Starbucks 2012 Annual Report Download - page 71

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65
Coffee
Depending on market conditions, we also enter into futures contracts to hedge a portion of anticipated cash flows
under our price-to-be-fixed green coffee contracts, which are described further in Note 1. Net derivative losses of
$32.9 million, net of taxes, were included in accumulated other comprehensive income as of September 30, 2012
related to coffee hedges. Of the net derivative losses accumulated as of September 30, 2012, $26.9 million
pertains to derivative instruments that will be dedesignated as cash flow hedges within 12 months and will also
continue to experience fair value changes before affecting earnings. Outstanding contracts will expire within 15
months. There was insignificant coffee hedge activity in fiscal 2011.
Dairy
To mitigate the price uncertainty of a portion of our future purchases of dairy products, we enter into certain
futures contracts that are not designated as hedging instruments. These contracts are recorded at fair value, with
the changes in fair value recognized in net interest income and other. Gains and losses from these instruments are
largely offset by price fluctuations on our dairy purchases which are included in cost of sales.
Diesel Fuel
To mitigate the price uncertainty of a portion of our future purchases of diesel fuel, we enter into certain swap
contracts that are not designated as hedging instruments. These contracts are recorded at fair value, with the
changes in fair value recognized in net interest income and other. Gains and losses from these instruments are
largely offset by the financial impact of diesel fuel fluctuations on our shipping costs which are included in
operating expenses.
The following table presents the pretax effect of derivative contracts designated as hedging instruments on
earnings and other comprehensive income ("OCI") for fiscal years ending (in millions):
Foreign Currency Coffee
Sep 30, 2012 Oct 2, 2011 Sep 30, 2012 Oct 2, 2011
Cash Flow Hedges:
Gain/(Loss) recognized in earnings $ (11.5) $ (15.9) $ (3.4) $
—
Gain/(Loss) recognized in OCI $ (2.5) $ (12.1) $ (39.8) $
—
Net Investment Hedges:
Gain/(Loss) recognized in earnings $
—
$
—
Gain/(Loss) recognized in OCI $ 1.1 $ (12.0)
The amounts shown in the above table as recognized in earnings for foreign currency and coffee hedges represent
the realized gains/(losses) reclassified from OCI to net earnings during the year. The amounts shown as
recognized in OCI are prior to these reclassifications.
The following table presents the pretax effect of derivative contracts not designated as hedging instruments on
earnings for fiscal years ending (in millions):
Foreign Currency Coffee Dairy Diesel Fuel
Sep 30,
2012
Oct 2,
2011
Sep 30,
2012
Oct 2,
2011
Sep 30,
2012
Oct 2,
2011
Sep 30,
2012
Oct 2,
2011
Gain/(Loss) recognized in
earnings $ (2.2) $ 0.7 $ — $ (0.9) $ 7.8 $ 5.7 $ 3.1 $ 1.1