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

See Accompanying Notes to Consolidated Financial Statements.

The information furnished in these unaudited interim financial statements for the three and six months ended ~~June~~September 30, 2010 and 2009 has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, the unaudited financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The results of operations for the three and six months ended ~~June~~September 30, 2010 do not necessarily indicate the results that may be expected for the full fiscal year.

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

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

We periodically evaluate unrealized losses on our AFS debt securities portfolio for other-than-temporary impairment (“OTTI”). If we have no intent to sell and we believe that it is more likely than not we will not be required to sell these securities prior to recovery, the credit loss component of the unrealized losses ~~are~~is recognized in Investment and Other Income, net in the Consolidated Statement of Income, while the remainder of the loss is recognized in AOCI. The credit loss component recognized in Investment and Other Income, net in the Consolidated Statement of Income is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected using a credit cash flow analysis for debt securities.

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

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

In ~~July~~October 2010, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on the capitalization of costs relating to the acquisition or renewal of insurance contracts. This accounting guidance is effective for us on April 1, 2012 and is not expected to have a material impact on our consolidated financial condition or results of operations.

In July 2010, the FASB issued accounting guidance in which entities must provide additional disclosures regarding the nature of credit risk inherent in their portfolio of financing receivables, how credit risk is analyzed and assessed in arriving at the allowance for credit losses, and the reasons for changes in the allowance for credit losses. This accounting guidance is effective for us on December 31, 2010 and iswill not ~~expected to~~ have a material impact on our consolidated financial condition or results of operations.

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

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

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

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

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

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

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

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

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

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

The determination in classifying a financial instrument within Level 3 of the fair value hierarchy is based upon the significance of the unobservable factors to the overall fair value measurement. There were no transfers between Level 1 and Level 2 securities during the three and six months ended ~~June~~September 30, 2010 and 2009. The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended ~~June~~September 30, 2010 and 2009:

Level 3 assets net, reported at fair value on a recurring basis increased ~~$31~~$7 million and $38 million for the ~~quarter~~three and six months ended ~~June~~September 30, ~~2010.~~2010, respectively. The increase is primarily attributable to an increase in derivative assets, specifically foreign currency derivatives, due to the ~~decline in swap rates~~weakening of the U.S. dollar during the first ~~quarter~~half of the fiscal year ~~ended~~ending March 31, 2011 (“fiscal 2011”). Certain derivatives previously categorized as Level 3 in prior periods were valued using observable inputs and were transferred into Level 2 during the quarter ended September 30, 2010.

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

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

Fair value measurements on a nonrecurring basis as of ~~June~~September 30, 2010:

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

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

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

The following is a description of financial instruments for which the ending balances as of ~~June~~September 30, 2010 and March 31, 2010 are not carried at fair value in their entirety on the Consolidated Balance Sheet.

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

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

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

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

The carrying value and estimated fair value of certain financial instruments at ~~June~~September 30, 2010 and March 31, 2010 were as follows:

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

1 ~~Represents the non-credit component impact~~Total fair value of mortgage-backed securities at September 30, and March 31, 2010 was $96 million and $151 million, respectively. Total fair value of the ~~other-than-temporary impairment on AFS debt securities.~~mortgage sector fund at September 30, and March 31, 2010 was $493 million and $360 million, respectively. The total fair value related to subprime mortgage-backed securities was $41 million and $37 million at September 30, and March 31, 2010, respectively.

Total fair value of asset-backed securities at September 30, and March 31, 2010 was $144 million and $644 million, respectively. The majority of our asset-backed securities is secured by automobile related receivables. The fair value of asset-backed securities with collateral consisting primarily of receivables relating to Toyota vehicles was $126 million and $627 million at September 30, and March 31, 2010, respectively.

The ~~following tables present the aging of~~fixed income mutual funds are private placement funds. The total fair value of private placement fixed income mutual funds was $1.7 billion and ~~gross unrealized losses for AFS securities:~~

As of September 30, 2010, there were no AFS debt or equity securities deemed to be other-than-temporarily impaired, and therefore, all unrealized losses on AFS debt and equity securities were recognized in AOCI. In addition, there were no other-than-temporary impairment losses for the three months ended September 30, 2010 and September 30, 2009. The following table presents other-than-temporary impairment losses for the six months ended September 30, 2010 and September 30, 2009:

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

At ~~June~~September 30, 2010, we did not own any investments that have been in a continuous unrealized loss position for 12 consecutive months or more. At March 31, 2010, total gross unrealized loss and fair value of investments that ~~have~~had been in a continuous unrealized loss position for 12 consecutive months or more were $21 million and $250 million, respectively. These ~~investments~~predominantly investment grade securities were comprised of private placement fixed income mutual funds. ~~These securities were predominantly investment grade.~~ Investments with unrealized losses decreased at ~~June~~September 30, 2010 primarily due to improvements in liquidity and market spreads.

The contractual maturities of investments in marketable securities at ~~June~~September 30, 2010 are summarized in the following table (dollars in millions). Prepayments may cause actual maturities to differ from scheduled maturities.

In accordance with statutory requirements, we had on deposit with state insurance authorities U.S. debt securities with amortized cost and fair value of $6 million at ~~both June~~September 30 and March 31, 2010.

The tables below summarize information about impaired finance receivables:

Investments in operating leases, net consisted of the following at the dates indicated:

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

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

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

Our liabilities consist mainly of fixed and floating rate debt, denominated in ~~a number of different~~various currencies, which we issue in the global capital markets. We hedge our interest rate and foreign currency risk inherent in these liabilities by entering into interest rate swaps, foreign currency swaps and foreign currency forwards, which effectively convert our obligations into U.S. dollar denominated, 3-month LIBOR based payments.

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

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

The aggregate fair value of derivative instruments that contain credit risk related contingent features that ~~are~~were in a net liability position at ~~June~~September 30, 2010 ~~is $1,013 million.~~was $292 million, excluding embedded derivatives and adjustments made for our own non-performance risk. In the normal course of business, we posted collateral of ~~$369~~$20 million ~~and held collateral of $665 million~~to counterparties with ~~counterparties that~~which we were in a net liability position ~~with us, resulting in net collateral held of $296 million. At June~~at September 30, ~~2010, if~~2010. If our ratings were to have declined to “A+”, we would have been required to post ~~$372~~$50 million of additional collateral to the counterparties with which we were in a liability position at ~~June~~September 30, 2010. If our ratings were to have declined to “BBB+” or below, we would have been required to post ~~$940~~$292 million of additional collateral to the counterparties with ~~which~~wh ich we were in a ~~liabi lity~~liability position at ~~June~~September 30, 2010. In order to settle all derivative instruments that were in a net liability position at September 30, 2010, excluding embedded derivatives and adjustments made for our own non-performance risk, ~~that were in a net liability position at June 30, 2010,~~ we would behave been required to pay ~~$1,021~~$292 million.

The table below shows the location and amount of derivatives at ~~June~~September 30, 2010 as reported in the Consolidated Balance Sheet:

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

The following table summarizes the components of interest expense, including the location and amount of gains or losses on derivative instruments and related hedged items, for the three and six months ended ~~June~~September 30, 2010 and 2009 as reported in our Consolidated Statement of Income:

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

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

Included in our unsecured notes and loans payable are unsecured notes and loans denominated in various foreign currencies. At ~~June~~September 30, 2010 and March 31, 2010, the carrying value of these notes payable was ~~$25.9 billion and~~ $28.5 ~~billion, respectively.~~billion. Concurrent with the issuance of these foreign currency unsecured notes, we entered into currency swaps in the same notional amount to convert non-U.S. currency payments to U.S. dollar denominated payments.

As of ~~June~~September 30, 2010, our commercial paper had an average remaining maturity of 4256 days, while our notes and loans payable mature on various dates through fiscal 2047.

During the ~~first quarter~~three months ended ~~June~~September 30, 2010, we sourced approximately ~~$3.8~~$1.9 billion in funding through the transfer of retail finance receivables to asset-backed securitization vehicles. The notes and loans issued in connection with these transactions are repayable only from collections on the underlying pledged receivables.

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

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

The assets of the consolidated securitization VIEs consisted of ~~$6,888~~$8,885 million and $3,037 million in gross retail finance receivables at ~~June~~September 30, 2010, and March 31, 2010, respectively. Net retail finance receivables, after consideration of deferred origination costs, unearned income and allowance for credit losses, were $8,752 million as of September 30, 2010. In addition, TMCC held ~~$359~~$475 million and $173 million in cash which represent collections from the underlying pledged receivables and certain reserve deposits held for the securitization trusts at ~~June~~September 30, 2010 and March 31, 2010, respectively. We classified this cash as restricted cash on our consolidated balance sheet. The liabilities of these consolidated VIEs consisted of ~~$6,356~~$7,495 million and $3,000 million in secured debt, net of $1,151 million of securities retained by TMCC, and $1$2 million and ~~$439 thousand~~$0.4 million in other liabilities at ~~June~~September 30, 2010 and March 31, 2010, respectively. The assets of the VIEs and the restricted cash held by TMCC serve as the sole source of ~~payment~~repayment for the asset-backed securities issued by these entities. Investors in the notes issued by the VIEs do not have recourse to TMCC’s general credit, with the exception of customary representation and warranty repurchase provisions and indemnities.

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

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

The transfers of the receivables to the special purpose entities in our securitizations are considered to be sales for legal purposes. However, ~~these transactions do not meet the requirements for sale accounting. As a result,~~ the securitized assets and the related debt remain on our Consolidated Balance Sheet. We recognize financing revenue on the pledged receivables and interest expense on the secured debt issued by the trusts. We also maintain an allowance for credit losses on the pledged receivables to cover probable credit losses estimated using a methodology consistent with that used for our non-securitized retail loan portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our ~~conso lidated~~consolidated financial statements.

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

In March 2010, TMCC, its subsidiary Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility pursuant to a 364 Day Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The 364 Day Credit Agreement may be used for general corporate purposes and was not drawn upon as of ~~June~~September 30, 2010 and March 31, 2010.

In March 2007, TMCC, TCPR, and other Toyota affiliates entered into an $8.0 billion five year syndicated bank credit facility pursuant to a Five Year Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The Five Year Credit Agreement may be used for general corporate purposes and was not drawn upon as of ~~June~~September 30, 2010 and March 31, 2010.

In addition, TMCC has an uncommitted letter of credit facility totaling $5 million, of which $1 million was issued and outstanding at ~~June~~September 30, 2010 and March 31, 2010.

TMCC has two additional bank credit facilities. The first is a 364 day committed bank credit facility in the amount of JPY 100 billion (approximately ~~$1.1~~$1.2 billion as of ~~June~~September 30, 2010) which was entered into in December 2009 to replace a similar facility which expired. The second is a 364 day uncommitted bank credit facility in the amount of JPY 100 billion (approximately ~~$1.1~~$1.2 billion as of ~~June~~September 30, 2010), which was extended in December 2009 for an additional 364 days. Both of these agreements contain covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. Neither of these facilities was drawn upon as of ~~June~~September 30, 2010 and March 31, 2010.

