Financial Instruments

9 Months Ended

Jun. 26, 2020

Financial Instruments

Financial Instruments

11. Financial Instruments

Foreign Currency Exchange Rate Risk

During fiscal 2015, we entered into cross-currency swap contracts to reduce our exposure to foreign currency exchange rate risk associated with certain intercompany loans. The aggregate notional value of these contracts was €700 million and €1,000 million at June 26, 2020 and September 27, 2019, respectively. Certain contracts were terminated during the nine months ended June 26, 2020; the remaining contracts mature in fiscal 2022. Under the terms of these contracts, which have been designated as cash flow hedges, we make interest payments in euros at 3.50% per annum and receive interest in U.S. dollars at a weighted-average rate of 5.34% per annum. Upon maturity, we will pay the notional value of the contracts in euros and receive U.S. dollars from our counterparties. In connection with the cross-currency swap contracts, both counterparties to each contract are required to provide cash collateral.

These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

	June 26,		September 27,
	2020		2019
	(in millions)
Other assets	$	25	$	19

At June 26, 2020 and September 27, 2019, collateral received from or paid to our counterparties approximated the net derivative position. Collateral is recorded in accrued and other current liabilities when the contracts are in a net asset position, or prepaid expenses and other current assets when the contracts are in a net liability position on the Condensed Consolidated Balance Sheets. The impacts of these cross-currency swap contracts were as follows:

	For the				For the
	Quarters Ended				Nine Months Ended
	June 26,		June 28,		June 26,		June 28,
	2020		2019		2020		2019
	(in millions)
Gains recorded in other comprehensive income (loss)	$	—	$	10	$	32	$	42
Gains (losses) excluded from the hedging relationship(1)		(14)		(16)		(19)		22

(1) Gains and losses excluded from the hedging relationship are recognized prospectively in selling, general, and administrative expenses and are offset by losses and gains generated as a result of re-measuring certain intercompany loans to the U.S. dollar.

Hedge of Net Investment

We hedge our net investment in certain foreign operations using intercompany loans and external borrowings denominated in the same currencies. The aggregate notional value of these hedges was $3,320 million and $3,374 million at June 26, 2020 and September 27, 2019, respectively.

We also use a cross-currency swap program to hedge our net investment in certain foreign operations. The aggregate notional value of the contracts under this program was $1,776 million and $1,844 million at June 26, 2020 and September 27, 2019, respectively. Under the terms of these contracts, we receive interest in U.S. dollars at a weighted-average rate of 2.56% per annum and pay no interest. Upon the maturity of these contracts at various dates through fiscal 2024, we will pay the notional value of the contracts in the designated foreign currency and receive U.S. dollars from our counterparties. We are not required to provide collateral for these contracts.

These cross-currency swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

	June 26,		September 27,
	2020		2019
	(in millions)
Prepaid expenses and other current assets	$	16	$	27
Other assets		30		46
Accrued and other current liabilities		3		2
Other liabilities		2		1

The impacts of our hedge of net investment programs were as follows:

		For the			For the
		Quarters Ended			Nine Months Ended
	June 26,		June 28,		June 26,		June 28,
	2020		2019		2020		2019
	(in millions)
Foreign currency exchange gains (losses) on intercompany loans and external borrowings(1)	$	(52)	$	(58)	$	(60)	$	54
Gains (losses) on cross-currency swap contracts designated as hedges of net investment(1)		(25)		(20)		(3)		17

(1) Recorded as currency translation, a component of accumulated other comprehensive income (loss).

Interest Rate Risk Management

During the nine months ended June 26, 2020 and June 28, 2019, we entered into forward starting interest rate swap contracts to manage interest rate exposure prior to the anticipated issuance of fixed rate debt. These contracts had an aggregate notional value of $450 million and $350 million at June 26, 2020 and September 27, 2019, respectively, and were designated as cash flow hedges. These forward starting interest rate swap contracts were recorded on the Condensed Consolidated Balance Sheets as follows:

	June 26,		September 27,
	2020		2019
	(in millions)
Other liabilities	$	66	$	34

The impacts of these forward starting interest rate swap contracts were as follows:

	For the				For the
	Quarters Ended				Nine Months Ended
	June 26,		June 28,		June 26,		June 28,
	2020		2019		2020		2019
	(in millions)
Losses recorded in other comprehensive income (loss)	$	—	$	(12)	$	(32)	$	(18)