Fair Value Measurements

3 Months Ended

Jun. 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 June 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 $8 million and $3 million as of June 30, 2012 and March 31, 2012, respectively. As of June 30, 2012, there were no derivative liabilities reduced by a non-performance credit valuation adjustment. As of March 31, 2012, derivative liabilities were reduced by a non-performance credit valuation adjustment of $1 million.


As of June 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			$	3,518	$	556	$	-	$	-	$	4,074
	Certificates of deposit				-		350		-		-		350
	Commercial paper				-		1,039		-		-		1,039
	Cash equivalents total				3,518		1,945		-		-		5,463
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			73		62		-		-		135
		Municipal debt securities			-		19		-		-		19
		Certificates of deposit			-		1,724		-		-		1,724
		Commercial paper			-		344		-		-		344
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		91		4		-		95
		Mortgage-backed securities:
			U.S. government agency		-		100		-		-		100
			Non-agency residential		-		-		7		-		7
			Non-agency commercial		-		-		25		-		25
		Asset-backed securities			-		-		12		-		12
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		40		-		-		40
			U.S. government sector fund		-		342		-		-		342
			Municipal sector fund		-		21		-		-		21
			Investment grade corporate sector fund		-		299		-		-		299
			High-yield sector fund		-		37		-		-		37
			Real return sector fund		-		287		-		-		287
			Mortgage sector fund		-		637		-		-		637
			Asset-backed securities sector fund		-		42		-		-		42
			Emerging market sector fund		-		64		-		-		64
			International sector fund		-		164		-		-		164
		Equity mutual fund			439		-		-		-		439
	Available-for-sale securities total				512		4,276		48		-		4,836
	Derivative assets:
		Foreign currency swaps			-		1,903		72		-		1,975
		Interest rate swaps			-		649		11		-		660
		Counterparty netting and collateral			-		-		-		(2,436)		(2,436)
	Derivative assets total				-		2,552		83		(2,436)		199
	Embedded derivative assets				-		-		-		-		-
Assets at fair value					4,030		8,773		131		(2,436)		10,498
	Derivative liabilities:
		Foreign currency swaps			-		(57)		(13)		-		(70)
		Interest rate swaps			-		(980)		-		-		(980)
		Counterparty netting and collateral			-		-		-		1,027		1,027
	Derivative liabilities total				-		(1,037)		(13)		1,027		(23)
	Embedded derivative liabilities				-		-		(27)		-		(27)
Liabilities at fair value					-		(1,037)		(40)		1,027		(50)
Net assets at fair value				$	4,030	$	7,736	$	91	$	(1,409)	$	10,448

Note 2 – Fair Value Measurements (Continued)

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)

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. 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.

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, 2012 and 2011:

Three Months Ended June 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 losses
		Included in earnings		-			-		-		-		-		(1)		(5)		(3)		(9)		(9)
		Included in other comprehensive income		-			-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-			-		1		-		1		-		-		-		-		1
		Issuances		-			-		-		-		-		-		-		-		-		-
		Sales		-			-		(1)		-		(1)		-		-		-		-		(1)
		Settlements		-			-		-		-		-		(1)		(5)		-		(6)		(6)
Transfers in to Level 3				3			3		10		11		27		-		-		-		-		27
Transfers out of Level 3				-			-		-		-		-		-		-		-		-		-
Fair value, June 30, 2012			$	4		$	7	$	25	$	12	$	48	$	11	$	59	$	(27)	$	43	$	91
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)	$	(5)	$	(3)	$	(9)	$	(9)

Note 2 – Fair Value Measurements (Continued)

Three Months Ended June 30, 2011

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
											Total net
											assets
			Derivative instruments, net								(liabilities)

									Total
		Interest		Foreign					derivative
		rate		currency		Embedded			assets
(Dollars in millions)		swaps		swaps		derivatives			(liabilities)
Fair value, April 1, 2011		$	17	$	109		$	(51)	$	75	$	75
Total gains/(losses)
	Included in earnings		4		48			11		63		63
	Included in other comprehensive income		-		-			-		-		-
Purchases, issuances, sales, and settlements
	Purchases		-		-			-		-		-
	Issuances		-		-			-		-		-
	Sales		-		-			-		-		-
	Settlements		(11)		(5)			-		(16)		(16)
Transfers in to Level 3			-		-			-		-		-
Transfers out of Level 3			-		-			-		-		-
Fair value, June 30, 2011		$	10	$	152		$	(40)	$	122	$	122
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		$	4	$	48		$	(5)	$	47	$	47

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 $183 million and $166 million as of June 30, 2012 and March 31, 2012, 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 loss on net finance receivables within the dealer products portfolio segment individually evaluated for impairment of $30 million for the first quarter of fiscal 2013 and a gain of $3 million for the first quarter of fiscal 2012.

Note 2 – Fair Value Measurements (Continued)

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

At June 30, 2012, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $48 million, derivative assets of $83 million and derivative liabilities of $40 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. Level 3 financial instruments subject to nonrecurring fair value measurement were limited to impaired finance receivables with a fair value of $183 million at June 30, 2012 and $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 and for the quarter ended June 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 June 30, 2012

Financial assets
	Finance receivables, net
		Retail loan	$	45,608	$	-	$	-	$	46,542	$	46,542
		Commercial		141		-		-		145		145
		Wholesale		7,963		-		-		7,966		7,966
		Real estate		4,321		-		-		4,249		4,249
		Working capital		1,620		-		-		1,624		1,624

Financial liabilities
	Commercial paper		$	24,634	$	-	$	24,634	$	-	$	24,634
	Unsecured notes and loans payable		$	41,114	$	-	$	38,266	$	4,301	$	42,567
	Secured notes and loans payable		$	9,484	$	-	$	-	$	9,493	$	9,493

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 costs, unearned income and the allowance for credit losses; the amount excludes related party transactions of $36 million at both June 30, 2012 and March 31, 2012 and direct finance leases of $211 million and $213 million at June 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. There were no loans payable to affiliates that were included in unsecured notes and loans payable at June 30, 2012. The loans payable to affiliates included in unsecured notes and loans payable were $2.2 billion at March 31, 2012, and were 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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