Starbucks 2013 Annual Report Download - page 47

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The following table summarizes the potential impact as of September 29, 2013 to Starbucks future net earnings and other
comprehensive income (“OCI”) from changes in the fair value of these derivative financial instruments due in turn to a change
in the value of the US dollar as compared to the level of foreign exchange rates. 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
Foreign currency hedges $ 8 $ (8) $ 37 $ (37)
Equity Security Price Risk
We have minimal exposure to price fluctuations on equity mutual funds and equity exchange-traded funds within our trading
portfolio. The trading securities approximate a portion of our liability under the Management Deferred Compensation Plan
(“MDCP”). A corresponding liability is included in accrued compensation and related costs on the consolidated balance sheets.
These investments are recorded at fair value with unrealized gains and losses recognized in net interest income and other in the
consolidated statements of earnings. The offsetting changes in the MDCP liability are recorded in general and administrative
expenses. We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as of
September 29, 2013 and determined that such a change would not have a significant impact on the fair value of these
instruments.
Interest Rate Risk
Debt Securities
We utilize short-term and long-term financing and may use interest rate hedges to manage the effect of interest rate changes on
our existing debt as well as the anticipated issuance of new debt. As of September 29, 2013 and September 30, 2012, we did not
have any interest rate hedge agreements outstanding.
The following table summarizes the impact of a change in interest rates as of September 29, 2013 on the fair value of Starbucks
debt (in millions):
Change in Fair Value
Fair Value
100 Basis Point Increase in
Underlying Rate
100 Basis Point Decrease in
Underlying Rate
6.25% Senior Notes $ 644 $ (23) $ 23
3.85% Senior Notes $ 762 $ (62) $ 62
Available-for-Sale Securities
Our available-for-sale securities comprise a diversified portfolio consisting mainly of fixed income instruments. The primary
objectives of these investments are to preserve capital and liquidity. Available-for-sale securities are recorded on the
consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other
comprehensive income. We do not hedge the interest rate exposure on our available-for-sale securities. We performed a
sensitivity analysis based on a 100 basis point change in the underlying interest rate of our available-for-sale securities as of
September 29, 2013, and determined that such a change would not have a significant impact on the fair value of these
instruments.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that management believes are both most important to the portrayal of our financial
condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those
policies may result in materially different amounts being reported under different conditions or using different assumptions.
We consider financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate
and transparent information relative to the current economic and business environment. We believe that of our significant
accounting policies, the following policies involve a higher degree of judgment and/or complexity:
2013 10-K
Starbucks Corporation Form