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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2013
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS |
12. | FAIR VALUE MEASUREMENTS
General GAAP requires that certain assets and liabilities be measured at fair value on a recurring or nonrecurring basis in our balance sheets, which are presented below under “Recurring Fair Value Measurements” and “Nonrecurring Fair Value Measurements.” Recurring fair value measurements of assets or liabilities are those that GAAP requires or permits in the balance sheet at the end of each reporting period, such as derivative financial instruments. Nonrecurring fair value measurements of assets or liabilities are those that GAAP requires or permits in the balance sheet in particular circumstances, such as the impairment of property, plant and equipment. GAAP also requires the disclosure of the fair values of financial instruments when an option to elect fair value accounting has been provided, but such election has not been made. A debt obligation is an example of such a financial instrument. The disclosure of the fair values of financial instruments not recognized at fair value in our balance sheet is presented below under “Other Financial Instruments.” GAAP provides a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes inputs to valuation techniques based on the degree to which objective prices in external active markets are available to measure fair value. Following is a description of each of the levels of the fair value hierarchy.
• | Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
• | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• | Level 3 - Unobservable inputs for the asset or liability. Unobservable inputs reflect our own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include occasional market quotes or sales of similar instruments or our own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant judgment.
Recurring Fair Value Measurements The tables below present information (in millions) about our assets and liabilities recognized at their fair values in our balance sheets categorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of September 30, 2013 and December 31, 2012. We have elected to offset the fair value amounts recognized for multiple similar derivative contracts executed with the same counterparty, including any related cash collateral assets or obligations as shown below; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below. We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.
| September 30, 2013
|  |  | Total Gross Fair Value |  | Effect of Counter- party Netting |  | Effect of Cash Collateral Netting |  | Net Carrying Value on Balance Sheet |  | Cash Collateral Paid or Received Not Offset
| Fair Value Hierarchy |
| Level 1 |  | Level 2 |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 1,345 |  |  | $ | 26 |  |  | $ | — |  |  | $ | 1,371 |  |  | $ | (1,331 | ) |  | $ | (5 | ) |  | $ | 35 |  |  | $ | — |
Investments of certain benefit plans | 92 |  |  | — |  |  | 11 |  |  | 103 |  |  | N/A |  |  | N/A |  |  | 103 |  |  | N/A |
Total | $ | 1,437 |  |  | $ | 26 |  |  | $ | 11 |  |  | $ | 1,474 |  |  | $ | (1,331 | ) |  | $ | (5 | ) |  | $ | 138 |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 1,314 |  |  | $ | 37 |  |  | $ | — |  |  | $ | 1,351 |  |  | $ | (1,331 | ) |  | $ | (12 | ) |  | $ | 8 |  |  | $ | (79 | )
Physical purchase contracts | — |  |  | 17 |  |  | — |  |  | 17 |  |  | N/A |  |  | N/A |  |  | 17 |  |  | N/A |
Foreign currency contracts | 5 |  |  | — |  |  | — |  |  | 5 |  |  | N/A |  |  | N/A |  |  | 5 |  |  | N/A |
Total | $ | 1,319 |  |  | $ | 54 |  |  | $ | — |  |  | $ | 1,373 |  |  | $ | (1,331 | ) |  | $ | (12 | ) |  | $ | 30 |  |  |
| December 31, 2012
|  |  | Total Gross Fair Value |  | Effect of Counter- party Netting |  | Effect of Cash Collateral Netting |  | Net Carrying Value on Balance Sheet |  | Cash Collateral Paid or Received Not Offset
| Fair Value Hierarchy |  |  |  |  |
| Level 1 |  | Level 2 |  | Level 3 |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 1,143 |  |  | $ | 60 |  |  | $ | — |  |  | $ | 1,203 |  |  | $ | (1,189 | ) |  | $ | — |  |  | $ | 14 |  |  | $ | — |
Physical purchase contracts | — |  |  | 11 |  |  | — |  |  | 11 |  |  | N/A |  |  | N/A |  |  | 11 |  |  | N/A |
Foreign currency contracts | 1 |  |  | — |  |  | — |  |  | 1 |  |  | N/A |  |  | N/A |  |  | 1 |  |  | N/A |
Investments of certain benefit plans | 87 |  |  | — |  |  | 11 |  |  | 98 |  |  | N/A |  |  | N/A |  |  | 98 |  |  | N/A |
Total | $ | 1,231 |  |  | $ | 71 |  |  | $ | 11 |  |  | $ | 1,313 |  |  | $ | (1,189 | ) |  | $ | — |  |  | $ | 124 |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 1,138 |  |  | $ | 70 |  |  | $ | — |  |  | $ | 1,208 |  |  | $ | (1,189 | ) |  | $ | (13 | ) |  | $ | 6 |  |  | $ | (114 | )
Biofuels blending obligation | — |  |  | 10 |  |  | — |  |  | 10 |  |  | N/A |  |  | N/A |  |  | 10 |  |  | N/A |
Foreign currency contracts | 1 |  |  | — |  |  | — |  |  | 1 |  |  | N/A |  |  | N/A |  |  | 1 |  |  | N/A |
Total | $ | 1,139 |  |  | $ | 80 |  |  | $ | — |  |  | $ | 1,219 |  |  | $ | (1,189 | ) |  | $ | (13 | ) |  | $ | 17 |  |  |  |
A description of our assets and liabilities recognized at fair value along with the valuation methods and inputs we used to develop their fair value measurements are as follows:
• | Commodity derivative contracts consist primarily of exchange-traded futures and swaps, and as disclosed in Note 13, some of these contracts are designated as hedging instruments. These contracts are measured at fair value using the market approach. Exchange-traded futures are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Swaps are priced using third-party broker quotes, industry pricing services, and exchange-traded curves, with appropriate consideration of counterparty credit risk, but because they have contractual terms that are not identical to exchange-traded futures instruments with a comparable market price, these financial instruments are categorized in Level 2 of the fair value hierarchy.
