Fair Value Measurements

12 Months Ended

Mar. 31, 2013

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, 2013 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 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.

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million and $3 million as of March 31, 2013 and March 31, 2012, respectively. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of March 31, 2013 and March 31, 2012.


As of March 31, 2013
					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			$	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)

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	$	0	$	0	$	2,847
	Certificates of deposit				0		495		0		0		495
	Commercial paper				0		1,537		0		0		1,537
	Cash equivalents total				2,591		2,288		0		0		4,879
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			0		108		0		0		108
		Municipal debt securities			0		20		0		0		20
		Certificates of deposit			0		1,341		0		0		1,341
		Commercial paper			0		633		0		0		633
		Foreign government debt securities			0		3		0		0		3
		Corporate debt securities			0		106		1		0		107
		Mortgage-backed securities:
			U.S. government agency		0		105		0		0		105
			Non-agency residential		0		4		4		0		8
			Non-agency commercial		0		11		15		0		26
		Asset-backed securities			0		12		1		0		13
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		0		40		0		0		40
			U.S. government sector fund		0		313		0		0		313
			Municipal sector fund		0		21		0		0		21
			Investment grade corporate sector fund		0		298		0		0		298
			High-yield sector fund		0		37		0		0		37
			Real return sector fund		0		231		0		0		231
			Mortgage sector fund		0		639		0		0		639
			Asset-backed securities sector fund		0		41		0		0		41
			Emerging market sector fund		0		62		0		0		62
			International sector fund		0		162		0		0		162
		Equity mutual fund			451		0		0		0		451
	Available-for-sale securities total				451		4,187		21		0		4,659
	Derivative assets:
		Foreign currency swaps			0		2,142		79		0		2,221
		Interest rate swaps			0		426		13		0		439
		Counterparty netting and collateral			0		0		0		(2,590)		(2,590)
	Derivative assets total				0		2,568		92		(2,590)		70
Assets at fair value					3,042		9,043		113		(2,590)		9,608
	Derivative liabilities:
		Foreign currency swaps			0		(63)		(10)		0		(73)
		Interest rate swaps			0		(1,008)		0		0		(1,008)
		Counterparty netting and collateral			0		0		0		1,038		1,038
	Derivative liabilities total				0		(1,071)		(10)		1,038		(43)
	Embedded derivative liabilities				0		0		(24)		0		(24)
Liabilities at fair value					0		(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 fiscal 2013, $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. 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 2013 and 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.

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 2013 and 2012:

Year Ended March 31, 2013

			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, 2012			$	1	$	4	$	15	$	1	$	21	$	13	$	69	$	(24)	$	58	$	79
Total gains
		Included in earnings		-		-		-		-		-		2		11		12		25		25
		Included in other
		comprehensive income		-		-		-		-		-		-		-		-		-		-
Purchases, issuances, sales, and
	settlements
		Purchases		-		2		35		7		44		-		-		-		-		44
		Issuances		-		-		-		-		-		-		-		-		-		-
		Sales		-		(2)		(4)		(1)		(7)		-		-		-		-		(7)
		Settlements		-		(2)		(5)		(5)		(12)		(3)		(25)		-		(28)		(40)
Transfers in to Level 3				3		3		10		11		27		-		-		-		-		27
Transfers out of Level 3				-		-		-		-		-		-		-		-		-		-
Fair value, March 31, 2013			$	4	$	5	$	51	$	13	$	73	$	12	$	55	$	(12)	$	55	$	128
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													$	2	$	8	$	1	$	11	$	11

Note 2 – Fair Value Measurements (Continued)

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
		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

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 $208 million and $166 million were recorded as of March 31, 2013 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 $12 million, $22 million and $24 million for fiscal 2013, 2012 and 2011, respectively.

Note 2 – Fair Value Measurements (Continued)

Level 3 Fair Value Measurements at March 31, 2013

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. 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, and the corresponding change in the fair value measurements of these assets and liabilities, were not significant.

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, 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

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, 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 includes deferred fees and costs, net of the allowance for credit losses and deferred income; the amount excludes related party transactions of $40 million and $36 million at March 31, 2013 and March 31, 2012, respectively and direct finance leases of $235 million and $213 million at March 31, 2013 and March 31, 2012, respectively, as these are not subject to fair value reporting requirements.

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 March 31, 2013.

- 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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