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| Note 1: | Summary of Significant Accounting Policies |
Description of Business
Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with handcrafted coffee and tea beverages and a variety of fresh food items, through its company-operated retail stores. We also sell coffee and tea products and license our trademarks through other channels such as licensed stores, and through certain of our licensees and equity investees, we produce and sell a variety of ready-to-drink beverages. All channels outside the company-operated retail stores are collectively known as specialty operations. Additional details on the nature of our business are in Item 1 of this 10-K.
In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as "Starbucks," the "Company," "we," "us" or "our".
We have three reportable operating segments: United States ("US"), International, and Global Consumer Products Group ("CPG").
Principles of Consolidation
The consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly owned subsidiaries and investees controlled by us. Investments in entities that we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Investments in entities in which we do not have the ability to exercise significant influence are accounted for under the cost method. Intercompany transactions and balances have been eliminated.
Fiscal Year End
Our fiscal year ends on the Sunday closest to September 30. Fiscal year 2010 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter. Fiscal years 2009 and 2008 included 52 weeks.
Estimates and Assumptions
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include, but are not limited to, estimates for asset and goodwill impairments, stock-based compensation forfeiture rates, and future asset retirement obligations; assumptions underlying self-insurance reserves; and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.
Cash and Cash Equivalents
We consider all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. We maintain cash and cash equivalent balances with financial institutions that exceed federally insured limits. We have not experienced any losses related to these balances, and management believes its credit risk to be minimal.
Cash Management
Our cash management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks, which creates book overdrafts. Book overdrafts are presented as a current liability in accounts payable on the consolidated balance sheets.
Short-term and Long-term Investments
Our short-term and long-term investments consist primarily of investment grade debt securities, all of which are classified as available-for-sale. We have investments in auction rate securities within the long-term investment portfolio. Our trading portfolio is primarily comprised of equity mutual funds and equity exchange-traded funds. Trading securities are recorded at fair value with unrealized holding gains and losses included in net earnings. Available-for-sale securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining maturities of less than one year and those identified by management at time of purchase for funding operations in less than one year are classified as short term, and all other available-for-sale securities are classified as long term. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near term prospects of the issuer, and for equity investments, our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. For debt securities, management also evaluates whether we have the intent to sell or will likely be required to sell before their anticipated recovery, which may be at maturity. Realized gains and losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date basis.
Fair Value of Financial Instruments and Equity and Cost Investments
The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments. The fair value of our investments in marketable debt and equity securities, equity mutual funds and equity exchange-traded funds is based upon the quoted market price on the last business day of the fiscal year. Where an observable quoted market price for a security does not exist, we estimate fair value using a variety of valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs. The specific methodologies include comparing the security with securities of publicly traded companies in similar lines of business, applying revenue multiples to estimated future operating results and estimating discounted cash flows. The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities.
We measure our equity and cost method investments at fair value on a nonrecurring basis when they are determined to be other-than temporarily impaired. Fair values are determined using available quoted market prices or standard valuation techniques, including discounted cash flows, comparable transactions, and comparable company analyses.
Derivative Instruments
We manage our exposure to various risks within the consolidated financial statements according to an umbrella risk management policy. Under this policy, Starbucks may engage in transactions involving various derivative instruments, with maturities generally not longer than five years, to hedge interest rates, commodity prices and foreign currency denominated revenues, purchases, assets and liabilities.
We record all derivatives on the balance sheets at fair value. For a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income ("OCI") and subsequently reclassified into net earnings when the hedged exposure affects net earnings. For a net investment hedge, the effective portion of the derivative's gain or loss is reported as a component of OCI.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge by matching the terms of the contract to the underlying transaction. We classify the cash flows from hedging transactions in the same categories as the cash flows from the respective hedged items. Once established, cash flow hedges are generally not removed until maturity unless an anticipated transaction is no longer likely to occur. For discontinued or dedesignated cash flow hedges, the related accumulated derivative gains or losses are recognized in net interest income and other on the consolidated statements of earnings.
Forward contract effectiveness for cash flow hedges is calculated by comparing the fair value of the contract to the change in value of the anticipated transaction using forward rates on a monthly basis. For net investment hedges, the spot-to-spot method is used to calculate effectiveness. Under this method, the change in fair value of the forward contract attributable to the changes in spot exchange rates (the effective portion) is reported as a component of OCI. The remaining change in fair value of the forward contract (the ineffective portion) is reclassified into net earnings. Any ineffectiveness is recognized immediately in net interest income and other on the consolidated statements of earnings.
We also enter into certain foreign currency forward contracts, commodity swap contracts, and futures contracts that are not designated as hedging instruments for accounting purposes. These contracts are recorded at fair value, with the changes in fair value recognized in net interest income and other on the consolidated statements of earnings.
Allowance for Doubtful Accounts
Allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method. As of October 3, 2010, September 27, 2009, and September 28, 2008, the allowance for doubtful accounts was $3.3 million, $5.0 million and $4.5 million, respectively.
Inventories
Inventories are stated at the lower of cost (primarily moving average cost) or market. We record inventory reserves for obsolete and slow-moving items and for estimated shrinkage between physical inventory counts. Inventory reserves are based on inventory turnover trends, historical experience and application of the specific identification method. As of October 3, 2010, September 27, 2009, and September 28, 2008, inventory reserves were $18.1 million, $21.1 million, and $25.5 million, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation of property, plant and equipment, which includes assets under capital leases, is provided on the straight-line method over estimated useful lives, generally ranging from two to seven years for equipment and 30 to 40 years for buildings. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life, generally 10 years. For leases with renewal periods at our option, we generally use the original lease term, excluding renewal option periods, to determine estimated useful lives. If failure to exercise a renewal option imposes an economic penalty to us, we may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of appropriate estimated useful lives. The portion of depreciation expense related to production and distribution facilities is included in cost of sales including occupancy costs on the consolidated statements of earnings. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated with any remaining gain or loss reflected in net earnings.
Goodwill
We test goodwill for impairment on an annual basis, or more frequently if circumstances, such as material deterioration in performance or a significant number of store closures, indicate reporting unit carrying values may exceed their fair values. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to the implied estimated fair value.
As a part of Starbucks ongoing operations, we may close certain stores within a reporting unit containing goodwill due to underperformance of the store or inability to renew our lease, among other reasons. We abandon certain assets associated with a closed store including leasehold improvements and other non-transferrable assets. Under GAAP, 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.
We conduct our annual goodwill impairment test for consolidated entities in our third fiscal quarter.
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 2010, 2009 and 2008.
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 future store 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 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.
We recognized net impairment and disposition losses of $67.7 million, $224.4 million and $325.0 million in fiscal 2010, 2009 and 2008, respectively, primarily due to underperforming company-operated retail stores. The net losses in fiscal 2009 and 2008 include $129.2 million and $201.6 million, respectively, of asset impairments related primarily to the US and International store closures as part of Starbucks 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; for specialty operations, these losses are recorded in restructuring charges and 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
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 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 us and for licensees accounted for under the equity method, based on our 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 our stored value cards, such as Starbucks Cards, 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 our stored value cards, and we do not charge any service fees that cause a decrement to customer balances.
While we will continue to honor all stored value cards presented for payment, management may determine the likelihood of redemption to be remote for certain cards due to, among other things, long periods of inactivity. In these circumstances, if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws, card balances may then be recognized in the consolidated statements of earnings, in net interest income and other. For the fiscal years ended October 3, 2010, September 27, 2009 and September 28, 2008, income recognized on unredeemed stored value card balances was $31.2 million, $26.0 million and $13.6 million, respectively.
Customers in the US who register their Starbucks Card are automatically enrolled in the My Starbucks Reward program and earn points ("stars") with each purchase. A free beverage coupon is issued to the customer once 15 points have been accumulated. The value of points earned by our program members is included in deferred revenue and recorded as a reduction in revenue at the time the points are earned, based on the value of points that are projected to be redeemed.
Retail Revenues
Company-operated retail store revenues are recognized when payment is tendered at the point of sale. We maintain a sales return allowance to reduce retail revenues for estimated future product returns 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.
Specialty Revenues
Specialty revenues consist primarily of product sales to customers other than through company-operated retail stores, as well as royalties and other fees generated from licensing operations. Sales of coffee, tea and related products are generally recognized upon shipment to customers, depending on contract terms. Shipping charges billed to customers are also recognized as revenue, and the related shipping costs are included in cost of sales including occupancy costs on the consolidated statements of earnings.
Specific to retail store licensing arrangements, initial nonrefundable development fees are recognized upon substantial performance of services for new market business development activities, such as initial business, real estate and store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets. Additional store licensing fees are recognized when new licensed stores are opened. Royalty revenues based upon a percentage of reported sales and other continuing fees, such as marketing and service fees, are recognized on a monthly basis when earned. For certain licensing arrangements, where we intend to acquire an ownership interest, the initial nonrefundable development fees are deferred to other long-term liabilities on the consolidated balance sheets until acquisition, at which point the fees are reflected as a reduction of our investment.
Other arrangements involving multiple elements and deliverables as well as upfront fees are individually evaluated for revenue recognition. Cash payments received in advance of product or service delivery are recorded in deferred revenue until earned.
Advertising
We expense most advertising costs as they are incurred, except for certain production costs that are expensed the first time the advertising campaign takes place.
Advertising expenses, recorded in store operating expenses, other operating expenses and general and administrative expenses on the consolidated statements of earnings, totaled $176.2 million, $126.3 million and $129.0 million in fiscal 2010, 2009 and 2008, respectively. As of October 3, 2010 and September 27, 2009, $5.6 million and $7.2 million, respectively, of capitalized advertising costs were recorded on the consolidated balance sheets.
Store Preopening Expenses
Costs incurred in connection with the start-up and promotion of new store openings are expensed as incurred.
Operating Leases
We lease retail stores, roasting, distribution and warehouse facilities, and office space under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions. For purposes of recognizing incentives, premiums and minimum rental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to begin amortization, which is generally when we enter the space and begin to make improvements in preparation of intended use.
For tenant improvement allowances and rent holidays, we record a deferred rent liability in accrued occupancy costs and other long-term liabilities on the consolidated balance sheets and amortize the deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of earnings.
For premiums paid upfront to enter a lease agreement, we record a deferred rent asset in prepaid expenses and other current assets and other assets on the consolidated balance sheets and then amortize the deferred rent over the terms of the leases as additional rent expense on the consolidated statements of earnings.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, we record minimum rental expenses on a straight-line basis over the terms of the leases on the consolidated statements of earnings.
Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. We record a contingent rent liability in accrued occupancy costs on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or when we determine that achieving the specified levels during the fiscal year is probable.
When ceasing operations in company-operated stores under operating leases, in cases where the lease contract specifies a termination fee due to the landlord, we record such expense at the time written notice is given to the landlord. In cases where terms, including termination fees, are yet to be negotiated with the landlord, we will record the expense upon signing of an agreement with the landlord. In cases where the landlord does not allow us to prematurely exit the lease, but allows for subleasing, we estimate the fair value of any sublease income that can be generated from the location and expense the present value of the excess of remaining lease payments to the landlord over the projected sublease income at the cease-use date.
Asset Retirement Obligations
We recognize a liability for the fair value of required asset retirement obligations ("ARO") when such obligations are incurred. Our AROs are primarily associated with leasehold improvements which, at the end of a lease, we are contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, we record an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. The liability is estimated based on a number of assumptions requiring management's judgment, including store closing costs, cost inflation rates and discount rates, and is accreted to its projected future value over time. The capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in the consolidated statements of earnings. As of October 3, 2010 and September 27, 2009, our net ARO asset included in property, plant and equipment was $13.7 million and $15.1 million, respectively, while our net ARO liability included in other long-term liabilities was $47.7 million and $43.4 million, as of the same respective dates.
Stock-based Compensation
Starbucks maintains several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units ("RSUs") or stock appreciation rights to employees, non-employee directors and consultants. We also have employee stock purchase plans ("ESPP"). RSUs issued by us are equivalent to nonvested shares under the applicable accounting guidance.
