TOYOTA MOTOR CREDIT CORP - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - 302 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_31-2.htm
EX-31.1 - EXHIBIT 31.1 - 302 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_31-1.htm
EX-32.1 - EXHIBIT 32.1 - 906 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_32-1.htm
EX-32.2 - EXHIBIT 32.2 - 906 CERTIFICATION - TOYOTA MOTOR CREDIT CORP	exhibit_32-2.htm
EX-12.1 - EXHIBIT 12.1 - RATIO OF EARNINGS TO FIXED CHARGES - TOYOTA MOTOR CREDIT CORP	exhibit_12-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

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

EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

Yes x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes __ No __

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

Large accelerated filer __ Accelerated filer __

Non-accelerated filer x Smaller reporting company __

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

Yes __ No x

As of January 31, 2011, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services Americas Corporation.

Reduced Disclosure Format

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

TOYOTA MOTOR CREDIT CORPORATION

FORM 10-Q

For the quarter ended December 31, 2010

INDEX

INDEX
PART I	…………………………………………………………………………………………………3
Item 1	Financial Statements……………………………………………………………………………………………	3
	Consolidated Statement of Income……………………….……………………………………………………	3
	Consolidated Balance Sheet……………………………………………………………………………………	4
	Consolidated Statement of Shareholder’s Equity………..……………………………………………………	5
	Consolidated Statement of Cash Flows………………….…………………………………………………..…	6
	Notes to Consolidated Financial Statements……………………….……………………………………..……	7
Item 2	Management’s Discussion and Analysis…………………………………………………………………...….	59
Item 3	Quantitative and Qualitative Disclosures About Market Risk………………………………………....………	86
Item 4	Controls and Procedures......................................................................................................................................	86
PART II	…………………………………………………………………………………………………87
Item 1	Legal Proceedings………………………………………………………………………………………………	87
Item 1A	Risk Factors…………………………………………………………………..…………………………………	88
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds……………………………..……………………	88
Item 3	Defaults Upon Senior Securities…………………………………………………………….…………………	88
Item 4	(Removed and Reserved)………………………………………………………………………………………	88
Item 5	Other Information………………………………………………………………………………………………	88
Item 6	Exhibits…………………………………………………………………………………………………………	88
Signatures	………………………………………………………………………………………………………………….	89
Exhibit Index	………………………………………………………………………………………………………………….	90

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

			Three Months Ended				Nine Months Ended
			December 31,				December 31,
(Dollars in millions)			2010		2009		2010		2009
Financing revenues:
	Operating lease	$	1,236	$	1,179	$	3,652	$	3,550
	Retail		690		778		2,140		2,349
	Dealer		97		80		287		251
Total financing revenues			2,023		2,037		6,079		6,150

	Depreciation on operating leases		872		897		2,507		2,626
	Interest expense		234		438		1,318		1,555
Net financing revenues			917		702		2,254		1,969

Insurance earned premiums and contract revenues			141		112		396		336
Investment and other income, net			118		66		207		171
Net financing revenues and other revenues			1,176		880		2,857		2,476

Expenses:
	Provision for credit losses		(176)		(5)		(479)		334
	Operating and administrative		278		192		785		543
	Insurance losses and loss adjustment expenses		61		51		177		164
Total expenses			163		238		483		1,041

Income before income taxes			1,013		642		2,374		1,435
Provision for income taxes			387		248		909		555

Net income		$	626	$	394	$	1,465	$	880

See Accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)

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

Cash and cash equivalents		$	4,297	$	4,343
Restricted cash			440		173
Investments in marketable securities			3,192		2,521
Finance receivables, net			57,909		55,087
Investments in operating leases, net			18,908		17,151
Other assets			2,960		1,918
Total assets		$	87,706	$	81,193

LIABILITIES AND SHAREHOLDER'S EQUITY

Debt		$	73,714	$	69,179
Deferred income taxes			4,179		3,290
Other liabilities			3,359		3,451
Total liabilities			81,252		75,920

Commitments and contingencies (See Note 13)

Shareholder's equity:
Capital stock, no par value and $10,000 par value (100,000 shares
	authorized; 91,500 issued and outstanding) at December 31, and
	March 31, 2010, respectively		915		915
Additional paid-in-capital			1		1
Accumulated other comprehensive income			86		104
Retained earnings			5,452		4,253
Total shareholder's equity			6,454		5,273
Total liabilities and shareholder's equity		$	87,706	$	81,193

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

	(Dollars in millions)	December 31, 2010
	ASSETS
	Finance receivables, net	$	7,571
	Total assets	$	7,571

	LIABILITIES
	Debt	$	6,787
	Other liabilities		2
	Total liabilities	$	6,789

See Accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY
(Unaudited)

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

BALANCE AT MARCH 31, 2009		$	915	$	1	$	(63)	$	3,240	$	4,093

Net income for the nine months ended
	December 31, 2009		-		-		-		880		880
Net unrealized gain on available-for-sale
	marketable securities, net of tax provision
	of $78 million		-		-		127		-		127
Reclassification adjustment for net loss
	included in net income, net of tax benefit
	of $5 million		-		-		8		-		8
Total comprehensive income			-		-		135		880		1,015

BALANCE AT DECEMBER 31, 2009		$	915	$	1	$	72	$	4,120	$	5,108

BALANCE AT MARCH 31, 2010		$	915	$	1	$	104	$	4,253	$	5,273

Net income for the nine months ended
	December 31, 2010		-		-		-		1,465		1,465
Net unrealized loss on available-for-sale
	marketable securities, net of tax benefit
	of $9 million		-		-		(16)		-		(16)
Reclassification adjustment for net gain
	included in net income, net of tax provision
	of $1 million		-		-		(2)		-		(2)
Total comprehensive income			-		-		(18)		1,465		1,447
Dividends			-		-		-		(266)		(266)
BALANCE AT DECEMBER 31, 2010		$	915	$	1	$	86	$	5,452	$	6,454

See Accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
				Nine Months Ended December 31,
(Dollars in millions)				2010		2009
Cash flows from operating activities:
	Net income			$	1,465	$	880
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			2,591		2,714
		Recognition of deferred income			(929)		(758)
		Provision for credit losses			(479)		334
		Amortization of deferred origination costs			207		248
		Fair value adjustments and amortization of premiums and			1,537		3,480
			discounts associated with debt, net
	Net gain from sale of marketable securities				(40)		(7)
	Other-than-temporary impairment on marketable securities				-		7
		Net change in:
			Restricted cash		(267)		-
			Derivative assets		(745)		(629)
			Other assets		64		(142)
			Deferred income taxes		899		693
			Derivative liabilities		(285)		(945)
			Other liabilities		179		419
Net cash provided by operating activities					4,197		6,294
Cash flows from investing activities:
	Purchase of investments in marketable securities				(3,212)		(880)
	Disposition of investments in marketable securities				2,553		671
	Acquisition of finance receivables (including term loans)				(17,478)		(15,954)
	Collection of finance receivables (including term loans)				16,262		15,098
	Net change in dealer receivables				(942)		799
	Acquisition of investments in operating leases				(7,888)		(5,009)
	Disposals of investments in operating leases				4,089		3,641
	Advances to affiliates (Note 15)				(1,892)		(1,731)
	Repayments from affiliates (Note 15)				1,525		2,835
	Other, net				(20)		(15)
Net cash used in investing activities					(7,003)		(545)
Cash flows from financing activities:
	Proceeds from issuance of debt				13,999		5,424
	Payments on debt				(12,382)		(13,831)
	Net change in commercial paper				1,393		(853)
	Advances from affiliates (Note 15)				16		2,001
	Repayments to affiliates (Note 15)				-		(28)
	Dividends paid to TFSA (Note 15)				(266)		-
Net cash provided by (used in) financing activities					2,760		(7,287)
Net decrease in cash and cash equivalents					(46)		(1,538)
Cash and cash equivalents at the beginning of the period					4,343		6,298
Cash and cash equivalents at the end of the period				$	4,297	$	4,760
Supplemental disclosures:
	Interest paid			$	1,322	$	1,636
	Income taxes paid, net			$	44	$	9

See Accompanying Notes to Consolidated Financial Statements.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data

Basis of Presentation

The information furnished in these unaudited interim financial statements for the three and nine months ended December 31, 2010 and 2009 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, the unaudited financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and nine months ended December 31, 2010 do not necessarily indicate the results that may be expected for the full fiscal year.

These financial statements should be read in conjunction with the Consolidated Financial Statements, significant accounting policies, and other notes to the Consolidated Financial Statements included in Toyota Motor Credit Corporation’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2010 (“fiscal 2010”), which was filed with the Securities and Exchange Commission (“SEC”) on June 10, 2010. 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.

Summary of Significant Accounting Policies

Investments in Marketable Securities

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

Other-Than-Temporary Impairment

We periodically evaluate unrealized losses on our AFS debt securities portfolio for other-than-temporary impairment (“OTTI”). 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 is recognized in Investment and Other Income, net in the Consolidated Statement of Income, while the remainder of the loss is recognized in AOCI. The credit loss component recognized in Investment and Other Income, net in the Consolidated Statement of Income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using a credit cash flow analysis for debt securities.

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

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

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 portfolio.

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

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

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

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

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

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

Retail Loan Portfolio Segment

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

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

Commercial Portfolio Segment

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

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

Dealer Products Portfolio Segment

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

We evaluate the dealer portfolio by first grouping dealer financing 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.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

Accounting for the Allowance for Credit Losses and Impaired Receivables

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

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

Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. This change resulted in an increase in charge-offs of $38 million for the quarter ended March 31, 2010.

Finance Receivables

We record our finance receivables, which consist of the dealer products portfolio segment and homogeneous portfolio segments at the amount outstanding, including accrued interest and deferred costs, net of the allowance for credit losses, unearned income and any net deferred fees.

Impaired Receivables

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

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

Nonaccrual Policy

Dealer Products Portfolio Segment

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

Homogeneous Portfolio Segments

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

Reclassifications

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

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

New Accounting Guidance

In January 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that temporarily delayed the effective date for disclosures about troubled debt restructurings as part of the credit quality of finance receivables and the allowance for credit losses disclosures. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

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

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

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

Recently Adopted Accounting Guidance

On December 31, 2010, we adopted new FASB accounting guidance requiring additional disclosures about the credit quality of finance receivables and the allowance for credit losses. The new disclosures provide transparency regarding the nature of credit risk inherent in finance receivables, how credit risk is analyzed and assessed in arriving at the allowance for credit losses, as well as the reasons for changes in the allowance for credit losses. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

On April 1, 2010, we adopted new FASB accounting guidance for transfers of financial assets. The new accounting guidance removes the concept of a qualifying special purpose entity and revises the accounting criteria for transfer of financial assets to be considered a sale. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

On April 1, 2010, we adopted new FASB accounting guidance on consolidation of variable interest entities. The adoption of this accounting guidance did not have a material impact on our consolidated financial condition or results of operations.

On March 31, 2010, we adopted new FASB accounting guidance requiring disclosure of gross transfers in and out of Level 3 as well as transfers between Levels 1 and 2 of the fair value hierarchy.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements

Fair Value Measurement – Definition and Hierarchy

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

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

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

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

The use of observable and unobservable inputs is reflected in the fair value hierarchy assessment disclosed in the tables within this section. 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.

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

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Fair Value Methods

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

Valuation Adjustments

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

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

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

Valuation Methods

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

Cash Equivalents

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

Marketable Securities

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

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

- 14 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

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

Derivatives

As part of our risk management strategy, we enter into derivative transactions to mitigate our interest rate and foreign currency exposures. These derivative transactions are considered over-the-counter for valuation purposes. All of our derivative counterparties to which we had credit exposure at December 31, 2010 were assigned investment grade ratings by a credit rating organization.

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

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

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

As of December 31, 2010, we reduced our derivative liabilities by $1 million to account for our own non-performance risk. Derivative assets were reduced $19 million to account for counterparty credit risk. As of March 31, 2010, we reduced our derivative liabilities by $4 million to account for our own non-performance risk. Derivative assets were reduced $10 million to account for counterparty credit risk.

- 15 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Finance Receivables

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

- 16 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

The following table summarizes our financial assets and liabilities that were accounted for at fair value as of December 31, 2010, by level within the fair value hierarchy:

					Fair value measurements on a recurring basis
										Counterparty
											netting &		Fair
(Dollars in millions)					Level 1		Level 2		Level 3		collateral1		value
Cash equivalents				$	4,022	$		$	-	$	-	$	4,022
	Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			37		61		-		-		98
		Municipal debt securities			-		15		-		-		15
		Certificates of deposit and commercial paper			-		600		-		-		600
		Foreign government debt securities			-		7		-		-		7
		Corporate debt securities			-		110		-		-		110
		Mortgage-backed securities:
			U.S. government agency		-		67		-		-		67
			Non-agency residential		-		8		-		-		8
			Non-agency commercial		-		13		1		-		14
		Asset-backed securities			-		64		-		-		64
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		38		-		-		38
			U.S. government sector fund		-		331		-		-		331
			Municipal sector fund		-		42		-		-		42
			Investment grade corporate sector fund		-		310		-		-		310
			High-yield sector fund		-		23		-		-		23
			Real return sector fund		-		75		-		-		75
			Mortgage sector fund		-		768		-		-		768
			Asset-backed securities sector fund		-		38		-		-		38
			Emerging market sector fund		-		57		-		-		57
			International sector fund		-		135		-		-		135
		Equity mutual fund – S&P 500 index			392		-		-		-		392
	Available-for-sale securities total				429		2,762		1		-		3,192
	Derivative assets: 2
		Foreign currency swaps			-		4,165		117		-		4,282
		Interest rate swaps			-		254		16		-		270
		Counterparty netting and collateral1			-		-		-		(3,223)		(3,223)
	Derivative assets total				-		4,419		133		(3,223)		1,329
	Embedded derivative assets				-		-		1		-		1
Total assets 3					4,451		7,181		135		(3,223)		8,544
	Derivative liabilities: 2
		Foreign currency swaps			-		(298)		(6)		-		(304)
		Interest rate swaps			-		(1,152)		(4)		-		(1,156)
		Interest rate forwards			-		(1)		-		-		(1)
		Counterparty netting and collateral1			-		-		-		1,235		1,235
	Derivative liabilities total				-		(1,451)		(10)		1,235		(226)
	Embedded derivative liabilities				-		-		(56)		-		(56)
Total liabilities 3					-		(1,451)		(66)		1,235		(282)
Total net assets				$	4,451	$	5,730	$	69	$	(1,988)	$	8,262

1	We meet the accounting guidance for setoff criteria and elected to net derivative assets and derivative liabilities and the related cash collateral received and paid when legally enforceable master netting agreements exist.

