UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

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

EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

California (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

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   x   No                                  

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

Large accelerated filer   __                                                                                                           Accelerated filer   __

Non-accelerated filer    x                                                                                                           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 October 31, 2011, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services Americas Corporation.

Reduced Disclosure Format

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

TOYOTA MOTOR CREDIT CORPORATION

FORM 10-Q

For the quarter ended September 30, 2011

INDEX
PART I	…………………………………………………………………………………………………3
Item 1.	Financial Statements……………………………………….......………………………………………....……	3
	Consolidated Statement of Income……………………….……………………………………………………	3
	Consolidated Balance Sheet……………………………………………………………………………………	4
	Consolidated Statement of Shareholder’s Equity………..……………………………………………………	5
	Consolidated Statement of Cash Flows………………….…………………………………………………..…	6
	Notes to Consolidated Financial Statements……………………….……………………………………..……	7
Item 2.	Management’s Discussion and Analysis…………………………………………………………………...….	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk……….......………………………....………	81
Item 4.	Controls and Procedures..................................................................................................................................	81
PART II	…………………………………………………………………………………………………82
Item 1.	Legal Proceedings…………………………………………………………….....……………………………	82
Item 1A.	Risk Factors……………………………………………………………….…………………………………	83
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds………………............……………………	83
Item 3.	Defaults Upon Senior Securities…………………………………………………………….…………………	83
Item 4.	(Removed and Reserved)………………………………………………………………………………………	83
Item 5.	Other Information………………………………………………………………………………………………	83
Item 6.	Exhibits…………………………………………………………………………………………………………	83
Signatures	…………………………………………………………………………………………………………………	84
Exhibit Index	…………………………………………………………………………………………………………………	85

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
			Three Months Ended				Six Months Ended
			September 30,				September 30,
(Dollars in millions)			2011		2010		2011		2010
Financing revenues:
	Operating lease	$	1,178	$	1,216	$	2,382	$	2,416
	Retail		610		720		1,236		1,450
	Dealer		82		96		172		190
Total financing revenues			1,870		2,032		3,790		4,056
	Depreciation on operating leases		829		824		1,654		1,635
	Interest expense		149		593		606		1,084
Net financing revenues			892		615		1,530		1,337
Insurance earned premiums and contract revenues			153		132		303		255
Investment and other income, net			(9)		54		31		89
Net financing revenues and other revenues			1,036		801		1,864		1,681
Expenses:
	Provision for credit losses		11		(14)		(192)		(303)
	Operating and administrative		212		323		409		507
	Insurance losses and loss adjustment expenses		83		58		169		116
Total expenses			306		367		386		320
Income before income taxes			730		434		1,478		1,361
Provision for income taxes			279		165		562		522
Net income		$	451	$	269	$	916	$	839
See Accompanying Notes to Consolidated Financial Statements.

3

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions)		September 30, 2011		March 31, 2011
ASSETS
Cash and cash equivalents		$	7,361	$	6,830
Restricted cash			675		705
Investments in marketable securities			4,441		4,822
Finance receivables, net			55,579		57,736
Investments in operating leases, net			18,594		19,041
Other assets			2,022		2,570
Total assets		$	88,672	$	91,704
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt		$	73,544	$	77,282
Deferred income taxes			4,970		4,424
Other liabilities			3,132		3,142
Total liabilities			81,646		84,848
Commitments and contingencies (See Note 13)
Shareholder's equity:
Capital stock, no par value (100,000 shares authorized; 91,500 issued
	and outstanding) at September 30, 2011 and March 31, 2011		915		915
Additional paid-in-capital			2		1
Accumulated other comprehensive income			94		100
Retained earnings			6,015		5,840
Total shareholder's equity			7,026		6,856
Total liabilities and shareholder's equity		$	88,672	$	91,704

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)	September 30, 2011		March 31, 2011
ASSETS
Finance receivables, net	$	11,498	$	11,317
Total assets	$	11,498	$	11,317
LIABILITIES
Debt	$	10,402	$	10,626
Other liabilities		3		3
Total liabilities	$	10,405	$	10,629
See Accompanying Notes to Consolidated Financial Statements.

4

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY
(Unaudited)
						Accumulated
						other
		Capital		Additional		comprehensive			Retained
(Dollars in millions)		stock		paid-in capital		income (loss)			earnings		Total
BALANCE AT MARCH 31, 2010		$	915	$	1	$	104	$	4,253	$	5,273
Net income for the six months ended
	September 30, 2010		-		-		-		839		839
Net unrealized gain on available-for-sale
	marketable securities, net of tax provision
	of $20 million		-		-		35		-		35
Reclassification adjustment for net loss
	included in net income, net of tax benefit
	of $3 million		-		-		5		-		5
Total comprehensive income			-		-		40		839		879
Dividends			-		-		-		(266)		(266)
BALANCE AT SEPTEMBER 30, 2010		$	915	$	1	$	144	$	4,826	$	5,886
BALANCE AT MARCH 31, 2011		$	915	$	1	$	100	$	5,840	$	6,856
Net income for the six months ended
	September 30, 2011		-		-		-		916		916
Net unrealized loss on available-for-sale
	marketable securities, net of tax benefit
	of $16 million		-		-		(21)		-		(21)
Reclassification adjustment for net loss
	included in net income, net of tax benefit
	of $9 million		-		-		15		-		15
Total comprehensive income			-		-		(6)		916		910
Stock-based compensation			-		1		-		-		1
Dividends			-		-		-		(741)		(741)
BALANCE AT SEPTEMBER 30, 2011		$	915	$	2	$	94	$	6,015	$	7,026
See Accompanying Notes to Consolidated Financial Statements.

5

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
				Six Months Ended September 30,
(Dollars in millions)				2011		2010
Cash flows from operating activities:
	Net income			$	916	$	839
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			1,693		1,691
		Recognition of deferred income			(606)		(613)
		Provision for credit losses			(192)		(303)
		Amortization of deferred costs			293		189
		Foreign currency and other adjustments to the carrying value of debt, net			(749)		1,228
	Net loss (gain) from sale of marketable securities				23		(31)
		Net change in:
			Restricted cash		30		(302)
			Derivative assets		191		(335)
			Other assets (Note 9) and accrued income		133		8
			Deferred income taxes		553		537
			Derivative liabilities		36		(226)
			Other liabilities		(50)		239
Net cash provided by operating activities					2,271		2,921
Cash flows from investing activities:
	Purchase of investments in marketable securities				(3,829)		(2,109)
	Proceeds from sales of investments in marketable securities				1,282		1,343
	Proceeds from maturities of investments in marketable securities				2,893		369
	Acquisition of finance receivables (excluding wholesale)				(11,243)		(11,861)
	Collection of finance receivables (excluding wholesale)				11,236		10,823
	Net change in wholesale receivables				2,425		(278)
	Acquisition of investments in operating leases				(3,799)		(5,736)
	Disposals of investments in operating leases				2,938		2,850
	Advances to affiliates (Note 15)				(1,486)		(1,315)
	Repayments from affiliates (Note 15)				1,611		1,130
	Other, net				(7)		(14)
Net cash provided by (used in) investing activities					2,021		(4,798)
Cash flows from financing activities:
	Proceeds from issuance of debt				7,417		11,912
	Payments on debt				(9,085)		(6,718)
	Net change in commercial paper				(1,352)		(2,918)
	Advances from affiliates (Note 15)				5		25
	Repayments to affiliates (Note 15)				(5)		-
	Dividends paid to TFSA (Note 15)				(741)		(266)
Net cash (used in) provided by financing activities					(3,761)		2,035
Net increase in cash and cash equivalents					531		158
Cash and cash equivalents at the beginning of the period					6,830		4,343
Cash and cash equivalents at the end of the period				$	7,361	$	4,501
Supplemental disclosures:
	Interest paid			$	826	$	919
	Income taxes (received) paid, net			$	(117)	$	53
Non-cash financing:
	Capital contribution for stock based compensation			$	1	$	-
See Accompanying Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform to current period presentation.

6

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data

Basis of Presentation

The information furnished in these unaudited interim financial statements for the three and six months ended September 30, 2011 and 2010 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).  In the opinion of management, the unaudited financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented.  The results of operations for the three and six months ended September 30, 2011 do not necessarily indicate the results which may be expected for the full fiscal year.

These financial statements should be read in conjunction with the Consolidated Financial Statements, significant accounting policies, and other notes to the Consolidated Financial Statements included in Toyota Motor Credit Corporation’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2011 (“fiscal 2011”), which was filed with the Securities and Exchange Commission (“SEC”) on June 2, 2011.  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.

Reclassifications

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

Summary of Significant Accounting Policies

Troubled Debt Restructurings

A troubled debt restructuring occurs when an account is modified through a concession to the borrower experiencing financial difficulty.  An account modified under a troubled debt restructuring is considered to be impaired.

Retail Loan and Commercial Portfolio Segments

The retail loan portfolio segment and the commercial portfolio segment are referred to as the homogeneous portfolio segments because they consist of smaller balance loans with similar characteristics.  For the homogeneous loan portfolio segments, troubled debt restructurings include groups of accounts modified under specific programs that meet the criteria of a troubled debt restructuring.  In addition, troubled debt restructurings within the homogeneous loan portfolio segments include accounts in which the customer has filed for bankruptcy protection.  For such accounts, we no longer have the ability to modify the terms of the agreement without the approval of the bankruptcy court and the court may impose term modifications that we are obligated to accept.  Troubled debt restructurings in the homogeneous loan portfolio segments are specifically identified as impaired and aggregated with their respective portfolio segments when determining the allowance for credit losses.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

Dealer Products Portfolio Segment

Troubled debt restructurings in the dealer products portfolio segment are specifically identified as impaired and the specific reserve is assessed based on discounted cash flows, market value, or fair value of the underlying collateral.

Payment Defaults

A payment default on an account that has been modified as a troubled debt restructuring is deemed to have occurred when the account becomes thirty days past due.  Accounts which have filed for bankruptcy protection are not considered to have a payment default as we are prohibited by statute from applying our normal collection procedures.

New Accounting Guidance

In June 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that requires entities to report components of comprehensive income in either a single continuous statement of comprehensive income or two separate but consecutive statements. This guidance does not change the items that must be reported in comprehensive income or when an item in other comprehensive income must be reclassified to net income. This accounting guidance is effective for us April 1, 2012.  We are evaluating the effect that adoption of this guidance will have on our consolidated financial statements.

In May 2011, the 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 January 1, 2012.  We are 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 on repurchase agreements that removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee.  It also removes the collateral maintenance guidance related to this criterion.  This accounting guidance is effective for us January 1, 2012.  We are evaluating the effect that adoption of this guidance will have on our consolidated financial condition and results of operations.

8

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

Recently Adopted Accounting Guidance

In July 2011, we adopted new FASB accounting guidance on troubled debt restructurings 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 was effective for us for the quarter ended September 30, 2011, with retrospective application of the identification of troubled debt restructurings back to April 1, 2011. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In April 2011, we adopted new FASB accounting guidance on the capitalization of costs relating to the acquisition or renewal of insurance contracts. The early adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In April 2011, we adopted new FASB 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. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

In April 2011, we adopted new FASB 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. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

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.

9

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

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.

