Starbucks 2011 Annual Report Download - page 64

in cash and cash equivalents. As of October 2, 2011, we had $4.2 million invested in certificates of deposit placed
through CDARS that were included in cash and cash equivalents. We did not have any certificates of deposit placed
through CDARS as of October 3, 2010.
As of October 2, 2011, long-term available-for-sale securities of $107.0 million included $28.0 million invested in
ARS. As of October 3, 2010, long-term available-for-sale securities of $191.8 million included $41.3 million
invested in ARS. Long-term investments (except for ARS) generally mature within three years. ARS have long-
dated maturities but provide liquidity through a Dutch auction process that resets the applicable interest rate at
pre-determined calendar intervals. Our ARS are collateralized by portfolios of student loans, substantially all of
which are guaranteed by the United States Department of Education. Due to the auction failures that began in 2008,
these securities became illiquid and were classified as long-term investments. The investment principal associated
with the failed auctions will not be accessible until:
• successful auctions resume;
• an active secondary market for these securities develops;
• the issuers replace these securities with another form of financing; or
• final payments are made according to the contractual maturities of the debt issues which range from 20 to
35 years.
We do not intend to sell the ARS, nor is it likely we will be required to sell the ARS before their anticipated
recovery, which may be at maturity. In fiscal 2011, $15.8 million of ARS were called at par value. In fiscal 2010,
$12.1 million of ARS were called at par value.
Trading Securities
Trading securities include equity mutual funds and exchange-traded funds. For these securities, we use quoted prices
in active markets for identical assets to determine fair value, thus these securities are considered Level 1 instruments.
Our trading securities portfolio approximates a portion of the liability under the Management Deferred
Compensation Plan (“MDCP”), a defined contribution plan. The corresponding deferred compensation liability of
$84.7 million and $82.7 million as of October 2, 2011 and October 3, 2010, respectively, is included in accrued
compensation and related costs on the consolidated balance sheets. The changes in net unrealized holding gains/
losses in the trading portfolio included in earnings for fiscal years 2011 and 2010 were a net loss of $2.1 million and
a net gain of $4.1 million, respectively.
Derivative Assets and Liabilities
Derivative assets and liabilities include foreign currency forward contracts, commodity swaps and futures contracts.
Where applicable, we use quoted prices in active markets for identical derivative assets and liabilities that are traded
on exchanges. Derivative assets and liabilities included in Level 2 are over-the-counter currency forward contracts
and commodity swaps whose fair values are estimated using industry-standard valuation models. Such models
project future cash flows and discount the future amounts to a present value using market-based observable inputs,
including interest rate curves and forward and spot prices for currencies and commodities.
Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis
Financial instruments measured using level 3 inputs described above are comprised entirely of our ARS. Changes in
this balance related primarily to calls of certain of our ARS. No transfers among the levels within the fair value
hierarchy occurred during fiscal 2011 or 2010.
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