Fair Value Measurements

3 Months Ended

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


As of June 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			$	344	$	443	$	-	$	-	$	787
	Certificates of deposit				-		1,125		-		-		1,125
	Commercial paper				-		328		-		-		328
	Cash equivalents total				344		1,896		-		-		2,240
Available-for-sale securities:
	Debt instruments:
		U.S. government and agency obligations			21		57		-		-		78
		Municipal debt securities			-		15		-		-		15
		Certificates of deposit			-		1,837		-		-		1,837
		Commercial paper			-		355		-		-		355
		Foreign government debt securities			-		3		-		-		3
		Corporate debt securities			-		145		4		-		149
		Mortgage-backed securities:
			U.S. government agency		-		79		-		-		79
			Non-agency residential		-		-		5		-		5
			Non-agency commercial		-		-		48		-		48
		Asset-backed securities			-		-		19		-		19
	Equity instruments:
		Fixed income mutual funds:
			Short-term sector fund		-		43		-		-		43
			U.S. government sector fund		-		319		-		-		319
			Municipal sector fund		-		21		-		-		21
			Investment grade corporate sector fund		-		300		-		-		300
			High-yield sector fund		-		41		-		-		41
			Real return sector fund		-		270		-		-		270
			Mortgage sector fund		-		599		-		-		599
			Asset-backed securities sector fund		-		48		-		-		48
			Emerging market sector fund		-		63		-		-		63
			International sector fund		-		170		-		-		170
		Equity mutual fund			495		-		-		-		495
	Available-for-sale securities total				516		4,365		76		-		4,957
	Derivative assets:
		Foreign currency swaps			-		709		36		-		745
		Interest rate swaps			-		442		11		-		453
		Counterparty netting and collateral			-		-		-		(1,151)		(1,151)
	Derivative assets total				-		1,151		47		(1,151)		47
Assets at fair value					860		7,412		123		(1,151)		7,244
	Derivative liabilities:
		Foreign currency swaps			-		(286)		(13)		-		(299)
		Interest rate swaps			-		(702)		-		-		(702)
		Counterparty netting and collateral			-		-		-		943		943
	Derivative liabilities total				-		(988)		(13)		943		(58)
	Embedded derivative liabilities				-		-		(7)		-		(7)
Liabilities at fair value					-		(988)		(20)		943		(65)
Net assets at fair value				$	860	$	6,424	$	103	$	(208)	$	7,179

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. There were no transfers between levels during the three months ended June 30, 2013. 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, 2013 and 2012:

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)
					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, 2013			$	4		$	5	$	51	$	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		$	5	$	48	$	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)

Note 2 – Fair Value Measurements (Continued)

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)

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 $205 million and $208 million were recorded as of June 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 losses on net finance receivables within the dealer products portfolio segment of $2 million and $30 million for the three months ended June 30, 2013 and June 30, 2012, respectively.

Note 2 – Fair Value Measurements (Continued)

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

At June 30, 2013, our Level 3 financial instruments subject to recurring fair value measurement consisted of available-for-sale securities of $76 million, derivative assets of $47 million and derivative liabilities of $20 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 months ended June 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 June 30, 2013

Financial assets
	Finance receivables, net
		Retail loan	$	47,860	$	-	$	-	$	48,526	$	48,526
		Commercial		140		-		-		130		130
		Wholesale		9,349		-		-		9,388		9,388
		Real estate		4,517		-		-		4,438		4,438
		Working capital		1,726		-		-		1,713		1,713

Financial liabilities
	Commercial paper		$	23,876	$	-	$	23,876	$	-	$	23,876
	Unsecured notes and loans payable			47,115		-		47,278		796		48,074
	Secured notes and loans payable			7,628		-		-		7,627		7,627

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 net of deferred fees and costs, deferred income and the allowance for credit losses; the amount excludes related party transactions of $88 million and $40 million at June 30, 2013 and March 31, 2013 and direct finance leases of $231 million and $235 million at June 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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