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

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

We provide fixed and variable rate credit facilities to vehicle and industrial equipment dealers. These credit facilities are typically used for business acquisitions, facilities refurbishment, real estate purchases, and working capital requirements. These loans are generally collateralized with liens on real estate, vehicle inventory, and/or other dealership assets, as appropriate. We obtain a personal guarantee from the vehicle or industrial equipment dealer or a corporate guarantee from the dealership when deemed prudent. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. We price the credit facilities to reflect the credit risks assumed in entering in to the credit facility. Amounts drawn under these facilities are reviewed for collectability on a quarterly basis, in conjunction with our evaluation of the allowance for credit losses. We also provide financing to various multi-franchise dealer organizations, often as part of a lending consortium, for wholesale, working capital, real estate, and business acquisitions. Of the total credit facility commitments available to vehicle and industrial equipment dealers, $5.2 billion was outstanding at ~~both June~~September 30 and March 31, 2010, and was recorded in Finance receivables, net in the Consolidated Balance Sheet.

We are party to a 15-year lease agreement with Toyota Motor Sales, USA, Inc. (“TMS”) for our headquarters location in the TMS headquarters complex in Torrance, California. At ~~June~~September 30, 2010, minimum future commitments under lease agreements to which we are a lessee, including those under the agreement discussed above, are as follows: fiscal years ending March 31, 2011 - ~~$15~~$10 million; 2012 - $17 million; 2013 - $13 million; 2014 - $10 million; 2015 - $9 million and thereafter - ~~$23~~$24 million.

TMCC has guaranteed bond obligations totaling $100 million in principal that were issued by Putnam County, West Virginia and Gibson County, Indiana to finance the construction of pollution control facilities at manufacturing plants of certain TMCC affiliates. The bonds mature in the following fiscal years ending March 31: 2028 - $20 million; 2029 - $50 million; 2030 - $10 million; 2031 - $10 million; and 2032 - $10 million. TMCC would be required to perform under the guarantees in the event of non-payment on the bonds and other related obligations. TMCC is entitled to reimbursement by the affiliates for any amounts paid. TMCC receives an annual fee of $78,000 for guaranteeing such payments. TMCC has not been required to perform under any of these affiliate bond guarantees as of ~~June 3 0,~~Septem ber 30, 2010 and March 31, 2010.

In the ordinary course of business, we enter into agreements containing indemnification provisions standard in the industry related to several types of transactions, including, but not limited to, debt funding, derivatives, securitization transactions, and our vendor and supplier agreements. Performance under these indemnities would occur upon a breach of the representations, warranties or covenants made or given, or a third party claim. In addition, we have agreed in certain debt and derivative issuances, and subject to certain exceptions, to gross-up payments due to third parties in the event that withholding tax is imposed on such payments. In addition, certain of our funding arrangements would require us to pay lenders for increased costs due to certain changes in laws or regulations. Due to the diffic ulty in predicting events which could cause a breach of the indemnification provisions or trigger a gross-up or other payment obligation, we are not able to estimate our maximum exposure to future payments that could result from claims made under such provisions. We have not made any material payments in the past as a result of these provisions, and as of ~~June~~September 30, 2010, we determined that it is not probable that we will be required to make any material payments in the future. As of ~~June~~September 30, 2010 and March 31, 2010, no amounts have been recorded under these indemnifications.

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

A cross-complaint alleging a class action in the Superior Court of California Stanislaus County, Garcia v. Toyota Motor Credit Corporation, filed in August 2007, claims that TMCC's post-repossession notice failed to comply with the Rees-Levering Automobile Sales Finance Act of California. Three additional putative class action complaints or cross-complaints were filed making similar allegations. The cases were coordinated in the California Superior Court, Stanislaus County and a Second Amended Consolidated Cross-Complaint and Complaint was subsequently filed in March 2009. The Second Amended Consolidated Cross-Complaint and Complaint seeks injunctive relief, restitution, disgorgement and other equitable relief under California's Unfair Competition Law. As a result of mediation in January 2010, t he parties agreed to settle all of the foregoing matters. A fourth case was recently filed which has been included in the settlement. The proposed settlement, for which we have adequately accrued, is subject to ~~preliminary and~~ final court approval. ~~A fourth case~~Preliminary approval was ~~recently filed which~~granted by the ~~court has included in the settlement.~~Court by order dated September 2, 2010. The hearing on final approval is currently set for December 23, 2010.

TMCC and certain affiliates were named as defendants in the consolidated multidistrict litigation, In Re: Toyota Motor Corp. Unintended Acceleration, Marketing, Sales Practices, and Products Liability Litigation ~~consolidated in the United~~(United States District Court, Central District of ~~California~~California) seeking damages and injunctive relief as a result of alleged sudden unintended acceleration ~~and/or braking defects~~ in certain Toyota and Lexus vehicles. A parallel action was filed against TMCC and certain affiliates on March 12, 2010 by the Orange County District Attorney. ~~See "Item 3. Legal Proceedings" in our fiscal 2010 Form 10-K for more information.~~ On August 2, 2010, the plaintiffs filed a consolidated complaint in the multidistrict litigation that does not name TMCC as a defendant. In addition, the court has permitted alleged classes of foreign plaintiffs to file complaints naming TMCC and related entities as defendants. TMCC also remains ~~howe ver,~~ a defendant in the state court action filed by the Orange County District ~~Attorney~~Attorney.

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

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

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

Our effective tax rate was 3938 percent during the first ~~quarter~~half of fiscal 2011 and 3839 percent for the same period in fiscal 2010. Our provision for income taxes for the first ~~quarter~~half of fiscal 2011 was ~~$357~~$522 million compared to ~~$108~~$307 million for the same period in fiscal 2010. This increase in provision is consistent with the increase in our income before tax for the first ~~quarter~~half of fiscal 2011 compared to the first ~~quarter~~half of fiscal 2010.

We are routinely subject to U.S. federal, state and local, and foreign income tax examinations by tax authorities in various jurisdictions. We are in various stages of completion of several income tax examinations, including an examination by the Internal Revenue Service for the taxable years March 31, 2007 through March 31, 2010. ~~During the fourth quarter of fiscal 2010, the Internal Revenue Service completed its examination for the taxable years March 31, 2004 through March 31, 2006.~~

We periodically review our uncertain tax positions. Our assessment is based on many factors including the ongoing IRS audits. For the quarter ended ~~June~~September 30, 2010 ~~this~~our assessment resulted in ~~no change in~~a reduction of unrecognized tax ~~benefits.~~benefits of $34 million.

Our deferred tax assets at ~~June~~September 30, 2010 were ~~$1.8~~$2.0 billion compared ~~with~~to $2.3 billion at March 31, 2010, and were primarily due to the deferred deduction of allowance for credit losses and cumulative federal tax loss carryforwards that expire in varying amounts through fiscal year 2029. The total deferred tax liability at ~~June~~September 30, 2010, net of these deferred tax assets, was ~~$3.6~~$3.9 billion compared with $3.3 billion at March 31, 2010. Realization with respect to the federal tax loss carryforwards is dependent on generating sufficient income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced if ~~management’s~~management’ s estimates change.

The tables below summarize amounts included in our Statement of Income for the three and six months ended September 30, 2010 and 2009 and in our Consolidated Balance Sheet as of September 30, 2010 and March 31, 2010 under various related party agreements or relationships:

As of ~~June~~September 30, 2010, there were no material changes to our related party agreements or relationships as described in our fiscal 2010 Form 10-K, except as described below. ~~The tables below summarize amounts included in our Statement of Income and Consolidated Balance Sheet under various related party agreements or relationships:~~

~~Effective as~~During the first quarter of ~~May 12, 2010,~~fiscal 2011, TMCC and Toyota Motor Finance (Netherlands) B.V. (“TMFNL”) entered into a new uncommitted loan finance agreement which replaced an existing loan finance agreement between TMCC and TMFNL. The new loan agreement provides for reciprocal lines of credit between TMFNL and TMCC, with individual loans to be evidenced by ~~term~~terms agreements in an aggregate amount not to exceed €1 billion. There were no amounts outstanding at ~~June~~September 30, 2010.

During the second quarter of fiscal 2011, TMCC and Toyota Financial Saving Bank (“TFSB”) entered into an expense reimbursement agreement. Under the terms of the agreement, TMCC will reimburse certain expenses incurred by TFSB in connection with providing certain financial products and services to TMCC’s customers and dealers in support of TMCC’s customer loyalty strategy and programs. Expenses incurred by TMCC under this agreement for the three and six months ended September 30, 2010 were $11 million.

During the second quarter of fiscal 2011, TMCC and Toyota Financial Services Americas Corporation (“TFSA”) entered into an expense reimbursement agreement. Under the terms of the agreement, TMCC will reimburse certain expenses incurred by TFSA, the parent of TMCC and TFSB, with respect to costs related to TFSB’s credit card rewards program. Expenses incurred by TMCC under this agreement for the three and six months ended September 30, 2010 were $6 million.

During the second quarter of fiscal 2011, TMCC and TMS entered into an expense reimbursement agreement. Under the agreement, TMCC will reimburse a portion of certain sales and marketing expenses incurred by TMS during fiscal 2011 intended to improve brand image. Expenses incurred by TMCC under this agreement for the three and six months ended September 30, 2010 were $106 million.

Financial information for our reportable operating segments for the ~~quarters~~periods ended or at ~~June~~September 30, 2010 is summarized as follows (dollars in millions):

~~On July 19, 2010, we declared a dividend of $266 million to be paid to~~Financial information for our ~~parent, Toyota Financial Services Americas Corporation~~reportable operating segments for the periods ended or at September 30, 2009 is summarized as follows (dollars in ~~August 2010.~~millions):

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

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

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

During the first ~~quarter~~half of the fiscal year ending March 31, 2011 (“fiscal 2011”), economic activity in the United States remained ~~relatively weak.~~weak and the economy continued along a path of slow growth. While ~~there were signs that the labor market began to stabilize and~~ industrial production and business investment and spending began to show positive signs, unemployment rates remained elevated and consumer confidence remained weak. Consumer spending continued to be constrained by high unemployment, modest income growth, lower household wealth and tight credit. In addition, home values remained ~~depressed,~~under pressure, and commodity prices continued to fluctuate. ~~As a result,~~These economic ~~recovery in the United States remained uncertain during the first quarter of fiscal 2011,~~challenges and ~~economic conditions~~uncertainties continue to negatively affect some of our customers’ ability to make their payments.

