Fair Value Measurements

3 Months Ended

Sep. 30, 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 September 30, 2012 and March 31, 2012, by level within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million and $3 million as of September 30, 2012 and March 31, 2012, respectively. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of September 30, 2012 and March 31, 2012.


As of September 30, 2012
					Fair value measurements on a recurring basis
										Counterparty
										netting &		Fair
(Dollars in millions)				Level 1		Level 2		Level 3		collateral		value
Cash equivalents:
	Money market instruments			$	2,078	$	557	$	-	$	-	$	2,635
	Certificates of deposit				-		575		-		-		575
	Commercial paper				-		1,477		-		-		1,477
	Cash equivalents total				2,078		2,609		-		-		4,687
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			72		70		-		-		142
		Municipal debt securities			-		22		-		-		22
		Certificates of deposit			-		1,845		-		-		1,845
		Commercial paper			-		511		-		-		511
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		88		4		-		92
		Mortgage-backed securities:
			U.S. government agency		-		104		-		-		104
			Non-agency residential		-		-		7		-		7
			Non-agency commercial		-		-		24		-		24
		Asset-backed securities			-		-		9		-		9
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		41		-		-		41
			U.S. government sector fund		-		309		-		-		309
			Municipal sector fund		-		22		-		-		22
			Investment grade corporate sector fund		-		314		-		-		314
			High-yield sector fund		-		39		-		-		39
			Real return sector fund		-		290		-		-		290
			Mortgage sector fund		-		645		-		-		645
			Asset-backed securities sector fund		-		44		-		-		44
			Emerging market sector fund		-		66		-		-		66
			International sector fund		-		165		-		-		165
		Equity mutual fund			466		-		-		-		466
	Available-for-sale securities total				538		4,578		44		-		5,160
	Derivative assets:
		Foreign currency swaps			-		1,843		85		-		1,928
		Interest rate swaps			-		703		12		-		715
		Counterparty netting and collateral			-		-		-		(2,594)		(2,594)
	Derivative assets total				-		2,546		97		(2,594)		49
	Embedded derivative assets				-		-		-		-		-
Assets at fair value					2,616		9,733		141		(2,594)		9,896
	Derivative liabilities:
		Foreign currency swaps			-		(40)		(11)		-		(51)
		Interest rate swaps			-		(1,018)		-		-		(1,018)
		Counterparty netting and collateral			-		-		-		1,050		1,050
	Derivative liabilities total				-		(1,058)		(11)		1,050		(19)
	Embedded derivative liabilities				-		-		(23)		-		(23)
Liabilities at fair value					-		(1,058)		(34)		1,050		(42)
Net assets at fair value				$	2,616	$	8,675	$	107	$	(1,544)	$	9,854

Note 2 – Fair Value Measurements (Continued)

As of March 31, 2012
					Fair value measurements on a recurring basis
										Counterparty
										netting &		Fair
(Dollars in millions)				Level 1		Level 2		Level 3		collateral		value
Cash equivalents:
	Money market instruments			$	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)

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

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs for the three and six months ended September 30, 2012 and 2011:

Three Months Ended September 30, 2012

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																						Total net
																						assets
			Available-for-sale securities											Derivative instruments, net								(liabilities)
					Non-agency			Non-agency
					residential			commercial				Total								Total
			Corporate		mortgage-			mortgage-		Asset-		available-		Interest		Foreign				derivative
			debt		backed			backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)			securities		securities			securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, July 1, 2012			$	4		$	7	$	25	$	12	$	48	$	11	$	59	$	(27)	$	43	$	91
Total gains
		Included in earnings		-			-		-		-		-		2		22		4		28		28
		Included in other comprehensive income		-			-		1		-		1		-		-		-		-		1
Purchases, issuances, sales, and
	settlements
		Purchases		-			-		2		1		3		-		-		-		-		3
		Issuances		-			-		-		-		-		-		-		-		-		-
		Sales		-			-		(2)		(1)		(3)		-		-		-		-		(3)
		Settlements		-			-		(2)		(3)		(5)		(1)		(7)		-		(8)		(13)
Transfers in to Level 3				-			-				-		-		-		-		-		-		-
Transfers out of Level 3				-			-		-		-		-		-		-		-		-		-
Fair value, September 30, 2012			$	4		$	7	$	24	$	9	$	44	$	12	$	74	$	(23)	$	63	$	107
The amount of total gains/
(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														$	2	$	22	$	(2)	$	22	$	22

Note 2 – Fair Value Measurements (Continued)

Three Months Ended September 30, 2011

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Derivative instruments, net
									Total
		Interest		Foreign					derivative
		rate		currency		Embedded			assets
(Dollars in millions)		swaps		swaps		derivatives			(liabilities)
Fair value, July 1, 2011		$	10	$	152		$	(40)	$	122
Total gains/(losses)
	Included in earnings		2		28			(5)		25
	Included in other comprehensive income		-		-			-		-
Purchases, issuances, sales, and settlements
	Purchases		-		-			-		-
	Issuances		-		-			-		-
	Sales		-		-			-		-
	Settlements		(2)		-			-		(2)
Transfers in to Level 3			-		-			-		-
Transfers out of Level 3			1		-			(1)		-
Fair value, September 30, 2011		$	11	$	180		$	(46)	$	145
The amount of total gains/
(losses) for the period included
in earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date		$	1	$	28		$	(5)	$	24

