form10k_032013.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2013

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

EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

Title of each class	Name of each exchange on which registered

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

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

(Title of class)

None

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

Yes x No

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

Yes No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if

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

Yes x No

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

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

Large accelerated filer __ Accelerated filer __

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

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

Yes __ No x

As of May 31, 2013, 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.

Documents incorporated by reference: None

Reduced Disclosure Format

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

TOYOTA MOTOR CREDIT CORPORATION

FORM 10-K

For the fiscal year ended March 31, 2013

INDEX
PART I	.………………………………………………………………………………………..…...................	4
Item 1.	Business……………………………………………………………….…………………................…..	4
Item 1A.	Risk Factors…………………………………………………………………….………….…….…….	16
Item 1B.	Unresolved Staff Comments……………………………………………………………………….....	23
Item 2.	Properties………………………………………………………………………………………….........	23
Item 3.	Legal Proceedings………………………………………………………………………………...……	23
Item 4.	Mine Safety Disclosures……………………………………………………………………….………	23

PART II	.…………………………………………………………………………………………….................	23
Item 5.	Market for registrant's Common Equity, related Stockholder Matters and Issuer Purchases of Equity Securities………………………………………………………………………………………….........	23
Item 6.	Selected Financial Data……………………….……………………………………………………..	24
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations..………	26
Item 7A.	Quantitative and Qualitative Discloures About Market Risk………………………………………	62
Item 8.	Financial Statements and Supplementary Data……………………….………………………………	68
	Report of Independant Registered Public Accounting Firm.………………………………….…....	68
	Consolidated Statement of Income……………………………………….……………………........	69
	Consolidated Statement of Comprehensive Income……………………………………….………	69
	Consolidated Balance Sheet……………………………………………….………………..……....	70
	Consolidated Statement of Shareholder's Equity………………………….…………………..........	71
	Consolidated Statement of Cash Flows…………………………………….……………………....	72
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures……....	137
Item 9A.	Controls and Procedures………………………………………………………………………………	137
Item 9B.	Other Information…………………………………………………………………………………….	138

PART III	……………………………………………………………………………………………...............	139
Item 10.	Directors, Executive Officers and Corporate Governance……………………………………………	139
Item 11.	Executive Compensation………………………………………………………………………………	142
Item 12.	Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters..	142
Item 13.	Certain Relationships and Related Transactions and Director Independence……………………….	142
Item 14.	Principle Accounting Fees and Services…………………………………………………………….	143

PART IV	.…………………………………………………………………………………………................	144
Item 15.	Exhibits, Financial Statements and Schedules……………..………………………………………..	144
Signatures	………………………………………………………………………………………………….……	145
Exhibit Index	………………………………………………………………………………………………….......	147

PART I

ITEM 1. BUSINESS

GENERAL

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

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

Finance - We acquire a broad range of retail finance products including retail and commercial installment sales contracts (“retail contracts”) in the U.S. and Puerto Rico and leasing contracts accounted for as either direct finance leases or operating leases (“lease contracts”) from vehicle and industrial equipment dealers in the U.S. We collectively refer to our retail contracts and lease contracts as the consumer portfolio. We also provide dealer financing, including wholesale financing (also referred to as floorplan financing), term loans, revolving lines of credit and real estate financing to vehicle and industrial equipment dealers in the U.S. and Puerto Rico.

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

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

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

Public Filings

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

Toyota Motor Credit Corporation

19001 South Western Avenue

Torrance, CA 90501

Attention: Corporate Communications

Investors and others should note that we announce material financial information using the investor relations section of our corporate website (http://www.toyotafinancial.com). We use our website, press releases, as well as social media to communicate with our investors, customers and the general public about our company, our services and other issues. While not all of the information that we post on our website or on social media is of a material nature, some information could be material. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the investor relations section of our website and the Toyota Motor Credit Corporation Twitter feed (http://www.twitter.com/toyotafinancial). Any changes to the social media channels we use for this purpose will be posted on the investor relations section of our corporate website. We are not incorporating any of the information set forth on our website or on social media channels into this filing on Form 10-K.

Seasonality

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

Geographic Distribution of Operations

As of March 31, 2013, approximately 20 percent of vehicle retail contracts and lease assets were concentrated in California, 11 percent in Texas, 8 percent in New York and 6 percent in New Jersey. As of March 31, 2013, approximately 26 percent of insurance policies and contracts were concentrated in California, 7 percent in New York and 5 percent in New Jersey. Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our financial condition and results of operations.

FINANCE OPERATIONS

We acquire retail and lease contracts from, and provide financing and certain other financial products and services to authorized Toyota and Lexus vehicle dealers and, to a lesser extent, other domestic and import franchised dealers and their customers in the U.S. and Puerto Rico. We also offer financing for various industrial and commercial products such as forklifts and light and medium-duty trucks. Revenues related to transactions with industrial equipment dealers contributed approximately 3 percent to total financing revenues in the fiscal years ended March 31, 2013 (“fiscal 2013”), 2012 (“fiscal 2012”) and 2011 (“fiscal 2011”).

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

	Years ended March 31,
	2013		2012		2011
Percentage of financing revenues, net of depreciation:
Operating leases, net of depreciation	32	%	33	%	33	%
Retail1	56	%	58	%	59	%
Dealer	12	%	9	%	8	%
Financing revenues, net of depreciation	100	%	100	%	100	%

1	Includes direct finance lease revenues.

Retail and Lease Financing

Pricing

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

Underwriting

We acquire new and used vehicle and industrial equipment retail and lease contracts primarily from Toyota and Lexus vehicle dealers and industrial equipment dealers. Dealers transmit customer credit applications electronically through our online system for contract acquisition. The customer may submit a credit application directly to our website, in which case, the credit application is sent to the dealer of the customer’s choice or to a dealer that is near the customer’s residence. In addition, through our website, customers are able to request a pre-qualification letter for presentation to the dealer specifying the maximum amount that may be financed. Upon receipt of the credit application, our origination system automatically requests a credit bureau report from one of the major credit bureaus. We use a proprietary credit scoring system to evaluate an applicant’s risk profile. Factors used by the credit scoring system (based on the applicant’s credit history) include the terms of the contract, ability to pay, debt ratios, amount financed relative to the value of the vehicle, and credit bureau attributes such as number of trade lines, utilization ratio and number of credit inquiries.

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

Credit analysts (located at the DSSOs) approve or reject all credit applications that are not auto-decisioned. A credit analyst decisions applications based on an evaluation that considers an applicant’s creditworthiness and projected ability to meet the monthly obligation, which is derived, among other things, from the amount financed and the term. Our proprietary scoring system assists the credit analyst in the credit review process.

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

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

Subvention

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

Servicing

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

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

We use an on-line collection and auto dialer system that prioritizes collection efforts, generates past due notices, and signals our collections personnel to make telephone contact with delinquent customers. Collection efforts are based on behavioral scoring models (which analyze borrowers’ past payment performance, vehicle valuation and credit scores to predict future payment behavior). We generally determine whether to commence repossession efforts after an account is 60 days past due. Repossessed vehicles are held in inventory to comply with statutory requirements and then sold at private auctions, unless public auctions are required by applicable law. Any unpaid amounts remaining after sale or after full charge off are pursued by us to the extent practical and legally permissible. Any surplus amounts remaining after sale fees and expenses have been paid, and any reserve charge-backs and/or dealer guarantees, are refunded to the customers. Collections of deficiencies and refunds of surplus are administered at a centralized facility. From an operations perspective, we charge off a retail or lease contract in our servicing systems as soon as disposition of the vehicle has been completed and sales proceeds have been received, but we may in some circumstances charge off a retail or lease contract prior to repossession. However, from an accounting perspective we charge off the amount we do not expect to collect when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first, even when repossession and disposition of the collateral have not been completed.

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

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

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

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

Remarketing

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

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

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

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

Dealer Financing

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

Wholesale Financing

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

TMCC and TMS are parties to an agreement pursuant to which TMS will arrange for the repurchase of new Toyota, Lexus and Scion vehicles at the aggregate cost financed by TMCC in the event of vehicle dealer default under wholesale financing. TMCC is also party to similar agreements with TMHU, HINO, and other domestic and import manufacturers.

Other Dealer Financing

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

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

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

·	Evaluate the dealer’s financial condition; and

·	Assess the dealer’s operations and management.

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

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

INSURANCE OPERATIONS

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

Gross revenues from insurance operations on a consolidated basis comprised 9 percent of total gross revenues for fiscal 2013 and 8 percent for both fiscal 2012 and 2011.

Products and Services

TMIS offers various products and services on Toyota, Lexus, Scion and other domestic and import vehicles, such as vehicle service agreements, guaranteed auto protection agreements, maintenance contracts, and excess wear and use agreements. Vehicle service agreements offer vehicle owners and lessees mechanical breakdown protection for new and used vehicles secondary to the manufacturer’s new vehicle warranty. Guaranteed auto protection insurance, or debt cancellation agreements, provides coverage for a lease or retail contract deficiency balance in the event of a total loss of the covered vehicle. Excess wear and use agreements are available on leases of Toyota, Lexus and Scion vehicles and protects against excess wear and use charges that may be assessed at lease termination.

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

TMIS obtains a portion of vehicle service contract business by providing TMS contractual indemnity coverage on certified Toyota, Lexus and Scion pre-owned vehicles. TMIS also provides umbrella liability insurance to TMS and affiliates covering certain dollar value layers of risk above various primary or self-insured retentions. On all layers in which TMIS has provided coverage, 99 percent of the risk has been ceded to various reinsurers. In addition, TMIS provides property deductible reimbursement insurance to TMS and affiliates covering losses incurred under their primary policy.

RELATIONSHIPS WITH AFFILIATES

Our business is substantially dependent upon the retail sale of Toyota, Lexus and Scion vehicles and our ability to offer competitive financing and insurance products in the U.S. TMS is the primary distributor of Toyota, Lexus and Scion vehicles in the U.S. Automobiles and light-duty trucks sold by TMS totaled 2.1 million units for fiscal 2013 compared to 1.7 million units for fiscal 2012 and 1.8 million units for fiscal 2011. Toyota, Lexus and Scion vehicles accounted for approximately 14 percent of all retail automobile and light-duty truck unit sales volume in the U.S. during fiscal 2013, compared to 13 percent during fiscal 2012 and 15 percent during fiscal 2011.

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

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

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

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

Our employees are generally eligible to participate in the TMS Pension Plan, the Toyota Savings Plan sponsored by TMS, and various health and life and other post-retirement benefits sponsored by TMS, as discussed further in Note 12 – Pension and Other Benefit Plans of the Notes to Consolidated Financial Statements.

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

Additionally, TFSC and TMCC are parties to conduit finance agreements pursuant to which TFSC acquires funds from lending institutions solely for the benefit of TMCC, and in turn, provides these funds to TMCC. The last of these agreements expired in April, 2012. There were no amounts payable under these agreements as of March 31, 2013, and the aggregate amounts payable under these agreements were approximately $2.2 billion as of March 31, 2012.

TMIS provides administrative services and various types of coverage to TMS and affiliates, including contractual indemnity coverage for TMS’ certified pre-owned vehicle program, umbrella liability insurance, and property deductible reimbursement insurance. In addition, TMIS provided prepaid maintenance and vehicle service coverage to TMS in support of special sales and customer loyalty programs until the program was discontinued in fiscal 2011.

See Note 15 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

COMPETITION

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

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

REGULATORY ENVIRONMENT

Our finance and insurance operations are regulated under both federal and state law. Our finance operations are governed by, among other federal laws, the Equal Credit Opportunity Act, the Truth in Lending Act, the Truth in Leasing Act, the Fair Credit Reporting Act, and the consumer data privacy and security provisions of the Gramm-Leach Bliley Act. The Equal Credit Opportunity Act is designed to prevent credit discrimination on the basis of certain protected classes, requires the distribution of specified credit decision notices and limits the information that may be requested and considered in a credit transaction. The Truth in Lending Act and the Truth in Leasing Act place disclosure and substantive transaction restrictions on consumer credit and leasing transactions. The Fair Credit Reporting Act imposes restrictions and requirements regarding our use and sharing of credit reports, the reporting of data to credit reporting agencies, credit decision notices, the accuracy and integrity of information reported to the credit reporting agencies and identity theft prevention requirements. We are also subject to the Servicemembers Civil Relief Act, which requires us, in most circumstances, to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military duty. Federal privacy and data security laws place restrictions on our use and sharing of consumer data, impose privacy notice requirements, give consumers the right to opt out of certain uses and sharing of their data and impose safeguarding rules regarding the maintenance, storage, transmission and destruction of consumer data. In addition, the dealers who originate our auto finance contracts and leases also must comply with both state and federal credit and trade practice statutes and regulations. Failure of the dealers to comply with these statutes and regulations could result in remedies that could have an adverse effect on us.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law. The scope of the Dodd-Frank Act has broad implications for the financial services industry and requires the development, adoption and implementation of many regulations. Among other things, the Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB”), which has broad regulatory, examination and enforcement powers over consumer financial products and services. One of the primary purposes of the CFPB is to ensure that consumers receive clear and accurate disclosures regarding financial products and to protect consumers from discrimination and unfair, deceptive and abusive practices. While the impact of the CFPB on our business remains uncertain, it appears that the bureau is increasing its focus on auto loans. CFPB regulation, inquiries and related enforcement action, if any, may increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business. The CFPB, together with the U.S. Department of Justice, have contacted us, and we believe other auto finance providers, to request information about the purchase of auto loans from dealers and discretionary pricing practices. We are voluntarily cooperating with the request for information. Although neither the CFPB nor the U.S. Department of Justice has alleged any wrongdoing on our part, we cannot predict the outcome of the inquiry.

In addition, the CFPB and the Federal Trade Commission (“FTC”) have recently become more active in investigating the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities, and both the FTC and CFPB have announced various enforcement actions against lenders in 2012 involving significant penalties, cease and desist orders and similar remedies that, if applicable to auto finance providers and the nature of products, services and operations we offer, may require us to cease or alter certain business practices, which could have a material effect on our financial condition, liquidity and results of operations.

Federal regulatory agencies have issued numerous rulemakings to implement various requirements of the Dodd-Frank Act, but many of these rules remain in proposed form. Agencies have issued rules establishing a comprehensive framework for the regulation of derivatives, prohibiting proprietary trading by entities affiliated with an insured depository institution, providing for the regulation of non-bank financial institutions that pose systemic risk, and requiring sponsors of asset-backed securities to retain an ownership stake in securitization transactions. Although we have analyzed these and other rulemakings, the absence of final rules in some cases and the complexity of some of the proposed rules make it difficult for us to estimate the financial, compliance or operational impacts.

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

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

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

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

EMPLOYEE RELATIONS

At April 30, 2013, we had approximately 3,210 full-time employees. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees.

ITEM 1A. RISK FACTORS

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

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

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

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

Elevated levels of market disruption and volatility, including in the United States and in Europe, could increase our cost of capital and adversely affect our ability to access the global capital markets in a similar manner and at a similar cost as we have had in the past. These market conditions could also have an adverse effect on our operating results and financial condition by diminishing the value of our investment portfolio and increasing our cost of funding. If as a result, we increase the rates we charge to our customers and dealers, our competitive position could be negatively affected.

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

Our operating results, financial condition and cash flow may be adversely affected because of changes in interest rates, foreign currency exchange rates and market prices.

Market risk is the risk that changes in market interest rates and foreign currency exchange rates cause volatility in our operating results, financial condition and cash flow. The effect of an increase in market interest rates on our cost of capital could have an adverse effect on our business, financial condition and operating results by increasing the rates we charge to our customers and dealers, thereby affecting our competitive position. Market risk also includes the risk that the value of our investment portfolio could decline. We use various derivative instruments to manage our market risk. Changes in interest rates or foreign exchange rates could affect the value of our derivatives, which could result in volatility in our operating results and financial condition.

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

Operational risk is the risk of loss resulting from, among other factors, inadequate or failed processes, systems or internal controls, theft, fraud or natural disasters including earthquakes. Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements. Our corporate headquarters are located in the Los Angeles, California area, which is near major earthquake faults. A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations. These events can potentially result in financial losses or other damage to us, including damage to our reputation.

In addition, any upgrade or replacement of our major legacy transaction systems could have a significant impact on our ability to conduct our core business operations and increase our risk of loss resulting from disruptions of normal operating processes and procedures that may occur during the implementation of new information and transaction systems. These factors could have an adverse effect on our operating results and financial condition.

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

A security breach or a cyber attack could adversely affect our operating results and financial condition.

We rely on internal and external information and technological systems to manage our operations and are exposed to risk of loss resulting from breaches in the security or other failures of these systems. We collect and store certain personal and financial information from customers and employees. Security breaches could expose us to a risk of loss of this information, regulatory scrutiny, actions and penalties, litigation, reputational harm, and a loss of confidence that could potentially have an adverse impact on future business with current and potential customers.

We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential information from customers and employees. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruption in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber attacks or to alleviate problems caused by such breaches or attacks. Our security measures are designed to protect against security breaches and cyber attacks, but our failure to prevent such security breaches and cyber attacks could subject us to liability, decrease our profitability and damage our reputation.

The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, operating results or financial condition.

We have exposure to many different financial institutions, and we routinely execute transactions with counterparties in the financial industry. Our debt, derivative and investment transactions, and our ability to borrow under committed and uncommitted credit facilities, could be adversely affected by the actions and commercial soundness of other financial institutions. Deterioration of social, political, labor, or economic conditions in a specific country or region, such as current uncertainties relating to European economic conditions, sovereign and non-sovereign debt and the banking sector, may also adversely affect the ability of financial institutions, including our derivative counterparties and lenders, to perform their contractual obligations. Financial institutions are interrelated as a result of trading, clearing, lending and other relationships, and as a result, financial and political difficulties in one country or region may adversely affect financial institutions in other jurisdictions, including those with which we have relationships. The failure of any financial institutions and other counterparties to which we have exposure, directly or indirectly, to perform their contractual obligations, and any losses resulting from that failure, may materially and adversely affect our liquidity, operating results or financial condition.

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

We operate in a highly competitive environment. We compete with other financial institutions including national and regional commercial banks, credit unions, savings and loan associations, finance companies, and to a lesser extent, other automobile manufacturers’ affiliated finance companies. Increases in competitive pressures could have an adverse impact on our contract volume, market share, revenues, and margins. Further, the financial condition and viability of our competitors and peers may have an impact on the financial services industry in which we operate, resulting in changes in the demand for our products and services. This could have an adverse impact on our operating results and the volume of our business.

Our insurance operations could suffer losses if our reserves are insufficient to absorb actual losses.

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

We are exposed to risk transfer credit risk which could negatively impact our insurance operations.

Risk transfer credit risk is the risk that a reinsurer or other company assuming liabilities relating to our insurance operations will be unable to meet its obligations under the terms of our agreement with them. Such failure could result in losses to our insurance operations.

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

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

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

At the federal level, Dodd-Frank Act has broad implications for the financial services industry and requires the development, adoption and implementation of many regulations. Among other things, the Dodd-Frank Act created the CFPB, which has broad regulatory, examination and enforcement powers over consumer financial products and services. One of the primary purposes of the CFPB is to ensure that consumers receive clear and accurate disclosures regarding financial products and to protect consumers from discrimination and unfair, deceptive and abusive practices. While the impact of the CFPB on our business remains uncertain, it appears that the bureau is increasing its focus on auto loans. CFPB regulation, inquiries and related enforcement action, if any, may increase our compliance costs, require changes in our business practices, affect our competitiveness, impair our profitability, harm our reputation or otherwise adversely affect our business.

