest expense and a $118 million increase in the provision for credit losses, partially offset by a $482 million increase in operating lease revenues, a $250 million increase in realized gains, net on investments in marketable securities and a $229 million decrease in provision for income taxes. The decrease in net income for the third quarter of fiscal 2017 compared to the same period in fiscal 2016 was primarily due to a $424 million increase in interest expense, a $219 million increase in depreciation on operating leases and a $55 million increase in provision for credit losses, partially offset by a $239 million decrease in provision for income taxes, a $157 million increase in realized gains, net on investments in marketable securities and a $151 million increase in operating lease revenues. Additionally, our finance operations results for the first nine months and third quarter of fiscal 2016 included a gain on the sale of our commercial finance business of $197 million. As discussed in our Form 10-K for fiscal 2016, we sold our commercial finance business on October 1, 2015.

Our overall capital position increased $0.2 billion, bringing total shareholder’s equity to $9.6 billion at December 31, 2016 as compared to $9.4 billion at March 31, 2016. Our debt increased to $96.2 billion at December 31, 2016 from $93.6 billion at March 31, 2016. Our debt-to-equity ratio was 10.0 for both December 31, 2016 and March 31, 2016.

	Three Months Ended								Nine Months Ended
	December 31,					Percentage			December 31,				Percentage
(Dollars in millions)	2016			2015		Change			2016		2015		Change
Financing revenues:
Operating lease	$	1,946		$	1,795		8	%	$	5,762	$	5,280		9	%
Retail		468			484		(3	)%		1,383		1,406		(2	)%
Dealer		123			97		27	%		346		298		16	%
Total financing revenues		2,537			2,376		7	%		7,491		6,984		7	%

Investment and other income, net		20			17		18	%		68		40		70	%
Realized gains (losses), net on investments in marketable securities		155			10		1450	%		241		30		703	%
Gain on sale of commercial finance business		-			197		(100	)%		-		197		(100	)%
Gross revenues from finance operations		2,712			2,600		4	%		7,800		7,251		8	%

Less:
Depreciation on operating leases		1,722			1,503		15	%		4,994		4,309		16	%
Interest expense		701			277		153	%		1,305		988		32	%
Provision for credit losses		183			128		43	%		396		278		42	%
Operating and administrative expenses		250			223		12	%		702		657		7	%
(Benefit) provision for income taxes		(55	)		179		(131	)%		150		380		(61	)%
Net (loss) income from finance operations	$	(89	)	$	290		(131	)%	$	253	$	639		(60	)%

Our finance operations reported net income of $253 million and a net loss of $89 million for the first nine months and third quarter of fiscal 2017, respectively, compared to net income of $639 million and $290 million for the same periods in fiscal 2016. Finance operations results for the first nine months of fiscal 2017 decreased compared to the same period in fiscal 2016, primarily due to a $685 million increase in depreciation on operating leases, a $317 million increase in interest expense and a $118 million increase in provision for credit losses, partially offset by a $482 million increase in operating lease revenues, a $230 million decrease in provision for income taxes and a $211 million increase in realized gains, net on investments in marketable securities. Finance operations results for the third quarter of fiscal 2017 decreased compared to the same period in fiscal 2016, primarily due to a $424 million increase in interest expense, a $219 million increase in depreciation on operating leases and a $55 million increase in provision for credit losses, partially offset by a $234 million decrease in provision for income taxes, a $151 million increase in operating lease revenues, and a $145 million increase in realized gains, net on investments in marketable securities. Additionally, our finance operations results for the first nine months and third quarter of fiscal 2016 included a gain on the sale of our commercial finance business of $197 million.

During the first nine months and third quarter of fiscal 2017, we reported realized gains on investments of marketable securities of $241 million and $155 million, respectively. These gains were primarily due to the sale of our equity mutual fund portfolio to take advantage of favorable market conditions. The proceeds were utilized for general corporate purposes, including the purchase of retail and lease contracts and the payment of debt.

Total financing revenues increased 7 percent during the first nine months and third quarter of fiscal 2017, respectively, as compared to the same periods in fiscal 2016 due to the following:

Our total portfolio yield, which includes operating lease, retail and dealer financing revenues, decreased to 3.2 percent and 3.1 percent during the first nine months and third quarter of fiscal 2017, respectively, compared to 3.7 percent and 3.6 percent for the same periods in fiscal 2016, primarily due to lower operating lease portfolio yields.