Foreign Currency Translation
Our international operations generally use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets.
Income Taxes
We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial statement carrying amounts and the tax basis of our assets and liabilities. We will establish a valuation allowance for deferred tax assets if it is more likely than not that these items will either expire before Starbucks is able to realize their benefits, or that future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management's assessments of realizable deferred tax assets. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Starbucks recognizes interest and penalties related to income tax matters in income tax expense.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares and common stock units that were outstanding during the period. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of certain shares subject to stock options and RSUs, using the treasury stock method. Performance-based RSUs are considered dilutive when the related performance criterion has been met.
Common Stock Share Repurchases
We may repurchase shares of Starbucks common stock under a program authorized by our Board of Directors, including pursuant to a contract, instruction or written plan meeting the requirements of Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934. Under applicable Washington State law, shares repurchased are retired and not displayed separately as treasury stock on the financial statements. Instead, the par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital and from retained earnings, once additional paid-in capital is depleted.
Recent Accounting Pronouncements
In 2007, the Financial Accounting Standards Board ("FASB") issued authoritative guidance on accounting and reporting for noncontrolling interests in subsidiaries. The guidance clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent company's equity. It also requires the presentation of both net earnings attributable to non-controlling interests and net earnings attributable to Starbucks on the face of the consolidated statement of earnings. We adopted the new guidance relating to noncontrolling interests beginning September 28, 2009 on a prospective basis, except for the presentation and disclosure requirements, which were applied retrospectively as follows:
| • |
we reclassified minority interests previously reported on our consolidated statements of earnings as a component of net interest income and other to a separate line below net earnings including noncontrolling interests |
| • |
we reclassified minority interests previously reported on our consolidated balance sheets as a component of other long-term liabilities to noncontrolling interests and included it as a component of equity |
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities ("VIE"), which will be effective for our first fiscal quarter of 2011. The new guidance requires a qualitative approach to identify a controlling financial interest in a VIE, and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. We believe the adoption of this new guidance will not have a material effect on our consolidated financial statements.
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| Note 2: | Restructuring Charges |
The restructuring efforts we began in fiscal 2008 to rationalize our store portfolio and the non-retail support organization were essentially completed in fiscal 2010. No material future costs related to these efforts are expected. On a cumulative basis we closed 918 stores on a global basis as part of this effort.
Restructuring charges by type of cost, by reportable segment and reconciliation of the associated accrued liability (in millions):
| By Type of Cost | By Segment | |||||||||||||||||||||||||||
| Total | Lease Exit and Other Related Costs |
Asset Impairments |
Employee Termination Costs |
US | International | Other | ||||||||||||||||||||||
|
Costs incurred and charged to expense in fiscal 2010 |
$ | 53.0 | $ | 53.0 | $ | 0.2 | $ | (0.2 | ) | $ | 27.2 | $ | 25.8 | $ | 0.0 | |||||||||||||
|
Costs incurred and charged to expense in fiscal 2009 |
332.4 | 184.2 | 129.2 | 19.0 | 246.3 | 27.0 | 59.1 | |||||||||||||||||||||
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Costs incurred and charged to expense in fiscal 2008 |
266.9 | 47.8 | 201.6 | 17.5 | 210.9 | 19.2 | 36.8 | |||||||||||||||||||||
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Cumulative costs incurred to date |
652.3 | 285.0 | 331.0 | 36.3 | 484.4 | 72.0 | 95.9 | |||||||||||||||||||||
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Accrued liability as of September 28, 2008 |
$ | 53.4 | $ | 48.0 | $ | 5.4 | ||||||||||||||||||||||
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Costs incurred in fiscal 2009, excluding non-cash charges(1) |
211.6 | 192.6 | 19.0 | |||||||||||||||||||||||||
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Cash payments |
(161.0 | ) | (137.8 | ) | (23.2 | ) | ||||||||||||||||||||||
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Accrued liability as of September 27, 2009 |
$ | 104.0 | $ | 102.8 | $ | 1.2 | ||||||||||||||||||||||
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Costs incurred in fiscal 2010, excluding non-cash charges(1) |
53.4 | 53.7 | (0.3 | ) | ||||||||||||||||||||||||
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Cash payments |
(68.2 | ) | (67.3 | ) | (0.9 | ) | ||||||||||||||||||||||
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Accrued liability as of October 3, 2010(2) |
$ | 89.2 | $ | 89.2 | $ | 0.0 | ||||||||||||||||||||||
| (1) |
Non-cash charges and credits for lease exit and other related costs primarily represent deferred rent balances recognized as expense credits at the cease-use date. |
| (2) |
The remaining liability relates to lease obligations for stores that were previously closed where Starbucks has been unable to terminate the lease or find subtenants for the unused space. |
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| Note 3: | Investments (in millions): |
| Amortized Cost |
Gross Unrealized Holding Gains |
Gross Unrealized Holding Losses |
Fair Value |
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October 3, 2010 |
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Short-term investments: |
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Available-for-sale securities — Agency obligations |
$ | 30.0 | $ | 0.0 | $ | 0.0 | $ | 30.0 | ||||||||
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Available-for-sale securities — Corporate debt securities |
15.0 | 0.0 | 0.0 | 15.0 | ||||||||||||
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Available-for-sale securities — State and local government obligations |
0.7 | 0.0 | 0.0 | 0.7 | ||||||||||||
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Available-for-sale securities — Government treasury securities |
190.7 | 0.1 | 0.0 | 190.8 | ||||||||||||
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Trading securities |
58.8 | 49.2 | ||||||||||||||
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Total short-term investments |
$ | 295.2 | $ | 0.1 | $ | 285.7 | ||||||||||
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Long-term investments: |
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Available-for-sale securities — Agency obligations |
$ | 27.0 | $ | 0.0 | $ | 0.0 | $ | 27.0 | ||||||||
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Available-for-sale securities — Corporate debt securities |
121.4 | 2.1 | 0.0 | 123.5 | ||||||||||||
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Available-for-sale securities — State and local government obligations |
44.8 | 0.0 | (3.5 | ) | 41.3 | |||||||||||
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Total long-term investments |
$ | 193.2 | $ | 2.1 | $ | (3.5 | ) | $ | 191.8 | |||||||
|
September 27, 2009 |
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Short-term investments: |
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Available-for-sale securities — Corporate debt securities |
$ | 2.5 | $ | 0.0 | $ | 0.0 | $ | 2.5 | ||||||||
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Available-for-sale securities — Government treasury securities |
19.0 | 0.0 | 0.0 | 19.0 | ||||||||||||
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Trading securities |
58.5 | 44.8 | ||||||||||||||
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Total short-term investments |
$ | 80.0 | $ | 66.3 | ||||||||||||
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Long-term investments: |
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Available-for-sale securities — State and local government obligations |
$ | 57.8 | $ | 0.0 | $ | (2.1 | ) | $ | 55.7 | |||||||
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Available-for-sale securities — Corporate debt securities |
14.7 | 0.8 | 0.0 | 15.5 | ||||||||||||
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Total long-term investments |
$ | 72.5 | $ | 0.8 | $ | (2.1 | ) | $ | 71.2 | |||||||
Available-for-sale securities
Proceeds from sales of available-for-sale securities were $1.1 million, $5.0 million and $75.9 million in fiscal years 2010, 2009 and 2008, respectively. For fiscal years 2010, 2009 and 2008, realized gains and losses on sales and maturities were immaterial.
As of October 3, 2010, long-term available-for-sale securities of $191.8 million included $41.3 million invested in auction rate securities ("ARS"). As of September 27, 2009, long-term available-for-sale securities of $71.2 million included $55.7 million invested in ARS. ARS have long-dated maturities but provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined calendar intervals. Due to the auction failures that began in 2008, these securities became illiquid and were classified as long-term investments. The investment principal associated with the failed auctions will not be accessible until:
| • |
successful auctions resume; |
| • |
an active secondary market for these securities develops; |
| • |
the issuers replace these securities with another form of financing; or |
| • |
final payments are made according to the contractual maturities of the debt issues which range from 20 to 35 years. |
We do not intend to sell the ARS, nor is it likely we will be required to sell the ARS before their anticipated recovery, which may be at maturity. In fiscal 2010, two ARS were fully called at par value of $6.1 million and three ARS were partially called at par value of $6.0 million.
The gross unrealized holding losses on our state and local government obligations as of October 3, 2010 and September 27, 2009 are all related to our ARS investments. Our ARS are collateralized by portfolios of student loans, substantially all of which are guaranteed by the United States Department of Education.
Long-term investments (except for ARS) generally mature within three years.
Trading securities
Trading securities are comprised of marketable equity mutual funds and equity exchange-traded funds that approximate a portion of the liability under the Management Deferred Compensation Plan ("MDCP"), a defined contribution plan. The corresponding deferred compensation liability of $82.7 million and $68.3 million as of October 3, 2010 and September 27, 2009, respectively, is included in accrued compensation and related costs on the consolidated balance sheets. The changes in net unrealized holding gains/losses in the trading portfolio included in earnings for fiscal years 2010 and 2009 were a net gain of $4.1 million and a net loss of $4.9 million, respectively.
|
|||
| Note 4: | Derivative Financial Instruments |
Cash Flow Hedges
Starbucks and certain subsidiaries enter into cash flow derivative instruments to hedge portions of anticipated revenue streams and inventory purchases in currencies other than the entity's functional currency. Outstanding forward contracts, which comprise the majority of our derivative instruments, hedge monthly forecasted revenue transactions denominated in Japanese yen and Canadian dollars, as well as forecasted inventory purchases denominated in US dollars for foreign operations.
Net Investment Hedges
Net investment derivative instruments are used to hedge our equity method investment in Starbucks Coffee Japan, Ltd. ("Starbucks Japan") as well as our net investments in our Canada, UK and China subsidiaries, to minimize foreign currency exposure.
Other Derivatives
To mitigate the translation risk of certain balance sheet items, we enter into certain foreign currency forward contracts that are not designated as hedging instruments. These contracts are recorded at fair value, with the changes in fair value recognized in net interest income and other on the consolidated statements of earnings. Gains and losses from these instruments are largely offset by the financial impact of translating foreign currency denominated payables and receivables, which are also recognized in net interest income and other.
We also enter into certain swap and futures contracts that are not designated as hedging instruments to mitigate the price uncertainty of a portion of our future purchases of dairy products and diesel fuel. These contracts are recorded at fair value, with the changes in fair value recognized in net interest income and other on the consolidated statement of earnings.
Fair values of derivative instruments on the consolidated balance sheet (in millions):
| Cash Flow Hedges | Net Investment Hedges | Other Derivatives | ||||||||||||||||||||||
|
Financial Statement Location |
Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | ||||||||||||||||||
|
Prepaid expenses and other current assets |
$ | 0.1 | $ | 6.3 | $ | 0.0 | $ | 0.4 | $ | 0.0 | $ | 1.0 | ||||||||||||
|
Other assets |
0.0 | 5.5 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||
|
Other accrued expenses |
10.6 | 6.6 | 5.6 | 4.7 | 4.0 | 9.9 | ||||||||||||||||||
|
Other long-term liabilities |
6.4 | 5.6 | 8.1 | 6.4 | 0.0 | 0.0 | ||||||||||||||||||
|
Total losses in accumulated OCI(1) |
13.9 | 3.9 | 26.7 | 19.8 | ||||||||||||||||||||
| (1) |
Amount that will be dedesignated within 12 months for cash flow hedges is $6.4 million as of October 3, 2010. |
Ineffectiveness from hedges in fiscal years 2010 and 2009 was insignificant. Outstanding cash flow hedge and net investment hedge contracts will expire within 36 months and 30 months, respectively.
