Financial Instruments and Fair Value Measurements

6 Months Ended

Mar. 30, 2024

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 June 2024 (€1,625 million) and July 2027 (£700 million). In addition to 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 March 30, 2024, we had outstanding long-term debt of €379 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).

During fiscal 2024, the Company received net proceeds of $23 million related to the settlement of existing interest rate swaps. The offset is included in Accumulated other comprehensive loss and is being amortized to Interest expense through the term of the original swaps. Following the transactions, the Company entered into a $450 million interest rate swap transaction, a $500 million interest rate swap transaction and extended an existing $400 million agreement all with expirations in June 2029.

As of March 30, 2024, the Company effectively had (i) an $884 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 4.452%, with an expiration in June 2026 (ii) a $400 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 4.008%, with an expiration in June 2029 (iii) a $450 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 4.553%, with an expiration in June 2029, and (iv) a $500 million interest rate swap transaction that swaps a one-month variable SOFR contract for a fixed annual rate of 4.648%, with an expiration in June 2029.

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	March 30, 2024		September 30, 2023
Cross-currency swaps	Designated	Other current liabilities		104		66
Cross-currency swaps	Designated	Other long-term liabilities		58		19
Interest rate swaps	Designated	Other assets		2		36
Interest rate swaps	Designated	Other long-term liabilities		34		—
Interest rate swaps	Not designated	Other assets		—		8
Interest rate swaps	Not designated	Other long-term liabilities		81		104

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

		Quarterly Period Ended						Two Quarterly Periods Ended
Derivative Instruments	Statements of Income Location	March 30, 2024			April 1, 2023			March 30, 2024			April 1, 2023
Cross-currency swaps	Interest expense	$	(10	)	$	(10	)	$	(20	)	$	(21	)
Interest rate swaps	Interest expense		(21	)		(11	)		(42	)		(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 2023 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 March 30, 2024 and September 30, 2023, along with the impairment loss recognized on the fair value measurement during the period:

	As of March 30, 2024
	Level 1		Level 2		Level 3		Total		Impairment
Indefinite-lived trademarks	$	—	$	—	$	248	$	248	$	—
Goodwill		—		—		4,988		4,988		—
Definite lived intangible assets		—		—		1,353		1,353		—
Property, plant, and equipment		—		—		4,576		4,576		4
Total	$	—	$	—	$	11,165	$	11,165	$	4

	As of September 30, 2023
	Level 1		Level 2		Level 3		Total		Impairment
Indefinite-lived trademarks	$	—	$	—	$	248	$	248	$	—
Goodwill		—		—		4,981		4,981		—
Definite lived intangible assets		—		—		1,455		1,455		—
Property, plant, and equipment		—		—		4,576		4,576		8
Total	$	—	$	—	$	11,260	$	11,260	$	8

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 book value of our marketable long-term indebtedness exceeded fair value by $221 million as of March 30, 2024. The Company’s long-term debt fair values were determined using Level 2 inputs (substantially observable).

- 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.

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