UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q ~~(Mark~~

(Mark One) ~~[X]~~

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2003 ------------------~~ 2004

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 number1-9961 ~~----------~~

TOYOTA MOTOR CREDIT CORPORATION ~~- --------------------------------------------------------------------------- (Exact~~

(Exact name of registrant as specified in its charter) California 95-3775816 - ---------------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19001 S. Western Avenue Torrance, California 90509 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code)


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)		90509 (Zip Code)

Registrant's telephone number, including area ~~code~~ 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 is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YesNo X ~~--- ---~~

As of ~~September 30, 2003,~~July 31, 2004, the number of outstanding shares of capital stock, par value $10,000 per share, of the registrant was 91,500, all of which shares were held by Toyota Financial Services Americas Corporation. ~~- 1 -~~

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET ~~(Dollars~~
(Dollars in Millions)
September 30, March 31, 2003 2003 ------------ ------------ (Unaudited) ASSETS ------ Cash and cash equivalents............... $ 684 $ 980 Investments in marketable securities.... 1,818 1,630 Finance receivables, net................ 27,868 26,477 Investments in operating leases, net.... 7,895 8,017 Derivative assets....................... 1,829 1,421 Other assets............................ 589 708 ------- ------- Total Assets................... $40,683 $39,233 ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY ------------------------------------ Notes and loans payable................. $33,179 $32,099 Derivative liabilities.................. 301 514 Other liabilities....................... 921 869 Income taxes payable.................... 28 26 Deferred income......................... 1,100 996 Deferred income taxes................... 2,009 1,866 ------- ------- Total Liabilities................. 37,538 36,370 ------- ------- Commitments and Contingent Liabilities (See note 8) Shareholder's Equity: Capital stock, $l0,000 par value (100,000 shares authorized; 91,500 issued and outstanding)... 915 915 Retained earnings.................... 2,195 1,930 Accumulated other comprehensive income............................ 35 18 ------- ------- Total Shareholder's Equity........ 3,145 2,863 ------- ------- Total Liabilities and Shareholder's Equity........... $40,683 $39,233 ======= =======

	June 30, 2004		March 31, 2004
	(Unaudited)

ASSETS
Cash and cash equivalents	$	868	$	818
Investments in marketable securities		983		1,125
Finance receivables, net		33,785		32,460
Investments in operating leases, net		7,869		7,685
Other assets		2,414		2,766

Total Assets	$	45,919	$	44,854

LIABILITIES AND SHAREHOLDER'S EQUITY
Notes and loans payable	$	37,692	$	36,822
Other liabilities		2,394		2,363
Deferred income taxes		2,177		2,178

Total Liabilities		42,263		41,363

Commitments and Contingencies (See Note 8)
Shareholder's Equity:
Capital stock, $l0,000 par value (100,000 shares authorized;
issued and outstanding 91,500)		915		915
Retained earnings		2,698		2,531
Accumulated other comprehensive income		43		45

Total Shareholder's Equity		3,656		3,491

Total Liabilities and Shareholder's Equity	$	45,919	$	44,854

See Accompanying Notes to Consolidated Financial ~~Statements. -~~ Statements

2 -

TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED (Dollars
< Financing Revenues: Leasing.................................... $ 613 Retail financing........................... 310 Wholesale and other dealer financing....... Total financing revenues...................... 966 Depreciation on leases..................... 405 Interest expense........................... Net financing revenues........................ 474 Insurance premiums earned and contract revenues................................... Investment and other income................... Net financing revenues and other revenues..... 599 Expenses: Operating and administrative............... 142 Losses related to Argentine Investment..... Provision for credit losses................ Insurance losses and loss adjustment expenses................................ Total expenses................................ 245 Income/(Loss) before income taxes............. 354 Provision/(Benefit) for income taxes.......... 139 Net Income/(Loss)............................. $ 215 STATEMENT OF INCOME ins>(Dollars in Millions)
(Unaudited)
Three Months Ended Six Months Ended September 30, September 30, ------------------ ----------------- 2003 2002 2003 2002 ------ ------ ------ ------ $ 632 $1,235 $1,253 285 600 548 43 42 92 82 ------ ------ ------ ------ 959 1,927 1,883 394 863 767 87 332 318 763 ------ ------ ------ ------ 233 746 353 47 42 92 83 78 17 114 81 ------ ------ ------ ------ 292 952 517 ------ ------ ------ ------ 130 278 258 - 6 - 11 78 127 187 249 25 23 50 44 ------ ------ ------ ------ 286 515 562 ------ ------ ------ ------ 6 437 (45) 2 172 (20) ------ ------ ------ ------ $ 4 $ 265 $ (25) ====== ====== ====== ======
Three Months Ended
June 30,
2004
2003

Financing Revenues:
         Leasing $ 563 $ 584
         Retail financing 341 290
         Wholesale and other dealer financing 53 49
Total financing revenues 957 923

         Depreciation on leases 389 420
         Interest expense 115 231
Net financing revenues 453 272

Insurance premiums earned and contract revenues 53 45
Investment and other income 29 36
Net financing revenues and other revenues 535 353
Expenses:
         Operating and administrative 145 134
         Provision for credit losses 46 109
         Insurance losses and loss adjustment expenses 31 27
Total expenses 222 270
Income before provision for income taxes 313 83
Provision for income taxes 123 33
Net Income $ 190 $ 50
See Accompanying Notes to Consolidated Financial ~~Statements. -~~ Statements
3 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF ~~SHAREHOLDER'S~~SHAREHOLDER’S EQUITY ~~(Dollars~~
(Dollars in Millions)
(Unaudited)
Accumulated Other Capital Retained Comprehensive Stock Earnings Income/(Loss) Total ------- -------- ------------- -------- Balance at March 31, 2002........ $ 915 $ 1,820 $ 16 $ 2,751 ------ ------- ---------- ------- Net loss for the six months ended September 30, 2002...... - (25) - (25) Change in net unrealized gain on available-for-sale marketable securities (net of tax).................. - - (16) (16) ------ -------- ---------- ------- Total Comprehensive Loss......... - (25) (16) (41) ------ -------- ---------- ------- Balance at September 30, 2002.... $ 915 $ 1,795 $ - $ 2,710 ====== ======= ========== ======= Balance at March 31, 2003........ $ 915 $ 1,930 $ 18 $ 2,863 ------ ------- ---------- ------- Net income for the six months ended September 30, 2003...... - 265 - 265 Change in net unrealized gain on available-for-sale marketable securities (net of tax).................. - - 17 17 ------ -------- ---------- ------- Total Comprehensive Income....... - 265 17 282 ------ -------- ---------- ------- Balance at September 30, 2003.... $ 915 $ 2,195 $ 35 $ 3,145 ====== ======= ========== =======
Capital
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total

BALANCE AT MARCH 31, 2003 $ 915 $ 1,930 $ 18 $ 2,863

Net income for the three months ended
    June 30, 2003 -- 50 -- 50
Change in net unrealized gain on
    available-for-sale marketable securities -- -- 23 23
Total comprehensive income -- 50 23 73

BALANCE AT JUNE 30, 2003 $ 915 $ 1,980 $ 41 $ 2,936

BALANCE AT MARCH 31, 2004 $ 915 $ 2,531 $ 45 $ 3,491

Net income for the three months ended
    June 30, 2004 -- 190 -- 190
Change in net unrealized gain on
    available-for-sale marketable securities -- -- (8 ) (8 )
Total comprehensive income -- 190 (8 ) 182

Distribution of net assets to TFSA -- (23 ) 6 (17 )
BALANCE AT JUNE 30, 2004 $ 915 $ 2,698 $ 43 $ 3,656
See Accompanying Notes to Consolidated Financial ~~Statements. -~~ Statements
4 -
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS ~~(Dollars~~
(Dollars in Millions)
(Unaudited)
Six Months Ended September 30, ------------------------- 2003 2002 -------- --------- Cash flows from operating activities: Net Income/(Loss)......................................... $ 265 $ (25) -------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Derivative fair value adjustment.................... (45) 338 Depreciation and amortization....................... 914 811 Provision for credit losses......................... 187 249 Gain from securitization of finance receivables..... (42) (33) Gain from sale of marketable securities............. (4) - Loss on impairment of retained interests............ - 11 Loss and reserve related to Argentine Investment.... - 11 Decrease/(increase) in other assets................. 266 (763) Increase in deferred income taxes................... 131 122 (Decrease)/increase in other liabilities............ (56) 602 -------- --------- Total adjustments......................................... 1,351 1,348 -------- --------- Net cash provided by operating activities.................... 1,616 1,323 -------- --------- Cash flows from investing activities: Addition to investments in marketable securities.......... (1,212) (562) Disposition of investments in marketable securities....... 960 545 Acquisition of finance receivables........................ (23,897) (19,804) Liquidation of finance receivables........................ 20,599 15,657 Proceeds from sale of finance receivables................. 1,825 1,549 Addition to investments in operating leases............... (1,637) (1,929) Disposition of investments in operating leases............ 896 1,006 Increase in receivable from affiliate..................... - (12) -------- -------- Net cash used in investing activities........................ (2,466) (3,550) -------- -------- Cash flows from financing activities: Proceeds from issuance of notes and loans payable......... 4,418 4,433 Payments on notes and loans payable....................... (3,904) (2,956) Net increase in commercial paper.......................... 40 468 -------- -------- Net cash provided by financing activities.................... 554 1,945 -------- -------- Net decrease in cash and cash equivalents.................... (296) (282) Cash and cash equivalents at the beginning of the period..... 980 747 -------- -------- Cash and cash equivalents at the end of the period........... $ 684 $ 465 ======== ======== Supplemental disclosures: Interest paid............................................. $ 343 $ 387 Income taxes paid/(received).............................. $ 39 $ (18)
Three Months Ended
June 30,
2004
2003

Cash flows from operating activities:
    Net income $ 190 $ 50
    Adjustments to reconcile net income to net cash
       provided by operating activities:
        Derivative fair value adjustments (75 ) 38
        Depreciation and amortization 485 458
        Provision for credit losses 46 109
        Decrease in other assets 38 126
        Increase in other liabilities 127 108
    Total adjustments 621 839
Net cash provided by operating activities 811 889
Cash flows from investing activities:
    Purchase of investments in marketable securities (180 ) (222 )
    Disposition of investments in marketable securities 225 466
    Acquisition of finance receivables (13,079 ) (11,785 )
    Collection of finance receivables 11,548 9,842
    Acquisition of investments in operating leases (1,085 ) (769 )
    Disposals of investments in operating leases 544 442
Net cash used in investing activities (2,027 ) (2,026 )
Cash flows from financing activities:
    Proceeds from issuance of notes and loans payable 2,201 1,141
    Payments on notes and loans payable (1,226 ) (2,086 )
    Net change in commercial paper 305 1,837
Net cash provided by financing activities 1,280 892
Net increase (decrease) in cash and cash equivalents 64 (245 )

Cash and cash equivalents at the beginning of the period 818 980
    Decrease in cash in connection with the distribution of
         net assets to TFSA (14 ) --
Cash and cash equivalents at the end of the period $ 868 $ 735
Supplemental disclosures:
    Interest paid $ 163 $ 171
    Income taxes paid $ 8 $ 32
    Non-cash investing and financing activities in connection with the
    distribution of net assets to TFSA:
        Decrease in assets $ 133 --
        Decrease in liabilities $ 130 --
See Accompanying Notes to Consolidated Financial ~~Statements. -~~ Statements
5 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -– Interim Financial Data ~~- -------------------------------~~
The accompanying information pertaining to the three ~~and six~~ months ended ~~September~~June 30, ~~2003~~2004 and ~~2002~~2003 is unaudited and has been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities ~~revenues, expenses,~~ and disclosure of contingent assets and ~~liabilities.~~liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the unaudited financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three ~~and six~~ months ended ~~September~~June 30, ~~2003~~2004 are not necessarily indicative of those expected for any other interim period or for a full year. Certain prior period amounts have been reclassified to conform with the current period presentation. These include the reclassification of the derivative fair value adjustment into interest expense in the consolidated statement of income, made in response to recent Securities and Exchange Commission ("SEC") public announcements related to the income statement presentation of certain derivative activities.
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 2003~~Corporation’s 2004 Annual Report to the SEC on Form 10-K. References herein to ~~"TMCC"~~“TMCC” denote Toyota Motor Credit Corporation and references herein to ~~"the Company"~~“the Company” denote Toyota Motor Credit Corporation and its consolidated subsidiaries.
On April 1, 2004, the Company transferred substantially all of its interests in Toyota Services de Mexico, S.A. de C.V. (“TSM”) and Toyota Services de Venezuela, C.A. (“TSV”), and its minority interest in Banco Toyota do Brazil (“BTB”), to its parent, Toyota Financial Services Americas (“TFSA”). The transfer of the $17 million net carrying value of the Company’s interests in these entities was accounted for as a distribution of assets and, accordingly, a reduction of shareholder’s equity.
Note 2 -– Finance Receivables ~~- ----------------------------~~
Finance receivables, net consisted of the following:
September 30, March 31, 2003 2003 ------------ ------------ (Dollars in Millions) Retail.................................... $19,066 $16,160 Finance leases............................ 5,206 6,078 Wholesale and other dealer loans.......... 4,815 5,608 ------- ------- 29,087 27,846 Unearned income........................... (886) (1,043) ------- ------- Finance receivables, net of unearned income................... 28,201 26,803 Allowance for credit losses............... (333) (326) ------- ------- Finance receivables, net .............. $27,868 $26,477 ======= =======
June 30,
2004
March 31,
2004
(Dollars in millions)

