HOW FAMOUS BRANDS COVER THEMESELVES
Creti Carolina,
Francesconi Elena,
Martiriggiano Sara,
Saccenti Elisa
Risk Management & Derivatives, A.Y 2013-2014
1
Table Of Content
 The coffee market
 Starbucks
 Dunkin’ Donuts
 Green Mountain
 Conclusion
2
THE COFFEE MARKET
SOME NUMBERS
 The second most traded commodity after oil;
 Global production of US$ 15.4 billion in 2009/10
 4 billion cups consumed every day around the World
(Americans 400 million cups);
3
MAYOR PRODUCERS
TOP 5
-BRAZIL
-VIETNAM
-INDONESIA
-COLOMBIA
-ETHIOPIA
r:Coffea canephora
m:Coffea canephora and Coffea arabica
a:Coffea arabica
33%
15%
6.3%
5.9%
5.0%
65.6%
4
A Liberalized Market
 The coffee market is for its nature unstable, and the price is sensitive to
the supply/ demand, to the speculation on the financial market, and to
political questions;
 The volatility is increased after the stop of the “International Coffee
Agreement” in 1989. This system provided that, when the prices fell
below a certain level, the producer country could not enter into the
same market over a predefined quotas.
5
A Liberalized Market
231 March 2011
109.24
Dec. 2013
Worst Level
 2007 achieved the same level as 1989;
 peak in 2011/2012
 Oct 2013: lowest level since March 2009,
6
ITS QUOTES- “Arabica vs Robusta”
CONTRACT
SPECIFICATIONS
ARABICA
ROBUSTA
Market
CME
London Stock Exchange
Delivery Months
March, May, July,
September, and
December
January, March, May,
July, September, and
November
Contract Size
37,500 pounds
Ten tonnes
Price Quotation
U.S Dollar per pounds
U.S dollar per tonne
Mimimun Fluctuation
$ 0.0005 per pounds
$ 1 per tonne
7
A COMPETITIVE MARKET
 There are many realities widespread all over the
World
8
OUR ANALYSIS
9
Company Overview
Starbucks
PwC
dicembre 2013
11
Core Business
 purchase and roast high-quality whole bean coffees for sale
 sell teas and other beverages, food items and beverage-related
accessories and equipment, primarily through company operated
retail stores + licensed retail stores
 in addition to the flagship Starbucks brand the portfolio also
includes goods and services offered under other brands: Teavana,
Tazo, Seattle’s Best Coffee, Starbucks VIA, Starbucks Refreshers,
Evolution Fresh, La Boulange and Verismo.
PwC
Starbucks
dicembre 2013
12
The mission of the company
 “To inspire and nurture the human spirit – one person, one
cup and one neighborhood at time”.
The objective:
“to maintain Starbucks standing as one of the most
recognized and respected brands in the world”
Starbucks
PwC
13
The mission of the company
Starbucks Global
Responsibility
they are
keeping on
their expansion
of the stores on
a global base
Continue to offer
consumers new coffee
products in multiple
forms, across new
categories, and through
diverse channels
PwC
14
Global Expansion
Today it is in 62 countries around the world and it has about 18000
stores world-wide.
Starbucks
PwC
15
Price Stock
Starbucks Corporation’s common stock is listed on NASDAQ, under the
trading symbol “SBUX”.