Refer to Item 1. “Business – Regulatory Environment” for additional information on our regulatory environment.

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved SEC staff comments to report.

ITEM 2. PROPERTIES

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

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

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

ITEM 3. LEGAL PROCEEDINGS

Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices. Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies. We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. When we are able, we also determine estimates of reasonably possible loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established. Based on available information and established accruals, we do not believe it is reasonably possible that the results of these proceedings, in the aggregate, will have a material adverse effect on our consolidated financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

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

In fiscal 2013, fiscal 2012 and fiscal 2011, TMCC declared and paid cash dividends to TFSA of $1,487 million, $741 million and $266 million, respectively.

ITEM 6. SELECTED FINANCIAL DATA

			Years ended March 31,
(Dollars in millions)			2013		2012		2011		2010		2009

INCOME STATEMENT DATA
Financing revenues:

	Operating lease	$	4,748	$	4,693	$	4,888	$	4,739	$	4,925
	Retail		2,062		2,371		2,791		3,086		3,317
	Dealer		434		365		385		338		558
Total financing revenues			7,244		7,429		8,064		8,163		8,800

	Depreciation on operating leases		3,568		3,339		3,353		3,564		4,176
	Interest expense		940		1,300		1,614		2,023		2,956
Net financing revenues			2,736		2,790		3,097		2,576		1,668

Insurance earned premiums and contract
	revenues		571		604		543		452		421
Investment and other income, net			173		113		236		228		11
Net financing revenues and other revenues			3,480		3,507		3,876		3,256		2,100

Expenses:
	Provision for credit losses		121		(98)		(433)		604		2,160
	Operating and administrative		911		857		1,059		760		799
	Insurance losses and loss adjustment expenses		293		325		247		213		193
Total expenses			1,325		1,084		873		1,577		3,152
Income (loss) before income taxes			2,155		2,423		3,003		1,679		(1,052)
Provision for (benefit from) income taxes			824		937		1,150		616		(429)

Net income (loss)		$	1,331	$	1,486	$	1,853	$	1,063	$	(623)

		As of March 31,
(Dollars in millions)		2013		2012		2011		2010		2009
BALANCE SHEET DATA

Finance receivables, net	$	62,567	$	58,042	$	57,736	$	55,087	$	54,574
Investments in operating leases, net	$	20,384	$	18,743	$	19,041	$	17,151	$	17,980
Total assets	$	95,302	$	88,913	$	91,704	$	81,193	$	83,679
Debt	$	78,832	$	73,234	$	77,282	$	69,179	$	72,983
Capital stock	$	915	$	915	$	915	$	915	$	915
Retained earnings	$	6,429	$	6,585	$	5,840	$	4,253	$	3,240
Total shareholder's equity	$	7,557	$	7,662	$	6,856	$	5,273	$	4,093

Our Board of Directors declared and paid cash dividends of $1,487 million, $741 million, $266 million and $50 million to TFSA during fiscal 2013, 2012, 2011 and 2010, respectively. No dividends were declared during fiscal 2009.

		As of and for the
		years ended March 31,
		2013		2012		2011		2010		2009
KEY FINANCIAL DATA

Ratio of earnings to fixed charges 1		3.27		2.85		2.85		1.83		--
Debt to equity		10.4		9.6		11.3		13.1		17.8
Return on assets		1.45	%	1.65	%	2.14	%	1.29	%	(0.76)	%
Allowance for credit losses as a
	percentage of gross earning assets2	0.63	%	0.80	%	1.13	%	2.31	%	2.51	%
Net charge-offs as a percentage of
	average gross earning assets3	0.27	%	0.21	%	0.52	%	1.03	%	1.37	%
60 or more days past due as a
	percentage of gross earning assets4	0.19	%	0.18	%	0.26	%	0.45	%	0.68	%

1	Due to our losses in fiscal 2009, the coverage ratio was less than one-to-one. We would have had to generate additional earnings equal to our pre-tax loss to achieve a coverage ratio of one-to-one in this fiscal year.

2	During fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. This change would not have changed our allowance for credit losses as a percentage of gross earning assets during fiscal 2009.

3	The change in accounting policy mentioned above would have resulted in net charge-offs as a percentage of average gross earning assets of 1.46 percent for fiscal 2009.

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

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

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-K or incorporated by reference herein are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors such as the following that may cause actual results to differ materially from those stated:

·	Changes in general business and economic conditions, as well as in consumer demand and the competitive environment in the automotive markets in the United States;

·	A decline in TMS sales volume and the level of TMS sponsored subvention programs;

·	Increased competition from other financial institutions seeking to increase their share of financing Toyota vehicles;

·	Fluctuations in interest rates and currency exchange rates;

·	Changes or disruptions in our funding environment or access to the global capital markets;

·	Failure or changes in commercial soundness of our counterparties and other financial institutions;

·	Changes in our credit ratings and those of TMC;

·	Changes in the laws and regulatory requirements, including as a result of recent financial services legislation, and related costs;

·	Natural disasters, changes in fuel prices, manufacturing disruptions and production suspensions of Toyota, Lexus and Scion vehicles models and related parts supply;

·	Operational risks, including security breaches or cyber attacks;

·	Changes in prices of used vehicles and their effect on residual values of our off-lease vehicles and return rates;

·	The failure of a customer or dealer to meet the terms of any contract with us, or otherwise fail to perform as agreed;

·	Recalls announced by TMS and the perceived quality of Toyota, Lexus and Scion vehicles; and

·	The other risks and uncertainties set forth in “Part I, Item 1A. Risk Factors”.

Forward-looking statements speak only as of the date they are made. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

In our finance operations, we generate revenue, income, and cash flows by providing retail financing, leasing, and dealer financing 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, operating expense, residual value and credit loss metrics.

In our insurance operations, we generate revenue through marketing, underwriting, and claims administration related to covering certain risks of vehicle dealers and their customers. We measure the performance of our insurance operations using the following metrics: investment income, issued agreement volume, number of agreements in force, and loss metrics.

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

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

Exceptional Customer Service: Our relationship with Toyota and Lexus vehicle dealers and industrial equipment dealers and their customers offer us a competitive advantage. We seek to leverage this opportunity by providing exceptional service to dealers and their customers. Through our DSSO network, we work closely with the dealerships to improve the quality of service we provide to them. We also focus on assisting the dealers with the quality of their customer service operations to enhance customer loyalty for the dealership and the Toyota, Lexus and Scion brands. By providing consistent and reliable support, training, and resources to our dealer network, we continue to develop and improve our dealer relationships. In addition to marketing programs targeted toward customer retention, we work closely with TMS, TMHU and HINO to offer special retail, lease, dealer financing, and insurance programs. We also focus on providing a positive customer experience to existing retail, lease, and insurance customers through our CSCs.

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

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

Fiscal 2013 Operating Environment

During fiscal 2013, economic growth in the United States continued at a slow to moderate pace, as labor market conditions showed some signs of improvement. Consumer spending remained constrained, but sales of motor vehicles improved compared to fiscal 2012. The housing sector improved as housing starts continued to trend higher and home prices rose moderately in fiscal 2013.

Conditions in the global capital markets generally improved during fiscal 2013, yet remained challenging due to concerns over volatile European financial conditions. Europe’s ongoing debt and financial crisis continued to pose downside risks to the economic outlook. Economic activity in Europe continued to contract and the growth of emerging economies in the European and Asian regions slowed. Fiscal concerns in the U.S. contributed to market volatility and are expected to continue to pose downside risks to the U.S. economic outlook. Despite the challenging fixed income market conditions, we continue to maintain broad global access to both domestic and international markets.

Industry-wide vehicle sales in the United States and sales incentives throughout the auto industry increased during fiscal 2013 as compared to fiscal 2012. Vehicle sales by TMS increased 24 percent in fiscal 2013 compared to fiscal 2012. The increase in TMS sales was primarily attributable to new product launches, return of consumer demand for new vehicles and the recovery in vehicle and related parts supply, which had been disrupted by the natural disasters that occurred in Japan and Thailand in 2011. Production of Toyota, Lexus and Scion vehicles returned to pre-disaster levels during the third quarter of fiscal 2012, and inventory generally recovered to pre-disaster levels in the latter part of fiscal 2013.

Prices of used vehicles remained near historically high levels during fiscal 2013 despite slight declines as compared to fiscal 2012. Natural disasters in Japan and Thailand in 2011 had the effect of reducing the availability of new Toyota, Lexus and Scion vehicles which in turn increased the demand for certain used Toyota, Lexus and Scion vehicles. The combination of lower new Toyota, Lexus and Scion vehicle inventory during most of the first nine months of fiscal 2013 and low used vehicle supply contributed to lower per unit loss severity, which favorably affected our credit losses and residual value risk.

In October 2012, Hurricane Sandy caused wide-spread flooding and power outages across large portions of the Northeastern United States. As a result, we experienced an increase in insurance losses and loss adjustment expenses during the third quarter of fiscal 2013 and an increase in credit losses. However, these increases were not material to our operating results for fiscal 2013 due to the offset from insurance recoveries. In addition, we did not experience a significant impact on our financial condition or our finance and insurance volume. Refer to “Results of Operations” and “Financial Condition” within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.

RESULTS OF OPERATIONS

		Years ended March 31,
(Dollars in millions)		2013		2012		2011
Net income:
Finance operations1	$	1,183	$	1,350	$	1,631
Insurance operations1		148		136		222
Total net income	$	1,331	$	1,486	$	1,853

1	Refer to Note 16 – Segment Information of the Notes to Consolidated Financial Statement for the total asset balances of our finance and insurance operations.

Fiscal 2013 Compared to Fiscal 2012

Our consolidated net income was $1,331 million in fiscal 2013, compared to $1,486 million in fiscal 2012. Our consolidated net income for fiscal 2013 decreased as compared to fiscal 2012 primarily due to increases in our depreciation on operating leases and provision for credit losses. Total financing revenues also decreased, which was more than offset by a corresponding decline in interest expense.

Our overall capital position, after taking into effect dividend payments to TFSA of $743 million and $744 million in March 2013 and September 2012, respectively, decreased by $0.1 billion, bringing total shareholder’s equity to $7.6 billion at March 31, 2013, as compared to $7.7 billion at March 31, 2012. Our debt increased to $78.8 billion at March 31, 2013 from $73.2 billion at March 31, 2012. As a result, our debt-to-equity ratio increased to 10.4 at March 31, 2013 from 9.6 at March 31, 2012.

Fiscal 2012 Compared to Fiscal 2011

Our consolidated net income was $1,486 million in fiscal 2012, compared to $1,853 million in fiscal 2011. Our consolidated net income for fiscal 2012 decreased as compared to fiscal 2011 primarily due to decreases in total financing revenue and investment and other income, partially offset by decreases in interest expense and operating and administrative expenses. Our consolidated net income was also affected by a decrease in our benefit from credit losses for fiscal 2012 compared to fiscal 2011.

Our overall capital position, after taking into effect the payment of a $741 million dividend in September 2011 to TFSA, increased by $0.8 billion, bringing total shareholder’s equity to $7.7 billion at March 31, 2012, as compared to $6.9 billion at March 31, 2011. Our debt decreased to $73.2 billion at March 31, 2012 from $77.3 billion at March 31, 2011. We experienced an improvement in our debt-to-equity ratio to 9.6 at March 31, 2012 from 11.3 at March 31, 2011.

Finance Operations

The following table summarizes key results of our Finance Operations:

			Years ended March 31,					Percentage change
								2013 to		2012 to
(Dollars in millions)			2013		2012		2011	2012		2011
Financing revenues:
Operating lease		$	4,748	$	4,693	$	4,888	1	%	(4)	%
Retail1			2,062		2,371		2,791	(13)	%	(15)	%
Dealer			409		349		363	17	%	(4)	%
Total financing revenues			7,219		7,413		8,042	(3)	%	(8)	%

Investment and other income			57		44		46	30	%	(4)	%
Gross revenues from finance operations			7,276		7,457		8,088	(2)	%	(8)	%

Less:
	Depreciation on operating leases		3,568		3,339		3,353	7	%	-	%
	Interest expense		940		1,303		1,620	(28)	%	(20)	%
	Provision for credit losses		121		(98)		(433)	223	%	77	%
	Operating and administrative expenses		734		703		903	4	%	(22)	%
	Provision for income taxes		730		860		1,014	(15)	%	(15)	%
Net income from finance operations		$	1,183	$	1,350	$	1,631	(12)	%	(17)	%

1	Includes direct finance lease revenues for all periods shown.

Our finance operations reported net income of $ 1,183 million and $ 1,350 million during fiscal 2013 and 2012, respectively. The decrease in net income was primarily due to increases in our depreciation on operating leases and provision for credit losses. Total financing revenues also decreased, which was more than offset by a corresponding decline in interest expense.

Financing Revenues

Total financing revenues decreased 3 percent during fiscal 2013 compared to fiscal 2012 due to the following combination of factors:

·	Operating lease revenues increased 1 percent in fiscal 2013 as compared to fiscal 2012, due to higher average outstanding earning asset balances partially offset by lower portfolio yields.

·	Retail contract revenues decreased 13 percent in fiscal 2013 as compared to fiscal 2012, primarily due to a decrease in our portfolio yields partially offset by higher average outstanding earning asset balances.

·	Dealer financing revenues increased 17 percent in fiscal 2013 as compared to fiscal 2012, due to higher average outstanding earning asset balances partially offset by lower portfolio yields.

Our total portfolio, which includes operating lease, retail and dealer financing, had a yield of 4.5 percent during fiscal 2013 compared to 5.4 percent in fiscal 2012, due to decreases in our retail, operating lease and dealer portfolio yields. Lower yields were the result of the continued maturity of higher yielding earning assets being replaced by lower yielding earning assets during fiscal 2013.

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 and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. The following table summarizes the consolidated components of interest expense:

		Years ended March 31,
(Dollars in millions)		2013		2012		2011
Interest expense on debt	$	1,330	$	1,677	$	1,943
Interest income on derivatives		(2)		(1)		(21)
Interest expense on debt and derivatives		1,328		1,676		1,922

Ineffectiveness related to hedge accounting derivatives		(10)		(21)		(33)
(Gain) loss on foreign currency transactions		(430)		(182)		1,494
Loss (gain) on foreign currency swaps		431		(84)		(1,595)
Gain on non-hedge accounting interest rate swaps		(379)		(89)		(174)
Total interest expense	$	940	$	1,300	$	1,614

During fiscal 2013, total interest expense decreased from $1,300 million during fiscal 2012 to $940 million. This decrease was primarily due to lower weighted average interest rates on debt and higher gains on interest rate swaps. Additionally, in fiscal 2013, gains on foreign currency transactions were completely offset by the associated foreign currency swaps, while during fiscal 2012 we recorded combined gains on foreign currency transactions and the associated foreign currency swaps.

Interest expense on debt primarily represents net interest settlements and changes in accruals 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 $1,330 million during fiscal 2013 from $1,677 million during fiscal 2012 primarily as a result of lower weighted average interest rates on debt.

Interest income on derivatives represents net interest settlements and changes in accruals on both hedge and non-hedge accounting interest rate and foreign currency derivatives. During fiscal 2013, we recorded net income on derivatives of $2 million compared to net income of $1 million during fiscal 2012.

Ineffectiveness related to hedge accounting derivatives represents the net difference between the change in the fair value of the hedged debt due to the hedged risk and the change in the fair value of the associated derivative instrument.

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 to economically hedge these foreign currency transactions. During fiscal 2013, we recorded combined losses of $1 million on foreign currency transactions net of the associated foreign currency swaps, as compared to gains of $266 million during fiscal 2012. During fiscal 2012, net gains resulted from declines in foreign currency swap rates.

We recorded gains of $379 million on non-hedge accounting interest rate swaps during fiscal 2013 compared to gains of $89 million during fiscal 2012. The net gains on these swaps during both periods resulted from a decline in long-term swap rates.

Future changes in interest and foreign exchange rates could continue to result in significant volatility in our interest expense.

Provision for Credit Losses

We recorded a provision for credit losses of $121 million for fiscal 2013, compared to a benefit from credit losses of $98 million for fiscal 2012. The benefit from credit losses for fiscal 2012 was attributable to significant improvements in per unit loss severity, default frequency and net charge-offs in our consumer portfolio as compared to fiscal 2011. In fiscal 2013, net charge-offs increased primarily due to a decline in recoveries as compared to fiscal 2012. In addition, while default frequency improved in our consumer portfolio during fiscal 2013, this improvement was not significant enough to offset the increase in net charge-offs. Earning asset growth in our retail loan and investments in operating leases portfolios also contributed to an increased provision in fiscal 2013 as compared to fiscal 2012. As a result we recorded a provision for credit losses during fiscal 2013.

Operating and Administrative Expenses

Operating expenses increased during fiscal 2013 compared to fiscal 2012 primarily due to increases in employee, general operating and insurance dealer back-end program expenses.

Insurance Operations

The following table summarizes key results of our Insurance Operations:

		Years ended March 31,						Percentage change
								2013 to		2012 to
(Dollars in millions)		2013		2012		2011		2012		2011
Agreements (units in thousands)
	Issued		1,557		1,357		2,200	15	%	(38)	%
	In force		5,787		6,357		6,239	(9)	%	2	%

Insurance earned premiums and
	contract revenues	$	596	$	620	$	565	(4)	%	10	%
Investment and other income			116		72		196	61	%	(63)	%
Gross revenues from insurance
	operations		712		692		761	3	%	(9)	%

Less:
Insurance losses and loss adjustment
	expenses		293		325		247	(10)	%	32	%
Operating and administrative
	expenses		177		154		156	15	%	(1)	%
Provision for income taxes			94		77		136	22	%	(43)	%
Net income from insurance
	operations	$	148	$	136	$	222	9	%	(39)	%

Our insurance operations reported net income of $ 148 million for fiscal 2013 compared to $136 million for fiscal 2012. The increase in net income for fiscal 2013 compared to fiscal 2012 was attributable to an increase in investment and other income and a decrease in insurance losses and loss adjustment expenses, partially offset by a decrease in insurance earned premiums and contract revenues, and an increase in operating and administrative expenses. While our insurance losses and loss adjustment expenses were negatively affected by the occurrence of Hurricane Sandy in October 2012, the effect was offset by a decrease in prepaid maintenance losses.

Agreements issued increased by 15 percent during fiscal 2013 compared to fiscal 2012. The increase was primarily due to the overall increase in TMS vehicle sales. Agreements in force, which represent active insurance policies written and contracts issued, decreased by 9 percent during fiscal 2013 compared to fiscal 2012. The decrease was attributable to the expiration during fiscal 2013 of affiliate agreements issued during fiscal 2011 in support of special TMS sales and customer loyalty programs.

Our insurance operations reported insurance earned premiums and contract revenues of $596 million for fiscal 2013 compared to $620 million for fiscal 2012. Insurance earned premiums and contract revenues represent revenues from agreements in force, and are affected by sales volume as well as the level, age, and mix of agreements in force. Our insurance earned premiums and contract revenues decreased for fiscal 2013 compared to fiscal 2012 primarily due to the decrease in our agreements in force for that period.

Our insurance operations reported investment and other income of $116 million for fiscal 2013, compared to $72 million for fiscal 2012. Investment and other income for our insurance operations consists primarily of investment income on available-for-sale securities. The increase in investment and other income for fiscal 2013 compared to the prior year was primarily due to a decrease in realized losses from sales of securities and an increase in dividends.

