Fair Value Measurements

3 Months Ended

Sep. 30, 2013

Note 2 – Fair Value Measurements

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

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

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


As of September 30, 2013
					Fair value measurements on a recurring basis
										Counterparty
										netting &		Fair
(Dollars in millions)				Level 1		Level 2		Level 3		collateral		value
Cash equivalents:
	Money market instruments			$	2,152	$	443	$	-	$	-	$	2,595
	Certificates of deposit				-		1,270		-		-		1,270
	Commercial paper				-		3		-		-		3
	Cash equivalents total				2,152		1,716		-		-		3,868
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			46		57		2		-		105
		Municipal debt securities			-		14		-		-		14
		Certificates of deposit			-		1,412		-		-		1,412
		Commercial paper			-		202		-		-		202
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		135		2		-		137
		Mortgage-backed securities:
			U.S. government agency		-		74		-		-		74
			Non-agency residential		-		-		5		-		5
			Non-agency commercial		-		-		49		-		49
		Asset-backed securities			-		-		19		-		19
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		43		-		-		43
			U.S. government sector fund		-		321		-		-		321
			Municipal sector fund		-		21		-		-		21
			Investment grade corporate sector fund		-		305		-		-		305
			High-yield sector fund		-		42		-		-		42
			Real return sector fund		-		273		-		-		273
			Mortgage sector fund		-		559		-		-		559
			Asset-backed securities sector fund		-		48		-		-		48
			Emerging market sector fund		-		64		-		-		64
			International sector fund		-		169		-		-		169
		Equity mutual fund			499		-		-		-		499
	Available-for-sale securities total				545		3,742		77		-		4,364
	Derivative assets:
		Foreign currency swaps			-		887		64		-		951
		Interest rate swaps			-		393		13		-		406
		Counterparty netting and collateral			-		-		-		(1,295)		(1,295)
	Derivative assets total				-		1,280		77		(1,295)		62
Assets at fair value					2,697		6,738		154		(1,295)		8,294
	Derivative liabilities:
		Foreign currency swaps			-		(150)		(14)		-		(164)
		Interest rate swaps			-		(688)		-		-		(688)
		Counterparty netting and collateral			-		-		-		851		851
	Derivative liabilities total				-		(838)		(14)		851		(1)
	Embedded derivative liabilities				-		-		(9)		-		(9)
Liabilities at fair value					-		(838)		(23)		851		(10)
Net assets at fair value				$	2,697	$	5,900	$	131	$	(444)	$	8,284

Note 2 – Fair Value Measurements (Continued)

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

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 and six months ended September 30, 2013, there was a $2 million transfer from the Corporate debt securities asset class to the U.S. government and agency obligations asset class within the Level 3 debt instruments due to a reclassification of an existing debt instrument. During the three months ended September 30, 2012, there were no transfers between levels. During the six months ended September 30, 2012, $53 million of U.S. government and agency obligations were valued using quoted prices for identical securities traded in an active market and were transferred from Level 2 to Level 1. Additionally, during the six months ended September 30, 2012, certain available-for-sale debt instruments were transferred from Level 2 to Level 3 due to reduced transparency of market price quotations for these and/or comparable instruments.

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

Three Months Ended September 30, 2013

			Fair value measurements using significant unobservable inputs (Level 3)
																					Total net
																					assets
			Available-for-sale securities													Derivative instruments, net							(liabilities)

			U.S.								Total								Total
			government		Corporate		Mortgage-		Asset-		available-		Interest		Foreign				derivative
			and agency		debt		backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)			obligations		securities		securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, July 1, 2013			$	-	$	4	$	53	$	19	$	76	$	11	$	23	$	(7)	$	27	$	103
Total gains (losses)
		Included in earnings		-		-		-		-		-		2		28		(2)		28		28
		Included in other comprehensive income		-		-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		2		-		2		-		-		-		-		2
		Issuances		-		-		-		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-		-		-		-
		Settlements		-		-		(1)		-		(1)		-		(1)		-		(1)		(2)
Transfers in to Level 3				2		-		-		-		2		-		-		-		-		2
Transfers out of Level 3				-		(2)		-		-		(2)		-		-		-		-		(2)
Fair value, September 30, 2013			$	2	$	2	$	54	$	19	$	77	$	13	$	50	$	(9)	$	54	$	131
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	$	28	$	(2)	$	28	$	28

Note 2 – Fair Value Measurements (Continued)

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)

								Total								Total
		Corporate		Mortgage-		Asset-		available-		Interest		Foreign				derivative
		debt		backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)		securities		securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, July 1, 2012		$	4	$	32	$	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	$	31	$	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

Six Months Ended September 30, 2013

		Fair value measurements using significant unobservable inputs (Level 3)
																				Total net
																				assets
		Available-for-sale securities													Derivative instruments, net							(liabilities)

