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 March 31, 2015 and 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 March 31, 2015 and 2014. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of March 31, 2015 and 2014.

As of March 31, 2015

	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	$	249	$	820		$	-	$	-		$	1,069
U.S. government and agency obligations		40		-			-		-			40
Certificates of deposit		-		1,105			-		-			1,105
Cash equivalents total		289		1,925			-		-			2,214
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		4,215		142			2		-			4,359
Municipal debt securities		-		12			-		-			12
Certificates of deposit		-		175			-		-			175
Commercial paper		37		-			-		-			37
Corporate debt securities		-		131			14		-			145
Mortgage-backed securities:
U.S. government agency		-		59			-		-			59
Non-agency residential		-		-			4		-			4
Non-agency commercial		-		-			44		-			44
Asset-backed securities		-		-			39		-			39
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		-		148			-		-			148
Short-term sector fund		-		37			-		-			37
U.S. government sector fund		-		335			-		-			335
Municipal sector fund		-		20			-		-			20
Investment grade corporate sector fund		-		268			-		-			268
High-yield sector fund		-		55			-		-			55
Real return sector fund		-		232			-		-			232
Mortgage sector fund		-		399			-		-			399
Asset-backed securities sector fund		-		72			-		-			72
Emerging market sector fund		-		71			-		-			71
International sector fund		-		160			-		-			160
Equity mutual fund		460		-			-		-			460
Available-for-sale securities total		4,712		2,316			103		-			7,131
Derivative assets:
Foreign currency swaps		-		210			7		-			217
Interest rate swaps		-		470			1		-			471
Counterparty netting and collateral		-		-			-		(635	)		(635	)
Derivative assets total		-		680			8		(635	)		53
Assets at fair value		5,001		4,921			111		(635	)		9,398
Derivative liabilities:
Foreign currency swaps		-		(1,888	)		-		-			(1,888	)
Interest rate swaps		-		(386	)		-		-			(386	)
Counterparty netting and collateral		-		-			-		2,184			2,184
Liabilities at fair value		-		(2,274	)		-		2,184			(90	)
Net assets at fair value	$	5,001	$	2,647		$	111	$	1,549		$	9,308

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. During fiscal 2015 and 2014, certain corporate debt securities were transferred from Level 2 to Level 3 due to reduced transparency of inputs for determination of fair value for these instruments. Additionally, during fiscal 2014 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.

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 2015 and 2014:

Year Ended March 31, 2015

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for-sale securities														Derivatives									Total net assets (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 (losses) gains
Included in earnings		-		-			-			-			-			-			(54	)		(54	)		(54	)
Included in other comprehensive income		-		-			2			-			2			-			-			-			2
Purchases, issuances, sales, and settlements
Purchases		-		3			12			22			37			-			-			-			37
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(3	)		(7	)		(5	)		(15	)		-			-			-			(15	)
Settlements		-		-			(7	)		(5	)		(12	)		(2	)		(9	)		(11	)		(23	)
Transfers in to Level 3		-		2			-			-			2			-			-			-			2
Transfers out of Level 3		-		-			-			-			-			-			-			-			-
Fair value, March 31, 2015	$	2	$	14		$	48		$	39		$	103		$	1		$	7		$	8		$	111
The amount of total (losses) gains included in earnings attributable to assets still held at the reporting date															$	-		$	(54	)	$	(54	)	$	(54	)

Note 2 – Fair Value Measurements (Continued)

Year Ended March 31, 2014

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for-sale securities														Derivatives												Total net assets (liabilities)

	U.S.											Total												Total
	government		Corporate			Mortgage			Asset-			available-			Interest			Foreign			Embedded			derivative
	and agency		debt			backed			backed			for-sale			rate			currency			derivatives,			assets
(Dollars in millions)	obligations		securities			securities			securities			securities			swaps			swaps			net			(liabilities)
Fair value, April 1, 2013	$	-	$	4		$	56		$	13		$	73		$	12		$	55		$	(12	)	$	55		$	128
Total gains
Included in earnings		-		-			-			-			-			5			17			12			34			34
Included in other comprehensive income		-		-			(2	)		-			(2	)		-			-			-			-			(2	)
Purchases, issuances, sales, and settlements
Purchases		-		3			7			16			26			-			-			-			-			26
Issuances		-		-			-			-			-			-			-			-			-			-
Sales		-		-			(8	)		-			(8	)		-			-			-			-			(8	)
Settlements		-		-			(5	)		(2	)		(7	)		(14	)		(2	)		-			(16	)		(23	)
Transfers in to Level 3		2		7			-			-			9			-			-			-			-			9
Transfers out of Level 3				(2	)		-			-			(2	)		-			-			-			-			(2	)
Fair value, March 31, 2014	$	2	$	12		$	48		$	27		$	89		$	3		$	70		$	-		$	73		$	162
The amount of total (losses)/gains included in earnings attributable to assets still held at the reporting date															$	(2	)	$	23		$	-		$	21		$	21

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, less estimated costs to sell, when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of March 31, 2015 and 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 years ended March 31, 2015 and 2014.

Financial Instruments

The following tables provide information about financial 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 March 31, 2015

Financial assets
Finance receivables, net
Retail loan	$	49,734	$	-	$	-	$	49,887	$	49,887
Commercial		217		-		-		223		223
Wholesale		9,123		-		-		9,176		9,176
Real estate		4,602		-		-		4,564		4,564
Working capital		1,815		-		-		1,804		1,804

Financial liabilities
Commercial paper	$	27,006	$	-	$	27,006	$	-	$	27,006
Unsecured notes and loans payable		52,388		-		53,174		634		53,808
Secured notes and loans payable		10,837		-		-		10,832		10,832

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 includes accrued interest and deferred fees and costs, net of deferred income and the allowance for credit losses. The amount excludes related party transactions of $94 million and $89 million at March 31, 2015 and 2014, respectively, and direct finance leases of $308 million and $274 million at March 31, 2015 and 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.