Our insurance operations reported insurance losses and loss adjustment expenses of $293 million for fiscal 2013, compared to $325 million for fiscal 2012. 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. The decrease in insurance losses and loss adjustment expenses for fiscal 2013 compared to fiscal 2012 was primarily due to a decrease in prepaid maintenance losses of $50 million, partially offset by an increase in inventory insurance losses of $8 million. The decrease in prepaid maintenance losses was due to lower claim frequency, resulting from the expiration during fiscal 2013 of affiliate agreements issued in fiscal 2011 in support of special TMS sales and customer loyalty programs. The increase in inventory insurance losses was due to the occurrence of Hurricane Sandy in October 2012, which caused wide-spread flooding and power outages across large portions of the Northeastern United States.

Our insurance operations reported operating and administrative expenses of $177 million for fiscal 2013, compared to $154 million for fiscal 2012. The increase was attributable to an increase in insurance dealer back-end program expenses, various product expenses, and general operating expenses. Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on their sales volume or underwriting performance.

Provision for Income Taxes

Our overall provision for income taxes for fiscal 2013 was $824 million compared to $937 million for fiscal 2012. Our effective tax rate was 38.2 percent and 38.7 percent for fiscal 2013 and fiscal 2012, respectively. The decrease in our effective tax rate for fiscal 2013 is primarily attributable to the first time occurrence of the federal plug-in and electric vehicle credit in fiscal 2013 and a lower state effective tax rate, partially offset by an increase in the valuation allowance on deferred taxes. The change in our provision for income taxes, adjusted for these fiscal year differences, is consistent with the change in operating income for fiscal 2013 compared to fiscal 2012.

FINANCIAL CONDITION

Vehicle Financing Volume and Net Earning Assets

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

	Years ended March 31,						Percentage change
							2013 to		2012 to
(units in thousands):	2013		2012		2011		2012		2011
TMS new sales volume1	1,625		1,307		1,397		24	%	(6)	%

Vehicle financing volume:2
New retail contracts	703		567		634		24	%	(11)	%
Used retail contracts	290		325		368		(11)	%	(12)	%
Lease contracts	333		242		351		38	%	(31)	%
Total	1,326		1,134		1,353		17	%	(16)	%

TMS subvened vehicle financing volume (units included in the above table):

New retail contracts	398		270		390		47	%	(31)	%
Used retail contracts	88		77		70		14	%	10	%
Lease contracts	272		206		321		32	%	(36)	%
Total	758		553		781		37	%	(29)	%

TMS subvened vehicle financing volume as a percent of vehicle financing volume:

New retail contracts	56.6	%	47.6	%	61.5	%
Used retail contracts	30.3	%	23.7	%	19.0	%
Lease contracts	81.7	%	85.1	%	91.5	%
Overall subvened contracts	57.2	%	48.8	%	57.7	%

Market share:3
Retail contracts	43.2	%	43.3	%	45.1	%
Lease contracts	20.4	%	18.4	%	25.1	%
Total	63.6	%	61.7	%	70.2	%

Represents total domestic TMS sales of new Toyota, Lexus and Scion vehicles excluding sales under dealer rental car and commercial fleet programs and sales of a private Toyota distributor. TMS new sales volume is comprised of approximately 85 percent Toyota and Scion and 15 percent Lexus vehicles for fiscal 2013, 84 percent Toyota and Scion and 16 percent Lexus vehicles for fiscal 2012 and 85 percent Toyota and Scion and 15 percent Lexus vehicles for fiscal 2011.

Total financing volume is comprised of approximately 82 percent Toyota and Scion, 15 percent Lexus, and 3 percent non-Toyota/Lexus vehicles for fiscal 2013, 79 percent Toyota and Scion, 16 percent Lexus and 5 percent non-Toyota/Lexus for fiscal 2012 and 80 percent Toyota and Scion, 15 percent Lexus and 5 percent non-Toyota/Lexus for fiscal 2011.

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

Vehicle Financing Volume

The volume of our retail and lease contracts, which are acquired primarily from Toyota and Lexus vehicle dealers, is dependent upon TMS sales volume and subvention. Natural disasters that occurred in Japan and Thailand in 2011 caused manufacturing disruptions and production suspensions of certain Toyota, Lexus and Scion vehicle models and parts during fiscal 2012. As a result of increased availability of vehicle and related parts supplies, vehicle sales by TMS increased 24 percent for fiscal 2013 compared to fiscal 2012. In addition, TMS sales were positively affected by new product and model launches and return of consumer demand for new vehicles.

Our financing volume and market share increased in fiscal 2013 compared to fiscal 2012. Higher volume and market share were driven primarily by an increase in new Toyota, Lexus and Scion vehicle sales and an increase in TMS subvention. Vehicle financing volume that was subvened by TMS increased by 37 percent in fiscal 2013 compared to fiscal 2012. TMS subvention volume increased as the supply of new vehicles grew during fiscal 2013 compared to fiscal 2012.

The composition of our net earning assets is summarized below:

		As of March 31,						Percentage change
								2013 to		2012 to
(Dollars in millions)		2013		2012		2011		2012		2011
Net Earning Assets
Finance receivables, net
	Retail finance receivables, net1	$	47,679	$	45,296	$	45,688	5	%	(1)	%
	Dealer financing, net		14,888		12,746		12,048	17	%	6	%
Total finance receivables, net			62,567		58,042		57,736	8	%	1	%
Investments in operating leases, net			20,384		18,743		19,041	9	%	(2)	%
Net earning assets		$	82,951	$	76,785	$	76,777	8	%	-	%

Retail Financing (average original contract term in months)
Lease contracts2			38		38		39
Retail contracts3			63		63		62

Dealer Financing (Number of dealers serviced)
Toyota and Lexus dealers4			996		986		975	1	%	1	%
Vehicle dealers outside of the
	Toyota/Lexus dealer network		480		492		470	(2)	%	5	%
Industrial equipment dealers			140		142		139	(1)	%	2	%
Total number of dealers receiving
	wholesale financing		1,616		1,620		1,584	-	%	2	%

Dealer inventory financed (units in thousands)			300		245		253	22	%	(3)	%

1	Includes direct finance leases.

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

3	Retail contract terms range from 24 months to 85 months.

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

Retail Contract Volume and Earning Assets

Our new retail contract volume increased 24 percent during fiscal 2013 as compared to fiscal 2012. The increase was mainly due to an increase in overall TMS vehicle sales and subvention. The natural disasters in Japan and Thailand in 2011 caused a shortage of new Toyota, Lexus and Scion vehicles in fiscal 2012 and a corresponding dealer focus on used vehicle sales. This resulted in lower used retail contract volume for fiscal 2013 compared to fiscal 2012. The increase in new vehicle financing volume during fiscal 2013 contributed to the increase in retail finance receivables, net at March 31, 2013.

Lease Contract Volume and Earning Assets

Our overall vehicle lease contract volume during fiscal 2013 increased 38 percent as compared to fiscal 2012. Much of the increase during fiscal 2013 was attributable to an increase in TMS vehicle sales and an increase in TMS subvention. The increase in vehicle lease volume during fiscal 2013 contributed to the increase in investments in operating leases, net at March 31, 2013.

Dealer Financing and Earning Assets

Net earning assets related to dealer financing increased 17 percent from March 31, 2012, primarily due to increases in dealer inventory financed. The higher level of dealer inventory was attributable to the return of vehicle production to pre-disaster levels during the third quarter of fiscal 2012. The total number of dealers receiving financing remained consistent at March 31, 2013 as compared to March 31, 2012.

Residual Value Risk

Factors Affecting Exposure to Residual Value Risk

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

Residual Values at Lease Inception

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

End-of-term Market Values

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

Vehicle Lease Return Rate

The vehicle lease return rate represents the number of leased vehicles returned to us for sale as a percentage of lease contracts that were originally scheduled to mature in the same period less certain qualified early terminations. When the market value of a leased vehicle at contract maturity is less than its contractual residual value (i.e., the price at which the lease customer may purchase the leased vehicle), there is a higher probability that the vehicle will be returned to us. In addition, a higher market supply of certain models of used vehicles generally results in a lower relative level of demand for those vehicles, resulting in a higher probability that the vehicle will be returned to us. A higher rate of vehicle returns exposes us to greater risk of loss at lease termination.

Loss Severity

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

Impairment of Operating Leases

We review operating leases for impairment whenever events or changes in circumstances indicate that the carrying value of the operating leases may not be recoverable. If such events or changes in circumstances are present, we perform a test of recoverability by comparing the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms to the carrying value of the asset group. If the test of recoverability identifies a possible impairment, the asset group’s fair value is measured in accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value and is recorded in the current period Consolidated Statement of Income. As of March 31, 2013, there was no indication of impairment in our operating lease portfolio.

Disposition of Off-Lease Vehicles

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

			Years ended March 31,			Percentage Change
						2013 to		2012 to
(Units in thousands)			2013	2012	2011	2012		2011
Scheduled maturities			282	273	278	3	%	(2)	%

Vehicles sold through:
	Dealer Direct program
		Grounding dealer	21	22	43	(5)	%	(49)	%
		Dealer Direct online program	5	2	11	150	%	(82)	%
	Physical auction		33	14	45	136	%	(69)	%
Total vehicles sold at lease termination			59	38	99	55	%	(62)	%

Scheduled maturities increased 3 percent in fiscal 2013 as compared to fiscal 2012. Vehicles sold at lease termination relative to scheduled maturities in fiscal 2013 increased as compared to fiscal 2012. The higher rate of vehicles sold at lease termination during fiscal 2013, as compared to fiscal 2012 was the result of slight declines in used vehicle values resulting in higher lease return rates. Refer to Item 1. “Business – Finance Operations – Retail and Lease Financing - Remarketing” for additional information on lease disposition.

Depreciation on Operating Leases

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

		Years ended March 31,						Percentage change
								2013 to		2012 to
		2013		2012		2011		2012		2011
Depreciation on operating leases
	(dollars in millions)	$	3,568	$	3,339	$	3,353	7	%	-	%

Average operating lease units outstanding
	(in thousands)		803		783		787	3	%	(1)	%

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

Depreciation expense on operating leases increased 7 percent during fiscal 2013 as compared to depreciation expense for fiscal 2012, due primarily to an increase in the average operating lease units outstanding and a slight decline in used vehicle values. Depreciation expense can 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. Despite this decline, used vehicle values remained near historically high levels during fiscal 2013. It remains uncertain whether the level of used vehicle values will remain high. The level of lease maturities during fiscal 2013 increased as compared to fiscal 2012 and is expected to continue to increase over the next few years. This increase could affect return rates, used vehicle values and depreciation expense.

Credit Risk

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

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

Factors Affecting Retail Contracts and Lease Portfolio Credit Risk

Economic Factors

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

Used Vehicle Market

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

Purchase Quality Mix

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

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

The types and models of the vehicles in our retail and lease portfolios have an effect on loss severity. Vehicle product mix can be influenced by factors such as customer preferences, fuel efficiency and fuel prices. These factors impact the demand for and prices of used vehicles and consequently, loss severity.

Operational Changes

Operational changes and ongoing implementation of new information and transaction systems and improved methods of consumer evaluation are designed to have a positive effect on the credit risk profile of our retail contract and lease portfolios. Customer service improvements in the management of delinquencies and credit losses increase operational efficiency and effectiveness. We remain focused on our service operations and credit loss mitigation methods.

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

Factors Affecting Dealer Financing Portfolio Credit Risk

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

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

Dealer financing portfolio credit risk is mitigated by a repurchase agreement between TMCC and TMS. Pursuant to this agreement, TMS will arrange for the repurchase of new Toyota, Lexus and Scion vehicles at the aggregate cost financed by TMCC in the event of vehicle dealer default under floorplan financing.

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

Credit Loss Experience

The overall credit quality of our consumer portfolio in fiscal 2013 continued to benefit from our focus on purchasing practices and collection efforts. In addition, subvention contributes to our overall portfolio quality, as subvened contracts typically have higher credit scores than non-subvened contracts. These factors, combined with strong used vehicle prices, contributed to decreased levels of default frequency during fiscal 2013 as compared to fiscal 2012. For additional information regarding the potential impact of current market conditions, refer to “Part I. Item 1A. Risk Factors”.

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

			Years ended March 31,
				2013			2012			2011
Net charge-offs as a percentage of average gross earning assets
		Finance receivables		0.29	%		0.24	%		0.61	%
		Operating leases		0.18	%		0.11	%		0.22	%
		Total		0.27	%		0.21	%		0.52	%

Default frequency as a percentage of outstanding contracts				1.23	%		1.43	%		2.11	%
Average loss severity per unit1			$	5,737		$	5,869		$	7,110

Aggregate balances for accounts 60 or more days past due as a
	percentage of gross earning assets2
		Finance receivables3		0.19	%		0.19	%		0.27	%
		Operating leases3		0.18	%		0.16	%		0.23	%
		Total		0.19	%		0.18	%		0.26	%

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

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

3	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 1.23 percent during fiscal 2013 as compared to 1.43 percent during fiscal 2012. Our continued focus on purchasing practices and collection efforts have contributed to the improvement in default frequency. Strong used vehicle values have also had a positive impact on default frequency. Some customers, who otherwise might have defaulted, have been able to sell their vehicles to pay off their finance contracts. These positive effects on default frequency were partially offset by the increase in the number of vehicles charged off in the latter part of fiscal 2013 due to damage from Hurricane Sandy.

Strong used vehicle values also positively impacted loss severity during fiscal 2013. Average loss severity per unit decreased to $5,737 at March 31, 2013 from $5,869 at March 31, 2012. In addition, loss severity was also positively impacted as losses incurred on vehicles damaged by Hurricane Sandy were mitigated to a large extent by the receipt of vehicle insurance proceeds. As a result, Hurricane Sandy’s net impact to credit losses for fiscal 2013 was not material as its favorable impact on loss severity offset the unfavorable impact on default frequency.

Net charge-offs as a percentage of average gross earning assets increased from 0.21 percent at March 31, 2012 to 0.27 percent at March 31, 2013 due primarily to lower recoveries.

The favorable levels in our per unit loss severity and default frequency reflect patterns of credit behavior different from our historical patterns and levels. An unusual combination of factors including the low supply of used vehicles and the impact of the natural disasters occurring in Japan and Thailand, and an extended period of economic uncertainty have contributed to these trends. We considered these factors as well as our historical seasonal patterns and the impact of the increased level of lease maturities, which increases supply of used vehicles at auction, in establishing our allowance for credit losses at March 31, 2013.

Allowance for Credit Losses

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

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

The allowance for credit losses for our dealer portfolio is established by first aggregating dealer financing receivables into loan-risk pools, which are determined based on the risk characteristics of the loan (e.g. secured by either vehicles and industrial equipment, real estate or dealership assets, or unsecured). We then analyze dealer pools using an internally developed risk rating. In addition, we have established procedures that focus on managing high risk loans in our dealer portfolio. Our field operations management and our special assets group are consulted each quarter to determine if any specific dealer loan is considered impaired. A receivables account balance is considered impaired when it is probable that we will be unable to collect all amounts due (including principal and interest) according to the terms of the contract. 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 on finance receivables and investments in operating leases:

	Years ended March 31,
(Dollars in millions)	2013		2012		2011
Allowance for credit losses at beginning of period	$	619	$	879	$	1,705
Provision for credit losses		121		(98)		(433)
Charge-offs, net of recoveries1		(213)		(162)		(393)
Allowance for credit losses at end of period	$	527	$	619	$	879

1	Charge-offs were net of recoveries of $87 million, $123 million, and $137 million in fiscal 2013, 2012, and 2011, respectively.


			Years ended March 31,
(Dollars in millions)			2013		2012		2011
Allowance for credit losses as a percentage of
	gross earning assets
		Finance receivables	0.71	%	0.89	%	1.28	%
		Operating leases	0.40	%	0.51	%	0.65	%
		Total	0.63	%	0.80	%	1.13	%

During fiscal 2013, our allowance for credit losses decreased $92 million from $619 million at March 31, 2012 to $527 million at March 31, 2013. The overall decline in our allowance for credit losses was primarily driven by an improvement in default frequency as described under “Credit Loss Experience”.

We recorded a provision for credit losses for fiscal 2013, compared to a benefit from credit losses for fiscal 2012. The benefit from credit losses for fiscal 2012 was attributable to significant improvements in per unit loss severity, default frequency and net charge-offs in our consumer portfolio as compared to fiscal 2011. In fiscal 2013, while default frequency improved in our consumer portfolio during fiscal 2013, this improvement was not significant enough to offset the increase in net charge-offs. In addition, earning asset growth in our retail loan and investments in operating leases portfolios also contributed to an increased provision in fiscal 2013 as compared to fiscal 2012.

LIQUIDITY AND CAPITAL RESOURCES

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

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

	March 31,
(Dollars in millions)	2013		2012
Commercial paper1	$	24,590	$	21,247
Unsecured notes and loans payable2		46,707		41,415
Secured notes and loans payable		7,009		9,789
Carrying value adjustment3		526		783
Total Debt	$	78,832	$	73,234

1	Includes unamortized premium/discount.

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

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

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

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

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

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 $4.4 billion to $9.2 billion with an average balance of $6.5 billion for fiscal 2013.

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

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

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

We routinely monitor global financial conditions and our financial exposure to our global counterparties. Specifically, we focus on those countries experiencing significant economic, fiscal or political strain and the corresponding likelihood of default. During the reporting period, we identified countries for which these conditions exist; Portugal, Ireland, Italy, Greece, Spain, Cyprus and certain other countries. We do not currently have exposure to these or other European sovereign counterparties. As of March 31, 2013, our gross non-sovereign exposures to investments in marketable securities and derivatives counterparty positions in the countries identified were not material, either individually or collectively. We also maintained a total of $17.4 billion in committed and uncommitted syndicated and bilateral credit facilities for our liquidity purposes as of March 31, 2013. As of March 31, 2013, less than 3 percent of such commitments were from counterparties in the countries identified. Refer to the “Liquidity and Capital Resources - Liquidity Facilities and Letters of Credit” section and “Item 1A. Risk Factors - The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, operating results or financial condition” 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 $20.5 billion to $27.4 billion during fiscal 2013, with an average outstanding balance of $23.7 billion. Our commercial paper programs are supported by the liquidity facilities discussed later in this section. We believe we have ample capacity to meet our short-term funding requirements and manage our liquidity.

Unsecured Notes and Loans Payable

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

(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, 20121		$	18,461		$	13,274		$	1,180	$	7,969		$	40,884
Issuances during fiscal 2013			12,879	2		2,738	3		-		1,423	4		17,040
Maturities and terminations
	during fiscal 2013		(4,624)			(2,414)			(377)		(3,615)			(11,030)
Balance at March 31, 20131		$	26,716		$	13,598		$	803	$	5,777		$	46,894

Issuance during the one
	month ended April 30, 2013	$	905	2	$	-	3	$	-	$	500	4	$	1,405

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 had terms to maturity ranging from approximately 1 year to 25 years, and had interest rates at the time of issuance ranging from 0.3 percent to 3.3 percent.

3	EMTNs had terms to maturity ranging from approximately 3 years to 25 years, and had interest rates at the time of issuance ranging from 1.3 percent to 4.6 percent.