The price of the stock is around 80 us$
Starbucks
PwC
16
Financial Statement
Starbucks
PwC
dicembre 2013
17
Consolidated Balance Sheets
Sep 29,
Sep 30,
2013
2012
ASSETS
Current assets:
Cash and cash equivalents
2,575.7
$ 1,188.6
Short-term investments
658.1
848.4
Accounts receivable, net
561.4
485.9
1,111.2
1,241.5
Prepaid expenses and other current assets
287.7
196.5
Deferred income taxes, net
277.3
238.7
5,471.4
4,199.6
58.3
116.0
496.5
459.9
3,200.5
2,658.9
Deferred income taxes, net
967.0
97.3
Other assets
185.3
144.7
Other intangible assets
274.8
143.7
Goodwill
862.9
399.1
$ 11,516.7
$ 8,219.2
Inventories
Total current assets
Long-term investments
Equity and cost investments
Property, plant and equipment, net
PwC
TOTAL ASSETS
$
18
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
491.7
$
398.1
Accrued litigation charge
2,784.1
—
Accrued liabilities
1,269.3
1,133.8
Insurance reserves
178.5
167.7
Deferred revenue
653.7
510.2
5,377.3
2,209.8
1,299.4
549.6
357.7
345.3
7,034.4
3,104.7
0.8
0.7
282.1
39.4
4,130.3
5,046.2
67.0
22.7
4,480.2
5,109.0
2.1
5.5
4,482.3
5,114.5
$ 11,516.7
19
$ 8,219.2
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Shareholders’ equity:
Common stock ($0.001 par value) — authorized, 1,200.0 shares; issued and outstanding,
753.2 shares and 749.3 shares (includes 3.4 common stock units), respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Noncontrolling interests
Total equity
PwC
TOTAL
LIABILITIES AND EQUITY
Consolidated Statement Of
Comprehensive Income
Sep 29,
Sep 30,
Oct 2,
2013
2012
2011
$ 1,384.7
$ 1,248.0
(0.6 )
0.7
0.7
0.2
(0.3 )
(0.3 )
47.1
(42.2 )
(12.2 )
(24.6 )
4.3
4.5
32.8
1.0
(12.1 )
(12.1 )
(0.4 )
4.5
Net earnings including noncontrolling interests
$
8.8
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) on available-for-sale securities
Tax (expense)/benefit
Unrealized holding gains/(losses) on cash flow hedging instruments
Tax (expense)/benefit
Unrealized holding gains/(losses) on net investment hedging instruments
Tax (expense)/benefit
Reclassification adjustment for net (gains)/losses realized in net earnings
for cash flow hedges
46.3
14.8
16.6
(3.5 )
(4.3 )
(6.1 )
85.6
(26.4 )
(4.4 )
(41.6 )
6.1
(7.4 )
Tax (expense)/benefit
0.3
(3.3 )
0.9
Other comprehensive income/(loss)
44.3
(23.6 )
(10.9 )
Comprehensive income/(loss) including noncontrolling interests
53.1
1,361.1
1,237.1
0.5
0.9
2.3
$ 52.6
$ 1,360.2
$ 1,234.8
Tax expense/(benefit)
Net unrealized holding gains/(losses)
Translation adjustment
Comprehensive income attributable to noncontrolling interests
PwC
Comprehensive income attributable to Starbucks
20
Consolidated Statement Of Cash
Flows
Sep 29,
Sep 30,
Oct 2,
2013
2012
2011
8.8
$ 1,384.7
$ 1,248.0
655.6
580.6
550.0
2,784.1
—
—
—
—
(30.2 )
OPERATING ACTIVITIES:
Net earnings including noncontrolling interests
$
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization
Litigation charge
Gain on sale of properties
Deferred income taxes, net
(1,045.9 )
61.1
106.2
Income earned from equity method investees, net of distributions
(56.2 )
(49.3 )
(32.9 )
Gain resulting from sale/acquisition of equity in joint ventures
(80.1 )
—
(55.2 )
Stock-based compensation
142.3
153.6
145.2
23.0
23.6
33.3
Accounts receivable
(68.3 )
(90.3 )
(88.7 )
Inventories
152.5
(273.3 )
(422.3 )
Accounts payable
88.7
(105.2 )
227.5
Accrued liabilities and insurance reserves
87.6
23.7
(81.8 )
139.9
60.8
35.8
76.3
(19.7 )
(22.5 )
Other
Cash provided/(used) by changes in operating assets and liabilities:
Deferred revenue
Prepaid expenses, other current assets and other assets
PwC
Net
cash provided by operating activities
2,908.3
1,750.3
1,612.4
21
INVESTING ACTIVITIES:
Purchase of investments
(785.9 )
Sales, maturities and calls of investments
1,040.2
Acquisitions, net of cash acquired
Additions to property, plant and equipment
Proceeds from the sale of property, plant, and equipment
(1,748.6 )
(966.0 )
1,796.4
430.0
(610.4 )
(129.1 )
(55.8 )
(1,151.2 )
(856.2 )
(531.9 )
15.3
5.3
117.4
Proceeds from sale of equity in joint ventures