Depreciation on operating leases increased 16 percent and 15 percent during the first nine months and third quarter of fiscal 2017, respectively, as compared to the same periods in fiscal 2016. The increase in depreciation during the first nine months and third quarter of fiscal 2017 as compared to the same periods in fiscal 2016 was attributable to an increase in average operating lease units outstanding as well as deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles.

Our liabilities consist mainly of fixed and floating rate debt, denominated in U.S. dollars and various foreign 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, interest rate floors, interest rate caps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. The following table summarizes the consolidated components of interest expense:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
(Dollars in millions)	2016			2015			2016			2015
Interest expense on debt	$	397		$	334		$	1,133		$	964
Interest expense (income) on derivatives		2			1			(5	)		(4	)
Interest expense on debt and derivatives		399			335			1,128			960

Ineffectiveness related to hedge accounting derivatives		-			(1	)		-			(2	)
Gain on non-hedge accounting debt denominated in foreign currencies		(907	)		(222	)		(969	)		(68	)
Loss on non-hedge accounting foreign currency swaps		1,127			263			1,159			170
Loss (gain) on U.S. dollar non-hedge accounting interest rate swaps		82			(98	)		(13	)		(72	)
Total interest expense	$	701		$	277		$	1,305		$	988

During the first nine months of fiscal 2017, total interest expense increased to $1,305 million from $988 million in the same period in fiscal 2016. The increase in total interest expense for the first nine months of fiscal 2017 as compared to the same period in fiscal 2016 can be primarily attributed to increases in interest expense on debt and derivatives and losses on non-hedge accounting debt denominated in foreign currencies net of non-hedge accounting foreign currency swaps. In addition, gains on U.S. dollar non-hedge accounting interest rate swaps decreased as compared to the gains for the same period in fiscal 2016. During the third quarter of fiscal 2017, interest expense increased to $701 million from $277 million in the same period in fiscal 2016. The increase in total interest expense for the third quarter of fiscal 2017 as compared to the same period in fiscal 2016 was primarily driven by an increase in losses on non-hedge accounting debt denominated in foreign currencies net of non-hedge accounting foreign currency swaps, losses on the U.S. dollar non-hedge accounting interest rate swaps and an increase in interest expense on debt.

Interest expense on debt primarily represents contractual net interest settlements and changes in accruals on secured and unsecured notes and loans payable and commercial paper, and includes amortization of discounts, premiums, debt issuance costs, and basis adjustments. Interest expense on debt in the first nine months and third quarter of fiscal 2017 increased to $1,133 million and $397 million, respectively, from $964 million and $334 million in the same periods in fiscal 2016 primarily due to higher weighted average interest rates on commercial paper and secured notes and loans payable.

Interest expense (income) on derivatives represents contractual 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 of fiscal 2017, we recorded net interest income of $5 million compared to net interest income of $4 million in the same period in fiscal 2016. During the third quarter of fiscal 2017, we recorded net interest expense of $2 million compared to net interest expense of $1 million in the same period of fiscal 2016.

Gain or loss on non-hedge accounting debt denominated in foreign currencies represents the impact of translation adjustments. We use non-hedge accounting foreign currency swaps to economically hedge the debt denominated in foreign currencies. During the first nine months and third quarter of fiscal 2017, we recorded net losses of $190 million and $220 million, respectively, on our debt denominated in foreign currencies, net of foreign currency swaps, as compared to net losses of $102 million and $41 million for the same periods in fiscal 2016. These losses resulted primarily from an increase in most foreign currency interest rates in which our debt is denominated. The increase in losses during fiscal 2017 over the same periods in fiscal 2016 is primarily due to the rates increasing more significantly for certain currencies in fiscal 2017 as compared to the same periods in fiscal 2016.

Gain or loss on U.S. dollar non-hedge accounting interest rate swaps represents the revaluation of interest rate swaps. During the first nine months of fiscal 2017, we recorded gains of $13 million primarily as a result of an increase in U.S. dollar swap rates across all tenors, with the gains on our higher notional, shorter-term pay-fixed swaps exceeding the losses on our longer-term pay-float swaps. During the first nine months of fiscal 2016, we experienced gains of $72 million on U.S. dollar non-hedge accounting interest rate swaps due to decreases in U.S. dollar swap rates. During the third quarter of fiscal 2017, we recorded losses of $82 million primarily as a result of an increase in U.S. dollar swap rates across all tenors, particularly in the longer tenors where losses on our longer term, pay-float swaps exceeded the gains on our shorter term pay-fixed swaps. During the third quarter of fiscal 2016, U.S. dollar swap rates increased across certain tenors which resulted in gains of $98 million.

