Fair Value of Financial Instruments

6 Months Ended

Jun. 29, 2014

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value Measurements

Certain assets and liabilities are recorded at fair value in the financial statements; some of these are measured on a recurring basis while others are measured on a non-recurring basis. Assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of assets and liabilities, the Company uses various valuation techniques. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.

The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable.

Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. The Company uses the market approach to derive the fair value for its level 2 fair value measurements. Foreign currency exchange contracts are valued using publicly quoted spot and forward prices; commodity contracts are valued using publicly quoted prices, where available, or dealer quotes; interest rate swaps are valued using publicized swap curves; and investments in marketable securities and cash equivalents are valued using publicly quoted prices.

Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the following tables.

Recurring Fair Value Measurements

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis (in thousands):

	June 29, 2014
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	660,520	$	482,780	$	177,740	$	—
Marketable securities	91,381		33,567		57,814		—
Derivatives	3,159		—		3,159		—
	$	755,060	$	516,347	$	238,713	$	—
Liabilities:
Derivatives	$	1,478	$	—	$	1,478	$	—
	December 31, 2013
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	836,387	$	516,173	$	320,214	$	—
Marketable securities	129,181		30,172		99,009		—
Derivatives	1,932		—		1,932		—
	$	967,500	$	546,345	$	421,155	$	—
Liabilities:
Derivatives	$	3,925	$	—	$	3,925	$	—
	June 30, 2013
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1,070,329	$	620,947	$	449,382	$	—
Marketable securities	155,824		22,193		133,631		—
Derivatives	11,214		—		11,214		—
	$	1,237,367	$	643,140	$	594,227	$	—
Liabilities:
Derivatives	$	570	$	—	$	570	$	—

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, marketable securities, trade receivables, finance receivables, net, trade payables, debt, and foreign currency contracts (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):

	June 29, 2014				December 31, 2013				June 30, 2013
	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
Assets:
Cash and cash equivalents	$	999,346	$	999,346	$	1,066,612	$	1,066,612	$	1,300,690	$	1,300,690
Marketable securities	$	91,381	$	91,381	$	129,181	$	129,181	$	155,824	$	155,824
Accounts receivable, net	$	289,940	$	289,940	$	261,065	$	261,065	$	253,819	$	253,819
Derivatives	$	3,159	$	3,159	$	1,932	$	1,932	$	11,214	$	11,214
Finance receivables, net	$	6,917,698	$	6,818,917	$	6,086,441	$	5,999,563	$	6,314,282	$	6,225,586
Restricted cash	$	154,681	$	154,681	$	144,807	$	144,807	$	212,004	$	212,004
Liabilities:
Accounts payable	$	388,342	$	388,342	$	239,794	$	239,794	$	344,423	$	344,423
Derivatives	$	1,478	$	1,478	$	3,925	$	3,925	$	570	$	570
Unsecured commercial paper	$	619,622	$	619,622	$	666,317	$	666,317	$	525,745	$	525,745
Asset-backed Canadian commercial paper conduit facility	$	173,224	$	173,224	$	174,241	$	174,241	$	175,229	$	175,229
Medium-term notes	$	3,049,735	$	2,853,232	$	3,087,852	$	2,858,980	$	3,100,162	$	2,858,638
Senior unsecured notes	$	—	$	—	$	305,958	$	303,000	$	325,705	$	303,000
Term asset-backed securitization debt	$	1,717,287	$	1,712,855	$	1,259,314	$	1,256,632	$	1,673,645	$	1,673,759

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Net and Accounts Payable – With the exception of certain cash equivalents, the carrying value of these items in the financial statements is based on 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 – The carrying value of marketable securities in the financial statements is based on fair value. The fair value of marketable securities is determined primarily based on quoted prices for identical instruments or on quoted market prices of similar financial assets. Fair value is based on Level 1 or Level 2 inputs.

Finance Receivables, Net – The carrying value of retail and wholesale finance receivables in the financial statements is amortized 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 amortized 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 – The carrying value of debt in the financial statements is generally amortized cost. 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.