Fair Value of Financial Instruments

6 Months Ended

Jul. 01, 2012

Fair Value of Financial Instruments

9. 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, foreign currency contracts and interest rate swaps (derivative instruments are discussed further in Note 10). Under U.S. GAAP, certain of these items are required to be recorded in the financial statements at fair value, while others are required to be recorded at historical cost.

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

	July 1, 2012				December 31, 2011				June 26, 2011
	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
Assets:
Cash and cash equivalents	$	1,071,496	$	1,071,496	$	1,526,950	$	1,526,950	$	973,478	$	973,478
Marketable securities	$	135,848	$	135,848	$	153,380	$	153,380	$	244,555	$	244,555
Accounts receivable, net	$	250,268	$	250,268	$	219,039	$	219,039	$	265,663	$	265,663
Derivatives	$	8,879	$	8,879	$	16,443	$	16,443	$	—	$	—
Finance receivables, net	$	6,099,619	$	6,016,569	$	5,888,040	$	5,786,681	$	6,052,156	$	5,963,440
Restricted cash held by variable interest entities	$	188,564	$	188,564	$	229,655	$	229,655	$	244,060	$	244,060
Liabilities:
Accounts payable	$	252,239	$	252,239	$	255,713	$	255,713	$	277,395	$	277,395
Derivatives	$	2,042	$	2,042	$	5,136	$	5,136	$	14,933	$	14,933
Unsecured commercial paper	$	845,868	$	845,868	$	874,286	$	874,286	$	735,737	$	735,737
Credit facilities	$	143,792	$	143,792	$	159,794	$	159,794	$	201,112	$	201,112
Medium-term notes	$	2,967,112	$	2,698,359	$	2,561,458	$	2,298,193	$	2,555,926	$	2,347,750
Senior unsecured notes	$	360,791	$	303,000	$	376,513	$	303,000	$	391,051	$	303,000
Term asset-backed securitization debt	$	1,345,452	$	1,339,232	$	2,099,060	$	2,087,346	$	1,883,465	$	1,853,382

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Net and Accounts Payable – With the exception of certain money-market investments, 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.

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 – Finance receivables, net includes finance receivables held for investment, net and restricted finance receivables held by VIEs, net. Retail and wholesale finance receivables are recorded in the financial statements at historical cost less a provision 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 are 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 fair values of the medium-term notes maturing in December 2012, December 2014, March 2016, March 2017 and June 2018 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.