2	Includes derivative asset counterparty credit valuation adjustment of $19 million and derivative liability non-performance credit valuation adjustment of $1 million.

3	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.

- 17 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

The following table summarizes our financial assets and liabilities that were accounted for at fair value as of March 31, 2010, by level within the fair value hierarchy:

					Fair value measurements on a recurring basis1
										Counterparty			Fair
(Dollars in millions)					Level 1		Level 2		Level 3	netting & collateral2			value
Cash equivalents				$	4,256	$	-	$	-	$	-	$	4,256
	Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			25		24		-		-		49
		Municipal debt securities			-		6		-		-		6
		Certificates of deposit and commercial paper			-		50		-		-		50
		Foreign government debt securities			-		22		-		-		22
		Corporate debt securities			-		93		-		-		93
		Mortgage-backed securities:
			U.S. government agency		-		120		-		-		120
			Non-agency residential		-		8		-		-		8
			Non-agency commercial		-		23		-		-		23
		Asset-backed securities			-		641		3		-		644
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		32		-		-		32
			U.S. government sector fund		-		250		-		-		250
			Municipal sector fund		-		39		-		-		39
			Investment grade corporate sector fund		-		260		-		-		260
			High-yield sector fund		-		22		-		-		22
			Mortgage sector fund		-		360		-		-		360
			Asset-backed securities sector fund		-		30		-		-		30
			Emerging market sector fund		-		37		-		-		37
			International sector fund		-		117		-		-		117
		Equity mutual fund – S&P 500 index			359		-		-		-		359
	Available-for-sale securities total				384		2,134		3		-		2,521
	Derivative assets: 3
		Foreign currency swaps			-		2,454		158		-		2,612
		Interest rate swaps			-		288		39		-		327
		Counterparty netting and collateral2			-		-		-		(2,358)		(2,358)
	Derivative assets total				-		2,742		197		(2,358)		581
	Embedded derivative assets				-		-		4		-		4
Total assets 4					4,640		4,876		204		(2,358)		7,362
	Derivative liabilities: 3
		Foreign currency swaps			-		(370)		(89)		-		(459)
		Interest rate caps			-		(1)		-		-		(1)
		Interest rate swaps			-		(1,180)		(23)		-		(1,203)
		Counterparty netting and collateral2			-		-		-		1,130		1,130
	Derivative liabilities total				-		(1,551)		(112)		1,130		(533)
	Embedded derivative liabilities				-		-		(34)		-		(34)
Total liabilities 4					-		(1,551)		(146)		1,130		(567)
Total net assets				$	4,640	$	3,325	$	58	$	(1,228)	$	6,795

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

2 We meet the accounting guidance for setoff criteria and elected to net derivative assets and derivative liabilities and the related cash collateral received and paid when legally

enforceable master netting agreements exist.

3 Includes derivative asset counterparty credit valuation adjustment of $10 million and derivative liability non-performance credit valuation adjustment of $4 million.

4 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.

- 18 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

The determination in classifying a financial instrument within Level 3 of the fair value hierarchy is based upon the significance of the unobservable factors to the overall fair value measurement. There were no transfers between Level 1 and Level 2 securities during the three and nine months ended December 31, 2010 and 2009. The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended December 31, 2010 and 2009:

Three Months Ended December 31, 2010

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
															Total net
			Available-for-sale												assets
			securities					Derivatives							(liabilities)
			Non-agency
			commercial			Available-						Embedded
			mortgage-			for-sale		Interest		Foreign		derivative
			backed			securities		rate		currency		liabilities,	Total
(Dollars in millions)			securities			total		swaps		swaps		net	Derivatives
Fair value, October 1, 2010			$	-	$	-	$	20	$	125	$	(49)	$	96	$	96
Total gains/(losses)
		Included in earnings		-		-		(5)		12		(6)		1		1
		Included in other
		comprehensive income		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		1		1		-		-		-		-		1
		Settlements		-		-		(3)		(15)		-		(18)		(18)
Transfers in to Level 31				-		-		-		-		-		-		-
Transfers out of Level 31				-		-		-		(11)		-		(11)		(11)
Fair value, December 31, 2010			$	1	$	1	$	12	$	111	$	(55)	$	68	$	69
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							$	(5)	$	14	$	(6)	$	3	$	3

1	Transfers in and transfers out are recognized at the end of the reporting period.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Three Months Ended December 31, 2009

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																	Total net
																	assets
			Available-for-sale securities							Derivatives1							(liabilities)
			Non-agency
			residential				Available-							Embedded
			mortgage-			Asset-	for-sale		Interest		Foreign			derivative
			backed			backed	securities		rate		currency			liabilities,		Total
(Dollars in millions)			securities		securities		total		swaps		swaps			net	Derivatives
Fair value, October 1, 2009			$	1	$	1	$	2	$	24	$	120	$	(29)	$	115	$	117
Total gains/(losses)
		Included in earnings		-		-		-		(20)		(11)		(1)		(32)		(32)
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		-		-		-		-		-		-
		Issuances				-		-		-		-		-		-		-
		Sales		(1)		(1)		(2)		-		-		-		-		(2)
		Settlements		-		-		-		(15)		(30)		-		(45)		(45)
Transfers in to Level 32				-		-		-		-		-		-		-		-
Transfers out of Level 32				-		-		-		-		-		-		-		-
Fair value, December 31, 2009			$	-	$	-	$	-	$	(11)	$	79	$	(30)	$	38	$	38
The amount of total gains or
(losses) for the period included
in earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date									$	(11)	$	(12)	$	(2)	$	(25)	$	(25)

1	Prior period amounts have been reclassified to conform to the current period presentation.
2	Transfers in and transfers out are recognized at the end of the reporting period.

- 20 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Nine Months Ended December 31, 2010

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																	Total net
																	assets
			Available-for-sale securities						Derivatives								(liabilities)
			Non-agency
			commercial				Available-						Embedded
			mortgage-		Asset-		for-sale		Interest		Foreign		derivative
			backed		backed		securities		rate		currency		liabilities,		Total
(Dollars in millions)			securities		securities		total		swaps		swaps		net		Derivatives
Fair value, April 1, 2010			$	-	$	3	$	3	$	16	$	69	$	(30)	$	55	$	58
Total gains/(losses)
		Included in earnings		-		-		-		67		315		(25)		357		357
		Included in other comprehensive income
		Included in other comprehensive income		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		1		-		1		-		-		-		-		1
		Issuances		-		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-		-
		Settlements		-		-		-		(36)		(59)		-		(95)		(95)
Transfers in to Level 31				-		-		-		-		-		-		-		-
Transfers out of Level 31				-		(3)		(3)		(35)		(214)		-		(249)		(252)
Fair value, December 31, 2010			$	1	$	-	$	1	$	12	$	111	$	(55)	$	68	$	69
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									$	13	$	148	$	(27)	$	134	$	134

1	Transfers in and transfers out are recognized at the end of the reporting period.

- 21 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Nine Months Ended December 31, 2009

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																	Total net
			Available-for-sale														assets
			securities							Derivatives1							(liabilities)
			Non-agency
			residential				Available-							Embedded
			mortgage-			Asset-	for-sale		Interest			Foreign		derivative
			backed			backed	securities		rate			currency		liabilities,		Total
(Dollars in millions)			securities			securities	total		swaps			swaps		net	Derivatives
Fair value, April 1, 2009			$	-	$	-	$	-	$	88	$	(145)	$	(1)	$	(58)	$	(58)
Total gains/(losses)
		Included in earnings		-		-		-		(31)		275		(29)		215		215
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Issuances		-		-		-		-		-		-		-		-
		Sales		-		(1)		(1)		-		-		-		-		(1)
		Settlements		-		-		-		(58)		(51)		-		(109)		(109)
Transfers in to Level 32				1		1		2		-		-		-		-		2
Transfers out of Level 32				(1)		-		(1)		(10)		-		-		(10)		(11)
Fair value, December 31, 2009			$	-	$	-	$	-	$	(11)	$	79	$	(30)	$	38	$	38
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									$	(16)	$	263	$	(31)	$	216	$	216

1		Prior period amounts have been reclassified to conform to the current period presentation.
2		Transfers in and transfers out are recognized at the end of the reporting period.

Significant Changes to Level 3 Assets During the Period

Level 3 assets net, reported at fair value on a recurring basis increased $11 million and decreased $27 million for the first nine months and third quarter of fiscal year ending March 31, 2011 (“fiscal 2011”), respectively. The increase of $11 million is primarily attributable to an increase in the fair value of derivative assets, specifically foreign currency derivatives, due to the weakening of the U.S. dollar during the first nine months of the fiscal 2011. The decrease of $27 million is primarily attributable to settlements of derivative assets classified as Level 3. Certain derivatives previously categorized as Level 3 in prior periods were valued using observable inputs and were transferred into Level 2 during the quarter ended December 31, 2010.

- 22 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis

Certain assets are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances, for example, when there is evidence of impairment. For these assets, we disclose the fair value on a nonrecurring basis and any changes in fair value during the reporting period.

The following tables present the financial instruments carried on the Consolidated Balance Sheet by caption and by level within the fair value hierarchy for which a fair value measurement on a nonrecurring basis has been recorded during the reporting period:

Fair value measurements on a nonrecurring basis as of December 31, 2010:

(Dollars in millions)		Level 1		Level 2		Level 3	Total fair value
Finance receivables, net	$	-	$	-	$	166	$	166
Total assets at fair value on a nonrecurring basis	$	-	$	-	$	166	$	166


Fair value measurements on a nonrecurring basis as of March 31, 2010:

(Dollars in millions)		Level 1		Level 2		Level 3	Total fair value
Finance receivables, net	$	-	$	-	$	143	$	143
Total assets at fair value on a nonrecurring basis	$	-	$	-	$	143	$	143

Nonrecurring Fair Value Changes

The following table presents the total change in fair value of financial instruments measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Consolidated Statement of Income:

	Three Months Ended				Nine Months Ended
	December 31,						December 31,
(Dollars in millions)		2010		2009			2010		2009
Finance receivables, net	$	-	$	(32)		$	22	$	(49)
Total nonrecurring fair value gain (loss)	$	-	$	(32)		$	22	$	(49)

- 23 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3 - Fair Value of Financial Instruments

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

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

Finance Receivables

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

Commercial Paper

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

Unsecured Notes and Loans Payable

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

- 24 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3 - Fair Value of Financial Instruments (Continued)

Secured Notes and Loans Payable

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

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

			December 31, 2010				March 31, 2010
			Carrying				Carrying
(Dollars in millions)			value		Fair value		value		Fair value
Financial assets
	Finance receivables, net1	$	57,637	$	59,223	$	54,775	$	56,568

Financial liabilities
	Commercial paper	$	20,866	$	20,866	$	19,466	$	19,466
	Unsecured notes and loans payable2	$	46,061	$	46,625	$	46,713	$	47,189
	Secured notes and loans payable	$	6,787	$	6,793	$	3,000	$	3,006

1	Finance receivables are presented net of allowance for credit losses. Amounts exclude related party transactions and direct finance leases.

Carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value

adjustment. Also included in unsecured notes and loans payable is $4.2 billion and $4.1 billion of loans payable to affiliates at

December 31, 2010 and March 31, 2010, respectively, that are carried at amounts that approximate fair value.

- 25 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities

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

				December 31, 2010
				Amortized		Unrealized		Unrealized			Fair
(Dollars in millions)				cost		gains		losses			value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	99	$	1	$	(2)	$	98
		Municipal debt securities			15		-		-		15
		Certificates of deposit and commercial paper			600		-		-		600
		Foreign government debt securities			7		-		-		7
		Corporate debt securities			105		5		-		110
		Mortgage-backed securities:
			U.S. government agency		66		2		(1)		67
			Non-agency residential		7		1		-		8
			Non-agency commercial		14		-		-		14
		Asset-backed securities			64		-		-		64
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		37		1		-		38
			U.S. government sector fund		377		-		(46)		331
			Municipal sector fund		39		3		-		42
			Investment grade corporate sector fund		277		33		-		310
			High-yield sector fund		15		8		-		23
			Real return sector fund		77		-		(2)		75
			Mortgage sector fund		770		-		(2)		768
			Asset-backed securities sector fund		34		4		-		38
			Emerging market sector fund		56		1		-		57
			International sector fund		136		2		(3)		135
		Equity mutual fund – S&P 500 Index			258		134		-		392
Total investments in marketable securities				$	3,053	$	195	$	(56)	$	3,192

- 26 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Total fair value of certificates of deposit and commercial paper at December 31, and March 31, 2010 was $600 million and $50 million, respectively. The balance at March 31, 2010 includes commercial paper issued by an affiliated entity with a fair value of $50 million.