The following table presents the pretax effect of derivative instruments on other comprehensive income and earnings for fiscal years ending (in millions):
| Cash Flow Hedges | Net Investment Hedges | Other Derivatives | ||||||||||||||||||||||
| Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | |||||||||||||||||||
|
Gain/(Loss) recognized in earnings |
$ | (5.9 | ) | $ | (0.2 | ) | $ | 0.0 | $ | 0.0 | $ | 1.0 | $ | 22.2 | ||||||||||
|
Gain/(Loss) recognized in OCI |
$ | (20.9 | ) | $ | 7.8 | $ | (10.8 | ) | $ | (10.8 | ) | |||||||||||||
Notional amounts of outstanding derivative contracts (in millions):
|
| |||||||||||
|
|
|
Oct 3, 2010 |
|
|
Sep 27, 2009 |
|
|
|
| ||
|
Foreign exchange |
|
$ |
593 |
|
|
$ |
708 |
|
| ||
|
Dairy |
|
$ |
20 |
|
|
$ |
25 |
|
| ||
|
Diesel |
|
$ |
0 |
|
|
$ |
7 |
|
|||
|
|||
| Note 5: | Fair Value Measurements |
Fair value accounting guidance defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements, for both financial and non-financial assets. It also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions):
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Balance at Oct 3, 2010 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Trading securities |
$ | 49.2 | $ | 49.2 | $ | 0.0 | $ | 0.0 | ||||||||
|
Available-for-sale securities |
428.3 | 190.8 | 196.2 | 41.3 | ||||||||||||
|
Derivatives |
0.1 | 0.0 | 0.1 | 0.0 | ||||||||||||
|
Total |
$ | 477.6 | $ | 240.0 | $ | 196.3 | $ | 41.3 | ||||||||
|
Liabilities: |
||||||||||||||||
|
Derivatives |
$ | 34.7 | $ | 0.0 | $ | 34.7 | $ | 0.0 | ||||||||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Balance at Sept 27, 2009 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Trading securities |
$ | 44.8 | $ | 44.8 | $ | 0.0 | $ | 0.0 | ||||||||
|
Available-for-sale securities |
92.7 | 19.0 | 18.0 | 55.7 | ||||||||||||
|
Derivatives |
13.2 | 0.0 | 13.2 | 0.0 | ||||||||||||
|
Total |
$ | 150.7 | $ | 63.8 | $ | 31.2 | $ | 55.7 | ||||||||
|
Liabilities: |
||||||||||||||||
|
Derivatives |
$ | 33.2 | $ | 0.0 | $ | 33.2 | $ | 0.0 | ||||||||
Trading securities include equity mutual funds and exchange-traded funds. For these securities, we use quoted prices in active markets for identical assets to determine their fair value, thus they are considered to be Level 1 instruments.
Available-for-sale securities include government treasury securities, corporate and agency bonds and ARS. For government treasury securities, we use quoted prices in active markets for identical assets to determine their fair value, thus they are considered to be Level 1 instruments. We use observable direct and indirect inputs for corporate and agency bonds, which are considered Level 2 instruments. Level 3 instruments are comprised solely of ARS, all of which are considered to be illiquid due to the auction failures that began in 2008. We value ARS using an internally developed valuation model, using inputs that include interest rate curves, credit and liquidity spreads, and effective maturity.
Derivative assets and liabilities include foreign currency forward contracts, commodity swaps and futures contracts. Where applicable, we use quoted prices in an active market for identical derivative assets and liabilities that are traded on exchanges. Derivative assets and liabilities included in Level 2 are over-the-counter currency forward contracts and commodity swaps whose fair values are estimated using industry-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves and forward and spot prices for currencies and commodities.
Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis (in millions):
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Beginning balance of ARS |
$ | 55.7 | $ | 59.8 | ||||
|
Total (increase)/decrease in unrealized losses included in other comprehensive income |
(1.5 | ) | 3.9 | |||||
|
Realized losses recognized in net earnings |
(0.2 | ) | 0.0 | |||||
|
Calls |
(12.0 | ) | (8.0 | ) | ||||
|
Transfers in (out ) of Level 3 |
(0.7 | ) | 0.0 | |||||
|
Ending balance of ARS |
$ | 41.3 | $ | 55.7 | ||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Effective September 28, 2009, we adopted new fair value measurement guidance for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis. These assets and liabilities include items such as property, plant and equipment, goodwill and other intangible assets that are measured at fair value resulting from impairment, if determined to be necessary.
We measure certain financial assets, including equity and cost method investments, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are determined to be other-than-temporarily impaired.
During fiscal 2010, we recognized fair market value adjustments with a charge to earnings to assets measured at fair value (Level 3) on a non-recurring basis, as follows:
| Carrying Value before adjustment |
Fair value adjustment |
Carrying value after adjustment |
||||||||||
|
Property, plant and equipment(1) |
$ | 26.8 | $ | (22.3 | ) | $ | 4.5 | |||||
| (1) |
The fair value was determined using a discounted cash flow model based on future store revenues and operating costs, using internal projections. The resulting impairment charge was included in store operating expenses. |
Fair Value of Other Financial Instruments
The carrying value of cash and cash equivalents approximates fair value because of the short-term nature of those instruments. The estimated fair value of the $550 million of 6.25% Senior Notes based on the quoted market price was approximately $637 million and $591 million as of October 3, 2010 and September 27, 2009, respectively.
|
|||
| Note 6: | Inventories (in millions) |
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Coffee: |
||||||||
|
Unroasted |
$ | 238.3 | $ | 381.6 | ||||
|
Roasted |
95.1 | 76.7 | ||||||
|
Other merchandise held for sale |
115.6 | 116.0 | ||||||
|
Packaging and other supplies |
94.3 | 90.6 | ||||||
|
Total |
$ | 543.3 | $ | 664.9 | ||||
Other merchandise held for sale includes, among other items, serveware and tea.
Levels of inventory vary due to seasonality driven primarily by the holiday season, commodity market supply and price variations, and changes in our use of fixed-price and price-to-be-fixed coffee contracts.
As of October 3, 2010, we had committed to purchasing green coffee totaling $156 million under fixed-price contracts and an estimated $401 million under price-to-be-fixed contracts. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date at which the base "C" coffee commodity price component will be fixed has not yet been established. For these types of contracts, either Starbucks or the seller has the option to "fix" the base "C" coffee commodity price prior to the delivery date. Until prices are fixed, we estimate the total cost of these purchase commitments. We believe, based on relationships established with our suppliers in the past, the risk of non-delivery on such purchase commitments is remote.
|
|||
| Note 7: | Equity and Cost Investments (in millions) |
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Equity method investments |
$ | 308.1 | $ | 313.2 | ||||
|
Cost method investments |
33.4 | 39.1 | ||||||
|
Total |
$ | 341.5 | $ | 352.3 | ||||
Equity Method Investments
As of October 3, 2010, we had a 50 percent ownership interest in each of the following international equity investees: Starbucks Coffee Korea Co., Ltd.; Starbucks Coffee Austria GmbH; Starbucks Coffee Switzerland AG; President Starbucks Coffee Taiwan Ltd.; Shanghai President Coffee Co.; and Berjaya Starbucks Coffee Company Sdn. Bhd. (Malaysia). In addition, we had a 39.9 percent ownership interest in Starbucks Coffee Japan, Ltd. These international entities operate licensed Starbucks retail stores. We also have licensed the rights to produce and distribute Starbucks branded products to The North American Coffee Partnership with the Pepsi-Cola Company. We have a 50 percent ownership interest in The North America Coffee Partnership which develops and distributes bottled Frappuccino® beverages, Starbucks DoubleShot® espresso drinks, and Seattle's Best Coffee® ready-to-drink espresso beverages.
Our share of income and losses from our equity method investments is included in income from equity investees on the consolidated statements of earnings. Also included in this line item is our 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 $125.7 million, $125.3 million and $128.1 million in fiscal years 2010, 2009 and 2008, respectively. Related costs of sales, net of eliminations, were $65.3 million, $64.9 million and $66.2 million in fiscal years 2010, 2009 and 2008, respectively. As of October 3, 2010 and September 27, 2009, there were $31.4 million and $37.6 million of accounts receivable from equity investees, respectively, on our consolidated balance sheets, primarily related to product sales and store license fees.
As of October 3, 2010, the aggregate market value of our investment in Starbucks Japan was approximately $286 million, based on its available quoted market price, which exceeds its carrying value of $154 million.
Summarized combined financial information of our equity method investees, which represent 100% of the investees' financial information (in millions):
|
Financial Position as of |
Oct 3, 2010 | Sep 27, 2009 | ||||||
|
Current assets |
$ | 390.1 | $ | 315.8 | ||||
|
Noncurrent assets |
570.3 | 657.6 | ||||||
|
Current liabilities |
260.6 | 292.0 | ||||||
|
Noncurrent liabilities |
70.5 | 76.5 | ||||||
|
Results of Operations for Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Net revenues |
$ | 2,128.0 | $ | 2,100.1 | $ | 1,961.0 | ||||||
|
Operating income |
245.3 | 192.5 | 171.3 | |||||||||
|
Net earnings |
205.1 | 155.8 | 136.9 | |||||||||
Cost Method Investments
As of October 3, 2010, we had a $33.4 million investment of equity interests in entities that develop and operate Starbucks licensed retail stores in several global markets. As of October 3, 2010 and September 27, 2009, management determined that the estimated fair values of each cost method investment exceeded the related carrying values. There were no significant impairments recorded during fiscal years 2010, 2009 or 2008.
We have the ability to acquire additional interests in some of these cost method investees at certain intervals. Depending on our total percentage of ownership interest and our ability to exercise significant influence over financial and operating policies, additional investments may require the retroactive application of the equity method of accounting.
|
|||
| Note 8: | Property, Plant and Equipment (in millions) |
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Land |
$ | 58.0 | $ | 58.2 | ||||
|
Buildings |
265.7 | 231.5 | ||||||
|
Leasehold improvements |
3,435.6 | 3,349.0 | ||||||
|
Store equipment |
1,047.7 | 1,073.4 | ||||||
|
Roasting equipment |
290.6 | 282.9 | ||||||
|
Furniture, fixtures and other |
617.5 | 586.7 | ||||||
|
Work in progress |
173.6 | 119.2 | ||||||
| 5,888.7 | 5,700.9 | |||||||
|
Less accumulated depreciation |
(3,472.2 | ) | (3,164.5 | ) | ||||
|
Property, plant and equipment, net |
$ | 2,416.5 | $ | 2,536.4 | ||||
|
|||
| Note 9: | Other Intangible Assets and Goodwill |
Other intangible assets (in millions):
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Indefinite-lived intangibles |
$ | 63.5 | $ | 60.8 | ||||
|
Definite-lived intangibles |
16.1 | 15.0 | ||||||
|
Accumulated amortization |
(8.8 | ) | (7.6 | ) | ||||
|
Definite-lived intangibles, net |
7.3 | 7.4 | ||||||
|
Total other intangible assets |
$ | 70.8 | $ | 68.2 | ||||
|
Definite-lived intangibles approximate remaining weighted average useful life in years |
7 | 8 | ||||||
Amortization expense for definite-lived intangibles was $1.2 million, $1.7 million and $1.5 million during fiscal 2010, 2009 and 2008, respectively. Amortization expense is estimated to be approximately $1 million each year from fiscal 2011 through fiscal 2015, and a total of approximately $2 million thereafter.
