Starbucks 2006 Annual Report Download - page 48

are grouped at the lowest level for which there are identifiable cash flows when assessing impairment. Cash flows for retail
assets are identified at the individual store level.
The Company recognized net impairment and disposition losses of $19.6 million, $19.5 million and $17.9 million in
fiscal 2006, 2005 and 2004, respectively, primarily from renovation and remodeling activity and, to a lesser extent, from
underperforming Company-operated retail stores, in the normal course of business. Depending on the underlying asset
that is impaired, these losses may be recorded in any one of the operating expense lines on the consolidated statements of
earnings: for retail operations, these losses are recorded in “Store operating expenses”; for Specialty Operations, these
losses are recorded in “Other operating expenses”; and for all other operations, these losses are recorded in either “Cost of
sales including occupancy costs” or “General and administrative expenses.”
Insurance Reserves
The Company uses a combination of insurance and self-insurance mechanisms, including a wholly owned captive
insurance entity and participation in a reinsurance pool, to provide for the potential liabilities for workers’ compensation,
healthcare benefits, general liability, property insurance, director and officers’ liability insurance and vehicle liability.
Liabilities associated with the risks that are retained by the Company are not discounted and are estimated, in part, by
considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. The
estimated accruals for these liabilities, portions of which are calculated by third party actuarial firms, could be
significantly affected if future occurrences and claims differ from these assumptions and historical trends. As of
October 1, 2006, and October 2, 2005, these reserves were $113.2 million and $91.6 million, respectively, and were
included in “Accrued compensation and related costs” and “Other accrued expenses” on the consolidated balance sheets.
Revenue Recognition
Consolidated revenues are presented net of intercompany eliminations for wholly owned subsidiaries and investees
controlled by the Company and for licensees accounted for under the equity method, based on the Company’s percentage
ownership. Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales
incentives, including coupon redemptions and rebates.
Stored Value Cards
Revenues from the Company’s stored value cards, such as the Starbucks Card, are recognized when tendered for payment,
or upon redemption. Outstanding customer balances are included in “Deferred revenue” on the consolidated balance
sheets. There are no expiration dates on the Company’s stored value cards, and Starbucks does not charge any service fees
that cause a decrement to customer balances.
While the Company will continue to honor all stored value cards presented for payment, management may determine the
likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. In
these circumstances, to the extent management determines there is no requirement for remitting card balances to
government agencies under unclaimed property laws, card balances may be recognized in the consolidated statements of
earnings in “Income and other income, net.” For the fiscal year ended October 1, 2006, income recognized on
unredeemed stored value card balances was $4.4 million. There was no income recognized on unredeemed stored value
card balances during the fiscal years ended October 2, 2005 or October 3, 2004.
Retail Revenues
Company-operated retail store revenues are recognized when payment is tendered at the point of sale. Starbucks
maintains a sales return allowance, based on historical patterns, to reduce retail revenues for estimated future product
returns, including defective brewing equipment, related to sales in the normal course of business. Retail store revenues are
reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities.
44 STARBUCKS CORPORATION, FORM 10-K