Financial Instruments and Fair Value Measurements

3 Months Ended

Jan. 01, 2022

Financial Instruments and Fair Value Measurements [Abstract]

Financial Instruments and Fair Value Measurements

7.  Financial Instruments and Fair Value Measurements

In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors.  The Company may use derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies.  These financial instruments are not used for trading or other speculative purposes.

Cross-Currency Swaps

The Company is party to certain cross-currency swaps to hedge a portion of our foreign currency risk. The swap agreements mature May 2022 (€250 million), June 2024 (€1,625 million) and July 2027 (£700 million). In addition to the cross-currency swaps, we hedge a portion of our foreign currency risk by designating foreign currency denominated long-term debt as net investment hedges of certain foreign operations. As of January 1, 2022, we had outstanding long-term debt of €785 million that was designated as a hedge of our net investment in certain euro-denominated foreign subsidiaries. When valuing cross-currency swaps the Company utilizes Level 2 inputs (substantially observable).

Interest Rate Swaps

The primary purpose of the Company’s interest rate swap activities is to manage interest expense variability associated with our outstanding variable rate term loan debt. When valuing interest rate swaps the Company utilizes Level 2 inputs (substantially observable).

As of January 1, 2022, the Company effectively had (i) a $450 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.398%, with an expiration in June 2026, (ii) a $400 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.916% with an expiration in June 2026, (iii) an $884 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 1.857%, with an expiration in June 2024, and (iv) a $473 million interest rate swap transaction that swaps a one-month variable LIBOR contract for a fixed annual rate of 2.050%, with an expiration in June 2024.

The Company records the fair value positions of all derivative financial instruments on a net basis by counterparty for which a master netting arrangement is utilized. Balances on a gross basis are as follows:

Derivative Instruments	Hedge Designation	Balance Sheet Location	January 1, 2022		October 2, 2021
Cross-currency swaps	Designated	Other long-term liabilities		286		323
Interest rate swaps	Designated	Other long-term liabilities		47		82
Interest rate swaps	Not designated	Other long-term liabilities		46		49

The effect of the Company’s derivative instruments on the Consolidated Statements of Income is as follows:

		Quarterly Period Ended
Derivative Instruments	Statements of Income Location	January 1, 2022			January 2, 2021
Cross-currency swaps	Interest expense	$	(3	)	$	(3	)
Interest rate swaps	Interest expense		13			17

Non-recurring Fair Value Measurements

The Company has certain assets that are measured at fair value on a non-recurring basis when impairment indicators are present or when the Company completes an acquisition.  The Company adjusts certain long-lived assets to fair value only when the carrying values exceed the fair values.  The categorization of the framework used to value the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.  These assets that are subject to our annual impairment analysis primarily include our definite lived and indefinite lived intangible assets, including Goodwill and our property, plant and equipment.  The Company reviews Goodwill and other indefinite lived assets for impairment as of the first day of the fourth fiscal quarter each year and more frequently if impairment indicators exist.  The Company determined Goodwill and other indefinite lived assets were not impaired in our annual fiscal 2021 assessment.  No impairment indicators were identified in the current quarter.

Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of January 1, 2022 and October 2, 2021, along with the impairment loss recognized on the fair value measurement during the period:

	As of January 1, 2022
	Level 1		Level 2		Level 3		Total		Impairment
Indefinite-lived trademarks	$	—	$	—	$	248	$	248	$	—
Goodwill		—		—		5,162		5,162		—
Definite lived intangible assets		—		—		1,919		1,919		—
Property, plant, and equipment		—		—		4,672		4,672		—
Total	$	—	$	—	$	12,001	$	12,001	$	—

	As of October 2, 2021
	Level 1		Level 2		Level 3		Total		Impairment
Indefinite-lived trademarks	$	—	$	—	$	248	$	248	$	—
Goodwill		—		—		5,192		5,192		—
Definite lived intangible assets		—		—		1,994		1,994		—
Property, plant, and equipment		—		—		4,677		4,677		1
Total	$	—	$	—	$	12,111	$	12,111	$	1

The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate and cross-currency swap agreements, and finance lease obligations.  The fair value of our marketable long-term indebtedness exceeded book value by $44 million as of January 1, 2022.  The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).