Retail receivables $ 24,504 $ 22,693
Finance leases 3,710 4,325
Wholesale and other dealer loans 6,643 6,571
34,857 33,589
Unearned income (647 ) (747 )
Finance receivables, net of unearned income 34,210 32,842
Allowance for credit losses (425 ) (382 )
Finance receivables, net $ 33,785 $ 32,460
Finance leases included estimated unguaranteed residual values of ~~$1.5 billion and $1.8~~$1.3 billion at ~~September~~both June 30 and March 31, ~~2003, respectively.~~2004. The aggregate balances related to finance receivables 60 or more days past due totaled ~~$151~~$133 million and ~~$160~~$115 million at ~~September~~June 30 and March 31, ~~2003,~~2004, respectively. ~~The majority of~~Substantially all retail and finance lease receivables do not involve recourse to the dealer in the event of customer default. -
6 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Finance Receivables (Continued)
As part of management’s quarterly evaluation, the allowance for credit losses related to the Company’s retail and wholesale and other dealer loans portfolios was adjusted to reflect changes in estimated credit losses. These adjustments were recorded to reflect the growth in these portfolios and the increased level of non-Toyota/Lexus dealers receiving wholesale and other dealer financing.
Note 3 -– Investments in Operating Leases ~~- ----------------------------------------~~
Investments in operating leases, net consisted of the following:
September 30, March 31, 2003 2003 ------------ ------------ (Dollars in Millions) Vehicles.................................. $9,739 $9,687 Equipment and other....................... 708 720 ------ ------ 10,447 10,407 Accumulated depreciation.................. (2,389) (2,254) Allowance for credit losses .............. (163) (136) ------ ------ Investments in operating leases, net...... $7,895 $8,017 ====== ======
June 30,
2004
March 31,
2004
(Dollars in millions)

Vehicles $ 9,841 $ 9,700
Equipment and other 712 688
10,553 10,388
Accumulated depreciation (2,597 ) (2,565 )
Allowance for credit losses (87 ) (138 )
Investments in operating leases, net $ 7,869 $ 7,685
The aggregate balances related to investments in operating leases, net of 60 or more days past due totaled $33 million and $23 million at June 30 and March 31, 2004, respectively.
As part of management’s quarterly evaluation, the allowance for credit losses related to the Company’s operating lease portfolio was adjusted to reflect changes in the estimate of credit losses. Notwithstanding the increase in 60-day delinquencies on the operating lease portfolio from March 2004 to June 2004, driven, in part, by seasonal variations, overall delinquencies and credit loss results on this portfolio are expected to improve. Accordingly, management reduced the allowance for credit losses related to the operating lease portfolio consistent with its expectation of future results.
Note 4 -– Allowance for Credit Losses ~~- ------------------------------------~~
An analysis of the allowance for credit losses follows:
Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------- ------- ------- ------- (Dollars in Millions) Allowance for credit losses at beginning of period............... $ 552 $ 351 $ 526 $ 283 Provision for credit losses............. 78 127 187 249 Charge-offs............................. (82) (69) (176) (129) Recoveries.............................. 15 8 26 15 Other adjustments....................... (19) - (19) (1) ------- ------- ------- ------- Allowance for credit losses at end of period..................... $ 544 $ 417 $ 544 $ 417 ======= ======= ======= =======
At September 30, 2003, the allowance for credit losses consisted of $496 million to cover probable losses on the Company's owned portfolio and $48 million to cover probable losses on repossessed collateral in inventory. Total repossessed collateral in inventory at September 30, 2003 was $123 million. Repossessed collateral is included in other assets in the consolidated balance sheet. -
Three Months Ended
June 30,
2004
2003
(Dollars in millions)

Allowance for credit losses at beginning of period $ 520 $ 462
Provision for credit losses 46 109
Charge-offs (69 ) (80 )
Recoveries 18 11
Other (3 ) --
Allowance for credit losses at end of period $ 512 $ 502
7 -
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 -– Derivatives and Hedging Activities - ------------------------------------------- In response to recent SEC public announcements related to the income statement presentation of certain derivative activities, the Company's derivative fair value adjustment was reclassified into interest expense in the consolidated statement of income.
The following table ~~sets forth~~summarizes the ~~items comprising~~net unrealized gains and losses included in the ~~Company's~~Company’s derivative fair value adjustment, which is included in interest ~~expense:~~ expense.
Three Months Ended
June 30,
2004
2003
(Dollars in millions)
Unrealized (Gain)/Loss

Ineffectiveness related to designated hedges $ 32 $ 2
Amortization of de-designated hedges (49 ) --
Currency basis swaps ¹ (25 ) --
Non-designated hedges
    Interest rate swaps (25 ) 18
    Interest rate caps (7 ) 19
Other (1 ) (1 )
Derivative fair value adjustment $ (75 ) $ 38

Three months ended Six months ended September 30, September 30, 2003 2002 2003 2002 ------ ------ ------ ------ (Dollars
1 Currency basis swaps used in ~~Millions)~~ Net unrealized gain/(loss) on non-designated derivatives................................... $ 82 $ (158) $ 46 $ (392) Net unrealized (loss)/gain on previously designated derivatives that no longer qualify as fair value hedges.................... (10) 2 (18) 2 Net unrealized gain relatedcombination with interest rate swaps to the ineffective portion of the Company's fair value hedges..................... 11 32 17 52 ------ ------ ------ ------ Derivative fair value adjustment................. $ 83 $ (124) $ 45 $ (338) ====== ====== ====== ====== convert U.S. dollar debt to U.S. dollar denominated payments are not eligible for hedge accounting.

~~- 8 -~~ ~~TOYOTA MOTOR CREDIT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~
Note 6 -– Notes and Loans Payable ~~- -------------------------------- The following table sets forth the items comprising notes~~
Notes and loans payable and the related weighted average interest ~~rates:~~ rates are summarized as follows:
Wtd. Avg. Int. Rates¹
June 30, March 31, June 30, March 31,
2004
2004
2004
2004
(Dollars in millions)

Commercial paper $ 8,400 $ 8,094 1.13 % 1.05 %
Notes and loans payable 27,642 26,787 1.47 % 1.32 %
Fair value adjustment ² 1,650 1,941
Notes and loans payable $ 37,692 $ 36,822 1.38 % 1.26 %
~~September 30, March 31, September 30, March 31, 2003 2003 2003~~ ~~2003~~ ~~--------- ---------- --------- --------- (Dollars in Millions)~~ Short-term debt .............. $ 6,168 $ 4,843 1.06% 1.36% Long-term debt ............... 25,259 26,034 1.23% 1.43% Fair value adjustments ... 1,752 1,222 --------- --------- Notes and loans payable.. $ 33,179 $ 32,099 1.20% 1.42% ========= ========= ~~- --------------------~~
1 Includes the effect of certain ~~United States ("U.S.") dollar~~ interest rate swap agreements and cross currency interest rate swap agreements. Rates represent the weighted average interest on the outstanding debt portfolio as of the date presented.

2 Adjusts debt in designated hedge relationships to fair market ~~value in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" and related amendments ("SFAS 133, as amended").~~ value.

Included in ~~long-term debt~~notes and loans payable are unsecured notes denominated in various foreign currencies totaling ~~approximately $11.2 billion and $11.4~~$11 billion at ~~September~~June 30 and March 31, ~~2003, respectively.~~2004. Concurrent with the issuance of these unsecured notes, the Company entered into cross currency interest rate swap agreements or a combination of interest rate swaps coupled with currency basis swaps to convert ~~these obligations into variable rate~~non-U.S. dollar debt to U.S. dollar ~~obligations. - 9 -~~ denominated payments.
8
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Notes and Loans Payable (Continued)
At June 30, 2004 and March 31, 2004, notes and loans payable of $173 million and $226 million, respectively, were collateralized by retail finance receivables of $207 million and $261 million respectively, arising from a securitization transaction accounted for as a collateralized borrowing. The retail finance receivables serve as collateral for the payment of the notes and loans payable and are therefore restricted from TMCC’s creditors.
Note 7 -– Liquidity Facilities and Letters of Credit ~~- ---------------------------------------------------~~
The following table ~~sets forth~~summarizes the ~~Company's~~Company’s committed and uncommitted ~~facilities at September 30 and March 31, 2003:~~
Committed Uncommitted Unused Facilities -------------------- -------------------- -------------------- September 30, March 31, September 30, March 31, September 30, March 31, 2003 2003 2003 2003 2003 2003 -------- -------- -------- -------- -------- -------- (Dollars in Millions) 364-day syndicated bank credit facilities........ $ 3,600 $ 2,800 $ - $ - $ 3,600 $ 2,800 5-year syndicated bank credit facility - TMCC... 1,400 1,400 - - 1,400 1,400 Letters of credit facilities - - 60 60 59 59 -------- -------- -------- -------- -------- -------- Total facilities $ 5,000 $ 4,200 $ 60 $ 60 $ 5,059 $ 4,259 ======== ======== ======== ======== ======== ========
~~During the second quarter of fiscal 2004, Toyota Credit de Puerto Rico Corp. ("TCPR Corp.") established a $400 million,~~facilities:
Committed
Uncommitted
Unused Facilities
June 30, March 31, June 30, March 31, June 30, March 31,
2004
2004
2004
2004
2004
2004
(Dollars in millions)

364-day syndicated bank credit
    facilities $ 4,000 $ 4,000 $ -- $ -- $ 4,000 $ 4,000
5-year syndicated bank
     credit facility - TMCC 1,400 1,400 -- -- 1,400 1,400
Letters of credit facilities -- -- 55 55 53 53
Total facilities $ 5,400 $ 5,400 $ 55 $ 55 $ 5,453 $ 5,453
The 364-day syndicated bank credit ~~facility, which is restricted to its own use. In addition, a TMCC 364-day syndicated bank credit facility, which is restricted to TMCC's own use, was increased to $3.2~~facilities consist of $3.6 billion and ~~renewed during September 2003~~$0.4 billion for ~~an additional 364-day period. - 10 -~~ TMCC and TCPR, respectively at June 30, 2004 and March 31, 2004.
9
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 -– Commitments and ~~Contingent Liabilities - -----------------------------------------------~~ Contingencies
Guarantees and Commitments
TMCC has entered into certain guarantees and commitments. As of ~~September~~June 30, ~~2003,~~2004, TMCC ~~had~~has not recorded any liabilities under such arrangements. The maximum commitment amounts under the guarantees and commitments as of ~~September~~June 30, ~~2003~~2004 are summarized in the table below:
Maximum Commitment Amount -------------- (Dollars in Millions) Credit facilities with dealers and affiliates................. $ 3,117 Guarantees of affiliate pollution control and solid waste disposal bonds......... 148 Lease commitments......................... 147 Revolving liquidity notes related to securitizations............. 48 Guarantee of Banco Toyota Do Brasil debt("BTB")..................... 30 ------- Total guarantees and commitments............. $ 3,490 =======
Maximum Commitment Amount
(Dollars in millions)

Credit facilities with vehicle and industrial
     equipment dealers and affiliates $ 3,752
Guarantees of affiliate pollution control and
     solid waste disposal bonds 148
Lease commitments 130
Revolving liquidity notes related to securitizations 48
Guarantees of affiliate debt 35
Total guarantees and commitments $ 4,113
The Company ~~maintains~~provides variable rate credit facilities ~~with dealers~~to vehicle and ~~affiliates.~~industrial equipment dealers. These credit facilities may be used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are typically collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. The Company obtains a personal guarantee from the vehicle or industrial equipment dealer or corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover the ~~Company's~~Company’s exposure under such agreements. The Company prices the credit facilities according to the risks assumed in entering into the credit ~~facility. During~~facility and reviews amounts funded under these facilities for collectibility in conjunction with its quarterly evaluation of the ~~first quarter~~allowance for credit losses. The Company also provides financing to various multi-franchise dealer organizations, referred to as dealer groups, often as part of ~~fiscal 2004, TCPR Corp. extended~~ a lending consortium, for wholesale, working capital, real estate, and business acquisitions.
In addition, the $90 million ~~revolving line of credit~~commitment to Toyota de Puerto Rico Corp., a ~~wholly-owned~~ subsidiary of Toyota Motor Sales, ~~U.S.A.,~~USA Inc. ~~("TMS"~~(“TMS”)~~. This $90 million commitment~~ discussed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004 is included in the table above under credit facilities with vehicle and industrial equipment dealers and affiliates. ~~The revolving line of credit has a one-year renewable term, with interest due monthly.~~ Any loans outstanding under this revolving line of credit are not guaranteed by ~~TMS. - 11 -~~ TMS and are unsecured. In April 2004, TMCC entered into a reciprocal credit agreement with TFSA which allows each company to borrow up to $100 million from the other at a daily market interest rate, generally the federal funds rate, determined on the date of each advance, with no stated maturity date. This commitment is included in the table above under “Credit facilities with vehicle and industrial equipment dealers and affiliates”. Of the total credit facilities available to equipment dealers and affiliates, $2.3 billion is outstanding at June 30, 2004.
10
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 -— Commitments and ~~Contingent Liabilities~~Contingencies (Continued) ~~- ------------------------------------------------~~
TMCC has guaranteed payments of principal, interest, and premiums, if any, on $88 million principal amount of flexible rate demand solid waste disposal revenue bonds issued by Putnam County, West Virginia, of which $40 million matures in June 2028, $28 million matures in August 2029, and $20 million matures in April 2030. The bonds were issued in connection with a West Virginia manufacturing facility of an affiliate.
TMCC has guaranteed payments of principal, interest, and premiums, if any, on $60 million principal amount of flexible rate demand pollution control revenue bonds issued by Gibson County, Indiana, of which $10 million matures in October 2027, January 2028, January 2029, January 2030, February 2031, and September 2031, respectively. The bonds were issued in connection with an Indiana manufacturing facility of an affiliate.
Under these affiliate bond guarantees, TMCC would be required to perform in the event of any of the following: a) payment of any installment of interest, principal, premium, if any, or purchase price on the bonds is not made when the payment becomes due and payable; b) the occurrence of certain events of bankruptcy involving the benefactor manufacturing facilities or TMCC; c) failure by the benefactor manufacturing facilities to observe or perform any covenant, condition or agreement under the guarantees, other than as referred to in (a) above; d) failure by the bond issuers to observe or perform any covenant, condition or agreement under the guarantees, other than as referred to in (a) above; e) failure by TMCC to observe or perform any covenant, condition, agreement or obligation under the guarantees.
a) payment of any installment of interest, principal, premium, if any, or purchase price on the bonds, is not made when the payment becomes due and payable;

b) the occurrence of certain events of bankruptcy involving the benefactor manufacturing facilities or TMCC;

c) failure by the benefactor manufacturing facilities to observe or perform any covenant, condition or agreement under the guarantees, other than as referred to in (a) above;

d) failure by the bond issuers to observe or perform any covenant, condition or agreement under the guarantees, other than as referred to in (a) above;

e) failure by TMCC to observe or perform any covenant, condition, agreement or obligation under the guarantees.

