Fair Value Measurements

3 Months Ended

Jun. 30, 2014

Note 2 – Fair Value Measurements

Recurring Fair Value Measurements

The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2014 and March 31, 2014, 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.

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million as of June 30, 2014 and March 31, 2014. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of June 30, 2014 and March 31, 2014.


As of June 30, 2014
					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			$	805	$	950	$	-	$	-	$	1,755
	U.S. government and agency obligations				-		337		-		-		337
	Certificates of deposit				-		2,931		-		-		2,931
	Commercial paper				-		157		-		-		157
	Cash equivalents total				805		4,375		-		-		5,180
Restricted cash equivalents - money market instruments					317		-		-		-		317
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			507		623		2		-		1,132
		Municipal debt securities			-		12		-		-		12
		Certificates of deposit			-		914		-		-		914
		Commercial paper			-		329		-		-		329
		Corporate debt securities			-		132		12		-		144
		Mortgage-backed securities:
			U.S. government agency		-		59		-		-		59
			Non-agency residential		-		-		5		-		5
			Non-agency commercial		-		-		40		-		40
		Asset-backed securities			-		-		29		-		29
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		45		-		-		45
			U.S. government sector fund		-		337		-		-		337
			Municipal sector fund		-		23		-		-		23
			Investment grade corporate sector fund		-		323		-		-		323
			High-yield sector fund		-		46		-		-		46
			Real return sector fund		-		285		-		-		285
			Mortgage sector fund		-		533		-		-		533
			Asset-backed securities sector fund		-		51		-		-		51
			Emerging market sector fund		-		69		-		-		69
			International sector fund		-		173		-		-		173
		Equity mutual fund			487		-		-		-		487
	Available-for-sale securities total				994		3,954		88		-		5,036
	Derivative assets:
		Foreign currency swaps			-		944		78		-		1,022
		Interest rate swaps			-		375		3		-		378
		Counterparty netting and collateral			-		-		-		(1,313)		(1,313)
	Derivative assets total				-		1,319		81		(1,313)		87
Assets at fair value					2,116		9,648		169		(1,313)		10,620
	Derivative liabilities:
		Foreign currency swaps			-		(180)		-		-		(180)
		Interest rate swaps			-		(454)		-		-		(454)
		Counterparty netting and collateral			-		-		-		631		631
Liabilities at fair value					-		(634)		-		631		(3)
Net assets at fair value				$	2,116	$	9,014	$	169	$	(682)	$	10,617

Note 2 – Fair Value Measurements (Continued)

As of March 31, 2014
					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			$	730	$	694	$	-	$	-	$	1,424
	Certificates of deposit				-		1,437		-		-		1,437
	Commercial paper				-		708		-		-		708
	Cash equivalents total				730		2,839		-		-		3,569
Restricted cash equivalents - money market instruments					1,077		-		-		-		1,077
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			398		252		2		-		652
		Municipal debt securities			-		11		-		-		11
		Certificates of deposit			-		1,599		-		-		1,599
		Commercial paper			-		507		-		-		507
		Corporate debt securities			-		157		12		-		169
		Mortgage-backed securities:
			U.S. government agency		-		60		-		-		60
			Non-agency residential		-		-		5		-		5
			Non-agency commercial		-		-		43		-		43
		Asset-backed securities			-		-		27		-		27
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		44		-		-		44
			U.S. government sector fund		-		327		-		-		327
			Municipal sector fund		-		22		-		-		22
			Investment grade corporate sector fund		-		316		-		-		316
			High-yield sector fund		-		45		-		-		45
			Real return sector fund		-		274		-		-		274
			Mortgage sector fund		-		520		-		-		520
			Asset-backed securities sector fund		-		50		-		-		50
			Emerging market sector fund		-		66		-		-		66
			International sector fund		-		171		-		-		171
		Equity mutual fund			481		-		-		-		481
	Available-for-sale securities total				879		4,421		89		-		5,389
	Derivative assets:
		Foreign currency swaps			-		804		70		-		874
		Interest rate swaps			-		358		3		-		361
		Counterparty netting and collateral			-		-		-		(1,186)		(1,186)
	Derivative assets total				-		1,162		73		(1,186)		49
Assets at fair value					2,686		8,422		162		(1,186)		10,084
	Derivative liabilities:
		Foreign currency swaps			-		(252)		-		-		(252)
		Interest rate swaps			-		(553)		-		-		(553)
		Counterparty netting and collateral			-		-		-		799		799
Liabilities at fair value					-		(805)		-		799		(6)
Net assets at fair value				$	2,686	$	7,617	$	162	$	(387)	$	10,078

Note 2 – Fair Value Measurements (Continued)

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. There were no transfers between levels during the three months ended June 30, 2014 and 2013.

