Starbucks 2003 Annual Report Download - page 11

22฀ Fiscal฀2003฀Annual฀Report
Fiscal฀2003฀Annual฀Report฀ 23
annually฀ and฀ more฀ frequently฀ if฀ facts฀ and฀ circumstances฀
indicate฀goodwill฀carrying฀values฀exceed฀estimated฀reporting฀
unit฀ fair฀ values฀ and฀ if฀ indefinite฀ useful฀ lives฀ are฀ no฀ longer฀
appropriate฀for฀the฀Company’s฀trademarks.฀Upon฀indication฀
that฀the฀carrying฀value฀of฀such฀assets฀may฀not฀be฀recoverable,฀
the฀ Company฀ recognizes฀ an฀ impairment฀ loss฀ as฀ a฀ charge฀
against฀ current฀ operations.฀ Property,฀ plant฀ and฀ equipment฀
assets฀ are฀ grouped฀ at฀ the฀ lowest฀ level฀ for฀ which฀ there฀ are฀
identifiable฀ cash฀ f lows฀ when฀ assessing฀ impairment.฀ Cash฀
f lows฀ for฀ retail฀ assets฀ are฀ identified฀ at฀ the฀ individual฀ store฀
level.฀Long-lived฀assets฀to฀be฀disposed฀of฀are฀reported฀at฀the฀
lower฀of฀their฀carrying฀amount฀or฀fair฀value,฀less฀estimated฀
costs฀to฀sell.฀Judgments฀made฀by฀the฀Company฀related฀to฀the฀
expected฀useful฀lives฀of฀long-lived฀assets฀and฀the฀ability฀of฀the฀
Company฀to฀realize฀undiscounted฀cash฀f lows฀in฀excess฀of฀the฀
carrying฀amounts฀of฀such฀assets฀are฀affected฀by฀factors฀such฀
as฀the฀ongoing฀maintenance฀and฀improvements฀of฀the฀assets,฀
changes฀ in฀ economic฀ conditions฀ and฀ changes฀ in฀ operating฀
performance.฀As฀the฀Company฀assesses฀the฀ongoing฀expected฀
cash฀ f lows฀ and฀ carrying฀ amounts฀ of฀ its฀ long-lived฀ assets,฀
these฀ factors฀ could฀ cause฀ the฀ Company฀ to฀ realize฀ material฀
impairment฀charges.฀
NEW฀ACCOUNTING฀STANDARDS
Starbucks฀ adopted฀ Statement฀ of฀ Financial฀ Accounting฀
Standard฀(“SFAS”)฀No.฀142,฀“Goodwill฀and฀Other฀Intangible฀
Assets,”฀ on฀ September฀30,฀ 2002.฀ As฀ a฀ result,฀ the฀ Company฀
discontinued฀amortization฀of฀its฀goodwill฀and฀indefinite-lived฀
trademarks฀ and฀ determined฀ that฀ provisions฀ for฀ impairment฀
were฀unnecessary.฀Impairment฀tests฀will฀be฀performed฀on฀an฀
annual฀ basis฀ and฀more฀frequently฀ if฀ facts฀ and฀circumstances฀
indicate฀goodwill฀carrying฀values฀exceed฀estimated฀reporting฀
unit฀ fair฀ values฀ and฀ if฀ indefinite฀ useful฀ lives฀ are฀ no฀ longer฀
appropriate฀ for฀ the฀ Company’s฀ trademarks.฀ Had฀ the฀
nonamortization฀provision฀of฀SFAS฀No.฀142฀been฀applied฀to฀
fiscal฀ 2002฀ and฀ fiscal฀ 2001,฀ as฀ shown฀ in฀ the฀ “Acquisitions”฀
section,฀ net฀ earnings฀ would฀ have฀ been฀ $214.7฀million฀ and฀
$182.2฀million,฀ respectively,฀ compared฀ to฀ net฀ earnings฀
of฀ $212.7฀ million฀ and฀ $180.3฀million,฀ respectively.฀ Basic฀
earnings฀ per฀ share฀ for฀ fiscal฀ 2002฀ would฀ have฀ increased฀ to฀
$0.56฀per฀share฀from฀$0.55฀per฀share,฀while฀diluted฀earnings฀
per฀ share฀ would฀ have฀ remained฀ unchanged.฀ Basic฀ earnings฀
per฀share฀for฀fiscal฀2001฀would฀have฀increased฀to฀$0.48฀per฀
share฀from฀$0.47฀per฀share,฀while฀diluted฀earnings฀per฀share฀
would฀have฀remained฀unchanged.฀Definite-lived฀intangibles,฀
which฀mainly฀consist฀of฀patents฀and฀copyrights,฀will฀continue฀
to฀be฀amortized฀over฀their฀estimated฀useful฀lives.฀
In฀November฀2002,฀the฀Emerging฀Issues฀Task฀Force฀reached฀
a฀ consensus฀ regarding฀ Issue฀ No.฀ 02-16,฀ “Accounting฀ by฀ a฀
Customer฀ (Including฀ a฀ Reseller)฀ for฀ Certain฀ Consideration฀
Received฀from฀a฀Vendor.”฀Issue฀No.฀02-16฀provides฀guidance฀for฀
classification฀in฀the฀reseller’s฀statements฀of฀earnings฀for฀various฀
circumstances฀under฀which฀cash฀consideration฀is฀received฀from฀
a฀vendor฀by฀a฀reseller.฀The฀provisions฀of฀Issue฀No.฀02-16฀apply฀
to฀all฀agreements฀entered฀into฀or฀modified฀after฀December฀31,฀
2002.฀Issue฀No.฀02-16฀did฀not฀have฀a฀material฀impact฀on฀the฀
Company’s฀consolidated฀financial฀statements.