These guarantees include provisions whereby TMCC is entitled to reimbursement by the benefactor manufacturing facilities for all principal and interest paid and fees incurred on behalf of the benefactor manufacturing facilities and to default interest on those amounts. TMCC receives an annual fee of $100,000 for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of ~~September~~June 30, ~~2003. During the first quarter of fiscal~~2004.
At June 30, 2004, the Company entered into a 15-year lease agreement with TMS. The lease agreement is for the Company's new headquarters location in the TMS headquarters complex in Torrance, California. At September 30, 2003, minimum future commitments under lease agreements to which the Company is a lessee ~~including those under the agreement discussed above,~~ are as follows: fiscal years ending ~~2004 - $21 million;~~ 2005 ~~- $19~~— $20 million; 2006 ~~- $17~~– $18 million; 2007 ~~- $15~~– $16 million; 2008 ~~- $10~~– $11 million; 2009 -— $9 million; and thereafter -– $56 million. ~~- 12 -~~
11
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 -— Commitments and ~~Contingent Liabilities~~Contingencies (Continued) ~~- ------------------------------------------------~~
In certain securitization structures, revolving liquidity notes (“RLN”) are used in lieu of deposits to a cash reserve ~~funds to provide credit enhancement to the senior securities. Under these revolving liquidity notes, investors~~fund. The securitization trust may draw upon the ~~notes~~RLN to cover any shortfall in interest and principal ~~payments.~~payments to investors. The Company funds any draws, ~~are funded by TMCC~~ and ~~TMCC is entitled~~the terms of the RLN obligate the securitization trust to ~~reimbursement of~~repay amounts drawn onplus accrued interest. Repayments of principal and interest due under the ~~liquidity notes. Reimbursement of amounts drawn on the liquidity notes is~~RLN are subordinated to principal and interest payments ~~due~~ on the ~~securities. TMCC~~asset-backed securities and, in some circumstances, to deposits into a reserve account. If collections are insufficient to repay amounts outstanding under a RLN, the Company will recognize a loss for the outstanding amounts. The Company must fund the entire amount available under the ~~revolving liquidity notes~~RLN into a reserve account if ~~TMCC's short-term~~the Company’s short term unsecured debt rating is downgraded below P-1 or A-1 by ~~Moody's~~Moody’s Investors Service, Inc. ~~("Moody's")~~ or Standard & ~~Poor's~~Poor’s Ratings Group, a division of ~~The~~the McGraw-Hill Companies, Inc. ~~("S&P")~~, respectively. No amounts were outstanding under the RLN as of June 30, 2004.
As described in Note 18 – Subsequent Events in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004, following the transfer of the Company’s interests in TSM, TSV, and BTB to TFSA, TMCC continues to guarantee $30 million of certain credit facilities of BTB, as discussed further below. During the quarter ended June 30, 2004, the Company reduced the maximum amount guaranteed of TSV debt from $35 million to $5 million, as discussed further below.
TMCC has guaranteed payments of up to $30 million in principal, interest, fees, and expenses with respect to ~~a $30 million~~the offshore bank loan of BTB. This guarantee will remain in effect until the loan is repaid in full, and TMCC elects to terminate the guarantee. The loan matures in ~~fiscal 2005.~~November 2004. Under the terms of the guarantee, TMCC would be required to perform on behalf of BTB should BTB default on payments for any reason including, but not limited to, financial insolvency, cross border payment restrictions, and other sovereign restrictions on ~~off-shore~~offshore payments. TMCC has entered into a separate indemnity agreement with BTB. The indemnity agreement includes provisions whereby TMCC is entitled to reimbursement from BTB. TMCC has not been required to perform under the BTB guarantee as of ~~September~~June 30, ~~2003.~~ 2004.
TMCC has guaranteed payments of up to $5 million in principal, interest, fees, and expenses with respect to a Venezuelan bank credit facility on behalf of TSV. The credit facility would allow TSV to borrow up to the amount of the guarantee for a period of one year. The guarantee will remain in effect until the loan is repaid in full, and TMCC elects to terminate the guarantee. Under the terms of the guarantee, TMCC would be required to perform on behalf of TSV should TSV default on payments as a result of financial insolvency. The Company has entered into a separate reimbursement agreement with TSV which includes provisions whereby TMCC is entitled to reimbursement from TSV in the event TSV defaults under its loan agreement covered by this guarantee and TMCC is called upon to perform its guarantee obligations. TMCC has not been required to perform under the TSV guarantee as of June 30, 2004.
12
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Commitments and Contingencies (Continued)
Indemnification
In the ordinary course of business, the Company enters into agreements containing indemnification provisions standard in the industry related to several types of transactions, ~~such as~~including, but not limited to, debt funding, derivatives, securitization transactions, and its 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, the Company has 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. ~~Management periodically evaluates~~In addition, certain of the ~~probability of having~~Company’s funding arrangements would require the Company to ~~incur such costs.~~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, the Company is not able to estimate its maximum exposure to future payments that could result from claims made under such provisions. The Company has not made any material payments in the past as a result of these provisions, and as of ~~September~~June 30, ~~2003,~~2004, the Company does not believe it is probable that it will have to make any material payments in the future. As such, no amounts have been recorded under these indemnifications as of ~~September~~June 30, ~~2003.~~ 2004.
Receivable Repurchase Obligations
The Company sells discrete pools of retail finance receivables to wholly owned consolidated bankruptcy remote special purpose entities (“SPE”). TMCC makes certain representations and warranties to the SPE, and the SPE makes corresponding representations and warranties to the securitization trust, relating to receivables sold in a securitization. TMCC and the SPE may be required to repurchase any receivables in the event of a breach of a representation and warranty relating to the receivable that materially and adversely affects the interest of the SPE, or securitization trust, as applicable. In addition, TMCC, as servicer of the receivables, may be required to repurchase any receivable in the event of a breach of a covenant by the servicer with respect to the receivable that materially and adversely affects the interest of the securitization trust or of certain extensions or modifications of a receivable as to which TMCC, as servicer, does not commit to make advances to fund reductions in interest payments. The repurchase price is generally the outstanding principal balance of the receivable and accrued interest. These provisions are customary for securitization transactions.No receivables were repurchased during the quarter ended June 30, 2004.
Advancing Requirements
As servicer, TMCC is required to advance certain shortfalls in obligor payments to the related securitization trust to the extent it believes the advance will be recovered from future collections of the related receivable. Each securitization trust is required to reimburse the Company for these advances from collections on all receivables before making other required payments. These provisions are customary for securitization transactions. No advances were outstanding at June 30, 2004.
13
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — 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 the Company 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 the ~~Company's~~Company’s 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. Management and internal and external counsel perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. The Company establishes reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts reserved for these claims. However, based on information currently available, the advice of ~~liability on pending claims~~counsel, and ~~actions as of September 30, 2003 were not determinable; however,~~established reserves, in the opinion of management, the ultimate liability resulting therefrom ~~should~~will not have a material adverse effect on the ~~Company's~~Company’s consolidated financial position or results of operations. ~~- 13 -~~
14
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 -– Related Party Transactions ~~- -----------------------------------~~
As of ~~September~~June 30, ~~2003,~~2004, there have been no material changes to the related party agreements or relationships as described in the ~~Company's annual report~~Company’s Annual Report on Form 10-K for the year ended March 31, ~~2003,~~2004, except for the ~~lease~~reciprocal credit agreement with ~~TMS, as~~TFSA described in Note 8.7. The ~~table~~tables below ~~summarizes~~summarize amounts included in the ~~Company's~~Company’s consolidated balance ~~sheet~~sheets and ~~statement~~statements of income for the fiscal periods presented under various related party agreements or relationships:
September 30, March 31, 2003 2003 ---------- ---------- (Dollars in Millions) Consolidated balance sheet: Accrued credit support fee payable... $ 8 $ 7 Net intercompany payable............. $ 18 $ 59 Notes payable under affiliate MTN program............ $ 1 $ 1 Notes receivable under home loan program................ $ 6 $ 9
Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------- ------- ------- ------- (Dollars in Millions) Consolidated statement of income: Credit support fees incurred......... $ (4) $ (3) $ (9) $ (7) Shared services reimbursement........ (21) (9) (44) (21) Rent expense under facilities lease.. (2) (1) (3) (3) Marketing, wholesale support, and other revenues.................. 45 40 93 63 Affiliate insurance premiums and commissions revenue............. 11 10 22 20 Other amounts incurred............... - - (1) - ------- ------- ------- ------- Total.............................. $ 29 $ 37 $ 58 $ 52 ======= ======= ======= =======
Other amounts incurred reflect expenses incurred for vehicles leased from affiliates, partially offset by amounts earned for services TMCC performed on behalf of affiliates. - 14 -
June 30,
2004
March 31,
2004
(Dollars in millions)

Assets:
Finance receivables with affiliates $ 76 $ 75
Intercompany receivables $ 14 $ 1
Notes receivable under home loan program $ 7 $ 7
Other $ 4 $ 3

Liabilities:
Intercompany payables $ 30 $ 48

Three Months Ended
June 30,
2004
2003
(Dollars in millions)

Revenues:
Manufacturers' subvention support and other revenues $ 52 $ 45
Affiliate insurance premiums and commissions revenue $ 15 $ 11

Expenses:
Shared services charges $ 20 $ 23
Credit support fees incurred $ 4 $ 5
Pension plan expense $ 4 $ 4
Rent expense and other amounts incurred $ 2 $ 2

15
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 -– Segment Information ~~- -----------------------------~~
Financial results for the ~~Company's~~Company’s operating segments are summarized below:
At/For At/For Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------- ------- ------- ------- (Dollars in Millions) Assets: Financing operations................. $40,055 $36,587 $40,055 $36,587 Insurance operations................. 842 846 842 846 Eliminations/reclassifications....... (214) (179) (214) (179) ------- ------- ------- ------- Total assets....................... $40,683 $37,254 $40,683 $37,254 ======= ======= ======= ======= Gross revenues: Financing operations................. $ 1,037 $ 960 $ 2,025 $ 1,940 Insurance operations................. 54 58 108 107 ------- ------- ------- ------- Total gross revenues............... $ 1,091 $ 1,018 $ 2,133 $ 2,047 ======= ======= ======= ======= Net income/(loss): Financing operations................. $ 204 $ (3) $ 243 $ (42) Insurance operations................. 11 7 22 17 ------- ------- ------- ------- Total net income/(loss)............ $ 215 $ 4 $ 265 $ (25) ======= ======= ======= =======
~~- 15 -~~
June 30,
2004
March 31,
2004
(Dollars in millions)

Assets:
Financing operations $ 44,972 $ 43,948
Insurance operations 1,191 1,137
Eliminations/reclassifications (244 ) (231 )
Total assets $ 45,919 $ 44,854

Three Months Ended
June 30,
2004
2003
(Dollars in millions)

