Note 2 – Fair Value Measurements

Recurring Fair Value Measurements

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. The following tables summarize our financial assets and financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy.

	As of September 30, 2015
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	800	$	957		$	-		$	-		$	1,757
Certificates of deposit		-		2,750			-			-			2,750
Commercial paper		-		20			-			-			20
Corporate debt securities		-		39			-			-			39
Cash equivalents total		800		3,766			-			-			4,566
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		3,284		72			2			-			3,358
Municipal debt securities		-		11			-			-			11
Certificates of deposit		400		-			-			-			400
Commercial paper		-		124			-			-			124
Corporate debt securities		10		213			8			-			231
Mortgage-backed securities:
U.S. government agency		-		52			-			-			52
Non-agency residential		-		-			4			-			4
Non-agency commercial		-		-			41			-			41
Asset-backed securities		-		-			36			-			36
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		-		53			-			-			53
U.S. government sector fund		-		324			-			-			324
Municipal sector fund		-		20			-			-			20
Investment grade corporate sector fund		-		264			-			-			264
High-yield sector fund		-		101			-			-			101
Real return sector fund		-		225			-			-			225
Mortgage sector fund		-		430			-			-			430
Asset-backed securities sector fund		-		73			-			-			73
Emerging market sector fund		-		119			-			-			119
International sector fund		-		150			-			-			150
Equity mutual fund		394		-			-			-			394
Available-for-sale securities total		4,088		2,231			91			-			6,410
Derivative assets:
Foreign currency swaps		-		191			10			-			201
Interest rate swaps		-		554			1			-			555
Counterparty netting and collateral		-		-			-			(705	)		(705	)
Derivative assets total		-		745			11			(705	)		51
Assets at fair value		4,888		6,742			102			(705	)		11,027
Derivative liabilities:
Foreign currency swaps		-		(1,721	)		-			-			(1,721	)
Interest rate swaps		-		(512	)		(2	)		-			(514	)
Counterparty netting and collateral		-		-			-			2,180			2,180
Liabilities at fair value		-		(2,233	)		(2	)		2,180			(55	)
Net assets at fair value	$	4,888	$	4,509		$	100		$	1,475		$	10,972

Note 2 – Fair Value Measurements (Continued)

Derivative assets were reduced by a counterparty credit valuation adjustment of $2 million and $1 million as of September 30, 2015 and March 31, 2015, respectively. Derivative liabilities were reduced by a non-performance credit valuation adjustment of less than $1 million as of March 31, 2015.

	As of March 31, 2015
								Counterparty
								netting &			Fair
	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)

Transfers between levels of the fair value hierarchy are recognized at the end of their respective reporting periods. During the six months ended September 30, 2015, $37 million was transferred from Level 1 to Level 2 and $4 million was transferred from Level 3 to Level 2 due to changes in the transparency of inputs for determination of fair value for these instruments. During the three months ended September 30, 2015, and the three and six months ended September 30, 2014, there were no transfers between levels.

The following tables summarize the reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs:

	Three Months Ended September 30, 2015
																							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
	obligations		securities		securities			securities			securities			swaps			swaps			(liabilities)
Fair value, July 1, 2015	$	2	$	8	$	46		$	37		$	93		$	1		$	30		$	31		$	124
Total gains (losses)
Included in earnings		-		-		-			-			-			(1	)		(20	)		(21	)		(21	)
Included in other comprehensive income		-		-		-			-			-			-			-			-			-
Purchases, issuances, sales, and settlements
Purchases		-		-		-			-			-			-			-			-			-
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			-			-			-			-			-			-
Settlements		-		-		(1	)		(1	)		(2	)		(1	)		-			(1	)		(3	)
Transfers in to Level 3		-		-		-			-			-			-			-			-			-
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, September 30, 2015	$	2	$	8	$	45		$	36		$	91		$	(1	)	$	10		$	9		$	100
The amount of total (losses) included in earnings attributable to assets held at the reporting date														$	(1	)	$	(20	)		(21	)		(21	)