108.0
—
—
Other
(27.2 )
(41.8 )
(13.2 )
(1,411.2 )
(974.0 )
(1,019.5 )
Net cash used by investing activities
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
749.7
—
—
Principal payments on long-term debt
(35.2 )
—
—
(Payments)/proceeds from short-term borrowings
—
(30.8 )
30.8
Purchase of noncontrolling interest
—
—
(27.5 )
Proceeds from issuance of common stock
247.2
236.6
250.4
Excess tax benefit on share-based awards
258.1
169.8
103.9
Cash dividends paid
(628.9 )
(513.0 )
(389.5 )
Repurchase of common stock
(588.1 )
(549.1 )
(555.9 )
Minimum tax withholdings on share-based awards
(121.4 )
(58.5 )
(15.0 )
(0.5 )
(5.2 )
(745.5 )
(608.0 )
Other
10.4
Net cash used by financing activities
(108.2 )
Effect of exchange rate changes on cash and cash equivalents
(1.8 )
9.7
(0.8 )
1,387.1
40.5
(15.9 )
1,188.6
1,148.1
1,164.0
$ 2,575.7
$ 1,188.6
$ 1,148.1
Interest, net of capitalized interest
$
34.4
$
34.4
$
34.4
PwCtaxes
Income
$
539.1
$
416.9
$
350.1
Net increase/(decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS:
Beginning of period
End of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
22
Risk Factors & Managements
Starbucks
PwC
23
General Risk Factors [1/3]
Economic conditions in the US and international markets
They may not be successful in implementing important strategic initiatives or
effectively managing growth
Construction cost increases associated with new store openings and remodeling of
existing
Delays in store openings for reasons beyond their control or a lack of desirable real
estate locations available for lease at reasonable rates
Lack of customer acceptance of new products due to price increases necessary to
cover the costs of new products or higher input costs
The degree to which they enter into, maintain, develop and are able to negotiate
appropriate terms and conditions of, and enforce, commercial and other agreements
dicembre 2013
PwC
Starbucks
24
General Risk Factors [2/3]
The deterioration in their credit ratings, which could limit the availability of
additional financing and increase the cost of obtaining financing
They face intense competition in each of their channels and markets,
which could lead to reduced profitability
They are highly dependent on the financial performance of their Americas
operating segment (74% of consolidated total net revenues)
They are increasingly dependent on the success of their EMEA and CAP
operating segments in order to achieve their growth targets
PwC
Starbucks
dicembre 2013
25
Growth targets
The performances of the international operations may be affected by:

foreign currency exchange rate fluctuations, or requirements to transact in specific currencies;

changes or uncertainties in economic, legal, regulatory, social and political conditions in their markets;

interpretation and application of laws and regulations;

restrictive actions of foreign or US governmental authorities affecting trade and foreign investment;

import or other business licensing requirements;

the enforceability of intellectual property and contract rights;

limitations on the repatriation of funds and foreign currency exchange restrictions due to current or
new US and international regulations;

in developing economies, the growth rate in the portion of the population achieving targeted levels of
disposable income may not be as fast as they forecast;

difficulty in staffing, developing and managing foreign operations and supply chain logistics, including
ensuring the consistency of product quality and service, due to distance, language and cultural
differences, as well as challenges in recruiting and retaining high quality employees in local markets;

local laws that make it more expensive and complex to negotiate with, retain or terminate employees;

delays in store openings for reasons beyond their control, competition with locally relevant competitors
or a lack of desirable real estate locations available for lease at reasonable rates;

disruption in energy supplies affecting their markets.