Gross revenues:
Financing operations $ 983 $ 950
Insurance operations 65 62
Eliminations/reclassifications (9 ) (8 )
Total gross revenues $ 1,039 $ 1,004
Net Income:
Financing operations $ 179 $ 39
Insurance operations 11 11
Net Income $ 190 $ 50
16
ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ~~EARNING ASSETS AND CONTRACT VOLUME Net Earning Assets - ------------------~~
OVERVIEW
Toyota Motor Credit Corporation (“TMCC”) and its consolidated subsidiaries, collectively referred to herein as the “Company”, is wholly owned by Toyota Financial Services Americas Corporation (“TFSA”), a California corporation which is a wholly owned subsidiary of Toyota Financial Services Corporation, a Japanese corporation. On April 1, 2004, the Company transferred substantially all of its interests in Toyota Services de Mexico, S.A. de C.V. and Toyota Services de Venezuela, C.A., and its minority interest in Banco Toyota do Brazil, to its parent, TFSA. The ~~composition~~transfer of the ~~Company's~~$17 million net ~~earning assets as~~carrying value of the ~~balance sheet dates reported is summarized below:~~
September 30, March 31, September 30, 2003 2003 2002 ------------ ------------ ------------ (Dollars in Millions) Vehicle lease earning assets Investment in operating leases, net...... $ 7,594 $ 7,679 $ 7,392 Finance leases, net...................... 4,273 4,997 5,734 ------- ------- ------- Total vehicle lease earning assets........ 11,867 12,676 13,126 Vehicle retail finance receivables, net... 18,850 15,873 16,095 Vehicle wholesale and other financing ~~5,542 6,407 4,803 Allowance for credit losses~~ .......... (496) (462) (342) ------- ------- ------- Total net earning assets.................. $35,763 $34,494 $33,682 ======= ======= ======= ~~- ----------------------~~ ~~For purposes~~Company’s interests in these entities was accounted for as a distribution of ~~this table, vehicle wholesale and other financing includes wholesale financing, real estate loans, working capital loans, revolving credit lines, and industrial equipment financing.~~ ~~Includes amounts to cover probable losses on the Company's owned portfolio, but excludes amounts related to repossessed collateral in inventory.~~
~~Net earning~~ assets ~~at September 30, 2003 increased $1.3 billion or 4% compared~~and, accordingly, a reduction of shareholder’s equity.
Refer to the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2003.~~ 2004 for a more complete description of the Company’s business, including a description of sources of revenue, performance measures, and competitors.
Operating Summary
The ~~growth~~Company reported net income of $190 million during the quarter ended June 30, 2004, compared with net income of $50 million for the same period in ~~earning assets during this period was driven~~the prior year. Financial results for the quarter ended June 30, 2004 were influenced by a number of factors including continued improvement in the ~~increased volume~~Company’s credit loss experience, and reduced funding costs, including a positive adjustment to the fair value of ~~vehicle retail financing, partially offset by decreases in vehicle lease financing and vehicle wholesale and other financing.~~the Company’s derivative instruments. The ~~significant increase in retail finance receivables primarily resulted from the increased~~ volume of new financings continuing to outpace the liquidation of the existing portfolio. The volume achieved was generated in large part by an increased use of marketing incentives sponsored by Toyota Motor Sales, U.S.A., Inc. ("TMS") and highercontracts purchased primarily from Toyota and Lexus vehicle dealers remained relatively constant at 246,000 and 247,000 contracts during the quarters ended June 30, 2004 and 2003, respectively. The Company experienced a decrease in its consumer retail and lease finance market share of Toyota and Lexus vehicles, excluding fleet sales ~~levels, which increased 9%~~and sales of an independent distributor, from 47.9% for the ~~three months~~quarter ended ~~September~~June 30, 2003 to 43.9% for the quarter ended June 30, 2004. While contract volume remained level and overall market share declined, earning assets continued to increase due to new vehicle contract volume exceeding liquidations during the quarter ended June 30, 2004, as well as the cumulative effect of a reduction in securitization activity during the last fiscal year. In addition, the amount of wholesale and other dealer loans outstanding at June 30, 2004 has increased substantially when compared to June 30, 2003 primarily due to the increase in the number of vehicle dealers receiving vehicle wholesale financing.
During the quarter ended June 30, 2004, financing revenues increased $34 million or 4% to $957 million when compared to the same period in the prior year due to the increase in earning assets, partially offset by a general decline in the earnings rate, or portfolio yield, of the Company’s earning assets portfolio. The decline in the earnings rate resulted from declines in market interest rates and the level of competitive pricing pressure.
The Company continued to benefit from low short-term interestrates as a portion of its funding is based upon LIBOR. Additionally, the recent rise in two and three-year swap rates in the past few quarters resulted in favorable mark-to-market adjustments on the Company’s derivative portfolio. The combination of these two factors contributed to a $116 million or 50% reduction in overall interest expense for the quarter ended June 30, 2004 when compared to the same period in the prior year. ~~Vehicle lease~~
Overall, the Company increased its capital position by $0.2 billion bringing total equity to $3.7 billion at June 30, 2004. The Company’s debt-to-equity position improved from 10.5 to 10.3 at March 31, 2004 and June 30, 2004, respectively. Additionally, reserves as a percentage of gross earning assets declined from 1.37% at June 30, 2003 to 1.21% at June 30, 2004, reflecting the improvement in overall portfolio credit quality.
17
Business Outlook
The Company anticipates fiscal 2005 results will be influenced by the level of new vehicle retail and lease contract volume, the continued use of Toyota Motor Sales, U.S.A., Inc. (“TMS”) subvention support and the level of competitive pricing pressure. During the last several fiscal years the Company reduced its reliance on vehicle lease financing programs and focused primarily on retail financing programs. In light of recent trends indicating potential improvements in the vehicle lease market, including stabilized used vehicle prices and rising market interest rates, the Company is evaluating options to ~~decrease~~increase its vehicle leasing volume while maintaining its emphasis on the retail financing market. In addition to the anticipated growth in vehicle lease volume, the Company also expects continued growth in the number of dealers receiving wholesale and other dealer financing as a result of its focus on building dealer relationships.
The sustainability of the Company’s financial results depends on the Company’s ability to maintain gross margin while facing increased competition and rising interest rates. The Company intends to take a balanced approach to matching increases in financing rates to increases in costs of funds in a highly competitive marketplace. The Company expects operating and administrative costs to increase as a result of costs incurred under its technology initiative and general business growth, although, as a percentage of earning assets, expenses are expected to be consistent with fiscal 2004.
The Company’s vehicle retail and lease delinquency and credit loss results continue to improve when compared with ~~March 31,~~prior periods. This improvement resulted from recently implemented operational and technological efficiencies and processes, and current favorable economic trends. Management remains cautiously optimistic that current levels of delinquencies and credit losses on these portfolios will continue for the remainder of fiscal 2005. As discussed in the “Financial Condition – Net Earning Assets” section of this MD&A, the number of vehicle dealers receiving wholesale and other dealer financing from the Company, including the number of non-Toyota/Lexus dealers, has increased substantially from June 30, 2003 ~~due~~compared to ~~a general shift~~June 30, 2004. The Company expects that this growth in ~~programs sponsored~~non-Toyota/Lexus wholesale and other dealer financing may increase the degree of credit risk assumed by ~~TMS from lease to retail~~the Company as well as the ~~Company's reduced emphasis~~concentration of credit risk within a particular dealer group. To date this change has not had a material effect on ~~leasing, in line with industry trends. Vehicle~~delinquencies or credit losses related to the Company’s wholesale and other dealer loan portfolio.
During the latter half of fiscal 2004 and the first quarter of fiscal 2005, used vehicle prices stabilized, and the U.S. economy improved. Management’s view of the impact of these favorable trends on the used vehicle market is tempered by several observations. Recent employment reports have indicated a mixed performance following several months of a strengthening jobs market. Although economic conditions have improved, short-term interest rates have risen and are projected to rise in the near term, while fuel costs have remained at elevated levels. As a result of these recent trends, management remains cautious regarding the residual risk it underwrites.
The foregoing information and the other information in this MD&A under the caption “Outlook” contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements may include estimates, projections and statements of the Company’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Refer to the “Cautionary Statement for Purposes of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995” section of this MD&A for a detailed discussion regarding words used to identify such statements and factors that could cause actual results to differ materially from those expressed or implied by such statements.
18
FINANCIAL CONDITION
Net Earning Assets
The composition of the Company’s net earning assets is summarized below:
June 30, March 31, June 30, % Change
2004
2004
2003
June 30, 2004 to
June 30, 2004 to
(Dollars in millions) March 31, 2004
June 30, 2003
Net Earning Assets¹

Finance receivables, net
    Retail finance receivables, net $ 24,019 $ 22,264 $ 17,972 8 % 34 %
    Finance leases, net 3,164 3,645 4,694 (13 %) (33 %)
    Wholesale and other dealer loans, net 6,602 6,551 5,679 1 % 16 %
Total finance receivables, net 33,785 32,460 28,345 4 % 19 %
Investments in operating leases, net 7,869 7,685 7,900 2 % --
Net earning assets $ 41,654 $ 40,145 $ 36,245 4 % 15 %
Wholesale and Other Dealers (Number of dealers serviced)
    Toyota and Lexus Dealers ² 644 633 588
    Vehicle dealers outside of the
        Toyota/Lexus dealer network 369 373 293
Total number of wholesale dealers
    receiving vehicle wholesale financing
1,013 1,006 881

Dealer inventory financed (units) 170,000 166,000 142,000

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

2 Includes wholesale and other loan arrangements in which the Company participates as part of a syndicate of lenders.

The increase in net earning assets at June 30, 2004 when compared to March 31, 2004 and June 30, 2003 was primarily driven by the continued growth in retail finance receivables, wholesale and other dealer loans, and investments in operating leases, partially offset by a reduction in finance lease receivables.
Retail finance receivables at June 30, 2004 increased when compared to the balance at March 31, 2004 as the volume of new vehicles financed under the Company’s retail financing programs exceeded liquidations during the quarter ended June 30, 2004 when compared to the quarter ended March 31, 2004. Retail finance receivables ~~decreased~~at June 30, 2004 increased when compared to the balance at June 30, 2003 due to both the volume of new vehicles financed under the Company’s retail financing programs exceeding liquidations and the cumulative effect of a reduction in securitization activity during the last fiscal year. The Company did not execute a securitization transaction in the first quarter of fiscal 2005. Additionally, during fiscal 2004, the Company entered into one securitization transaction totaling approximately $1.9 billion that qualified for sale accounting as compared with ~~March 31, 2003 as a result of seasonal fluctuations in the number of dealer-financed units outstanding, partially offset by continued growth~~three such transactions totaling approximately $4.6 billion during fiscal 2003.
19
Wholesale and other dealer loans increased primarily due to increases in the number of vehicle dealers receiving vehicle wholesale ~~financing. - 16 -~~ Net earning assets at September 30, 2003 increased $2.1 billion or 6% compared to September 30, 2002. The growth in earning assets during this period was driven by the increased volume of vehicle retail financing and vehicle wholesale and other financing, partially offset by a decrease in vehicle lease financing. The significant increase in retail finance receivables primarily resulted from the increased volume of new financings continuing to outpace the liquidation of the existing portfolio. The volume achieved was generated in large part by an increased use of marketing incentives sponsored by TMS and higher Toyota and Lexus vehicle sales levels, which increased 7% for the six months ended September 30, 2003 when compared to June 30, 2003 and the ~~same period~~corresponding increase in the ~~prior year. Vehicle wholesale and other financing also increased as compared with September 30, 2002 resulting from an increased number~~amount of ~~dealer-financed units and growth~~dealer inventory financed by the Company. The increase in the number of vehicle dealers receiving ~~vehicle~~financing is attributable to the Company’s continued emphasis on developing dealer relationships. Many of the Toyota and Lexus dealerships serviced by the Company share common ownership, or are otherwise affiliated, with non-Toyota/Lexus dealerships. The growth in the numbers of non-Toyota/Lexus dealers receiving wholesale ~~financing. Vehicle~~and other dealer financing by the Company reflects an increased emphasis on providing single-source financing for affiliated dealers with multiple franchises both within and outside of the Toyota and Lexus dealer franchise network. The Company believes that its single-source financing strategy will increase its retail and lease ~~earning assets~~penetration, supporting continued growth in its retail finance and lease portfolios. However, this strategy also exposes the Company to a greater concentration of credit risk.
The increase in investment in operating leases and the related decrease in finance leases during the quarter ended June 30, 2004 resulted primarily from the Company’s revising on a prospective basis, the estimated economic life of its vehicles under lease. As a result of this revision, certain new leases that previously would have been classified as ~~compared with September 30, 2003~~finance leases are now classified as investments in operating leases. In total, finance leases and investments in operating leases decreased due to ~~a general shift in programs sponsored by TMS from lease to retail as well as~~ the ~~Company's reduced~~continued emphasis on retail financing programs. However, in light of recent trends indicating potential improvements in the vehicle lease market, including stabilized used vehicle prices and rising market interest rates, the Company is evaluating options to increase its vehicle leasing in line with industry trends. The allowance for credit losses at September 30, 2003 increased $34 million or 7% and $154 million or 45% as compared to March 31, 2003 and September 30, 2002, respectively. Refer tovolume while maintaining its emphasis on the "Provision for Credit Losses" section of the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") for further discussion regarding the Company's delinquency and charge-off experience. retail financing market.
20
Contract Volume ~~- ---------------~~
The composition of the ~~Company's~~Company’s contract volume and market share ~~for the three and six months ended September 30, 2003 and 2002~~ is summarized below:
Three Months Ended
June 30,
% Change
2004
2003

Contract Volume:
Total vehicle retail contract volume 215,000 216,000 --
Total vehicle lease contract volume 31,000 31,000 --
Total contract volume 246,000 247,000 --
TMS subvened contract volume (included in the above table):
Vehicle retail contracts 82,000 91,000 (10 %)
Vehicle leases 8,000 8,000 --
Total 90,000 99,000 (9 %)
TMS subvention rates¹:
Vehicle retail 38 % 42 %
Vehicle lease 26 % 26 %

Market share²:
Vehicle retail contracts 36.7 % 39.8 %
Vehicle leases 7.2 % 8.1 %
Total 43.9 % 47.9 %

Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------- ------- ------- ------- ~~Total~~
1 TMS subvention rates represent subvened new and used contract volume: Vehicle retail....................... 237,000 195,000 453,000 368,000 Vehicle lease........................ 34,000 44,000 65,000 88,000 ------- ------- ------- ------- Total................................... 271,000 239,000 518,000 456,000 ======= ======= ======= ======= TMS sponsoredvolume as a percentage of total contract volume: Vehicle retail....................... 71,000 65,000 150,000 88,000 Vehicle lease........................ 11,000 13,000 19,000 15,000 ------- ------- ------- ------- Total................................... 82,000 78,000 169,000 103,000 ======= ======= ======= ======= Market share : Vehicle retail....................... 40.8% 35.6% 40.3% 33.0% Vehicle lease........................ 7.8% 11.2% 8.0% 11.4% ----- ----- ----- ----- Total................................... 48.6% 46.8% 48.3% 44.4% ===== ===== ===== ===== ~~- --------------------~~ volume for vehicle retail contracts and vehicle lease contracts.

2 Market share represents ~~penetration~~the percentage of total domestic TMS sales of new Toyota and Lexus ~~vehicle~~vehicles financed ~~sales to consumers,~~by TMCC, excluding fleet sales and sales of ~~Toyota Services de Mexico, S.A. de C.V., Toyota Services de Venezuela, C.A., and~~ a private Toyota distributor.
~~- 17 -~~ ~~Total~~
While total contract volume ~~increased 13% and 14% for~~remained essentially level during the ~~three and six months ended September 30, 2003, respectively,~~first quarter of fiscal 2005, the Company’s market share of total TMS volume decreased when compared to the ~~same periods in the~~first quarter of fiscal 2004. The level of TMS subvention support remained relatively consistent with prior ~~year primarily due to~~periods; however total TMS vehicle sales increased vehicle retail contract volume. The increase in retail contract volume reflects the continued use of incentives on new vehicles primarily related to retail financing programs sponsored by TMS. In contrast, vehicle lease contract volume decreased 23% and 26% for the three and six months ended September 30, 2003, respectively, when compared with the same periods in the prior year. The decline in lease contract volume is due to a general shift in programs sponsored by TMS from lease to retail as well as the Company's reduced emphasis on leasing, in line with industry trends. The increase in total market share for the three and six months ended September 30, 2003approximately 12% over the comparable prior year ~~period was attributable~~period. During the first quarter of fiscal 2005 the Company increased rates charged on new retail and lease financing volume in response to rising market interest rates ahead of its competitors. This action increased ~~levels~~the level of ~~marketing incentives sponsored by TMS.~~ competitive pricing pressure on the Company’s non-subvened financing business, which affected the Company’s market share of TMS sales. Competitive pricing pressure eased near the end of the first quarter of fiscal 2005 as competitors increased rates in response to the current interest rate environment.
Refer to the “Financial Condition – Net Earning Assets” discussion of this MD&A for a discussion of the Company’s outlook on vehicle leasing volume.
21
RESULTS OF OPERATIONS - --------------------- Net income increased $211 million and $290 million for the three and six months ended September 30, 2003, respectively, when compared to the same periods in the prior year. During both the three and six months ended September 30, 2003, the Company incurred significantly lower interest expense, driven by the impact of net unrealized gains associated with derivative fair value adjustments, while total financing revenues remained essentially level when compared to prior year results. The Company also experienced lower provision for credit losses for the three and six months ended September 30, 2003 when compared to the same periods in the prior year. The more significant fluctuations in the components of net income are discussed within this MD&A section. TOTAL FINANCING REVENUES - ------------------------
Total ~~financing revenues remained essentially level for the three and six months ended September 30, 2003 when compared with the same periods in the prior year.~~ Financing Revenues
Three Months Ended
June 30,
% Change
2004
2003
(Dollars in millions)

