Starbucks 2002 Annual Report Download - page 15

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provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002.The disclosure requirements
of the Interpretation are effective for the Company’s fiscal year
2003. Starbucks does not expect the adoption of this
Interpretation to have a material impact on the Company’s
consolidated financial position or disclosures.
Reclassifications
Certain reclassifications of prior years’ balances have been
made to conform to the fiscal 2002 presentation.
Note 2: Business Combinations
During fiscal 2000, Starbucks acquired the outstanding stock
of Tympanum, Inc. (d/b/a “Hear Music”), a music retailer, and
Coffee Partners Co. Ltd., the company licensed to operate
Starbucks stores in Thailand.The combined purchase price for
these two acquisitions was $14.1 million.The acquisitions were
accounted for under the purchase method of accounting.
Results of operations of the acquired companies are included
on the accompanying consolidated financial statements from
the dates of acquisition.There were no business combinations
during fiscal 2001 and 2002.
Note 3: Cash and Cash Equivalents
Cash and cash equivalents consist of the following (in
thousands):
Sept 29, Sept 30,
2002 2001
Operating funds and interest-
bearing deposits $ 163,592 $ 51,164
Commercial paper - 1,698
Money market funds 10,980 60,375
Total $ 174,572 $ 113,237
Note 4: Short-term Investments
The Company’s short-term investments consist of the following (in thousands):
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
September 29, 2002: Cost Gains Losses Value
Short-term investments – available-for-sale securities:
State and local government obligations $ 155,471 $ 244 $ (16) $ 155,699
U.S. government obligations 2,406 4 - 2,410
Mutual funds 32,000 211 - 32,211
Commercial paper 26,982 - - 26,982
Total $ 216,859 $ 459 $ (16) $ 217,302
Short-term investments – trading securities 13,210 10,360
Total short-term investments $ 230,069 $ 227,662
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
September 30, 2001: Cost Gains Losses Value
Short-term investments – available-for-sale securities:
U.S. government obligations $ 1,999 $ 18 $ - $ 2,017
Commercial paper 98,000 1,332 - 99,332
Marketable equity securities 250 - (200) 50
To tal $ 100,249 $ 1,350 $ (200) $ 101,399
Short-term investments – trading securities 7,448 5,913
Total short-term investments $ 107,697 $ 107,312
In fiscal 2002, 2001 and 2000, proceeds from the sale of
investment securities were $144.8 million, $46.9 million and
$49.2 million, respectively. Gross realized gains from the sale
of securities were $1.7 million in 2002.There were no gross
realized losses in 2002, and gross realized gains and losses from
the sale of securities were not material in 2001 and 2000.
During fiscal 2001 and 2000, the Company recognized losses
of $0.9 million and $6.8 million, respectively, on its investment
in the common stock of Liveworld, Inc. (previously known as
Talk City, Inc.), due to impairments that were determined by
management to be other than temporary.
The trading securities are comprised mainly of marketable
equity mutual funds designated to approximate the
Company’s liability under the Management Deferred
Compensation Plan. The corresponding deferred
compensation liability of $10.4 million in fiscal 2002 and $6.0
million in fiscal 2001 is included in “Accrued compensation
and related costs” on the accompanying consolidated balance
sheets. In fiscal 2002 and 2001, the changes in net unrealized
holding losses in the trading portfolio included in earnings
were $1.3 million and $1.9 million, respectively.
Note 5: Derivative Financial Instruments
Cash Flow Hedges
During fiscal 2001 and 2002, the Company entered into
forward foreign exchange contracts that qualify as cash flow
hedges under SFAS No. 133 to hedge portions of anticipated
product and royalty revenues denominated in Japanese yen
and Canadian dollars. These contracts expire within 24
months.The Company had accumulated net derivative gains
of $0.8 million, net of taxes, in other comprehensive income
as of September 29, 2002, related to cash flow hedges. Of this
amount, $0.3 million of net derivative losses will be
reclassified into net earnings within 12 months.There was no
ineffectiveness related to cash flow hedges for the fiscal years
ended September 29, 2002, and September 30, 2001.
Net Investment Hedges
During fiscal 2001 and 2002, the Company entered into
forward foreign exchange contracts that qualify as hedges of the
Company’s net investment in Starbucks Coffee Japan, Ltd.
These contracts expire within 19 months and are intended to
minimize foreign currency exposure to fluctuations in the
Japanese yen.As a result of using the spot-to-spot method, the
Company recognized net gains of $1.8 million and $1.4 million
during the fiscal years ended September 29, 2002, and
September 30, 2001, respectively. In addition, the Company had
accumulated net derivative losses of $0.5 million, net of taxes,
in other comprehensive income as of September 29, 2002.