Starbucks 2008 Annual Report Download - page 65

StarCon, LLC is a joint venture formed in March 2007 with Concord Music Group, Inc. that is engaged in the
recorded music business. The International entities operate licensed Starbucks retail stores. The Company also 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 bottled Frappuccino»beverages and Starbucks DoubleShot»espresso drinks, and Starbucks Ice Cream
Partnership with Dreyer’s Grand Ice Cream, Inc. develops and distributes superpremium ice creams.
Prior to fiscal 2005, Starbucks acquired equity interest in its licensed operations of Malaysia, 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 2008, 2007 or 2006.
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 $128.1 million, $107.9 million and $94.2 million in
fiscal years 2008, 2007 and 2006, respectively. Related costs of sales, net of eliminations, were $66.2 million,
$57.1 million and $47.5 million in fiscal years 2008, 2007 and 2006, respectively. As of September 28, 2008 and
September 30, 2007, there were $40.6 million and $30.6 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 28, 2008, the aggregate market value of the Company’s investment in Starbucks Japan was
approximately $214 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, was as follows (in millions):
Financial Position as of Sep 28, 2008 Sep 30, 2007
Current assets ............................................. $247.2 $183.1
Noncurrent assets .......................................... 604.9 408.6
Current liabilities .......................................... 273.5 166.4
Noncurrent liabilities........................................ 59.8 56.8
Results of Operations for Fiscal Year Ended Sep 28, 2008 Sep 30, 2007 Oct 1, 2006
Net revenues .................................... $1,961.0 $1,452.9 $1,303.5
Operating income ................................ 171.3 186.2 152.3
Earnings before cumulative effect of change in accounting
principle ..................................... 136.9 159.5 136.4
Net earnings .................................... 136.9 159.5 124.0
Cost Method
The Company has equity interests in entities to develop and operate Starbucks licensed retail stores in several global
markets, including Mexico, Hong Kong and Greece. Additionally, Starbucks has investments in privately held
equity securities unrelated to Starbucks licensed retail stores of $2.8 million at September 28, 2008 and Septem-
ber 30, 2007. As of September 28, 2008 and September 30, 2007, 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 2008, 2007 or
2006.
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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