Financing revenues:
Leasing $ 563 $ 584 (4 %)
Retail financing 341 290 18 %
Wholesale and other dealer financing 53 49 8 %
Total financing revenues $ 957 $ 923 4 %

Overall portfolio yield 5.97 % 6.84 %
Total financing revenues increased ~~$7 million or 1% and $44 million or 2% for the three and six months ended September 30, 2003, respectively,~~ primarily due to higher retail financing revenues, partially offset by a decline in leasing revenues. Retail financing revenues increased as a result of the continued growth in vehicle retail finance receivables, partially offset by reductions in retail portfolio yield. Leasing revenues declined primarily due to reductions in vehicle lease earning assets. The decline in overall yield is due to the declines in market interest rates, and tothe impact of competitive pricing pressure. The changes in leasing and retail financing revenues are consistent with the continued emphasis by the Company and TMS on subvened financing programs. Wholesale and other dealer financing revenue increased as a ~~lesser extent, higher~~result of growth in wholesale and other dealer ~~financing revenues. Total financing revenues increased at a lesser rate than~~loans, partially offset by reductions in corresponding portfolio yield. Refer to the ~~growth~~“Financial Condition” section of this MD&A for further discussion regarding changes in the Company’s earning asset ~~portfolio due to reductions~~portfolios.
22
Residual Value Risk
Depreciation on Operating Leases
The following table sets forth the items included in ~~overall portfolio yield, resulting~~the Company’s depreciation on operating leases:
Three Months Ended
June 30,
% Change
2004
2003
(Dollars in millions, except per vehicle data)

Contractual depreciation $ 362 $ 348 4 %
Incremental depreciation 27 72 (63 %)
Total depreciation on leases $ 389 $ 420 (7 %)

Average capitalized cost per vehicle $ 32,931 $ 30,719
(Less) Average depreciable basis per vehicle (16,703 ) (15,913 )
Average residual values per vehicle $ 16,228 $ 14,806

Average depreciable basis percentage 50.7 % 51.8 %
Average operating lease units outstanding 307,000 315,000
Lower total depreciation expense on operating leases resulted from a ~~general~~ decrease in market interest rates. Overall portfolio yield decreased from 7.73% for the six months ended September 30, 2002 to 6.72% for the six months ended September 30, 2003. - 18 - ~~DEPRECIATION ON LEASES - ---------------------- Straight-line~~incremental depreciation expense, partially offset by an increase in contractual depreciation. Incremental depreciation is ~~based upon the difference between a leased vehicle's original book value ("capitalized cost") and the~~taken to bring contractual residual ~~value established~~values in line with expected end of term market values. Incremental depreciation also includes any net losses incurred at lease ~~origination. Additional~~maturity. The decline in incremental depreciation expense ~~is recorded ratably over~~during the ~~remaining life~~first quarter of the lease when the residual value at lease maturity is estimated to be less than the contractual residual value. Factors affecting the estimate of residual value include, but are not limited to, new vehicle incentive programs, new vehicle pricing and used vehicle supply. The evaluation of these factors involves significant assumptions, complex analysis, and management judgment. Any difference between the undepreciated value at termination and the proceeds received at sale is recorded as depreciation expense at the time of asset disposal. Depreciation expense increased $11 million or 3% for the three months ended September 30, 2003fiscal 2005 when compared to the same prior year period inresulted primarily from the ~~prior year.~~recent stabilization of used vehicle prices and from lower net losses incurred at lease maturity. The ~~increase was comprised of a $27 million increase in straight-line depreciation, partially offset by a $16 million~~ decrease in additional depreciation expense when compared to the same period in the prior year. Average capitalized costs have continued to increase while average contractual residual values as a percentage of capitalized cost have declined. This combination has resulted in an overall increase in the depreciable basis of leased vehicles ("depreciable basis") and the resulting increase in straight- line depreciation expense. The decline in additional depreciation expensenet losses incurred at lease maturity was ~~primarily due~~attributable to a ~~decrease~~reduction in the number of leased vehicles returned at maturity and sold at ~~auction~~auction. In prior periods, the Company recorded larger incremental depreciation expense in response to rapid declines in used vehicle prices.
Outlook
During the latter half of fiscal 2004 and the first quarter of fiscal 2005, used vehicle prices stabilized, and the U.S. economy improved. Management’s view of the impact of these favorable trends on the used vehicle market is tempered by several observations. Recent employment reports have indicated a mixed performance following several months of a strengthening jobs market. Although economic conditions have improved, short-term interest rates have risen and are projected to rise in the near term, while fuel costs have remained at elevated levels. As a result of these recent trends, management remains cautious regarding the residual risk it underwrites.
23
Credit Risk
Allowance for Credit Losses and Credit Loss Experience
The following tables provide information related to the Company’s allowance for credit losses and credit loss experience:
Three Months Ended
June 30,
% Change
2004
2003
(Dollars in millions)

Allowance for credit losses at
    beginning of period $ 520 $ 462 13 %
Provision for credit losses 46 109 (58 %)
Charge-offs (69 ) (80 ) (14 %)
Recoveries 18 11 64 %
Other (3 ) -- --
Allowance for credit losses at end of period $ 512 $ 502 2 %

June 30,
2004
2003
(Dollars in millions)
Net credit losses as a percentage
     of average earning assets ¹ 0.49 % 0.75 %
Aggregate balances 60 or more days past due $ 166 $ 198
Over-60 day delinquencies as a percentage
     of gross earning assets 0.39 % 0.54 %
Allowance for credit losses as a percentage
     of gross earning assets 1.21 % 1.37 %

1 Net credit loss ratios have been annualized using three-month results.

Reductions in the provision for credit losses and total charge-offs, net of recoveries, as well as in the allowance for credit losses as a percentage of gross earning assets, reflect decreases in both the total number of contracts that defaulted (“frequency of occurrence”) and loss per occurrence (“loss severity”). The improvement in both the frequency and severity of losses during the ~~period. For the six~~three months ended ~~September~~June 30, 2004 compared to the same period in the prior year resulted, in large part, from several operational initiatives implemented during fiscal 2004, as described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004. Overall loss severity was also positively influenced by continued improvement in used vehicle prices, as evidenced by the increase in the Manheim Used Vehicle Value Index, a statistical index based on historical auction sales data, which moved from approximately 104 (as a percentage of January 1995 used car prices) at June 2003 to approximately 107 at June 2004. The Company’s delinquency experience during the three months ended June 30, 2004 compared to the same period in the prior year was positively influenced by the operational initiatives discussed above, as well as overall positive economic trends.
24
As part of management’s quarterly evaluation, the allowance for credit losses was adjusted at the portfolio level to reflect changes in the estimate of credit losses on the Company’s receivables portfolios. Notwithstanding the increase in 60-day delinquencies on the operating lease portfolio from March 2004 to June 2004, driven, in part, by seasonal variations, overall delinquencies and credit loss results on this portfolio are expected to improve. Accordingly, management reduced the allowance for credit losses related to the operating lease portfolio consistent with its expectation of future results. Additionally, management increased the allowance for credit losses on both its retail and wholesale and other dealer loan portfolios. These adjustments were recorded to reflect the growth in these portfolios and the increased level of non-Toyota/Lexus dealers receiving wholesale and other dealer financing. The result of these adjustments was a net decrease to the allowance for credit losses at June 2004 when compared to March 2004. Refer to the “Net Earning Assets” section within this MD&A for further discussion regarding the growth in the retail and wholesale and other dealer loan portfolios.
Outlook
As noted above, the Company’s vehicle retail and lease delinquency and credit loss results are trending favorably. Management remains cautiously optimistic that current levels of delinquencies and credit losses on these portfolios will continue for the remainder of fiscal 2005. As discussed in the “Financial Condition – Net Earning Assets” section of this MD&A, the number of vehicle dealers receiving wholesale and other dealer loans from the Company, including the number of non-Toyota/Lexus dealers, has increased substantially from June 30, 2003 ~~depreciation~~compared to June 30, 2004. The Company expects that this growth in non-Toyota/Lexus wholesale and other dealer financing may increase the degree of credit risk assumed by the Company as well as the concentration of credit risk within a particular dealer group. To date this change has not had a material effect on delinquencies or credit losses related to the Company’s wholesale and other dealer loan portfolio.
25
Interest Expense
Interest expense ~~increased $96 million or 13%~~is comprised of interest paid on notes and loans payable (including net settlements on interest rate swaps) and the Company’s derivative fair value adjustment.
Three Months Ended
June 30,
% Change
2004
2003
(Dollars in millions)

Interest on notes and loans payable, including
    net settlements on interest rate swaps $ 190 $ 193 (2 %)
Derivative fair value adjustment (75 ) 38 --
Total interest expense $ 115 $ 231 (50 %)

Weighted average interest rate ¹ 2.17 % 2.52 %
Weighted average outstanding debt $ 34,992 $ 30,681

1 Represents the weighted average interest rates of the combined debt and derivatives portfolio for the periods presented.
The decline in total interest expense during the quarter ended June 30, 2004 when compared to the same period in the prior ~~year. The increase~~year was ~~comprised of a $56 million increase in straight-line depreciation and a $40 million increase in additional depreciation expense. Increases in straight-line depreciation expense resulted from~~due to the ~~overall increase~~change in the ~~depreciable basis.~~derivative fair value adjustment. The increase in the amount of additional depreciation expense recognized during the six months ended September 30, 2003 was attributable to a significant increase in the total number of leased vehicles returned at maturity and sold at auction during the period. - 19 - ~~INTEREST EXPENSE - ---------------- In response to recent SEC public announcements related to the income statement presentation of certain derivative activities, the Company's~~Company’s positive derivative fair value adjustment ~~was reclassified into~~during the quarter ended June 30, 2004, which decreased interest expense, inwas primarily due to the ~~consolidated statement~~amortization of ~~income. Interest~~the cumulative fair value adjustment for de-designated hedges, as well as the impact of increased market interest rates, particularly the two- and three-year swap rates, on the Company’s non-designated hedges. The Company’s negative derivative fair value adjustment during the quarter ended June 30, 2003, which increased interest expense, ~~is comprised~~was mainly due to the impact of ~~realized~~decreased market interest rates on the value of the Company’s non-designated hedges and ~~unrealized gains and losses from the Company's derivative activity and interest on notes and loans payable.~~ caps.
26
The following table summarizes the ~~Company's interest expense for~~components of the ~~three and six months ended September 30, 2003 and 2002:~~
Three months ended Six months ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------ ------ ------ ------ (Dollars in Millions) Net unrealized gain/(loss) on non-designated derivatives............... $ 82 $ (158) $ 46 $ (392) Net unrealized (loss)/gain on previously designated derivatives that no longer qualify as fair value hedges............. (10) 2 (18) 2 Net unrealized gain related to the ineffective portion of the Company's fair value hedges.............. 11 32 17 52 ------ ------ ------ ------ Derivative fair value adjustment............ 83 (124) 45 (338) Realized derivative gains and losses and interest on notes and loans payable...... (170) (208) (363) (425) ------ ------ ------ ------ Total interest expense...................... $ (87) $ (332) $ (318) $ (763) ====== ====== ====== ======
Interest expense decreased $245 million or 74% and $445 million or 58% during the three and six months ended September 30, 2003, respectively, compared to the same periods in the prior year. The decline was primarily due to the recognition of a net unrealized gain from derivative and hedging activities for the three and six months ended September 30, 2003 in contrast to the recognition of a net unrealized loss for the same periods in the prior year. These unrealized gains and losses are presented as "Derivative fair value adjustment" in the table above. Unrealized gains and losses on non-designated derivatives comprised the largest component of theCompany’s derivative fair value ~~adjustment. Non-designated derivatives are~~adjustment, which is included in interest expense.
Three Months Ended
June 30,
2004
2003
(Dollars in millions)
Unrealized (Gain)/Loss

Ineffectiveness related to designated hedges $ 32 $ 2
Amortization of de-designated hedges (49 ) --
Currency basis swaps ¹ (25 ) --
Non-designated hedges
    Interest rate swaps (25 ) 18
    Interest rate caps (7 ) 19
Other (1 ) (1 )
Derivative fair value adjustment $ (75 ) $ 38

1 Currency basis swaps used in combination with interest rate swaps to convert U.S. dollar debt to U.S. dollar denominated payments are not eligible for hedge accounting.
The Company manages its exposure to ~~manage~~market risks such as interest rate ~~risk on~~and foreign exchange risks with derivative instruments. These instruments include interest rate swaps, cross currency interest rate swaps, and purchased interest rate caps. Market risks are discussed further in Item 3, “Quantitative and Qualitative Disclosures About Market Risk”. The Company’s use of derivatives is limited to the reduction of the economic exposure inherent in otherwise unhedged positions. The Company is not a ~~portfolio basis as part of an overall program~~derivatives dealer and does not enter into derivatives transactions for trading purposes.
The Company enters into interest rate swap and cross currency interest rate swap agreements to convert certain fixed-rate assets and debt to variable-rate U.S. dollar assets and debt. The currency exposure for all foreign currency debt is hedged at issuance, using either cross currency interest rate swaps or a combination of interest rate ~~risk management. Realized~~swaps coupled with currency basis swaps to convert non-U.S. dollar debt to U.S. dollar denominated payments.
All derivative ~~gains~~instruments are recorded as assets or liabilities at fair value in the Consolidated Balance Sheet. Certain derivatives are linked to specific liabilities at inception and ~~losses~~are designated as fair value hedges for accounting purposes (“designated hedges”). In certain instances, the Company may elect not to apply hedge accounting for specific interest rate swaps and interest rate caps (“non-designated hedges”). All designated hedge relationships are formally documented. This documentation includes the risk management objectives and strategies for undertaking the hedge, along with the method for assessing hedge effectiveness.
Refer to the “Use of Derivative Instruments” section in the Company’s Annual Report on ~~notes and loans payable also declined~~Form 10-K for the ~~three~~year ended March 31, 2004 for further discussion about the Company’s use of derivatives.
27
Investment and six months ended September 30, 2003 compared to the same periods in fiscal 2003. A general decrease in market interest rates represented the primary reason for the decline, offset in part by an increase in the average balance outstanding of notes and loans payable. The average balance outstanding of notes and loans payable was $33 billion and $29 billion for the six months ended September 30, 2003 and 2002, respectively. - 20 - ~~INVESTMENT AND OTHER INCOME - ---------------------------~~ Other Income
The following table summarizes the ~~Company's~~Company’s investment and other ~~income for the three~~income:
Three Months Ended
June 30,
% Change
2004
2003
(Dollars in millions)

