Starbucks 2007 Annual Report Download - page 57

distributes bottled Frappuccino»beverages and Starbucks DoubleShot»espresso drinks. The Starbucks Ice Cream
Partnership with Dreyer’s Grand Ice Cream, Inc. develops and distributes superpremium ice creams.
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 evaluated for impairment annually. No impairment was recorded during fiscal years
2007, 2006 or 2005.
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 $107.9 million, $94.2 million and $86.1 million in
fiscal years 2007, 2006 and 2005, respectively. Related costs of sales, net of eliminations, were $57.1 million,
$47.5 million and $43.3 million in fiscal years 2007, 2006 and 2005, respectively. As of September 30, 2007 and
October 1, 2006, there were $30.6 million and $17.7 million of accounts receivable, respectively, on the
consolidated balance sheets from equity investees primarily related to product sales and store license fees. As
of September 30, 2007, there was $1.6 million of accounts payable on the consolidated balance sheet to equity
investees related to product purchases. There was no accounts payable balance as of October 1, 2006.
As of September 30, 2007, the aggregate market value of the Company’s investment in Starbucks Japan was
approximately $272 million, based on its available quoted market price.
Summarized combined financial information of the Company’s equity method investees, that represent 100% of the
investees’ financial information, is as follows (in thousands):
Financial Position as of Sept 30, 2007 Oct 1, 2006
Current assets ............................................. $183,123 $148,169
Noncurrent assets .......................................... 408,591 358,818
Current liabilities .......................................... 166,386 133,304
Noncurrent liabilities . . . ..................................... 56,807 58,290
Results of Operations for Fiscal Year Ended Sept 30, 2007 Oct 1, 2006 Oct 2, 2005
Net revenues .................................. $1,452,949 $1,303,522 $1,135,040
Operating income .............................. 186,159 152,285 146,362
Earnings before cumulative effect of change in accounting
principle ................................... 159,547 136,360 121,501
Net earnings .................................. 159,547 124,049 121,501
Cost Method
The Company has equity interests in entities to develop Starbucks licensed retail stores in Hong Kong, Mexico,
Cyprus, Greece, Romania and Russia. Additionally, Starbucks has investments in privately held equity securities
unrelated to Starbucks licensed retail stores of $3 million at both September 30, 2007 and October 1, 2006. As of
September 30, 2007, and October 1, 2006, management determined that the estimated fair values of each cost
method investment exceeded the related carrying values. There were no realized losses recorded for other-than-
temporary impairment of the Company’s cost method investments during fiscal years 2007, 2006 or 2005.
Starbucks has the ability to acquire additional interests in some of these cost method investees at certain intervals.
Depending on the Company’s total percentage of ownership interest and its ability to exercise significant influence
over financial and operating policies, additional investments may require the retroactive application of the equity
method of accounting.
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