Total fair value of mortgage-backed securities at December 31, and March 31, 2010 was $89 million and $151 million, respectively. Total fair value of the mortgage sector fund at December 31, and March 31, 2010 was $768 million and $360 million, respectively. The total fair value related to subprime mortgage-backed securities was $39 million and $37 million at December 31, and March 31, 2010, respectively.

Total fair value of asset-backed securities at December 31, and March 31, 2010 was $64 million and $644 million, respectively. The majority of our asset-backed securities is secured by automobile related receivables. The fair value of asset-backed securities with collateral consisting primarily of receivables relating to Toyota vehicles was $45 million and $627 million at December 31, and March 31, 2010, respectively.

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

- 27 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities (Continued)

OTTI Recognition and Measurement

As of December 31, 2010, there were no AFS debt or equity securities deemed to be other-than-temporarily impaired, and therefore, all unrealized losses on AFS debt and equity securities were recognized in AOCI.

There were no other-than-temporary impairment losses for the three and nine months ended December 31, 2010. The following table presents other-than-temporary impairment losses for the three and nine months ended December 31, 2009:

		Three Months Ended						Nine Months Ended
		December 31, 2009						December 31, 2009
		Non-agency						Non-agency
		residential						residential
		mortgage-		Asset-				mortgage-		Asset-
		backed		backed				backed		backed
(Dollars in millions)		securities		securities		Total		securities		securities		Total
Total other-than-temporary impairment losses		$	-	$	1	$	1	$	5	$	2	$	7
Less: Portion of loss recognized in other comprehensive income (pre-tax)1			-		-		-		-		-		-
Net impairment losses recognized in income2		$	-	$	1	$	1	$	5	$	2	$	7

1	Represents the non-credit component impact of the other-than-temporary impairment on AFS debt securities.
2	Represents the other-than-temporary impairment on AFS debt and equity securities included in Investment and other
	income, net in the Consolidated Statement of Income.

Unrealized Losses on Securities

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

		December 31, 2010
	Less than 12 months				12 months or more					Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(Dollars in millions)	value		losses		value		losses		value		losses
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations	$	75	$	(2)	$	-	$	-	$	75	$	(2)
U.S. government agency mortgage-backed
securities		23		(1)		-		-		23		(1)
Equity instruments:
U.S. government sector fund		331		(46)		-		-		331		(46)
Real return sector fund		75		(2)		-		-		75		(2)
Mortgage sector fund		768		(2)		-		-		768		(2)
International sector fund		108		(3)		-		-		108		(3)
Total investments in marketable
securities	$	1,380	$	(56)	$	-	$	-	$	1,380	$	(56)

- 28 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities (Continued)

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

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

- 29 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Investments in Marketable Securities (Continued)

Contractual Maturities and Yields

The contractual maturities of investments in marketable securities at December 31, 2010 are summarized in the following table (dollars in millions). Prepayments may cause actual maturities to differ from scheduled maturities.

		Due in 1 Year or				Due after 1 Year				Due after 5 Years
Fair Value of Available-			Less			through 5 Years				through 10 Years				Due after 10 Years					Total
for-Sale Securities:		Amount		Yield1		Amount		Yield1		Amount		Yield1		Amount		Yield1		Amount		Yield1
Debt instruments:
U.S. government and
	agency obligations	$	9	0.01	%	$	14	1.87	%	$	73	2.74	%	$	2	5.8	%	$	98	2.49	%
Municipal debt securities			-	-			-	-			-	-			15	5.62			15	5.62
Certificates of deposit and
	commercial paper		600	0.08			-	-			-	-			-	-			600	0.08
Foreign government debt
	securities		2	1.87			3	2.93			-	-			2	2.39			7	2.75
Corporate debt
	securities		2	3.20			57	4.45			44	4.76			7	5.89			110	4.64
Mortgage-backed securities:
	U.S. government agency		-	-			-	-			5	5.03			62	4.85			67	4.87
	Non-agency residential		-	-			-	-			-	-			8	13.84			8	13.84
	Non-agency commercial		-	-			-	-			-	-			14	4.95			14	4.95
Asset-backed securities			-	-			57	2.30			1	1.38			6	0.72			64	2.24
Debt instruments total			613	2.54			131	2.79			123	3.72			116	5.39			983	3.47

Equity instruments:
Fixed income mutual funds																			1,817	9.87
Equity mutual funds																			392	2.95
Equity instruments total																			2,209	9.00

Total fair value		$	613	2.54	%	$	131	2.79	%	$	123	3.72	%	$	116	5.39	%	$	3,192	8.70	%
Total amortized cost		$	613			$	127			$	124			$	112			$	3,053 2

1	Yields are calculated based on average outstanding amortized cost of the securities.
2	Includes amortized cost on equity securities that do not have a maturity date.

Securities on Deposit

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

- 30 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net

Finance receivables, net consisted of the following:

(Dollars in millions)	December 31, 2010		March 31, 20103
Retail receivables	$	38,612	$	42,078
Pledged retail receivables1		7,684		3,037
Dealer financing		12,583		11,550
		58,879		56,665
Deferred origination costs		654		666
Unearned income		(848)		(764)
Allowance for credit losses
Retail and pledged retail receivables		(628)		(1,269)
Dealer financing		(148)		(211)
Total allowance for credit losses		(776)		(1,480)
Finance receivables, net2	$	57,909	$	55,087

1 Represents finance 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.

2 Includes direct finance lease receivables, net of $232 million and $265 million at December 31, and March 31, 2010, respectively.

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

Credit Quality Indicators

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

Homogeneous Portfolio Segments

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

Individual borrower accounts for each of the two classes of finance receivables (retail loans and commercial finance) 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.

- 31 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net (Continued)

Dealer Products Portfolio Segment

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

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

The four credit quality indicators are:

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

·	Credit Watch – Account designated for elevated attention.

·	At Risk – There is a probability that account default exists based on qualitative and quantitative factors.

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

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

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

Aging of finance receivables:
	Current	$	44,777	$	43,518	$	433	$	544
	31 - 60 days past due		816		779		25		31
	61-90 days past due		176		164		6		14
	Greater than 90 days past due		60		58		3		7
Total		$	45,829	$	44,519	$	467	$	596

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

Credit quality indicators:
	Performing	$	6,311	$	5,156	$	3,368	$	3,140	$	1,135	$	1,099
	Credit Watch		788		1,018		488		536		180		172
	At Risk		89		138		189		239		19		14
	Default		8		18		2		13		6		7
Total		$	7,196	$	6,330	$	4,047	$	3,928	$	1,340	$	1,292

- 32 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net (Continued)

Impaired Finance Receivables

The following table summarizes the information related to our recorded investment (unpaid principal balance plus accrued interest less charge-offs against the allowance for credit losses, if any) in impaired loans by class of finance receivable as of December 31, 2010 and March 31, 2010:

	Recorded Investment				Unpaid Principal Balance				Allowance
(Dollars in millions)	December 31, 2010		March 31, 2010		December 31, 2010		March 31, 2010		December 31, 2010		March 31, 2010

Impaired account balances with an allowance:

Wholesale	$	22	$	61	$	22	$	61	$	2	$	14
Real estate		138		135		138		135		49		63
Working capital		25		16		25		16		18		14
Total	$	185	$	212	$	185	$	212	$	69	$	91

Impaired account balances without an allowance:

Wholesale	$	46	$	8	$	46	$	8	$	-	$	-
Real estate		1		13		1		13		-		-
Working capital		3		1		3		1		-		-
Total	$	50	$	22	$	50	$	22	$	-	$	-

Total impaired account balances:

Wholesale	$	68	$	69	$	68	$	69	$	2	$	14
Real estate		139		148		139		148		49		63
Working capital		28		17		28		17		18		14
Total	$	235	$	234	$	235	$	234	$	69	$	91

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

- 33 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Finance Receivables, Net (Continued)

The following table summarizes the average recorded investment in impaired loans and the related interest income recognized by class of finance receivable for the three and nine months ended December 31, 2010 and 2009:

		Average Recorded Investment								Interest Income Recognized
		Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended December 31,				Nine Months Ended December 31,
(Dollars in millions)		2010		2009		2010		2009		2010		2009		2010		2009

Impaired account balances with an allowance:

Wholesale	$	18	$	73	$	18	$	83	$	-	$	1	$	-	$	1
Real estate		138		184		139		183		1		2		4		3
Working capital		20		19		17		21		-		-		1		-
Total	$	176	$	276	$	174	$	287	$	1	$	3	$	5	$	4

Impaired account balances without an allowance:

Wholesale	$	47	$	3	$	47	$	4	$	1	$	-	$	2	$	1
Real estate		2		2		2		3		-		-		-		1
Working capital		3		4		3		4		-		-		-		1
Total	$	52	$	9	$	52	$	11	$	1	$	-	$	2	$	3

Total impaired account balances:

Wholesale	$	65	$	76	$	65	$	87	$	1	$	1	$	2	$	2
Real estate		140		186		141		186		1		2		4		4
Working capital		23		23		20		25		-		-		1		1
Total	$	228	$	285	$	226	$	298	$	2	$	3	$	7	$	7

- 34 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 6 – Investments in Operating Leases, Net

Investments in operating leases, net consisted of the following:

(Dollars in millions)	December 31, 2010		March 31, 2010
Vehicles	$	24,830	$	23,460
Equipment and other		811		812
		25,641		24,272
Deferred origination fees		(169)		(123)
Deferred income		(765)		(577)
Accumulated depreciation		(5,665)		(6,196)
Allowance for credit losses		(134)		(225)
Investments in operating leases, net	$	18,908	$	17,151

- 35 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Allowance for Credit Losses

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

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
(Dollars in millions)		2010		2009		2010		2009
Allowance for credit losses at beginning of period	$	1,189	$	1,837	$	1,705	$	1,864
Provision for credit losses		(176)		(5)		(479)		334
Charge-offs, net of recoveries1		(103)		(192)		(316)		(558)
Allowance for credit losses at end of period	$	910	$	1,640	$	910	$	1,640

1 Net of recoveries of $32 million and $105 million for the three and nine months ended December 31, 2010, respectively, and $29 million and $95 million for the three and nine months ended December 31, 2009, respectively.

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

The following tables provide information related to our allowance for credit losses and recorded investment in finance receivables by portfolio segment for the three and nine months ended December 31, 2010 and 2009:

For the Three and Nine Months Ended December 31, 2010

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total

Allowance for Credit Losses for Finance Receivables:

Beginning Balance, October 1, 2010	$	821	$	27	$	147	$	995
Charge-offs		(115)		(2)		-		(117)
Recoveries		22		3		-		25
Provisions		(119)		(9)		1		(127)
Ending Balance, December 31, 2010	$	609	$	19		148	$	776

Beginning Balance, April 1, 2010	$	1,236	$	32	$	212	$	1,480
Charge-offs		(361)		(5)		-	$	(366)
Recoveries		76		6		-		82
Provisions		(342)		(14)		(64)		(420)
Ending Balance, December 31, 2010	$	609	$	19	$	148	$	776

Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	69	$	69
Ending Balance: Collectively Evaluated for Impairment	$	609	$	19	$	79	$	707

Gross Finance Receivables:

Ending Balance, December 31, 2010	$	45,829	$	467	$	12,583	$	58,879
Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	235	$	235
Ending Balance: Collectively Evaluated for Impairment	$	45,829	$	467	$	12,348	$	58,644

- 36 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Allowance for Credit Losses (Continued)

For the Three and Nine Months Ended December 31, 2009

(Dollars in millions)	Retail Loan			Commercial	Dealer Products		Total

Allowance for Credit Losses for Finance Receivables:

Beginning Balance, October 1, 2009	$	1,313	$	34	$	194	$	1,541
Charge-offs		(181)		(10)		1		(190)
Recoveries		22		1		-		23
Provisions		(8)		9		35		36
Ending Balance, December 31, 2009	$	1,146	$	34		230	$	1,410

Beginning Balance, April 1, 2009	$	1,371	$	4	$	190	$	1,565
Charge-offs		(526)		(23)		(5)	$	(554)
Recoveries		75		-		-		75
Provisions		226		53		45		324
Ending Balance, December 31, 2009	$	1,146	$	34	$	230	$	1,410

Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	113	$	113
Ending Balance: Collectively Evaluated for Impairment	$	1,146	$	34	$	117	$	1,297

Gross Finance Receivables:1

Ending Balance, December 31, 2009	$	44,774	$	639	$	10,518	$	55,931
Ending Balance: Individually Evaluated for Impairment	$	-	$	-	$	290	$	290
Ending Balance: Collectively Evaluated for Impairment	$	44,774	$	639	$	10,228	$	55,641

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


	Past Due Finance Receivables and Investments in Operating Leases

(Dollars in millions)		December 31, 2010			March 31, 20101
Aggregate balances 60 or more days past due2
	Finance receivables3		$	253		$	252
	Operating leases3			72			77
Total			$	325		$	329

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

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.

