Fair Value Information

12 Months Ended

Dec. 31, 2011

Fair Value Measurements

Fair Value Information

Fair Value Information

Fair Value Measurements

The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:

Level 1—Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.

Level 2—Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3—Prices or valuations that require inputs that are significant to the valuation and are unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

During 2011 and 2010, there were no significant transfers among level 1, 2 or 3 fair value determinations.

Set forth below are the financial assets and liabilities measured at fair value as of December 31, 2011 and 2010, together with the inputs used to develop those fair value measurements.

	December 31, 2011		Fair Value Measurements
			Level 1		Level 2		Level 3
	(Millions of dollars)
Assets
Company-owned life insurance (“COLI”)	$	45	$	—	$	45	$	—
Available-for-sale securities	15		15		—		—
Derivatives	61		—		61		—
Total	$	121	$	15	$	106	$	—
Liabilities
Derivatives	$	120	$	—	$	120	$	—

	December 31, 2010		Fair Value Measurements
			Level 1		Level 2		Level 3
	(Millions of dollars)
Assets
Company-owned life insurance (“COLI”)	$	46	$	—	$	46	$	—
Available-for-sale securities	15		15		—		—
Derivatives	70		—		70		—
Total	$	131	$	15	$	116	$	—
Liabilities
Derivatives	$	48	$	—	$	48	$	—

The COLI policies are a source of funding primarily for our nonqualified employee benefits and are included in other assets. Available-for-sale securities are included in other assets. See Note 15 for information on the classification of derivatives in the Consolidated Balance Sheet.

Level 1 Fair Values—The fair values of available-for-sale securities are based on quoted market prices in active markets for identical assets. Unrealized losses on these securities were not significant as of December 31, 2011 and 2010 and have been recorded in other comprehensive income until realized. The unrealized losses have not been recognized in earnings because we have both the intent and ability to hold the securities for a period of time sufficient to allow for an anticipated recovery of fair value to the cost of such securities.

Level 2 Fair Values—The fair value of the COLI policies is derived from investments in a mix of money market, fixed income and equity funds managed by unrelated fund managers. The fair values of derivatives used to manage interest rate risk and commodity price risk are based on LIBOR rates and interest rate swap curves and NYMEX price quotations, respectively. The fair value of hedging instruments used to manage foreign currency risk is based on published quotations of spot currency rates and forward points, which are converted into implied forward currency rates. Additional information on our use of derivative instruments is contained in Note 15.

Fair Value Disclosures

As of December 31, 2011 and 2010, the Consolidated Balance Sheet contains the following financial instruments for which disclosure of fair value is required.

	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	December 31, 2011				December 31, 2010
	(Millions of dollars)
Assets
Cash and cash equivalents(a)	$	764	$	764	$	876	$	876
Time deposits(b)	95		95		80		80
Notes receivable(c)	394		373		611		597
Liabilities and redeemable securities of subsidiaries
Short-term debt(d)	87		87		79		79
Monetization loan(c)	397		386		397		397
Long-term debt(e)	5,648		6,671		4,988		5,556
Redeemable preferred securities of subsidiary(c)	506		568		1,012		1,092
Redeemable common securities of subsidiary(f)	41		41		35		35

(a) Cash equivalents are comprised of certificates of deposit, time deposits and other interest-bearing investments with original maturity dates of 90 days or less. Cash equivalents are recorded at cost, which approximates fair value.

(b) Time deposits, included in Other current assets on the Consolidated Balance Sheet, are comprised of deposits with original maturities of more than 90 days but less than one year. Time deposits are recorded at cost, which approximates fair value.

(c) The note, monetization loan and redeemable preferred securities of subsidiary are not traded in active markets. Accordingly, their fair values were calculated using a floating rate pricing model that compared the stated spread to the fair value spread to determine the price at which each of the financial instruments should trade. The model used the following inputs to calculate fair values: face value, current LIBOR rate, unobservable fair value credit spread, stated spread, maturity date and interest payment dates. The difference between the carrying amount of the note and its fair value represents an unrealized loss position for which an other-than-temporary impairment has not been recognized in earnings because we have both the intent and ability to hold the note for a period of time sufficient to allow for an anticipated recovery of fair value to the carrying amount of the note.

(d) Short-term debt is recorded at cost, which approximates fair value.

(e) Long-term debt excludes the monetization loan and includes the current portion ($619 million and $265 million as of December 31, 2011 and 2010, respectively) of these debt instruments. Fair values were estimated based on quoted prices for financial instruments for which all significant inputs were observable, either directly or indirectly.

(f) The fair value of the redeemable common securities of subsidiary was based on various inputs, including an independent third-party appraisal, adjusted for current market conditions.