Changes in the carrying amount of goodwill by reportable operating segment (in millions):
| United States | International | Other | Total | |||||||||||||
|
Balance at September 28, 2008 |
||||||||||||||||
|
Goodwill prior to impairment |
$ | 109.3 | $ | 117.4 | $ | 39.8 | $ | 266.5 | ||||||||
|
Accumulated impairment charges |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
|
Goodwill |
$ | 109.3 | $ | 117.4 | $ | 39.8 | $ | 266.5 | ||||||||
|
Acquisitions |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
|
Purchase price adjustment of previous acquisitions |
0.0 | (1.2 | ) | 0.0 | (1.2 | ) | ||||||||||
|
Impairment |
(7.0 | ) | 0.0 | 0.0 | (7.0 | ) | ||||||||||
|
Foreign currency fluctuations |
0.0 | 0.8 | 0.0 | 0.8 | ||||||||||||
|
Balance at September 27, 2009 |
||||||||||||||||
|
Goodwill prior to impairment |
$ | 109.3 | $ | 117.0 | $ | 39.8 | $ | 266.1 | ||||||||
|
Accumulated impairment charges |
(7.0 | ) | 0.0 | 0.0 | (7.0 | ) | ||||||||||
|
Goodwill |
$ | 102.3 | $ | 117.0 | $ | 39.8 | $ | 259.1 | ||||||||
|
Acquisitions |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
|
Purchase price adjustment of previous acquisitions |
1.0 | 0.0 | 0.0 | 1.0 | ||||||||||||
|
Impairment |
0.0 | (1.6 | ) | 0.0 | (1.6 | ) | ||||||||||
|
Foreign currency fluctuations |
0.0 | 3.9 | 0.0 | 3.9 | ||||||||||||
|
Balance at October 3, 2010 |
||||||||||||||||
|
Goodwill prior to impairment |
$ | 110.3 | $ | 120.9 | $ | 39.8 | $ | 271.0 | ||||||||
|
Accumulated impairment charges |
(7.0 | ) | (1.6 | ) | 0.0 | (8.6 | ) | |||||||||
|
Goodwill |
$ | 103.3 | $ | 119.3 | $ | 39.8 | $ | 262.4 | ||||||||
|
|||
| Note 10: | Debt (in millions) |
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Current portion of long-term debt (included in other accrued liabilities) |
$ | 0.0 | $ | 0.2 | ||||
|
6.25% Senior Notes (10-year, due Aug 2017) |
549.4 | 549.2 | ||||||
|
Other long-term debt |
0.0 | 0.1 | ||||||
|
Long-term debt |
549.4 | 549.3 | ||||||
|
Total debt |
$ | 549.4 | $ | 549.5 | ||||
Revolving Credit Facility and Commercial Paper Program
Our existing $1 billion unsecured credit facility was replaced in November 2010 with a new $500 million unsecured credit facility with various banks, of which $100 million may be used for issuances of letters of credit. As with the 2005 credit facility, the new 2010 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases. The 2010 credit facility is currently set to mature in November 2014. The interest rate for any borrowings under the 2010 credit facility, based on Starbucks current ratings and fixed charge coverage ratio, is 1.50% over LIBOR. The specific spread over LIBOR will depend upon our long-term credit ratings assigned by Moody's and Standard & Poor's rating agencies and our fixed charge coverage ratio. The 2010 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio which measures our ability to cover financing expenses. Starbucks has the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $500 million.
Under our commercial paper program we may issue unsecured commercial paper notes, up to a maximum aggregate amount outstanding at any time of $500 million under the new credit facility, with individual maturities that may vary, but not exceed, 397 days from the date of issue. The program is backstopped by our new credit facility, and the combined borrowing limit is $500 million for the commercial paper program and the credit facility. We may issue commercial paper from time to time, and the proceeds of the commercial paper financing will be used for working capital needs, capital expenditures and other corporate purposes, including acquisitions and share repurchases.
As of October 3, 2010, we had $15 million in letters of credit outstanding under the old credit facility. As of September 27, 2009, letters of credit totaling $14 million were outstanding.
Long-term Debt
In August 2007, we issued $550 million of 6.25% Senior Notes (the "notes") due in August 2017, in an underwritten registered public offering. Interest is payable semi-annually on February 15 and August 15 of each year. The notes require us to maintain compliance with certain covenants, which limit future liens and sale and leaseback transactions on certain material properties.
Interest Expense
Interest expense, net of interest capitalized, was $32.7 million, $39.1 million and $53.4 million in fiscal 2010, 2009 and 2008, respectively. In fiscal 2010, 2009 and 2008, $4.9 million, $2.9 million and $7.2 million, respectively, of interest was capitalized for new store and other asset construction projects, and included in net property, plant and equipment on the consolidated balance sheets.
|
|||
| Note 11: | Other Accrued Liabilities and Other Long-term Liabilities (in millions) |
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Accrued dividend payable |
$ | 96.5 | $ | 0.0 | ||||
|
Other |
166.3 | 147.5 | ||||||
|
Total other accrued liabilities |
$ | 262.8 | $ | 147.5 | ||||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Deferred rent |
$ | 239.7 | $ | 266.0 | ||||
|
Unrecognized tax benefits |
65.1 | 55.1 | ||||||
|
Asset retirement obligations |
47.7 | 43.4 | ||||||
|
Other |
22.6 | 25.1 | ||||||
|
Total other long term liabilities |
$ | 375.1 | $ | 389.6 | ||||
|
|||
| Note 12: | Leases |
Rental expense under operating lease agreements (in millions):
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Minimum rentals |
$ | 688.5 | $ | 690.0 | $ | 709.1 | ||||||
|
Contingent rentals |
26.1 | 24.7 | 32.0 | |||||||||
|
Total |
$ | 714.6 | $ | 714.7 | $ | 741.1 | ||||||
Minimum future rental payments under non-cancelable operating leases as of October 3, 2010 (in millions):
|
Fiscal Year Ending |
||||
|
2011 |
718.4 | |||
|
2012 |
670.0 | |||
|
2013 |
609.4 | |||
|
2014 |
544.0 | |||
|
2015 |
462.6 | |||
|
Thereafter |
1,079.8 | |||
|
Total minimum lease payments |
$ | 4,084.2 | ||
We have subleases related to certain of our operating leases. During fiscal 2010, 2009 and 2008, we recognized sublease income of $10.9 million, $7.1 million and $3.5 million, respectively.
We had capital lease obligations of $2.6 million and $7.8 million as of October 3, 2010 and September 27, 2009, respectively. Capital lease obligations expire at various dates, with the latest maturity in 2014. The current portion of the total obligation is included in other accrued expenses and the remaining long-term portion is included in other long-term liabilities on the consolidated balance sheets. Assets held under capital leases are included in net property, plant and equipment on the consolidated balance sheets.
|
|||
| Note 14: | Employee Stock and Benefit Plans |
We maintain several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, RSUs, or stock appreciation rights to employees, non-employee directors and consultants. We issue new shares of common stock upon exercise of stock options and the vesting of RSUs. We also have employee stock purchase plans ("ESPP").
As of October 3, 2010, there were 27.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 9.0 million shares available for issuance under our ESPP.
Stock based compensation expenses recognized in the consolidated financial statements (in millions):
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Options |
$ | 76.8 | $ | 61.6 | $ | 57.6 | ||||||
|
RSUs |
36.8 | 16.6 | 5.6 | |||||||||
|
ESPP |
0.0 | 5.0 | 11.8 | |||||||||
|
Total stock-based compensation expense on the consolidated statements of earnings |
$ | 113.6 | $ | 83.2 | $ | 75.0 | ||||||
|
Total related tax benefit |
$ | 40.6 | $ | 29.3 | $ | 24.0 | ||||||
|
Stock-based compensation capitalized in the respective fiscal year — included in net property, plant and equipment and inventories on the consolidated balance sheets |
$ | 1.9 | $ | 1.3 | $ | 1.9 | ||||||
Stock Option Plans
Stock options to purchase our common stock are granted at the fair market value of the stock on the date of grant. The majority of options become exercisable in four equal installments beginning a year from the date of grant and generally expire 10 years from the date of grant. Options granted in the 2009 exchange program vest over two years and expire seven years from the date of grant. The 2009 exchange program allowed for a one-time stock option exchange designed to provide eligible employees the opportunity to exchange certain outstanding underwater stock options for a lesser amount of new options with lower exercise prices. Options granted to non-employee directors generally vest over one to three years. Nearly all outstanding stock options are non-qualified stock options.
The fair value of each stock option granted is estimated on the grant date using the Black-Scholes-Merton ("BSM") option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our experience. Options granted are valued using the multiple option valuation approach, and the resulting expense is recognized over the requisite service period for each separately vesting portion of the award. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations.
The fair value of stock option awards was estimated at the grant date with the following weighted average assumptions for fiscal years 2010, 2009 and 2008 (excludes options granted in the 2009 stock option exchange program described above):
| Employee Stock Options Granted During the Period |
||||||||||||
|
Fiscal Year Ended |
2010 | 2009 | 2008 | |||||||||
|
Expected term (in years) |
4.7 | 4.9 | 4.7 | |||||||||
|
Expected stock price volatility |
43.0 | % | 44.5 | % | 29.3 | % | ||||||
|
Risk-free interest rate |
2.1 | % | 2.2 | % | 3.4 | % | ||||||
|
Expected dividend yield |
0.1 | % | 0.0 | % | 0.0 | % | ||||||
|
Weighted average grant price |
$ | 22.28 | $ | 8.97 | $ | 22.11 | ||||||
|
Estimated fair value per option granted |
$ | 8.50 | $ | 3.61 | $ | 6.85 | ||||||
The expected term of the options represents the estimated period of time until exercise, and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on a combination of historical volatility of our stock and the one-year implied volatility of Starbucks traded options, for the related vesting periods. The risk-free interest rate is based on the implied yield available on US Treasury zero-coupon issues with an equivalent remaining term. The dividend yield assumption is based on the anticipated cash dividend payouts. We did not pay any cash dividends prior to fiscal 2010. The amounts shown above for the estimated fair value per option granted are before the estimated effect of forfeitures, which reduce the amount of expense recorded on the consolidated statement of earnings.
The BSM option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Our employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Because our stock options do not trade on a secondary exchange, employees do not derive a benefit from holding stock options unless there is an increase, above the grant price, in the market price of the our stock. Such an increase in stock price would benefit all shareholders commensurately.
Stock option transactions from September 30, 2007, through October 3, 2010 (in millions, except per share and contractual life amounts):
| Shares Subject to Options |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Contractual Life (Years) |
Aggregate Intrinsic Value |
|||||||||||||
|
Outstanding, September 30, 2007 |
65.5 | $ | 20.97 | 6.2 | $ | 507.5 | ||||||||||
|
Granted |
15.4 | 22.11 | ||||||||||||||
|
Exercised |
(6.6 | ) | 10.71 | |||||||||||||
|
Expired/forfeited |
(11.3 | ) | 28.49 | |||||||||||||
|
Outstanding, September 28, 2008 |
63.0 | 20.96 | 5.7 | 114.9 | ||||||||||||
|
Granted |
30.9 | 8.97 | ||||||||||||||
|
Granted under option exchange program |
4.7 | 14.92 | ||||||||||||||
|
Exercised |
(7.2 | ) | 7.31 | |||||||||||||
|
Expired/forfeited |
(13.5 | ) | 18.99 | |||||||||||||
|
Cancelled under option exchange program |
(14.3 | ) | 29.34 | |||||||||||||
|
Outstanding, September 27, 2009 |
63.6 | 14.75 | 6.7 | 442.4 | ||||||||||||
|
Granted |
14.9 | 22.28 | ||||||||||||||
|
Exercised |
(9.6 | ) | 11.94 | |||||||||||||
|
Expired/forfeited |
(8.2 | ) | 18.73 | |||||||||||||
|
Outstanding, October 3, 2010 |
60.7 | 16.52 | 6.6 | 611.3 | ||||||||||||
|
Exercisable, October 3, 2010 |
27.3 | 17.48 | 4.6 | 264.1 | ||||||||||||
|
Vested and expected to vest, October 3, 2010 |
55.8 | 16.53 | 6.5 | 564.7 | ||||||||||||
The aggregate intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, is before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on the last business day of the period indicated.
As of October 3, 2010, total unrecognized stock-based compensation expense, net of estimated forfeitures, related to nonvested stock options was approximately $70 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.7 years. The total intrinsic value of stock options exercised was $118 million, $44 million and $50 million during the three fiscal year period ended October 3, 2010. The total fair value of options vested was $108 million, $75 million and $99 million during fiscal years 2010, 2009 and 2008, respectively.
RSUs
We have both time-vested and performance-based RSUs. Time-vested RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock at the end of a vesting period, subject solely to the employee's continuing employment. Our performance-based RSUs are awarded to eligible employees and entitle the grantee to receive shares of common stock if we achieve specified performance goals for the full fiscal year in the year of award and the grantee remains employed during the subsequent vesting period. The fair value of RSUs is based on the closing price of Starbucks common stock on the award date. Expense for performance-based RSUs is recognized when it is probable the performance goal will be achieved.