~~The~~Conditions in the global capital markets induring the first ~~quarter~~half of fiscal 2011 ~~showed signs of~~continued to show improvement as compared to fiscal 2010. ~~From a funding perspective, the market generally stabilized~~Investors’ demand for fixed income products was strong and ~~the extreme volatility and widening~~ credit spreads ~~experienced during fiscal 2010 have lessened. While challenges remain, there were improvements in market access and narrowing of credit spreads during the first quarter of fiscal 2011.~~generally improved, leading to favorable borrowing conditions for issuers. During the first ~~quarter~~half of fiscal 2011, we continued to maintain broad access to a variety of global markets and continued to issue commercial paper and term debt in both unsecured and secured markets.

Industry wide vehicle sales during the first ~~quarter~~half of fiscal 2011 in the United States increased as compared to the same period in the prior year. In addition, sales incentives throughout the auto industry increased over the same period. ~~In line with these trends, sales~~Sales of Toyota and Lexus vehicles by Toyota Motor Sales, USA, Inc. (“TMS”) in the first half of fiscal 2010 benefited from the Car Allowance Rebate System, or “cash for clunkers” program. Sales of Toyota and Lexus vehicles by TMS ~~increased 13%~~decreased 4 percent in the first ~~quarter~~half of fiscal 2011 ~~over~~as compared to the same period in ~~fiscal 2010. The increase in TMS sales is~~the prior year due ~~in large part~~ to ~~increased vehicle incentives and~~ the ~~stabilization~~absence of ~~economic conditions in the~~these United States ~~following a period of decline.~~government programs. Our overall net earning assets balance at ~~June~~September 30, 2010 was higher than the balance at ~~June~~September 30, 2009 due to an increase in vehicle ~~financing~~fi nancing volume, which was in turn due to ~~an increase in TMS sales.~~increased vehicle sales incentives.

Despite ~~these~~the challenging economic conditions, our consumer portfolio continued to show positive signs. We decreased our allowance for credit losses in the first ~~quarter~~half of fiscal 2011 in response to lower levels of delinquency and per unit loss severity in our consumer portfolio. We experienced lower loss severity due to strong used vehicle values during the first ~~quarter~~half of fiscal 2011 as compared to the same period in fiscal 2010. Prices of used vehicles were at an unprecedented high during the first ~~quarter~~half of fiscal 2011 primarily due to a low supply of used vehicles. In addition, the overall credit quality of our retail portfolio in the first ~~quarter~~half of fiscal 2011 continued to benefit from ~~previous enhancements we introduced in~~ our focus on purchasing ~~practices. The enhancements, combined with the strengthening of~~practices and collection efforts. As a result, our ~~collection efforts, contributed to decreased levels of delinquency and~~ net charge-offs ~~during~~improved dur ing the first ~~quarter~~half of fiscal 2011 as compared to the same period in fiscal 2010. In addition, our delinquencies at September 30, 2010 improved significantly compared to September 30, 2009 and remained flat as compared to the delinquencies at March 31, 2010.

~~We achieved~~Our consolidated net income ~~of $570~~was $839 million and $269 million for the first half and second quarter of fiscal 2011, respectively, compared with ~~$176~~$486 million and $310 million for the same ~~period~~periods in fiscal 2010. Our ~~finance operations reported net income of $533 million~~consolidated results for the first ~~quarter~~half of fiscal 2011 compared to $138 million for the same period in fiscal 2010. Our insurance operations reported net income of $37 million for the first quarter of fiscal 2011, compared to $38 million for the same period in fiscal 2010.

We recorded a benefit from credit losses of ~~$289~~$303 million and $14 million for the first half and second quarter of fiscal 2011, respectively, compared to a charge of ~~$328~~$339 million and $11 million for the same ~~period~~periods in fiscal 2010. This reduction in our provision was attributable to strong used vehicle prices fueled by a lower supply of used vehicles and better credit quality within our ~~retail portfolio, and robust collection efforts.~~consumer portfolio. We decreased our estimate of expected credit losses in response to improvements in per unit loss severity ~~lower expected losses related to TMS recall-related events,~~ and ~~lower levels of delinquency~~net charge-offs in the consumer ~~p ortfolio~~portfolio during the first half of fiscal 2011. During the first half and second quarter of fiscal ~~2011.~~2011, we continued to incorporate into our provision for credit losses the impact of ongoing adverse publicity and governmental investigations associated wi th the TMS recall-related events.

Operating and administrative expenses increased by 4%44% and 86% during the first half and second quarter of fiscal 2011 as compared to the same ~~period~~periods in fiscal ~~2010, primarily~~2010. The increase in operating and administrative expenses was due to the ~~area~~increases in shared affiliate expenses for sales and marketing activities as well as in employee expenses. Refer to Note 15 – Related Party Transactions of ~~employee expenditures.~~the Notes to Consolidated Financial Statements for further information.

Our overall capital position increased by ~~$0.5 billion,~~$613 million, bringing total shareholder’s equity to ~~$5.8~~$5.9 billion at ~~June~~September 30, 2010, as compared to $5.3 billion at March 31, 2010. Our debt increased to ~~$71.0~~$72.7 billion at ~~June~~September 30, 2010 from $69.2 billion at March 31, 2010. ~~As a result of these factors,~~We experienced an improvement in our debt-to-equity ratio ~~improved~~ to ~~12.2~~12.4 at ~~June~~September 30, 2010 from 13.1 at March 31, ~~2010.~~2010 due to an increase in our equity despite an increase in debt.

Our finance operations reported net income of ~~$533~~$749 million and $216 million for the first half and second quarter of fiscal 2011, respectively, compared to ~~$138~~$404 million and $266 million for the same ~~period~~periods in fiscal 2010. Results were favorable primarily due to decreases in our provision for credit losses, ~~and to a lesser extent, decreases in~~ depreciation on operating ~~leases.~~leases and interest expense, partially offset by an increase in operating and administrative expenses.

~~Despite the challenging economic conditions and high unemployment in the United States, our~~Our per unit credit loss severity ~~and delinquency~~ improved during the first half and second quarter of fiscal 2011. The improvement in per unit credit loss severity was attributable to strong used vehicle prices fueled by lower used vehicle supply.

Total financing revenues decreased 21 percent during the first half and second quarter of fiscal 2011, respectively, as compared to the same ~~period~~periods in fiscal ~~2010:~~2010 due to the following factors:

Our total finance receivables portfolio yield was ~~5.8 and 6.4~~5.7 percent during the first half and second quarter of fiscal 2011, ~~and~~compared to 6.4 percent for the same periods in fiscal ~~2010, respectively.~~2010.

Depreciation on operating leases decreased 95 percent and 1 percent during the first half and second quarter of fiscal 2011, respectively, as compared to the same ~~period~~periods in fiscal 2010. Improvements in used vehicle values, due primarily to lower used vehicle supply, resulted in an increase to the estimated end-of-term residual values of the existing portfolio. ~~We also considered~~During the ~~potential impact~~first half and second quarter of ~~the TMS recall-related events~~fiscal 2011, we continued to consider in our estimate of end-of-term residual ~~values.~~values the impact of ongoing adverse publicity and governmental investigations associated with the TMS recall-related events. These events ~~had~~did not have a ~~lesser~~material impact on our ~~estimate during~~depreciation on operating leases for the first half and second quarter of fiscal ~~2011 than in the quarter ended March 31, 2010.~~2011.

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

We reported consolidated interest expense of ~~$491~~$1,084 million and $593 million during the first half and second quarter of fiscal 2011, respectively, compared to ~~$499~~$1,117 million and $618 million during the same ~~period~~periods in fiscal 2010. Interest expense was lower during the first ~~quarter~~half of fiscal 2011 compared to the same period in fiscal 2010 primarily due to lower contractual interest rates on ~~debt.~~debt, lower net interest expense on pay fixed swaps, and gains on currency swaps, net of losses on foreign currency transactions. These factors were partially offset by mark-to-market losses on other non-hedge accounting derivatives in fiscal 2011 resulting from decreases in swap rates.

Interest expense on debt primarily represents interest due on secured and unsecured notes and loans payable and commercial paper, and includes ~~the~~ amortization of discount and premium, debt issue costs, ~~discount and premium,~~ and basis adjustments. The decrease in interest expense on debt to ~~$451~~$990 million inand $539 million during the first half and second quarter of fiscal 2011 from ~~$624~~$1,230 million and $606 million in the same ~~period~~periods in fiscal 2010 was due to ~~a combination of~~ lower weighted average contractual interest rates on unsecured debt and ~~relatively higher average balances~~changes in our mix of funding sources. The proportion of our outstanding debt consisting of commercial paper and secured debt, ~~offset by~~which carry lower weighted-average interest rates than unsecured term ~~debt.~~debt, was higher during the first half of fiscal 2011 compared to fiscal 2010. Interest expense on pay float ~~swaps~~swap s represents net interest expense on our interest rate and cross-currency swaps. During the first half of fiscal 2011 and fiscal 2010, 3-month LIBOR rates were generally lower than the rates on the receive leg of these swaps. Settlements on ~~these~~pay float swaps resulted in interest income of ~~$240~~$549 million and ~~$320~~$309 million for the first half and second quarter of fiscal 2011 compared to $704 million and ~~fis cal 2010, respectively.~~$384 million for the same periods in fiscal 2010. Lower weighted average rates on the receive leg of pay float swaps were primarily responsible for the decrease in interest income on pay float swaps in fiscal 2011 compared to fiscal 2010. These favorable results from our pay float swaps partially offset our interest expense on debt.

Interest expense on pay fixed swaps represents net interest on our pay fixed swaps portfolio where we pay a fixed rate and receive a floating rate based on 3-month LIBOR. During the first half of fiscal 2011 and fiscal 2010, 3-month LIBOR was generally lower than the fixed interest rates at which the swap contracts were executed, resulting in net interest expense in both periods. Pay fixed swaps have a weighted average life of approximately two to three years; this results in a pay fixed swaps portfolio that is constantly changing as new swaps are executed at different rates, and existing swaps mature. The average pay fixed interest rate on this swap portfolio declined by a greater amount from fiscal 2010 to fiscal 2011 than average 3-month LIBOR rates decreased over the same period. As a result , net interest expense on pay fixed swaps decreased to $564 million and $255 million for the first half and second quarter of fiscal 2011 from $646 million and $345 million for the same periods of fiscal 2010.

Ineffectiveness related to hedge accounting derivatives represents the net difference between the change in the fair value of the hedged debt and the change in the fair value of the associated derivative instrument. These amounts also include a credit valuation adjustment loss of $1$3 million and $2 million for the first half and second quarter of fiscal 2011, compared to a credit valuation adjustment loss of ~~$27~~$20 million and gain of $7 million for the same ~~period~~periods in fiscal 2010.

