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Derivative Financial Instruments
9 Months Ended
Jul. 03, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
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. Due to ongoing global supply chain disruptions, certain coffee cash flow hedges have been de-designated early which resulted in insignificant amounts recognized in earnings during the quarter and three quarters ended July 3, 2022. These derivatives may be accounted for prospectively as non-designated derivatives until maturity, re-designated to new hedging relationships or terminated early. We continue to believe transactions related to our other designated cash flow hedges are probable to occur.
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)
Jul 3, 2022Oct 3, 2021
Cash Flow Hedges:
Coffee$214.6 $197.8 $214.4 6
Cross-currency swaps(0.7)4.4 — 29
Dairy (0.6)(0.4)(0.6)14
Foreign currency - other35.9 1.3 18.9 33
Interest rates(3.2)(44.8)0.3 124
Net Investment Hedges:
Cross-currency swaps68.4 37.9 — 87
Foreign currency16.0 16.0 — 0
Foreign currency debt97.4 (5.3)— 21
Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in other comprehensive income (“OCI”) and reclassifications from AOCI to earnings (in millions):
Quarter Ended
Gains/(Losses) Recognized in
OCI Before Reclassifications
Gains/(Losses) Reclassified from
AOCI to Earnings
Location of gain/(loss)
Jul 3, 2022Jun 27, 2021Jul 3, 2022Jun 27, 2021
Cash Flow Hedges:
Coffee$(19.3)$62.8 $32.2 $(2.5)Product and distribution costs
Cross-currency swaps12.9 3.1 (2.1)0.2 Interest expense
16.0 3.4 Interest income and other, net
Dairy(1.4)(1.7)4.4 0.5 Product and distribution costs
Foreign currency - other43.4 (5.1)6.6 — Licensed stores revenue
(0.9)(3.1)Product and distribution costs
Interest rates18.8 (25.1)(0.6)(0.3)Interest expense
Net Investment Hedges:
Cross-currency swaps 37.0 20.6 3.8 3.3 Interest expense
Foreign currency debt72.2 11.8 — — 
Three Quarters Ended
Gains/(Losses) Recognized in
OCI Before Reclassifications
Gains/(Losses) Reclassified from
AOCI to Earnings
Location of gain/(loss)
Jul 3, 2022Jun 27, 2021Jul 3, 2022Jun 27, 2021
Cash Flow Hedges:
Coffee$76.1 $80.5 $56.6 $(5.2)Product and distribution costs
Cross-currency swaps22.3 13.5 (3.7)1.8 Interest expense
32.3 12.1 Interest income and other, net
Dairy6.6 (0.1)6.8 2.5 Product and distribution costs
Foreign currency - other51.1 (23.9)11.0 0.2 Licensed stores revenue
(2.5)(5.0)Product and distribution costs
Interest rates54.2 68.9 (1.5)(1.4)Interest expense
— (3.6)Interest income and other, net
Net Investment Hedges:
Cross-currency swaps 51.2 10.2 10.7 9.9 Interest expense
Foreign currency debt137.6 39.7 — — 
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 EndedThree Quarters Ended
 Jul 3, 2022Jun 27, 2021Jul 3, 2022Jun 27, 2021
Non-Designated Derivatives:
DairyInterest income and other, net$0.1 $— $0.2 $— 
Foreign currency - otherInterest income and other, net6.4 4.5 28.2 2.8 
CoffeeInterest income and other, net(0.2)— 9.1 — 
Diesel fuel and other commoditiesInterest income and other, net3.3 0.7 4.0 2.7 
Fair Value Hedges:
Interest rate swapInterest expense(11.6)(0.3)(37.7)(1.4)
Long-term debt (hedged item)Interest expense14.5 3.6 47.5 11.3 
Notional amounts of outstanding derivative contracts (in millions):
Jul 3, 2022Oct 3, 2021
Coffee$717 $481 
Cross-currency swaps757 806 
Dairy59 53 
Diesel fuel and other commodities12 10 
Foreign currency - other 1,158 1,009 
Interest rate swaps1,600 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 LocationJul 3, 2022Oct 3, 2021
Designated Derivative Instruments:
Cross-currency swapsOther long-term assets$114.0 $54.7 
CoffeePrepaid expenses and other current assets— 130.5 
DairyPrepaid expenses and other current assets 1.0 0.8 
Foreign currency - otherPrepaid expenses and other current assets26.5 8.9 
Other long-term assets22.8 6.9 
Interest rate swapsOther long-term assets54.5 22.7 
Non-designated Derivative Instruments:
Diesel fuel and other commoditiesPrepaid expenses and other current assets2.2 0.1 
Foreign currencyPrepaid expenses and other current assets17.4 7.3 
Derivative Liabilities
Balance Sheet LocationJul 3, 2022Oct 3, 2021
Designated Derivative Instruments:
Cross-currency swapsOther long-term liabilities$— $3.3 
DairyAccrued liabilities1.0 0.9 
Foreign currency - otherAccrued liabilities2.6 7.4 
Other long-term liabilities0.4 3.6 
Interest rate swapsOther long-term liabilities17.4 1.3 
Non-designated Derivative Instruments:
DairyAccrued liabilities— 0.2 
Foreign currencyAccrued liabilities0.5 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 itemCumulative amount of fair value hedging adjustment included in the carrying amount
Jul 3, 2022Oct 3, 2021Jul 3, 2022Oct 3, 2021
Location on the balance sheet
Long-term debt$1,074.1 $771.7 $(25.9)$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.