Starbucks 2005 Annual Report Download - page 27

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Depreciation and amortization expenses increased to $340 million in the 52-week period of fiscal 2005, from
$289 million in the 53-week period of fiscal 2004. The increase was primarily from the opening of 735 new
Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and
amortization decreased to 5.3% for the 52 weeks ended October 2, 2005, from 5.5% for the corresponding
53-week fiscal 2004 period.
General and administrative expenses increased to $357 million in the 52-week period of fiscal 2005, compared
to $304 million in the 53-week period of fiscal 2004. The increase was primarily due to higher payroll-related
expenditures in support of both domestic and international business growth and increased charitable donations
to support multi-year corporate commitments. As a percentage of total net revenues, general and administra-
tive expenses decreased to 5.6% for the 52 weeks ended October 2, 2005, from 5.7% for the 53 weeks ended
October 3, 2004.
Income from equity investees increased to $77 million in the 52-week period of fiscal 2005, compared to
$59 million in the 53-week period of fiscal 2004. The increase was primarily due to volume-driven operating
results for The North American Coffee Partnership, which produces bottled Frappuccino» coffee drinks and
Starbucks DoubleShot» espresso drink, and improved operating results from international investees, particu-
larly in Japan and Korea, mainly as a result of new store openings.
Operating income increased 29% to $781 million in the 52-week period of fiscal 2005, from $607 million in the
53-week period of fiscal 2004. The operating margin increased to 12.3% of total net revenues in the 52-week
period of fiscal 2005, compared to 11.5% in the 53-week period of fiscal 2004, primarily due to strong revenue
growth.
Net interest and other income, which primarily consists of interest income, increased to $16 million in the
52-week period of fiscal 2005, from $14 million in the 53-week period of fiscal 2004. The increase was
primarily due to higher interest income earned due to higher interest rates in fiscal 2005 compared to fiscal
2004 and to foreign exchange gains in fiscal 2005 compared to losses in fiscal 2004. Partially offsetting these
increases were higher realized losses on sales of available-for-sale securities. Starbucks funded the majority of
its share repurchases during fiscal 2005 through sales of its available-for-sale securities.
Income taxes for the 52 weeks ended October 2, 2005, resulted in an effective tax rate of 37.9%, compared to
37.3% in fiscal 2004. The effective tax rate differs from the statutory rate of 35% due to a variety of factors,
including state income taxes, the impact from foreign operations, tax credits and other provision adjustments.
The effective tax rate for fiscal 2006 is expected to be approximately 38%, with quarterly variations.
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