v3.25.2
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

NOTE F. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the price (exit 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. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The accounting guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the relevant guidance are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2 — Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes financial instruments that are valued using quoted prices in markets that are not active and those financial instruments that are valued using models or other valuation methodologies in which all significant value-drivers are observable in active markets or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Certain inputs are unobservable or have little or no market data available. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At each balance sheet date, the Company performs an analysis of all instruments subject to authoritative accounting guidance and includes, in Level 3, all of those whose fair value is based on significant unobservable inputs. As of June 30, 2025 and December 31, 2024, the Company did not have any Level 3 financial assets or liabilities.

The following table summarizes the Company’s financial assets and (liabilities) measured at fair value as of June 30, 2025 and December 31, 2024 (dollars in millions):

 

 

 

Fair Value Measurements Using

 

 

 

Quoted Prices in Active
Markets for Identical
Assets (Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

TOTAL

 

 

 

June 30,
2025

 

 

December 31,
2024

 

 

June 30,
2025

 

 

December 31,
2024

 

 

June 30,
2025

 

 

December 31,
2024

 

Cash equivalents

 

$

574

 

 

$

664

 

 

$

—

 

 

$

—

 

 

$

574

 

 

$

664

 

Marketable securities

 

 

19

 

 

 

11

 

 

 

—

 

 

 

—

 

 

 

19

 

 

 

11

 

Rabbi trust assets

 

 

23

 

 

 

20

 

 

 

—

 

 

 

—

 

 

 

23

 

 

 

20

 

Deferred compensation obligation

 

 

(23

)

 

 

(20

)

 

 

—

 

 

 

—

 

 

 

(23

)

 

 

(20

)

Derivative assets

 

 

—

 

 

 

—

 

 

 

2

 

 

 

5

 

 

 

2

 

 

 

5

 

Total

 

$

593

 

 

$

675

 

 

$

2

 

 

$

5

 

 

$

595

 

 

$

680

 

 

The Company’s valuation techniques used to calculate the fair value of cash equivalents, marketable securities, assets held in the rabbi trust and the deferred compensation obligation represent a market approach in active markets for identical assets that qualify as Level 1 in the fair value hierarchy. A description of the Company’s Level 1 assets is as follows:

•
Cash equivalents consist primarily of short-term U.S. government backed securities and time deposits.
•
Marketable securities consist of publicly traded stock of Jing-Jin Electric Technologies Co. Ltd., which has a readily determinable fair value.
•
Rabbi trust assets consist principally of publicly available mutual funds and target date retirement funds.
•
Deferred compensation obligation is directly related to the fair value of assets held in the rabbi trust.

The Company’s valuation techniques used to calculate the fair value of derivative instruments represent a market approach with observable inputs that qualify as Level 2 in the fair value hierarchy. The Company uses valuations from the issuing financial institutions for the fair value measurement of interest rate swaps. The floating-to-fixed interest rate swaps are based on the Secured Overnight Financing Rate ("SOFR"), which is observable at commonly quoted intervals. The fair values are included in other current assets in the Condensed Consolidated Balance Sheets. See "Note H. Derivatives” for more information regarding the Company's interest rate swaps.

The Company holds equity securities in unconsolidated entities without a readily determinable fair value. Each of these investments represents a less than 20% ownership interest in the respective privately-held entity, and the Company does not maintain significant influence over or control of any of the entities. The Company has elected the measurement alternative and measures the investments at cost, less any impairment, plus or minus adjustments related to observable price changes in orderly transactions for identical or similar investments of the same issuer. These equity investments are recorded in Other non-current assets in the Condensed Consolidated Balance Sheets, with changes in the value recorded in Other income (expense), net in the Condensed Consolidated Statements of Comprehensive Income. As of both June 30, 2025 and December 31, 2024, the Company held equity securities without a readily determinable fair value of $7 million. During the three and six months ended June 30, 2025, no impairment charges or adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer occurred for any of these investments.