TOYOTA MOTOR CREDIT CORP - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002
------------------
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
-------- --------

Commission file number 1-9961
----------

TOYOTA MOTOR CREDIT CORPORATION
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

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

19001 S. Western Avenue
Torrance, California 90509
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (310) 468-1310
-----------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes No X
--- ---

As of February 14, 2003, the number of outstanding shares of capital stock, par
value $10,000 per share, of the registrant was 91,500, all of which shares were
held by Toyota Financial Services Americas Corporation.

-1-

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)

December 31, March 31, December 31,
2002 2002 2001
------------ ------------ ------------

ASSETS
------

Cash and cash equivalents............... $ 857 $ 747 $ 216
Investments in marketable securities.... 1,323 1,100 750
Finance receivables, net................ 25,927 22,390 22,464
Finance receivables, net - securitized.. 698 1,087 1,239
Investments in operating leases, net.... 7,809 7,631 7,382
Derivative assets....................... 1,341 454 486
Other assets............................ 655 630 727
Income taxes receivable................. - 221 182
------- ------- -------

Total Assets................... $38,610 $34,260 $33,446
======= ======= =======

LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------

Notes and loans payable................. $30,984 $25,990 $25,501
Notes payable related to securitized
finance receivables structured as
collateralized borrowings............ 656 1,036 1,072
Derivative liabilities.................. 515 1,124 1,090
Other liabilities....................... 806 819 773
Income taxes payable.................... 19 - -
Deferred income......................... 961 861 850
Deferred income taxes................... 1,855 1,679 1,518
------- ------- -------
Total Liabilities................. 35,796 31,509 30,804
------- ------- -------

Commitments and Contingencies

Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized;
91,500 issued and outstanding)... 915 915 915
Retained earnings.................... 1,888 1,820 1,710
Accumulated other comprehensive
income............................ 11 16 17
------- ------- -------
Total Shareholder's Equity........ 2,814 2,751 2,642
------- ------- -------
Total Liabilities and
Shareholder's Equity........... $38,610 $34,260 $33,446
======= ======= =======

See Accompanying Notes to Consolidated Financial Statements.

-2-

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------ ------ ------ ------

Financing Revenues:

Leasing.................................... $ 630 $ 617 $1,883 $1,854
Retail financing........................... 293 252 841 662
Wholesale and other dealer financing....... 45 40 127 149
------ ------ ------ ------

Total financing revenues...................... 968 909 2,851 2,665

Depreciation on leases..................... 415 415 1,182 1,169
Interest expense........................... 212 244 644 808
Derivative fair value adjustments.......... (16) (42) 322 26
------ ------ ------ ------

Net financing revenues........................ 357 292 703 662

Insurance premiums earned and contract
revenues................................... 41 37 124 117
Investment and other income................... 71 27 163 124

Loss on asset impairment...................... - - 11 47
------ ------ ------ ------

Net financing revenues and other revenues..... 469 356 979 856
------ ------ ------ ------

Expenses:

Operating and administrative............... 138 137 389 380
Losses related to Argentine Investment..... - 31 11 31
Provision for credit losses................ 151 65 400 166
Insurance losses and loss adjustment
expenses................................ 22 19 66 57
------ ------ ------ ------

Total expenses................................ 311 252 866 634
------ ------ ------ ------

Income before income taxes.................... 158 104 113 222

Provision for income taxes.................... 65 42 45 89
------ ------ ------ ------

Net Income.................................... $ 93 $ 62 $ 68 $ 133
====== ====== ====== ======

See Accompanying Notes to Consolidated Financial Statements.

-3-

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)

Accumulated
Other
Capital Retained Comprehensive
Stock Earnings Income/(Loss) Total
------- -------- ------------- --------

Balance at March 31, 2001........ $ 915 $ 1,581 $ 18 $ 2,514
------ ------- ---------- -------

Net income for the nine months
ended December 31, 2001....... - 133 - 133

Change in net unrealized gains
on available-for-sale
marketable securities......... - - (1) (1)
------ -------- ---------- -------
Total Comprehensive Income....... - 133 (1) 132
------ -------- ---------- -------

Dividends........................ - (4) - (4)

Balance at December 31, 2001..... $ 915 $ 1,710 $ 17 $ 2,642
====== ======= ========== =======

Balance at March 31, 2002........ $ 915 $ 1,820 $ 16 $ 2,751
------ ------- ---------- -------

Net income for the nine months
ended December 31, 2002....... - 68 - 68

Change in net unrealized gains
on available-for-sale
marketable securities......... - - (5) (5)
------ -------- ---------- -------
Total Comprehensive Income....... - 68 (5) 63
------ -------- ---------- -------

Balance at December 31, 2002..... $ 915 $ 1,888 $ 11 $ 2,814
====== ======= ========== =======

See Accompanying Notes to Consolidated Financial Statements.

-4-

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)

Nine Months Ended
December 31,
-------------------------
2002 2001
-------- --------

Cash flows from operating activities:

Net income............................................... $ 68 $ 133
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Fair value adjustments of derivatives.............. 322 26
Depreciation and amortization...................... 1,256 1,181
Provision for credit losses........................ 400 166
Gain from sale of finance receivables, net......... (72) (25)
Gain from sale of marketable securities, net....... - (1)
Loss on asset impairment........................... 11 47
Loss related to Argentine Investment............... 11 31
(Increase) in other assets......................... (648) (142)
(Decrease) in accrued interest expense............. (7) -
Increase in deferred income tax liabilities........ 174 50
Increase (decrease) in other liabilities........... 856 (79)
-------- --------
Total adjustments........................................ 2,303 1,254
-------- --------

Net cash provided by operating activities................... 2,371 1,387
-------- --------

Cash flows from investing activities:

Addition to investments in marketable securities......... (1,469) (1,120)
Disposition of investments in marketable securities...... 1,165 1,433
Purchase of finance receivables.......................... (29,632) (16,489)
Liquidation of finance receivables....................... 23,207 10,422
Proceeds from sale of finance receivables................ 3,002 1,450
Addition to investments in operating leases.............. (2,726) (2,919)
Disposition of investments in operating leases........... 1,375 1,779
-------- --------

Net cash used in investing activities....................... (5,078) (5,444)
-------- --------

Cash flows from financing activities:

Proceeds from issuance of notes and loans payable........ 6,949 8,827
Payments on notes and loans payable...................... (5,551) (5,449)
Net increase in commercial paper with
original maturities less than 90 days................. 1,419 601
-------- --------

Net cash provided by financing activities................... 2,817 3,979
-------- --------

Net increase/(decrease) in cash and cash equivalents........ 110 (78)

Cash and cash equivalents at the beginning of the period.... 747 294
-------- --------

Cash and cash equivalents at the end of the period.......... $ 857 $ 216
======== ========

Supplemental disclosures:

Interest paid............................................ $ 569 $ 824
Income taxes (received)/paid ............................ $ (378) $ 157

See Accompanying Notes to Consolidated Financial Statements.

-5-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Interim Financial Data
- -------------------------------

The accompanying information pertaining to the three and nine months ended
December 31, 2002 and 2001 is unaudited and has been prepared in accordance
with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. In the opinion of management, the unaudited financial information
reflects all 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, 2002 are not necessarily indicative of those
expected for any other interim period or for a full year. Certain December
2001 accounts have been reclassified to conform with the December 2002 and
March 2002 presentation.

These financial statements should be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements
included in Toyota Motor Credit Corporation's (the "Company's") 2002 Annual
Report to the Securities and Exchange Commission ("SEC") on Form 10-K ("Form
10-K"). References herein to "TMCC" mean Toyota Motor Credit Corporation.
References herein to the "Company" mean Toyota Motor Credit Corporation and
its consolidated subsidiaries.

-6-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 2 - Finance Receivables
- ----------------------------

Finance receivables, net and Finance receivables, net - securitized consisted
of the following:

December 31, March 31, December 31,
2002 2002 2001
------------ ----------- ------------
(Dollars in Millions)

Retail.................................... $16,326 $13,715 $13,811
Finance leases............................ 6,604 7,692 7,922
Wholesale and other dealer loans.......... 5,207 3,626 3,580
------- ------- -------
28,137 25,033 25,313
Unearned income........................... (1,132) (1,340) (1,406)
Allowance for credit losses............... (380) (216) (204)
------- ------- -------
Finance receivables, net and
Finance receivables, net - securitized.... $26,625 $23,477 $23,703
======= ======= =======

Finance leases included estimated unguaranteed residual values of $1.9 billion,
$1.9 billion and $1.8 billion at December 31, 2002, March 31, 2002 and December
31, 2001, respectively.

The aggregate balances related to finance receivables 60 or more days past due
totaled $208 million, $189 million and $160 million at December 31, 2002,
March 31, 2002 and December 31, 2001, respectively. The majority of retail
and finance lease receivables do not involve recourse to the dealer in the
event of customer default.

Note 3 - Investments in Operating Leases
- ----------------------------------------

Investments in operating leases, net consisted of the following:

December 31, March 31, December 31,
2002 2002 2001
------------ ----------- ------------
(Dollars in Millions)

Vehicles.................................. $9,395 $9,011 $8,677
Equipment and other....................... 723 721 722
------ ------ ------
10,118 9,732 9,399
Accumulated depreciation.................. (2,223) (2,034) (1,952)
Allowance for credit losses .............. (86) (67) (65)
------ ------ ------

Investments in operating leases, net...... $7,809 $7,631 $7,382
====== ====== ======

-7-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 4 - Allowance for Credit Losses
- ------------------------------------

An analysis of the allowance for credit losses follows:

Nine months ended
December 31, December 31,
2002 2001
------------ ------------
(Dollars in Millions)

Allowance for credit losses
at beginning of period............ $ 283 $ 227
Provision for credit losses.......... 400 166

Charge-offs.......................... (227) (128)
Recoveries......................... 24 14
Other adjustments.................. (14) (10)
--------- ---------

Allowance for credit losses
at end of period.................. $ 466 $ 269
========= =========

The allowance for credit losses at December 31, 2002 increased $197 million or
73% from December 31, 2001, primarily due to an increase in the provision for
credit losses for the three and nine months ended December 31, 2002 as compared
with the same periods in fiscal 2002, partially offset by an increase in
charge-offs. Charge-offs for the nine months ended December 31, 2002 increased
$99 million, compared with the same period ended December 31, 2001. The
increase in the provision and net charge-offs reflects the impact of increases
in delinquencies and credit losses resulting from a number of factors
including the effects of the Company's field restructuring, which has
disrupted normal collection activities, increased average losses per vehicle
resulting from the softening used car market, and continued economic
uncertainty.

