Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

Fair value is measured based on an exit price, representing the amount that would be received to sell an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A summary of financial instruments recognized at fair value, and the fair value measurements used, follows:

	Total		Quoted prices in active markets for identical assets (Level 1)		Other observable inputs (Level 2)		Unobservable inputs (Level 3)
2011
Cash	$	385	$	385	$	—	$	—
Short-term investments	699		699		—		—
Net derivative contracts	46		—		46		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	66		—		66		—
2010
Cash	$	333	$	333	$	—	$	—
Short-term investments	838		838		—		—
Net derivative contracts	69		—		69		—
Long-term debt converted to floating interest rates by    interest rate swaps - net	42		—		42		—

Eaton values its financial instruments using an industry standard market approach, in which prices and other relevant information is generated by market transactions involving identical or comparable assets or liabilities. No financial instruments were recognized using unobservable inputs.

Other Fair Value Measurements

Long-term debt and the current portion of long-term debt had a carrying value of $3,687 and fair value of $4,273 at December 31, 2011 compared to $3,386 and $3,787, respectively, at December 31, 2010.

Short-Term Investments

Eaton invests excess cash generated from operations in short-term marketable investments. For those investments classified as “available-for-sale”, Eaton marks these investments to fair value with the offset recognized in Accumulated other comprehensive loss. A summary of the carrying value of short-term investments follows:

	2011		2010
Time deposits, certificate of deposits and demand deposits with banks	$	466	$	592
Money market investments	228		246
Other	5		—
Total short-term investments	$	699	$	838