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 other-than-temporary impairment (“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.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 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.  If independent pricing services are used, we validate the prices provided with other independent valuation sources.  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.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 September 30, 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.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

The following table summarizes our financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2011 and March 31, 2011, 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 September 30, 2011
					Fair value measurements on a recurring basis
										Counterparty
(Dollars in millions)					Level 1		Level 2		Level 3		netting & collateral		Fair  value
Cash equivalents				$	7,272	$	-	$	-	$	-	$	7,272
	Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			34		49		-		-		83
		Municipal debt securities			-		18		-		-		18
		Certificates of deposit and commercial paper			-		1,906		-		-		1,906
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		133		-		-		133
		Mortgage-backed securities:
			U.S. government agency		-		93		-		-		93
			Non-agency residential		-		10		-		-		10
			Non-agency commercial		-		26		-		-		26
		Asset-backed securities			-		19		-		-		19
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		38		-		-		38
			U.S. government sector fund		-		317		-		-		317
			Municipal sector fund		-		19		-		-		19
			Investment grade corporate sector fund		-		311		-		-		311
			High-yield sector fund		-		33		-		-		33
			Real return sector fund		-		198		-		-		198
			Mortgage sector fund		-		629		-		-		629
			Asset-backed securities sector fund		-		40		-		-		40
			Emerging market sector fund		-		55		-		-		55
			International sector fund		-		151		-		-		151
		Equity mutual fund – S&P 500 index			359		-		-		-		359
	Available-for-sale securities total				393		4,048		-		-		4,441
	Derivative assets:
		Foreign currency swaps			-		3,492		195		-		3,687
		Interest rate swaps			-		512		11		-		523
		Counterparty netting and collateral			-		-		-		(3,499)		(3,499)
	Derivative assets total				-		4,004		206		(3,499)		711
Assets at fair value					7,665		8,052		206		(3,499)		12,424
	Derivative liabilities:
		Foreign currency swaps			-		(102)		(15)		-		(117)
		Interest rate swaps			-		(1,202)		-		-		(1,202)
		Counterparty netting and collateral			-		-		-		1,126		1,126
	Derivative liabilities total				-		(1,304)		(15)		1,126		(193)
	Embedded derivative liabilities				-		-		(46)		-		(46)
Liabilities at fair value					-		(1,304)		(61)		1,126		(239)
Net assets at fair value				$	7,665	$	6,748	$	145	$	(2,373)	$	12,185

13

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)
As of March 31, 2011
					Fair value measurements on a recurring basis
										Counterparty			Fair
(Dollars in millions)					Level 1		Level 2		Level 3	netting & 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
Assets at fair value					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)
Liabilities at fair value					-		(1,030)		(59)		886		(203)
Net assets at fair value				$	7,223	$	7,557	$	75	$	(2,563)	$	12,292

14

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

In the foregoing tables, in instances in which we met the accounting guidance for set-off 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 first half of the fiscal year ending March 31, 2012 (“fiscal 2012”) and the fiscal year ended March 31, 2011.

As of September 30, 2011, derivative assets were reduced by a counterparty credit valuation adjustment of $27 million and derivative liabilities were reduced by a non-performance credit valuation adjustment of $2 million. As of March 31, 2011, derivative assets were reduced by a counterparty credit valuation adjustment of $12 million and derivative liabilities were reduced by a non-performance credit valuation adjustment of $1 million.

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 the three and six months ended September 30, 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 the three and six months ended September 30, 2011 and 2010.

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended September 30, 2011 and 2010:

Three Months Ended September 30, 2011

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Derivative instruments, net
								Total
			Interest		Foreign			derivative
			rate		currency		Embedded	assets
(Dollars in millions)			swaps		swaps		derivatives	(liabilities)
Fair value, July 1, 2011		$	10	$	152	$	(40)	$	122
Total gains/(losses)
	Included in earnings		2		28		(5)		25
	Included in other comprehensive income		-		-		-		-
Purchases, issuances, sales, and settlements
	Purchases		-		-		-		-
	Issuances		-		-		-		-
	Sales		-		-		-		-
	Settlements		(2)		-		-		(2)
Transfers in to Level 3			-		-		-		-
Transfers out of Level 3			1		-		(1)		-
Fair value, September 30, 2011		$	11	$	180	$	(46)	$	145
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		$	1	$	28	$	(5)	$	24

15

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)
Three Months Ended September 30, 2010
		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Derivative instruments, net
								Total
		Interest		Foreign				derivative
		rate		currency		Embedded		assets
(Dollars in millions)		swaps		swaps		derivatives		(liabilities)
Fair value, July 1, 2010		$	55	$	66	$	(32)	$	89
Total gains/(losses)
	Included in earnings		20		272		(17)		275
	Included in other comprehensive income		-		-		-		-
Purchases, issuances, sales, and settlements
	Purchases		-		-		-		-
	Issuances		-		-		-		-
	Sales		-		-		-		-
	Settlements		(20)		(10)		-		(30)
Transfers in to Level 3			-		-		-		-
Transfers out of Level 3			(35)		(203)		-		(238)
Fair value, September 30, 2010		$	20	$	125	$	(49)	$	96
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		$	11	$	95	$	(18)	$	88

16

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)
Six Months Ended September 30, 2011
		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Derivative instruments, net
								Total
		Interest		Foreign				derivative
		rate		currency		Embedded		assets
(Dollars in millions)		swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2011		$	17	$	109	$	(51)	$	75
Total gains/(losses)
	Included in earnings		6		76		6		88
	Included in other comprehensive income		-		-		-		-
Purchases, issuances, sales, and settlements
	Purchases		-		-		-		-
	Issuances		-		-		-		-
	Sales		-		-		-		-
	Settlements		(13)		(5)		-		(18)
Transfers in to Level 3			-		-		-		-
Transfers out of Level 3			1		-		(1)		-
Fair value, September 30, 2011		$	11	$	180	$	(46)	$	145
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		$	3	$	76	$	(10)	$	69

17

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)
Six Months Ended September 30, 2010
			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
															Total net
			Available-for-sale												assets
			securities					Derivative instruments, net							(liabilities)
					Available-								Total
				Asset-	for-sale		Interest			Foreign			derivative
				backed	securities		rate			currency	Embedded		assets
(Dollars in millions)				securities	total		swaps			swaps	derivatives		(liabilities)
Fair value, April 1,  2010			$	3	$	3	$	16	$	69	$	(30)	$	55	$	58
Total gains/(losses)
		Included in earnings		-		-		72		303		(19)		356		356
		Included in other
		comprehensive income		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		-		-		-		-		-
		Issuances		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-
		Settlements		-		-		(33)		(44)		-		(77)		(77)
Transfers in to Level 3				-		-		-		-		-		-		-
Transfers out of Level 3				(3)		(3)		(35)		(203)		-		(238)		(241)
Fair value, September 30, 2010			$	-	$	-	$	20	$	125	$	(49)	$	96	$	96
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							$	22	$	151	$	(19)	$	154	$	154

Significant Changes to Level 3 Assets During the Period

Level 3 net assets, reported at fair value on a recurring basis increased $23 million and $70 million for the three and six months ended September 30, 2011. The increase is primarily attributable to an increase in the fair value of derivative assets, specifically foreign currency derivatives, due to the strengthening of the Japanese yen against the U.S. dollar during the first half of the fiscal year ending March 31, 2012.

18

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 individually evaluated for impairment of $135 million and $191 million as of September 30, 2011 and March 31, 2011, respectively.

Nonrecurring Fair Value Changes

The 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 on net finance receivables individually evaluated for impairment of $12 million and $15 million for the three and six months ended September 30, 2011 and $7 million and $22 million for the three and six months ended September 30, 2010, respectively.

19

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 September 30, 2011 and March 31, 2011 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.

20

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 September 30, 2011 and March 31, 2011 were as follows:

			September 30, 2011				March 31, 2011
			Carrying				Carrying
(Dollars in millions)			value		Fair value		value		Fair value
Financial assets
	Finance receivables, net	$	55,324	$	56,729	$	57,460	$	59,143
Financial liabilities
	Commercial paper	$	18,585	$	18,585	$	19,943	$	19,943
	Unsecured notes and loans payable	$	44,557	$	45,292	$	46,713	$	47,067
	Secured notes and loans payable	$	10,402	$	10,425	$	10,626	$	10,633

Finance receivables are presented net of the allowance for credit losses; the amount excludes related party transactions of $39 million at both September 30, 2011 and March 31, 2011 and direct finance leases of $216 million and $237 million at September 30, 2011 and March 31, 2011, 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 $4.3 billion and $4.2 billion of loans payable to affiliates at September 30, 2011 and March 31, 2011, respectively, that are carried at amounts that approximate fair value.

21

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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:

				September 30, 2011
				Amortized		Unrealized		Unrealized			Fair
(Dollars in millions)				cost		gains		losses			value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	82	$	1	$	-	$	83
		Municipal debt securities			15		3		-		18
		Certificates of deposit and commercial paper			1,906		-		-		1,906
		Foreign government debt securities			3		-		-		3
		Corporate debt securities			130		5		(2)		133
		Mortgage-backed securities:
			U.S. government agency		88		5		-		93
			Non-agency residential		9		1		-		10
			Non-agency commercial		26		-		-		26
		Asset-backed securities			19		-		-		19
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		38		-		-		38
			U.S. government sector fund		327		-		(10)		317
			Municipal sector fund		18		1		-		19
			Investment grade corporate sector fund		285		26		-		311
			High-yield sector fund		28		5		-		33
			Real return sector fund		191		7		-		198
			Mortgage sector fund		630		-		(1)		629
			Asset-backed securities sector fund		35		5		-		40
			Emerging market sector fund		56		1		(2)		55
			International sector fund		140		11		-		151
		Equity mutual fund – S&P 500 Index			264		95		-		359
Total investments in marketable securities				$	4,290	$	166	$	(15)	$	4,441

22

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities (Continued)
					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

23

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities (Continued)

The fixed income mutual funds are private placement funds.  The total fair value of private placement fixed income mutual funds was $1.8 billion at both September 30, 2011 and March 31, 2011.  For each fund, cash redemption limits may apply to each 90 day period.

OTTI Securities

For the three and six months ended September 30, 2011 and 2010, there were no available-for-sale (“AFS”) debt or equity securities deemed to be other-than-temporarily impaired, and therefore, all unrealized losses on AFS debt and equity securities were recognized in Accumulated Other Comprehensive Income.

Unrealized Losses on Securities
The following tables present the aging of fair value and gross unrealized losses for AFS securities:
				Less than 12 months as of
			September 30, 2011				March 31, 2011
			Fair		Unrealized		Fair		Unrealized
(Dollars in millions)			value		losses		value		losses
Available-for-sale securities:
Debt instruments:
	Corporate debt securities		$	38	$	(2)	$	-	$	-
	U.S. government and agency
		obligations		-		-		55		(2)
	U.S. government agency mortgage-
		backed securities		-		-		38		(1)
Equity instruments:
	U.S. government sector fund			317		(10)		478		(48)
	Real return sector fund			-		-		76		(1)
	Mortgage sector fund			629		(1)		639		(5)
	Emerging market sector fund			44		(2)		-		-
	International sector fund			-		-		109		(2)
Total investments in marketable
	securities		$	1,028	$	(15)	$	1,395	$	(59)

At September 30, 2011 and March 31, 2011, we did not own any investments that were in a continuous unrealized loss position for 12 consecutive months or more.

24

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities (Continued)

Contractual Maturities and Yields

The contractual maturities of investments in marketable securities at September 30, 2011 are summarized in the following table.  Prepayments may cause actual maturities to differ from scheduled maturities.

		Due in 1 Year or				Due after 1 Year				Due after 5 Years
		Less				through 5 Years				through 10 Years				Due after 10 Years				Total
(Dollars in millions)		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Fair Value of Available-
for-Sales Securities:
Debt instruments:
U.S. government and
	agency obligations	$	14	1.07	%	$	-	-	%	$	68	2.20	%	$	1	6.58	%	$	83	2.09	%
Municipal debt securities			-	-			-	-			-	-			18	6.08			18	6.08
Certificates of deposit and
	commercial paper		1,906	0.14			-	-			-	-			-	-			1,906	0.14
Foreign government debt
	securities		-	-			3	2.93			-	-			-	-			3	2.93
Corporate debt
	securities		8	5.10			62	4.28			53	5.33			10	6.06			133	4.84
Mortgage-backed securities:
	U.S. government agency		-	-			-	-			3	5.05			90	4.14			93	4.18
	Non-agency residential		-	-			-	-			-	-			10	7.21			10	7.21
	Non-agency commercial		-	-			-	-			4	4.78			22	4.28			26	4.29
Asset-backed securities			-	-			9	2.37			3	0.94			7	1.86			19	2.00
Debt instruments total			1,928	0.17			74	4.01			131	3.60			158	4.59			2,291	0.79
Equity instruments:
Fixed income mutual funds																			1,791	3.16
Equity mutual funds																			359	3.03
Equity instruments total			-				-				-				-				2,150	3.14
Total fair value		$	1,928	0.17	%	$	74	4.01	%	$	131	3.60	%	$	158	4.59	%	$	4,441	1.93	%
Total amortized cost		$	1,929			$	73			$	128			$	148			$	4,290

Yields are based on the amortized cost balances of securities held at September 30, 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 both September 30, 2011 and March 31, 2011.