PwC
Starbucks
dicembre 2013
26
General Risk Factors [3/3]
Their success depends substantially on the value of their brands and failure to preserve their
value, either through their actions or those of their business partners, could have a negative
impact on the financial results
Increases in the cost of high-quality arabica coffee beans or other commodities or decreases
in the availability of high-quality arabica coffee beans or other commodities could have an
adverse impact on the business and financial results. The price of coffee is subject to
significant volatility
Interruption of supply chain
The loss of key personnel or difficulties recruiting and retaining qualified personnel
Adverse public or medical opinions about the health effects of consuming their products
They rely heavily on information technology in their operations, and any material failure,
inadequacy, interruption or security failure of that technology could harm their
ability to
dicembre 2013
PwC
Starbucks
27
effectively operate the business
Financial Condition
Financial condition and results of operations are
sensitive to, and may be adversely affected by, a
number of factors, many of which are largely outside
their control:
 declines in general consumer demand for specialty coffee products;
 increases in labor costs such as increased health care costs, general market
wage levels and workers' compensation insurance costs;
 adverse outcomes of current or future litigation;
 especially in larger or fast growing markets, labor discord, war, terrorism,
political instability, boycotts, social unrest, and natural disasters, including
health pandemics that lead to avoidance of public places or restrictions on
public gatherings such as in their stores.
PwC
Starbucks
dicembre 2013
28
Hedging Philosophy
Market
Risk
• the risk of losses due to changes in
commodity prices, foreign currency exchange
rates, equity security prices, and interest rates
Starbuck manages his exposure to various market-based risks according to a
market price risk management policy.
The market price risk
management policy governs
how hedging instruments may
be used to mitigate risk
Risk limits are set annually and prohibit speculative trading activity. Besides,
Starbuck also monitors and limits the amount of associated counterparty
credit risk.
PwC
Starbucks
dicembre 2013
29
Commodity prices, availability and
General Risk Conditions
Commodity price risk represents Starbucks primary market risk, generated by
the purchases of green coffee and dairy products, among other items.
Risk arises from the price volatility of green coffee.
PwC
Starbucks
dicembre 2013
30
Financial Risk Management [1/2]
Commodity
Price Risk
• They purchase commodity inputs, including coffee, dairy products and diesel that are used in the
operations and are subject to price fluctuations that impact the financial results. In addition to
fixed-price and price-to-be-fixed contracts for coffee purchases, they have entered into commodity
hedges to manage commodity price risk using financial derivative instruments.
Foreign
Currency
Exchange
Risk
• The majority of their revenue, expense and capital purchasing activities are transacted in US
dollars. However, because a portion of their operations consists of activities outside of the US,
they have transactions in other currencies, primarily the Canadian dollar, Japanese yen, Chinese
renminbi, British pound, and euro.
• As of September 29, 2013, they had forward foreign exchange contracts that hedge portions of
anticipated international revenue streams and inventory purchases + forward foreign exchange
contracts that qualify as accounting hedges of their net investment in Starbucks Japan to
minimize foreign currency exposure.
• Starbucks also had forward foreign exchange contracts that are not designated as hedging
instruments for accounting purposes (free standing derivatives), but which largely offset the
financial impact of translating certain foreign currency denominated payables and receivables.
Equity
Security
PwCPrice Risk
• They have minimal exposure to price fluctuations on equity mutual funds and equity exchangetraded funds within their trading portfolio.
dicembre 2013
31
Financial Risk Management [2/2]
Interest Rate
Risk
• They utilize short-term and long-term financing
• They may use interest rate hedges to manage the effect of interest rate
changes on their existing debt as well as the anticipated issuance of new
debt.
• As of September 29, 2013 and September 30, 2012, they did not have any
interest rate hedge agreements outstanding.
Available-forSale
Securities
• Their available-for-sale securities comprise a diversified portfolio
consisting mainly of fixed income instruments. The primary objectives
of these investments are to preserve capital and liquidity.
• They do not hedge the interest rate exposure on our available-for-sale
securities.
