Derivative Financial Instruments

Interest Rates

We are subject to interest rate volatility relating to our debt issuances. 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.

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 values 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 condensed consolidated statements of earnings. 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.

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 6, 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/(Losses) Expected to be Reclassified from AOCI into Earnings within 12 Months			Outstanding Contract/Debt Remaining Maturity (Months)
	Dec 30, 2018			Sep 30, 2018						Outstanding Contract/Debt Remaining Maturity (Months)
Cash Flow Hedges:
Interest rates	$	11.9		$	24.7		$	4.3		122
Cross-currency swaps	(9.6		)	(12.6		)	—			71
Foreign currency - other	15.3			5.8			9.6			36
Coffee	(0.1		)	(0.2		)	(0.1		)	1
Net Investment Hedges:
Foreign currency	16.0			16.0			—			0
Foreign currency debt	(12.7		)	3.6			—			63

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
	Gains/(Losses) Recognized in OCI Before Reclassifications						Gains/(Losses) Reclassified from AOCI to Earnings
	Dec 30, 2018			Dec 31, 2017			Dec 30, 2018			Dec 31, 2017
Cash Flow Hedges:
Interest rates	$	(15.7	)	$	—		$	1.4		$	1.2
Cross-currency swaps	(8.0		)	(2.4		)	(11.7		)	(0.5		)
Foreign currency - other	14.6			0.1			1.9			(1.4		)
Coffee	—			—			(0.2		)	(4.7		)
Net Investment Hedges:
Foreign currency	—			(0.1		)	—			—
Foreign currency debt	(21.9		)	(0.2		)	—			—

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



	Gains/(Losses) Recognized in Earnings
	Quarter Ended
	Dec 30, 2018			Dec 31, 2017
Non-Designated Derivatives:
Foreign currency - other	$	(7.9	)	$	3.7
Dairy	(2.1		)	(2.1		)
Diesel fuel and other commodities	(6.6		)	1.4
Designated Fair Value Hedging Instruments:
Interest rate swap	16.9			(7.5		)

Notional amounts of outstanding derivative contracts (in millions):



	Dec 30, 2018		Sep 30, 2018
Interest rate swap	$	1,250	$	750
Cross-currency swaps	427		434
Foreign currency - other	1,067		914
Dairy	11		16
Diesel fuel and other commodities	45		21

Fair value of outstanding derivative contracts (in millions):



	Derivative Assets				Derivative Liabilities
	Dec 30, 2018		Sep 30, 2018		Dec 30, 2018		Sep 30, 2018
Designated Derivative Instruments:
Interest rates	$	—	$	—	$	15.7	$	—
Cross-currency swaps	—		5.8		11.5		9.3
Foreign currency - other	23.4		13.6		2.3		5.3
Interest rate swap	—		—		22.9		32.5
Non-designated Derivative Instruments:
Foreign currency	11.2		13.7		12.2		2.5
Dairy	—		0.2		1.0		0.1
Diesel fuel and other commodities	—		1.6		5.6		0.3

Additional disclosures related to cash flow gains and losses included in AOCI, as well as subsequent reclassifications to earnings, are included in Note 10, Equity.