Starbucks 2011 Annual Report Download - page 56

when a portion of a reporting unit that constitutes a business is to be disposed of, goodwill associated with the
business is included in the carrying amount of the business in determining any loss on disposal. Our evaluation of
whether the portion of a reporting unit being disposed of constitutes a business occurs on the date of abandonment.
Although an operating store meets the accounting definition of a business prior to abandonment, it does not
constitute a business on the closure date because the remaining assets on that date do not constitute an integrated set
of assets that are capable of being conducted and managed for the purpose of providing a return to investors. As a
result, when closing individual stores, we do not include goodwill in the calculation of any loss on disposal of the
related assets. As noted above, if store closures are indicative of potential impairment of goodwill at the reporting
unit level, we perform an evaluation of our reporting unit goodwill when such closures occur. During Fiscal 2011 we
recorded no impairment charges and recorded $1.6 million in fiscal 2010 and $7.0 million in fiscal 2009.
Other Intangible Assets
Other intangible assets consist primarily of trademarks with indefinite lives, which are tested for impairment
annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.
Definite-lived intangible assets, which mainly consist of contract-based patents and copyrights, are amortized over
their estimated useful lives, and are tested for impairment when facts and circumstances indicate that the carrying
values may not be recoverable. Based on the impairment tests performed, there was no impairment of other
intangible assets in fiscal 2011, 2010, and 2009.
Long-lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets may not be recoverable, we
evaluate long-lived assets for impairment. We first compare the carrying value of the asset to the asset’s estimated
future cash flows (undiscounted). If the estimated future cash flows are less than the carrying value of the asset, we
calculate an impairment loss based on the asset’s estimated fair value. The fair value of the assets is estimated using
a discounted cash flow model based on forecasted future revenues and operating costs, using internal projections.
Property, plant and equipment assets are grouped at the lowest level for which there are identifiable cash flows when
assessing impairment. Cash flows for company-operated store 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.
We recognized net impairment and disposition losses of $36.2 million, $67.7 million, and $224.4 million in fiscal
2011, 2010, and 2009, respectively, primarily due to underperforming company-operated stores. The net losses in
fiscal 2009 include $129.2 million of asset impairments related primarily to the US and International store closures
that occurred as part of our store portfolio rationalization which began in fiscal 2008. 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, the net impairment and disposition losses are recorded in restructuring
charges and store operating expenses and for all other operations, these losses are recorded in cost of sales including
occupancy costs, other operating expenses, general and administrative expenses, or restructuring charges.
Insurance Reserves
We use a combination of insurance and self-insurance mechanisms, including a wholly owned captive insurance
entity and participation in a reinsurance treaty, to provide for the potential liabilities for certain risks, including
workers’ compensation, healthcare benefits, general liability, property insurance, and director and officers’ liability
insurance. Liabilities associated with the risks that are retained by us are not discounted and are estimated, in part, by
considering historical claims experience, demographic, exposure and severity factors, and other actuarial
assumptions.
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