4	Primarily consists of long-term borrowings, all with terms to maturity from approximately 1 year to 6 years, and interest rates at the time of issuance ranging from 0.1 percent to 1.0 percent.

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

We maintain a shelf registration statement with the SEC to provide for the issuance of debt securities in the U.S. capital markets to retail and institutional investors. We qualify as a well-known seasoned issuer under SEC rules, which allows us to issue under our registration statement an unlimited amount of debt securities during the three year period ending March 2015. 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.

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 2012, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50.0 billion, or the equivalent in other currencies, of which €34.4 billion was available for issuance at April 30, 2013. 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 global capital markets.

Secured Notes and Loans Payable

Overview

Asset-backed securitization of our earning asset portfolio provides us with an alternative source of funding. We securitize finance receivables and beneficial interests in investments in operating leases (“Securitized Assets”) using a variety of structures. Our securitization transactions involve the transfer of Securitized Assets to bankruptcy-remote special purpose entities. These bankruptcy-remote entities are used to ensure that the Securitized Assets are isolated from the claims of creditors of TMCC and that the cash flows from these assets are available solely for the benefit of the investors in these asset-backed securities. Investors in asset-backed securities do not have recourse to our other assets, and neither TMCC nor our affiliates guarantee these obligations. We are not required to repurchase or make reallocation payments with respect to the Securitized Assets that become delinquent or default after securitization. As seller and servicer of the Securitized Assets, we are required to repurchase or make a reallocation payment with respect to the underlying assets that are subsequently discovered not to have met specified eligibility requirements. This repurchase obligation is customary in securitization transactions.

We service the Securitized Assets in accordance with our customary servicing practices and procedures. Our servicing duties include collecting payments on Securitized Assets and submitting them to a trustee for distribution to security holders and other interest holders. We prepare monthly servicer certificates on the performance of the Securitized Assets, including collections, investor distributions, delinquencies, and credit losses. We also perform administrative services for the special purpose entities.

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

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

·	Overcollateralization: The principal of the Securitized Assets that exceeds the principal amount of the related secured debt.

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

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

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

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

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

Securitized Assets and the related debt remain on our Consolidated Balance Sheet. We recognize financing revenue on the Securitized Assets. We also recognize interest expense on the secured debt issued by the special purpose entities and maintain an allowance for credit losses on the Securitized Assets to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized asset portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial statements.

The following are asset-backed securitization transactions that we have executed.

Public Term Securitization

We maintain shelf registration statements with the SEC to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets. We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain. Funding obtained from our public term securitization transactions is repaid as the underlying Securitized Assets amortize. None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity. As of March 31, 2013, we did not have any outstanding registered lease securitization transactions.

Amortizing Asset-backed Commercial Paper Conduits

We have executed private securitization transactions of Securitized Assets with bank-sponsored multi-seller asset-backed conduits. The related debt will be repaid as the underlying Securitized Assets amortize.

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 fiscal 2012, TMCC, its subsidiary Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates were parties to a $5.0 billion 364 day syndicated bank credit facility, a $5.0 billion three year syndicated bank credit facility, and a $3.0 billion five year syndicated bank credit facility expiring in fiscal 2013, 2014, and 2016, respectively. In February 2013, these agreements were terminated and TMCC, TCPR and other Toyota affiliates entered into a $3.8 billion 364 day syndicated bank credit facility, a $3.8 billion three year syndicated bank credit facility and a $3.8 billion five year syndicated bank credit facility, expiring in fiscal 2014, 2016, and 2018, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. These agreements may be used for general corporate purposes and none were drawn upon as of March 31, 2013 and March 31, 2012.

Other Unsecured Credit Agreements

TMCC has entered into additional unsecured credit facilities with various banks. As of March 31, 2013, TMCC had committed bank credit facilities totaling $5.5 billion of which $3.1 billion, $0.9 billion and $1.5 billion mature in fiscal 2014, 2015 and 2016, respectively.

TMCC also has an uncommitted bank credit facility in the amount of $0.5 billion which matures in fiscal 2014.

These credit 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 March 31, 2013 and March 31, 2012. We are in compliance with the covenants and conditions of the credit agreements described above.

Committed Revolving Asset-backed Commercial Paper Facility

During fiscal 2013 we maintained 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 were contractually committed, at our option, to purchase eligible retail finance receivables from us and make advances up to a facility limit of $3.0 billion. This facility expired in January 2013 and was not renewed. The remaining outstanding balance was fully repaid as of January 31, 2013.

Credit Support Agreements

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

·	maintain 100 percent ownership of TFSC;

·	cause TFSC and its subsidiaries to have a tangible net worth (the aggregate amount of issued capital, capital surplus and retained earnings less any tangible assets) of at least JPY 10 million, equivalent to $106,135 at March 31, 2013; and

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

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

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

·	maintain 100 percent ownership of TMCC;

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

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

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

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

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

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

DERIVATIVE INSTRUMENTS

Risk Management Strategy

We use derivatives as part of our risk management strategy to hedge interest rate and foreign currency risks. We enter into derivative transactions with the intent to minimize fluctuations in earnings, cash flows and fair value adjustments of assets and liabilities caused by market movements. 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 (“ALCO”), which provides a framework for financial controls and governance to manage market risks. We use internal models for analyzing and incorporating data from internal and external sources in developing various hedging strategies. We incorporate the resulting hedging strategies into our overall risk management strategies.

Our 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 and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities. Our resulting asset liability profile is consistent with the overall risk management strategy directed by the ALCO. Gains and losses on these derivatives are recorded in interest expense.

Accounting for Derivative Instruments

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

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

We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative which may require bifurcation. Changes in the fair value of the bifurcated embedded derivative are reported in interest expense in the Consolidated Statement of Income. Refer to Note 1 – Summary of Significant Accounting Policies and Note 7 –Derivatives, Hedging Activities and Interest Expense of the Notes to the Consolidated Financial Statements for additional information.

Derivative Assets and Liabilities

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

(Dollars in millions)	March 31, 2013		March 31, 2012
Gross derivative assets, net of credit valuation adjustment	$	1,719	$	2,660
Less: Counterparty netting and collateral		(1,661)		(2,590)
Derivative assets, net	$	58	$	70

Gross derivative liabilities, net of credit valuation adjustment	$	897	$	1,081
Less: Counterparty netting and collateral		(892)		(1,038)
Derivative liabilities, net	$	5	$	43
Embedded derivative liabilities	$	12	$	24

Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of March 31, 2013, we held collateral of $953 million which offset derivative assets and posted collateral of $184 million which offset derivative liabilities. We held collateral of $3 million which we did not use to offset derivative assets and we posted collateral of $6 million which we did not use to offset derivative liabilities. As of March 31, 2012, we held collateral of $1,748 million which offset derivative assets and posted collateral of $196 million which offset derivative liabilities. Refer to the “Interest Expense” section for discussion on changes in derivatives.

OFF-BALANCE-SHEET ARRANGEMENTS

Guarantees

TMCC has guaranteed the payments of principal and interest with respect to the bond obligations that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the affiliates for any amounts paid. TMCC receives an annual fee of $78 thousand for guaranteeing such payments. Other than this fee, there are no corresponding expenses or cash flows arising from our guarantees. The nature, business purpose, and amounts of these guarantees are described in Note 14 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

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 typically secured with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee from the vehicle or industrial equipment dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. Our credit facility pricing reflects market conditions, the competitive environment, the level of dealer support required for the facility and the credit worthiness of each dealer. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses. 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. Approximately two percent of these lending commitments at March 31, 2013 is unsecured. In addition, at March 31, 2013 and 2012, respectively, we had $11.5 billion and $10.3 billion of wholesale financing demand note facilities not considered to be commitments. We have also extended credit facilities to affiliates as described in Note 14 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Indemnification

Refer to Note 14 – Commitments and Contingencies of the Notes to Consolidated Financial Statements for a description of agreements containing indemnification provisions. We have not made any material payments in the past as a result of these provisions, and as of March 31, 2013, we determined that it is not probable that we will be required to make any material payments in the future. As of March 31, 2013 and 2012, no amounts have been recorded under these indemnification provisions.

CONTRACTUAL OBLIGATIONS AND CREDIT-RELATED COMMITMENTS

We have certain obligations to make future payments under contracts and credit-related financial instruments and commitments. Aggregate contractual obligations and credit-related commitments in existence at March 31, 2013 are summarized as follows (dollars in millions):

			Payments due by period
Contractual obligations			Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt 1		$	78,400	$	40,473	$	20,104	$	11,576	$	6,247
Estimated interest payments for debt 2			4,191		998		1,526		696		971
Estimated net receipts under
	interest rate swap agreements2		(1,386)		(78)		(367)		(295)		(646)
Lending commitments 3			7,396		7,396		-		-		-
Premises occupied under lease			74		19		34		18		3
Purchase obligations 4			42		39		3		-		-
Total		$	88,717	$	48,847	$	21,300	$	11,995	$	6,575

Debt reflects the remaining principal obligation. Our foreign currency debt is stated in USD at amounts representing our contractual obligations under the foreign currency swaps that are used to hedge the corresponding debt. Excludes unamortized premium/discount of $138 million as well as foreign currency and fair value adjustments of $570 million.

2	Interest payments for debt and swap agreements payable in foreign currencies or based on variable interest rates are estimated using the applicable current rates as of March 31, 2013.

Lending commitments represent term loans and revolving lines of credit we extended to vehicle and industrial equipment dealers and affiliates. Of the amount shown above, $6.3 billion was outstanding as of March 31, 2013. The amount shown above excludes $11.5 billion of wholesale financing lines not considered to be contractual commitments at March 31, 2013, of which $8.3 billion was outstanding at March 31, 2013. The above lending commitments have various expiration dates.

Purchase obligations represent fixed or minimum payment obligations under supplier contracts. The amounts included herein represent the minimum contractual obligations in certain situations; however, actual amounts incurred may be substantially higher depending on the particular circumstance, including in the case of information technology contracts, the amount of usage once we have implemented it. Contracts that do not specify fixed payments or provide for a minimum payment are not included. Certain contracts noted herein contain voluntary provisions under which the contract may be terminated for a specified fee, ranging up to $5.5 million, depending upon the contract.

NEW ACCOUNTING GUIDANCE

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

CRITICAL ACCOUNTING ESTIMATES

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

Determination of Residual Values

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

Nature of Estimates and Assumptions Required

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

Sensitivity Analysis

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

The vehicle lease return rate represents the number of end-of-term leased vehicles returned to us for sale as a percentage of lease contracts that were originally scheduled to mature in the same period less certain qualified early terminations. When the market value of a leased vehicle at contract maturity is less than its contractual residual value (i.e., the price at which the lease customer may purchase the leased vehicle), there is a higher probability that the vehicle will be returned to us. In addition, a higher market supply of certain models of used vehicles generally results in a lower relative level of demand for those vehicles, resulting in a higher probability that the vehicle will be returned to us. A higher rate of vehicle returns exposes us to greater risk of loss at lease termination. At March 31, 2013, holding other estimates constant, if the return rate for our existing portfolio of leased vehicles were to increase by one percentage point from our present estimates, the effect would be to increase depreciation on these vehicles by approximately $11 million. This increase in depreciation would be charged to depreciation on operating leases in the Consolidated Statement of Income on a straight-line basis over the remaining terms of the operating leases.

End-of-term market values determine the amount of loss severity at lease maturity. Loss severity is the extent to which the end-of-term market value of a leased vehicle is less than the estimated residual value. We may incur losses to the extent the end-of-term market value of a leased vehicle is less than the estimated residual value. At March 31, 2013, holding other estimates constant, if end-of-term market values for returned units of leased vehicles were to decrease by one percent from our present estimates, the effect would be to increase depreciation on these vehicles by approximately $56 million. This increase in depreciation would be charged to depreciation on operating leases in the Consolidated Statement of Income on a straight-line basis over the remaining terms of the operating leases.

Determination of the Allowance for Credit Losses

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

Nature of Estimates and Assumptions Required

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

Consumer Portfolio

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

Dealer Portfolio

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

Sensitivity Analysis

The assumptions used in evaluating our exposure to credit losses involve estimates and significant judgment. The expected loss severity and default frequency on the vehicle retail and lease portfolios represent two of the key assumptions involved in determining the allowance for credit losses. Holding other estimates constant, a 10 percent increase or decrease in either the estimated loss severity or the estimated default frequency on the vehicle retail installment sales and lease portfolios would have resulted in a change in the allowance for credit losses of $42 million as of March 31, 2013.

Derivative Instruments

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

Nature of Estimates and Assumptions Required

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

Fair Value of Financial Instruments

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

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

During fiscal 2013, no material changes were made to the valuation models. For a description of the assets and liabilities carried at fair value and the controls over valuation, refer to Note 2 - Fair Value Measurements of the Notes to the Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

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

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

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

Interest Rate Risk

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

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

Sensitivity Model Assumptions

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

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


Sensitivity analysis	Immediate change in rates
(in millions)	+100bp		-100bp
March 31, 2013	$	31.80	$	(13.90)
March 31, 2012	$	29.30	$	(9.60)

Our net interest cash flow sensitivity results show a slightly asset sensitive position at both March 31, 2013 and March 31, 2012. We regularly assess the viability of our business and hedging strategies to reduce unacceptable risks to earnings and implement such strategies to protect our net interest margins from the potential negative effects of changes in interest rates. We have established risk limits to monitor and control our exposures. Our current exposure is considered within tolerable limits.

Foreign currency risk

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

Our debt is accounted for at amortized cost in our Consolidated Balance Sheet. We may elect to designate our debt in hedge accounting relationships for changes in interest rate risk, foreign currency risk or both. If our debt is hedged in a fair value hedge accounting relationship, we adjust the carrying value of our debt to reflect changes in the fair value attributable to interest and foreign currency risks with an offsetting amount recorded in interest expense in the Consolidated Statement of Income. If the debt is not in a hedge accounting relationship, the debt is translated into U.S. dollars using the applicable exchange rate at the transaction date and retranslated at each balance sheet date using the exchange rate in effect at that date. Additionally, we also recognize changes in the fair value of derivatives designated as hedges in interest expense in the Consolidated Statement of Income.

Certain fixed income mutual funds in our investment securities portfolio are exposed to foreign currency risk. The funds may invest directly in foreign currencies, in securities that trade in and receive revenues in foreign currencies, or in financial derivatives that provide exposure to foreign currencies. The funds may also enter into foreign currency derivative contracts to hedge the currency exposure associated with some or all of the fund’s securities. The market value of these holdings is translated into U.S. dollars based on the current exchange rates each business day. The effect of changes in foreign currency on our portfolio is reflected in the net asset value of the fund.

Derivative Counterparty Credit Risk

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

All of our derivatives counterparties to which we had credit exposure at March 31, 2013 were assigned investment grade ratings by a credit rating organization. Our counterparty credit risk could be adversely affected by deterioration of the global economy and financial distress in the banking industry.

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements contain reciprocal collateral arrangements which help mitigate our exposure to the credit risk associated with our counterparties. As of March 31, 2013, we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral arrangements with substantially all our counterparties include a zero threshold, full collateralization requirement, which has significantly reduced counterparty credit risk exposure. Under our ISDA Master Agreements, cash is the only permissible form of collateral. Neither we nor our counterparties are required to hold collateral in a segregated account. Our collateral arrangements include legal right of offset provisions, pursuant to which collateral amounts are netted against derivative assets or derivative liabilities, which are included in other assets or other liabilities in our Consolidated Balance Sheet.

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

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

	March 31,
(Dollars in millions)	2013		2012
Credit Rating
AA	$	1	$	5
A		56		68
BBB		2		-
Total net counterparty credit exposure	$	59	$	73

We exclude credit valuation adjustments of $1 million and $3 million at March 31, 2013 and March 31, 2012, respectively, related to non-performance risk of our counterparties from the total net counterparty credit exposure. All derivative credit valuation adjustments are recorded in interest expense in our Consolidated Statement of Income. Refer to “Note 2 – Fair Value Measurements” of the Notes to the Consolidated Financial Statements for further discussion.

Issuer Credit Risk

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

The following tables summarize our fixed income holding distribution by credit rating as of March 31, 2013 and 2012 (dollars in millions):

			As of March 31, 2013
							Distribution by credit rating
			Amortized		Fair										BB
Fixed income security category			cost		value		AAA		AA		A		BBB		or below
U.S. government and
	agency obligations	$	101	$	104	$	-	$	104	$	-	$	-	$	-
Municipal debt securities			14		16		3		8		5		-		-
Certificates of deposit			2,040		2,041		-		645		1,396		-		-
Commercial paper			495		495		-		315		180		-		-
Foreign government debt
	securities		3		3		3		-		-		-		-
Corporate debt securities			122		128		-		10		66		41		11
Mortgage backed securities			137		143		24		94		19		2		4
Asset-backed securities			13		13		7		3		3		-		-
Fixed income mutual funds			1,873		1,970		604		648		676		-		42
Total		$	4,798	$	4,913	$	641	$	1,827	$	2,345	$	43	$	57

			As of March 31, 2012
							Distribution by credit rating
		Amortized		Fair										BB
Fixed income security category		cost		value		AAA		AA		A		BBB		or below
U.S. government and
	agency obligations	$	108	$	108	$	-	$	108	$	-	$	-	$	-
Municipal debt securities			17		20		3		11		6		-		-
Certificates of deposit			1,341		1,341		-		435		906		-		-
Commercial paper			633		633		50		404		179		-		-
Foreign government debt
	securities		3		3		3		-		-		-		-
Corporate debt securities			100		107		-		7		51		33		16
Mortgage backed securities			132		139		18		108		1		-		12
Asset-backed securities			13		13		9		4		-		-		-
Fixed income mutual funds			1,788		1,844		544		1,201		62		-		37
Total		$	4,135	$	4,208	$	627	$	2,278	$	1,205	$	33	$	65

Equity Price Risk

We are exposed to equity price risk related to our investments in equity mutual funds included in our investment portfolio. These investments, classified as available-for-sale in our Consolidated Balance Sheet, consist of passively managed mutual funds that are designed to track the performance of major equity market indices. Fair market values of the equity investments are determined using a net asset value that is quoted in an active market.