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 months ended June 30, 2014 and 2013:

Three Months Ended June 30, 2014

			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		assets
(Dollars in millions)			obligations		securities		securities		securities		securities		swaps		swaps		(liabilities)
Fair value, April 1, 2014			$	2	$	12	$	48	$	27	$	89	$	3	$	70	$	73	$	162
Total gains
		Included in earnings		-		-		-		-		-		1		13		14		14
		Included in other comprehensive income		-		-		1		-		1		-		-		-		1
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		1		3		4		-		-		-		4
		Issuances		-		-		-		-		-		-		-		-		-
		Sales		-		-		(2)		-		(2)		-		-		-		(2)
		Settlements		-		-		(3)		(1)		(4)		(1)		(5)		(6)		(10)
Transfers in to Level 3				-		-		-		-		-		-		-		-		-
Transfers out of Level 3				-		-		-		-		-		-		-		-		-
Fair value, June 30, 2014			$	2	$	12	$	45	$	29	$	88	$	3	$	78	$	81	$	169
The amount of total gains
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	$	13	$	14	$	14

Note 2 – Fair Value Measurements (Continued)

Three Months Ended June 30, 2013

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

									Total								Total
			Corporate		Mortgage-¹		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, 2013			$	4	$	56	$	13	$	73	$	12	$	55	$	(12)	$	55	$	128
Total (losses)/ gains
		Included in earnings		-		-		-		-		(1)		(22)		5		(18)		(18)
		Included in other comprehensive income		-		(3)		-		(3)		-		-		-		-		(3)
Purchases, issuances, sales, and
	settlements
		Purchases		-		-		7		7		-		-		-		-		7
		Issuances		-		-		-		-		-		-		-		-		-
		Sales		-		-		-		-		-		-		-		-		-
		Settlements		-		-		(1)		(1)		-		(10)		-		(10)		(11)
Transfers in to Level 3				-		-		-		-		-		-		-		-		-
Transfers out of Level 3				-		-		-		-		-		-		-		-		-
Fair value, June 30, 2013			$	4	$	53	$	19	$	76	$	11	$	23	$	(7)	$	27	$	103
The amount of total 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)	$	(19)	$	(1)	$	(21)	$	(21)

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

Nonrecurring Fair Value Measurements

Nonrecurring fair value measurements consist of Level 3 net finance receivables that are not measured at fair value on a recurring basis, but are subject to fair value adjustments utilizing the fair value of the underlying collateral, if collateral dependent, 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. These nonrecurring fair value measurements were not significant as of June 30, 2014 and March 31, 2014.

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements

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 months ended June 30, 2014 and as of and for the year ended March 31, 2014.

Financial Instruments

The following tables provide information about assets and liabilities not carried at fair value on a recurring basis 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 June 30, 2014

Financial assets
	Finance receivables, net
		Retail loan	$	49,228	$	-	$	-	$	49,675	$	49,675
		Commercial		184		-		-		169		169
		Wholesale		9,056		-		-		9,094		9,094
		Real estate		4,591		-		-		4,603		4,603
		Working capital		1,845		-		-		1,837		1,837

Financial liabilities
	Commercial paper		$	25,524	$	-	$	25,524	$	-	$	25,524
	Unsecured notes and loans payable			51,924		-		52,333		745		53,078
	Secured notes and loans payable			9,112		-		-		9,119		9,119

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, 2014

Financial assets
	Finance receivables, net
		Retail loan	$	48,892	$	-	$	-	$	49,392	$	49,392
		Commercial		174		-		-		160		160
		Wholesale		9,344		-		-		9,391		9,391
		Real estate		4,601		-		-		4,552		4,552
		Working capital		1,802		-		-		1,807		1,807

Financial liabilities
	Commercial paper		$	27,709	$	-	$	27,709	$	-	$	27,709
	Unsecured notes and loans payable			49,500		-		49,697		736		50,433
	Secured notes and loans payable			8,158		-		-		8,165		8,165

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 receivables of $90 million and $89 million at June 30, 2014 and March 31, 2014 and direct finance leases of $273 million and $274 million at June 30, 2014 and March 31, 2014, 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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