Starbucks 2004 Annual Report Download - page 24

Fiscal 2004 Annual Report 35
revenues generated from, equity investees. Revenues generated
from these related parties, net of eliminations, were $75.2
million, $68.0 million and $67.7 million in fi scal years 2004,
2003 and 2002, respectively. Related costs of sales, net of
eliminations, were $37.5 million, $35.7 million and $37.9
million in fi scal years 2004, 2003 and 2002, respectively.
As of October 3, 2004, the aggregate market value of the
Company’s investment in Starbucks Coffee Japan, Ltd., was
approximately $149.9 million based on its available quoted
market price.
Cost Method
The Company has equity interests in entities to develop
Starbucks licensed retail stores in certain Chinese markets and
in Puerto Rico, Germany, Mexico, Chile, Cyprus and Greece.
As of October 3, 2004, management determined that the
estimated fair value of each cost method investment exceeded its
carrying value as part of the formal adoption of the impairment
provisions of EITF 03-1.
Starbucks has the ability to acquire additional interests in some
of its cost method investees at certain intervals. Depending
on the Company’s total percentage of ownership interest and
its ability to exercise signifi cant infl uence over fi nancial and
operating policies, 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.
Note 8: Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist
of the following (in thousands):
Fiscal year ended Oct 3, 2004 Sept 28, 2003
Land $ 13,118 $ 11,414
Buildings 66,468 64,427
Leasehold improvements 1,497,941 1,311,024
Roasting and store equipment 683,747 613,825
Furniture, fixtures and other 415,307 375,854
2,676,581 2,376,544
Less accumulated depreciation
and amortization (1,298,270) (1,049,810)
1,378,311 1,326,734
Work in progress 93,135 58,168
Property, plant and equipment, net $ 1,471,446 $ 1,384,902
Note 9: Other Intangible Assets and Goodwill
As of October 3, 2004, indefi nite-lived intangibles were $24.3
million and defi nite-lived intangibles, which collectively had a
remaining weighted average useful life of approximately eight
years, were $2.5 million, net of accumulated amortization
of $1.3 million. As of September 28, 2003, indefi nite-lived
intangibles were $23.3 million and defi nite-lived intangibles
were $1.6 million, net of accumulated amortization of $0.9
million. Amortization expense for defi nite-lived intangibles
was $0.5 million and $0.4 million during fi scal 2004 and
2003, respectively.
The following table summarizes the estimated amortization
expense for each of the next fi ve fi scal years (in thousands):
Fiscal year ending
2005 $ 536
2006 606
2007 647
2008 782
2009 908
Total 3,479
During fi scal 2004 and 2003, goodwill increased by
approximately $6.1 million for the acquisition of licensed
operations in Singapore and $43.3 million for the acquisition of
the Seattle Coffee Company, respectively. No impairment was
recorded during fi scal 2004 or 2003.
The following table summarizes goodwill by operating segment
(in thousands):
Fiscal year ended Oct 3, 2004 Sept 28, 2003
United States $ 60,540 $ 60,965
International 8,410 2,379
Total $ 68,950 $ 63,344
The reduction in goodwill assigned to the United States
operating segment during fi scal 2004 refl ects a net decrease for
Seattle Coffee Company, primarily from adjustments to values
estimated in the initial purchase price allocation. The increase
in goodwill assigned to the International operating segment
during fi scal 2004 relates to the acquisition of licensed
operations in Singapore, partially offset by fl uctuations in
foreign exchange rates.
Note 10: Long-term Debt
In September 1999, Starbucks purchased the land and building
comprising its York County, Pennsylvania, roasting plant and
distribution facility. The total purchase price was $12.9 million.
In connection with this purchase, the Company assumed
loans totaling $7.7 million from the York County Industrial
Development Corporation. The remaining maturities of these
loans range from fi ve to six years, with interest rates from 0.0%
to 2.0%.
Scheduled principal payments on long-term debt are as follows
(in thousands):
Fiscal year ending
2005 $ 735
2006 748
2007 762
2008 775
2009 790
Thereafter 543
Total principal payments $ 4,353
Note 11: Leases
The Company leases retail stores, roasting and distribution
facilities and offi ce space under operating leases expiring
through 2027. Most lease agreements contain renewal options
and rent escalation clauses. Certain leases provide for contingent
rentals based upon gross sales.
Rental expense under these lease agreements was as follows
(in thousands):
Fiscal year ended Oct 3, 2004 Sept 28, 2003 Sept 29, 2002
Minimum rentals –
retail stores $ 283,351 $ 237,742 $ 200,827
Minimum rentals – other 28,064 22,887 19,143
Contingent rentals 24,638 12,274 5,415
Total $ 336,053 $ 272,903 $ 225,385
Minimum future rental payments under noncancelable lease
obligations as of October 3, 2004, are as follows (in thousands):
Fiscal year ending
2005 $ 355,079
2006 340,360
2007 321,047
2008 299,601
2009 272,806
Thereafter 1,020,143
Total minimum lease payments $ 2,609,036