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 $396 million and $183 million for the first nine months and third quarter of fiscal 2017, respectively, compared to $278 million and $128 million for the same periods in fiscal 2016. The increase in the provision for credit losses for the first nine months and third quarter of fiscal 2017 was due to higher default frequency and loss severity, and overall portfolio growth, which was partially offset by a reduction in the specific reserves for certain impaired dealers due to improvement in their financial performance.

Our operating and administrative expenses increased 7 percent and 12 percent during the first nine months and third quarter of fiscal 2017, respectively, compared to the same periods in fiscal 2016. The increase for the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016 is primarily due to higher information technology expenditures, resulting from the continued development of future enhancements to our core servicing systems. We continue to incur expenses associated with the planned relocation of our headquarters to Plano, Texas including deferred compensation, employee relocation and other relocation expenses. We expect to incur additional expenses over the next few years relating to our planned relocation.

	Three Months Ended								Nine Months Ended
	December 31,					Percentage			December 31,						Percentage
	2016		2015			Change			2016			2015			Change
Agreements (units in thousands)
Issued		581		534			9	%		1,810			1,654			9	%
Average in force		7,484		6,553			14	%		7,241			6,360			14	%

(Dollars in millions)
Insurance earned premiums and contract revenues	$	202	$	181			12	%	$	594		$	533			11	%
Investment and other income, net		32		50			(36	)%		65			89			(27	)%
Realized gains (losses), net on investments in marketable securities		2		(10	)		120	%		(1	)		(40	)		98	%
Revenues from insurance operations		236		221			7	%		658			582			13	%

Less:
Insurance losses and loss adjustment expenses		92		73			26	%		272			230			18	%
Operating and administrative expenses		75		65			15	%		219			188			16	%
Provision for income taxes		26		31			(16	)%		62			61			2	%
Net income from insurance operations	$	43	$	52			(17	)%	$	105		$	103			2	%

Our insurance operations reported net income of $105 million and $43 million for the first nine months and third quarter of fiscal 2017, respectively, compared to $103 million and $52 million for the same periods in fiscal 2016. Net income for the first nine months of fiscal 2017 was relatively consistent compared to the same period in fiscal 2016, as the $61 million increase in insurance earned premiums and contract revenues and a $39 million decrease in realized losses, net on investments in marketable securities were largely offset by a $42 million increase in insurance losses and loss adjustment expenses, a $31 million increase in operating and administrative expenses, and a $24 million decrease in investment and other income, net. The decrease in net income for the third quarter of fiscal 2017, compared to the same period in fiscal 2016, was primarily attributable to a $19 million increase in insurance losses and loss adjustment expenses, an $18 million decrease in investment and other income, net, and a $10 million increase in operating and administrative expenses, partially offset by a $21 million increase in insurance earned premiums and contract revenues and a $12 million increase in realized gains, net on investments in marketable securities.

Agreements issued increased 9 percent during the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016. The average number of agreements in force increased 14 percent during the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016. The increases in the issued and the average in force agreements in both periods was primarily due to increased sales of prepaid maintenance agreements, certified pre-owned warranties, tire and wheel protection agreements and guaranteed auto protection agreements.

Our insurance operations reported insurance earned premiums and contract revenues of $594 million and $202 million for the first nine months and third quarter of fiscal 2017, respectively, compared to $533 million and $181 million for the same periods in fiscal 2016. 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 2017 compared to the same periods in fiscal 2016 was primarily due to an increase in the average in force agreements.

Our insurance operations reported investment and other income, net of $65 million and $32 million for the first nine months and third quarter of fiscal 2017, respectively, compared to $89 million and $50 million for the same periods in fiscal 2016. Investment and other income, net, consists primarily of dividend and interest income. The decrease in investment and other income, net for the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016 was primarily due to a decrease in dividend income.

Our insurance operations reported realized losses, net on investments in marketable securities of $1 million and a realized gain of $2 million for the first nine months and third quarter of fiscal 2017, respectively, compared to losses of $40 million and $10 million for the same periods in fiscal 2016. The decrease in realized losses, net on investments in marketable securities for the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016 was primarily due to decreases in other-than-temporary impairment on our fixed income mutual funds.

