Starbucks 2007 Annual Report Download - page 48

Long-lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, an evaluation
of recoverability is performed by comparing the carrying values of the assets to projected future cash flows in
addition to other quantitative and qualitative analyses. Upon indication that the carrying values of such assets may
not be recoverable, the Company recognizes an impairment loss by a charge to net earnings. Property, plant and
equipment assets 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 $26.0 million, $19.6 million and $19.5 million
in fiscal 2007, 2006 and 2005, respectively, due to renovation and remodeling activity and 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 could be significantly affected if future occur-
rences and claims differ from these assumptions and historical trends. As of September 30, 2007, and October 1,
2006, these reserves were $137.0 million and $113.2 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, and gift certificates 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 or
gift certificates, 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 and gift certificates presented for payment,
management may determine the likelihood of redemption to be remote for certain card and certificate balances due
to, among other things, long periods of inactivity. In these circumstances, to the extent management determines
there is no requirement for remitting balances to government agencies under unclaimed property laws, card and
certificate balances may be recognized in the consolidated statements of earnings in “Net interest and other
income.” For the fiscal years ended September 30, 2007 and October 1, 2006, income recognized on unredeemed
stored value card balances and gift certificates was $12.9 million and $4.4 million, respectively. There was no
income recognized on unredeemed stored value card balances during the fiscal year ended October 2, 2005. There
was no income recognized on gift certificate balances during fiscal 2006 or 2005.
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