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 June 30, 2013

OR

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

EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 1-9961

TOYOTA MOTOR CREDIT CORPORATION

(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	95-3775816 (I.R.S. Employer Identification No.)
19001 S. Western Avenue Torrance, California (Address of principal executive offices)	90501 (Zip Code)

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

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

Yes   x   No                                  

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

Yes   x   No                                  

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

Large accelerated filer   __                                                                                                           Accelerated filer   __

Non-accelerated filer    x                                                                                                           Smaller reporting company  __

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

Yes __    No  x

As of July 31, 2013, the number of outstanding shares of capital stock, no par value per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services Americas Corporation.

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 June 30, 2013

INDEX
PART I ...................................................................................................................................................................................		3
	Item 1.     Financial Statements..............................................................................................................................................	3
	Consolidated Statement of Income.....................................................................................................................................	3
	Consolidated Statement of Comprehensive 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...............................................................................................................	44
	Item 3.     Quantitative and Qualitative Disclosures About Market Risk..............................................................................	69
	Item 4.     Controls and Procedures.......................................................................................................................................	69

PART II .................................................................................................................................................................................		70
	Item 1.     Legal Proceedings.................................................................................................................................................	70
	Item 1A.  Risk Factors...........................................................................................................................................................	70
	Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds..............................................................................	70
	Item 3.     Defaults Upon Senior Securities...........................................................................................................................	70
	Item 4.     Mine Safety Disclosures.......................................................................................................................................	70
	Item 5.     Other Information.................................................................................................................................................	71
	Item 6.     Exhibits.................................................................................................................................................................	71
	Signatures..............................................................................................................................................................................	72
	Exhibit Index.........................................................................................................................................................................	73

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
		Three Months Ended
		June 30,
(Dollars in millions)		2013		2012
Financing revenues:
	Operating lease	$	1,209	$	1,157
	Retail		478		532
	Dealer		108		108
Total financing revenues			1,795		1,797
	Depreciation on operating leases		951		855
	Interest expense		536		58
Net financing revenues			308		884
Insurance earned premiums and contract revenues			139		150
Investment and other income, net			6		35
Net financing revenues and other revenues			453		1,069
Expenses:
	Provision for credit losses		11		16
	Operating and administrative		227		216
	Insurance losses and loss adjustment expenses		71		81
Total expenses			309		313
Income before income taxes			144		756
Provision for income taxes			53		279
Net income		$	91	$	477
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
		Three Months Ended
		June 30,
(Dollars in millions)		2013		2012
Net income		$	91	$	477
Other comprehensive income, net of tax:
Net unrealized (losses) gains on available-for-sale
	marketable securities [net of tax benefit (provision) of
	$31 and ($9), respectively]		(54)		11
Reclassification adjustment for net losses (gains) on
	available-for-sale marketable securities
	included in investment and other income, net [net of
	tax (benefit) provision of ($10) and $1, respectively]		16		(2)
Other comprehensive (loss) income			(38)		9
Comprehensive income		$	53	$	486
See accompanying Notes to Consolidated Financial Statements.

3

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in millions)		June 30, 2013		March 31, 2013
ASSETS
Cash and cash equivalents		$	2,818	$	4,723
Restricted cash			504		491
Investments in marketable securities			4,957		5,397
Finance receivables, net			63,911		62,567
Investments in operating leases, net			21,186		20,384
Other assets			1,979		1,740
Total assets		$	95,355	$	95,302
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt		$	78,619	$	78,832
Deferred income taxes			6,290		6,236
Other liabilities			2,836		2,677
Total liabilities			87,745		87,745
Commitments and contingencies (See Note 12)
Shareholder's equity:
Capital stock, no par value (100,000 shares authorized; 91,500 issued
	and outstanding) at June 30, 2013 and March 31, 2013		915		915
Additional paid-in-capital			2		2
Accumulated other comprehensive income			173		211
Retained earnings			6,520		6,429
Total shareholder's equity			7,610		7,557
Total liabilities and shareholder's equity		$	95,355	$	95,302

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

(Dollars in millions)	June 30, 2013		March 31, 2013
ASSETS
Finance receivables, net	$	8,605	$	7,556
Investments in operating leases, net		353		434
Other assets		9		12
Total assets	$	8,967	$	8,002
LIABILITIES
Debt	$	7,628	$	7,009
Other liabilities		1		1
Total liabilities	$	7,629	$	7,010
See accompanying Notes to Consolidated Financial Statements.

4

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY
(Unaudited)
						Accumulated
						other
		Capital		Additional		comprehensive		Retained
(Dollars in millions)		stock		paid-in capital		income		earnings		Total
Balance at March 31, 2012		$	915	$	2	$	160	$	6,585	$	7,662
Net income for the three months ended
	June 30, 2012		-		-		-		477		477
Other comprehensive income, net
	of tax		-		-		9		-		9
Balance at June 30, 2012		$	915	$	2	$	169	$	7,062	$	8,148
Balance at March 31, 2013		$	915	$	2	$	211	$	6,429	$	7,557
Net income for the three months ended
	June 30, 2013		-		-		-		91		91
Other comprehensive income, net
	of tax		-		-		(38)		-		(38)
Balance at June 30, 2013		$	915	$	2	$	173	$	6,520	$	7,610
See accompanying Notes to Consolidated Financial Statements.

5

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
			Three Months Ended June 30,
(Dollars in millions)			2013		2012
Cash flows from operating activities:
	Net income		$	91	$	477
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		960		866
		Recognition of deferred income		(300)		(288)
		Provision for credit losses		11		16
		Amortization of deferred costs		140		135
		Foreign currency and other adjustments to the carrying value of debt, net		(494)		(346)
	Net realized loss (gain) from sales and other-than-temporary impairment on securities			26		(3)
	Net change in:
		Restricted cash		(13)		19
		Derivative assets		11		(129)
		Other assets (Note 8) and accrued income		27		(23)
		Deferred income taxes		76		282
		Derivative liabilities		48		(17)
		Other liabilities		114		40
Net cash provided by operating activities				697		1,029
Cash flows from investing activities:
	Purchase of investments in marketable securities			(1,055)		(1,912)
	Proceeds from sales of investments in marketable securities			155		89
	Proceeds from maturities of investments in marketable securities			1,255		1,666
	Acquisition of finance receivables			(6,505)		(6,436)
	Collection of finance receivables			5,957		5,744
	Net change in wholesale and certain working capital receivables			(800)		(1,183)
	Acquisition of investments in operating leases			(3,370)		(2,455)
	Disposals of investments in operating leases			1,817		1,366
	Advances to affiliates			(1,152)		(1,080)
	Repayments from affiliates			832		1,520
	Other, net			(9)		(2)
Net cash used in investing activities				(2,875)		(2,683)
Cash flows from financing activities:
	Proceeds from issuance of debt			5,336		3,900
	Payments on debt			(4,350)		(2,954)
	Net change in commercial paper			(713)		3,388
	Repayments to affiliates			-		(2,014)
Net cash provided by financing activities				273		2,320
Net (decrease) increase in cash and cash equivalents				(1,905)		666
Cash and cash equivalents at the beginning of the period				4,723		5,060
Cash and cash equivalents at the end of the period			$	2,818	$	5,726
Supplemental disclosures:
	Interest paid		$	325	$	346
	Income taxes received, net		$	(24)	$	(1)
See accompanying Notes to Consolidated Financial Statements.

6

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data

Basis of Presentation

The information furnished in these unaudited interim financial statements for the three months ended June 30, 2013 and 2012 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 months ended June 30, 2013 do not necessarily indicate the results which may be expected for the full fiscal year ending March 31, 2014 (“fiscal 2014”).

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, 2013 (“fiscal 2013”), which was filed with the Securities and Exchange Commission (“SEC”) on June 14, 2013.  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.

Certain prior period amounts have been reclassified to conform to the current period presentation.  Related party transactions presented in the Consolidated Financial Statements are disclosed in Note 14 – Related Party Transactions of the Notes to Consolidated Financial Statements.

Derivatives

Offsetting of Derivatives

The accounting guidance permits the net presentation on the Consolidated Balance Sheet of derivative receivables and derivative payables with the same counterparty and the related cash collateral when a legally enforceable master netting agreement exists.  When we meet this condition, we elect to present such balances on a net basis.  We use master netting agreements to mitigate counterparty credit risk in derivative transactions.  A master netting agreement is a contract with a counterparty that permits multiple transactions governed by that contract to be cancelled and settled with a single net balance paid to either party in the event of default or other termination event outside the normal course of business, such as a ratings downgrade of either party to the contract.

Our reciprocal collateral agreements typically require the transfer of cash collateral to the party in a net asset position across all transactions governed by the master netting agreement.  Upon default, the collateral agreement grants the party in a net asset position the right to set-off amounts receivable against any posted collateral.

7

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Interim Financial Data (Continued)

New Accounting Guidance

In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.  The accounting guidance is effective for us on April 1, 2014.  We are currently evaluating the impact of this guidance on our consolidated financial statements.

In July 2013, the FASB issued new guidance which permits the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) to be used as a benchmark interest rate for hedge accounting purposes.  The new guidance also removes the restriction on using different benchmark rates for similar hedges.  The accounting guidance is effective for us on July 17, 2013 and applies prospectively for qualifying new or redesignated hedging relationships.  The adoption of this guidance will not have a material impact on our consolidated financial statements.

In February 2013, the FASB issued new guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for certain obligations addressed within existing guidance in U.S. GAAP.  Specifically, the new guidance requires an entity to measure these obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors.  Additionally, the guidance requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations within the footnotes to its financial statements.  Currently no such recognition, measurement, and disclosure requirement exists under U.S. GAAP.  The accounting guidance is effective for us on April 1, 2014.  We are currently evaluating the impact of this guidance on our consolidated financial statements.

Recently Adopted Accounting Guidance

In April 2013, we adopted new FASB accounting guidance that requires disclosures about offsetting assets and liabilities for derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.  The guidance retains the current U.S. GAAP model that allows companies the option to present net in their balance sheets derivatives that are subject to a legally enforceable netting arrangement with the same party, where rights of set-off are available, including in the event of default or bankruptcy.  However, the guidance adds new disclosure requirements to improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received.  The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2013, we adopted new FASB accounting guidance that requires us to disclose significant amounts reclassified out of each component of accumulated other comprehensive income and the affected income statement line item, only if the item reclassified is required to be reclassified to net income in its entirety.  The adoption of this guidance did not have a material impact on our consolidated financial statements.

8

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements

The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2013 and March 31, 2013, by level within the fair value hierarchy.  Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million as of June 30, 2013 and March 31, 2013.  Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of June 30, 2013 and March 31, 2013.

