Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, trade receivables, finance receivables, net, trade payables, debt, foreign currency contracts and interest rate swaps (derivative instruments are discussed further in Note 9).

The following table summarizes the fair value and carrying value of the Company’s financial instruments (in thousands):



	March 31, 2013				December 31, 2012				April 1, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
Assets:
Cash and cash equivalents	$	1,018,759	$	1,018,759	$	1,068,138	$	1,068,138	$	1,276,337	$	1,276,337
Marketable securities	$	135,246	$	135,246	$	135,634	$	135,634	$	134,946	$	134,946
Accounts receivable, net	$	259,673	$	259,673	$	230,079	$	230,079	$	264,272	$	264,272
Derivatives	$	11,737	$	11,737	$	317	$	317	$	6,345	$	6,345
Finance receivables, net	$	6,108,934	$	6,033,939	$	5,861,442	$	5,781,852	$	5,961,825	$	5,877,403
Restricted cash	$	197,025	$	197,025	$	188,008	$	188,008	$	246,995	$	246,995
Liabilities:
Accounts payable	$	360,018	$	360,018	$	257,386	$	257,386	$	355,902	$	355,902
Derivatives	$	2,165	$	2,165	$	7,920	$	7,920	$	2,234	$	2,234
Unsecured commercial paper	$	687,705	$	687,705	$	294,943	$	294,943	$	662,343	$	662,343
Global credit facilities	$	—	$	—	$	—	$	—	$	150,195	$	150,195
Asset-backed Canadian commercial paper conduit facility	$	154,596	$	154,596	$	175,658	$	175,658	$	—	$	—
Medium-term notes	$	3,169,807	$	2,881,444	$	3,199,548	$	2,881,272	$	2,936,475	$	2,698,232
Senior unsecured notes	$	337,600	$	303,000	$	338,594	$	303,000	$	366,651	$	303,000
Term asset-backed securitization debt	$	1,276,046	$	1,268,572	$	1,457,807	$	1,447,776	$	1,768,140	$	1,754,320

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Net and Accounts Payable – With the exception of certain cash equivalents, these items are recorded in the financial statements at historical cost. The historical cost basis for these amounts is estimated to approximate their respective fair values due to the short maturity of these instruments. Fair value is based on Level 1 or Level 2 inputs.

Marketable Securities – Marketable securities are recorded in the financial statements at fair value. The fair value of marketable securities is based primarily on quoted market prices of similar financial assets. Changes in fair value are recorded, net of tax, as other comprehensive income and included as a component of shareholders’ equity. Fair value is based on Level 1 or Level 2 inputs.

Finance Receivables, Net – Retail and wholesale finance receivables are recorded in the financial statements at historical cost less an allowance for credit losses. The fair value of retail finance receivables is generally calculated by discounting future cash flows using an estimated discount rate that reflects current credit, interest rate and prepayment risks associated with similar types of instruments. Fair value is determined based on Level 3 inputs. The historical cost basis of wholesale finance receivables approximates fair value because they either are short-term or have interest rates that adjust with changes in market interest rates.

Derivatives – Interest rate swaps, foreign currency exchange contracts and commodity contracts are derivative financial instruments and are carried at fair value on the balance sheet. The fair value of interest rate swaps is determined using pricing models that incorporate quoted prices for similar assets and observable inputs such as interest rates and yield curves. The fair value of foreign currency exchange and commodity contracts is determined using publicly quoted prices. Fair value is calculated using Level 2 inputs.

Debt – Debt is generally recorded in the financial statements at historical cost. The carrying value of debt provided under credit facilities approximates fair value since the interest rates charged under the facilities are tied directly to market rates and fluctuate as market rates change. The carrying value of unsecured commercial paper approximates fair value due to its short maturity. Fair value is calculated using Level 2 inputs.

The carrying value of debt provided under the Canadian Conduit approximates fair value since the interest rates charged under the facility are tied directly to market rates and fluctuate as market rates change. Fair value is calculated using Level 2 inputs.

The fair values of the medium-term notes are estimated based upon rates currently available for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.

The fair value of the senior unsecured notes is estimated based upon rates currently available for debt with similar terms and remaining maturities. Fair value is calculated using Level 2 inputs.

The fair value of the debt related to term asset-backed securitization transactions is estimated based on pricing currently available for transactions with similar terms and maturities. Fair value is calculated using Level 2 inputs.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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