Additionally, increased delinquencies and credit losses can be attributed in
part to changes in portfolio quality in connection with the national tiered
pricing program. Under the national tiered pricing program, the Company
generally will acquire contracts with higher yields to compensate for the
potential increase in credit losses. The Company has also experienced a
general increase in the average original contract term of retail and lease
vehicle contracts originated in the nine months ended December 31, 2002,
compared with the same period in fiscal 2002. The average lengths of retail
and lease contracts originated during the nine months ended December 31, 2002
and 2001 were 55.3 months and 54.4 months, respectively. Historically,
longer-term contracts experience higher credit losses.

-8-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 5 - Derivatives and Hedging Activities
- -------------------------------------------

For the nine months ended December 31, 2002, the Company recognized a $322
million unfavorable derivative fair value adjustment calculated in accordance
with Statement of Financial Accounting Standards Statement No. 133, "Accounting
for Derivative Activities and Hedging Activities", and Statement of Financial
Accounting Standards Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of SFAS 133", ("SFAS
133/138") (reported as derivative fair value adjustments in the Consolidated
Statement of Income) ("Derivative Adjustment"). The net Derivative Adjustment
reflects a $338 million unfavorable adjustment to the fair value of the
Company's portfolio of option-based products and certain interest rate swaps
which did not qualify for hedge accounting, partially offset by a $16 million
favorable adjustment related to the ineffective portion of the Company's fair
value hedges. The decrease in the fair value of the Company's option-based
products and certain interest rate swaps was primarily due to a significant
reduction in interest rates during the nine month period ended December 31,
2002. The increase in the unfavorable derivative adjustment for the nine
months ended December 31, 2002, as compared with the same period ended December
31, 2001, was also due to a significant reduction in interest rates during the
nine months ended December 31, 2002, as well as actions taken by the Company to
protect interest rate margins.

For fair value hedging relationships where the Company has elected to apply
hedge accounting, the gain or loss components of each derivative instrument and
hedged item are included in the assessment of hedge effectiveness. The Company
uses portfolio based derivatives to mitigate its exposure to volatility in
interest rates, particularly LIBOR, and for liability management purposes.
These products are not linked to specific assets and liabilities that appear on
the balance sheet, and therefore, do not qualify for hedge accounting. The
Company does not use any of these instruments for trading purposes. These
derivative instruments which hedge interest rate risk from an economic
perspective, for which the Company is unable to apply hedge accounting, are
discussed more fully in the Company's March 2002 Form 10-K.

-9-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 6 - Notes and Loans Payable
- --------------------------------

Notes and loans payable consisted of the following:

December 31, March 31, December 31,
2002 2002 2001
------------ ----------- ------------
(Dollars in Millions)

Commercial paper, net.................... $ 6,453 $ 5,012 $ 5,006
-------- -------- --------
Other debt,
due in the fiscal years ending:
2002.................................. - - 1,043
2003.................................. 941 5,184 5,190
2004.................................. 6,800 5,360 5,350
2005.................................. 4,247 3,665 3,198
2006.................................. 4,641 2,885 1,700
2007.................................. 2,238 1,252 1,282
Thereafter............................ 5,664 2,632 2,732
-------- -------- --------
Total other debt...................... 24,531 20,978 20,495
-------- -------- --------
Notes and loans payable............ $ 30,984 $ 25,990 $ 25,501
======== ======== ========

Notes and loans payable at December 31, 2002, March 31, 2002 and December 31,
2001 reflect the Derivative Adjustment. The Company recorded a $322 million
net unfavorable Derivative Adjustment during the nine months ended December
31, 2002. This Derivative Adjustment consisted of the following:

Nine Months Ended
December 31, 2002
-----------------
(Dollars in Millions)

Increase in derivative assets............ $ 887
Decrease in derivative liabilities....... 609
Increase in fair value of
debt portfolio........................ (1,818)
---------
Net unfavorable Derivative Adjustment.... $ (322)
=========

Short-term borrowings consist of commercial paper having a weighted average
remaining term and weighted average interest rate of 26 days and 1.38%,
respectively, at December 31, 2002.

-10-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 6 - Notes and Loans Payable (Continued)
- --------------------------------

Other debt includes certain domestic and euro medium-term notes ("MTNs"), euro
bonds and domestic bonds. The weighted average interest rate on other debt was
3.17% for the nine months ended December 31, 2002 including the effect of
interest rate swap agreements. The rates have been calculated using rates in
effect at December 31, 2002, some of which are floating rates that reset
periodically. The notional amount of notes and loans payable was $29.9 billion
at December 31, 2002.

The Company manages interest rate risk through continuous adjustment of the
mix of fixed and floating rate debt using option-based products and certain
interest rate swap agreements on a portfolio level. At December 31, 2002,
approximately 81% of other debt was covered by such instruments with a
weighted average strike rate of 4.01%.

Included in notes and loans payable at December 31, 2002 were unsecured notes
denominated in various foreign currencies. Concurrently with the issuance of
these notes, the Company entered into cross currency interest rate swap
agreements to convert these obligations into U.S. dollar obligations that, in
aggregate, total a principal amount at maturity of $8.3 billion.

-11-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 7 - Sale of Retail Receivables and Valuation of Residual Interest
- ----------------------------------------------------------------------

TMCC maintains programs to sell retail receivables through the limited purpose
subsidiaries Toyota Motor Credit Receivables Corporation ("TMCRC") and Toyota
Auto Finance Receivables LLC ("TAFR"). TMCC services its securitized
receivables and earns a servicing fee of 1% per annum on the total monthly
outstanding principal balance of the outstanding receivables. On a
subordinated basis, the limited purpose subsidiaries retain excess cash flows,
certain cash deposits and other related amounts, which are held as restricted
assets subject to limited recourse provisions. These restricted assets are
not available to satisfy any obligations of the Company. The value of these
restricted assets retained by the limited purpose subsidiaries is exposed to
losses in receivables and such cash flows are available as credit support for
senior securities. The exposure of these restricted assets exists until the
associated securities are paid in full. Investors do not have recourse to
other assets held by the Company for failure of obligors to pay amounts due.

In October 2002, TMCC sold to TAFR certain retail finance receivables totaling
$1.5 billion that in turn were sold to a specific trust. The pretax gain
resulting from the sale of retail receivables totaled approximately $39
million. The gain is included in investment and other income for the three
and nine months ended December 31, 2002. The recorded gain on sale is
dependent on the carrying amount of the assets at the time of the sale. The
carrying amount is allocated between the assets sold and the retained
interests based on their relative fair values at the date of the sale. The
fair value of retained interests was estimated by discounting expected cash
flows using management's best estimates and other key assumptions.

As part of the October 2002 transaction, TMCC entered into a revolving
liquidity note agreement to fund shortfalls of principal and interest payments
to senior security holders. The maximum aggregate amount available under the
revolving liquidity note is $7.5 million. The trust will be obligated to
repay amounts drawn, and interest will be accrued at 3.617% per annum. If
TMCC's short-term unsecured debt rating falls below P-1 or A-1+ by Moody's or
S&P, respectively, or if TMCC fails to fund any amount drawn under the
revolving liquidity note, the trust is entitled to draw down the entire
undrawn amount of the revolving liquidity note. Repayments of principal and
interest due under the revolving liquidity note are subordinated to principal
and interest payments to the senior security holders and, in some
circumstances, to deposits into a reserve account.

The Company records its retained assets at fair value, which is estimated
using a discounted cash flow analysis. The retained assets are not considered
to have a readily available market value. Any excess of the carrying amount
of the retained interest over its fair value results in an adjustment to the
asset with a corresponding offset to unrealized gain. Unrealized gains, net
of income taxes, related to the retained assets are included in comprehensive
income. If management deems the excess between the carrying value and the
fair value to be unrealizable, the asset is written down through current
period earnings. Management evaluates the key economic assumptions used in
the initial valuation of the retained assets and performs a subsequent review
of those assumptions on a quarterly basis.

-12-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 7 - Sale of Retail Receivables and Valuation of Residual Interest
(Continued)
- ----------------------------------------------------------------------

In September 2002, the Company recognized $11 million in impairment losses
related to retail finance receivables as a result of future expected credit
losses exceeding original credit loss assumptions. The assumptions used to
calculate expected credit losses per annum for outstanding securitization
transactions were adjusted from 0.50% - 0.90% at March 31, 2002 to 0.68% -
0.94% at September 30, 2002. Impairment of retail finance receivables is due
to increased credit losses on the sold portfolio, resulting from the same
factors as those affecting the Company's owned portfolio, as previously
discussed in Note 4 - Allowance for Credit Losses. No additional impairment
other than as discussed above was recognized during the nine months ended
December 31, 2002.

During the three months ended June 30, 2001, the Company recognized $47 million
in losses due to the permanent impairment of assets retained in the sale of
interests in finance lease receivables. The recognition of loss was in
response to increased return rates and higher than anticipated losses per unit
upon disposition of vehicles associated with its lease receivables. This
experience resulted in the Company revising its return rate and loss per unit
assumptions. No additional impairment other than as discussed above was
recognized during the nine months ended December 31, 2001.

