Starbucks 2007 Annual Report Download - page 55

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In addition, the Company entered into, dedesignated and settled forward interest rate contracts during the fiscal
fourth quarter of 2007 in conjunction with a new debt issuance. These contracts hedged movements in interest rates
prior to issuance of the Company’s $550 million of 6.25% Senior Notes. See Note 9 for additional information on
Senior Notes.
The Company had accumulated net derivative losses of $15.0 million, net of taxes, in other comprehensive income
as of September 30, 2007, related to cash flow hedges. Of this amount, $6.6 million of net derivative losses pertain to
hedging instruments that will be dedesignated within 12 months and will also continue to experience fair value
changes before affecting earnings. Ineffectiveness from hedges that were discontinued during the 52-week period
ended September 30, 2007 was insignificant. No cash flow hedges were discontinued and no significant ineffec-
tiveness was recognized during the 52-week periods ended October 1, 2006 and October 2, 2005. Outstanding
contracts will expire within 24 months.
Net Investment Hedges
Net investment derivative instruments are used to hedge the Company’s equity method investment in Starbucks
Coffee Japan, Ltd. (“Starbucks Japan”) as well as the Company’s net investments in its Canadian, UK, and Chinese
subsidiaries, to minimize foreign currency exposure. The Company had accumulated net derivative losses of
$12.0 million, net of taxes, in other comprehensive income as of September 30, 2007, related to net investment
derivative hedges. Outstanding contracts expire within 30 months.
The following table presents the net gains and losses reclassified from other comprehensive income into the
consolidated statements of earnings during the periods indicated for cash flow and net investment hedges (in
thousands):
Sept 30,
2007
Oct 1,
2006
Oct 2,
2005
Cash flow hedges:
Reclassified gains/(losses) into net revenues . ................ $1,494 $ 1,489 $ (843)
Reclassified losses into cost of sales ....................... (2,201) (7,698) (4,535)
Reclassified losses into other income ...................... (56) — —
Net reclassified losses — cash flow hedges.................... (763) (6,209) (5,378)
Net reclassified gains — net investment hedges ................ 6,031 3,754 1,058
Total ................................................ $5,268 $(2,455) $(4,320)
Other Derivatives
Starbucks entered into foreign currency forward contracts that are not designated as hedging instruments for
accounting purposes to mitigate the translation risk of certain balance sheet items. For the 52-week period ended
September 30, 2007, these forward contracts resulted in net losses of $9.7 million. These losses were largely offset
by the financial impact of translating foreign currency denominated payables and receivables, which are also
recognized in “Net interest and other income.” No similar contracts were held as of October 1, 2006.
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