Gain or loss on foreign currency transactions relates to foreign currency denominated transactions for which hedge accounting has not been elected. We are required to revalue these foreign currency denominated transactions at each balance sheet date. We use currency swaps and forwards to economically hedge these foreign currency transactions. During the first half and second quarter of fiscal 2011, the U.S. dollar ~~strengthened~~weakened relative to certain other currencies in which our foreign currency transactions are denominated. This resulted in the recognition of ~~gains in~~losses on foreign currency transactions of ~~$608~~$828 million and ~~losses~~$1,436 million during the first half and second quarter of fiscal 2011, respectively. We recorded gains in the fair value of currency swaps used to economically hedge these ~~foreign~~fo reign currency transactions of ~~$503 million.~~$1,030 million and $1,533 million during the first half and second quarter of fiscal 2011, respectively. During the same ~~period~~periods in fiscal 2010, the U.S. dollar also weakened ~~r elative~~relative to certain other currencies in which our foreign currency transactions are denominated. This resulted in the recognition of losses in foreign currency transactions ~~of $858 million~~ and gains in the fair value of currency swaps used to economically hedge these foreign currency transactions during the first half and second quarter of ~~$796 million.~~fiscal 2010. During fiscal 2011, the weakening of the U.S. dollar in the second quarter was partially offset by a strengthening of the dollar that occurred in the first quarter. As a result, gains on foreign currency swaps were lower during the first half of fiscal 2011 than during the first half of fiscal 2010, when the dollar weakened in both quarters.

Declines in swap rates ~~during the first quarter of fiscal 2011~~ contributed to ~~unfavorable mark-to-market adjustments~~losses on pay fixed interest rate swaps of ~~$131~~$384 million ~~that contributed to a net loss~~and $253 million during the first half and second quarter of fiscal 2011, respectively. These losses on ~~other~~pay fixed swaps were partially offset by gains on non-hedge accounting ~~derivatives~~pay float swaps of ~~$85 million.~~$91 million and $45 million during the first half and second quarter of fiscal 2011, respectively. During the first ~~quarter~~half of fiscal 2010, ~~favorable mark-to-market adjustments~~we recorded gains of ~~$328~~$209 million on pay fixed interest rate swaps ~~contributed to net~~which were partially offset by losses of $133 million on non-hedge pay float swaps. During the second quarter of fiscal 2010, gains on ~~total other non-hedge accounting derivatives of $189 million, including~~ pay float ~~swaps.~~swaps of $6 million and losses on pay fixed swaps of $119 million were due to a decrease in swap rates.

We recorded a benefit from credit losses of ~~$289~~$303 million and $14 million for the first half and second quarter of fiscal 2011, respectively, compared to ~~a charge~~expenses of ~~$328~~$339 million and $11 million for the same ~~period~~periods in fiscal 2010. During the first ~~quarter~~half of fiscal 2010, we increased our provision for credit losses in response to elevated levels of ~~delinquencies~~delinquency in our consumer portfolio as well as an increase in the default frequency resulting from the weakness in the United States economy.

The following table summarizes key results of our Insurance Operations:

Agreements issued increased by ~~256~~546 thousand and 290 thousand units during the first half and second quarter of fiscal 2011, respectively, compared to the same ~~period~~periods in fiscal 2010. The increase was primarily due to an increase in prepaid maintenance agreements, which Toyota Motor Insurance Services, Inc. (“TMIS”) began providing to TMS in March 2010 in support of post-recall sales efforts.

Our insurance operations reported net income of ~~$37~~$90 million and $53 million during the first half and second quarter of fiscal 2011, respectively, compared to ~~$38~~$82 million and $44 million during the same ~~period~~periods in fiscal 2010. The ~~slight decrease~~increase in net income ~~from insurance~~ for the first ~~quarter~~half of fiscal 2011 compared to the same period in fiscal 2010 was primarily attributable to an increase in insurance earned premiums and contract revenues offset by a slight decrease in investment and other ~~income partially offset by an~~income. The increase in net income for the second quarter of fiscal 2011 compared to the same period in the prior year was primarily due to increases in investment and other income and insurance earned premiums and contract revenues.

Insurance earned premiums and contract revenues are affected by sales volume as well as the level, age, and mix of agreements in force. Agreements in force represent active insurance policies written and contracts issued. Insurance earned premiums and contract revenues represent revenues from the agreements in force. ~~Commissions and fees represent revenues from services provided to insurers and insureds, including certain of our affiliates.~~

Our insurance operations reported insurance earned premiums and contract revenues of ~~$129~~$266 million and $137 million during the first half and second quarter of fiscal 2011, respectively, compared to ~~$115~~$232 million and $117 million during the same ~~period~~periods in fiscal 2010. The increase in insurance earned premiums and contract revenues was primarily due to the overall growth in the number of agreements issued and in force ~~and~~as well as higher average revenues per contract.

Our insurance operations reported investment and other income of ~~$27~~$69 million and $42 million during the first half and second quarter of fiscal 2011, respectively, compared to investment and other income of ~~$36~~$73 million and $37 million during the same ~~period~~periods in fiscal 2010. Investment and other income for our insurance operations consists primarily of investment income on marketable securities. The decrease in investment and other income for the first ~~quarter~~half of fiscal 2011 compared to the same period in ~~fiscal 2010~~the prior year was primarily due to lower interest and dividend income offset by higher net realized gains from the sale of securities. The increase in investment and other income for the second quarter of 2011 compared to the same period in the prior year was primarily due to higher net realized gains from t he sale of securities, offset by lower interest and dividend income. Refer to “Investment and Other Income” below for a more detailed discussion on our consolidated investment portfolio.

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

WeOur insurance operations reported $116 million and $58 million of insurance losses and loss adjustment expenses during the first half and second quarter of fiscal 2011, respectively, compared to ~~$57~~$113 million and $56 million during the same ~~period~~periods in fiscal 2010. The slight increase in insurance losses and loss adjustment expenses primarily relates to ~~fluctuations~~increases in the frequency ~~and severity across all~~of loss in certain programs.

Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on their sales volume or underwriting performance. Insurance dealer back-end program expenses increased by 2417 percent and 11 percent during the first half and second quarter of fiscal 2011, respectively, compared to the same ~~period~~periods in fiscal 2010. The increase was primarily due to an increase in agreements issued and ~~an increase in the federal funds rate used in the computation of certain payments~~.improved underwriting performance.

The decrease in interest and dividend income on marketable securities during the first half and second quarter of fiscal 2011 relates primarily to marketable securities held by our insurance operations. We reported net realized gains on marketable securities of ~~$11~~$31 million and $20 million during the first half and second quarter of fiscal 2011, respectively, compared to net realized losses of $5 million during the ~~same period in~~first half of fiscal 2010. This was primarily due to ~~there being no other-than-temporary impairment write-downs during the first quarter of fiscal 2011. In addition we experienced~~ higher net realized gains from the sale of securities in the first half and second quarter of fiscal 2011 compared to the same periods in fiscal 2010.

We reported $15 million and $10 million of other income during the first half and second quarter of fiscal 2011, respectively, compared to $38 million and $8 million during the same periods in fiscal 2010. The decrease in other income during the first half of fiscal 2011 compared to the same period in fiscal 2010 was primarily due to interest income from an expected tax refund that was recorded during the first half of fiscal 2010 and subsequently collected. In addition, interest income on cash held in excess of our funding needs was lower in the first half of fiscal 2011 compared to the same period in fiscal 2010.

The following table summarizes our operating and administrative expenses:

Total operating and administrative expenses increased 444 percent and 86 percent during the first half and second quarter of fiscal 2011, respectively, compared to the same periods in fiscal 2010 primarily due to increases in operating expenses.

Operating expenses increased during the first half and second quarter of fiscal 2011 compared to the same period in fiscal 2010 due to increases in employee and insurance dealer back-end expenses. Employee-related expenses increased in the first quarter of fiscal 2011 compared to the same period in fiscal 2010 due to higher performance based compensation and overtime.

Insurance dealer back-end program expenses are incentives or expense reduction programs we provide to dealers based on their sales volume or underwriting performance. Refer to Insurance Operations above for further information on insurance dealer back-end program expenses.

Our provision for income taxes for the first half and second quarter of fiscal 2011 was ~~$357~~$522 million and $165 million, respectively, compared to ~~$108~~$307 million and $199 million for the same ~~period~~periods in fiscal 2010. Our effective tax rate was ~~39%~~38 percent for the first half and second quarter of fiscal 2011, ~~and 38%~~respectively, compared to 39 percent for the same ~~period~~periods in fiscal 2010. ~~Our effective tax rate in the first quarter of fiscal 2010 reflected a decrease in the total expense due to higher non-taxable income.~~ The ~~increase~~change in our provision for income taxes is consistent with the ~~increase~~change in operating income in the first half and second quarter of fiscal 2011 compared to the same ~~period~~periods in fiscal 2010.

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

Our retail and lease contracts are acquired primarily from Toyota and Lexus vehicle dealers, and the volume of contracts is dependent upon TMS sales volume and subvention. Vehicle sales by TMS ~~increased 13%~~decreased 4 percent and 15 percent in the first half and second quarter of fiscal 2011, respectively, compared to the same periods in fiscal 2010. Sales were higher during the first half and second quarter of fiscal 2010 due to the Car Allowance Rebate System, or “cash for clunkers” program. No similar United States government programs were available during fiscal 2011.

Our finance volume and market share increased in the first half and second quarter of fiscal 2011 compared to the same ~~period~~periods in fiscal 2010. ~~The increase in vehicle sales was~~These increases were driven primarily by the availability of TMS subvention, as evidenced by the increase of 74 percent and 20 percent in ~~availability of TMS incentives. The increase~~our subvened vehicle financing volume in ~~TMS subvention positively affected our finance~~first half and ~~insurance volumes and market share in the first quarter of fiscal 2011. The overall improvement in sales resulted in an overall higher level of net earning assets in the first~~second quarter of fiscal 2011, ~~compared to the same period in fiscal 2010 due to lower levels of TMS subvention in the prior period.~~

The composition of our net earning assets is summarized below:

Our overall new and used retail contract volume increased during the first ~~quarter~~half of fiscal 2011 as compared to the same period in fiscal 2010. Much of the increase was attributable to an increase in overall TMS ~~sales volume and subvention programs.~~subvention. Retail receivables at ~~June~~September 30, 2010 increased slightly as compared to the balance at March 31, 2010, as the volume of new vehicles financed ~~offset~~was greater than portfolio ~~liquidations during the fiscal year.~~liquidations.

Our overall vehicle lease contract volume during the first ~~quarter~~half of fiscal 2011 increased as compared to the same period in fiscal 2010. Vehicle lease contract volume is affected by the level of Toyota and Lexus vehicle sales, the availability of subvention programs, and changes in the interest rate environment. Much of the increase during the first ~~quarter~~half of fiscal 2011 was attributable to an increase in ~~overall~~ TMS ~~sales volume and~~ subvention programs. Our investment in operating leases, net increased at ~~June~~September 30, 2010 as compared to the balance at March 31, 2010 due to increased contract volume partially offset by an increase in scheduled maturities.

