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44
Off-Balance Sheet Arrangements
Off-balance sheet arrangements relate to operating lease and purchase commitments detailed in the footnotes to
the consolidated financial statements in this 10-K.
COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS
Commodity price risk represents Starbucks primary market risk, generated by our purchases of green coffee and
dairy products, among other things. We purchase, roast and sell high-quality whole bean arabica coffee and
related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase
significant amounts of dairy products to support the needs of our company-operated stores. The price and
availability of these commodities directly impacts our results of operations and can be expected to impact our
future results of operations. For additional details see Product Supply in Item 1, as well as Risk Factors in Item 1A
of this 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 security prices, and interest rates. We manage our exposure to various market-based risks according to a
market price risk management policy. Under this policy, market-based risks are quantified and evaluated for
potential mitigation strategies, such as entering into hedging transactions. The market price risk management
policy governs how hedging instruments may be used to mitigate risk. Risk limits are set annually and prohibit
speculative trading activity. We also monitor and limit the amount of associated counterparty credit risk. In
general, hedging instruments do not have maturities in excess of five years.
The sensitivity analyses disclosed below provide only a limited, point-in-time view of the market risk of the
financial instruments discussed. The actual impact of the respective underlying rates and price changes on the
financial instruments may differ significantly from those shown in the sensitivity analyses.
Commodity Price Risk
We purchase commodity inputs, including coffee, dairy products and diesel that are used in our operations and are
subject to price fluctuations that impact our financial results. In addition to fixed-price and price-to-be-fixed
contracts for coffee purchases, we have entered into commodity hedges to manage commodity price risk using
financial derivative instruments.
The following table summarizes the potential impact as of September 30, 2012 to Starbucks future net earnings
and other comprehensive income (“OCI”) from changes in commodity prices. The information provided below
relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged
items (in millions):
Increase/(Decrease) to Net Earnings Increase/(Decrease) to OCI
10% Increase in
Underlying Rate
10% Decrease in
Underlying Rate
10% Increase in
Underlying Rate
10% Decrease in
Underlying Rate
Commodity hedges $ 10 $ (10) $ 13 $ (13)
Foreign Currency Exchange Risk
The majority of our revenue, expense and capital purchasing activities are transacted in US dollars. However,
because a portion of our operations consists of activities outside of the US, we have transactions in other
currencies, primarily the Canadian dollar, British pound, euro, and Japanese yen. As a result, we may engage in