Derivative Financial Instruments

3 Months Ended

Jan. 02, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rates

From time to time, we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates. We enter into interest rate swap agreements and treasury locks, which are synthetic forward sales of U.S. Treasury securities settled in cash based upon the difference between an agreed-upon treasury rate and the prevailing treasury rate at settlement. These agreements are cash settled at the time of the pricing of the related debt. Each derivative agreement'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 due to changes in the relevant benchmark interest rates are recorded in interest expense. Refer to Note 7, 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 resulting gains and losses from these derivatives are recorded in AOCI and subsequently reclassified to revenue, product and distribution costs, or interest income and other, net, respectively, when the hedged exposures affect net earnings.

From time to time, we may enter into financial instruments, including, but not limited to, forward and swap contracts or foreign currency-denominated debt, to hedge the currency exposure of our net investments in certain international operations. The resulting gains and losses from these derivatives are recorded in AOCI and are 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, and these gains and losses are recorded in interest income and other, net.

Commodities

Depending on market conditions, we may enter into coffee forward contracts, futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts, which are described further in Note 4, Inventories, or our longer-dated forecasted coffee demand where underlying fixed price and price-to-be-fixed contracts are not yet available. The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings.

Depending on market conditions, we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under our dairy purchase contracts and our forecasted dairy demand. The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product and distribution costs when the hedged exposure affects net earnings.

Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items. For de-designated cash flow hedges in which the underlying transactions are no longer probable of occurring, the related accumulated derivative gains or losses are recognized in interest income and other, net on our consolidated statements of earnings.

To mitigate the price uncertainty of a portion of our future purchases, including diesel fuel and other commodities, we enter into swap contracts, futures and collars that are not designated as hedging instruments. The resulting gains and losses 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 product and distribution 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)
	Jan 2, 2022		Oct 3, 2021
Cash Flow Hedges:
Coffee	$	255.2	$	197.8	$	202.2	5
Cross-currency swaps	3.0		4.4		—		35
Dairy	3.4		(0.4)		3.4		8
Foreign currency - other	6.6		1.3		2.9		36
Interest rates	(43.6)		(44.8)		(1.4)		130
Net Investment Hedges:
Cross-currency swaps	47.6		37.9		—		93
Foreign currency	16.0		16.0		—		0
Foreign currency debt	13.5		(5.3)		—		27

Pre-tax gains and losses on derivative contracts and foreign currency-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				Location of gain/(loss)
		Jan 2, 2022		Dec 27, 2020		Jan 2, 2022				Dec 27, 2020
Cash Flow Hedges:
Coffee		$	71.5	$	12.0	$	6.5	$	0.7		Product and distribution costs

Cross-currency swaps		4.5		(3.4)		(0.8)		1.0			Interest expense
						6.9		(4.8)			Interest income and other, net
Dairy		4.6		2.5		(0.4)		2.6			Product and distribution costs

Foreign currency - other		6.9		(25.9)		2.2		—			Licensed stores revenue
						(1.5)		—			Product and distribution costs

Interest rates		1.2		22.5		(0.4)		(0.6)			Interest expense

Net Investment Hedges:
Cross-currency swaps		16.3		(16.5)		3.4		3.2			Interest expense

Foreign currency debt		25.2		(13.7)		—		—

Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized in earnings (in millions):


		Gains/(Losses) Recognized in Earnings
	Location of gain/(loss) recognized in earnings	Quarter Ended
		Jan 2, 2022		Dec 27, 2020
Non-Designated Derivatives:

Foreign currency - other	Interest income and other, net	$	10.2	$	(0.8)
Coffee	Interest income and other, net	3.1		—
Diesel fuel and other commodities	Interest income and other, net	—		1.2
Fair Value Hedges:
Interest rate swap	Interest expense	(4.8)		0.4
Long-term debt (hedged item)	Interest expense	8.2		2.9

Notional amounts of outstanding derivative contracts (in millions):


	Jan 2, 2022		Oct 3, 2021
Coffee	$	686	$	481
Cross-currency swaps	789		806
Dairy	39		53
Diesel fuel and other commodities	96		10
Foreign currency - other	1,261		1,009
Interest rate swaps	1,250		1,250

Fair value of outstanding derivative contracts (in millions) including the location of the asset and/or liability on the consolidated balance sheets:


		Derivative Assets
	Balance Sheet Location	Jan 2, 2022		Oct 3, 2021
Designated Derivative Instruments:
Coffee	Prepaid expenses and other current assets	$	90.8	$	130.5

Cross-currency swaps	Other long-term assets	70.8		54.7
Dairy	Prepaid expenses and other current assets	5.5		0.8

Foreign currency - other	Prepaid expenses and other current assets	9.5		8.9
	Other long-term assets	8.7		6.9

Interest rate swaps	Other long-term assets	18.5		22.7
Non-designated Derivative Instruments:
Coffee	Prepaid expenses and other current assets	29.8		—
Dairy	Prepaid expenses and other current assets	0.6		—
Diesel fuel and other commodities	Prepaid expenses and other current assets	0.1		0.1
Foreign currency	Prepaid expenses and other current assets	18.1		7.3

		Derivative Liabilities
	Balance Sheet Location	Jan 2, 2022		Oct 3, 2021
Designated Derivative Instruments:
Coffee	Accrued liabilities	$	3.1	$	—

Cross-currency swaps	Other long-term liabilities	2.1		3.3
Dairy	Accrued liabilities	1.3		0.9
Foreign currency - other	Accrued liabilities	5.5		7.4
	Other long-term liabilities	3.2		3.6
Interest rates	Other long-term liabilities	0.6		1.3

Non-designated Derivative Instruments:
Dairy	Accrued liabilities	0.2		0.2
Diesel fuel and other commodities	Accrued liabilities	0.1		—
Foreign currency	Accrued liabilities	1.3		0.1

The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedging relationships:


	Carrying amount of hedged item				Cumulative amount of fair value hedging adjustment included in the carrying amount
	Jan 2, 2022		Oct 3, 2021		Jan 2, 2022		Oct 3, 2021
Location on the balance sheet
Long-term debt	$	763.5	$	771.7	$	13.5	$	21.7

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.