• They performed a sensitivity analysis based on a 100 basis point change
in the underlying interest rate of available-for-sale securities as of
September 29, 2013, and determined that such a change would not have
a significant impact on the fair value of these instruments
PwC
dicembre 2013
32
Derivative Financial Instruments
[1/4]
Interest
Rates
• During the third quarter of fiscal 2013, they entered into forward-starting
interest rate swap agreements with an aggregate notional amount of $750
million. These swaps hedged the variability in cash flows due to changes in
the benchmark interest rate related to the $750 million of 10-year 3.85%
Senior Notes due in October 2023 issued in the fourth quarter of 2013.
Foreign
Currency
• They 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.
• They also enter into net investment derivative instruments to hedge equity
method investment in Starbucks Coffee Japan, Ltd., to minimize foreign
currency exposure.
• In addition to the hedging instruments above, to mitigate the translation
risk of certain balance sheet items, they enter into certain foreign currency
swap contracts that are not designated as hedging instruments.
PwC
Starbucks
dicembre 2013
33
Derivative Financial Instruments
[2/4]
Coffee
• Depending on market conditions, they enter into futures contracts to
hedge a portion of anticipated cash flows under price-to-be-fixed green
coffee contracts.
Dairy
• To mitigate the price uncertainty of a portion of future purchases of
dairy products, they enter into futures contracts that are not designated
as hedging instruments.
Diesel Fuel
• To mitigate the price uncertainty of a portion of our future purchases of
diesel fuel, they enter into swap contracts that are not designated as
hedging instruments.
PwC
Starbucks
dicembre 2013
34
Derivative Financial Instruments
[3/4]
The following table presents the pretax effect of derivative contracts
designated as hedging instruments on earnings and other
comprehensive income ("OCI") for fiscal years ending (in millions):
Interest Rates
Foreign Currency
Sep 29, 2013
Sep 30, 2012
Coffee
Sep 29, 2013
Sep 30, 2012
Sep 29, 2013
Sep 30, 2012
Cash Flow Hedges:
0.5
$
—
$
3.5
$ (11.5 ) $ (49.4 ) $
66.2
$
—
$
7.4
$
Gain/(Loss) recognized in earnings
$
—
$
—
Gain/(Loss) recognized in OCI
$
32.8
$
1.1
Gain/(Loss) recognized in earnings $
Gain/(Loss) recognized in OCI
$
(3.4 )
(2.5 ) $ (26.5 ) $ (39.8 )
Net Investment Hedges:
PwC
Starbucks
dicembre 2013
35
Derivative Financial Instruments
[4/4]
The following table presents the pretax effect of derivative contracts not
designated as hedging instruments on earnings for fiscal years ending
(in millions):
Foreign Currency
Coffee
Dairy
Diesel Fuel
Sep 29,
Sep 30,
Sep 29,
Sep 30,
Sep 29,
Sep 30,
Sep 29,
Sep 30,
2013
2012
2013
2012
2013
2012
2013
2012
Gain/(Loss) recognized in
earnings
$ (1.8 ) $ (2.2 ) $ (2.1 ) $
—
$ (4.7 ) $
7.8
$
0.3
$
3.1
Notional amounts of outstanding derivative contracts (in millions):
Sep 29, 2013
Foreign currency
PwC
Starbucks
$
452
Sep 30, 2012
$
383
Coffee
—
125
Dairy
38
72
Diesel fuel
17
24
dicembre 2013
36
Company Overview
PwC BRANDS GROUP, INC
DUNKIN'
dicembre 2013
38
Core Business
 One of the world's leading franchisors of quick service
restaurants (“QSRs”) serving hot and cold coffee and
baked goods, as well as hard serve ice cream
 Operate business in four segments: Dunkin' Donuts U.S.,
Dunkin'
Donuts
International,
International and Baskin-Robbins U.S.
Starbucks
PwC
DUNKIN' BRANDS GROUP, INC
Baskin-Robbins
dicembre 2013
39
The mission of the company
At Dunkin' Brands, community is the heart of our business. That's why we
established The Dunkin' Donuts & Baskin-Robbins Community Foundation.
Working in partnership with Dunkin' Donuts and Baskin-Robbins franchisees
across the country, the Foundation serves the basic needs of our communities
through food for the hungry, safety and children's health. It's what we do every day.