As of June 30, 2013
					Fair value measurements on a recurring basis
										Counterparty
										netting &		Fair
(Dollars in millions)				Level 1		Level 2		Level 3		collateral		value
Cash equivalents:
	Money market instruments			$	344	$	443	$	-	$	-	$	787
	Certificates of deposit				-		1,125		-		-		1,125
	Commercial paper				-		328		-		-		328
	Cash equivalents total				344		1,896		-		-		2,240
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			21		57		-		-		78
		Municipal debt securities			-		15		-		-		15
		Certificates of deposit			-		1,837		-		-		1,837
		Commercial paper			-		355		-		-		355
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		145		4		-		149
		Mortgage-backed securities:
			U.S. government agency		-		79		-		-		79
			Non-agency residential		-		-		5		-		5
			Non-agency commercial		-		-		48		-		48
		Asset-backed securities			-		-		19		-		19
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		43		-		-		43
			U.S. government sector fund		-		319		-		-		319
			Municipal sector fund		-		21		-		-		21
			Investment grade corporate sector fund		-		300		-		-		300
			High-yield sector fund		-		41		-		-		41
			Real return sector fund		-		270		-		-		270
			Mortgage sector fund		-		599		-		-		599
			Asset-backed securities sector fund		-		48		-		-		48
			Emerging market sector fund		-		63		-		-		63
			International sector fund		-		170		-		-		170
		Equity mutual fund			495		-		-		-		495
	Available-for-sale securities total				516		4,365		76		-		4,957
	Derivative assets:
		Foreign currency swaps			-		709		36		-		745
		Interest rate swaps			-		442		11		-		453
		Counterparty netting and collateral			-		-		-		(1,151)		(1,151)
	Derivative assets total				-		1,151		47		(1,151)		47
Assets at fair value					860		7,412		123		(1,151)		7,244
	Derivative liabilities:
		Foreign currency swaps			-		(286)		(13)		-		(299)
		Interest rate swaps			-		(702)		-		-		(702)
		Counterparty netting and collateral			-		-		-		943		943
	Derivative liabilities total				-		(988)		(13)		943		(58)
	Embedded derivative liabilities				-		-		(7)		-		(7)
Liabilities at fair value					-		(988)		(20)		943		(65)
Net assets at fair value				$	860	$	6,424	$	103	$	(208)	$	7,179

9

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

10

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods.  There were no transfers between levels during the three months ended June 30, 2013.  During the three months ended June 30, 2012, $53 million of U.S. government and agency obligations were valued using quoted prices for identical securities traded in an active market and were transferred from Level 2 to Level 1.  Additionally, during the three months ended June 30, 2012, certain available-for-sale debt instruments were transferred from Level 2 to Level 3 due to reduced transparency of market price quotations for these and/or comparable instruments.

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs for the three months ended June 30, 2013 and 2012:

Three Months Ended June 30, 2013

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																						Total net
																						assets
			Available-for-sale securities											Derivative instruments, net								(liabilities)
					Non-agency			Non-agency
					residential			commercial				Total								Total
			Corporate		mortgage-			mortgage-		Asset-		available-		Interest		Foreign				derivative
			debt		backed			backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)			securities		securities			securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2013			$	4		$	5	$	51	$	13	$	73	$	12	$	55	$	(12)	$	55	$	128
Total (losses) gains
		Included in earnings		-			-		-		-		-		(1)		(22)		5		(18)		(18)
		Included in other comprehensive income		-			-		(3)		-		(3)		-		-		-		-		(3)
Purchases, issuances, sales, and
	settlements
		Purchases		-			-		-		7		7		-		-		-		-		7
		Issuances		-			-		-		-		-		-		-		-		-		-
		Sales		-			-		-		-		-		-		-		-		-		-
		Settlements		-			-		-		(1)		(1)		-		(10)		-		(10)		(11)
Transfers in to Level 3				-			-		-		-		-		-		-		-		-		-
Transfers out of Level 3				-			-		-		-		-		-		-		-		-		-
Fair value, June 30, 2013			$	4		$	5	$	48	$	19	$	76	$	11	$	23	$	(7)	$	27	$	103
The amount of total losses
for the period included in
earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date														$	(1)	$	(19)	$	(1)	$	(21)	$	(21)

11

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)
Three Months Ended June 30, 2012
		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																					Total net
																					assets
		Available-for-sale securities											Derivative instruments, net								(liabilities)
				Non-agency			Non-agency
				residential			commercial				Total								Total
		Corporate		mortgage-			mortgage-		Asset-		available-		Interest		Foreign				derivative
		debt		backed			backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)		securities		securities			securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2012		$	1		$	4	$	15	$	1	$	21	$	13	$	69	$	(24)	$	58	$	79
Total losses
	Included in earnings		-			-		-		-		-		(1)		(5)		(3)		(9)		(9)
	Included in other comprehensive income		-			-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and       settlements
	Purchases		-			-		1		-		1		-		-		-		-		1
	Issuances		-			-		-		-		-		-		-		-		-		-
	Sales		-			-		(1)		-		(1)		-		-		-		-		(1)
	Settlements		-			-		-		-		-		(1)		(5)		-		(6)		(6)
Transfers in to Level 3			3			3		10		11		27		-		-		-		-		27
Transfers out of Level 3			-			-		-		-		-		-		-		-		-		-
Fair value, June 30, 2012		$	4		$	7	$	25	$	12	$	48	$	11	$	59	$	(27)	$	43	$	91
The amount of total losses
for the period included in
earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date													$	(1)	$	(5)	$	(3)	$	(9)	$	(9)

Nonrecurring Fair Value Measurements

Nonrecurring fair value measurements consist of Level 3 net finance receivables that are individually evaluated for impairment.  These assets are not measured at fair value on a recurring basis but are subject to fair value adjustments when there is evidence of impairment.  For these assets, we record the fair value on a nonrecurring basis and disclose changes in fair value during the reporting period.  Total nonrecurring fair value measurements of $205 million and $208 million were recorded as of June 30, 2013 and March 31, 2013, respectively.

The total change in fair value of financial instruments subject to nonrecurring fair value measurements for which a fair value adjustment has been included in the Consolidated Statement of Income consisted of net losses on net finance receivables within the dealer products portfolio segment of $2 million and $30 million for the three months ended June 30, 2013 and June 30, 2012, respectively.

12

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements at June 30, 2013 and March 31, 2013

At June 30, 2013, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $76 million, derivative assets of $47 million and derivative liabilities of $20 million.  At March 31, 2013, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $73 million, derivative assets of $75 million and derivative liabilities of $20 million.  The fair value measurements of Level 3 financial assets and liabilities subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance Sheet or Consolidated Statement of Income as of and for the three months ended June 30, 2013 and as of and for the year ended March 31, 2013.

Financial Instruments

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

					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in millions)			value		Level 1		Level 2		Level 3		Value
As of June 30, 2013
Financial assets
	Finance receivables, net
		Retail loan	$	47,860	$	-	$	-	$	48,526	$	48,526
		Commercial		140		-		-		130		130
		Wholesale		9,349		-		-		9,388		9,388
		Real estate		4,517		-		-		4,438		4,438
		Working capital		1,726		-		-		1,713		1,713
Financial liabilities
	Commercial paper		$	23,876	$	-	$	23,876	$	-	$	23,876
	Unsecured notes and loans payable			47,115		-		47,278		796		48,074
	Secured notes and loans payable			7,628		-		-		7,627		7,627

13

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2 - Fair Value Measurements (Continued)
					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in millions)			value		Level 1		Level 2		Level 3		Value
As of March 31, 2013
Financial assets
	Finance receivables, net
		Retail loan	$	47,312	$	-	$	-	$	48,313	$	48,313
		Commercial		134		-		-		126		126
		Wholesale		8,620		-		-		8,644		8,644
		Real estate		4,531		-		-		4,480		4,480
		Working capital		1,695		-		-		1,708		1,708
Financial liabilities
	Commercial paper		$	24,590	$	-	$	24,590	$	-	$	24,590
	Unsecured notes and loans payable			47,233		-		47,901		874		48,775
	Secured notes and loans payable			7,009		-		-		7,016		7,016

The carrying value of each class of finance receivables is presented net of deferred fees and costs, deferred income and the allowance for credit losses; the amount excludes related party transactions of $88 million and $40 million at June 30, 2013 and March 31, 2013 and direct finance leases of $231 million and $235 million at June 30, 2013 and March 31, 2013, respectively.

The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment as described in Note 9 - Debt.

14

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3 – Investments in Marketable Securities

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

				June 30, 2013
				Amortized		Unrealized		Unrealized		Fair
(Dollars in millions)				cost		gains		losses		value
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations		$	78	$	1	$	(1)	$	78
		Municipal debt securities			14		1		-		15
		Certificates of deposit			1,836		1		-		1,837
		Commercial paper			355		-		-		355
		Foreign government debt securities			3		-		-		3
		Corporate debt securities			149		4		(4)		149
		Mortgage-backed securities:
			U.S. government agency		78		2		(1)		79
			Non-agency residential		4		1		-		5
			Non-agency commercial		49		1		(2)		48
		Asset-backed securities			19		-		-		19
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		40		3		-		43
			U.S. government sector fund		324		-		(5)		319
			Municipal sector fund		20		1		-		21
			Investment grade corporate sector fund		259		41		-		300
			High-yield sector fund		35		6		-		41
			Real return sector fund		286		-		(16)		270
			Mortgage sector fund		599		-		-		599
			Asset-backed securities sector fund		39		9		-		48
			Emerging market sector fund		64		1		(2)		63
			International sector fund		166		4		-		170
		Equity mutual fund			259		236		-		495
Total investments in marketable securities				$	4,676	$	312	$	(31)	$	4,957

15

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

The fixed income mutual funds include investments in funds that are privately placed.  The total fair value of private placement fixed income mutual funds was $1.9 billion and $2.0 billion at June 30, 2013 and March 31, 2013, respectively.  For each fund, we may redeem shares solely in cash up to the lesser of $250 thousand or 1 percent of the individual fund’s net assets during any 90 day period.  Although the fund manager will normally redeem all shares for cash, in unusual circumstances, it reserves the right to pay any redemption exceeding this amount in whole or in part by a distribution in kind of securities held by the respective fund in lieu of cash.

16

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3 – Investments in Marketable Securities (Continued)

Unrealized Losses on Securities

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

					Less than 12 months as of
					June 30, 2013				March 31, 2013
					Fair		Unrealized		Fair		Unrealized
(Dollars in millions)					value		losses		value		losses
Available-for-sale securities:
	Debt instruments:
			U.S. government and agency
				obligations	$	35	$	(1)	$	-	$	-
			Corporate debt securities			93		(4)		-		-
			Mortgage backed securities:
				U.S. government agency		38		(1)		-		-
				Non-agency commercial		29		(2)
	Equity instruments:
		Fixed income mutual funds:
				U.S. government sector fund		319		(5)		-		-
				Real return sector fund		270		(16)		-		-
				Mortgage sector fund		-		-		532		(12)
				Emerging market sector fund		52		(2)		-		-
	Total investments in marketable
			securities		$	836	$	(31)	$	532	$	(12)

At June 30, 2013, there were no investments that had been in a continuous unrealized loss position for 12 consecutive months or more.  At March 31, 2013, total gross unrealized loss and fair value of investments that had been in a continuous unrealized loss position for 12 consecutive months or more were $3 million and $116 million, respectively.

Realized Gains and Losses on Securities

The following table represents realized gains and losses by transaction type for the three months ended June 30, 2013 and June 30, 2012 (dollars in millions):

		Three Months Ended
		June 30,
Available-for-sale securities:		2013		2012
Realized gains on sales	$	5	$	4
Realized losses on sales	$	(1)	$	(1)
Impairment write-downs	$	(30)	$	-

The other-than-temporary impairment write-downs of $30 million during the three months ended June 30, 2013 was related to our mortgage sector fund investment.  There were no available-for-sale debt or equity securities deemed to be other-than-temporarily impaired for the three months ended June 30, 2012.

17

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3 – Investments in Marketable Securities (Continued)

Contractual Maturities and Yields

The contractual maturities of investments in marketable securities at June 30, 2013 are summarized in the following table.  Prepayments may cause actual maturities to differ from scheduled maturities.