Realized Gains and Losses on Sales of Available-for-Sale Securities

Realized gains from the sale of AFS securities were $12 million for the first half of fiscal 2012.  There were no gains in the second quarter of fiscal 2012.  This compares to gains of $47 million and $34 million for the same periods in fiscal 2011.  Realized losses from the sale of AFS securities were $35 million for both the first half and second quarter of fiscal 2012, compared to $16 million and $14 million for the same periods in fiscal 2011.

25

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net
Finance receivables, net consist of retail and dealer accounts including accrued interest and deferred costs, less the allowance for credit losses and unearned income.  Pledged retail 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)			September 30, 2011		March 31, 2011
Retail receivables			$	34,617	$	34,951
Pledged retail receivables				11,697		11,546
Dealer financing				9,889		12,189
Recorded investment				56,203		58,686
Deferred origination costs				654		650
Unearned income				(768)		(846)
Allowance for credit losses
	Retail and pledged retail receivables			(386)		(613)
	Dealer financing			(124)		(141)
		Total allowance for credit losses		(510)		(754)
Finance receivables, net			$	55,579	$	57,736

Finance receivables, net and retail receivables presented in the previous table include direct finance leases of $216 million and $237 million at September 30, 2011 and March 31, 2011, respectively.  

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 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 affects charge-offs.

Individual borrower accounts for each of the two classes of finance receivables (retail 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.

26

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net (Continued)

Dealer Products Portfolio Segment

For the 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.

The tables below show the recorded investment for each credit quality indicator by class of finance receivable as of September 30, 2011 and March 31, 2011:

		Retail Loan				Commercial
(Dollars in millions)		September 30, 2011		March 31, 2011		September 30, 2011		March 31, 2011
Aging of finance receivables:
	Current	$	45,147	$	45,351	$	375	$	416
	30-59 days past due		602		562		10		15
	60-89 days past due		128		108		3		5
	90 days past due		48		39		1		1
Total		$	45,925	$	46,060	$	389	$	437
		Wholesale				Real Estate				Working Capital
(Dollars in millions)		September 30, 2011		March 31, 2011		September 30, 2011		March 31, 2011		September 30, 2011		March 31, 2011
Credit quality indicators:
	Performing	$	4,030	$	6,073	$	3,611	$	3,409	$	1,101	$	1,088
	Credit Watch		424		699		456		505		80		147
	At Risk		40		78		135		148		3		13
	Default		3		10		-		11		6		8
Total		$	4,497	$	6,860	$	4,202	$	4,073	$	1,190	$	1,256

27

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 September 30, 2011 and March 31, 2011:
									Individually Evaluated
	Recorded Investment				Unpaid Principal Balance				Allowance
	September 30,		March 31,		September 30,		March 31,		September 30,		March 31,
(Dollars in millions)	2011		2011 1		2011		2011 1		2011		2011
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	8	$	19	$	8	$	19	$	1	$	3
Real estate		133		156		133		156		44		50
Working capital		8		18		8		18		7		14
Total	$	149	$	193	$	149	$	193	$	52	$	67
Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	35	$	62	$	35	$	62
Real estate		2		-		2		-
Working capital		1		3		1		3
Total	$	38	$	65	$	38	$	65
Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	573	$	581	$	565	$	573
Commercial		1		3		1		3
Total	$	574	$	584	$	566	$	576
Total impaired account balances:
Retail loan	$	573	$	581	$	565	$	573
Commercial		1		3		1		3
Wholesale		43		81		43		81
Real estate		135		156		135		156
Working capital		9		21		9		21
Total	$	761	$	842	$	753	$	834
1  Prior period amounts have been reclassified to conform to the current period presentation.

As of September 30, 2011 and March 31, 2011, 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 individually evaluated for impairment is equal to the unpaid principal balance.

28

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 the three and six months ended September 30, 2011 and 2010:

		Average Recorded Investment								Interest Income Recognized
		Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended September 30,				Six Months Ended September 30,
(Dollars in millions)		2011		2010		2011		2010		2011		2010		2011		2010
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	8	$	27	$	8	$	27	$	-	$	-	$	-	$	1
Real estate		134		153		134		154		2		2		3		2
Working capital		8		16		9		15		-		-		-		-
Total	$	150	$	196	$	151	$	196	$	2	$	2	$	3	$	3
Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	32	$	53	$	39	$	53	$	-	$	-	$	1	$	1
Real estate		2		12		2		12		-		-		-		-
Working capital		1		6		1		5		-		-		-		-
Total	$	35	$	71	$	42	$	70	$	-	$	-	$	1	$	1
Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	572	$	573	$	575	$	556	$	12	$	13	$	24	$	26
Commercial		1		5		1		5		-		-		-		-
Total	$	573	$	578	$	576	$	561	$	12	$	13	$	24	$	26
Total impaired account balances:
Retail loan	$	572	$	573	$	575	$	556	$	12	$	13	$	24	$	26
Commercial		1		5		1		5		-		-		-		-
Wholesale		40		80		47		80		-		-		1		2
Real estate		136		165		136		166		2		2		3		2
Working capital		9		22		10		20		-		-		-		-
Total	$	758	$	845	$	769	$	827	$	14	$	15	$	28	$	30

29

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net (Continued)

Troubled Debt Restructuring

For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three and six months ended September 30, 2011 is insignificant for each class of financing receivables.  Troubled debt restructurings for these accounts within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer, while accounts within the commercial class of finance receivables may consist of contract term extensions, interest rate adjustments, or a combination of the two.  For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings may include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three.  No troubled debt restructurings of accounts not under bankruptcy protection included forgiveness of principal during the three and six months ended September 30, 2011.

We recognize finance receivables under bankruptcy protection within the retail loan and commercial classes as troubled debt restructurings as of the date we receive notice of a customer filing for bankruptcy protection regardless of the ultimate outcome of the bankruptcy proceedings.  The bankruptcy court may impose modifications as part of the proceedings, including interest rate adjustments and forgiveness of principal.  For the three and six months ended September 30, 2011, the financial impact of troubled debt restructurings related to accounts under bankruptcy protection was insignificant to our Consolidated Statement of Income and Consolidated Balance Sheet.

Payment Defaults

For finance receivables modified as troubled debt restructurings for which there was a payment default during either the three or six months ended September 30, 2011, and for which the modification occurred within twelve months of the payment default, the recorded investment was insignificant for all classes of such receivables.

30

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 6 – Investments in Operating Leases, Net
Investments in operating leases, net consisted of the following:
(Dollars in millions)	September 30, 2011		March 31, 2011
Vehicles	$	23,881	$	24,790
Equipment and other		859		842
		24,740		25,632
Deferred origination fees		(148)		(167)
Deferred income		(685)		(764)
Accumulated depreciation		(5,200)		(5,535)
Allowance for credit losses		(113)		(125)
Investments in operating leases, net	$	18,594	$	19,041

31

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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:
		Three Months Ended				Six Months Ended
		September 30,				September 30,
(Dollars in millions)		2011		2010		2011		2010
Allowance for credit losses at beginning of period	$	667	$	1,316	$	879	$	1,705
Provision for credit losses		11		(14)		(192)		(303)
Charge-offs, net of recoveries		(55)		(113)		(64)		(213)
Allowance for credit losses at end of period	$	623	$	1,189	$	623	$	1,189

Charge-offs are shown net of $26 million and $78 million of recoveries for the three and six months ended September 30, 2011, respectively, and $34 million and $73 million of recoveries for the three and six months ended September 30, 2010, respectively.

32

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Allowance for Credit Losses (Continued)

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 the three and six months ended September 30, 2011 and 2010:

For the Three and Six Months Ended September 30, 2011
(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total
Allowance for Credit Losses for Finance Receivables:
Beginning balance, July 1, 2011	$	380	$	13	$	135	$	528
Charge-offs		(67)		(1)		-		(68)
Recoveries		19		1		-		20
Provisions		43		(2)		(11)		30
Ending balance, September 30, 2011	$	375	$	11	$	124	$	510
Beginning balance, April 1, 2011	$	595	$	18	$	141	$	754
Charge-offs		(120)		(1)		-		(121)
Recoveries		63		2		-		65
Provisions		(163)		(8)		(17)		(188)
Ending balance, September 30, 2011	$	375	$	11	$	124	$	510
Ending balance: Individually evaluated for      impairment	$	-	$	-	$	52	$	52
Ending balance: Collectively evaluated for      impairment	$	375	$	11	$	72	$	458
Gross Finance Receivables:
Ending balance, September 30, 2011	$	45,925	$	389	$	9,889	$	56,203
Ending balance: Individually evaluated for      impairment	$	-	$	-	$	187	$	187
Ending balance: Collectively evaluated for      impairment	$	45,925	$	389	$	9,702	$	56,016

Included in the ending balance of gross finance receivables collectively evaluated for impairment is approximately $573 million and $1 million of finance receivables within the retail loan and commercial portfolio segments, respectively, that are specifically identified as impaired.  These amounts are deemed to be insignificant and are aggregated with their respective portfolio segments when determining the allowance for credit losses, as of September 30, 2011.

33

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Allowance for Credit Losses (Continued)
For the Three and Six Months Ended September 30, 2010
(Dollars in millions)	Retail Loan1		Commercial1		Dealer Products1		Total1
Allowance for Credit Losses for Finance Receivables:
Beginning balance, July 1, 2010	$	929	$	32	$	159	$	1,120
Charge-offs		(129)		(1)		-		(130)
Recoveries		25		1		-		26
Provisions		(4)		(5)		(12)		(21)
Ending balance, September 30, 2010	$	821	$	27	$	147	$	995
Beginning balance, April 1, 2010	$	1,236	$	33	$	211	$	1,480
Charge-offs		(245)		(3)		-		(248)
Recoveries		54		2		-		56
Provisions		(224)		(5)		(64)		(293)
Ending balance, September 30, 2010	$	821	$	27	$	147	$	995
Ending balance: Individually evaluated for     impairment	$	-	$	-	$	69	$	69
Ending balance: Collectively evaluated for     impairment	$	821	$	27	$	78	$	926
Gross Finance Receivables:1
Ending balance, September 30, 2010	$	45,681	$	499	$	11,890	$	58,070
Ending balance: Individually evaluated for     impairment	$	-	$	-	$	264	$	264
Ending balance: Collectively evaluated for     impairment	$	45,681	$	499	$	11,626	$	57,806
1  Prior period amounts have been reclassified to conform to the current period presentation.

Included in the ending balance of gross finance receivables collectively evaluated for impairment is approximately $586 million and $5 million of finance receivables within the retail loan and commercial portfolio segments, respectively, that are specifically identified as impaired.  These amounts are deemed to be insignificant and are aggregated with their respective portfolio segments when determining the allowance for credit losses, as of September 30, 2010.

34

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Allowance for Credit Losses (Continued)
Past Due Finance Receivables and Investments in Operating Leases
(Dollars in millions)		September 30, 2011			March 31, 2011
Aggregate balances 60 or more days past due
	Finance receivables		$	185		$	157
	Operating leases			47			43
Total			$	232		$	200

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.

Past Due Finance Receivables by Class

The following tables summarize the aging of finance receivables by class as of September 30, 2011 and March 31, 2011 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 September 30, 2011
Retail Loan	$	602	$	128	$	48	$	778	$	45,147	$	45,925	$	48
Commercial		10		3		1		14		375		389		1
Wholesale		-		-		-		-		4,497		4,497		-
Real estate		-		-		5		5		4,197		4,202		5
Working capital		1		-		-		1		1,189		1,190		-
Total	$	613	$	131	$	54	$	798	$	55,405	$	56,203	$	54
(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

35

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 8 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

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.  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.