Our insurance operations reported insurance losses and loss adjustment expenses of $272 million and $92 million for the first nine months and third quarter of fiscal 2017, respectively, compared to $230 million and $73 million for the same periods in fiscal 2016. 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 2017 compared to the same periods in fiscal 2016 was primarily due to an increase in our prepaid maintenance and guaranteed auto protection losses. The increase in our prepaid maintenance losses was due to an increase in the number of claims as a result of a higher number of average in force agreements, as well as an increase in the severity of prepaid maintenance claims. The increase in our guaranteed auto protection losses was driven by an increase in both the frequency and severity of claims.

Our insurance operations reported operating and administrative expenses of $219 million and $75 million for the first nine months and third quarter of fiscal 2017, respectively, compared to $188 million and $65 million for the same periods in fiscal 2016. The increase in the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016 was attributable to higher insurance dealer back-end program expenses and product expenses driven by the continued growth of our insurance business. Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on certain performance criteria.

Our total provision for income taxes was $212 million for the first nine months of fiscal 2017 compared to a provision of $441 million for the same period in fiscal 2016. Our benefit for income taxes was $29 million for the third quarter of fiscal 2017 compared to a provision for income taxes of $210 million for the same period in fiscal 2016. Our effective tax rate was 37 percent and 39 percent for the first nine months and third quarter of fiscal 2017, respectively, compared to 37 percent and 38 percent for the same periods in fiscal 2016, respectively. The decrease in the provision for income taxes for the first nine months and third quarter of fiscal 2017 is consistent with the decrease in our income before tax compared to the same periods in fiscal 2016.

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):	2016			2015			Change			2016			2015			Change
TMS new sales volume¹		487			495			(2	)%		1,455			1,489			(2	)%

Vehicle financing volume²
New retail contracts		164			147			12	%		475			502			(5	)%
Used retail contracts		70			67			4	%		216			215			-	%
Lease contracts		126			153			(18	)%		432			467			(7	)%
Total		360			367			(2	)%		1,123			1,184			(5	)%

TMS subvened vehicle financing volume (units included in the above table):
New retail contracts		103			82			26	%		298			300			(1	)%
Used retail contracts		19			14			36	%		62			36			72	%
Lease contracts		112			131			(15	)%		372			412			(10	)%
Total		234			227			3	%		732			748			(2	)%

TMS subvened vehicle financing volume as a percent of vehicle financing volume:
New retail contracts		62.8	%		55.8	%					62.7	%		59.8	%
Used retail contracts		27.1	%		20.9	%					28.7	%		16.7	%
Lease contracts		88.9	%		85.6	%					86.1	%		88.2	%
Overall subvened contracts		65.0	%		61.9	%					65.2	%		63.2	%

Market share:³
Retail contracts		33.5	%		29.5	%					32.5	%		33.6	%
Lease contracts		25.6	%		30.7	%					29.0	%		31.1	%
Total		59.1	%		60.2	%					61.5	%		64.7	%

The volume of our retail and lease contracts, which are acquired primarily from Toyota and Lexus dealers, is substantially dependent upon TMS new sales volume. Vehicle sales by TMS decreased 2 percent for the first nine months and third quarter of fiscal 2017 compared to the same periods in fiscal 2016, primarily due to a decrease in demand for Toyota and Lexus vehicles as compared to recent years. Our financing volume decreased 5 percent and 2 percent and our overall market share decreased 3 percentage points and 1 percentage point for the first nine months and third quarter of fiscal 2017, respectively, compared to the same periods in fiscal 2016. The decreases in financing volume and market share are primarily due to increased competition from financial institutions and a decline in demand for Toyota and Lexus vehicles.

	December 31,		March 31,
(Dollars in millions)	2016		2016		Change
Net Earning Assets
Finance receivables, net
Retail finance receivables, net	$	50,907	$	49,870		2	%
Dealer financing, net¹		17,111		15,766		9	%
Total finance receivables, net		68,018		65,636		4	%
Investments in operating leases, net		38,097		36,488		4	%
Net earning assets	$	106,115	$	102,124		4	%

Dealer Financing
(Number of dealers serviced)
Toyota and Lexus dealers¹		989		998		(1	)%
Vehicle dealers outside of the Toyota/Lexus dealer network		385		398		(3	)%
Total number of dealers receiving wholesale financing		1,374		1,396		(2	)%