We utilize the Value at Risk (“VaR”) methodology to simulate the potential loss in fair value of our investment portfolio due to adverse market movements. The model is based on historical data for the previous two years assuming a 30-day holding period and a loss methodology approximating a 99% confidence interval. The table below shows the VaR, excluding taxation impact, of our equity investment portfolio as of and for the periods ending:

	March 31,
(Dollars in millions)		2013		2012
Average	$	86	$	83
Minimum	$	84	$	71
Maximum	$	97	$	90

These hypothetical scenarios, derived from historical market price fluctuations, represent an estimate of reasonably possible net losses and are not necessarily indicative of actual results that may occur. Additionally, the hypothetical scenarios do not represent the maximum possible loss or any expected loss that may occur, since actual future gains and losses will differ from estimates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Toyota Motor Credit Corporation:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, comprehensive income, shareholder’s equity, and cash flows present fairly, in all material respects, the financial position of Toyota Motor Credit Corporation and its subsidiaries (the “Company”) at March 31, 2013 and March 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/S/ PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

June 14, 2013

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME


		Years ended March 31,
(Dollars in millions)			2013	2012		2011
Financing revenues:
	Operating lease	$	4,748	$	4,693	$	4,888
	Retail		2,062		2,371		2,791
	Dealer		434		365		385
Total financing revenues			7,244		7,429		8,064

	Depreciation on operating leases		3,568		3,339		3,353
	Interest expense		940		1,300		1,614
Net financing revenues			2,736		2,790		3,097

Insurance earned premiums and contract revenues			571		604		543
Investment and other income, net			173		113		236
Net financing revenues and other revenues			3,480		3,507		3,876

Expenses:
	Provision for credit losses		121		(98)		(433)
	Operating and administrative		911		857		1,059
	Insurance losses and loss adjustment expenses		293		325		247
Total expenses			1,325		1,084		873

Income before income taxes			2,155		2,423		3,003
Provision for income taxes			824		937		1,150

Net income		$	1,331	$	1,486	$	1,853

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Years ended March 31,
(Dollars in millions)			2013	2012		2011
Net income		$	1,331		1,486		1,853
Other comprehensive income, net of tax:
Net unrealized gains on available-for-sale
	marketable securities (net of tax provision
	of $40, $23 and $3, respectively)		64		43		4
Reclassification adjustment for net (gains) losses on
	available-for-sale marketable securities included
	in net income [net of tax provision (benefit) of
	$8, ($10), and $5, respectively]		(13)		17		(8)
Other comprehensive income (loss)			51		60		(4)
Comprehensive income		$	1,382	$	1,546	$	1,849

See accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET


(Dollars in millions)		March 31, 2013		March 31, 2012
ASSETS

Cash and cash equivalents		$	4,723	$	5,060
Restricted cash			491		682
Investments in marketable securities			5,397		4,659
Finance receivables, net			62,567		58,042
Investments in operating leases, net			20,384		18,743
Other assets			1,740		1,727
Total assets		$	95,302	$	88,913

LIABILITIES AND SHAREHOLDER'S EQUITY

Debt		$	78,832	$	73,234
Deferred income taxes			6,236		5,412
Other liabilities			2,677		2,605
Total liabilities			87,745		81,251

Commitments and contingencies (See Note 14)

Shareholder's equity:
Capital stock, no par value (100,000 shares authorized; 91,500
	issued and outstanding at March 31, 2013 and 2012, respectively)		915		915
Additional paid-in-capital			2		2
Accumulated other comprehensive income			211		160
Retained earnings			6,429		6,585
Total shareholder's equity			7,557		7,662
Total liabilities and shareholder's equity		$	95,302	$	88,913

The following table presents the assets and liabilities of our consolidated variable interest entities. The assets of any variable interest entity can only be used to settle obligations of that respective variable interest entity, and the creditors (or beneficial interest holders) do not have recourse to us or to our other assets. These assets and liabilities are included in the consolidated balance sheet above.

(Dollars in millions)	March 31, 2013		March 31, 20121
ASSETS
Finance receivables, net	$	7,556	$	10,527
Investments in operating leases, net		434		-
Other assets		12		3
Total assets	$	8,002	$	10,530

LIABILITIES
Debt	$	7,009	$	9,789
Other liabilities		1		2
Total liabilities	$	7,010	$	9,791
1 Certain prior period amounts have been reclassified to conform to the current presentation.

See accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY

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

Balance at March 31, 2010		$	915	$	1	$	104	$	4,253	$	5,273

Net income for the year ended
	March 31, 2011		-		-		-		1,853		1,853
Other comprehensive income (loss),
	net of tax		-		-		(4)		-		(4)
Dividends			-		-		-		(266)		(266)
Balance at March 31, 2011		$	915	$	1	$	100	$	5,840	$	6,856

Net income for the year ended
	March 31, 2012		-		-		-		1,486		1,486
Other comprehensive income, net
	of tax		-		-		60		-		60
Stock-based compensation			-		1		-		-		1
Dividends			-		-		-		(741)		(741)
Balance at March 31, 2012		$	915	$	2	$	160	$	6,585	$	7,662

Net income for the year ended
	March 31, 2013	$	-	$	-	$	-	$	1,331	$	1,331
Other comprehensive income, net
	of tax		-		-		51		-		51
Dividends			-		-		-		(1,487)		(1,487)
Balance at March 31, 2013		$	915	$	2	$	211	$	6,429	$	7,557

See accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS

			Years ended March 31,
(Dollars in millions)			2013		2012		2011
Cash flows from operating activities:
	Net income		$	1,331	$	1,486	$	1,853
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		3,604		3,410		3,428
		Recognition of deferred income		(1,191)		(1,183)		(1,251)
		Provision for credit losses		121		(98)		(433)
		Amortization of deferred costs		541		575		541
		Foreign currency and other adjustments to the carrying value of debt, net		(1,103)		(1,893)		1,767
	Net (gain) loss from sale of investments in marketable securities			(21)		25		(47)
	Net change in:
		Restricted cash		191		23		(532)
		Derivative assets		12		832		(317)
		Other assets (Note 8) and accrued income		37		74		(49)
		Deferred income taxes		792		954		1,136
		Derivative liabilities		(50)		(136)		(364)
		Other liabilities		134		(217)		39
Net cash provided by operating activities				4,398		3,852		5,771
Cash flows from investing activities:
	Purchases of investments in marketable securities			(5,279)		(7,696)		(5,695)
	Proceeds from sales of investments in marketable securities			385		1,571		1,917
	Proceeds from maturities of investments in marketable securities			4,261		6,355		1,517
	Acquisitions of finance receivables			(25,604)		(22,149)		(23,294)
	Collections of finance receivables			22,941		22,341		21,765
	Net change in wholesale and certain working capital receivables			(1,887)		(267)		(484)
	Acquisitions of investments in operating leases			(10,395)		(7,619)		(10,112)
	Disposals of investments in operating leases			5,603		5,233		5,479
	Advances to affiliates			(5,199)		(3,851)		(2,815)
	Repayments from affiliates			5,319		3,451		2,468
	Other, net			(31)		(32)		(32)
Net cash used in investing activities				(9,886)		(2,663)		(9,286)
Cash flows from financing activities:
	Proceeds from issuance of debt			22,230		20,308		21,879
	Payments on debt			(16,929)		(21,824)		(16,096)
	Net change in commercial paper			3,349		1,298		469
	Advances from affiliates			49		6		33
	Repayments to affiliates			(2,061)		(2,006)		(17)
	Dividends paid to TFSA			(1,487)		(741)		(266)
Net cash provided by (used in) financing activities				5,151		(2,959)		6,002
Net (decrease) increase in cash and cash equivalents				(337)		(1,770)		2,487
Cash and cash equivalents at the beginning of the period				5,060		6,830		4,343
Cash and cash equivalents at the end of the period			$	4,723	$	5,060	$	6,830
Supplemental disclosures:
	Interest paid		$	1,258	$	1,591	$	1,733
	Income taxes paid (received), net		$	21	$	(112)	$	35
Non-cash financing:
	Capital contribution for stock-based compensation		$	-	$	1	$	-

See accompanying Notes to Consolidated Financial Statements.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

Nature of Operations

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

Finance - We acquire a broad range of retail finance products including retail and commercial installment sales contracts (“retail contracts”) in the U.S. and Puerto Rico and leasing contracts accounted for as either direct finance leases or operating leases (“lease contracts”) from vehicle and industrial equipment dealers in the U.S. We also provide dealer financing, including wholesale financing (also referred to as floorplan financing), term loans, revolving lines of credit and real estate financing to vehicle and industrial equipment dealers in the U.S. and Puerto Rico.

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

Our business is substantially dependent upon the sale of Toyota, Lexus and Scion vehicles. Any extended reduction or suspension of vehicle production or sale of vehicles in the U.S. due to a decline in consumer demand, work stoppage, governmental action, negative publicity or other event, could have an adverse effect on the level of our financing volume, insurance volume, earning assets and revenues.

Our primary finance operations are located in the U.S. and Puerto Rico with earning assets principally sourced through Toyota and Lexus vehicle dealers. As of March 31, 2013, approximately 20 percent of vehicle retail contracts and lease assets were concentrated in California, 11 percent in Texas, 8 percent in New York, and 6 percent in New Jersey. Our insurance operations are located in the U.S. As of March 31, 2013, approximately 26 percent of insurance policies and contracts were concentrated in California, 7 percent in New York and 5 percent in New Jersey. Any material adverse changes to the economies or applicable laws in these states could have an adverse effect on our financial condition and results of operations.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Basis of Presentation

Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (U.S. GAAP). Certain prior period amounts have been reclassified to conform to the current year presentation.

Related party transactions presented in the Consolidated Financial Statements are disclosed in Note 15 – Related Party Transactions of the Notes to Consolidated Financial Statements.

Principles of Consolidation

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

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

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

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

Par Value

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

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because of inherent uncertainty involved in making estimates, actual results could differ from those estimates and assumptions. The accounting estimates that are most important to our business are the determination of residual value and the allowance for credit losses as well as estimates related to the fair value of our derivative instruments and marketable securities.

Revenue Recognition

Retail and Dealer Financing Revenues

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

Operating Lease Revenues

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

Direct Finance Lease Revenues

Revenue is recognized over the lease term to approximate a level rate of return on the outstanding net investment. Incremental direct costs and fees paid or received in connection with the acquisition of direct finance leases, including incentive and rate participation payments made to vehicle and industrial equipment dealers and acquisition fees collected from customers, are capitalized or deferred and amortized to approximate a level rate of return over the term of the related contracts. Payments received on subvention programs are deferred and recognized to approximate a constant rate of return over the term of the related contracts.

Insurance Earned Premiums and Contract Revenues

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

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

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

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

Depreciation on Operating Leases

Depreciation on vehicle operating leases is recognized using the straight-line method over the lease term, typically two to five years. The depreciable basis is the original cost of the vehicle less the estimated residual value of the vehicle at the end of the lease term. During the lease term, adjustments to depreciation expense reflecting revised estimates of expected residual values at the end of the lease terms are recorded prospectively on a straight-line basis.

Allowance for Credit Losses

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

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

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

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

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

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

Methodology Used to Develop the Allowance for Credit Losses

Retail Loan Portfolio Segment and Investment in Operating Leases

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

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

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Commercial Portfolio Segment

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

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

Dealer Products Portfolio Segment

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

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

Accounting for the Allowance for Credit Losses and Impaired Receivables

The majority of the allowance for credit losses covers estimated losses on the retail loan portfolio segment and the commercial portfolio segment, which are collectively evaluated for impairment. The remainder of the allowance for credit losses covers the estimated losses on investments in operating leases and the dealer products portfolio segment. In addition, we establish specific reserves to cover the estimated losses on individual impaired loans (including loans modified in a troubled debt restructuring) within the dealer products portfolio segment. The specific reserve is assessed based on discounted cash flows, the loan’s observable market price, or the fair value of the underlying collateral if the loan is collateral dependent.

Troubled debt restructurings in the retail loan and commercial portfolio segments are aggregated with their respective portfolio segments when determining the allowance for credit losses. Impaired loans in the retail loan and commercial loan portfolio segments are insignificant for individual evaluation and we have determined that the allowance for credit losses for each of the retail loan and commercial portfolio segments would not be materially different if they had been individually evaluated for impairment.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Increases to the allowance for credit losses are accompanied by corresponding charges to the provision for credit losses. The amount of the account balance we do not expect to collect in the retail loan and commercial portfolio segments and investments in operating leases is charged off against the allowance for credit losses when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first.

Collateral, if recoverable, is repossessed and sold. Any shortfalls in the retail loan and commercial portfolio segments and investments in operating leases between proceeds received from the sale of repossessed collateral and the amounts due from customers are charged against the allowance. Any shortfalls in the dealer products portfolio segment between proceeds received from the sale of repossessed collateral and the amounts specifically reserved will result in additional losses. The allowance related to our earning assets is included in Finance receivables, net and Investments in operating leases, net in the Consolidated Balance Sheet.

Insurance Losses and Loss Adjustment Expenses

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

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

Cash and Cash Equivalents

Cash equivalents, which consist of money market instruments, commercial paper and certificates of deposit, represent highly liquid investments with maturities of three months or less at purchase.

Restricted Cash

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

Investments in Marketable Securities

Investments in marketable securities consist of debt and equity securities. Debt and equity securities designated as available-for-sale (“AFS”) are recorded at fair value using quoted market prices where available with unrealized gains or losses included in Accumulated other comprehensive income (“AOCI”), net of applicable taxes in the Consolidated Statement of Shareholder’s Equity. Realized gains and losses are determined using either the specific identification method or first in first out method, depending on the type of investment in our portfolio. Realized investment gains and losses are reflected in Investment and other income, net in the Consolidated Statement of Income.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Other-than-Temporary Impairment

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

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

An OTTI loss with respect to debt securities must be recognized in earnings if we have the intent to sell the debt security or it is more likely than not that we will be required to sell the debt security before recovery of its amortized cost basis. If we have the intent to sell, the cost basis of the security is written down to fair value and the write down is reflected in Investment and other income, net in the Consolidated Statement of Income. If we have no intent to sell and we believe that it is more likely than not we will not be required to sell these securities prior to recovery, the credit loss component of the unrealized losses are recognized in Investment and other income, net in the Consolidated Statement of Income, while the remainder of the loss is recognized in AOCI. The credit loss component recognized in Investment and other income, net in the Consolidated Statement of Income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using a credit cash flow analysis for debt securities.

We perform periodic reviews of our AFS equity securities to determine whether unrealized losses are temporary in nature. We consider our intent and ability to hold the security for a period of time sufficient for recovery of fair value. Where we lack that intent or ability, the equity security’s decline in fair value is deemed to be other-than-temporary. If losses are considered to be other-than-temporary, the cost basis of the security is written down to fair value and the write down is reflected in Investment and other income, net in the Consolidated Statement of Income.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Finance Receivables

Our finance receivables consist of retail loan, commercial and dealer products portfolio segments. Finance receivables recorded on our balance sheet are comprised of the unpaid principal balance, plus accrued interest and deferred fees and costs, net of the allowance for credit losses and deferred income. Direct finance leases are recorded on our balance sheet as the aggregate future minimum lease payments, contractual residual value of the leased vehicle or industrial equipment, and deferred income.

Impaired Receivables

A receivable account balance is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying loan agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether a loan is impaired.

Troubled Debt Restructurings

A troubled debt restructuring occurs when an account is modified through a concession to a borrower experiencing financial difficulty. An account modified under a troubled debt restructuring is considered to be impaired. In addition, troubled debt restructurings include accounts for 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.

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 for which the debtor has filed for bankruptcy protection are not considered to have a payment default as we are prohibited from applying our normal collection procedures.

Nonaccrual Policy

Dealer Products Portfolio Segment

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

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Retail Loan and Commercial Portfolio Segments

Receivables within the retail loan and commercial portfolio segments are not placed on nonaccrual status when principal or interest is 90 days or more past due. Rather, these receivables are charged off against the allowance for credit losses when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first.

Investments in Operating Leases

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

Nonaccrual Policy

Investments in operating leases are not placed on nonaccrual status. Rather, these accounts are charged off when payments due are no longer expected to be received or the account is 120 days contractually delinquent, whichever occurs first.

Determination of Residual Value

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

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

We review our investments in operating leases for impairment whenever events or changes in circumstances indicate that the carrying value of the operating leases may not be recoverable. If such events or changes in circumstances are present, we perform a test for recoverability by comparing the expected undiscounted future cash flows (including expected residual values) over the remaining lease terms to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group's fair value is measured in accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value and is recorded in the current period Consolidated Statement of Income.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Used Vehicles Held for Sale

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

Debt Issuance Costs

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

Fair Value Measurements

Some of our assets and liabilities are measured at fair value on a recurring basis including our cash equivalents, investments in marketable securities and derivatives. Certain other financial assets and liabilities are measured at fair value on a nonrecurring basis based on specific circumstances such as impairment. Finance receivables and debt are not presented in our financial statements at fair value, but their estimated fair value is included for disclosure purposes, as well as the methods and significant assumptions used to estimate their fair value.

Definition and Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If quoted prices in an active market are available, fair value is determined by reference to these prices. If listed prices or quotations are not available, fair value is determined by valuation models that primarily use, as inputs, market-based or independently sourced parameters, including but not limited to interest rates, volatilities, foreign exchange rates and credit curves. Additionally, we may reference prices for similar instruments, quoted prices or recent transactions in less active markets. 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.

Level 1: Quoted (unadjusted) prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in active markets for similar assets and liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs that are supported by little or no market activity may require significant judgment in order to determine the fair value of the assets and liabilities.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

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

Valuation Methods

We maintain policies and procedures to value instruments using the best and most relevant data available. The Treasury Risk and Analytics Group (“TR&A”) is responsible for determining the fair value of our financial instruments. TR&A consists of quantitative analysts and risk and accounting professionals. Using benchmarking techniques, TR&A reviews our valuation pricing models at least annually to assess their ongoing propriety. As markets and products develop and the pricing for certain products becomes more or less transparent, TR&A refines its valuation methodologies. TR&A reviews the appropriateness of fair value measurements including validation processes, key model inputs, and the reconciliation of period-over-period fluctuations based on changes in key market inputs. Where possible, valuations, including both internally and externally obtained transaction prices, are validated against independent valuation sources. Our Fair Value Working Group (“FVWG”) reviews and approves the fair value measurement results and other relevant data quarterly. The FVWG consists of a cross-section of internal stakeholders who are knowledgeable in the area of financial valuations. All changes to our valuation methodologies are reviewed and approved by the FVWG.

We conduct reviews of our primary pricing vendors to understand and assess the reasonableness of inputs used in their pricing process. While we do not have access to our vendors’ proprietary models, we perform detailed reviews of the pricing process, methodologies and control procedures for each asset class for which prices are provided. Our reviews include examination of the underlying inputs and assumptions for a sample of individual securities selected based on the nature and complexity of the securities. In addition, our pricing vendors have established processes in place for all valuations, which facilitates identification and resolution of potentially erroneous prices. We believe that the prices received from our pricing vendors are representative of prices that would be received to sell the assets or paid to transfer the liabilities at the measurement date and are classified appropriately in the hierarchy.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Valuation Adjustments

We may make valuation adjustments to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, our own creditworthiness, as well as constraints due to market illiquidity or unobservable parameters.

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.

Recurring Fair Value Measurements

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

Cash Equivalents

Cash equivalents include money market instruments, commercial paper and certificates of deposits, which represent highly liquid investments with maturities of three months or less at purchase. Where money market funds produce a daily net asset value in an active market, we use this value to determine the fair value of the fund investment and classify the investment in Level 1 of the fair value hierarchy. All other types of cash equivalents are classified in Level 2 of the fair value hierarchy.

Investments in Marketable Securities

The marketable securities portfolio consists of debt and equity securities. We estimate the value of our debt securities using observed transaction prices, independent pricing vendors, and internal pricing models.

Pricing methodologies and inputs to valuation models used by the pricing vendors depend on the security type. Where possible, quoted prices in active markets for identical securities are used to determine the fair value of the investment securities; these securities are classified in Level 1 of the fair value hierarchy. Where quotes in active markets are not available, the pricing vendor uses various pricing models for each asset class that are consistent with what market participants use. The inputs and assumptions to the models of the pricing vendors are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the pricing vendors use applicable available information, such as benchmark curves, benchmarking of similar securities, sector groupings, and matrix pricing. These investments are classified in Level 2 of the fair value hierarchy. Our pricing vendors may provide us with valuations that are based on significant unobservable inputs; in such circumstances, we classify these investments in Level 3 of the fair value hierarchy. Valuations obtained from third party pricing vendors are validated to assess their reasonableness.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

We hold investments in actively traded open-end 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, we use this value to determine the fair value of the fund investment and classify the investment in Level 1 of the fair value hierarchy. Where the funds produce a daily net asset value that is not quoted in an active market, we estimate the fair value of the investment using the net asset value per share. We classify such funds in Level 2 of the fair value hierarchy as we have the ability to redeem our investment at the net asset value per share at the balance sheet date.