In฀ December฀ 2002,฀ the฀ FASB฀ issued฀ SFAS฀ No.฀148,฀
“Accounting฀ for฀ Stock-Based฀ Compensation฀ –฀ Transition฀
and฀Disclosure,”฀which฀amends฀SFAS฀No.฀123,฀“Accounting฀
for฀ Stock-Based฀ Compensation.”฀ SFAS฀ No.฀148฀ provides฀
alternative฀methods฀of฀transition฀for฀voluntary฀change฀to฀the฀
fair฀value฀method฀of฀accounting฀for฀stock-based฀compensation.฀
In฀ addition,฀ SFAS฀ No.฀148฀ requires฀ more฀ prominent฀
disclosures฀ in฀ both฀ annual฀ and฀ interim฀ financial฀ statements฀
about฀ the฀ method฀ of฀ accounting฀ for฀ stock-based฀ employee฀
compensation฀and฀the฀effect฀of฀the฀method฀used฀on฀reported฀
results.฀ Starbucks฀ adopted฀ the฀ annual฀ and฀ interim฀ disclosure฀
requirements฀of฀SFAS฀No.฀148฀as฀of฀September฀30,฀2002.฀
In฀January฀2003,฀FASB฀Interpretation฀No.฀46฀(“FIN฀No.฀46”),฀
“Consolidation฀of฀Variable฀Interest฀Entities,฀an฀interpretation฀
of฀ Accounting฀ Research฀ Bulletin฀ No.฀ 51,”฀ was฀ issued.฀ FIN฀
No.฀ 46฀ requires฀ identification฀ of฀ a฀ company’s฀ participation฀
in฀ variable฀ interest฀ entities฀ (“VIE”s),฀ which฀ are฀ defined฀ as฀
entities฀ with฀a฀ level฀of฀ invested฀ equity฀ that฀ is฀ not฀sufficient฀
to฀ fund฀ future฀ operations฀ on฀ a฀ stand-alone฀ basis,฀ or฀ whose฀
equity฀ holders฀ lack฀ certain฀ characteristics฀ of฀ a฀ controlling฀
financial฀interest.฀For฀identified฀VIEs,฀FIN฀No.฀46฀sets฀forth฀
a฀ model฀ to฀ evaluate฀ potential฀ consolidation฀ based฀ on฀ an฀
assessment฀of฀which฀party฀to฀the฀VIE,฀if฀any,฀bears฀a฀majority฀
of฀the฀exposure฀to฀its฀expected฀losses,฀or฀stands฀to฀gain฀from฀a฀
majority฀of฀its฀expected฀returns.฀FIN฀No.฀46฀further฀requires฀
the฀disclosure฀of฀certain฀information฀related฀to฀VIEs฀in฀which฀
a฀company฀holds฀a฀significant฀variable฀interest.฀
FIN฀ No.฀ 46฀ was฀ effective฀ for฀ new฀ VIEs฀ established฀ or฀
purchased฀subsequent฀to฀January฀31,฀2003.฀For฀VIEs฀entered฀
into฀prior฀ to฀ February฀1,฀ 2003,฀ FIN฀ No.฀46฀ was฀originally฀
effective฀for฀interim฀periods฀beginning฀after฀June฀15,฀2003.฀
In฀October฀2003,฀the฀FASB฀deferred฀this฀effective฀date฀until฀
interim฀or฀annual฀periods฀ending฀after฀December฀15,฀2003.฀
On฀ December฀ 17,฀ 2003,฀ the฀ FASB฀ elected฀ to฀ immediately฀
defer฀the฀application฀of฀FIN฀No.฀46฀for฀entities฀not฀previously฀
subject฀ to฀ special฀ purpose฀ entity฀ guidance.฀ Additionally,฀
the฀ FASB฀ announced฀ that฀ it฀ will฀ issue฀ FIN฀ No.฀ 46R,฀
“Consolidation฀of฀Variable฀Interest฀Entities฀–฀A฀Modification฀
of฀FASB฀Interpretation฀No.฀46,”฀before฀the฀end฀of฀December฀
2003,฀which฀amends฀FIN฀No.฀46฀and,฀among฀other฀things,฀
