Starbucks 2007 Annual Report Download - page 69

approximately $2.7 million from the inception of the related party relationship in fiscal 2005 through November 15,
2005 when the former Board member’s employment relationship with Oracle ended.
Note 17: Commitments and Contingencies
Guarantees
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 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 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 guarantee on its consolidated balance sheet.
Starbucks has commitments under which it unconditionally guarantees its proportionate share of certain borrowings
of unconsolidated equity investees. The Company’s maximum exposure under these commitments is approximately
$12.9 million, excluding interest and other related costs, and these commitments expire between 2008 and 2012. As
of September 30, 2007, the Company had a total of $3.1 million in “Equity and other investments” and “Other long-
term liabilities” on the consolidated balance sheet for the fair value of the guarantee arrangements.
Legal Proceedings
On June 3, 2004, two then-current employees of the Company filed a lawsuit, entitled Sean Pendlebury and Laurel
Overton v. Starbucks Coffee Company, in the U.S. District Court for the Southern District of Florida claiming the
Company violated requirements of the Fair Labor Standards Act (“FLSA”). The suit alleges that the Company
misclassified its retail store managers as exempt from the overtime provisions of the FLSA, and that each manager
therefore is entitled to overtime compensation for any week in which he or she worked more than 40 hours during
the three years before joining the suit as a plaintiff, and for as long as they remain a manager thereafter. Plaintiffs
seek to represent themselves and all similarly situated U.S. current and former store managers of the Company.
Plaintiffs seek reimbursement for an unspecified amount of unpaid overtime compensation, liquidated damages,
attorneys’ fees and costs. Plaintiffs also filed on June 3, 2004 a motion for conditional collective action treatment
and court-supervised notice to additional putative class members under the opt-in procedures in section 16(b) of the
FLSA. On January 3, 2005, the district court entered an order authorizing nationwide notice of the lawsuit to all
current and former store managers employed by the Company during the three years before the suit was filed. The
Company’s motion for summary judgment is pending before the court. Starbucks believes that the plaintiffs are
properly classified as exempt under the federal wage laws. The Company cannot estimate the possible loss to the
Company, if any, and believes that a loss in this case is unlikely. There is currently no trial date. The Company
intends to vigorously defend the lawsuit.
On October 8, 2004, a former hourly employee of the Company filed a lawsuit in San Diego County Superior Court
entitled Jou Chau v. Starbucks Coffee Company. The lawsuit alleges that the Company violated the California Labor
Code by allowing shift supervisors to receive tips. More specifically, the lawsuit alleges that since shift supervisors
direct the work of baristas, they qualify as “agents” of the Company and are therefore excluded from receiving tips
under California Labor Code Section 351, which prohibits employers and their agents from collecting or receiving
tips left by patrons for other employees. The lawsuit further alleges that because the tipping practices violate the
Labor Code, they also are unfair practices under the California Unfair Competition Law. In addition to recovery of
an unspecified amount of tips distributed to shift supervisors, the lawsuit seeks penalties under California Labor
Code Section 203 for willful failure to pay wages due. Plaintiff also seeks attorneys’ fees and costs. On March 30,
2006, the Court issued an order certifying the case as a class action, with the plaintiff representing a class of all
persons employed as baristas in the state of California since October 8, 2000. In March 2007, notice of action was
sent to approximately 120,000 potential members of the class. The Company cannot estimate the possible loss to the
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