RSU transactions from September 30, 2007 through October 3, 2010 (in millions, except per share and contractual life amounts):
| Number of Shares |
Weighted Average Grant Date Fair Value per Share |
Weighted Average Remaining Contractual Life (Years) |
Aggregate Intrinsic Value |
|||||||||||||
|
Nonvested, September 30, 2007 |
0.2 | $ | 27.83 | 3.0 | $ | 4.7 | ||||||||||
|
Granted |
2.0 | 16.43 | ||||||||||||||
|
Vested |
0.0 | 0.00 | ||||||||||||||
|
Forfeited/Cancelled |
(0.2 | ) | 17.27 | |||||||||||||
|
Nonvested, September 28, 2008 |
2.0 | 17.36 | 2.5 | 30.5 | ||||||||||||
|
Granted |
3.3 | 8.78 | ||||||||||||||
|
Vested |
0.0 | 0.00 | ||||||||||||||
|
Forfeited/Cancelled |
(0.9 | ) | 13.94 | |||||||||||||
|
Nonvested, September 27, 2009 |
4.4 | 11.55 | 1.6 | 88.2 | ||||||||||||
|
Granted |
2.3 | 22.27 | ||||||||||||||
|
Vested |
(0.7 | ) | 16.35 | |||||||||||||
|
Forfeited/Cancelled |
(0.6 | ) | 12.27 | |||||||||||||
|
Nonvested, October 3, 2010 |
5.4 | 13.55 | 1.1 | 140.8 | ||||||||||||
As of October 3, 2010, total unrecognized stock-based compensation expense related to nonvested RSUs, net of estimated forfeitures, was approximately $44 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.0 years.
ESPP
Our ESPP allows eligible employees to contribute up to 10% of their base earnings toward the quarterly purchase of our common stock, subject to an annual maximum dollar amount. The purchase price is 95% of the fair market value of the stock on the last business day of the quarterly offering period. The number of shares issued under our ESPP was 0.8 million in fiscal 2010.
Deferred Stock Plan
We have a deferred stock plan for certain non-employees that enables participants in the plan to defer receipt of ownership of common shares from the exercise of nonqualified stock options. The minimum deferral period is five years. As of October 3, 2010 and September 27, 2009, 3.4 million shares were deferred under the terms of this plan. The rights to receive these shares, represented by common stock units, are included in the calculation of basic and diluted earnings per share as common stock equivalents. No new initial deferrals are permitted under this plan; the plan permits re-deferrals of previously deferred shares.
Defined Contribution Plans
We maintain voluntary defined contribution plans, both qualified and non-qualified, covering eligible employees as defined in the plan documents. Participating employees may elect to defer and contribute a portion of their eligible compensation to the plans up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws.
Our matching contributions to all US and non-US plans were $23.5 million, $19.7 million and $25.3 million in fiscal years 2010, 2009 and 2008, respectively.
|
|||
| Note 15: | Income Taxes |
Provision for income taxes (in millions):
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Current taxes: |
||||||||||||
|
Federal |
$ | 457.5 | $ | 165.3 | $ | 180.4 | ||||||
|
State |
79.6 | 35.0 | 34.3 | |||||||||
|
Foreign |
38.3 | 26.3 | 40.4 | |||||||||
|
Deferred taxes, net |
(86.7 | ) | (58.2 | ) | (111.1 | ) | ||||||
|
Total |
$ | 488.7 | $ | 168.4 | $ | 144.0 | ||||||
Reconciliation of the statutory US federal income tax rate with our effective income tax rate:
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal income tax benefit |
2.5 | % | 2.6 | % | 2.8 | % | ||||||
|
Foreign earnings taxed at lower rates |
-2.5 | % | -2.3 | % | -3.6 | % | ||||||
|
Domestic production activity deduction |
-0.9 | % | -2.3 | % | -2.6 | % | ||||||
|
Credit resulting from employment audit |
0.0 | % | -2.0 | % | 0.0 | % | ||||||
|
Other, net |
-0.1 | % | -0.9 | % | -0.3 | % | ||||||
|
Effective tax rate |
34.0 | % | 30.1 | % | 31.3 | % | ||||||
US income and foreign withholding taxes have not been provided on approximately $646 million of cumulative undistributed earnings of foreign subsidiaries and equity investees. We intend to reinvest these earnings for the foreseeable future. If these amounts were distributed to the US, in the form of dividends or otherwise, we would be subject to additional US income taxes. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.
Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions):
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Deferred tax assets: |
||||||||
|
Property, plant and equipment |
$ | 32.6 | $ | 0.0 | ||||
|
Accrued occupancy costs |
55.2 | 51.5 | ||||||
|
Accrued compensation and related costs |
100.8 | 70.1 | ||||||
|
Other accrued expenses |
25.0 | 24.5 | ||||||
|
Asset retirement obligation asset |
14.9 | 13.9 | ||||||
|
Deferred revenue |
58.4 | 39.3 | ||||||
|
Asset impairments |
94.8 | 99.7 | ||||||
|
Tax credits |
41.0 | 61.4 | ||||||
|
Stock based compensation |
115.9 | 96.6 | ||||||
|
Net operating losses |
43.7 | 20.1 | ||||||
|
Other |
50.6 | 36.0 | ||||||
|
Total |
$ | 632.9 | $ | 513.1 | ||||
|
Valuation allowance |
(88.1 | ) | (20.3 | ) | ||||
|
Total deferred tax asset, net of valuation allowance |
$ | 544.8 | $ | 492.8 | ||||
|
Deferred tax liabilities: |
||||||||
|
Property, plant and equipment |
(26.2 | ) | (45.6 | ) | ||||
|
Other |
(19.1 | ) | (25.4 | ) | ||||
|
Total |
(45.3 | ) | (71.0 | ) | ||||
|
Net deferred tax asset |
$ | 499.5 | $ | 421.8 | ||||
|
Reported as: |
||||||||
|
Current deferred income tax asset |
$ | 304.2 | $ | 286.6 | ||||
|
Long-term deferred income tax asset (included in Other assets) |
195.3 | 135.2 | ||||||
|
Net deferred tax asset |
$ | 499.5 | $ | 421.8 | ||||
We will establish a valuation allowance if either it is more likely than not that the deferred tax asset will expire before we are able to realize their benefits, or the future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management's assessments of realizable deferred tax assets. The valuation allowance as of October 3, 2010 and September 27, 2009 was related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries. The net change in the total valuation allowance for the years ended October 3, 2010, and September 27, 2009, was an increase of $67.8 million and $0.3 million, respectively. During fiscal 2010, we recognized approximately $40 million of previously unrecognized deferred tax assets in certain foreign jurisdictions, with a corresponding increase to the valuation allowance due to the uncertainty of their realization.
As of October 3, 2010, Starbucks had foreign tax credit carryforwards of $26.1 million with expiration dates between fiscal years 2014 and 2019. As of the end of fiscal 2010, capital loss carryforwards were $15.4 million with expiration dates between fiscal years 2014 and 2015. As of October 3, 2010, Starbucks had foreign net operating losses of $145.6 million, the predominant amount having no expiration.
Taxes currently payable of $24.7 million and $57.2 million are included in accrued taxes on the consolidated balance sheets as of October 3, 2010 and September 27, 2009, respectively.
Uncertain Tax Positions
As of October 3, 2010, we had $68.4 million of gross unrecognized tax benefits of which $21.6 million, if recognized, would affect our effective tax rate. As of October 3, 2010 and September 27, 2009, we had accrued interest and penalties of $16.8 million and $9.9 million, respectively, before benefit of federal tax deduction, recorded on our consolidated balance sheets.
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
| Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | ||||||||||
|
Beginning balance |
$ | 49.1 | $ | 52.6 | $ | 58.3 | ||||||
|
Increase related to prior year tax positions |
35.0 | 4.2 | 64.9 | |||||||||
|
Decrease related to prior year tax positions |
(21.4 | ) | (11.6 | ) | (37.2 | ) | ||||||
|
Increase related to current year tax positions |
14.1 | 8.4 | 17.0 | |||||||||
|
Decrease related to current year tax positions |
(8.1 | ) | (0.9 | ) | (5.4 | ) | ||||||
|
Decreases related to settlements with taxing authorities |
0.0 | (3.0 | ) | (11.1 | ) | |||||||
|
Decreases related to lapsing of statute of limitations |
(0.3 | ) | (0.6 | ) | (33.9 | ) | ||||||
|
Ending balance |
$ | 68.4 | $ | 49.1 | $ | 52.6 | ||||||
We are currently under routine audit by various jurisdictions outside the US as well as US state taxing jurisdictions for fiscal years 2003 through 2009. We are no longer subject to US federal or state examination for years before fiscal year 2006, with the exception of four states. We are subject to income tax in many jurisdictions outside the US. We are no longer subject to examination in any material international markets prior to 2003.
There is a reasonable possibility that approximately $9.5 million of the currently remaining unrecognized tax benefits, each of which is individually insignificant, may be recognized by the end of fiscal 2011 as the result of a lapse of the statute of limitations.
|
|||
| Note 17: | Commitments and Contingencies |
Guarantees
We have unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and related interest and fees of an unconsolidated equity investee, Starbucks Japan. The guarantees continue until the loans, including accrued interest and fees, have been paid in full. These guarantees expire in 2014. Our maximum exposure under this commitment as of October 3, 2010 is $2.6 million and is limited to the sum of unpaid principal and interest, as well as other related expenses. These amounts will vary based on fluctuations in the yen foreign exchange rate. Since there has been no modification of these loan guarantees subsequent to the adoption of accounting requirements for guarantees, we have applied the disclosure provisions only and have not recorded the guarantees on our consolidated balance sheets.
We have commitments under which we unconditionally guarantee our proportionate share of certain borrowings of unconsolidated equity investees. These guarantees have varying expiration dates. As of October 3, 2010, our maximum exposure under these commitments is $2.1 million, which excludes interest and other related costs. The fair value of these guarantees as of October 3, 2010 is $2.2 million and is recorded our consolidated balance sheets.
Legal Proceedings
Starbucks is party to various legal proceedings arising in the ordinary course of business, but is not currently a party to any legal proceeding that management believes would have a material adverse effect on our consolidated financial position or results of operations.
|
|||
| Note 18: | Acquisitions |
In the first quarter of fiscal 2010, we acquired 100% ownership of our business in France, converting it from a 50% joint venture with Sigla S.A. (Grupo Vips) of Spain to a company-operated market. We simultaneously sold our 50% ownership interests in the Spain and Portugal markets to Grupo Vips, converting them to licensed markets.
In the fourth quarter of fiscal 2010, we acquired 100% ownership of our business in Brazil, converting it from a 49% joint venture with Cafés Sereia do Brasil Participações S.A of Brazil to a company-operated market.
In the fourth quarter of fiscal 2010, we acquired 100% ownership of a previously consolidated 50% joint venture in the US with Johnson Coffee Corporation, Urban Coffee Opportunities ("UCO"). The following table shows the effects of the change in Starbucks ownership interest in UCO on Starbucks equity:
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Net earnings attributable to Starbucks |
$ | 945.6 | $ | 390.8 | $ | 315.5 | ||||||
|
Transfers (to) from the noncontrolling interest: |
||||||||||||
|
Decrease in additional paid-in capital for purchase of 50% interest in subsidiary |
(26.8 | ) | 0.0 | 0.0 | ||||||||
|
Change from net earnings attributable to Starbucks and transfers to noncontrolling interest |
$ | 918.8 | $ | 390.8 | $ | 315.5 | ||||||
|
|||
| Note 19: | Segment Reporting |
Segment information is prepared on the same basis that our management reviews financial information for operational decision making purposes. We have three reportable operating segments: US, International, and CPG. In the fourth fiscal quarter of 2010, we changed the composition of our operating segments, presenting Seattle's Best Coffee as a separate operating segment that is now reported with Digital Ventures and unallocated corporate expenses within Other. Financial information for Seattle's Best Coffee was previously reported within the US, International, and CPG segments. This change reflects the culmination of internal management and reporting realignments, and the expected development of the Seattle's Best Coffee business. Segment information for all prior periods presented has been reclassified to reflect this change.
