Starbucks 2005 Annual Report Download - page 35

International operating income increased to $52 million for the fiscal year ended 2004, compared to $4 million
in the 52-week period of fiscal 2003. Operating margin increased to 6.4% of related revenues from 0.6% in the
52-week period of fiscal 2003, primarily due to leverage gained on most fixed costs distributed over an
expanded revenue base.
Unallocated Corporate
Unallocated corporate expenses increased to $208 million for the fiscal year ended 2004, from $187 million in
the 52-week period of fiscal 2003, primarily due to higher provisions for incentive compensation based on the
Company's performance and other payroll-related expenditures. Total unallocated corporate expenses as a
percentage of total net revenues decreased to 3.9% for the fiscal year ended 2004, compared to 4.6% for the
52-week period of fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
The following table represents components of the Company's most liquid assets (in thousands):
Fiscal Year Ended Oct 2, 2005 Oct 3, 2004
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $173,809 $145,053
Short-term investments Ì available-for-saleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 95,379 483,157
Short-term investments Ì trading securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,848 24,799
Long-term investments Ì available-for-sale securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60,475 135,179
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $367,511 $788,188
Starbucks has reclassified its auction rate securities of $154.1 million, previously classified in ""Cash and cash
equivalents,'' as ""Short-term investments Ì available-for-sale securities'' on the consolidated balance sheet as
of October 3, 2004. The Company had historically classified these securities as cash equivalents based on
management's ability to liquidate its holdings during the predetermined interest rate reset auctions, which
generally occurred within 90 days of acquiring the securities. Although management had determined the risk
of failure of an auction process to be remote, the definition of a cash equivalent in Statement of Financial
Accounting Standards No. 95, ""Statement of Cash Flows,'' required reclassification to short-term invest-
ments. The Company has made corresponding adjustments to its consolidated statement of cash flows for the
prior fiscal years of 2004 and 2003 to reflect the gross purchases, sales and maturities of auction rate securities
as investing activities rather than as a component of cash and cash equivalents. There was no impact on
previously reported cash flows from operating activities as a result of the reclassification.
The Company manages its cash, cash equivalents and liquid investments in order to internally fund operating
needs. The $421 million decline in total cash and cash equivalents and liquid investments from October 3,
2004 to October 2, 2005, was nearly all due to the sale of securities to fund common stock repurchases. The
Company intends to use its available cash resources, including any borrowings under its revolving credit
facility described below, to invest in its core businesses and other new business opportunities related to its core
businesses. The Company may use its available cash resources to make proportionate capital contributions to
its equity method and cost method investees, as well as purchase larger ownership interests in selected equity
method investees, particularly in international markets. Depending on market conditions, Starbucks may
repurchase shares of its common stock under its authorized share repurchase program. Management believes
that strong cash flow generated from operations, existing cash and investments, as well as borrowing capacity
under the revolving credit facility, should be sufficient to finance capital requirements for its core businesses
33