Note 11—Fair Value Measurements
As of January 3, 2025, our derivatives primarily consisted of the cash flow interest rate swaps on $500 million of the variable rate senior unsecured term loan (see “Note 12—Derivative Instruments”). The carrying value and fair value of our cash flow interest rate swap was $4 million. The fair value of the cash flow interest rate swaps was determined based on observed values for underlying interest rates on the one-month Secured Overnight Financing Rate ("SOFR") rate as of January 3, 2025 (Level 2 inputs). The $500 million interest rate swaps matured in August 2025.
Financial instruments measured on a recurring basis at fair value also include our defined benefit plan assets (Level 2 inputs). See “Note 19—Retirement Plans” for further details on these investments.
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 $15 million and $16 million as of January 2, 2026, and January 3, 2025, respectively, approximates fair value as the stated interest rates within the agreements are consistent with the current market rates used in notes with similar terms in the market (Level 2 inputs). Our notes receivable are included within “Other current assets” and "Other long-term assets" on the consolidated balance sheets.
As of January 2, 2026, and January 3, 2025, the fair value of debt was $4.7 billion and $4.5 billion, respectively, and the carrying amount was $4.6 billion and $4.7 billion, respectively (see “Note 13—Debt”). The fair value of debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements (Level 2 inputs).
In fiscal 2023, we recorded impairment charges of SES’ goodwill (see “Note 8—Goodwill and Intangible Assets”). The fair values of the assets and liabilities of the SES reporting unit were determined using a blended approach, including discounted cash flow models and market earnings multiples. The market approach estimates fair value based on profitability and valuation metrics for peer companies and applies a multiple to the reporting unit’s operating performance. The income approach estimates fair value by discounting the reporting unit’s estimated future cash flows using a weighted-average cost of capital reflecting current market conditions as well as the risk profile of the reporting unit. Future cash flows are based on estimates of economic and market assumptions made using the best judgment of management, including growth rates in revenue and margins, and future changes in tax rates and cash expenditures. Other significant assumptions and estimates include estimates of future capital expenditures, terminal value growth rates, and changes in future working capital requirements. The fair value of the SES reporting unit was determined using Level 3 inputs.
On May 23, 2025, the assets and liabilities acquired in connection with the Kudu Dynamics acquisition were measured at fair value on a non-recurring basis using Level 3 inputs (see "Note 5—Acquisitions and Divestitures").