- 37 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Allowance for Credit Losses (Continued)

Past Due Finance Receivables by Class

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

(Dollars in millions)	31 -60 Days Past Due		61 - 90 Days Past Due		Greater Than 90 days		Total Past Due		Current		Total Finance Receivables		Carrying Amount > 90 Days and Accruing

As of December 31, 2010

Retail Loan	$	816	$	176	$	60	$	1,052	$	44,777	$	45,829	$	60
Commercial		25		6		3		34		433		467		3
Wholesale		1		8		-		9		7,187		7,196		-
Real estate		-		-		-		-		4,047		4,047		-
Working capital		7		-		-		7		1,333		1,340		-
Total	$	849	$	190	$	63	$	1,102	$	57,777	$	58,879	$	63


(Dollars in millions)	31 -60 Days Past Due		61 - 90 Days Past Due		Greater Than 90 days		Total Past Due		Current		Total Finance Receivables		Carrying Amount > 90 Days and Accruing

As of March 31, 2010

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

- 38 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 8 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

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

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

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

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

We may also enter into to-be-announced forward contracts on mortgage-backed securities to manage interest rate risk related to our investment portfolio. We classify these instruments as interest rate forwards. Gains and losses on these to-be-announced forwards are recorded in Investment and other income, net in our Consolidated Statement of Income.

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

Credit Risk Related Contingent Features

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

- 39 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at December 31, 2010 was $226 million, excluding embedded derivatives and adjustments made for our own non-performance risk. In the normal course of business, we posted collateral of $41 million to counterparties with which we were in a net liability position at December 31, 2010. If our ratings were to have declined to “A+”, we would have been required to post $22 million of additional collateral to the counterparties with which we were in a liability position at December 31, 2010. If our ratings were to have declined to “BBB+” or below, we would have been required to post $226 million of additional collateral to the counterparties with which we were in a liability position at December 31, 2010. In order to settle all derivative instruments that were in a net liability position at December 31, 2010, excluding embedded derivatives and adjustments made for our own non-performance risk, we would have been required to pay $226 million.


Derivative Activity Impact on Financial Statements

The table below shows the location and amount of derivatives at December 31, 2010 as reported in the
Consolidated Balance Sheet:
	Hedge accounting				Non-hedge					Total
	derivatives				accounting derivatives
		Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)				value				value				value
Other assets
Interest rate swaps	$	465	$	61	$	13,832	$	209	$	14,297	$	270
Foreign currency swaps		5,482		1,571		15,850		2,711		21,332		4,282
Embedded derivatives		-		-		10		1		10		1
Total	$	5,947	$	1,632	$	29,692	$	2,921	$	35,639	$	4,553

Counterparty netting												(1,194)
Collateral held												(2,029)

Carrying value of derivative contracts – Other assets											$	1,330

Other liabilities
Interest rate swaps	$	-	$	-	$	53,653	$	1,156	$	53,653	$	1,156
Interest rate caps		-		-		50		-		50		-
Interest rate forwards		-		-		40		1		40		1
Foreign currency swaps		2,630		297		91		7		2,721		304
Embedded derivatives		-		-		292		56		292		56
Total	$	2,630	$	297	$	54,126	$	1,220	$	56,756	$	1,517

Counterparty netting												(1,194)
Collateral posted												(41)

Carrying value of derivative contracts – Other liabilities											$	282

- 40 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Derivative Activity Impact on Financial Statements

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

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

Counterparty netting													(1,073)
Collateral held													(1,285)

	Carrying value of derivative contracts – Other assets											$	585

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

Counterparty netting													(1,073)
Collateral posted													(57)

	Carrying value of derivative contracts – Other liabilities											$	567

- 41 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

The following table summarizes the components of interest expense, including the location and amount of gains or losses on derivative instruments and related hedged items, for the three and nine months ended December 31, 2010 and 2009 as reported in our Consolidated Statement of Income:

			Three Months Ended					Nine Months Ended
			December 31,					December 31,
(Dollars in millions)				2010		2009		2010		2009
Interest expense on debt1			$	486	$	553	$	1,476	$	1,783
Interest expense on pay float hedge accounting derivatives1				(119)		(188)		(370)		(573)
Interest expense on pay float non-hedge accounting derivatives1,3				(155)		(190)		(453)		(509)
		Interest expense on debt, net of pay float swaps		212		175		653		701

Interest expense on non-hedge pay fixed swaps1				250		352		814		998

Loss (gain) on hedge accounting derivatives:
	Interest rate swaps2			13		10		(9)		25
	Foreign currency swaps2			(164)		370		(706)		(1,939)
		(Gain) loss on hedge accounting derivatives		(151)		380		(715)		(1,914)
Less hedged item: change in fair value of fixed rate debt				140		(399)		692		1,895
		Ineffectiveness related to hedge accounting derivatives2		(11)		(19)		(23)		(19)

Loss (gain) on foreign currency transactions				436		(206)		1,264		1,471
(Gain) loss on currency swaps and forwards 2				(389)		256		(1,419)		(1,400)

Loss (gain) on other non-hedge accounting derivatives:
		Pay float swaps2		156		87		65		220
		Pay fixed swaps2		(420)		(207)		(36)		(416)
Total interest expense			$	234	$	438	$	1,318	$	1,555

1 Amounts represent net interest settlements and changes in accruals.

2 Amounts exclude net interest settlements and changes in accruals.

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

- 42 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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


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

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
(Dollars in millions)			2010		2009		2010		2009

Ineffectiveness related to hedge accounting derivatives		$	(1)	$	(3)	$	2	$	17
Loss on currency swaps and forwards			3		-		8		15
(Gain) loss on non-hedge accounting derivatives:
	Pay float swaps		-		(1)		-		-
	Pay fixed swaps		-		2		2		30
Total credit valuation adjustment allocated to interest expense		$	2	$	(2)	$	12	$	62

- 43 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 9 – Other Assets and Other Liabilities

Other assets and other liabilities consisted of the following:

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

Notes receivable from affiliates	$	673	$	306
Used vehicles held for sale		198		220
Deferred charges		182		195
Income taxes receivable		131		97
Derivative assets		1,330		585
Other assets		446		515
Total other assets	$	2,960	$	1,918

Other liabilities:

Unearned insurance premiums and contract revenues	$	1,529	$	1,382
Derivative liabilities		282		567
Accounts payable and accrued expenses		1,092		902
Deferred income		242		244
Other liabilities		214		356
Total other liabilities	$	3,359	$	3,451

- 44 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 10 – Debt

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


						Weighted average
					contractual interest rates4
	December 31,			March 31,		December 31,		March 31,
(Dollars in millions)		2010		2010		2010		2010
Commercial paper1	$	20,866	$	19,466		0.35	%	0.28	%
Unsecured notes and loans payable2		44,801		45,617		3.32	%	3.58	%
Secured notes and loans payable		6,787		3,000		0.78	%	0.59	%
Carrying value adjustment3		1,260		1,096
Total debt	$	73,714	$	69,179		2.19	%	2.49	%

1 Includes unamortized 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.
4 Calculated based on original notional or par value before consideration of premium or discount.

Included in our unsecured notes and loans payable are unsecured notes and loans denominated in various foreign currencies. At December 31, 2010 and March 31, 2010, the carrying values of these notes payable were $27.3 billion and $28.5 billion, respectively. Concurrent with the issuance of these foreign currency unsecured notes, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments.

Additionally, the carrying value of our unsecured notes and loans payable at December 31, 2010 included $15.0 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 6.0 percent and $31.1 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.5 percent to 15.3 percent. The carrying value of our unsecured notes and loans payable at March 31, 2010 included $14.0 billion of unsecured floating rate debt with contractual interest rates ranging from 0 percent to 10.4 percent and $32.7 billion of unsecured fixed rate debt with contractual interest rates ranging from 0 percent to 15.3 percent. Upon issuance of fixed rate notes, we generally elect to enter into interest rate swaps to convert fixed rate payments on notes to floating rate payments. The carrying value adjustment on debt increased by $164 million at December 31, 2010 compared to March 31, 2010 primarily as a result of a weaker U.S. dollar relative to certain other currencies in which some of our debt is denominated.

As of December 31, 2010, our commercial paper had an average remaining maturity of 67 days, while our notes and loans payable mature on various dates through fiscal 2047.

During the nine months ended December 31, 2010, we sourced approximately $5.7 billion in funding through the transfer of retail finance receivables to asset-backed securitization vehicles. The notes and loans issued in connection with these transactions are repayable only from collections on the underlying pledged receivables.

- 45 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 11 – Variable Interest Entities

A variable interest entity (“VIE”) is an entity that either (i) has insufficient equity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. We adopted the FASB’s new accounting standard on VIEs on April 1, 2010. This standard requires the consolidation of a VIE if an entity has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses or the right to receive residual returns that could potentially be significant to the VIE. We did not consolidate or deconsolidate any VIEs as a result of adopting this standard.

On-balance Sheet Securitization Trusts

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

The assets of the consolidated securitization VIEs consisted of $7,684 million and $3,037 million in gross retail finance receivables at December 31, 2010, and March 31, 2010, respectively. Net retail finance receivables, after consideration of deferred origination costs, unearned income and allowance for credit losses, were $7,571 million as of December 31, 2010. In addition, TMCC held $440 million and $173 million in cash which represent collections from the underlying pledged receivables and certain reserve deposits held for the securitization trusts at December 31, 2010 and March 31, 2010, respectively. We classified this cash as restricted cash on our consolidated balance sheet. The liabilities of these consolidated VIEs consisted of $6,787 million and $3,000 million in secured debt, net of $633 million of securities retained by TMCC, and $2 million and $0.4 million in other liabilities at December 31, 2010 and March 31, 2010, respectively. The assets of the VIEs and the restricted cash held by TMCC serve as the sole source of repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to TMCC’s general credit, with the exception of customary representation and warranty repurchase provisions and indemnities.

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

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

- 46 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 11 – Variable Interest Entities (Continued)

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

- 47 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 12 – Liquidity Facilities and Letters of Credit

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

364 Day Credit Agreement

In March 2010, TMCC, its subsidiary Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility pursuant to a 364 Day Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The 364 Day Credit Agreement may be used for general corporate purposes and was not drawn upon as of December 31, 2010 and March 31, 2010.

Five Year Credit Agreement

In March 2007, TMCC, TCPR, and other Toyota affiliates entered into an $8.0 billion five year syndicated bank credit facility pursuant to a Five Year Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The Five Year Credit Agreement may be used for general corporate purposes and was not drawn upon as of December 31, 2010 and March 31, 2010.

Letter of Credit Facility Agreement

In addition, TMCC has an uncommitted letter of credit facility totaling $5 million, of which $1 million was issued and outstanding at December 31, 2010 and March 31, 2010.

Other Credit Agreements

TMCC has additional bank credit facilities. Committed bank credit facilities total $1 billion and mature in fiscal year 2013. An uncommitted bank credit facility in the amount of JPY 100 billion (approximately $1.2 billion as of December 31, 2010), was extended through March 2011. All of these agreements contain covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. None of these credit facilities was drawn upon as of December 31, 2010 and March 31, 2010.

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

- 48 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies

Commitments and Guarantees

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

	Maximum commitment amount as of
(Dollars in millions)	December 31, 2010		March 31, 2010
Commitments:
Credit facilities with vehicle and industrial equipment	$	6,111	$	6,363
dealers
Facilities lease commitments1		85		92
Total commitments		6,196		6,455
Guarantees and other contingencies:
Guarantees of affiliate pollution control and solid waste
disposal bonds		100		100
Total commitments and guarantees	$	6,296	$	6,555

Wholesale financing demand note facilities2	$	9,356	$	9,482

1 Includes $53 million and $58 million in facilities lease commitments with affiliates at December 31, and March 31, 2010, respectively.

2 Amounts are not considered to be contractual commitments as they are not binding arrangements under which TMCC is required to perform. At December 31, 2010

and March 31, 2010, amounts outstanding were $6.7 billion and $5.9 billion, respectively.

Commitments

We provide fixed and variable rate credit facilities to vehicle and industrial equipment dealers. These credit facilities are typically used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are generally 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 a corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. We price the credit facilities to reflect the credit risks assumed in entering into the credit facility. Amounts drawn under these facilities are 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. Of the total credit facility commitments available to vehicle and industrial equipment dealers, $5.3 billion and $5.2 billion was outstanding at December 31, and March 31, 2010, respectively, and was recorded in Finance receivables, net in the Consolidated Balance Sheet.

- 49 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies (Continued)

We are party to a 15-year lease agreement with Toyota Motor Sales, USA, Inc. (“TMS”) for our headquarters location in the TMS headquarters complex in Torrance, California. At December 31, 2010, minimum future commitments under lease agreements to which we are a lessee, including those under the agreement discussed above, are as follows: fiscal years ending March 31, 2011 - $5 million; 2012 - $19 million; 2013 - $14 million; 2014 - $11 million; 2015 - $10 million and thereafter - $26 million.

Guarantees and Other Contingencies

TMCC has guaranteed bond obligations totaling $100 million in principal that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. The bonds mature in the following fiscal years ending March 31: 2028 - $20 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $10 million. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the affiliates for any amounts paid. TMCC receives an annual fee of $78,000 for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of December 31, 2010 and March 31, 2010.

Indemnification

In the ordinary course of business, we enter into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and our vendor and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or a third party claim. In addition, we have agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. In addition, certain of our funding arrangements would require us to pay lenders for increased costs due to certain changes in laws or regulations. Due to the difficulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, we are not able to estimate our maximum exposure to future payments that could result from claims made under such provisions. We have not made any material payments in the past as a result of these provisions, and as of December 31, 2010, we determined that it is not probable that we will be required to make any material payments in the future. As of December 31, 2010 and March 31, 2010, no amounts have been recorded under these indemnifications.