includes฀additional฀scope฀exceptions฀for฀franchises฀and฀entities฀
with฀business฀operations฀that฀meet฀certain฀criteria.฀
The฀ Company฀ has฀ equity฀ ownership฀ in฀ several฀ of฀ its฀
international฀ licensed฀ operations฀ that฀ are฀ currently฀ not฀
consolidated,฀ but฀ are฀ accounted฀ for฀ under฀ the฀ equity฀ or฀
cost฀ method฀ of฀ accounting.฀ Because฀ the฀ Company’s฀ equity฀
and฀ cost฀ basis฀ investments฀ in฀ its฀ joint฀ ventures,฀ franchises฀
and฀ licensed฀ operations฀ were฀ not฀ subject฀ to฀ the฀ original฀
special฀ purpose฀ entity฀ guidance฀ referenced฀ in฀ the฀ previous฀
paragraph,฀ Starbucks฀ has฀ not฀ consolidated฀ any฀ such฀ entities฀
as฀ of฀ September฀ 28,฀ 2003.฀ The฀ Company’s฀ application฀ of฀
FIN฀ No.฀ 46,฀ as฀ modified฀ and฀ interpreted,฀ including฀ the฀
provisions฀in฀FIN฀No.฀46R,฀is฀not฀expected฀to฀have฀an฀impact฀
on฀ its฀ consolidated฀ financial฀ statements฀ or฀ disclosures฀ as฀ of฀
September฀28,฀2003.
In฀ April฀ 2003,฀ SFAS฀ No.฀149,฀ “Amendment฀ of฀ Statement฀
133฀ on฀ Derivative฀ Instruments฀ and฀ Hedging฀ Activities,”฀
was฀ issued.฀ In฀ general,฀ this฀ statement฀ amends฀ and฀ clarifies฀
accounting฀ for฀ derivative฀ instruments,฀ including฀ certain฀
derivative฀instruments฀embedded฀in฀other฀contracts,฀and฀for฀
hedging฀ activities฀ under฀ SFAS฀ No.฀133.฀ This฀ statement฀ is฀
effective฀for฀contracts฀entered฀into฀or฀modified฀after฀June฀30,฀
2003,฀and฀for฀hedging฀relationships฀designated฀after฀June฀30,฀
2003.฀ The฀ adoption฀ of฀ SFAS฀ No.฀149฀ did฀ not฀ have฀ an฀
impact฀on฀the฀Company’s฀consolidated฀financial฀statements฀
or฀disclosures.฀
In฀ May฀ 2003,฀ SFAS฀ No.฀ 150,฀ “Accounting฀ for฀ Certain฀
Financial฀Instruments฀with฀Characteristics฀of฀both฀Liabilities฀
and฀ Equity,”฀ (“SFAS฀ No.฀ 150”)฀ was฀ issued,฀ which฀ requires฀
that฀certain฀financial฀instruments฀be฀accounted฀for฀as฀liabilities.฀
The฀ financial฀ instruments฀ affected฀ include฀ mandatorily฀
redeemable฀stock,฀ certain฀ financial฀ instruments฀that฀require฀
or฀may฀ require฀ the฀issuer฀to฀buy฀back฀some฀of฀ its฀shares฀ in฀
exchange฀for฀cash฀or฀other฀assets,฀and฀certain฀obligations฀that฀
can฀be฀settled฀with฀shares฀of฀stock.฀SFAS฀No.฀150฀is฀effective฀
for฀ all฀ financial฀ instruments฀ entered฀ into฀ or฀ modified฀ after฀
May฀31,฀2003,฀and฀must฀be฀applied฀to฀the฀Company’s฀existing฀
financial฀instruments฀effective฀June฀30,฀2003,฀the฀beginning฀
of฀ the฀ first฀ fiscal฀ period฀ after฀ June฀ 15,฀ 2003.฀ The฀ adoption฀
of฀SFAS฀No.฀150฀did฀not฀have฀an฀impact฀on฀the฀Company’s฀
consolidated฀financial฀statements฀or฀disclosures.฀