	Three Months Ended September 30, 2014
																								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, July 1, 2014	$	2	$	12		$	45		$	29		$	88		$	3		$	78		$	81		$	169
Total gains (losses)
Included in earnings		-		-			-			-			-			(1	)		(25	)		(26	)		(26	)
Included in other comprehensive income		-		-			-			-			-			-			-			-			-
Purchases, issuances, sales, and settlements
Purchases		-		3			11			3			17			-			-			-			17
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(3	)		(5	)		-			(8	)		-			-			-			(8	)
Settlements		-		-			(1	)		(2	)		(3	)		-			-			-			(3	)
Transfers in to Level 3		-		-			-			-			-			-			-			-			-
Transfers out of Level 3		-		-			-			-			-			-			-			-			-
Fair value, September 30, 2014	$	2	$	12		$	50		$	30		$	94		$	2		$	53		$	55		$	149
The amount of total (losses) included in earnings attributable to assets held at the reporting date															$	(1	)	$	(25	)	$	(26	)	$	(26	)

Note 2 – Fair Value Measurements (Continued)

	Six Months Ended September 30, 2015
																								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
	obligations		securities			securities			securities			securities			swaps			swaps			(liabilities)
Fair value, April 1, 2015	$	2	$	14		$	48		$	39		$	103		$	1		$	7		$	8		$	111
Total gains (losses)
Included in earnings		-		-			-			-			-			(1	)		7			6			6
Included in other comprehensive income		-		-			(1	)		-			(1	)		-			-			-			(1	)
Purchases, issuances, sales, and settlements																-			-
Purchases		-		-			-			-			-			-			-			-			-
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(2	)		-			(1	)		(3	)		-			-			-			(3	)
Settlements		-		-			(2	)		(2	)		(4	)		(1	)		(4	)		(5	)		(9	)
Transfers in to Level 3		-		-			-			-			-			-			-			-			-
Transfers out of Level 3		-		(4	)		-			-			(4	)		-			-			-			(4	)
Fair value, September 30, 2015	$	2	$	8		$	45		$	36		$	91		$	(1	)	$	10		$	9		$	100
The amount of total (losses) gains included in earnings attributable to assets held at the reporting date															$	(1	)	$	7		$	6		$	6

	Six Months Ended September 30, 2014
																								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 (losses)
Included in earnings		-		-			-			-			-			-			(12	)		(12	)		(12	)
Included in other comprehensive income		-		-			1			-			1			-			-			-			1
Purchases, issuances, sales, and settlements
Purchases		-		3			12			6			21			-			-			-			21
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(3	)		(7	)		-			(10	)		-			-			-			(10	)
Settlements		-		-			(4	)		(3	)		(7	)		(1	)		(5	)		(6	)		(13	)
Transfers in to Level 3		-		-			-			-			-			-			-			-			-
Transfers out of Level 3		-		-			-			-			-			-			-			-			-
Fair value, September 30, 2014	$	2	$	12		$	50		$	30		$	94		$	2		$	53		$	55		$	149
The amount of total (losses) included in earnings attributable to assets held at the reporting date															$	-		$	(12	)	$	(12	)	$	(12	)

Note 2 – Fair Value Measurements (Continued)

Nonrecurring Fair Value Measurements

Nonrecurring fair value measurements include 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 when there is evidence of impairment. We did not have any significant nonrecurring fair value items as of September 30, 2015 and March 31, 2015.

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 and six months ended September 30, 2015 and as of and for the year ended March 31, 2015.

Note 2 – Fair Value Measurements (Continued)

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:

			As of September 30, 2015
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	50,942	$	-	$	-	$	50,776	$	50,776
Wholesale		7,715		-		-		7,766		7,766
Real estate		4,513		-		-		4,342		4,342
Working capital		1,715		-		-		1,682		1,682
Other assets
Finance receivables, held-for-sale	$	755	$	-	$	-	$	756	$	756

Financial liabilities
Commercial paper	$	27,558	$	-	$	27,558	$	-	$	27,558
Unsecured notes and loans payable		54,275		-		54,138		1,353		55,491
Secured notes and loans payable		13,264		-		-		13,246		13,246

			As of March 31, 2015
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

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

As of August 31, 2015, certain assets related to our commercial finance business were reclassified as held-for-sale.

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 finance receivables, net amount excludes related party transactions, for which the fair value approximates the carrying value, of $112 million and $94 million at September 30, 2015 and March 31, 2015, respectively and direct finance leases of $25 million and $308 million at September 30, 2015 and March 31, 2015, respectively. The other assets which are finance receivables held-for-sale in the table above excludes related party transactions of $47 million, for which the fair value approximates the carrying value, and direct finance leases of $304 million at September 30, 2015.

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.