December 31, 2011, 2010 and 2009 (currencies in millions)  Level 2 – Valuations are based on 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 indirect market information that is significant to the overall fair value measurement and which require a  significant degree of management judgment. The Company has no financial instruments requiring Level 3  valuation.  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 based on quoted prices in active markets. These 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 estimated using an industry standard valuation model, which is based on  the income approach. The significant inputs into the valuation model include quoted interest rates, yield curves,  credit rating of the security and other observable market information. These 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. The  significant inputs into the valuation models include market inputs such as interest rates, yield curves, currency  exchange rates, credit default swap spreads and forward spot rates. These contracts are categorized as Level 2. PACCAR’s assets and liabilities subject to recurring fair value measurements are either Level 1 or Level 2 as follows:  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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS