Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy in accordance with 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. ASC Topic 820 established 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. 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 December 31, 2023 are classified below (in millions):


	Level 1		Level 2		Level 3		Total
Assets:

Forward interest rate swap contracts (2)	$	—	$	83	$	—	$	83
Investments related to the deferred compensation plan	41		—		—		41
Total Assets at fair value	$	41	$	83	$	—	$	124
Liabilities:
Foreign exchange contracts (1)	$	1	$	6	$	—	$	7
Forward interest rate swap contracts (2)	—		28		—		28
Liabilities related to the deferred compensation plan	41		—		—		41
Total Liabilities at fair value	$	42	$	34	$	—	$	76

The Company’s financial assets and liabilities carried at fair value as of December 31, 2022 are classified below (in millions):


	Level 1		Level 2		Level 3		Total
Assets:

Forward interest rate swap contracts (2)	$	—	$	72	$	—	$	72
Investments related to the deferred compensation plan	35		—		—		35
Total Assets at fair value	$	35	$	72	$	—	$	107
Liabilities:
Foreign exchange contracts (1)	$	5	$	14	$	—	$	19

Liabilities related to the deferred compensation plan	35		—		—		35
Total Liabilities at fair value	$	40	$	14	$	—	$	54

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

•Fair value of 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 denominated in foreign currencies 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.