Income from retained interests $ 17 $ 15 13 %
Servicing fee income 8 11 (27 %)
Investment income from securitizations 25 26 (4 %)

Investment income from marketable
    securities 6 6 --
Realized gains/(losses) on marketable
    securities (3 ) 4 --
Other income 1 -- --
Investment and other income $ 29 $ 36 (19 %)
Operating and ~~six months ended September 30, 2003 and 2002:~~
Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------ ------ ------ ------ (Dollars in Millions) Investment and servicing fee income... $ 28 $ 23 $ 54 $ 46 Gain from securitization of finance receivables................ 42 - 42 33 Loss on impairment of retained interests................. - (11) - (11) ------ ------ ------ ------ Investment income-securitizations.. 70 12 96 68 Investment income-marketable securities and other income........ 8 5 18 13 ------ ------ ------ ------ Total investment and other income.. $ 78 $ 17 $ 114 $ 81 ====== ====== ====== ======
Investment and other income increased $61 million or 359% and $33 million or 41% during the three and six months ended September 30, 2003 when compared with the same periods in the prior year. For the quarter ended September 30, 2003, the increase was primarily due to the gain from the securitization of finance receivables initiated during the period. There was no securitization transaction during the comparable prior year period. For the six months ended September 30, 2003, the higher level of investment and other income was primarily due to an increase in the gain from the securitization of finance receivables, and the absence of impairment losses on assets retained in securitization transactions. The size of the pool of assets sold during the six months ended September 30, 2003 was $1.9 billion as compared to $1.6 billion in the comparable prior year period, representing the primary reason for the larger gain. The impairment on retained interests incurred during the six months ended September 30, 2002 was recorded as a result of projected credit losses on the related retail finance receivables exceeding the original credit loss assumptions. No impairment was recognized during the six months ended September 30, 2003. - 21 - LOSSES RELATED TO ARGENTINE INVESTMENT - -------------------------------------- For the three and six months ended September 30, 2002, TMCC recorded a $6 million and $11 million charge against income, respectively, to increase the reserve related to the Company's guarantee of Toyota Credit Argentina S.A.'s ("TCA") offshore outstanding debt to $37 million. During the remainder of fiscal 2003, TMCC satisfied its obligations under the guarantee and terminated the guarantees. As such, no additional charges were recorded during the three or six months ended September 30, 2003. OPERATING AND ADMINISTRATIVE EXPENSES - ------------------------------------- Administrative Expenses
Operating and administrative expenses ~~increased $12 million, or 9%~~ for the ~~three months~~quarter ended ~~September~~June 30, 2003 as compared with the same period in fiscal 2003. The net increase primarily reflects a $4 million increase in charges related to technology services provided by TMS and a $4 million increase in personnel expenses related to increases in headcount. Operating and administrative expenses2004 increased ~~$20 million, or 8% for the six months ended September 30, 2003 as~~slightly when compared to the same period in the prior year, primarily due to the growth in the Company’s business. However, the Company expects operating and administrative costs to increase as a result of costs incurred under its technology initiatives and general business growth, although, as a percentage of earning assets, expenses are expected to be consistent with fiscal ~~2003. Approximately $8 million resulted from increases in charges related to technology services provided by TMS.~~ 2004.
28
Selected Insurance Operations Results
The ~~majority~~general financial condition and operating expenses of the ~~remaining increase was comprised~~insurance segment are included in the foregoing discussion of ~~a $4 million increase in personnel~~the overall financial condition and results of operations of the Company. Certain revenues and expenses ~~associated with increases in headcount and a $3 million loss on disposal of assets in connection with the Company's move~~specific to the ~~new headquarters location in the TMS headquarters complex in Torrance, California. - 22 -~~ PROVISION FOR CREDIT LOSSES - --------------------------- The Company is exposed to credit risk on its owned portfolio. Credit risk is the risk that customers will not make required payments to the Company in accordance with their contractual obligation. The Company's level of credit losses is influenced primarily by two factors: the total number of contracts that default ("frequency of occurrence")Company’s insurance operations are discussed below.
Three Months Ended
June 30,
% Change
2004
2003
(Dollars in millions)

Insurance premiums earned and
    contract revenues $ 53 $ 45 18 %
Insurance losses and loss adjustment
    expenses $ 31 $ 27 15 %

Agreement volume (units) 274,000 254,000
Agreements in force (units) 3,121,000 2,718,000
Loss ratio 72 % 76 %
Insurance premiums earned and loss per occurrence ("loss severity"). The Company maintains an allowance for credit losses to cover probable losses. The following tables provide information related to the Company's credit loss experience:
Three Months Ended Six Months Ended September 30, September 30, ------------------ ------------------ 2003 2002 2003 2002 ------- ------- ------- ------- (Dollars in Millions) Allowance for credit losses at beginning of period............... $ 552 $ 351 $ 526 $ 283 Provision for credit losses............. 78 127 187 249 Charge-offs............................. (82) (69) (176) (129) Recoveries.............................. 15 8 26 15 Other adjustments....................... (19) - (19) (1) ------- ------- ------- ------- Allowance for credit losses at end of period..................... $ 544 $ 417 $ 544 $ 417 ======= ======= ======= =======
September 30, ------------------- 2003 2002 ------ ------ (Dollars in Millions) ~~Net credit losses as a percentage of average earning assets~~ .... 0.83% 0.71% Aggregate balances 60 or more days past due .............................. $ 184 $ 246 Over-60 day delinquencies as a percentage of gross earning assets ~~...... 0.52% 0.72% Allowance for credit losses as a percentage of gross earning assets~~ ~~.................... 1.50% 1.22%~~ ~~- --------------------~~ Delinquency and charge-off ratios typically fluctuate over time as a portfolio matures. The information in the preceding table has not been adjusted to eliminate the effect of the Company's portfolio growth. ~~For purposes of this table, "earning assets" include earning assets and repossessed collateral.~~
~~- 23 -~~ ~~Charge-offs, net of recoveries,~~contract revenues from insurance operations increased ~~$6 million or 10% and $36 million or 32%~~ for the ~~three and six months~~quarter ended ~~September~~June 30, ~~2003, respectively,~~2004 when compared to the same ~~periods~~period in the prior ~~year. Although charge-offs~~year primarily due to increased contract volume and increases in ~~the most recent fiscal quarter~~total agreements in force.
Insurance losses and ~~fiscal year-to-date periods, the provision for credit losses~~loss adjustment expenses increased for the ~~three and six months~~quarter ended ~~September~~June 30, ~~2003 declined~~2004 when compared ~~with~~to the same ~~periods~~period in the prior year. The period-to-period declines in the provision for credit losses reflect recent favorable trends in 60-day contractual delinquency from 0.72% at September 30, 2002 to 0.52% at September 30, 2003. Delinquency and Net Credit Loss Experience - ------------------------------------------ The Company's delinquency and net credit loss experience continued to be influenced by the combined impact of the following factors: - - Continued economic uncertainty - - Lower used vehicle prices - - Longer term financing - - Tiered/risk based pricing - - The Company's field restructuring The impact of the listed factors to the Company's current year delinquency and net credit loss experience is consistent with the impact to fiscal 2003 results as discussed in the "Provision for Credit Losses" section of the Company's 2003 Annual Report on Form 10-K, except as discussed below. The impact of the tiered/risk based pricing program ("tiered pricing"), which was fully implemented as of March 2001, continues to diminish as a contributing factor to higher delinquency and credit loss rates. While the implementation of tiered pricing has resulted in increased overall credit loss, the period- to-period effects have lessened over time. Similarly, the impact of the Company's field restructuring, completed in fiscal 2003, is becoming a less significant factor affecting the level of delinquenciesprimarily due to ~~improvements~~an increased number of agreements in operating efficiencies at the recently opened service centers. Although delinquency rates have improved from September 2002 to September 2003, the overall level of delinquency remains high relative to historical experience. While the Company's credit loss rates have declined from historical highs reached during fiscal 2003, credit loss rates remain at elevated levels. Though the impact of certain factors influencing heightened levels of delinquencies and charge-offs over the last several quarters has lessened, management remains cautious regarding the near term economic outlook, used vehicle price trends, and the extent to which significant and sustained favorable trends are expected. - 24 - force.
29
LIQUIDITY AND CAPITAL RESOURCES ~~- -------------------------------~~
The ~~objective~~following table summarizes the outstanding components of the ~~Company's liquidity strategy is~~Company’s funding sources.
June 30,
2004
March 31,
2004
(Dollars in millions)

Commercial paper $ 8,400 $ 8,094
Unsecured term debt ¹ 27,642 26,787
Securitized debt 173 226
Total notes and loans payable 36,215 35,107
Off-balance sheet securitization 3,474 4,121
  Total funding $ 39,689 $ 39,228

1 Includes fair value adjustments on debt in designated hedge relationships of $1.7 billion and $1.9 billion at June 30, 2004 and March 31, 2004, respectively, as described in Note 6 of the Consolidated Financial Statements.
The Company does not rely on any one source of funding and may choose to ~~ensure access to the capital markets so as to meet obligations~~reallocate its funding activities depending upon market conditions, relative costs, and other commitments on a timely and cost-effective basis to support the growth in earning assets. Significant reliance is placed on the Company's ability to obtain debt and securitization funding in the capital markets. Debt issuances have generally been in the form of commercial paper and unsecured term debt.factors. The Company believes that debt ~~issuances~~ and securitization funding, combined with ~~cash provided by~~ operating ~~investing,~~ and ~~financing~~investing activities, will provide sufficient liquidity to meet future funding requirements.
Commercial Paper ~~- ---------------- Commercial paper issuances are used to meet short-term funding needs.~~
Commercial paper outstanding under the ~~Company's~~Company’s commercial paper programs ranged from approximately ~~$6.0~~$8.0 billion to ~~$7.7~~$9.3 billion during the quarter ended ~~September~~June 30, ~~2003,~~2004, with an average outstanding balance of ~~$6.9~~$8.7 billion. The Company’s commercial paper programs are supported by the liquidity facilities discussed later in this section. As an issuer rated A-1+/P-1 by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), respectively, in a $1.3 trillion commercial paper market, the Company believes there is ample capacity to meet its short-term requirements. In addition, the Company maintained excess cash and cash equivalents ranging from $0.2 million to $1 billion during the quarter ended June 30, 2004, with an average balance of $0.6 billion.
30
Unsecured Term Debt - ------------------- Long-term funding requirements are met through the issuance of a variety of debt securities underwritten in both the U.S. and international capital markets. Medium term notes ("MTNs") and bonds have provided the Company with significant sources of funding.
During the quarter ended ~~September~~June 30, ~~2003,~~2004, the Company issued approximately ~~$1.5~~$2.2 billion of ~~MTNs~~medium term notes (“MTNs”) and bonds ~~all of which had~~with original maturities ranging from greater than one year to approximately ~~ten~~fifteen years. At ~~September~~June 30, ~~2003,~~2004, the Company had total MTNs and bonds outstanding of ~~$26.5~~$27.4 billion, of which ~~$11.2~~$11 billion ~~was~~were denominated in foreign currencies. The remaining maturities of all MTNs and bonds outstanding at ~~September~~June 30, ~~2003~~2004 ranged from less than one year to approximately ~~ten~~fifteen years. ~~The Company anticipates continued use of MTNs and bonds in both the U.S. and international capital markets.~~
To provide for the issuance of debt securities in the U.S. capital market, the Company maintains a shelf registration with the SEC under which approximately ~~$5.0~~$13.6 billion was available for issuance at ~~October~~July 31, ~~2003.~~2004. Under the ~~Company's euro~~Company’s Euro MTN program, which provides for the issuance of debt securities in the international capital markets, the maximum aggregate principal amount authorized to be outstanding at any time is ~~$20.0~~$20 billion, of which approximately ~~$6.0~~$6.9 billion was available for issuance at ~~October~~July 31, ~~2003.~~2004. The U.S. dollar and ~~euro~~Euro MTN programs may be expanded from time to time to allow for the continued use of these sources of funding. In addition, the Company may issue bonds in the U.S. and international capital markets that are not issued under its MTN or Euro MTN programs.
Securitization ~~Funding - ---------------------- TMCC's~~
The Company did not execute any securitization transactions in the quarters ended June 30, 2004 and 2003.
The Company’s securitization program ~~allows~~is a significant source of liquidity as the Company to access an additional source of funding, further diversifying its investor base to enhance its liquidity position. TMCC's securitization transactions are structured using qualifying special purpose entities (with the exception of one transaction executedholds over $24 billion in ~~fiscal 2002).~~potentially securitizable retail finance receivables. The Company had $3.7 billion and $4.6 billion outstanding ~~balance of~~in securitized retail finance receivables ~~which TMCC continues to service totaled $6.6 billion at September~~as of June 30, ~~2003. - 25 -~~ ~~In September 2003, the~~2004 and March 31, 2004, respectively. The Company ~~sold retail receivables totaling $1.9 billion in connection with securities issued under~~currently maintains a shelf registration ~~statement maintained~~ with the ~~SEC. Of~~SEC relating to the ~~$1.9 billion sold, the Company invested $0.6 billion in purchased and retained senior class and other~~issuance of securities ~~resulting in $1.3 billion of net funding.~~secured by retail finance receivables. As of ~~October~~July 31, ~~2003,~~2004, approximately $6.2 billion ~~of securities~~ remained available for issuance under the ~~SEC shelf~~ registration statement. ~~For~~Refer to the past three fiscal years, securitization transactions averaged approximately 29% of the Company's total funding. A reduction or termination of TMCC's securitization activities would cause the Company to seek alternative funding from debt capital markets. Management does not anticipate any changes“Off-Balance Sheet Arrangements” section in the ~~Company's ability to access~~Company’s Annual Report on Form 10-K for the year ended March 31, 2004 for further discussion about the Company’s securitization ~~market in the foreseeable future.~~ program.
Liquidity Facilities and Letters of Credit ~~- ------------------------------------------~~
For additional liquidity purposes, the Company maintains syndicated bank credit facilities with certain banks whose commitments aggregated ~~$5.0~~$5.4 billion at ~~September~~June 30, ~~2003.~~2004 and March 31, 2004. No amounts were outstanding under the syndicated bank credit facilities as ~~of September~~June 30, ~~2003. During the second quarter of fiscal~~ 2004 ~~TCPR Corp. established a $400 million,~~and March 31, 2004, respectively. The 364-day syndicated bank credit ~~facility,~~facilities consist of $3.6 billion and $0.4 billion for TMCC and TCPR, respectively at June 30, 2004 and March 31, 2004. On July 30, 2004, the Company renewed and increased its 5-year syndicated bank credit facilities from $1.4 billion to $4.2 billion, of which $3.9 billion is ~~restricted~~available to ~~its own use. In addition,~~TMCC and $0.3 billion is available to TCPR. Additionally, on July 30, 2004, the ~~TMCC~~Company decreased its 364-day syndicated bank credit ~~facility,~~facilities from $4.0 billion to $2.1 billion, of which $2 billion is ~~restricted~~available to ~~its own use, was increased~~TMCC and $0.1 billion is available to ~~$3.2 billion and renewed during September 2003 for an additional 364-day period.~~
Committed Uncommitted Unused Facilities -------------------- -------------------- -------------------- September 30, March 31, September 30, March 31, September 30, March 31, 2003 2003 2003 2003 2003 2003 -------- -------- -------- -------- -------- -------- (Dollars in Millions) 364-day syndicated bank credit facilities........ $ 3,600 $ 2,800 $ - $ - $ 3,600 $ 2,800 5-year syndicated bank credit facility - TMCC... 1,400 1,400 - - 1,400 1,400 Letters of credit facilities - - 60 60 59 59 -------- -------- -------- -------- -------- -------- Total facilities $ 5,000 $ 4,200 $ 60 $ 60 $ 5,059 $ 4,259 ======== ======== ======== ======== ======== ========
~~- 26 -~~ ~~Credit Ratings - -------------- Effective August 2003, Moody's Investors Service, Inc. ("Moody's") upgraded~~TCPR.
The syndicated bank credit facilities do not contain any material adverse change clauses or restrictive financial covenants that would limit the ~~long-term ratings~~ability of ~~Toyota Motor Corporation ("TMC") and its supported subsidiaries, including TMCC, from Aa1~~the Company or TCPR Corp. to ~~Aaa, and retained its stable outlook.~~borrow under their respective facilities. As of ~~September~~June 30, ~~2003,~~2004, these facilities contained provisions that would have prevented the Company or TCPR Corp., as applicable, from borrowing (and could require repayment of any outstanding loans) if the Company’s long-term debt ratings from S&P or Moody’s were less than A and A2, respectively, (for TMCC) or TCPR Corp.‘s short-term debt ratings from S&P and Moody’s are less than A-2 and P-3, respectively (for TCPR Corp.), or if credit support arrangements acceptable to the rating agencies rating the Company’s and TCPR Corp’s debt were not maintained. In conjunction with the July 30, 2004 renewal of the bank credit facilities as described above, these provisions are no longer applicable.
31
Committed
Uncommitted
Unused Facilities
June 30, March 31, June 30, March 31, June 30, March 31,
2004
2004
2004
2004
2004
2004
(Dollars in millions)

