Starbucks 1999 Annual Report Download - page 16

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The carrying value of cash and cash equivalents approximates fair value because of the short-term
maturity of those instruments.The fair value of the Company’s investments in marketable debt and
equity securities is based upon the quoted market price on the last business day of the fiscal year
plus accrued interest, if any. The fair value and amortized cost of the Company’s investments
(short- and long-term) at October 3, 1999, were $56.4 million and $56.2 million, respectively.
The fair value and amortized cost of the Company’s investments at September 27, 1998, were
$21.9 million and $22.7 million, respectively. For further information on investments, see Note 4.
The carrying value of long-term debt approximates fair value.
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Inventories are stated at the lower of cost (primarily moving average cost) or market.
,   
Property, plant and equipment are carried at cost less accumulated depreciation and amortization.
Depreciation of property, plant and equipment, which includes amortization of assets under
capital leases, is provided on the straight-line method over estimated useful lives, generally
ranging from two to seven years for equipment and 40 years for buildings. Leasehold improvements
are amortized over the shorter of their estimated useful lives or the related lease life, generally ten
years. The portion of depreciation expense related to production and distribution facilities
is included in “Cost of sales and related occupancy costs” in the accompanying consolidated
statements of earnings.
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The excess purchase price paid over net assets of businesses acquired is amortized on a straight-
line basis over the period of expected benefit, which ranges from ten to twenty years.
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When facts and circumstances indicate that the cost of long-lived assets may be impaired,
an evaluation of recoverability is performed by comparing the carrying value of the assets to
projected future cash flows. Upon indication that the carrying value of such assets may not be
recoverable, the Company recognizes an impairment loss by a charge against current operations.
   
The Company may, from time to time, enter into futures contracts to hedge price-to-be-fixed
coffee purchase commitments with the objective of minimizing cost risk due to market fluctuations.
The Company does not hold or issue derivative instruments for trading purposes. In accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 80 “Accounting for Futures
Contracts,” these futures contracts meet the hedge criteria and are accounted for as hedges.
Accordingly, gains and losses are deferred and recognized as adjustments to the carrying value of
coffee inventory when purchased and recognized in results of operations as coffee products are sold.
Gains and losses are calculated based on the difference between the cost basis and the market value
of the coffee contracts.The market risk related to coffee futures is substantially offset by changes in
the costs of coffee purchased.The Company had no open futures contracts as of October 3, 1999,
or September 27, 1998.
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The Company expenses costs of advertising the first time the advertising campaign takes place,
except for direct-response advertising, which is capitalized and amortized over its expected
period of future benefit, generally three to twelve months.
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Costs incurred in connection with the start-up and promotion of new store openings are expensed
as incurred.
.  STARBUCKS COFFEE COMPANY