Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments to hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading.

FOREIGN EXCHANGE RISK

The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our income statement as incurred. As of September 30, 2021, the impact to our income from operations of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $42 million on an annual basis.

We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes in foreign exchange rates. As of September 30, 2021, we had derivative contracts outstanding with a notional value of $879 million maturing at various dates through September 25, 2024.

INTEREST RATE RISK

We centrally manage our debt portfolio through the use of interest rate contracts and monitor our mix of fixed-rate and variable-rate debt. As of September 30, 2021, the carrying value of our fixed-rate debt, excluding lease obligations, was $11,727 million and our variable-rate debt was $998 million, comprised entirely of commercial paper. Additionally, as of September 30, 2021, the total notional value of receive-variable, pay-fixed interest rate swaps was $450 million and the total notional value of receive-fixed, pay-variable interest rate swaps was $250 million. Our variable-rate instruments are generally based on LIBOR and a credit spread.

We estimate that the potential impact to our interest rate expense associated with variable rate debt and derivative instruments resulting from a hypothetical interest rate change of 1%, based on variable-rate debt and derivative instrument levels as of September 30, 2021, would be an increase of approximately $8 million or decrease of approximately $3 million. Our estimate of the annual impact to interest expense reflects our assumption that LIBOR will not fall below 0%.

COMMODITY RISKS

We are subject to market risks with respect to commodities because our ability to recover increased costs through higher pricing may be limited by the competitive environment in which we operate. Our principal commodities risks relate to our purchases of coffee beans, PET, aluminum, diesel fuel, corn (for high fructose corn syrup), apple juice concentrate, sucrose and natural gas (for use in processing and packaging).

We utilize commodities derivative instruments and supplier pricing agreements to hedge the risk of adverse movements in commodity prices for limited time periods for certain commodities. As of September 30, 2021, we had derivative contracts outstanding with a notional value of $440 million maturing at various dates through February 24, 2023. The fair market value of these contracts as of September 30, 2021 was a net asset of $133 million.

As a result of the current inflationary environment, described above in Item 2. Management’s Discussion and Analysis, we have fully utilized the aforementioned derivative instruments and supplier pricing agreements to minimize the further risk of inflation in the fourth quarter of 2021. As of September 30, 2021, we believe the impact of a 10% change (up or down) in market prices for these commodities would be minimal to our income from operations for the remainder of the year ending December 31, 2021.

Table of Contents