Starbucks 2004 Annual Report Download - page 22

Fiscal 2004 Annual Report 33
In March 2004, the FASB ratifi ed Emerging Issues Task
Force (“EITF”) Issue No. 03-1, “The Meaning of Other-
Than-Temporary Impairment and its Application to Certain
Investments” (“EITF 03-1”), but delayed the recognition and
measurement provisions of EITF 03-1 in September 2004.
For reporting periods beginning after June 15, 2004, only the
disclosure requirements for available-for-sale securities and cost
method investments are required. The Company’s adoption of
the requiremens in the fi scal fourth quarter of 2004 did not
have a signifi cant impact on the Company’s disclosures.
In July 2004, the FASB issued EITF Issue No. 02-14,
“Whether an Investor Should Apply the Equity Method of
Accounting to Investments Other Than Common Stock”
(“EITF 02-14”). EITF 02-14 requires application of the
equity method of accounting when an investor is able to exert
signifi cant infl uence over operating and fi nancial policies of an
investee through ownership of common stock or in-substance
common stock. EITF 02-14 is effective for reporting periods
beginning after September 15, 2004. The adoption of EITF
02-14 will not have a signifi cant impact on the Company’s
consolidated fi nancial position or results of operations.
Note 2: Acquisitions
In July 2004, Starbucks acquired 100% of its licensed operations
in Singapore and acquired 49.9% of its licensed operations in
Malaysia, for a combined total of approximately $12.1 million.
Previously, the Company did not have any equity ownership
interests in these entities. The results of operations for Singapore
are included in the accompanying consolidated fi nancial
statements from the date of acquisition. For its investment in
Malaysia, management applied the equity method of accounting
from the date of acquisition, since the Company is able to exert
signifi cant infl uence over the investee’s operating and fi nancial
policies. See Note 7 for additional information on equity
method investments. Also, see Note 18 for information on the
Company’s 100% acquisition of its licensed operations in
Germany in fi scal 2005.
In July 2003, the Company acquired Seattle Coffee Company
(“SCC”), which includes the Seattle’s Best Coffee® and
Torrefa zione It a lia ® brands, from AFC Enterprises, Inc., for
$70 million in cash. The results of operations of SCC are
included in the accompanying consolidated fi nancial statements
from the date of acquisition.
During fi scal 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 signifi cant infl uence over their operating and fi nancial
policies. For these operations, the Company refl ected a change in
accounting method during fi scal 2003, from the cost method to
the equity method, in the consolidated fi nancial statements.
Note 3: Cash and Cash Equivalents
Cash and cash equivalents consist of the following (in thousands):
Fiscal year ended Oct 3, 2004 Sept 28, 2003
Operating funds and
interest bearing deposits $ 219,809 $ 187,118
Money market funds 79,319 13,789
Total $ 299,128 $ 200,907
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
October 3, 2004 Cost Holding Gains Holding Losses Value
Short-term investments – available-for-sale securities:
State and local government obligations $ 309,954 $ 20 $ (583) $ 309,391
U.S. government agency obligations 6,655 – (4) 6,651
Asset-backed securities 13,020 50 (30) 13,040
Total $ 329,629 $ 70 $ (617) $ 329,082
Short-term investments – trading securities 24,769 24,799
Total short-term investments $ 354,398 $ 353,881
Long-term investments – available-for-sale securities:
State and local government obligations $ 130,810 $ 67 $ (348) $ 130,529
Corporate debt securities 4,000 – – 4,000
Asset-backed securities 658 – (8) 650
Total long-term investments $ 135,468 $ 67 $ (356) $ 135,179
Amortized Gross Unrealized Gross Unrealized Fair
September 28, 2003 Cost Holding Gains Holding Losses Value
Short-term investments – available-for-sale securities:
U.S. 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
Asset-backed securities 4,804 14 (69) 4,749
Total long-term investments $ 135,825 $ 435 $ (101) $ 136,159
For available-for-sale securities, proceeds from sales were $190.7 million, $88.9 million and $144.8 million, in fi scal years 2004, 2003
and 2002, respectively. Gross realized gains from the sales were $0.2 million in 2004 and $0.3 million in 2003, and gross realized losses
from the sales were $0.4 million in 2004. There were no gross realized gains in 2002 and no gross realized losses in 2003 or 2002.