Starbucks 2008 Annual Report Download - page 78

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options and RSUs totaled 40.4 million, 10.4 million and 10.3 million in fiscal years 2008, 2007 and 2006,
respectively.
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. 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.
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 disclosed in the
table below excludes interest and other related costs. The fair value of these guarantees are included in “Equity and
cost investments” and “Other long-term liabilities” on the consolidated balance sheets.
The following table presents information on unconditional guarantees as of September 28, 2008 (in millions):
Maximum
Exposure
Year Guarantee
Expires in
Fair Value Estimate
Recorded on
Balance Sheet
Japanese yen-denominated bank loans .................. $ 3.8 2014 $ —
(1)
Borrowings of other unconsolidated equity investees........ $17.4 2008 to 2012 $4.1
(1)
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 guarantees on its consolidated balance sheets.
Legal Proceedings
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 February 28,
2008, the court ruled against the Company in the liability phase of the trial and on March 20, 2008 the court ordered
the Company to pay approximately $87 million in restitution, plus interest. On July 31, 2008, the Company filed a
notice of appeal with the California Court of Appeals. Starbucks believes that while the adverse ruling by the trial
judge in this case makes the possibility of loss somewhat more likely, the Company is only at the very beginning of
the appellate process. Starbucks believes that the likelihood that the Company will ultimately incur a loss in
connection with this litigation is reasonably possible rather than probable. The Company has not accrued any loss
related to this litigation.
On June 30, 2005, three individuals, Erik Lords, Hon Yeung, and Donald Brown filed a lawsuit in Orange County
Superior Court, California. The lawsuit alleges that the Company violated the California Labor Code section 432.8
by asking job applicants to disclose at the time of application convictions for marijuana related offenses more than
two years old. Plaintiffs also seek attorneys’ fees and costs. On November 1, 2007, the Court issued an order
certifying the case as a class action, with the plaintiffs representing a class of all persons who have applied for
employment with Starbucks Coffee Company in California since June 23, 2004 who cannot claim damages in
excess of $200. On November 15, 2007, the court denied the Company’s motion for summary judgment. Starbucks
72