Fair Values of Financial Instruments

Fair values are based on estimates using present value or other valuation techniques in cases where quoted market prices are not available. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Disclosures about fair value of financial instruments exclude certain financial instruments and all non-financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of our company.

Estimated fair values, carrying values and various methods and assumptions used in valuing our financial instruments are set forth below (in millions):



		June 30, 2016				December 31, 2015
	Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets
Cash and cash equivalents^(a)	1	$	3,102	$	3,102	$	3,061	$	3,061
Retail finance receivables, net	3	$	30,047	$	30,448	$	28,389	$	28,545
Commercial finance receivables, net^(b)	2	$	9,383	$	9,383	$	8,392	$	8,392
Restricted cash^(a)	1	$	2,010	$	2,010	$	1,941	$	1,941
Financial liabilities
Secured debt
North America^(c)	2	$	27,664	$	27,855	$	23,151	$	23,182
International^(d)	2	$	3,591	$	3,593	$	3,122	$	3,125
International^(e)	3	$	3,083	$	3,082	$	4,416	$	4,364
Unsecured debt
North America^(f)	2	$	22,577	$	23,185	$	17,731	$	17,792
International^(g)	2	$	6,277	$	6,320	$	4,605	$	4,617
International^(e)	3	$	1,308	$	1,314	$	1,321	$	1,317

_________________


(a)	Cash and cash equivalents bear interest at market rates; therefore, carrying value is considered to be a reasonable estimate of fair value.


(b)	The fair value of commercial finance receivables is assumed to be carrying value, as the receivables generally have variable interest rates and maturities of one year or less.

(c)

Secured debt in the North America Segment is comprised of revolving credit facilities, publicly-issued secured debt, and privately-issued secured debt, and is valued using level 2 inputs. For the revolving credit facilities with variable rates of interest and terms of one year or less, carrying value is considered to be a reasonable estimate of fair value. The fair value of the publicly-issued secured debt is based on quoted market prices of identical instruments in thinly-traded markets, when available. If quoted market prices are not available, and for determining the fair value of privately-issued secured debt, the market value is estimated using quoted market prices of similar securities.


(d)	The fair value is assumed to be par value, as the debt has terms of one year or less, or has been priced within the last six months.


(e)	The fair value is estimated by discounting future net cash flows expected to be settled, which is an unobservable input, using current risk-adjusted rates.


(f)	The fair value is based on quoted market prices of identical instruments in thinly-traded markets.


(g)	The fair value of senior notes is based on quoted market prices of identical instruments in thinly-traded markets. The fair value of the remaining level 2 unsecured debt is assumed to be par value, as the debt has terms of one year or less.

The fair value of our retail finance receivables is based on observable and unobservable inputs within a discounted cash flow model. Those unobservable inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the 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 cash flows that derive the fair value of the portfolio. For the North America Segment, the series of cash flows is calculated and discounted using a weighted-average cost of capital using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity profile. For the International Segment, the series of cash flows is calculated and discounted using current interest rates. Macroeconomic factors could affect the credit performance of our portfolio and therefore could potentially impact the assumptions used in our cash flow model.