		Due in 1 Year or				Due after 1 Year				Due after 5 Years
			Less			through 5 Years				through 10 Years				Due after 10 Years					Total
(Dollars in millions)		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Fair Value of Available-for-Sale Securities:
Debt instruments:
U.S. government and
	agency obligations	$	8	0.19	%	$	42	1.50	%	$	23	1.66	%	$	5	3.16	%	$	78	1.52	%
Municipal debt securities			2	2.39			-	-			1	5.57			12	5.69			15	5.17
Certificates of deposit			1,837	0.44			-	-			-	-			-	-			1,837	0.44
Commercial paper			355	0.19			-	-			-	-			-	-			355	0.19
Foreign government debt
	securities		-	-			3	2.93			-	-			-	-			3	2.93
Corporate debt
	securities		6	3.48			36	4.86			68	3.53			39	3.23			149	3.79
Mortgage-backed securities:
	U.S. government agency		-	-			-	-			4	3.92			75	2.99			79	3.05
	Non-agency residential		-	-			-	-			-	-			5	10.84			5	10.84
	Non-agency commercial		-	-			3	3.71			2	1.18			43	3.35			48	3.30
Asset-backed securities			-	-			-	-			9	1.31			10	2.57			19	1.89
Debt instruments total			2,208	0.40			84	3.08			107	2.96			189	3.47			2,588	0.82
Equity instruments:
Fixed income mutual funds																			1,874	3.80
Equity mutual fund																			495	4.09
Equity instruments total			-				-				-				-				2,369	3.86
Total fair value		$	2,208	0.40	%	$	84	3.08	%	$	107	2.96	%	$	189	3.47	%	$	4,957	2.28	%
Total amortized cost		$	2,206			$	83			$	109			$	187			$	4,676

Yields are based on the amortized cost balances of securities held at June 30, 2013.  Yields are derived by aggregating the monthly result of interest and dividend income (including the effect of related amortization of premiums and accretion of discounts) divided by amortized cost.  Equity instruments do not have a stated maturity date.

Securities on Deposit

In accordance with statutory requirements, we had on deposit with state insurance authorities U.S. debt securities with amortized cost and fair value of $6 million at both June 30, 2013 and March 31, 2013.

18

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Finance Receivables, Net

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

(Dollars in millions)			June 30, 2013		March 31, 2013
Retail receivables			$	40,001	$	40,508
Pledged retail receivables				8,725		7,669
Dealer financing				15,793		14,995
				64,519		63,172
Deferred origination (fees) and costs, net				637		634
Deferred income				(821)		(794)
Allowance for credit losses
	Retail and pledged retail receivables			(312)		(338)
	Dealer financing			(112)		(107)
		Total allowance for credit losses		(424)		(445)
Finance receivables, net			$	63,911	$	62,567

Credit Quality Indicators

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

Retail Loan and Commercial Portfolio Segments

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

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

19

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Finance Receivables, Net (Continued)

Dealer Products Portfolio Segment

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

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

The four credit quality indicators are:

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

·   Credit Watch – Account designated for elevated attention

·   At Risk – Account where there is an increased likelihood that default may exist based on qualitative and quantitative factors

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

The tables below present each credit quality indicator by class of finance receivables as of June 30, 2013 and March 31, 2013:

		Retail Loan				Commercial
(Dollars in millions)		June 30, 2013		March 31, 2013		June 30, 2013		March 31, 2013
Aging of finance receivables:
	Current	$	47,712	$	47,236	$	372	$	362
	30-59 days past due		492		454		6		6
	60-89 days past due		111		87		1		1
	90 days past due		32		31		-		-
Total		$	48,347	$	47,808	$	379	$	369
		Wholesale				Real Estate				Working Capital
(Dollars in millions)		June 30, 2013		March 31, 20131		June 30, 2013		March 31, 2013		June 30, 2013		March 31, 2013
Credit quality indicators:
	Performing	$	8,622	$	7,740	$	4,013	$	3,968	$	1,656	$	1,616
	Credit Watch		786		915		535		583		72		80
	At Risk		39		33		28		28		27		28
	Default		4		1		8		1		3		2
Total		$	9,451	$	8,689	$	4,584	$	4,580	$	1,758	$	1,726
1  Certain prior period amounts have been reclassified to conform to the current period presentation.

20

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Finance Receivables, Net (Continued)
Impaired Finance Receivables
The following table summarizes the information related to our impaired loans by class of finance receivables as of June 30, 2013 and March 31, 2013:
	Impaired								Individually Evaluated
	Finance Receivables				Unpaid Principal Balance				Allowance
	June 30,		March 31,		June 30,		March 31,		June 30,		March 31,
(Dollars in millions)	2013		2013		2013		2013		2013		2013
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	24	$	16	$	24	$	16	$	4	$	3
Real estate		38		33		38		33		7		7
Working capital		25		24		25		24		24		23
Total	$	87	$	73	$	87	$	73	$	35	$	33
Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	55	$	66	$	55	$	66
Real estate		93		97		93		97
Working capital		5		5		5		5
Total	$	153	$	168	$	153	$	168
Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	389	$	415	$	385	$	410
Commercial		1		1		1		1
Total	$	390	$	416	$	386	$	411
Total impaired account balances:
Retail loan	$	389	$	415	$	385	$	410
Commercial		1		1		1		1
Wholesale		79		82		79		82
Real estate		131		130		131		130
Working capital		30		29		30		29
Total	$	630	$	657	$	626	$	652

As of June 30, 2013 and March 31, 2013, the impaired finance receivables balance for accounts in the dealer products portfolio segment that were on nonaccrual status was $79 million and $69 million, respectively and there were no charge-offs against the allowance for credit losses.  Therefore, the impaired finance receivables balance is equal to the unpaid principal balance.

21

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Finance Receivables, Net (Continued)

The following table summarizes the average balance of finance receivables determined to be impaired as of the balance sheet date and the interest income recognized on impaired finance receivables for the three months ended June 30, 2013 and 2012:

		Average Impaired Finance Receivables				Interest Income Recognized
		Three Months Ended June 30,				Three Months Ended June 30,
(Dollars in millions)		2013		2012		2013		2012
Impaired account balances individually evaluated for impairment with an allowance:
Wholesale	$	20	$	23	$	-	$	-
Real estate		36		137		-		1
Working capital		24		31		1		-
Total	$	80		191		1	$	1
Impaired account balances individually evaluated for impairment without an allowance:
Wholesale	$	60	$	60	$	-	$	-
Real estate		96		-		1		-
Working capital		5		1		-		-
Total	$	161	$	61	$	1	$	-
Impaired account balances aggregated and evaluated for impairment:
Retail loan	$	402	$	489	$	8	$	10
Commercial		1		1		-		-
Total	$	403	$	490	$	8	$	10
Total impaired account balances:
Retail loan	$	402	$	489	$	8	$	10
Commercial		1		1		-		-
Wholesale		80		83		-		-
Real estate		132		137		1		1
Working capital		29		32		1		-
Total	$	644	$	742	$	10	$	11

22

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4 – Finance Receivables, Net (Continued)

Troubled Debt Restructuring

For accounts not under bankruptcy protection, the amount of finance receivables modified as a troubled debt restructuring during the three months ended June 30, 2013 and June 30, 2012 is not significant for each class of finance receivables.  Troubled debt restructurings for these accounts within the retail loan class of finance receivables are comprised exclusively of contract term extensions that reduce the monthly payment due from the customer, while accounts within the commercial class of finance receivables consist of contract term extensions, interest rate adjustments, or a combination of the two.  For the three classes of finance receivables within the dealer products portfolio segment, troubled debt restructurings include contract term extensions, interest rate adjustments, waivers of loan covenants, or any combination of the three.  Troubled debt restructurings of accounts not under bankruptcy protection did not include forgiveness of principal during the three months ended June 30, 2013 and June 30, 2012.

We recognize finance receivables under bankruptcy protection within the retail loan and commercial classes as troubled debt restructurings as of the date we receive notice of a customer filing for bankruptcy protection regardless of the ultimate outcome of the bankruptcy proceedings.  The bankruptcy court may impose modifications as part of the proceedings, including interest rate adjustments and forgiveness of principal.  For the three months ended June 30, 2013 and June 30, 2012, the financial impact of troubled debt restructurings related to accounts under bankruptcy protection was not significant to our Consolidated Statement of Income and Consolidated Balance Sheet.

Payment Defaults

Finance receivables modified as troubled debt restructurings for which there was a subsequent payment default during the three months ended June 30, 2013 and June 30, 2012, and for which the modification occurred within twelve months of the payment default, were not significant for all classes of such receivables.

23

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 5 – Investments in Operating Leases, Net

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

Investments in operating leases, net consisted of the following:
(Dollars in millions)	June 30, 2013		March 31, 2013
Investments in operating leases	$	26,789	$	25,957
Pledged investments in operating leases		524		630
		27,313		26,587
Deferred origination (fees) and costs, net		(121)		(125)
Deferred income		(667)		(609)
Accumulated depreciation		(5,262)		(5,387)
Allowance for credit losses		(77)		(82)
Investments in operating leases, net	$	21,186	$	20,384

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 6 – Allowance for Credit Losses

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

	Three Months Ended
	June 30,
(Dollars in millions)		2013		2012
Allowance for credit losses at beginning of period	$	527	$	619
Provision for credit losses		11		16
Charge-offs, net of recoveries		(37)		(29)
Allowance for credit losses at end of period	$	501	$	606

Charge-offs are shown net of recoveries of $24 million and $23 million for the three months ended June 30, 2013 and June 30, 2012, respectively.

Allowance for Credit Losses and Finance Receivables by Portfolio Segment

The following tables provide information related to our allowance for credit losses and finance receivables by portfolio segment for the three months ended June 30, 2013 and 2012:

For the Three Months Ended June 30, 2013

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total
Allowance for Credit Losses for Finance Receivables:
Beginning balance, April 1, 2013	$	333	$	5	$	107	$	445
Charge-offs		(49)		(1)		-		(50)
Recoveries		19		-		-		19
Provisions		6		(1)		5		10
Ending balance, June 30, 2013	$	309	$	3	$	112	$	424
Ending balance: Individually evaluated for      impairment	$	-	$	-	$	35	$	35
Ending balance: Collectively evaluated for      impairment	$	309	$	3	$	77	$	389
Gross Finance Receivables:
Ending balance, June 30, 2013	$	48,347	$	379	$	15,793	$	64,519
Ending balance: Individually evaluated for      impairment	$	-	$	-	$	240	$	240
Ending balance: Collectively evaluated for      impairment	$	48,347	$	379	$	15,553	$	64,279

The ending balance of gross finance receivables collectively evaluated for impairment includes approximately $389 million and $1 million of finance receivables within the retail loan and commercial portfolio segments, respectively, that are specifically identified as impaired.  These amounts are aggregated with their respective portfolio segments when determining the allowance for credit losses as of June 30, 2013, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses would not be materially different if the amounts had been individually evaluated for impairment.

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TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 6 – Allowance for Credit Losses (Continued)

For the Three Months Ended June 30, 2012

(Dollars in millions)	Retail Loan		Commercial		Dealer Products		Total
Allowance for Credit Losses for Finance Receivables:
Beginning balance, April 1, 2012	$	395	$	10	$	119	$	524
Charge-offs		(44)		(1)		-		(45)
Recoveries		18		-		-		18
Provisions		(13)		(3)		34		18
Ending balance, June 30, 2012	$	356	$	6	$	153	$	515
Ending balance: Individually evaluated for      impairment	$	-	$	-	$	75	$	75
Ending balance: Collectively evaluated for      impairment	$	356	$	6	$	78	$	440
Gross Finance Receivables:
Ending balance, June 30, 2012	$	46,024	$	360	$	14,091	$	60,475
Ending balance: Individually evaluated for      impairment	$	-	$	-	$	258	$	258
Ending balance: Collectively evaluated for      impairment	$	46,024	$	360	$	13,833	$	60,217

The ending balance of gross finance receivables collectively evaluated for impairment includes approximately $476 million and $1 million of finance receivables within the retail loan and commercial portfolio segments, respectively, that are specifically identified as impaired.  These amounts are aggregated with their respective portfolio segments when determining the allowance for credit losses as of June 30, 2012, as they are deemed to be insignificant for individual evaluation and we have determined that the allowance for credit losses would not be materially different if the amounts had been individually evaluated for impairment.