• | Physical purchase contracts represent the fair value of firm commitments to purchase crude oil feedstocks and the fair value of fixed-price corn purchase contracts, and as disclosed in Note 13, some of these contracts are designated as hedging instruments. The fair values of these firm commitments and purchase contracts are measured using a market approach based on quoted prices from the commodity exchange or an independent pricing service and are categorized in Level 2 of the fair value hierarchy.
• | Investments of certain benefit plans consist of investment securities held by trusts for the purpose of satisfying a portion of our obligations under certain U.S. nonqualified benefit plans. The assets categorized in Level 1 of the fair value hierarchy are measured at fair value using a market approach based on quoted prices from national securities exchanges. The assets categorized in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by the insurer.
• | Foreign currency contracts consist of foreign currency exchange and purchase contracts entered into by our international operations to manage our exposure to exchange rate fluctuations on transactions denominated in currencies other than the local (functional) currencies of those operations. These contracts are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy.
• | Our biofuels blending obligation represents a liability for the purchase of biofuel credits (primarily RINs in the U.S.) needed to satisfy our obligation to blend biofuels into the products we produce. To the degree we are unable to blend at percentages required under various governmental and regulatory programs, we must purchase biofuel credits to comply with these programs. These programs are further described in Note 13 under “Compliance Program Risk.” This liability is based on our deficit in biofuel credits as of the balance sheet date, if any, after considering any biofuel credits acquired or under contract, and is equal to the product of the biofuel credits deficit and the market price of these credits as of the balance sheet date. This liability is categorized in Level 2 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.
There were no transfers between Level 1 and Level 2 for assets and liabilities held as of September 30, 2013 and December 31, 2012 that were measured at fair value on a recurring basis. There was no activity during the three and nine months ended September 30, 2013 and 2012 related to the fair value amounts categorized in Level 3 as of September 30, 2013 and December 31, 2012. Nonrecurring Fair Value Measurements There were no assets or liabilities that were measured at fair value on a nonrecurring basis as of September 30, 2013. The table below presents the fair value of certain assets that were measured at fair value on a nonrecurring basis as of December 31, 2012 (in millions).
|  |  | Total Fair Value as of December 31, 2012
| Fair Value Hierarchy |
| Level 1 |  | Level 2 |  | Level 3 |
Cancelled capital project | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | 2 |
Property, plant and equipment of convenience stores | — |  |  | — |  |  | 8 |  |  | 8 |
There were no liabilities that were measured at fair value on a nonrecurring basis as of December 31, 2012. As discussed in Note 3, during the nine months ended September 30, 2012, we recognized asset impairment losses of $928 million, $16 million, and $12 million related to our Aruba Refinery, certain equipment associated with a permanently cancelled capital project at one of our refineries, and certain convenience stores operated by our former retail segment, respectively. These impairment losses resulted from the fair value measurement of those assets on a nonrecurring basis during 2012 as follows:
• | As of March 31, 2012, we concluded that the Aruba Refinery was impaired. As a result, we were required to determine the fair value of the Aruba Refinery and to write down its carrying value to that amount. We determined that the best measure of the refinery’s fair value at that time was the $350 million offer we received to purchase the refinery, which we accepted. The fair value of the Aruba Refinery was measured using the market approach and was categorized in Level 3 within the fair value hierarchy. The carrying value of the Aruba Refinery’s long-lived assets as of March 31, 2012 was $945 million; therefore, we recognized an asset impairment loss of $595 million in March 2012.
• | In March 2012, we wrote down the carrying value of equipment associated with a permanently cancelled capital project at one of our refineries and recognized an asset impairment loss of $16 million.
• | In September 2012, following the withdrawal of the offer to purchase the refinery, we decided to reorganize the Aruba Refinery into a crude oil and refined products terminal and evaluated the refining assets for potential impairment as of September 30, 2012. We concluded that these refining assets were impaired and determined that their carrying value was not recoverable through the future operations and disposition of the refinery, resulting in a total asset impairment loss of $333 million in September 2012.
• | As of September 30, 2012, we evaluated certain convenience stores operated by our former retail segment for potential impairment and concluded that they were impaired. We wrote down the carrying values of these stores to their estimated fair values, which totaled $5 million, and recognized an asset impairment loss of $12 million that was recorded in September 2012.
Other Financial Instruments Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below (in millions):
| September 30, 2013 |  | December 31, 2012
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial assets: |  |  |  |  |  |  |
Cash and temporary cash investments | $ | 1,908 |  |  | $ | 1,908 |  |  | $ | 1,723 |  |  | $ | 1,723 |
Equity investment in CST | 119 |  |  | 449 |  |  | — |  |  | — |
Financial liabilities: |  |  |  |  |  |  |
Debt (excluding capital leases) | 6,524 |  |  | 7,545 |  |  | 7,000 |  |  | 8,621 |
The methods and significant assumptions used to estimate the fair value of these financial instruments are as follows:
• | The fair value of cash and temporary cash investments approximates the carrying value due to the low level of credit risk of these assets combined with their short maturities and market interest rates (Level 1).
• | The fair value of our equity investment in CST is determined using the market approach based on the quoted price of CST stock from a national securities exchange (Level 1).
• | The fair value of debt is determined primarily using the market approach based on quoted prices provided by third-party brokers and vendor pricing services (Level 2).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13504-108611 + Details
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