364-day syndicated bank credit
    facilities $ 4,000 $ 4,000 $ -- $ -- $ 4,000 $ 4,000
5-year syndicated bank
     credit facility - TMCC 1,400 1,400 -- -- 1,400 1,400
Letters of credit facilities -- -- 55 55 53 53
Total facilities $ 5,400 $ 5,400 $ 55 $ 55 $ 5,453 $ 5,453
Credit Ratings
As of July 31, 2004, the ratings and outlook established by ~~Moody's~~Moody’s and ~~Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. ("~~S~~&P")~~&P for TMCC were as follows:
~~Rating Agency~~
     �� NRSRO
Senior Debt
Commercial
Paper
Outlook ~~--------------- ------------- ------------------ ---------~~
S&P AAA A-1+ ~~Negative~~ Stable
Moody's Aaa P-1 Stable
~~CONTRACTUAL OBLIGATIONS AND CREDIT-RELATED COMMITMENTS - ------------------------------------------------------ During~~
Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the ~~first quarter~~assigning nationally recognized statistical rating organization (“NRSRO”). Each NRSRO may have different criteria for evaluating risk, and therefore ratings should be evaluated independently for each NRSRO.
32
OFF-BALANCE SHEET ARRANGEMENTS
Securitization Funding
A detailed description of ~~fiscal~~the Company’s securitization funding program is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004.
Guarantees
TMCC has guaranteed the payments of principal and interest with respect to the bonds of manufacturing facilities of certain affiliates. TMCC receives an annual fee of $100,000 for guaranteeing such payments. TMCC has also guaranteed the payments of principal and interest of offshore bank loans of certain international affiliates. The nature, business purpose, and amounts of these guarantees are described in Note 8 – Commitments and Contingent Liabilities of the Consolidated Financial Statements. Other than the fee discussed above, there are no corresponding expenses or cash flows arising from the Company’s guarantees, nor are any amounts recorded as liabilities on the Company’s consolidated balance sheet.
Lending Commitments
A detailed description of the Company’s lending commitments is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004. While the majority of these credit facilities and financing arrangements are secured, approximately 20% at June 30, 2004 are unsecured. The credit facilities and financing arrangements with vehicle and industrial equipment dealers and affiliates totaled $3.8 billion of which $2.3 billion was outstanding as of June 30, 2004.
Indemnification
In the ordinary course of business, the Company enters 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 its 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, the Company has 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 the Company’s funding arrangements would require the Company 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, the Company is not able to estimate its maximum exposure to future payments that could result from claims made under such provisions. The Company has not made any material payments in the past as a result of these provisions, and as of June 30, 2004, the Company ~~entered into a 15-year lease agreement with TMS. The lease agreement~~does not believe it is ~~for the Company's new headquarters location~~probable that it will have to make any material payments in the ~~TMS headquarters complex~~future. As such, no amounts have been recorded under these indemnifications as of June 30, 2004.
33
Receivable Repurchase Obligations
The Company sells discrete pools of retail finance receivables to wholly owned consolidated bankruptcy remote special purpose entities (“SPE”). TMCC makes certain representations and warranties to the SPE, and the SPE makes corresponding representations and warranties to the securitization trust, relating to receivables sold in ~~Torrance, California. At September 30, 2003, minimum future commitments under lease agreements~~a securitization. TMCC and the SPE may be required to repurchase any receivables in the event of a breach of a representation and warranty relating to the receivable that materially and adversely affects the interest of the SPE, or securitization trust, as applicable. In addition, TMCC, as servicer of the receivables, may be required to repurchase any receivable in the event of a breach of a covenant by the servicer with respect to the receivable that materially and adversely affects the interest of the securitization trust or of certain extensions or modifications of a receivable as to which TMCC, as servicer, does not commit to make advances to fund reductions in interest payments. The repurchase price is generally the outstanding principal balance of the receivable and accrued interest. These provisions are customary for securitization transactions. No receivables were repurchased during the quarter ended June 30, 2004.
Advancing Requirements
As servicer, TMCC is required to advance certain shortfalls in obligor payments to the related securitization trust to the extent it believes the advance will be recovered from future collections of the related receivable. Each securitization trust is required to reimburse the Company ~~is a lessee, including those under the agreement discussed above,~~for these advances from collections on all receivables before making other required payments. These provisions are as follows: fiscal years ending 2004 - $21 million; 2005 - $19 million; 2006 - $17 million; 2007 - $15 million; 2008 - $10 million; 2009 - $9 million; and thereafter - $56 million. - 27 - customary for securitization transactions. No advances were outstanding at June 30, 2004.
34
CAUTIONARY STATEMENT FOR PURPOSES OF THE ~~"SAFE HARBOR"~~ “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 ~~- ------------------------------------------------------------------------~~
This report contains ~~"forward~~“forward looking ~~statements"~~statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include estimates, projections and statements of the ~~Company's~~Company’s beliefs concerning future events, business plans, objectives, expected operating results, and the assumptions upon which those statements are based. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as ~~"believe", "anticipate", "expect", "estimate", "project", "should", "intend", "will", "may"~~“believe,” “anticipate,” “expect,” “estimate,” “project,” “should,” “intend,” “will,” “may” or words or phrases of similar meaning. The Company cautions 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 following: decline in demand for Toyota and Lexus products; the effect of economic conditions; the effect of the current political, economic and regulatory risk in Argentina, Mexico, Venezuela, Brazil and other Latin American and South American countries and the resulting effect on their economies and monetary and fiscal policies; a decline in the market acceptability of leasing; the effect of competitive pricing on interest margins; changes in pricing due to the appreciation of the Japanese yen against the U.S. dollar; the effect of governmental actions; changes in tax laws; changes in regulations that affect retail installment lending, leasing or insurance; the effect of competitive pressures on the used car market and residual values and the continuation of the other factors causing an increase in vehicle returns and disposition losses; the continuation of, and if continued, the level and type of special programs offered by TMS; the ability of the Company to successfully access the U.S. and international capital markets; the effects of any rating agency actions; increases in market interest rates; the implementation of new technology systems; the continuation of factors causing increased delinquencies and credit losses; the changes in the fiscal policy of any government agency which increases sovereign risk; monetary policies exercised by the European Central Bank and other monetary authorities; increased costs associated with the Company's debt funding or restructuring efforts; the effect of any military action by or against the U.S., as well as any future terrorist attacks, including any resulting effects on general economic conditions, consumer confidence and general market liquidity; with respect to the effects of litigation matters, the discovery of facts not presently known to the Company or determination by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation; increased losses resulting from default by any dealers to which the Company has a significant credit exposure; default by any counterparty to a derivative contract; and performance under any guaranty or comfort letter issued by the Company.
• changes in demand for Toyota and Lexus products
• changes in economic conditions
• a decline in the market acceptability of leasing or retail financing
• the effect of competitive pricing on interest margins
• changes in vehicle and component pricing due to the appreciation of the Japanese yen against the U.S. dollar
• the effect of governmental actions
• changes in tax laws or the Company's tax position
• the effect of competitive pressures on the used car market and residual values and the continuation of the other factors causing changes in vehicle returns and net losses incurred at lease maturity
• the continuation of, and if continued, the level and type of special programs offered by TMS
• the ability of the Company to successfully access the U.S. and international capital markets
• the effect of any NRSRO actions
• increases in market interest rates or other changes in costs associated with the Company's debt funding
• implementation of new technology systems or failure to successfully implement the Company's disaster recovery program
• continuation of factors causing changes in delinquencies and credit losses
• changes in the fiscal policy of any government agency which increases sovereign risk
• monetary policies exercised by the European Central Bank and other monetary authorities
• effect of any military action by or against the U.S., as well as any future terrorist attacks, including any resulting effect on general economic conditions, consumer confidence and general market liquidity
• with respect to the effect of litigation matters, the discovery of facts not presently known to the Company or determination by judges, juries or other finders of fact which do not accord with the Company's evaluation of the possible liability from existing litigation
• inability of a party to the Company's syndicated credit facilities or credit support agreements to perform when required
• losses resulting from default by any vehicle or industrial equipment dealers to which the Company has a significant credit exposure
• default by any counterparty to a derivative contract
• performance under any guaranty or comfort letter issued by the Company
• changes in legislation and new regulatory requirements
• changes in the current political, economic and regulatory risk in Argentina and related impact on its economy and monetary and fiscal policies
35
The risks included here are not exhaustive. New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor to assess the impact such risk factors might have on the ~~Company's~~Company’s business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward looking statements as a prediction of actual results. The Company will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements. ~~- 28 -~~
36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Value at Risk ~~- ------------- The Company's~~
Currently, the Company’s primary market risk exposure is interest rate ~~risk, in particular risk relating to changes in the U.S. dollar London Interbank Offered Rate ("LIBOR").~~risk. The Company uses the ~~value~~Value at ~~risk ("VAR"~~Risk (“VaR”) methodology to measure ~~this~~interest rate risk. The ~~VAR provides an overview of the Company's exposure to changes in market factors. VAR represents~~VaR model presents the potential loss in fair value for the ~~Company's~~Company’s portfolio from adverse changes in ~~market factors~~interest rates for a 30-day holding period within a 95% confidence interval using ~~the~~ Monte Carlo simulation ~~technique.~~techniques. The ~~VAR~~ methodology uses historical interest rate data to assess ~~the~~ potential future ~~loss. The Company's VAR methodology incorporates the impact~~losses from ~~adverse~~ changes in market interest rates ~~but does not incorporate the impact from~~while holding other market ~~changes, such as foreign currency exchange rates, which~~risks constant. The model assumes that loan prepayments do not ~~materially affect~~depend on the ~~value~~level of ~~the Company's portfolio. The VAR methodology is applied to more than 90% of the Company's market risk sensitive positions. Management believes the positions considered~~interest rates. All options in the ~~analysis~~debt and derivatives portfolio are ~~representative~~included in the VaR calculation, with the exception of call options on debt instruments which are offset by the ~~Company's total portfolio.~~ use of interest rate swaps with call options mirroring those in the underlying debt. These matched positions are not included in the VaR calculation as the resulting net exposure is not material.
The ~~VAR methodology currently does not consider changes in fair values related to investments in marketable securities and equipment financing. The VAR~~VaR and the average ~~VAR~~VaR of the ~~Company's~~Company’s portfolio as of, and for the ~~six~~three months ended, ~~September~~June 30, ~~2003~~2004 measured as the potential 30 day loss in fair value from assumed adverse changes in interest rates are as follows:
Average for the As of Six Months Ended September 30, 2003 September 30, 2003 ------------------ ------------------ Mean portfolio value..................... $5.5 billion $5.6 billion VAR...................................... $53 million $43 million Percentage of the mean portfolio value... 0.97% 0.77% Confidence level......................... 95% 95%
As of June 30,
2004
Average for the
three months ended
June 30, 2004
Mean portfolio value $7.8 billion $7.6 billion
VaR $75 million $64 million
Percentage of the mean portfolio value 0.96% 0.85%
Confidence level 95.0% 95.0%

