Starbucks 2003 Annual Report Download - page 18

30฀ Fiscal฀2003฀Annual฀Report
Fiscal฀2003฀Annual฀Report฀ 31
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.฀
Reclassifications
During฀ the฀ fiscal฀ first฀ quarter฀ of฀ 2004,฀ the฀ Company฀
realigned฀its฀resources฀to฀better฀manage฀its฀rapidly฀ growing฀
operations.฀ In฀ connection฀ with฀ this฀ process,฀ classification฀
of฀ operating฀ expenses฀ within฀ the฀ consolidated฀ statements฀
of฀ earnings฀ was฀ evaluated฀ using฀ broad-based฀ definitions฀ of฀
retail,฀ specialty฀ and฀ general฀ and฀ administrative฀ functions.฀
As฀ a฀ result,฀ management฀ determined฀ that฀ certain฀ functions฀
not฀directly฀ supporting฀ retail฀or฀non-retail฀operations,฀ such฀
as฀ executive,฀ administrative,฀ finance฀ and฀ risk฀ management฀
overhead฀primarily฀within฀international฀operations,฀would฀be฀
more฀appropriately฀classified฀as฀“General฀and฀administrative฀
expenses”฀ than฀ as฀ store฀ or฀ other฀ operating฀ expenses.฀
Accordingly,฀ amounts฀ in฀ prior฀ year฀ periods฀ have฀ been฀
reclassified฀to฀conform฀to฀current฀year฀classifications.฀
Note฀2:฀Acquisitions
On฀ July฀ 14,฀ 2003,฀ the฀ Company฀ acquired฀ Seattle฀ Coffee฀
Company฀(“SCC”)฀from฀AFC฀Enterprises,฀Inc.฀SCC฀includes฀
the฀Seattle’s฀Best฀Coffee®฀and฀Torrefazione฀Italia®฀brands,฀which฀
complement฀the฀Company’s฀existing฀portfolio฀of฀products.฀The฀
results฀of฀operations฀of฀SCC฀are฀included฀in฀the฀accompanying฀
consolidated฀financial฀statements฀from฀the฀date฀of฀purchase.฀The฀
$70฀ million฀ all-cash฀ purchase฀ transaction฀ generated฀ goodwill฀
of฀approximately฀$43฀million฀and฀indefinite-lived฀intangibles,฀
consisting฀ of฀ trade฀ names฀ and฀ recipes,฀ of฀ approximately฀ $13฀
million.฀Pro฀forma฀results฀of฀operations฀have฀not฀been฀provided,฀
as฀ the฀ amounts฀ were฀ deemed฀ immaterial฀ to฀ the฀ consolidated฀
financial฀statements฀of฀Starbucks.
During฀fiscal฀2003,฀Starbucks฀increased฀its฀equity฀ownership฀
to฀ 50%฀ of฀ its฀ international฀ licensed฀ operations฀ in฀ Austria,฀
Shanghai,฀Spain,฀Switzerland฀and฀Taiwan,฀which฀enabled฀the฀
Company฀ to฀ exert฀ significant฀ influence฀ over฀ their฀ operating฀
and฀ financial฀ policies.฀ For฀ these฀ operations,฀ management฀
determined฀that฀a฀change฀in฀accounting฀method,฀from฀the฀cost฀
method฀to฀the฀equity฀method,฀was฀required.฀This฀accounting฀
change฀included฀adjusting฀previously฀reported฀information฀for฀
the฀Company’s฀proportionate฀share฀of฀net฀losses฀as฀required฀by฀
APB฀Opinion฀No.฀18,฀“The฀Equity฀Method฀of฀Accounting฀for฀
Investments฀in฀Common฀Stock.”฀
As฀ shown฀ in฀ the฀ table฀ below,฀ the฀ cumulative฀ effect฀ of฀ the฀
accounting฀change฀to฀the฀equity฀method฀resulted฀in฀reductions฀
of฀net฀earnings฀of฀$2.4฀million฀and฀$0.9฀million฀for฀the฀52฀weeks฀
ended฀September฀29,฀2002฀and฀September฀30,฀2001,฀respectively.฀
Additionally,฀a฀reduction฀of฀net฀earnings฀for฀the฀effects฀of฀the฀
accounting฀ change฀ prior฀ to฀ fiscal฀ 2001฀ of฀ $0.2฀million฀ was฀
recorded฀(in฀thousands,฀except฀earnings฀per฀share):
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 52฀weeks฀ended
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ Sept฀29,฀฀฀฀฀฀฀฀Sept฀30,
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 2002 ฀฀฀฀฀฀฀฀฀฀฀฀2001
Net฀earnings,฀previously฀reported฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀215,073฀฀฀฀ $ ฀ 181,210
Effect฀of฀change฀to฀equity฀method ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ (2,387)฀฀฀฀฀฀฀฀฀฀฀฀ (875)
Net฀earnings,฀as฀restated ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀212,686฀฀฀฀$ ฀180,335