Note 8 - Related Party Transactions
- -----------------------------------

As of December 31, 2002, there have been no material changes to the related
party agreements or relationships as described in the Company's March 2002 Form
10-K. The table below summarizes amounts incurred or earned under such
agreements or relationships for the following periods:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- ------
(Dollars in Millions)

Credit support fees incurred......... $ (3) $ (3) $ (10) $ (9)
Shared services reimbursement........ (10) (14) (31) (40)
Rent expense under facilities lease.. (1) (1) (3) (4)
Marketing, wholesale support,
and other revenue............... 44 36 107 93
Affiliate insurance premiums and
commissions revenue............. 9 9 29 30
------- ------- ------- ------
Total.............................. $ 39 $ 27 $ 92 $ 70
======= ======= ======= ======

-13-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 9 - Commitments and Contingent Liabilities
- -----------------------------------------------

Guarantees and Comfort Letters
- ------------------------------

TMCC has entered into guarantees or comfort letters on behalf of its
subsidiaries and certain affiliates. The nature of the guarantees and comfort
letters signed by TMCC is discussed more fully in the Company's June 30, 2002
Form 10-Q and March 31, 2002 Form 10-K. The outstanding balances of the
commitments covered by the guarantees and comfort letters as of December 31,
2002 are summarized in the table below:

Outstanding
Balance of
Maximum Liabilities
Commitment underlying the
Amount Commitment
---------- ---------------
(Dollars in Millions)

Guarantees:
Toyota Credit Argentina S.A.
("TCA") offshore dollar bank loans $ 65 $ 1
Banco Toyota do Brasil, S.A.
("BTB") debt 30 12
Toyota Services de Venezuela, C.A.
("TSV") debt 38 14
Affiliate pollution control
and solid waste disposal bonds 206 206

Comfort Letters:
Toyota Services de Mexico, S.A.,
de C.V. ("TSM") credit facilities 66 31
TSV office lease 1 1
--------- ---------
Total guarantees and comfort letters $ 406 $ 265
========= =========

- ---------------
The outstanding balances underlying the commitments are liabilities of the
respective subsidiaries or affiliates.

-14-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 9 - Commitments and Contingent Liabilities (Continued)
- -----------------------------------------------

Subsidiary Guarantees
- ---------------------

TMCC would be required to perform on any outstanding guarantees on behalf of
TCA, BTB and TSV, should the benefactor subsidiaries default on payments for
any reason including but not limited to, financial insolvency, cross border
payment restrictions, and other sovereign restrictions on off-shore payments.
TMCC has entered into separate indemnity agreements with TCA and BTB. The
indemnity agreements include reimbursement provisions whereby TMCC is entitled
to reimbursement from the benefactor subsidiaries. The guarantee of TSV
liabilities does not contain any such reimbursement provisions.

During the three months ended December 31, 2002, TMCC performed under its
guarantee of TCA's outstanding off-shore debt and repaid $36 million of the
outstanding balance and accrued interest thereon. The outstanding balance of
the off-shore debt was accordingly reduced from $37 million to $1 million.

Subsidiary Comfort Letters
- --------------------------

TMCC would be required to perform under the comfort letter signed on behalf of
TSV should TSV be unable to make rental payments as a result of currency
exchange controls imposed by the Venezuelan government. This comfort letter
does not contain any reimbursement provisions.

Under the comfort letters signed on behalf of TSM, TMCC would be required to
exercise its influence to induce TSM to meet all obligations under its credit
facilities should TSM default on payments as a result of financial insolvency.
This comfort letter does not contain any reimbursement provisions.

TMCC has not been required to perform under these comfort letters as of
December 31, 2002.

-15-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 9 - Commitments and Contingent Liabilities (Continued)
- -----------------------------------------------

Affiliate Bond Guarantees
- -------------------------

TMCC would be required to perform under the affiliate bond guarantees in the
event of any of the following:

a) payment of any installment of interest, principal, premium, if any, or
purchase price on the bonds, is not made when the payment becomes due and
payable;

b) the occurrence of certain events of bankruptcy involving the benefactor
manufacturing facilities or TMCC;

c) failure by the benefactor manufacturing facilities to observe or perform
any covenant, condition or agreement under the guarantees, other than as
referred to in (a) above;

d) failure by the bond issuers to observe or perform any covenant, condition
or agreement under the guarantees, other than as referred to in (a) above;

e) failure by TMCC to observe or perform any covenant, condition, agreement
or obligation under the guarantees.

These guarantees include reimbursement provisions whereby TMCC is entitled to
reimbursement by the benefactor manufacturing facilities for all principal and
interest paid and fees incurred on behalf of the benefactor manufacturing
facilities and to default interest on those amounts. TMCC has not been
required to perform under any of these guarantees as of December 31, 2002.

-16-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 9 - Commitments and Contingent Liabilities (Continued)
- -----------------------------------------------

Other Commitments
- -----------------

In addition to the commitments previously discussed, TMCC has also entered
into revolving forms of guaranteed or contingent arrangements, which are
discussed more fully in the Company's June 30, 2002 Form 10-Q and March 31,
2002 Form 10-K. Commitments outstanding as of December 31, 2002 are
summarized in the table below:

Outstanding
Balance of
Maximum Liabilities
Commitment underlying the
Amount Commitment
---------- --------------
(Dollars in Millions)

ABS revolving liquidity notes $ 31 $ -
Revolving credit facilities
with dealerships 1,763 800
---------- ----------
Total $ 1,794 $ 800
========== ==========

- ---------------
The outstanding balances underlying the commitments are liabilities of the
respective dealerships.

TMCC has guaranteed the obligations of Toyota Motor Insurance Services, Inc.
("TMIS") relating to vehicle service agreements issued in certain states.
These states require a letter of guaranty from TMCC to support the financial
obligations of TMIS as a service contract provider. These guarantees have
been given without regard to any security, but are limited to the duration of
the agreements, which may have terms that range from 12 months to 84 months.
The liability for these agreements is limited to the original manufacturer's
suggested retail price for new vehicles and fair market value, at the time the
agreement was issued, for used vehicles. Should TMIS become unable to satisfy
its obligations related to these agreements, TMCC would be required to perform
under the guarantees. As of December 31, 2002, TMIS has approximately 165,000
agreements guaranteed by TMCC. TMCC has not paid, and does not expect to pay,
any amounts under these guarantees.

An operating agreement between TMCC and Toyota Credit de Puerto Rico
Corporation ("TCPR") (the "Agreement"), provides that TMCC will make necessary
equity contributions or provide other financial assistance TMCC deems
appropriate to ensure that TCPR maintains a minimum coverage on fixed charges
of 1.10 times such fixed charges in any fiscal quarter. The Agreement does not
constitute a guarantee by TMCC of any obligations of TCPR. The fixed charge
coverage provision of the Agreement is solely for the benefit of the holders of
TCPR's commercial paper, and the Agreement may be amended or terminated at any
time without notice to, or the consent of, holders of other TCPR obligations.
No amounts have been funded under this agreement as of December 31, 2002.

-17-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 9 - Commitments and Contingent Liabilities (Continued)
- -----------------------------------------------

Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against the Company with respect to
matters arising from the ordinary course of business. Certain of these actions
are or purport to be class action suits, seeking sizeable damages and/or
changes in the Company's business operations, policies and practices. Certain
of these actions are similar to suits which have been filed against other
financial institutions and captive finance companies. Management and internal
and external counsel perform periodic reviews of pending claims and actions to
determine the probability of adverse verdicts and resulting amounts of
liability. The amounts of liability on pending claims and actions as of
December 31, 2002 were not determinable; however, in the opinion of management,
the ultimate liability resulting therefrom should not have a material adverse
effect on the Company's consolidated financial position or results of
operations.

Note 10- Lines of Credit/Standby Letters of Credit
- ---------------------------------------------------

To support its commercial paper program and general corporate purposes, TMCC
maintains syndicated bank credit facilities with certain banks which totaled
$4.2 billion, $3.5 billion and $3.5 billion, at December 31, 2002, March 31,
2002 and December 31, 2001, respectively. No loans were outstanding under any
of these bank credit facilities as of December 31, 2002, March 31, 2002 or
December 31, 2001.

TMCC maintains uncommitted lines of credit to facilitate and maintain letters
of credit. Available lines of credit totaled $60 million, $61 million, and
$85 million as of December 31, 2002, March 31, 2002 and December 31, 2001,
respectively. Approximately $0.7 million, $0.5 million, and $0.5 million in
letters of credit were outstanding as of December 31, 2002, March 31, 2002 and
December 31, 2001, respectively.

-18-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 11 - Segment Information
- -----------------------------

Financial results for the Company's operating segments are summarized below:

At/For At/For
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
(Dollars in Millions)

Assets:

Financing operations............. $37,940 $32,846 $37,940 $32,846
Insurance operations............. 882 762 882 762
Eliminations/reclassifications... (212) (162) (212) (162)
------- ------- ------- -------
Total assets................... $38,610 $33,446 $38,610 $33,446
======= ======= ======= =======

Gross revenues:

Financing operations............. $ 1,032 $ 929 $ 2,994 $ 2,767
Insurance operations............. 48 44 144 139
------- ------- ------- -------
Total gross revenues........... $ 1,080 $ 973 $ 3,138 $ 2,906
======= ======= ======= =======

Net income:

Financing operations............. $ 83 $ 53 $ 41 $ 103
Insurance operations............. 10 9 27 30
------- ------- ------- -------
Total net income............... $ 93 $ 62 $ 68 $ 133
======= ======= ======= =======

-19-

TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 12 - Subsequent Events
- ---------------------------

In January 2003, TMCC executed a comfort letter with a Mexican bank on behalf
of TSM regarding a local bank credit facility. Under this comfort letter,
TMCC would be required to exercise its influence to induce TSM to meet all
obligations under the credit facility should TSM default on payments as a
result of financial insolvency. This comfort letter does not contain any
reimbursement provisions. This comfort letter allows TSM to borrow in local
currency up to a maximum amount equivalent to $9.5 million. Maturities for
bank loan advances range from one month to 36 months. This comfort letter
will remain in effect for as long as the TSM loan is outstanding. The initial
comfort letter may be extended for additional periods by mutual agreement
between TMCC and the bank. No loans were outstanding under this comfort
letter as of February 14, 2003.