As of ~~June~~September 30, 2010, the number of dealer inventory units financed and the number of dealers receiving financing remained relatively ~~consistent~~stable as compared to March 31, 2010. Dealer financing receivables increased 4% to ~~$11.8~~$11.7 billion at ~~June~~September 30, 2010 from March 31, 2010.

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

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

During the first ~~quarter~~half of fiscal 2011, economic activity in the United States remained ~~weak.~~weak and the economy continued along a path of slow growth. While ~~there were signs that the labor market began to stabilize and~~ industrial production and business investment ~~in equipment~~ and spending began to show positive signs, unemployment rates remained elevated and consumer confidence remained weak. Consumer spending continued to be constrained by high unemployment, modest income growth, lower household wealth and tight credit. In addition, home values remained ~~depressed~~under pressure, and commodity prices continued to fluctuate. ~~As a result, the economic recovery in the United States remained uncertain during the first quarter of fiscal 2011~~These challenges and ~~economic conditions~~uncertainties continue to negatively affect some of our customers’ ability to make their payments.

Despite the challenging economic conditions, our ~~levels of delinquency and~~ credit loss severity ~~have~~ improved ~~since~~while delinquencies remained consistent with March 31, ~~2010.~~2010 levels. The overall credit quality of our retail portfolio in the first half and second quarter of fiscal 2011 continued to benefit from ~~the previous enhancements we introduced in~~ our focus on purchasing ~~practices.~~practices and collection efforts. In addition, ~~high levels of~~ subvention contributed to our overall portfolio quality, as subvened contracts typically have better credit quality than non-subvened contracts. These factors, combined with ~~the strengthening of our collection efforts and the increase in~~strong used vehicle prices and a continued focus on collection efforts, contributed to decreased levels of delinquency and net charge-offs during the first ~~quarter~~half of fiscal 2011 as compared to the same period in fiscal 2010. ~~Exposure~~We continue to be exposed to higher levels of credit loss ~~however, remains at an e levated level due~~rela ted to ~~the continued uncertainty surrounding~~uncertain economic ~~recovery and the TMS recall related events.~~conditions. For additional information regarding the potential impact of current market conditions, refer to “Part I. Item 1A. Risk Factors” of our fiscal 2010 Form 10-K.

~~We continue to focus on further developing sound risk management practices and credit loss strategies.~~ During the first ~~quarter~~half of fiscal 2011, we remained focused on managing high risk loans in our dealer portfolio. On an ongoing basis, we review our purchasing practices and leverage technology to improve our ~~collection~~collections capabilities.

We maintain an allowance for credit losses to cover probable losses resulting from the non-performance of our customers. The determination of the allowance involves significant assumptions, complex analysis, and management judgment. The following table provides information related to our allowance for credit losses and credit loss experience for the three and six months ended ~~June~~September 30, 2010 and 2009:

The level of credit losses primarily reflects two factors: default frequency and loss severity. Default frequency as a percentage of average outstanding contracts decreased during the first ~~quarter~~half of fiscal 2011 compared to the same period in fiscal 2010. The improvement in default frequency was attributable to ~~the enhancements in~~ our focus on purchasing practices and collection efforts and the relative stabilization in the United States ~~economy, which resulted in a portfolio with higher credit quality.~~economy.

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

During the first ~~quarter~~half of fiscal 2011, our allowance for credit losses decreased ~~$389~~$516 million or 2330 percent from $1,705 million at March 31, 2010 to ~~$1,316~~$1,189 million at ~~June~~September 30, 2010. While the United States economy generally remained weak during the first ~~quarter~~half of fiscal 2011, and the ~~timing~~strength of the economic recovery remained uncertain, our levels of delinquency and per unit loss severity continued to improve. The improvement in ~~delinquency~~delinquencies was due to the strengthening of the overall credit quality of our retail portfolio while the improvement in per unit loss severity was attributable to strong used vehicle prices fueled by a low supply of used vehicles. In the first half of fiscal 2011, we also continued to benefit from our focus on purchasing practices and collection efforts. As a result, our net charge-offs improved during the first half of fiscal 2011 as compared to the same period in fiscal 2010. In addition, our delinquencies at September 30, 2010 improved significantly compared to September 30, 2009 and remained flat as compared to the delinquencies at March 31, 2010. During the first half and second quarter of fiscal 2011, we continued to benefit from the previous enhancements we introduced in our purchasing practices. ;These enhancements, combined with the strengthening of our collection efforts, helped to support improved levels of delinquency and net charge-offs during the first quarter of fiscal 2011.

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

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

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

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

For liquidity purposes, we hold cash in excess of our immediate funding needs. These excess funds are invested in short-term, highly liquid and investment grade money market instruments, which provide liquidity for our short-term funding needs and flexibility in the use of our other funding sources. We maintained excess funds ranging from ~~$2.1~~$4.1 billion to ~~$5.4~~$7.0 billion with an average balance of ~~$3.6~~$5.6 billion for the quarter ended ~~June~~September 30, 2010.

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

Credit support provided by our indirect parent Toyota Financial Services Corporation (“TFSC”), and by Toyota Motor Corporation (“TMC”) to TFSC provides an additional source of liquidity to us, although we do not rely upon such credit support in our liquidity planning and capital and risk management. The credit support agreements are not guarantees by TMC of any securities or obligations of TFSC or TMCC. TMC’s obligations under its credit support agreement with TFSC rank pari passu with its senior unsecured debt obligations. Refer to Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 for further discus sion.

Short-term funding needs are met through the issuance of commercial paper in the United States. Commercial paper outstanding under our commercial paper programs ranged from approximately ~~$19.0~~$16.0 billion to ~~$23.3~~$20.8 billion during the quarter ended ~~June~~September 30, 2010, with an average outstanding balance of ~~$21.4~~$18.2 billion. Our commercial paper programs are supported by the liquidity facilities discussed later in this section. As a commercial paper issuer with short-term debt ratings of A-1+ by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”), and P-1 by Moody’s Investors Service, Inc. (“Moody’s”), we believe there is ample capacity to meet our short-term funding requirements and manage our liquidity.

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

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

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

Our EMTN program, shared with our affiliates Toyota Motor Finance (Netherlands) B.V., Toyota Credit Canada Inc. and Toyota Finance Australia Limited (TMCC and such affiliates, the “EMTN Issuers”), provides for the issuance of debt securities in the international capital markets. In September ~~2009,~~2010, the EMTN Issuers renewed the EMTN program for a one year period. The maximum aggregate principal amount authorized under the EMTN Program to be outstanding at any time ~~was increased from €40 billion to~~is €50 billion, or the equivalent in other currencies, of which ~~€26~~€27.2 billion was available for issuance at ~~June~~September 30, 2010. The authorized amount is shared among all EMTN Issuers. The authorized aggregate principal amount under the EMTN program may be increased from time to time.~~& #160;~~ Debt securities ~~issued~~iss ued under the EMTN program are issued pursuant to the terms of an agency agreement. Certain debt securities issued under the EMTN program are subject to negative pledge provisions. Debt securities issued under our EMTN program prior to October 2007 are also subject to cross-default provisions. We are in compliance with these covenants.

Asset-backed securitization (“ABS”) of our earning asset portfolio provides us with an alternative source of funding and investor diversification. During the first ~~quarter~~half of fiscal 2011, we executed securitization transactions of retail contracts that provided us with approximately ~~$3.8~~$5.7 billion in funding which will be repaid as the underlying finance receivables pools amortize. We will continue to evaluate the market for asset-backed securities in considering our funding strategies in the future, including the balance of secured and unsecured funding.

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

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

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

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

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

The transfers of the receivables to the special purpose entities are considered to be sales for legal purposes. However, ~~these transactions do not meet the requirements for sale accounting. As a result,~~ the securitized assets and the related debt remain on our Consolidated Balance Sheet. We recognize financing revenue on the pledged receivables and interest expense on the secured debt issued by the trusts. We also maintain an allowance for credit losses on the pledged receivables to cover estimated probable credit losses using a methodology consistent with that used for our non-securitized retail loan portfolio. The interest rate swaps between TMCC and the special purpose entities are considered intercompany transactions and therefore are eliminated in our consolidated financial ~~state ments.~~statements.

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

In March 2010, TMCC, its subsidiary Toyota Credit de Puerto Rico Corp. (“TCPR”), and other Toyota affiliates entered into a $5.0 billion 364 day syndicated bank credit facility pursuant to a 364 Day Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The 364 Day Credit Agreement may be used for general corporate purposes and was not drawn upon as of ~~June~~September 30, 2010 and March 31, 2010.

In March 2007, TMCC, TCPR, and other Toyota affiliates entered into an $8.0 billion five year syndicated bank credit facility pursuant to a Five Year Credit Agreement. The ability to make draws is subject to covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. The Five Year Credit Agreement may be used for general corporate purposes and was not drawn upon as of ~~June~~September 30, 2010 and March 31, 2010.

In addition, TMCC has an uncommitted letter of credit facility totaling $5 million, of which $1 million was issued and outstanding at ~~June~~September 30, 2010 and March 31, 2010.

TMCC has two additional bank credit facilities. The first is a 364 day committed bank credit facility in the amount of JPY 100 billion (approximately ~~$1.1~~$1.2 billion as of ~~June~~September 30, 2010) which was entered into in December 2009 to replace a similar facility which expired. The second is a 364 day uncommitted bank credit facility in the amount of JPY 100 billion (approximately ~~$1.1~~$1.2 billion), which was extended in December 2009 for an additional 364 days. Both of these agreements contain covenants and conditions customary in a transaction of this nature, including negative pledge provisions, cross-default provisions and limitations on consolidations, mergers and sales of assets. Neither of these facilities was drawn upon as of ~~June~~September 30, 2010 and March 31, 2010.

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

The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning 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. Our credit ratings depend in part on the existence of the credit support agreements of TFSC and TMC. See “Item 1A. Risk Factors - Credit Su pport” in our fiscal 2010 Form 10-K.

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

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

Our liabilities consist mainly of fixed and floating rate debt, denominated in ~~a number of different~~various currencies, which we issue in the global capital markets. We hedge our interest rate and foreign currency risk inherent in these liabilities by entering into pay float interest rate swaps, foreign currency swaps, and foreign currency forwards, which effectively convert our obligations into U.S. dollar-denominated, 3-month LIBOR-based payments.

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

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

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

We categorize derivatives as those designated for hedge accounting (“hedge accounting derivatives”) and those that are not designated for hedge accounting (“non-hedge accounting derivatives”).

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

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

The ~~decrease~~increase in derivative assets and ~~increase~~decrease in derivative liabilities as of ~~June~~September 30, 2010 compared to March 31, 2010, are primarily the result of the ~~strengthening~~weakening of the U.S. dollar relative to certain other currencies in which our foreign currency swaps are denominated. Refer to the “Interest Expense” section above for further discussion.

