Derivative Financial Instruments

6 Months Ended

Apr. 02, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Interest Rates

Depending on market conditions, we enter into interest rate swap agreements to hedge the variability in cash flows due to changes in benchmark interest rates related to anticipated debt issuances. These agreements are cash settled at the time of the pricing of the related debt. The effective portion of the derivative's gain or loss is recorded in accumulated other comprehensive income ("AOCI") and is subsequently reclassified to interest expense over the life of the related debt.

Foreign Currency

To reduce cash flow volatility from foreign currency fluctuations, we enter into forward and swap contracts to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, and intercompany borrowing and lending activities. The effective portion of the derivative's gain or loss is recorded in AOCI and is subsequently reclassified to revenue, cost of sales including occupancy costs, or interest income and other, net, respectively, when the hedged exposure affects net earnings.

From time to time, we enter into forward contracts or use foreign currency-denominated debt to hedge the currency exposure of our net investment in certain international operations. The effective portion of these instruments' gain or loss is recorded in AOCI and is subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.

Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balance sheet items. Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency denominated payables and receivables; these gains and losses are recorded in interest income and other, net.

Commodities

Depending on market conditions, we may enter into coffee futures contracts and collars (the combination of a purchased call option and a sold put option) to hedge a portion of anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 5, Inventories. The effective portion of each derivative's gain or loss is recorded in AOCI and is subsequently reclassified to cost of sales including occupancy costs when the hedged exposure affects net earnings.

To mitigate the price uncertainty of a portion of our future purchases, primarily of dairy products, diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. Gains and losses from these derivatives are recorded in interest income and other, net to help offset price fluctuations on our beverage, food, packaging and transportation costs, which are included in cost of sales including occupancy costs on our consolidated statements of earnings.

Gains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to be reclassified into earnings within 12 months, net of tax (in millions):

	Net Gains/(Losses) Included in AOCI						Net Gains Expected to be Reclassified from AOCI into Earnings within 12 Months		Outstanding Contract/Debt Remaining Maturity (Months)
	Apr 2, 2017			Oct 2, 2016
Cash Flow Hedges:
Interest rates	$	19.0		$	20.5		$	3.0	0
Cross-currency swaps	(9.0		)	(7.7		)	—		92
Foreign currency - other	11.5			(0.4		)	9.6		34
Coffee	0.1			(1.6		)	0.1		9
Net Investment Hedges:
Foreign currency	17.4			1.3			—		0
Foreign currency debt	(6.1		)	—			—		84

Pretax gains and losses on derivative contracts and foreign-denominated long-term debt designated as hedging instruments recognized in other comprehensive income ("OCI") and reclassifications from AOCI to earnings (in millions):

	Quarter Ended												Two Quarters Ended
	Gains/(Losses) Recognized in OCI Before Reclassifications						Gains/(Losses) Reclassified from AOCI to Earnings						Gains/(Losses) Recognized in OCI Before Reclassifications						Gains/(Losses) Reclassified from AOCI to Earnings
	Apr 2, 2017			Mar 27, 2016			Apr 2, 2017			Mar 27, 2016			Apr 2, 2017			Mar 27, 2016			Apr 2, 2017			Mar 27, 2016
Cash Flow Hedges:
Interest rates	$	—		$	(11.4	)	$	1.2		$	1.3		$	—		$	(8.3	)	$	2.4		$	2.8
Cross-currency swaps	(22.7		)	(39.6		)	(23.4		)	(36.4		)	52.6			(44.9		)	54.2			(38.2		)
Foreign currency - other	(10.7		)	(18.1		)	3.6			7.8			26.5			(8.8		)	8.0			16.3
Coffee	(0.1		)	0.9			(0.3		)	(0.5		)	0.9			(0.4		)	(1.0		)	(0.6		)
Net Investment Hedges:
Foreign currency	(15.6		)	—			—			—			25.5			—			—			—
Foreign currency debt	(9.6		)	—			—			—			(9.6		)	—			—			—

Pretax gains and losses on derivative contracts not designated as hedging instruments recognized in earnings (in millions):

	Gains/(Losses) Recognized in Earnings
	Quarter Ended						Two Quarters Ended
	Apr 2, 2017			Mar 27, 2016			Apr 2, 2017		Mar 27, 2016
Foreign currency	$	(5.0	)	$	(4.0	)	$	3.4	$	(1.9	)
Coffee	—			0.1			—		—
Dairy	(2.4		)	(1.4		)	2.8		(7.0		)
Diesel fuel and other commodities	0.4			0.5			0.5		(4.2		)

Notional amounts of outstanding derivative contracts (in millions):

	Apr 2, 2017		Oct 2, 2016
Cross-currency swaps	$	558	$	660
Foreign currency - other	1,152		688
Coffee	99		7
Dairy	45		76
Diesel fuel and other commodities	50		46

Fair value of outstanding derivative contracts (in millions):

	Derivative Assets				Derivative Liabilities
	Apr 2, 2017		Oct 2, 2016		Apr 2, 2017		Oct 2, 2016
Designated Derivative Hedging Instruments:
Cross-currency swaps	$	7.5	$	—	$	11.9	$	57.0
Foreign currency - other	21.4		20.8		6.3		24.0
Coffee	0.5		1.8		0.5		—
Non-designated Derivative Hedging Instruments:
Foreign currency	13.6		6.2		7.6		6.5
Dairy	0.2		1.5		1.4		1.6
Diesel fuel and other commodities	1.0		3.8		0.8		0.5

Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 8, Equity.