Starbucks 2001 Annual Report Download - page 18

OTHER INVESTMENTS
The Company has investments in privately held equity securities that are recorded at their estimated
fair values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
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 as well as bond and equity mutual funds is based upon the quoted market price on
the last business day of the fiscal year.The fair value and amortized cost of the Company’s short-term
investments at September 30, 2001, were $107.3 million and $107.7 million, respectively. The
fair value and amortized cost of the Company’s short-term investments at October 1, 2000, were
$61.3 million and $61.0 million, respectively.
For equity securities of companies that are privately held, or where an observable quoted market price
does not exist, the Company estimates fair value using a variety of valuation methodologies. Such
methodologies include comparing the security with securities of publicly traded companies in similar
lines of business, applying revenue multiples to estimated future operating results for the private
company and estimating discounted cash flows for that company. For further information on
investments, see Notes 4 and 8.The carrying value of long-term debt approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost (primarily moving average cost) or market.
PROPERTY, PLANT AND EQUIPMENT
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 30 to 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” on the accompanying consolidated statements of earnings.
GOODWILL
Goodwill resulting from business acquisitions represents the excess purchase price paid over net assets
of businesses acquired and is amortized on a straight-line basis over the period of expected benefit,
which ranges from ten to twenty years.
LONG-LIVED ASSETS
When facts and circumstances indicate that the carrying values of long-lived assets, including
intangibles, may be impaired, an evaluation of recoverability is performed by comparing the carrying
value of the assets to projected future cash flows in addition to other quantitative and qualitative
analyses. 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. Property, plant and equipment
assets are grouped at the lowest level for which there are identifiable cash flows when assessing
impairment. Cash flows for retail assets are identified at the individual store level.
REVENUE RECOGNITION
Retail store revenues are recognized when payment is tendered at the point of sale.Specialty revenues,
consisting mainly of product sales, are generally recognized upon shipment to customers. Initial non-
refundable fees required under licensing agreements are earned upon substantial performance of
services. Royalty revenues based upon a percentage of sales and other continuing fees are recognized
when earned.All revenues are recognized net of any discounts.
ADVERTISING
The Company expenses costs of advertising the first time the advertising campaign takes place, except
for direct-to-consumer advertising, which is capitalized and amortized over its expected period of
future benefit, generally six to twelve months. Net capitalized direct-to-consumer advertising costs
were $0.9 million and $0.2 million as of September 30, 2001, and October 1, 2000, respectively, and
are included in “Prepaid expenses and other current assets” on the accompanying consolidated balance
sheets. Total advertising expenses, recorded in “Store operating expenses” and “Other operating