Starbucks 2010 Annual Report Download - page 50

Short-term and Long-term Investments
Our short-term and long-term investments consist primarily of investment grade debt securities, all of which are
classified as available-for-sale. We have investments in auction rate securities within the long-term investment
portfolio. Our trading portfolio is primarily comprised of equity mutual funds and equity exchange-traded funds.
Trading securities are recorded at fair value with unrealized holding gains and losses included in net earnings.
Available-for-sale securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of
tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining
maturities of less than one year and those identified by management at time of purchase for funding operations in
less than one year are classified as short term, and all other available-for-sale securities are classified as long term.
Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than
temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the
length and extent of the fair value decline, the financial condition and near term prospects of the issuer, and for
equity investments, our intent and ability to hold the security for a period of time sufficient to allow for any
anticipated recovery in fair value. For debt securities, management also evaluates whether we have the intent to sell
or will likely be required to sell before their anticipated recovery, which may be at maturity. Realized gains and
losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date
basis.
Fair Value of Financial Instruments and Equity and Cost Investments
The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of those
instruments. The fair value of our investments in marketable debt and equity securities, equity mutual funds and
equity exchange-traded funds is based upon the quoted market price on the last business day of the fiscal year.
Where an observable quoted market price for a security does not exist, we estimate fair value using a variety of
valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs. The
specific methodologies include comparing the security with securities of publicly traded companies in similar lines
of business, applying revenue multiples to estimated future operating results and estimating discounted cash flows.
The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to us for debt of the same remaining maturities.
We measure our equity and cost method investments at fair value on a nonrecurring basis when they are determined
to be other-than temporarily impaired. Fair values are determined using available quoted market prices or standard
valuation techniques, including discounted cash flows, comparable transactions, and comparable company analyses.
Derivative Instruments
We manage our exposure to various risks within the consolidated financial statements according to an umbrella risk
management policy. Under this policy, Starbucks may engage in transactions involving various derivative
instruments, with maturities generally not longer than five years, to hedge interest rates, commodity prices and
foreign currency denominated revenues, purchases, assets and liabilities.
We record all derivatives on the balance sheets at fair value. For a cash flow hedge, the effective portion of the
derivative’s gain or loss is initially reported as a component of other comprehensive income (“OCI”) and
subsequently reclassified into net earnings when the hedged exposure affects net earnings. For a net investment
hedge, the effective portion of the derivative’s gain or loss is reported as a component of OCI.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge
by matching the terms of the contract to the underlying transaction. We classify the cash flows from hedging
transactions in the same categories as the cash flows from the respective hedged items. Once established, cash flow
hedges are generally not removed until maturity unless an anticipated transaction is no longer likely to occur. For
discontinued or dedesignated cash flow hedges, the related accumulated derivative gains or losses are recognized in
net interest income and other on the consolidated statements of earnings.
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