- 50 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies (Continued)

Litigation

Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against us with respect to matters arising in the ordinary course of business. Certain of these actions are or purport to be class action suits, seeking sizeable damages and/or changes in our business operations, policies and practices. Certain of these actions are similar to suits that have been filed against other financial institutions and captive finance companies. We perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. We establish accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts accrued for these claims; however, we cannot estimate the losses or ranges of losses for proceedings where there is only a reasonable possibility that a loss may be incurred. We believe, based on currently available information and established accruals, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results for any particular period, depending in part, upon the operating results for such period.

Repossession Class Actions

A cross-complaint alleging a class action in the Superior Court of California Stanislaus County, Garcia v. Toyota Motor Credit Corporation, filed in August 2007, claims that TMCC's post-repossession notice failed to comply with the Rees-Levering Automobile Sales Finance Act of California. Three additional putative class action complaints or cross-complaints were filed making similar allegations. The cases were coordinated in the California Superior Court, Stanislaus County and a Second Amended Consolidated Cross-Complaint and Complaint was subsequently filed in March 2009. The Second Amended Consolidated Cross-Complaint and Complaint seeks injunctive relief, restitution, disgorgement and other equitable relief under California's Unfair Competition Law. As a result of mediation in January 2010, the parties agreed to settle all of the foregoing matters in an amount within our reserves and not material to our results of operations. A fourth case was later filed which was included in the settlement. On January 7, 2011, the court entered an order granting final approval of the settlement. Plaintiffs have until March 9, 2011 to appeal the order.

Recall-related Class Actions

TMCC and certain affiliates were named as defendants in the consolidated multidistrict litigation, In Re: Toyota Motor Corp. Unintended Acceleration, Marketing, Sales Practices, and Products Liability Litigation (United States District Court, Central District of California) seeking damages and injunctive relief as a result of alleged sudden unintended acceleration in certain Toyota and Lexus vehicles. A parallel action was filed against TMCC and certain affiliates on March 12, 2010 by the Orange County District Attorney. On August 2, 2010, the plaintiffs filed a consolidated complaint in the multidistrict litigation that does not name TMCC as a defendant. On November 17, 2010, the court ordered that all omitted claims and theories are deemed dismissed without prejudice. In addition, the court has permitted alleged classes of foreign plaintiffs to file complaints naming TMCC and related entities as defendants. TMCC also remains a defendant in the state court action filed by the Orange County District Attorney.

- 51 -

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Commitments and Contingencies (Continued)

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

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

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

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 14 – Income Taxes

Our effective tax rate was 38 percent during the first nine months of fiscal 2011 and 39 percent for the same period in fiscal 2010. Our provision for income taxes for the first nine months of fiscal 2011 was $909 million compared to $555 million for the same period in fiscal 2010. This increase in provision is consistent with the increase in our income before tax for the first nine months of fiscal 2011 compared to the same period in fiscal 2010.

Tax-Related Contingencies

We are routinely subject to U.S. federal, state and local, and foreign income tax examinations by tax authorities in various jurisdictions. We are in various stages of completion of several income tax examinations, including an examination by the Internal Revenue Service for the taxable years ended March 31, 2007 through March 31, 2010.

We periodically review our uncertain tax positions. Our assessment is based on many factors including the ongoing IRS audits. For the quarter ended December 31, 2010 our assessment did not result in any change in unrecognized tax benefits.

Our deferred tax assets at December 31, 2010 were $2.2 billion compared to $2.3 billion at March 31, 2010, and were primarily due to the deferred deduction of allowance for credit losses and cumulative federal tax loss carryforwards that expire in varying amounts through fiscal year 2031. The total deferred tax liability at December 31, 2010, net of these deferred tax assets, was $4.2 billion compared with $3.3 billion at March 31, 2010. Realization with respect to the federal tax loss carryforwards is dependent on generating sufficient income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15 – Related Party Transactions

The tables below summarize amounts included in our Statement of Income for the three and nine months ended December 31, 2010 and 2009 and in our Consolidated Balance Sheet as of December 31, 2010 and March 31, 2010 under various related party agreements or relationships:

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
(Dollars in millions)			2010		2009		2010		2009
Net financing revenues:
	Manufacturers’ subvention support and other revenues	$	242	$	200	$	715	$	572
	Credit support fees incurred	$	(9)	$	(9)	$	(26)	$	(29)
	Foreign exchange (loss) gain on notes receivable from affiliates	$	-	$	(24)	$	-	$	32
	Foreign exchange (loss) gain on loans payable to affiliates	$	(35)	$	72	$	(162)	$	(38)
	Interest expense on loans payable to affiliates	$	(12)	$	(14)	$	(36)	$	(56)

Insurance earned premiums and contract revenues:
	Affiliate insurance premiums and contract revenues	$	47	$	22	$	111	$	66

Investments and other income, net:
	Interest earned on notes receivable from affiliates	$	1	$	-	$	3	$	1

Expenses:
	Shared services charges and other expenses	$	95	$	10	$	239	$	28
	Employee benefits expense	$	14	$	15	$	48	$	47

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15 – Related Party Transactions (Continued)

(Dollars in millions)	December 31, 2010		March 31, 2010
Assets:
Investments in marketable securities
Cash and cash equivalents	$	10	$	-
Investments in marketable securities	$	-	$	50

Finance receivables, net
Accounts receivable from affiliates	$	18	$	20
Direct finance receivables from affiliates	$	5	$	-
Notes receivable under home loan programs	$	22	$	27
Deferred retail subvention income from affiliates	$	(735)	$	(663)

Investments in operating leases, net
Leases to affiliates	$	15	$	29
Deferred lease subvention income from affiliates	$	(762)	$	(575)

Other assets
Notes receivable from affiliates	$	673	$	306
Other receivables from affiliates	$	60	$	97
Subvention support receivable from affiliates	$	80	$	143

Liabilities:
Debt
Loans payable to affiliates	$	4,227	$	4,065

Other liabilities
Unearned affiliate insurance premiums and
contract revenues	$	373	$	223
Accounts payable to affiliates	$	140	$	284
Notes payable to affiliate	$	61	$	45

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

As of December 31, 2010, there were no material changes to our related party agreements or relationships as described in our fiscal 2010 Form 10-K, except as described below.

TMCC-TMFNL Loan Agreement

During the first quarter of fiscal 2011, TMCC and Toyota Motor Finance (Netherlands) B.V. (“TMFNL”) entered into a new uncommitted loan finance agreement which replaced an existing loan finance agreement between TMCC and TMFNL. The new loan agreement provides for reciprocal lines of credit between TMFNL and TMCC, with individual loans to be evidenced by terms agreements in an aggregate amount not to exceed €1 billion. There were no amounts outstanding at December 31, 2010.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15 – Related Party Transactions (Continued)

TFSB Expense Reimbursement Agreement

During the second quarter of fiscal 2011, TMCC and Toyota Financial Saving Bank (“TFSB”) entered into an expense reimbursement agreement. Under the terms of the agreement, 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. Expenses incurred by TMCC under this agreement for the three and nine months ended December 31, 2010 were $4 million and $15 million, respectively.

TFSA Expense Reimbursement Agreement

During the second quarter of fiscal 2011, TMCC and Toyota Financial Services Americas Corporation (“TFSA”) entered into 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. Expenses incurred by TMCC under this agreement for the three and nine months ended December 31, 2010 were $2 million and $8 million, respectively.

TMS Expense Reimbursement Agreement

During the second quarter of fiscal 2011, TMCC and TMS entered into an expense reimbursement agreement. Under the agreement, TMCC will reimburse a portion of certain sales and marketing expenses incurred by TMS during fiscal 2011 for brand and sales support. Expenses incurred by TMCC under this agreement for the first nine months and third quarter of fiscal 2011 were $184 million and $78 million, respectively.

Affiliate Insurance Premiums and Contract Revenues

Beginning in March 2010, TMIS provided various levels and types of coverage to TMS in support of post-recall sales and customer loyalty efforts. Insurance premiums and contract revenues earned and unearned as a result of this arrangement are reflected within the Related Party Transaction Table. Revenues from affiliate agreements issued for the three and nine months ended December 31, 2010 were $65 million and $172 million, respectively. These programs were provided on a temporary basis and were discontinued in January 2011.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 16 – Segment Information

Financial information for our reportable operating segments for the periods ended or at December 31, 2010
is summarized as follows (dollars in millions):

		Finance		Insurance		Intercompany
Fiscal 2011:		operations		operations		eliminations		Total
Three Months Ended December 31, 2010

Total financing revenues		$	2,017	$	-	$	6	$	2,023
Insurance earned premiums and contract revenues			-		147		(6)		141
Investment and other income			10		109		(1)		118
Total gross revenues			2,027		256		(1)		2,282

Less:
	Depreciation on operating leases		872		-		-		872
	Interest expense		235		-		(1)		234
	Provision for credit losses		(176)		-		-		(176)
	Operating and administrative expenses		238		40		-		278
	Insurance losses and loss adjustment expenses		-		61		-		61
	Provision for income taxes		333		54		-		387
Net income		$	525	$	101	$	-	$	626

Nine Months Ended December 31, 2010

Total financing revenues		$	6,062	$	-	$	17	$	6,079
Insurance earned premiums and contract revenues			-		413		(17)		396
Investment and other income			34		178		(5)		207
Total gross revenues			6,096		591		(5)		6,682

Less:
	Depreciation on operating leases		2,507		-		-		2,507
	Interest expense		1,323		-		(5)		1,318
	Provision for credit losses		(479)		-		-		(479)
	Operating and administrative expenses		669		116		-		785
	Insurance losses and loss adjustment expenses		-		177		-		177
	Provision for income taxes		802		107		-		909
Net income		$	1,274	$	191	$	-	$	1,465

Total assets at December 31, 2010		$	85,121	$	3,051	$	(466)	$	87,706

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 16 – Segment Information (Continued)

Financial information for our reportable operating segments for the periods ended or at December 31, 2009
is summarized as follows (dollars in millions):

	Finance			Insurance		Intercompany
Fiscal 2010:	operations			operations		eliminations		Total
Three Months Ended December 31, 2009

Total financing revenues	$	2,032	$		-	$	5	$	2,037
Insurance earned premiums and contract revenues		-			117		(5)		112
Investment and other income		12			56		(2)		66
Total gross revenues		2,044			173		(2)		2,215

Less:
Depreciation on operating leases		897			-		-		897
Interest expense		440			-		(2)		438
Provision for credit losses		(5)			-		-		(5)
Operating and administrative expenses		161			31		-		192
Insurance losses and loss adjustment expenses		-			51		-		51
Provision for income taxes		216			32		-		248
Net income	$	335	$		59	$	-	$	394

Nine Months Ended December 31, 2009

Total financing revenues	$	6,137	$		-	$	13	$	6,150
Insurance earned premiums and contract revenues		-			349		(13)		336
Investment and other income		47			129		(5)		171
Total gross revenues		6,184			478		(5)		6,657

Less:
Depreciation on operating leases		2,626			-		-		2,626
Interest expense		1,560			-		(5)		1,555
Provision for credit losses		334			-		-		334
Operating and administrative expenses		449			94		-		543
Insurance losses and loss adjustment expenses		-			164		-		164
Provision for income taxes		476			79		-		555
Net income	$	739	$		141	$	-	$	880

Total assets at December 31, 2009	$	78,752	$		2,723	$	(361)	$	81,114

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

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Form 10-Q or incorporated by reference herein are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, our performance and results may differ materially from those described or implied by such forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning are intended to identify forward-looking statements. We caution that the forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause actual results to differ materially from those in the forward-looking statements, including, without limitation, the risk factors set forth in “Item 1A. Risk Factors” of our Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended March 31, 2010 (“fiscal 2010”) and Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements.

OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

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

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

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

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Fiscal 2011 First Nine Months Operating Environment

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

Conditions in the global capital markets during the first nine months of fiscal 2011 continued to show improvement as compared to fiscal 2010. Investors’ demand for fixed income products was strong and credit spreads generally improved, leading to favorable borrowing conditions for issuers. During the first nine months of fiscal 2011, we continued to maintain broad access to a variety of global markets and continued to issue commercial paper and term debt in unsecured and secured markets.

Industry wide vehicle sales during the first nine months of fiscal 2011 in the United States increased as compared to the same period in the prior year. In addition, sales incentives throughout the auto industry increased over the same period. Sales of Toyota and Lexus vehicles by Toyota Motor Sales, USA, Inc. (“TMS”) in the first nine months of fiscal 2010 benefited from the Car Allowance Rebate System, or “cash for clunkers” program. Sales of Toyota and Lexus vehicles by TMS decreased 3 percent in the first nine months of fiscal 2011 as compared to the same period in the prior year due to the absence of these United States government programs. Our overall net earning assets balance at December 31, 2010 was higher than the balance at December 31, 2009 due to an increase in vehicle financing volume, which was in turn due to increased vehicle sales incentives.

The overall credit quality of our consumer portfolio in the first nine months of fiscal 2011 continued to benefit from our focus on purchasing practices and collection efforts. As a result, our net charge-offs improved during the first nine months of fiscal 2011 as compared to the same period in fiscal 2010. We experienced lower loss severity due to strong used vehicle values during the first nine months of fiscal 2011 as compared to the same period in fiscal 2010. Prices of used vehicles were at an unprecedented high during the first nine months of fiscal 2011 primarily due to a low supply of used vehicles. In addition, our delinquencies at December 31, 2010 improved when compared to the delinquencies at December 31, 2009 and March 31, 2010. As a result, we decreased our allowance for credit losses in the first nine months of fiscal 2011.

