Fair Value Measurements

9 Months Ended

Sep. 25, 2011

Fair Value Measurements

Fair Value Measurements

NOTE 9 – FAIR VALUE MEASUREMENTS

The following table presents assets and liabilities measured and recorded at fair value on our Balance Sheets on a recurring basis, and their level within the fair value hierarchy:

	September 25, 2011					December 31, 2010
	Total	Level 1		Level 2		Total		Level 1		Level 2
	(In millions)
Assets
Equity securities (1)	$    76	$	76	$	—	$	86	$	86	$	—
Mutual funds (1)	316		316		—		450		450		—
U.S. Government securities (2)	225		—		225		719		—		719
Other securities (2)	98		—		98		104		—		104
Derivative assets (3)	49		—		49		26		—		26
Liabilities
Derivative liabilities (3)	25		—		25		33		—		33

(1) Equity securities and interests in mutual funds are valued using quoted market prices.

(2) U.S. Government securities and other securities, which consist primarily of corporate debt securities, U.S. Government-sponsored enterprise securities, and mortgage-backed securities, are valued based on inputs other than quoted prices that are observable for the asset (e.g., interest rates and yield curves observable at commonly quoted intervals).

(3) Derivative assets and liabilities relate to foreign currency exchange and interest rate swap contracts and are valued based on observable market prices (e.g., interest rates and yield curves observable at commonly quoted intervals), but are not exchanged in an active market.

We maintain a Rabbi Trust which includes investments to fund certain of our non-qualified deferred compensation plans. Investments in the trust are classified as trading securities and, accordingly, changes in their fair values are recorded in other non-operating income (expense), net. As of September 25, 2011 and December 31, 2010, investments in the trust totaled $712 million and $843 million and are included within the investment securities categories listed in the table above. Those investment categories also include available-for-sale securities held for general corporate purposes that we have classified as short-term investments on our Balance Sheets. As of December 31, 2010, these securities primarily consisted of U.S. Treasury securities with a fair value of approximately $500 million, which matured during the nine months ended September 25, 2011. The cost basis of these securities was not materially different from their respective fair value as of December 31, 2010.

Derivative assets and liabilities included in the table above relate to derivative financial instruments that we use to manage our exposure to fluctuations in foreign currency exchange rates and interest rates. Foreign currency exchange contracts are entered into to manage the exchange rate risk of forecasted foreign currency denominated cash receipts and cash payments. The majority of our foreign currency exchange contracts are designated as cash flow hedges. We also use derivative financial instruments to manage our exposure to changes in interest rates. Our financial instruments that are subject to interest rate risk principally include fixed-rate, long-term debt. Our interest rate swap contracts are designated as fair value hedges. We do not hold or issue derivative financial instruments for trading or speculative purposes.

The classification of gains and losses resulting from changes in the fair values of derivatives is dependent on our intended use of the derivative and its resulting designation. Adjustments to reflect changes in fair values of derivatives attributable to the effective portion of hedges that we consider highly effective hedges are either reflected in earnings and largely offset by corresponding adjustments to the hedged items, or reflected net of income taxes in accumulated other comprehensive loss until the hedged transaction is recognized in earnings. Changes in the fair value of the derivatives that are attributable to the ineffective portion of the hedges, or of derivatives that are not considered to be highly effective hedges, if any, are immediately recognized in earnings. The aggregate notional amount of our outstanding foreign currency exchange contracts at September 25, 2011 and December 31, 2010 was $1.9 billion and $2.2 billion. The aggregate notional amount of our interest rate swap contracts at September 25, 2011 was $450 million, and we had no interest rate swap contracts outstanding at December 31, 2010. The effect of our derivative instruments on our Statements of Earnings for the quarters and nine months ended September 25, 2011 and September 26, 2010, and on our Balance Sheets as of September 25, 2011 and December 31, 2010, was not material.

Our cash equivalents include highly liquid instruments with remaining maturities at the date of acquisition of 90 days or less. Due to the short maturity of these instruments, the carrying amount on our Balance Sheets approximates fair value. Our accounts receivable and accounts payable are carried at cost, which approximates fair value. The estimated fair values of our long-term debt instruments at September 25, 2011 and December 31, 2010, aggregated $8,627 million and $6,211 million, compared with a carrying amount of $7,545 million and $5,524 million, which excludes the $507 million and $505 million unamortized discount. The fair values of our long-term debt instruments were estimated based on quoted market prices of debt with terms and due dates similar to our long-term debt instruments.