26

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 6 – Allowance for Credit Losses (Continued)

Past Due Finance Receivables and Investments in Operating Leases

(Dollars in millions)		June 30, 2013			March 31, 2013
Aggregate balances 60 or more days past due
	Finance receivables		$	144		$	119
	Operating leases			37			36
Total			$	181		$	155

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

Past Due Finance Receivables by Class

The following tables summarize the aging of finance receivables by class as of June 30, 2013 and March 31, 2013:

(Dollars in millions)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days Past Due		Total Past Due		Current		Total Finance Receivables		Carrying Amount 90 Days Past Due and Accruing
As of June 30, 2013
Retail loan	$	492	$	111	$	32	$	635	$	47,712	$	48,347	$	32
Commercial		6		1		-		7		372		379		-
Wholesale		-		-		-		-		9,451		9,451		-
Real estate		1		-		-		1		4,583		4,584		-
Working capital		-		-		-		-		1,758		1,758		-
Total	$	499	$	112	$	32	$	643	$	63,876	$	64,519	$	32
(Dollars in millions)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days Past Due		Total Past Due		Current		Total Finance Receivables		Carrying Amount 90 Days Past due and Accruing
As of March 31, 2013
Retail loan	$	454	$	87	$	31	$	572	$	47,236	$	47,808	$	31
Commercial		6		1		-		7		362		369		-
Wholesale		-		-		-		-		8,689		8,689		-
Real estate		-		-		-		-		4,580		4,580		-
Working capital		-		-		-		-		1,726		1,726		-
Total	$	460	$	88	$	31	$	579	$	62,593	$	63,172	$	31

27

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

We use derivatives as part of our risk management strategy to hedge interest rate and foreign currency risks.  We enter into derivative transactions with the intent to reduce long term fluctuations in cash flows and fair value adjustments of assets and liabilities caused by market movements.  Our use of derivatives is limited to the management of interest rate and foreign currency risks.

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

Our approach to asset-liability management involves hedging our risk exposures so that changes in interest rates have a limited effect on our cash flows.  Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  Our resulting asset liability profile is consistent with the overall risk management strategy directed by the ALCO.  Gains and losses on these derivatives are recorded in interest expense.

Credit Risk Related Contingent Features

Certain of our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements.  Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold.  As of June 30, 2013, we have daily valuation and collateral exchange arrangements with all of our counterparties.  Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement.

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at June 30, 2013 was $58 million, excluding embedded derivatives and adjustments made for our own non-performance risk.  Since we fully collateralize without regard to credit ratings, we would not be required to post additional collateral to the counterparties with which we were in a net liability position at June 30, 2013, if our credit ratings were to decline.  In order to settle all derivative instruments that were in a net liability position at June 30, 2013, excluding embedded derivatives and adjustments made for our own non-performance risk, we would be required to pay $58 million.

28

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Impact of Derivative Activities on Financial Statements

The following tables show the financial statement line item and amount of our derivative receivables and payables that are reported in the Consolidated Balance Sheet at June 30, 2013 and March 31, 2013.  Derivative receivables and payables are shown before and after netting and collateral adjustments, by accounting designation and by contract type.  As permitted by the accounting guidance, where a legally enforceable master netting agreement exists, we have elected to net derivative receivables and derivative payables and the related cash collateral.  Our embedded derivative contracts and interest rate forward contracts do not meet the accounting guidance permitting netting and are therefore presented gross.

		Hedge accounting				Non-hedge				Total
As of June 30, 2013		derivatives				accounting derivatives
		Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)				value				value				value
Other assets
Interest rate swaps		$	465	$	40	$	24,961	$	413	$	25,426	$	453
Interest rate forwards			-		-		12		-		12		-
Foreign currency swaps			1,182		461		4,839		284		6,021		745
	Total	$	1,647	$	501	$	29,812	$	697	$	31,459	$	1,198
Counterparty netting and collateral													(1,151)
	Carrying value of derivative contracts – Other assets											$	47
Other liabilities
Interest rate swaps		$	-	$	-	$	52,022	$	702	$	52,022	$	702
Interest rate caps			-		-		50		-		50		-
Interest rate forwards			-		-		12		-		12		-
Foreign currency swaps			854		23		5,319		276		6,173		299
Embedded derivatives			-		-		40		7		40		7
	Total	$	854	$	23	$	57,443	$	985	$	58,297	$	1,008
Counterparty netting and collateral													(943)
	Carrying value of derivative contracts – Other liabilities											$	65

All derivative contracts shown above are subject to master netting agreements, with the exception of embedded derivative contracts and interest rate forward contracts.  Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties.  As of June 30, 2013, we held collateral of $579 million which offset derivative assets, and we posted collateral of $371 million which offset derivative liabilities.  We also held collateral of $22 million which we did not use to offset derivative assets.   

29

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)
		Hedge accounting				Non-hedge				Total
As of March 31, 2013		derivatives				accounting derivatives
		Notional		Fair		Notional		Fair		Notional		Fair
(Dollars in millions)				value				value				value
Other Assets
Interest rate swaps		$	465	$	44	$	22,336	$	536	$	22,801	$	580
Foreign currency swaps			1,246		491		7,498		648		8,744		1,139
	Total	$	1,711	$	535	$	29,834	$	1,184	$	31,545	$	1,719
Counterparty netting and collateral held													(1,661)
	Carrying value of derivative contracts – Other assets											$	58
Other liabilities
Interest rate swaps		$	-	$	-	$	51,342	$	766	$	51,342	$	766
Interest rate caps			-		-		50		-		50		-
Foreign currency swaps			790		29		3,103		102		3,893		131
Embedded derivatives			-		-		64		12		64		12
	Total	$	790	$	29	$	54,559	$	880	$	55,349	$	909
Counterparty netting and collateral held													(892)
	Carrying value of derivative contracts – Other liabilities											$	17

All derivative contracts shown above are subject to master netting agreements, with the exception of embedded derivative contracts.  Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties.  As of March 31, 2013, we held collateral of $953 million which offset derivative assets, and we posted collateral of $184 million which offset derivative liabilities.  We also held collateral of $3 million which we did not use to offset derivative assets and we posted collateral of $6 million which we did not use to offset derivative liabilities.

30

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7 – 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 months ended June 30, 2013 and 2012 as reported in our Consolidated Statement of Income:

			Three Months Ended
			June 30,
(Dollars in millions)				2013		2012
Interest expense on debt			$	318	$	337
Interest expense on hedge accounting derivatives				(24)		(27)
Interest expense on non-hedge accounting foreign currency
	swaps			(51)		(67)
Interest expense on non-hedge accounting interest rate swaps				66		103
		Interest expense on debt and derivatives		309		346
Loss on hedge accounting derivatives:
	Interest rate swaps			6		3
	Foreign currency swaps			44		119
		Loss on hedge accounting derivatives		50		122
Less hedged item:  change in fair value of fixed rate debt				(51)		(125)
		Ineffectiveness related to hedge accounting derivatives		(1)		(3)
Loss (gain) loss from foreign currency transactions and non-hedge
accounting derivatives:
		(Gain) on foreign currency transactions		(450)		(44)
		Loss (gain) on foreign currency swaps		566		(32)
		Loss (gain) on interest rate swaps		112		(209)
Total interest expense			$	536	$	58

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

The following table summarizes the relative fair value allocation of derivative credit valuation adjustments
within interest expense for the three months ended June 30, 2013 and 2012:
	Three Months Ended
	June 30,
(Dollars in millions)		2013		2012
Loss related to hedge accounting derivatives	$	-	$	1
Loss on non-hedge accounting foreign currency swaps		-		4
Loss on non-hedge accounting interest rate swaps		-		1
Total credit valuation adjustment allocated to interest expense	$	-	$	6

31

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 8 – Other Assets and Other Liabilities
Other assets and other liabilities consisted of the following:
(Dollars in millions)	June 30, 2013		March 31, 2013
Other assets:
Notes receivable from affiliates	$	1,250	$	931
Used vehicles held for sale		185		265
Deferred charges		112		120
Income taxes receivable		12		13
Derivative assets		47		58
Other assets		373		353
Total other assets	$	1,979	$	1,740
Other liabilities:
Unearned insurance premiums and contract revenues	$	1,565	$	1,528
Derivative liabilities		65		17
Accounts payable and accrued expenses		773		685
Deferred income		275		255
Other liabilities		158		192
Total other liabilities	$	2,836	$	2,677

The change in used vehicles held for sale includes non-cash activities of $80 million and $6 million for the three months ended June 30, 2013 and June 30, 2012, respectively.

32

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 9 – Debt
Debt and the related weighted average contractual interest rates are summarized as follows:
					Weighted average
					contractual interest rates
	June 30,		March 31,			June 30,		March 31,
(Dollars in millions)		2013		2013		2013		2013
Commercial paper	$	23,876	$	24,590		0.21	%	0.24	%
Unsecured notes and loans payable		46,634		46,707		2.11	%	2.19	%
Secured notes and loans payable		7,628		7,009		0.55	%	0.60	%
Carrying value adjustment		481		526
Total debt	$	78,619	$	78,832		1.38	%	1.43	%

The commercial paper balance includes unamortized premiums and discounts.  Included in unsecured notes and loans payable are notes and loans denominated in various foreign currencies, unamortized premiums and discounts and the effects of foreign currency transaction gains and losses on non-hedged or de-designated foreign currency denominated notes and loans payable.  At June 30, 2013 and March 31, 2013, the carrying values of these foreign currency denominated notes payable were $12.3 billion and $13.2 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 June 30, 2013 included $16.9 billion of unsecured floating rate debt with contractual interest rates ranging from 0 to 6.0 percent and $30.2 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.5 to 9.4 percent.  The carrying value of our unsecured notes and loans payable at March 31, 2013 included $16.8 billion of unsecured floating rate debt with contractual interest rates ranging from 0 to 6.0 percent and $30.4 billion of unsecured fixed rate debt with contractual interest rates ranging from 0.5 percent to 9.4 percent.  Upon issuance of fixed rate notes, we generally elect to enter into interest rate swaps to convert fixed rate payments on notes to floating rate payments.

Our secured notes and loans payable are denominated in U.S. dollars and consist of both fixed and variable rate debt with interest rates ranging from 0.4 percent to 1.9 percent at both June 30, 2013 and March 31, 2013.  Secured notes and loans are issued by on-balance sheet securitization trusts, as further discussed in Note 10 – Variable Interest Entities.  These notes are repayable only from collections on the underlying pledged retail finance receivables and the beneficial interests in investments in operating leases and from related credit enhancements.

As of June 30, 2013, our commercial paper had a weighted average remaining maturity of 88 days, while our notes and loans payable mature on various dates through fiscal 2047.  Weighted average contractual interest rates are calculated based on original notional or par value before consideration of premium or discount.