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

All of our derivatives counterparties to which we had credit exposure at ~~June~~September 30, 2010 were assigned investment grade ratings by a NRSRO. In addition, we require counterparties that are or become rated BBB+ or lower to fully collateralize their net derivative exposures with us. Our counterparty credit risk could be adversely affected by deterioration of the United States economy and financial distress in the banking industry.

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

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

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

At ~~June~~September 30, 2010, we recorded a credit valuation adjustment of ~~$11~~$17 million related to non-performance risk of our counterparties and a credit valuation adjustment of $8$1 million on our own non-performance risk. All derivative credit valuation adjustments are recorded in interest expense in our Consolidated Statement of Income. Refer to “Note 2 – Fair Value Measurements” of the Notes to the Consolidated Financial Statements for further discussion.

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

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

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

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

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of our “disclosure controls and procedures” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective as of ~~June~~September 30, 2010, to ensure that information required to be disclosed in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules, regulations, and forms and that such information is accumulated and communicated to our CEO and CFO, as appropriate, to allow timely ~~decisi ons~~d ecisions regarding required disclosures.

There have been no changes in our internal control over financial reporting that occurred during the ~~quarter~~three months ended ~~June~~September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

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

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

INDEX
~~Part~~PART I	…………………………………………………………………………………………………3	3
Item 1	Financial ~~Statements~~Statements……………………………………………………………………………………………	3
	Consolidated Statement of ~~Income~~Income……………………….……………………………………………………	3
	Consolidated Balance ~~Sheet~~Sheet……………………………………………………………………………………	4
	Consolidated Statement of Shareholder’s ~~Equity~~Equity………..……………………………………………………	5
	Consolidated Statement of Cash ~~Flows~~Flows………………….…………………………………………………..…	6
	Notes to Consolidated Financial ~~Statements~~Statements……………………….……………………………………..……	7
Item 2	Management’s Discussion and ~~Analysis~~Analysis…………………………………………………………………...….	46 49
Item 3	Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk………………………………………....………	74 78
Item 4	Controls and ~~Procedures~~Procedures......................................................................................................................................	7478
~~Part~~PART II	…………………………………………………………………………………………………79	75
Item 1	Legal ~~Proceedings~~Proceedings………………………………………………………………………………………………	7579
Item 1A	Risk ~~Factors~~Factors…………………………………………………………………..…………………………………	7680
Item 2	Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds……………………………..……………………	76 81
Item 3	Defaults Upon Senior ~~Securities~~Securities…………………………………………………………….…………………	76 81
Item 4	~~Submission of Matters to a Vote of Security Holders~~(Removed and Reserved)………………………………………………………………………………………	76 81
Item 5	Other ~~Information~~Information………………………………………………………………………………………………	7681
Item 6	~~Exhibits~~Exhibits…………………………………………………………………………………………………………	7681
Signatures	………………………………………………………………………………………………………………….	7782
Exhibit Index	………………………………………………………………………………………………………………….	78 83

	Three months ended June 30,		Three months ended September 30,		Six months ended September 30,
(Dollars in millions)	2010	2009	2010	2009	2010	2009
Financing revenues:
Operating lease	$1,200	$1,196	$1,216	$1,175	$2,416	$2,371
Retail	730	781	720	790	1,450	1,571
Dealer	94	93	96	78	190	171
Total financing revenues	2,024	2,070	2,032	2,043	4,056	4,113

Depreciation on operating leases	811	893	824	836	1,635	1,729
Interest expense	491	499	593	618	1,084	1,117
Net financing revenues	722	678	615	589	1,337	1,267

Insurance earned premiums and contract revenues	123	110	132	114	255	224
Investment and other income, net	35	58	54	47	89	105
Net financing revenues and other revenues	880	846	801	750	1,681	1,596

Expenses:
Provision for credit losses	(289)	328	(14)	11	(303)	339
Operating and administrative	184	177	323	174	507	351
Insurance losses and loss adjustment expenses	58	57	58	56	116	113
Total expenses	(47)	562	367	241	320	803

Income before income taxes	927	284	434	509	1,361	793
Provision for income taxes	357	108	165	199	522	307

Net income	$570	$176	$269	$310	$839	$486

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

(Dollars in millions)	June 30, 2010	March 31, 2010	September 30, 2010	March 31, 2010
ASSETS

Cash and cash equivalents	$4,839	$4,343	$4,501	$4,343
Restricted cash	359	173	475	173
Investments in marketable securities	2,660	2,521	3,012	2,521
Finance receivables, net	56,692	55,087	56,862	55,087
Investments in operating leases, net	17,773	17,151	18,670	17,151
Other assets	2,160	1,918	2,428	1,918
Total assets	$84,483	$81,193	85,948	$81,193

LIABILITIES AND SHAREHOLDER'S EQUITY

Debt	$70,968	$69,179	$72,724	$69,179
Deferred income taxes	3,645	3,290	3,851	3,290
Other liabilities	4,032	3,451	3,487	3,451
Total liabilities	78,645	75,920	80,062	75,920

Commitments and contingencies (See Note 13)

Shareholder's equity:
Capital stock, no par value and $10,000 par value (100,000 shares
authorized; 91,500 issued and outstanding) at June 30, and March 31, 2010, respectively	915	915
authorized; 91,500 issued and outstanding) at September 30, and March 31, 2010, respectively			915	915
Additional paid-in-capital	1	1	1	1
Accumulated other comprehensive income	99	104	144	104
Retained earnings	4,823	4,253	4,826	4,253
Total shareholder's equity	5,838	5,273	5,886	5,273
Total liabilities and shareholder's equity	$84,483	$81,193	$85,948	$81,193

(Dollars in millions)	~~June~~September 30, 2010
ASSETS
Finance receivables, net	$~~6,783~~8,752
Total assets	$~~6,783~~8,752

LIABILITIES
Debt	$~~6,356~~7,495
Other liabilities	12
Total liabilities	$~~6,357~~7,497

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

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

Net income for the three months ended June 30, 2009	-	-	-	176	176
Net unrealized gain on available-for-sale marketable securities, net of tax provision of $37 million	-	-	61	-	61
Reclassification adjustment for net loss included in net income, net of tax benefit of $2 million	-	-	4	-	4
Total comprehensive income	-	-	65	176	241

BALANCE AT JUNE 30, 2009	$915	$1	$2	$3,416	$4,334

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

Net income for the three months ended June 30, 2010	-	-	-	570	570
Net unrealized gain on available-for-sale marketable securities, net of tax provision of $1 million	-	-	3	-	3
Reclassification adjustment for net gain included in net income, net of tax provision of $5 million	-	-	(8)	-	(8)
Total comprehensive income	-	-	(5)	570	565

BALANCE AT JUNE 30, 2010	$915	$1	$99	$4,823	$5,838

See Accompanying Notes to Consolidated Financial Statements.

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

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

Net income for the six months ended September 30, 2009	-	-	-	486	486
Net unrealized gain on available-for-sale marketable securities, net of tax provision of $85 million	-	-	139	-	139
Reclassification adjustment for net loss included in net income, net of tax benefit of $4 million	-	-	7	-	7
Total comprehensive income	-	-	146	486	632

BALANCE AT SEPTEMBER 30, 2009	$915	$1	$83	$3,726	$4,725

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

Net income for the six months ended September 30, 2010	-	-	-	839	839
Net unrealized gain on available-for-sale marketable securities, net of tax provision of $20 million	-	-	35	-	35
Reclassification adjustment for net loss included in net income, net of tax benefit of $3 million	-	-	5	-	5
Total comprehensive income	-	-	40	839	879
Dividends	-	-	-	(266)	(266)
BALANCE AT SEPTEMBER 30, 2010	$915	$1	$144	$4,826	$5,886

See Accompanying Notes to Consolidated Financial Statements.

	Three months ended June 30,		Six months ended September 30,
(Dollars in millions)	2010	2009	2010	2009
Cash flows from operating activities:
Net income	$570	$176	$839	$486
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	841	925	1,691	1,786
Recognition of deferred income	(300)	(248)	(613)	(495)
Provision for credit losses	(289)	328	(303)	339
Amortization of deferred origination costs	72	90	138	166
Fair value adjustments and amortization of premiums and discounts associated with debt, net	(1,233)	2,279	1,279	4,050
Net gain from sale of marketable securities	(11)	(1)	(31)	(1)
Other-than-temporary impairment on marketable securities	-	6	-	6
Net change in:
Restricted cash	(186)	-	(302)	-
Derivative assets	183	(595)	(335)	(698)
Other assets	(108)	(164)	8	(157)
Deferred income taxes	359	282	537	454
Derivative liabilities	483	(819)	(226)	(957)
Other liabilities	106	207	239	401
Net cash provided by operating activities	487	2,466	2,921	5,380
Cash flows from investing activities:
Purchase of investments in marketable securities	(618)	(156)	(2,109)	(324)
Disposition of investments in marketable securities	482	142	1,712	387
Acquisition of finance receivables	(6,245)	(4,686)	(11,861)	(10,987)
Collection of finance receivables	5,380	5,006	10,823	10,087
Net change in dealer receivables (excluding term loans)	(387)	1,289	(278)	2,617
Acquisition of investments in operating leases	(2,807)	(1,342)	(5,736)	(3,020)
Disposals of investments in operating leases	1,518	1,293	2,850	2,578
Advances to affiliates	(690)	(761)	(1,315)	(1,663)
Repayments from affiliates	350	850	1,130	2,262
Other, net	(5)	(4)	(14)	(9)
Net cash (used in) provided by investing activities	(3,022)	1,631	(4,798)	1,928
Cash flows from financing activities:
Proceeds from issuance of debt	7,177	1,061	11,912	3,728
Payments on debt	(3,620)	(6,125)	(6,718)	(9,780)
Net change in commercial paper	(518)	(640)	(2,918)	(6,607)
Advances from affiliates (Note 15)	-	2,000	25	2,001
Repayments to affiliates (Note 15)	(8)	(11)	-	(19)
Dividends paid to TFSA			(266)	-
Net cash provided by (used in) financing activities	3,031	(3,715)	2,035	(10,677)
Net increase in cash and cash equivalents	496	382
Net increase (decrease) in cash and cash equivalents			158	(3,369)
Cash and cash equivalents at the beginning of the period	4,343	6,298	4,343	6,298
Cash and cash equivalents at the end of the period	$4,839	$6,680	$4,501	$2,929
Supplemental disclosures:
Interest paid	($447)	($584)	$919	$1,140
Income taxes (paid) received, net	($5)	$23	($53)	$4