United States
US operations sell coffee and other beverages, complementary food, whole bean coffees, and a focused selection of merchandise primarily through company-operated retail stores. Specialty operations within the US include licensed retail stores.
International
International operations sell coffee and other beverages, complementary food, whole bean coffees, and a focused selection of merchandise through company-operated retail stores in Canada, the UK, and several other markets. Specialty operations in international markets primarily include retail store licensing operations in nearly 40 countries and foodservice accounts, primarily in the UK and Canada. Many of our international operations are in the early stages of development that require a more extensive support organization, relative to the current levels of revenue and operating income, than in the US.
Global Consumer Products Group
CPG operations sell a selection of whole bean and ground coffees as well as a selection of premium Tazo® teas through licensing arrangements in US and international markets. CPG operations also produce and sell ready-to-drink beverages which include, among others, bottled Frappuccino® beverages, Starbucks DoubleShot® espresso drinks, and Discoveries® chilled cup coffee. In addition, CPG operations produce and sell Starbucks VIA® Ready Brew, as well as Starbucks® super-premium ice creams through its marketing and distribution agreements and a joint venture. The US foodservice business sells coffee and other related products to institutional foodservice companies with the majority of its sales through national broadline distribution networks.
Other
Other includes Seattle's Best Coffee and Digital Ventures as well as 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.
Revenue mix by product type (in millions):
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||||||||||||||
|
Beverage |
$ | 6,750.3 | 63 | % | $ | 6,238.4 | 64 | % | $ | 6,663.3 | 64 | % | ||||||||||||
|
Food |
1,878.7 | 18 | % | 1,680.2 | 17 | % | 1,511.7 | 15 | % | |||||||||||||||
|
Whole bean and soluble coffees |
1,131.3 | 10 | % | 965.2 | 10 | % | 987.8 | 9 | % | |||||||||||||||
|
Other(1) |
947.1 | 9 | % | 890.8 | 9 | % | 1,220.2 | 12 | % | |||||||||||||||
|
Total |
$ | 10,707.4 | 100 | % | $ | 9,774.6 | 100 | % | $ | 10,383.0 | 100 | % | ||||||||||||
| (1) |
Other includes royalty and licensing revenues, beverage-related accessories and equipment revenues. |
Information by geographic area (in millions):
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Net revenues from external customers: |
||||||||||||
|
United States |
$ | 8,335.4 | $ | 7,787.7 | $ | 8,227.0 | ||||||
|
Other countries |
2,372.0 | 1,986.9 | 2,156.0 | |||||||||
|
Total |
$ | 10,707.4 | $ | 9,774.6 | $ | 10,383.0 | ||||||
No customer accounts for 10% or more of our revenues. Revenues are shown based on the geographic location of our customers. Revenues from countries other than the US consist primarily of revenues from Canada and the UK, which together account for approximately 64% of net revenues from other countries for fiscal 2010.
| Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | ||||||||||
|
Long-lived assets: |
||||||||||||
|
United States |
$ | 2,807.9 | $ | 2,776.7 | $ | 3,099.9 | ||||||
|
Other countries |
821.6 | 764.3 | 824.8 | |||||||||
|
Total |
$ | 3,629.5 | $ | 3,541.0 | $ | 3,924.7 | ||||||
Management evaluates the performance of its operating segments based on net revenues and operating income. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in Note 1. Operating income represents earnings before net interest income and other, interest expense and income taxes. Management does not evaluate the performance of its operating segments using asset measures. The identifiable assets by segment disclosed in this note are those assets specifically identifiable within each segment and include net property, plant and equipment, equity and cost investments, goodwill, and other intangible assets. Corporate assets are primarily comprised of cash and investments, assets of the corporate headquarters and roasting facilities, and inventory.
The table below presents information by operating segment for the fiscal years noted (in millions):
| United States | International | CPG | Other | Total | ||||||||||||||||
|
Fiscal 2010: |
||||||||||||||||||||
|
Total net revenues |
$ | 7,560.4 | $ | 2,288.8 | $ | 707.4 | $ | 150.8 | $ | 10,707.4 | ||||||||||
|
Depreciation and amortization |
350.7 | 108.6 | 3.7 | 47.4 | 510.4 | |||||||||||||||
|
Income (loss) from equity investees |
0.0 | 80.8 | 70.6 | (3.3 | ) | 148.1 | ||||||||||||||
|
Operating income/(loss) |
1,291.1 | 225.2 | 261.4 | (358.3 | ) | 1,419.4 | ||||||||||||||
|
Total assets |
1,482.9 | 1,272.8 | 54.1 | 3,576.1 | 6,385.9 | |||||||||||||||
|
Fiscal 2009: |
||||||||||||||||||||
|
Total net revenues |
$ | 7,061.7 | $ | 1,914.3 | $ | 674.4 | $ | 124.2 | $ | 9,774.6 | ||||||||||
|
Depreciation and amortization |
377.9 | 102.2 | 4.8 | 49.8 | 534.7 | |||||||||||||||
|
Income from equity investees |
0.5 | 53.6 | 67.8 | 0.0 | 121.9 | |||||||||||||||
|
Operating income/(loss) |
530.1 | 91.2 | 281.8 | (341.1 | ) | 562.0 | ||||||||||||||
|
Total assets |
1,640.8 | 1,071.3 | 71.1 | 2,793.6 | 5,576.8 | |||||||||||||||
|
Fiscal 2008: |
||||||||||||||||||||
|
Total net revenues |
$ | 7,491.2 | $ | 2,099.6 | $ | 680.9 | $ | 111.3 | $ | 10,383.0 | ||||||||||
|
Depreciation and amortization |
395.1 | 108.6 | 5.4 | 40.2 | 549.3 | |||||||||||||||
|
Income (loss) from equity investees |
(1.3 | ) | 54.2 | 60.7 | 0.0 | 113.6 | ||||||||||||||
|
Operating income/(loss) |
454.0 | 108.8 | 269.9 | (328.8 | ) | 503.9 | ||||||||||||||
|
Total assets |
1,956.9 | 1,066.0 | 54.6 | 2,595.1 | 5,672.6 | |||||||||||||||
The table below reconciles the total of the reportable segments' operating income to the consolidated earnings before income taxes (in millions):
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Operating income |
$ | 1,419.4 | $ | 562.0 | $ | 503.9 | ||||||
|
Interest income and other, net |
50.3 | 37.0 | 5.2 | |||||||||
|
Interest expense |
(32.7 | ) | (39.1 | ) | (53.4 | ) | ||||||
|
Earnings before income taxes |
$ | 1,437.0 | $ | 559.9 | $ | 455.7 | ||||||
|
|||
| Note 20: | Subsequent Event |
In the first quarter of fiscal 2011, Starbucks notified Kraft Foods Global, Inc. that we are discontinuing our licensing relationships. Through these relationships with Kraft, Starbucks sells a selection of Starbucks and Seattle's Best Coffee branded packaged coffees and Tazo® teas in grocery and warehouse club stores throughout the US, and to grocery stores in Canada, the UK and other European countries. Kraft manages the distribution, marketing, advertising and promotion of these products. Discussions between Starbucks and Kraft are ongoing as of the date of the filing of this 10-K and there is the possibility of a commercial dispute between the parties. At this time Starbucks is unable to estimate the range of possible outcomes with respect to this matter.
|
|||
Description of Business
Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with handcrafted coffee and tea beverages and a variety of fresh food items, through its company-operated retail stores. We also sell coffee and tea products and license our trademarks through other channels such as licensed stores, and through certain of our licensees and equity investees, we produce and sell a variety of ready-to-drink beverages. All channels outside the company-operated retail stores are collectively known as specialty operations. Additional details on the nature of our business are in Item 1 of this 10-K.
In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as "Starbucks," the "Company," "we," "us" or "our".
We have three reportable operating segments: United States ("US"), International, and Global Consumer Products Group ("CPG").
Principles of Consolidation
The consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly owned subsidiaries and investees controlled by us. Investments in entities that we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Investments in entities in which we do not have the ability to exercise significant influence are accounted for under the cost method. Intercompany transactions and balances have been eliminated.
Fiscal Year End
Our fiscal year ends on the Sunday closest to September 30. Fiscal year 2010 included 53 weeks, with the 53rd week falling in the fourth fiscal quarter. Fiscal years 2009 and 2008 included 52 weeks.
Estimates and Assumptions
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include, but are not limited to, estimates for asset and goodwill impairments, stock-based compensation forfeiture rates, and future asset retirement obligations; assumptions underlying self-insurance reserves; and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.
Cash and Cash Equivalents
We consider all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. We maintain cash and cash equivalent balances with financial institutions that exceed federally insured limits. We have not experienced any losses related to these balances, and management believes its credit risk to be minimal.
Cash Management
Our cash management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks, which creates book overdrafts. Book overdrafts are presented as a current liability in accounts payable on the consolidated balance sheets.
Short-term and Long-term Investments
Our short-term and long-term investments consist primarily of investment grade debt securities, all of which are classified as available-for-sale. We have investments in auction rate securities within the long-term investment portfolio. Our trading portfolio is primarily comprised of equity mutual funds and equity exchange-traded funds. Trading securities are recorded at fair value with unrealized holding gains and losses included in net earnings. Available-for-sale securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Available-for-sale securities with remaining maturities of less than one year and those identified by management at time of purchase for funding operations in less than one year are classified as short term, and all other available-for-sale securities are classified as long term. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length and extent of the fair value decline, the financial condition and near term prospects of the issuer, and for equity investments, our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. For debt securities, management also evaluates whether we have the intent to sell or will likely be required to sell before their anticipated recovery, which may be at maturity. Realized gains and losses are accounted for using the specific identification method. Purchases and sales are recorded on a trade date basis.
Fair Value of Financial Instruments and Equity and Cost Investments
The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments. The fair value of our investments in marketable debt and equity securities, equity mutual funds and equity exchange-traded funds is based upon the quoted market price on the last business day of the fiscal year. Where an observable quoted market price for a security does not exist, we estimate fair value using a variety of valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs. The specific methodologies include comparing the security with securities of publicly traded companies in similar lines of business, applying revenue multiples to estimated future operating results and estimating discounted cash flows. The fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities.
We measure our equity and cost method investments at fair value on a nonrecurring basis when they are determined to be other-than temporarily impaired. Fair values are determined using available quoted market prices or standard valuation techniques, including discounted cash flows, comparable transactions, and comparable company analyses.
Derivative Instruments
We manage our exposure to various risks within the consolidated financial statements according to an umbrella risk management policy. Under this policy, Starbucks may engage in transactions involving various derivative instruments, with maturities generally not longer than five years, to hedge interest rates, commodity prices and foreign currency denominated revenues, purchases, assets and liabilities.
We record all derivatives on the balance sheets at fair value. For a cash flow hedge, the effective portion of the derivative's gain or loss is initially reported as a component of other comprehensive income ("OCI") and subsequently reclassified into net earnings when the hedged exposure affects net earnings. For a net investment hedge, the effective portion of the derivative's gain or loss is reported as a component of OCI.
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge by matching the terms of the contract to the underlying transaction. We classify the cash flows from hedging transactions in the same categories as the cash flows from the respective hedged items. Once established, cash flow hedges are generally not removed until maturity unless an anticipated transaction is no longer likely to occur. For discontinued or dedesignated cash flow hedges, the related accumulated derivative gains or losses are recognized in net interest income and other on the consolidated statements of earnings.
Forward contract effectiveness for cash flow hedges is calculated by comparing the fair value of the contract to the change in value of the anticipated transaction using forward rates on a monthly basis. For net investment hedges, the spot-to-spot method is used to calculate effectiveness. Under this method, the change in fair value of the forward contract attributable to the changes in spot exchange rates (the effective portion) is reported as a component of OCI. The remaining change in fair value of the forward contract (the ineffective portion) is reclassified into net earnings. Any ineffectiveness is recognized immediately in net interest income and other on the consolidated statements of earnings.