Net฀earnings฀per฀common฀share฀–฀basic:฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀
฀ Previously฀reported ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀฀฀฀฀฀ 0.56฀฀฀฀ $ ฀฀฀฀฀฀ 0.48
฀ As฀restated฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀฀฀฀฀฀ 0.55฀฀฀฀$ ฀฀฀฀฀฀ 0.47
Net฀earnings฀per฀common฀share฀–฀diluted:฀ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀
฀ Previously฀reported ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀฀฀฀฀฀ 0.54฀฀฀฀ $ ฀฀฀฀฀฀ 0.46
฀ As฀restated฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $฀฀฀฀฀฀ 0.54฀฀฀฀$ ฀฀฀฀฀฀ 0.46
Note฀3:฀Cash฀and฀Cash฀Equivalents
Cash฀and฀cash฀equivalents฀consist฀of฀the฀following฀(in฀thousands):
Fiscal฀year฀ended฀ Sept฀28,฀2003฀ Sept฀29,฀2002
Operating฀funds฀and฀
฀ interest-bearing฀deposits฀ $฀ 187,118฀ $฀ 88,697
Money฀market฀funds฀ ฀ 13,789฀ ฀ 10,980
Total฀ $฀ 200,907฀ $฀ 99,677
Note฀4:฀Short-Term฀and฀Long-Term฀Investments
The฀Company’s฀short-term฀and฀long-term฀investments฀consist฀of฀the฀following฀(in฀thousands):
฀ Amortized฀ Gross฀Unrealized฀ Gross฀Unrealized฀ Fair
September฀28,฀2003฀ Cost฀ Holding฀Gains฀ Holding฀Losses฀ Value
Short-term฀investments฀–฀available-for-sale฀securities:฀
฀ United฀States฀government฀agency฀obligations ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀ 3,672฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀฀฀฀฀1฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀฀฀฀ –฀ ฀฀฀฀฀ $ ฀฀฀฀฀฀฀ 3,673
฀ State฀and฀local฀government฀obligations ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 125,121฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀ 115฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ (4฀) ฀฀฀฀฀฀฀฀฀฀฀฀ 125,232
Total ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀ 128,793฀฀฀฀฀฀ ฀$ ฀฀฀฀฀฀฀฀฀฀ 116฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀฀฀ (4฀) ฀฀฀฀฀ $ ฀฀฀฀ 128,905
Short-term฀investments฀–฀trading฀securities฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ ฀ ฀ 21,268฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ 20,199
Total฀short-term฀investments ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀ 150,061฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ ฀ ฀฀฀฀฀ $ ฀฀฀฀ 149,104
Long-term฀investments฀–฀available-for-sale฀securities:
฀ State฀and฀local฀government฀obligations ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀ 131,021฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀ 421฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀฀(32฀) ฀฀฀฀฀ $ ฀฀฀฀ 131,410฀
฀ Mortgage-backed฀securities฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 4,804฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀฀฀ 14฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀(69฀) ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 4,749
Total฀long-term฀investments ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀ 135,825฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀ 435฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀ (101฀) ฀฀฀฀฀ $ ฀฀฀฀ 136,159
฀ Amortized฀ Gross฀Unrealized฀ Gross฀Unrealized฀ Fair
September฀29,฀2002฀ Cost฀ Holding฀Gains฀ Holding฀Losses฀ Value
Short-term฀investments฀–฀available-for-sale฀securities:
฀ State฀and฀local฀government฀obligations ฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ $ ฀฀฀ 155,471฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀ 244฀฀฀฀฀฀฀ $ ฀฀฀฀฀฀฀฀฀฀฀(16฀) ฀฀฀฀฀ $ ฀฀฀฀ 155,699
฀ United฀States฀government฀agency฀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