	Fair value measurements on a recurring basis					Fair value measurements on a recurring basis
(Dollars in millions)	Level 1	Level 2	Level 3	Counterparty netting & collateral 1	Fair value	Level 1	Level 2	Level 3	Counterparty netting & collateral 1	Fair value
Cash equivalents	$4,506	$6	$-	$-	$4,512	$4,334	$-	$-	$-	$4,334
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations	62	25	-	-	87	79	21	-	-	100
Municipal debt securities	-	13	-	-	13	-	16	-	-	16
Certificates of deposit and commercial paper	-	226	-	-	226	-	519	-	-	519
Foreign government debt securities	-	15	-	-	15	-	7	-	-	7
Corporate debt securities	-	108	-	-	108	-	108	-	-	108
Mortgage-backed securities:
U.S. government agency	-	88	-	-	88	-	75	-	-	75
Non-agency residential	-	6	-	-	6	-	8	-	-	8
Non-agency commercial	-	13	-	-	13	-	13	-	-	13
Asset-backed securities	-	312	-	-	312	-	144	-	-	144
Equity instruments:
Fixed income mutual funds
Short-term sector fund	-	37	-	-	37	-	38	-	-	38
U.S. government sector fund	-	434	-	-	434	-	445	-	-	445
Municipal sector fund	-	43	-	-	43	-	45	-	-	45
Investment grade corporate sector fund	-	294	-	-	294	-	315	-	-	315
High-yield sector fund	-	21	-	-	21	-	23	-	-	23
Real return sector fund	-	17	-	-	17	-	76	-	-	76
Mortgage sector fund	-	417	-	-	417	-	493	-	-	493
Asset-backed securities sector fund	-	35	-	-	35	-	38	-	-	38
Emerging market sector fund	-	41	-	-	41	-	57	-	-	57
International sector fund	-	135	-	-	135	-	138	-	-	138
Equity mutual fund – S&P 500 index	318	-		-	318	354	-	-	-	354
Available-for-sale securities total	380	2,280	-	-	2,660	433	2,579	-	-	3,012
Derivative assets: 2
Foreign currency swaps	-	1,777	131	-	1,908	-	3,896	133	-	4,029
Interest rate swaps	-	281	60	-	341	-	430	21	-	451
Counterparty netting and collateral1	-	-		(1,852)	(1,852)	-		-	(3,561)	(3,561)
Derivative assets total	-	2,058	191	(1,852)	397	-	4,326	154	(3,561)	919
Embedded derivative assets	-	-	5	-	5	-		1	-	1
Total assets 3	4,886	4,344	196	(1,852)	7,574	4,767	6,905	155	(3,561)	8,266
Derivative liabilities: 2
Foreign currency swaps	-	(803)	(65)	-	(868)	-	(356)	(8)	-	(364)
Interest rate caps						-	(1)	-	-	(1)
Interest rate swaps	-	(1,302)	(5)	-	(1,307)	-	(1,519)	(1)	-	(1,520)
Counterparty netting and collateral1	-	-		1,162	1,162	-		-	1,594	1,594
Derivative liabilities total	-	(2,105)	(70)	1,162	(1,013)	-	(1,876)	(9)	1,594	(291)
Embedded derivative liabilities	-	-	(37)	-	(37)	-		(50)	-	(50)
Total liabilities 3	-	(2,105)	(107)	1,162	(1,050)	-	(1,876)	(59)	1,594	(341)
Total net assets	$4,886	$2,239	$89	($690)	$6,524	$4,767	$5,029	$96	($1,967)	$7,925

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)							Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for-sale securities		Derivatives				Total net assets (liabilities)	Available-for-sale securities		Derivatives				Total net assets (liabilities)
(Dollars in millions)	Asset-backed securities	Available-for-sale securities total	Interest rate swaps	Foreign currency swaps	Embedded derivative liabilities, net	Total Derivatives		Asset-backed securities	Available-for-sale securities total	Interest rate swaps	Foreign currency swaps	Embedded derivative liabilities, net	Total Derivatives
Fair value, April 1, 2010	$3	$3	$16	$69	($30)	55	$58
Fair value, July 1, 2010								$-		$55	$66	($32)	$89	$89
Total gains/(losses)
Included in earnings	-	-	52	31	(2)	81	81	-		20	272	(17)	275	275
Included in other comprehensive income	-	-	-	-			-	-		-		-		-
Purchases, issuances, sales, and settlements							-
Purchases	-	-	-	-			-	-		-		-		-
Issuances	-	-	-	-			-	-		-		-		-
Sales	-	-	-	-			-	-		-		-		-
Settlements	-	-	(13)	(34)	-	(47)	(47)	-		(20)	(10)	-	(30)	(30)
Transfers in to Level 3 1	-	-	-	-			-	-		-		-		-
Transfers out of Level 3 1	(3)	(3)	-	-			(3)	-		(35)	(203)	-	(238)	(238)
Fair value, June 30, 2010	$-	$-	$55	$66	($32)	$89	$89
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at the reporting date			$53	$29	($2)	$80	$80
Fair value, September 30, 2010								$-		$20	$125	($49)	$96	$96
The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at the reporting date										$11	$95	($18)	$88	$88

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)								Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for-sale Debt Instruments			Derivatives				Total net assets (liabilities)	Available-for-sale securities			Derivatives				Total net assets (liabilities)
(Dollars in millions)	Non-agency residential mortgage-backed securities	Asset-backed securities	Available- for-sale securities total	Interest rate swaps	Foreign currency swaps	Embedded derivative liabilities, net	Total Derivatives		Non-agency residential mortgage-backed securities	Asset-backed securities	Available-for-sale securities total	Interest rate swaps	Foreign currency swaps	Embedded derivative liabilities, net	Total Derivatives
Fair value, April 1, 2009	$-	$-	$-	$88	($145)	($1)	($58)	($58)
Fair value, July 1, 2009									$1	$1	$2	($28)	($38)	($5)	($71)	($69)
Total gains/(losses)
Included in earnings	-	-	-	(87)	128	(4)	37	37	-	-		76	158	(24)	210	210
Included in other comprehensive income	-	-	-	-	-	-	-	-	-	-		-	-	-		-
Purchases, issuances, sales, and settlements
Purchases	-	-	-	-	-	-	-	-	1	-	1	-	-	-		1
Issuances	-	-	-	-	-	-	-	-	-	-		-	-	-		-
Sales	-	-	-	-	-	-	-	-	-	-		-	-	-		-
Settlements	-	-	-	(19)	(21)	-	(40)	(40)	-	-		(24)	-	-	(24)	(24)
Transfers in to Level 3 1	1	1	2	-	-	-	-	2	-	-		-	-	-		-
Transfers out of Level 3 1	-	-	-	(10)	-	-	(10)	(10)	(1)	-	(1)	-	-	-		(1)
Fair value, June 30, 2009	$1	$1	$2	($28)	($38)	($5)	($71)	($69)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at the reporting date				($66)	$144	($5)	$73	$73
Fair value, September 30, 2009									$1	$1	$2	$24	$120	($29)	$115	$117
The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or losses related to assets still held at the reporting date												$70	$152	($22)	$200	$200

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

	June 30, 2010
	Less than 12 months		12 months or more		Total
(Dollars in millions)	Fair value	Unrealized losses	Fair value	Unrealized losses	Fair value	Unrealized losses
Available-for-sale securities:
Debt instruments:
Certificates of deposit and commercial paper	$226	($1)	$-	$-	$226	($1)
Total investments in marketable securities	$226	($1)	$-	$-	$226	($1)

Fair Value of Available-for-Sale Securities:	Due in 1 Year or Less		Due after 1 Year through 5 Years		Due after 5 Years through 10 Years		Due after 10 Years		Total		Due in 1 Year or Less		Due after 1 Year through 5 Years		Due after 5 Years through 10 Years		Due after 10 Years		Total
Fair Value of Available-for-Sale Securities:	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1	Amount	Yield1
Debt Instruments:
U.S. government and agency obligations	$1	0.09%	$25	2.33%	$40	2.56%	$21	3.04%	$87	2.51%	$1	0.17%	$15	2.01%	$75	2.91%	$9	3.47%	$100	2.67%
Municipal debt securities	-	-	-	-	-	-	13	4.95	13	4.95	-	-	-	-	-	-	16	5.41	16	5.41
Certificates of deposit and commercial paper	226	0.27	-	-	-	-	-	-	226	0.27	519	0.33	-	-	-	-	-	-	519	0.33
Foreign government debt securities	-	-	15	1.93	-	-	-	-	15	1.93	2	1.87	3	2.93	-	-	2	1.63	7	2.64
Corporate debt securities	2	2.71	56	3.92	40	4.21	10	5.42	108	4.13	2	2.85	56	4.43	43	4.56	7	5.68	108	4.53
Mortgage-backed securities:
U.S. government agency	-	-	1	5.41	4	5.62	83	4.39	88	4.45	-	-	-	-	3	5.59	72	4.66	75	4.71
Non-agency residential	-	-	-	-	-	-	6	14.37	6	14.37	-	-	-	-	-	-	8	13.68	8	13.68
Non-agency commercial	-	-	-	-	-	-	13	5.11	13	5.11	-	-	-	-	-	-	13	5.18	13	5.18
Asset-backed securities	6	0.64	303	1.91	-	-	3	0.60	312	1.82	-	-	139	2.17	1	0.93	4	0.69	144	2.14
Debt instruments total											524	0.82	213	2.53	122	3.63	131	5.05	990	2.43

Equity instruments:
Fixed income mutual funds	1,474	3.51	-	-	-	-	-	-	1,474	3.51									1,668	4.11
Equity mutual funds	318	2.76	-	-	-	-	-	-	318	2.76									354	2.87
Equity instruments total																			2,022	3.93

Total Fair Value	$2,027	3.01%	$400	2.15%	$84	3.49%	$149	4.63%	$2,660	3.29%	$524	0.82%	$213	2.53%	$122	3.63%	$131	5.05%	$3,012	3.65%
Total Amortized Cost	$1,881		$396		$80		$141		$2,498		$524		$206		$117		$124		$2,7822

		Hedge accounting derivatives		Non-hedge accounting derivatives		Total			Hedge accounting derivatives		Non-hedge accounting derivatives		Total
(Dollars in millions)		Notional	Fair value	Notional	Fair value	Notional	Fair value		Notional	Fair value	Notional	Fair value	Notional	Fair value
Other assets
Interest rate swaps		$495	$66	$8,530	$275	$9,025	$341		$465	$73	$9,623	$378	$10,088	$451
Foreign currency swaps		4,987	1,081	7,709	827	12,696	1,908		7,855	1,797	14,415	2,232	22,270	4,029
Embedded derivatives		-	-	43	5	43	5		-	-	10	1	10	1
Total		$5,482	$1,147	$16,282	$1,107	$21,764	$2,254		$8,320	$1,870	$24,048	$2,611	$32,368	$4,481

Counterparty netting							(1,458)							(1,574)
Collateral held							(394)							(1,987)

Carrying value of derivative contracts – Other assets	Carrying value of derivative contracts – Other assets						$402	Carrying value of derivative contracts – Other assets						$920

