Starbucks 2007 Annual Report Download - page 36

The following table summarizes the Company’s contractual obligations and borrowings as of September 30, 2007,
and the timing and effect that such commitments are expected to have on the Company’s liquidity and capital
requirements in future periods (in thousands):
Contractual Obligations Total
Less Than 1
Year
1-3
Years
3-5
Years
More Than 5
Years
Payments Due by Period
Debt obligations(1) ............... $1,607,845 $ 747,268 $ 69,896 $ 68,806 $ 721,875
Operating lease obligations(2) ....... 5,016,583 691,011 1,300,776 1,109,193 1,915,603
Purchase obligations(3) ............ 427,306 267,743 141,611 13,426 4,526
Other obligations(4) .............. 57,594 1,181 17,159 4,741 34,513
Total ......................... $7,109,328 $1,707,203 $1,529,442 $1,196,166 $2,676,517
(1) Debt amounts include principal maturities and expected interest payments on commercial paper and long-term
debt.
(2) Amounts include the direct lease obligations, excluding any taxes, insurance and other related expenses.
(3) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding
on Starbucks and that specify all significant terms. Purchase obligations relate primarily to green coffee and
other commodities.
(4) Other obligations include other long-term liabilities primarily consisting of asset retirement obligations,
hedging instruments and capital lease obligations.
Starbucks expects to fund these commitments primarily with operating cash flows generated in the normal course of
business, as well as ongoing borrowings under the commercial paper program.
Off-Balance Sheet Arrangement
The Company has unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and
related interest and fees of an unconsolidated equity investee, Starbucks Coffee Japan, Ltd. (“Starbucks Japan”).
The guarantees continue until the loans, including accrued interest and fees, have been paid in full, with the final
loan amount due in 2014. The maximum amount is limited to the sum of unpaid principal and interest amounts, as
well as other related expenses. These amounts will vary based on fluctuations in the yen foreign exchange rate. As
of September 30, 2007, the maximum amount of the guarantees was approximately $4.9 million. Since there has
been no modification of these loan guarantees subsequent to the Company’s adoption of Financial Accounting
Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” Starbucks has applied the disclosure
provisions only and has not recorded the guarantees on its consolidated balance sheet.
COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS
Commodity price risk represents the Company’s primary market risk, generated by its purchases of green coffee and
dairy products. The Company purchases, roasts and sells high quality whole bean coffee and related products and
risk arises from the price volatility of green coffee. In addition to coffee, the Company also purchases significant
amounts of dairy products to support the needs of its Company-operated retail stores. The price and availability of
these commodities directly impacts the Company’s results of operations and can be expected to impact its future
results of operations. For additional details see “Product Supply” in Item 1, as well as “Risk Factors” in Item 1A of
this Form 10-K.
FINANCIAL RISK MANAGEMENT
Market risk is defined as the risk of losses due to changes in commodity prices, foreign currency exchange rates,
equity prices, and interest rates. The Company manages its exposure to various market-based risks according to an
umbrella risk management policy. Under this policy, market-based risks are quantified and evaluated for potential
mitigation strategies, such as entering into hedging transactions. The umbrella risk management policy governs the
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