Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

NOTE J - Fair Value Measurements

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs to valuation techniques used to measure fair value are either observable or unobservable. These inputs have been categorized into the fair value hierarchy described below.

Level 1 – Valuations are based on inputs from quoted prices that the Company has the ability to obtain in actively traded markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, valuation of these instruments does not require a significant degree of judgment.

Level 2 – Valuations are based on inputs from quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained from unobservable market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.

There were no transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2012. The Company’s policy is to recognize transfers between levels at the end of the reporting period.

The Company uses the following methods and assumptions to measure fair value for assets and liabilities subject to recurring fair value measurements.

Marketable Securities: The Company’s marketable debt securities consist of municipal bonds, government obligations, investment-grade corporate obligations, commercial paper, asset-backed securities and term deposits. The fair value of U.S. government obligations is determined using the market approach and is based on quoted prices in active markets and are categorized as Level 1.

The fair value of non-U.S. government bonds, municipal bonds, corporate bonds, asset-backed securities, commercial paper, and term deposits is determined using the market approach and is primarily based on matrix pricing as a practical expedient which does not rely exclusively on quoted prices for a specific security. Significant inputs used to determine fair value include interest rates, yield curves, credit rating of the security and other observable market information and are categorized as Level 2.

Derivative Financial Instruments: The Company’s derivative contracts consist of interest-rate swaps, cross currency swaps and foreign currency exchange contracts. These derivative contracts are traded over the counter and their fair value is determined using industry standard valuation models, which are based on the income approach (i.e., discounted cash flows). The significant observable inputs into the valuation models include interest rates, yield curves, currency exchange rates, credit default swap spreads and forward spot rates and are categorized as Level 2.

Assets and Liabilities Subject to Recurring Fair Value Measurement

The Company’s assets and liabilities subject to recurring fair value measurements are either Level 1 or Level 2 as follows:

At September 30, 2012	LEVEL 1		LEVEL 2		TOTAL
Assets:
Marketable debt securities
U.S. tax-exempt securities			$	302.3	$	302.3
U.S. corporate securities				28.2		28.2
U.S. government and agency securities	$	.5		.7		1.2
Non-U.S. government securities				393.5		393.5
Non-U.S. corporate securities				151.4		151.4
Other debt securities				79.3		79.3
Total marketable debt securities	$	.5	$	955.4	$	955.9
Derivatives
Interest-rate swaps			$	1.1	$	1.1
Cross currency swaps				.9		.9
Foreign-exchange contracts				.9		.9
Total derivative assets			$	2.9	$	2.9
Liabilities:
Derivatives
Cross currency swaps			$	76.1	$	76.1
Interest-rate swaps				38.5		38.5
Foreign-exchange contracts				.5		.5
Total derivative liabilities			$	115.1	$	115.1

At December 31, 2011	LEVEL 1		LEVEL 2		TOTAL
Assets:
Marketable debt securities
U.S. tax-exempt securities			$	294.4	$	294.4
U.S. corporate securities				27.5		27.5
U.S. government and agency securities	$	1.9				1.9
Non-U.S. government securities				367.1		367.1
Non-U.S. corporate securities				148.3		148.3
Other debt securities				70.9		70.9
Total marketable debt securities	$	1.9	$	908.2	$	910.1
Derivatives
Interest-rate swaps			$	1.4	$	1.4
Cross currency swaps				.8		.8
Foreign-exchange contracts				.2		.2
Total derivative assets			$	2.4	$	2.4
Liabilities:
Derivatives
Cross currency swaps			$	74.7	$	74.7
Interest-rate swaps				33.3		33.3
Foreign-exchange contracts				2.5		2.5
Total derivative liabilities			$	110.5	$	110.5

Fair Value Disclosure of Other Financial Instruments

For financial instruments that are not recognized at fair value, the Company uses the following methods and assumptions to determine the fair value. These instruments are categorized as Level 2, except fixed-rate loans which are categorized as Level 3.

Cash and Cash Equivalents: Carrying amounts approximate fair value.

Financial Services Net Receivables: For floating-rate loans, wholesale financings, and accrued rents and other trade receivables, carrying values approximate fair values. For fixed-rate loans, fair values are estimated using the income approach by discounting cash flows to their present value based on current rates for comparable loans. Finance lease receivables and related allowance for credit losses have been excluded from the accompanying table.

Debt: The carrying amounts of financial services commercial paper, variable-rate bank loans and variable-rate term notes approximate fair value. For fixed-rate debt, fair values are estimated using the income approach by discounting cash flows to their present value based on current rates for comparable debt.

The Company’s estimate of fair value for fixed-rate loans and debt that are not carried at fair value at September 30, 2012 and December 31, 2011 was as follows:

	September 30, 2012				December 31, 2011
	CARRYING AMOUNT		FAIR VALUE		CARRYING AMOUNT		FAIR VALUE
Assets:
Financial Services fixed-rate loans	$	3,190.6	$	3,243.7	$	2,740.1	$	2,776.1
Liabilities:
Truck and Other fixed-rate debt	$	150.0	$	165.1	$	150.0	$	167.6
Financial Services fixed-rate debt	$	3,271.1	$	3,343.4	$	1,958.6	$	2,021.1