We also enter into certain foreign currency forward contracts, commodity swap contracts, and futures contracts that are not designated as hedging instruments for accounting purposes. These contracts are recorded at fair value, with the changes in fair value recognized in net interest income and other on the consolidated statements of earnings.
Allowance for Doubtful Accounts
Allowance for doubtful accounts is calculated based on historical experience, customer credit risk and application of the specific identification method. As of October 3, 2010, September 27, 2009, and September 28, 2008, the allowance for doubtful accounts was $3.3 million, $5.0 million and $4.5 million, respectively.
Inventories
Inventories are stated at the lower of cost (primarily moving average cost) or market. We record inventory reserves for obsolete and slow-moving items and for estimated shrinkage between physical inventory counts. Inventory reserves are based on inventory turnover trends, historical experience and application of the specific identification method. As of October 3, 2010, September 27, 2009, and September 28, 2008, inventory reserves were $18.1 million, $21.1 million, and $25.5 million, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation of property, plant and equipment, which includes assets under capital leases, is provided on the straight-line method over estimated useful lives, generally ranging from two to seven years for equipment and 30 to 40 years for buildings. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life, generally 10 years. For leases with renewal periods at our option, we generally use the original lease term, excluding renewal option periods, to determine estimated useful lives. If failure to exercise a renewal option imposes an economic penalty to us, we may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of appropriate estimated useful lives. The portion of depreciation expense related to production and distribution facilities is included in cost of sales including occupancy costs on the consolidated statements of earnings. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated with any remaining gain or loss reflected in net earnings.
Goodwill
We test goodwill for impairment on an annual basis, or more frequently if circumstances, such as material deterioration in performance or a significant number of store closures, indicate reporting unit carrying values may exceed their fair values. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to the implied estimated fair value.
As a part of Starbucks ongoing operations, we may close certain stores within a reporting unit containing goodwill due to underperformance of the store or inability to renew our lease, among other reasons. We abandon certain assets associated with a closed store including leasehold improvements and other non-transferrable assets. Under GAAP, 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.
We conduct our annual goodwill impairment test for consolidated entities in our third fiscal quarter.
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 2010, 2009 and 2008.
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 future store 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 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.
We recognized net impairment and disposition losses of $67.7 million, $224.4 million and $325.0 million in fiscal 2010, 2009 and 2008, respectively, primarily due to underperforming company-operated retail stores. The net losses in fiscal 2009 and 2008 include $129.2 million and $201.6 million, respectively, of asset impairments related primarily to the US and International store closures as part of Starbucks 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; for specialty operations, these losses are recorded in restructuring charges and 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
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 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 us and for licensees accounted for under the equity method, based on our 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 our stored value cards, such as Starbucks Cards, 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 our stored value cards, and we do not charge any service fees that cause a decrement to customer balances.
While we will continue to honor all stored value cards presented for payment, management may determine the likelihood of redemption to be remote for certain cards due to, among other things, long periods of inactivity. In these circumstances, if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws, card balances may then be recognized in the consolidated statements of earnings, in net interest income and other. For the fiscal years ended October 3, 2010, September 27, 2009 and September 28, 2008, income recognized on unredeemed stored value card balances was $31.2 million, $26.0 million and $13.6 million, respectively.
Customers in the US who register their Starbucks Card are automatically enrolled in the My Starbucks Reward program and earn points ("stars") with each purchase. A free beverage coupon is issued to the customer once 15 points have been accumulated. The value of points earned by our program members is included in deferred revenue and recorded as a reduction in revenue at the time the points are earned, based on the value of points that are projected to be redeemed.
Retail Revenues
Company-operated retail store revenues are recognized when payment is tendered at the point of sale. We maintain a sales return allowance to reduce retail revenues for estimated future product returns 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.
Specialty Revenues
Specialty revenues consist primarily of product sales to customers other than through company-operated retail stores, as well as royalties and other fees generated from licensing operations. Sales of coffee, tea and related products are generally recognized upon shipment to customers, depending on contract terms. Shipping charges billed to customers are also recognized as revenue, and the related shipping costs are included in cost of sales including occupancy costs on the consolidated statements of earnings.
Specific to retail store licensing arrangements, initial nonrefundable development fees are recognized upon substantial performance of services for new market business development activities, such as initial business, real estate and store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets. Additional store licensing fees are recognized when new licensed stores are opened. Royalty revenues based upon a percentage of reported sales and other continuing fees, such as marketing and service fees, are recognized on a monthly basis when earned. For certain licensing arrangements, where we intend to acquire an ownership interest, the initial nonrefundable development fees are deferred to other long-term liabilities on the consolidated balance sheets until acquisition, at which point the fees are reflected as a reduction of our investment.
Other arrangements involving multiple elements and deliverables as well as upfront fees are individually evaluated for revenue recognition. Cash payments received in advance of product or service delivery are recorded in deferred revenue until earned.
Advertising
We expense most advertising costs as they are incurred, except for certain production costs that are expensed the first time the advertising campaign takes place.
Advertising expenses, recorded in store operating expenses, other operating expenses and general and administrative expenses on the consolidated statements of earnings, totaled $176.2 million, $126.3 million and $129.0 million in fiscal 2010, 2009 and 2008, respectively. As of October 3, 2010 and September 27, 2009, $5.6 million and $7.2 million, respectively, of capitalized advertising costs were recorded on the consolidated balance sheets.
Store Preopening Expenses
Costs incurred in connection with the start-up and promotion of new store openings are expensed as incurred.
Operating Leases
We lease retail stores, roasting, distribution and warehouse facilities, and office space under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent escalation clauses and/or contingent rent provisions. For purposes of recognizing incentives, premiums and minimum rental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to begin amortization, which is generally when we enter the space and begin to make improvements in preparation of intended use.
For tenant improvement allowances and rent holidays, we record a deferred rent liability in accrued occupancy costs and other long-term liabilities on the consolidated balance sheets and amortize the deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of earnings.
For premiums paid upfront to enter a lease agreement, we record a deferred rent asset in prepaid expenses and other current assets and other assets on the consolidated balance sheets and then amortize the deferred rent over the terms of the leases as additional rent expense on the consolidated statements of earnings.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, we record minimum rental expenses on a straight-line basis over the terms of the leases on the consolidated statements of earnings.
Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. We record a contingent rent liability in accrued occupancy costs on the consolidated balance sheets and the corresponding rent expense when specified levels have been achieved or when we determine that achieving the specified levels during the fiscal year is probable.
When ceasing operations in company-operated stores under operating leases, in cases where the lease contract specifies a termination fee due to the landlord, we record such expense at the time written notice is given to the landlord. In cases where terms, including termination fees, are yet to be negotiated with the landlord, we will record the expense upon signing of an agreement with the landlord. In cases where the landlord does not allow us to prematurely exit the lease, but allows for subleasing, we estimate the fair value of any sublease income that can be generated from the location and expense the present value of the excess of remaining lease payments to the landlord over the projected sublease income at the cease-use date.
Asset Retirement Obligations
We recognize a liability for the fair value of required asset retirement obligations ("ARO") when such obligations are incurred. Our AROs are primarily associated with leasehold improvements which, at the end of a lease, we are contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, we record an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. The liability is estimated based on a number of assumptions requiring management's judgment, including store closing costs, cost inflation rates and discount rates, and is accreted to its projected future value over time. The capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in the consolidated statements of earnings. As of October 3, 2010 and September 27, 2009, our net ARO asset included in property, plant and equipment was $13.7 million and $15.1 million, respectively, while our net ARO liability included in other long-term liabilities was $47.7 million and $43.4 million, as of the same respective dates.
Stock-based Compensation
Starbucks maintains several equity incentive plans under which we may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units ("RSUs") or stock appreciation rights to employees, non-employee directors and consultants. We also have employee stock purchase plans ("ESPP"). RSUs issued by us are equivalent to nonvested shares under the applicable accounting guidance.
Foreign Currency Translation
Our international operations generally use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Income and expense accounts are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets.
Income Taxes
We compute income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial statement carrying amounts and the tax basis of our assets and liabilities. We will establish a valuation allowance for deferred tax assets if it is more likely than not that these items will either expire before Starbucks is able to realize their benefits, or that future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management's assessments of realizable deferred tax assets. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Starbucks recognizes interest and penalties related to income tax matters in income tax expense.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares and common stock units that were outstanding during the period. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of certain shares subject to stock options and RSUs, using the treasury stock method. Performance-based RSUs are considered dilutive when the related performance criterion has been met.
Common Stock Share Repurchases
We may repurchase shares of Starbucks common stock under a program authorized by our Board of Directors, including pursuant to a contract, instruction or written plan meeting the requirements of Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934. Under applicable Washington State law, shares repurchased are retired and not displayed separately as treasury stock on the financial statements. Instead, the par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital and from retained earnings, once additional paid-in capital is depleted.
Recent Accounting Pronouncements
In 2007, the Financial Accounting Standards Board ("FASB") issued authoritative guidance on accounting and reporting for noncontrolling interests in subsidiaries. The guidance clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent company's equity. It also requires the presentation of both net earnings attributable to non-controlling interests and net earnings attributable to Starbucks on the face of the consolidated statement of earnings. We adopted the new guidance relating to noncontrolling interests beginning September 28, 2009 on a prospective basis, except for the presentation and disclosure requirements, which were applied retrospectively as follows:
| • |
we reclassified minority interests previously reported on our consolidated statements of earnings as a component of net interest income and other to a separate line below net earnings including noncontrolling interests |
| • |
we reclassified minority interests previously reported on our consolidated balance sheets as a component of other long-term liabilities to noncontrolling interests and included it as a component of equity |
In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities ("VIE"), which will be effective for our first fiscal quarter of 2011. The new guidance requires a qualitative approach to identify a controlling financial interest in a VIE, and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. We believe the adoption of this new guidance will not have a material effect on our consolidated financial statements.
