Starbucks 2008 Annual Report Download - page 55

assets may not be recoverable, the Company recognizes an impairment loss by a charge to net earnings. The fair
value of the assets is estimated using the discounted future cash flows of the assets. 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. Long-lived assets to be disposed of are reported at
the lower of their carrying amount, or fair value less estimated costs to sell.
The Company recognized net impairment and disposition losses of $325.0 million, $26.0 million and $19.6 million
in fiscal 2008, 2007 and 2006, respectively, due to underperforming Company-operated retail stores, as well as
renovation and remodeling activity in the normal course of business. The net losses in fiscal 2008 include
$201.6 million of asset impairments related to the US and Australia store closures and charges incurred for office
facilities no longer occupied by the Company due to the reduction in positions within Starbucks leadership structure
and non-store organization. See Note 3 for further details. 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 “Restructuring charges” and “Store operating expenses”; for specialty
operations, these losses are recorded in “Other operating expenses”; and for all other operations, these losses are
recorded in “Cost of sales including occupancy costs,” “General and administrative expenses,” or “Restructuring
charges.”
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.
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 “Interest income and other,
net.” For the fiscal years ended September 28, 2008, September 30, 2007 and October 1, 2006, income recognized
on unredeemed stored value card balances and gift certificates was $13.6 million, $12.9 million and $4.4 million,
respectively.
Retail Revenues
Company-operated retail store revenues are recognized when payment is tendered at the point of sale. Starbucks
maintains a sales return allowance to reduce retail revenues for estimated future product returns, including brewing
equipment, based on historical patterns. Retail store revenues are reported net of sales, use or other transaction taxes
that are collected from customers and remitted to taxing authorities.
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