In January 2003, $58 million of pollution control revenue bonds issued in
connection with the Kentucky manufacturing facility of an affiliate were
redeemed. TMCC made no payments under this guarantee and the guarantee for
these bonds terminated upon the redemption of the bonds.

Additionally, in January 2003, a guarantee signed by TMCC on behalf of TCA,
totaling $20 million in respect to TCA's offshore dollar bank loan, was
terminated. The total maximum commitment covered by the TCA guarantees was
accordingly reduced from $65 million to $45 million as of February 14, 2003.

-20-

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

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Income
- ----------

The following table summarizes the Company's net income by business segment
for the three and nine months ended December 31, 2002 and 2001:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
(Dollars in Millions)

Net income:
Financing operations.............. $ 83 $ 53 $ 41 $ 103
Insurance operations.............. 10 9 27 30
----- ----- ----- -----
Total net income............... $ 93 $ 62 $ 68 $ 133
===== ===== ===== =====

Net income from financing operations increased $30 million or 57% for the
three months ended December 31, 2002 as compared with the same period in
fiscal 2002 primarily due to higher levels of earning assets, increased
investment and other income resulting from the gain on sale of retail
receivables, lower termination losses and decrease in losses related to the
Company's investment in TCA. These factors were partially offset by higher
provision for credit losses attributed to overall increases in delinquencies
and credit losses.

Net income from financing operations decreased $62 million or 60% for the nine
months ended December 31, 2002 as compared with the same period in fiscal
2002. The decrease for the nine months ended December 31, 2002, is primarily
due to a $191 million (net of income tax) unfavorable Derivative Adjustment,
coupled with a higher provision for credit losses and a decrease in wholesale
and dealer finance revenue resulting from the reduction in interest rates.
These factors were partially offset by the combined effect of lower cost of
funds, gains from sale of retail receivables, lower termination losses and
increased retail and lease finance revenue.

The Derivative Adjustment is reported as derivative fair value adjustments in
the Consolidated Statement of Income. The increase in the unfavorable
Derivative Adjustment for the nine months ended December 31, 2002, as compared
to the same period in fiscal 2002, is due to a significant reduction in
interest rates during the nine months ended December 31, 2002, as well as
actions taken by the Company to protect interest rate margins.

-21-

Net Income excluding the Derivative Adjustment is calculated as follows:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------ ------ ------ ------
(Dollars in Millions)

Net Income.............................. $ 93 $ 62 $ 68 $ 133
Derivative Adjustment (net of income
tax).................................. (11) (21) 191 12
---- ---- ----- -----
Net Income excluding Derivative
Adjustment (net of income tax)........ $ 82 $ 41 $ 259 $ 145
==== ==== ===== =====

Net income excluding the Derivative Adjustment (net of income tax) increased
$41 million or 100% and $114 million or 79% for the three and nine months
ended December 31, 2002, respectively, as compared with the same periods in
fiscal 2002. The increase is primarily due to the combined effect of higher
level of earning assets, lower cost of funds, increased investment and other
income resulting from the gain on sale of retail receivables, decrease in
losses related to the Company's investment in TCA and lower lease termination
costs. These factors were partially offset by a higher provision for credit
losses.

Net income has been presented for the three and nine month periods ended
December 31, 2002 and 2001 in accordance with generally accepted accounting
principles in the United States ("GAAP"), and also on a basis which excludes
the effect of the Derivative Adjustment. Management believes that providing
a calculation of net income excluding the effect of the Derivative Adjustment
provides useful information to investors for the reasons explained below, and
a more balanced representation of the Company's operating results. Management
uses this measure when analyzing its core operating results.

The Company uses derivative instruments to help mitigate exposure to interest
rate and currency fluctuations related to its debt portfolio, and to manage the
relationship between the yield on earning assets and the cost to fund these
assets. The Company does not use any of these instruments for trading
purposes.

In accordance with GAAP, the effect of interest rate movements on portfolio-
based derivative instruments and the ineffective portion of the Company's fair
value hedge relationships must be included in the Company's financial results.
However, the effect of interest rate movements on the Company's related earning
assets is not included in the Company's financial results under current GAAP
rules. Management believes that including in the Company's financial results
the effect of interest rate movements on its portfolio-based derivative
instruments and fair value hedges in accordance with GAAP, while not including
any corresponding valuation adjustment related to earning assets, does not
provide a complete picture of the economics of the Company's business and its
operating performance. Therefore, the Company reports financial results,
including the Derivative Adjustment in accordance with GAAP, as well as
excluding the Derivative Adjustment.

-22-

Net income from insurance operations increased $1 million, or 11%, and
decreased $3 million, or 10%, for the three and nine months ended December 31,
2002, respectively, as compared with the same periods in fiscal 2002. The
decrease in net income for the nine months ended December 31, 2002 is
primarily due to higher claim expense, resulting from an overall increase in
loss experience, and a decrease in investment income, associated with the
decline in interest rates. The increase for the three months ended December
31, 2002, is primarily due to increased insurance premiums and contract
revenues partially offset by higher claims expense resulting from an overall
increase in loss experience.

Earning Assets
- --------------

The composition of the Company's net earning assets as of the balance sheet
dates reported are summarized below:

December 31, March 31, December 31,
2002 2002 2001
------------ ------------ ------------
(Dollars in Millions)

Vehicle lease
Investment in operating leases......... $ 7,415 $ 7,215 $ 6,959
Finance leases......................... 5,440 6,338 6,513
------- ------- -------
Total vehicle leases.................... 12,855 13,553 13,472

Vehicle retail finance receivables...... 16,004 13,409 13,498
Vehicle wholesale and other financing... 5,996 4,429 4,384
Allowance for credit losses............. (466) (283) (269)
------- ------- -------
Total net earning assets ........... $34,389 $31,108 $31,085
======= ======= =======

- --------------------

Excludes receivables sold through securitization transactions that qualify as a
sale for legal and accounting purposes, but includes receivables sold through
securitization transactions that qualify as a sale for legal but not accounting
purposes, under the Financial Accounting Standards Board Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities".

The Company's net earning assets increased $3.3 billion or 11% to $34.4
billion at December 31, 2002 from March 31, 2002 and $3.3 billion or 11% from
December 31, 2001. Asset growth from March 31, 2002 and December 31, 2001
reflects higher retail and wholesale earning assets, partially offset by a
small decline in vehicle lease earning assets. The increase in retail earning
assets and corresponding increase in retail finance revenue from
March 31, 2002 and December 31, 2001 resulted from increased volume,
reflecting higher sales of Toyota and Lexus vehicles and increased market
share.

-23-

Vehicle lease earning assets decreased $0.7 billion or 5% and $0.6 billion or
5% as of December 31, 2002 compared to March 31, 2002 and December 31, 2001,
respectively, due to a general shift in programs sponsored by TMS from lease
to retail as well as an industry-wide shift away from leasing. In addition to
the overall decrease in vehicle lease earning assets, the composition of the
vehicle lease portfolio has also changed, resulting in an increasing mix of
operating leases relative to finance lease receivables. In October 1996, the
Company created Toyota Lease Trust, a Delaware business trust (the "Titling
Trust"), to act as a lessor and to hold title to leased vehicles in specified
states. The primary purpose of purchasing residual value insurance was to
cause leases acquired by the Titling Trust to be classified as finance lease
receivables rather than operating lease assets. The Company discontinued
purchasing residual value insurance for operating lease assets in June 2001.

Wholesale and other earning assets increased $1.6 billion or 35% from March
31, 2002 and $1.6 billion or 37% from December 31, 2001 due to an increase in
the number of dealers receiving wholesale financing and a corresponding
increase in wholesale units financed. Though wholesale earning assets
increased, wholesale revenue decreased for the nine months ended December 31,
2002 as compared with the same periods in fiscal 2002 primarily due to a
decrease in the applicable interest rate index for wholesale loans.

The allowance for credit losses increased $183 million or 65% and $197 million
or 73% from March 31, 2002 and December 31, 2001, respectively, reflecting
increased delinquency experience and asset growth. The increased delinquency
and credit loss experience is a result of a number of factors including the
effects of the Company's field restructuring, which has disrupted normal
collection activities, increased average losses per vehicle resulting from the
softening used car market, and continued economic uncertainty. The physical
migration of resources related to the restructuring of field operations is
substantially complete; however, the Company continues to review and refine
current processes and deploy additional resources and technology in an effort
to improve operating efficiencies and to minimize the disruption of
operations. The restructuring of field operations has adversely affected, and
is expected to continue to adversely affect, delinquencies and credit losses
at least through the first half of fiscal 2004.

Continued economic uncertainty could also continue to adversely affect
delinquencies and credit losses in the near term. Additionally, increased
delinquencies and credit losses can be attributed in part to changes in
portfolio quality in connection with the national tiered pricing program.
Under the national tiered pricing program, the Company generally will acquire
contracts with higher yields to compensate for the potential increase in
credit losses. The Company has also experienced a general increase in the
average original contract term of retail and lease vehicle contracts in the
nine months ended December 31, 2002, compared to the same period in fiscal
2002. Historically, longer-term contracts experience higher credit losses.
The average lengths of retail and lease contracts originated during the nine
months ended December 31, 2002 and 2001 were 55.3 months and 54.4 months,
respectively.

The allowance for credit losses is evaluated quarterly, considering historical
trends of repossession, charge-offs, recoveries and credit losses. In
addition, portfolio credit quality, economic conditions and market conditions
are monitored and taken into account. Management evaluates the foregoing
factors and develops several potential loss scenarios and reviews allowance
levels to determine whether reserves are considered adequate to cover the
probable range of losses. The allowance for credit losses as of December 31,
2002 is considered by management to be appropriate in relation to the expected
loss on the present owned portfolio.

