Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements.

U.S. GAAP requires enhanced disclosures about investments and non-recurring non-financial assets and non-financial liabilities that are measured and reported at fair value and has established a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments or non-financial assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments and non-financial assets and/or liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices are available in active markets for identical investments as of the reporting date. The types of investments included in Level 1 include listed equities and listed derivatives. We do not adjust the quoted price for these investments, even in situations where we hold a large position.

Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments that are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives. The inputs and assumptions of our Level 2 investments are derived from market observable sources including: reported trades, broker/dealer quotes and other pertinent data.

Level 3 - Pricing inputs are unobservable for the investment and non-financial asset and/or liability and include situations where there is little, if any, market activity for the investment or non-financial asset and/or liability. The inputs into the determination of fair value require significant management judgment or estimation. Fair value is determined using comparable market transactions and other valuation methodologies, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. Significant transfers, if any, between the levels within the fair value hierarchy are recognized at the beginning of the reporting period.

Investment

The following table summarizes the valuation of the Investment Funds' investments by the above fair value hierarchy levels as of September 30, 2012 and December 31, 2011: 

	September 30, 2012								December 31, 2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets	(in millions)
Investments:
Equity securities:
Basic materials	$	84	$	—	$	—	$	84	$	128	$	—	$	—	$	128
Communications	211		43		—		254		2,593		—		—		2,593
Consumer, non-cyclical	1,300		—		—		1,300		1,778		26		—		1,804
Consumer, cyclical	409		3		—		412		376		378		—		754
Energy	966		—		—		966		1,644		29		—		1,673
Financial	237		—		—		237		263		—		—		263
Funds	—		304		—		304		—		—		—		—
Industrial	—		—		—		—		—		32		—		32
Technology	268		—		—		268		254		—		—		254
Utilities	56		67		—		123		83		21		—		104
	3,531		417		—		3,948		7,119		486		—		7,605
Corporate debt:
Communications	—		—		—		—		—		84		—		84
Consumer, cyclical	—		—		293		293		—		150		289		439
Financial	—		48		—		48		—		109		—		109
Sovereign debt	—		3		—		3		—		10		—		10
Utilities	—		31		—		31		—		34		—		34
	—		82		293		375		—		387		289		676
Mortgage-backed securities:
Financial	—		177		—		177		—		167		—		167
	3,531		676		293		4,500		7,119		1,040		289		8,448
Derivative contracts, at fair value(1)	—		—		—		—		—		3		—		3
	$	3,531	$	676	$	293	$	4,500	$	7,119	$	1,043	$	289	$	8,451
Liabilities
Securities sold, not yet purchased, at fair value:
Equity securities:
Consumer, cyclical	$	295	$	—	$	—	$	295	$	—	$	—	$	—	$	—
Energy	—		—		—		—		—		—		—		—
Funds	—		19		—		19		4,466		10		—		4,476
	295		19		—		314		4,466		10		—		4,476
Derivative contracts, at fair value(2)	—		383		—		383		—		42		—		42
	$	295	$	402	$	—	$	697	$	4,466	$	52	$	—	$	4,518

⁽¹⁾  Included in other assets in our consolidated balance sheets.

⁽²⁾  Included in accrued expenses and other liabilities in our consolidated balance sheets.

The changes in investments measured at fair value for which the Investment segment has used Level 3 input to determine fair value are as follows:

	Nine Months Ended September 30,
	2012			2011
	(in millions)
Balance at January 1	$	289		$	329
Gross realized and unrealized gains	8			2
Gross proceeds	(4		)	(47		)
Balance at September 30	$	293		$	284

Unrealized gains of $8 million are included in earnings related to Level 3 investments still held at September 30, 2012. Total realized and unrealized gains and losses recorded for Level 3 investments, if any, are reported in net gain from investment activities in our consolidated statements of operations.

The Investment Funds owned one Level 3 corporate debt investment at September 30, 2012.  Fair value was determined through yield analysis of comparable loans to which we applied a risk premium that we determined to be appropriate, which resulted in a lower valuation for our Level 3 investment.  Adjusting the risk premium by 1% in either direction would result in a 3% change in the fair value of the loan.

Other Segments and Holding Company

The following table summarizes the valuation of our Automotive and Energy segments and our Holding Company investments and derivative contracts by the above fair value hierarchy levels as of September 30, 2012 and December 31, 2011: 

	September 30, 2012						December 31, 2011
	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets	(in millions)
Marketable equity and debt securities	$	1	$	—	$	1	$	20	$	—	$	20
Trading securities	—		60		60		—		—		—
Investments in precious metals	—		—		—		150		—		150
Derivative contracts, at fair value(1)	—		—		—		—		3		3
	$	1	$	60	$	61	$	170	$	3	$	173
Liabilities
Derivative contracts, at fair value(2)	$	—	$	144	$	144	$	—	$	57	$	57

⁽¹⁾  Amounts are classified within other assets in our consolidated balance sheets.

⁽²⁾  Amounts are classified within accrued expenses and other liabilities in our consolidated balance sheets.

Assets measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012 are set forth in the table below:

	September 30, 2012
	Level 3		Recognized
Category	Asset		Loss
	(in millions)
Property, plant and equipment	$	77	$	39
Intangibles	56		48

We determined the fair value of property, plant and equipment by applying probability weighted, expected present value techniques to the estimated future cash flows using assumptions a market participant would utilize and through the use of valuation specialists.

The fair values of intangible assets, primarily related to certain trademarks and brand names, are based upon the prospective stream of hypothetical after-tax royalty cost savings discounted at rates that reflect the rates of return appropriate for these intangible assets.