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RESULTS OF OPERATIONS

Fiscal 2011 Summary

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(Dollars in millions)	2010		2009		2010		2009
Net income:
Finance operations	$	525	$	335	$	1,274	$	739
Insurance operations		101		59		191		141
Total net income	$	626	$	394	$	1,465	$	880

Our consolidated net income was $1,465 million and $626 million for the first nine months and third quarter of fiscal 2011, respectively, compared with $880 million and $394 million for the same periods in fiscal 2010. Our consolidated results for the first nine months of fiscal 2011 were favorable as compared to the same period in fiscal 2010 primarily due to the decreases in our provision for credit losses, and to a lesser extent, depreciation on operating leases and interest expense. These decreases were partially offset by an increase in operating and administrative expenses. Our results in the third quarter of fiscal 2011 as compared to the same period in fiscal 2010 were impacted by decreases in interest expense and our provision for credit losses, partially offset by higher operating and administrative expenses.

We recorded a benefit from credit losses of $479 million and $176 million for the first nine months and third quarter of fiscal 2011, respectively, compared to a charge of $334 million and a benefit of $5 million for the same periods in fiscal 2010. This reduction in our provision was attributable to strong used vehicle prices fueled by a lower supply of used vehicles. In addition, the overall credit quality of our consumer portfolio in the first nine months and third quarter of fiscal 2011 continued to benefit from our focus on purchasing practices and collection efforts. We decreased our estimate of expected credit losses in response to improvements in per unit loss severity and net charge-offs in our consumer portfolio during the first nine months of fiscal 2011. During the first nine months and third quarter of fiscal 2011, we continued to incorporate into our provision for credit losses the impact of losses from ongoing adverse publicity and governmental investigations associated with the TMS recall-related events. Refer to Item 1A. “Risk Factors—Recent events announced by TMS could affect our business, financial condition and operating results,” of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

Operating and administrative expenses increased by 45 percent during the first nine months and third quarter of fiscal 2011 as compared to the same periods in fiscal 2010. The increase in operating and administrative expenses was primarily due to the increases in shared affiliate expenses for sales and marketing activities for the first nine months and third quarter of fiscal 2011. Refer to Note 15 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information.

Our overall capital position increased by $1.2 billion, bringing total shareholder’s equity to $6.5 billion at December 31, 2010, as compared to $5.3 billion at March 31, 2010. Our debt increased to $73.7 billion at December 31, 2010 from $69.2 billion at March 31, 2010. We experienced an improvement in our debt-to-equity ratio to 11.4 at December 31, 2010 from 13.1 at March 31, 2010 due to an increase in our equity position.

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Finance Operations

			Three Months Ended						Nine Months Ended
			December 31,			Percentage			December 31,			Percentage
(Dollars in millions)			2010		2009	Change			2010		2009	Change
Financing revenues:
Operating lease		$	1,236	$	1,179	5	%	$	3,652	$	3,550	3	%
Retail1			689		777	(11)	%		2,139		2,348	(9)	%
Dealer			92		76	21	%		271		239	13	%
Total financing revenues			2,017		2,032	(1)	%		6,062		6,137	(1)	%

Depreciation on operating
	leases		872		897	(3)	%		2,507		2,626	(5)	%
Interest expense			235		440	(47)	%		1,323		1,560	(15)	%
Net financing revenues			910		695	31	%		2,232		1,951	14	%

Provision for credit losses			(176)		(5)	3,420	%		(479)		334	(243)	%

Net income from financing
	operations	$	525	$	335	57	%	$	1,274	$	739	72	%
1	Includes direct finance lease revenues.

Our finance operations reported net income of $1,274 million and $525 million for the first nine months and third quarter of fiscal 2011, respectively, compared to $739 million and $335 million for the same periods in fiscal 2010. Results were favorable primarily due to decreases in our provision for credit losses, depreciation on operating leases and interest expense, partially offset by an increase in operating and administrative expenses.

Our per unit credit loss severity improved during the first nine months and third quarter of fiscal 2011. The improvement in per unit credit loss severity was attributable to strong used vehicle prices fueled by lower used vehicle supply. The overall credit quality of our consumer portfolio in the first nine months and third quarter of fiscal 2011 continued to benefit from our focus on purchasing practices and collection efforts. As a result, net charge-offs improved during the first nine months and third quarter of fiscal 2011 as compared to the same periods in fiscal 2010. In addition, our delinquencies at December 31, 2010 improved when compared to the delinquencies at December 31, 2009 and March 31, 2010. We recorded a benefit from credit losses of $479 million and $176 million for the first nine months and third quarter of fiscal 2011, respectively, compared with an expense of $334 million and a benefit of $5 million for the same periods in fiscal 2010. The amount of the provision was also positively affected by improvements in default frequency and loss severity.

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Financing Revenues

Total financing revenues decreased 1 percent during the first nine months and third quarter of fiscal 2011, respectively, as compared to the same periods in fiscal 2010 due to the following factors:

·	Retail contract revenues decreased 9 percent and 11 percent in the first nine months and third quarter of fiscal 2011, as compared to the same periods in fiscal 2010, primarily due to a decrease in our portfolio yields partially offset by higher average outstanding earning asset balances.

·	Operating lease revenues increased 3 percent and 5 percent in the first nine months and third quarter of fiscal 2011, as compared to the same periods in fiscal 2010 due to higher average outstanding earning asset balances partially offset by lower portfolio yields.

·	Dealer financing revenues increased 13 percent and 21 percent in the first nine months and third quarter of fiscal 2011, as compared with the same periods in fiscal 2010 due to higher average outstanding earning asset balances.

Our total finance receivables portfolio yield was 5.6 percent and 5.4 percent during the first nine months and third quarter of fiscal 2011, respectively, compared to 6.3 percent for the same periods in fiscal 2010 due to decreases in both our retail and operating lease portfolio yields.

Depreciation on Operating Leases

Depreciation on operating leases decreased 5 percent and 3 percent during the first nine months and third quarter of fiscal 2011, respectively, as compared to the same periods in fiscal 2010. Improvements in used vehicle values, due primarily to lower used vehicle supply, resulted in an increase to the estimated end-of-term residual values of the existing portfolio. During the first nine months and third quarter of fiscal 2011, we continued to consider in our estimate of end-of-term residual values the impact of ongoing adverse publicity and governmental investigations associated with the TMS recall-related events. These events did not have a material impact on our depreciation on operating leases for the first nine months and third quarter of fiscal 2011.

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Interest Expense

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

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
(Dollars in millions)		2010		2009		2010		2009
Interest expense on debt1	$	486	$	553	$	1,476	$	1,783
Interest expense on pay float swaps1,2		(274)		(378)		(823)		(1,082)

Interest expense on pay fixed swaps1		250		352		814		998
Ineffectiveness related to hedge accounting derivatives3,4		(11)		(19)		(23)		(19)
Loss (gain) on foreign currency transactions		436		(206)		1,264		1,471
(Gain) loss on currency swaps and forwards3,4		(389)		256		(1,419)		(1,400)

Loss (gain) on other non-hedge accounting derivatives:
Pay float swaps3,4		156		87		65		220
Pay fixed swaps3,4		(420)		(207)		(36)		(416)
Total interest expense5	$	234	$	438	$	1,318	$	1,555

1 Amounts represent net interest settlements and changes in accruals.

2 Includes both hedge and non-hedge accounting derivatives.

3 Amounts exclude net interest settlements and changes in accruals.

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

valuation adjustments for the periods.

5 Excludes $5 million and $1 million of interest on bonds held by our insurance operations for the first nine months and third quarter of fiscal 2011, respectively, compared to

$5 million and $2 million for the same periods in fiscal 2010. Refer to Note 16 – Segment Information of the Notes to Consolidated Financial Statements for further

information.

We reported consolidated interest expense of $1,318 million and $234 million during the first nine months and third quarter of fiscal 2011, respectively, compared to $1,555 million and $438 million during the same periods in fiscal 2010. Interest expense was lower during the first nine months of fiscal 2011 compared to the same period in fiscal 2010 primarily due to lower net interest expense on pay fixed swaps, gains on currency swaps, net of losses on foreign currency transactions, and changes in our mix of funding sources which resulted in lower weighted average contractual interest rates on debt. During the third quarter of fiscal 2011, valuation gains and lower net interest expense on pay fixed swaps reduced interest expense compared to the third quarter of fiscal 2010.

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Interest expense on debt primarily represents interest due on secured and unsecured notes and loans payable and commercial paper, and includes amortization of discount and premium, debt issuance costs, and basis adjustments. Interest expense on debt decreased to $1,476 million and $486 million during the first nine months and third quarter of fiscal 2011, respectively, from $1,783 million and $553 million in the same periods in fiscal 2010. This decrease was due to changes in our mix of funding sources which resulted in lower weighted average contractual interest rates. The proportion of our outstanding debt consisting of commercial paper and secured debt, which carry lower weighted-average interest rates than unsecured term debt, was higher during the first nine months of fiscal 2011 compared to fiscal 2010. Interest expense on pay float swaps represents net interest expense on our interest rate and cross-currency swaps. During the first nine months of fiscal 2011 and fiscal 2010, 3-month LIBOR rates were generally lower than the rates on the receive leg of these swaps. Settlements on pay float swaps resulted in interest income of $823 million and $274 million for the first nine months and third quarter of fiscal 2011 compared to $1,082 million and $378 million for the same periods in fiscal 2010. Lower weighted average rates on the receive leg of pay float swaps were primarily responsible for the decrease in interest income on pay float swaps in the first nine months of fiscal 2011 compared to fiscal 2010. These favorable results from our pay float swaps partially offset our interest expense on debt.

Interest expense on pay fixed swaps represents net interest on our pay fixed swaps portfolio where we pay a fixed rate and receive a floating rate based on 3-month LIBOR. During the first nine months of fiscal 2011 and fiscal 2010, 3-month LIBOR was generally lower than the fixed interest rates at which the swap contracts were executed, resulting in net interest expense in both periods. Pay fixed swaps have a weighted average life of approximately two to three years; this results in a pay fixed swaps portfolio that is constantly changing as new swaps are executed at different rates, and existing swaps mature. The average pay fixed interest rate on this swap portfolio declined by a greater amount from fiscal 2010 to fiscal 2011 than average 3-month LIBOR rates decreased over the same period. As a result, net interest expense on pay fixed swaps decreased to $814 million and $250 million for the first nine months and third quarter of fiscal 2011 from $998 million and $352 million for the same periods of fiscal 2010.

Ineffectiveness related to hedge accounting derivatives represents the net difference between the change in the fair value of the hedged debt and the change in the fair value of the associated derivative instrument. These amounts also include a credit valuation adjustment loss of $2 million and a gain of $1 million for the first nine months and third quarter of fiscal 2011, compared to a credit valuation adjustment loss of $17 million and gain of $3 million for the same periods in fiscal 2010.

Gain or loss on foreign currency transactions relates to foreign currency denominated transactions for which hedge accounting has not been elected. We are required to revalue these foreign currency denominated transactions at each balance sheet date. We use currency swaps and forwards to economically hedge these foreign currency transactions. During the first nine months and third quarter of fiscal 2011, the U.S. dollar weakened relative to certain other currencies in which our foreign currency transactions are denominated. This resulted in the recognition of losses on foreign currency transactions of $1,264 million and $436 million during the first nine months and third quarter of fiscal 2011, respectively. We recorded gains in the fair value of currency swaps used to economically hedge these foreign currency transactions of $1,419 million and $389 million during the first nine months and third quarter of fiscal 2011, respectively. During the first nine months of fiscal 2010, the U.S. dollar weakened relative to certain other currencies in which our foreign currency transactions are denominated. This resulted in the recognition of losses of $1,471 million in foreign currency transactions and gains of $1,400 million in the fair value of currency swaps used to economically hedge these foreign currency transactions during the first nine months of fiscal 2010.

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Increases in swap rates contributed to gains on pay fixed interest rate swaps of $420 million and losses of $156 million on non-hedge accounting pay float interest rate swaps during the third quarter of fiscal 2011. The gains on pay fixed swaps and the losses on pay float swaps were relatively smaller during the third quarter of fiscal 2010, as swap rates changed less during the same period of fiscal 2010 than in fiscal 2011.

Provision for Credit Losses

We recorded a benefit from credit losses of $479 million and $176 million for the first nine months and third quarter of fiscal 2011, respectively, compared to an expense of $334 million and a benefit of $5 million for the same periods in fiscal 2010. The benefit from credit losses for the first nine months of fiscal 2011 resulted from lower levels of default frequency and per unit loss severity in our consumer portfolio.

As used vehicle prices reached unprecedented highs during the first nine months and third quarter of fiscal 2011, driven primarily by a low supply of used vehicles, we experienced lower loss severity when compared to the same periods in fiscal 2010. In addition, the overall credit quality of our consumer portfolio in the first nine months and third quarter of fiscal 2011 continued to benefit from our focus on purchasing practices and collection efforts. As a result, our net charge-offs improved during the first nine months and third quarter of fiscal 2011 as compared to the same periods in fiscal 2010. In addition, our delinquencies at December 31, 2010 improved compared to December 31, 2009 and remained flat as compared to the delinquencies at March 31, 2010. During the first nine months and third quarter of fiscal 2011, we continued to incorporate into our provision for credit losses the impact of expected losses from ongoing adverse publicity and governmental investigations associated with the TMS recall-related events.

