form10k_032011.htm

10-K 1 form10k_032011.htm FORM 10K - MARCH 31, 2011 form10k_032011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2011

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered

Medium-Term Notes, Series B, CPI Linked Notes Stated Maturity Date June 18, 2018	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No __

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes __ No x

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 has submitted electronically and posted on its corporate Web site, if

any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes __ No __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer __ Accelerated filer __

Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes __ No x

As of April 30, 2011, the number of outstanding shares of capital stock, par value $0 per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services Americas Corporation.

Documents incorporated by reference: None

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.

TOYOTA MOTOR CREDIT CORPORATION

FORM 10-K

For the fiscal year ended March 31, 2011

INDEX

INDEX
PART I	…………………………………………………………………………………………………4
Item 1.	Business……………………………………………………………….…………………................….……...	4
Item 1A.	Risk Factors…………………………………………………………………….………….…….………....…	16
Item 1B.	Unresolved Staff Comments………………………………………………………………………...…………	22
Item 2.	Properties………………………………………………………………………………………….........………	22
Item 3.	Legal Proceedings………………………………………………………………………………...……………	22
Item 4.	(Removed and Reserved……………………………………………………………………….………………	24

PART II	…………………………………………………………………………………………………24
Item 5.	Market for registrant's Common Equity, related Stockholder Matters and Issuer Purchases of Equity Securities………………………………………………………………………………………….........………	24
Item 6.	Selected Financial Data……………………….…………………………………………………………..……	25
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations..………….....……	27
Item 7A.	Quantitative and Qualitative Discloures About Market Risk………………………………………………..…	69
Item 8.	Financial Statements and Supplementary Data……………………….………………………………………..	75
	Report of Independant registered Accounting Firm………………….………………………………….…..…	75
	Consolidated Statement of Income……………………………………….………………………………….…	76
	Consolidated Balance Sheet……………………………………………….………………..……………….…	77
	Consolidated Statement of Shareholder's Equity………………………….……………………………...……	78
	Consolidated Statement of Cash Flows…………………………………….……………………………..……	79
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures……...…………	153
Item 9A.	Controls and Procedures………………………………………………………………………………..………	153
Item 9B.	Other Information………………………………………………………………………………………………	153

PART III	…………………………………………………………………………………………………154
Item 10.	Directors, Executive Officers and Corporate Governance…………………………………………………..…	154
Item 11.	Executive Compensation……………………………………………………………………………………….	157
Item 12.	Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters.……….…	157
Item 13.	Certain Relationships and Related Transactions and Director Independence……………………………….…	157
Item 14.	Principle Accounting Fees and Services……………………………………………………………………….	158

PART IV	…………………………………………………………………………………………………159
Item 15	Exhibits, Financial Statements and Schedules……………..………………………………………..…………	159
Signatures	………………………………………………………………………………………………….………………	160
Exhibit Index	………………………………………………………………………………………………………………….	162

PART I

ITEM 1. BUSINESS

GENERAL

Toyota Motor Credit Corporation was incorporated in California in 1982 and commenced operations in 1983. References herein to “TMCC” denote Toyota Motor Credit Corporation, and references herein to “we”, “our”, and “us” denote Toyota Motor Credit Corporation and its consolidated subsidiaries. We are wholly-owned by Toyota Financial Services Americas Corporation (“TFSA”), a California corporation, which is a wholly-owned subsidiary of Toyota Financial Services Corporation (“TFSC”), a Japanese corporation. TFSC, in turn, is a wholly-owned subsidiary of Toyota Motor Corporation (“TMC”), a Japanese corporation. TFSC manages TMC’s worldwide financial services operations. TMCC is marketed under the brands of Toyota Financial Services and Lexus Financial Services.

We provide a variety of finance and insurance products to authorized Toyota and Lexus vehicle dealers or dealer groups and, to a lesser extent, other domestic and import franchise dealers (collectively referred to as “vehicle dealers”) and their customers in the United States (excluding Hawaii) (the “U.S.”) and Puerto Rico. Our products fall primarily into the following product categories:

Retail Finance - We acquire a broad range of finance products including retail installment sales contracts (or retail contracts) in the U.S. and Puerto Rico and leasing contracts accounted for as either direct finance leases or operating leases (or lease contracts) from vehicle and industrial equipment dealers in the U.S.

§	Dealer Finance - We provide wholesale financing (also referred to as floorplan financing), term loans, revolving lines of credit and real estate financing to vehicle and industrial equipment dealers in the U.S. and Puerto Rico.

§	Insurance - Through a wholly-owned subsidiary, we provide marketing, underwriting, and claims administration related to covering certain risks of vehicle dealers and their customers. We also provide coverage and related administrative services to certain of our affiliates in the U.S.

We support growth in earning assets through funding obtained primarily in the global capital markets as well as funds provided by investing and operating activities. Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for a discussion of our funding activities.

We primarily acquire retail contracts, lease contracts, and insurance contracts from vehicle dealers through 30 dealer sales and services offices (“DSSOs”) and service the contracts through three regional customer service centers (“CSCs”) located throughout the U.S. Acquisition and servicing for industrial equipment dealers is handled by a corporate department located at our headquarters in Torrance, California. The DSSOs primarily support vehicle dealer financing needs by providing services such as acquiring retail and lease contracts from vehicle dealers, financing inventories, and financing other dealer activities and requirements such as business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. The DSSOs also provide support for our insurance products sold in the U.S. The CSCs support customer account servicing functions such as collections, lease terminations, and administration of both retail contract customers and lease contract customer accounts. The Central region CSC also supports insurance operations by providing agreement and claims administrative services.

Public Filings

Our filings with the Securities and Exchange Commission (“SEC”) may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings may also be found by accessing the SEC website (http://www.sec.gov). The SEC website contains reports, registration statements, and other information regarding issuers that file electronically with the SEC. A link to the SEC website is also contained on our website located at: www.toyotafinancial.com under “About Us, Investor Relations”. We will make available, without charge, electronic or paper copies of our filings upon written request to:

Toyota Motor Credit Corporation

19001 South Western Avenue

Torrance, CA 90501

Attention: Corporate Communications

Seasonality

Revenues generated by our receivables are generally not subject to seasonal variations. Financing volume is subject to a certain degree of seasonality. This seasonality does not have a significant impact on revenues as collections, generally in the form of fixed payments, occur over the course of several years. We are subject to seasonal variations in credit losses, which are typically higher in the first and fourth calendar quarters of the year.

Geographic Distribution of Operations

As of March 31, 2011, approximately 20 percent of vehicle retail contracts and lease assets were concentrated in California, 10 percent in Texas, 8 percent in New York and 6 percent in New Jersey. As of March 31, 2011, approximately 23 percent of insurance policies and contracts were concentrated in California, 7 percent in New York and 6 percent in New Jersey. Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our financial condition and results of operations.

FINANCE OPERATIONS

We acquire retail and lease contracts from, and provide financing and certain other financial products and services to, authorized Toyota and Lexus vehicle dealers and, to a lesser extent, other domestic and import franchised dealers and their customers in the U.S. and Puerto Rico. We also offer financing for various industrial and commercial products such as forklifts and light and medium-duty trucks. Gross revenues related to transactions with industrial equipment dealers contributed 3 percent to total gross revenues in the fiscal years ended March 31, 2011 (“fiscal 2011”), 2010 (“fiscal 2010”) and 2009 (“fiscal 2009”).

The table below summarizes our financing revenues, net of depreciation by primary product.

	Years ended March 31,
	2011		2010		2009
Percentage of financing revenues, net of depreciation:
Operating leases, net of depreciation	33	%	26	%	16	%
Retail1	59	%	67	%	72	%
Dealer	8	%	7	%	12	%
Financing revenues, net of depreciation	100	%	100	%	100	%

1	Includes direct finance lease revenues.

Retail and Lease Financing

Pricing

We utilize a tiered pricing program for retail and lease contracts. The program matches contract interest rates with customer risk as defined by credit bureau scores and other factors for a range of price and risk combinations. Each application is assigned a credit tier. Rates vary based on credit tier, term, and collateral, including whether a new or used vehicle is financed. In addition, special rates may apply as a result of promotional activities. We review and adjust interest rates based on competitive and economic factors and distribute the rates, by tier, to our dealers.

Underwriting

We acquire new and used vehicle and industrial equipment retail and lease contracts primarily from Toyota and Lexus vehicle dealers and industrial equipment dealers. Dealers transmit customer credit applications electronically through our online system for contract acquisition. The customer may submit a credit application directly to our website, in which case, the credit application is sent to the dealer of the customers’ choice or to a dealer that is near the customers’ residence. We use a proprietary credit scoring system to evaluate an applicant’s risk profile. Factors used by the credit scoring system (based on the applicant’s credit history) include the applicant’s ability to pay, debt ratios, employment status, and amount financed relative to the value of the vehicle. Upon receipt of the credit application, our origination system automatically requests a credit bureau report from one of the major credit bureaus.

Credit applications are subject to systematic evaluation. Our origination system evaluates each credit application to determine if it qualifies for auto-decisioning. The system distinguishes this type of applicant by specific requirements and approves the application without manual intervention. The origination system is programmed to review selected factors of the application such as debt-to-income ratios and credit scores. Typically the highest quality credit applications are approved automatically. The automated approval process approves only the applicant’s credit eligibility.

We are transitioning to a new loan origination system (“LOS”) for contract acquisition in the fiscal year ending March 31, 2012 ("fiscal 2012"). The expected benefits of the new LOS include enhanced decisioning and discounting functionality. In addition, customers will be able to submit applications online through TMCC’s website. LOS will send specific credit scoring attributes of an application to an external decision engine. This feature of LOS will permit greater flexibility in making adjustments to our credit scoring system because the external decision engine can reflect changes to our credit scorecards and decisioning strategies more easily than our existing loan origination system.

Credit analysts (located at the DSSOs) approve or reject all credit applications that do not qualify for auto-decisioning. A credit analyst approves or rejects credit applications based on an evaluation that considers an applicant’s creditworthiness and projected ability to meet the monthly obligation, which is derived from the amount financed, the term, and the assigned contractual interest rate. Our proprietary scoring system assists the credit analyst in the credit review process.

Completion of the financing process is dependent upon whether the transaction is a retail or lease contract. For a retail contract transaction, we acquire the retail contract from vehicle dealers and obtain a security interest in the vehicle or industrial equipment. For a lease contract, we acquire the lease contract and concurrently assume ownership of the leased vehicles or industrial equipment. We view our lease arrangements, including our operating leases, as financing transactions as we do not re-lease the vehicle or equipment upon default or lease termination.

We regularly review and analyze our retail and lease contract portfolio to evaluate the effectiveness of our underwriting guidelines and purchasing criteria. If external economic factors, credit loss or delinquency experience, market conditions or other factors change, we may adjust our underwriting guidelines and purchasing criteria in order to change the asset quality of our portfolio or to achieve other goals and objectives.

Subvention

In partnership with our affiliates Toyota Motor Sales, U.S.A., Inc. (“TMS”), Toyota Material Handling, U.S.A., Inc. (“TMHU”), and Hino Motor Sales, U.S.A., Inc. (“HINO”), we may offer special promotional rates, which we refer to as subvention programs. These promotional rates are typically lower than our standard rates. These affiliates pay us the majority of the difference between the standard rate and the promotional rate. Amounts received in connection with these programs allow us to maintain yields at levels consistent with standard program levels. The level of subvention program activity varies based on our affiliates’ marketing strategies, economic conditions, and volume of vehicle sales. Subvention payments vary based on the mix of Toyota and Lexus vehicles and industrial equipment, and the timing of programs. We defer the payments and recognize them over the life of the contract as a yield adjustment for retail contracts and as rental income for lease contracts. A large portion of our retail and lease contracts is subvened.

Servicing

Our CSCs are responsible for servicing the vehicle retail and lease contracts. A centralized department monitors bankruptcy administration, post-charge-off, and recovery. A centralized collection department manages the remediation (if applicable) and liquidation of each retail installment sale and lease contract. Our industrial equipment retail and lease contracts are serviced at a centralized facility.

We use a behavioral-based collection strategy to minimize risk of loss and employ various collection methods. When contracts are acquired, we perfect our security interests in the financed retail vehicles and industrial equipment through state department of motor vehicles (or equivalent) certificate of title filings or through Uniform Commercial Code (“UCC”) filings as appropriate. We have the right to repossess the assets if customers fail to meet contractual obligations and the right to enforce collection actions against the obligors under the contracts.

We use an on-line collection and auto dialer system that prioritizes collections efforts, generates past due notices, and signals our collections personnel to make telephone contact with delinquent customers. Collection efforts are based on behavioral scoring models (which analyze borrowers’ past payment performance, vehicle valuation and credit scores to predict future payment behavior). We generally determine whether to commence repossession efforts after an account is 60 days past due. Repossessed vehicles are held in inventory to comply with statutory requirements and then sold at private auctions, unless public auctions are required by applicable law. Any unpaid amounts remaining after sale or after full charge off are pursued by us to the extent practical and legally permissible. Collections of deficiencies are administered at a centralized facility. We charge off a retail or lease contract in our servicing systems as soon as disposition of the vehicle has been completed and sales proceeds have been received, but we may in some circumstances charge-off a retail or lease contract prior to repossession. However, when repossession and disposition of the collateral have not been completed, our policy is to charge off as soon as we determine that the vehicle cannot be recovered, but not later than when the contract is 120 days contractually delinquent. Prior to the fourth quarter of fiscal 2010, an account was considered contractually delinquent when it was 150 days past due. Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 to 120 days past due. This change resulted in an increase in charge-offs of $38 million for the quarter ended March 31, 2010.

We may, in accordance with our customary servicing procedures, offer rebates, waive any prepayment charge, late payment charge, or any other fees that may be collected in the ordinary course of servicing the retail installment sales and lease account. In addition, we may defer a customer’s obligation to make a payment by extending the contract term.

Substantially all of our retail and lease contracts are non-recourse to the vehicle and industrial equipment dealers, which relieves the vehicle and industrial equipment dealers from financial responsibility in the event of repossession.

We may experience a higher risk of loss if customers fail to maintain required insurance coverage. The terms of our retail contracts require customers to maintain physical damage insurance covering loss or damage to the financed vehicle or industrial equipment in an amount not less than the full value of the vehicle or equipment. We currently do not monitor ongoing insurance compliance as part of our customary servicing procedures for retail accounts. The terms of each receivable allow but do not require us to obtain any such coverage on behalf of the customer. In accordance with our normal servicing procedures, we do not obtain insurance coverage on behalf of the customer. Our vehicle lease contracts require lessees to maintain minimum liability insurance and physical damage insurance covering loss or damage to the leased vehicle in an amount not less than the full value of the vehicle.

Toyota Lease Trust, a Delaware business trust (the “Titling Trust”), acts as lessor and holds title to leased vehicles in specified states. This arrangement was established to facilitate lease securitization. We service lease contracts acquired by the Titling Trust from Toyota and Lexus vehicle dealers in the same manner as lease contracts owned directly by us. We hold an undivided trust interest in lease contracts owned by the Titling Trust, and these lease contracts are included in our lease assets.

Remarketing

We are responsible for disposing of the leased asset if the lessee, vehicle dealer, or industrial equipment dealer does not purchase the asset at lease maturity. At the end of the lease term, the lessee may purchase the leased asset at the contractual residual value or return the leased asset to the vehicle or industrial equipment dealer. If the leased asset is returned to the vehicle or industrial equipment dealer, the vehicle or industrial equipment dealer may purchase the leased asset or return it to us.

In order to minimize losses at lease maturity, we have developed remarketing strategies to maximize proceeds and minimize disposition costs on used vehicles and industrial equipment sold at lease termination. We use various channels to sell vehicles returned at lease end and repossessed vehicles, including a dealer direct program (“Dealer Direct”) and physical auctions.

The goal of Dealer Direct is to increase vehicle dealer purchases of off-lease vehicles thereby reducing the disposition costs of such vehicles. Through Dealer Direct, the vehicle dealer accepting return of the leased vehicle (the “grounding dealer”) has the option to purchase the vehicle at the contractual residual value, purchase the vehicle at an assessed market value, or return the vehicle to us. Vehicles not purchased by the grounding dealer are made available to all Toyota and Lexus vehicle dealers through the Dealer Direct online auction. Vehicles not purchased through Dealer Direct are sold at physical vehicle auction sites throughout the country. Where necessary, we recondition used vehicles prior to sale in order to enhance the vehicle values at auction. Additionally, we redistribute vehicles geographically to minimize oversupply in any location.

Industrial equipment returned by the lessee or industrial equipment dealer is sold through authorized Toyota industrial equipment dealers or wholesalers using an auction process.

Dealer Financing

Dealer financing is comprised of wholesale financing and other financing options designed to meet dealer business needs.

Wholesale Financing

We provide wholesale financing to vehicle and industrial equipment dealers for inventories of new and used Toyota, Lexus, and other vehicles and industrial equipment. We acquire a security interest in vehicles financed at wholesale, which we perfect through UCC filings, and these financings may be backed by corporate or individual guarantees from, or on behalf of, participating vehicle and industrial equipment dealers, dealer groups, or dealer principals. In the event of vehicle or industrial equipment dealer default under a wholesale loan arrangement, we have the right to liquidate assets in which we have a perfected security interest and to seek legal remedies pursuant to the wholesale loan agreement and any applicable guarantees.

TMCC and TMS are parties to an agreement pursuant to which TMS will arrange for the repurchase of new Toyota and Lexus vehicles at the aggregate cost financed by TMCC in the event of vehicle dealer default under floorplan financing. TMCC is also party to similar agreements with TMHU, HINO, and other domestic and import manufacturers. TMHU is the primary distributor of Toyota forklifts in the U.S., and HINO is the exclusive U.S. distributor of commercial trucks manufactured by Hino Motors Ltd. of Japan.

Other Dealer Financing

We provide term loans, revolving lines of credit, and real estate financing to vehicle and industrial equipment dealers for facilities refurbishment, working capital requirements and real estate purchases. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate, and usually are guaranteed by the personal or corporate guarantees of the dealer principals or dealerships. We also provide financing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of a lending consortium, for wholesale, working capital, real estate, and business acquisitions. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee from the vehicle or industrial equipment dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. We price the credit facilities according to the risks assumed in entering into the credit facility and competitive factors.

Before establishing a wholesale line or other dealer financing arrangement, we perform a credit analysis of the dealer. During this analysis, we:

·	Review credit reports and financial statements and may obtain bank references;

·	Evaluate the dealer’s financial condition; and

·	Assess the dealer’s operations and management.

On the basis of this analysis, we may approve the issuance of a credit line and determine the appropriate size.

As part of our monitoring processes, we require all dealers to submit monthly financial statements. We also perform periodic physical audits of vehicle inventory as well as monitor dealer inventory financing payoffs to identify possible risks.

INSURANCE OPERATIONS

TMCC markets its insurance products through Toyota Motor Insurance Services, Inc. (“TMIS”), a wholly-owned subsidiary. TMIS and its insurance company subsidiaries’ principal activities include marketing, underwriting, and claims administration related to covering certain risks of Toyota, Lexus, and other domestic and import franchise dealers and their customers. TMIS also provides other coverage and related administrative services to certain of our affiliates.

Changes in the volume of vehicle sales, vehicle dealers’ utilization of programs offered by TMIS, or the level of coverage purchased by affiliates could materially impact the level of TMIS operations. Gross revenues from insurance operations on a consolidated basis comprised 8 percent, 7 percent, and 4 percent of total gross revenues for fiscal 2011, 2010, and 2009, respectively.

Products and Services

TMIS offers various products and services, such as vehicle service agreements, guaranteed auto protection agreements and maintenance contracts on Toyota, Lexus and other domestic and import vehicles. TMIS also obtains a portion of the vehicle service contract business by providing TMS contractual indemnity coverage on certified Toyota and Lexus pre-owned vehicles. Vehicle service agreements offer vehicle owners and lessees mechanical breakdown protection for new and used vehicles secondary to the manufacturer’s new vehicle warranty. Guaranteed auto protection insurance, or debt cancellation agreements, provides coverage for a lease or retail contract deficiency balance in the event of a total loss of the covered vehicle.

TMIS, through its wholly-owned subsidiary, provides insurance to TMCC covering Toyota, Lexus, and other domestic and import vehicle dealers’ inventory financed by TMCC. TMIS obtains reinsurance on the inventory insurance policy covering the excess of certain dollar maximums per occurrence and in the aggregate. Through reinsurance, TMIS limits its exposure to losses by obtaining the right to reimbursement from the assuming company for the reinsured portion of losses.

TMIS, through its wholly-owned subsidiary, provides umbrella liability insurance to TMS and affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. On all layers in which TMIS has provided coverage, 99 percent of the risk has been ceded to various reinsurers.

RELATIONSHIPS WITH AFFILIATES

Our business is substantially dependent upon the sale of Toyota and Lexus vehicles and our ability to offer competitive financing and insurance products in the U.S. TMS is the primary distributor of Toyota and Lexus vehicles in the U.S. Automobiles and light-duty trucks sold by TMS totaled 1.8 million units for fiscal 2011 and fiscal 2010 compared to 2.0 million units during fiscal 2009. Toyota and Lexus vehicles accounted for approximately 15 percent of all retail automobile and light-duty truck unit sales volume in the U.S. during fiscal 2011, compared to 17 percent during fiscal 2010 and 2009.

Certain lease and retail installment sales programs on vehicles and industrial equipment are subvened by our affiliates. TMS sponsors subvention programs on certain new and used Toyota and Lexus vehicles that result in reduced scheduled payments to qualified retail installment sales and lease customers. Reduced scheduled payments on certain Toyota industrial equipment to qualified lease and retail installment sales customers are subvened by various affiliates. The level of subvention program activity varies based on our affiliates’ marketing strategies, economic conditions, and volume of vehicle sales, while subvention payments vary based on the mix of Toyota and Lexus vehicles and timing of programs.

TMCC and TMS are parties to a Shared Services Agreement which covers certain technological and administrative services, such as information systems support, facilities, insurance coverage, and corporate services provided between the companies. In addition, TMCC and TMS are parties to an agreement that provides that TMS will arrange for the repurchase of new Toyota and Lexus vehicles at the aggregate cost financed by TMCC in the event of vehicle dealer default under floorplan financing. TMCC is also a party to similar agreements with TMHU, HINO, and other domestic and import manufacturers. During fiscal 2011, TMCC and TMS entered into an expense reimbursement agreement, which provides that TMCC will reimburse a portion of certain sales and marketing expenses incurred by TMS during fiscal 2011 for brand and sales support.

TMCC and Toyota Financial Savings Bank (“TFSB”), a Nevada industrial loan company owned by TFSA, are parties to a master shared services agreement under which TMCC and TFSB provide certain services to each other. TMCC and TFSB are also parties to an expense reimbursement agreement, which provides that TMCC will reimburse certain expenses incurred by TFSB in connection with providing certain financial products and services to TMCC’s customers and dealers in support of TMCC’s customer loyalty strategy and programs.

TMCC and TFSA are parties to an expense reimbursement agreement. Under the terms of the agreement, TMCC will reimburse certain expenses incurred by TFSA, the parent of TMCC and TFSB, with respect to costs related to TFSB’s credit card rewards program.

Our employees are generally eligible to participate in the TMS pension plan, the Toyota Savings Plan sponsored by TMS, and various health and life and other post-retirement benefits sponsored by TMS, as discussed further in Note 13 – Pension and Other Benefit Plans of the Notes to Consolidated Financial Statements.

Credit support agreements exist between us and TFSC and between TFSC and TMC. These agreements are further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources”.

Additionally, TFSC and TMCC are parties to conduit finance agreements pursuant to which TFSC acquires funds from lending institutions solely for the benefit of TMCC, and in turn, provides these funds to TMCC. At March 31, 2011, $4.2 billion was outstanding under these agreements.

TMIS provides administrative services and various levels and types of coverage to TMS, including contractual indemnity coverage for TMS’ certified pre-owned vehicle program. TMIS, through its wholly-owned subsidiary, provides umbrella liability insurance to TMS and affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. During fiscal year 2011, TMIS also provided prepaid maintenance and vehicle service coverage to TMS in support of certain post-recall sales and customer loyalty efforts.

See Note 16 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

COMPETITION

We operate in a highly competitive environment and compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, and finance companies. To a lesser extent, we compete with other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail consumer contracts through Toyota and Lexus dealers. We compete with national and regional commercial banks and other automobile manufacturers’ affiliated finance companies for dealer financing. No single competitor is dominant in the industry. We compete primarily through service quality, our relationship with TMS, and financing rates. We seek to provide exceptional customer service and competitive financing programs to our vehicle and industrial equipment dealers and to their customers. Our affiliation with TMS is an advantage in providing Toyota and Lexus financing for purchases or leases of Toyota and Lexus vehicles.

Competition for the principal products and services provided through our insurance operations is primarily from national and regional independent service contract providers. We compete primarily through service quality, our relationship with TMS and product benefits. Our affiliation with TMS provides an advantage in selling our products and services.

REGULATORY ENVIRONMENT

Our finance and insurance operations are regulated under both federal and state law. We are governed by, among other federal laws, the Equal Credit Opportunity Act, the Truth in Lending Act, the Truth in Leasing Act, the Fair Credit Reporting Act, and the consumer data privacy and security provisions of the Gramm-Leach Bliley Act. The Equal Credit Opportunity Act is designed to prevent credit discrimination on the basis of certain protected classes, requires the distribution of specified credit decision notices and limits the information that may be requested and considered in a credit transaction. The Truth in Lending Act and the Truth in Leasing Act place disclosure and substantive transaction restrictions on consumer credit and leasing transactions. The Fair Credit Reporting Act imposes restrictions and requirements regarding our use and sharing of credit reports, the reporting of data to credit reporting agencies, credit decision notices, the accuracy and integrity of information reported to the credit reporting agencies and identity theft prevention requirements. Federal privacy and data security laws place restrictions on our use and sharing of consumer data, impose privacy notice requirements, give consumers the right to opt out of certain uses and sharing of their data and impose safeguarding rules regarding the maintenance, storage, transmission and destruction of consumer data. Federal law also requires us to follow processes to help ensure that our customers, vendors and employees do not appear on lists produced by the Office of Foreign Assets Control. These lists name individuals, businesses and governments suspected of engaging in terrorist and other illegal activities.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law. The scope of the Dodd-Frank Act has broad implications for the financial services industry and requires the development, adoption and implementation of many regulations over the next several months and years. Among other things, the Dodd-Frank Act creates the Financial Stability Oversight Council, with authority for monitoring and regulating systemic risk, and the Bureau of Consumer Financial Protection, which will have broad regulatory and enforcement powers over consumer financial products and services, including the ability to define and regulate unfair and deceptive practices. The Dodd-Frank Act also mandates numerous studies which may lead to additional regulatory requirements. The Dodd-Frank Act also gives the Federal Trade Commission enhanced regulatory powers with respect to automobile dealers. Certain requirements of the Dodd-Frank Act will become effective July 21, 2011 and we are in the process of implementing those requirements. The potential impact of the legislation and resulting regulations may include increased cost of operations due to greater regulatory oversight, supervision and examination, limitations on our ability to expand product and service offerings due to stricter consumer protection laws and regulations and new or modified disclosure requirements.

The Dodd-Frank Act also creates a new regulatory framework for oversight of derivatives transactions by the Commodity Futures Trading Commissions (the “CFTC”) and the SEC. These include new capital, margin and business conduct standards for certain swap participants and requirements for clearing certain swaps through registered clearing facilities and trading certain swaps on a designated exchange or swap execution facility. The Dodd-Frank Act includes exceptions from some of these requirements which will be further defined through rulemaking proceedings by the CFTC and SEC. TMCC and our derivatives counterparties may be subject to new capital, margin and business conduct requirements which may increase our transaction costs or make it more difficult for us to enter into hedging transactions on favorable terms.

A majority of states (as well as Puerto Rico) have enacted legislation establishing licensing requirements to conduct financing activities. Most states also impose limits on the maximum rate of finance charges. In certain states, the margin between the present statutory maximum interest rates and borrowing costs is sufficiently narrow that, in periods of rapidly increasing or high interest rates, there could be an adverse effect on our operations in these states if we were unable to pass on increased interest costs to our customers. Some state and federal laws impose rate and other restrictions on credit transactions with customers in active military status.

State laws also impose requirements and restrictions on us with respect to, among other matters, required credit application and finance and lease disclosures, late fees and other charges, the right to repossess a vehicle for failure to pay or other defaults under the retail or lease contract, other rights and remedies we may exercise in the event of a default under the retail or lease contract, privacy matters, and other consumer protection matters.

