Fair Value Measurements

9 Months Ended

Sep. 30, 2020

FAIR VALUE MEASUREMENTS

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:


Level 1	–	Quoted prices for identical instruments in active markets.
Level 2	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3	–	Valuations derived from techniques in which one or more significant inputs are unobservable.

The tables below present assets and liabilities measured at fair value on a recurring basis (in millions).


		September 30, 2020
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	5	$	—	$	5
Treasury securities	Cash and cash equivalents	500		—		—		500
Equity securities:
Money market funds	Cash and cash equivalents	—		59		—		59
Time deposits	Prepaid expenses and other current assets	—		250		—		250
Mutual funds	Prepaid expenses and other current assets	13		—		—		13
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		3		—		3
Mutual funds	Other noncurrent assets	190		—		—		190
Company-owned life insurance contracts	Other noncurrent assets	—		46		—		46
Total		$	703	$	363	$	—	$	1,066
Liabilities
Deferred compensation plan	Accrued liabilities	$	26	$	—	$	—	$	26
Deferred compensation plan	Other noncurrent liabilities	209		—		—		209
Total		$	235	$	—	$	—	$	235


		December 31, 2019
Category	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Time deposits	Cash and cash equivalents	$	—	$	10	$	—	$	10
Equity securities:
Mutual funds	Prepaid expenses and other current assets	11		—		—		11
Company-owned life insurance contracts	Prepaid expenses and other current assets	—		4		—		4
Mutual funds	Other noncurrent assets	192		—		—		192
Company-owned life insurance contracts	Other noncurrent assets	—		45		—		45
Total		$	203	$	59	$	—	$	262
Liabilities
Deferred compensation plan	Accrued liabilities	$	24	$	—	$	—	$	24
Deferred compensation plan	Other noncurrent liabilities	209		—		—		209
Total		$	233	$	—	$	—	$	233

Equity securities include investments in mutual funds held in separate trusts, which are owned as part of the Company's supplemental retirement plans, and company-owned life insurance contracts. The fair value of Level 1 equity securities was determined by reference to the quoted market price per share in active markets multiplied by the number of shares held without consideration of transaction costs. The fair value of the deferred compensation plan liability was determined based on the fair value of the related investments elected by employees. Changes in the fair value of the investments are offset by changes in the fair value of the deferred compensation obligation. Company-owned life insurance contracts are recorded at their cash surrender value, which approximates fair value (Level 2).

In addition to the financial instruments listed in the tables above, the Company has other financial instruments, including cash deposits, accounts receivable, accounts payable, and senior notes. The carrying values for such financial instruments, other than the senior notes, each approximated their fair values as of September 30, 2020 and December 31, 2019. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over-the-counter markets, considered Level 2 inputs, was $17.9 billion and $17.1 billion as of September 30, 2020 and December 31, 2019, respectively.

The Company's derivative financial instruments are discussed in Note 8.

- 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.

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