Derivative Financial Instruments

12 Months Ended

Oct. 02, 2011

Derivative Financial Instruments

Derivative Financial Instruments

Note 2:     Derivative Financial Instruments

Cash Flow Hedges

Starbucks and certain subsidiaries enter into cash flow derivative instruments to hedge portions of anticipated revenue streams and inventory purchases in currencies other than the entity's functional currency. Outstanding forward contracts, which comprise the majority of our derivative instruments, hedge monthly forecasted revenue transactions denominated in Japanese yen and Canadian dollars, as well as forecasted inventory purchases denominated in US dollars for foreign operations.

Net Investment Hedges

Net investment derivative instruments are used to hedge our equity method investment in Starbucks Coffee Japan, Ltd. ("Starbucks Japan") as well as our net investments in our Canada, UK and China subsidiaries, to minimize foreign currency exposure.

Other Derivatives

To mitigate the translation risk of certain balance sheet items, we enter into certain foreign currency forward 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 are also recognized in net interest income and other.

We also enter into certain swap and futures contracts that are not designated as hedging instruments to mitigate the price uncertainty of a portion of our future purchases of dairy products and diesel fuel. 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.

Fair values of derivative instruments on the consolidated balance sheet (in millions):

	Cash Flow Hedges				Net Investment Hedges				Other Derivatives
Financial Statement Location	Oct 2, 2011		Oct 3, 2010		Oct 2, 2011		Oct 3, 2010		Oct 2, 2011		Oct 3, 2010
Prepaid expenses and other current assets	$	0.2	$	0.1	$	0.0	$	0.0	$	2.8	$	0.0
Other accrued liabilities		11.0		10.6		9.0		5.6		1.6		4.0
Other long-term liabilities		3.0		6.4		6.9		8.1		0.0		0.0
Total losses in accumulated OCI, net of tax(1)		11.1		13.9		34.2		26.7

⁽¹⁾  Amount that will be dedesignated within 12 months for cash flow hedges is $6.6 million as of October 2, 2011.

Ineffectiveness from hedges in fiscal years 2011 and 2010 was insignificant. Outstanding cash flow hedge and net investment hedge contracts will expire within 24 months and 30 months, respectively.

The following table presents the pretax effect of derivative instruments on earnings and other comprehensive income for fiscal years ending (in millions):

	Cash Flow Hedges						Net Investment Hedges						Other Derivatives
	Oct 2, 2011			Oct 3, 2010			Oct 2, 2011			Oct 3, 2010			Oct 2, 2011		Oct 3, 2010
Gain/(Loss) recognized in earnings	$	(15.9	)	$	(5.9	)	$	0.0		$	0.0		$	6.6	$	1.0
Gain/(Loss) recognized in OCI	$	(12.1	)	$	(20.9	)	$	(12.0	)	$	(10.8	)

The amounts shown as recognized in earnings for cash flow and net investment hedges represent the realized gains/(losses) transferred out of other comprehensive income ("OCI") to earnings during the year. The amounts shown as recognized in OCI are prior to these transfers of realized gains/(losses) to earnings.

Notional amounts of outstanding derivative contracts (in millions):
	Oct 2, 2011		Oct 3, 2010
Foreign exchange	$	499	$	593
Dairy	$	10	$	20