In addition, state laws differ as to whether anyone suffering injury to person or property involving a leased vehicle may bring an action against the owner of the vehicle merely by virtue of that ownership. To the extent that applicable state law permits such an action, we may be subject to liability to such an injured party. However, the laws of most states either do not permit such suits or limit the lessor’s liability to the amount of any liability insurance that state law required or permitted the lessee to maintain.

Our lease contracts in the U.S. contain provisions requiring the lessees to maintain levels of insurance satisfying applicable state law, and we maintain certain levels of contingent liability insurance for protection from catastrophic claims. Under federal law, states are not permitted to impose unlimited vicarious liability on lessors of leased vehicles. This federal law has been subjected to judicial actions challenging the law’s constitutionality and preemption of state law. We continue to monitor the impact of the repeal of unlimited vicarious liability and the related judicial challenges. We encounter higher risk of loss if the customers fail to maintain the required insurance coverage.

Our insurance operations are subject to state insurance regulations and licensing requirements. State laws vary with respect to which products are regulated and what types of corporate licenses and filings are required to offer certain products and services. Insurance company subsidiaries must be appropriately licensed in certain states in which they conduct business, must maintain minimum capital requirements and file annual financial information as determined by their state of domicile and the National Association of Insurance Commissioners. Failure to comply with these requirements could have an adverse effect on insurance operations in a particular state. We actively monitor applicable laws and regulations in each state in order to maintain compliance.

As a registrant with the SEC under the Securities Exchange Act of 1934, as amended, we are subject to various federal securities laws and regulations. As an issuer of debt listed on the New York Stock Exchange, we are also subject to applicable rules of the exchange. In addition, we are subject to securities laws and regulations and stock exchange requirements in the foreign countries in which we obtain debt funding or maintain listings.

We continually review our operations for compliance with applicable laws. Future administrative rulings, judicial decisions, legislation, regulations and regulatory guidance and supervision may require modification of our business practices and procedures.

EMPLOYEE RELATIONS

At April 30, 2011, we had approximately 3,170 full-time employees. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees.

ITEM 1A. RISK FACTORS

We are exposed to certain risks and uncertainties that could have a material adverse impact on our financial condition and operating results.

Recalls and other related announcements by TMS could affect our business, financial condition and operating results.

Beginning in the latter part of fiscal 2010, TMS announced several recalls and temporary suspensions of sales and production of certain Toyota and Lexus models. Because our business is substantially dependent upon the sale of Toyota and Lexus vehicles, these events or similar future events could adversely impact our business. A decrease in the level of sales, including as a result of the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, will have a negative impact on the level of our financing volume, insurance volume, earning assets and revenues. The credit performance of our dealer and consumer lending portfolios may also be adversely affected. In addition, a decline in values of used Toyota and Lexus vehicles would have a negative effect on realized values and return rates, which, in turn, could increase depreciation expense and credit losses. Further, TMCC and affiliated entities are subject to litigation relating to recall-related events. In addition, certain of TMCC’s affiliates are currently subject to governmental investigations, including those by the U.S. Attorney for the Southern District of New York and the SEC, and have or may become subject to fines or other penalties. These factors could have a negative effect on our operating results and financial condition.

General business and economic conditions may adversely affect our operating results and financial condition.

Our operating results and financial condition are affected by a variety of factors. These factors include changes in the overall market for retail installment sales, leasing or dealer financing, rate of growth in the number and average balance of customer accounts, the U.S. regulatory environment, competition, rate of default by our customers, changes in the U.S. and international wholesale capital funding markets, the used vehicle market, levels of operating and administrative expenses (including, but not limited to, personnel costs) and technology costs, general economic conditions in the United States, inflation, and fiscal and monetary policies in the United States and other countries in which we issue debt. Further, a significant and sustained increase in fuel prices could lead to diminished new and used vehicle purchases. This could reduce the demand for automotive retail and wholesale financing. In turn, lower used vehicle prices could affect charge-offs and depreciation on operating leases.

Economic slowdown and recession in the United States may lead to increases in unemployment rates, as well as consumer and commercial bankruptcy filings. These conditions may affect household incomes and may decrease the demand for our financing products, as well as increase our delinquencies and losses. In addition, because our credit exposures are generally collateralized, the severity of losses can be particularly affected by declines in used vehicle prices. Vehicle and industrial equipment dealers may also be affected by economic slowdown and recession, which in turn may increase the risk of default of certain dealers within our portfolio.

Elevated levels of market disruption and volatility could have a negative impact on our ability to access the global capital markets in a similar manner and at a similar cost as we have had in the past. These market conditions could also have an adverse effect on our business, financial condition and operating results by increasing our cost of funding and increasing the rates we charge to our customers and dealers, thereby affecting our competitive position.

Our operating results and financial condition are heavily dependent on the sales of Toyota and Lexus vehicles.

Our business is substantially dependent upon the sale of Toyota and Lexus vehicles and our ability to offer competitive financing and insurance products in the United States. TMS is the primary distributor of Toyota and Lexus vehicles in the United States. TMS also sponsors subvention programs offered by us in the United States on certain new and used Toyota and Lexus vehicles. The level of subvention varies based on TMS’ marketing strategies, economic conditions and volume of vehicle sales. Changes in the volume of sales of such vehicles would impact the level of our financing volume, insurance volume and results of operations. These changes may result from governmental action, changes in consumer demand, recalls, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, economic conditions, changes in the level of TMS sponsored subvention programs, increased competition, changes in pricing of imported units due to currency fluctuations or other reasons, or decreased or delayed vehicle production, due to natural disasters, supply chain interruptions or other events.

Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements.

Our credit ratings depend, in large part, on the existence of the credit support arrangements with TFSC and TMC and on the financial condition and operating results of TMC. If these arrangements (or replacement arrangements acceptable to the rating agencies) become unavailable to us, or if the credit ratings of the credit support providers were lowered, our credit ratings would be adversely impacted. The cost and availability of financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security or obligation.

Credit rating agencies which rate the credit of TMC and its affiliates, including TMCC, may qualify or alter ratings at any time. Downgrades or placement on review for possible downgrades could result in an increase in our borrowing costs as well as reduced access to global unsecured debt capital markets. In addition, depending on the level of the downgrade, we may be required to post an increased amount of cash collateral under certain of our derivative agreements. These factors would have a negative impact on our competitive position, operating results and financial condition.

A decrease in the residual values of our off-lease vehicles could negatively affect our operating results and financial condition.

We are exposed to risk of loss on the disposition of leased vehicles and industrial equipment to the extent that sales proceeds realized upon the sale of returned lease assets are not sufficient to cover the residual value that was estimated at lease inception. To the extent the actual residual value of the vehicle, as reflected in the sales proceeds received upon remarketing, is less than the expected residual value for the vehicle at lease inception, we incur a loss at vehicle disposal which is recorded as depreciation expense. Among other factors, local, regional and national economic conditions, new vehicle pricing, new vehicle incentive programs, new vehicle sales, the actual or perceived quality, safety or reliability of vehicles, future plans for new Toyota and Lexus product introductions, competitive actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values, and fuel prices heavily influence used vehicle prices and thus the actual residual value of off-lease vehicles. Differences between the actual residual values realized on leased vehicles and our estimates of such values at lease inception could have a negative impact on our operating results and financial condition, due to our recognition of higher-than-anticipated losses recorded as depreciation expense in the Consolidated Statement of Income.

We are exposed to customer and dealer credit risk, which could negatively affect our operating results and financial condition.

Credit risk is the risk of loss arising from the failure of a customer or dealer to meet the terms of any contract with us or otherwise fail to perform as agreed. The level of credit risk in our retail installment sales and lease portfolios is influenced primarily by two factors: the total number of contracts that experience default (“default frequency”) and the amount of loss per occurrence (“loss severity”), which in turn are influenced by various economic factors, the used vehicle market, purchase quality mix, contract term length, and operational changes as discussed below.

The level of credit risk in our dealer financing portfolio is influenced primarily by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors. The financial strength of dealers within our portfolio is influenced by general macroeconomic conditions, the overall demand for new and used vehicles and the financial condition of automotive manufacturers, among other factors. An increase in credit risk would increase our provision for credit losses, which would have a negative impact on our operating results and financial condition.

Economic slowdown and recession in the United States increases the risk that a customer or dealer may not meet the terms of a finance contract with us or may otherwise fail to perform as agreed. A weak economic environment, evidenced by, among other things, unemployment, underemployment, and consumer bankruptcy filings, may affect some of our customers’ ability to make their scheduled payments. There can be no assurance that our monitoring of credit risk and our efforts to mitigate credit risk are or will be sufficient to prevent an adverse effect on our operating results and financial condition.

A disruption in our funding sources and access to the capital markets would have an adverse effect on our liquidity.

Liquidity risk is the risk arising from our ability to meet obligations when they come due in a timely manner. Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in the event of adverse market conditions. An inability to meet obligations when they come due in a timely manner would have a negative impact on our ability to refinance maturing debt and fund new asset growth and would have an adverse effect on our operating results and financial condition.

Our operating results and financial condition may decrease because of changes in market interest rates.

Market risk is the risk that changes in market interest rates or prices will negatively affect our income and capital. The effect of an increase in market interest rates on our cost of capital could have an adverse effect on our business, financial condition and operating results by increasing the rates we charge to our customers and dealers, thereby affecting our competitive position. Market risk also includes the risk that securities in our investment portfolio could lose value, resulting in losses realized upon sale of the securities or unrealized losses recorded in equity.

A failure or interruption in our operations could adversely affect our operating results and financial condition.

Operational risk is the risk of loss resulting from, among other factors, inadequate or failed processes, systems or internal controls, theft, fraud or natural disaster. Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements. These events can potentially result in financial losses or other damage to us, including damage to our reputation.

We rely on internal and external information and technological systems to manage our operations and are exposed to risk of loss resulting from breaches in the security or other failures of these systems. Any upgrade and replacement of our major legacy transaction systems could have a significant impact on our ability to conduct our core business operations and increase our risk of loss resulting from disruptions of normal operating processes and procedures that may occur during the implementation of new information and transaction systems.

In addition, we rely on a framework of internal controls designed to provide a sound and well-controlled operating environment. Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material effect on our operations.

The failure or commercial soundness of financial institutions on which we rely as counterparties may expose us to risk of loss.

Counterparty credit risk is the risk that a counterparty may fail to perform on its contractual obligations. Our ability to engage in routine debt and derivatives transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, lending and other relationships. We are subject to the risk that we may not be able to draw down sufficient funds from our credit facilities, if needed, due to the financial condition of some or all of our lenders. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial industry, including derivative contracts. Many of these transactions expose us to credit risk in the event of default of our counterparty. There is no assurance that any such losses would not materially and adversely affect our operating results or financial condition.

If we are unable to compete successfully or if competition increases in the businesses in which we operate, our operating results could be negatively affected.

We operate in a highly competitive environment. Increases in competitive pressures could have an adverse impact on our contract volume, market share, revenues, and margins. Further, the financial condition and viability of our competitors and peers may have an impact on the financial services industry in which we operate, resulting in changes in the demand for our products and services. This could have an adverse impact on our operating results and the volume of our business.

Our insurance subsidiary could suffer losses if its reserves are insufficient to absorb actual losses.

Our insurance subsidiary is subject to the risk of loss if our reserves for unearned premium and contract revenues on unexpired policies and agreements in force are not sufficient. Using historical loss experience as a basis for recognizing revenue over the term of the contract or policy may result in the timing of revenue recognition varying materially from the actual loss development. Our insurance subsidiary is also subject to the risk of loss if our reserves for reported losses, losses incurred but not reported, and loss adjustment expenses are not sufficient. Because we use estimates in establishing reserves, actual losses may vary from amounts established in earlier periods.

A reinsurer’s failure or inability to pay could result in losses to our insurance subsidiary.

Reinsurance credit risk is the risk that a reinsurer providing reinsurance coverage to our insurance subsidiary will be unable to meet its obligations under the agreement. The failure of a reinsurer to meet its obligations could result in losses to our insurance subsidiary.

The regulatory environment in which we operate could have a material adverse effect on our business and operating results.

Regulatory risk includes risk arising from failure to comply with applicable regulatory requirements and risk of liability and other costs imposed under various laws and regulations, including changes in applicable law, regulation and regulatory guidance.

As a provider of finance, insurance and other payment and vehicle protection products, we operate in a highly regulated environment. We are subject to licensing requirements at the state level and to laws, regulation and examination at the state and federal levels. We hold lending, leasing and insurance licenses in the various states in which we do business. We are obligated to comply with periodic reporting requirements and to submit to regular examinations as a condition of maintenance of our licenses and the offering of our products and services. We must comply with laws that regulate our business, including in the areas of marketing, analytics, origination, collection and servicing.

The Dodd-Frank Act has broad implications for the financial services industry and requires the development, adoption and implementation of many regulations over the next several months and years. Among other things, the Dodd-Frank Act creates the Financial Stability Oversight Council, with authority for monitoring and regulating systemic risk, and the Bureau of Consumer Financial Protection, which will have broad regulatory and enforcement powers over consumer financial products and services, including the ability to define and regulate unfair and deceptive practices. The Dodd-Frank Act also mandates numerous studies which may lead to additional regulatory requirements. The Dodd-Frank Act also gives the Federal Trade Commission enhanced regulatory powers with respect to automobile dealers. Certain requirements of the Dodd-Frank Act will become effective July 21, 2011 and we are in the process of implementing those requirements. The potential impact of the legislation and resulting regulations may include increased cost of operations due to greater regulatory oversight, supervision and examination, limitations on our ability to expand product and service offerings due to stricter consumer protection laws and regulations and new or modified disclosure requirements.

The Dodd-Frank Act also creates a new regulatory framework for oversight of derivatives transactions by the CFTC and the SEC. These include new capital, margin and business conduct standards for certain swap participants and requirements for clearing certain swaps through registered clearing facilities and trading certain swaps on a designated exchange or swap execution facility. The Dodd-Frank Act includes exceptions from some of these requirements which will be further defined through rulemaking proceedings by the CFTC and SEC. TMCC and our derivatives counterparties may be subject to new capital, margin and business conduct requirements which may increase our transaction costs or make it more difficult for us to enter into hedging transactions on favorable terms.

Compliance with applicable law is costly and can affect operating results. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing. Laws in the financial services industry are designed primarily for the protection of consumers. The failure to comply could result in significant statutory civil and criminal penalties, monetary damages, attorneys’ fees and costs, possible revocation of licenses and damage to our reputation, brand and valued customer relationships.

Adverse economic conditions or changes in laws in states in which we have customer concentrations may negatively affect our operating results and financial condition.

We are exposed to customer concentration risk in our retail, dealer and insurance products. Factors adversely affecting the economy and applicable laws in various states where we have concentration risk could have an adverse effect on our consolidated financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved SEC staff comments to report.

ITEM 2. PROPERTIES

Our finance and insurance headquarters operations are located in Torrance, California, and our facilities are leased from TMS.

Field operations for both finance and insurance are located in three CSCs, three regional management offices, and 30 DSSOs in cities throughout the U.S. Two of the DSSOs share premises with the regional CSCs. All three of the regional management offices share premises with DSSO offices. The Central region CSC is located in Cedar Rapids, Iowa, and is leased from TMS. The Western region CSC is located in Chandler, Arizona. The Eastern region CSC is located in Owings Mills, Maryland. We also have an office in Puerto Rico. All premises are occupied under lease.

We believe that our properties are suitable to meet the requirements of our business.

ITEM 3. LEGAL PROCEEDINGS

Litigation

Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices. Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies. We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. When we are able, we also determine estimates of reasonably possible losses or range of losses, whether in excess of any related accrued liability or where there is no accrued liability. With respect to the matters described below (except for the repossession class action), we are unable to estimate the losses or range of losses that are reasonably possible based upon currently available information. In determining whether it is possible to provide an estimate of loss or range of possible loss, we have taken into account a variety of factors, including but not limited to the status of the proceedings, whether the case would be allowed to proceed as a class action, the fact that the damages sought are not specified, meaningful legal uncertainties associated with the claims and the fact that there has been no discovery to date. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established. We believe, based on currently available information and established accruals, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results for any particular period, depending in part, upon the operating results for such period.

Repossession Class Actions

A cross-complaint alleging a class action in the Superior Court of California Stanislaus County, Garcia v. Toyota Motor Credit Corporation, filed in August 2007, claims that TMCC's post-repossession notice failed to comply with the Rees-Levering Automobile Sales Finance Act of California. Three additional putative class action complaints or cross-complaints were filed making similar allegations. The cases were coordinated in the California Superior Court, Stanislaus County and a Second Amended Consolidated Cross-Complaint and Complaint was subsequently filed in March 2009. The Second Amended Consolidated Cross-Complaint and Complaint seeks injunctive relief, restitution, disgorgement and other equitable relief under California's Unfair Competition Law. As a result of mediation in January 2010, the parties agreed to settle all of the foregoing matters in an amount within our reserves and not material to our results of operations. A fourth case was later filed which was included in the settlement. On January 7, 2011, the court entered an order granting final approval of the settlement. Plaintiffs did not appeal so the order has become final.

Recall-related Class Actions

TMCC and certain affiliates were named as defendants in the consolidated multidistrict litigation, In Re: Toyota Motor Corp. Unintended Acceleration, Marketing, Sales Practices, and Products Liability Litigation (United States District Court, Central District of California) seeking damages and injunctive relief as a result of alleged sudden unintended acceleration in certain Toyota and Lexus vehicles. On August 2, 2010, the plaintiffs filed a consolidated complaint in the multidistrict litigation that does not name TMCC as a defendant. On November 17, 2010, the court ordered that all omitted claims and theories are deemed dismissed without prejudice. In addition, the court has permitted alleged classes of foreign plaintiffs to file complaints naming TMCC and related entities as defendants. On April 4, 2011, the court issued a tentative ruling dismissing TMCC from the foreign plaintiffs’ complaint with prejudice.

A parallel action was filed against TMCC and certain affiliates on March 12, 2010 by the Orange County District Attorney. On February 18, 2011, the Orange County District Attorney filed an amended complaint in which TMCC was not named as a defendant. The parties entered into a stipulation and tolling agreement under which the plaintiff may name TMCC within the next year if new facts are discovered.

TMCC and certain affiliates had also been named as defendants in a putative bondholder class action, Harel Pia Mutual Fund vs. Toyota Motor Corp., et al., filed in the Central District of California on April 8, 2010, alleging violations of federal securities laws. The plaintiff filed a voluntary dismissal of the lawsuit on July 20, 2010.

On July 22, 2010, the same plaintiff in the above federal bondholder action refiled the case in California state court on behalf of purchasers of TMCC bonds traded on foreign exchanges (Harel Pia Mutual Fund v. Toyota Motor Corp., et al., Superior Court of California, County of Los Angeles). The complaint alleged violations of California securities laws, fraud, breach of fiduciary duty and other state law claims. On September 15, 2010, defendants removed the state court action to the United States District Court for the Central District of California pursuant to the Securities Litigation Uniform Standards Act and the Class Action Fairness Act. Defendants filed a motion to dismiss on October 15, 2010. After a hearing on January 10, 2011, the court granted the defendants’ motion to dismiss with prejudice on January 11, 2011. The plaintiff filed a notice of appeal on January 27, 2011.

We believe we have meritorious defenses to these claims and intend to defend against them vigorously.

ITEM 4. (Removed and Reserved)

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

TMCC is a wholly-owned subsidiary of TFSA, and accordingly, all shares of TMCC’s stock are owned by TFSA. There is no market for TMCC's stock.

Dividends are declared and paid by TMCC as determined by its Board of Directors. In fiscal 2011 and fiscal 2010, TMCC declared and paid cash dividends to TFSA of $266 million and $50 million, respectively. No dividends were declared or paid during fiscal 2009.

ITEM 6. SELECTED FINANCIAL DATA

			Fiscal years ended March 31,
(Dollars in millions)			2011		2010		2009		2008		2007

INCOME STATEMENT DATA
Financing revenues:
	Operating lease	$	4,888	$	4,739	$	4,925	$	4,433	$	3,624
	Retail		2,791		3,086		3,317		3,112		2,539
	Dealer		385		338		558		647		547
Total financing revenues			8,064		8,163		8,800		8,192		6,710

	Depreciation on operating leases		3,353		3,564		4,176		3,299		2,673
	Interest expense		1,614		2,023		2,956		4,151		2,662
Net financing revenues			3,097		2,576		1,668		742		1,375

Insurance earned premiums and contract
	revenues		543		452		421		385		334
Investment and other income, net			236		228		11		301		252
Net financing revenues and other revenues			3,876		3,256		2,100		1,428		1,961

Expenses:
	Provision for credit losses		(433)		604		2,160		809		410
	Operating and administrative		1,059		760		799		841		758
	Insurance losses and loss adjustment expenses		247		213		193		158		126
Total expenses			873		1,577		3,152		1,808		1,294
Income (loss) before income taxes			3,003		1,679		(1,052)		(380)		667
Provision for (benefit from) income taxes			1,150		616		(429)		(157)		233
Net income (loss)		$	1,853	$	1,063	$	(623)	$	(223)	$	434

		As of March 31,
		2011		2010		2009		2008		2007
		(Dollars in millions)
BALANCE SHEET DATA

Finance receivables, net	$	57,736	$	55,087	$	54,574	$	55,481	$	47,862
Investments in operating leases, net	$	19,041	$	17,151	$	17,980	$	18,656	$	16,493
Total assets	$	91,704	$	81,193	$	83,679	$	80,398	$	69,380
Debt	$	77,282	$	69,179	$	72,983	$	68,266	$	58,596
Capital stock	$	915	$	915	$	915	$	915	$	915
Retained earnings	$	5,840	$	4,253	$	3,240	$	3,865	$	4,064
Total shareholder's equity	$	6,856	$	5,273	$	4,093	$	4,780	$	5,031

Our Board of Directors declared and paid cash dividends of $266 million, $50 million and $130 million to TFSA during fiscal 2011, 2010 and 2007, respectively. No dividends were declared or paid in any other period presented.

		As of and for the
		years ended March 31,
		2011		2010		2009		2008		2007
KEY FINANCIAL DATA

Ratio of earnings to fixed charges1		2.85		1.83		--		--		1.25
Debt to equity		11.3		13.1		17.8		14.3		11.7
Return on assets		2.14	%	1.29	%	(0.76)	%	(0.30)	%	0.68	%
Allowance for credit losses as a
	percentage of gross earning assets2	1.13	%	2.31	%	2.51	%	0.97	%	0.85	%
Net charge-offs as a percentage of
	average gross earning assets3	0.52	%	1.03	%	1.37	%	0.91	%	0.64	%
60 or more days past due as a
	percentage of gross earning assets4	0.26	%	0.45	%	0.68	%	0.59	%	0.46	%

1	Due to our losses in fiscal years 2009 and 2008, the coverage ratio was less than one-to-one. We would have been required to generate additional earnings equal to pre-tax loss to achieve a coverage ratio of one-to-one in those fiscal years.

2	Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. This change would not have changed our allowance for credit losses as a percentage of gross earning assets during the fiscal years 2009, 2008 and 2007.

3	The change in accounting policy mentioned above would also have resulted in net charge-offs as a percentage of average gross earning assets of 1.46 percent, 0.97 percent, and 0.68 percent for fiscal 2009, 2008 and 2007, respectively.

4	The change in accounting policy mentioned above would have resulted in 60 or more days past due as a percentage of gross earning assets of 0.60 percent, 0.54 percent and 0.42 percent for fiscal 2009, 2008 and 2007, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-K or incorporated by reference herein are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in “Item 1A. Risk Factors”. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

We generate revenue, income, and cash flows by providing retail financing, dealer financing, and certain other financial products and services to vehicle and industrial equipment dealers and their customers. We measure the performance of our financing operations using the following metrics: financing volume, market share, financial leverage, financing margins and loss metrics.

We also generate revenue through marketing, underwriting, and claims administration related to covering certain risks of vehicle dealers and their customers. We measure the performance of our insurance operations using the following metrics: investment income, issued agreement volume, number of agreements in force, loss ratio and other loss metrics. Loss ratio is derived by dividing insurance loss and loss adjustment expenses by insurance earned premium and contract revenues.

Our financial results are affected by a variety of economic and industry factors, including but not limited to, new and used vehicle markets, the level of Toyota and Lexus sales, new vehicle incentives, consumer behavior, level of employment, our ability to respond to changes in interest rates with respect to both contract pricing and funding, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, the financial health of the dealers we finance, and the level of competitive pressure. Changes in these factors can influence the demand for new and used vehicles, the number of contracts that default and the loss per occurrence, the inability to realize originally estimated contractual residual values on our lease earning assets, and our gross margins on financing volume. Additionally, our funding programs and related costs are influenced by changes in the global capital markets, prevailing interest rates, and our credit ratings, which may affect our ability to obtain cost effective funding to support earning asset growth.

Our primary competitors are other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, independent insurance service contract providers, finance companies and, to a lesser extent, other automobile manufacturers’ affiliated finance companies that actively seek to purchase retail consumer contracts through Toyota and Lexus independent dealerships (“dealerships”). We strive to achieve the following:

Exceptional Customer Service: Our relationship with Toyota and Lexus vehicle dealers and industrial equipment dealers and their customers offer us a competitive advantage. We seek to provide exceptional service to dealers and their customers by focusing our DSSO network and resources on encouraging the dealerships to continuously improve the quality of service provided by their finance and insurance representatives to increase customer loyalty to their dealerships and the Toyota and Lexus brands. By providing consistent and reliable support, training, and resources to our dealer network, we continue to develop and improve our dealer relationships. In addition to marketing programs targeted towards the retention of customers, we work closely with TMS, TMHU and HINO to offer special retail, lease, dealer financing, and insurance programs. We also focus on improving the quality of service provided to existing retail, lease, and insurance customers through our CSCs.

Risk-Based Origination and Pricing: We price and structure our retail and lease contracts to compensate us for the credit risk we assume. The objective of this strategy is to maximize operating results and better match contract rates with a broad range of risk levels. To achieve this objective, we evaluate our existing portfolio to identify key opportunities to expand volume in targeted markets. We deliver timely strategic information to DSSOs and dealerships to assist them in benefiting from market opportunities. We continuously strive to refine our strategy and methodology for risk-based pricing.

Liquidity Strategy: Our liquidity strategy is to maintain the capacity to fund assets and repay liabilities in a timely and cost-effective manner even in the event of adverse market conditions. This capacity primarily arises from our credit rating, our ability to raise funds in the global capital markets, and our ability to generate liquidity from our balance sheet. This strategy has led us to develop a borrowing base that is diversified by market, geographic distribution, currency and type of security, and to maintain programs for the sale and securitization of our assets.

Fiscal 2011 Operating Environment

During the fiscal year ended March 31, 2011 (“fiscal 2011”), the United States economy continued along a path of slow growth. While industrial production and business investment and spending increased modestly, unemployment rates remained elevated and consumer confidence remained weak. Consumer spending increased at a moderate pace but remained constrained by high unemployment, modest income growth, lower household wealth and limited consumer credit availability. In addition, home values remained under pressure while commodity prices continued to exhibit volatility.

Conditions in the global capital markets during fiscal 2011 continued to show improvement as compared to fiscal 2010. Investor demand for fixed income products was strong and credit spreads generally improved, leading to favorable conditions for corporate borrowers. During fiscal 2011, we continued to maintain broad access to a variety of global markets and issued commercial paper and term debt in unsecured and secured markets.

In March 2011, natural disasters in Japan caused manufacturing disruptions and production suspensions of certain Toyota and Lexus vehicle models and parts. Because our business is substantially dependent upon the sale of Toyota and Lexus vehicles, these events could adversely impact our business. We did not experience any impact on our financial condition or our operating results as of and for the year ended March 31, 2011. However, extended delays and/or reduced levels of vehicle production and supply chain interruptions may negatively impact our financing volume, insurance volume, earning assets and revenues in fiscal 2012. The credit performance of our dealer and consumer lending portfolios may also be adversely affected. In addition, the level of vehicle production affects the supply and demand of vehicles and the values of used Toyota and Lexus vehicles, which, in turn, could affect realized values and return rates, depreciation expense and credit losses. We are currently implementing programs to assist customers and dealers in response to these events.

Beginning in the latter part of fiscal 2010 and continuing throughout fiscal 2011, Toyota Motor Sales, U.S.A., Inc. (“TMS”) announced several recalls of certain Toyota and Lexus vehicle models. We considered the recall-related events in establishing our allowance for credit loss and depreciation on operating leases during fiscal 2011 and 2010.

Industry wide vehicle sales during fiscal 2011 in the United States increased as compared to fiscal 2010. In addition, sales incentives throughout the auto industry increased over the same period. Vehicle sales by TMS in fiscal 2011 remained consistent with fiscal 2010 levels.