Dealer inventory outstanding (units in thousands)		325		291		12	%

Our new retail contract volume decreased 5 percent and our retail market share decreased 1 percentage point during the first nine months of fiscal 2017 as compared to the same period in fiscal 2016. The decreases in retail contract volume and market share are due to increased competition from financial institutions and a decline in demand for Toyota and Lexus vehicles. Despite decreases in new retail contract volume and market share, our retail finance receivables, net increased 2 percent at December 31, 2016 as compared to March 31, 2016 as the average amount financed has increased. Our new retail contract volume increased 12 percent and our retail market share increased 4 percentage points during the third quarter of fiscal 2017 as compared to the same period in fiscal 2016. Much of the increase during the third quarter of fiscal 2017 was attributable to a higher focus by TMS on retail subvention compared to lease subvention.

Our lease contract volume decreased 7 percent and 18 percent and our lease market share decreased 2 percentage points and 5 percentage points during the first nine months and third quarter of fiscal 2017, respectively, as compared to the same periods in fiscal 2016. Much of the decrease in both lease financing volume and market share during the first nine months and third quarter of fiscal 2017 was attributable to a decline in the volume of subvened contracts. Despite the decrease in lease financing volume and market share, our investments in operating leases, net, increased 4 percent at December 31, 2016, as compared to the balance at March 31, 2016 due to lease portfolio growth in recent years.

Dealer financing, net at December 31, 2016, increased 9 percent from March 31, 2016 due primarily to increases in dealer inventory outstanding and was partially offset by a decline in the total number of dealers receiving financing.

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 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 investments in 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.

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

Depreciation expense on operating leases increased 16 percent and 15 percent during the first nine months and third quarter of fiscal 2017, respectively, as compared to the same periods in fiscal 2016, due primarily to an increase in the average operating lease units outstanding as well as deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles. As a result of our increased focus on leasing in recent years, we experienced higher maturities in the first nine months and third quarter of fiscal 2017 as compared to the same periods in fiscal 2016 and expect that maturities will continue to be higher in the future, which will result in an increase in the supply of used vehicles held for sale and could unfavorably impact used vehicle values. Recent industry-wide focus on leasing will further increase the supply of used vehicles, and could further unfavorably impact used vehicle values. Higher average operating lease units outstanding and the resulting increase in future maturities, a higher supply of used vehicles, as well as further deterioration in actual and expected used vehicle values for Toyota and Lexus vehicles could unfavorably impact 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.

	December 31,			March 31,			December 31,
	2016			2016			2015
Net charge-offs as a percentage of average gross¹ earning assets
Finance receivables		0.51	%		0.42	%		0.40	%
Operating leases		0.39	%		0.31	%		0.28	%
Total		0.46	%		0.38	%		0.36	%

Default frequency as a percentage of outstanding contracts		1.49	%		1.27	%		1.19	%
Average loss severity per unit²	$	7,808		$	6,934		$	6,702

Aggregate balances for accounts 60 or more days past due as a percentage of gross earning assets³
Finance receivables⁴		0.42	%		0.29	%		0.39	%
Operating leases⁴		0.31	%		0.22	%		0.28	%
Total		0.38	%		0.26	%		0.35	%

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 0.36 percent at December 31, 2015 to 0.46 percent at December 31, 2016 due to increased default frequency and loss severity. Default frequency as a percentage of outstanding contracts increased to 1.49 percent for the first nine months of fiscal 2017 compared to 1.19 percent in the same period in fiscal 2016 as a result of higher delinquencies. Our delinquencies increased to 0.38 percent for the first nine months of fiscal 2017 compared to 0.35 percent in the same period in fiscal 2016 as a result of higher consumer debt levels. The increase in our delinquencies from March 31, 2016 to December 31, 2016 reflects our typical seasonal pattern for delinquency; however, we continue to see increasing trends in rates of delinquency and default frequency. Our average loss severity for the first nine months of fiscal 2017 increased to $7,808 from $6,702 in the first nine months of fiscal 2016 due primarily to declines in used vehicle values for Toyota and Lexus vehicles. Further increases to consumer debt levels and interest rates coupled with a rising supply of used vehicles and deterioration in actual and expected used vehicle values would increase our credit losses.

