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Fair Value Measurements | 6 Months Ended
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Apr. 03, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows: Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date. Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: •Quoted prices for similar assets or liabilities in active markets; •Quoted prices for identical or similar assets in non-active markets; •Inputs other than quoted prices that are observable for the asset or liability; and •Inputs derived principally from or corroborated by other observable market data. Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. Assets and Liabilities Measured at Fair Value on a Recurring Basis The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables set forth by level within the fair value hierarchy our financial assets and liabilities accounted for at fair value on a recurring basis according to the valuation techniques we used to determine their fair values (in millions):
April 3, 2021 | Level 1 |  | Level 2 |  | Level 3 |  | Netting (a) |  | Total
Other Current Assets: |  |  |  |  |  |  |  |  |
Derivative financial instruments: |  |  |  |  |  |  |  |  |
Designated as hedges | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | (2) |  |  | $ | 1 |
Undesignated | — |  |  | 256 |  |  | — |  |  | (161) |  |  | 95 |
Other Assets: |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |
Non-current | — |  |  | 55 |  |  | 53 |  |  | — |  |  | 108 |
Deferred compensation assets | 12 |  |  | 385 |  |  | — |  |  | — |  |  | 397 |
Total assets | $ | 12 |  |  | $ | 699 |  |  | $ | 53 |  |  | $ | (163) |  |  | $ | 601 |
Other Current Liabilities: |  |  |  |  |  |  |  |  |
Derivative financial instruments: |  |  |  |  |  |  |  |  |
Designated as hedges | $ | — |  |  | $ | 43 |  |  | $ | — |  |  | $ | (43) |  |  | $ | — |
Undesignated | — |  |  | 159 |  |  | — |  |  | (126) |  |  | 33 |
Total liabilities | $ | — |  |  | $ | 202 |  |  | $ | — |  |  | $ | (169) |  |  | $ | 33 |
October 3, 2020 | Level 1 |  | Level 2 |  | Level 3 |  | Netting (a) |  | Total
Other Current Assets: |  |  |  |  |  |  |  |  |
Derivative financial instruments: |  |  |  |  |  |  |  |  |
Designated as hedges | $ | — |  |  | $ | 4 |  |  | $ | — |  |  | $ | (2) |  |  | $ | 2 |
Undesignated | — |  |  | 96 |  |  | — |  |  | (51) |  |  | 45 |
Other Assets: |  |  |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |  |  |
Non-current | — |  |  | 55 |  |  | 53 |  |  | — |  |  | 108 |
Deferred compensation assets | 19 |  |  | 336 |  |  | — |  |  | — |  |  | 355 |
Total assets | $ | 19 |  |  | $ | 491 |  |  | $ | 53 |  |  | $ | (53) |  |  | $ | 510 |
Other Current Liabilities: |  |  |  |  |  |  |  |  |
Derivative financial instruments: |  |  |  |  |  |  |  |  |
Designated as hedges | $ | — |  |  | $ | 10 |  |  | $ | — |  |  | $ | (10) |  |  | $ | — |
Undesignated | — |  |  | 74 |  |  | — |  |  | (59) |  |  | 15 |
Total liabilities | $ | — |  |  | $ | 84 |  |  | $ | — |  |  | $ | (69) |  |  | $ | 15 |
(a) Our derivative assets and liabilities are presented in our Consolidated Condensed Balance Sheets on a net basis when a legally enforceable master netting arrangement exists between the counterparty to a derivative contract and us. Additionally, at April 3, 2021, and October 3, 2020, we had $6 million and $16 million, respectively, of net cash collateral with various counterparties where master netting arrangements exist and held no cash collateral. The following table provides a reconciliation between the beginning and ending balance of marketable debt securities measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions):
| Six Months Ended
| April 3, 2021 |  | March 28, 2020
Balance at beginning of year | $ | 53 |  |  | $ | 52 |
Total realized and unrealized gains (losses): |  |  |
Included in earnings | — |  |  | — |
Included in other comprehensive income (loss) | (1) |  |  | (1) |
Purchases | 14 |  |  | 5 |
Issuances | — |  |  | — |
Settlements | (13) |  |  | (9) |
Balance at end of period | $ | 53 |  |  | $ | 47 |
