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 December 31, 2015
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	958	$	608		$	-		$	-		$	1,566
Certificates of deposit		-		1,000			-			-			1,000
Corporate debt securities		-		26			-			-			26
Cash equivalents total		958		1,634			-			-			2,592
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		4,061		55			2			-			4,118
Municipal debt securities		-		11			-			-			11
Certificates of deposit		675		650			-			-			1,325
Commercial paper		-		175			-			-			175
Corporate debt securities		27		333			8			-			368
Mortgage-backed securities:
U.S. government agency		-		50			-			-			50
Non-agency residential		-		-			3			-			3
Non-agency commercial		-		-			42			-			42
Asset-backed securities		-		-			36			-			36
Equity instruments:
Fixed income mutual funds:
Short-term floating NAV fund II		-		180			-			-			180
U.S. government sector fund		-		255			-			-			255
Municipal sector fund		-		19			-			-			19
Investment grade corporate sector fund		-		244			-			-			244
High-yield sector fund		-		101			-			-			101
Real return sector fund		-		221			-			-			221
Mortgage sector fund		-		327			-			-			327
Asset-backed securities sector fund		-		124			-			-			124
Emerging market sector fund		-		95			-			-			95
International sector fund		-		145			-			-			145
Equity mutual fund		402		-			-			-			402
Available-for-sale securities total		5,165		2,985			91			-			8,241
Derivative assets:
Foreign currency swaps		-		163			-			-			163
Interest rate swaps		-		422			1			-			423
Counterparty netting and collateral		-		-			-			(533	)		(533	)
Derivative assets total		-		585			1			(533	)		53
Assets at fair value		6,123		5,204			92			(533	)		10,886
Derivative liabilities:
Foreign currency swaps		-		(1,868	)		(3	)		-			(1,871	)
Interest rate swaps		-		(232	)		(3	)		-			(235	)
Counterparty netting and collateral		-		-			-			2,031			2,031
Liabilities at fair value		-		(2,100	)		(6	)		2,031			(75	)
Net assets at fair value	$	6,123	$	3,104		$	86		$	1,498		$	10,811

Note 2 – Fair Value Measurements (Continued)

Derivative assets were reduced by a counterparty credit valuation adjustment of $2 million and $1 million as of December 31, 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 first nine months of fiscal 2016, $47 million was transferred from Level 1 to Level 2, $15 million was transferred from Level 2 to Level 1 and $4 million was transferred from Level 3 to Level 2. During the three months ended December 31, 2015, $10 million was transferred from Level 1 to Level 2 and $15 million was transferred from Level 2 to Level 1. During the three and nine months ended December 31, 2014, certain corporate debt securities were transferred from Level 2 to Level 3. These transfers were due to changes in the transparency of inputs for determination of fair value for these instruments.

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 December 31, 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, October 1, 2015	$	2	$	8	$	45		$	36		$	91		$	(1	)	$	10		$	9		$	100
Total (losses)
Included in earnings		-		-		-			-			-			(3	)		(9	)		(12	)		(12	)
Included in other comprehensive income		-		-		-			(1	)		(1	)		-			-			-			(1	)
Purchases, issuances, sales, and settlements
Purchases		-		-		1			4			5			-			-			-			5
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			-			-			-			-			-			-
Settlements		-		-		(1	)		(3	)		(4	)		2			(4	)		(2	)		(6	)
Transfers in to Level 3		-		-		-			-			-			-			-			-			-
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2015	$	2	$	8	$	45		$	36		$	91		$	(2	)	$	(3	)	$	(5	)	$	86
The amount of total (losses) included in earnings attributable to assets held at the reporting date														$	(3	)	$	(9	)		(12	)		(12	)

