Starbucks 2002 Annual Report Download - page 16

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Note 6: Inventories
Inventories consist of the following (in thousands):
Sept 29, Sept 30,
2002 2001
Coffee:
Unroasted $ 128,173 $ 98,557
Roasted 35,770 33,958
Other merchandise held for sale 65,403 63,458
Packaging and other supplies 33,828 25,280
Total $ 263,174 $ 221,253
The increase in inventories is consistent with the Company’s
overall retail store growth.
As of September 29, 2002, the Company had fixed-price
inventory purchase contracts for green coffee totaling
approximately $242.2 million. The Company believes, based
on relationships established with its suppliers in the past, that
the risk of non-delivery on such purchase commitments is low.
Note 7: Equity and Other Investments
The Company’s equity and other investments consist of the
following (in thousands):
Sept 29, Sept 30, Oct 1,
2002 2001 2000
Equity method investments $ 94,698 $ 57,758 $ 51,268
Cost method investments 9,086 3,118 783
Other investments 2,202 2,221 3,788
Total $ 105,986 $ 63,097 $ 55,839
Equity Method
The Company’s equity investees and ownership interests are
as follows:
Sept 29, Sept 30, Oct 1,
2002 2001 2000
North American Coffee
Partnership 50.0% 50.0% 50.0%
The Starbucks Ice Cream
Partnership 50.0% 50.0% 50.0%
Starbucks Coffee Japan, Ltd. 40.1% 50.0% 50.0%
Starbucks Coffee Korea Co., Ltd. 50.0% 50.0% -
Coffee Partners Hawaii 5.0% 5.0% 5.0%
The Company has two partnerships to produce and distribute
Starbucks branded products.The North American Coffee Part-
nership with the Pepsi-Cola Company develops and distributes
bottled Frappuccino and Starbucks DoubleShot coffee drinks.
The Starbucks Ice Cream Partnership with Dreyer’s Grand Ice
Cream, Inc. develops and distributes premium ice creams.
The Company is an equity owner in several other entities that
operate licensed Starbucks retail stores, including Starbucks
Coffee Japan, Ltd., Starbucks Coffee Korea Co., Ltd., and
Coffee Partners Hawaii, a general partnership.
On October 10, 2001, the Company sold 30,000 of its shares
of Starbucks Coffee Japan, Ltd. (“Starbucks Japan”) at
approximately $495 per share, net of related costs. In
connection with this sale,the Company received cash proceeds
of $14.8 million and recorded a gain of $13.4 million on the
accompanying consolidated statement of earnings. The
Company’s ownership interest in Starbucks Japan was reduced
from 50.0% to 47.5% following the sale of the shares.
Also on October 10, 2001, Starbucks Japan issued 220,000
shares of common stock at approximately $495 per share, net
of related costs, in an initial public offering in Japan. In
connection with this offering, the Company’s ownership
interest in Starbucks Japan was reduced from 47.5% to 40.1%.
Starbucks recorded “Other additional paid-in capital” on the
accompanying consolidated balance sheet of $39.4 million,
reflecting the increase in value of its share of the net assets of
Starbucks Japan related to the stock offering.As of September
29, 2002, the quoted closing price of Starbucks Japan shares
was approximately $203 per share.
The Company’s share of income and losses is included in
“Income from equity investees” on the accompanying
consolidated statements of earnings. Also included is the
Company’s proportionate share of gross margin resulting from
coffee and other product sales to, and royalty and license fee
revenues generated from, equity investees. Revenues generated
from these related parties, net of eliminations, were $57.1
million, $40.6 million and $27.0 million in fiscal 2002, 2001
and 2000, respectively. Related costs of sales, net of
elminations, were $32.8 million, $25.9 million and $19.4
million in fiscal 2002, 2001 and 2000, respectively.
Cost Method
Starbucks has equity interests in entities to develop Starbucks
retail stores in Taiwan, China, Austria, Switzerland, Puerto
Rico, Germany, Spain, Mexico, Greece and Israel. Starbucks
has the ability to acquire additional interests in its cost method
investees at certain intervals during each respective
development period. Depending on the Company’s total
percentage ownership interest and its ability to exercise
significant influence, additional investments may require the
retroactive application of the equity method of accounting.
Other Investments
Starbucks has investments in privately held equity securities
that are recorded at their estimated fair values.
In fiscal 1999 and 2000, the Company invested $20.3 million
in living.com, Inc. (“living.com”), an online furniture retailer,
$10.0 million in Cooking.com, Inc. (“Cooking.com”), a
privately held Web-based retailer of cookware, accessories and
specialty foods and provider of information about cooking,
and $25.0 million in Kozmo.com, an Internet-to-door
delivery service for food, entertainment and convenience
items. During fiscal 2000 and 2001, the Company determined
that these investments had suffered declines in value that were
other than temporary. As a result, the Company recognized
losses of $52.0 million to reduce its investments in living.com,
Cooking.com and Kozmo.com to their aggregate fair value as
of October 1, 2000. During fiscal 2001, Starbucks recognized
a loss totaling $2.0 million to write off its remaining
investment in Kozmo.com. There were no investment write-
offs in fiscal 2002.
Note 8: Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist
of the following (in thousands):
Sept 29, Sept 30,
2002 2001
Land $ 11,310 $ 6,023
Buildings 30,961 19,795
Leasehold improvements 1,131,382 960,732
Roasting and store equipment 516,129 421,150
Furniture, fixtures and other 282,068 239,900
1,971,850 1,647,600
Less accumulated depreciation
and amortization (814,427) (605,247)
1,157,423 1,042,353
Work in progress 108,333 93,431
Property, plant and equipment, net $ 1,265,756 $1,135,784
The increase in property, plant and equipment from
September 30, 2001, to September 29, 2002, is mainly a
result of opening new Company-operated retail stores,
remodeling certain existing stores, and purchasing land and
constructing the Company’s new roasting and distribution
facility in Nevada.