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
40
Global Expansion- Dunkin' Donuts
3,100 stores in 30 countries outside of the U.S.
-
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
41
Global Expansion- Baskin-Robbins
- 7,000 store locations in over 50 countries outside the US..
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
42
Price Stock
Starbucks Corporation’s common stock is listed on NASDAQ, under the
trading symbol “SBUX”.
The price of the stock is around 80 us$
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
43
Financial Statement
PwC BRANDS GROUP, INC
DUNKIN'
dicembre 2013
44
Segment profit
+4,77%
PwC
DUNKIN' BRANDS GROUP, INC
+8,84%
dicembre 2013
45
Consolidated Balance Sheets
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
46
Consolidated Statements of Operation
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
47
Consolidated Statements of Comprehensive Income
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
48
Consolidated Statements of Cash Flows
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
49
Consolidated Statements of Stockholders’ Equity (Deficit)
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
50
Risk Factors & Managements
PwC
DUNKIN'
BRANDS GROUP, INC
dicembre 2013
51
General Risk Factors [1/2]
Financial results are affected by THE OPERATING RESULTS OF FRANCHISEES
The quick service restaurant segment is highly competitive, and COMPETITION could
lower revenues.
The restaurant industry is affected by consumer PREFERENCES AND PERCEPTIONS. Changes
in these preferences and perceptions may lessen the demand for products, which could reduce
sales by franchisees and reduce royalty revenues.
The substantial INDEBTEDNESS could adversely affect the financial condition (As of December
29, 2012, the total indebtedness was approximately $1.9 billion)
ECONOMIC CONDITIONS ADVERSELY AFFECTING CONSUMER
discretionary spending may negatively impact the business and
operating results.
It is not possible to predict THE IMPACT that the following may have on the business: (i) NEW
OR IMPROVED TECHNOLOGIES, (ii) ALTERNATIVE METHODS OF DELIVERY OR (iii) changes
2013
in consumer behavior facilitated by these technologies and alternative methodsdicembre
of delivery.
PwC
Starbucks
52
General Risk Factors [2/2]
The business is subject to various LAWS AND REGULATIONS and changes in such laws and
regulations could adversely affect it.
Failure to retain the existing senior management team or the inability to attract and retain
new QUALIFIED PERSONNEL could hurt the business and inhibit the ability to operate and
grow successfully.
LITIGATION RISK could affect it adversely by subjecting it to significant money damages and
other remedies or by increasing our litigation expense.
If the company FAIL TO SUCCESSFULLY IMPLEMENT THE GROWTH STRATEGY, which includes
opening new domestic and international restaurants, the ability to increase revenues and
operating profits could be adversely affected
If the international markets in which the company compete are affected by CHANGES IN
POLITICAL, SOCIAL, LEGAL, ECONOMIC OR OTHER FACTORS, the business and operating
results may be materially and adversely affected.
ADVERSE PUBLIC OR MEDICAL OPINIONS about the health effects of consuming the products
of the company, as well as reports of incidents involving food-borne illnesses or food
dicembre 2013
tampering, whether or not accurate, could harm the brands and the business.
PwC
Starbucks
53
Risks related to the common stock
The stock price could be extremely VOLATILE and, as a result, you may
not be able to resell your shares at or above the price you paid for them..
The certificate of incorporation and bylaws and Delaware law contain
provisions which could make it HARDER FOR A THIRD PARTY TO
ACQUIRE THE COMPANY, even if doing so might be beneficial to the
stockholders.
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
54
Market risks
THE RISK OF LOSSES DUE TO CHANGES IN COMMODITY PRICES, FOREIGN
CURRENCY EXCHANGE RATES, EQUITY SECURITY PRICES, AND INTEREST RATES
Hedging Philosophy
The Company uses derivative instruments to mitigate the impact of these
changes.
• The Company does not use derivatives with a level of complexity or with a
risk higher than the exposures to be hedged and does not hold or issue
derivatives for trading purposes.
• The Company's risk management objective and strategy with respect to the
interest rate swaps is to limit the Company's exposure to increased interest
rates on its variable rate debt by reducing the potential variability in cash flow
requirements relating to interest payments on a portion of its outstanding
debt.
