Starbucks 2003 Annual Report Download - page 4

16฀ Fiscal฀2003฀Annual฀Report
Fiscal฀2003฀Annual฀Report฀ 17
MANAGEMENT’S฀DISCUSSION฀AND฀ANALYSIS฀OF฀
FINANCIAL฀CONDITION฀AND฀RESULTS฀OF฀OPERATIONS฀
General
Starbucks฀Corporation’s฀fiscal฀year฀ends฀on฀the฀Sunday฀closest฀
to฀September฀30.฀Fiscal฀years฀2003,฀2002฀and฀2001฀each฀had฀
52฀weeks.฀The฀fiscal฀ year฀ending฀on฀October฀3,฀2004,฀will฀
include฀53฀weeks.
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฀
not฀deemed฀material฀to฀the฀consolidated฀financial฀statements฀
of฀Starbucks.
During฀fiscal฀2003,฀Starbucks฀increased฀its฀equity฀ownership฀
to฀ 50%฀ for฀ 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฀ Accounting฀ Principles฀ Board฀ 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฀$0.9฀million฀for฀
the฀52฀weeks฀ended฀September฀29,฀2002,฀and฀September฀30,฀
2001,฀respectively฀(in฀thousands,฀except฀earnings฀per฀share):
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 52฀weeks฀ended
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀Sept฀29,฀ ฀฀฀฀฀฀ Sept฀30,
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 2002 ฀฀฀฀฀฀฀฀฀฀฀฀2001
Net฀earnings,฀previously฀reported฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀$฀฀฀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
Additionally,฀a฀reduction฀of฀net฀earnings฀for฀the฀effects฀of฀the฀
accounting฀ change฀ prior฀ to฀ fiscal฀ 2001฀of฀ $0.2฀million฀was฀
recorded.
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.฀