As of March 31,
2004
Average for the
Year Ended March
31, 2004
Mean portfolio value $7.4 billion $6.2 billion
VaR $47 million $51 million
Percentage of the mean portfolio value 0.63% 0.82%
Confidence level 95.0% 95.0%
The ~~Company's~~Company’s calculated ~~VAR~~VaR exposure represents an estimate of reasonably possible net losses that would be recognized on its portfolio of financial instruments assuming hypothetical movements in future market rates and is not necessarily indicative of actual results which may occur. It does not represent the maximum possible loss nor any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in the composition of the ~~Company's~~Company’s portfolio of financial instruments during the year. ~~- 29 -~~ The increase in the mean portfolio value from March 31, 2004 to June 30, 2004 is primarily the result of increased earning assets. The increase in VaR as a percentage of the mean portfolio value is consistent with the increase in fixed rate earning assets partially offset with an increase in fixed rate debt and derivatives.
37
Market Price Risk ~~- -----------------~~
The Company is also exposed to market price risk related to equity investments included in the investment portfolio of its insurance operations. ~~Investments in marketable securities~~These investments consist primarily of passively managed mutual funds that are designed to track the performance of major equity ~~investments in mutual funds.~~market indices. These investments are classified as available for ~~sale in accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). None~~sale. Fair market values of the equity investments are ~~considered trading securities within the meaning of SFAS 115.~~ determined using quoted market prices.
A summary of the ~~sensitivity of the fair market value of the Company's~~unrealized gains and losses on equity investments ~~to an assumed~~included in the Company’s other comprehensive income assuming a 10% and 20% adverse change in market prices is presented ~~below.~~
As of September 30, ------------------ 2003 2002 ------ ------ (Dollars in Millions) Cost..................................... $ 158 $ 153 Fair Market Value........................ $ 179 $ 127 Net unrealized gain/(loss)............... $ 21 $ (26) Estimated 10% adverse change in prices... $ (18) $ (13) Estimated 20% adverse change in prices... $ (36) $ (25)
below:
June 30, March 31,
2004
2004
(Dollars in millions)

Carrying value $ 138 $ 132
Fair market value $ 183 $ 176
Unrealized gain, net of tax $ 28 $ 27
Estimated 10% adverse change, net of tax $ 16 $ 16
Estimated 20% adverse change, net of tax $ 5 $ 5
These hypothetical scenarios represent an estimate of reasonably possible net losses that may be recognized onas a result of changes in the ~~Company's~~fair market value of the Company’s equity investments assuming hypothetical adverse movements in future market ~~rates and is~~values. These scenarios are not necessarily indicative of actual results that may occur. Additionally, the hypothetical scenarios do not represent the maximum possible loss nor any expected loss that may occur, since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates.
Foreign Exchange Risk
The Company issues debt in a variety of currencies, principally U.S. dollars, euros and Japanese Yen. As a matter of policy, currency exposure related to foreign currency debt is fully hedged at issuance through the execution of cross currency interest rate swaps or a combination of interest rate swaps coupled with currency basis swaps. Therefore, the Company believes that the market risk exposure to changes in currency exchange rates on its debt issuances is not material.
The Company is also exposed to foreign exchange risk related to equity and bond investments included in the investment portfolio of its insurance operations. These investments consist primarily of international equity funds and, to a lesser extent, bond funds which are incorporated into the overall investment portfolio to provide broader diversification of the investment assets. Substantially all of the market risk exposure to changes in currency exchange rates relates to the investments in international equity funds. These equity fund investments, and any related foreign exchange risk, are included in the market price risk analysis described above.
Counterparty Credit Risk ~~- ------------------------~~
The Company has entered into reciprocal collateral arrangements with certain derivative counterparties to mitigate its exposure to the credit risk associated with the respective counterparty. At June 30, 2004, the Company held a net $86.7 million in collateral from counterparties.
38
Counterparty credit risk of derivative instruments is represented by the fair value of contracts with a positive fair value at ~~September~~June 30, ~~2003,~~2004, reduced by the effects of master netting ~~agreements.~~agreements and collateral. At ~~September~~June 30, ~~2003,~~2004, aggregate counterparty credit risk as represented by the fair value of the ~~Company's~~Company’s derivative instruments was approximately ~~$1.9~~$1.8 billion on(net of collateral held). Additionally, at June 30, 2004, all of the Company’s derivative instruments were executed with commercial banks and investment banking firms assigned investment grade ratings of “A” or better by NRSROs. The Company has not experienced a counterparty default and does not currently anticipate non-performance by any of its counterparties, and as such has no reserves related to non-performance as of June 30, 2004. In addition, many of the Company’s ISDA Master Agreements with counterparties contain reciprocal ratings triggers providing either party with an ~~aggregate notional amount~~option to terminate the agreement and related transactions at market in the event of ~~$46.9 billion. - 30 -~~ ~~Review~~a ratings downgrade below a specified threshold.
A summary of the net counterparty credit exposure by ~~Independent Accountants~~ credit rating is presented below:
June 30, March 31,
2004
2004
Credit Rating (Dollars in billions)

AAA $ 0.9 $ 1.0
AA 0.8 0.9
A 0.1 0.2
Total net counterparty credit exposure $ 1.8 $ 2.1
39
REVIEW OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
With respect to the unaudited consolidated financial information of Toyota Motor Credit Corporation for the three-month ~~and six-month~~ periods ended ~~September~~June 30, ~~2003~~2004 and ~~2002,~~2003, PricewaterhouseCoopers LLP ~~("PricewaterhouseCoopers"~~(“PricewaterhouseCoopers”) reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated ~~November 14, 2003~~August 16, 2004 appearing herein, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated financial information because that report is not a ~~"report"~~“report” or a ~~"part"~~“part” of the registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended ("(“Exchange ~~Act"~~Act”), is recorded, processed, summarized and reported within the time periods specified in the ~~Commission's~~Commission’s rules and forms. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period of this quarterly report, the ~~Company's~~Company’s Chief Executive Officer ~~("CEO"~~(“CEO”) and Chief Financial Officer ~~("CFO"~~(“CFO”) evaluated the effectiveness of such disclosure controls and procedures in place pursuant to Rule 13a-15(b) of the Exchange Act. Based on the evaluation, the CEO and CFO concluded that ~~such~~the disclosure controls and procedures ~~are effective. There~~provided reasonable assurance of effectiveness as of the end of the period of this quarterly report.
The Company is currently in the process of reviewing and formalizing the consolidated enterprise’s internal controls and procedures for financial reporting in accordance with the SEC’s rules implementing the internal control reporting requirements included in Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Changes have been made and will be made to the Company’s internal controls over financial reporting as a result of these efforts. However, there has been no change in the ~~Company's~~Company’s internal control over financial reporting identified in connection with the disclosure controls and procedures evaluation referred to above during the ~~Company's~~Company’s most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the ~~Company's~~Company’s internal control over financial reporting. ~~- 31 -~~
40
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against the Company 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 the ~~Company's~~Company’s 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. Management and internal and external counsel perform periodic reviews of pending claims and actions to determine the probability of adverse verdicts and resulting amounts of liability. The Company establishes reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts reserved for these claims. However, based on information currently available, the advice of ~~liability on pending claims~~counsel, and ~~actions as of September 30, 2003 were not determinable; however,~~established reserves, in the opinion of management, the ultimate liability resulting therefrom ~~should~~will not have a material adverse effect on the ~~Company's~~Company’s consolidated financial position or results of operations. The foregoing is a forward looking statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, which represents the ~~Company's~~Company’s expectations and beliefs concerning future events. The Company cautions that its discussion of ~~Legal Proceedings~~legal proceedings is further qualified by important factors that could cause actual results to differ materially from those in the forward looking statement, including but not limited to the discovery of facts not presently known to the Company or determinations by judges, juries or other finders of fact which do not accord with the ~~Company's~~Company’s evaluation of the possible liability from existing litigation.
ITEM 2. CHANGES IN SECURITIES ~~AND USE OF PROCEEDS~~
        There is nothing to report with regard to this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
        There is nothing to report with regard to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         Not applicable.
ITEM 5. OTHER INFORMATION
        There is nothing to report with regard to this item.
41
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
        The exhibits listed on the accompanying Exhibit Index, on page ~~34,~~44, are filed as part of this report.
(b)     Reports on Form 8-K
        The following reports on Form 8-K were filed by the registrant during the quarter ended ~~September~~June 30, ~~2003:~~ 2004:
Date of ReportItems Reported ~~----------------- --------------------- August~~
April 5, ~~2003 Item 12. Disclosure of Results of Operations And Financial Condition. July 14, 2003~~2004           Item 7. Financial Statements, Pro Forma Financial Information and ~~Exhibits. - 32 -~~ Exhibits

May 11, 2004          Item 12. Disclosure of Results of Operations and Financial Condition
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOYOTA MOTOR CREDIT CORPORATION ------------------------------- (Registrant) Date: November 14, 2003 By /S/ GEORGE E. BORST ------------------------------- George E. Borst President and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2003 By /S/ JOHN F. STILLO ------------------------------- John F. Stillo Vice President and Chief Financial Officer (Principal Financial Officer) - 33 - EXHIBIT INDEX Exhibit Method Number Description of Filing - ------- ----------- --------- 4.1 Amendment No. 1 to the Fourth Amended and Restated Filed Agency Agreement, dated September 30, 2003 among, Herewith TMCC, JP Morgan Chase Bank and JP Morgan Bank Luxembourg, S.A. 10.1 364 Day Facility Credit Agreement, dated September Filed 11, 2003 among TCPR, Bank of America, N.A., and Herewith the Other Lenders Party Thereto 10.2 First Amended and Restated 364 Day Facility Filed Credit Agreement, dated September 11, 2003 among Herewith TMCC, Bank of America, N.A., and Other Lenders Party Thereto 12.1 Calculation of Ratio of Earnings to Fixed Charges Filed Herewith 15.1 Report of Independent Accountants Filed Herewith 15.2 Letter regarding unaudited interim financial Filed information Herewith 31.1 Certification of Chief Executive Officer Filed Herewith 31.2 Certification of Chief Financial Officer Filed Herewith 32.1 Certification pursuant to 18 U.S.C. Section 1350 Furnished Herewith 32.2 Certification pursuant to 18 U.S.C. Section 1350 Furnished Herewith - 34 -
TOYOTA MOTOR CREDIT CORPORATION

(Registrant)

Date: August 16, 2004
By    /s/ GEORGE E. BORST

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

Date: August 16, 2004
By    /S/ JOHN F. STILLO

John F. Stillo
Vice President and
Chief Financial Officer
(Principal Financial Officer)
43
EXHIBIT INDEX
Exhibit
Number Description Method of
Filing
12.1 Calculation of Ratio of Earnings to Fixed Charges Filed Herewith
15.1 Report of Independent Accountants Filed Herewith
15.2 Letter regarding unaudited interim financial information Filed Herewith
31.1 Certification of Chief Executive Officer Filed Herewith
31.2 Certification of Chief Financial Officer Filed Herewith
32.1 Certification pursuant to 18 U.S.C. Section 1350 Furnished Herewith
32.2 Certification pursuant to 18 U.S.C. Section 1350 Furnished Herewith
44

Note 1 -– Interim Financial Data - -------------------------------

Note 2 -– Finance Receivables - ----------------------------

Note 2 – Finance Receivables (Continued)

Note 3 -– Investments in Operating Leases - ----------------------------------------

Note 4 -– Allowance for Credit Losses - ------------------------------------

Note 6 -– Notes and Loans Payable - -------------------------------- The following table sets forth the items comprising notes

Note 6 – Notes and Loans Payable (Continued)

Note 7 -– Liquidity Facilities and Letters of Credit - ---------------------------------------------------

Note 8 -– Commitments and Contingent Liabilities - ----------------------------------------------- Contingencies

Note 8 -— Commitments and Contingent LiabilitiesContingencies (Continued) - ------------------------------------------------

Note 8 -— Commitments and Contingent LiabilitiesContingencies (Continued) - ------------------------------------------------

Note 8 — Commitments and Contingencies (Continued)

Note 8 — Commitments and Contingencies (Continued)

Note 9 -– Related Party Transactions - -----------------------------------

Note 10 -– Segment Information - -----------------------------

ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS EARNING ASSETS AND CONTRACT VOLUME Net Earning Assets - ------------------

OVERVIEW

Operating Summary

Business Outlook

FINANCIAL CONDITION

Net Earning Assets

Contract Volume - ---------------

Total financing revenues remained essentially level for the three and six months ended September 30, 2003 when compared with the same periods in the prior year. Financing Revenues

Residual Value Risk

Credit Risk

Interest Expense

Selected Insurance Operations Results

LIQUIDITY AND CAPITAL RESOURCES - -------------------------------

Commercial Paper - ---------------- Commercial paper issuances are used to meet short-term funding needs.

Unsecured Term Debt - ------------------- Long-term funding requirements are met through the issuance of a variety of debt securities underwritten in both the U.S. and international capital markets. Medium term notes ("MTNs") and bonds have provided the Company with significant sources of funding.

Securitization Funding - ---------------------- TMCC's

Liquidity Facilities and Letters of Credit - ------------------------------------------

Credit Ratings

OFF-BALANCE SHEET ARRANGEMENTS

Securitization Funding

Guarantees

Lending Commitments

Indemnification

Receivable Repurchase Obligations

Advancing Requirements

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" “SAFE HARBOR”PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - ------------------------------------------------------------------------

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Value at Risk - ------------- The Company's

Market Price Risk - -----------------

Foreign Exchange Risk

Counterparty Credit Risk - ------------------------

REVIEW OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ITEM 4. CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES

ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS EARNING ASSETS AND CONTRACT VOLUME Net Earning Assets - ------------------

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - ------------------------------------------------------------------------