33

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 10 – Variable Interest Entities

Consolidated Variable Interest Entities

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

The following tables show the assets and liabilities related to our VIE securitization transactions that were included in our financial statements as of June 30, 2013 and March 31, 2013:

	June 30, 2013
			VIE Assets							VIE Liabilities
			Gross		Net
(Dollars in millions)	Restricted Cash		Securitized Assets			Securitized Assets		Other Assets		Debt		Other Liabilities
Retail finance receivables	$	477	$	8,725		$	8,605	$	3	$	7,437	$	1
Investments in operating leases		27		524			353		6		191		-
Total	$	504	$	9,249		$	8,958	$	9	$	7,628	$	1

	March 31, 2013
			VIE Assets							VIE Liabilities
			Gross		Net
(Dollars in millions)	Restricted Cash		Securitized Assets			Securitized Assets		Other Assets		Debt		Other Liabilities
Retail finance receivables	$	458	$	7,669		$	7,556	$	3	$	6,738	$	1
Investment in operating leases		33		630			434		9		271		-
Total	$	491	$	8,299		$	7,990	$	12	$	7,009	$	1

34

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 10 – Variable Interest Entities (Continued)

Restricted cash represents collections from the underlying Securitized Assets and certain reserve deposits held by TMCC for the VIEs.  Gross Securitized Assets represent finance receivables and beneficial interests in investments in operating leases securitized for the asset-backed securities issued.  Net Securitized Assets are presented net of deferred fees and costs, deferred income, accumulated depreciation and the allowance for credit losses.  Other Assets represent used vehicles held for sale that were repossessed by or returned to TMCC for the benefit of the VIEs.  The related debt of these consolidated VIEs is presented net of $740 million and $466 million of securities retained by TMCC at June 30, 2013 and March 31, 2013, respectively.

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

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

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

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

Non-consolidated Variable Interest Entities

We provide lending to Toyota and Lexus dealers through the Toyota Dealer Investment Group’s Dealer Capital Program (“TDIG Program”) operated by our affiliate, Toyota Motor Sales, USA, Inc. (“TMS”).  Dealers participating in this program have been determined to be VIEs due to TMS’s equity position in the dealerships.  At June 30, 2013 and March 31, 2013, amounts due from these dealers that are classified as Finance receivables, net in the Consolidated Balance Sheet and revenues from these dealers under the TDIG Program were insignificant.  We do not consolidate the dealerships in this program as we are not the primary beneficiary of these dealerships.  Additionally, any exposure to loss is limited to the amount of the credit facility.

35

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 11 – Liquidity Facilities and Letters of Credit

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

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

In February 2013, TMCC, TCPR and other Toyota affiliates entered into a $3.8 billion 364 day syndicated bank credit facility, a $3.8 billion three year syndicated bank credit facility and a $3.8 billion five year syndicated bank credit facility, expiring in fiscal 2014, 2016, and 2018, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets.  These agreements may be used for general corporate purposes and none were drawn upon as of June 30, 2013 and March 31, 2013.

Other Unsecured Credit Agreements

TMCC has entered into additional unsecured credit facilities with various banks.  As of June 30, 2013, TMCC had committed bank credit facilities totaling $5.5 billion of which $2.8 billion, $1.2 billion and $1.5 billion mature in fiscal 2014, 2015 and 2016, respectively.

These credit agreements contain covenants, and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets.  These credit facilities were not drawn upon as of June 30, 2013 and March 31, 2013. We are in compliance with the covenants and conditions of the credit agreements described above.

36

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 12 – 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)			June 30, 2013		March 31, 2013
Commitments:
	Commitments under credit facilities with vehicle and
		industrial equipment dealers	$	7,552	$	7,396
	Less: Funded commitments			6,352		6,290
	Unfunded commitments			1,200		1,106
	Minimum lease commitments			70		74
Total unfunded commitments				1,270		1,180
Guarantees and other contingencies:
	Guarantees of affiliate pollution control and solid waste
		disposal  bonds		100		100
Total unfunded commitments and guarantees			$	1,370	$	1,280
Wholesale financing demand note facilities				11,753		11,475
Less: Funded facilities				8,951		8,284
Unfunded wholesale financing demand note facilities			$	2,802	$	3,191

Wholesale financing demand note facilities are not considered to be contractual commitments as they are not binding arrangements under which TMCC is required to perform.

We are party to a 15-year lease agreement, which expires in 2018, with TMS for our headquarters location in the TMS headquarters complex in Torrance, California.  Minimum lease commitments include $35 million and $37 million for facilities leases with affiliates at June 30, 2013 and March 31, 2013, respectively.  At June 30, 2013, minimum future commitments under lease agreements to which we are a lessee, including those under the TMS lease, are as follows (dollars in millions):

	Future minimum
Years ending March 31,	lease payments
2014	$	14
2015		18
2016		17
2017		12
2018		7
Thereafter		2
Total	$	70

37

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 12 – Commitments and Contingencies (Continued)

Commitments

We provide fixed and variable rate credit facilities to vehicle and industrial equipment dealers.  These credit facilities are typically used for facilities refurbishment, real estate purchases, and working capital requirements.  These loans are generally collateralized with liens on real estate, 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.  Our credit facility pricing reflects market conditions, the competitive environment, the level of dealer support required for the facility, and the credit worthiness of each dealer.  Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses.  We also provide financing to various multi-franchise dealer organizations, often as part of a lending consortium, for wholesale, working capital, real estate, and business acquisitions.

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 thousand for guaranteeing such payments.  TMCC has not been required to perform under any of these affiliate bond guarantees as of June 30, 2013 and March 31, 2013.

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 June 30, 2013, we determined that it is not probable that we will be required to make any material payments in the future.  As of June 30, 2013 and March 31, 2013, no amounts have been recorded under these indemnifications.

38

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 12 – Commitments and Contingencies (Continued)

Litigation

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

39

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13 – Income Taxes

Our effective tax rate was 37 percent for both the three months ended June 30, 2013 and June 30, 2012.  Our provision for income taxes for the first quarter of fiscal 2014 was $53 million compared to $279 million for the same period in fiscal 2013.  The decrease in the provision is consistent with the decrease in our income before tax for the first three months of fiscal 2014 compared to the same period in fiscal 2013.

Tax-related Contingencies

As of June 30, 2013, we remain under IRS examination for the fiscal years ended March 31, 2012 and March 31, 2013, as well as for the current fiscal year.

We periodically review our uncertain tax positions.  Our assessment is based on many factors including the ongoing IRS audits.  For the quarter ended June 30, 2013, our assessment did not result in a material change in unrecognized tax benefits.

Our deferred tax assets were $1.2 billion at June 30, 2013 and  March 31, 2013, 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 2033.  The total deferred tax liability at June 30, 2013, net of these deferred tax assets, was $6.3 billion compared with $6.2 billion at March 31, 2013.  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.

40

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 14 – Related Party Transactions

As of June 30, 2013, there were no material changes to our related party agreements or relationships as described in our fiscal 2013 Form 10-K, except as described below.  The following tables summarize amounts included in our Consolidated Statement of Income and Consolidated Balance Sheet under various related party agreements or relationships:

		Three Months Ended
		June 30,
(Dollars in millions)			2013		2012
Net financing revenues:
	Manufacturers’ subvention support and other revenues	$	232	$	226
	Credit support fees incurred	$	(20)	$	(8)
	Foreign exchange loss on loans payable to affiliates	$	-	$	(39)
	Interest expense on loans payable to affiliates	$	-	$	(3)
Insurance earned premiums and contract revenues:
	Affiliate insurance premiums and contract revenues	$	33	$	49
Investments and other income, net:
	Interest earned on notes receivable from affiliates	$	1	$	1
Expenses:
	Shared services charges and other expenses	$	14	$	16
	Employee benefits expense	$	9	$	7

41

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 14 – Related Party Transactions (Continued)

(Dollars in millions)		June 30, 2013		March 31, 2013
Assets:
Investments in marketable securities
	Investments in affiliates commercial paper	$	24	$	2
Finance receivables, net
	Accounts receivable from affiliates	$	71	$	22
	Direct finance receivables from affiliates	$	6	$	6
	Notes receivable under home loan programs	$	17	$	18
	Deferred retail subvention income from affiliates	$	(725)	$	(699)
Investments in operating leases, net
	Leases to affiliates	$	7	$	7
	Deferred lease subvention income from affiliates	$	(647)	$	(604)
Other assets
	Notes receivable from affiliates	$	1,250	$	931
	Other receivables from affiliates	$	1	$	1
	Subvention support receivable from affiliates	$	129	$	88
Liabilities:
Other liabilities
	Unearned affiliate insurance premiums and contract revenues	$	241	$	235
	Accounts payable to affiliates	$	153	$	192
	Notes payable to affiliate	$	48	$	48
Shareholder’s Equity:
	Dividends paid	$	-	$	1,487
	Stock-based compensation	$	2	$	2

Accounts receivable from affiliates

Accounts receivable from affiliates at June 30, 2013 included transactions with entities that were consolidated with another affiliate under the accounting guidance for variable interest entities.

42

TOYOTA MOTOR CREDIT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15 – Segment Information

Financial information for our reportable operating segments for the three months ended June 30, 2013 and June 30, 2012 is summarized as follows (dollars in millions):

		Finance		Insurance		Intercompany
Fiscal 2014:		operations		operations		eliminations		Total
Three Months Ended June 30, 2013
Total financing revenues		$	1,788	$	-	$	7	$	1,795
Insurance earned premiums and contract revenues			-		146		(7)		139
Investment and other income, net			12		(6)		-		6
Total gross revenues			1,800		140		-		1,940
Less:
	Depreciation on operating leases		951		-		-		951
	Interest expense		536		-		-		536
	Provision for credit losses		11		-		-		11
	Operating and administrative expenses		180		47		-		227
	Insurance losses and loss adjustment expenses		-		71		-		71
	Provision for income taxes		45		8		-		53
Net income		$	77	$	14	$	-	$	91
Total assets at June 30, 2013		$	92,530	$	3,540	$	(715)	$	95,355
Fiscal 2013:
Three Months Ended June 30, 2012
Total financing revenues		$	1,791	$	-	$	6	$	1,797
Insurance earned premiums and contract revenues			-		156		(6)		150
Investment and other income, net			10		25		-		35
Total gross revenues			1,801		181		-		1,982
Less:
	Depreciation on operating leases		855		-		-		855
	Interest expense		58		-		-		58
	Provision for credit losses		16		-		-		16
	Operating and administrative expenses		173		43		-		216
	Insurance losses and loss adjustment expenses		-		81		-		81
	Provision for income taxes		257		22		-		279
Net income		$	442	$	35	$	-	$	477
Total assets at June 30, 2012		$	88,739	$	3,343	$	(388)	$	91,694

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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, 2013 (“fiscal 2013”), including the following:

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

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

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

·     Fluctuations in interest rates and currency exchange rates;

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

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

·     Changes in our credit ratings and those of TMC;

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

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

·     Operational risks, including security breaches or cyber attacks;

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

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

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

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

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OVERVIEW

Key Performance Indicators and Factors Affecting Our Business

In our finance operations, we generate revenue, income, and cash flows by providing retail financing, leasing, and dealer financing to vehicle and industrial equipment dealers and their customers.  We measure the performance of our financing operations using the following metrics: financing volume, market share, financial leverage, financing margins, operating expense, residual value and credit loss metrics.

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

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

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Fiscal 2014 First Three Months Operating Environment

During the first quarter of the fiscal year ending March 31, 2014 (“fiscal 2014”), economic growth in the United States (“U.S.”) continued at a moderate pace, as labor market conditions continued to show signs of improvement.  The housing sector improved as housing starts continued to trend higher and home prices rose compared to the same period in fiscal 2013.  Consumer spending improved as consumer confidence strengthened.  In addition, sales of motor vehicles improved compared to the same period in fiscal 2013.  While the U.S. economy has shown positive trends during the first quarter of fiscal 2014, the impact of U.S. fiscal policies and tax increases, fluctuations in gasoline prices, and uncertainty in certain global economies may weigh on the U.S. economy in the near future.