-24-

The Company's vehicle retail and lease contract volume and finance penetration
for the three and nine months ended December 31, 2002 and 2001 are summarized
below:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------

Total contract volume:
Vehicle retail....................... 154,000 178,000 518,000 484,000
Vehicle lease........................ 33,000 41,000 121,000 147,000
------- ------- ------- -------
Total................................... 187,000 219,000 639,000 631,000
======= ======= ======= =======

TMS sponsored contract volume:
Vehicle retail....................... 46,000 57,000 133,000 117,000
Vehicle lease........................ 6,000 5,000 21,000 28,000
------- ------- ------- -------
Total................................... 52,000 62,000 154,000 145,000
======= ======= ======= =======

Market share (excluding fleet):
Vehicle retail....................... 31.1% 33.3% 32.4% 29.6%
Vehicle lease........................ 9.8% 10.9% 10.9% 13.4%
----- ----- ----- -----
Total................................... 40.9% 44.2% 43.3% 43.0%
===== ===== ===== =====

- --------------------

Finance penetration represents penetration of Toyota and Lexus new vehicle
financed sales to consumers, excluding sales of a private Toyota distributor.
Previously, reported market share rates, including sales of the private Toyota
distributor, were 37.9% and 36.8% for the three and nine months ended December 31,
2001, respectively.

The Company's retail contract volume increased during the nine months ended
December 31, 2002, as compared with the same periods in fiscal 2002 reflecting
higher levels of programs sponsored by TMS and higher sales of Toyota and
Lexus vehicles. The retail finance portfolio includes contracts with original
terms ranging from 24 to 72 months; the average original contract terms in the
Company's finance portfolio were 57.4 months, 56.9 months and 55.8 months as
of December 31, 2002, 2001 and 2000, respectively. The Company's retail
contract volume decreased during the three months ended December 31, 2002, as
compared with the same periods in fiscal 2002 reflecting lower levels of
programs sponsored by TMS and increased competition from other lending
sources.

The Company's lease contract volume decreased during the three and nine months
ended December 31, 2002 as compared with the same periods in fiscal 2002, as
demand for financing has shifted from leasing to retail loans. The Company's
lease portfolio includes contracts with original terms ranging from 12 to 60
months; the average original contract term in the Company's lease portfolio
was 46.8 months, 45.0 months and 42.2 months at December 31, 2002, 2001 and
2000, respectively.

-25-

Net Financing Revenues
- ----------------------

The Company's net financing revenues increased $65 million, or 22% and $41
million, or 6%, for the three and nine month periods ended December 31, 2002,
respectively, as compared with the same periods in fiscal 2002. The increase
for the three month period ended December 31, 2002 is primarily due to the
combined effect of higher leasing and retail revenues and lower interest
expense, partially offset by a less favorable Derivative Adjustment on the
Company's debt and derivative portfolios. The increase for the nine month
period ended December 31, 2002 resulted from the same positive factors
partially offset by a $296 million increase in the unfavorable Derivative
Adjustment as compared to the same period in fiscal 2002. The increase in the
unfavorable Derivative Adjustment for the nine months ended December 31, 2002,
as compared to the same period in fiscal 2002, was due to a significant
reduction in interest rates during the nine months ended December 31, 2002, as
well as actions taken by the Company to protect interest rate margins. The
Company uses derivative contracts as part of its interest rate risk management
program.

Depreciation on Leases
- ----------------------

The following table sets forth the items included in the Company's
depreciation on leases for the three and nine months ended December 31, 2002
and 2001:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------ ------ ------ ------
(Dollars in Millions)

Straight-line depreciation
on operating leases.................. $ 331 $ 300 $ 973 $ 887
Provision for
residual value losses................ 84 115 209 282
------ ------ ------ ------
Total depreciation on leases......... $ 415 $ 415 $1,182 $1,169
====== ====== ====== ======

Straight-line depreciation expense on operating leases increased $31 million,
or 10% and $86 million or 10% for the three and nine months ended December 31,
2002 as compared with the same periods in fiscal 2002 due to an increase in
average outstanding operating lease assets. Purchasing residual value
insurance for leases acquired by the Titling Trust before June 2001 increased
the ratio of finance lease receivables relative to operating lease assets.
The Company discontinued purchasing residual value insurance for operating
lease assets acquired by the Titling Trust in June 2001. The Company expects
a continued increase in straight-line depreciation expense as operating leases
become a larger proportion of the Company's lease portfolio.

The Company is subject to residual value risk in connection with its lease
portfolio. The Company's residual value exposure is a function of the number
of off-lease vehicles returned for disposition and any shortfall between the
net disposition proceeds and the estimated unguaranteed residual values on
returned vehicles. If the market value of a leased vehicle at contract
termination is less than its contract residual value, there is a higher
probability that the vehicle will be returned to the Company. A higher rate
of vehicle returns exposes the Company to a higher risk of residual value
losses.

-26-

The Company maintains an allowance to cover estimated residual value losses
related to unguaranteed residual values on its present owned portfolio. The
allowance required to cover estimated residual value losses is evaluated
quarterly, considering projected vehicle return rates and projected loss
severity derived from historical and market information on used vehicle sales,
trends in lease returns and new car markets, and general economic conditions.
Management evaluates the foregoing factors and develops several potential loss
scenarios and reviews allowance levels to determine whether reserves are
considered adequate to cover the probable range of losses. The allowance for
residual value losses is maintained in amounts considered by management to be
appropriate in relation to the expected losses on the present owned portfolio.
Upon disposal of the assets, the allowance for residual losses is adjusted for
the difference between the net book value and the proceeds from sale. The
allowance for residual value losses is included in finance receivables, net
and investment in operating leases, net in the Consolidated Balance Sheet. The
related provision expense is included in lease depreciation expense in the
Consolidated Statement of Income.

Total unguaranteed residual values related to the Company's vehicle lease
portfolio increased from approximately $6.9 billion to $7.2 billion between
December 31, 2001 and December 31, 2002. The increase primarily resulted from
the discontinuation of purchasing residual value insurance for operating
leases acquired by the Titling Trust beginning in June 2001.

The provision for residual value losses decreased $31 million or 27% and $73
million or 26% for the three and nine months ended December 31, 2002,
respectively, as compared with the same periods in fiscal 2002. The decrease
in the provision reflects lower expected losses on the current owned portfolio
resulting from a decline in scheduled lease maturities in the current year.

Residual losses decreased $11 million and $39 million for the three and nine
months ended December 31, 2002, respectively, as compared with the same
periods in fiscal 2002, primarily due to a decline in scheduled lease
maturities for the three and nine months ended December 31, 2002, which was
partially offset by an increase in average losses per vehicle. The increase
in average losses per vehicle reflects the downward pressure placed on used
vehicle prices resulting from industry-wide record levels of incentives on new
vehicles, coupled with continued economic uncertainty. The current level of
incentives in the new car market and resulting depression on used car prices
is expected to continue into fiscal 2004.

The number of returned leased vehicles sold by the Company during a specified
period as a percentage of the number of lease contracts that as of their
origination dates were scheduled to terminate in the current period ("return
rate") was 49% for the nine months ended December 31, 2002, as compared to 54%
for the same period in fiscal 2002. The Company has taken action to reduce
residual losses by developing strategies to increase dealer purchases of off-
lease vehicles and expanding marketing of off-lease vehicles through Internet
auctions to maximize proceeds on vehicles sold.

Interest Expense
- ----------------

Interest expense decreased $32 million, or 13% and $164 million or 20% during
the three and nine months ended December 31, 2002, respectively, as compared
with the same periods in fiscal 2002 primarily due to a decrease in the
average cost of borrowings. The weighted average cost of borrowings was 2.94%
and 4.36% for the nine months ended December 31, 2002 and 2001, respectively.

-27-

Insurance
- ---------

Insurance premiums earned and contract revenues recognized from insurance
operations increased $4 million and $7 million during the three and nine months
ended December 31, 2002, respectively, as compared with the same periods in
fiscal 2002 primarily due to increased contract volume and a higher number of
agreements in force.

Net income from insurance operations increased $1 million, or 11%, and
decreased $3 million, or 10%, for the three and nine months ended December 31,
2002, respectively, as compared with the same periods in fiscal 2002. The
decrease in net income for the nine months ended December 31, 2002 is
primarily due to higher claim expense, resulting from an overall increase in
loss experience, and a decrease in investment income, associated with the
decline in interest rates. The increase for the three months ended December
31, 2002, is primarily due to increased insurance premiums and contract
revenues partially offset by higher claims expense resulting from an overall
increase in loss experience.

Investment and Other Income
- ---------------------------

The following table summarizes the Company's investment and other income for
the three and nine months ended December 31, 2002 and 2001:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------ ------ ------ ------
(Dollars in Millions)

Investment income............... $ 22 $ 20 $ 64 $ 74
Gains on assets sold............ 39 - 72 30
Servicing fee income............ 10 7 27 25
Loss on repurchases............. - - - (5)
------ ------ ------ ------
Investment and other income.. $ 71 $ 27 $ 163 $ 124
====== ====== ====== ======

Investment income increased $2 million, or 10% for the three months ended
December 31, 2002, as compared with the same period in fiscal 2002. The
increase for the three months ended December 31, 2002, as compared with the
same period in fiscal 2002, is primarily due to an increase in asset-backed
securitization investment income resulting from a change in the composition of
the asset-backed securitization portfolio from a mixture of lease and retail
to primarily retail and different structuring mechanics relative to both.
Additionally, the increase in investment income is due to an increase in
insurance investment income resulting from an increase in the Company's
insurance investment portfolio from December 31, 2001 to December 31, 2002,
partially offset by a decrease in rates on portfolio investments.

