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Fair Value Measurements
9 Months Ended
Oct. 02, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Note 8–Fair Value Measurements
The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than quoted prices in active markets for identical assets or liabilities that are observable either directly or indirectly or quoted prices that are not active (Level 2); and unobservable inputs in which there is little or no market data (e.g., discounted cash flow and other similar pricing models), which requires us to develop our own assumptions about the assumptions that market participants would use in pricing the asset or liability (Level 3).
The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings. We have not made fair value option elections for any of our financial assets and liabilities.
The financial instruments measured at fair value on a recurring basis consisted of the following:
October 2, 2020January 3, 2020
Carrying valueFair valueCarrying valueFair value
(in millions)
Financial assets:
Derivatives$ $ $$
Financial liabilities:
Derivatives$115 $115 $75 $75 
As of October 2, 2020, our derivatives primarily consisted of the cash flow interest rate swaps on $1.4 billion of the variable rate senior unsecured term loan (see "Note 9–Derivative Instruments"). The fair value of the cash flow interest rate swaps is determined based on observed values for underlying interest rates on the LIBOR yield curve and the underlying interest rate (Level 2 inputs).
The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values. The carrying value of our notes receivable of $20 million as of October 2, 2020, and January 3, 2020, approximates fair value as the stated interest rates within the agreements are consistent with current market rates used in notes with similar terms in the market (Level 2 inputs).
As of October 2, 2020, and January 3, 2020, the fair value of debt was $4.9 billion and $3.1 billion, respectively, and the carrying amount was $4.5 billion and $3.0 billion, respectively (see "Note 10–Debt"). The fair value of long-term debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements (Level 2 inputs).
On January 31, 2020 and May 4, 2020, non-financial instruments measured at fair value on a non-recurring basis were recorded in connection with the acquisitions of Dynetics and the SD&A Businesses, respectively (see "Note 4–Acquisitions"). The preliminary fair values of the assets acquired and liabilities assumed were determined using Level 3 inputs. Additionally, on July 3, 2020, we had a real estate property measured at fair value (Level 2), which resulted in an impairment charge of $11 million (see "Note 7–Leases"). As of October 2, 2020, we did not have any assets or liabilities measured at fair value on a non-recurring basis.