Prices of used vehicles were at unprecedented high levels during fiscal 2011 primarily due to the low supply of used vehicles. Higher used vehicle values had a favorable impact on our credit loss severity during fiscal 2011 as compared to fiscal 2010. In addition, the overall credit quality of our consumer portfolio in fiscal 2011 benefited from our continued focus on improving purchasing practices and collection efforts, resulting in improved delinquencies at March 31, 2011 as compared to March 31, 2010.

RESULTS OF OPERATIONS



		Years ended March 31,
(Dollars in millions)		2011		2010		2009
Net income:
Finance operations	$	1,631	$	886	$	(678)
Insurance operations		222		177		55
Total net income (loss)	$	1,853	$	1,063	$	(623)

Fiscal 2011 Compared to Fiscal 2010

Our consolidated net income was $1,853 million in fiscal 2011, compared to net income of $1,063 million in fiscal 2010. Our consolidated results for fiscal 2011 were favorable as compared to fiscal 2010 primarily due to decreases in our provision for credit losses, and to a lesser extent, depreciation on operating leases and interest expense. These decreases were partially offset by an increase in operating and administrative expenses.

We recorded a benefit from credit losses of $433 million for fiscal 2011, compared to a charge of $604 million for fiscal 2010. During fiscal 2011, we decreased our estimate of expected credit losses in response to improvements in per unit loss severity and in frequency of loss in our consumer portfolio. The improvement in per unit loss severity was attributable to strong used vehicle prices resulting from a lower supply of used vehicles. In addition, the overall credit quality of our consumer portfolio in fiscal 2011 continued to benefit from our focus on improving purchasing practices and collection efforts. We also considered the expected impact from ongoing adverse publicity and governmental investigations associated with the various recalls in determining the provision for credit losses for fiscal 2011.

Operating and administrative expenses increased by 39 percent during fiscal 2011 as compared to fiscal 2010. The increase in operating and administrative expenses was primarily due to increases in shared affiliate expenses for sales and marketing activities for fiscal 2011. Refer to Note 16 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

Our overall capital position increased by $1.6 billion, bringing total shareholder’s equity to $6.9 billion at March 31, 2011 compared to $5.3 billion at March 31, 2010. Our debt increased to $77.3 billion at March 31, 2011 from $69.2 billion at March 31, 2010. As a result of the increase in our capital position, our debt-to-equity ratio improved to 11.3 at March 31, 2011 from 13.1 at March 31, 2010.

Fiscal 2010 Compared to Fiscal 2009

Our consolidated net income was $1,063 million in fiscal 2010, compared to a net loss of $623 million in fiscal 2009. Our consolidated results for fiscal 2010 were favorable as compared to fiscal 2009 primarily due to decreases in our provision for credit losses, interest expense and depreciation on our operating leases. These decreases were partially offset by a decrease in total financing revenues.

We recorded a provision for credit losses of $604 million during fiscal 2010, compared to $2,160 million during fiscal 2009. Despite the challenging economic conditions and high unemployment in the United States, our levels of delinquency and credit losses were not as severe as we had expected. We continued to enhance our purchasing practices which improved the overall credit quality of our retail portfolio in fiscal 2010. The enhancements, combined with the strengthening of our collection efforts, contributed to decreased levels of delinquency and net charge-offs during fiscal 2010 compared to fiscal 2009. In addition, conditions in the used vehicle market improved due to lower used vehicle supply during fiscal 2010. As a result, our provision for credit losses of $604 million for fiscal 2010, which included our consideration of the TMS recall-related events, was significantly lower than the provision of $2,160 million for fiscal 2009. Our results in fiscal 2010 were also favorably impacted by a decrease in our interest expense due to lower interest rates on our debt and derivatives portfolio, lower outstanding debt balances, and favorable mark-to-market adjustments on our derivatives used to manage interest rate risk.

Our overall capital position increased by $1.2 billion, bringing total shareholder’s equity to $5.3 billion at March 31, 2010, compared to $4.1 billion at March 31, 2009. Our debt decreased to $69.2 billion at March 31, 2010 from $73.0 billion at March 31, 2009. As a result of these factors, our debt-to-equity ratio improved to 13.1 at March 31, 2010 from 17.8 at March 31, 2009.

Finance Operations

Fiscal 2011 compared to Fiscal 2010
		Years ended March 31,					Percentage change
							2011 to		2010 to
(Dollars in millions)		2011		2010		20091	2010		2009
Financing revenues:
Operating lease	$	4,888	$	4,739	$	4,925	3	%	(4)	%
Retail2		2,791		3,086		3,317	(10)	%	(7)	%
Dealer		363		320		532	13	%	(40)	%
Total financing revenues		8,042		8,145		8,774	(1)	%	(7)	%

Depreciation on operating leases		3,353		3,564		4,176	(6)	%	(15)	%
Interest expense		1,620		2,029		2,963	(20)	%	(32)	%
Net financing revenues		3,069		2,552		1,635	20	%	56	%

Provision for credit losses		(433)		604		2,160	(172)	%	(72)	%

Net income (loss) from financing operations	$	1,631	$	886	$	(678)	84	%	231	%

1 Prior period amounts have been reclassified to conform to the current period presentation.

2 Includes direct finance lease revenues for all periods shown.

Our finance operations reported net income of $1,631 million and $886 million during fiscal 2011 and 2010, respectively. Results were favorable primarily due to decreases in our provision for credit losses, interest expense and depreciation on operating leases, partially offset by an increase in operating and administrative expenses

Our interest expense was 20 percent lower during fiscal 2011 compared to fiscal 2010 due to a combination of the effect of lower interest rates on our debt and derivatives portfolio and favorable mark-to-market adjustments on our derivatives used to manage interest rate risk.

Our per unit credit loss severity improved during fiscal 2011. The improvement in per unit credit loss severity was attributable to strong used vehicle prices resulting from lower used vehicle supply. The overall credit quality of our consumer portfolio in fiscal 2011 continued to benefit from our focus on purchasing practices and collection efforts. In addition, our delinquencies at March 31, 2011 improved as compared to the delinquencies at March 31, 2010. As a result, net charge-offs improved during fiscal 2011 as compared to the same periods in fiscal 2010. We recorded a benefit from credit losses of $433 million for fiscal 2011 compared with an expense of $604 million in fiscal 2010. The amount of the provision was also positively affected by continued improvements in default frequency and loss severity.

Financing Revenues

Total financing revenues decreased 1 percent during fiscal 2011 compared to the same periods in fiscal 2010 due to the following factors:

·	Operating lease revenues increased 3 percent in fiscal 2011 as compared to fiscal 2010, due to higher average outstanding earning asset balances.

·	Retail contract revenues decreased 10 percent in fiscal 2011 as compared to fiscal 2010, primarily due to a decrease in our portfolio yields partially offset by higher average outstanding earning asset balances.

·	Dealer financing revenues increased 13 percent in fiscal 2011 as compared to fiscal 2010, due to higher average outstanding earning asset balances.

Our total finance receivables portfolio yield was 5.5 percent during fiscal 2011 compared to 6.2 percent in fiscal 2010, due to decreases in both our retail and operating lease portfolio yields.

Depreciation on Operating Leases

Depreciation on operating leases decreased 6 percent during fiscal 2011, compared to fiscal 2010. Improvements in used vehicle values, due primarily to lower used vehicle supply, resulted in an increase to the estimated end-of-term residual values of the existing portfolio. During fiscal 2011, we continued to consider in our estimate of end-of-term residual values the impact of ongoing adverse publicity and governmental investigations associated with various recalls. These events did not have a material impact on our depreciation on operating leases for fiscal 2011.

Interest Expense

Our debt consists of fixed and floating rate obligations denominated in a number of different currencies. We economically hedge our interest rate and currency risk inherent in these liabilities on a consolidated basis. We enter into pay float interest rate swaps, foreign currency swaps, and foreign currency forwards to effectively convert our obligations on the debt into U.S. dollar denominated 3-month LIBOR based payments. We use pay fixed interest rate swaps executed on a portfolio basis to manage our interest rate risk arising from the resulting mismatch between our predominantly fixed-rate U.S. dollar denominated receivables and floating rate obligations. The following table summarizes the consolidated components of interest expense:

		Years ended March 31,
(Dollars in millions)		2011		2010		2009
Interest expense on debt1	$	1,943	$	2,278	$	2,759
Interest expense on pay float swaps1,2		(1,078)		(1,405)		(727)

Interest expense on pay fixed swaps1		1,057		1,334		797
Ineffectiveness related to hedge accounting derivatives3,4		(33)		(37)		(50)
Loss (gain) on foreign currency transactions		1,494		1,111		(598)
(Gain) loss on currency swaps and forwards3,4		(1,595)		(1,106)		470

Loss (gain) on other non-hedge accounting derivatives:
Pay float swaps3,4		121		224		6
Pay fixed swaps3,4		(295)		(376)		299
Total interest expense5	$	1,614	$	2,023	$	2,956

1	Amounts represent net interest settlements and changes in accruals.

2	Includes both hedge and non-hedge accounting derivatives.

3	Amounts exclude net interest settlements and changes in accruals.

4	Refer to Note 8 –Derivatives, Hedging Activities and Interest Expense of the Notes to Consolidated Financial Statements for additional information relating to the credit valuation adjustments for the periods.

5	Total interest expense excludes $6 million of interest on bonds held by our insurance operations for fiscal 2011 and fiscal 2010 compared to $7 million for fiscal 2009. Refer to Note 17 – Segment Information of the Notes to Consolidated Financial Statements for further information.

We reported consolidated interest expense of $1,614 million during fiscal 2011 compared to $2,023 million during fiscal 2010. Interest expense was lower during fiscal 2011 compared to fiscal 2010 primarily due to lower net interest expense on pay fixed swaps, gains on currency swaps, net of losses on foreign currency transactions, and changes in our mix of funding sources which resulted in lower weighted average contractual interest rates on debt.

Interest expense on debt primarily represents interest due on secured and unsecured notes and loans payable and commercial paper, and includes the amortization of debt issue costs, discount and premium, and basis adjustments. During fiscal 2011, the weighted average balance of debt outstanding increased slightly; however, interest expense on debt decreased to $1,943 million in fiscal 2011 from $2,278 million in fiscal 2010. This was due to a change in our mix of funding sources which resulted in lower weighted average contractual interest rates. Commercial paper and secured debt, which carry lower average rates than unsecured term debt, represented a larger portion of outstanding debt during fiscal 2011 than in fiscal 2010. Interest expense on pay float swaps represents net interest expense on our interest rate and cross-currency swaps. The decrease in interest income on pay float swaps from $1,405 million in fiscal 2010 to $1,078 million in fiscal 2011 resulted from lower weighted average rates on the receive legs of these swaps.

Interest expense on pay fixed swaps represents net interest on our pay fixed swaps portfolio where we pay a fixed rate and receive a floating rate based on 3-month LIBOR. During fiscal 2011 and fiscal 2010, 3-month LIBOR was generally lower compared to the fixed interest rates at which the swap contracts were executed, resulting in net interest expense in both years. Pay fixed swaps have a weighted average life of approximately two to three years; this results in a pay fixed swaps portfolio that is constantly changing as new swaps are executed at different rates, and existing swaps mature. During fiscal 2011, pay fixed interest rates on new swaps entered into during the year were generally significantly lower than the fixed rates on matured swaps. As a result, the average pay fixed interest rate on this swap portfolio declined by a greater amount from fiscal 2010 to fiscal 2011 than average 3-month LIBOR rates decreased over the same period. This caused net interest expense on pay fixed swaps to decrease to $1,057 million during fiscal 2011 from $1,334 million during fiscal 2010.

Ineffectiveness related to hedge accounting derivatives represents the net difference between the change in the fair value of the hedged debt and the change in the fair value of the associated derivative instrument. These amounts also include a credit valuation adjustment gain of $2 million for fiscal 2011, compared to a credit valuation adjustment loss of $15 million for fiscal 2010.

Foreign currency transaction gain or loss relates to foreign currency denominated transactions for which hedge accounting has not been elected and for which we are required to revalue the foreign currency denominated transactions at each balance sheet date. We use currency swaps and forwards to economically hedge these foreign currency transactions. During both fiscal 2011 and fiscal 2010, the U.S. dollar weakened relative to certain other currencies in which our foreign currency transactions are denominated. This resulted in the recognition of losses on foreign currency transactions of $1,494 million and $1,111 million and gains in the fair value of currency swaps used to economically hedge these foreign currency transactions of $1,595 million and $1,106 million in fiscal 2011 and fiscal 2010, respectively.

Gains on other non-hedge accounting derivatives, including both pay fixed and pay float interest rate swaps, increased slightly from $152 million in fiscal 2010 to $174 million in fiscal 2011, as swap rates declined slightly during both fiscal years.

Provision for Credit Losses

We recorded a benefit from credit losses of $433 million for fiscal 2011 compared to an expense of $604 million for fiscal 2010. The benefit from credit losses for fiscal 2011 resulted from lower levels of default frequency and per unit loss severity in our consumer portfolio.

As used vehicle prices reached unprecedented highs during fiscal 2011, driven primarily by a low supply of used vehicles, we experienced lower loss severity as compared to fiscal 2010. In addition, the overall credit quality of our consumer portfolio in fiscal 2011 continued to benefit from our focus on improving purchasing practices and collection efforts. As a result, our net charge-offs were lower during fiscal 2011 as compared to fiscal 2010. In addition, our delinquencies at March 31, 2011 improved compared to March 31, 2010. Refer to “Financial Condition – Credit Risk” for further discussion.

Insurance Operations

The following table summarizes key results of our Insurance Operations:

		Years ended March 31,						Percentage change
								2011 to		2010 to
(Dollars in millions)		2011		2010		2009 1		2010		2009
Agreements (units in thousands)
	Issued		2,200		1,175		1,263	87	%	(7)	%
	In force		6,239		5,232		5,153	19	%	2	%
Insurance earned premiums and
	contract revenues	$	565	$	470	$	447	20	%	5	%
Investment and other income (loss)		$	196	$	150	$	(35)	31	%	529	%
Gross revenues from insurance
	operations	$	761	$	620	$	412	23	%	50	%
Insurance losses and loss
	adjustment expenses	$	247	$	213	$	193	16	%	10	%
Insurance dealer back-end
	program expenses	$	87	$	73	$	76	19	%	(4)	%
Net income from insurance
	operations	$	222	$	177	$	55	25	%	222	%

1 Prior period amounts have been reclassified to conform to the current period presentation.

Agreements issued increased by 1 million units during fiscal 2011 compared to fiscal 2010. The increase was primarily due to an increase in affiliate agreements issued in support of certain TMS post-recall sales and customer loyalty efforts. These programs began in March 2010 and were discontinued in January 2011. Refer to Note 16 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

Our insurance operations reported net income of $222 million during fiscal 2011, compared to $177 million during fiscal 2010. The increase in net income for fiscal 2011 compared to fiscal 2010 was primarily attributable to increases in both investment and other income and improved loss ratios.

Insurance earned premiums and contract revenues are affected by sales volume as well as the level, age, and mix of agreements in force. Agreements in force represent active insurance policies written and contracts issued. Insurance earned premiums and contract revenues represent revenues from the agreements in force.

Our insurance operations reported insurance earned premiums and contract revenues of $565 million during fiscal 2011, compared to $470 million during fiscal 2010. The increase in insurance earned premiums and contract revenues was primarily due to the overall growth in the number of agreements issued and in force.

Our insurance operations reported investment and other income of $196 million during fiscal 2011, compared to investment and other income of $150 million during fiscal 2010. Investment and other income for our insurance operations consists primarily of investment income on marketable securities. The increase in investment and other income for fiscal 2011 compared to the prior year was primarily due to higher realized gains from sales of securities and dividend income in fiscal 2011. Refer to “Investment and Other Income” below for a more detailed discussion on our consolidated investment portfolio.

Insurance losses and loss adjustment expenses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with the agreements in force, and the level of risk retained by our insurance operations. Insurance losses and loss adjustment expenses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses.

Our insurance operations reported $247 million of insurance losses and loss adjustment expenses during fiscal 2011, compared to $213 million during fiscal 2010. The increase in insurance losses and loss adjustment expenses primarily relates to the overall growth in the number of agreements in force.

Insurance dealer back-end program expenses represent the cost of sales incentive programs and expense reduction programs offered to dealers. These expenses are based on enrolled dealer sales volume and loss ratio. Insurance dealer back-end program expenses increased by 19 percent during fiscal 2011, compared to fiscal 2010. The increase was primarily due to an increase in agreements issued and improved loss ratios.

Investment and Other Income

The following table summarizes the components of our consolidated investment and other income:

	Years ended March 31,
(Dollars in millions)	2011		2010		20091
Interest and dividend income on marketable securities	$	158	$	140	$	151
Realized gains (losses) on marketable securities		47		8		(192)
Other income		31		80		52
Total investment and other income, net	$	236	$	228	$	11

1 Prior period amounts have been reclassified to conform to the current period presentation.

The increase in interest and dividend income on marketable securities during fiscal 2011 relates primarily to higher annual dividends received on marketable securities held by our insurance operations. We also reported net realized gains on marketable securities of $47 million during fiscal 2011, compared to $8 million during fiscal 2010. The increase in net realized gains on marketable securities was attributable to trading activity within the fixed income mutual funds portfolio in fiscal 2011 compared to fiscal 2010.

We reported $31 million of other income during fiscal 2011, compared to $80 million during fiscal 2010. The decrease in other income during fiscal 2011 compared to fiscal 2010 was primarily due to interest income from an expected tax refund that was recorded during fiscal 2010 and subsequently collected.

Operating and Administrative Expenses

The following table summarizes our consolidated operating and administrative expenses:

							Percentage change
	Years ended March 31,						2011 to		2010 to
(Dollars in millions)	2011		2010		2009		2010		2009
Employee expenses	$	346	$	332	$	338	4	%	(2)	%
Operating expenses		626		355		385	76	%	(8)	%
Insurance dealer back-end program expenses		87		73		76	19	%	(4)	%
Total operating and administrative expenses	$	1,059	$	760	$	799	39	%	(5)	%

Operating expenses increased during fiscal 2011 compared to fiscal 2010 primarily due to increases in shared affiliate expenses for sales and marketing activities. Refer to Note 16 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information. Employee-related expenses increased in fiscal 2011 compared to fiscal 2010 due to higher performance based compensation. Refer to Insurance Operations above for further information on insurance dealer back-end program expenses.

Provision for Income Taxes

Our provision for income taxes for fiscal 2011 was $1,150 million compared to $616 million for fiscal 2010. Our effective tax rate was 38.3 percent and 36.7 percent for fiscal 2011 and fiscal 2010, respectively. Our effective tax rate for fiscal 2011 reflected an increase in the total provision resulting from a release of foreign deferred tax assets due to a decrease in the statutory rate. Our effective tax rate in fiscal 2010 reflected a decrease in the total provision due to the benefit from the release of deferred state income tax. The change in our provision for income taxes, adjusted for these fiscal year specific differences, is consistent with the change in operating income for fiscal 2011 compared to fiscal 2010.

FINANCIAL CONDITION

Vehicle Financing Volume and Net Earning Assets

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

	Years ended March 31,						Percentage change
							2011 to		2010 to
(units in thousands):	2011		2010		2009		2010		2009
TMS new sales volume1	1,397		1,399		1,556		-	%	(10)	%

Vehicle financing volume2
New retail contracts	634		602		663		5	%	(9)	%
Used retail contracts	368		296		305		24	%	(3)	%
Lease contracts	351		245		246		43	%	-	%
Total	1,353		1,143		1,214		18	%	(6)	%

TMS subvened vehicle financing volume
(units included in the above table):
New retail contracts	390		326		284		20	%	15	%
Used retail contracts	70		41		54		71	%	(24)	%
Lease contracts	321		202		206		59	%	(2)	%
Total	781		569		544		37	%	5	%

Market share:3
Retail contracts	45.1	%	42.7	%	42.0	%
Lease contracts	25.1	%	17.5	%	15.8	%
Total	70.2	%	60.2	%	57.8	%

Represents total domestic TMS sales of new Toyota and Lexus vehicles excluding sales under dealer rental car and commercial fleet programs and sales of a private Toyota distributor. TMS new sales volume is comprised of approximately 85 percent Toyota and 15 percent Lexus vehicles for both fiscal 2011 and fiscal 2010 and 86 percent Toyota and 14 percent Lexus vehicles for fiscal 2009.

2	Total financing volume is comprised of approximately 80 percent Toyota, 15 percent Lexus, and 5 percent non-Toyota/Lexus vehicles for both fiscal 2011 and fiscal 2010, and 79 percent Toyota, 15 percent Lexus, and 6 percent non-Toyota/Lexus vehicles for fiscal 2009.

3	Represents the percentage of total domestic TMS sales of new Toyota and Lexus vehicles financed by us, excludes non-Toyota/Lexus sales, sales under dealer rental car and commercial fleet programs and sales of a private Toyota distributor.

Vehicle Financing Volume

Our retail and lease contracts are acquired primarily from Toyota and Lexus vehicle dealers, and the volume of contracts is dependent upon TMS sales volume and subvention. Vehicle sales by TMS remained consistent in fiscal 2011 compared to fiscal 2010. Our finance volume and market share increased in fiscal 2011 compared to fiscal 2010. These increases were driven primarily by increased availability of TMS subvention.

The composition of our net earning assets is summarized below:

		Years ended March 31,						Percentage change
								2011 to		2010 to
(Dollars in millions)		2011		2010 1		2009 1		2010		2009
Net Earning Assets
Finance receivables, net
	Retail finance receivables, net2	$	45,688	$	43,748	$	43,789	4	%	-	%
	Dealer financing, net		12,048		11,339		10,785	6	%	5	%
Total finance receivables, net			57,736		55,087		54,574	5	%	1	%
Investments in operating leases, net			19,041		17,151		17,980	11	%	(5)	%
Net earning assets		$	76,777	$	72,238	$	72,554	6	%	-	%

Retail Financing (average original contract term)
Lease contracts3		39	months	40	months	41	months
Retail contracts4		62	months	62	months	62	months

Dealer Financing (Number of dealers serviced)
Toyota and Lexus dealers5			975		963		920	1	%	5	%
Vehicle dealers outside of the
	Toyota/Lexus dealer network		470		490		519	(4)	%	(6)	%
Industrial equipment dealers			139		146		144	(5)	%	1	%
Total number of dealers receiving
	wholesale financing		1,584		1,599		1,583	(1)	%	1	%

Dealer inventory financed (units in thousands)			253		257		250	(2)	%	3	%

1	Certain prior period amounts have been reclassified to conform to the current period presentation.

2	Includes direct finance leases.

3	Lease contract terms range from 24 months to 60 months.

4	Retail Contract terms range from 24 months to 85 months.

5	Includes wholesale and other loan arrangements in which we participate as part of a syndicate of lenders.

Retail Contract Volume and Earning Assets

Our overall new and used retail contract volume increased 12 percent during fiscal 2011 as compared to fiscal 2010. Much of the increase was attributable to an increase in overall TMS subvention. Retail receivables at March 31, 2011 increased slightly as compared to the balance at March 31, 2010, as the volume of new vehicles financed was greater than portfolio liquidations.

Lease Contract Volume and Earning Assets

Our overall vehicle lease contract volume during fiscal 2011 increased 43 percent as compared to fiscal 2010. Much of the increase during fiscal 2011 was attributable to an increase in TMS subvention programs. Our investment in operating leases, net increased by 11 percent at March 31, 2011 as compared to the balance at March 31, 2010 due to increased contract volume which was partially offset by an increase in scheduled maturities.

Dealer Financing and Earning Assets

Dealer finance receivables increased 6 percent to $12 billion at March 31, 2011 from March 31, 2010. The growth was primarily related to an increase in dealer floorplan receivables. While the number of dealers receiving wholesale floorplan financing decreased slightly at March 31, 2011 as compared to March 31, 2010, the decline was offset by higher average dollar amount per vehicle financed.

Residual Value Risk

Factors Affecting Exposure to Residual Value Risk

Residual value represents an estimate of the end-of-term market value of a leased asset. The primary factors affecting our exposure to residual value risk are the levels at which residual values are established at lease inception, projected market values, and the resulting impact on vehicle lease return rates and loss severity. The evaluation of these factors involves significant assumptions, complex analysis, and management judgment. Refer to “Critical Accounting Estimates” for further discussion of the estimates involved in the determination of residual values.

Residual Values at Lease Inception

Substantially all of our residual value risk relates to our vehicle lease portfolio. Residual values of lease earning assets are estimated at lease inception by examining external industry data, the anticipated Toyota and Lexus product pipeline and our own experience. Factors considered in this evaluation include, but are not limited to, local, regional and national economic forecasts, new vehicle pricing, new vehicle incentive programs, new vehicle sales, future plans for new Toyota and Lexus product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, buying and leasing behavior trends, and fuel prices. We use various channels to sell vehicles returned at lease end. Refer to Item 1. “Business – Finance Operations – Retail and Lease Financing – Remarketing” for additional information on remarketing.

End-of-term Market Values

On a quarterly basis, we review the estimated end-of-term market values of leased vehicles to assess the appropriateness of their carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. Factors affecting the estimated end-of-term market value are similar to those considered in the evaluation of residual values at lease inception discussed above. These factors are evaluated in the context of their historical trends to anticipate potential changes in the relationship among those factors in the future. For operating leases, adjustments are made on a straight-line basis over the remaining terms of the lease contracts and are included in depreciation on operating leases in the Consolidated Statement of Income as a change in accounting estimate. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included under our retail revenues in the Consolidated Statement of Income.

Vehicle Lease Return Rate

Loss Severity

Loss severity is the extent to which the end-of-term market value realized at sale/disposition of a leased vehicle is less than the estimated residual value established at lease inception. Overall loss severity is driven by used vehicle price levels as well as vehicle return rates.

Impairment of Operating Leases

We review operating leases for impairment whenever events or changes in circumstances indicate that the carrying value of the operating leases may not be recoverable. If such events or changes in circumstances are present, and if the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms are less than book value, the operating lease assets are considered to be impaired and a loss is calculated and recorded in the current period Consolidated Statement of Income. As of March 31, 2011, there was no indication of impairment in our operating lease portfolio.

Disposition of Off-Lease Vehicles

The following table summarizes our vehicle sales at lease termination and our scheduled maturities related to our leased vehicle portfolio by period:

			Fiscal years ended			Percentage Change
						2011 to		2010 to
(Units in thousands)			2011	2010	2009	2010		2009
Scheduled maturities			278	240	238	16	%	1	%

Vehicles sold through:
	Dealer Direct program
		Grounding dealer	43	43	33	-	%	30	%
		Dealer Direct online program	11	10	8	10	%	25	%
	Physical auction		45	49	60	(8)	%	(18)	%
Total vehicles sold at lease termination			99	102	101	(3)	%	1	%

Scheduled maturities increased 16 percent in fiscal 2011 as compared to fiscal 2010. Vehicles sold at lease termination relative to scheduled maturities in fiscal 2011 decreased as compared to fiscal 2010 and fiscal 2009. The lower rate of vehicles sold at lease termination relative to scheduled maturities during fiscal 2011, as compared to the prior two fiscal years, was the result of strong used vehicle values during fiscal 2011. Refer to Item 1. “Business – Finance Operations – Retail and Lease Financing - Remarketing” for additional information on lease disposition.

Depreciation on Operating Leases

The following table provides information related to our depreciation on operating leases:

		Years ended March 31,						Percentage change
								2011 to		2010 to
		2011		2010		2009		2010		2009
Depreciation on operating leases
	(dollars in millions)	$	3,353	$	3,564	$	4,176	(6)	%	(15)	%

Average operating lease units outstanding
	(in thousands)		787		724		746	9	%	(3)	%

We record depreciation expense on the portion of our lease portfolio classified as operating leases. Depreciation expense is recorded on a straight-line basis over the lease term and is based upon the depreciable basis of the leased vehicle. Depreciable basis is originally established as the difference between a leased vehicle’s original acquisition value and its residual value established at lease inception. Changes to residual values will have an effect on depreciation expense. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease-end will approximate the estimated end-of-term market value. Refer to “Critical Accounting Estimates” for a further discussion of the estimates involved in the determination of residual values.

Depreciation expense on operating leases decreased by 6 percent to $3,353 million during fiscal 2011, compared to $3,564 million during fiscal 2010. Although the average number of operating leases outstanding during fiscal 2011 increased by 9 percent compared to fiscal 2010, depreciation expense was positively affected by strong used vehicle values, which are a significant factor in our estimates of the end-of-term market values of our leased vehicle portfolio. It is uncertain whether the current level of used vehicle values is sustainable. During fiscal 2011, our estimate of end-of-term residual values also considered the impact of ongoing adverse publicity and governmental investigations associated with various recalls and unforeseen events such as natural disasters. These events had no material impact on our depreciation on operating leases during that period.