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Insurance Operations

The following table summarizes key results of our Insurance Operations:

		Three Months Ended						Nine Months Ended
		December 31,				Percentage		December 31,				Percentage
(Dollars in millions)		2010		2009		Change		2010		2009		Change
Agreements (units in thousands)
	Issued		635		268	137	%		1,801		889	103	%
	In force		6,121		5,214	17	%		6,121		5,214	17	%
Insurance earned premiums and
	contract revenues	$	147	$	117	26	%	$	413	$	349	18	%
Investment and other income		$	109	$	56	95	%	$	178	$	129	38	%
Gross revenues from insurance
	operations	$	256	$	173	48	%	$	591	$	478	24	%
Insurance losses and loss
	adjustment expenses	$	61	$	51	20	%	$	177	$	164	8	%
Insurance dealer back-end
	program expenses	$	23	$	17	35	%	$	64	$	52	23	%
Net income from insurance
	operations	$	101	$	59	71	%	$	191	$	141	35	%

Agreements issued increased by 912 thousand and 367 thousand units during the first nine months and third quarter of fiscal 2011, respectively, compared to the same periods in fiscal 2010. The increase was primarily due to an increase in affiliate agreements issued in support of TMS post-recall sales and customer loyalty efforts. These programs were provided on a temporary basis and were discontinued in January 2011.

Our insurance operations reported net income of $191 million and $101 million during the first nine months and third quarter of fiscal 2011, respectively, compared to $141 million and $59 million during the same periods in fiscal 2010. The increase in net income for the first nine months of fiscal 2011 compared to the same period in fiscal 2010 was primarily attributable to increases in both investment and other income and insurance earned premiums and contract revenues.

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

Our insurance operations reported insurance earned premiums and contract revenues of $413 million and $147 million during the first nine months and third quarter of fiscal 2011, respectively, compared to $349 million and $117 million during the same periods in fiscal 2010. The increase in insurance earned premiums and contract revenues was primarily due to the overall growth in the number of agreements issued and in force.

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Our insurance operations reported investment and other income of $178 million and $109 million during the first nine months and third quarter of fiscal 2011, respectively, compared to investment and other income of $129 million and $56 million during the same periods in fiscal 2010. Investment and other income for our insurance operations consists primarily of investment income on marketable securities. The increase in investment and other income for the first nine months of fiscal 2011 compared to the same period in the prior year was primarily due to higher dividend income and realized gains from sales of securities in fiscal 2011. The increase in investment and other income for the third quarter of 2011 compared to the same period in the prior year was primarily due to higher dividend income. Refer to “Investment and Other Income” below for a more detailed discussion on our consolidated investment portfolio.

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

Our insurance operations reported $177 million and $61 million of insurance losses and loss adjustment expenses during the first nine months and third quarter of fiscal 2011, respectively, compared to $164 million and $51 million during the same periods in fiscal 2010. The increase in insurance losses and loss adjustment expenses primarily relates to the overall growth in the number of agreements in force.

Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on their sales volume or underwriting performance. Insurance dealer back-end program expenses increased by 23 percent and 35 percent during the first nine months and third quarter of fiscal 2011, respectively, compared to the same periods in fiscal 2010. The increase was primarily due to an increase in agreements issued and improved underwriting performance.

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Investment and Other Income

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

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(Dollars in millions)	2010		2009		2010		2009
Interest and dividend income on marketable securities	$	102	$	52	$	145	$	125
Realized gains on marketable securities		10		5		41		-
Other income		6		9		21		46
Total investment and other income, net	$	118	$	66	$	207	$	171

The increase in interest and dividend income on marketable securities during the first nine months and third quarter of fiscal 2011 relates primarily to higher annual dividends received on marketable securities held by our insurance operations. We reported net realized gains on marketable securities of $41 million and $10 million during the first nine months and third quarter of fiscal 2011, respectively, compared to net realized gains of $5 million during the third quarter of fiscal 2010. This was primarily due to normal trading activity within the fixed income mutual funds portfolio in the first nine months and third quarter of fiscal 2011 compared to the same periods in fiscal 2010.

We reported $21 million and $6 million of other income during the first nine months and third quarter of fiscal 2011, respectively, compared to $46 million and $9 million during the same periods in fiscal 2010. The decrease in other income during the first nine months of fiscal 2011 compared to the same period in fiscal 2010 was primarily due to interest income from an expected tax refund that was recorded during the first nine months of fiscal 2010 and subsequently collected. In addition, interest income on cash held in excess of our funding needs was lower in the first nine months of fiscal 2011 compared to the same period in fiscal 2010.

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Operating and Administrative Expenses

The following table summarizes our operating and administrative expenses:

		Three Months Ended						Nine Months Ended
		December 31,				Percentage		December 31,				Percentage
(Dollars in millions)		2010		2009		Change		2010		2009		Change
Employee expenses		$	80	$	89	(10)	%	$	250	$	239	5	%
Operating expenses			175		86	103	%		471		252	87	%
Insurance dealer back-end
	program expenses		23		17	35	%		64		52	23	%
Total operating and
	administrative expenses	$	278	$	192	45	%	$	785	$	543	45	%

Total operating and administrative expenses increased 45 percent during the first nine months and third quarter of fiscal 2011, compared to the same periods in fiscal 2010 primarily due to increases in operating expenses.

Operating expenses increased during the first nine months and third quarter of fiscal 2011 compared to the same periods in fiscal 2010 primarily due to increases in shared affiliate expenses for sales and marketing activities. Refer to Note 15 – Related Party Transactions of the Notes to Consolidated Financial Statements for further information. Employee-related expenses increased in the first nine months of fiscal 2011 compared to the same period in fiscal 2010 due to higher performance based compensation. Refer to Insurance Operations above for further information on insurance dealer back-end program expenses.

Provision for Income Taxes

Our provision for income taxes for the first nine months and third quarter of fiscal 2011 was $909 million and $387 million, respectively, compared to $555 million and $248 million for the same periods in fiscal 2010. Our effective tax rate was 38 percent for the first nine months and third quarter of fiscal 2011, respectively, compared to 39 percent for the same periods in fiscal 2010. The change in our provision for income taxes is consistent with the change in operating income in the first nine months and third quarter of fiscal 2011 compared to the same periods in fiscal 2010.

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FINANCIAL CONDITION

Vehicle Financing Volume and Net Earning Assets

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

	Three Months Ended						Nine Months Ended
	December 31,				Percentage		December 31,				Percentage
(units in thousands):	2010		2009		Change		2010		2009		Change
TMS new sales volume1	355		358		(1)	%	1,077		1,106		(3)	%

Vehicle financing volume2
New retail contracts	129		126		2	%	472		460		3	%
Used retail contracts	88		63		40	%	274		220		25	%
Lease contracts	73		71		3	%	277		171		62	%
Total	290		260		12	%	1,023		851		20	%

TMS subvened vehicle financing volume
(units included in the above table):
New retail contracts	67		74		(9)	%	296		238		24	%
Used retail contracts	18		8		125	%	54		30		80	%
Lease contracts	59		60		(2)	%	253		138		83	%
Total	144		142		1	%	603		406		49	%

Market share:3
Retail contracts	36.3	%	35.1	%			43.6	%	41.3	%
Lease contracts	20.5	%	19.8	%			25.7	%	15.4	%
Total	56.8	%	54.9	%			69.3	%	56.7	%

1 Represents total domestic TMS sales of new Toyota and Lexus vehicles excluding sales under dealer rental car and commercial fleet programs and sales of a private Toyota

distributor. TMS new sales volume is comprised of approximately 85% Toyota and 15% Lexus vehicles for the first nine months of fiscal 2011, and 82% Toyota and 18%

Lexus vehicles for the third quarter of fiscal 2011. TMS new sales volume is comprised of approximately 85% Toyota and 15% Lexus vehicles for the first nine months of

fiscal 2010 and 82% Toyota and 18% Lexus vehicles for the third quarter of fiscal 2010.

2 Total financing volume is comprised of approximately 81% Toyota, 14% Lexus, and 5% non-Toyota/Lexus vehicles for the first nine months of fiscal 2011 and 79% Toyota,

16% Lexus, and 5% non-Toyota/Lexus vehicles for the third quarter of fiscal 2011. Total financing volume is comprised of approximately 80% Toyota, 15% Lexus, and 5%

non-Toyota/Lexus vehicles for the first nine months of fiscal 2010, and approximately 79% Toyota, 16% Lexus, and 5% non-Toyota/Lexus vehicles for the third quarter of

fiscal 2010.

3 Represents the percentage of total domestic TMS sales of new Toyota and Lexus vehicles financed by us, excluding non-Toyota/Lexus sales, sales under dealer rental car and

commercial fleet programs and sales of a private Toyota distributor.

Vehicle Financing Volume

Our retail and lease contracts are acquired primarily from Toyota and Lexus vehicle dealers, and the volume of contracts is dependent upon TMS sales volume and subvention. Vehicle sales by TMS decreased 3 percent and 1 percent in the first nine months and third quarter of fiscal 2011, respectively, compared to the same periods in fiscal 2010. Sales were higher during the first nine months and third quarter of fiscal 2010 due to the Car Allowance Rebate System, or “cash for clunkers” program. No similar United States government programs were available during fiscal 2011.

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Our finance volume and market share increased in the first nine months and third quarter of fiscal 2011 compared to the same periods in fiscal 2010. These increases were driven primarily by increased availability of TMS subvention.

The composition of our net earning assets is summarized below:
						Percentage
(Dollars in millions)		December 31, 2010		March 31, 2010		Change
Net Earning Assets
Finance receivables, net
	Retail finance receivables, net1	$	45,495	$	43,776	4	%
	Dealer financing, net		12,414		11,311	10	%
Total finance receivables, net			57,909		55,087	5	%
Investments in operating leases, net			18,908		17,151	10	%
Net earning assets		$	76,817	$	72,238	6	%

Dealer Financing
(Number of dealers serviced)
Toyota and Lexus dealers2			973		963	1	%
Vehicle dealers outside of the
	Toyota/Lexus dealer network		473		490	(3)	%
Industrial equipment dealers			137		146	(6)	%
Total number of dealers receiving
	wholesale financing		1,583		1,599	(1)	%

Dealer inventory financed (units in thousands)			276		257	7	%

1 Includes direct finance leases of $232 million and $265 million at December 31, 2010 and March 31, 2010, respectively.

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

Retail Contract Volume and Earning Assets

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

Lease Contract Volume and Earning Assets

Our overall vehicle lease contract volume during the first nine months of fiscal 2011 increased as compared to the same period in fiscal 2010. Vehicle lease contract volume is affected by the level of Toyota and Lexus vehicle sales, the availability of subvention programs, and changes in the interest rate environment. Much of the increase during the first nine months of fiscal 2011 was attributable to an increase in TMS subvention programs. Our investment in operating leases, net increased at December 31, 2010 as compared to the balance at March 31, 2010 due to increased contract volume which was partially offset by an increase in scheduled maturities.

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Dealer Financing and Earning Assets

Dealer finance receivables increased 10% to $12.4 billion at December 31, 2010 from March 31, 2010, primarily due to increases in the number of dealer inventory units financed over that period. The total number of dealers receiving financing remained relatively stable as compared to March 31, 2010.

Residual Value Risk

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

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

Depreciation on Operating Leases

		Three Months Ended						Nine Months Ended
		December 31,				Percentage		December 31,				Percentage
		2010		2009		Change		2010		2009		Change
Depreciation on operating
	leases (dollars in millions)	$	872	$	897	(3)	%	$	2,507	$	2,626	(5)	%
Average operating lease units
	outstanding (in thousands)		805		721	12	%		780		720	8	%

Depreciation expense on operating leases decreased by 5 percent and 3 percent to $2,507 million and $872 million during the first nine months and third quarter of fiscal 2011, respectively, compared to $2,626 million and $897 million during the same periods of fiscal 2010. The average number of operating leases outstanding during the first nine months and third quarter of fiscal 2011 increased by 8% and 12%, respectively, as compared to the same prior year periods. Depreciation expense was positively affected by strong used vehicle values, which are a significant factor in our estimates of the end-of-term market values of our leased vehicle portfolio. Although used vehicle values increased from the levels at the end of fiscal 2010, it is uncertain whether the current level is sustainable. During the first nine months of fiscal 2011, our estimate of end-of-term residual values considered the impact of ongoing adverse publicity and governmental investigations associated with the TMS recall-related events. These events had no material impact on our depreciation on operating leases during that period.

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Credit Risk

Credit Loss Experience

The overall credit quality of our consumer portfolio in the first nine months and third quarter of fiscal 2011 continued to benefit from our focus on purchasing practices and collection efforts. In addition, subvention contributed to our overall portfolio quality, as subvened contracts typically have better credit quality than non-subvened contracts. These factors, combined with strong used vehicle prices and a continued focus on collection efforts, contributed to decreased levels of delinquency and net charge-offs during the first nine months of fiscal 2011 as compared to the same period in fiscal 2010.

			December 31,			March 31,			December 31,
			2010			2010			2009
Net charge-offs as a percentage of average gross earning assets1, 2
		Finance receivables		0.65	%		1.15	%		1.14	%
		Operating leases		0.24	%		0.63	%		0.59	%
		Total3		0.55	%		1.03	%		1.01	%

Default frequency as a percentage of outstanding contracts				2.50	%		2.79	%		2.88	%
Average loss severity per unit			$	7,329		$	8,342		$	8,417

Aggregate balances for accounts 60 or more days past due as a
	percentage of gross earning assets1, 4
		Finance receivables5		0.43	%		0.45	%		0.75	%
		Operating leases5		0.38	%		0.45	%		0.64	%
		Total6		0.42	%		0.45	%		0.72	%

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

2	Net charge-off ratios have been annualized using nine month results for the periods ended December 31, 2010 and December 31, 2009.