Derivatives

As part of our risk management strategy, we enter into derivative transactions to mitigate our interest rate and foreign currency exposures. These derivative transactions are considered over-the-counter for valuation purposes. All of our derivative counterparties to which we had credit exposure at March 31, 2013 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, model inputs can generally be verified and do not require significant management judgment. These derivative instruments are classified in Level 2 of the fair value hierarchy.

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 vendor. Inputs obtained from counterparties and third party pricing vendors are internally validated 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. These derivative instruments are classified in Level 3 of the fair value hierarchy.

Our derivative fair value measurements consider assumptions about counterparty credit risk and our own non-performance risk. 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.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Nonrecurring Fair Value Measurements

Impaired Finance Receivables

For finance receivables within the dealer products portfolio segment for which there is evidence of impairment, we may measure impairment based on discounted cash flows, the loan’s observable market price or the fair value of the underlying collateral if the loan is collateral dependent. The fair values of impaired finance receivables are reported at fair value on a nonrecurring basis. The methods used to estimate the fair value of the underlying collateral depends on the specific class of finance receivable. For finance receivables within the wholesale class of finance receivables, the collateral value is generally based on wholesale market value or liquidation value for new and used vehicles. For finance receivables within the real estate class of finance receivables, the collateral value is generally based on appraisals. For finance receivables within the working capital class of finance receivables, the collateral value is generally based on the expected liquidation value of the underlying dealership assets. Adjustments may be performed in circumstances where market comparables are not specific to the attributes of the specific collateral or appraisal information may not be reflective of current market conditions due to the passage of time and the occurrence of market events since receipt of the information. As these valuations utilize unobservable inputs, our impaired finance receivables are classified in Level 3 of the fair value hierarchy.

Financial Instruments Not Carried at Fair Value

Finance Receivables

Our finance receivables consist of retail loans, comprised of retail loan contracts and commercial loan contracts, and dealer loans, comprised of wholesale, real estate and working capital financing. Retail loans are primarily valued using a securitization model that incorporates expected cash flows. Cash flows expected to be collected are estimated using contractual principal and interest payments 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. Dealer loans are valued using a discounted cash flow model. Discount rates are derived based on market rates for equivalent portfolio bond ratings. As these valuations utilize unobservable inputs, our finance receivables are classified in Level 3 of the fair value hierarchy.

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 by recalculating the fair value of our commercial paper using quoted market rates. Commercial paper is classified in Level 2 of the fair value hierarchy.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Unsecured Notes and Loans Payable

Unsecured notes and loans payable are primarily valued using current market rates and credit spreads for debt with similar maturities. Our valuation models utilize observable inputs and standard industry curves; therefore, we classify these unsecured notes and loans payables in Level 2 of the fair value hierarchy. Where it is not possible to value the debt, we use quoted market prices where available to estimate the fair value of unsecured notes and loans payable. These unsecured notes and loans payable are classified in Level 3 of the fair value hierarchy since the market for these instruments is not active. In a limited number of instances, where it is not possible to value the debt instrument and quoted market prices are unavailable, we estimate the fair value of unsecured notes and loan payable using quotes from counterparties or a third party pricing vendor. We review the appropriateness of these fair value measurements by assessing the reasonableness of period over period fluctuations. These valuations utilize unobservable inputs; therefore, we classify these unsecured notes and loans payables in Level 3 of the fair value hierarchy.

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. As these valuations utilize unobservable inputs, our secured notes and loans payables are classified in Level 3 of the fair value hierarchy.

Derivative Instruments

All derivative instruments are recorded on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to net settle asset and liability 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.

In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged. When we designate a derivative in a hedging relationship, we contemporaneously document the risk management objective and strategy. This documentation includes the identification of the hedging instrument, the hedged item and the risk exposure, how we will assess effectiveness prospectively and retrospectively, and how often we will carry out this assessment.

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

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

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

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

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

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

Foreign Currency Transactions

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

Risk Transfer

Our insurance operations transfers certain risks to protect us against the impact of unpredictable high severity losses. The amounts recoverable from reinsurers and other companies that assume liabilities relating to our insurance operations are estimated in a manner consistent with the related reinsurance or risk transfer agreement. Amounts recoverable from reinsurers and other companies on unpaid losses are recorded as a receivable but are not collectible until the losses are paid. Revenues related to risks transferred are recognized on the same basis as the related revenues from the underlying agreements. Covered losses are recorded as a reduction to insurance losses and loss adjustment expenses.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

Income Taxes

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

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

New Accounting Guidance

In February 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for certain obligations addressed within existing guidance in U.S. GAAP. Specifically, the new guidance requires an entity to measure these obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. Additionally, the guidance requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations within the footnotes to its financial statements. Currently no such recognition, measurement, and disclosure requirement exists under U.S. GAAP. The accounting guidance is effective for us for fiscal 2014. We are evaluating the effect that adoption of this guidance will have on our consolidated financial statements.

In February 2013, the FASB issued additional guidance on the presentation of items reclassified out of accumulated other comprehensive income. The standard does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the guidance does require an entity to provide enhanced disclosures to present separately by component reclassifications out of accumulated other comprehensive income. The accounting guidance is effective for us for fiscal 2014. The adoption of this guidance will not have a material impact on our consolidated financial statements.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies (Continued)

In December 2011, the FASB issued accounting guidance on the disclosure about offsetting assets and liabilities. The disclosure requirements of this guidance are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a company’s financial position. Offsetting, otherwise known as netting, is the presentation of assets and liabilities as a single net amount in the balance sheet. The guidance retains the current U.S. GAAP model that allows companies the option to present net in their balance sheets derivatives that are subject to a legally enforceable netting arrangement with the same party, where rights of set-off are available, including in the event of default or bankruptcy. However, the guidance adds new disclosure requirements to improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In January 2013, the FASB further clarified that the scope of this guidance applies only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. The accounting guidance is effective for us on April 1, 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

Recently Adopted Accounting Guidance

In April 2012, we adopted new FASB accounting guidance which requires entities to report components of comprehensive income in either a single continuous statement of comprehensive income or two separate but consecutive statements. We have elected to present comprehensive income in two separate but consecutive statements. The application of this guidance primarily affected the presentation of our consolidated financial statements.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements

The following table summarizes our financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2013 and March 31, 2012 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.

In instances in which we meet the accounting guidance for set-off criteria, we elect to net derivative assets and derivative liabilities and the related cash collateral received and paid.

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million and $3 million as of March 31, 2013 and March 31, 2012, respectively. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of March 31, 2013 and March 31, 2012.


As of March 31, 2013
					Fair value measurements on a recurring basis
										Counterparty		Fair
(Dollars in millions)				Level 1		Level 2		Level 3		netting & collateral		value
Cash equivalents:
	Money market instruments			$	900	$	608	$	-	$	-	$	1,508
	Certificates of deposit				-		1,945		-		-		1,945
	Commercial paper				-		798		-		-		798
	Cash equivalents total				900		3,351		-		-		4,251
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			42		62		-		-		104
		Municipal debt securities			-		16		-		-		16
		Certificates of deposit			-		2,041		-		-		2,041
		Commercial paper			-		495		-		-		495
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		124		4		-		128
		Mortgage-backed securities:
			U.S. government agency		-		87		-		-		87
			Non-agency residential		-		-		5		-		5
			Non-agency commercial		-		-		51		-		51
		Asset-backed securities			-		-		13		-		13
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		43		-		-		43
			U.S. government sector fund		-		312		-		-		312
			Municipal sector fund		-		22		-		-		22
			Investment grade corporate sector fund		-		327		-		-		327
			High-yield sector fund		-		42		-		-		42
			Real return sector fund		-		293		-		-		293
			Mortgage sector fund		-		648		-		-		648
			Asset-backed securities sector fund		-		47		-		-		47
			Emerging market sector fund		-		66		-		-		66
			International sector fund		-		170		-		-		170
		Equity mutual fund			484		-		-		-		484
	Available-for-sale securities total				526		4,798		73		-		5,397
	Derivative assets:
		Foreign currency swaps			-		1,076		63		-		1,139
		Interest rate swaps			-		568		12		-		580
		Counterparty netting and collateral			-		-		-		(1,661)		(1,661)
	Derivative assets total				-		1,644		75		(1,661)		58
Assets at fair value					1,426		9,793		148		(1,661)		9,706
	Derivative liabilities:
		Foreign currency swaps			-		(123)		(8)		-		(131)
		Interest rate swaps			-		(766)		-		-		(766)
		Counterparty netting and collateral			-		-		-		892		892
	Derivative liabilities total				-		(889)		(8)		892		(5)
	Embedded derivative liabilities				-		-		(12)		-		(12)
Liabilities at fair value					-		(889)		(20)		892		(17)
Net assets at fair value				$	1,426	$	8,904	$	128	$	(769)	$	9,689

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

As of March 31, 2012

				Fair value measurements on a recurring basis
										Counterparty		Fair
(Dollars in millions)				Level 1		Level 2		Level 3		netting & collateral		value
Cash equivalents:
	Money market instruments			$	2,591	$	256	$	-	$	-	$	2,847
	Certificates of deposit				-		495		-		-		495
	Commercial paper				-		1,537		-		-		1,537
	Cash equivalents total				2,591		2,288		-		-		4,879
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			-		108		-		-		108
		Municipal debt securities			-		20		-		-		20
		Certificates of deposit			-		1,341		-		-		1,341
		Commercial paper			-		633		-		-		633
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		106		1		-		107
		Mortgage-backed securities:
			U.S. government agency		-		105		-		-		105
			Non-agency residential		-		4		4		-		8
			Non-agency commercial		-		11		15		-		26
		Asset-backed securities			-		12		1		-		13
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		40		-		-		40
			U.S. government sector fund		-		313		-		-		313
			Municipal sector fund		-		21		-		-		21
			Investment grade corporate sector fund		-		298		-		-		298
			High-yield sector fund		-		37		-		-		37
			Real return sector fund		-		231		-		-		231
			Mortgage sector fund		-		639		-		-		639
			Asset-backed securities sector fund		-		41		-		-		41
			Emerging market sector fund		-		62		-		-		62
			International sector fund		-		162		-		-		162
		Equity mutual fund			451		-		-		-		451
	Available-for-sale securities total				451		4,187		21		-		4,659
	Derivative assets:
		Foreign currency swaps			-		2,142		79		-		2,221
		Interest rate swaps			-		426		13		-		439
		Counterparty netting and collateral			-		-		-		(2,590)		(2,590)
	Derivative assets total				-		2,568		92		(2,590)		70
Assets at fair value					3,042		9,043		113		(2,590)		9,608
	Derivative liabilities:
		Foreign currency swaps			-		(63)		(10)		-		(73)
		Interest rate swaps			-		(1,008)		-		-		(1,008)
		Counterparty netting and collateral			-		-		-		1,038		1,038
	Derivative liabilities total				-		(1,071)		(10)		1,038		(43)
	Embedded derivative liabilities				-		-		(24)		-		(24)
Liabilities at fair value					-		(1,071)		(34)		1,038		(67)
Net assets at fair value				$	3,042	$	7,972	$	79	$	(1,552)	$	9,541

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. During fiscal 2013, $53 million of U.S. government and agency obligations were valued using quoted prices for identical securities traded in an active market and were transferred from Level 2 to Level 1. During fiscal 2012, we transferred $27 million of U.S. government and agency obligations from Level 1 to Level 2 due to the lack of quoted prices for identical securities traded in an active market. Additionally, during fiscal 2013 and fiscal 2012, certain available-for-sale debt instruments were transferred from Level 2 to Level 3 due to reduced transparency of market price quotations for these and/or comparable instruments. Certain derivatives previously categorized as Level 3 in prior periods were valued using observable inputs and were transferred into Level 2 during fiscal 2012.

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs for fiscal 2013 and 2012:

Year Ended March 31, 2013

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Available-for-sale securities										Derivatives								Total net assets (liabilities)
					Non-agency		Non-agency
					residential		commercial				Total								Total
			Corporate		mortgage-		mortgage-		Asset-		available-		Interest		Foreign		Embedded		derivative
			debt		backed		backed		backed		for-sale		rate		currency		derivatives,		assets
(Dollars in millions)			securities		securities		securities		securities		securities		swaps		swaps		net		(liabilities)
Fair value, April 1, 2012			$	1	$	4	$	15	$	1	$	21	$	13	$	69	$	(24)	$	58	$	79
Total gains
		Included in earnings		-		-		-		-		-		2		11		12		25		25
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		2		35		7		44		-		-		-		-		44
		Issuances		-		-		-		-		-		-		-		-		-		-
		Sales		-		(2)		(4)		(1)		(7)		-		-		-		-		(7)
		Settlements		-		(2)		(5)		(5)		(12)		(3)		(25)		-		(28)		(40)
Transfers in to Level 3				3		3		10		11		27		-		-		-		-		27
Transfers out of Level 3				-		-		-		-		-		-		-		-		-		-
Fair value, March 31, 2013			$	4	$	5	$	51	$	13	$	73	$	12	$	55	$	(12)	$	55	$	128
The amount of total gains
for the period included
in earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date													$	2	$	8	$	1	$	11	$	11

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

Year Ended March 31, 2012

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Available-for-sale securities										Derivatives								Total net assets (liabilities)
					Non-agency		Non-agency
					residential		commercial				Total								Total
			Corporate		mortgage-		mortgage-			Asset-	available-		Interest			Foreign	Embedded		derivative
			debt		backed		backed			backed	for-sale		rate			currency	derivatives,		assets
(Dollars in millions)			securities		securities		securities			securities	securities		swaps			swaps	net		(liabilities)
Fair value, April 1, 2011			$	-	$	-	$	-	$	-	$	-	$	17	$	109	$	(51)	$	75	$	75
Total gains
		Included in earnings		-		-		-		-		-		11		47		28		86		86
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		-		-		-		-		-		-		-		-
		Issuances		-		-		-		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-		-		-		-
		Settlements		-		-		-		-		-		(16)		(30)		-		(46)		(46)
Transfers in to Level 3				1		4		15		1		21		-		-		-		-		21
Transfers out of Level 3				-		-		-		-		-		1		(57)		(1)		(57)		(57)
Fair value, March 31, 2012			$	1	$	4	$	15	$	1	$	21	$	13	$	69	$	(24)	$	58	$	79
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													$	7	$	43	$	(4)	$	46	$	46

Nonrecurring Fair Value Measurements

Nonrecurring fair value measurements consist of Level 3 net finance receivables that are individually evaluated for impairment. These assets are not measured at fair value on a recurring basis but are subject to fair value adjustments when there is evidence of impairment. For these assets, we record the fair value on a nonrecurring basis and disclose changes in fair value during the reporting period. Total nonrecurring fair value measurements of $208 million and $166 million were recorded as of March 31, 2013 and March 31, 2012, respectively.

The total change in fair value of financial instruments subject to nonrecurring fair value measurements for which a fair value adjustment has been included in the Consolidated Statement of Income consisted of net gains on net finance receivables within the dealer products portfolio segment of $12 million, $22 million and $24 million for fiscal 2013, 2012 and 2011, respectively.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements at March 31, 2013

At March 31, 2013, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $73 million, derivative assets of $75 million and derivative liabilities of $20 million. At March 31, 2012, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $21 million, derivative assets of $92 million and derivative liabilities of $34 million. The fair value measurements of Level 3 financial assets and liabilities subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant.

Financial Instruments

The following tables provide information about assets and liabilities not carried at fair value in our Consolidated Balance Sheet:

					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in millions)			value		Level 1		Level 2		Level 3		Value
As of March 31, 2013

Financial assets
	Finance receivables, net
		Retail loan	$	47,312	$	-	$	-	$	48,313	$	48,313
		Commercial		134		-		-		126		126
		Wholesale		8,620		-		-		8,644		8,644
		Real estate		4,531		-		-		4,480		4,480
		Working capital		1,695		-		-		1,708		1,708

Financial liabilities
	Commercial paper		$	24,590	$	-	$	24,590	$	-	$	24,590
	Unsecured notes and loans payable			47,233		-		47,901		874		48,775
	Secured notes and loans payable			7,009		-		-		7,016		7,016

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Fair Value Measurements (Continued)

					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in millions)			value		Level 1		Level 2		Level 3		Value
As of March 31, 2012

Financial assets
	Finance receivables, net
		Retail loan	$	44,941	$	-	$	-	$	46,609	$	46,609
		Commercial		141		-		-		148		148
		Wholesale		6,951		-		-		6,950		6,950
		Real estate		4,280		-		-		4,204		4,204
		Working capital		1,480		-		-		1,458		1,458

Financial liabilities
	Commercial paper		$	21,247	$	-	$	21,247	$	-	$	21,247
	Unsecured notes and loans payable			42,198		-		36,764		6,538		43,302
	Secured notes and loans payable			9,789		-		-		9,810		9,810

The carrying value of each class of finance receivables includes deferred fees and costs, net of the allowance for credit losses and deferred income; the amount excludes related party transactions of $40 million and $36 million at March 31, 2013 and March 31, 2012, respectively and direct finance leases of $235 million and $213 million at March 31, 2013 and March 31, 2012, respectively, as these are not subject to fair value reporting requirements.

The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment as described in Note 9 – Debt. At March 31, 2012, there were loans payable to affiliates of $2.2 billion included in unsecured notes and loans payable carried at amounts that approximate fair value. There were no loans payable to affiliates that were included in unsecured notes and loans payable at March 31, 2013.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments in Marketable Securities

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

				March 31, 2013
				Amortized		Unrealized		Unrealized			Fair
(Dollars in millions)				cost		gains		losses			value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	101	$	3	$	-	$	104
		Municipal debt securities			14		2		-		16
		Certificates of deposit			2,040		1		-		2,041
		Commercial paper			495		-		-		495
		Foreign government debt securities			3		-		-		3
		Corporate debt securities			122		6		-		128
		Mortgage-backed securities:
			U.S. government agency		83		4		-		87
			Non-agency residential		4		1		-		5
			Non-agency commercial		50		1		-		51
		Asset-backed securities			13		-		-		13
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		40		3		-		43
			U.S. government sector fund		296		16		-		312
			Municipal sector fund		19		3		-		22
			Investment grade corporate sector fund		273		54		-		327
			High-yield sector fund		34		8		-		42
			Real return sector fund		284		9		-		293
			Mortgage sector fund		663		-		(15)		648
			Asset-backed securities sector fund		38		9		-		47
			Emerging market sector fund		63		3		-		66
			International sector fund		163		7		-		170
		Equity mutual fund			259		225		-		484
Total investments in marketable securities				$	5,057	$	355	$	(15)	$	5,397

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments in Marketable Securities (Continued)

					March 31, 2012
				Amortized		Unrealized		Unrealized			Fair
(Dollars in millions)				cost		gains		losses			value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	108	$	1	$	(1)	$	108
		Municipal debt securities			17		3		-		20
		Certificates of deposit			1,341		-		-		1,341
		Commercial paper			633		-		-		633
		Foreign government debt securities			3		-		-		3
		Corporate debt securities			100		7		-		107
		Mortgage-backed securities:
			U.S. government agency		100		5		-		105
			Non-agency residential		7		1		-		8
			Non-agency commercial		25		1		-		26
		Asset-backed securities			13		-		-		13
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		39		1		-		40
			U.S. government sector fund		319		-		(6)		313
			Municipal sector fund		19		2		-		21
			Investment grade corporate sector fund		261		37		-		298
			High-yield sector fund		31		6		-		37
			Real return sector fund		228		3		-		231
			Mortgage sector fund		651		-		(12)		639
			Asset-backed securities sector fund		37		4		-		41
			Emerging market sector fund		60		2		-		62
			International sector fund		143		19		-		162
		Equity mutual fund			268		183		-		451
Total investments in marketable securities				$	4,403	$	275	$	(19)	$	4,659

The fixed income mutual funds include investments in funds that are privately placed. The total fair value of private placement fixed income mutual funds was $2.0 billion and $1.8 billion at March 31, 2013 and March 31, 2012, respectively. For each fund, we may redeem shares solely in cash up to the lesser of $250 thousand or 1 percent of the individual fund’s net assets during any 90 day period. Although the fund manager will normally redeem all shares for cash, in unusual circumstances, it reserves the right to pay any redemption exceeding this amount in whole or in part by a distribution in kind of securities held by the respective fund in lieu of cash.