Credit Risk

We are exposed to credit risk on our earning assets. Credit risk on our earning assets is the risk of loss arising from the failure of customers or dealers to make contractual payments. The level of credit risk on our retail installment sales and lease portfolio is influenced by two factors: default frequency and loss severity, which in turn are influenced by various factors such as economic conditions, the used vehicle market, purchase quality mix, and operational changes.

The level of credit risk on our dealer financing portfolio is influenced by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors. The financial strength of dealers within our portfolio is influenced by, among other factors, general economic conditions, the overall demand for new and used vehicles and industrial equipment and the financial condition of automotive manufacturers in general.

Factors Affecting Retail Contracts and Lease Portfolio Credit Risk

Economic Factors

General economic conditions such as changes in unemployment rates, housing values, bankruptcy rates, consumer debt levels, fuel prices, consumer credit performance, interest rates, inflation, household disposable income and unforeseen events such as natural disasters can influence both the default frequency and loss severity.

Used Vehicle Market

Changes in used vehicle prices directly affect the proceeds from sales of repossessed vehicles, and accordingly, the level of loss severity we experience. The supply of and demand for used vehicles, interest rates, inflation, the level of manufacturer incentives on new vehicles, the manufacturer’s actual or perceived reputation for quality, safety, and reliability, and general economic outlook are some of the factors affecting the used vehicle market.

Purchase Quality Mix

A change in the mix of contracts acquired at various risk levels may change the amount of credit risk we assume. An increase in the number of contracts acquired with lower credit quality (as measured by scores that establish a consumer’s creditworthiness based on present financial condition, experience, and credit history) can increase the amount of credit risk. Conversely, an increase in the number of contracts with higher credit quality can lower credit risk. An increase in the mix of contracts with lower credit quality can also increase operational risk unless appropriate controls and procedures are established. We strive to price contracts to achieve an appropriate risk adjusted return on our investment.

The average original contract term of retail and lease contracts influences credit losses. Longer term contracts generally experience a higher rate of default and thus affect the default frequency. In addition, the carrying values of vehicles under longer term contracts decline at a slower rate, resulting in a longer period during which we may be subject to used vehicle market volatility, which may in turn lead to increased loss severity.

Operational Changes

Operational changes and ongoing implementation of new information and transaction systems are designed to have a positive effect on our operations. Customer service improvements in the management of delinquencies and credit losses increase operational efficiency and effectiveness. We continue to make improvements in our service operations and credit loss mitigation methods.

In an effort to mitigate credit losses, we regularly evaluate our purchasing practices. We have been limiting our risk exposure by reducing approvals of lower credit quality contracts and reducing loan-to-value ratios. We continue to refine our credit risk management and analysis to ensure that the appropriate level of collection resources are aligned with portfolio risk, and we adjust capacity accordingly. We continue our focus on early stage delinquencies to increase the likelihood of resolution. We have also increased efficiency in our collections through the use of technology.

Factors Affecting Dealer Financing Portfolio Credit Risk

The financial strength of dealers to which we extend credit directly affects our credit risk. Lending to dealers with lower credit quality, or a negative change in the credit quality of existing dealers, increases the risk of credit loss we assume. Extending a substantial amount of financing or commitments to a specific dealer or group of dealers creates a concentration of credit risk, particularly when the financing may not be secured by fully realizable collateral assets. Collateral quality influences credit risk in that lower quality collateral increases the risk that in the event of dealer default and subsequent liquidation of collateral, the value of the collateral may be less than the amount owed to us.

We assign risk classifications to each of our dealer groups based on their financial condition, the strength of the collateral, and other quantitative and qualitative factors including input from our field personnel. Our monitoring processes of the dealer groups are based on these risk classifications. We periodically update the risk classifications based on changes in financial condition or credit requests from dealers. As part of our monitoring processes, we require dealers to submit monthly financial statements. We also perform periodic physical audits of vehicle inventory as well as monitor dealer inventory financing payoffs to identify possible risks. In response to the economic environment, we continue to enhance our risk management processes to mitigate dealer portfolio risk and to focus on higher risk dealers. We have enhanced risk governance, inventory audit, and credit watch processes. Where appropriate, we increase the frequency of our audits and examine more closely the financial condition of the dealer group. We have become more stringent in underwriting dealers and have conducted targeted personnel training to address dealer credit risk.

We provide financing for some dealerships which sell products not distributed by TMS or one of its affiliates. A significant adverse change in a non-Toyota/Lexus manufacturer such as restructuring and bankruptcy may increase the risk associated with the dealers we have financed that sell these products.

Credit Loss Experience

The overall credit quality of our consumer portfolio in fiscal 2011 continued to benefit from our focus on improving purchasing practices and collection efforts. In addition, subvention contributed to our overall portfolio quality, as subvened contracts typically have higher credit scores as compared to non-subvened contracts. These factors, combined with strong used vehicle prices, contributed to decreased levels of delinquency and net charge-offs during fiscal 2011 as compared to fiscal 2010. For additional information regarding the potential impact of current market conditions, refer to “Part I. Item 1A. Risk Factors”.

The following table provides information related to our credit loss experience:

			Years ended March 31,
			2011			2010			2009
Net charge-offs as a percentage of average gross earning assets
		Finance receivables		0.61	%		1.15	%		1.54	%
		Operating leases		0.22	%		0.63	%		0.86	%
		Total1		0.52	%		1.03	%		1.37	%

Default frequency as a percentage of outstanding contracts				2.11	%		2.79	%		2.56	%
Average loss severity2			$	7,110		$	8,342		$	9,659

Aggregate balances for accounts 60 or more days past due as a
	percentage of gross earning assets3
		Finance receivables4		0.27	%		0.45	%		0.67	%
		Operating leases4		0.23	%		0.45	%		0.73	%
		Total5		0.26	%		0.45	%		0.68	%

Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. In fiscal 2009 the change would have resulted in net charge-offs as a percentage of average gross earning assets of 1.63 percent, 0.94 percent and 1.46 percent for finance receivables, operating leases and in total, respectively.

2	Average loss per unit upon disposition of repossessed vehicles or charge-off prior to repossession.

3	Substantially all retail, direct finance lease and operating lease receivables do not involve recourse to the dealer in the event of customer default.

4	Finance and operating lease balances 60 or more days past due includes accounts in bankruptcy and excludes accounts for which vehicles have been repossessed or charged off.

5	The change in accounting policy mentioned above would have resulted in 60 or more days past due as a percentage of gross earning assets for fiscal 2009 of 0.59 percent, 0.65 percent and 0.60 percent for finance receivables, operating leases and in total, respectively.

The level of credit losses primarily reflects two factors: default frequency and loss severity. Default frequency as a percentage of average outstanding contracts decreased during fiscal 2011 as compared to fiscal 2010. The improvement in default frequency was attributable to our focus on improving purchasing practices and collection efforts. In addition, we experienced lower average loss severity due to strong used vehicle values during fiscal 2011 as compared to fiscal 2010, which reduced net loss per charged-off unit. As a result, our level of net charge-offs for fiscal 2011 decreased compared with the prior year. Net charge-offs as a percentage of average gross earning assets decreased from 1.03 percent at March 31, 2010 to 0.52 percent at March 31, 2011.

During fiscal 2011, we remained focused on managing high risk loans in our dealer portfolio. On an ongoing basis, we review our purchasing practices and leverage technology to improve our collections capabilities.

Allowance for Credit Losses

We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date resulting from the non-performance of our customers and dealers under their contractual obligations. The determination of the allowance involves significant assumptions, complex analysis, and management judgment. Refer to “Critical Accounting Estimates” for further discussion of the estimates involved in determining the allowance.

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

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

The following tables provide information related to our allowance for credit losses:


	Years ended March 31,
(Dollars in millions)	2011		2010		2009
Allowance for credit losses at beginning of period	$	1,705	$	1,864	$	729
Provision for credit losses		(433)		604		2,160
Charge-offs, net of recoveries1		(393)		(763)		(1,025)
Allowance for credit losses at end of period	$	879	$	1,705	$	1,864

Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. This change resulted in an increase in charge-offs of $38 million for the quarter ended March 31, 2010. Charge-offs were net of recoveries of $137 million, $145 million, and $109 million in fiscal years ended March 31, 2011, 2010, and 2009, respectively.


			Years ended March 31,
(Dollars in millions)			2011		2010		2009
Allowance for credit losses as a percentage of
	gross earning assets
		Finance receivables	1.28	%	2.62	%	2.81	%
		Operating leases	0.65	%	1.30	%	1.63	%
		Total1	1.13	%	2.31	%	2.51	%

Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. In fiscal 2009, the change would have resulted in an allowance for credit losses as a percentage of gross earning assets of 2.79 percent for finance receivables and 1.64 percent for operating leases. The change would have had no other material impact on the periods shown.

Our allowance for credit losses decreased 48 percent to $879 million at March 31, 2011 compared to $1,705 million at March 31, 2010. In determining the overall allowance for credit losses at March 31, 2010, we considered a number of factors, including our estimated loss exposure attributable to the fragile economic recovery in the U.S., the high level of automotive industry incentives, the volatility in used vehicle prices and the impact of expected losses from on-going adverse publicity and governmental investigations associated with various recalls. After considering all of these factors, the allowance for credit losses for fiscal 2010 remained relatively consistent with the amount for fiscal 2009.

During fiscal 2011, the United States economy continued along a path of slow growth. The overall credit quality of our consumer portfolio in fiscal 2011 continued to benefit from our focus on improving purchasing practices, resulting in a decrease in the rate of delinquency in fiscal 2011 compared to fiscal 2010. We also experienced lower loss severity driven by strong used vehicle values, attributable to a low supply of used vehicles during fiscal 2011. As of March 31, 2011, we had not experienced material adverse trends in default frequency or loss severity related to various recalls that occurred in fiscal 2011 and the latter part of fiscal 2010; however, concerns related to ongoing adverse publicity remain a factor in our evaluation of estimated probable losses. Recent instability in oil and gasoline prices, along with economic pressures stemming from governmental budget shortfalls were also considered in our evaluation of estimated probable losses. Accordingly, we reduced our allowance for credit losses by $826 million, or 48 percent, to $879 million during fiscal 2011.

In March 2011, natural disasters in Japan caused manufacturing disruptions and production suspensions of certain Toyota and Lexus vehicle models and parts. We did not experience any impact on our financial condition or our operating results as of and for the year ended March 31, 2011. However, the credit performance of our dealer and consumer lending portfolios may be adversely affected. In addition, the level of vehicle production affects the supply and demand of vehicles and the values of used Toyota and Lexus vehicles, which, in turn, could affect realized values and return rates, depreciation expense and credit losses. We are currently implementing programs to assist customers and dealers in response to these events.

LIQUIDITY AND CAPITAL RESOURCES

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

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

	March 31,
(Dollars in millions)	2011		2010
Commercial paper1	$	19,943	$	19,466
Unsecured notes and loans payable2		45,304		45,617
Secured notes and loans payable		10,626		3,000
Carrying value adjustment3		1,409		1,096
Total Debt	$	77,282	$	69,179

1	Includes unamortized premium/discount.

2	Includes unamortized premium/discount and effects of foreign currency transaction gains and losses on non-hedged or de-designated notes and loans payable which are denominated in foreign currencies.

3	Represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships.

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

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

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

The combined amounts of cash and cash equivalents and investments in marketable securities was $11.7 billion and $6.9 billion as of March 31, 2011 and March 31, 2010, respectively. The increase in the combined balance at March 31, 2011 as compared to the prior year was due to prefunding activities conducted during the fourth quarter of fiscal 2011.

For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from $2.1 billion to $10.0 billion with an average balance of $5.3 billion for fiscal 2011.

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

Credit support is provided to us by our indirect parent Toyota Financial Services Corporation (“TFSC”), and, in turn to TFSC by Toyota Motor Corporation (“TMC”). Taken together, these credit support agreements provide an additional source of liquidity to us, although we do not rely upon such credit support in our liquidity planning and capital and risk management. The credit support agreements are not guarantees by TMC of any securities or obligations of TFSC or TMCC.

TMC’s obligations under its credit support agreement with TFSC rank pari passu with TMC’s senior unsecured debt obligations. Refer to Part I. Item 1A. Risk Factors “Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements” for further discussion.

Commercial Paper

Short-term funding needs are met through the issuance of commercial paper in the United States. Commercial paper outstanding under our commercial paper programs ranged from approximately $15.9 billion to $23.3 billion during fiscal 2011, with an average outstanding balance of $19.4 billion. Our commercial paper programs are supported by the liquidity facilities discussed later in this section. We believe we have ample capacity to meet our short-term funding requirements and manage our liquidity.

Unsecured Notes and Loans Payable

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

(Dollars in millions)		U.S. medium term notes ("MTNs") and domestic bonds		Euro MTNs ("EMTNs")		Eurobonds		Other		Total unsecured notes and loans payable5
Balance at March 31, 20101		$	8,140	$	26,214	$	3,633	$	7,169	$	45,156
Issuances during fiscal 2011			6,119 2		3,358 3		-		1,950 4		11,427
Maturities and terminations
	during fiscal 2011		(5,345)		(7,260)		(400)		(150)		(13,155)
Balance at March 31, 20111		$	8,914	$	22,312	$	3,233	$	8,969	$	43,428

Issuance during the one
	month ended April 30, 2011	$	-	$	516 3	$	-	$	-	$	516

Amounts represent par values and as such exclude unamortized premium/discount, foreign currency transaction gains and losses on debt denominated in foreign currencies, fair value adjustments to debt in hedge accounting relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated hedge accounting relationships. Par values of non-U.S. currency denominated notes are determined using foreign exchange rates applicable as of the issuance dates.

2	MTNs and domestic bonds issued during fiscal 2011 had terms to maturity ranging from approximately 1 year to 20 years, and had interest rates at the time of issuance ranging from 0 percent to 5.0 percent.

3	EMTNs had terms to maturity ranging from approximately 2 years to 7 years, and had interest rates at the time of issuance ranging from 0.8 percent to 6.0 percent.

4	Primarily consists of long-term borrowings, all with terms to maturity from approximately 1 year to 5 years, and interest rates at the time of issuance ranging from 0.1 percent to 1.0 percent.

5	Consists of fixed and floating rate debt and other obligations. Upon the issuance of fixed rate debt and other obligations, we generally elect to enter into pay float interest rate swaps. Refer to “Derivative Instruments” for further discussion.

We maintain a shelf registration statement with the SEC to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We qualify as a well-known seasoned issuer under SEC rules, which allows us to issue under our registration statement an unlimited amount of debt securities during the three year period ending March 2012. Debt securities issued under the U.S. shelf registration statement are issued pursuant to the terms of an indenture which requires TMCC to comply with certain covenants, including negative pledge provisions. We are in compliance with all covenants.

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets. In September 2010, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50 billion, or the equivalent in other currencies, of which €28.2 billion was available for issuance at April 30, 2011. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time. Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions. We are in compliance with all covenants.

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

In March 2011, we successfully completed consent solicitations involving approximately $48 million of EMTNs and MTNs issued before 2004. The purpose of the solicitations was to obtain noteholder consent to amending the limitation on liens and covenants applicable to these EMTNs and MTNs to conform them to the limitation on liens covenants applicable to EMTNs and MTNs presently issuable by TMCC under its EMTN Program and U.S. shelf registration statement, respectively. The amendments permit us increased flexibility in our funding programs and derivatives transactions. We paid consent fees of $0.5 million as part of the solicitations.

Secured Notes and Loans Payable

Overview

Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding. Our securitization program includes the following types of transactions backed by retail finance receivables: 1) public term securitization, 2) amortizing asset-backed commercial paper conduits and 3) revolving asset-backed commercial paper conduits. We will continue to evaluate the market for asset-backed securities in considering our funding strategies in the future.

The securitization transactions discussed above involve the transfer of discrete pools of auto retail installment sale contracts to bankruptcy-remote special purpose entities. These bankruptcy-remote entities are used in an effort to ensure that the securitized assets are isolated from the claims of creditors of TMCC and that the cash flows from the auto retail installment sale contracts are available solely for the benefit of the securitization investors. Investors in asset-backed securities do not have recourse to our other assets, and neither TMCC nor our affiliates guarantee the obligations issued by any securitization trusts. We are not required to repurchase receivables from the trusts that become delinquent or default after securitization. As seller and servicer of the receivables, we are required to repurchase receivables that are subsequently discovered not to have met specified eligibility requirements. This repurchase obligation is customary in securitization transactions.

We service the securitized receivables in accordance with our customary servicing practices and procedures. Our servicing duties include collecting payments on receivables and submitting them to a trustee for distribution to security holders and other interest holders. We prepare monthly servicer certificates on the performance of the receivables, including collections, investor distributions, delinquencies, and credit losses. We also perform administrative services for the trusts. In servicing the securitized receivables, we apply the same servicing policies and procedures that are applied to loans held in our non-securitized portfolio.

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

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

·	Overcollateralization: The principal of the securitized assets that exceeds the principal amount of the related secured debt.

·	Excess spread: The expected interest collections on the securitized assets that exceed the expected fees and expenses of the special purpose entity, including the interest payable on the debt and net of swap settlements, if any.

Cash reserve funds: A portion of the proceeds from the issuance of asset-backed securities may be held by the securitization trust in a segregated reserve fund and may be used to pay principal and interest to security holders and other interest holders if collections on the underlying receivables are insufficient.

·	Yield supplement arrangements: Additional overcollateralization may be provided to supplement the future contractual interest payments from pledged receivables with relatively low contractual interest rates.

·	Subordinated notes: The subordination of principal and interest payments on subordinated notes provides additional credit enhancement to holders of senior notes.

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

The transfer of the receivables to special purpose entities is considered a sale for legal purposes. However, the securitized assets and the related debt remain on our Consolidated Balance Sheet. We recognize financing revenue on the pledged receivables and interest expense on the secured debt issued by the securitization trusts. We also maintain an allowance for credit losses on the pledged receivables to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized retail receivable portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements. The following securitized transactions are on our Consolidated Balance Sheet.

Public Term Securitization

Since 1993, we have sponsored 19 public securitization trusts backed by retail finance receivables which have issued more than $17 billion of securities. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. We maintain a shelf registration statement with the SEC to provide for the issuance of asset-backed securities in the U.S. capital markets. During fiscal 2011, we executed four transactions that provided us with approximately $3.3 billion in funding which will be repaid as the underlying finance receivables amortize. In addition, certain securities from these transactions were retained and may be sold at any time.

Amortizing Asset-backed Commercial Paper Conduits

We executed private securitization transactions of retail finance receivables with bank-sponsored multi-seller asset-backed conduits. During fiscal 2011, these transactions provided us with approximately $3.0 billion in funding which will be repaid as the underlying finance receivables amortize. Subsequent to March 31, 2011, we executed similar private securitization transactions that provided us with approximately $1.8 billion in funding.

Liquidity Facilities and Letters of Credit

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

364 Day Credit Agreement

In March 2011, TMCC, its subsidiary Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility pursuant to a 364 Day Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The 364 Day Credit Agreement may be used for general corporate purposes. This facility remained undrawn as of March 31, 2011.

Three Year Credit Agreement

In March 2011, TMCC, TCPR, and other Toyota affiliates entered into a $5.0 billion three year syndicated bank credit facility pursuant to a Three Year Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The Three Year Credit Agreement may be used for general corporate purposes. This facility remained undrawn as of March 31, 2011.

Five Year Credit Agreement

In March 2011, TMCC, TCPR, and other Toyota affiliates entered into a $3.0 billion five year syndicated bank credit facility pursuant to a Five Year Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The Five Year Credit Agreement may be used for general corporate purposes. This facility remained undrawn as of March 31, 2011.

Committed Revolving Asset-backed Commercial Paper Facility

In January 2011, we entered into a 364 day revolving securitization facility with certain bank-sponsored asset-backed commercial paper conduits and other financial institutions (“funding agents”). Under the terms of this facility, the funding agents are contractually committed, at our option, to purchase eligible retail finance receivables from us and make advances up to a facility limit of $4.0 billion. This revolving facility allows us to obtain term funding up to the renewal date. Any portion of the facility that is not renewed is repaid as the underlying assets amortize. We obtained $4.0 billion in initial funding and approximately $330 million in subsequent funding through this facility during fiscal 2011. As of March 31, 2011, this facility was fully drawn. We may obtain additional funding as we pay down the outstanding debt in conjunction with the amortization of transferred receivables, subject to having a sufficient amount of eligible receivables. Our utilization and renewal strategies are driven by economic considerations as well as our funding and liquidity needs.

Other Credit Agreements

TMCC has committed bank credit facilities totalling $1 billion which matures in fiscal year 2013. These agreements contain covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of March 31, 2011.

We are in compliance with the covenants and conditions of the credit agreements described above.

Credit Support Agreements

Under the terms of a credit support agreement between TMC and TFSC, TMC has agreed to:

·	maintain 100 percent ownership of TFSC;

·	cause TFSC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any tangible assets) of at least JPY 10 million, equivalent to $120,294 at March 31, 2011; and

make sufficient funds available to TFSC so that TFSC will be able to (i) service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper and (ii) honor its obligations incurred as a result of guarantees or credit support agreements that it has extended (collectively, “Securities”).

The agreement is not a guarantee by TMC of any securities or obligations of TFSC. TMC’s obligations under the credit support agreement rank pari passu with TMC’s senior unsecured debt obligations. Either party may terminate the agreement upon 30 days written notice to the other party. However, such termination cannot take effect until or unless (1) all Securities issued on or prior to the date of the termination notice have been repaid or (2) each rating agency that, upon the request of TMC or TFSC, has issued a rating in respect of TFSC or any Securities has confirmed to TFSC that the debt ratings of all such Securities will be unaffected by such termination. In addition, with certain exceptions, the agreement may be modified only by the written agreement of TMC and TFSC, and no modification or amendment can have any adverse effect upon any holder of any Securities outstanding at the time of such modification or amendment. The agreement is governed by, and construed in accordance with, the laws of Japan.

Under the terms of a similar credit support agreement between TFSC and TMCC, TFSC has agreed to:

·	maintain 100 percent ownership of TMCC;

·	cause TMCC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any tangible assets) of at least $100,000; and

·	make sufficient funds available to TMCC so that TMCC will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper (collectively, “TMCC Securities”).

The agreement is not a guarantee by TFSC of any TMCC Securities or other obligations of TMCC. The agreement contains termination and modification provisions that are similar to those in the agreement between TMC and TFSC as described above. The agreement is governed by, and construed in accordance with, the laws of Japan. TMCC Securities do not include the securities issued by securitization trusts in connection with TMCC’s securitization programs or any indebtedness under TMCC’s credit facilities or term loan agreements.

Holders of TMCC Securities have the right to claim directly against TFSC and TMC to perform their respective obligations under the credit support agreements by making a written claim together with a declaration to the effect that the holder will have recourse to the rights given under the credit support agreements. If TFSC and/or TMC receives such a claim from any holder of TMCC Securities, TFSC and/or TMC shall indemnify, without any further action or formality, the holder against any loss or damage resulting from the failure of TFSC and/or TMC to perform any of their respective obligations under the credit support agreements. The holder of TMCC Securities who made the claim may then enforce the indemnity directly against TFSC and/or TMC.

In addition, TMCC and TFSC are parties to a credit support fee agreement which requires TMCC to pay to TFSC a fee which is based upon the weighted average outstanding amount of TMCC Securities entitled to credit support.

TCPR is the beneficiary of a credit support agreement with TFSC containing the same provisions as the credit support agreement between TFSC and TMCC but pertaining to TCPR bonds, debentures, notes and other investment securities and commercial paper (collectively, “TCPR Securities”). Holders of TCPR Securities have the right to claim directly against TFSC and TMC to perform their respective obligations as described above. This agreement is not a guarantee by TFSC of any securities or other obligations of TCPR. TCPR has agreed to pay TFSC a fee which is based upon the weighted average outstanding amount of TCPR Securities entitled to credit support.

DERIVATIVE INSTRUMENTS

Risk Management Strategy

We use derivatives as part of our risk management strategy to hedge against changes in interest rate and foreign currency risks. We manage these risks by entering into derivative transactions with the intent to minimize fluctuations in earnings, cash flows and fair value adjustments of assets and liabilities caused by market volatility.

Our derivative activities are authorized and monitored by our Asset-Liability Committee (“ALCO”), which provides a framework for financial controls and governance to manage market risks. We use internal models for analyzing and incorporating data from internal and external sources in developing various hedging strategies. We incorporate the resulting hedging strategies into our overall risk management strategies.

Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets. We hedge the risks inherent in these fixed rate and foreign currency denominated liabilities by entering into pay float interest rate swaps, foreign currency swaps, and foreign currency forwards, which effectively convert our obligations into U.S. dollar-denominated, 3-month LIBOR-based payments. Gains and losses on these derivatives are recorded in interest expense in our Consolidated Statement of Income.

Our assets consist primarily of U.S. dollar-denominated, fixed-rate receivables. Our approach to asset-liability management involves hedging our risk exposures so that changes in interest rates have a limited effect on our net interest margin and cash flows. We use pay fixed interest rate swaps and caps, executed on a portfolio basis, to manage the interest rate risk of these assets. Our resulting asset-liability profile is consistent with the overall risk management strategy directed by the Asset-Liability Committee. Gains and losses on these derivatives are recorded in interest expense in our Consolidated Statement of Income.

We enter into derivatives for risk management purposes only, and our use of derivatives is limited to the management of interest rate and foreign currency risks.

Accounting for Derivative Instruments

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

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

We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative. Changes in the fair value of the bifurcated embedded derivative or the entire hybrid financial instrument are reported in interest expense in the Consolidated Statement of Income. Refer to Note 1 – Summary of Significant Accounting Policies and Note 8 –Derivatives, Hedging Activities and Interest Expense of the Notes to the Consolidated Financial Statements for additional information.

Derivative Assets and Liabilities

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

(Dollars in millions)		March 31, 2011		March 31, 2010
Derivative assets		$	3,476	$	1,876
Less: Collateral held, net 1			(2,563)		(1,285)
Derivative assets, net of collateral			913		591
Less: Counterparty credit valuation adjustment			(12)		(10)
Derivative assets, net of collateral and credit adjustment		$	901	$	581
Embedded derivative assets		$	1	$	4

Derivative liabilities		$	152	$	594
Less: Collateral posted, net 1			-		(57)
Derivative liabilities, net of collateral			152		537
Less: Our own non-performance credit valuation adjustment			(1)		(4)
Derivative liabilities, net of collateral
	and non-performance credit valuation adjustment	$	151	$	533
Embedded derivative liabilities		$	52	$	34

1	Represents cash received or deposited under reciprocal collateral arrangements that we have entered into with our derivative counterparties. Refer to the “Counterparty Credit Risk” section for more details.

The increase in derivative assets and decrease in derivative liabilities as of March 31, 2011 compared to March 31, 2010, are primarily the result of the weakening of the U.S. dollar relative to certain other currencies in which our foreign currency swaps are denominated. Refer to the “Interest Expense” section above for further discussion.

OFF-BALANCE-SHEET ARRANGEMENTS

Guarantees

TMCC has guaranteed the payments of principal and interest with respect to the bonds of manufacturing facilities of certain affiliates. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the affiliates for any amounts paid. TMCC receives an annual fee of $78,000 for guaranteeing such payments. Other than this fee, there are no corresponding expenses or cash flows arising from our guarantees. The nature, business purpose, and amounts of these guarantees are described in Note 15 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Lending Commitments

We extend term loans and revolving lines of credit to vehicle and industrial equipment dealers for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate, and usually are guaranteed by the personal or corporate guarantees of the dealer principals or dealerships. We also provide financing to various multi-franchise dealer organizations, often as part of a lending consortium, for wholesale, working capital, real estate, and business acquisitions. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee from the vehicle or industrial equipment dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. We price the credit facilities according to the risks assumed in entering into the credit facility and competitive factors. Approximately one percent of these lending commitments at March 31, 2011 is unsecured. In addition, at March 31, 2011 and 2010, respectively, we had $9.4 billion and $9.5 billion of wholesale financing demand note facilities not considered to be commitments. We have also extended credit facilities to affiliates as described in Note 15 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Indemnification

Refer to Note 15 – Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions. We have not made any material payments in the past as a result of these provisions, and as of March 31, 2011, we determined that it is not probable that we will be required to make any material payments in the future. As of March 31, 2011 and 2010, no amounts have been recorded under these indemnification provisions.

