Starbucks 2008 Annual Report Download - page 32

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Operating margin compression was primarily due to lower revenues; in addition, restructuring charges accounted
for approximately 40% of the decrease.
Fiscal Year Ended
Sep 28,
2008
Sep 30,
2007 % Change
Sep 28,
2008
Sep 30,
2007
% of Total Net
Revenues
Interest income and other, net ..................... $ 9.0 $ 40.4 (77.7)% 0.1% 0.4%
Interest expense ............................... (53.4) (38.0) 40.5 (0.5) (0.4)
Earnings before income taxes ................... 459.5 1,056.3 (56.5) 4.4 11.2
Income taxes ................................. 144.0 383.7 (62.5) 1.4 4.1
Net earnings ............................... $315.5 $ 672.6 (53.1)% 3.0% 7.1%
Interest income and other net, decreased due primarily to unrealized market value losses on the Company’s trading
securities portfolio. As described in more detail in Note 4 to the consolidated financial statements, the trading
securities approximate a portion of the Company’s liability under its Management Deferred Compensation Plan
(“MDCP”). The MDCP liability also increases and decreases with changes in investment performance, with this
offsetting impact recorded in “General and administrative expenses” on the consolidated statements of earnings.
Interest expense increased due to the Company’s issuance of $550 million of 10-year 6.25% Senior Notes in August
of fiscal 2007.
Income taxes for the fiscal year ended 2008 resulted in an effective tax rate of 31.3% compared to 36.3% for fiscal
2007. The lower rate is due to the higher proportion of income earned in foreign jurisdictions which have lower tax
rates, as well as an increase in the domestic manufacturing deduction for manufacturing activities in the US.
Operating Segments
Segment information is prepared on the same basis that the Company’s management reviews financial information
for operational decision-making purposes. Starbucks has three reportable operating segments: United States,
International and CPG. “Unallocated Corporate” includes expenses pertaining to corporate administrative functions
that support the operating segments but are not specifically attributable to or managed by any segment and are not
included in the reported financial results of the operating segments. Operating income represents earnings before
“Interest income and other, net,” “Interest expense” and “Income taxes.” The following tables summarize the
Company’s results of operations by segment for fiscal 2008 and 2007 (in millions).
United States
The United States operating segment sells coffee and other beverages, complementary food, whole bean coffees,
and coffee brewing equipment and merchandise primarily through Company-operated retail stores. Specialty
operations within the United States include licensed retail stores, foodservice accounts and other initiatives related
to the Company’s core business.
Fiscal Year Ended
Sep 28,
2008
Sep 30,
2007 % Change
Sep 28,
2008
Sep 30,
2007
As a % of US Total
Net Revenues
Net revenues:
Company-operated retail ....................... $6,997.7 $6,560.9 6.7% 88.7% 89.3%
Specialty:
Licensing ............................... 504.2 439.1 14.8 6.4 6.0
Foodservice and other...................... 385.1 349.0 10.3 4.9 4.7
Total specialty ......................... 889.3 788.1 12.8 11.3 10.7
Total net revenues ........................... $7,887.0 $7,349.0 7.3% 100.0% 100.0%
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