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments in Marketable Securities (Continued)

OTTI Securities

For fiscal 2013 and 2011, there were no available-for-sale securities with unrealized losses that were deemed to be other-than-temporarily impaired. For fiscal 2012, unrealized losses for available-for-sale debt securities deemed to be other-than-temporarily impaired were recognized in Investment and other income, net and were not material to our Consolidated Statement of Income.

Unrealized Losses on Securities

The following table presents the fair value and gross unrealized losses of investments in marketable securities that had been in a continuous unrealized loss position for less than twelve consecutive months. These unrealized losses are recorded in Accumulated other comprehensive income, net of applicable taxes in our Consolidated Statement of Shareholder's Equity:

		Less than 12 months as of
		March 31, 2013					March 31, 2012
		Fair		Unrealized		Fair		Unrealized
(Dollars in millions)		value		losses		value		losses
Available-for-sale securities:
Debt instruments:
	U.S. government and agency obligations	$	-	$	-	$	68	$	(1)
Equity instruments:
	U.S. government sector fund		-		-		237		(2)
	Mortgage sector fund		532		(12)		639		(12)
Total investments in marketable securities		$	532	$	(12)	$	944	$	(15)

At March 31, 2013, total gross unrealized loss and fair value of investments that had been in a continuous unrealized loss position for 12 consecutive months or more were $3 million and $116 million, respectively. At March 31, 2012, total gross unrealized loss and fair value of investments that had been in a continuous unrealized loss position for 12 consecutive months or more were not material to our Consolidated Balance Sheet.

Realized Gains and Losses on Sales of AFS Securities

Realized gains and losses from the sale of available-for-sale securities are as follows:

		Years ended March 31,
(Dollars in millions)		2013		2012		2011
Available-for-sale securities:
Realized gains on sales	$	23	$	16	$	70
Realized losses on sales	$	2	$	41	$	23

100

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments in Marketable Securities (Continued)

Contractual Maturities and Yields

The contractual maturities of investments in marketable securities at March 31, 2013 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-Sale Securities:
Debt instruments:
U.S. government and
	agency obligations	$	12	0.11	%	$	46	1.44	%	$	41	1.78	%	$	5	1.84	%	$	104	1.52	%
Municipal debt securities			2	1.33			-	-			2	5.54			12	5.76			16	5.33
Certificates of deposit			2,041	0.56			-	-			-	-			-	-			2,041	0.56
Commercial paper			495	0.13			-	-			-	-			-	-			495	0.13
Foreign government debt
	securities		-	-			3	2.93			-	-			-	-			3	2.93
Corporate debt
	securities		10	4.75			51	4.52			56	4.80			11	6.09			128	4.60
Mortgage-backed securities:
	U.S. government agency		-	-			-	-			5	4.11			82	3.49			87	3.53
	Non-agency residential		-	-			-	-			-	-			5	10.92			5	10.92
	Non-agency commercial		-	-			4	3.56			2	1.23			45	3.65			51	3.44
Asset-backed securities			-	-			-	-			7	1.10			6	1.68			13	1.42
Debt instruments total			2,560	0.50			104	3.09			113	3.41			166	3.99			2,943	0.89

Equity instruments:
Fixed income mutual funds																			1,970	5.27
Equity mutual funds																			484	3.85
Equity instruments total			-				-				-				-				2,454	4.99

Total fair value		$	2,560	0.50	%	$	104	3.09	%	$	113	3.41	%	$	166	3.99	%	$	5,397	2.75	%
Total amortized cost		$	2,559			$	100			$	107			$	160			$	5,057

Yields are based on the amortized cost balances of securities held at March 31, 2013. 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. Equity instruments do not have a stated maturity date.

Securities on Deposit

In accordance with statutory requirements, we had on deposit with state insurance authorities U.S. debt securities with amortized cost and fair value of $6 million at March 31, 2013 and March 31, 2012.

101

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Finance Receivables, Net

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


(Dollars in millions)			March 31, 2013		March 31, 2012
Retail receivables			$	40,508	$	35,020
Pledged retail receivables				7,669		10,726
Dealer financing				14,995		12,865
				63,172		58,611
Deferred origination (fees) and costs, net				634		639
Deferred income				(794)		(684)
Allowance for credit losses
	Retail and pledged retail receivables			(338)		(405)
	Dealer financing			(107)		(119)
		Total allowance for credit losses		(445)		(524)
Finance receivables, net			$	62,567	$	58,042

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

	Contractual maturities
Years ending March 31,	Retail receivables		Dealer financing
2014	$	13,913	$	11,497
2015		12,524		1,268
2016		10,025		707
2017		7,037		607
2018		3,679		568
Thereafter		993		348
Total	$	48,171	$	14,995

Finance receivables, net and retail receivables presented in the previous tables include direct finance lease receivables, net of $235 million and $213 million at March 31, 2013 and March 31, 2012, respectively. Contractual maturities of retail receivables exclude $6 million of estimated unguaranteed residual values related to direct finance leases.

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

102

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Finance Receivables, Net (Continued)

Credit Quality Indicators

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

Retail Loan and Commercial 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 indicator of the credit quality of the underlying receivables. Payment status also impacts charge-offs.

Individual borrower accounts for each class of finance receivables within the retail loan and commercial portfolio segments are segregated into one of four aging categories based on the number of days outstanding. The aging for each class of finance receivables is updated quarterly.

Dealer Products Portfolio Segment

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

When assessing the credit quality of the finance receivables within the dealer products portfolio segment, we segregate the finance receivables account balances into four 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 an increased likelihood that default may exist based on qualitative and quantitative factors

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

103

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Finance Receivables, Net (Continued)

The tables below present each credit quality indicator by class of finance receivable as of March 31, 2013 and March 31, 2012:

		Retail Loan				Commercial
(Dollars in millions)		March 31, 2013		March 31, 2012		March 31, 2013		March 31, 2012

Aging of finance receivables:
	Current	$	47,236	$	44,842	$	362	$	352
	30-59 days past due		454		433		6		8
	60-89 days past due		87		80		1		2
	90 days past due		31		28		-		1
Total		$	47,808	$	45,383	$	369	$	363

		Wholesale				Real Estate				Working Capital
(Dollars in millions)		March 31, 2013		March 31, 2012		March 31, 2013		March 31, 2012		March 31, 2013		March 31, 2012

Credit quality indicators:
	Performing	$	7,659	$	6,249	$	3,968	$	3,746	$	1,616	$	1,422
	Credit Watch		996		675		583		467		80		61
	At Risk		33		78		28		148		28		8
	Default		1		6		1		-		2		5
Total		$	8,689	$	7,008	$	4,580	$	4,361	$	1,726	$	1,496

104

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the information related to our impaired loans by class of finance receivable as of March 31, 2013 and March 31, 2012:

	Impaired								Individually Evaluated
	Finance Receivables				Unpaid Principal Balance				Allowance
(Dollars in millions)	2013		2012		2013		2012		2013		2012

Impaired account balances individually evaluated for impairment with an allowance:

Wholesale	$	16	$	7	$	16	$	7	$	3	$	1
Real estate		33		136		33		136		7		37
Working capital		24		7		24		7		23		7
Total	$	73	$	150	$	73	$	150	$	33	$	45

Impaired account balances individually evaluated for impairment without an allowance:

Wholesale	$	66	$	60	$	66	$	60
Real estate		97		-		97		-
Working capital		5		1		5		1
Total	$	168	$	61	$	168	$	61

Impaired account balances aggregated and evaluated for impairment:

Retail loan	$	415	$	502	$	410	$	496
Commercial		1		1		1		1
Total	$	416	$	503	$	411	$	497

Total impaired account balances:

Retail loan	$	415	$	502	$	410	$	496
Commercial		1		1		1		1
Wholesale		82		67		82		67
Real estate		130		136		130		136
Working capital		29		8		29		8
Total	$	657	$	714	$	652	$	708

As of March 31, 2013 and March 31, 2012, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $69 million and $211 million, respectively and there were no charge-offs against the allowance for credit losses. Therefore, the impaired finance receivables balance is equal to the unpaid principal balance.

105

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – Finance Receivables, Net (Continued)

The following table summarizes the average impaired finance receivables as of the balance sheet date and the interest income recognized on these loans during fiscal 2013 and fiscal 2012:

	Average Impaired Finance Receivables				Interest Income Recognized
	Years ended March 31,				Years ended March 31,
(Dollars in millions)	2013		2012		2013		2012

Impaired account balances individually evaluated for impairment with an allowance:

Wholesale	$	22	$	5	$	-	$	-
Real estate		75		138		1		5
Working capital		24		8		1		-
Total	$	121	$	151	$	2	$	5

Impaired account balances individually evaluated for impairment without an allowance:

Wholesale	$	63	$	43	$	2	$	1
Real estate		59		-		4		-
Working capital		2		1		-		1
Total	$	124	$	44	$	6	$	2

Impaired account balances aggregated and evaluated for impairment:

Retail loan	$	462	$	553	$	37	$	47
Commercial		1		1		-		-
Total	$	463	$	554	$	37	$	47

Total impaired account balances:

Retail loan	$	462	$	553	$	37	$	47
Commercial		1		1		-		-
Wholesale		85		48		2		1
Real estate		134		138		5		5
Working capital		26		9		1		1
Total	$	708	$	749	$	45	$	54

106

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 – 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 fiscal 2013 and 2012 was not significant for each class of finance receivables. Troubled debt restructurings for 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. Troubled debt restructurings for accounts within the commercial class of finance receivables 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 include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three. Troubled debt restructurings of accounts not under bankruptcy protection did not include forgiveness of principal during fiscal 2013 and 2012.

We consider finance receivables under bankruptcy protection within the retail loan and commercial classes 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 fiscal 2013 and 2012, the financial impact of troubled debt restructurings related to accounts under bankruptcy protection was not significant to our Consolidated Statement of Income and Consolidated Balance Sheet.

Payment Defaults

Finance receivables modified as troubled debt restructurings for which there was a subsequent payment default during fiscal 2013 and 2012, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of receivables.

107

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 – Investments in Operating Leases, Net

Investments in operating leases, net consist of vehicle and equipment leases, net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Pledged investments in operating leases represent beneficial interests in a pool of certain vehicle leases that have been sold for legal purposes to securitization trusts but continue to be included in our consolidated financial statements. Cash flows from these pledged investments in operating leases are available only for the repayment of debt issued by these trusts and other obligations arising from the securitization transactions. They are not available for payment of our other obligations or to satisfy claims of our other creditors.


Investments in operating leases, net consisted of the following:

(Dollars in millions)	March 31, 2013		March 31, 2012
Investments in operating leases	$	25,957	$	24,911
Pledged investments in operating leases		630		-
		26,587		24,911
Deferred origination (fees) and costs, net		(125)		(133)
Deferred income		(609)		(594)
Accumulated depreciation		(5,387)		(5,346)
Allowance for credit losses		(82)		(95)
Investments in operating leases, net	$	20,384	$	18,743


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

	Future minimum
Years ending March 31,	rentals on operating leases
2014	$	3,496
2015		2,342
2016		943
2017		148
2018		25
Thereafter		-
Total	$	6,954

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

108

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Allowance for Credit Losses

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

		Years ended March 31,
(Dollars in millions)		2013		2012		2011
Allowance for credit losses at beginning of period	$	619	$	879	$	1,705
Provision for credit losses		121		(98)		(433)
Charge-offs, net of recoveries		(213)		(162)		(393)
Allowance for credit losses at end of period	$	527	$	619	$	879

Charge-offs are shown net of $87 million, $123 million and $137 million of recoveries for fiscal 2013, 2012 and 2011, respectively.

Allowance for Credit Losses and Finance Receivables by Portfolio Segment

The following tables provide information related to our allowance for credit losses and finance receivables by portfolio segment for fiscal 2013 and 2012:

Fiscal Year Ended March 31, 2013

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total

Allowance for Credit Losses for Finance Receivables:

Beginning Balance at April 1, 2012	$	395	$	10	$	119	$	524
Charge-offs		(248)		(1)		-	$	(249)
Recoveries		70		1		-		71
Provisions		116		(5)		(12)		99
Ending Balance at March 31, 2013	$	333	$	5	$	107	$	445

Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	33	$	33
Ending Balance: Collectively Evaluated for Impairment	$	333	$	5	$	74	$	412

Gross Finance Receivables:

Ending Balance at March 31, 2013	$	47,808	$	369	$	14,995	$	63,172
Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	241	$	241
Ending Balance: Collectively Evaluated for Impairment	$	47,808	$	369	$	14,754	$	62,931

The ending balance of gross finance receivables collectively evaluated for impairment includes approximately $415 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 aggregated with their respective portfolio segments when determining the allowance for credit losses as of March 31, 2013, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses would not be materially different if the amounts had been individually evaluated for impairment.

109

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Allowance for Credit Losses (Continued)

Fiscal Year Ended March 31, 2012

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total

Allowance for Credit Losses for Finance Receivables:

Beginning Balance at April 1, 2011	$	595	$	18	$	141	$	754
Charge-offs		(243)		(1)		-	$	(244)
Recoveries		99		4		-		103
Provisions		(56)		(11)		(22)		(89)
Ending Balance at March 31, 2012	$	395	$	10	$	119	$	524

Ending Balance: Individually Evaluated for
Impairment	$	-	$	-	$	45	$	45
Ending Balance: Collectively Evaluated for
Impairment	$	395	$	10	$	74	$	479

Gross Finance Receivables:

Ending Balance at March 31, 2012	$	45,383	$	363	$	12,865	$	58,611
Ending Balance: Individually Evaluated for
Impairment	$	-	$	-	$	211	$	211
Ending Balance: Collectively Evaluated for
Impairment	$	45,383	$	363	$	12,654	$	58,400

The ending balance of gross finance receivables collectively evaluated for impairment includes approximately $502 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 aggregated with their respective portfolio segments when determining the allowance for credit losses as of March 31, 2012, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses would not be materially different if the amounts had been individually evaluated for impairment.

Past Due Finance Receivables and Investments in Operating Leases

(Dollars in millions)		March 31, 2013			March 31, 2012
Aggregate balances 60 or more days past due:
	Finance receivables		$	119		$	111
	Operating leases			36			31
Total			$	155		$	142

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.

110

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Allowance for Credit Losses (Continued)

Past Due Finance Receivables by Class

The following tables summarize the aging of finance receivables by class as of March 31, 2013 and 2012 for finance receivables that are past due:

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

As of March 31, 2013

Retail Loan	$	454	$	87	$	31	$	572	$	47,236	$	47,808	$	31
Commercial		6		1		-		7		362		369		-
Wholesale		-		-		-		-		8,689		8,689		-
Real estate		-		-		-		-		4,580		4,580		-
Working capital		-		-		-		-		1,726		1,726		-
Total	$	460	$	88	$	31	$	579	$	62,593	$	63,172	$	31


(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, 2012

Retail Loan	$	433	$	80	$	28	$	541	$	44,842	$	45,383	$	28
Commercial		8		2		1		11		352		363		1
Wholesale		-		-		-		-		7,008		7,008		-
Real estate		-		-		-		-		4,361		4,361		-
Working capital		1		-		-		1		1,495		1,496		-
Total	$	442	$	82	$	29	$	553	$	58,058	$	58,611	$	29

111

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

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. As of March 31, 2013 we have daily valuation and collateral exchange arrangements with all of our counterparties. Our collateral arrangements with substantially all our counterparties include a zero threshold, full collateralization arrangement.

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at March 31, 2013 was $5 million, excluding embedded derivatives and adjustments made for our own non-performance risk. Due to our arrangements whereby we fully collateralize without regard to credit ratings, we would not be required to post additional collateral to the counterparties with which we were in a net liability position at March 31, 2013, even if our credit ratings were to decline. In order to settle all derivative instruments that were in a net liability position at March 31, 2013, excluding embedded derivatives and adjustments made for our own non-performance risk, we would be required to pay $5 million.

112

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

Derivative Activity Impact on Financial Statements

The table below shows the financial statement line item and amount of derivatives at March 31, 2013 as reported in the Consolidated Balance Sheet:

		Hedge accounting				Non-hedge				Total
		derivatives				accounting derivatives				Total
			Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)			Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps		$	465	$	44	$	22,336	$	536	$	22,801	$	580
Foreign currency swaps			1,246		491		7,498		648		8,744		1,139
	Total	$	1,711	$	535	$	29,834	$	1,184	$	31,545	$	1,719

Counterparty netting and collateral													(1,661)
	Carrying value of derivative contracts – Other assets											$	58

Other liabilities
Interest rate swaps		$	-	$	-	$	51,342	$	766	$	51,342	$	766
Interest rate caps			-		-		50		-		50		-
Foreign currency swaps			790		29		3,103		102		3,893		131
Embedded derivatives			-		-		64		12		64		12
	Total	$	790	$	29	$	54,559	$	880	$	55,349	$	909

Counterparty netting and collateral													(892)
	Carrying value of derivative contracts – Other liabilities											$	17

Collateral consists of cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of March 31, 2013, we held collateral of $953 million which offset derivative assets and posted collateral of $184 million which offset derivative liabilities. We also held collateral of $3 million which we did not use to offset derivative assets and we posted collateral of $6 million which we did not use to offset derivative liabilities.

113

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

The table below shows the financial statement line item and amounts of derivatives at March 31, 2012 as reported in the Consolidated Balance Sheet:

		Hedge accounting				Non-hedge				Total
		derivatives				accounting derivatives				Total
			Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)			Notional		value		Notional		value		Notional		value
Other Assets
Interest rate swaps		$	465	$	59	$	15,804	$	380	$	16,269	$	439
Foreign currency swaps			3,291		772		9,866		1,449		13,157		2,221
	Total	$	3,756	$	831	$	25,670	$	1,829	$	29,426	$	2,660

Counterparty netting and collateral													(2,590)
	Carrying value of derivative contracts – Other assets											$	70

Other liabilities
Interest rate swaps		$	-	$	-	$	51,175	$	1,008	$	51,175	$	1,008
Interest rate caps			-		-		50		-		50		-
Foreign currency swaps			437		29		987		44		1,424		73
Embedded derivatives			-		-		92		24		92		24
	Total	$	437	$	29	$	52,304	$	1,076	$	52,741	$	1,105

Counterparty netting and collateral													(1,038)
	Carrying value of derivative contracts – Other liabilities											$	67

Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties. As of March 31, 2012, we held collateral of $1,748 million which offset derivative assets and posted collateral of $196 million which offset derivative liabilities.