		U.S.								Total								Total
		government		Corporate		Mortgage-		Asset-		available-		Interest		Foreign				derivative
		and agency		debt		backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)		obligations		securities		securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2013		$	-	$	4	$	56	$	13	$	73	$	12	$	55	$	(12)	$	55	$	128
Total gains
	Included in earnings		-		-		-		-		-		2		7		3		12		12
	Included in other comprehensive income		-		-		(3)		-		(3)		-		-		-		-		(3)
Purchases, issuances, sales, and settlements
	Purchases		-		-		2		7		9		-		-		-		-		9
	Issuances		-		-		-		-		-		-		-		-		-		-
	Sales		-		-		-		-		-		-		-		-		-		-
	Settlements		-		-		(1)		(1)		(2)		(1)		(12)		-		(13)		(15)
Transfers in to Level 3			2		-		-		-		2		-		-		-		-		2
Transfers out of Level 3			-		(2)		-		-		(2)		-		-		-		-		(2)
Fair value, September 30, 2013		$	2	$	2	$	54	$	19	$	77	$	13	$	50	$	(9)	$	54	$	131
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	$	9	$	(3)	$	8	$	8

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)

								Total								Total
		Corporate		Mortgage-		Asset-		available-		Interest		Foreign				derivative
		debt		backed		backed		for-sale		rate		currency		Embedded		assets
(Dollars in millions)		securities		securities		securities		securities		swaps		swaps		derivatives		(liabilities)
Fair value, April 1, 2012		$	1	$	19	$	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 into Level 3			3		13		11		27		-		-		-		-		27
Transfers out of Level 3			-		-		-		-		-		-		-		-		-
Fair value, September 30, 2012		$	4	$	31	$	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

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 $187 million and $208 million were recorded as of September 30, 2013 and March 31, 2013, respectively.

The total change in fair value of financial instruments subject to nonrecurring fair value measurements for which a fair value adjustment has been included in the Consolidated Statement of Income consisted of net gains on net finance receivables within the dealer products portfolio segment of $2 million for the second quarter of fiscal 2014 and $30 million for the same period in fiscal 2013. The net gains offset losses incurred during the first three months of fiscal 2014 and fiscal 2013. As a result, there were no net gains or losses on net finance receivables within the dealer products portfolio segment for the six months ended September 30, 2013 and September 30, 2012.

Note 2 – Fair Value Measurements (Continued)

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

At September 30, 2013, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $77 million, derivative assets of $77 million and derivative liabilities of $23 million. At March 31, 2013, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $73 million, derivative assets of $75 million and derivative liabilities of $20 million. The fair value measurements of Level 3 financial assets and liabilities subject to recurring and nonrecurring fair value measurement, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant to our Consolidated Balance Sheet or Consolidated Statement of Income as of and for the three and six months ended September 30, 2013 and as of and for the year ended March 31, 2013.

Financial Instruments

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

					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in millions)			value		Level 1		Level 2		Level 3		Value
As of September 30, 2013

Financial assets
	Finance receivables, net
		Retail loan	$	49,064	$	-	$	-	$	49,595	$	49,595
		Commercial		152		-		-		141		141
		Wholesale		8,466		-		-		8,507		8,507
		Real estate		4,513		-		-		4,435		4,435
		Working capital		1,690		-		-		1,684		1,684

Financial liabilities
	Commercial paper		$	27,517	$	-	$	27,517	$	-	$	27,517
	Unsecured notes and loans payable			46,894		-		47,157		806		47,963
	Secured notes and loans payable			7,118		-		-		7,120		7,120

Note 2 - Fair Value Measurements (Continued)

					Fair value measurement hierarchy
			Carrying								Total Fair
(Dollars in millions)			value		Level 1		Level 2		Level 3		Value
As of March 31, 2013

Financial assets
	Finance receivables, net
		Retail loan	$	47,312	$	-	$	-	$	48,313	$	48,313
		Commercial		134		-		-		126		126
		Wholesale		8,620		-		-		8,644		8,644
		Real estate		4,531		-		-		4,480		4,480
		Working capital		1,695		-		-		1,708		1,708

Financial liabilities
	Commercial paper		$	24,590	$	-	$	24,590	$	-	$	24,590
	Unsecured notes and loans payable			47,233		-		47,901		874		48,775
	Secured notes and loans payable			7,009		-		-		7,016		7,016

The carrying value of each class of finance receivables is presented including accrued interest and deferred fees and costs, net of deferred income and the allowance for credit losses; the amount excludes related party transactions of $84 million and $40 million at September 30, 2013 and March 31, 2013 and direct finance leases of $243 million and $235 million at September 30, 2013 and March 31, 2013, respectively.

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

- 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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