Derivative Financial Instruments

3 Months Ended

Dec. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Foreign Currency

We enter into forward and swap contracts to hedge portions of cash flows of anticipated revenue streams and inventory purchases in currencies other than the entity's functional currency. Net derivative gains from these cash flow hedges of $0.5 million and net derivative losses of $2.9 million, net of taxes, were included in accumulated other comprehensive income as of December 30, 2012 and September 30, 2012, respectively. Of the net derivative gains accumulated as of December 30, 2012, $0.5 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 9 months.

We also enter into net investment derivative instruments to hedge our equity method investment in Starbucks Coffee Japan, Ltd., to minimize foreign currency exposure. Net derivative losses from net investment hedges of $24.3 million and $33.6 million, net of taxes, were included in accumulated other comprehensive income as of December 30, 2012 and September 30, 2012, respectively. Outstanding contracts will expire within 26 months.

In addition to the hedging instruments above, to mitigate the translation risk of certain balance sheet items, we enter into foreign currency 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 on the consolidated statements of earnings. Gains and losses from these instruments are largely offset by the financial impact of translating foreign currency denominated payables and receivables, which is also recognized in net interest income and other.

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 4. Net derivative losses of $47.6 million and $32.9 million, net of taxes, were included in accumulated other comprehensive income as of December 30, 2012 and September 30, 2012, respectively, related to coffee hedges. Of the net derivative losses accumulated as of December 30, 2012, $43.9 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.

Dairy

To mitigate the price uncertainty of a portion of our future purchases of dairy products, we enter into 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 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 the quarters ended (in millions):

	Foreign Currency						Coffee
Quarter Ended:	Dec 30, 2012			Jan 1, 2012			Dec 30, 2012			Jan 1, 2012
Cash Flow Hedges:
Gain/(Loss) recognized in earnings	$	(0.6	)	$	(3.1	)	$	(5.2	)	$	—
Gain/(Loss) recognized in OCI	$	4.6		$	(2.1	)	$	(21.5	)	$	0.9
Net Investment Hedges:
Gain/(Loss) recognized in earnings	$	—		$	—
Gain/(Loss) recognized in OCI	$	14.7		$	—

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 the quarters ended (in millions):

	Foreign Currency					Coffee					Dairy					Diesel Fuel
	Dec 30, 2012			Jan 1, 2012		Dec 30, 2012			Jan 1, 2012		Dec 30, 2012			Jan 1, 2012		Dec 30, 2012		Jan 1, 2012
Gain/(Loss) recognized in earnings for the quarter ended	$	(1.1	)	$	1.1	$	(2.7	)	$	6.3	$	(1.5	)	$	2.4	$	—	$	(0.1	)

Notional amounts of outstanding derivative contracts (in millions):

	Dec 30, 2012		Sep 30, 2012
Foreign currency	$	328	$	383
Coffee	111		125
Dairy	60		72
Diesel fuel	15		24