114

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

The following table summarizes the components of interest expense, including the financial statement line item and amount of gains or losses on derivative instruments and related hedged items, for fiscal 2013, 2012 and 2011 as reported in our Consolidated Statement of Income:

				Years ended March 31,
(Dollars in millions)				2013		2012		2011
Interest expense on debt			$	1,330	$	1,677	$	1,943
Interest income on hedge accounting derivatives				(103)		(221)		(449)
Interest income on non-hedge accounting foreign currency
	swaps			(258)		(386)		(379)
Interest expense on non-hedge accounting interest rate swaps				359		606		807
		Interest expense on debt and derivatives		1,328		1,676		1,922

Loss (gain) on hedge accounting derivatives:
	Interest rate swaps			15		(6)		(2)
	Foreign currency swaps			274		23		(832)
		Loss (gain) on hedge accounting derivatives		289		17		(834)
Less hedged item: change in fair value of fixed rate debt				(299)		(38)		801
		Ineffectiveness related to hedge accounting derivatives		(10)		(21)		(33)

(Gain) loss from foreign currency transactions and non-hedge
accounting derivatives:
		(Gain) loss on foreign currency transactions		(430)		(182)		1,494
		Loss (gain) on foreign currency swaps		431		(84)		(1,595)
		(Gain) on interest rate swaps		(379)		(89)		(174)
Total interest expense			$	940	$	1,300	$	1,614

Interest expense on debt and derivatives represents net interest settlements and changes in accruals. Gains and losses from hedge accounting derivatives, non-hedge accounting derivatives, and foreign currency transactions 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.

	Years ended March 31,
(Dollars in millions)		2013		2012		2011

(Gain) loss related to hedge accounting derivatives	$	(2)	$	(3)	$	(2)
(Gain) loss on non-hedge accounting foreign currency swaps		-		(6)		5
Loss on non-hedge accounting interest rate swaps		-		-		2
Total credit valuation adjustment allocated to interest expense	$	(2)	$	(9)	$	5

115

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Other Assets and Other Liabilities

Other assets and other liabilities consisted of the following:

(Dollars in millions)	March 31, 2013		March 31, 2012
Other assets:

Notes receivable from affiliates	$	931	$	1,052
Used vehicles held for sale		265		82
Deferred charges		120		131
Income taxes receivable		13		23
Derivative assets		58		70
Other assets		353		369
Total other assets	$	1,740	$	1,727

Other liabilities:

Unearned insurance premiums and contract revenues	$	1,528	$	1,467
Derivative liabilities		17		67
Accounts payable and accrued expenses		685		716
Deferred income		255		229
Other liabilities		192		126
Total other liabilities	$	2,677	$	2,605

The change in used vehicles held for sale includes non-cash activities of $183 million, $80 million and $58 million at March 31, 2013, March 31, 2012 and March 31, 2011, respectively.

116

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Debt

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


					Weighted average
					contractual interest rates
	March 31,				March 31,
(Dollars in millions)		2013		2012	2013		2012
Commercial paper	$	24,590	$	21,247	0.24	%	0.38	%
Unsecured notes and loans payable		46,707		41,415	2.19	%	2.63	%
Secured notes and loans payable		7,009		9,789	0.60	%	0.67	%
Carrying value adjustment		526		783
Total debt	$	78,832	$	73,234	1.43	%	1.70	%

The commercial paper balance includes unamortized premiums and discounts. Included in unsecured notes and loans payable are notes and loans denominated in various foreign currencies, unamortized premiums and discounts and the effects of foreign currency transaction gains and losses on non-hedged or de-designated foreign currency denominated notes and loans payable. At March 31, 2013 and March 31, 2012, the carrying values of these foreign currency denominated notes payable were $13.2 billion and $15.8 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments.

Additionally, the carrying value of our unsecured notes and loans payable at March 31, 2013 included $16.8 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 6.0 percent and $30.4 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, 2012 included $16.7 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 6.0 percent and $25.5 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.5 percent to 9.4 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.

Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt with interest rates ranging from 0.4 percent to 1.9 percent at March 31, 2013 and 0.5 percent to 1.9 percent at March 31, 2012. Secured notes and loans are issued by on-balance sheet securitization trusts, as further discussed in Note 10 – Variable Interest Entities. These notes are repayable only from collections on the underlying pledged retail finance receivables and the beneficial interests in investments in operating leases and from related credit enhancements.

117

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Debt (Continued)

The carrying value adjustment on debt represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged item for terminated fair value hedge accounting relationships. The carrying value adjustment on debt decreased by $257 million at March 31, 2013 compared to March 31, 2012 primarily as a result of a stronger U.S. dollar relative to certain other currencies in which some of our debt is denominated.

As of March 31, 2013, our commercial paper had a weighted average remaining maturity of 84 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.

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

	Future
Years ending March 31,	debt maturities
(Dollars in millions)
2014		$	40,709
2015			9,427
2016			10,739
2017			4,608
2018			7,197
Thereafter			6,152
Total debt		$	78,832

Interest payments on commercial paper and debt, including net settlements on interest rate swaps, were $1.3 billion, $1.6 billion and $1.7 billion in fiscal 2013, 2012 and 2011, respectively.

118

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Variable Interest Entities

Consolidated Variable Interest Entities

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

The following tables show the assets and liabilities related to our VIE securitization transactions that were included in our financial statements as of March 31, 2013 and March 31, 2012.

	March 31, 2013

			VIE Assets							VIE Liabilities
			Gross		Net
(Dollars in millions)	Restricted Cash		Securitized Assets			Securitized Assets		Other Assets		Debt		Other Liabilities

Retail finance receivables	$	458	$	7,669		$	7,556	$	3	$	6,738	$	1
Investments in operating leases		33		630			434		9		271		-
Total	$	491	$	8,299		$	7,990	$	12	$	7,009	$	1

	March 31, 2012

			VIE Assets							VIE Liabilities
			Gross		Net
(Dollars in millions)	Restricted Cash		Securitized Assets			Securitized Assets1		Other Assets1		Debt		Other Liabilities

Retail finance receivables	$	682	$	10,726		$	10,527	$	3	$	9,789	$	2
Total	$	682	$	10,726		$	10,527	$	3	$	9,789	$	2

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

119

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Variable Interest Entities (Continued)

Restricted cash represents collections from the underlying Securitized Assets and certain reserve deposits held by TMCC for the VIEs. Gross Securitized Assets represent finance receivables and beneficial interests in investments in operating leases securitized for the asset-backed securities issued. Net Securitized Assets are presented net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses. Other Assets represent used vehicles held for sale that were repossessed by or returned to TMCC for the benefit of the VIEs. The related debt of these consolidated VIEs is presented net of $466 million and $381 million of securities retained by TMCC at March 31, 2013 and March 31, 2012, respectively.

The assets of the VIEs and the restricted cash held by TMCC serve as the sole source of repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities.

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

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

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

Non-consolidated Variable Interest Entities

We provide lending to Toyota and Lexus dealers through the Toyota Dealer Investment Group’s Dealer Capital Program (“TDIG Program”) operated by our affiliate, TMS. Dealers participating in this program have been determined to be VIEs due to TMS’s equity position in the dealerships. At March 31, 2013 and March 31, 2012, $14 million and $15 million were due from these dealers, respectively, under the TDIG Program and are classified as Finance receivables, net in the Consolidated Balance Sheet. Less than $1 million was earned in revenues from these dealers under the TDIG Program during each of fiscal 2013, 2012 and 2011. We do not consolidate the dealerships in this program as we are not the primary beneficiary of these dealerships. Additionally, any exposure to loss is limited to the amount of the credit facility.

120

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – 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

Other Unsecured Credit Agreements

TMCC also has an uncommitted bank credit facility in the amount of $0.5 billion which matures in fiscal 2014.

Committed Revolving Asset-backed Commercial Paper Facility

121

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 – Pension and Other Benefit Plans

We are a participating employer in certain retirement and post-employment health care, life insurance, and other benefits sponsored by Toyota Motor Sales, U.S.A., Inc. (“TMS”), an affiliate. Costs of each plan are generally allocated to us by TMS based on relative payroll costs associated with participating or eligible employees at TMCC as compared to the plan as a whole.

Defined Benefit Plan

Our employees are generally eligible to participate in the Toyota Motor Sales, U.S.A., Inc. Pension Plan sponsored by TMS commencing on the first day of the month following hire and are vested after 5 years of continuous employment. Benefits payable under this non-contributory defined benefit pension plan are based, generally, upon the employees' years of credited service (up to a maximum of 25), the highest average annual compensation (as defined in the plan, which excludes, among other items, bonus/gifts) for any 60 consecutive month period out of the last 120 months of employment (the “Applicable Years”), and one-half of the average eligible bonus/gift payments for the Applicable Years, reduced by an estimated amount of social security benefits.

Pension costs allocated to TMCC for our employees in the TMS pension plan were $8 million for fiscal 2013, $7 million for fiscal 2012 and $9 million for fiscal 2011.

Defined Contribution Plan

Employees meeting certain eligibility requirements, as defined in the plan documents, may participate in the Toyota Motor Sales Savings Plan sponsored by TMS. Participants may elect to contribute up to 30 percent of their eligible pre-tax compensation, subject to Internal Revenue Code limitations. We match 66 2/3 cents for each dollar the participant contributes, up to 6 percent of base pay. Participants are vested 25 percent each year with respect to our contributions and are fully vested after four years.

TMCC employer contributions to the TMS savings plan were $7 million for fiscal 2013, 2012 and 2011.

Note 13 – Income Tax Provision

The provision for income taxes consisted of the following:

		Years ended March 31,
(Dollars in millions)		2013		2012		2011
Current
Federal	$	(15)	$	(33)	$	(26)
State		41		7		30
Foreign		6		9		10
Total current		32		(17)		14
Deferred
Federal		721		830		981
State		69		123		151
Foreign		2		1		4
Total deferred		792		954		1,136
Provision for income taxes	$	824	$	937	$	1,150

Note 13 – Income Tax Provision (Continued)

The net deferred income tax liabilities, by tax jurisdiction, are as follows:

		March 31,
(Dollars in millions)		2013		2012
Federal	$	5,763	$	5,009
State		475		406
Foreign		(2)		(3)
Net deferred income tax liability	$	6,236	$	5,412

Our net deferred income tax liability consists of the following deferred tax liabilities and assets:

		March 31,
(Dollars in millions)		2013		2012
Liabilities:
Lease transactions	$	6,509	$	6,379
State taxes		446		429
Mark-to-market of investments in marketable securities		210		48
Other		295		296
Deferred tax liabilities	$	7,460	$	7,152

Assets:
Provision for credit and residual value losses		347		369
Deferred costs and fees		167		155
Net operating loss and tax credit carryforwards		679		1,168
Other		47		52
Deferred tax assets		1,240		1,744
Valuation allowance		(16)		(4)
Net deferred tax assets	$	1,224	$	1,740

Net deferred income tax liability	$	6,236	$	5,412

			Commitment amount as of
(Dollars in millions)			March 31, 2013		March 31, 2012
Commitments:
	Commitments under credit facilities with vehicle and
		industrial equipment dealers	$	7,396	$	6,804
	Less: Funded commitments			6,290		5,758
	Unfunded commitments			1,106		1,046

	Minimum lease commitments			74		81
Total unfunded commitments				1,180		1,127
Guarantees and other contingencies:
	Guarantees of affiliate pollution control and solid waste
		disposal bonds		100		100
Total unfunded commitments and guarantees			$	1,280	$	1,227

Wholesale financing demand note facilities				11,475		10,258
Less: Funded facilities				8,284		6,616
Unfunded wholesale financing demand note facilities			$	3,191	$	3,642

	Future minimum
Years ending March 31,	lease payments
2014	$	19
2015		18
2016		16
2017		11
2018		7
Thereafter		3
Total	$	74

Note 15 – Related Party Transactions (Continued)

(Dollars in millions)		March 31, 2013			March 31, 2012
Assets:
Investments in marketable securities
	Investments in affiliates' commercial paper		$	2	$	-

Finance receivables, net
	Accounts receivable from affiliates		$	22	$	17
	Direct finance receivables from affiliates		$	6	$	4
	Notes receivable under home loan programs		$	18	$	19
	Deferred retail subvention income from affiliates		$	(699)	$	(598)

Investments in operating leases, net
	Leases to affiliates		$	7	$	4
	Deferred lease subvention income from affiliates		$	(604)	$	(592)

Other assets
	Notes receivable from affiliates		$	931	$	1,052
	Other receivables from affiliates		$	1	$	8
	Subvention support receivable from affiliates		$	88	$	65

Liabilities:
Debt
	Loans payable to affiliates		$	-	$	2,201

Other liabilities
	Unearned affiliate insurance premiums and contract revenues		$	235	$	273
	Accounts payable to affiliates		$	192	$	58
	Notes payable to affiliate		$	48	$	61

Shareholder’s Equity:
Dividends paid			$	1,487	$	741
Stock-based compensation			$	2	$	2

	Financing available			Amounts outstanding (USD) at
Affiliate	to TMCC		March 31, 2013			March 31, 2012

Toyota Credit Canada Inc.	CAD	1,500		$	-		$	-
Toyota Motor Finance (Netherlands) B.V.	Euro	1,000			-			-
Toyota Financial Services Americas Corporation	USD	200			48			61
Toyota Finance Australia Limited	USD	1,000			-			-
Total				$	48		$	61

	Financing made		Amounts outstanding (USD) at
Affiliate	available by TMCC		March 31, 2013		March 31, 2012

Toyota Financial Savings Bank	USD	400	$	35	$	-
Toyota Credit Canada Inc.	CAD	2,500		-		-
Toyota Motor Finance (Netherlands) B.V.	Euro	1,000		419		381
Toyota Financial Services Americas Corporation	USD	200		-		-
Toyota Financial Services Mexico, S.A. de C.V.	USD	500		-		-
Banco Toyota do Brasil	USD	300		127		121
Toyota Finance Australia Limited	USD	1,000		350		550
Total			$	931	$	1,052

		Finance		Insurance			Intercompany
(Dollars in millions)		operations		operations		eliminations			Total
Fiscal 2013:
Total financing revenues		$	7,219	$	-		$	25	$	7,244
Insurance earned premiums and contract revenues			-		596			(25)		571
Investment and other income			57		116			-		173
Total gross revenues			7,276		712			-		7,988

Less:
	Depreciation on operating leases		3,568		-			-		3,568
	Interest expense		940		-			-		940
	Provision for credit losses		121		-			-		121
	Operating and administrative expenses		734		177			-		911
	Insurance losses and loss adjustment expenses		-		293			-		293
	Provision for income taxes		730		94			-		824
Net income		$	1,183	$	148		$	-	$	1,331

Total assets		$	92,504	$	3,502		$	(704)	$	95,302

Note 16 – Segment Information (Continued)


		Finance		Insurance		Intercompany
(Dollars in millions)		operations		operations		eliminations		Total
Fiscal 2012:
Total financing revenues		$	7,413	$	-	$	16	$	7,429
Insurance earned premiums and contract revenues			-		620		(16)		604
Investment and other income			44		72		(3)		113
Total gross revenues			7,457		692		(3)		8,146

Less:
	Depreciation on operating leases		3,339		-		-		3,339
	Interest expense		1,303		-		(3)		1,300
	Provision for credit losses		(98)		-		-		(98)
	Operating and administrative expenses		703		154		-		857
	Insurance losses and loss adjustment expenses		-		325		-		325
	Provision for income taxes		860		77		-		937
Net income		$	1,350	$	136	$	-	$	1,486

Total assets		$	86,049	$	3,233	$	(369)	$	88,913


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

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

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

Note 17 – Selected Quarterly Financial Data (Unaudited)

		First		Second		Third		Fourth
(Dollars in millions)		Quarter		Quarter		Quarter		Quarter
Fiscal 2013:
Total financing revenue	$	1,797	$	1,811	$	1,815	$	1,821
Depreciation on operating leases		855		880		901		932
Interest expense		58		283		284		315
Net financing revenue		884		648		630		574
Other income		185		183		203		173
Provision for credit losses		16		3		88		14
Expenses		297		302		306		299
Income before income tax expense		756		526		439		434
Provision for income taxes		279		200		156		189
Net income	$	477	$	326	$	283	$	245

Fiscal 2012:
Total financing revenue	$	1,920	$	1,870	$	1,835	$	1,804
Depreciation on operating leases		825		829		844		841
Interest expense		457		149		163		531
Net financing revenue		638		892		828		432
Other income		190		144		212		171
Provision for credit losses		(203)		11		56		38
Expenses		283		295		286		318
Income before income tax expense		748		730		698		247
Provision for income taxes		283		279		266		109
Net income	$	465	$	451	$	432	$	138

Name	Age	Position
George E. Borst	64	Director, President and Chief Executive Officer, TMCC; Director, President and Chief Operating Officer, TFSA; Director, TFSC

Kiyohisa Funasaki	50	Director, Executive Vice President and Treasurer, TMCC; Director, Executive Vice President and Treasurer, TFSA

Michael Groff	58	Director, Senior Vice President, Sales, Product & Marketing, TMCC

Chris Ballinger	56	Senior Vice President and Chief Financial Officer, TMCC; Group Vice President and Chief Financial Officer, TFSA

Ron Chu	55	Vice President, Accounting & Tax, TMCC; Vice President, Tax, TFSA

Yoshimi Inaba	67	Director, TMCC; Director, Executive Chairman, TMS

Takuo Sasaki	56	Director, TMCC; Director, Chairman of the Board and Chief Executive Officer, TFSA; Director, TFSC; Managing Officer, TMC

James E. Lentz III	57	Director, TMCC; Director, President, and Chief Operating Officer, TMA Senior Managing Officer, TMC

Eiji Hirano	62	Director, TMCC; Director and Executive Vice President, TFSC

Takahiko Ijichi	60	Director, TMCC; Director, TMC

		Years ended March 31,
(Dollars in thousands)		2013		2012
Audit fees	$	6,710	$	6,345
Audit related fees		42		56
Tax fees		512		625
All other fees		134		740
Total fees	$	7,398	$	7,766

Date: June 14, 2013	By /S/ GEORGE E. BORST

	George E. Borst
	President and
	Chief Executive Officer

Signature	Title	Date

/s/ George E. Borst George E. Borst	Director, President and Chief Executive Officer (Principal Executive Officer)	June 14, 2013

/s/ Kiyohisa Funasaki Kiyohisa Funasaki	Executive Vice President, Treasurer and Director	June 14, 2013

/s/ Michael Groff Michael Groff	Director Senior Vice President, Sales, Product and Marketing	June 14, 2013

/s/ Chris Ballinger Chris Ballinger	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	June 14, 2013

/s/ Ron Chu Ron Chu	Vice President, Accounting and Tax (Principal Accounting Officer)	June 14, 2013

/s/ Yoshimi Inaba Yoshimi Inaba	Director	June 14, 2013

/s/ James E. Lentz III James E. Lentz III	Director	June 14, 2013

Takuo Sasaki	Director


Takahiko Ijichi	Director


Eiji Hirano	Director

Exhibit Number	Description	Method of Filing

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

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

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

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

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

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

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

4.2	Amended and Restated Agency Agreement, dated September 14, 2012, 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)