Fair Values Of Assets And Liabilities

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Of Financial Instruments

Fair Values of Assets and Liabilities

ASC 820, Fair Value Measurements, provides a framework for measuring fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels.

There are three general valuation techniques that may be used to measure fair value, as described below:

(i) Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources;

(ii) Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and

(iii) Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.

Financial instruments are considered Level 1 when quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Financial instruments are considered Level 2 when inputs other than quoted prices are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Financial instruments are considered Level 3 when their values are determined using price models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. A brief description of the valuation techniques used for our Level 3 assets and liabilities is provided below.

Derivatives

The fair values of our interest rate cap derivatives and foreign currency derivatives are valued based on quoted market prices received from bank counterparties and/or observable inputs for similar instruments and are classified as Level 2.

Our interest rate swaps are not exchange traded but instead trade in over-the-counter markets where quoted market prices are not readily available. Any derivative fair value measurements using significant assumptions that are unobservable are classified as Level 3, which include interest rate swaps whose remaining terms extend beyond market observable interest rate yield curves. The fair value of our interest rate swaps use observable and unobservable inputs within a cash flow model. Those unobservable inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies and charge-offs of the loans within the finance receivable portfolio. The cash flow model produces an estimated amortization schedule of the finance receivables which is the basis for the calculation of the series of expected payments and receipts that derive the fair value of the interest rate swaps. The series of payments are calculated and discounted using observable interest rate yield curves. The counterparties' non-performance risk to the derivative trades is also considered when measuring the fair value of the derivatives. Macroeconomic factors after purchase could negatively affect the credit performance of our portfolio and our counterparties and therefore, could potentially impact the assumptions used in our cash flow model.

Assets and liabilities itemized below were measured at fair value on a recurring basis, using either the market approach (i), the cost approach (ii) or the income approach (iii) (in millions):

	December 31, 2013
	Fair Value Measurements Using
	Level 1		Level 2		Level 3
	Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Assets/ Liabilities At Fair Value
Assets
Money market funds(i)(a)	$	1,452	$	—	$	—	$	1,452
Derivatives not designated as hedging instruments:
Interest rate swaps(iii)	—		—		11		11
Interest rate caps(i)	—		7		—		7
Foreign currency swaps(i)	—		3		—		3
Total assets	$	1,452	$	10	$	11	$	1,473
Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps(iii)	$	—	$	—	$	17	$	17
Interest rate caps(i)	—		7		—		7
Foreign currency swaps(i)	—		29		—		29
Total liabilities	$	—	$	36	$	17	$	53

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(a) Excludes cash in banks of $1.6 billion.

	December 31, 2012
	Fair Value Measurements Using
	Level 1
	Quoted Prices In Active Markets For Identical Assets		Assets / Liabilities At Fair Value
Assets
Money market funds(i)(a)	$	1,830	$	1,830

_________________ 

(a) Excludes cash in banks of $228 million.

The fair value of interest rate cap and swap assets and liabilities at December 31, 2012 was insignificant.

The tables below present a reconciliation for interest rate swap agreements measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions):

	Assets			Liabilities
December 31, 2010	$	23		$	(46	)
Total realized and unrealized gains included in earnings	(2		)	1
Settlements	(19		)	39
December 31, 2011	2			(6		)
Settlements	(2		)	6
December 31, 2012	—			—
Total realized and unrealized gains included in earnings	8			(9		)
Purchases	7			(19		)
Settlements	(4		)	11
December 31, 2013	$	11		$	(17	)