Starbucks 2006 Annual Report Download - page 58

Equity Method
The Company’s equity investees and ownership interests are as follows:
FISCAL YEAR ENDED Oct 1, 2006 Oct 2, 2005
The North American Coffee Partnership 50.0% 50.0%
Starbucks Ice Cream Partnership 50.0 50.0
Starbucks Coffee Korea Co., Ltd. 50.0 50.0
Starbucks Coffee Austria GmbH 50.0 50.0
Starbucks Coffee Switzerland AG 50.0 50.0
Starbucks Coffee España, S.L. 50.0 50.0
President Starbucks Coffee Taiwan Ltd. 50.0 50.0
Shanghai President Coffee Co. 50.0 50.0
Starbucks Coffee France SAS 50.0 50.0
Berjaya Starbucks Coffee Company Sdn. Bhd. 49.9 49.9
Starbucks Brasil Comercio de Cafes Ltda. 49.0 —
Starbucks Coffee Japan, Ltd. 40.1 40.1
Coffee Partners Hawaii
(1)
— 5.0
(1) In January 2006, Starbucks acquired all of the equity interests in this entity. Previously the Company owned 5% of Coffee Partners
Hawaii and accounted for it under the equity method of accounting because it was a general partnership. From the date of
acquisition, the consolidation method of accounting was applied.
The Company has licensed the rights to produce and distribute Starbucks branded products to two partnerships in which
the Company holds 50% equity interests. The North American Coffee Partnership with the Pepsi-Cola Company
develops and distributes Frappuccino»bottled beverages and Starbucks DoubleShot»espresso drinks. The Starbucks Ice
Cream Partnership with Dreyer’s Grand Ice Cream, Inc., develops and distributes superpremium ice creams. The
remaining entities operate licensed Starbucks retail stores.
During fiscal 2004, Starbucks acquired an equity interest in its licensed operations of Malaysia. During fiscal 2003,
Starbucks increased its ownership of its licensed operations in Austria, Shanghai, Spain, Switzerland and Taiwan. The
carrying amount of these investments was $24.3 million more than the underlying equity in net assets due to acquired
goodwill, which is not subject to amortization in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.”
Goodwill is evaluated for impairment in accordance with APB Opinion No. 18, “The Equity Method of Accounting for
Investments in Common Stock.” No impairment was recorded during fiscal years 2006, 2005 or 2004.
The Company’s share of income and losses is included in “Income from equity investees” on the consolidated statements
of earnings. Also included is the Company’s proportionate share of gross margin resulting from coffee and other product
sales to, and royalty and license fee revenues generated from equity investees. Revenues generated from these related
parties, net of eliminations, were $94.2 million, $86.1 million and $80.7 million in fiscal years 2006, 2005 and 2004,
respectively. Related costs of sales, net of eliminations, were $47.5 million, $43.3 million and $41.2 million in fiscal years
2006, 2005 and 2004, respectively. As of October 1, 2006 and October 2, 2005, there were $17.7 million and
$16.7 million of accounts receivable, respectively, on the consolidated balance sheets from equity investees related to
product sales and store license fees.
As of October 1, 2006, the aggregate market value of the Company’s investment in Starbucks Coffee Japan, Ltd., was
approximately $234.1 million based on its available quoted market price.
Cost Method
The Company has equity interests in entities to develop Starbucks licensed retail stores in Hong Kong, Mexico, Cyprus
and Greece. As of October 1, 2006, and October 2, 2005, management determined that the estimated fair values of each
cost method investment exceeded the related carrying values (no unrealized fair value losses). There were no realized losses
recorded for other-than-temporary impairments during fiscal years 2006, 2005 or 2004.
54 STARBUCKS CORPORATION, FORM 10-K