Fair Value Measurements

12 Months Ended

Mar. 31, 2012

Note 2 – Fair Value Measurements

The following table summarizes our financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2012 and March 31, 2011, by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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

Derivative assets were reduced by a counterparty credit valuation adjustment of $3 million and $12 million as of March 31, 2012 and March 31, 2011, respectively. As of March 31, 2011, derivative liabilities were reduced by a non-performance credit valuation adjustment of $1 million.


As of March 31, 2012
					Fair value measurements on a recurring basis
										Counterparty			Fair
(Dollars in millions)					Level 1		Level 2		Level 3		netting & collateral		value
Cash equivalents:
	Money market instruments			$	2,591	$	256	$	-	$	-	$	2,847
	Certificates of deposit				-		495		-		-		495
	Commercial paper				-		1,537		-		-		1,537
	Cash equivalents total				2,591		2,288		-		-		4,879
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			-		108		-		-		108
		Municipal debt securities			-		20		-		-		20
		Certificates of deposit			-		1,341		-		-		1,341
		Commercial paper			-		633		-		-		633
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		106		1		-		107
		Mortgage-backed securities:
			U.S. government agency		-		105		-		-		105
			Non-agency residential		-		4		4		-		8
			Non-agency commercial		-		11		15		-		26
		Asset-backed securities			-		12		1		-		13
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		40		-		-		40
			U.S. government sector fund		-		313		-		-		313
			Municipal sector fund		-		21		-		-		21
			Investment grade corporate sector fund		-		298		-		-		298
			High-yield sector fund		-		37		-		-		37
			Real return sector fund		-		231		-		-		231
			Mortgage sector fund		-		639		-		-		639
			Asset-backed securities sector fund		-		41		-		-		41
			Emerging market sector fund		-		62		-		-		62
			International sector fund		-		162		-		-		162
		Equity mutual fund			451		-		-		-		451
	Available-for-sale securities total				451		4,187		21		-		4,659
	Derivative assets:
		Foreign currency swaps			-		2,142		79		-		2,221
		Interest rate swaps			-		426		13		-		439
		Counterparty netting and collateral			-		-		-		(2,590)		(2,590)
	Derivative assets total				-		2,568		92		(2,590)		70
	Embedded derivative assets				-		-		-		-		-
Assets at fair value					3,042		9,043		113		(2,590)		9,608
	Derivative liabilities:
		Foreign currency swaps			-		(63)		(10)		-		(73)
		Interest rate swaps			-		(1,008)		-		-		(1,008)
		Counterparty netting and collateral			-		-		-		1,038		1,038
	Derivative liabilities total				-		(1,071)		(10)		1,038		(43)
	Embedded derivative liabilities				-		-		(24)		-		(24)
Liabilities at fair value					-		(1,071)		(34)		1,038		(67)
Net assets at fair value				$	3,042	$	7,972	$	79	$	(1,552)	$	9,541

Note 2 – Fair Value Measurements (Continued)

As of March 31, 2011

					Fair value measurements on a recurring basis¹
										Counterparty			Fair
(Dollars in millions)					Level 1		Level 2		Level 3	netting & collateral			value
Cash equivalents:
	Money market instruments			$	4,886	$	256	$	-	$	-	$	5,142
	Certificates of deposit				-		1,276		-		-		1,276
	Commercial paper				-		353		-		-		353
	Cash equivalents total				4,886		1,885		-		-		6,771
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			37		58		-		-		95
		Municipal debt securities			-		15		-		-		15
		Certificates of deposit			-		1,821		-		-		1,821
		Commercial paper			-		385		-		-		385
		Foreign government debt securities			-		5		-		-		5
		Corporate debt securities			-		126		-		-		126
		Mortgage-backed securities:
			U.S. government agency		-		78		-		-		78
			Non-agency residential		-		8		-		-		8
			Non-agency commercial		-		17		-		-		17
		Asset-backed securities			-		22		-		-		22
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		39		-		-		39
			U.S. government sector fund		-		478		-		-		478
			Municipal sector fund		-		18		-		-		18
			Investment grade corporate sector fund		-		317		-		-		317
			High-yield sector fund		-		35		-		-		35
			Real return sector fund		-		76		-		-		76
			Mortgage sector fund		-		639		-		-		639
			Asset-backed securities sector fund		-		39		-		-		39
			Emerging market sector fund		-		58		-		-		58
			International sector fund		-		136		-		-		136
		Equity mutual fund			415		-		-		-		415
	Available-for-sale securities total				452		4,370		-		-		4,822
	Derivative assets:
		Foreign currency swaps			-		3,947		113		-		4,060
		Interest rate swaps			-		270		20		-		290
		Counterparty netting and collateral			-		-		-		(3,449)		(3,449)
	Derivative assets total				-		4,217		133		(3,449)		901
	Embedded derivative assets				-		-		1		-		1
Assets at fair value					5,338		10,472		134		(3,449)		12,495
	Derivative liabilities:
		Foreign currency swaps			-		(106)		(4)		-		(110)
		Interest rate caps			-		(1)		-		-		(1)
		Interest rate swaps			-		(923)		(3)		-		(926)
		Counterparty netting and collateral			-		-		-		886		886
	Derivative liabilities total				-		(1,030)		(7)		886		(151)
	Embedded derivative liabilities				-		-		(52)		-		(52)
Liabilities at fair value					-		(1,030)		(59)		886		(203)
Net assets at fair value				$	5,338	$	9,442	$	75	$	(2,563)	$	12,292