Conditions in the global capital markets were generally stable during most of the first quarter of fiscal 2014.  However, the U.S. capital markets and interest rate environment experienced increased volatility in the latter part of the first quarter of fiscal 2014 due to the prospect of changes to U.S. monetary policy.  Europe’s ongoing debt and financial crisis also continued to pose downside risks to the economic outlook.  Economic activity in Europe continued to contract and the growth of emerging European economies and the Asian region slowed.  Despite the challenging fixed income market conditions, we continue to maintain broad global access to both domestic and international markets.  Future changes in interest and foreign exchange rates could continue to result in significant volatility in our interest expense impacting our results of operations.

Industry-wide vehicle sales in the United States and sales incentives throughout the auto industry increased during the first quarter of fiscal 2014 as compared to the same period in the prior year.  Vehicle sales by Toyota Motor Sales, USA, Inc. (“TMS”) increased 7 percent in the first quarter of fiscal 2014 compared to the same period in fiscal 2013.  The increase in TMS sales was attributable to new product launches and return of consumer demand for new vehicles.  Despite slight declines, used vehicle values remained strong during the first quarter of fiscal 2014 compared to the same period in the prior year.  However, it remains uncertain whether the used vehicle market will continue to be strong in the future, and declines in used vehicle values could affect return rates, depreciation expense and credit losses.

46

RESULTS OF OPERATIONS
Fiscal 2014 First Quarter Summary
		Three Months Ended
		June 30,
(Dollars in millions)		2013		2012
Net income:
Finance operations1	$	77	$	442
Insurance operations1		14		35
Total net income	$	91	$	477

1 Refer to Note 15 - Segment Information of the Notes to Consolidated Financial Statement for the total asset balances of our finance and insurance operations.

Our consolidated net income was $91 million for the first quarter of fiscal 2014, compared to $477 million for the same period in fiscal 2013.  The decrease was primarily due to an increase of $478 million in our interest expense driven by valuation losses on derivatives, an increase of $96 million in depreciation on operating leases and a decline of $29 million in investment and other income, partially offset by a decline of $226 million in the provision for income taxes.

Our overall capital position remained consistent at June 30, 2013, as compared to March 31, 2013.  Our debt decreased to $78.6 billion at June 30, 2013 from $78.8 billion at March 31, 2013.  Our debt-to-equity ratio of 10.3 at June 30, 2013 remained relatively consistent with a ratio of 10.4 at March 31, 2013.

47

Finance Operations
			Three Months Ended
			June 30,			Percentage
(Dollars in millions)			2013		2012	Change
Financing revenues:
Operating lease		$	1,209	$	1,157	4	%
Retail1			478		532	(10)	%
Dealer			101		102	(1)	%
Total financing revenues			1,788		1,791	-	%
Investment and other income			12		10	20	%
Gross revenues from finance operations			1,800		1,801	-	%
Less:
	Depreciation on operating leases		951		855	11	%
	Interest expense		536		58	824	%
	Provision for credit losses		11		16	(31)	%
	Operating and administrative expenses		180		173	4	%
	Provision for income taxes		45		257	(82)	%
Net income from finance operations		$	77	$	442	(83)	%
1	Includes direct finance lease revenues.

Our finance operations reported net income of $77 million for the first quarter of fiscal 2014, compared to $442 million for the same period in fiscal 2013.  Finance operations results for the first quarter of fiscal 2014 decreased as compared to the same period in fiscal 2013 primarily due to an increase of $478 million in interest expense driven by valuation losses on derivatives and an increase of $96 million in depreciation on operating leases, partially offset by a decline in $212 million in the provision for income taxes.

Financing Revenues

Total financing revenues remained substantially unchanged during the first quarter of fiscal 2014 as compared to the same period in fiscal 2013 due to the following factors:

·   Operating lease revenues increased 4 percent in the first quarter of fiscal 2014, as compared to the same period in fiscal 2013, primarily due to higher average outstanding earning asset balances, partially offset by lower portfolio yields.

·   Retail contract revenues decreased 10 percent in the first quarter of fiscal 2014, as compared to the same period in fiscal 2013, primarily due to a decrease in our portfolio yields, partially offset by higher average outstanding earning asset balances.

·   Dealer financing revenues decreased 1 percent in the first quarter of fiscal 2014 as compared to the same period in fiscal 2013, primarily due to a decrease in our portfolio yields, partially offset by higher average outstanding earning asset balances.

48

Our total portfolio, which includes operating lease, retail, and dealer financing, had a yield of 4.0 percent during the first quarter of fiscal 2014 compared to 4.8 percent for the same period in fiscal 2013 due primarily to decreases in our retail portfolio yields.  Lower yields were the result of the maturity of higher yielding earning assets being replaced by lower yielding earning assets during the first quarter of fiscal 2014.

Depreciation on Operating Leases

Depreciation on operating leases increased 11 percent during the first quarter of fiscal 2014, as compared to the same period in fiscal 2013.  The increase in depreciation was primarily attributable to an increase in average operating lease units outstanding coupled with a slight decline in used vehicle values during the first quarter of fiscal 2014 as compared to the same period in fiscal 2013.

Interest Expense

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

		Three Months Ended
		June 30,
(Dollars in millions)		2013		2012
Interest expense on debt	$	318	$	337
Interest expense on derivatives		(9)		9
Interest expense on debt and derivatives		309		346
Ineffectiveness related to hedge accounting derivatives		(1)		(3)
(Gain) on foreign currency transactions		(450)		(44)
Loss (gain) on foreign currency swaps		566		(32)
Loss (gain) on non-hedge accounting interest rate swaps		112		(209)
Total interest expense	$	536	$	58

During the first quarter of fiscal 2014, total interest expense increased to $536 million from $58 million during the same period of fiscal 2013.  Although the notional amount of the debt increased during the first quarter of fiscal 2014 compared to the same period in fiscal 2013, interest rates on our outstanding debt declined, resulting in a decrease in interest expense on debt.  The primary driver of the increase in total interest expense was an increase in swap rates in the first quarter of fiscal 2014, resulting in valuation losses on non-hedge accounting interest rate swaps and foreign currency swaps net of the associated foreign currency transactions.

Interest expense on debt primarily represents net interest settlements and changes in accruals on secured and unsecured notes and loans payable and commercial paper, and includes amortization of discount and premium, debt issuance costs, and basis adjustments.  Interest expense on debt decreased to $318 million during the first quarter of fiscal 2014 from $337 million in the same period in fiscal 2013 primarily as a result of a lower weighted average interest rate on our debt portfolio, partially offset by higher debt balances.

Interest expense on derivatives represents net interest settlements and changes in accruals on both hedge and non-hedge accounting interest rate and foreign currency derivatives.  During the first quarter of fiscal 2014, we recorded net interest income of $9 million, compared to net interest expense of $9 million during the same period of fiscal 2013.

49

Gain or loss on foreign currency transactions represents the revaluation of foreign currency denominated debt transactions for which hedge accounting has not been elected.  We use foreign currency swaps to economically hedge these foreign currency transactions.  During the first quarter of fiscal 2014, we experienced an increase in swap rates, resulting in a valuation loss of $116 million on our foreign currency transactions net of the associated foreign currency swaps.  In comparison, we experienced a valuation gain of $76 million during the same period of fiscal 2013, as a result of a decrease in swap rates.

We recorded a valuation loss of $112 million on non-hedge accounting interest rate swaps during the first quarter of fiscal 2014 as a result of an increase in U.S dollar swap rates.  During the first quarter of fiscal 2013 U.S. dollar swap rates decreased resulting in a valuation gain of $209 million.  The net valuation gain on these swaps excludes net interest settlements and changes in accruals.

Future changes in interest and foreign exchange rates could continue to result in significant volatility in our interest expense, thereby affecting our results of operations.

Provision for Credit Losses

We recorded a provision for credit losses of $11 million for the first quarter of fiscal 2014, compared to $16 million for the same period in fiscal 2013.  The decrease in the provision for credit losses for fiscal 2014 was due to the continuation of historically low losses primarily driven by lower default frequency.  The overall credit quality of our consumer portfolio in the first quarter of fiscal 2014 continued to benefit from our continued focus on purchasing practices and collection efforts.

Operating and Administrative Expenses

Operating expenses increased during the first quarter of fiscal 2014 compared to the same period in fiscal 2013 primarily due to increases in employee expenses, general operating expenses and insurance dealer back-end program expenses.

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Insurance Operations
The following table summarizes key results of our Insurance Operations:
		Three Months Ended
		June 30,				Percentage
(Dollars in millions)		2013		2012		Change
Agreements (units in thousands)
	Issued		449		385	17	%
	In force		5,823		6,150	(5)	%
Insurance earned premiums and contract revenues		$	146	$	156	(6)	%
Investment and other income			(6)		25	(124)	%
Gross revenues from insurance operations			140		181	(23)	%
Less:
Insurance losses and loss adjustment expenses			71		81	(12)	%
Operating and administrative expenses			47		43	9	%
Provision for income taxes			8		22	(64)	%
Net income from insurance operations		$	14	$	35	(60)	%

Our insurance operations reported net income of $14 million for the first quarter of fiscal 2014, compared to $35 million for the same period in fiscal 2013.  The decrease in net income was attributable to a $31 million decrease in investment and other income, a $10 million decrease in insurance earned premiums and contract revenues, and a $4 million increase in operating and administrative expenses, partially offset by a $10 million decrease in insurance losses and loss adjustment expenses and a $14 million decrease in provision for income taxes.

Agreements issued increased by 17 percent during the first quarter of fiscal 2014 compared to the same period in fiscal 2013.  The increase was primarily due to the overall increase in TMS vehicle sales.  Despite an increase in agreements issued, agreements in force, which represent active insurance policies written and contracts issued, decreased by 5 percent during the first quarter of fiscal 2014 compared to the same period in fiscal 2013.  Agreements in force for the first quarter of fiscal 2013 was higher as the balance included affiliate agreements, issued in support of special TMS sales and customer loyalty programs, that subsequently expired in the second half of fiscal 2013.

Our insurance operations reported insurance earned premiums and contract revenues of $146 million for the first quarter of fiscal 2014, compared to $156 million for the same period in fiscal 2013.  Insurance earned premiums and contract revenues represent revenues from agreements in force and are affected by sales volume as well as the level, age, and mix of agreements in force.  Our insurance earned premiums and contract revenues decreased for the first quarter of fiscal 2014, compared to the same period in fiscal 2013 primarily due to the decrease in our agreements in force.

Our insurance operations incurred a loss in investment and other income of $6 million for the first quarter of fiscal 2014, compared to a gain in investment and other income of $25 million for the same period in fiscal 2013.  Investment and other income consists primarily of dividend and interest income, realized gains and losses on available-for-sale securities and other-than-temporary impairment on available-for-sale securities, if any.  The loss incurred in investment and other income for the first quarter of fiscal 2014 was due to an other-than-temporary impairment write-down of $30 million of a mortgage sector fund investment resulting from interest rate volatility, partially offset by dividend and interest income and realized gains on available-for-sale securities.  Continued volatility in interest rates could result in additional future write-downs if conditions indicate that other investments are other than temporarily impaired.

51

Our insurance operations reported insurance losses and loss adjustment expenses of $71 million for the first quarter of fiscal 2014, compared to $81 million for the same period in fiscal 2013.  Insurance losses and loss adjustment expenses incurred are a function of the amount of covered risks, the frequency and severity of claims associated with the agreements in force, and the level of risk retained by our insurance operations.  Insurance losses and loss adjustment expenses include amounts paid and accrued for reported losses, estimates of losses incurred but not reported, and any related claim adjustment expenses.  The decrease in insurance losses and loss adjustment expenses was primarily due to lower claim frequency experienced in our prepaid maintenance contracts as a result of the expiration of the affiliate agreements issued in support of special TMS sales and customer loyalty programs.

Our insurance operations reported operating and administrative expenses of $47 million for the first quarter of fiscal 2014, compared to $43 million for the same period in fiscal 2013.  The increase was attributable to an increase in various product expenses, general operating expenses, and insurance dealer back-end program expenses.  Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on their sales volume or underwriting performance.

