The information furnished in these unaudited interim consolidated financial statements as of and for the three and nine months ended December 31, 2018 and 2017 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, 2018 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2019 (“fiscal 2019”).

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, 2018 (“fiscal 2018”), which was filed with the Securities and Exchange Commission on June 4, 2018. 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 13 – Related Party Transactions.

We adopted new guidance related to the recognition of revenue from contracts with customers (“revenue recognition guidance”). We utilized the modified retrospective approach and applied it to active agreements at the time of adoption. As such, the comparative information in this Form 10-Q has not been restated and continues to be reported under the accounting standards in effect for those periods. The majority of our total consolidated revenues are outside the scope of the standard; however, the majority of revenue reported by our Insurance operations segment falls within the scope of the revenue recognition guidance. Upon adoption, fees collected for administering certain vehicle and payment protection products are now recognized using the same measure as the related product revenue and certain dealer incentives are now capitalized and amortized over the contract term instead of expensed as incurred.

While the adoption of the revenue recognition guidance has changed the timing of recognition of certain revenues and expenses, the total revenue and expense recognized over the contract term will not change as a result of adopting the standard. We do not expect the adoption to be significant to our net income on an ongoing basis.

The cumulative effect of the changes made to our Consolidated Balance Sheet as of April 1, 2018 for the adoption of the revenue recognition guidance was as follows:

	March 31,		Adjustments related			April 1,
	2018		to adoption			2018
Assets:
Other assets	$	1,614	$	73		$	1,687

Liabilities and shareholder's equity:
Deferred income taxes	$	5,326	$	(36	)	$	5,290
Other liabilities		3,987		219			4,206
Retained earnings		11,992		(110	)		11,882

The impact on our Consolidated Statement of Income for the adoption of the revenue recognition guidance was as follows:

	Nine Months Ended December 31, 2018
			Effect of		Balances without
	As reported		adoption		adoption
Insurance earned premiums and contract revenues	$	676	$	6	$	682
Provision for income taxes		178		1		179
Net income		500		5		505
Comprehensive income		510		5		515

The effect of adoption of the revenue recognition guidance on our Consolidated Statement of Income for the three months ended December 31, 2018 was not significant.

Note 1 – Interim Financial Data (Continued)

The impact on our Consolidated Balance Sheet for the adoption of revenue recognition guidance was as follows:

	December 31, 2018
			Effect of			Balances without
	As reported		adoption			adoption
Assets:
Other assets	$	2,160	$	(73	)	$	2,087

Liabilities and shareholder's equity:
Deferred income taxes	$	5,459	$	37		$	5,496
Other liabilities		4,454		(225	)		4,229
Retained earnings		12,370		115			12,485

In connection with the adoption of revenue recognition guidance, we have updated our accounting policies as follows:

The Insurance operations segment offers vehicle and payment protection products on Toyota, Lexus and other domestic and import vehicles that are sold by dealers along with the sale of a vehicle.

We receive the contractually determined dealer cost at the inception of the contract. Revenue is then deferred and recognized over the term of the contract according to earnings factors established by management that are based upon historical loss experience. Contracts sold range in term from 3 to 120 months and are typically cancellable at any time. The effect of subsequent cancellations is recorded as an offset to unearned contract revenues in Other liabilities on our Consolidated Balance Sheets.

We adopted new guidance addressing certain aspects of recognition, measurement, presentation, and disclosure of financial instruments that requires entities to measure equity investments at fair value and recognize any changes in fair value in net income. On April 1, 2018, we recognized the cumulative effect of adoption by recording a reduction to our opening retained earnings of approximately $12 million, net of income taxes.

In connection with the adoption of the new recognition and measurement guidance, we have updated our accounting policies as follows:

Debt securities designated as available-for-sale are recorded at fair value using quoted market prices where available with unrealized gains or losses included in accumulated other comprehensive income (“AOCI”), net of applicable taxes. Realized gains and losses are determined using the specific identification method and are included in Investment and other income, net within our Consolidated Statements of Income.

Beginning on April 1, 2018, equity investments are recorded at fair value using quoted market prices where available, with changes in fair value included in Investment and other income, net within our Consolidated Statements of Income. Realized gains and losses from sales are determined using the first in first out method.

We adopted new guidance intended to reduce diversity in practice in the classification of certain cash receipts and cash payments in the statement of cash flows. The adoption of this guidance did not have an impact on our consolidated financial statements and related disclosures.

We adopted new guidance clarifying how restricted cash and cash equivalents should be classified and presented on the statement of cash flows. This guidance was intended to reduce diversity in practice in the classification of restricted cash and cash equivalents on the statement of cash flows. Effective April 1, 2018, we no longer report the change in restricted cash and cash equivalents in the operating and investing sections in our Consolidated Statements of Cash Flows. Restricted cash and cash equivalents are now included in the beginning and end of the period cash and cash equivalents on the Consolidated Statements of Cash Flows. These changes have been applied using a retrospective transition method to each period presented.

We early adopted new guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cut and Jobs Act of 2017 (“TCJA”). The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In February 2016, the Financial Accounting Standards Board ("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 FASB also subsequently issued guidance amending and clarifying various aspects of the new leases guidance. The new leasing standard represents a wholesale change to lease accounting for lessees and requires additional disclosures regarding leasing arrangements. We will adopt the new lease guidance on April 1, 2019 using the optional transition method and do not expect a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Upon adoption, we expect to recognize lease liabilities and right-of-use assets (at their present value) in our Consolidated Balance Sheets related to the future minimum lease payments disclosed in Note 11 – Commitments and Contingencies. While our assessment is not complete, we do not expect this guidance 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. The FASB also subsequently issued guidance amending and clarifying aspects of the new impairment model. This accounting guidance is effective for us on April 1, 2020. We expect this new guidance will result in an increase in our allowance for credit losses with a cumulative-effect adjustment to our opening retained earnings in the period of adoption. The magnitude of the increase in our allowance for credit losses is under evaluation. We are currently evaluating the other potential impacts of this guidance on our consolidated financial statements and related disclosures.

In March 2017, the FASB issued new guidance that requires certain premiums on callable debt securities to be amortized to the earliest call date. This accounting guidance is effective for us on April 1, 2019. We do not expect this guidance to have a material impact on our consolidated financial statements and related disclosures.

In August 2017, the FASB issued new guidance that makes targeted improvements to accounting for hedging activities. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance provides new alternatives for applying hedge accounting and measuring the hedged item in fair value hedges of interest rate risk. This accounting guidance is effective for us on April 1, 2019. The adoption of this guidance will not have an impact on our consolidated financial statements and related disclosures as we no longer have hedge accounting derivatives as of September 30, 2018.

In August 2018, the FASB issued new guidance that modifies disclosure requirements related to fair value measurement guidance. This accounting guidance is effective for us on April 1, 2020. We are currently evaluating the potential impacts of this guidance on our disclosures.

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

In October 2018, the FASB issued new guidance that requires indirect interests held through related parties in common control arrangements to be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This accounting guidance is effective for us on April 1, 2021. We are currently evaluating the potential impacts of this guidance on our consolidated financial statements and related disclosures.