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

Note 2 – Fair Value Measurements (Continued)

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. During fiscal 2012, we transferred $27 million of U.S. government and agency obligations from Level 1 to Level 2 due to the lack of quoted prices for identical securities traded in an active market. Additionally, during fiscal 2012, certain available-for-sale debt instruments were transferred from Level 2 to Level 3 due to reduced transparency of market price quotations for these and/or comparable instruments. Certain derivatives previously categorized as Level 3 in prior periods were valued using observable inputs and were transferred into Level 2 during fiscal 2012 and 2011, respectively.

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs for fiscal 2012 and 2011:

Year Ended March 31, 2012

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

Note 2 – Fair Value Measurements (Continued)

Year Ended March 31, 2011

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																	Total net
			Available-for-sale														assets
			securities							Derivatives							(liabilities)
			Non-agency
			residential				Total								Total
			mortgage-			Asset-	available-		Interest			Foreign	Embedded		derivative
			backed			backed	for-sale		rate			currency	derivatives,		assets
(Dollars in millions)			securities			securities	securities		swaps			swaps	net		(liabilities)
Fair value, April 1, 2010			$	-	$	3	$	3	$	16	$	69	$	(30)	$	55	$	58
Total gains/(losses)
		Included in earnings		-		-		-		74		314		(21)		367		367
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		1		-		1		-		-		-		-		1
		Issuances		-		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-		-
		Settlements		-		-		-		(38)		(60)		-		(98)		(98)
Transfers in to Level 3				-		-		-		-		-		-		-		-
Transfers out of Level 3				(1)		(3)		(4)		(35)		(214)		-		(249)		(253)
Fair value, March 31, 2011			$	-	$	-	$	-	$	17	$	109	$	(51)	$	75	$	75
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									$	19	$	145	$	(21)	$	143	$	143

Nonrecurring Fair Value Measurements

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 record the fair value on a nonrecurring basis and disclose changes in fair value during the reporting period. Fair value measurements on a nonrecurring basis consisted of Level 3 net finance receivables within the dealer products portfolio segment individually evaluated for impairment of $166 million and $191 million as of March 31, 2012 and March 31, 2011, respectively.

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 consisted of a gain on net finance receivables within the dealer products portfolio segment individually evaluated for impairment of $22 million and $24 million for fiscal 2012 and 2011, respectively and a loss of $27 million on finance receivables for fiscal 2010.

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements at March 31, 2012

At March 31, 2012, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $21 million, derivative assets of $92 million and derivative liabilities of $34 million. Level 3 financial instruments subject to nonrecurring fair value measurement were limited to impaired finance receivables with a fair value of $166 million at March 31, 2012. The fair value measurements of Level 3 financial assets and liabilities were not significant to our Consolidated Balance Sheet or Consolidated Statement of Income as of March 31, 2012 and for the year then ended.

Financial Instruments

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

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

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

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

					Fair value measurement hierarchy¹
			Carrying								Total Fair
(Dollars in million)			value		Level 1		Level 2		Level 3		Value
As of March 31, 2011

Financial assets
	Finance receivables, net
		Retail loan	$	45,266	$	-	$	-	$	46,919	$	46,919
		Commercial		184		-		-		205		205
		Wholesale		6,798		-		-		6,812		6,812
		Real estate		3,978		-		-		3,960		3,960
		Working capital		1,234		-		-		1,247		1,247

Financial liabilities
	Commercial paper		$	19,943	$	-	$	19,943	$	-	$	19,943
	Unsecured notes and loans payable		$	46,713	$	-	$	6,713	$	40,354	$	47,067
	Secured notes and loans payable		$	10,626	$	-	$	-	$	10,633	$	10,633

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

Note 2 – Fair Value Measurements (Continued)

The carrying value of each class of finance receivables is presented net of deferred costs, unearned income and the allowance for credit losses; the amount excludes related party transactions of $36 million and $39 million at both March 31, 2012 and March 31, 2011 and direct finance leases of $213 million and $237 million at March 31, 2012 and March 31, 2011, respectively.

The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment. Also included in unsecured notes and loans payable is $2.2 billion and $4.2 billion of loans payable to affiliates at March 31, 2012 and March 31, 2011, respectively, that are carried at amounts that approximate fair value.

- Definition

The entire disclosure of the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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