-28-

Investment income decreased $11 million, or 15% for the nine months ended
December 31, 2002, as compared with the same period in fiscal 2002, due to a
decrease in asset-backed lease securitization investment income on funds held
in reserve accounts related to transactions that have fully matured as of the
end of fiscal 2002, coupled with a decrease in insurance investment income
resulting from a decrease in rates on portfolio investments.

During the three and nine months ended December 31, 2002, the Company
recognized $1 million and $3 million in impairment losses related to its
insurance investment portfolio, resulting from an other-than-temporary decline
in the fair value of certain insurance investments below the amortized cost
basis, under the provisions of the Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The impairment loss is included in investment income for the
three and nine months ended December 31, 2002. No impairment was recognized
in the nine months ended December 31, 2001.

The Company recognized a $39 million gain on assets sold for the three months
ended December 31, 2002. The Company did not enter into any asset-backed
securitization transactions during the three months ended December 31, 2001.

The Company entered into two asset-backed securitization transactions that
qualified as sales for legal and accounting purposes under SFAS 140 during the
nine months ended December 31, 2002 as compared with one similar transaction
during the nine months ended December 31, 2001. The $42 million or 140%
increase in the gain on assets sold results from the increased number of
asset-backed securitization transactions that qualified as sales for legal and
accounting purposes under SFAS 140 during the nine months ended December 31,
2002 as compared with the same period in fiscal 2002. Gains recognized on
asset-backed securitization transactions generally accelerate the recognition
of income on lease and retail contracts, net of servicing fees and other
related deferrals, into the period in which the assets are sold. Numerous
factors can affect the timing and amounts of these gains, such as the type and
amount of assets sold, market interest rates at the time of the asset sale,
the structure of the sale, key assumptions used and other current financial
market conditions.

Loss on Asset Impairment
- ------------------------

The Company performs a periodic review of the fair market value of assets
retained in the sale of retail receivables and interests in finance lease
receivables on a quarterly basis. The fair market value of these retained
assets is impacted by management's and the market's expectations as to future
residual losses, credit losses, discount rates and prepayment rates.

In September 2002, the Company recognized $11 million in impairment losses
related to retail finance receivables as a result of future expected credit
losses exceeding original credit loss assumptions. The assumptions used to
calculate expected credit losses per annum for outstanding securitization
transactions were adjusted from 0.50% - 0.90% at March 31, 2002 to 0.68% -
0.94% at September 30, 2002. Impairment of retail finance receivables is due
to increased credit losses resulting from a number of factors including the
effects of the Company's field restructuring, which has disrupted normal
collection activities, increased average losses per vehicle resulting from the
softening used car market, and continued economic uncertainty. Additionally,
increased delinquencies and credit losses can be attributed in part to changes
in portfolio quality in connection with the national tiered pricing program.
Under the tiered pricing program, the Company generally will acquire contracts
with higher yields to compensate for the potential increase in credit losses.
The Company has also experienced a general increase in the average original
contract term of retail vehicle contracts. Historically, longer-term
contracts experience higher credit losses. No additional impairment other
than as discussed above was recognized for the nine months ended December 31,
2002.

-29-

During the three months ended June 30, 2001, the Company recognized $47
million in losses due to the permanent impairment of assets retained in the
sale of interests in finance lease receivables. The recognition of loss was
in response to increased return rates and higher than anticipated losses per
unit upon disposition of vehicles associated with its lease receivables. This
experience resulted in the Company revising its return rate and loss per unit
assumptions. No additional impairment other than as discussed above was
recognized during the nine months ended December 31, 2001.

Losses Related to Argentine Investment
- --------------------------------------

TMCC has executed guarantees totaling $65 million in respect to TCA's offshore
U.S. dollar bank loans. Late in 2001, the Argentine government instituted a
series of changes that led to political, economic and regulatory risks to
Argentine businesses. The government has imposed foreign exchange controls
restricting offshore payment transfers, and these controls are currently
preventing TCA from sending payments on its offshore U.S. dollar loans out of
Argentina. In February 2002, the Argentine government established measures to
re-denominate the entire Argentine economy into pesos and has permitted the
peso to float freely against other global currencies. This re-denomination
policy adversely affected TCA's financial condition and its ability to fully
satisfy its offshore U.S. dollar loans. As a result, in fiscal 2002 TMCC
established a reserve of $26 million relating to TMCC's guaranty of TCA's
offshore outstanding debt. The reserve was increased to $37 million at
September 30, 2002. No additional reserve was recorded in the three months
ended December 31, 2002.

During the three months ended December 31, 2002, TMCC performed under its
guarantee of TCA's outstanding off-shore debt and repaid $36 million of the
outstanding balance and accrued interest thereon. The outstanding balance of
the off-shore debt was accordingly reduced from $37 million to $1 million.

Furthermore, in January 2003, a guarantee signed by TMCC on behalf of TCA,
totaling $20 million in respect to TCA's offshore dollar bank loan, was
terminated. The total maximum commitment covered by the TCA guarantees was
accordingly reduced from $65 million to $45 million as of February 14, 2003.

-30-

Operating and Administrative Expenses
- -------------------------------------

Operating and administrative expenses include costs incurred in connection
with the opening of the Company's new customer service centers and dealer
service support centers as part of the restructuring of the Company's field
operations.

Restructuring charges and costs recognized during the three and nine months
ended December 31, 2002 were $2.4 million and $9.0 million, respectively.
Restructuring charges and costs recognized during the three and nine months
ended December 31, 2001 were $5.7 million and $12.0 million, respectively.
Expenses charged during the nine months ended December 31, 2002 were comprised
of $3.6 million related to asset and facility costs and $5.4 million for other
exit costs. The expenses charged in the nine months ended December 31, 2001
were comprised of $6.4 million related to employee separation costs, $1.6
million for asset and facility costs and $4.0 million for other exit costs.
At December 31, 2002, remaining restructuring and related charges to be
recognized during fiscal 2003 are estimated to be $1.0 million. The physical
restructuring of the Company's field operations is substantially complete.
The Company's field restructuring is discussed more fully in the Company's
September 30, 2002 and June 30, 2002 Form 10-Q and March 31, 2002 Form 10-K.

During the field restructuring, the Company experienced an increase in
delinquency and charge off rates resulting from the disruption of normal
collection activities. While the physical migration of resources related to
the restructuring of the field operations is substantially complete, the
Company continues to review and refine current processes and deploy additional
resources and technology in an effort to improve operating efficiencies and to
minimize the disruption of operations; however, the restructuring of field
operations has adversely affected, and is expected to continue to adversely
affect, delinquencies and credit losses at least through the first half of
fiscal 2004. Upon completion of the field restructuring and strategic
deployment of resources and technology, the Company anticipates greater
internal operating efficiencies and superior dealer and customer account
management.

-31-

Provision for Credit Losses and Delinquency
- --------------------------------------------

The Company maintains allowances to cover probable losses on its present owned
portfolio resulting from the inability of customers to make required payments.
The allowance for credit losses is evaluated quarterly, considering historical
trends of repossession, charge-offs, recoveries and credit losses. In
addition, portfolio credit quality, economic conditions and market conditions
are monitored and taken into account. Management evaluates the foregoing
factors and develops several potential loss scenarios and reviews allowance
levels to determine whether reserves are considered adequate to cover the
probable range of losses. The allowance for credit losses as of December 31,
2002 is considered by management to be appropriate in relation to the expected
loss experience on the present owned portfolio.

An analysis of credit losses and the related allowance follows:

Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
2002 2001 2002 2001
------- ------- ------- -------
(Dollars in Millions)

Allowance for credit losses at
beginning of period.................... $ 417 $ 248 $ 283 $ 227

Provision for credit losses.............. 151 65 400 166
Charge-offs.............................. (98) (49) (227) (128)
Recoveries............................... 9 4 24 14
Other adjustments........................ (13) 1 (14) (10)
------- ------- ------- -------

Allowance for credit losses at
end of period ..................... $ 466 $ 269 $ 466 $ 269
======= ======= ======= =======

- --------------------
Includes net losses on receivables sold through securitizations that qualify as a sale for
legal but not accounting purposes, but excludes net losses on receivables sold through
securitization transactions that qualify as a sale for legal and accounting purposes under SFAS 140.

-32-

December 31,
-------------------
2002 2001
------- -------
(Dollars in Millions)

Annualized Net Credit Losses as a percentage
of average earning assets ........... 0.83% 0.54%

Allowance for Credit Losses as a percentage
of gross earning assets.................. 1.34% 0.86%

Aggregate balances at end of period
for lease rentals and installments
60 or more days past due ............ $ 260 $ 198

Aggregate balances at end of period
for lease rentals and installments
60 or more days past due as a percentage
of net investments in operating
leases and gross receivables
outstanding .................... 0.75% 0.63%

- --------------------
Delinquency and charge-off ratios typically fluctuate over time as a portfolio matures. The
information in the preceding table has not been adjusted to eliminate the effect of the growth of
the Company's portfolio.
Aggregate balances for lease rentals and installments 60 or more days past due for December
31, 2001 was previously reported as $124 million.
Aggregate balances for lease rentals and installments 60 or more days past due as a
percentage of net investments in operating leases and gross receivables outstanding for December
31, 2001 was previously reported as 0.39%.

The allowance for credit losses at December 31, 2002 increased $197 million or
73% from December 31, 2001, primarily due to an increase in the provision for
credit losses for the three and nine months ended December 31, 2002 as compared
with the same periods in fiscal 2002, partially offset by an increase in
charge-offs. Charge-offs for the three and nine months ended December 31, 2002
increased $49 million and $99 million, compared with the same periods ended
December 31, 2001. The increase in the provision and net charge-offs reflects
the impact of increases in delinquencies and credit losses.