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 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.  Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps, foreign currency swaps and foreign currency forwards to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  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.

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.

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at September 30, 2011 was $195 million, excluding embedded derivatives and adjustments made for our own non-performance risk. In the normal course of business, we posted $4 million of collateral with counterparties with which we were in a net liability position at September 30, 2011.  If our ratings were to have declined to “A+”, we would have been required to post $2 million of additional collateral to the counterparties with which we were in a liability position at September 30, 2011.  If our ratings were to have declined to “BBB+” or below, we would have been required to post $195 million of additional collateral to the counterparties with which we were in a liability position at September 30, 2011.  In order to settle all derivative instruments that were in a net liability position at September 30, 2011, excluding embedded derivatives and adjustments made for our own non-performance risk, we would have been required to pay $195 million.

36

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 September 30, 2011 as reported in the
Consolidated Balance Sheet:
		Hedge accounting				Non-hedge
		derivatives				accounting derivatives					Total
					Fair				Fair				Fair
(Dollars in millions)			Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps		$	465	$	67	$	14,793	$	456	$	15,258	$	523
Foreign currency swaps			4,438		1,354		14,664		2,333		19,102		3,687
	Total	$	4,903	$	1,421	$	29,457	$	2,789	$	34,360	$	4,210
Counterparty netting													(1,122)
Collateral held													(2,377)
	Carrying value of derivative contracts – Other assets											$	711
Other liabilities
Interest rate swaps		$	-	$	-	$	52,588	$	1,202	$	52,588	$	1,202
Interest rate caps			-		-		50		-		50		-
Foreign currency swaps			437		42		1,228		75		1,665		117
Embedded derivatives			-		-		154		46		154		46
	Total	$	437	$	42	$	54,020	$	1,323	$	54,457	$	1,365
Counterparty netting													(1,122)
Collateral posted													(4)
	Carrying value of derivative contracts – Other liabilities											$	239

37

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 2011 as reported in the
Consolidated Balance Sheet:
		Hedge accounting				Non-hedge
		derivatives				accounting derivatives				Total
					Fair				Fair				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

38

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 the three and six months ended September 30, 2011 and 2010 as reported in our Consolidated Statement of Income:

			Three Months Ended					Six Months Ended
			September 30,					September 30,
(Dollars in millions)				2011		2010		2011		2010
Interest expense on debt1			$	405	$	539	$	886	$	990
Interest expense on hedge accounting derivatives1				(54)		(142)		(135)		(251)
Interest expense on non-hedge accounting foreign currency swaps1				(87)		(100)		(219)		(167)
Interest expense on non-hedge accounting interest rate swaps1				173		188		353		433
		Interest expense on debt and derivatives1		437		485		885		1,005
(Gain) loss on hedge accounting derivatives:
	Interest rate swaps2			(7)		(9)		(14)		(22)
	Foreign currency swaps2			306		(1,056)		(94)		(542)
		Loss (gain) on hedge accounting derivatives		299		(1,065)		(108)		(564)
Less hedged item:  change in fair value of fixed rate debt				(302)		1,062		101		552
		Ineffectiveness related to hedge accounting derivatives2		(3)		(3)		(7)		(12)
(Gain) loss from foreign currency transactions and non-hedge
accounting derivatives:
		(Gain) loss on foreign currency transactions		(999)		1,436		(295)		828
		Loss (gain) on foreign currency swaps2		780		(1,533)		(29)		(1,030)
		(Gain) loss on non-hedge accounting interest rate swaps2		(66)		208		52		293
Total interest expense			$	149	$	593	$	606	$	1,084

1 Amounts represent net interest settlements and changes in accruals.

2 Amounts exclude net interest settlements and changes in accruals.

The following table summarizes the relative fair value allocation of derivative credit valuation adjustments
within interest expense.
	Three Months Ended				Six Months Ended
	September 30,				September 30,
(Dollars in millions)		2011		2010		2011		2010
Ineffectiveness related to hedge accounting derivatives	$	3	$	2	$	5	$	3
Loss on foreign currency swaps		2		7		7		5
Loss on non-hedge accounting interest rate swaps		1		3		2		2
Total credit valuation adjustment allocated to interest expense	$	6	$	12	$	14	$	10

39

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 9 – Other Assets and Other Liabilities
Other assets and other liabilities consisted of the following:
(Dollars in millions)	September 30, 2011		March 31, 2011
Other assets:
Notes receivable from affiliates	$	527	$	653
Used vehicles held for sale		110		162
Deferred charges		151		179
Income taxes receivable		-		118
Derivative assets		711		902
Other assets		523		556
Total other assets	$	2,022	$	2,570
Other liabilities:
Unearned insurance premiums and contract revenues	$	1,491	$	1,521
Derivative liabilities		239		203
Accounts payable and accrued expenses		896		855
Deferred income		236		243
Other liabilities		270		320
Total other liabilities	$	3,132	$	3,142

The change in used vehicles held for sale of $52 million and $8 million at September 30, 2011 and September 30, 2010, respectively, includes non-cash activity.  The cash portion of the change is included in Investing Activities on the Consolidated Statement of Cash Flows.

40

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 10 – Debt
Debt and the related weighted average contractual interest rates are summarized as follows:
						Weighted average
					contractual interest rates
	September 30,			March 31,		September 30,		March 31,
(Dollars in millions)		2011		2011		2011		2011
Commercial paper	$	18,585	$	19,943		0.27	%	0.28	%
Unsecured notes and loans payable		43,151		45,304		3.13	%	3.33	%
Secured notes and loans payable		10,402		10,626		0.71	%	0.74	%
Carrying value adjustment		1,406		1,409
Total debt	$	73,544	$	77,282		2.02	%	2.13	%

The commercial paper balance includes unamortized premium or discount.  Included in unsecured notes and loans payable are notes and loans denominated in various foreign currencies, 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.  At September 30, 2011 and March 31, 2011, the carrying value of these foreign currency notes payable was $23.3 billion and $27.0 billion, respectively.  Concurrent with the issuance of these foreign currency unsecured notes, we entered into foreign 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 September 30, 2011 included $15.2 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 6.0 percent and $29.4 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.5 percent to 9.4 percent.  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.  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.

As of September 30, 2011, our commercial paper had an average remaining maturity of 61 days, while our notes and loans payable mature on various dates through fiscal 2047.  Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount.

41

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 11 – Variable Interest Entities

We use one or more special purpose entities that are considered variable interest entities (“VIEs”) to issue asset-backed securities to third party bank-sponsored asset-backed securitization vehicles and to investors in securitization transactions.  The securities issued by these VIEs are backed by the cash flows 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 $11,697 million and $11,546 million in gross retail finance receivables at September 30, 2011 and March 31, 2011, respectively.  Net retail finance receivables, after consideration of deferred origination costs, unearned income and allowance for credit losses, were $11,498 million and $11,317 million as of September 30, 2011 and March 31, 2011, respectively.  In addition, TMCC held $675 million and $705 million in cash which represent collections from the underlying pledged receivables and certain reserve deposits held for the securitization trusts at September 30, 2011 and March 31, 2011, respectively.  We classified this cash as restricted cash on our consolidated balance sheet.  The liabilities of these consolidated VIEs consisted of $10,402 million and $10,626 million in secured debt, net of $771 million and $577 million of securities retained by TMCC, and $3 million in other liabilities at September 30, 2011 and March 31, 2011.  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.

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.

42

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 12 – Liquidity Facilities and Letters of Credit

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

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

In 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, a $5.0 billion three year syndicated bank credit facility pursuant to a Three Year Credit Agreement, and 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 transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets.  These agreements may be used for general corporate purposes and none were drawn upon as of September 30, 2011 and 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 approximately $378 million of funding through this facility during the first half of fiscal 2012.  As of September 30, 2011, approximately $3.3 billion of this facility was utilized.  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 additional bank credit facilities.  As of September 30, 2011, TMCC has committed bank credit facilities of $1 billion that mature in fiscal 2013 and $650 million that mature in fiscal 2014.  An uncommitted bank credit facility in the amount of $500 million matures in fiscal 2013.  These agreements contain covenants and conditions customary in transactions 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 September 30, 2011 and March 31, 2011.

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

43

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies
Commitments and Guarantees
We have entered into certain commitments and guarantees described below.  The maximum amounts under
these commitments and guarantees are summarized in the table below:
			Maximum commitment amount as of
(Dollars in millions)			September 30, 2011		March 31, 2011
Commitments:
	Credit facilities with vehicle and industrial equipment dealers		$	6,320	$	6,189
	Minimum lease commitments			83		90
Total commitments				6,403		6,279
Guarantees and other contingencies:
	Guarantees of affiliate pollution control and solid waste
		disposal  bonds		100		100
Total commitments and guarantees			$	6,503	$	6,379
Wholesale financing demand note facilities			$	10,335	$	9,422

At September 30, 2011 and March 31, 2011, amounts outstanding under credit facilities with vehicle and industrial equipment dealers were $5.3 billion and $5.2 billion, respectively, and were recorded in Finance receivables, net in the Consolidated Balance Sheet.  Minimum lease commitments include $48 million and $51 million in facilities lease commitments with affiliates at September 30, 2011 and March 31, 2011, respectively.  Wholesale financing demand note facilities are not considered to be contractual commitments as they are not binding arrangements under which TMCC is required to perform.  At September 30, 2011 and March 31, 2011, amounts outstanding under wholesale financing demand note facilities were $4.0 billion and $6.3 billion, respectively, and were recorded in Finance receivables, net in the Consolidated Balance Sheet.

Commitments

We provide fixed and variable rate credit facilities to vehicle and industrial equipment dealers.  These credit facilities are typically used for facilities refurbishment, real estate purchases, and working capital requirements.  These loans are generally collateralized with liens on real estate, and/or other dealership assets, as appropriate.  We obtain a personal guarantee from the vehicle or industrial equipment dealer or a corporate guarantee from the dealership when deemed prudent.  Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements.  We price the credit facilities to reflect the credit risks assumed in entering into the credit facility.  Amounts drawn under these facilities are periodically reviewed for collectability.  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.

44

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies (Continued)

We are party to a 15-year lease agreement, which expires in 2018, with Toyota Motor Sales, USA, Inc. (“TMS”) for our headquarters location in the TMS headquarters complex in Torrance, California.  At September 30, 2011, minimum future commitments under lease agreements to which we are a lessee, including those under the agreement discussed above, are as follows: fiscal years ending March 31, 2012 - $8 million; 2013 - $18 million; 2014 - $15 million; 2015 - $11 million; 2016 - $11 million and thereafter - $20 million.

Guarantees and Other Contingencies

TMCC has guaranteed bond obligations totaling $100 million in principal that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates.  The bonds mature in the following fiscal years ending March 31: 2028 - $20 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $10 million.  TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations.  TMCC is entitled to reimbursement by the affiliates for any amounts paid.  TMCC receives an annual fee of $78,000 for guaranteeing such payments.  TMCC has not been required to perform under any of these affiliate bond guarantees as of September 30, 2011 and March 31, 2011.

Indemnification

In the ordinary course of business, we enter into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and our vendor and supplier agreements.  Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or a third party claim. In addition, we have agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments.  In addition, certain of our funding arrangements would require us to pay lenders for increased costs due to certain changes in laws or regulations.  Due to the difficulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, we are not able to estimate our maximum exposure to future payments that could result from claims made under such provisions.  We have not made any material payments in the past as a result of these provisions, and as of September 30, 2011, we determined that it is not probable that we will be required to make any material payments in the future.  As of September 30, 2011 and March 31, 2011, no amounts have been recorded under these indemnifications.

45

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies (Continued)

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 loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability.  Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established.  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 TMCC.

TMCC and certain affiliates had 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 alleges 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.  Subsequently, the plaintiff filed a voluntary dismissal, and on August 16, 2011, the appeals court entered an order dismissing the appeal.  Therefore, the district court’s judgment in favor of TMCC and the other defendants became final.