Note 2 – Fair Value Measurements (Continued)

Six Months Ended September 30, 2012

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
																					Total net
																					assets
		Available-for-sale securities											Derivative instruments, net								(liabilities)
				Non-agency			Non-agency
				residential			commercial				Total								Total
		Corporate		mortgage-			mortgage-		Asset-		available-		Interest		Foreign				derivative
		debt		backed			backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)		securities		securities			securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2012		$	1		$	4	$	15	$	1	$	21	$	13	$	69	$	(24)	$	58	$	79
Total gains
	Included in earnings		-			-		-		-		-		1		17		1		19		19
	Included in other comprehensive income		-			-		1		-		1		-		-		-		-		1
Purchases, issuances, sales, and settlements
	Purchases		-			-		3		1		4		-		-		-		-		4
	Issuances		-			-		-		-		-		-		-		-		-		-
	Sales		-			-		(3)		(1)		(4)		-		-		-		-		(4)
	Settlements		-			-		(2)		(3)		(5)		(2)		(12)		-		(14)		(19)
Transfers in to Level 3			3			3		10		11		27		-		-		-		-		27
Transfers out of Level 3			-			-		-		-		-		-		-		-		-		-
Fair value, September 30, 2012		$	4		$	7	$	24	$	9	$	44	$	12	$	74	$	(23)	$	63	$	107
The amount of total gains/
(losses) for the period included
in earnings attributable to the
change in unrealized gains or
losses related to assets still held
at the reporting date													$	1	$	16	$	(4)	$	13	$	13

Note 2 – Fair Value Measurements (Continued)

Six Months Ended September 30, 2011

			Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
				Derivative instruments, net
									Total
			Interest		Foreign				derivative
			rate		currency		Embedded		assets
(Dollars in millions)			swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2011			$	17	$	109	$	(51)	$	75
Total gains
		Included in earnings		6		76		6		88
		Included in other
		comprehensive income		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		-		-
		Issuances		-		-		-		-
		Sales		-		-		-		-
		Settlements		(13)		(5)		-		(18)
Transfers in to Level 3				-		-		-		-
Transfers out of Level 3				1		-		(1)		-
Fair value, September 30, 2011			$	11	$	180	$	(46)	$	145
The amount of total gains/
(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			$	3	$	76	$	(10)	$	69

Nonrecurring Fair Value Measurements

Nonrecurring fair value measurements consist of Level 3 net finance receivables that are individually evaluated for impairment. These assets are not measured at fair value on a recurring basis but are subject to fair value adjustments when there is evidence of impairment. For these assets, we record the fair value on a nonrecurring basis and disclose changes in fair value during the reporting period. Total nonrecurring fair value measurements of $213 million and $166 million were recorded as of September 30, 2012 and March 31, 2012, respectively.

The total change in fair value of financial instruments subject to nonrecurring fair value measurements for which a fair value adjustment has been included in the Consolidated Statement of Income consisted of net gains on net finance receivables within the dealer products portfolio segment of $30 million for the second quarter of fiscal 2013 and $12 million for the same period in fiscal 2012. As a result of the losses incurred during the first three months of fiscal 2013, there were no net gains or losses on net finance receivables within the dealer products portfolio segment for the six months ended September 30, 2012, compared to a net gain of $15 million for the same period in fiscal 2012.

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements at September 30, 2012 and March 31, 2012

At September 30, 2012, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $44 million, derivative assets of $97 million and derivative liabilities of $34 million. 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. The fair value measurements of Level 3 financial assets and liabilities subject to recurring and nonrecurring fair value measurement were not significant to our Consolidated Balance Sheet or Consolidated Statement of Income as of and for the three and six months ended September 30, 2012 and as of and for the year ended March 31, 2012.

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 September 30, 2012

Financial assets
	Finance receivables, net
		Retail loan	$	46,899	$	-	$	-	$	47,913	$	47,913
		Commercial		137		-		-		140		140
		Wholesale		7,816		-		-		7,824		7,824
		Real estate		4,346		-		-		4,272		4,272
		Working capital		1,636		-		-		1,643		1,643

Financial liabilities
	Commercial paper		$	24,173	$	-	$	24,173	$	-	$	24,173
	Unsecured notes and loans payable		$	43,165	$	-	$	42,844	$	1,776	$	44,620
	Secured notes and loans payable		$	9,336	$	-	$	-	$	9,356	$	9,356

Note 2 - Fair Value Measurements (Continued)

					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in million)			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

The carrying value of each class of finance receivables is presented net of deferred fees and costs, deferred income and the allowance for credit losses; the amount excludes related party transactions of $36 million at both September 30, 2012 and March 31, 2012 and direct finance leases of $220 million and $213 million at September 30, 2012 and March 31, 2012, respectively.

The carrying value of unsecured notes and loans payable represents the sum of unsecured notes and loans payable and carrying value adjustment as described in Note 9 - Debt. At March 31, 2012, there were loans payable to affiliates of $2.2 billion included in unsecured notes and loans payable carried at amounts that approximate fair value. There were no loans payable to affiliates that were included in unsecured notes and loans payable at September 30, 2012.

- 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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