CONTRACTUAL OBLIGATIONS AND CREDIT-RELATED COMMITMENTS

We have certain obligations to make future payments under contracts and credit-related financial instruments and commitments. Aggregate contractual obligations and credit-related commitments in existence at March 31, 2011 are summarized as follows (dollars in millions):

			Payments due by period
Contractual obligations			Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt 1		$	77,282	$	44,722	$	15,410	$	11,104	$	6,046
Estimated interest payments for debt 2			5,700		1,578		1,791		1,256		1,075
Estimated net (receipts) under
	interest rate swap agreements2		(4,148)		(1,671)		(1,199)		(533)		(745)
Lending commitments 3			6,189		6,189		-		-		-
Premises occupied under lease			90		18		31		21		20
Purchase obligations 4			54		39		13		2		-
Total		$	85,167	$	50,875	$	16,046	$	11,850	$	6,396

Debt reflects the remaining principal obligation. Foreign currency debt principal is based on current exchange rates as of March 31, 2011. Excludes unamortized premium/discount of $383 million and fair value adjustments of $1,409 million. Includes an adjustment of $1,026 million to present principal amounts for foreign currency debt in fair value hedging relationships at current exchange rates.

2	Interest payments for debt and swap agreements payable in foreign currencies or based on variable interest rates are estimated using the applicable current rates as of March 31, 2011.

Lending commitments represent term loans and revolving lines of credit we extended to vehicle and industrial equipment dealers and affiliates. Of the amount shown above, $5.2 billion was outstanding as of March 31, 2011. The amount shown above excludes $9.4 billion of wholesale financing lines not considered to be contractual commitments at March 31, 2011, of which $6.3 billion was outstanding at March 31, 2011. The above lending commitments have various expiration dates.

Purchase obligations represent fixed or minimum payment obligations under supplier contracts. The amounts included herein represent the minimum contractual obligations in certain situations; however, actual amounts incurred may be substantially higher depending on the particular circumstance, including in the case of information technology contracts, the amount of usage once we have implemented it. Contracts that do not specify fixed payments or provide for a minimum payment are not included. Certain contracts noted herein contain voluntary provisions under which the contract may be terminated for a specified fee, ranging up to $1.3 million, depending upon the contract.

NEW ACCOUNTING GUIDANCE

Refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

We have identified the estimates below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these estimates on business operations are discussed throughout this report where such estimates affect reported and expected financial results. The evaluation of the factors used in determining each of our critical accounting estimates involves significant assumptions, complex analysis, and management judgment. Changes in the evaluation of these factors may significantly impact the consolidated financial statements. Different assumptions or changes in economic circumstances could result in additional changes to the determination of the allowance for credit losses, the determination of residual values, the valuation of our derivative instruments, and our results of operations and financial condition. Our other significant accounting policies are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Determination of the Allowance for Credit Losses

We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date on our earning assets resulting from the failure of customers or dealers to make required payments. The level of credit losses is influenced by two factors: default frequency and loss severity. For evaluation purposes, exposures to credit losses are segmented into the two primary categories of “consumer” and “dealer”. Our consumer portfolio is further segmented into retail finance receivables and lease earning assets, both of which are characterized by smaller contract balances than our dealer portfolio and homogenous populations. Our dealer portfolio consists of loans related to dealer financing. The overall allowance is evaluated at least quarterly, considering a variety of assumptions and factors to determine whether reserves are considered adequate to cover probable and estimable losses as of the balance sheet date. For further discussion of the accounting treatment of our allowance for credit losses, refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Nature of Estimates and Assumptions Required

The evaluation of the appropriateness of the allowance for credit losses and our exposure to credit losses involves estimates and requires significant judgment.

Consumer Portfolio

The consumer portfolio is evaluated using methodologies such as roll rate, credit risk grade/tier, and vintage analysis. We review and analyze external factors, such as changes in economic conditions, actual or perceived quality, safety and reliability of Toyota and Lexus vehicles, unemployment levels, the used vehicle market, and consumer behavior. In addition, internal factors, such as purchase quality mix and operational changes are considered in the review. The majority of our credit losses is related to our consumer portfolio.

Dealer Portfolio

The dealer portfolio is evaluated by first aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by either vehicles and industrial equipment, real estate or dealership assets, or unsecured). The dealer pools are then analyzed using an internally developed risk rating. In addition, field operations management and our special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established as appropriate, and the loan is removed from the loan-risk pool for separate monitoring.

Sensitivity Analysis

The assumptions used in evaluating our exposure to credit losses involve estimates and significant judgment. The expected loss severity and default frequency on the vehicle retail and lease portfolios represent two of the key assumptions involved in determining the allowance for credit losses. Holding other estimates constant, a 10 percent increase or decrease in either the estimated loss severity or the estimated default frequency on the vehicle retail installment sales and lease portfolios would have resulted in a change in the allowance for credit losses of $74 million as of March 31, 2011.

Determination of Residual Values

The determination of residual values on our lease portfolio involves estimating end-of-term market values of leased vehicles and industrial equipment. Establishing these estimates involves various assumptions, complex analysis, and management judgment. Actual losses incurred at lease termination could be significantly different from expected losses. Substantially all of our residual value risk relates to our vehicle lease portfolio. For further discussion of the accounting treatment of residual values on our lease earning assets, refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Nature of Estimates and Assumptions Required

Residual values are estimated at lease inception by examining external industry data, the anticipated Toyota and Lexus product pipeline and our own experience. Factors considered in this evaluation include, but are not limited to, local, regional and national economic forecasts, new vehicle pricing, new vehicle incentive programs, new vehicle sales, future plans for new Toyota and Lexus product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values, the actual or perceived quality, safety or reliability of Toyota and Lexus vehicles, buying and leasing behavior trends, and fuel prices. We periodically review the estimated end-of-term market values of leased vehicles to assess the appropriateness of their carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. Factors affecting the estimated end-of-term market value are similar to those considered in the evaluation of residual values at lease inception. These factors are evaluated in the context of their historical trends to anticipate potential changes in the relationship among those factors in the future. For operating leases, adjustments are made on a straight-line basis over the remaining terms of the leases and are included in depreciation on operating leases in the Consolidated Statement of Income. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included under our retail revenues in the Consolidated Statement of Income.

Sensitivity Analysis

Estimated return rates and end-of-term market values represent two of the key assumptions involved in determining the amount and timing of depreciation expense to be recorded in the Consolidated Statement of Income.

The vehicle lease return rate represents the number of end-of-term leased vehicles returned to us for sale as a percentage of lease contracts that were originally scheduled to mature in the same period less certain qualified early terminations. When the market value of a leased vehicle at contract maturity is less than its contractual residual value (i.e., the price at which the lease customer may purchase the leased vehicle), there is a higher probability that the vehicle will be returned to us. In addition, a higher market supply of certain models of used vehicles generally results in a lower relative level of demand for those vehicles, resulting in a higher probability that the vehicle will be returned to us. A higher rate of vehicle returns exposes us to greater risk of loss at lease termination. At March 31, 2011, holding other estimates constant, if the return rate for our existing portfolio of leased vehicles were to increase by one percentage point from our present estimates, the effect would be to increase depreciation on these vehicles by approximately $14 million. This increase in depreciation would be charged to depreciation on operating leases in the Consolidated Statement of Income on a straight-line basis over the remaining terms of the operating leases.

End-of-term market values determine the amount of loss severity at lease maturity. Loss severity is the extent to which the end-of-term market value of a leased vehicle is less than the estimated residual value. We may incur losses to the extent the end-of-term market value of a leased vehicle is less than the estimated residual value. At March 31, 2011, holding other estimates constant, if end-of-term market values for returned units of leased vehicles were to decrease by one percent from our present estimates, the effect would be to increase depreciation on these vehicles by approximately $54 million. This increase in depreciation would be charged to depreciation on operating leases in the Consolidated Statement of Income on a straight-line basis over the remaining terms of the operating leases.

Derivative Instruments

We manage our exposure to market risks such as interest rate and foreign currency risks with derivative instruments. These instruments include interest rate swaps, foreign currency swaps, foreign currency forwards, and interest rate caps. Our use of derivatives is limited to the management of interest rate and foreign currency risks. For further discussion of the accounting treatment of our derivatives, refer to Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Nature of Estimates and Assumptions Required

We determine the application of derivatives accounting through the identification of hedging instruments, hedged items, and the nature of the risk being hedged, as well as the methodology used to assess the hedging instrument's effectiveness. The fair values of our over-the-counter derivative assets and liabilities are determined using quantitative models that require the use of multiple market inputs including interest and foreign exchange rates, prices and indices to generate yield or pricing curves and volatility factors, which are used to value the position. Market inputs are validated through external sources, including brokers, market transactions and third-party pricing services. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available or are unobservable, in which case quantitative based extrapolations of rate, price or index scenarios are used in determining fair values.

Fair Value of Financial Instruments

A portion of our assets and liabilities is carried at fair value, including cash equivalents, available-for-sale securities and derivatives.

Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that primarily use as inputs market-based or independently sourced market parameters. We ensure that all applicable inputs are appropriately calibrated to market data, including but not limited to yield curves, interest rates, and foreign exchange rates. In addition to market information, models also incorporate transaction details, such as maturity. Fair value adjustments, including credit (counterparties and TMCC), liquidity, and input parameter uncertainty are included, as appropriate, to the model value to arrive at a fair value measurement.

During fiscal 2011, no material changes were made to the valuation models. For a description of the assets and liabilities carried at fair value and the controls over valuation, refer to Note 2 - Fair Value Measurements of the Notes to the Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

Market risk is the sensitivity of our financial instruments to changes in interest and foreign exchange rates. Market risk is inherent in the financial instruments associated with our operations, including debt, investment securities, finance receivables and derivatives. Our business and global capital market activities give rise to market sensitive assets and liabilities.

ALCO is responsible for the execution of our market risk management strategies and their activities are governed by written policies and procedures. The principal objective of asset and liability management is to manage the sensitivity of net interest margin to changing interest rates. When evaluating risk management strategies, we consider a variety of factors, including, but not limited to, management’s risk tolerance, market conditions and portfolio composition.

We manage our exposure to certain market risks through our regular operating and financing activities and when deemed appropriate, through the use of derivative instruments. These instruments are used to manage underlying exposures; we do not use derivatives for trading, market making or speculative purposes. Refer to “Derivative Instruments” within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for information on risk management strategies, corporate governance and derivatives usage.

Interest Rate Risk

Interest rate risk can result from timing differences in the maturity or re-pricing of assets and liabilities. Changes in the level and volatility of market interest rate curves also create interest rate risk as the re-pricing of assets and liabilities are a function of implied forward interest rates. We are also exposed to basis risk, which is the difference in re-pricing characteristics of two floating rate indices.

Sensitivity Analysis

We use sensitivity simulations to assess and manage interest rate risk. Our simulations allow us to analyze the sensitivity of our existing portfolio as well as the expected sensitivity of our new business. We measure the potential volatility in our net interest cash flows and manage our interest rate risk by assessing the dollar impact given a 100 basis point increase or decrease in the implied yield curve. ALCO reviews the amount at risk and prescribes steps, if needed, to mitigate our exposure.

Sensitivity Model Assumptions

Interest rate scenarios were derived from implied forward curves based on market expectations. Internal and external data sources were used for the reinvestment of maturing assets, refinancing of maturing debt and replacement of maturing derivatives. The prepayment of retail and lease receivables was based on our historical experience and attrition projections, voluntary or involuntary. We monitor our balance sheet positions, economic trends and market conditions, internal forecasts and expected business growth in an effort to maintain the reasonability of the sensitivity model.

The table below reflects the potential 12-month change in pre-tax cash flows based on hypothetical movements in future market interest rates. The sensitivity analysis assumes instantaneous, parallel shifts in interest rate yield curves. These interest rate scenarios do not represent management’s view of future interest rate movements. In reality, interest rates are rarely instantaneous or parallel and rates could move more or less than the rate scenarios reflected in the table below. In situations where existing interest rates are below one percent, the assumption of a 100 basis point decrease in interest rates is subject to a floor of zero percent.


Sensitivity analysis	Immediate change in rates
(in millions)	+100bp		-100bp
March 31, 2011	$	7.90	$	0.20
March 31, 2010	$	4.90	$	(28.20)

Our net interest cash flow sensitivity results show an asset sensitive position at both March 31, 2011 and March 31, 2010. We regularly assess the viability of our business and hedging strategies to reduce unacceptable risks to earnings and implement such strategies to protect our net interest margins from the potential negative effects of changes in interest rates. We have established risk limits to monitor and control our exposures. Our current exposure is considered within tolerable limits.

Foreign currency risk

Foreign currency risk represents exposure to changes in the values of our current holdings and future cash flows denominated in other currencies. To meet our funding objectives, we issue fixed and floating rate debt denominated in a number of different currencies. Our policy is to minimize exposures to changes in foreign exchange rates. Currency exposure related to foreign currency debt is hedged at issuance through the execution of foreign currency swaps and forwards which effectively convert our obligations on foreign denominated debt into U.S. dollar denominated 3-month LIBOR based payments. As a result, our current exposure to foreign currency risk is minimal.

Our debt is accounted for at amortized cost in our Consolidated Balance Sheet. We may elect to designate our debt in hedge accounting relationships for changes in interest rate risk, foreign currency risk or both. If our debt is designated as hedged, we adjust the carrying value of our debt to reflect changes in the fair value attributable to interest and foreign currency risks with an offsetting amount recorded in interest expense in the Consolidated Statement of Income. Additionally, we also recognize changes in the fair value of derivatives designated as hedges in interest expense in the Consolidated Statement of Income.

If we elect not to designate our debt in hedge accounting relationships, it is initially translated into U.S. dollars using the applicable exchange rate at the transaction date and retranslated at each balance sheet date using the exchange rate in effect at that date. The associated foreign currency swaps are recorded at fair value.

Investment Securities Portfolio

Our investment securities portfolio is exposed to foreign currency risk related to fixed income mutual funds. We do not enter into derivatives to modify risks associated with our investment securities portfolio.

As of March 31, 2011 and 2010, the total fair value of fixed income mutual funds exposed to foreign currency risk was $45 million and $17 million, respectively.

Counterparty Credit Risk

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

All of our derivatives counterparties to which we had credit exposure at March 31, 2011 were assigned investment grade ratings by a credit rating organization. In addition, we require counterparties that are or become rated BBB+ or lower to fully collateralize their net derivative exposures with us. Our counterparty credit risk could be adversely affected by deterioration of the global economy and financial distress in the banking industry.

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements contain reciprocal collateral arrangements which help mitigate our exposure to the credit risk associated with our counterparties. We perform valuations of our position with each counterparty and transfer cash collateral on at least a monthly basis. In addition, if either party under an ISDA Master Agreement, in its reasonable opinion, believes there has been a material decline in the creditworthiness of the other party, it can call for more frequent collateral transfers. If the market value of either counterparty’s net derivatives position exceeds a specified threshold, that counterparty is required to transfer cash collateral in excess of the threshold to the other counterparty. Under our ISDA Master Agreements, we are only obligated to exchange cash collateral. Neither we nor our counterparties are required to hold the collateral in a segregated account. Our collateral arrangements include legal right of offset provisions, pursuant to which collateral amounts are netted against derivative assets or derivative liabilities, which are included in other assets or other liabilities in our Consolidated Balance Sheet.

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

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

	March 31,
(Dollars in millions)	2011		2010
Credit Rating
AA	$	497	$	258
A		379		333
BBB		37		-
Total net counterparty credit exposure1	$	913	$	591

1	Amounts exclude counterparty credit valuation adjustments of $12 million and $10 million at March 31, 2011 and March 31, 2010, respectively.

The increase in net counterparty credit exposure is primarily correlated to the increase in our derivative assets at March 31, 2011 as compared to March 31, 2010. This increase is primarily the result of the weakening of the U.S. dollar relative to certain other currencies in which our currency swaps are denominated. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Interest Expense” for further discussion.

At March 31, 2011, we recorded a credit valuation adjustment of $12 million related to non-performance risk of our counterparties and a credit valuation adjustment of $1 million on our own non-performance risk. All derivative credit valuation adjustments are recorded in interest expense in our Consolidated Statement of Income. Refer to “Note 2 – Fair Value Measurements” of the Notes to the Consolidated Financial Statements for further discussion.

Issuer Credit Risk

Issuer credit risk represents exposures to changes in the creditworthiness of individual issuers or groups of issuers. Changes in economic conditions may expose us to issuer credit risk where the value of an asset may be adversely impacted by changes in the levels of credit spreads, by credit migration, or by defaults.

The following tables summarize our fixed income holding distribution as of March 31, 2011 and 2010 by market value and credit rating (dollars in millions):

			As of March 31, 2011
							Distribution by credit rating
			Amortized		Fair										BB
Fixed income security category			cost		value		AAA		AA		A		BBB		or below
Fixed income mutual funds		$	1,834	$	1,835	$	1,193	$	232	$	352	$	58	$	-
Asset backed securities			22		22		22		-		-		-		-
Mortgage backed securities			101		103		94		2		-		-		7
U.S. treasury and
	government agency debt		96		95		92		2		1		-		-
Certificates of deposit and
	commercial paper		2,205		2,206		-		654		1,552		-		-
Corporate debt securities			121		126		3		13		59		37		14
Municipal debt securities			15		15		5		5		5		-		-
Foreign government debt
	securities		5		5		5		-		-		-		-
Total		$	4,399	$	4,407	$	1,414	$	908	$	1,969	$	95	$	21

			As of March 31, 20101
							Distribution by credit rating
		Amortized		Fair										BB
Fixed income security category		cost		value		AAA		AA		A		BBB		or below
Fixed income mutual funds		$	1,106	$	1,147	$	-	$	766	$	322	$	-	$	59
Asset backed securities			635		644		594		-		50		-		-
Mortgage backed securities			143		151		139		-		6		-		6
U.S. treasury and
	government agency debt		49		49		49		-		-		-		-
Certificates of deposit and
	commercial paper		50		50		-		50		-		-		-
Corporate debt securities			89		93		11		-		41		39		2
Municipal debt securities			6		6		-		3		3		-		-
Foreign government debt			22		22		13		9		-		-		-
	securities
Total		$	2,100	$	2,162	$	806	$	828	$	422	$	39	$	67
1	Prior period amounts have been reclassified to conform to the current period presentation.

Equity Price Risk

We are exposed to equity price risk related to equity investments included in our investment portfolio. These investments, classified as available-for-sale in our Consolidated Balance Sheet, consist primarily of passively managed equity mutual funds that are designed to track the performance of major equity market indices. Any changes in fair value are reported in other comprehensive income, which includes the unrealized gain (loss) on marketable securities. Fair market values of the equity investments are primarily determined using quoted market prices.

A summary of the unrealized gains and losses on equity investments assuming a 10 percent and 20 percent adverse change in market prices is presented below. Unrealized gains and losses are included in other comprehensive income in the Consolidated Statement of Shareholder’s Equity (dollars in millions):

		March 31,
			2011		2010
Cost		$	259	$	252
Fair market value		$	415	$	359
Unrealized gain, net of tax		$	95	$	65
	With estimated 10 percent adverse change, net of tax	$	70	$	43
	With estimated 20 percent adverse change, net of tax	$	44	$	22

These hypothetical scenarios represent an estimate of reasonably possible net losses that may be recognized as a result of changes in the fair market value of our equity investments assuming hypothetical instantaneous and parallel adverse shifts in market rates. These scenarios are not necessarily indicative of actual results that may occur. Additionally, the hypothetical scenarios do not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from estimates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Toyota Motor Credit Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholder’s equity and cash flows present fairly, in all material respects, the financial position of Toyota Motor Credit Corporation and its subsidiaries (the “Company”) at March 31, 2011 and March 31, 2010, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2011 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/S/ PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

June 2, 2011

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME


		Fiscal years ended March 31,
(Dollars in millions)			2011	2010		2009
Financing revenues:
	Operating lease	$	4,888	$	4,739	$	4,925
	Retail		2,791		3,086		3,317
	Dealer		385		338		558
Total financing revenues			8,064		8,163		8,800

	Depreciation on operating leases		3,353		3,564		4,176
	Interest expense		1,614		2,023		2,956
Net financing revenues			3,097		2,576		1,668

Insurance earned premiums and contract revenues			543		452		421
Investment and other income, net			236		228		11
Net financing revenues and other revenues			3,876		3,256		2,100

Expenses:
	Provision for credit losses		(433)		604		2,160
	Operating and administrative		1,059		760		799
	Insurance losses and loss adjustment expenses		247		213		193
Total expenses			873		1,577		3,152

Income (loss) before income taxes			3,003		1,679		(1,052)
Provision for (benefit from) income taxes			1,150		616		(429)

Net income (loss)		$	1,853	$	1,063	$	(623)

See Accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET


(Dollars in millions)		March 31, 2011		March 31, 2010
ASSETS

Cash and cash equivalents		$	6,830	$	4,343
Restricted cash			705		173
Investments in marketable securities			4,822		2,521
Finance receivables, net			57,736		55,087
Investments in operating leases, net			19,041		17,151
Other assets			2,570		1,918
Total assets		$	91,704	$	81,193

LIABILITIES AND SHAREHOLDER'S EQUITY

Debt		$	77,282	$	69,179
Deferred income taxes			4,424		3,290
Other liabilities			3,142		3,451
Total liabilities			84,848		75,920

Commitments and contingencies (See Note 15)

Shareholder's equity:
Capital stock, no par value and $10,000 par value (100,000 shares
	authorized; 91,500 issued and outstanding) at March 31, 2011
	and 2010, respectively		915		915
Additional paid-in-capital			1		1
Accumulated other comprehensive income			100		104
Retained earnings			5,840		4,253
Total shareholder's equity			6,856		5,273
Total liabilities and shareholder's equity		$	91,704	$	81,193

The following table presents the assets of consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and the liabilities of those entities for which creditors (or beneficial interest holders) do not have recourse to our general credit. These assets and liabilities are included in the consolidated balance sheet above.

(Dollars in millions)	March 31, 2011
ASSETS
Finance receivables, net	$	11,317
Total assets	$	11,317

LIABILITIES
Debt	$	10,626
Other liabilities		3
Total liabilities	$	10,629

See Accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY

						Accumulated
							other
		Capital		Additional		comprehensive			Retained
(Dollars in millions)		stock		paid-in capital		(loss) income			earnings		Total

BALANCE AT MARCH 31, 2008		$	915	$	-	$	-	$	3,865	$	4,780

Net loss for the year ended
	March 31, 2009		-		-		-		(623)		(623)
Net unrealized loss on available-for-sale
	marketable securities, net of tax benefit
	of $38 million		-		-		(64)		-		(64)
Reclassification adjustment for net loss
	included in net income, net of tax benefit
	of $0		-		-		1		-		1
Total comprehensive income			-		-		(63)		(623)		(686)
Effects of accounting change regarding
	pension plan measurement date		-		-		-		(2)		(2)
Stock based compensation			-		1		-		-		1
BALANCE AT March 31, 2009		$	915	$	1	$	(63)	$	3,240	$	4,093

Net income for the year ended
	March 31, 2010		-		-		-		1,063		1,063
Net unrealized gain on available-for-sale
	marketable securities, net of tax provision
	of $95 million		-		-		154		-		154
Reclassification adjustment for net loss
	included in net income, net of tax benefit
	of $8 million		-		-		13		-		13
Total comprehensive income			-		-		167		1,063		1,230
Dividends			-		-		-		(50)		(50)
BALANCE AT March 31, 2010		$	915	$	1	$	104	$	4,253	$	5,273

Net income for the year ended
	March 31, 2011	$	-	$	-	$	-	$	1,853	$	1,853
Net unrealized gain on available-for-sale
	marketable securities, net of tax provision
	of $3 million		-		-		4		-		4
Reclassification adjustment for net gain
	included in net income, net of tax provision
	of $5 million		-		-		(8)		-		(8)
Total comprehensive income			-		-		(4)		1,853		1,849
Dividends			-		-		-		(266)		(266)
BALANCE AT March 31, 2011		$	915	$	1	$	100	$	5,840	$	6,856

See Accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS

				Fiscal years ended March 31,
(Dollars in millions)				2011		2010		2009
Cash flows from operating activities:
	Net income (loss)			$	1,853	$	1,063	$	(623)
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			3,428		3,683		4,316
		Recognition of deferred income			(1,251)		(1,032)		(1,014)
		Provision for credit losses			(433)		604		2,160
		Amortization of deferred costs			541		447		480
		Foreign currency and other adjustments to the carrying value of debt, net			1,767		2,410		(3,599)
	Net (gain) loss from sale of marketable securities				(47)		(15)		11
	Other-than-temporary impairment on marketable securities				-		7		181
		Net change in:
			Restricted cash		(532)		(173)		-
			Derivative assets		(317)		(411)		1,359
			Other assets (Note 9) and accrued income		(49)		151		120
			Deferred income taxes		1,136		733		(626)
			Derivative liabilities		(364)		(774)		241
			Other liabilities		39		110		(295)
Net cash provided by operating activities					5,771		6,803		2,711
Cash flows from investing activities:
	Purchase of investments in marketable securities				(5,695)		(1,097)		(2,163)
	Proceeds from sales of investments in marketable securities				1,917		786		1,346
	Proceeds from maturities of investments in marketable securities				1,517		260		285
	Acquisition of finance receivables (excluding wholesale)				(23,294)		(21,196)		(23,350)
	Collection of finance receivables (excluding wholesale)				21,765		20,554		20,857
	Net change in wholesale receivables				(484)		(189)		1,839
	Acquisition of investments in operating leases				(10,112)		(7,241)		(7,626)
	Disposals of investments in operating leases				5,479		4,805		4,144
	Advances to affiliates (Note 16)				(2,815)		(2,313)		(6,733)
	Repayments from affiliates (Note 16)				2,468		3,269		6,159
	Other, net				(32)		(25)		(24)
Net cash used in investing activities					(9,286)		(2,387)		(5,266)
Cash flows from financing activities:
	Proceeds from issuance of debt				21,879		11,833		22,925
	Payments on debt				(16,096)		(21,595)		(18,777)
	Net change in commercial paper				469		1,477		1,996
	Advances from affiliates (Note 16)				33		2,001		2,003
	Repayments to affiliates (Note 16)				(17)		(37)		(30)
	Dividends paid to TFSA (Note 16)				(266)		(50)		-
Net cash provided by (used in) financing activities					6,002		(6,371)		8,117
Net increase (decrease) in cash and cash equivalents					2,487		(1,955)		5,562
Cash and cash equivalents at the beginning of the period					4,343		6,298		736
Cash and cash equivalents at the end of the period				$	6,830	$	4,343	$	6,298
Supplemental disclosures:
	Interest paid			$	1,733	$	2,124	$	2,647
	Income taxes paid (received), net			$	35	$	(207)	$	(3)

See Accompanying Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform to the current period presentation.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

Nature of Operations

·	Dealer Financing – We provide wholesale financing (also referred to as floorplan financing), term loans, revolving lines of credit, and real estate financing to vehicle and industrial equipment dealers in the U.S. and Puerto Rico.

Insurance - Through Toyota Motor Insurance Services, Inc. (“TMIS”), a wholly-owned subsidiary, we provide marketing, underwriting, and claims administration related to covering certain risks of vehicle dealers and their customers. We also provide coverage and related administrative services to certain of our affiliates in the U.S.

Our primary finance operations are located in the U.S. and Puerto Rico with earning assets principally sourced through Toyota and Lexus vehicle dealers. As of March 31, 2011, approximately 20 percent of vehicle retail contracts and lease assets were concentrated in California, 10 percent in Texas, 8 percent in New York, and 6 percent in New Jersey. Our insurance operations are located in the U.S. As of March 31, 2011, approximately 23 percent of insurance policies and contracts were concentrated in California, 7 percent in New York and 6 percent in New Jersey. Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our financial condition and results of operations.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Basis of Presentation

Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America.

Certain prior period amounts have been reclassified to conform to the current year presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of TMCC, its wholly-owned subsidiaries and all variable interest entities (“VIE”) of which we are the primary beneficiary. All intercompany transactions and balances have been eliminated.

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE.

To assess whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider all the facts and circumstances including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of a VIE. To assess whether we have the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, we consider all of our economic interests, including debt and equity interests, servicing rights and fee arrangements, and any other variable interests in the VIE. In general, if we determine that we are the party with the power to make the most significant decisions affecting the VIE, and we have a potentially significant interest in the VIE, then we consolidate the VIE.

We perform ongoing reassessments, usually quarterly, of whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are subject to the VIE consolidation framework.

Par Value

On April 1, 2010, the par value of our capital stock was changed from $10,000 per share to no par value.