46

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 14 – Income Taxes

Our effective tax rate was 38 percent for the first half and second quarter of both fiscal 2012 and fiscal 2011.  Our provision for income taxes for the first half of fiscal 2012 was $562 million compared to $522 million for the same period in fiscal 2011.  This increase in provision is consistent with the increase in our income before tax for the first half of fiscal 2012 compared to the same period in fiscal 2011.

Tax-Related Contingencies

As of September 30, 2011, we remain under IRS examination for the fiscal years ended March 31, 2011 and March 31, 2012.  The IRS examination for the fiscal years ended March 31, 2007 through March 31, 2009 was concluded in the fourth quarter of fiscal 2011 resulting in a refund of $105 million plus interest, received during the first quarter of fiscal 2012.  The IRS examination for the fiscal year ended March 31, 2010 was concluded in the first quarter of fiscal 2012.

We periodically review our uncertain tax positions. Our assessment is based on many factors including the ongoing IRS audits.  For the quarter ended September 30, 2011, our assessment did not result in any change in unrecognized tax benefits.

Our deferred tax assets at September 30, 2011 were $2.4 billion compared to $2.5 billion at March 31, 2011, and were primarily due to the deferred deduction of allowance for credit losses and cumulative federal tax loss carryforwards that expire in varying amounts through fiscal year 2032. The total deferred tax liability at September 30, 2011, net of these deferred tax assets, was $5.0 billion compared with $4.4 billion at March 31, 2011.  Realization with respect to the federal tax loss carryforwards is dependent on generating sufficient income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

47

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15 – Related Party Transactions

As of September 30, 2011, there were no material changes to our related party agreements or relationships as described in our fiscal 2011 Form 10-K, except as described below.  The tables below summarize amounts included in our Consolidated Statement of Income and Consolidated Balance Sheet under various related party agreements or relationships:

		Three Months Ended				Six Months Ended
		September 30,				September 30,
(Dollars in millions)			2011		20101		2011		20101
Net financing revenues:
	Manufacturers’ subvention support and other revenues	$	243	$	240	$	486	$	473
	Credit support fees incurred	$	(8)	$	(8)	$	(16)	$	(17)
	Foreign exchange loss on loans payable to affiliates	$	(56)	$	(66)	$	(94)	$	(127)
	Interest expense on loans payable to affiliates	$	(12)	$	(12)	$	(23)	$	(24)
Insurance earned premiums and contract revenues:
	Affiliate insurance premiums and contract revenues	$	55	$	35	$	109	$	64
Investments and other income, net:
	Interest earned on notes receivable from affiliates	$	1	$	1	$	1	$	2
Expenses:
	Shared services charges and other expenses	$	17	$	134	$	34	$	144
	Employee benefits expense	$	10	$	7	$	20	$	15
1   Prior period amounts have been reclassified to conform to current period presentation.

48

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15 – Related Party Transactions (Continued)
(Dollars in millions)			September 30, 2011		March 31, 2011
Assets:
Finance receivables, net
	Accounts receivable from affiliates		$	19	$	18
	Direct finance receivables from affiliates		$	4	$	5
	Notes receivable under home loan programs		$	20	$	21
	Deferred retail subvention income from affiliates		$	(668)	$	(732)
Investments in operating leases, net
	Leases to affiliates		$	5	$	5
	Deferred lease subvention income from affiliates		$	(682)	$	(761)
Other assets
	Notes receivable from affiliates		$	527	$	653
	Other receivables from affiliates		$	157	$	157
	Subvention support receivable from affiliates		$	81	$	109
Liabilities:
Debt
	Loans payable to affiliates		$	4,291	$	4,197
Other liabilities
	Unearned affiliate insurance premiums and
		contract revenues	$	318	$	364
	Accounts payable to affiliates		$	186	$	242
	Notes payable to affiliate		$	61	$	61
Shareholder’s Equity:
Dividends paid			$	741	$	266
Stock based compensation			$	2	$	1

TMCC-TFA Loan Agreement

During September 2011, TMCC entered into an uncommitted loan finance agreement with Toyota Finance Australia Limited (“TFA”) under which TMCC may make loans to TFA in amounts not to exceed $1 billion, and TFA may make loans to TMCC in amounts not to exceed $1 billion. The terms are determined at the time each loan is made based on business factors and market conditions.  There were no amounts outstanding at September 30, 2011.

Affiliate Insurance Premiums and Contract Revenues

Beginning September 1, 2011, Toyota Motor Insurance Services, Inc. (“TMIS”) began providing a policy to TMS covering the deductible related to property and vehicle exposure claims.  Revenue from the policy issued was $1 million for the first half and second quarter of fiscal 2012.

49

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 16 – Segment Information
Financial information for our reportable operating segments for the periods ended or at September 30, 2011
is summarized as follows (dollars in millions):
		Finance		Insurance		Intercompany
Fiscal 2012:		operations		operations		eliminations			Total
Three Months Ended September 30, 2011
Total financing revenues		$	1,867	$	-	$	3	$	1,870
Insurance earned premiums and contract revenues			-		156		(3)		153
Investment and other income			10		(18)		(1)		(9)
Total gross revenues			1,877		138		(1)		2,014
Less:
	Depreciation on operating leases		829		-		-		829
	Interest expense		150		-		(1)		149
	Provision for credit losses		11		-		-		11
	Operating and administrative expenses		175		37		-		212
	Insurance losses and loss adjustment expenses		-		83		-		83
	Provision for income taxes		274		5		-		279
Net income		$	438	$	13	$	-	$	451
Six Months Ended September 30, 2011
Total financing revenues		$	3,783	$	-	$	7	$	3,790
Insurance earned premiums and contract revenues			-		310		(7)		303
Investment and other income			22		12		(3)		31
Total gross revenues			3,805		322		(3)		4,124
Less:
	Depreciation on operating leases		1,654		-		-		1,654
	Interest expense		609		-		(3)		606
	Provision for credit losses		(192)		-		-		(192)
	Operating and administrative expenses		333		76		-		409
	Insurance losses and loss adjustment expenses		-		169		-		169
	Provision for income taxes		536		26		-		562
Net income		$	865	$	51	$	-	$	916
Total assets at September 30, 2011		$	85,998	$	3,165	$	(491)	$	88,672

50

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 16 – Segment Information (Continued)
Financial information for our reportable operating segments for the periods ended or at September 30,
2010 is summarized as follows (dollars in millions):
		Finance		Insurance		Intercompany
Fiscal 2011:		operations		operations		eliminations		Total
Three Months Ended September 30, 2010
Total financing revenues		$	2,027	$	-	$	5	$	2,032
Insurance earned premiums and contract revenues			-		137		(5)		132
Investment and other income			14		42		(2)		54
Total gross revenues			2,041		179		(2)		2,218
Less:
	Depreciation on operating leases		824		-		-		824
	Interest expense		595		-		(2)		593
	Provision for credit losses		(14)		-		-		(14)
	Operating and administrative expenses		286		37		-		323
	Insurance losses and loss adjustment expenses		-		58		-		58
	Provision for income taxes		134		31		-		165
Net income		$	216	$	53	$	-	$	269
Six Months Ended September 30, 2010
Total financing revenues		$	4,045	$	-	$	11	$	4,056
Insurance earned premiums and contract revenues			-		266		(11)		255
Investment and other income			24		69		(4)		89
Total gross revenues			4,069		335		(4)		4,400
Less:
	Depreciation on operating leases		1,635		-		-		1,635
	Interest expense		1,088		-		(4)		1,084
	Provision for credit losses		(303)		-		-		(303)
	Operating and administrative expenses		431		76		-		507
	Insurance losses and loss adjustment expenses		-		116		-		116
	Provision for income taxes		469		53		-		522
Net income		$	749	$	90	$	-	$	839
Total assets at September 30, 2010		$	83,332	$	3,035	$	(419)	$	85,948

51

ITEM 2.   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-Q or incorporated by reference herein are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements are based on current expectations and currently available information.  However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements.  Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements.  We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2011 (“fiscal 2011”) and Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. 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 from our insurance operations by providing coverage to vehicle dealers and their customers for certain types of risks.  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.  The 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 production and 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 and prevailing interest rates, as well as our credit ratings, which may affect our ability to obtain cost effective funding to support earning asset growth.

52

Fiscal 2012 First Six Months Operating Environment

During the first half of the fiscal year ending March 31, 2012 (“fiscal 2012”), economic growth continued at a slow pace in the United States and other developed markets.  Consumer confidence and spending remained weak and unemployment has remained at an elevated level.  Home values remained depressed, commodity prices continued to fluctuate, and household wealth contracted. While manufacturing production showed improvement during the first half of fiscal 2012, it was insufficient to offset weaknesses in the consumer sector.

Conditions in the global capital markets deteriorated during the first half of fiscal 2012 compared to the same period in fiscal 2011 due to ongoing concerns about the fiscal and economic conditions in the United States and the growing challenges faced by the European banking sector.  Despite these conditions, the demand for fixed income investment remained strong and borrowing costs remained near historic lows.  Ongoing economic and fiscal challenges could impact overall market availability and funding costs.  We currently maintain broad access to the global capital markets.

Industry-wide vehicle sales in the United States increased during the first half of fiscal 2012 as compared to the same period in the prior year while sales incentives throughout the auto industry decreased over the same period.  Vehicle sales by Toyota Motor Sales, USA, Inc. (“TMS”) decreased 15 percent in the first half of fiscal 2012 compared to the same period in fiscal 2011.  The decline in TMS sales was attributable to manufacturing disruptions and production suspensions of certain Toyota and Lexus vehicle models and related parts supply that resulted from natural disasters occurring in Japan in March 2011.  In the latter part of the second quarter of fiscal 2012, production of Toyota and Lexus vehicles began to approach pre-disaster levels.  We note that extensive flooding occurred in Thailand in October, and Toyota Motor Corporation has been making periodic announcements relating to preliminary impact on production and parts supply.  While we do not expect these events to have a significant impact on our results of operations or financial condition, we will continue to evaluate the impact based on any future developments.

Because our business is substantially dependent upon the sale of Toyota and Lexus vehicles, the reduced levels of production and sales impacted our financial condition and operating results as of September 30, 2011 and for the first half of fiscal 2012.  The reduction in the availability of new Toyota and Lexus vehicles negatively affected our financing volume, earning assets and revenues during the first half of fiscal 2012.  In response to the supply disruptions that began in March 2011, we implemented special programs designed to assist our retail customers and vehicle dealers.

Prices of used vehicles remained near an all-time high during the first half of fiscal 2012 primarily due to the low supply of used vehicles.  The reduction in the anticipated availability of new Toyota and Lexus vehicles had the effect of increasing demand for certain used Toyota and Lexus vehicles, which further supported the favorable trend in used Toyota and Lexus vehicle values.  The combination of low used vehicle supply and reduced availability of new Toyota and Lexus vehicles also favorably impacted our credit losses, and contributed to lower lease return rates and per unit loss severity during the first half of fiscal 2012.

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RESULTS OF OPERATIONS
Fiscal 2012 Summary
	Three Months Ended				Six Months Ended
	September 30,				September 30,
(Dollars in millions)		2011		2010		2011		2010
Net income:
Finance operations	$	438	$	216	$	865	$	749
Insurance operations		13		53		51		90
Total net income	$	451	$	269	$	916	$	839

Our consolidated net income was $916 million and $451 million for the first half and second quarter of fiscal 2012, compared with $839 million and $269 million for the same periods in fiscal 2011.  Our consolidated results for the first half and second quarter of fiscal 2012 increased as compared to the same period in fiscal 2011 primarily due to decreases in interest expense and operating and administrative expenses, partially offset by a decrease in total financing revenues.  Our consolidated results for the first half and second quarter of fiscal 2012 were also negatively affected by a decrease in our benefit from credit losses as compared to the same periods in the prior fiscal year.

Our overall capital position, taking into account the payment of a $741 million dividend in September of 2011 to TFSA, increased by $0.1 billion, bringing total shareholder’s equity to $7.0 billion at September 30, 2011, as compared to $6.9 billion at March 31, 2011.  Our debt decreased to $73.5 billion at September 30, 2011 from $77.3 billion at March 31, 2011.  We experienced an improvement in our debt-to-equity ratio to 10.5 at September 30, 2011 from 11.3 at March 31, 2011 due to the decrease in our debt balance.