Total gains (losses) for the six month period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at end of period | $ | — |  |  | $ | — |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Derivative Assets and Liabilities Our derivative financial instruments primarily include exchange-traded and over-the-counter contracts which are further described in Note 10: Derivative Financial Instruments. We record our derivative financial instruments at fair value using quoted market prices, adjusted where necessary for credit and non-performance risk and internal models that use readily observable market inputs as their basis, including current and forward market prices and rates. We classify these instruments in Level 2 when quoted market prices can be corroborated utilizing observable current and forward commodity market prices on active exchanges or observable market transactions. Available-for-Sale Securities Our investments in marketable debt securities are classified as available-for-sale and are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance risk. Short-term investments with maturities of less than 12 months are included in Other current assets in the Consolidated Condensed Balance Sheets and primarily include certificates of deposit and commercial paper. All other marketable debt securities are included in Other Assets in the Consolidated Condensed Balance Sheets and have maturities generally less than 40 years. We classify our investments in U.S. government, U.S. agency, certificates of deposit and commercial paper debt securities as Level 2 as fair value is generally estimated using discounted cash flow models that are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other readily available relevant economic measures. We classify certain corporate, asset-backed and other debt securities as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated condensed financial statements. The following table sets forth our available-for-sale securities' amortized cost basis, fair value and unrealized gain (loss) by significant investment category (in millions):
| April 3, 2021 |  | October 3, 2020
| Amortized Cost Basis |  | Fair Value |  | Unrealized Gain (Loss) |  | Amortized Cost Basis |  | Fair Value |  | Unrealized Gain (Loss)
Available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |
U.S. treasury and agency | $ | 55 |  |  | $ | 55 |  |  | $ | — |  |  | $ | 55 |  |  | $ | 55 |  |  | $ | — |
Corporate and asset-backed | 52 |  |  | 53 |  |  | 1 |  |  | 51 |  |  | 53 |  |  | 2 |
Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in OCI until the security is settled or sold. On a quarterly basis, we evaluate whether losses related to our available-for-sale securities are due to credit or non-credit factors. Losses on debt securities where we have the intent, or will more than likely be required, to sell the security prior to recovery, would be recorded as a direct write-off of amortized cost basis through earnings. Losses on debt securities where we do not have the intent, or would not more than likely be required to sell the security prior to recovery, would be further evaluated to determine whether the loss is credit or non-credit related. Credit-related losses would be recorded through an allowance for credit losses in earnings and non-credit related losses in OCI. We consider many factors in determining whether a loss is credit-related, including the financial condition and near-term prospects of the issuer, borrower repayment characteristics for asset-backed securities, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. We recognized no direct write-offs or allowances for credit losses in earnings for the three and six months ended April 3, 2021, and March 28, 2020. Deferred Compensation Assets We maintain non-qualified deferred compensation plans for certain executives and other highly compensated employees. Investments are maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The investments are recorded at fair value based on quoted market prices and are included in Other Assets in the Consolidated Condensed Balance Sheets. We classify the investments which have observable market prices in active markets in Level 1 as these are generally publicly traded mutual funds. The remaining deferred compensation assets are classified in Level 2, as fair value can be corroborated based on observable market data. Realized and unrealized gains (losses) on deferred compensation are included in earnings. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. We did not have any significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during the six months ended April 3, 2021, and March 28, 2020. Other Financial Instruments Fair value of our debt is principally estimated using Level 2 inputs based on quoted prices for those or similar instruments. Fair value and carrying value for our debt are as follows (in millions):
| April 3, 2021 |  | October 3, 2020
| Fair Value |  | Carrying Value |  | Fair Value |  | Carrying Value
Total debt | $ | 11,665 |  |  | $ | 10,364 |  |  | $ | 12,982 |  |  | $ | 11,339 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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