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). We analyze the loan-risk 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 $80 million from $486 million at December 31, 2015 to $566 million at December 31, 2016 due to higher default frequency and loss severity and general portfolio growth. Our allowance for credit losses increased $31 million from March 31, 2016 to December 31, 2016 due to higher default frequency and loss severity and general portfolio growth, which was partially offset by a reduction in the specific reserves for certain impaired dealers due to improvement in their financial performance. Further increases to consumer debt levels and interest rates coupled with a rising supply of used vehicles and deterioration in actual and expected used vehicle values would increase our allowance for credit losses.

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 distributed across a variety of markets, geographies, investors and financing structures, 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 the 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 $6.6 billion to $9.8 billion with an average balance of $7.9 billion during the quarter ended December 31, 2016.

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, 2016 for further discussion.

We routinely monitor global financial conditions and our financial exposure to our global counterparties, particularly in those countries experiencing significant economic, fiscal or political strain and the corresponding likelihood of default. We do not currently have exposure to these or any other sovereign counterparties. 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, 2016 for further discussion.

Short-term funding needs are met through the issuance of commercial paper in the U.S. Commercial paper outstanding under our commercial paper programs ranged from approximately $27.8 billion to $30.0 billion during the quarter ended December 31, 2016, with an average outstanding balance of $28.8 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 and cross-default provisions. We are currently 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 2016, 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 €50.0 billion or the equivalent in other currencies, of which €25.7 billion was available for issuance at December 31, 2016. 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 currently in compliance with these covenants.

TMCC has entered into term loan agreements with various banks. These term loan 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. We are currently in compliance with these covenants and conditions. In addition, we may issue other debt securities through the global capital markets or enter into other unsecured financing arrangements.

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.

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, 2016 and March 31, 2016, 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 transaction 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, when applicable.

We also regularly execute private securitization transactions of Securitized Assets with bank-sponsored multi-seller asset-backed conduits. Funding obtained from our private securitization transactions is repaid as the underlying Securitized Assets amortize.

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

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 2016 Form 10-K.

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, interest rate floors, interest rate caps 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 the fair value 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.

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, 2016 and March 31, 2016, 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, 2016, 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, 2016, we held collateral of $111 million, which offset derivative assets, and we posted collateral of $1,329 million, which offset derivative liabilities. We also held excess collateral of $4 million which we did not use to offset derivative assets, and we posted excess collateral of $33 million which we did not use to offset derivative liabilities. As of March 31, 2016, we held collateral of $320 million, which offset derivative assets, and we posted collateral of $718 million which offset derivative liabilities. We held excess collateral of $2 million, which we did not use to offset derivative assets, and we posted excess collateral of $22 million which we did not use to offset derivative liabilities.

We manage derivative 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, 2016 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, 2016, 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 2016 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 as of December 31, 2016 and March 31, 2016 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 2016 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.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive officer and principal financial officer) and Chief Accounting Officer (the principal accounting officer), of 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”). Based on this evaluation, the Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”) concluded that the disclosure controls and procedures were effective as of December 31, 2016, 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 CAO, 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, 2016, 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 of the Notes to Consolidated Financial Statements. 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 2016 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.

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	Amended and Restated Agency Agreement, dated September 9, 2016, 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	(3)

4.2	Amended and Restated Note Agency Agreement dated September 9, 2016, 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	(4)

10.1	364 Day Credit Agreement, dated as of November 15, 2016, among Toyota Motor Credit Corporation, (“TMCC”), Toyota Motor Finance (Netherlands) B.V. (“TMFNL”), Toyota Financial Services (UK) PLC (“TFS(UK)”), Toyota Leasing GMBH (“TLG”), Toyota Credit de Puerto Rico Corp. (“TCPR”), Toyota Credit Canada Inc. (“TCCI”), Toyota Kreditbank GMBH (“TKG”), and Toyota Finance Australia Limited (“TFA”), as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNP Paribas Securities Corp. (“BNPP Securities”), Citigroup Global Markets Inc. (“CGMI”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”) and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as Joint Lead Arrangers and Joint Book Managers, Citibank, N.A. (“Citibank”) and Bank of America, N.A. (“Bank of America”), as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents	(5)

10.2	Three Year Credit Agreement, dated as of November 15, 2016, among TMCC, TMFNL, TFS(UK), TLG, TCPR, TCCI, TKG and TFA, as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, MLPFS, and BTMU, as Joint Lead Arrangers and Joint Book Managers, Citibank and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents	(6)