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Finance Operations
			Three Months Ended						Six Months Ended
			September 30,			Percentage			September 30,			Percentage
(Dollars in millions)			2011		2010	Change			2011		2010	Change
Financing revenues:
Operating lease		$	1,178	$	1,216	(3)	%	$	2,382	$	2,416	(1)	%
Retail1			610		720	(15)	%		1,236		1,450	(15)	%
Dealer			79		91	(13)	%		165		179	(8)	%
Total financing revenues			1,867		2,027	(8)	%		3,783		4,045	(6)	%
Depreciation on operating
	leases		829		824	1	%		1,654		1,635	1	%
Interest expense			150		595	(75)	%		609		1,088	(44)	%
Net financing revenues			888		608	46	%		1,520		1,322	15	%
Provision for credit losses			11		(14)	(179)	%		(192)		(303)	(37)	%
Net income from financing
	operations	$	438	$	216	103	%	$	865	$	749	15	%
1 Includes direct finance lease revenues.

Our financing operations reported net income of $865 million and $438 million for the first half and second quarter of fiscal 2012, compared to $749 million and $216 million for the same periods in fiscal 2011.  The increase in net income was primarily due to decreases in interest expense and operating and administrative expenses, partially offset by declines in financing revenue.  Our consolidated results for the first half and second quarter of fiscal 2012 were also negatively affected by a decrease in our benefit from credit losses as compared to the same periods in the prior fiscal year.

Our total financing revenues declined during the first half and second quarter of fiscal 2012 due primarily to lower yields for our retail portfolio partially offset by slightly higher average outstanding earning asset balances.  Lower average outstanding earning asset balances for our dealer financing portfolio also contributed to the decline in total financing revenues.

Interest expense decreased during the first half and second quarter of fiscal 2012 primarily due to valuation gains on derivatives.  These gains were caused by a sharp decline in long-term swap interest rates during the second quarter of fiscal 2012.

Operating and administrative expenses decreased by 19 percent and 34 percent during the first half and second quarter of fiscal 2012 as compared to the same periods in fiscal 2011.  The decrease in operating expenses was primarily due to decreases in shared affiliate expenses for sales and marketing activities.  Refer to Note 15 – Related Party Transactions of the Notes to Consolidated Financial Statements and the corresponding note in our Annual Report on Form 10-K for fiscal 2011 for further information.

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We recorded a benefit from credit losses of $192 million and a provision for credit loss of $11 million for the first half and second quarter of fiscal 2012, respectively, compared to a benefit of $303 million and $14 million for the same periods in fiscal 2011.  The benefit from credit losses of $192 million was attributable to lower levels of per unit loss severity and default frequency in our consumer portfolio.  The improvement in default frequency was due in part to the overall improvement in the credit quality of our portfolio while the improvement in per unit loss severity was attributable to strong used vehicle prices fueled by lower supply of used vehicles.  Strong used vehicle prices also enabled some customers, who otherwise may have defaulted, to sell their vehicles in order to pay off their finance contracts.  This also positively affected default frequency.

Financing Revenues

Total financing revenues decreased 6 percent and 8 percent during the first half and second quarter of fiscal 2012 as compared to the same period in fiscal 2011 due to the following factors:

·   Operating lease revenues remained relatively consistent during the first half and second quarter of fiscal 2012 as compared to the same periods in fiscal 2011.

·   Retail contract revenues decreased 15 percent, primarily due to a decrease in portfolio yields, partially offset by a higher average outstanding earning asset balance.

·   Dealer financing revenues decreased 8 percent and 13 percent in the first half and second quarter of fiscal 2012, as compared with the same periods in fiscal 2011 primarily due to lower average outstanding earning asset balances.

Our total finance receivables portfolio yield was 5.0 percent during the first half and second quarter of fiscal 2012 compared to 5.7 percent for the same periods in fiscal 2011 due primarily to decreases in our retail portfolio yields.

Depreciation on Operating Leases

Depreciation on operating leases increased 1 percent during the first half and second quarter of fiscal 2012, as compared to the same periods in fiscal 2011.  The increase in depreciation was attributable to a 3 percent increase in average operating lease units outstanding, partially offset by the effect of strong used vehicle values.  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.

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Interest Expense

Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps, foreign currency swaps and foreign currency forwards to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  The following table summarizes the consolidated components of interest expense:

		Three Months Ended				Six Months Ended
		September 30,				September 30,
(Dollars in millions)		2011		2010		2011		2010
Interest expense on debt1	$	405	$	539	$	886	$	990
Interest expense on derivatives1,2		32		(54)		(1)		15
Interest expense on debt and derivatives		437		485		885		1,005
Ineffectiveness related to hedge accounting derivatives3		(3)		(3)		(7)		(12)
(Gain) loss on foreign currency transactions		(999)		1,436		(295)		828
Loss (gain) on foreign currency swaps3		780		(1,533)		(29)		(1,030)
(Gain) loss on non-hedge accounting interest rate swaps3		(66)		208		52		293
Total interest expense4	$	149	$	593	$	606	$	1,084

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 Excludes $3 million and $1 million of interest on bonds held by our insurance operations for the first half and second quarter of fiscal 2012, respectively, and $4 million and $2 million for the first half and second quarter of fiscal 2011, respectively.  Refer to Note 16 – Segment Information of the Notes to Consolidated Financial Statements for further information.

Total interest expense decreased from $1,084 million and $593 million during the first half and second quarter of fiscal 2011, respectively, to $606 million and $149 million during the same periods of fiscal 2012.  The reduction in interest expense resulted primarily from net valuation gains that occurred as a result of a decline in long-term swap rates during the second quarter of fiscal 2012.

Interest expense on debt primarily represents interest due on secured and unsecured notes and loans payable and commercial paper, and includes amortization of discount and premium, debt issuance costs, and basis adjustments.  Interest expense on debt decreased to $886 million and $405 million during the first half and second quarter of fiscal 2012, respectively, compared to $990 million and $539 million in the same periods in fiscal 2011 primarily as a result of lower contractual interest rates on debt.

Interest expense on derivatives represents net interest settlements and accruals on interest rate and foreign currency derivatives.  During the first half and second quarter of fiscal 2012, we recorded net income of $1 million and net expense of $32 million, respectively, compared to net expense of $15 million and net income of $54 million during the same periods of fiscal 2011.  The increase in interest expense on derivatives during the second quarter of fiscal 2012 compared to fiscal 2011 resulted primarily from lower average receive rates on interest rate and currency swaps used to economically hedge fixed rate debt.

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Gain or loss on foreign currency transactions represents the revaluation of foreign currency denominated debt transactions for which hedge accounting has not been elected.  We use foreign currency swaps and foreign currency forwards to economically hedge these foreign currency transactions.  During the first half and second quarter of fiscal 2012, the U.S. dollar strengthened relative to certain other currencies in which our debt is denominated.  This resulted in the recognition of gains on foreign currency transactions of $295 million and $999 million, respectively.  The impact of the strengthening dollar on the value of the associated foreign currency swaps was offset by lower swap interest rates, resulting in gains of $29 million and losses of $780 million for the first half and second quarter of fiscal 2012, respectively.  During the first half and second quarter of fiscal 2011, the U.S. dollar weakened, resulting in losses of $828 million and $1,436 million on foreign currency transactions and gains of $1,030 million and $1,533 million on foreign currency swaps, respectively.

We recorded losses of $52 million and gains of $66 million on non-hedge accounting interest rate swaps during the first half and second quarter of fiscal 2012 compared to losses of $293 million and $208 million during the same periods of fiscal 2011.   The reduction in net losses on these swaps during fiscal 2012 primarily reflects gains that resulted from a sharp decline in long-term swap rates during the current quarter.

Provision for Credit Losses

We recorded a benefit from credit losses of $192 million and a provision for credit losses of $11 million for the first half and second quarter of fiscal 2012, respectively, compared to a benefit from credit losses of $303 million and $14 million for the same periods of fiscal 2011.  The benefit from credit losses for the first half of fiscal 2012 was attributable to low levels of per unit loss severity, delinquencies, default frequency and net charge-offs in our consumer portfolio.  However, the benefit from these factors had a lesser impact in the latter half of the second quarter of fiscal 2012.  As a result, we recorded a provision for credit losses of $11 million for the second quarter of fiscal 2012.

Despite some softening in the latter part of the second quarter of fiscal 2012, used vehicle prices remained near an all-time high during the first half and second quarter of fiscal 2012.  The elevated price levels were driven primarily by the low supply of used vehicles, which contributed to lower loss severity as compared to the same periods in fiscal 2011.  In addition, the overall credit quality of our consumer portfolio in the first half and second quarter of fiscal 2012 continued to benefit from our ongoing focus on purchasing practices and collection efforts.  As a result, our net charge-offs improved during the first half and second quarter of fiscal 2012 as compared to the same periods in fiscal 2011.  Our delinquencies at September 30, 2011 also improved compared to delinquencies at September 30, 2010 despite a slight increase from March 31, 2011 reflecting typical seasonal patterns.

The favorable trends in per unit loss severity, delinquencies, default frequency and net charge-offs that contributed to the benefit from credit losses for the first half of fiscal 2012 reflect patterns of credit behavior different from our historical patterns.  Accordingly, there can be no assurance that these favorable trends will continue.

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Insurance Operations
The following table summarizes key results of our Insurance Operations:
		Three Months Ended						Six Months Ended
		September 30,				Percentage		September 30,				Percentage
(Dollars in millions)		2011		2010		Change		2011		2010		Change
Agreements (units in thousands)
	Issued		337		622	(46)	%		682		1,166	(42)	%
	In force		6,314		5,777	9	%		6,314		5,777	9	%
Insurance earned premiums and
	contract revenues	$	156	$	137	14	%	$	310	$	266	17	%
Investment and other (loss)
	income	$	(18)	$	42	(143)	%	$	12	$	69	(83)	%
Gross revenues from insurance
	operations	$	138	$	179	(23)	%	$	322	$	335	(4)	%
Insurance losses and loss
	adjustment expenses	$	83	$	58	43	%	$	169	$	116	46	%
Insurance dealer back-end
	program expenses	$	21	$	20	5	%	$	43	$	41	5	%
Net income from insurance
	operations	$	13	$	53	(75)	%	$	51	$	90	(43)	%

Our insurance operations reported net income of $51 million and $13 million during the first half and second quarter of fiscal 2012, respectively, compared to $90 million and $53 million of net income reported during the same periods in fiscal 2011.  The decreases in net income for the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011 were attributable to a decrease in investment and other income, and an increase in insurance loss and loss adjustment expenses, partially offset by an increase in insurance earned premiums and contract revenues.

Agreements issued decreased by 42 percent and 46 percent during the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011.  The decrease was primarily due to the discontinuation in January 2011 of affiliate agreements issued in support of special TMS sales and customer loyalty programs.

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 $310 million and $156 million during the first half and second quarter of fiscal 2012, respectively, compared to $266 million and $137 million during the same periods in fiscal 2011.  The increase in insurance earned premiums and contract revenues was primarily due to the increase in earnings from special TMS sales and customer loyalty programs offered during fiscal 2011.

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Our insurance operations reported investment and other income of $12 million and investment and other loss of $18 million during the first half and second quarter of fiscal 2012, compared to investment and other income of $69 million and $42 million during the same periods in fiscal 2011.  Investment and other income consists primarily of investment income on marketable securities.  The decrease in investment and other income for the first half and second quarter of fiscal 2012 compared to the same periods in the prior year was primarily due to higher net realized losses from the sale of securities and lower interest and dividend income received.  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 $169 million and $83 million of insurance losses and loss adjustment expenses during the first half and second quarter of fiscal 2012 compared to $116 million and $58 million during the same periods in fiscal 2011.  The increase in insurance losses and loss adjustment expenses is primarily due to higher claim frequency and severity in most programs.

Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on their sales volume or underwriting performance.  Insurance dealer back-end program expenses increased slightly during the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011.

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Investment and Other Income
The following table summarizes the components of our consolidated investment and other income:
	Three Months Ended				Six Months Ended
	September 30,				September 30,
(Dollars in millions)	2011		2010		2011		2010
Interest and dividend income on marketable securities	$	20	$	24	$	40	$	43
Realized (loss) gains on marketable securities		(35)		20		(23)		31
Other income		6		10		14		15
Total investment and other (loss) income, net	$	(9)	$	54	$	31	$	89

Interest and dividend income on marketable securities and other income during the first half and second quarter of fiscal 2012 were relatively consistent with the same periods in the prior year.

We reported realized losses on marketable securities of $23 million and $35 million during the first half and second quarter of fiscal 2012 compared to gains of $31 million and $20 million for the same periods in the prior year.  The losses were primarily due to losses recognized on equity securities sold during the second quarter of fiscal 2012.

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Operating and Administrative Expenses
The following table summarizes our operating and administrative expenses:
		Three Months Ended						Six Months Ended
		September 30,				Percentage		September 30,				Percentage
(Dollars in millions)		2011			2010	Change		2011		2010		Change
Employee expenses		$	90	$	88	2	%	$	170	$	170	-	%
Operating expenses			101		215	(53)	%		196		296	(34)	%
Insurance dealer back-end
	program expenses		21		20	5	%		43		41	5	%
Total operating and
	administrative expenses	$	212	$	323	(34)	%	$	409	$	507	(19)	%

Operating expenses decreased during the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011 due to decreases in shared affiliate expenses for sales and marketing activities.  Refer to Note 15 – Related Party Transactions of the Notes to Consolidated Financial Statements and the corresponding note in our Annual Report on Form 10-K for fiscal 2011 for further information.  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 the first half and second quarter of fiscal 2012 was $562 million and $279 million compared to $522 million and $165 million for the same periods in fiscal 2011.  Our effective tax rate was 38 percent for the first half and second quarter of both fiscal 2012 and fiscal 2011.  The change in our provision for income taxes is broadly consistent with the change in operating income in the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011.

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FINANCIAL CONDITION
Vehicle Financing Volume and Net Earning Assets
The composition of our vehicle contract volume and market share is summarized below:
	Three Months Ended						Six Months Ended
	September 30,				Percentage		September 30,				Percentage
(units in thousands):	2011		2010		Change		2011		2010		Change
TMS new sales volume1	313		368		(15)	%	612		722		(15)	%
Vehicle financing volume2
New retail contracts	141		162		(13)	%	281		343		(18)	%
Used retail contracts	86		88		(2)	%	179		186		(4)	%
Lease contracts	61		106		(42)	%	123		204		(40)	%
Total	288		356		(19)	%	583		733		(20)	%
TMS subvened vehicle financing volume
(units included in the above table):
New retail contracts	75		100		(25)	%	140		229		(39)	%
Used retail contracts	24		11		118	%	35		36		(3)	%
Lease contracts	52		102		(49)	%	105		194		(46)	%
Total	151		213		(29)	%	280		459		(39)	%
Market share:3
Retail contracts	44.8	%	43.7	%			45.7	%	47.2	%
Lease contracts	19.3	%	28.8	%			20.0	%	28.2	%
Total	64.1	%	72.5	%			65.7	%	75.4	%

1 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 86% Toyota and 14% Lexus vehicles for the first half of fiscal 2012 and 85% Toyota, and 15% Lexus for the second quarter of fiscal 2012.  TMS new sales volume is comprised of approximately 86% Toyota and 14% Lexus vehicles for the first half and second quarter of fiscal 2011.

2 Total financing volume is comprised of approximately 80% Toyota, 15% Lexus, and 5% non-Toyota/Lexus vehicles for the first half and second quarter of fiscal 2012.  Total financing volume is comprised of approximately 81% Toyota, 14% Lexus, and 5% non-Toyota/Lexus vehicles for the first half and second quarter of fiscal 2011.

3 Represents the percentage of total domestic TMS sales of new Toyota and Lexus vehicles financed by us, excluding 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.  In March 2011, natural disasters in Japan caused manufacturing disruptions and production suspensions of certain Toyota and Lexus vehicle models and parts.  As a result, vehicle sales by TMS decreased 15 percent in the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011.

Our financing volume and market share decreased in the first half and second quarter of fiscal 2012 compared to the same periods in fiscal 2011.  The lower levels of both volume and market share were driven primarily by the decreased supply of new Toyota and Lexus vehicles and a lower level of TMS subvention programs.  TMS subvention levels declined as lower supply of new vehicles decreased the need for subvention.

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The composition of our net earning assets is summarized below:
						Percentage
(Dollars in millions)		September 30, 2011		March 31, 2011		Change
Net Earning Assets
Finance receivables, net
	Retail finance receivables, net1	$	45,813	$	45,688	-	%
	Dealer financing, net		9,766		12,048	(19)	%
Total finance receivables, net			55,579		57,736	(4)	%
Investments in operating leases, net			18,594		19,041	(2)	%
Net earning assets		$	74,173	$	76,777	(3)	%
Dealer Financing
(Number of dealers serviced)
Toyota and Lexus dealers2			984		975	1	%
Vehicle dealers outside of the
	Toyota/Lexus dealer network		490		470	4	%
Industrial equipment dealers			138		139	(1)	%
Total number of dealers receiving
	wholesale financing		1,612		1,584	2	%
Dealer inventory financed (units in thousands)			163		253	(36)	%

1  Includes direct finance leases.

2  Includes wholesale and other credit 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 decreased during the first half of fiscal 2012 as compared to the same period in fiscal 2011.  Much of the decrease was attributable to a decrease in overall TMS vehicle sales and subvention.  While average outstanding balances increased, retail finance receivables, net at September 30, 2011 remained consistent as compared to the balance at March 31, 2011, as the dollar volume of vehicle financing offset portfolio liquidations.

Lease Contract Volume and Earning Assets

Our overall vehicle lease contract volume during the first half of fiscal 2012 decreased as compared to the same period in fiscal 2011.  Vehicle lease contract volume is affected by the level of Toyota and Lexus vehicle sales, the availability of subvention programs, and changes in the interest rate environment.  Much of the decrease during the first half of fiscal 2012 was attributable to a decrease in TMS sales and subvention levels.  Our investment in operating leases, net decreased slightly at September 30, 2011 as compared to the balance at March 31, 2011 due to lower contract volume.

Dealer Financing and Earning Assets

Dealer financing, net decreased 19% from March 31, 2011, primarily due to decreases in dealer inventory.  The lower level of dealer inventory was attributable to manufacturing disruptions and production suspensions of certain Toyota and Lexus vehicle models that resulted from natural disasters occurring in Japan in March 2011.  The total number of dealers receiving financing remained relatively stable as compared to March 31, 2011.

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Residual Value Risk

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

We periodically review the estimated end-of-term residual values of leased vehicles to assess the appropriateness of our carrying values.  To the extent the estimated end-of-term value of a leased vehicle is lower than the residual value established at lease inception, the estimated 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.  These adjustments are made over time for operating leases by recording depreciation expense in the Consolidated Statement of Income.  Gains or losses on vehicles sold at lease termination are also recorded in depreciation expense in the Consolidated Statement of Income.

Depreciation on Operating Leases
		Three Months Ended						Six Months Ended
		September 30,				Percentage		September 30,				Percentage
		2011		2010		Change		2011		2010		Change
Depreciation on operating
	leases (dollars in millions)	$	829	$	824	1	%	$	1,654	$	1,635	1	%
Average operating lease units
	outstanding (in thousands)		780		780	-	%		788		768	3	%

Depreciation expense on operating leases remained consistent during the first half and second quarter of fiscal 2012 when compared to the same periods of fiscal 2011.  Depreciation expense remained consistent primarily because the total number of operating lease units outstanding remained relatively consistent over those periods.  Depreciation expense can also be affected by changes in the used vehicle market because used vehicle market trends are a significant factor in estimating end-of-term market values.  Used vehicle values remained near an all-time high during the first half of fiscal 2012; however, sustainability of these levels is uncertain.

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Credit Risk

Credit Loss Experience

The overall credit quality of our consumer portfolio in the first half and second quarter of fiscal 2012 continued to benefit from our focus on purchasing practices and collection efforts.  In addition, subvention contributed to our overall portfolio quality, as subvened contracts typically have better credit quality than non-subvened contracts.  These factors, combined with strong used vehicle values, contributed to decreased levels of default, delinquency and net charge-offs during the first half of fiscal 2012 as compared to the same period in fiscal 2011.

			September 30,			March 31,			September 30,
			2011			2011			2010
Net charge-offs as a percentage of average gross earning assets 1
		Finance receivables		0.20	%		0.61	%		0.67	%
		Operating leases		0.08	%		0.22	%		0.25	%
		Total		0.17	%		0.52	%		0.57	%
Default frequency as a percentage of outstanding contracts 2				1.41	%		2.11	%		2.56	%
Average loss severity per unit			$	5,754		$	7,110		$	7,445
Aggregate balances for accounts 60 or more days past due as a
	percentage of gross earning assets 3
		Finance receivables 4		0.33	%		0.27	%		0.43	%
		Operating leases 4		0.25	%		0.23	%		0.40	%
		Total		0.31	%		0.26	%		0.42	%

1  Net charge-off ratios have been annualized using six month results for the periods ended September 30, 2011 and September 30, 2010.

2  Prior period percentages have been reclassified to conform to the current period presentation.

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  Includes accounts in bankruptcy and excludes accounts for which vehicles have been repossessed.

The level of credit losses primarily reflects two factors: default frequency and loss severity.  Default frequency as a percentage of average outstanding contracts decreased to 1.41 percent during the first half of fiscal 2012 compared to 2.56 percent during the same period in fiscal 2011.  Our continued focus on purchasing practices and collection efforts has contributed to the improvement in default frequency.  Strong used vehicle prices also enabled some customers, who otherwise may have defaulted, to sell their vehicles in order to pay off their finance contracts.  This also positively affected default frequency.  In addition, we experienced lower loss severity as prices of used vehicles remained near an all time high and positively affected net loss per charged-off unit during the first half of fiscal 2012.

The manufacturing disruptions and production suspensions resulting from the natural disasters that occurred in Japan in March 2011 lowered the anticipated availability of new vehicles and further supported used vehicle values.  As a result, our level of net charge-offs for the first half and second quarter of fiscal 2012 decreased significantly compared with the same periods in the prior year.  Net charge-offs as a percentage of average gross earning assets decreased from 0.57 percent at September 30, 2010 to 0.17 percent at September 30, 2011.

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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.

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 system.  In addition, we have established procedures that focus on managing high risk loans in our dealer portfolio.  Our field operations management and special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired.  If impaired loans are identified, specific reserves are established, as appropriate, and the loan is removed from the loan-risk pool for separate monitoring.

The following table provides information related to our allowance for credit losses for the three and six months ended September 30, 2011 and 2010:

	Three Months Ended				Six Months Ended
	September 30,				September 30,
(Dollars in millions)	2011		2010		2011		2010
Allowance for credit losses at beginning of period	$	667	$	1,316	$	879	$	1,705
Provision for credit losses		11		(14)		(192)		(303)
Charge-offs, net of recoveries		(55)		(113)		(64)		(213)
Allowance for credit losses at end of period	$	623	$	1,189	$	623	$	1,189

During the first half of fiscal 2012, our allowance for credit losses decreased $256 million from $879 million at March 31, 2011 to $623 million at September 30, 2011.  The decline in our allowance for credit losses was driven by improvements in per unit loss severity and default frequency.  The improvement in per unit loss severity was attributable to higher used vehicle values.  Prices of used vehicles remained near an all-time high during the first half of fiscal 2012 primarily due to the low supply of used vehicles.  In addition, the reduction in anticipated availability of new Toyota and Lexus vehicles resulting from the manufacturing disruptions caused by natural disasters in Japan in March of 2011 increased demand for certain used Toyota and Lexus vehicles.  The increased demand further supported the favorable trend in used vehicle values.  Our continued focus on purchasing practices and collection efforts contributed to the improvement in default frequency and related delinquency trends.  Strong used vehicle prices also enabled some customers, who otherwise may have defaulted, to sell their vehicles in order to pay off their finance contracts.  This also positively affected default frequency.  As a result, our net charge-offs improved significantly during the first half of fiscal 2012 as compared to the same period in fiscal 2011.

