FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 29, 2019

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following (in millions):



	September 29, 2019						December 31, 2018
	Total		Level 1		Level 2		Total		Level 1		Level 2
Assets
Mutual funds	$	998	$	998	$	—	$	978	$	978	$	—
U.S. Government securities	88		—		88		105		—		105
Other securities	285		135		150		144		28		116
Derivatives	30		—		30		22		—		22
Liabilities
Derivatives	37		—		37		61		—		61
Assets measured at NAV ^(a)
Other commingled funds	18						18


^(a)	Net Asset Value (NAV) is the total value of the fund divided by the number of the fund’s shares outstanding.

Substantially all assets measured at fair value, other than derivatives, represent investments held in a separate trust to fund certain of our non-qualified deferred compensation plans and are recorded in other noncurrent assets on our consolidated balance sheets. The fair values of mutual funds and certain other securities are determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair values of U.S. Government and other securities are determined using pricing models that use observable inputs (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers or quoted prices of securities with similar characteristics. The fair values of derivative instruments, which consist of foreign currency forward contracts, including embedded derivatives, and interest rate swap contracts, are primarily determined based on the present value of future cash flows using model-derived valuations that use observable inputs such as interest rates, credit spreads and foreign currency exchange rates.

The derivatives outstanding at both September 29, 2019 and December 31, 2018 consist of foreign currency forward contracts, interest rate swaps and foreign currency related contract embedded derivatives. We use derivative instruments principally to reduce our exposure to market risks from changes in foreign currency exchange rates and interest rates. We do not enter into or hold derivative instruments for speculative trading purposes. We transact business globally and are subject to risks associated with changing foreign currency exchange rates. We enter into foreign currency hedges such as forward and option contracts that change in value as foreign currency exchange rates change. These contracts hedge forecasted foreign currency transactions in order to mitigate fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates. We designate foreign currency hedges as cash flow hedges. We also are exposed to the impact of interest rate changes primarily through our borrowing activities. For fixed rate borrowings, we may use variable interest rate swaps, effectively converting fixed rate borrowings to variable rate borrowings, in order to reduce the amount of interest paid. These swaps are designated as fair value hedges. For variable rate borrowings, we may use fixed interest rate swaps, effectively converting variable rate borrowings to fixed rate borrowings, in order to mitigate the impact of interest rate changes on earnings. These swaps are designated as cash flow hedges. We also may enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting, which are intended to mitigate certain economic exposures.

The aggregate notional amount of our outstanding interest rate swaps at September 29, 2019 and December 31, 2018 was $1.5 billion and $1.3 billion. The aggregate notional amount of our outstanding foreign currency hedges at September 29, 2019 and December 31, 2018 was $4.1 billion and $3.5 billion. The fair values of our outstanding interest rate swaps and foreign currency hedges at September 29, 2019 and December 31, 2018 were not significant. Derivative instruments did not have a material impact on net earnings and comprehensive income during the quarters and nine

months ended September 29, 2019 and September 30, 2018. Substantially all of our derivatives are designated for hedge accounting.

In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables, accounts payable and debt and commercial paper. The carrying amounts for cash and cash equivalents, receivables and accounts payable approximated their fair values. The estimated fair value of our outstanding debt was $17.0 billion and the outstanding principal amount was $14.7 billion at September 29, 2019, excluding unamortized discounts and issuance costs of $1.2 billion. The estimated fair value of our outstanding debt and commercial paper was $15.4 billion and the outstanding principal amount was $15.3 billion at December 31, 2018, excluding unamortized discounts and issuance costs of $1.2 billion. The estimated fair values of our outstanding debt and commercial paper were determined based on observable inputs (Level 2).