• The Company documents its risk management objective and strategy for
dicembre 2013
PwC undertaking hedging transactions, as well as all relationships between
55
hedging instruments and hedged items.
Derivative instruments and hedging
transactions[1/3]
The table below summarizes the effects of derivative instruments on the consolidated
statements of operations and comprehensive income for fiscal year 2012 :
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
56
Derivative instruments and hedging
transactions[2/3]
Interest Rate
Risk
• variable-to-fixed interest rate swap agreements to hedge
the floating interest rate
• In the future, the company may enter into additional
hedging instruments, involving the exchange of floating for
fixed rate interest payments, to reduce interest rate
volatility.
Foreign Currency
Exchange Risk
• In the future, the company may consider the use of
derivative financial instruments, such as forward contracts,
to manage foreign currency exchange rate risks.
PwC
dicembre 2013
57
Derivative instruments and hedging
transactions[3/3]
The Company is exposed to credit-related losses in the event of non-performance
by the counterparties to its hedging instruments.
The Company ONLY ENTERS INTO CONTRACTS WITH MAJOR FINANCIAL
INSTITUTIONS based upon their credit ratings and other factors, and continually
assesses the creditworthiness of its counterparties.
The Company has agreements with each of its derivative counterparties that
contain a provision whereby if the Company defaults on any of its indebtedness,
then the Company could also be declared in DEFAULT ON ITS DERIVATIVE
OBLIGATIONS
PwC
DUNKIN' BRANDS GROUP, INC
dicembre 2013
58
Green Mountain Coffee
Company Overview
Green
Mountain Coffee
PwC
dicembre 2013
60
Business [1/3]
●
Green Mountain Coffee Roasters, Inc. is the American leader in the coffee and
coffeemaker businesses
●
Keurig, a“single-cup brewing systems” producer acquired by GMCR, spread
the use of K-Cups (plastic container with a coffee filter inside)
●
It offers whole bean, ground coffee and beverages in packs (tea, cocoa, fruit)
Business [2/3]
●
2012: top four best-selling coffeemakers for the
volume in USA
●
Production and distribution divisions: USA and Canada
●
Main strategies:
●
increasing and managing programs in order to spread Keurig “Single Cup
Brewer” in North America
●
to be the leader in coffee field offering a high-quality and an innovative
“Single Cup Brewing” technology
•
Competitive advantage: quality, convenience, variety
‘‘We create the ultimate beverage experience in every life we touch from tree to
cup—transforming the way the world understands business’’
Business [3/3]
●
Social responsability
Local communities partnership (supply chain), protecting the environment, sustainable
products, Fair Trade certified sources (Rain Forest Alliance Certified farms)
●
Brewing A Better World Foundation
supports charitable organizations (help to local communities)
●
Employees
5800 full-time, part-time and seasonale
•
Competitors: coffee segment producers and coffeemakers sellers
Constant innovation and high quality brings to superior cup of coffee
Financial Statement
Green
Mountain Coffee
PwC
dicembre 2013
64
Analysis of financial condition [1/4]
●
Partnership with famous brands: Starbucks, Lavazza, Millstone, Twining of London (these
brands are used with permission from each owner who has the property)
●
Last years huge demand of single cup specialty coffee
●
Different locations: home, office, professional locations, restaurants, hospitality and specialty
coffee shops
●
Increase the business: expanding consumer awarness/choice and new regions
●
New launches:
Keurig Rivo Cappuccino and Latte System and Rivo pack espresso blend varieties in partnership
with Lavazza.
