Fair Value Measurements

9 Months Ended

Oct. 02, 2021

Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into the following three broad levels:

•Level 1: Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs (e.g. U.S. Treasuries and money market funds).

•Level 2: Observable prices that are based on inputs not quoted in active markets but corroborated by market data.

•Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs to the extent possible. In addition, the Company considers counterparty credit risk in the assessment of fair value.

The Company’s financial assets and liabilities carried at fair value as of October 2, 2021, are classified below (in millions):


	Level 1		Level 2		Level 3		Total
Assets:
Foreign exchange contracts (1)	$	—	$	22	$	—	$	22

Money market investments related to deferred compensation plan	35		—		—		35
Total Assets at fair value	$	35	$	22	$	—	$	57
Liabilities:
Foreign exchange contracts (1)	$	1	$	—	$	—	$	1
Forward interest rate swap contracts (2)	—		29		—		29
Liabilities related to the deferred compensation plan	35		—		—		35
Total Liabilities at fair value	$	36	$	29	$	—	$	65

The Company’s financial assets and liabilities carried at fair value as of December 31, 2020, are classified below (in millions):


	Level 1		Level 2		Level 3		Total
Assets:


Money market investments related to deferred compensation plan	$	30	$	—	$	—	$	30
Total Assets at fair value	$	30	$	—	$	—	$	30
Liabilities:
Foreign exchange contracts (1)	$	3	$	34	$	—	$	37
Forward interest rate swap contracts (2)	—		46		—		46
Liabilities related to the deferred compensation plan	30		—		—		30
Total Liabilities at fair value	$	33	$	80	$	—	$	113

(1)The fair value of the foreign exchange contracts is calculated as follows:

•Fair value of regular forward contracts associated with forecasted sales hedges is calculated using the period-end exchange rate adjusted for current forward points.

•Fair value of hedges against net assets is calculated at the period-end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at year end (Level 2). If this is the case, the fair value is calculated at the rate at which the hedge is being settled (Level 1).

(2)The fair value of forward interest rate swaps is based upon a valuation model that uses relevant observable market inputs at the quoted intervals, such as forward yield curves, and is adjusted for the Company’s credit risk and the interest rate swap terms.