The Company believes that the increased delinquency and credit loss experience
results from a number of factors including the effects of the Company's field
restructuring, which has disrupted normal collection activities, increased
average losses per vehicle resulting from the softening used car market, and
continued economic uncertainty. While the physical migration of resources
related to the restructuring of field operations is substantially complete,
the Company continues to review and refine current processes and deploy
additional resources and technology in an effort to improve operating
efficiencies and to minimize the disruption of operations; however, the
restructuring of field operations has adversely affected, and is expected to
continue to adversely affect, delinquencies and credit losses at least through
the first half of fiscal 2004. Management believes that the continued impact
of the restructuring has been reasonably factored into the provision for
credit losses.

-33-

Continued economic uncertainty could also continue to adversely affect
delinquencies and credit losses in the near term. Additionally, increased
delinquencies and credit losses can be attributed in part to changes in
portfolio quality in connection with the national tiered pricing program.
Under the national tiered pricing program, the Company generally will acquire
contracts with higher yields to compensate for the potential increase in
credit losses. The Company has also experienced a general increase in the
average original contract term of retail and lease vehicle contracts
originated in the nine months ended December 31, 2002, compared with the same
period in fiscal 2002. The average lengths of retail and lease contracts
originated during the nine months ended December 31, 2002 and 2001 were 55.3
months and 54.4 months, respectively. Historically, longer-term contracts
experience higher credit losses. The trend toward longer-term contracts is
reflective of industry trends.

Derivatives and Hedging Activities
- ----------------------------------

The Company maintains an overall risk management strategy that utilizes a
variety of interest rate and currency derivative financial instruments to
mitigate its exposure to fluctuations in interest rates and currency exchange
rates. The Company does not use any of these instruments for trading
purposes.

The Company enters into interest rate swaps, indexed note swap agreements and
cross currency swap agreements to convert its fixed-rate debt to variable-rate
U.S. dollar debt, a portion of which is converted back to fixed rates using
option-based products and certain interest rate swaps.

The Company uses portfolio based derivatives to mitigate its exposure to
volatility in interest rates, particularly LIBOR, and for liability management
purposes. These products are not linked to specific assets and liabilities
that appear on the balance sheet, and therefore, do not qualify for hedge
accounting.

For the nine months ended December 31, 2002, the Company recognized a $322
million unfavorable Derivative Adjustment (reported as derivative fair value
adjustment in the Consolidated Statement of Income). The net Derivative
Adjustment reflects a $338 million unfavorable adjustment to the fair market
value of the Company's portfolio of option-based products and certain interest
rate swaps which did not qualify for hedge accounting, partially offset by a
$16 million favorable adjustment related to the ineffective portion of the
Company's fair value hedges. The decrease in the fair value of the Company's
option-based products and certain interest rate swaps was primarily due to a
significant reduction in interest rates during the nine month period ended
December 31, 2002. The increase in the unfavorable Derivative Adjustment for
the nine months ended December 31, 2002, as compared with the same period in
fiscal 2002, was also due to a significant reduction in interest rates during
the nine months ended December 31, 2002, as well as actions taken by the
Company to protect interest rate margins.

-34-

Liquidity and Capital Resources
- --------------------------------

The Company, in the normal course of business, is an active debt issuer and
requires a substantial amount of funding to support the growth in earning
assets. The objective of its liquidity management program is to ensure the
Company has the ability to maintain access to the capital markets to meet its
obligations and other commitments on a timely and cost-effective basis.
Significant reliance is placed on the Company's ability to obtain debt and
asset-backed securitization funding in the capital markets in addition to
funding provided by earning asset liquidations and cash provided by operating
activities. Debt issuances have generally been in the form of commercial
paper, MTNs and bonds.

Commercial paper issuances are used to meet short-term funding needs.
Commercial paper outstanding under the Company's commercial paper programs
ranged from approximately $4.7 billion to $6.5 billion during the nine months
ended December 31, 2002, with an average outstanding balance of $5.7 billion.

For additional liquidity purposes, the Company maintains syndicated bank
credit facilities with certain banks which aggregated $4.2 billion at December
31, 2002. No loans were outstanding under any of these bank credit facilities
as of December 31, 2002. In addition, the Company maintains uncommitted lines
of credit to facilitate and maintain letters of credit. Available lines of
credit totaled $60 million as of December 31, 2002. Approximately $0.7
million in letters of credit was outstanding as of December 31, 2002.

Long-term funding requirements are met through the issuance of a variety of
debt securities underwritten in both the United States and international
capital markets. Domestic and euro MTNs and bonds have provided the Company
with significant sources of funding. During the nine months ended December
31, 2002, the Company issued approximately $6.5 billion of domestic and euro
MTNs and bonds, all of which had original maturities of one year or more.

The original maturities of all MTNs and bonds outstanding at December 31, 2002
ranged from one year to ten years. As of December 31, 2002, the Company had
total MTNs and bonds outstanding of $24.5 billion, of which $8.7 billion was
denominated in foreign currencies.

The Company anticipates continued use of MTNs and bonds in both the United
States and international capital markets. To provide for the issuance of MTNs
and other debt securities in the U.S. capital market, the Company maintains a
shelf registration with the SEC under which approximately $7.2 billion was
available for issuance at January 31, 2003. Under the Company's euro MTN
program, which provides for the issuance of debt securities in the
international capital market, the maximum aggregate principal amount
authorized to be outstanding at any time is $16.0 billion, of which $1.3
billion was available for issuance at January 31, 2003. The United States and
euro MTN programs may be expanded from time to time to allow for the continued
use of these sources of funding. In addition, the Company may issue bonds in
the domestic and international capital markets that are not issued under its
MTN programs.

-35-

Additionally, the Company uses its asset-backed securitization programs to
generate funds for investment in earning assets as described in Note 7 - Sale
of Retail Receivables and Valuation of Residual Interest. The Company
maintains a shelf registration statement with the SEC relating to the issuance
of asset-backed notes secured by, and certificates representing interests in,
retail receivables. During the nine months ended December 31, 2002, the
Company sold retail receivables totaling $3.1 billion in connection with
securities issued under the shelf registration statement. As of January 31,
2003, approximately $1 billion remained available for issuance under the
registration statement. The Company anticipates registering additional
securities with the SEC via a shelf registration in the near future.

The Company's ratio of earnings to fixed charges was 1.73 for the three months
ended December 31, 2002 as compared to 1.42 for the three months ended
December 31, 2001. The increase in the ratio is primarily due to an increase
in earnings, resulting from an increase in financing revenues and investment
income, partially offset by an increase in provision for credit losses.

The Company's ratio of earnings to fixed charges was 1.17 for the nine months
ended December 31, 2002 as compared to 1.27 for the nine months ended December
31, 2001. The decrease in the ratio is primarily due to a higher unfavorable
Derivative Adjustment.

Cash flows provided by operating, investing and financing activities have been
used primarily to support earning asset growth. Cash provided by the
liquidation and sale of earning assets, totaling $27.6 billion for the nine
months ended December 31, 2002 was used to purchase additional investments in
operating leases and finance receivables, totaling $32.4 billion during the
nine months ended December 31, 2002. Investing activities resulted in a net
use of cash of $5.1 billion for the nine months ended December 31, 2002 as the
purchase of additional earning assets exceeded cash provided by the
liquidation and sale of earning assets. Net cash provided by operating
activities totaled $2.4 billion for the nine months ended December 31, 2002
and net cash provided by financing activities totaled $2.8 billion during the
nine months ended December 31, 2002. The Company believes that cash provided
by operating and financing activities as well as access to domestic and
international capital markets, the issuance of commercial paper, and asset-
backed securitization transactions will provide sufficient liquidity to meet
its future funding requirements.

-36-

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
- ------------------------------------------------------------------------

This report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which include estimates,
projections and statements of the Company's beliefs concerning future events,
business plans, objectives, expected operating results, and the assumptions
upon which those statements are based. Forward looking statements include,
without limitation, any statement that may predict, forecast, indicate or
imply future results, performance or achievements, and are typically
identified with words such as "believe," "anticipate," "expect," "estimate,"
"project," "should," "intend," "will," "may" or words or phrases of similar
meaning. The Company cautions 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 following: decline in demand
for Toyota and Lexus products; the effect of economic conditions; the effect of
the current political, economic and regulatory risk in Argentina, Mexico,
Venezuela, Brazil and other Latin American and South American countries and the
resulting effect on their economies and monetary and fiscal policies; a decline
in the market acceptability of leasing; the effect of competitive pricing on
interest margins; changes in pricing due to the appreciation of the Japanese
yen against the United States dollar; the effect of governmental actions;
changes in tax laws; the effect of competitive pressures on the used car market
and residual values and the continuation of the other factors causing an
increase in vehicle returns and disposition losses; the continuation of, and if
continued, the level and type of special programs offered by TMS; the ability
of the Company to successfully access the United States and international
capital markets; the effects of any rating agency actions; increases in market
interest rates; the continuation of factors causing increased delinquencies and
credit losses; the changes in the fiscal policy of any government agency which
increases sovereign risk, monetary policies exercised by the European Central
Bank and other monetary authorities; increased costs associated with the
Company's debt funding or restructuring efforts; the effect of any military
action by or against the United States, as well as any future terrorist
attacks, including any resulting effects on general economic conditions,
consumer confidence and general market liquidity; with respect to the effects
of litigation matters, the discovery of facts not presently known to the
Company or determination by judges, juries or other finders of fact which do
not accord with the Company's evaluation of the possible liability from
existing litigation; increased losses resulting from default by any dealers to
which the Company has a significant credit exposure; default by any
counterparty to a derivative contract; performance under any guaranty or
comfort letter issued by the Company; and the ability of the Company's
counterparties to perform under interest rate and cross currency swap
agreements. The risks included here are not exhaustive. New risk factors
emerge from time to time and it is not possible for the Company to predict all
such risk factors, nor to assess the impact such risk factors might have on
the Company's business or the extent to which any factor or combination of
factors may cause actual results to differ materially from those contained in
any forward looking statements. Given these risks and uncertainties,
investors should not place undue reliance on forward looking statements as a
prediction of actual results. The Company will not update the forward looking
statements to reflect actual results or changes in the factors affecting the
forward looking statements.