Wellness Brewed collection which includes coffees, teas and Vitamin Burst fruit brew beverages
(antioxidant vitamins)
Analysis of financial conditions [2/4]
2012
●
Net sales of $3,859.2 million
●
Gross profit $1,269.4 million
●
$477.8 million in cash from operations
Growth of 36% over 2011
Innovation brings a more complicated product
its performance in sales returns rates to possibly fluctuate
Analysis of financial conditions [3/4]
●
Operating segments:
●
Specialty Coffee unit (SCBU)
●
Keurig business unit (KBU)
●
Canadian business unit (CBU)
Analysis of financial conditions [4/4]
Non-GAAP method
Exclude transaction cost related to GMCR acquisitions
Greater transparency for investor
Better evalutation and trends of financial and business
Financial data
Cash requirements of outstanding long-term debt, future lease payments
and purchase commitments:
Financial Statements and
Supplementary Data
Consolidated Balance Sheets (Dollars in Thousand)
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Risk Factors & Managements
Green
Mountain Coffee
PwC
dicembre 2013
77
Risk factors
Risks for any company: changes in industry and market conditions, political
condition, competition and currency exchange rate
Risk due to internal operation
Risk due to the industry
•
Revenues depends on the Keurig's sales
•
Increase of coffee beans price
•
High competition can effect profitability
•
Changes in global economic
•
Negative impact on company's reputation
conditions (or US economy)
•
Product recall/sales returns
•
•
Failure in business relationships
•
Wrong forcast on demand
•
Law and regulation
•
Currency exchange risk
•
Seasonality of many products
Investigations by Government
Quantitative and Qualitative
Disclosures about Market Risk [1/4]
Interest rate risk (cash flows rated)
2012
$238 million of outstanding debt obligations subject to variable interest rates
increase by 100 basis points
Additional interest expense of $2.4 million annually
Quantitative and Qualitative
Disclosures about Market Risk [2/4]
Commodity price risk
Fluctuations causes:
Weather
● Political
● Economic conditions in coffee-producing countries
●
Gross profit margins could be significantly impacted by changes in the commodity
price of coffee.
GMCR fixes coffee price contracts 3/9 months before the delivery in order to
adjust its sales prices to the market place.
September 2012 this company held outstanding futures contracts to cover 3.2£ M of coffee
Quantitative and Qualitative
Disclosures about Market Risk [3/4]
Foreign currency exchange rate risk
●
Risk related especially with CBU
●
Brewers from countries outside USA
●
●
Majority of transactions are made in Canadian Dollar (positively
affected when the United States dollar strengthens against the
Canadian dollar)
ITEM 8: GMCR hedges foreign currency exposure of a portion of
our assets and liabilities denominated in Canadian dollars (at fair
value)
Quantitative and Qualitative
Disclosures about Market Risk [4/4]
Foreign currency exchange rate risk
September 2012 GMCR held 4-year cross-currency swap of Canadian Dollar
●
$140 million that was not designated as a hedging instrument for accounting
purposes: principal payments on the cross-currency swap are settled on an
annual basis to match the repayments on the note receivable and the swap is
adjusted to fair value each period
GMCR uses foreign currency forward contracts to hedge certain capital purchas
●
Liabilities for production (minimizing cost risk of market fluctuations).
Any outstanding foreign currency forward contracts in September 2012
Fair value of the Company’s derivatives included on the
Unaudited Consolidated Balance Sheets
CONCLUSION
Derivative instruments are not common in this type of market;
 Common risks among the 3 companies:
-Interest Rate Risk;
-Commodity Price Risk
-Foreign Exchange Risk
 Instrument used: Contract with the supplier; Interest Rate Swap;
Foreign Currency Forward, Cross Currency Swap
84
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REFERENCES
Annual report Starbucks, http://www.starbucks.com/
Annual report Dunkin’ Donuts, http://www.dunkindonuts.com/dunkindonuts/en.html
https://www.baskinrobbins.com/content/baskinrobbins/en.html
Annual report Green Mountain, http://www.greenmountaincoffee.com/
International Coffee Organization http://www.ico.org/
http://en.wikipedia.org/wiki/Economics_of_coffee
http://www.ibtimes.com/coffee-beans-market-watch-2014-1436836
http://blackgoldmovie.com/economics-of-coffee
http://www.coffeeresearch.org/market/marketintro.htm
http://www.iandmsmith.com/index.php?q=con,29,%20Coffee_Market_Report
http://www.cmegroup.com/trading/agricultural/softs/coffee.html
https://globalderivatives.nyx.com/products/commodities-futures/RC-DLON
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