Use of Estimates

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 and assumptions.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Revenue Recognition

Retail Contracts and Dealer Financing Revenues

Revenues associated with retail contracts and dealer financing are recognized so as to approximate a level rate of return over the contract term. Incremental direct costs incurred in connection with the acquisition of retail contracts and dealer financing receivables, including incentive and rate participation payments made to vehicle dealers, are capitalized and amortized so as to approximate a level rate of return over the term of the related contracts. Payments received on affiliate sponsored special rate programs (“subvention”) are deferred and recognized so as to approximate a level rate of return over the term of the related contracts.

Operating Lease Revenues

Investments in operating leases are recorded at cost and depreciated on a straight-line basis over the lease term to the estimated residual value. Operating lease revenue is recorded to income on a straight-line basis over the term of the lease. Incremental direct costs and fees paid or received in connection with the acquisition of operating leases, including incentive and rate participation payments made to vehicle dealers and acquisition fees collected from customers, are capitalized or deferred and amortized on a straight-line basis over the term of the related contract. Payments received on subvention programs are deferred and recognized on a straight-line basis over the term of the related contracts. Operating lease revenue is recorded net of sales taxes collected from customers.

Direct Finance Lease Revenues

At lease inception, we record the aggregate future minimum lease payments, contractual residual value of the leased vehicle, and unearned income. Unearned income includes deferred subvention payments received from affiliates. Revenue is recognized over the lease term so as to approximate a level rate of return on the outstanding net investment. Incremental direct costs and fees paid or received in connection with the acquisition of direct finance leases, including incentive and rate participation payments made to vehicle dealers and acquisition fees collected from customers, are capitalized or deferred and amortized so as to approximate a level rate of return over the term of the related contracts.

Insurance Earned Premiums and Contract Revenues

Revenues from providing coverage under various contractual agreements are recognized over the term of the coverage in relation to the timing and level of anticipated claims and administrative expenses. Revenues from insurance policies, net of premiums ceded to reinsurers, are earned over the terms of the respective policies in proportion to the estimated loss development. Management relies on historical loss experience as a basis for establishing earnings factors used to recognize revenue over the term of the contract or policy.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

The portion of premiums and contract revenues applicable to the unexpired terms of the agreements is recorded as unearned insurance premiums and contract revenues. Agreements sold range in term from 3 to 120 months. Certain costs of acquiring new business, consisting primarily of dealer commissions and premium taxes, are deferred and amortized over the term of the related policies on the same basis as revenues are earned.

Service commissions and fees are recognized over the term of the coverage in relation to the timing of services performed. The effect of subsequent cancellations is recorded as an offset to unearned insurance premiums and contract revenues.

Depreciation on Operating Leases

Depreciation on vehicle operating leases is recognized using the straight-line method over the lease term, typically two to five years. The depreciable basis is the original cost of the vehicle less the estimated residual value of the vehicle at the end of the lease term.

Allowance for Credit Losses

We maintain an allowance for credit losses to cover probable and estimable losses on our earning assets resulting from the failure of customers or dealers to make contractual payments. Management evaluates the allowance at least quarterly, considering a variety of factors and assumptions to determine whether the allowance is considered adequate to cover probable and estimable losses incurred as of the balance sheet date. The allowance for credit losses is management’s estimate of the amount of probable incurred credit losses in our existing finance receivables and investment in operating leases portfolios.

Management develops and documents the allowance for credit losses on finance receivables based on three portfolio segments. We also separately develop and document the allowance for credit losses for investments in operating leases. Investments in operating leases are not within the scope of accounting guidance governing the disclosure of portfolio segments. The determination of portfolio segments is based primarily on the qualitative consideration of the nature of our business operations and the characteristics of the underlying finance receivables. The three portfolio segments within finance receivables, net are:

Retail Loan Portfolio Segment – The retail loan portfolio segment consists of retail installment sales contracts (“retail contracts”) acquired from vehicle dealers in the U.S. and Puerto Rico. Under a retail contract, we are granted a security interest in the underlying collateral which consists primarily of Toyota or Lexus vehicles. Based on the common risk characteristics associated with the underlying finance receivables, the retail loan portfolio segment is considered a single class of finance receivable.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Commercial Truck and Industrial Equipment Loan & Direct Finance Lease Portfolio Segment (“Commercial Portfolio Segment”) – The commercial portfolio segment consists of commercial installment sales contracts (“commercial loan contracts”) and leasing contracts accounted for as direct finance leases (“commercial lease contracts”) acquired from commercial truck and industrial equipment dealers in the U.S. Under commercial loan and commercial lease contracts, we are granted a security interest in the underlying collateral which consists of various types of commercial trucks and industrial equipment. Based on the common risk characteristics associated with the underlying finance receivables and the similarity of the credit risk with respect to the two types of contracts, the commercial portfolio segment is considered a single class of finance receivable.

Dealer Products Portfolio Segment – The dealer products portfolio segment consists of wholesale loans (also referred to as floorplan financing), real estate loans, working capital loans and revolving lines of credit to vehicle and industrial equipment dealers in the U.S. and Puerto Rico. Wholesale loans are primarily collateralized by new or used vehicle inventory with the outstanding balance fluctuating based on the level of inventory. Real estate loans are collateralized by the underlying real estate, are underwritten on a loan-to-value (“LTV”) basis and are typically for a fixed term. Working capital loans and revolving lines of credit are granted for working capital purposes and are secured by dealership assets. Based on the risk characteristics associated with the underlying finance receivables, the dealer products portfolio segment consists of three classes of finance receivables: wholesale, real estate, and working capital.

Methodology Used to Develop the Allowance for Credit Losses on Finance Receivables

Retail Loan Portfolio Segment

The level of credit risk in our retail loan portfolio segment is influenced primarily by two factors: default frequency and loss severity, which in turn are influenced by various factors such as economic conditions, the used vehicle market, purchase quality mix, contract term length, and operational changes.

We evaluate the retail loan portfolio segment using methodologies such as roll rate, credit risk grade/tier, and vintage analysis. We review and analyze external factors, such as changes in economic conditions, actual or perceived quality, safety and reliability of Toyota and Lexus vehicles, unemployment levels, the used vehicle market, and consumer behavior. In addition, internal factors, such as purchase quality mix and operational changes are also considered in the reviews.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Commercial Portfolio Segment

The level of credit risk in our commercial portfolio segment is primarily influenced by two factors: default frequency and loss severity, which in turn are influenced by various economic factors, the used equipment and truck markets, purchase quality mix, contract term length, and operational changes.

We evaluate the commercial portfolio segment using methodologies such as product grouping analysis, historical loss and loss frequency by product. We review and analyze external factors, such as changes in economic conditions, unemployment level, and the used equipment and truck markets. In addition, internal factors, such as purchase quality mix, are also considered in the review.

Dealer Products Portfolio Segment

The level of credit risk in our dealer products portfolio segment is influenced primarily by the financial strength of dealers within our portfolio, dealer concentration, collateral quality, and other economic factors. The financial strength of dealers within our portfolio is influenced by, among other factors, general economic conditions, the overall demand for new and used vehicles and industrial equipment and the financial condition of automotive manufacturers in general.

We evaluate the dealer portfolio by first aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by either vehicles and industrial equipment, real estate or dealership assets, or unsecured). We then analyze dealer pools using an internally developed risk rating. In addition, field operations management and our special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. If impaired loans are identified, specific reserves are established, as appropriate, and the loan is removed from the loan-risk pool for separate monitoring.

Accounting for the Allowance for Credit Losses and Impaired Receivables

The majority of the allowance for credit losses covers estimated losses on the retail loan portfolio segment, the commercial portfolio segment and the investment in operating lease contracts, which are collectively evaluated for impairment. The retail loan portfolio segment and the commercial portfolio segment are collectively referred to as the homogeneous portfolio segments. The remainder of the allowance for credit losses covers the estimated losses on the dealer products portfolio segment. In addition, we establish specific reserves to cover the estimated losses on individual impaired loans (including loans modified in a troubled debt restructuring) within the dealer products portfolio segment. We also maintain specific reserves on the homogeneous portfolio segments for groups of accounts, if any, modified under specific programs that meet the criteria for a troubled debt restructuring.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Increases to the allowance for credit losses are accompanied by corresponding charges to the provision for credit losses. Account balances in the homogeneous portfolio segments and investments in operating leases are charged off against the allowance for credit losses when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first. Related collateral, if recoverable, is repossessed and sold. Any shortfalls in the homogeneous portfolio segments and investments in operating leases between proceeds received from the sale of repossessed collateral and the amounts due from customers are charged against the allowance. Any shortfalls in the dealer products portfolio segment between proceeds received from the sale of repossessed collateral and the amounts specifically reserved will result in additional losses. The allowance related to our earning assets is included in finance receivables, net and investment in operating leases, net in the Consolidated Balance Sheet.

Insurance Losses and Loss Adjustment Expenses

Insurance losses and loss adjustment expenses include amounts paid and accrued for loss events that are known and have been recorded as claims, estimates of losses incurred but not reported that are based on actuarial estimates and historical loss development patterns, and loss adjustment expenses that are expected to be incurred in connection with settling and paying these claims.

Accruals for unpaid losses, losses incurred but not reported, and loss adjustment expenses are included in other liabilities in the Consolidated Balance Sheet. Estimated liabilities are reviewed regularly and we recognize any adjustments in the periods in which they are determined. If anticipated losses, loss adjustment expenses, unamortized acquisition and maintenance costs exceed the recorded unearned premium, a premium deficiency is recognized by first charging any unamortized acquisition costs to expense and then by recording a liability for any excess deficiency.

Cash and Cash Equivalents

Cash equivalents, consisting primarily of money market instruments and debt securities, represent highly liquid investments with maturities of three months or less at purchase.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Restricted Cash

Restricted cash represents customer collections on securitized receivables to be distributed to investors as payments on the related secured debt and certain reserve deposits held for securitization trusts.

Investments in Marketable Securities

Investments in marketable securities consist of debt and equity securities. Debt and equity securities designated as available-for-sale (“AFS”) are carried at fair value using quoted market prices where available with unrealized gains or losses included in Accumulated Other Comprehensive Income (“AOCI”), net of applicable taxes in the Consolidated Statement of Shareholder’s Equity. We use the specific identification method to determine realized gains and losses related to our investment portfolio. Realized investment gains and losses are reflected in Investment and Other Income in the Consolidated Statement of Income.

Other-than-Temporary Impairment

We periodically evaluate unrealized losses on our AFS debt securities portfolio for other-than-temporary impairment (“OTTI”). An OTTI loss with respect to debt securities must be recognized in earnings if we have the intent to sell the debt security or it is more likely than not that we will be required to sell the debt security before recovery of its amortized cost basis. If we have no intent to sell and we believe that it is more likely than not we will not be required to sell these securities prior to recovery, the credit loss component of the unrealized losses are recognized in Investment and Other Income, net in the Consolidated Statement of Income, while the remainder of the loss is recognized in AOCI. The credit loss component recognized in Investment and Other Income, net in the Consolidated Statement of Income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using a credit cash flow analysis for debt securities.

We perform periodic reviews of our AFS equity securities to determine whether unrealized losses are temporary in nature. If losses are considered to be other-than-temporary, the cost basis of the security is written down to fair value and the write down is reflected in Investment and Other Income, net in the Consolidated Statement of Income.

OTTI Evaluation

An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in AOCI. We conduct periodic reviews of securities in unrealized loss positions for the purpose of evaluating whether the impairment is other-than-temporary.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

As part of our ongoing assessment of OTTI, we consider a variety of factors. Such factors include the length of time and extent to which the market value has been less than cost, adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of the security, the volatility of the fair value changes, and changes to the fair value after the balance sheet date.

For equity and debt securities, we also consider our intent and ability to hold the security for a period of time sufficient for recovery of fair value. Where we lack that intent or ability, the equity security’s decline in fair value is deemed to be other-than-temporary and is recorded in earnings. For debt securities that we do not intend to sell or with respect to which it is more likely than not that we will not be required to sell, we also evaluate expected cash flows to be received to determine whether a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in AOCI. For debt securities that we intend to sell or where it is more likely than not that we will be required to sell, the credit loss is recorded in earnings.

Finance Receivables

We record our finance receivables, which consist of the dealer products portfolio segment and homogeneous portfolio segments, at an amount comprised of the recorded investment (unpaid principal balance plus accrued interest less charge-offs against the allowance for credit losses, if any) net of the allowance for credit losses, unearned income and any deferred origination costs.

Impaired Receivables

For all classes of finance receivables within the dealer products portfolio segment, a receivable account balance is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (including principal and interest) according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying loan agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether a loan is impaired. Impaired receivables include certain nonaccrual dealer products portfolio segment receivables for which a specific reserve has been assessed based on either discounted cash flows, market value, or fair value of the underlying collateral. Impaired receivables are excluded from the loan risk pool used to determine the allowance for credit losses.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Nonaccrual Policy

Dealer Products Portfolio Segment

Impaired receivables in the dealer product portfolio segment are placed on nonaccrual status if full payment of principal or interest is in doubt, or when principal or interest is 90 days or more past due. Interest accrued, but not collected at the date a receivable is placed on nonaccrual status, is reversed against interest income. In addition, the amortization of net deferred fees is suspended. Interest income on nonaccrual receivables is recognized only to the extent it is received in cash. Accounts are restored to accrual status only when interest and principal payments are brought current and future payments are reasonably assured. Receivable balances are charged off against the allowance for credit losses when the loss has been realized.

Homogeneous Portfolio Segments

Receivables within the homogeneous portfolio segments are not placed on nonaccrual status when principal or interest is 90 days or more past due. Rather, these receivables are charged off against the allowance for credit losses when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first. Prior to the fourth quarter of fiscal 2010, an account was charged-off against the allowance for credit losses when it was 150 days past due. Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 to 120 days past due.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Investments in Operating Leases

We record our investments in operating leases at acquisition cost, less accumulated depreciation and net of the allowance for credit losses, deferred income and deferred origination fees.

Nonaccrual Policy

Investments in operating leases are not placed on nonaccrual status when principal or interest is 90 days or more past due. Rather, these accounts are charged off when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first. Prior to the fourth quarter of 2010, an account was considered contractually delinquent when it was 150 days past due. Beginning with the fourth quarter of 2010, we changed our charge-off policy from 150 to 120 days past due.

Determination of Residual Value

Substantially all of our residual value risk relates to our vehicle lease portfolio. Residual values of lease earning assets are estimated at lease inception by examining external industry data, the anticipated Toyota and Lexus product pipeline and our own experience. Factors considered in this evaluation include, but are not limited to, local, regional and national economic forecasts, new vehicle pricing, new vehicle incentive programs, new vehicle sales, future plans for new Toyota and Lexus product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values, buying and leasing behavior trends, and fuel prices. We use various channels to sell vehicles returned at lease end.

On a quarterly basis, we review the estimated end-of-term market values of leased vehicles to assess the appropriateness of the carrying values. To the extent the estimated end-of-term market value of a leased vehicle is lower than the residual value established at lease inception, the residual value of the leased vehicle is adjusted downward so that the carrying value at lease end will approximate the estimated end-of-term market value. Factors affecting the estimated end-of-term market value are similar to those considered in the evaluation of residual values at lease inception discussed above. These factors are evaluated in the context of their historical trends to anticipate potential changes in the relationship among these factors in the future. For operating leases, adjustments are made on a straight-line basis over the remaining terms of the leases and are included in depreciation on operating leases in the Consolidated Statement of Income. For direct finance leases, adjustments are made at the time of assessment and are recorded as a reduction of direct finance lease revenues which is included under our retail revenues in the Consolidated Statement of Income.

We review operating leases for impairment whenever events or changes in circumstances indicate that the carrying value of the operating leases may not be recoverable. If such events or changes in circumstances are present, and if the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms are less than book value, the operating lease assets are considered to be impaired and a loss would be calculated and recorded in the current period Consolidated Statement of Income.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Used Vehicles Held for Sale

Used vehicles held for sale consist of off-lease vehicles and repossessed vehicles. Off-lease vehicles are stated at the lower of cost, determined based on the contractual lease value, or market, using recent sales values. Repossessed vehicles are stated at market, based on the same method used to estimate the residual value for off-lease vehicles.

Debt Issuance Costs

Costs that are direct and incremental to debt issuance are capitalized and amortized to interest expense on a level yield basis over the contractual term of the debt. All other costs related to debt issuance are expensed as incurred.

Fair Value Measurement – Definition and Hierarchy

The accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs by requiring that observable inputs be used when available. Fair value should be based on assumptions that market participants would use, including a consideration of nonperformance risk. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted (unadjusted) prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Examples of assets currently utilizing Level 1 inputs are most U.S. government securities, actively exchange-traded equity mutual funds, and money market funds.

Level 2: Quoted prices in active markets for similar assets and liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Examples of assets and liabilities currently utilizing Level 2 inputs are certificates of deposits, commercial paper, U.S. government agency securities, corporate debt securities, most mortgage-backed and asset-backed securities, private placement investments in fixed income mutual funds, and most over-the-counter derivatives.

Level 3: Unobservable inputs that are supported by little or no market activity may require significant judgment in order to determine the fair value of the assets and liabilities. Examples of assets and liabilities currently utilizing Level 3 inputs are structured over-the-counter derivatives with limited activity or less transparency around inputs to the valuation.

The use of observable and unobservable inputs is reflected in the fair value hierarchy assessment disclosed in the tables within this document. The availability of observable inputs can vary based upon the financial instrument and other factors, such as instrument type, market liquidity and other specific characteristics particular to the financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires additional judgment by management. The degree of management’s judgment can result in financial instruments being classified as or transferred to the Level 3 category.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

We review the appropriateness of fair value measurements including validation processes, key model inputs, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. All fair value measurements are subject to our analysis. Review and approval by management is required as part of the validation process.

Derivative Instruments

In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged. When we designate a derivative in a hedging relationship, we document the risk management objective and strategy. This documentation includes the identification of the hedging instrument, the hedged item and the risk exposure, and how we will assess effectiveness prospectively and retrospectively. We assess the extent to which a hedging instrument is effective at achieving offsetting changes in fair value at least quarterly.

We use the “long-haul” method of assessing effectiveness for our fair value hedges, except for certain types of existing hedge relationships that meet stringent criteria where we apply the shortcut method. The shortcut method provides an assumption of zero ineffectiveness that results in equal and offsetting changes in fair value in the Consolidated Statement of Income for both the hedged debt and the hedge accounting derivative. When the shortcut method is not applied, any ineffective portion of the derivative that is designated as a fair value hedge is recognized as a component of interest expense in the Consolidated Statement of Income. We recognize changes in the fair value of derivatives designated in fair value hedging relationships (including foreign currency fair value hedging relationships) in interest expense in the Consolidated Statement of Income along with the fair value changes of the related hedged item.

If we elect not to designate a derivative instrument in a hedging relationship, or the relationship does not qualify for hedge accounting treatment, the full change in the fair value of the derivative instrument is recognized as a component of interest expense in the Consolidated Statement of Income with no offsetting adjustment for the economically hedged item.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

We review the effectiveness of our hedging relationships at least quarterly to determine whether the relationships have been and continue to be effective. We use regression analysis to assess the effectiveness of our hedges. When we determine that a hedging relationship is not or has not been effective, hedge accounting is no longer applied. If hedge accounting is discontinued, we continue to carry the derivative instrument as a component of other assets or other liabilities in the Consolidated Balance Sheet at fair value with changes in fair value reported in interest expense in the Consolidated Statement of Income. Additionally, for discontinued fair value hedges, we cease to adjust the hedged item for changes in fair value and amortize the cumulative fair value adjustments recognized in prior periods over the remaining term of the hedged item.

We will also discontinue the use of hedge accounting if a derivative is sold, terminated, or if management determines that designating a derivative under hedge accounting is no longer appropriate (“de-designated derivatives”). De-designated derivatives are included within the category of non-hedge accounting derivatives.

We also issue debt which is considered a “hybrid financial instrument”. These debt instruments are assessed to determine whether they contain embedded derivatives requiring separate reporting and accounting. The embedded derivative may be bifurcated and recorded on the balance sheet at fair value or the entire financial instrument may be recorded at fair value. Changes in the fair value of the bifurcated embedded derivative or the entire hybrid financial instrument are reported in interest expense in the Consolidated Statement of Income.

Foreign Currency Transactions

Certain transactions we have entered into, primarily related to debt, are denominated in foreign currencies. If the debt is not in a hedge accounting relationship, the debt is translated into U.S. dollars using the applicable exchange rate at the transaction date and retranslated at each balance sheet date using the exchange rate in effect at that date. Gains and losses related to foreign currency transactions, primarily debt, are included in interest expense in the Consolidated Statement of Income. Payments on debt in the Consolidated Statement of Cash Flows include repayment of principal and the net amount of exchange of notional on currency swaps that economically hedge these transactions. Proceeds from issuance of debt in the Consolidated Statement of Cash Flows include both the proceeds from the initial issuance of debt and the net amount of exchange of notional on currency swaps that economically hedge these transactions.

Reinsurance

On certain covered risks, we purchase reinsurance on an annual basis to protect us against the impact of unpredictable high severity losses. The amounts recoverable from reinsurers are estimated in a manner consistent with the reinsurance policy and include recoverable amounts for paid and unpaid losses. Amounts recoverable from reinsurers on unpaid losses, including incurred but not reported losses, and losses paid are included in other assets in the Consolidated Balance Sheet. Amounts recoverable from reinsurers on unpaid losses are recorded as a receivable but are not collectible until the losses are paid. Revenues related to premiums ceded are recognized on the same basis as the related revenues from premiums written. Ceded insurance-related expenses are recorded as a reduction to insurance losses and loss adjustment expenses in the Consolidated Statement of Income.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Income Taxes

We use the liability method of accounting for income taxes under which deferred tax assets and liabilities are adjusted to reflect changes in tax rates and laws in the period such changes are enacted resulting in adjustments to the current fiscal year’s provision for income taxes.

TMCC files a consolidated federal income tax return with its subsidiaries and TFSA. TMCC files either separate or consolidated/combined state income tax returns with Toyota Motor North America (“TMA”), TFSA, or subsidiaries of TMCC. State income tax expense is generally recognized as if TMCC and its subsidiaries filed their tax returns on a stand-alone basis. In those states where TMCC and its subsidiaries join in the filing of consolidated or combined income tax returns, TMCC and its subsidiaries are allocated their share of the total income tax expense based on combined allocation/apportionment factors and separate company income or loss. Based on the state tax sharing agreement with TMA, TMCC and its subsidiaries pay for their share of the combined income tax expense and are reimbursed for the benefit of any of their tax losses utilized in the combined state income tax returns.

New Accounting Guidance

In May 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on fair value measurement and disclosure requirements. The guidance generally clarifies the application of existing requirements on topics including the concepts of highest and best use and valuation premise, measuring the fair value of instruments classified in shareholder’s equity, and disclosing quantitative information about the unobservable inputs used in the measurement of instruments categorized within Level 3 of the fair value hierarchy. Additionally, the guidance includes changes on topics such as measuring the fair value of financial instruments that are managed within a portfolio and additional disclosure for fair value measurements categorized within Level 3 of the fair value hierarchy. This accounting guidance is effective for us on January 1, 2012. We are currently evaluating the effect that adoption of this guidance will have on our consolidated financial condition and results of operations.

In April 2011, the FASB issued accounting guidance that removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee. It also removes the collateral maintenance implementation guidance related to this criterion. This accounting guidance is effective for us on January 1, 2012 and is not expected to have a material impact on our consolidated financial condition or results of operations.

In April 2011, the FASB issued accounting guidance that clarifies whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a loan modification constitutes a troubled debt restructuring. This accounting guidance also supersedes previous accounting guidance that temporarily delayed the effective date for disclosures about troubled debt restructurings as part of the credit quality of finance receivables and the allowance for credit losses disclosures. This accounting guidance is effective for us for the quarter ending September 30, 2011, with retrospective application back to April 1, 2011, and is not expected to have a material impact on our consolidated financial condition or results of operations.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

In October 2010, the FASB issued accounting guidance on the capitalization of costs relating to the acquisition or renewal of insurance contracts. This accounting guidance was effective for us on April 1, 2012 with early adoption permitted. We early adopted the accounting guidance on April 1, 2011 and it did not have a material impact on our consolidated financial condition or results of operations.

In October 2009, the FASB issued accounting guidance that sets forth the requirements that must be met for a company to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered. This accounting guidance was effective for us on April 1, 2011 and did not have a material impact on our consolidated financial condition or results of operations.

In October 2009, the FASB issued accounting guidance that changes the accounting model for revenue arrangements that include both tangible products and software elements that function together to deliver the product’s essential functionality. The accounting guidance more closely reflects the underlying economics of these transactions. This accounting guidance was effective for us on April 1, 2011 and did not have a material impact on our consolidated financial condition or results of operations.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Recently Adopted Accounting Guidance

In December 2010, we adopted new FASB accounting guidance requiring additional disclosures about the credit quality of finance receivables and the allowance for credit losses. The new disclosures provide transparency regarding the nature of credit risk inherent in finance receivables, how credit risk is analyzed and assessed in arriving at the allowance for credit losses, as well as the reasons for changes in the allowance for credit losses. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In April 2010, we adopted new FASB accounting guidance for transfers of financial assets. The new accounting guidance removes the concept of a qualifying special purpose entity and revises the accounting criteria for transfer of financial assets to be considered a sale. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In April 2010, we adopted new FASB accounting guidance on consolidation of variable interest entities. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In March 2010, we adopted new FASB accounting guidance requiring disclosure of gross transfers in and out of Level 3 as well as transfers between Levels 1 and 2 of the fair value hierarchy. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In January 2010, we adopted new FASB accounting guidance that addresses the accounting and reporting for an entity that experiences a decrease in ownership of a subsidiary, including the deconsolidation of a subsidiary and the exchange of assets for an equity interest in another entity. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In October 2009, we adopted new FASB accounting guidance which provided clarification that, in the absence of a quoted price for a liability, companies may apply methods that use the quoted price of an investment traded as an asset or other valuation techniques consistent with the fair-value measurement principle. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In July 2009, we adopted new FASB accounting guidance The Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the “Codification”) as the single source of authoritative accounting guidance for public companies. The Codification did not change generally accepted accounting principles but rather enhanced the way accounting principles are organized. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

In April 2009, we adopted new FASB accounting guidance requiring disclosure about the method and significant assumptions used to establish the fair value of financial instruments for interim reporting periods as well as annual statements. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In April 2009, we adopted new FASB additional accounting guidance for OTTI to improve the consistency in the timing of impairment recognition, as well as provide greater clarity to investors about credit and non-credit components of impaired debt securities that are not expected to be sold. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations. Upon adoption we did not record a transition adjustment for securities held at March 31, 2009 that were previously considered other-than-temporarily impaired as we intended to sell or believed it was more likely that we would be required to sell the securities for which we had previously recognized OTTI.

In April 2009, we adopted new FASB accounting guidance which primarily addressed the measurement of fair value of financial assets and liabilities when there is no active market or where the price inputs being used could be indicative of distressed sales. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements

Fair Value Methods

Fair value is based on quoted market prices, if available. If listed prices or quotes are not available, fair value is based upon internally developed models that primarily use as inputs market-based or independently sourced market parameters. We use prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the availability of prices and inputs may be reduced for certain financial instruments. This condition could result in a financial instrument being reclassified from Level 1 to Level 2 or from Level 2 to Level 3.

Valuation Adjustments

Counterparty Credit Valuation Adjustments – Adjustments are required when the market price (or parameter) is not indicative of the credit quality of the counterparty.

Non-Performance Credit Valuation Adjustments – Adjustments reflect our own non-performance risk when our liabilities are measured at fair value.

Liquidity Valuation Adjustments – Adjustments are necessary when we are unable to observe prices for a financial instrument due to market illiquidity.

Valuation Methods

For financial instruments measured at fair value, the following section describes the valuation methodologies, key inputs and significant assumptions.

Cash Equivalents

Cash equivalents, consisting primarily of money market instruments and debt securities, represent highly liquid investments with maturities of three months or less at purchase. Generally, quoted market prices are used to determine the fair value of money market instruments.

Marketable Securities

The marketable securities portfolio consists of debt and equity securities. We use quoted prices of identical securities for all U.S. government securities, actively exchange-traded equity mutual funds and all other securities if available.

If quoted market prices are not available for specific securities, then we may estimate the value of such instruments using observed transaction prices, independent pricing services, and either internally or externally developed pricing models or discounted cash flows. Where there is limited market activity or less transparency around inputs to the valuation model for certain collateralized mortgage and debt obligations, asset-backed securities, and high-yield debt securities, the determination of fair value may require benchmarking yields to that of similar instruments or analyzing default rates. In addition, asset-backed securities may be valued based on external prices or market spreads, using current market assumptions on prepayment speeds and default rates. For certain other asset-backed securities where the external price is not observable, we may incorporate the deal collateral performance and tranche level attributes into our valuation analysis.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

We hold investments in actively exchange-traded equity mutual funds and private placement fixed income mutual funds. Where the funds produce a daily net asset value that is quoted in an active market, that value is used to value the fund investment and is classified in Level 1 of the fair value hierarchy. Where the funds produce a daily net asset value that is based on a combination of quoted prices from identical and similar securities and/or observable inputs, the funds are classified within Level 2.