-37-

New Accounting Standards
- ------------------------

In June 2002, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"), which addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain
Employee Terminations Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred as opposed to the date of an
entity's commitment to an exit plan as required under EITF Issue No. 94-3.
SFAS 146 also requires that measurement of the liability associated with exit
or disposal activities be at fair value. SFAS 146 is effective for the
Company for exit or disposal activities that are initiated after December 31,
2002. The implementation of SFAS 146 is not expected to have a material
impact on the Company's consolidated financial statements.

In November 2002, FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34" ("FIN 45"). FIN
45 elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued.
FIN 45 also requires a guarantor to recognize, at the inception of a guarantee,
a liability for the fair value of the obligations it has undertaken in issuing
the guarantee. The disclosure provisions of FIN 45 are effective for financial
statements of interim or annual periods that end after December 15, 2002. The
provisions for initial recognition and measurement are effective on a
perspective basis for guarantees that are issued or modified after December 31,
2002, irrespective of a guarantor's year-end. The Company adopted the
disclosure provisions of FIN 45 in the quarter ended December 31, 2002.
Adoption of the initial recognition and measurement provisions of FIN 45 is not
expected to have a material impact on its consolidated financial statements.

In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123" ("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure
requirements of Statement 123 to require prominent disclosures about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. Finally, SFAS 148 also amends
Accounting Principles Board Opinion No. 28, "Interim Financial Reporting", to
require disclosure about those effects in interim financial information. SFAS
148 is effective for financial statements for fiscal years ending after
December 15, 2002 and for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. The
implementation of SFAS 148 will not have a material impact on the Company's
consolidated financial statements.

-38-

In January 2003, FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51" ("FIN 46"). FIN 46 requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise
holds a variable interest that it acquired before February 1, 2003. FIN 46
applies to public enterprises as of the beginning of the applicable interim or
annual period. FIN 46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
The implementation of FIN 46 is not expected to have a material impact on the
Company's consolidated financial statements because all securitization
transactions are with entities that are qualifying special-purpose entities
under SFAS 140 except for one transaction categorized as a collateralized
borrowing which is already included in the Company's consolidated financial
statements.

-39-

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company maintains an overall risk management strategy that uses a variety
of interest rate and currency derivative financial instruments to mitigate its
economic exposure to fluctuations in interest rates and currency exchange
rates. The Company does not use any of these instruments for trading
purposes. A detailed discussion of the Company's hedging program including
strategies to mitigate market risk, interest rate risk, counter-party risk and
operating risk is contained in the March 31, 2002 Form 10-K.

Value-At-Risk Methodology
- -------------------------

The Company uses a value-at-risk methodology, in connection with other
management tools, to assess and manage the interest rate risk of aggregated
loan and lease assets and financial liabilities, including interest rate
derivatives and option-based products. Value-at-risk represents the potential
losses in fair value for a portfolio from adverse changes in market factors
for a specified period of time and likelihood of occurrence (i.e. level of
confidence). The Company's value-at-risk methodology incorporates the impact
from adverse changes in market interest rates but does not incorporate any
impact from other market changes, such as foreign currency exchange rates or
commodity prices, which do not affect the value of the Company's portfolio.
The value-at-risk methodology excludes changes in fair values related to
investments in marketable securities and equipment financing as these amounts
are not significant to the Company's total portfolio.

The value-at-risk methodology uses eight years of historical interest rate
data to build a database of prediction errors in forward rates for a one-month
holding period. These prediction errors are then applied randomly to current
forward rates through a Monte Carlo process to simulate 500 potential future
yield curves. The portfolio is then re-priced with these curves to develop a
distribution of future portfolio values. Options in the portfolio are priced
with current market implied volatilities and the simulated yield curves using
the Black Scholes method. The lowest portfolio value at the 95% confidence
interval is compared with the current portfolio value to derive the value-at-
risk number.

The value-at-risk and the average value-at-risk of the Company's portfolio as
of, and for the nine months ended, December 31, 2002 measured as the potential
30 day loss in fair value from assumed adverse changes in interest rates are
as follows:

Average for the
As of Nine Months Ended
December 31, 2002 December 31, 2002
----------------- -----------------

Mean portfolio value..................... $5,026 million $4,415 million
Value-at-risk............................ $ 34.7 million $ 43.8 million
Percentage of the mean portfolio value... 0.7% 1.0%
Confidence level......................... 95.0% 95.0%

-40-

The Company's calculated value-at-risk exposure represents an estimate of
reasonably possible net losses that would be recognized on its portfolio of
financial instruments assuming hypothetical movements in future market rates
and is not necessarily indicative of actual results which may occur. It does
not represent the maximum possible loss nor any expected loss that may occur,
since actual future gains and losses will differ from those estimated, based
upon actual fluctuations in market rates, operating exposures, and the timing
thereof, and changes in the composition of the Company's portfolio of financial
instruments during the year.

A reconciliation of the activity of the Company's derivative financial
instruments for the nine months ended December 31, 2002 and 2001 is as follows:

Nine Months Ended December 31,
-------------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
------------ ------------ ------------ ------------
2002 2001 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)

Beginning notional amount....... $7.8 $8.3 $29.6 $16.9 $6.1 $11.5 $0.2 $0.6

Add:
New agreements............... 1.9 1.3 5.2 11.0 2.8 3.7 - 0.2

Less:

Terminated agreements........ - - 0.1 - - 8.0 0.2 0.1
Expired agreements........... 1.4 2.2 7.4 3.7 0.3 2.8 - 0.4
Amortizing notionals......... - - 1.4 - - - - -
---- ---- ----- ----- ---- ---- ---- ----
Ending notional amount.......... $8.3 $7.4 $25.9 $24.2 $8.6 $ 4.4 $ - $0.3
==== ==== ===== ===== ===== ===== ==== ====

-41-

Review by Independent Accountants

With respect to the unaudited consolidated financial information of Toyota
Motor Credit Corporation for the three-month and nine months periods ended
December 31, 2002 and 2001, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report dated February 14, 2003 appearing herein, states
that they did not audit and they do not express an opinion on that unaudited
consolidated financial information. Accordingly, the degree of reliance on
their report on such information should be restricted in light of the limited
nature of the review procedures applied. PricewaterhouseCoopers is not subject
to the liability provisions of Section 11 of the Securities Act of 1933 for
their report on the unaudited consolidated financial information because that
report is not a "report" or a "part" of the registration statement prepared or
certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of
the Act.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the reports filed or
submitted under the Securities Exchange of 1934, as amended ("Exchange Act"),
is recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms.

Within the 90 days prior to the filing date of this quarterly report, the
Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")
evaluated the effectiveness of such disclosure controls and procedures in place
pursuant to Rule 13a-14 of the Exchange Act. Based on the evaluation, the CEO
and CFO concluded that such disclosure controls and procedures are effective.

There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

-42-

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against the Company and its
subsidiaries with respect to matters arising from the ordinary course of
business. Certain of these actions are or purport to be class action suits,
seeking sizeable damages and/or changes in the Company's business operations,
policies and practices. Certain of these actions are similar to suits which
have been filed against other financial institutions and captive finance
companies. Management and internal and external counsel perform periodic
reviews of pending claims and actions to determine the probability of adverse
verdicts and resulting amounts of liability. The amounts of liability on
pending claims and actions as of December 31, 2002 were not determinable;
however, in the opinion of management, the ultimate liability resulting
therefrom should not have a material adverse effect on the Company's
consolidated financial position or results of operations. The foregoing is a
forward looking statement within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as
amended, which represents the Company's expectations and beliefs concerning
future events. The Company cautions that its discussion of Legal Proceedings is
further qualified by important factors that could cause actual results to
differ materially from those in the forward looking statement, including but
not limited to the discovery of facts not presently known to the Company or
determinations by judges, juries or other finders of fact which do not accord
with the Company's evaluation of the possible liability from existing
litigation.

ITEM 2. CHANGES IN SECURITIES

There is nothing to report with regard to this item.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There is nothing to report with regard to this item.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

There is nothing to report with regard to this item.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The exhibits listed on the accompanying Exhibit Index, on page 47,
are filed as part of this report.

(b) Reports on Form 8-K

The following report on Form 8-K was filed by the registrant during
the quarter ended December 31, 2002:

Date of Report Item Reported
----------------- ---------------------
October 30, 2002 Item 5. Other Events

-43-

SIGNATURES

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.

TOYOTA MOTOR CREDIT CORPORATION
-------------------------------
(Registrant)

Date: February 14, 2003 By /S/ GEORGE E. BORST
-------------------------------
George E. Borst
President and
Chief Executive Officer
(Principal Executive Officer)

Date: February 14, 2003 By /S/ JOHN F. STILLO
-------------------------------
John F. Stillo
Vice President and
Chief Financial Officer
(Principal Financial Officer)

-44-

CERTIFICATIONS

I, George E. Borst, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Toyota Motor Credit
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: February 14, 2003
By /s/ GEORGE E. BORST
------------------------
George E. Borst
President and
Chief Executive Officer

-45-

CERTIFICATIONS

I, John F. Stillo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Toyota Motor Credit
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: February 14, 2003
By /s/ JOHN F. STILLO
------------------------
John F. Stillo
Vice President and
Chief Financial Officer

-46-

EXHIBIT INDEX

Exhibit Method
Number Description of Filing
- ------- ----------- ---------

10.1 Description of Medium Term Notes * Filed
Herewith

12.1 Calculation of Ratio of Earnings to Fixed Charges Filed
Herewith

15.1 Report of Independent Accountants Filed
Herewith

23.1 Letter regarding unaudited interim financial Filed
information Herewith

- ---------------------
*- Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.

-47-