Other liabilities
Interest rate swaps		$-	$-	$57,719	$1,307	$57,719	$1,307		$-	$-	$58,869	$1,520	$58,869	$1,520
Foreign currency swaps		6,204	608	6,432	260	12,636	868		3,082	355	330	9	3,412	364
Interest rate caps		-	-	50	-	50	-		-	-	50	1	50	1
Embedded derivatives		-	-	313	37	313	37		-	-	317	50	317	50
Total		$6,204	$608	$64,514	$1,604	$70,718	$2,212		$3,082	$355	$59,566	$1,580	$62,648	$1,935

Counterparty netting							(1,458)							(1,574)
Collateral held1							296
Collateral posted														(20)

Carrying value of derivative contracts – Other liabilities	Carrying value of derivative contracts – Other liabilities						$1,050	Carrying value of derivative contracts – Other liabilities						$341

	Three months ended June 30,		Three months ended September 30,		Six months ended September 30,
(Dollars in millions)	2010	20094	2010	2009	2010	2009
Interest expense on debt1	$451	$624	$539	$606	$990	$1,230
Interest expense on pay float hedge accounting derivatives1	(109)	(183)	(142)	(202)	(251)	(385)
Interest expense on pay float non-hedge accounting derivatives1, 3	(131)	(137)	(167)	(182)	(298)	(319)
Interest expense on debt, net of pay float swaps	211	304	230	222	441	526

Interest expense on non-hedge pay fixed swaps1	309	301	255	345	564	646

(Gain) loss on hedge accounting derivatives:
Interest rate swaps2	(13)	24	(9)	(9)	(22)	15
Foreign currency swaps2	514	(1,384)	(1,056)	(925)	(542)	(2,309)
Loss (gain) on hedge accounting derivatives	501	(1,360)
Gain on hedge accounting derivatives			(1,065)	(934)	(564)	(2,294)
Less hedged item: change in fair value of fixed rate debt	(510)	1,381	1,062	913	552	2,294
Ineffectiveness related to hedge accounting derivatives2	(9)	21	(3)	(21)	(12)	-

(Gain) loss on foreign currency transactions	(608)	858
Loss (gain) on currency swaps and forwards 2	503	(796)
Loss on foreign currency transactions			1,436	819	828	1,677
Gain on currency swaps and forwards 2			(1,533)	(860)	(1,030)	(1,656)

Loss (gain) on other non-hedge accounting derivatives:
Pay float swaps2	(46)	139	(45)	(6)	(91)	133
Pay fixed swaps2	131	(328)	253	119	384	(209)
Total interest expense	$491	$499	$593	$618	$1,084	$1,117

			Weighted average contractual interest rates4				Weighted average contractual interest rates4
(Dollars in millions)	June 30, 2010	March 31, 2010	June 30, 2010	March 31, 2010	September 30, 2010	March 31, 2010	September 30, 2010	March 31, 2010
Commercial paper1	$18,954	$19,466	0.53%	0.28%	$16,553	$19,466	0.37%	0.28%
Unsecured notes and loans payable2	45,172	45,617	3.58%	3.58%	47,183	45,617	3.48%	3.58%
Secured notes and loans payable	6,356	3,000	0.80%	0.59%	7,495	3,000	0.81%	0.59%
Carrying value adjustment3	486	1,096			1,493	1,096
Total debt	$70,968	$69,179	2.51%	2.49%	$72,724	$69,179	2.45%	2.49%

	Maximum commitment amount as of		Maximum commitment amount as of
(Dollars in millions)	June 30, 2010	March 31, 2010	September 30, 2010	March 31, 2010
Commitments:
Credit facilities with vehicle and industrial equipment dealers	$6,112	$6,363	$6,264	$6,363
Facilities lease commitments1	87	92	83	92
Total commitments	6,199	6,455	6,347	6,455
Guarantees and other contingencies:
Guarantees of affiliate pollution control and solid waste disposal bonds	100	100	100	100
Total commitments and guarantees	$6,299	$6,555	$6,447	$6,555

Wholesale financing demand note facilities2	$9,450	$9,482	$9,341	$9,482

Fiscal 2011:	Finance operations	Insurance operations	Intercompany eliminations	Total
Three months ended June 30, 2010:
Total financing revenues	$2,018	$-	$6	$2,024
Insurance earned premiums and contract revenues	-	129	(6)	123
Investment and other income	10	27	(2)	35
Total gross revenues	2,028	156	(2)	2,182

Less:
Depreciation on operating leases	811	-	-	811
Interest expense	493	-	(2)	491
Provision for credit losses	(289)	-	-	(289)
Operating and administrative expenses	145	39	-	184
Insurance losses and loss adjustment expenses	-	58	-	58
Provision for income taxes	335	22	-	357
Net income	$533	$37	$-	$570

Total assets at June 30, 2010	$81,934	$2,910	($361)	$84,483

Fiscal 20101:
Three months ended June 30, 2009:
Total financing revenues	$2,065	$-	$5	$2,070
Insurance earned premiums and contract revenues	-	115	(5)	110
Investment and other income	24	36	(2)	58
Total gross revenues	2,089	151	(2)	2,238

Less:
Depreciation on operating leases	893	-	-	893
Interest expense	501	-	(2)	499
Provision for credit losses	328	-	-	328
Operating and administrative expenses	142	35	-	177
Insurance losses and loss adjustment expenses	-	57	-	57
Provision for income taxes	87	21	-	108
Net income	$138	$38	$-	$176

Total assets at June 30, 2009	$80,007	$2,531	($354)	$82,184

Fiscal 2010:	Finance operations	Insurance operations	Intercompany eliminations	Total
Three months ended September 30, 2009:
Total financing revenues	$2,039	$-	$4	$2,043
Insurance earned premiums and contract revenues	-	117	(3)	114
Investment and other income	12	37	(2)	47
Total gross revenues	2,051	154	(1)	2,204

Less:
Depreciation on operating leases	836	-	-	836
Interest expense	619	-	(1)	618
Provision for credit losses	11	-	-	11
Operating and administrative expenses	146	28	-	174
Insurance losses and loss adjustment expenses	-	56	-	56
Provision for income taxes	173	26	-	199
Net income	$266	$44	$-	$310

Six months ended September 30, 2009:	��
Total financing revenues	$4,105	$-	$8	$4,113
Insurance earned premiums and contract revenues	-	232	(8)	224
Investment and other income	35	73	(3)	105
Total gross revenues	4,140	305	(3)	4,442

Less:
Depreciation on operating leases	1,729	-	-	1,729
Interest expense	1,120	-	(3)	1,117
Provision for credit losses	339	-	-	339
Operating and administrative expenses	288	63	-	351
Insurance losses and loss adjustment expenses	-	113	-	113
Provision for income taxes	260	47	-	307
Net income	$404	$82	$-	$486

Total assets at September 30, 2009	$75,329	$2,702	($365)	$77,666

	Three months ended June 30,		Percentage Change	Three months ended September 30,		Percentage	Six months ended September 30,		Percentage
(Dollars in millions)	2010	2009	Percentage Change	2010	2009	Change	2010	2009	Change
Financing Revenues:
Operating lease	$1,200	$1,196	-%	$1,216	$1,175	3%	$2,416	$2,371	2%
Retail1	730	781	(7%)	720	790	(9%)	1,450	1,571	(8%)
Dealer	88	88	-%	91	74	23%	179	163	10%
Total financing revenues	2,018	2,065	(2%)	2,027	2,039	(1%)	$4,045	4,105	(1%)

Depreciation on operating leases	811	893	(9%)	824	836	(1%)	1,635	1,729	(5%)
Interest expense	493	501	(2%)	595	619	(4%)	1,088	1,120	(3%)
Net financing revenues	$714	$671	6%	608	584	4%	1,322	1,256	5%
Provision for credit losses	(289)	328	(188%)	(14)	11	(227%)	(303)	339	(189%)

Net income from financing operations	$533	$138	286%	$216	$266	(19%)	$749	$404	85%

	Three months ended September 30,		Percentage Change	Six months ended September 30,		Percentage Change
	2010	2009	Percentage Change	2010	2009	Percentage Change
Depreciation on operating leases (dollars in millions)	$824	$836	(1%)	$1,635	$1,729	(5%)
Average operating lease units outstanding (in thousands)	780	713	9%	768	719	7%

	June 30, 2010	March 31, 2010	June 30, 2009	September 30, 2010	March 31, 2010	September 30, 2009
Net charge-offs as a percentage of average gross earning assets1
Finance receivables	0.61%	1.15%	1.16%	0.67%	1.15%	1.13%
Operating leases	0.30%	0.63%	0.62%	0.25%	0.63%	0.60%
Total2	0.54%	1.03%	1.03%	0.57%	1.03%	1.00%

Default frequency as a percentage of outstanding contracts	2.71%	2.79%	3.19%	2.56%	2.79%	2.91%
Average loss severity per unit	$7,697	$8,342	$9,052	$7,445	$8,342	$8,539

Aggregate balances for accounts 60 or more days past due as a percentage of gross earning assets3
Finance receivables4	0.46%	0.43%	0.81%	0.43%	0.43%	0.71%
Operating leases4	0.43%	0.44%	0.75%	0.40%	0.44%	0.68%
Total5	0.45%	0.44%	0.80%	0.42%	0.44%	0.70%

(Dollars in millions)	U.S. medium term notes ("MTNs") and domestic bonds	Euro MTNs ("EMTNs")	Eurobonds	Other	Total unsecured notes and loans payable4
Balance at March 31, 20101	$8,140	$26,214	$3,633	$7,169	$45,156
Issuances during the three months ended June 30, 2010	2,1252	-	-	1,3003	3,425
Maturities and terminations during the three months ended June 30, 2010	(1,181)	(1,687)	(400)	-	(3,268)
Balance at June 30, 20101	$9,084	$24,527	$3,233	$8,469	$45,313

(Dollars in millions)	U.S. medium term notes ("MTNs") and domestic bonds	Euro MTNs ("EMTNs")	Eurobonds	Other	Total unsecured notes and loans payable5
Balance at March 31, 20101	$8,140	$26,214	$3,633	$7,169	$45,156
Issuances during the six months ended September 30, 2010	3,5002	8643	-	1,9504	6,314
Maturities and terminations during the six months ended September 30, 2010	(2,280)	(2,756)	(400)	(150)	(5,586)
Balance at September 30, 20101	$9,360	$24,322	$3,233	$8,969	$45,884

Date: ~~August 4,~~November 5, 2010	By /S/ GEORGE E. BORST

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

Date: ~~August 4,~~November 5, 2010	By /S/ CHRIS BALLINGER

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

Exhibit Number	Description	Method of Filing

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

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

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

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

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

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

4.2	Amended and Restated Agency Agreement, dated September 18, 2009, among Toyota Motor Credit Corporation, Toyota Motor Finance (Netherlands), B.V., Toyota Credit Canada Inc., Toyota Finance Australia Limited, and The Bank of New York Mellon.	(6)

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