Derivatives

As part of our risk management strategy, we enter into derivative transactions to mitigate our interest rate and foreign currency exposures. These derivative transactions are considered over-the-counter for valuation purposes. All of our derivative counterparties to which we had credit exposure at March 31, 2011 were assigned investment grade ratings by a credit rating organization.

We estimate the fair value of our derivatives using industry standard valuation models that require observable market inputs, including market prices, yield curves, credit curves, interest rates, foreign exchange rates, volatilities and the contractual terms of the derivative instruments. For derivatives that trade in liquid markets, such as interest rate swaps, model inputs can generally be verified and do not require significant management judgment.

Certain other derivative transactions trade in less liquid markets with limited pricing information. For such derivatives, key inputs to the valuation process include quotes from counterparties, and other market data used to corroborate and adjust values where appropriate. Other market data includes values obtained from a market participant that serves as a third party pricing agent. In addition, pricing is validated internally using valuation models to assess the reasonableness of changes in factors such as market prices, yield curves, credit curves, interest rates, foreign exchange rates and volatilities.

Our derivative fair value measurements consider assumptions about counterparty credit risk and our own non-performance risk. Generally, we assume that a valuation that uses the London Interbank Offered Rate (“LIBOR”) curve to convert future values to present value is appropriate for derivative assets and liabilities. We consider counterparty credit risk and our own non-performance risk through credit valuation adjustments. In situations in which our net position with a derivative counterparty is an asset, the counterparty credit valuation adjustment calculation uses the credit default probabilities of our derivative counterparties over a particular time period. In situations in which our net position with a derivative counterparty is a liability, we use our own credit default probability to calculate the required non-performance credit valuation adjustment. We use a relative fair value approach to allocate the credit valuation adjustments to our derivatives portfolio.

Finance Receivables

Our finance receivables are not carried at fair value on a recurring basis on the balance sheet. In certain instances, for finance receivables for which there is evidence of impairment we may use an observable market price or the fair value of collateral if the loan is collateral dependent. The fair values of impaired finance receivables based on the collateral value or market prices where available are reported at fair value on a nonrecurring basis. We may consider additional adjustments to reflect current market conditions in estimating fair value.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2011 and March 31, 2010, by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


As of March 31, 2011
					Fair value measurements on a recurring basis
										Counterparty netting			Fair
(Dollars in millions)					Level 1		Level 2		Level 3	& collateral			value
Cash equivalents				$	6,771	$	-	$	-	$	-	$	6,771
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			37		58		-		-		95
		Municipal debt securities			-		15		-		-		15
		Certificates of deposit and commercial paper			-		2,206		-		-		2,206
		Foreign government debt securities			-		5		-		-		5
		Corporate debt securities			-		126		-		-		126
		Mortgage-backed securities:
			U.S. government agency		-		78		-		-		78
			Non-agency residential		-		8		-		-		8
			Non-agency commercial		-		17		-		-		17
		Asset-backed securities			-		22		-		-		22
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		39		-		-		39
			U.S. government sector fund		-		478		-		-		478
			Municipal sector fund		-		18		-		-		18
			Investment grade corporate sector fund		-		317		-		-		317
			High-yield sector fund		-		35		-		-		35
			Real return sector fund		-		76		-		-		76
			Mortgage sector fund		-		639		-		-		639
			Asset-backed securities sector fund		-		39		-		-		39
			Emerging market sector fund		-		58		-		-		58
			International sector fund		-		136		-		-		136
		Equity mutual fund – S&P 500 index			415		-		-		-		415
	Available-for-sale securities total				452		4,370		-		-		4,822
	Derivative assets:
		Foreign currency swaps			-		3,947		113		-		4,060
		Interest rate swaps			-		270		20		-		290
		Counterparty netting and collateral			-		-		-		(3,449)		(3,449)
	Derivative assets total				-		4,217		133		(3,449)		901
	Embedded derivative assets				-		-		1		-		1
Total assets					7,223		8,587		134		(3,449)		12,495
	Derivative liabilities:
		Foreign currency swaps			-		(106)		(4)		-		(110)
		Interest rate caps			-		(1)		-		-		(1)
		Interest rate swaps			-		(923)		(3)		-		(926)
		Counterparty netting and collateral			-		-		-		886		886
	Derivative liabilities total				-		(1,030)		(7)		886		(151)
	Embedded derivative liabilities				-		-		(52)		-		(52)
Total liabilities					-		(1,030)		(59)		886		(203)
Total net assets				$	7,223	$	7,557	$	75	$	(2,563)	$	12,292

100

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

As of March 31, 2010

					Fair value measurements on a recurring basis1
										Counterparty			Fair
(Dollars in millions)					Level 1		Level 2		Level 3	netting & collateral			value
Cash equivalents				$	4,256	$	-	$	-	$	-	$	4,256
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			25		24		-		-		49
		Municipal debt securities			-		6		-		-		6
		Certificates of deposit and commercial paper			-		50		-		-		50
		Foreign government debt securities			-		22		-		-		22
		Corporate debt securities			-		93		-		-		93
		Mortgage-backed securities:
			U.S. government agency		-		120		-		-		120
			Non-agency residential		-		8		-		-		8
			Non-agency commercial		-		23		-		-		23
		Asset-backed securities			-		641		3		-		644
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		32		-		-		32
			U.S. government sector fund		-		250		-		-		250
			Municipal sector fund		-		39		-		-		39
			Investment grade corporate sector fund		-		260		-		-		260
			High-yield sector fund		-		22		-		-		22
			Mortgage sector fund		-		360		-		-		360
			Asset-backed securities sector fund		-		30		-		-		30
			Emerging market sector fund		-		37		-		-		37
			International sector fund		-		117		-		-		117
		Equity mutual fund – S&P 500 index			359		-		-		-		359
	Available-for-sale securities total				384		2,134		3		-		2,521
	Derivative assets:
		Foreign currency swaps			-		2,454		158		-		2,612
		Interest rate swaps			-		288		39		-		327
		Counterparty netting and collateral			-		-		-		(2,358)		(2,358)
	Derivative assets total				-		2,742		197		(2,358)		581
	Embedded derivative assets				-		-		4		-		4
Total assets					4,640		4,876		204		(2,358)		7,362
	Derivative liabilities:
		Foreign currency swaps			-		(370)		(89)		-		(459)
		Interest rate caps			-		(1)		-		-		(1)
		Interest rate swaps			-		(1,180)		(23)		-		(1,203)
		Counterparty netting and collateral			-		-		-		1,130		1,130
	Derivative liabilities total				-		(1,551)		(112)		1,130		(533)
	Embedded derivative liabilities				-		-		(34)		-		(34)
Total liabilities					-		(1,551)		(146)		1,130		(567)
Total net assets				$	4,640	$	3,325	$	58	$	(1,228)	$	6,795
1	Prior period amounts have been reclassified to conform to the current period presentation.

101

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

In the foregoing tables wherever we met the accounting guidance for setoff criteria, we elected to net derivative assets and derivative liabilities and the related cash collateral received and paid when legally enforceable master netting agreements exist for both the fiscal years 2011 and 2010.

Derivative assets and derivative liabilities include derivative asset counterparty credit valuation adjustments of $12 million and $10 million and derivative liability non-performance credit valuation adjustments of $1 million and $4 million respectively for fiscal 2011 and 2010.

Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The determination in classifying a financial instrument within Level 3 of the fair value hierarchy is based upon the significance of the unobservable factors to the overall fair value measurement. Transfers in and out of Level 3 for fiscal 2011 and 2010 are recognized at the end of their respective reporting periods. There were no transfers between Level 1 and Level 2 securities during fiscal 2011 and fiscal 2010.

Fiscal Year Ended March 31, 2011

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																	Total net
																	assets
			Available-for-sale securities						Derivatives								(liabilities)
			Non-agency
			commercial				Available-						Embedded
			mortgage-		Asset-		for-sale		Interest		Foreign		derivative
			backed		backed		securities		rate		currency		liabilities,		Total
(Dollars in millions)			securities		securities		total		swaps		swaps		net		Derivatives
Fair value, April 1, 2010			$	-	$	3	$	3	$	16	$	69	$	(30)	$	55	$	58
Total gains/(losses)
		Included in earnings		-		-		-		74		314		(21)		367		367
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		1		-		1		-		-		-		-		1
		Issuances		-		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-		-
		Settlements		-		-		-		(38)		(60)		-		(98)		(98)
Transfers in to Level 3				-		-		-		-		-		-		-		-
Transfers out of Level 3				(1)		(3)		(4)		(35)		(214)		-		(249)		(253)
Fair value, March 31, 2011			$	-	$	-	$	-	$	17	$	109	$	(51)	$	75	$	75
The amount of total gains or
(losses) for the period included
in earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date									$	19	$	145	$	(21)	$	143	$	143

102

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

Fiscal Year Ended March 31, 2010

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																	Total net
			Available-for-sale														assets
			securities							Derivatives							(liabilities)
			Non-agency
			residential				Available-							Embedded
			mortgage-			Asset-	for-sale		Interest			Foreign		derivative
			backed			backed	securities		rate			currency		liabilities,		Total
(Dollars in millions)			securities			securities	total		swaps			swaps		net	Derivatives
Fair value, April 1, 2009			$	-	$	-	$	-	$	88	$	(145)	$	(1)	$	(58)	$	(58)
Total gains/(losses)
		Included in earnings		-		-		-		21		277		(29)		269		269
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		3		3		-		-		-		-		3
		Issuances		-		-		-		-		-		-		-		-
		Sales		-		(1)		(1)		-		-		-		-		(1)
		Settlements		-		-		-		(83)		(63)		-		(146)		(146)
Transfers in to Level 3				1		1		2		-		-		-		-		2
Transfers out of Level 3				(1)		-		(1)		(10)		-		-		(10)		(11)
Fair value, March 31, 2010			$	-	$	3	$	3	$	16	$	69	$	(30)	$	55	$	58
The amount of total gains or
(losses) for the period included
in earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date									$	27	$	258	$	(29)	$	256	$	256

Significant Changes to Level 3 Assets During the Period

Level 3 assets net, reported at fair value on a recurring basis increased $17 million during fiscal 2011. The increase is primarily attributable to an increase in the fair value of derivative assets, specifically foreign currency derivatives, due to the weakening of the U.S. dollar during fiscal 2011. Certain derivatives previously categorized as Level 3 in prior periods were valued using observable inputs and were transferred into Level 2 during the year ended March 31, 2011.

103

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis

Certain assets are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances, for example, when there is evidence of impairment. For these assets, we disclose the fair value on a nonrecurring basis and any changes in fair value during the reporting period. Fair value measurements on a nonrecurring basis consisted of Level 3 net finance receivables of $191 million and $143 million as of March 31, 2011 and 2010, respectively.

Nonrecurring Fair Value Changes

Total change in fair value of financial instruments measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Consolidated Statement of Income consisted of a gain of $24 million on finance receivables, net and a loss of $27 million on finance receivables, net for fiscal 2011 and 2010, respectively.

104

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Fair Value of Financial Instruments

The accounting guidance for financial instruments requires disclosures of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair value. Financial instruments that are within the scope of this accounting guidance are included in the table below.

The following is a description of financial instruments for which the ending balances as of March 31, 2011 and March 31, 2010 are not carried at fair value in their entirety on the Consolidated Balance Sheet.

Finance Receivables

Fair value of finance receivables is generally determined by valuing expected discounted cash flows using a securitization model. We estimate cash flows expected to be collected using contractual principal and interest cash flows adjusted for specific factors, such as prepayments, default rates, loss severity, credit scores, and collateral type. The securitization model utilizes quoted secondary market rates if available, or estimated market rates that incorporate management’s best estimate of investor assumptions about the portfolio.

Commercial Paper

The carrying value of commercial paper issued is assumed to approximate fair value due to its short duration and generally negligible credit risk. We validate this assumption using quoted market prices where available.

Unsecured Notes and Loans Payable

We use quoted market prices for debt when available. When quoted market prices are not available, fair value is estimated based on current market rates and credit spreads for debt with similar maturities.

105

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Fair Value of Financial Instruments (Continued)

Secured Notes and Loans Payable

Fair value is estimated based on current market rates and credit spreads for debt with similar maturities. We also use internal assumptions, including prepayment speeds and expected credit losses on the underlying securitized assets, to estimate the timing of cash flows to be paid on these instruments.

The carrying value and estimated fair value of certain financial instruments at March 31, 2011 and March 31, 2010 were as follows:

			At March 31,
			2011				2010
			Carrying				Carrying
(Dollars in millions)			value		Fair value		value		Fair value
Financial assets
	Finance receivables, net	$	57,460	$	59,143	$	54,775	$	56,568

Financial liabilities
	Commercial paper	$	19,943	$	19,943	$	19,466	$	19,466
	Unsecured notes and loans payable	$	46,713	$	47,067	$	46,713	$	47,189
	Secured notes and loans payable	$	10,626	$	10,633	$	3,000	$	3,006

Finance receivables are presented net of allowance for credit losses; the amount excludes related party transactions of $39 million and $47 million and direct finance leases of $237 million and $265 million at March 31, 2011 and March 31, 2010, respectively.

The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment. Also included in unsecured notes and loans payable is $4.2 billion and $4.1 billion of loans payable to affiliates at March 31, 2011 and March 31, 2010, respectively, that are carried at amounts that approximate fair value.

106

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Investments in Marketable Securities

We classify all of our investments in marketable securities as available-for-sale. The amortized cost and estimated fair value of investments in marketable securities and related unrealized gains and losses were as follows:

				March 31, 2011
				Amortized		Unrealized		Unrealized			Fair
(Dollars in millions)				cost		gains		losses			value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	96	$	1	$	(2)	$	95
		Municipal debt securities			15		-		-		15
		Certificates of deposit and commercial paper			2,205		1		-		2,206
		Foreign government debt securities			5		-		-		5
		Corporate debt securities			121		5		-		126
		Mortgage-backed securities:
			U.S. government agency		77		2		(1)		78
			Non-agency residential		7		1		-		8
			Non-agency commercial		17		-		-		17
		Asset-backed securities			22		-		-		22
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		37		2		-		39
			U.S. government sector fund		526		-		(48)		478
			Municipal sector fund		18		-		-		18
			Investment grade corporate sector fund		279		38		-		317
			High-yield sector fund		27		8		-		35
			Real return sector fund		77		-		(1)		76
			Mortgage sector fund		644		-		(5)		639
			Asset-backed securities sector fund		34		5		-		39
			Emerging market sector fund		56		2		-		58
			International sector fund		136		2		(2)		136
		Equity mutual fund – S&P 500 Index			259		156		-		415
Total investments in marketable securities				$	4,658	$	223	$	(59)	$	4,822

107

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Investments in Marketable Securities (Continued)
					March 31, 20101
					Amortized	Unrealized		Unrealized			Fair
(Dollars in millions)					cost	gains		losses			value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	49	$	-	$	-	$	49
		Municipal debt securities			6		-		-		6
		Certificates of deposit and commercial paper			50		-		-		50
		Foreign government debt securities			22		-		-		22
		Corporate debt securities			89		4		-		93
		Mortgage-backed securities:
			U.S. government agency		116		4		-		120
			Non-agency residential		7		1		-		8
			Non-agency commercial		20		3		-		23
		Asset-backed securities			635		9		-		644
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		32		-		-		32
			U.S. government sector fund		271		-		(21)		250
			Municipal sector fund		35		4		-		39
			Investment grade corporate sector fund		235		25		-		260
			High-yield sector fund		15		7		-		22
			Mortgage sector fund		345		15		-		360
			Asset-backed securities sector fund		29		1		-		30
			Emerging market sector fund		33		4		-		37
			International sector fund		111		6		-		117
		Equity mutual fund – S&P 500 Index			252		107		-		359
Total investments in marketable securities				$	2,352	$	190	$	(21)	$	2,521
1	Prior period amounts have been reclassified to conform to the current period presentation.

Total fair value of certificates of deposit and commercial paper at March 31, 2011 and 2010 was $2.2 billion and $50 million, respectively. The balance at March 31, 2010 represents commercial paper issued by an affiliated entity with a fair value of $50 million.

We have subprime exposure in asset-backed securities and fixed income mutual fund holdings with a total fair value of $38 million and $37 million at March 31, 2011 and 2010, respectively.

Total fair value of asset-backed securities at March 31, 2011 and 2010 was $22 million and $644 million, respectively. At March 31, 2010, the majority of our asset-backed securities were secured by automobile related receivables. The fair value of asset-backed securities with collateral consisting primarily of receivables relating to Toyota vehicles was $627 million at March 31, 2010.

The fixed income mutual funds are private placement funds. The total fair value of private placement fixed income mutual funds was $1.8 billion and $1.1 billion at March 31, 2011 and 2010, respectively. For each fund, cash redemption limits may apply to each 90 day period.

108

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Investments in Marketable Securities (Continued)

OTTI Securities

For the fiscal year ended March 31, 2011, there were no AFS debt or equity securities deemed to be other-than-temporarily impaired, and therefore, all unrealized losses were recognized in AOCI. The following table presents other-than-temporary impairment losses that are included in realized losses for the year ended March 31, 2010:

	Year ended March 31, 2010
(Dollars in millions)	Non-agency residential mortgage-backed securities	Asset-backed securities	Total
Total other-than-temporary impairment losses	$5	$2	$7
Less: Portion of loss recognized in other
comprehensive income (pre-tax)	-	-	-
Net impairment losses recognized in income	$5	$2	$7

The portion of loss recognized in other comprehensive income (pre-tax) represents the non-credit component impact of the other-than-temporary impairment on AFS debt securities.

Net impairment losses recognized in income represents the other-than-temporary impairment on AFS debt and equity securities included in Investment and Other Income in the Consolidated Statement of Income.

Unrealized Losses on Securities

The following tables present the aging of fair value and gross unrealized losses for AFS securities:

				March 31, 2011
			Less than 12 months				12 months or more					Total
			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in millions)			value		losses		value		losses		value		losses
Available-for-sale securities:
Debt instruments:
	U.S. government and agency obligations		$	55	$	(2)	$	-	$	-	$	55	$	(2)
	U.S. government agency mortgage-
		backed securities		38		(1)		-		-		38		(1)
Equity instruments:
	U.S. government sector fund			478		(48)		-		-		478		(48)
	Real return sector fund			76		(1)		-		-		76		(1)
	Mortgage sector fund			639		(5)		-		-		639		(5)
	International sector fund			109		(2)		-		-		109		(2)
Total investments in marketable
	securities		$	1,395	$	(59)	$	-	$	-	$	1,395	$	(59)

109

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Investments in Marketable Securities (Continued)

		March 31, 2010
		Less than 12 months				12 months or more					Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in millions)		value		losses		value		losses		value		losses
Available-for-sale securities:
Equity instruments:
	U.S. government sector fund	$	-	$	-	$	250	$	(21)	$	250	$	(21)
Total investments in marketable
	securities	$	-	$	-	$	250	$	(21)	$	250	$	(21)

At March 31, 2011, we did not own any investments that have been in a continuous unrealized loss position for 12 consecutive months or more. At March 31, 2010, total gross unrealized loss and fair value of investments that had been in a continuous unrealized loss position for 12 consecutive months or more were $21 million and $250 million, respectively. These predominantly investment grade securities were comprised of private placement fixed income mutual funds.

Realized gains and losses on sales from AFS are presented below (dollars in millions). Realized losses on sales included $7 million and $181 million of impairment losses in fiscal 2010 and 2009, respectively. There were no impairment losses recorded in fiscal 2011.


		Years ended March 31,
Available-for-sale securities:		2011		2010		2009
Realized gains on sales	$	70	$	32	$	29
Realized losses on sales	$	23	$	24	$	222

110

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Investments in Marketable Securities (Continued)

Contractual Maturities and Yields

The contractual maturities of investments in marketable securities at March 31, 2011 are summarized in the following table (dollars in millions). Prepayments may cause actual maturities to differ from scheduled maturities.

		Due in 1 Year or				Due after 1 Year				Due after 5 Years
Fair Value of Available-			Less			through 5 Years				through 10 Years				Due after 10 Years					Total
for-Sale Securities:		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Debt instruments:
U.S. government and
	agency obligations	$	29	0.02	%	$	12	1.89	%	$	53	2.96	%	$	1	5.30	%	$	95	2.48	%
Municipal debt securities			-	-			-	-			-	-			15	5.74			15	5.74
Certificates of deposit and
	commercial paper	2,206		0.10			-	-			-	-			-	-			2,206	0.10
Foreign government debt
	securities		2	1.87			3	2.93			-	-			-	-			5	2.52
Corporate debt
	securities		7	5.55			64	4.22			50	5.15			5	6.05			126	4.75
Mortgage-backed securities:
	U.S. government agency		-	-			-	-			4	5.05			74	4.70			78	4.73
	Non-agency residential		-	-			-	-			-	-			8	12.85			8	12.85
	Non-agency commercial		-	-			-	-			-	-			17	4.99			17	4.99
Asset-backed securities			-	-			11	2.30			2	1.20			9	0.92			22	1.90
Debt instruments total			2,244	0.12			90	3.64			109	4.00			129	5.15			2,572	0.68

Equity instruments:
Fixed income mutual funds																			1,835	7.85
Equity mutual funds																			415	2.93
Equity instruments total																			2,250	6.94

Total fair value		$	2,244	0.12	%	$	90	3.64	%	$	109	4.00	%	$	129	5.15	%	$	4,822	3.60	%
Total amortized cost		$	2,243			$	88			$	109			$	125			$	4,658

Yields are based on the amortized cost balances of securities held at March 31, 2011. Yields are derived by aggregating the monthly result of interest and dividend income (including the effect of related amortization of premiums and accretion of discounts) divided by amortized cost. The total amortized cost includes amortized cost on equity securities that do not have a maturity date.

Securities on Deposit

In accordance with statutory requirements, we had on deposit with state insurance authorities U.S. debt securities with amortized cost and fair value of $6 million at March 31, 2011 and March 31, 2010.

111

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Finance Receivables, Net

Finance receivables, net consist of retail and dealer accounts including accrued interest and deferred costs, net of the allowance for credit losses and unearned income. Pledged receivables represent retail loan receivables that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements. Cash flows from these receivables are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors.


(Dollars in millions)			March 31, 2011		March 31, 20101
Retail receivables			$	34,951	$	42,078
Pledged retail receivables				11,546		3,037
Dealer financing				12,189		11,550
	Recorded investment			58,686		56,665
Deferred origination costs				650		666
Unearned income				(846)		(764)
Allowance for credit losses
	Retail and pledged retail receivables			(613)		(1,269)
	Dealer financing			(141)		(211)
		Total allowance for credit losses		(754)		(1,480)
Finance receivables, net			$	57,736	$	55,087
1	Prior period amounts have been reclassified to conform to the current period presentation.

Contractual maturities on retail receivables and dealer financing are as follows (dollars in millions):

	Contractual maturities
Years ending March 31,	Retail receivables		Dealer financing
2012	$	13,798	$	8,628
2013		11,982		909
2014		9,553		1,449
2015		6,935		323
2016		3,394		389
Thereafter		820		491
Total	$	46,482	$	12,189

Finance receivables, net and retail receivables presented in the previous tables include direct finance lease receivables, net of $237 million and $265 million at March 31, 2011 and March 31, 2010, respectively. Retail receivables excluded $15 million of estimated unguaranteed residual values related to direct finance leases.

A significant portion of our finance receivables has historically been repaid prior to contractual maturity.

112

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Finance Receivables, Net (Continued)

Credit Quality Indicators

We are exposed to credit risk on our finance receivables. Credit risk is the risk of loss arising from the failure of customers or dealers to meet the terms of their contracts with us or otherwise fail to perform as agreed.

Homogeneous Portfolio Segments

While we use various credit quality metrics to develop our allowance for credit losses on the retail loan and commercial finance portfolio segments, we primarily utilize the aging of the individual accounts to monitor the credit quality of these finance receivables. Based on our experience, the payment status of borrowers is the strongest indication of the credit quality of the underlying receivables. Payment status also impacts charge-offs.

Individual borrower accounts for each of the two classes of finance receivables (consumer and commercial loans) are segregated into one of four aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated quarterly.

Dealer Products Portfolio Segment

For three classes of finance receivables within the dealer products portfolio segment (wholesale, real estate and working capital), all loans outstanding to an individual dealer, affiliated entity or dealership group are aggregated and evaluated collectively by dealer or dealership group. This reflects the interconnected nature of financing provided to our individual dealer, affiliated entities and dealer group customers.

When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four distinct credit quality indicators based on internal risk assessments. The internal risk assessments for all finance receivables within the dealer products portfolio segment are updated on a monthly basis.

The four credit quality indicators are:

·	Performing – Account not classified as either Credit Watch, At Risk or Default

·	Credit Watch – Account designated for elevated attention

·	At Risk – Account where there is a probability that default exists based on qualitative and quantitative factors

·	Default – Account is not currently meeting contractual obligations or we have temporarily waived certain contractual requirements

113

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Finance Receivables, Net (Continued)

The tables below show the recorded investment for each credit quality indicator by class of finance receivable as of March 31, 2011 and 2010:

		Retail Loan				Commercial
(Dollars in millions)		March 31, 2011		March 31, 2010		March 31, 2011		March 31, 2010

Aging of finance receivables:
	Current	$	45,351	$	43,518	$	416	$	544
	30-59 days past due		562		779		15		31
	60-89 days past due		108		164		5		14
	90 days past due		39		58		1		7
Total		$	46,060	$	44,519	$	437	$	596

		Wholesale				Real Estate				Working Capital
(Dollars in millions)		March 31, 2011		March 31, 2010		March 31, 2011		March 31, 2010		March 31, 2011		March 31, 2010

Credit quality indicators:
	Performing	$	6,073	$	5,156	$	3,409	$	3,140	$	1,088	$	1,099
	Credit Watch		699		1,018		505		536		147		172
	At Risk		78		138		148		239		13		14
	Default		10		18		11		13		8		7
Total		$	6,860	$	6,330	$	4,073	$	3,928	$	1,256	$	1,292

114

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the information related to our recorded investment in impaired loans by class of finance receivable as of March 31, 2011 and March 31, 2010:

	Recorded Investment				Unpaid Principal Balance				Allowance
(Dollars in millions)	2011		2010		2011		2010		2011		2010

Impaired account balances with an allowance:

Wholesale	$	19	$	61	$	19	$	61	$	3	$	14
Real estate		156		135		156		135		50		63
Working capital		18		16		18		16		14		14
Total	$	193	$	212	$	193	$	212	$	67	$	91

Impaired account balances without an allowance:

Wholesale	$	62	$	8	$	62	$	8	$	-	$	-
Real estate		-		13		-		13		-		-
Working capital		3		1		3		1		-		-
Total	$	65	$	22	$	65	$	22	$	-	$	-

Total impaired account balances:

Wholesale	$	81	$	69	$	81	$	69	$	3	$	14
Real estate		156		148		156		148		50		63
Working capital		21		17		21		17		14		14
Total	$	258	$	234	$	258	$	234	$	67	$	91

As of March 31, 2011 and March 31, 2010, all impaired finance receivables within the dealer products portfolio segment were on nonaccrual status and there were no charge-offs against the allowance for credit losses. Therefore, the recorded investment in impaired loans is equal to the unpaid principal balance.

115

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Finance Receivables, Net (Continued)

The following table summarizes the average recorded investment in impaired loans and the related interest income recognized by class of finance receivable for fiscal 2011 and fiscal 2010:

	Average Recorded Investment				Interest Income Recognized
	Years ended March 31,				Years ended March 31,
(Dollars in millions)	2011		2010		2011		2010

Impaired account balances with an allowance:

Wholesale	$	20	$	68	$	-	$	1
Real estate		157		138		6		2
Working capital		18		17		1		1
Total	$	195	$	223	$	7	$	4

Impaired account balances without an allowance:

Wholesale	$	57	$	8	$	2	$	1
Real estate		-		13		-		3
Working capital		3		2		-		1
Total	$	60	$	23	$	2	$	5

Total impaired account balances:

Wholesale	$	77	$	76	$	2	$	2
Real estate		157		151		6		5
Working capital		21		19		1		2
Total	$	255	$	246	$	9	$	9

116

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Investments in Operating Leases, Net

Investments in operating leases, net consisted of the following:

(Dollars in millions)	March 31, 2011		March 31, 2010
Vehicles	$	24,790	$	23,460
Equipment and other		842		812
		25,632		24,272
Deferred origination fees		(167)		(123)
Deferred income		(764)		(577)
Accumulated depreciation		(5,535)		(6,196)
Allowance for credit losses		(125)		(225)
Investments in operating leases, net	$	19,041	$	17,151


Future minimum lease rentals on operating leases are as follows (dollars in millions):

	Future minimum
Years ending March 31,	rentals on operating leases
2012	$	3,565
2013		2,485
2014		982
2015		173
2016		24
Thereafter		-
Total	$	7,229

A significant portion of our operating lease contracts has historically terminated prior to maturity; future minimum rentals as shown above should not be considered as necessarily indicative of total future cash collections.

