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Note 3, Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for
further discussion of our hedging instruments.
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. We use a combination of pricing features embedded within supply contracts,
such as fixed-price and price-to-be-fixed contracts for coffee purchases, and financial derivatives to manage our commodity
price risk exposure.
The following table summarizes the potential impact as of September 27, 2015 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 $ 6 $ (6) $ 4 $ (4)
Foreign Currency Exchange Risk
The majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, because a
portion of our operations consists of activities outside of the U.S., we have transactions in other currencies, primarily the
Canadian dollar, Japanese yen, Chinese renminbi, British pound, South Korean won and euro. To reduce cash flow volatility
from foreign currency fluctuations, we enter into derivative instruments to hedge portions of cash flows of anticipated
intercompany royalty payments, inventory purchases, and certain other transactions in currencies other than the functional
currency of the entity that enters into the arrangements, as well as the translation risk of certain balance sheet items. See Note 3,
Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further
discussion.
The following table summarizes the potential impact as of September 27, 2015 to Starbucks future net earnings and other
comprehensive income ("OCI") from changes in the fair value of these derivative financial instruments due to a change in the
value of the U.S. dollar as compared to 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 $ 10 $ (10) $ 120 $ (120)
Equity Security Price Risk
We have minimal exposure to price fluctuations on equity mutual funds and equity exchange-traded funds within our trading
securities portfolio. Trading securities are recorded at fair value with unrealized holding gains and losses recorded in net
interest income and other in the consolidated statements of earnings. Our trading securities portfolio approximates a portion of
our liability under our Management Deferred Compensation Plan ("MDCP"), which is included in accrued compensation and
related costs, within accrued liabilities on the consolidated balance sheets. Changes in our MDCP liability are recorded in
general and administrative expenses in the consolidated statements of earnings.
We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as of
September 27, 2015 and determined that such a change would not have a significant impact on the fair value of these
instruments.
Starbucks Corporation 2015 Form 10-K 41