Derivative Financial Instruments

Interest Rates

We are subject to interest rate volatility with regard to existing and future issuances of debt. From time to time, we enter into swap agreements to manage our exposure to interest rate fluctuations.

To hedge the variability in cash flows due to changes in benchmark interest rates, we enter into interest rate swap agreements 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. During fiscal 2016, we entered into forward-starting interest rate swap agreements with an aggregate notional amount of $375 million related to the $500 million and $250 million of 5-year 2.100% Senior Notes (the “2021 notes”) due February 2021 and $500 million of 10-year 2.450% Senior Notes (the “2026 notes”) due June 2026. Refer to Note 9, Debt, for details of the components of our long-term debt. We cash settled these swap agreements at the time of pricing the 2021 and 2026 notes.

To hedge the exposure to changes in the fair value of our fixed-rate debt, we enter into interest rate swap agreements, which are designated as fair value hedges. The changes in fair value of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt are recorded in interest expense and have an insignificant impact on our consolidated statement of earnings. We entered into an interest rate swap agreement during the third quarter of fiscal 2017 related to our 3.850% Senior Notes due in October 2023 (“2023 notes”). Refer to Note 9, Debt, for additional information on our long-term 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.

To mitigate foreign currency transaction risk of intercompany borrowings, we enter into cross-currency swap contracts, which are designated as cash flow hedges. Gains and losses from these swaps offset the changes in value of interest and principal payments as a result of changes in foreign exchange rates. There are no credit-risk-related contingent features associated with these swaps, although we may hold or post collateral depending upon the gain or loss position of the swap agreements.

We also enter into forward contracts or use foreign currency-denominated debt to hedge the foreign currency exposure of our net investment in certain international operations. The effective portion of the derivative's 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.

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

Commodities

Depending on market conditions, we may enter into coffee futures contracts and collars 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 and 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 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/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months			Contract Remaining Maturity (Months)
	Oct 1, 2017			Oct 2, 2016			Sep 27, 2015						Contract Remaining Maturity (Months)
Cash Flow Hedges:
Interest rates	$	17.6		$	20.5		$	30.1		$	3.0		0
Cross-currency swaps	(6.0		)	(7.7		)	(27.8		)	—			86
Foreign currency - other	(9.1		)	(0.4		)	29.0			(5.8		)	36
Coffee	(6.6		)	(1.6		)	(5.7		)	(6.6		)	4
Net Investment Hedges:
Foreign currency	16.2			1.3			1.3			0.1			0
Foreign currency debt	(2.2		)	—			—			—			79

Pretax gains and losses on derivative contracts designated as hedging instruments recognized in other comprehensive income (“OCI”) and reclassifications from AOCI to earnings (in millions):



	Year Ended
	Gains/(Losses) Recognized in OCI Before Reclassifications									Gains/(Losses) Reclassified from AOCI to Earnings
	Oct 1, 2017			Oct 2, 2016			Sep 27, 2015			Oct 1, 2017			Oct 2, 2016			Sep 27, 2015
Cash Flow Hedges:
Interest rates	$	—		$	(10.3	)	$	(6.8	)	$	4.8		$	5.0		$	3.2
Cross-currency swaps	59.5			(75.7		)	11.4			57.2			(101.1		)	46.2
Foreign currency - other	1.8			(25.4		)	52.0			11.4			19.1			26.1
Coffee	(8.1		)	1.7			(9.0		)	(2.7		)	(2.8		)	(3.5		)
Net Investment Hedges:
Foreign currency	23.6			—			4.3			—			—			7.2
Foreign currency debt	(3.5		)	—			—			—			—			—

Pretax gains and losses on non-designated derivatives and designated fair value hedging instruments recognized in earnings (in millions):



	Gains/(Losses) Recognized in Earnings
	Oct 1, 2017			Oct 2, 2016			Sep 27, 2015
Non-Designated Derivatives:
Foreign currency - other	$	4.6		$	(5.7	)	$	27.1
Dairy	—			(5.5		)	(3.8		)
Diesel fuel and other commodities	1.3			(0.2		)	(9.0		)
Designated Fair Value Hedging Instruments:
Interest rate swap	(5.2		)	—			—

Notional amounts of outstanding derivative contracts (in millions):



	Oct 1, 2017		Oct 2, 2016
Interest rate swap	$	750	$	—
Cross-currency swaps	514		660
Foreign currency - other	901		688
Coffee	—		7
Dairy	14		76
Diesel fuel and other commodities	41		46

Fair value of outstanding derivative contracts (in millions):



	Derivative Assets				Derivative Liabilities
	Oct 1, 2017		Oct 2, 2016		Oct 1, 2017		Oct 2, 2016
Designated Derivative Instruments:
Cross-currency swaps	$	12.4	$	—	$	9.8	$	57.0
Foreign currency - other	7.7		20.8		20.8		24.0
Coffee	—		1.8		—		—
Net investment hedges	0.3		—		—		—
Interest rate swap	—		—		3.8		—
Non-designated Derivative Instruments:
Foreign currency	15.8		6.2		1.4		6.5
Dairy	—		1.5		2.4		1.6
Diesel fuel and other commodities	1.6		3.8		0.3		0.5

Additional disclosures related to cash flow hedge gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 11, Equity.