Keurig Dr Pepper Inc. 10-Q

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 March 31, 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 $41 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 March 31, 2021, we had derivative contracts outstanding with a notional value of $874 million maturing at various dates through September 25, 2024. INTEREST RATE RISK We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable-rate debt. As of March 31, 2021, the carrying value of our fixed-rate debt, excluding lease obligations, was $13,465 million and we had no variable-rate debt. Although we had no variable-rate debt outstanding as of March 31, 2021, we held variable-rate debt throughout the first quarter of 2021 in the form of commercial paper, and we intend to continue utilizing variable-rate debt throughout 2021. As of March 31, 2021, the total notional value of receive-variable, pay-fixed interest rate swaps was $450 million. As a result of these factors, there was no interest rate risk associated with our debt balances based on debt levels as of March 31, 2021. 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, apples, 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 March 31, 2021, we had derivative contracts outstanding with a notional value of $450 million maturing at various dates through January 8, 2024. The fair market value of these contracts as of March 31, 2021 was a net asset of $87 million. As of March 31, 2021, the impact of a 10% change (up or down) in market prices for these commodities where the risk of adverse movements has not been hedged is estimated to have a $8 million impact to our income from operations for the remainder of the year ending December 31, 2021. 45 Table of Contents