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 except for certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are excluded from the leveling information provided in the table below. Fair value amounts presented below are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheet.

	June 30, 2016
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	731	$	1,135		$	-		$	-		$	1,866
Certificates of deposit		-		1,350			-			-			1,350
Cash equivalents total		731		2,485			-			-			3,216
Restricted cash equivalents		865		-			-			-			865
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		2,913		56			2			-			2,971
Municipal debt securities		-		12			-			-			12
Certificates of deposit		380		552			-			-			932
Corporate debt securities		197		285			7			-			489
Mortgage-backed securities:
U.S. government agency		-		57			-			-			57
Non-agency residential		-		-			3			-			3
Non-agency commercial		-		-			42			-			42
Asset-backed securities		-		-			35			-			35
Equity instruments:
Fixed income mutual funds:
Fixed income mutual funds measured at net asset value		-		-			-			-			1,776
Total return bond funds		392		-			-			-			392
Equity mutual fund		379		-			-			-			379
Available-for-sale securities total		4,261		962			89			-			7,088
Derivative assets:
Foreign currency swaps		-		333			-			-			333
Interest rate swaps		-		761			62			-			823
Interest rate floors		-		5			-			-			5
Counterparty netting and collateral		-		-			-			(1,112	)		(1,112	)
Derivative assets total		-		1,099			62			(1,112	)		49
Assets at fair value		5,857		4,546			151			(1,112	)		11,218
Derivative liabilities:
Foreign currency swaps		-		(909	)		(42	)		-			(951	)
Interest rate swaps		-		(584	)		-			-			(584	)
Counterparty netting and collateral		-		-			-			1,515			1,515
Liabilities at fair value		-		(1,493	)		(42	)		1,515			(20	)
Net assets at fair value	$	5,857	$	3,053		$	109		$	403		$	11,198

Note 2 – Fair Value Measurements (Continued)

Derivative assets were reduced by a counterparty credit valuation adjustment of $1 million and $2 million as of June 30, 2016 and March 31, 2016, respectively.

	March 31, 2016
									Counterparty
									netting &			Fair
	Level 1		Level 2			Level 3			collateral			value
Cash equivalents:
Money market instruments	$	360	$	1,209		$	-		$	-		$	1,569
U.S. government and agency obligations		450		105			-			-			555
Certificates of deposit		-		500			-			-			500
Cash equivalents total		810		1,814			-			-			2,624
Available-for-sale securities:
Debt instruments:
U.S. government and agency obligations		2,777		56			2			-			2,835
Municipal debt securities		-		11			-			-			11
Certificates of deposit		300		200			-			-			500
Commercial paper		-		50			-			-			50
Corporate debt securities		228		252			7			-			487
Mortgage-backed securities:
U.S. government agency		-		59			-			-			59
Non-agency residential		-		-			3			-			3
Non-agency commercial		-		-			42			-			42
Asset-backed securities		-		-			37			-			37
Equity instruments:
Fixed income mutual funds:
Fixed income mutual funds measured at net asset value		-		-			-			-			1,747
Total return bond funds		380		-			-			-			380
Equity mutual fund		389		-			-			-			389
Available-for-sale securities total		4,074		628			91			-			6,540
Derivative assets:
Foreign currency swaps		-		329			-			-			329
Interest rate swaps		-		601			39			-			640
Interest rate floors		-		4			-			-			4
Counterparty netting and collateral		-		-			-			(905	)		(905	)
Derivative assets total		-		934			39			(905	)		68
Assets at fair value		4,884		3,376			130			(905	)		9,232
Derivative liabilities:
Foreign currency swaps		-		(821	)		(14	)		-			(835	)
Interest rate swaps		-		(475	)		-			-			(475	)
Counterparty netting and collateral		-		-			-			1,303			1,303
Liabilities at fair value		-		(1,296	)		(14	)		1,303			(7	)
Net assets at fair value	$	4,884	$	2,080		$	116		$	398		$	9,225

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 three months ended June 30, 2016, $77 million was transferred from Level 1 to Level 2 and $45 million was transferred from Level 2 to Level 1. During the three months ended June 30, 2015, $37 million was transferred from Level 1 to Level 2 and $4 million was transferred from Level 3 to Level 2. The transfers during the first quarters of fiscal 2017 and 2016 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 June 30, 2016
																						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, 2016	$	2	$	7	$	45		$	37		$	91		$	39	$	(14	)	$	25		$	116
Total gains (losses)
Included in earnings		-		-		-			-			-			20		(24	)		(4	)		(4	)
Included in other comprehensive income		-		-		1			-			1			-		-			-			1
Purchases, issuances, sales, and settlements
Purchases		-		-		-			2			2			-		-			-			2
Issuances		-		-		-			-			-			-		-			-			-
Sales		-		-		-			-			-			-		-			-			-
Settlements		-		-		(1	)		(4	)		(5	)		3		(4	)		(1	)		(6	)
Transfers in to Level 3		-		-		-			-			-			-		-			-			-
Transfers out of Level 3		-		-		-			-			-			-		-			-			-
Fair value, June 30, 2016	$	2	$	7	$	45		$	35		$	89		$	62	$	(42	)	$	20		$	109
The amount of total gains (losses) included in earnings attributable to assets held at the reporting date														$	20	$	(24	)		(4	)		(4	)

	Three Months Ended June 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		-		-			-			-			-			-		27			27			27
Included in other comprehensive income		-		-			(1	)		-			(1	)		-		-			-			(1	)
Purchases, issuances, sales, and settlements
Purchases		-		-			-			-			-			-		-			-			-
Issuances		-		-			-			-			-			-		-			-			-
Sales		-		(2	)		-			(1	)		(3	)		-		-			-			(3	)
Settlements		-		-			(1	)		(1	)		(2	)		-		(4	)		(4	)		(6	)
Transfers in to Level 3		-		-			-			-			-			-		-			-			-
Transfers out of Level 3		-		(4	)		-			-			(4	)		-		-			-			(4	)
Fair value, June 30, 2015	$	2	$	8		$	46		$	37		$	93		$	1	$	30		$	31		$	124
The amount of total gains (losses) included in earnings attributable to assets held at the reporting date															$	-	$	27		$	27		$	27

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 June 30, 2016 and March 31, 2016.

Level 3 Fair Value Measurements

The Level 3 financial assets and liabilities recorded at fair value which are 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, 2016 and as of and for the year ended March 31, 2016.

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 on our Consolidated Balance Sheet:

	June 30, 2016
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	49,636	$	-	$	-	$	49,430	$	49,430
Wholesale		9,353		-		-		9,398		9,398
Real estate		4,578		-		-		4,296		4,296
Working capital		1,787		-		-		1,768		1,768

Financial liabilities
Commercial paper	$	27,435	$	-	$	27,435	$	-	$	27,435
Unsecured notes and loans payable		53,652		-		53,308		2,231		55,539
Secured notes and loans payable		14,119		-		-		14,143		14,143

	March 31, 2016
	Carrying								Total Fair
	value		Level 1		Level 2		Level 3		Value

Financial assets
Finance receivables, net
Retail loan	$	49,865	$	-	$	-	$	49,551	$	49,551
Wholesale		9,160		-		-		9,207		9,207
Real estate		4,590		-		-		4,277		4,277
Working capital		1,888		-		-		1,894		1,894

Financial liabilities
Commercial paper	$	26,608	$	-	$	26,608	$	-	$	26,608
Unsecured notes and loans payable		52,863		-		52,913		1,387		54,300
Secured notes and loans payable		14,123		-		-		14,125		14,125

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 $132 million and $128 million at June 30, 2016 and March 31, 2016, 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.