117

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Allowance for Credit Losses

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

		Years ended March 31,
(Dollars in millions)		2011		2010		2009
Allowance for credit losses at beginning of period	$	1,705	$	1,864	$	729
Provision for credit losses		(433)		604		2,160
Charge-offs, net of recoveries		(393)		(763)		(1,025)
Allowance for credit losses at end of period	$	879	$	1,705	$	1,864

Charge-offs are shown net of $137 million, $145 million and $109 million of recoveries for the fiscal years ended 2011, 2010 and 2009, respectively.

Allowance for Credit Losses and Recorded Investment in Finance Receivables by Portfolio Segment

The following tables provide information related to our allowance for credit losses and recorded investment in finance receivables by portfolio segment for fiscal 2011 and 2010:

For the Year Ended March 31, 2011

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total

Allowance for Credit Losses for Finance Receivables:

Beginning Balance at April 1, 2010	$	1,236	$	33	$	211	$	1,480
Charge-offs		(456)		(6)		-	$	(462)
Recoveries		100		8		-		108
Provisions		(285)		(17)		(70)		(372)
Ending Balance at March 31, 2011	$	595	$	18	$	141	$	754

Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	67	$	67
Ending Balance: Collectively Evaluated for Impairment	$	595	$	18	$	74	$	687

Gross Finance Receivables:

Ending Balance at March 31, 2011	$	46,060	$	437	$	12,189	$	58,686
Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	258	$	258
Ending Balance: Collectively Evaluated for Impairment	$	46,060	$	437	$	11,931	$	58,428

118

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Allowance for Credit Losses (Continued)

For the Year Ended March 31, 2010

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total

Allowance for Credit Losses for Finance Receivables:

Beginning Balance at April 1, 2009	$	1,371	$	4	$	190	$	1,565
Charge-offs		(733)		(32)		(4)	$	(769)
Recoveries		118		1		-		119
Provisions		480		60		25		565
Ending Balance at March 31, 2010	$	1,236	$	33	$	211	$	1,480

Ending Balance: Individually Evaluated for
Impairment	$	-	$	-	$	91	$	91
Ending Balance: Collectively Evaluated for
Impairment	$	1,236	$	33	$	120	$	1,389

Gross Finance Receivables:1

Ending Balance at March 31, 2010	$	44,519	$	596	$	11,550	$	56,665
Ending Balance: Individually Evaluated for
Impairment	$	-	$	-	$	234	$	234
Ending Balance: Collectively Evaluated for
Impairment	$	44,519	$	596	$	11,316	$	56,431

1 Prior period amounts have been reclassified to conform to the current period presentation.

We had no purchases or sales of any finance receivables during the above reporting periods. Furthermore, we had no finance receivables acquired with deteriorating credit quality.

	Past Due Finance Receivables and Investments in Operating Leases

(Dollars in millions)		March 31, 2011			March 31, 20101
Aggregate balances 60 or more days past due
	Finance receivables		$	157		$	253
	Operating leases			43			77
Total			$	200		$	330

1 Prior period amounts have been reclassified to conform to the current period presentation.

Substantially all retail, direct finance lease, and operating lease receivables do not involve recourse to the dealer in the event of customer default. Finance and operating lease receivables 60 or more days past due include accounts in bankruptcy and exclude accounts for which vehicles have been repossessed.

119

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Allowance for Credit Losses (Continued)

Past Due Finance Receivables by Class

The following tables summarize the aging of finance receivables by class as of March 31, 2011 and 2010 for finance receivables that are past due:

(Dollars in millions)	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Current		Total Finance Receivables		Carrying Amount 90 Days Past Due and Accruing

As of March 31, 2011

Retail Loan	$	562	$	108	$	39	$	709	$	45,351	$	46,060	$	39
Commercial		15		5		1		21		416		437		1
Wholesale		24		4		-		28		6,832		6,860		-
Real estate		4		-		-		4		4,069		4,073		-
Working capital		1		-		-		1		1,255		1,256		-
Total	$	606	$	117	$	40	$	763	$	57,923	$	58,686	$	40


(Dollars in millions)	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Current		Total Finance Receivables		Carrying Amount 90 Days Past Due and Accruing

As of March 31, 2010

Retail Loan	$	779	$	164	$	58	$	1,001	$	43,518	$	44,519	$	58
Commercial		31		14		7		52		544		596		7
Wholesale		-		1		9		10		6,320		6,330		-
Real estate		-		-		-		-		3,928		3,928		-
Working capital		-		-		-		-		1,292		1,292		-
Total	$	810	$	179	$	74	$	1,063	$	55,602	$	56,665	$	65

120

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

Our derivative activities are authorized and monitored by our Asset-Liability Committee, which provides a framework for financial controls and governance to manage market risks. We use internal models for analyzing and incorporating data from internal and external sources in developing various hedging strategies. We incorporate the resulting hedging strategies into our overall risk management strategies.

Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets. We hedge the risks inherent in these fixed rate and foreign currency denominated liabilities by entering into pay float interest rate swaps, foreign currency swaps and foreign currency forwards, which effectively convert our obligations into U.S. dollar denominated, 3-month LIBOR based payments. Gains and losses on these derivatives are recorded in interest expense.

Our assets consist primarily of U.S. dollar denominated, fixed rate receivables. Our approach to asset-liability management involves hedging our risk exposures so that changes in interest rates have a limited effect on our net interest margin and cash flows. We use pay fixed interest rate swaps and caps, executed on a portfolio basis, to manage the interest rate risk of these assets. Our resulting asset liability profile is consistent with the overall risk management strategy directed by the Asset-Liability Committee. Gains and losses on these derivatives are recorded in interest expense.

We enter into derivatives for risk management purposes only, and our use of derivatives is limited to the management of interest rate and foreign currency risks.

Credit Risk Related Contingent Features

Certain of our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements. Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold. In addition, upon specified downgrades in a party’s credit ratings, the threshold at which that party would be required to post collateral to the other party would be lowered.

121

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Derivatives, Hedging Activities and Interest Expense (Continued)

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at March 31, 2011 was $152 million, excluding embedded derivatives and adjustments made for our own non-performance risk. At March 31, 2011, we did not post collateral to counterparties with which we were in a net liability position. If our ratings were to have declined to “A+”, we would have been required to post $14 million of collateral to the counterparties with which we were in a liability position at March 31, 2011. If our ratings were to have declined to “BBB+” or below, we would have been required to post $152 million of collateral to the counterparties with which we were in a liability position at March 31, 2011. In order to settle all derivative instruments that were in a net liability position at March 31, 2011, excluding embedded derivatives and adjustments made for our own non-performance risk, we would have been required to pay $152 million.

Derivative Activity Impact on Financial Statements

The table below shows the location and amount of derivatives at March 31, 2011 as reported in the
Consolidated Balance Sheet:
		Hedge accounting				Non-hedge					Total
		derivatives				accounting derivatives					Total
			Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)			Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps		$	465	$	54	$	20,074	$	236	$	20,539	$	290
Foreign currency swaps			5,031		1,513		15,874		2,547		20,905		4,060
Embedded derivatives			-		-		10		1		10		1
	Total	$	5,496	$	1,567	$	35,958	$	2,784	$	41,454	$	4,351

Counterparty netting													(886)
Collateral held													(2,563)
	Carrying value of derivative contracts – Other assets											$	902

Other liabilities
Interest rate swaps		$	-	$	-	$	48,688	$	926	$	48,688	$	926
Interest rate caps			-		-		50		1		50		1
Foreign currency swaps			1,930		103		843		7		2,773		110
Embedded derivatives			-		-		259		52		259		52
	Total	$	1,930	$	103	$	49,840	$	986	$	51,770	$	1,089

Counterparty netting													(886)
Collateral posted													-
	Carrying value of derivative contracts – Other liabilities											$	203

122

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Derivatives, Hedging Activities and Interest Expense (Continued)

Derivative Activity Impact on Financial Statements

The table below shows the location and amount of derivatives at March 31, 2010 as reported in the
Consolidated Balance Sheet:

		Hedge accounting				Non-hedge					Total
		derivatives				accounting derivatives					Total
			Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)			Notional		value		Notional		value		Notional		value
Other Assets
Interest rate swaps		$	541	$	52	$	7,999	$	275	$	8,540	$	327
Foreign currency swaps			8,271		1,451		13,609		1,161		21,880		2,612
Embedded derivatives			-		-		58		4		58		4
	Total	$	8,812	$	1,503	$	21,666	$	1,440	$	30,478	$	2,943

Counterparty netting													(1,073)
Collateral held													(1,285)
	Carrying value of derivative contracts – Other assets											$	585

Other liabilities
Interest rate swaps		$	-	$	-	$	57,993	$	1,203	$	57,993	$	1,203
Foreign currency swaps			3,590		364		1,639		95		5,229		459
Interest rate caps			-		-		50		1		50		1
Embedded derivatives			-		-		310		34		310		34
	Total	$	3,590	$	364	$	59,992	$	1,333	$	63,582	$	1,697

Counterparty netting													(1,073)
Collateral posted													(57)
	Carrying value of derivative contracts – Other liabilities											$	567

123

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Derivatives, Hedging Activities and Interest Expense (Continued)

The following table summarizes the components of interest expense, including the location and amount of gains or losses on derivative instruments and related hedged items, for fiscal years 2011, 2010 and 2009 as reported in our Consolidated Statement of Income:


				Fiscal years ended March 31,
(Dollars in millions)				2011		2010		2009
Interest expense on debt1			$	1,943	$	2,278	$	2,759
Interest expense on pay float hedge accounting derivatives1				(449)		(722)		(530)
Interest expense on pay float non-hedge accounting derivatives1,3				(629)		(683)		(197)
		Interest expense on debt, net of pay float swaps		865		873		2,032

Interest expense on non-hedge pay fixed swaps1				1,057		1,334		797

(Gain) loss on hedge accounting derivatives:
	Interest rate swaps2			(2)		19		(8)
	Foreign currency swaps2			(832)		(1,512)		2,873
(Gain) loss on hedge accounting derivatives				(834)		(1,493)		2,865
Less hedged item: change in fair value of fixed rate debt				801		1,456		(2,915)
		Ineffectiveness related to hedge accounting derivatives2		(33)		(37)		(50)

Loss (gain) on foreign currency transactions				1,494		1,111		(598)
(Gain) loss on currency swaps and forwards 2				(1,595)		(1,106)		470

Loss (gain) on other non-hedge accounting derivatives:
		Pay float swaps2		121		224		6
		Pay fixed swaps2		(295)		(376)		299
Total interest expense			$	1,614	$	2,023	$	2,956

1 Amounts represent net interest settlements and changes in accruals.

2 Amounts exclude net interest settlements and changes in accruals.

3	Includes interest expense on both non-hedge accounting foreign currency swaps and forwards and non-hedge interest rate derivatives.

The following table summarizes the relative fair value allocation of derivative credit valuation adjustments within interest expense.

		Fiscal years ended March 31,
(Dollars in millions)			2011		2010

Ineffectiveness related to hedge accounting derivatives		$	(2)	$	15
Loss on currency swaps and forwards			5		12
(Gain) loss on non-hedge accounting derivatives:
	Pay float swaps		-		(1)
	Pay fixed swaps		2		31
Total credit valuation adjustment allocated to interest expense		$	5	$	57

124

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Other Assets and Other Liabilities

Other assets and other liabilities consisted of the following:

(Dollars in millions)	March 31, 2011		March 31, 2010
Other assets:

Notes receivable from affiliates	$	653	$	306
Used vehicles held for sale		162		220
Deferred charges		179		195
Income taxes receivable		118		97
Derivative assets		902		585
Other assets		556		515
Total other assets	$	2,570	$	1,918

Other liabilities:

Unearned insurance premiums and contract revenues	$	1,521	$	1,382
Derivative liabilities		203		567
Accounts payable and accrued expenses		855		902
Deferred income		243		244
Other liabilities		320		356
Total other liabilities	$	3,142	$	3,451

The change in used vehicles held for sale includes non cash activities of $58 million, $138 million and $89 million at March 31, 2011, March 31, 2010 and March 31, 2009, respectively.

125

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Debt

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


					Weighted average
					contractual interest rates
	March 31,				March 31,
(Dollars in millions)		2011		2010	2011		2010
Commercial paper	$	19,943	$	19,466	0.28	%	0.28	%
Unsecured notes and loans payable		45,304		45,617	3.33	%	3.58	%
Secured notes and loans payable		10,626		3,000	0.74	%	0.59	%
Carrying value adjustment		1,409		1,096
Total debt	$	77,282	$	69,179	2.13	%	2.49	%

The commercial paper balance includes unamortized premium or discount. Included in unsecured notes and loans payable is unamortized premium or discount and the effects of foreign currency transaction gains and losses on non-hedged or de-designated foreign currency denominated notes and loans payable. Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount.

Included in our unsecured notes and loans payable are notes and loans denominated in various foreign currencies. At March 31, 2011 and March 31, 2010, the carrying values of these notes payable were $27.0 billion and $28.5 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments.

Additionally, the carrying value of our unsecured notes and loans payable at March 31, 2011 included $14.1 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 6.0 percent and $32.6 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.3 percent to 15.3 percent. The carrying value of our unsecured notes and loans payable at March 31, 2010 included $14.0 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 10.4 percent and $32.7 billion of unsecured fixed rate debt with contractual interest rates ranging from 0 percent to 15.3 percent. Upon issuance of fixed rate notes, we generally elect to enter into interest rate swaps to convert fixed rate payments on notes to floating rate payments.

The carrying value adjustment on debt represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships. The carrying value adjustment on debt increased by $313 million at March 31, 2011 compared to March 31, 2010 primarily as a result of a weaker U.S. dollar relative to certain other currencies in which some of our debt is denominated.

As of March 31, 2011, our commercial paper had an average remaining maturity of 47 days, while our notes and loans payable mature on various dates through fiscal 2047.

126

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Debt (Continued)

Scheduled maturities of our debt portfolio are summarized below. Actual repayment of the secured debt will vary based on the repayment activity on the related pledged assets.

(Dollars in millions)		March 31,
Commercial paper	$	19,943
Other debt due in the fiscal years ending:
2012		24,828
2013		10,046
2014		5,491
2015		4,067
2016		7,114
Thereafter		5,793
Total other debt		57,339
Total debt	$	77,282

Interest payments on commercial paper and debt, including net settlements on interest rate swaps, were $1.7 billion, $2.1 billion and $2.6 billion in fiscal 2011, 2010 and 2009, respectively.

127

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Variable Interest Entities

We use one or more special purpose entities that are considered VIEs to issue asset-backed securities to third party bank-sponsored asset-backed securitization vehicles and to investors in securitization transactions. The securities issued by these VIEs are backed by the cash flows from finance receivables that have been transferred to the VIEs. Although the transferred finance receivables have been legally sold to the VIEs, we hold variable interests in the VIEs that could potentially be significant to the VIEs. We determined that we are the primary beneficiary of the securitization trusts because (i) our servicing responsibilities for the transferred receivables give us the power to direct the activities that most significantly impact the performance of the VIEs, and (ii) our variable interests in the VIEs give us the obligation to absorb losses and the right to receive residual returns that could potentially be significant.

The assets of the consolidated securitization VIEs consisted of $11,546 million and $3,037 million in gross retail finance receivables at March 31, 2011, and March 31, 2010, respectively. Net retail finance receivables, after consideration of deferred origination costs, unearned income and allowance for credit losses, were $11,317 million as of March 31, 2011. In addition, TMCC held $705 million and $173 million in cash which represent collections from the underlying pledged receivables and certain reserve deposits held for the securitization trusts at March 31, 2011 and March 31, 2010, respectively. We classified this cash as restricted cash on our consolidated balance sheet. The liabilities of these consolidated VIEs consisted of $10,626 million and $3,000 million in secured debt, net of $577 million and $0 million of securities retained by TMCC, and $3 million and $0.4 million in other liabilities at March 31, 2011 and March 31, 2010, respectively. The assets of the VIEs and the restricted cash held by TMCC serve as the sole source of repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to TMCC’s general credit, with the exception of customary representation and warranty repurchase provisions and indemnities.

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

In addition, we entered into interest rate swaps with certain special purpose entities that issue variable rate debt. Under the terms of these swaps, the securitization trusts are obligated to pay TMCC a fixed rate of interest on certain payment dates in exchange for receiving a floating rate of interest on amounts equal to the outstanding balance of the secured debt. This arrangement enables the securitization trusts to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate retail finance receivables.

128

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Variable Interest Entities (Continued)

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

129

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 – Liquidity Facilities and Letters of Credit

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

364 Day Credit Agreement

Three Year Credit Agreement

Five Year Credit Agreement

Committed Revolving Asset-backed Commercial Paper Facility

130

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 – Liquidity Facilities and Letters of Credit (Continued)

Other Credit Agreements

TMCC has committed bank credit facilities totaling $1 billion which matures in fiscal year 2013. These agreements contain covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. These credit facilities were not drawn upon as of March 31, 2011 and March 31, 2010.

We are in compliance with the covenants and conditions of the credit agreements described above.

131

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 – Pension and Other Benefit Plans

Defined Benefit Plan

Our employees are generally eligible to participate in the TMS pension plan commencing on the first day of the month following hire and are vested after 5 years of continuous employment. Benefits payable under this non-contributory defined benefit pension plan are based upon the employees' years of credited service, the highest average compensation for any 60 consecutive month period out of the last 120 months of employment, and one-half of the highest average fiscal year bonus for the 60 consecutive month period in the last 120 months of employment used to calculate highest average compensation, reduced by an estimated amount of social security benefits.

Defined Contribution Plan

Employees are also eligible to participate in the Toyota Savings Plan sponsored by TMS. Participants may elect to contribute up to 30 percent of their base pay on a pre-tax basis, subject to Internal Revenue Code limitations. We match 66-2/3 cents for each dollar the participant contributes, up to 6 percent of base pay. Participants are vested 25 percent each year with respect to our contributions and are fully vested after four years.

Note 14 – Income Tax Provision

The provision for income taxes consisted of the following:

		Years ended March 31,
(Dollars in millions)		2011		2010 1		2009 1
Current
Federal, net of foreign tax credit	$	(26)	$	(157)	$	170
State		30		30		20
Foreign		10		10		7
Total current		14		(117)		197
Deferred
Federal		981		672		(504)
State		151		47		(109)
Foreign		4		14		(13)
Total deferred		1,136		733		(626)
Provision for (benefit from) income taxes	$	1,150	$	616	$	(429)

Note 14 – Income Tax Provision (Continued)

The deferred federal and state income tax liabilities are as follows:

		March 31,
(Dollars in millions)		2011		2010 1
Federal	$	4,145	$	2,991
State		283		308
Foreign		(4)		(9)
Net deferred income tax liability	$	4,424	$	3,290
1 Prior period amounts have been reclassified to conform to the current period presentation.

Our deferred tax liabilities and assets consisted of the following:
		March 31,
(Dollars in millions)		2011		2010
Liabilities:
Lease transactions	$	6,061	$	5,079
State taxes		333		247
Other		490		272
Deferred tax liabilities	$	6,884	$	5,598

Assets:
Mark-to-market of investments in marketable securities	$	138	$	296
Provision for credit losses		548		990
Deferred costs and fees		192		106
Net operating loss and tax credit carryforwards		1,535		735
Other		51		188
Deferred tax assets		2,464		2,315
Valuation allowance		(4)		(7)
Net deferred tax assets	$	2,460	$	2,308

Net deferred income tax liability	$	4,424	$	3,290

Note 15 – Commitments and Contingencies

Commitments and Guarantees

We have entered into certain commitments and guarantees described below. The amounts under these
commitments and guarantees are summarized in the table below:

			Commitment amount as of
(Dollars in millions)			March 31, 2011		March 31, 2010
Commitments:
	Credit facilities with vehicle and industrial equipment		$	6,189	$	6,363
		dealers
	Minimum lease commitments			90		92
Total commitments				6,279		6,455
Guarantees and other contingencies:
	Guarantees of affiliate pollution control and solid waste
		disposal bonds		100		100
Total commitments and guarantees			$	6,379	$	6,555

Wholesale financing demand note facilities			$	9,422	$	9,482

Future minimum lease payments under non-cancelable operating leases are as follows (dollars in millions):

	Future minimum
Years ending March 31,	lease payments
2012	$	18
2013		17
2014		14
2015		11
2016		10
Thereafter		20
Total	$	90

Note 16 – Related Party Transactions (Continued)

(Dollars in millions)			March 31, 2011		March 31, 2010
Assets:
Investments in marketable securities
	Investments in marketable securities		$	-	$	50

Finance receivables, net
	Accounts receivable from affiliates		$	18	$	20
	Direct finance receivables from affiliates		$	5	$	-
	Notes receivable under home loan programs		$	21	$	27
	Deferred retail subvention income from affiliates		$	(732)	$	(663)

Investments in operating leases, net
	Leases to affiliates		$	5	$	29
	Deferred lease subvention income from affiliates		$	(761)	$	(575)

Other assets
	Notes receivable from affiliates		$	653	$	306
	Other receivables from affiliates		$	157	$	97
	Subvention support receivable from affiliates		$	109	$	143

Liabilities:
Debt
	Loans payable to affiliates		$	4,197	$	4,065

Other liabilities
	Unearned affiliate insurance premiums and
		contract revenues	$	364	$	223
	Accounts payable to affiliates		$	242	$	284
	Notes payable to affiliate		$	61	$	45

Shareholder’s Equity:
Dividends paid			$	266	$	50
Stock based compensation			$	1	$	1

At March 31, 2010, TMCC held an investment in commercial paper issued by TCCI with a fair value of $50 million. At March 31, 2011, TMCC did not hold a similar investment.

		Finance		Insurance		Intercompany
(Dollars in millions)		operations		operations		eliminations		Total
Fiscal 2011:
Total financing revenues		$	8,042	$	-	$	22	$	8,064
Insurance earned premiums and contract revenues			-		565		(22)		543
Investment and other income			46		196		(6)		236
Total gross revenues			8,088		761		(6)		8,843

Less:
	Depreciation on operating leases		3,353		-		-		3,353
	Interest expense		1,620		-		(6)		1,614
	Provision for credit losses		(433)		-		-		(433)
	Operating and administrative expenses		903		156		-		1,059
	Insurance losses and loss adjustment expenses		-		247		-		247
	Provision for income taxes		1,014		136		-		1,150
Net income		$	1,631	$	222	$	-	$	1,853

Total assets		$	89,141	$	3,094	$	(531)	$	91,704

Note 17 – Segment Information (Continued)


		Finance		Insurance		Intercompany
(Dollars in millions)		operations		operations		eliminations		Total
Fiscal 2010:1
Total financing revenues		$	8,145	$	-	$	18	$	8,163
Insurance earned premiums and contract revenues			-		470		(18)		452
Investment and other income			84		150		(6)		228
Total gross revenues			8,229		620		(6)		8,843

Less:
	Depreciation on operating leases		3,564		-		-		3,564
	Interest expense		2,029		-		(6)		2,023
	Provision for credit losses		604		-		-		604
	Operating and administrative expenses		630		130		-		760
	Insurance losses and loss adjustment expenses		-		213		-		213
	Provision for income taxes		516		100		-		616
Net income		$	886	$	177	$	-	$	1,063

Total assets		$	78,964	$	2,790	$	(561)	$	81,193


Fiscal 2009:1
Total financing revenues		$	8,774	$	-	$	26	$	8,800
Insurance earned premiums and contract revenues			-		447		(26)		421
Investment and other income			53		(35)		(7)		11
Total gross revenues			8,827		412		(7)		9,232

Less:
	Depreciation on operating leases		4,176		-		-		4,176
	Interest expense		2,963		-		(7)		2,956
	Provision for credit losses		2,160		-		-		2,160
	Operating and administrative expenses		663		136		-		799
	Insurance losses and loss adjustment expenses		-		193		-		193
	(Benefit from) provision for income taxes		(457)		28		-		(429)
Net (loss) income		$	(678)	$	55	$	-	$	(623)

Total assets		$	81,647	$	2,406	$	(374)	$	83,679

Note 18 – Selected Quarterly Financial Data (Unaudited)

		First		Second		Third		Fourth
(Dollars in millions)		Quarter		Quarter		Quarter		Quarter
Fiscal 2011:
Total financing revenue	$	2,024	$	2,032	$	2,023	$	1,985
Depreciation on operating leases		(811)		(824)		(872)		(846)
Interest expense		(491)		(593)		(234)		(296)
Net financing revenue		722		615		917		843
Other income		158		186		259		176
Provision for credit losses		289		14		176		(46)
Expenses		(242)		(381)		(339)		(344)
Income before income tax expense		927		434		1,013		629
Provision for income taxes		357		165		387		241
Net income	$	570	$	269	$	626	$	388

Fiscal 2010:
Total financing revenue	$	2,070	$	2,043	$	2,037	$	2,013
Depreciation on operating leases		(893)		(836)		(897)		(938)
Interest expense		(499)		(618)		(438)		(468)
Net financing revenue		678		589		702		607
Other income		168		161		178		173
Provision for credit losses		(328)		(11)		5		(270)
Expenses		(234)		(230)		(243)		(266)
Income before income tax expense		284		509		642		244
Provision for income taxes		108		199		248		61
Net income	$	176	$	310	$	394	$	183

Name	Age	Position
George E. Borst	62	Director, President and Chief Executive Officer, TMCC; Director, President and Chief Operating Officer, TFSA; Director, TFSC

Ichiro Yajima	53	Director, Executive Vice President and Treasurer, TMCC; Director, Executive Vice President and Treasurer, TFSA

David Pelliccioni	63	Director, Senior Vice President and Chief Administrative Officer and Secretary, TMCC

Chris Ballinger	54	Group Vice President and Chief Financial Officer, TMCC; Group Vice President and Chief Financial Officer, TFSA

Ron Chu	53	Vice President, Accounting & Tax, TMCC; Vice President, Tax, TFSA
Yoshimi Inaba	65	Director, TMCC; Director, President & COO, TMA; Director, Chairman & CEO, TMS; Director TMC

Takuo Sasaki	54	Director, TMCC; Managing Officer, TMC Executive Vice President, TFSC

James E. Lentz III	55	Director, TMCC; Director, President, and COO, TMS

Takeshi Suzuki	63	Director, TMCC; Director, Chairman of the Board and Chief Executive Officer, TFSA; Representative Director, President and Chief Executive Officer, TFSC

Eiji Hirano	60	Director, TMCC; Director and Executive Vice President, TFSC

		Years ended March 31,
(Dollars in thousands)		2011		2010
Audit fees	$	6,679	$	6,252
Audit related fees		554		283
Tax fees		558		579
All other fees		146		109
Total fees	$	7,937	$	7,223

Date: June 2, 2011	By /S/ GEORGE E. BORST

	George E. Borst
	President and
	Chief Executive Officer

Signature	Title	Date
/s/ George E. Borst George E. Borst	Director, President and Chief Executive Officer (Principal Executive Officer)	June 2, 2011
/s/ Ichiro Yajima Ichiro Yajima	Executive Vice President, Treasurer and Director	June 2, 2011
/s/ David Pelliccioni David Pelliccioni	Director Senior Vice President, Chief Administrative Officer and Secretary	June 2, 2011
/s/ Chris Ballinger Chris Ballinger	Group Vice President and Chief Financial Officer (Principal Financial Officer)	June 2, 2011
/s/ Ron Chu Ron Chu	Vice President, Accounting and Tax (Principal Accounting Officer)	June 2, 2011
/s/ Yoshimi Inaba Yoshimi Inaba	Director	June 2, 2011
/s/ James E. Lentz III James E. Lentz III	Director	June 2, 2011

Takuo Sasaki	Director

Takeshi Suzuki	Director

Eiji Hirano	Director

Exhibit Number	Description	Method of Filing

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

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

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

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

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

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

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

4.2	Amended and Restated Agency Agreement, dated September 17, 2010, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited and The Bank of New York Mellon.	(7)