Starbucks 2014 Annual Report Download - page 42

38 Starbucks Corporation 2014 Form 10-K
better of (i) the Company's long-term credit ratings assigned by Moody's and Standard & Poor's rating agencies, and (ii) the
Company's fixed charge coverage ratio, pursuant to a pricing grid set forth in the credit facility. The current applicable margin
is 0.795% for Eurocurrency Rate Loans and 0.00% for Base Rate Loans. The credit facility contains provisions requiring us to
maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to
cover financing expenses. As of September 28, 2014, we were in compliance with all applicable covenants. No amounts were
outstanding under our credit facility as of September 28, 2014.
Under our commercial paper program, as approved by our Board of Directors, we may issue unsecured commercial paper notes
up to a maximum aggregate amount outstanding at any time of $1 billion, with individual maturities that may vary, but not
exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are to be backstopped by
available commitments under our credit facility. Currently, we may issue up to $727 million under our commercial paper
program (the $750 million committed credit facility amount, less $23 million in outstanding letters of credit). The proceeds
from borrowings under our commercial paper program may be used for working capital needs, capital expenditures and other
corporate purposes, including acquisitions and share repurchases. In the first quarter of fiscal 2014, we issued and subsequently
repaid commercial paper borrowings of $225 million to fund a portion of the $2.8 billion payment for the Kraft arbitration
matter. In the fourth quarter of fiscal 2014, we issued and subsequently repaid commercial paper borrowings of $25 million to
fund other corporate purposes. There were no other commercial paper borrowings during fiscal 2014 or fiscal 2013.
Use of Cash
In the first quarter of fiscal 2014, Starbucks paid all amounts due to Kraft under the arbitration, including prejudgment interest
and attorneys' fees, and fully extinguished the litigation charge liability. Of the $2,784.1 million litigation charge accrued in the
fourth quarter of fiscal 2013, $2,763.9 million was paid and the remainder was released as a litigation credit in the first quarter
of fiscal 2014 to reflect a reduction to our estimated prejudgment interest payable as a result of paying our obligation earlier
than anticipated.
We expect to use additional available cash and investments, including additional potential future borrowings under the credit
facility and commercial paper program, to invest in our core businesses, including new product innovations and related
marketing support, as well as other new business opportunities related to our core businesses. Further, we may use our available
cash resources to make proportionate capital contributions to our equity method and cost method investees. We may also seek
strategic acquisitions to leverage existing capabilities and further build our business in support of our growth agenda.
Acquisitions may include increasing our ownership interests in our equity method and cost method investees. Any decisions to
increase such ownership interests will be driven by valuation and fit with our ownership strategy.
We believe that future cash flows generated from operations and existing cash and investments both domestically and
internationally will be sufficient to finance capital requirements for our core businesses in those respective markets as well as
shareholder distributions for the foreseeable future. Significant new joint ventures, acquisitions and/or other new business
opportunities may require additional outside funding.
As described further in Note 18, Subsequent Event, in September 2014, we entered into a tender offer bid agreement with
Starbucks Japan and our joint venture partner, Sazaby League, Ltd., to acquire the remaining 60.5% ownership interest in
Starbucks Japan for approximately $893 million, through a two-step tender offer. In the first quarter of fiscal 2015, we funded
the first tender offer step with approximately $511 million in offshore cash. We also expect to fund a majority of the second
tender offer step with offshore cash. We have borrowed funds domestically and continue to believe we have the ability to do so
at reasonable interest rates; however, additional borrowings would result in increased interest expense in the future.
We consider the majority of undistributed earnings of our foreign subsidiaries and equity investees as of September 28, 2014 to
be indefinitely reinvested and, accordingly, no US income and foreign withholding taxes have been provided on such earnings.
We have not, nor do we anticipate the need to, repatriate funds to the US to satisfy domestic liquidity needs; however, in the
event that we need to repatriate all or a portion of our foreign cash to the US, we would be subject to additional US income
taxes, which could be material. We do not believe it is practicable to calculate the potential tax impact of repatriation, as there is
a significant amount of uncertainty around the calculation, including the availability and amount of foreign tax credits at the
time of repatriation, tax rates in effect, and other indirect tax consequences associated with repatriation.
Other than normal operating expenses and funding the acquisition of Starbucks Japan for approximately $893 million, cash
requirements for fiscal 2015 are expected to consist primarily of capital expenditures for new company-operated stores;
remodeling and refurbishment of, and equipment upgrades for, existing company-operated stores; systems and technology
investments in the stores and in the support infrastructure; and additional investments in manufacturing capacity. Total capital
expenditures for fiscal 2015 are expected to be approximately $1.4 billion.
During each of the first three quarters of fiscal 2013, we declared and paid a cash dividend to shareholders of $0.21 per share.
In the fourth quarter of fiscal 2013 and each of the first three quarters of fiscal 2014 we declared a cash dividend of $0.26 per
share. Cash dividends paid in fiscal 2014 and 2013 totaled $783.1 million and $628.9 million, respectively. In the fourth quarter