Provision for Income Taxes

Our total provision for income taxes for the first quarter of fiscal 2014 was $53 million compared to $279 million for the same period in fiscal 2013.  Our effective tax rate was 37 percent for both the first quarter of fiscal 2014 and fiscal 2013.  The change in our provision for income taxes is consistent with the change in our income before tax in the first quarter of fiscal 2014 compared to the same period in fiscal 2013.

52

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
	June 30,				Percentage
(units in thousands):	2013		2012		Change
TMS new sales volume1	441		414		7	%
Vehicle financing volume2
New retail contracts	176		180		(2)	%
Used retail contracts	78		72		8	%
Lease contracts	108		79		37	%
Total	362		331		9	%
TMS subvened vehicle financing volume (units included in the above table):
New retail contracts	101		92		10	%
Used retail contracts	24		21		14	%
Lease contracts	97		64		52	%
Total	222		177		25	%
TMS subvened vehicle financing volume as a percent of vehicle financing volume:
New retail contracts	57.4	%	51.1	%
Used retail contracts	30.8	%	29.2	%
Lease contracts	89.8	%	81.0	%
Overall subvened contracts	61.3	%	53.5	%
Market share:3
Retail contracts	39.9	%	43.4	%
Lease contracts	24.3	%	19.1	%
Total	64.2	%	62.5	%

1 Represents total domestic TMS sales of new Toyota, Lexus and Scion vehicles excluding sales under dealer rental car and commercial fleet programs and sales of a private Toyota distributor.  TMS new sales volume is comprised of approximately 87% Toyota and 13% Lexus vehicles for the first quarter of both fiscal 2014 and fiscal 2013.

2 Total financing volume is comprised of approximately 82% Toyota, 15% Lexus, and 3% non-Toyota/Lexus vehicles for the first quarter of fiscal 2014 and approximately 81% Toyota, 16% Lexus, and 3% non-Toyota/Lexus vehicles for the first quarter of fiscal 2013.

3 Represents the percentage of total domestic TMS sales of new Toyota, Lexus and Scion 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.

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Vehicle Financing Volume

The volume of our retail and lease contracts, which are acquired primarily from Toyota and Lexus vehicle dealers, is dependent upon TMS sales volume and subvention.  Vehicle sales by TMS increased 7 percent for the first quarter of fiscal 2014 compared to the same period in fiscal 2013 driven by the return of inventory levels to pre-disasters levels.  In addition, TMS sales were positively affected by new product and model launches and higher consumer demand.

Our financing volume increased 9 percent and market share also increased in the first quarter of fiscal 2014 compared to the same period in fiscal 2013.  The increase in volume was driven primarily by the increased supply of new Toyota, Lexus and Scion vehicles and an increase in retail and lease subvention.  Lease volume increased more significantly than retail volume in the first quarter of fiscal 2014 due primarily to a higher focus by TMS on lease subvention compared to the same period in fiscal 2013.

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The composition of our net earning assets is summarized below:
						Percentage
(Dollars in millions)		June 30, 2013		March 31, 2013		Change
Net Earning Assets
Finance receivables, net
	Retail finance receivables, net1	$	48,232	$	47,679	1	%
	Dealer financing, net		15,679		14,888	5	%
Total finance receivables, net			63,911		62,567	2	%
Investments in operating leases, net			21,186		20,384	4	%
Net earning assets		$	85,097	$	82,951	3	%
Dealer Financing
(Number of dealers serviced)
Toyota and Lexus dealers2			1,000		996	-	%
Vehicle dealers outside of the
	Toyota/Lexus dealer network		471		480	(2)	%
Industrial equipment dealers			140		140	-	%
Total number of dealers receiving
	wholesale financing		1,611		1,616	-	%
Dealer inventory financed (units in thousands)			325		300	8	%

1  Includes direct finance leases.

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

Retail Contract Volume and Earning Assets

Our new and used retail contract volume increased slightly during the first quarter of fiscal 2014 as compared to the same period in fiscal 2013.  The increase in vehicle financing volume during the first quarter of fiscal 2014 contributed to the increase in retail finance receivables, net at June 30, 2013.

Lease Contract Volume and Earning Assets

Our vehicle lease contract volume during the first quarter of fiscal 2014 increased as compared to the same period in fiscal 2013.  Much of the increase during the first quarter of fiscal 2014 was attributable to an increase in TMS sales and a higher focus on lease subvention during the quarter, resulting in an increase in investments in operating leases, net at June 30, 2013 as compared to the balance at March 31, 2013.

Dealer Financing and Earning Assets

Dealer financing, net increased 5 percent from March 31, 2013, primarily due to increases in dealer inventory financed.  The higher level of dealer inventory was attributable to the return of consumer demand for new vehicles.  The total number of dealers receiving financing was relatively consistent with March 31, 2013.

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Residual Value Risk

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

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

Depreciation on Operating Leases
		Three Months Ended
		June 30,				Percentage
		2013		2012		Change
Depreciation on operating
	leases (dollars in millions)	$	951	$	855	11	%
Average operating lease units
	outstanding (in thousands)		827		785	5	%

Depreciation expense on operating leases increased 11 percent during the first quarter of fiscal 2014 as compared to the same period in fiscal 2013, due primarily to an increase in the average operating lease units outstanding over the same periods and a decline in used vehicle values during the first quarter of fiscal 2014.  Despite this decline, used vehicle values remained strong during the first quarter of fiscal 2014.  The level of lease maturities during the first quarter of fiscal 2014 increased as compared to the same period in fiscal 2013 and is expected to continue to remain at high levels for the next few years.  This increase could affect return rates, used vehicle values and depreciation expense.

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Credit Risk

Credit Loss Experience

The overall credit quality of our consumer portfolio in the first quarter of fiscal 2014 continued to benefit from our continued focus on purchasing practices and collection efforts.  In addition, subvention contributes to our overall portfolio quality, as subvened contracts typically have better credit quality than non-subvened contracts.  These factors, combined with strong used vehicle values, contributed to decreased levels of delinquency during the first quarter of fiscal 2014 as compared to the same period in fiscal 2013.

			June 30,			March 31,			June 30,
			2013			2013			2012
Net charge-offs as a percentage of average gross earning assets 1
		Finance receivables		0.19	%		0.29	%		0.17	%
		Operating leases		0.11	%		0.18	%		0.07	%
		Total		0.17	%		0.27	%		0.15	%
Default frequency as a percentage of outstanding contracts				1.21	%		1.23	%		1.16	%
Average loss severity per unit			$	6,226		$	5,737		$	5,817
Aggregate balances for accounts 60 or more days past due as a
	percentage of gross earning assets 2
		Finance receivables 3		0.22	%		0.19	%		0.24	%
		Operating leases 3		0.18	%		0.18	%		0.18	%
		Total		0.21	%		0.19	%		0.23	%

1 Net charge-off ratios have been annualized using three month results for the periods ended June 30, 2013 and June 30, 2012.

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

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

The level of credit losses primarily reflects two factors: default frequency and loss severity.  Net charge-offs as a percentage of average gross earning assets increased from 0.15 percent at June 30, 2012 to 0.17 percent at June 30, 2013 due primarily to higher severity.

Default frequency as a percentage of average outstanding contracts increased to 1.21 percent during the first quarter of fiscal 2014 compared to 1.16 percent during the same period in fiscal 2013.  This increase primarily reflects lower default frequency experienced in the first quarter of fiscal 2013 driven by historically high used vehicle values.  In the first quarter of fiscal 2013, some customers, who otherwise might have defaulted, were able to sell their vehicles in order to pay off their finance contracts lowering frequency of loss, whereas declines in used vehicle values since the first quarter of 2013 have reduced this impact.  Default frequency was higher for the fiscal year ended March 31, 2013 compared to the first quarter of 2013 due to units lost or damaged in Hurricane Sandy.

Our loss severity for the first quarter of fiscal 2014 was affected by the decline in used vehicle values compared to the first quarter of fiscal 2013.  Severity for the first quarter of fiscal 2014 was also higher than for the fiscal year ended March 31, 2013 due to the receipt of vehicle insurance proceeds related to Hurricane Sandy during fiscal 2013, which resulted in lower severity per unit.

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Allowance for Credit Losses

We maintain an allowance for credit losses to cover probable and estimable losses as of the balance sheet date resulting from the non-performance of our customers and dealers under their contractual obligations.  The determination of the allowance involves significant assumptions, complex analyses, and management judgment.

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

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

The following table provides information related to our allowance for credit losses for the three months ended June 30, 2013 and 2012:

	Three Months Ended
	June 30,
(Dollars in millions)	2013		2012
Allowance for credit losses at beginning of period	$	527	$	619
Provision for credit losses		11		16
Charge-offs, net of recoveries1		(37)		(29)
Allowance for credit losses at end of period	$	501	$	606

1 Charge-offs are shown net of recoveries of $24 million and $23 million for the three months ended June 30, 2013 and June 30, 2012, respectively.

During the first quarter of fiscal 2014, our allowance for credit losses decreased $26 million from $527 million at March 31, 2013.  The decline in our allowance for credit losses was due to the continuation of low loss experience in relation to our historical patterns.

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LIQUIDITY AND CAPITAL RESOURCES

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

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

(Dollars in millions)	June 30, 2013		March 31, 2013
Commercial paper1	$	23,876	$	24,590
Unsecured notes and loans payable2		46,634		46,707
Secured notes and loans payable		7,628		7,009
Carrying value adjustment3		481		526
Total debt	$	78,619	$	78,832

1 Includes unamortized premium/discount.

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

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

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

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

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

For liquidity purposes, we hold cash in excess of our immediate funding needs.  These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources.  We maintained excess funds ranging from $4.7 billion to $9.6 billion with an average balance of $6.7 billion for the first quarter of fiscal 2014.

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

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

TMC’s obligations under its credit support agreement with TFSC rank pari passu with TMC’s senior unsecured debt obligations.  Refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013 for further discussion.

We routinely monitor global financial conditions and our financial exposure to our global counterparties.  Specifically, we focus on those countries experiencing significant economic, fiscal or political strain and the corresponding likelihood of default.  During the reporting period, we identified countries for which these conditions exist; Portugal, Ireland, Italy, Greece, Spain, Cyprus and certain other countries.  We do not currently have exposure to these or other European sovereign counterparties.  As of June 30, 2013, our gross non-sovereign exposures to investments in marketable securities and derivatives counterparty positions in the countries identified were not material, either individually or collectively.  We also maintained a total of $17 billion in committed and uncommitted syndicated and bilateral credit facilities for our liquidity purposes as of June 30, 2013.  As of June 30, 2013, less than 3 percent of such commitments were from counterparties in the countries identified.  Refer to the “Liquidity and Capital Resources - Liquidity Facilities and Letters of Credit” section and“Item 1A. Risk Factors - The failure or commercial soundness of our counterparties and other financial institutions may have an effect on our liquidity, operating results or financial condition” in our fiscal 2013 Form 10-K 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 $23.4 billion to $26.0 billion during the quarter ended June 30, 2013, with an average outstanding balance of $24.6 billion.  Our commercial paper programs are supported by the liquidity facilities discussed under the heading “Liquidity Facilities and Letters of Credit”.  We believe we have ample capacity to meet our short-term funding requirements and manage our liquidity.