10.3	Five Year Credit Agreement, dated as of November 15, 2016, among TMCC, TMFNL, TFS(UK), TLG, TCPR, TCCI, TKG and TFA, as Borrowers, the lenders party thereto, and BNP Paribas, as Administrative Agent, Swing Line Agent and Swing Line Lender, BNPP Securities, CGMI, MLPFS, and BTMU, as Joint Lead Arrangers and Joint Book Managers, Citibank and Bank of America, as Swing Line Lenders, and Citibank, Bank of America, and BTMU, as Syndication Agents	(7)

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)

	December 31, 2016
	Amortized Cost		Fair Value
Available-for-sale debt instruments:
Due within 1 year	$	2,563	$	2,563
Due after 1 year through 5 years		742		741
Due after 5 years through 10 years		132		131
Due after 10 years		82		80
Mortgage-backed and asset-backed securities¹		113		113
Total	$	3,632	$	3,628

	December 31,			March 31,
	2016			2016
Retail receivables	$	38,483		$	36,020
Securitized retail receivables		13,087			14,343
Dealer financing		17,219			15,899
		68,789			66,262

Deferred origination (fees) and costs, net		652			663
Deferred income		(1,002	)		(868	)
Allowance for credit losses
Retail and securitized retail receivables		(314	)		(289	)
Dealer financing		(107	)		(132	)
Total allowance for credit losses		(421	)		(421	)
Finance receivables, net	$	68,018		$	65,636

	December 31,			March 31,
	2016			2016
Investments in operating leases	$	44,032		$	42,220
Securitized investments in operating leases		3,769			3,364
		47,801			45,584
Deferred origination (fees) and costs, net		(203	)		(190	)
Deferred income		(1,166	)		(1,080	)
Accumulated depreciation		(8,190	)		(7,712	)
Allowance for credit losses		(145	)		(114	)
Investments in operating leases, net	$	38,097		$	36,488

	December 31,		March 31,
	2016		2016
Commitments:
Credit facilities commitments with dealers	$	1,173	$	1,168
Minimum lease commitments		64		55
Total commitments		1,237		1,223
Guarantees of affiliate pollution control and solid waste disposal bonds		100		100
Total commitments and guarantees	$	1,337	$	1,323

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	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	46
Item 3. Quantitative and Qualitative Disclosures About Market Risk	71
Item 4. Controls and Procedures	71
PART II	72
Item 1. Legal Proceedings	72
Item 1A. Risk Factors	72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3. Defaults Upon Senior Securities	72
Item 4. Mine Safety Disclosures	72
Item 5. Other Information	72
Item 6. Exhibits	72
Signatures	73
Exhibit Index	74

					Weighted average
					contractual interest rates
	December 31,		March 31,		December 31,			March 31,
	2016		2016		2016			2016
Commercial paper	$	29,023	$	26,608		0.99	%		0.60	%
Unsecured notes and loans payable		54,101		52,741		1.88	%		1.76	%
Secured notes and loans payable		12,990		14,123		1.21	%		0.91	%
Carrying value adjustment		84		122
Total debt	$	96,198	$	93,594		1.52	%		1.30	%

	December 31, 2016
			VIE Assets						VIE Liabilities
			Gross		Net
	Restricted Cash		Securitized Assets		Securitized Assets		Other Assets		Debt		Other Liabilities
Retail finance receivables	$	726	$	13,087	$	12,879	$	9	$	11,092	$	4
Investments in operating leases		146		3,769		2,811		59		1,898		1
Total	$	872	$	16,856	$	15,690	$	68	$	12,990	$	5

	Future minimum
Years ending March 31,	lease payments
2017	$	6
2018		21
2019		13
2020		8
2021		5
Thereafter		11
Total	$	64

(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, 2016¹	$	33,668			$	13,457			$	624		$	5,222			$	52,971
Issuances		8,391		²		2,279		³		-			3,000		⁴		13,670
Maturities and terminations		(8,876	)			-				(479	)		(1,850	)			(11,205	)
Non-cash changes in foreign currency rates		-				(946	)			(145	)		(12	)			(1,103	)
Balance at December 31, 2016¹	$	33,183			$	14,790			$	-		$	6,360			$	54,333

	TOYOTA MOTOR CREDIT CORPORATION
	(Registrant)

Date: February 8, 2017	By	/s/ Michael Groff
		Michael Groff
		President and Chief Executive Officer
		(Principal Executive Officer and Principal Financial Officer)

Date: February 8, 2017	By	/s/ Ron Chu
		Ron Chu
		Group Vice President and Chief Accounting Officer