Beginning with the fourth quarter of fiscal 2010, we changed our charge-off policy from 150 days to 120 days past due. At December 31, 2009, the change would have

resulted in net charge-offs as a percentage of average gross earning assets of 1.16 percent, 0.63 percent and 1.03 percent for finance receivables, operating leases and in

total, respectively.

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

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

6 The change in our charge-off policy mentioned above would have resulted in over 60 day delinquencies as a percentage of gross earning assets at December 31, 2009 of

0.74 percent, 0.62 percent and 0.71 percent for finance receivables, operating leases and in total, respectively.

The improvement in loss severity per unit during the first nine months and third quarter of fiscal 2011 compared to the same periods in fiscal 2010 is primarily attributable to improvements in used vehicle values which reduced net loss per charged-off unit. As a result, our level of net charge-offs for the first nine months and third quarter of fiscal 2011 decreased compared with the same periods in the prior year. Net charge-offs as a percentage of average gross earning assets decreased from 1.01 percent at December 31, 2009 to 0.55 percent at December 31, 2010.

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

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Allowance for Credit Losses

We maintain an allowance for credit losses to cover probable losses resulting from the non-performance of our customers. The determination of the allowance involves significant assumptions, complex analysis, and management judgment. The following table provides information related to our allowance for credit losses and credit loss experience for the three and nine months ended December 31, 2010 and 2009:

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
(Dollars in millions)	2010		2009		2010		2009
Allowance for credit losses at beginning of period	$	1,189	$	1,837	$	1,705	$	1,864
Provision for credit losses		(176)		(5)		(479)		334
Charge-offs, net of recoveries1		(103)		(192)		(316)		(558)
Allowance for credit losses at end of period	$	910	$	1,640	$	910	$	1,640

The level of credit losses primarily reflects two factors: default frequency and loss severity. Default frequency as a percentage of average outstanding contracts decreased during the first nine months of fiscal 2011 compared to the same period in fiscal 2010. The improvement in default frequency was attributable to our focus on purchasing practices and collection efforts. In addition, we experienced lower loss severity due to strong used vehicle values during the first nine months of fiscal 2011 as compared to the same period in fiscal 2010.

Our allowance for credit losses 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 expected loss experience, used vehicle market conditions, economic conditions, unemployment rates, purchase quality mix, contract term length 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. Changes in any of these factors would cause changes in estimated probable losses.

During the first nine months of fiscal 2011, our allowance for credit losses decreased $795 million or 47 percent from $1,705 million at March 31, 2010 to $910 million at December 31, 2010. The decline in our allowance for credit losses was driven by improvements in our per unit loss severity and delinquencies. The improvement in per unit loss severity was attributable to strong used vehicle prices fueled by a low supply of used vehicles while the improvement in delinquencies was due to the strengthening of the overall credit quality of our consumer portfolio. In the first nine months of fiscal 2011, we also continued to benefit from our focus on purchasing practices and collection efforts. As a result, our net charge-offs improved during the first nine months of fiscal 2011 as compared to the same period in fiscal 2010. During the first nine months and third quarter of fiscal 2011, we continued to incorporate into our allowance for credit losses the impact of expected losses from ongoing adverse publicity and governmental investigations associated with the TMS recall-related events.

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LIQUIDITY AND CAPITAL RESOURCES

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

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

(Dollars in millions)	December 31, 2010		March 31, 2010
Commercial paper1	$	20,866	$	19,466
Unsecured notes and loans payable2		44,801		45,617
Secured notes and loans payable		6,787		3,000
Carrying value adjustment3		1,260		1,096
Total Debt	$	73,714	$	69,179

1 Includes unamortized premium/discount.

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

denominated in foreign currencies.

3 Represents the effects of fair value adjustments to debt in hedging relationships, accrued redemption premiums, and the unamortized fair value adjustments on the hedged

item for terminated fair value hedge accounting relationships.

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

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

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We do not rely on any single source of funding 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. We maintain broad access to a variety of global markets and cost of funding has generally improved during fiscal 2011.

For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from $3.0 billion to $5.6 billion with an average balance of $4.4 billion for the quarter ended December 31, 2010.

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 provided by our indirect parent Toyota Financial Services Corporation (“TFSC”), and by Toyota Motor Corporation (“TMC”) to TFSC provides 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 its senior unsecured debt obligations. Refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 for further discussion.

Commercial Paper

Short-term funding needs are met through the issuance of commercial paper in the United States. Commercial paper outstanding under our commercial paper programs ranged from approximately $15.9 billion to $21.1 billion during the quarter ended December 31, 2010, with an average outstanding balance of $17.8 billion. Our commercial paper programs are supported by the liquidity facilities discussed later in this section. As a commercial paper issuer with short-term debt ratings of A-1+ by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”), and P-1 by Moody’s Investors Service, Inc. (“Moody’s”), we believe there is ample capacity to meet our short-term funding requirements and manage our liquidity.

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Unsecured Notes and Loans Payable

Term funding requirements are met through the issuance of a variety of debt securities and other obligations in both the United States and international capital markets and through bank loans. To diversify our funding sources, we have issued debt in a variety of markets, currencies, and maturities, and to a variety of investors, which allows us to broaden our distribution of debt securities and obligations and further enhance liquidity.

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

(Dollars in millions)	U.S. medium term notes ("MTNs") and domestic bonds		Euro MTNs ("EMTNs")		Eurobonds		Other		Total unsecured notes and loans payable5
Balance at March 31, 20101	$	8,140	$	26,214	$	3,633	$	7,169	$	45,156
Issuances during the nine months
ended December 31, 2010		4,041 2		2,445 3		-		1,950 4		8,436
Maturities and terminations
during the nine months
ended December 31, 2010		(4,090)		(5,886)		(400)		(150)		(10,526)
Balance at December 31, 20101	$	8,091	$	22,773	$	3,233	$	8,969	$	43,066

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 10 years, and had interest rates at the time of issuance ranging from 0 percent to 4.5 percent.

3	EMTNs had terms to maturity ranging from approximately 3 years to 5 years, and had interest rates at the time of issuance ranging from 0.8 percent to 5.8 percent.

4	Primarily consists of long-term borrowings, all with terms to maturity from approximately 1 year to 5 years, and interest rates as of December 31, 2010 ranging from 0.2 percent to 1.0 percent.

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

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

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Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets. In September 2010, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50 billion, or the equivalent in other currencies, of which €28.2 billion was available for issuance at December 31, 2010. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time. Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions. We are in compliance with these covenants.

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

Secured Notes and Loans Payable

Asset-backed securitization (“ABS”) of our earning asset portfolio provides us with an alternative source of funding and investor diversification. During the first nine months of fiscal 2011, we executed securitization transactions of retail contracts that provided us with approximately $5.7 billion in funding which will be repaid as the underlying finance receivables pools amortize. We will continue to evaluate the market for asset-backed securities in considering our funding strategies in the future, including the balance of secured and unsecured funding.

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

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

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

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Our securitizations are structured to provide credit enhancements that reduce the risk of loss to investors in the asset-backed securities. Credit enhancements may include some or all of the following:

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

·	Excess spread: The expected interest collections on the securitized assets 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 segregated reserve funds and may be used to pay principal and interest to investors if collections on the underlying receivables are insufficient.

·	Yield supplement arrangements: Additional overcollateralization may be provided to supplement the future interest earnings 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 enhancements described above, we entered into interest rate swaps with the special purpose entities that issue variable rate debt. Under the terms of these swaps, the securitization trusts are obligated to pay TMCC a fixed rate of interest on payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt. This arrangement enables the securitization trusts to issue variable rate debt that is secured by fixed rate retail finance receivables.

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

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Liquidity Facilities and Letters of Credit

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

364 Day Credit Agreement

Five Year Credit Agreement

Letter of Credit Facility Agreement

In addition, TMCC has an uncommitted letter of credit facility totaling $5 million, of which $1 million was issued and outstanding at December 31, 2010 and March 31, 2010.

Other Credit Agreements

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

Credit Ratings

The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning credit rating organization. Each credit rating organization may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each organization. Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC. See “Item 1A. Risk Factors - Our borrowing costs and access to the unsecured debt capital markets depend significantly on the credit ratings of TMCC and its parent companies and our credit support arrangements” in our fiscal 2010 Form 10-K.

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DERIVATIVE INSTRUMENTS

Risk Management Strategy

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

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

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

Accounting for Derivative Instruments

All derivative instruments are recorded on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow us to settle our net positive and negative positions and offset cash collateral held with the same counterparty. Changes in the fair value of derivatives are recorded in interest expense in the Consolidated Statement of Income, with the exception of to-be-announced forward contracts. Changes in the fair value of these instruments, which are used to manage interest rate risk related to our investment portfolio, are recorded in investment and other 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”).

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We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative. Changes in the fair value of the bifurcated embedded derivative or the entire hybrid financial instrument are reported in interest expense in the Consolidated Statement of Income. Refer to Note 1 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in our fiscal 2010 Form 10-K, and above in Note 8 –Derivatives, Hedging Activities and Interest Expense in this Form 10-Q for additional information.

Derivative Assets and Liabilities

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

(Dollars in millions)	December 31, 2010		March 31, 2010
Derivative assets	$	3,377	$	1,876
Less: Collateral held, net 1		(2,029)		(1,285)
Derivative assets, net of collateral		1,348		591
Less: Counterparty credit valuation adjustment		(19)		(10)
Derivative assets, net of collateral and credit adjustment	$	1,329	$	581
Embedded derivative assets	$	1	$	4

Derivative liabilities	$	268	$	594
Less: Collateral posted, net 1		(41)		(57)
Derivative liabilities, net of collateral		227		537
Less: Our own non-performance credit valuation adjustment		(1)		(4)
Derivative liabilities, net of collateral
and non-performance credit valuation adjustment	$	226	$	533
Embedded derivative liabilities	$	56	$	34

1 Represents cash received or deposited under reciprocal collateral arrangements that we have entered into with certain

derivative counterparties. Refer to the “Counterparty Credit Risk” section for more details.

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

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Counterparty Credit Risk

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

All of our derivatives counterparties to which we had credit exposure at December 31, 2010 were assigned investment grade ratings by a credit rating organization. In addition, we require counterparties that are or become rated BBB+ or lower to fully collateralize their net derivative exposures with us. Our counterparty credit risk could be adversely affected by deterioration of the United States economy and financial distress in the banking industry.

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

In addition, many of our ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement and related transactions at market value in the event of a ratings downgrade below a specified threshold. Refer to “Part I. Item 1A. Risk Factors” in our fiscal 2010 Form 10-K for further discussion.

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

(Dollars in millions)	December 31, 2010		March 31, 2010
Credit Rating
AA	$	648	$	258
A		636		333
BBB		64		-
Total net counterparty credit exposure1	$	1,348	$	591

1 Amounts exclude counterparty credit valuation adjustments of $19 million and $10 million in at December 31, 2010 and March 31, 2010, respectively.

At December 31, 2010, we recorded a credit valuation adjustment of $19 million related to non-performance risk of our counterparties and a credit valuation adjustment of $1 million on our own non-performance risk. All derivative credit valuation adjustments are recorded in interest expense in our Consolidated Statement of Income. Refer to “Note 2 – Fair Value Measurements” of the Notes to the Consolidated Financial Statements for further discussion.

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NEW ACCOUNTING STANDARDS

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

OFF-BALANCE-SHEET ARRANGEMENTS

Guarantees

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

Lending Commitments

A description of our lending commitments is included under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Off-Balance Sheet Arrangements” in our fiscal 2010 Form 10-K, as well as above in Note 13 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Indemnification

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of our “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of December 31, 2010, to ensure that information required to be disclosed in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules, regulations, and forms and that such information is accumulated and communicated to our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation

Repossession Class Actions

Recall-related Class Actions

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

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

We believe we have meritorious defenses to all of the above claims and intend to defend against them vigorously.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

ITEM 4. (Removed and Reserved)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See Exhibit Index on page 90.

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SIGNATURES

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

	TOYOTA MOTOR CREDIT CORPORATION
	(Registrant)

Date: February 10, 2011	By /S/ GEORGE E. BORST

	George E. Borst
	President and
	Chief Executive Officer
	(Principal Executive Officer)

Date: February 10, 2011	By /S/ CHRIS BALLINGER

	Chris Ballinger
	Group Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing

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

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

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

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

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

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

4.2	Amended and Restated Agency Agreement, dated September 17, 2010, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited and The Bank of New York Mellon.	(6)

4.3	TMCC has outstanding certain long-term debt as set forth in Note 10 - Debt of the Notes to Consolidated Financial Statements. Not filed herein as an exhibit, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, is any instrument which defines the rights of holders of such long-term debt, where the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of TMCC and its subsidiaries on a consolidated basis. TMCC agrees to furnish copies of all such instruments to the Securities and Exchange Commission upon request.

__________

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

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

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

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

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

(6)	Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 17, 2010, Commission File Number 1-9961.

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing

12.1	Calculation of ratio of earnings to fixed charges	Filed Herewith

31.1	Certification of Chief Executive Officer	Filed Herewith

31.2	Certification of Chief Financial Officer	Filed Herewith

32.1	Certification pursuant to 18 U.S.C. Section 1350	Furnished Herewith

32.2	Certification pursuant to 18 U.S.C. Section 1350	Furnished Herewith

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TOYOTA MOTOR CREDIT CORP - FORM 10-Q - February 10, 2011

Attached files

TOYOTA MOTOR CREDIT CORP Reports