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During the second quarter of fiscal 2012, our allowance decreased $44 million from $667 million at June 30, 2011 to $623 million at September 30, 2011.  We continue to benefit from low levels of per unit loss severity, delinquencies, default frequency and net charge offs in the first half of fiscal 2012.   However, the benefit from these factors had a lesser impact in the latter half of the second quarter of fiscal 2012.  As a result, we recorded a provision for credit losses of $11 million for the second quarter of fiscal 2012.

The favorable levels in our per unit loss severity, delinquencies, default frequency and net charge-offs reflect patterns of credit behavior different from our historical patterns and levels.  An unusual combination of factors including the low supply of used vehicles, the impact of the natural disasters occurring in Japan, and an extended period of economic uncertainty have contributed to these trends.  We considered these factors as well as our historical seasonal patterns in establishing our allowance for credit losses at September 30, 2011.

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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 global capital 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 and 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:

(Dollars in millions)	September 30, 2011		March 31, 2011
Commercial paper1	$	18,585	$	19,943
Unsecured notes and loans payable2		43,151		45,304
Secured notes and loans payable		10,402		10,626
Carrying value adjustment3		1,406		1,409
Total Debt	$	73,544	$	77,282

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 maintaining direct relationships with wholesale market funding providers and commercial paper investors, and maintaining the ability to sell certain assets when and if conditions warrant.

We develop and maintain contingency funding plans and evaluate our liquidity position under various operating circumstances, allowing us to ensure that 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.

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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 $7.0 billion to $10.8 billion with an average balance of $8.9 billion for the second quarter of fiscal 2012.

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 II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 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 $16.8 billion to $18.8 billion during the quarter ended September 30, 2011, with an average outstanding balance of $17.8 billion.  Our commercial paper programs are supported by the liquidity facilities discussed in this section.  We believe we have ample capacity to meet our short-term funding requirements and manage our liquidity.

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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, 20111	$	8,914	$	22,312	$	3,233	$	8,969	$	43,428
Issuances during the six months
ended September 30, 2011		2,5902		5163		-		1,3004		4,406
Maturities and terminations
during the six months
ended September 30, 2011		(1,511)		(3,859)		(386)		(150)		(5,906)
Balance at September 30, 20111	$	9,993	$	18,969	$	2,847	$	10,119	$	41,928

1 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 2012 had terms to maturity ranging from approximately 2 years to 10 years, and had interest rates at the time of issuance ranging from 0.5 percent to 3.4 percent.

3 EMTNs had terms to maturity ranging from approximately 2 years to 3 years, and had interest rates at the time of issuance ranging from 3.7 percent to 4.6 percent.

4 Consists of long-term borrowings, with terms to maturity ranging from approximately 1 year to 6 years, and had interest rates at the time of issuance ranging from 0.1 percent to 0.9 percent.

5 Consists of fixed and floating rate debt.  Upon the issuance of fixed rate debt, 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 unsecured 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 1, 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 these covenants.

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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 2011, 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.  The authorized amount is shared among all EMTN Issuers.  The authorized aggregate principal amount under the EMTN program may be increased from time to time.  Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement.  Certain debt securities issued under the EMTN program are subject to negative pledge provisions.  Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions.  We are in compliance with these covenants.

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

Secured Notes and Loans Payable

Overview

Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding.  Our current 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 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.

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Our use of special purpose entities in securitizations is consistent with conventional practice in the securitization market.  None of our officers, directors, or employees holds 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 amount 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.

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Public Term Securitization

Since 1993, we have sponsored 20 public securitization trusts backed by retail finance receivables which have issued more than $20 billion of securities, including registered securities that we retained.  None of these securities has 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 securities backed by auto retail installment sales contracts in the U.S. capital markets.  Funding obtained from our public term securitization transactions is repaid as the underlying finance receivables amortize.  In addition, we retained certain securities from these transactions and may sell them at any time.

We filed a shelf registration statement with the SEC to provide for the issuance of securities backed by auto leases which became effective in October 2011.  We have not yet executed any lease securitization transaction under this registration statement.

Amortizing Asset-backed Commercial Paper Conduits

We executed private securitization transactions of retail finance receivables with bank-sponsored multi-seller asset-backed conduits.  During the first half of fiscal 2012, these transactions provided us with approximately $1.8 billion in funding which will be repaid as the underlying finance receivables amortize.

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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 and Five Year 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, a $5.0 billion three year syndicated bank credit facility pursuant to a Three Year Credit Agreement, and 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 transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets.  These agreements may be used for general corporate purposes and none were drawn upon as of September 30, 2011 and 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 $378 million in funding through this facility during the first half of fiscal 2012.  As of September 30, 2011, approximately $3.3 billion of this facility was utilized.  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 additional bank credit facilities.  As of September 30, 2011, TMCC has committed bank credit facilities of $1 billion that mature in fiscal 2013 and $650 million that mature in fiscal 2014.  An uncommitted bank credit facility in the amount of $500 million matures in fiscal 2013.  These agreements contain covenants and conditions customary in transactions 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 September 30, 2011 and March 31, 2011.

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

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Credit Ratings

The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation.  Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets.  Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning credit rating organization.  Each credit rating organization may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each organization.  Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC.  See “Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements” in our fiscal 2011 Form 10-K.

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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.  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.

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 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.

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 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.

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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 of the Notes to the Consolidated Financial Statements in our fiscal 2011 Form 10-K, and Note 8 –Derivatives, Hedging Activities and Interest Expense in this Form 10-Q 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)	September 30, 2011		March 31, 2011
Derivative assets	$	3,115	$	3,476
Less: Collateral held, net1		(2,377)		(2,563)
Derivative assets, net of collateral		738		913
Less: Counterparty credit valuation adjustment		(27)		(12)
Derivative assets, net of collateral and credit adjustment	$	711	$	901
Embedded derivative assets	$	-	$	1
Derivative liabilities	$	199	$	152
Less: Collateral posted, net1		(4)		-
Derivative liabilities, net of collateral		195		152
Less:  Our own non-performance credit valuation adjustment		(2)		(1)
Derivative liabilities, net of collateral
and non-performance credit valuation adjustment	$	193	$	151
Embedded derivative liabilities	$	46	$	52

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

The decrease in derivative assets and increase in derivative liabilities as of September 30, 2011 compared to March 31, 2011, are primarily the result of the strengthening 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.

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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 September 30, 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 United States 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 at least monthly.  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” in our fiscal 2011 Form 10-K for further discussion.

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

(Dollars in millions)	September 30, 2011		March 31, 2011
Credit Rating
AA	$	501	$	497
A		236		379
BBB		1		37
Total net counterparty credit exposure1	$	738	$	913

1 Amounts exclude counterparty credit valuation adjustments of $27 million and $12 million at September 30, 2011 and March 31, 2011, respectively.

At September 30, 2011, we recorded a credit valuation adjustment of $27 million related to non-performance risk of our counterparties and a credit valuation adjustment of $2 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.

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NEW ACCOUNTING STANDARDS

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

OFF-BALANCE-SHEET ARRANGEMENTS

Guarantees

TMCC has guaranteed the payments of principal and interest on bonds relating to manufacturing facilities of certain affiliates.  Refer to Note 13 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.

Lending Commitments

A description of our lending commitments is included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements” in our fiscal 2011 Form 10-K, as well as above in Note 13 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Indemnification

Refer to Note 13 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have omitted this section pursuant to General Instruction H(2) of Form 10-Q.

ITEM 4.  CONTROLS AND PROCEDURES

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of our “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report.  Based on this evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of September 30, 2011, to ensure that information required to be disclosed in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules, regulations, and forms and that such information is accumulated and communicated to our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

The Company is currently in the process of implementing a new loan origination system in our dealer sales and services offices.  Implementation in all offices is currently expected to occur by the end of fiscal 2012.  This new system automates certain validations previously executed manually in the contract acquisition process.

There have been no other changes in our internal control over financial reporting that occurred during the three months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION

ITEM 1.   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 loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability.  Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established.  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 TMCC.

TMCC and certain affiliates had 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 alleges 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.  Subsequently, the plaintiff filed a voluntary dismissal, and on August 16, 2011, the appeals court entered an order dismissing the appeal.  Therefore, the district court’s judgment in favor of TMCC and the other defendants became final.

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ITEM 1A.   RISK FACTORS

There are no material changes from the risk factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have omitted this section pursuant to General Instruction H(2) of Form 10-Q.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

We have omitted this section pursuant to General Instruction H(2) of Form 10-Q.

ITEM 4.   (Removed and Reserved)

ITEM 5.   OTHER INFORMATION

None.

ITEM 6.   EXHIBITS

See Exhibit Index on page 85.

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SIGNATURES

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

TOYOTA MOTOR CREDIT CORPORATION

 (Registrant)                        

Date:   November 9, 2011	By     /S/ GEORGE E. BORST
	George E. Borst
	President and
	Chief Executive Officer
	(Principal Executive Officer)

Date:   November 9, 2011	By   /S/ CHRIS BALLINGER
	Chris Ballinger
	Group Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

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 16, 2011, 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)

____________

(1) Incorporated herein by reference to the same numbered Exhibit filed with our Annual Report on Form 10-K for the fiscal year ended March 31, 2010, Commission File Number 1-9961.

(2) Incorporated herein by reference to the same numbered Exhibit filed with our Quarterly Report on Form 10-Q for the three months ended December 31, 2000, Commission File Number 1-9961.

(3) Incorporated herein by reference to Exhibit 4.1(a), filed with our Registration Statement on Form S-3, File Number 33-52359.

(4) Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated October 16, 1991, Commission File Number 1-9961.

(5) Incorporated herein by reference to Exhibit 4.1(c) filed with our Registration Statement on Form S-3, Commission File No. 333-113680.

(6) Incorporated herein by reference to Exhibit 4.2 filed with our Current Report on Form 8-K dated March 9, 2011, Commission File Number 1-9961.

(7) Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 16, 2011, Commission File Number 1-9961.

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
4.3	TMCC has outstanding certain long-term debt as set forth in Note 10 - Debt of the Notes to Consolidated Financial Statements.  Not filed herein as an exhibit, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of TMCC and its subsidiaries on a consolidated basis.  TMCC agrees to furnish copies of all such instruments to the Securities and Exchange Commission upon request.
4.3(a)	Sixth Amended and Restated Agency Agreement dated September 28, 2006, among TMCC, JP Morgan Chase Bank, N.A. and J.P. Morgan Bank Luxembourg S.A.	(8)
4.3(b)	Amendment No.1, dated as of March 4, 2011, to the Sixth Amended and Restated Agency Agreement among TMCC, The Bank of New York Mellon, acting through its London branch, as agent, and The Bank of New York Luxembourg S.A., as paying agent.	(9)
12.1	Calculation of ratio of earnings to fixed charges	Filed Herewith
31.1	Certification of Chief Executive Officer	Filed Herewith
31.2	Certification of Chief Financial Officer	Filed Herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350	Furnished Herewith
32.2	Certification pursuant to 18 U.S.C. Section 1350	Furnished Herewith
101.INS	XBRL instance document	Filed Herewith
101.CAL	XBRL taxonomy extension calculation linkbase document	Filed Herewith
____________

(8) Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 28, 2006, Commission File Number 1-9961.

(9) Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated March 4, 2011, Commission File No. 1-9961. 

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
101.DEF	XBRL taxonomy extension definition linkbase document	Filed Herewith
101.LAB	XBRL taxonomy extension labels linkbase document	Filed Herewith
101.PRE	XBRL taxonomy extension presentation linkbase document	Filed Herewith
101.SCH	XBRL taxonomy extension schema document	Filed Herewith

87