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Unsecured Notes and Loans Payable

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

(Dollars in millions)	U.S. medium term notes ("MTNs") and domestic bonds		Euro MTNs ("EMTNs")		Eurobonds		Other		Total unsecured notes and loans payable4
Balance at March 31, 20131	$	26,716	$	13,598	$	803	$	5,777	$	46,894
Issuances during the three months
ended June 30, 2013		2,905 2		-		-		650 3		3,555
Maturities and terminations
during the three months
ended June 30, 2013		(2,085)		(461)		-		(650)		(3,196)
Balance at June 30, 20131	$	27,536	$	13,137	$	803	$	5,777	$	47,253

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

2 MTNs and domestic bonds issued during the first three months of fiscal 2014 had terms to maturity ranging from approximately 1 year to 10 years, and had interest rates at the time of issuance ranging from 0.3 percent to 1.0 percent.

3 Consists of long-term borrowings, with terms to maturity ranging from approximately 1 year to 3 years, and had interest rates at the time of issuance ranging from 0.1 percent to 0.6 percent.

4 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 2015.  Debt securities issued under the U.S. shelf registration statement are issued pursuant to the terms of an indenture which requires TMCC to comply with certain covenants, including negative pledge provisions.  We are in compliance with these covenants.

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets.  In September 2012, the EMTN Issuers renewed the EMTN program for a one year period.  The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time is €50 billion or the equivalent in other currencies, of which €34 billion was available for issuance at June 30, 2013.  The authorized amount is shared among all EMTN Issuers.  The authorized aggregate principal amount under the EMTN program may be increased from time to time.  Debt securities issued under the EMTN program are issued pursuant to the terms of an agency agreement.  Certain debt securities issued under the EMTN program are subject to negative pledge provisions.  Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions.  We are in compliance with these covenants.

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

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Secured Notes and Loans Payable

Overview

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

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

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

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

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

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

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

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

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

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

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

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

Public Term Securitization

We maintain shelf registration statements with the SEC to provide for the issuance of securities backed by Securitized Assets in the U.S. capital markets.  We regularly sponsor public securitization trusts that issue securities backed by retail finance receivables, including registered securities that we retain.  Funding obtained from our public term securitization transactions is repaid as the underlying Securitized Assets amortize.  None of these securities have defaulted, experienced any events of default or failed to pay principal in full at maturity.  As of June 30, 2013 and March 31, 2013, we did not have any outstanding lease securitization transactions registered with the SEC.

Amortizing Asset-backed Commercial Paper Conduits

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

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Liquidity Facilities and Letters of Credit

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

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

In February 2013, TMCC, TCPR and other Toyota affiliates entered into a $3.8 billion 364 day syndicated bank credit facility, a $3.8 billion three year syndicated bank credit facility and a $3.8 billion five year syndicated bank credit facility, expiring in fiscal 2014, 2016, and 2018, respectively.

The ability to make draws is subject to covenants and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets.  These agreements may be used for general corporate purposes and none were drawn upon as of June 30, 2013 and March 31, 2013.

Other Unsecured Credit Agreements

TMCC has entered into additional unsecured credit facilities with various banks.  As of June 30, 2013, TMCC had committed bank credit facilities totaling $5.5 billion of which $2.8 billion, $1.2 billion and $1.5 billion mature in fiscal 2014, 2015 and 2016, respectively.

These credit agreements contain covenants, and conditions customary in transactions of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets.  These credit facilities were not drawn upon as of June 30, 2013 and March 31, 2013. 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 2013 Form 10-K.

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DERIVATIVE INSTRUMENTS

Risk Management Strategy

We use derivatives as part of our risk management strategy to hedge interest rate and foreign currency risks.  We enter into derivative transactions with the intent to reduce long term fluctuations in cash flows and fair value adjustments of assets and liabilities caused by market movements.  Our use of derivatives is limited to the management of interest rate and foreign currency risks.

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

Our approach to asset-liability management involves hedging our risk exposures so that changes in interest rates have a limited effect on our cash flows.  Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  Our resulting asset liability profile is consistent with the overall risk management strategy directed by the ALCO.  Gains and losses on these derivatives are recorded in interest expense.

Accounting for Derivative Instruments

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

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

We may also, from time-to-time, issue debt which can be characterized as hybrid financial instruments. These obligations often contain an embedded derivative which may require bifurcation.  Changes in the fair value of the bifurcated embedded derivative are reported in interest expense in the Consolidated Statement of Income.  Refer to Note 1 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements in our fiscal 2013 Form 10-K, and Note 7 – Derivatives, Hedging Activities and Interest Expense in this Form 10-Q for additional information.

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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)	June 30, 2013		March 31, 2013
Gross derivatives assets, net of credit valuation adjustment	$	1,198	$	1,719
Less: Counterparty netting and collateral		(1,151)		(1,661)
Derivative assets, net	$	47	$	58
Gross derivative liabilities, net of credit valuation adjustment	$	1,001	$	897
Less: Counterparty netting and collateral		(943)		(892)
Derivative liabilities, net	$	58	$	5
Embedded derivative liabilities	$	7	$	12

Collateral represents cash received or deposited under reciprocal arrangements that we have entered into with our derivative counterparties.  As of June 30, 2013, we held collateral of $579 million which offset derivative assets, and we posted collateral of $371 million which offset derivative liabilities.  We also held collateral of $22 million which we did not use to offset derivative assets.  As of March 31, 2013, we held collateral of $953 million which offset derivative assets, and we posted collateral of $184 million which offset derivative liabilities.  We held collateral of $3 million which we did not use to offset derivative assets, and we posted collateral of $6 million which we did not use to offset derivative liabilities.  Refer to the “Interest Expense” section for discussion on changes in derivatives.

Derivative Counterparty Credit Risk

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

All of our derivative counterparties to which we had credit exposure at June 30, 2013 were assigned investment grade ratings by a credit rating organization.  Our counterparty credit risk could be adversely affected by deterioration of the global economy and financial distress in the banking industry.

Our International Swaps and Derivatives Association (“ISDA”) Master Agreements contain reciprocal collateral arrangements which help mitigate our exposure to the credit risk associated with our counterparties.  As of June 30, 2013 we have daily valuation and collateral exchange arrangements with all of our counterparties.  Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement, which significantly reduces counterparty credit risk exposure.  Under our ISDA Master Agreements, cash is the only permissible form of collateral.  Neither we nor our counterparties are required to hold collateral in a segregated account.  Our collateral arrangements include legal right of offset provisions, pursuant to which collateral amounts are netted against derivative assets or derivative liabilities, the net amount of 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 2013 Form 10-K for further discussion.

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

(Dollars in millions)	June 30, 2013		March 31, 2013
Credit Rating
AA	$	-	$	1
A		47		56
BBB		-		2
Total net counterparty credit exposure	$	47	$	59

The amounts above are shown net of credit valuation adjustments of $1 million at June 30, 2013 and March 31, 2013, related to non-performance risk of our counterparties.  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 12 - 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” and Note 15 - Related Party Transactions of the Notes to Consolidated Financial Statements in our fiscal 2013 Form 10-K, as well as above in Note 12 - Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Indemnification

Refer to Note 12 - 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 June 30, 2013, 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 June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Litigation

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

ITEM 1A.   RISK FACTORS

There are no material changes from the risk factors set forth under “Item 1A. Risk Factors” in our fiscal 2013 Form 10-K.

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.   MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.   OTHER INFORMATION

Disclosure of Iranian Activities under Section 13(r) of the Securities Exchange Act of 1934

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction.  Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

As of the date of this report, we are not aware of any activity, transaction or dealing by us or any of our affiliates during the quarter ended June 30, 2013 that requires disclosure in this report under Section 13(r) of the Exchange Act, except as set forth below.  For affiliates that we do not control and that are our affiliates solely due to their common control by our parent Toyota Motor Corporation (“TMC”), a Japanese corporation, we have relied upon TMC for information regarding their activities, transactions and dealings.  TMC has provided us with the following information:

During the quarter ended June 30, 2013, Toyota Tourist International, Inc., (“Toyota Tourist”) a majority-owned subsidiary of Toyota, obtained three visas from the Iranian embassy in Japan in connection with certain travel arrangements.

These activities contributed an insignificant amount to gross revenues and net profit to TMC.  TMC believes that none of the above transactions would subject it or its affiliates to U.S. sanctions.  As of the date of this report, TMC has informed us that Toyota Tourist intends to cease conducting the activities described above in the future.

ITEM 6.   EXHIBITS

See Exhibit Index on page 73.

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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:   August 12, 2013	By     /S/ GEORGE E. BORST
	George E. Borst
	President and
	Chief Executive Officer
	(Principal Executive Officer)

Date:   August 12, 2013	By   /S/ CHRIS BALLINGER
	Chris Ballinger
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
3.1	Restated Articles of Incorporation filed with the California Secretary of State on April 1, 2010	(1)
3.2	Bylaws as amended through December 8, 2000	(2)
4.1(a)	Indenture dated as of August 1, 1991 between TMCC and The Chase Manhattan Bank, N.A	(3)
4.1(b)	First Supplemental Indenture dated as of October 1, 1991 among TMCC, Bankers Trust Company and The Chase Manhattan Bank, N.A	(4)
4.1(c)	Second Supplemental Indenture, dated as of March 31, 2004, among TMCC, JPMorgan Chase Bank (as successor to The Chase Manhattan Bank, N.A.) and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company)	(5)
4.1(d)	Third Supplemental Indenture, dated as of March 8, 2011 among TMCC, The Bank of New York Mellon Trust Company, N.A., as trustee, and Deutsche Bank Trust Company Americas, as trustee.	(6)
4.1(e)	Agreement of Resignation and Acceptance dated as of April 26, 2010 between Toyota Motor Credit Corporation, The Bank of New York Mellon and The Bank of New York Trust Company, N.A.	(1)
4.2(a)	Amended and Restated Agency Agreement, dated September 14, 2012, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited and The Bank of New York Mellon.	(7)

______________

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

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

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

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

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

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

(7) Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 14, 2012, Commission File Number 1-9961.

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
4.2(b)	Amended and Restated Note Agency Agreement, dated September 14, 2012, among Toyota Motor Credit Corporation, The Bank of New York Mellon (Luxembourg) S.A. and The Bank of New York Mellon, acting through its London branch.	(8)
4.3(a)	Sixth Amended and Restated Agency Agreement dated September 28, 2006, among TMCC, JP Morgan Chase Bank, N.A. and J.P. Morgan Bank Luxembourg S.A.	(9)
4.3(b)	Amendment No.1, dated as of March 4, 2011, to the Sixth Amended and Restated Agency Agreement among TMCC, The Bank of New York Mellon, acting through its London branch, as agent, and The Bank of New York Luxembourg S.A., as paying agent.	(10)
4.4	TMCC has outstanding certain long-term debt as set forth in Note 9 - 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.
12.1	Calculation of ratio of earnings to fixed charges	Filed Herewith
31.1	Certification of Chief Executive Officer	Filed Herewith

______________

(8) Incorporated herein by reference to Exhibit 4.2 filed with our Current Report on Form 8-K dated September 14, 2012, Commission File No. 1-9961.

(9) Incorporated herein by reference to Exhibit 4.1 filed with our Current Report on Form 8-K dated September 28, 2006, Commission File No. 1-9961.

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

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
31.2	Certification of Chief Financial Officer	Filed Herewith
32.1	Certification pursuant to 18 U.S.C. Section 1350	Furnished Herewith
32.2	Certification pursuant to 18 U.S.C. Section 1350	Furnished Herewith
101.INS	XBRL instance document	Filed Herewith
101.CAL	XBRL taxonomy extension calculation linkbase document	Filed Herewith
101.DEF	XBRL taxonomy extension definition linkbase document	Filed Herewith
101.LAB	XBRL taxonomy extension labels linkbase document	Filed Herewith
101.PRE	XBRL taxonomy extension presentation linkbase document	Filed Herewith
101.SCH	XBRL taxonomy extension schema document	Filed Herewith

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