	Three Months Ended December 31, 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
	obligations		securities		securities			securities			securities			swaps			swaps			(liabilities)
Fair value, October 1, 2014	$	2	$	12	$	50		$	30		$	94		$	2		$	53		$	55		$	149
Total (losses)
Included in earnings		-		-		-			-			-			(1	)		(16	)		(17	)		(17	)
Included in other comprehensive income		-		-		-			-			-			-			-			-			-
Purchases, issuances, sales, and settlements
Purchases		-		-		-			1			1			-			-			-			1
Issuances		-		-		-			-			-			-			-			-			-
Sales		-		-		-			(5	)		(5	)		-			-			-			(5	)
Settlements		-		-		(1	)		(1	)		(2	)		-			(4	)		(4	)		(6	)
Transfers in to Level 3		-		2		-			-			2			-			-			-			2
Transfers out of Level 3		-		-		-			-			-			-			-			-			-
Fair value, December 31, 2014	$	2	$	14	$	49		$	25		$	90		$	1		$	33		$	34		$	124
The amount of total (losses) included in earnings attributable to assets held at the reporting date														$	(1	)	$	(16	)	$	(17	)	$	(17	)

Note 2 – Fair Value Measurements (Continued)

	Nine Months Ended December 31, 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 (losses)
Included in earnings		-		-			-			-			-			(4	)		(2	)		(6	)		(6	)
Included in other comprehensive income		-		-			(1	)		(1	)		(2	)		-			-			-			(2	)
Purchases, issuances, sales, and settlements
Purchases		-		-			1			4			5			-			-			-			5
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(2	)		-			(1	)		(3	)		-			-			-			(3	)
Settlements		-		-			(3	)		(5	)		(8	)		1			(8	)		(7	)		(15	)
Transfers in to Level 3		-		-			-			-			-			-			-			-			-
Transfers out of Level 3		-		(4	)		-			-			(4	)		-			-			-			(4	)
Fair value, December 31, 2015	$	2	$	8		$	45		$	36		$	91		$	(2	)	$	(3	)	$	(5	)	$	86
The amount of total (losses) included in earnings attributable to assets held at the reporting date															$	(4	)	$	(2	)	$	(6	)	$	(6	)

	Nine Months Ended December 31, 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
	obligations		securities			securities			securities			securities			swaps			swaps			(liabilities)
Fair value, April 1, 2014	$	2	$	12		$	48		$	27		$	89		$	3		$	70		$	73		$	162
Total (losses)
Included in earnings		-		-			-			-			-			(1	)		(28	)		(29	)		(29	)
Included in other comprehensive income		-		-			1			-			1			-			-			-			1
Purchases, issuances, sales, and settlements
Purchases		-		3			12			7			22			-			-			-			22
Issuances		-		-			-			-			-			-			-			-			-
Sales		-		(3	)		(7	)		(5	)		(15	)		-			-			-			(15	)
Settlements		-		-			(5	)		(4	)		(9	)		(1	)		(9	)		(10	)		(19	)
Transfers in to Level 3		-		2			-			-			2			-			-			-			2
Transfers out of Level 3		-		-			-			-			-			-			-			-			-
Fair value, December 31, 2014	$	2	$	14		$	49		$	25		$	90		$	1		$	33		$	34		$	124
The amount of total (losses) included in earnings attributable to assets held at the reporting date															$	(1	)	$	(28	)	$	(29	)	$	(29	)

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 December 31, 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 nine months ended December 31, 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 December 31, 2015
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	50,690	$	-	$	-	$	50,137	$	50,137
Wholesale		8,428		-		-		8,469		8,469
Real estate		4,633		-		-		4,361		4,361
Working capital		1,884		-		-		1,849		1,849

Financial liabilities
Commercial paper	$	26,847	$	-	$	26,847	$	-	$	26,847
Unsecured notes and loans payable		53,831		-		53,409		1,383		54,792
Secured notes and loans payable		14,030		-		-		13,992		13,992

	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

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 $108 million and $94 million at December 31, 2015 and March 31, 2015, respectively, and direct finance leases of $20 million and $308 million at December 31, 2015 and March 31, 2015, 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 of the Notes to Consolidated Financial Statements.