|
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| By Type of Cost | By Segment | |||||||||||||||||||||||||||
| Total | Lease Exit and Other Related Costs |
Asset Impairments |
Employee Termination Costs |
US | International | Other | ||||||||||||||||||||||
|
Costs incurred and charged to expense in fiscal 2010 |
$ | 53.0 | $ | 53.0 | $ | 0.2 | $ | (0.2 | ) | $ | 27.2 | $ | 25.8 | $ | 0.0 | |||||||||||||
|
Costs incurred and charged to expense in fiscal 2009 |
332.4 | 184.2 | 129.2 | 19.0 | 246.3 | 27.0 | 59.1 | |||||||||||||||||||||
|
Costs incurred and charged to expense in fiscal 2008 |
266.9 | 47.8 | 201.6 | 17.5 | 210.9 | 19.2 | 36.8 | |||||||||||||||||||||
|
Cumulative costs incurred to date |
652.3 | 285.0 | 331.0 | 36.3 | 484.4 | 72.0 | 95.9 | |||||||||||||||||||||
|
Accrued liability as of September 28, 2008 |
$ | 53.4 | $ | 48.0 | $ | 5.4 | ||||||||||||||||||||||
|
Costs incurred in fiscal 2009, excluding non-cash charges(1) |
211.6 | 192.6 | 19.0 | |||||||||||||||||||||||||
|
Cash payments |
(161.0 | ) | (137.8 | ) | (23.2 | ) | ||||||||||||||||||||||
|
Accrued liability as of September 27, 2009 |
$ | 104.0 | $ | 102.8 | $ | 1.2 | ||||||||||||||||||||||
|
Costs incurred in fiscal 2010, excluding non-cash charges(1) |
53.4 | 53.7 | (0.3 | ) | ||||||||||||||||||||||||
|
Cash payments |
(68.2 | ) | (67.3 | ) | (0.9 | ) | ||||||||||||||||||||||
|
Accrued liability as of October 3, 2010(2) |
$ | 89.2 | $ | 89.2 | $ | 0.0 | ||||||||||||||||||||||
| (1) |
Non-cash charges and credits for lease exit and other related costs primarily represent deferred rent balances recognized as expense credits at the cease-use date. |
| (2) |
The remaining liability relates to lease obligations for stores that were previously closed where Starbucks has been unable to terminate the lease or find subtenants for the unused space. |
|
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| Amortized Cost |
Gross Unrealized Holding Gains |
Gross Unrealized Holding Losses |
Fair Value |
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|
October 3, 2010 |
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|
Short-term investments: |
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|
Available-for-sale securities — Agency obligations |
$ | 30.0 | $ | 0.0 | $ | 0.0 | $ | 30.0 | ||||||||
|
Available-for-sale securities — Corporate debt securities |
15.0 | 0.0 | 0.0 | 15.0 | ||||||||||||
|
Available-for-sale securities — State and local government obligations |
0.7 | 0.0 | 0.0 | 0.7 | ||||||||||||
|
Available-for-sale securities — Government treasury securities |
190.7 | 0.1 | 0.0 | 190.8 | ||||||||||||
|
Trading securities |
58.8 | 49.2 | ||||||||||||||
|
Total short-term investments |
$ | 295.2 | $ | 0.1 | $ | 285.7 | ||||||||||
|
Long-term investments: |
||||||||||||||||
|
Available-for-sale securities — Agency obligations |
$ | 27.0 | $ | 0.0 | $ | 0.0 | $ | 27.0 | ||||||||
|
Available-for-sale securities — Corporate debt securities |
121.4 | 2.1 | 0.0 | 123.5 | ||||||||||||
|
Available-for-sale securities — State and local government obligations |
44.8 | 0.0 | (3.5 | ) | 41.3 | |||||||||||
|
Total long-term investments |
$ | 193.2 | $ | 2.1 | $ | (3.5 | ) | $ | 191.8 | |||||||
|
September 27, 2009 |
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|
Short-term investments: |
||||||||||||||||
|
Available-for-sale securities — Corporate debt securities |
$ | 2.5 | $ | 0.0 | $ | 0.0 | $ | 2.5 | ||||||||
|
Available-for-sale securities — Government treasury securities |
19.0 | 0.0 | 0.0 | 19.0 | ||||||||||||
|
Trading securities |
58.5 | 44.8 | ||||||||||||||
|
Total short-term investments |
$ | 80.0 | $ | 66.3 | ||||||||||||
|
Long-term investments: |
||||||||||||||||
|
Available-for-sale securities — State and local government obligations |
$ | 57.8 | $ | 0.0 | $ | (2.1 | ) | $ | 55.7 | |||||||
|
Available-for-sale securities — Corporate debt securities |
14.7 | 0.8 | 0.0 | 15.5 | ||||||||||||
|
Total long-term investments |
$ | 72.5 | $ | 0.8 | $ | (2.1 | ) | $ | 71.2 | |||||||
|
|||
| Cash Flow Hedges | Net Investment Hedges | Other Derivatives | ||||||||||||||||||||||
|
Financial Statement Location |
Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | ||||||||||||||||||
|
Prepaid expenses and other current assets |
$ | 0.1 | $ | 6.3 | $ | 0.0 | $ | 0.4 | $ | 0.0 | $ | 1.0 | ||||||||||||
|
Other assets |
0.0 | 5.5 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||
|
Other accrued expenses |
10.6 | 6.6 | 5.6 | 4.7 | 4.0 | 9.9 | ||||||||||||||||||
|
Other long-term liabilities |
6.4 | 5.6 | 8.1 | 6.4 | 0.0 | 0.0 | ||||||||||||||||||
|
Total losses in accumulated OCI(1) |
13.9 | 3.9 | 26.7 | 19.8 | ||||||||||||||||||||
| (1) |
Amount that will be dedesignated within 12 months for cash flow hedges is $6.4 million as of October 3, 2010. |
| Cash Flow Hedges | Net Investment Hedges | Other Derivatives | ||||||||||||||||||||||
| Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | Oct 3, 2010 | Sep 27, 2009 | |||||||||||||||||||
|
Gain/(Loss) recognized in earnings |
$ | (5.9 | ) | $ | (0.2 | ) | $ | 0.0 | $ | 0.0 | $ | 1.0 | $ | 22.2 | ||||||||||
|
Gain/(Loss) recognized in OCI |
$ | (20.9 | ) | $ | 7.8 | $ | (10.8 | ) | $ | (10.8 | ) | |||||||||||||
|
| |||||||||||
|
|
|
Oct 3, 2010 |
|
|
Sep 27, 2009 |
|
|
|
| ||
|
Foreign exchange |
|
$ |
593 |
|
|
$ |
708 |
|
| ||
|
Dairy |
|
$ |
20 |
|
|
$ |
25 |
|
| ||
|
Diesel |
|
$ |
0 |
|
|
$ |
7 |
|
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|
|||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Balance at Oct 3, 2010 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Trading securities |
$ | 49.2 | $ | 49.2 | $ | 0.0 | $ | 0.0 | ||||||||
|
Available-for-sale securities |
428.3 | 190.8 | 196.2 | 41.3 | ||||||||||||
|
Derivatives |
0.1 | 0.0 | 0.1 | 0.0 | ||||||||||||
|
Total |
$ | 477.6 | $ | 240.0 | $ | 196.3 | $ | 41.3 | ||||||||
|
Liabilities: |
||||||||||||||||
|
Derivatives |
$ | 34.7 | $ | 0.0 | $ | 34.7 | $ | 0.0 | ||||||||
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Balance at Sept 27, 2009 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Trading securities |
$ | 44.8 | $ | 44.8 | $ | 0.0 | $ | 0.0 | ||||||||
|
Available-for-sale securities |
92.7 | 19.0 | 18.0 | 55.7 | ||||||||||||
|
Derivatives |
13.2 | 0.0 | 13.2 | 0.0 | ||||||||||||
|
Total |
$ | 150.7 | $ | 63.8 | $ | 31.2 | $ | 55.7 | ||||||||
|
Liabilities: |
||||||||||||||||
|
Derivatives |
$ | 33.2 | $ | 0.0 | $ | 33.2 | $ | 0.0 | ||||||||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Beginning balance of ARS |
$ | 55.7 | $ | 59.8 | ||||
|
Total (increase)/decrease in unrealized losses included in other comprehensive income |
(1.5 | ) | 3.9 | |||||
|
Realized losses recognized in net earnings |
(0.2 | ) | 0.0 | |||||
|
Calls |
(12.0 | ) | (8.0 | ) | ||||
|
Transfers in (out ) of Level 3 |
(0.7 | ) | 0.0 | |||||
|
Ending balance of ARS |
$ | 41.3 | $ | 55.7 | ||||
| Carrying Value before adjustment |
Fair value adjustment |
Carrying value after adjustment |
||||||||||
|
Property, plant and equipment(1) |
$ | 26.8 | $ | (22.3 | ) | $ | 4.5 | |||||
| (1) |
The fair value was determined using a discounted cash flow model based on future store revenues and operating costs, using internal projections. The resulting impairment charge was included in store operating expenses. |
|
|||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Coffee: |
||||||||
|
Unroasted |
$ | 238.3 | $ | 381.6 | ||||
|
Roasted |
95.1 | 76.7 | ||||||
|
Other merchandise held for sale |
115.6 | 116.0 | ||||||
|
Packaging and other supplies |
94.3 | 90.6 | ||||||
|
Total |
$ | 543.3 | $ | 664.9 | ||||
|
|||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Equity method investments |
$ | 308.1 | $ | 313.2 | ||||
|
Cost method investments |
33.4 | 39.1 | ||||||
|
Total |
$ | 341.5 | $ | 352.3 | ||||
|
Financial Position as of |
Oct 3, 2010 | Sep 27, 2009 | ||||||
|
Current assets |
$ | 390.1 | $ | 315.8 | ||||
|
Noncurrent assets |
570.3 | 657.6 | ||||||
|
Current liabilities |
260.6 | 292.0 | ||||||
|
Noncurrent liabilities |
70.5 | 76.5 | ||||||
|
Results of Operations for Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Net revenues |
$ | 2,128.0 | $ | 2,100.1 | $ | 1,961.0 | ||||||
|
Operating income |
245.3 | 192.5 | 171.3 | |||||||||
|
Net earnings |
205.1 | 155.8 | 136.9 | |||||||||
|
|||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Land |
$ | 58.0 | $ | 58.2 | ||||
|
Buildings |
265.7 | 231.5 | ||||||
|
Leasehold improvements |
3,435.6 | 3,349.0 | ||||||
|
Store equipment |
1,047.7 | 1,073.4 | ||||||
|
Roasting equipment |
290.6 | 282.9 | ||||||
|
Furniture, fixtures and other |
617.5 | 586.7 | ||||||
|
Work in progress |
173.6 | 119.2 | ||||||
| 5,888.7 | 5,700.9 | |||||||
|
Less accumulated depreciation |
(3,472.2 | ) | (3,164.5 | ) | ||||
|
Property, plant and equipment, net |
$ | 2,416.5 | $ | 2,536.4 | ||||
|
|||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Indefinite-lived intangibles |
$ | 63.5 | $ | 60.8 | ||||
|
Definite-lived intangibles |
16.1 | 15.0 | ||||||
|
Accumulated amortization |
(8.8 | ) | (7.6 | ) | ||||
|
Definite-lived intangibles, net |
7.3 | 7.4 | ||||||
|
Total other intangible assets |
$ | 70.8 | $ | 68.2 | ||||
|
Definite-lived intangibles approximate remaining weighted average useful life in years |
7 | 8 | ||||||
| United States | International | Other | Total | |||||||||||||
|
Balance at September 28, 2008 |
||||||||||||||||
|
Goodwill prior to impairment |
$ | 109.3 | $ | 117.4 | $ | 39.8 | $ | 266.5 | ||||||||
|
Accumulated impairment charges |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
|
Goodwill |
$ | 109.3 | $ | 117.4 | $ | 39.8 | $ | 266.5 | ||||||||
|
Acquisitions |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
|
Purchase price adjustment of previous acquisitions |
0.0 | (1.2 | ) | 0.0 | (1.2 | ) | ||||||||||
|
Impairment |
(7.0 | ) | 0.0 | 0.0 | (7.0 | ) | ||||||||||
|
Foreign currency fluctuations |
0.0 | 0.8 | 0.0 | 0.8 | ||||||||||||
|
Balance at September 27, 2009 |
||||||||||||||||
|
Goodwill prior to impairment |
$ | 109.3 | $ | 117.0 | $ | 39.8 | $ | 266.1 | ||||||||
|
Accumulated impairment charges |
(7.0 | ) | 0.0 | 0.0 | (7.0 | ) | ||||||||||
|
Goodwill |
$ | 102.3 | $ | 117.0 | $ | 39.8 | $ | 259.1 | ||||||||
|
Acquisitions |
0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||
|
Purchase price adjustment of previous acquisitions |
1.0 | 0.0 | 0.0 | 1.0 | ||||||||||||
|
Impairment |
0.0 | (1.6 | ) | 0.0 | (1.6 | ) | ||||||||||
|
Foreign currency fluctuations |
0.0 | 3.9 | 0.0 | 3.9 | ||||||||||||
|
Balance at October 3, 2010 |
||||||||||||||||
|
Goodwill prior to impairment |
$ | 110.3 | $ | 120.9 | $ | 39.8 | $ | 271.0 | ||||||||
|
Accumulated impairment charges |
(7.0 | ) | (1.6 | ) | 0.0 | (8.6 | ) | |||||||||
|
Goodwill |
$ | 103.3 | $ | 119.3 | $ | 39.8 | $ | 262.4 | ||||||||
|
|||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Current portion of long-term debt (included in other accrued liabilities) |
$ | 0.0 | $ | 0.2 | ||||
|
6.25% Senior Notes (10-year, due Aug 2017) |
549.4 | 549.2 | ||||||
|
Other long-term debt |
0.0 | 0.1 | ||||||
|
Long-term debt |
549.4 | 549.3 | ||||||
|
Total debt |
$ | 549.4 | $ | 549.5 | ||||
|
|||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Accrued dividend payable |
$ | 96.5 | $ | 0.0 | ||||
|
Other |
166.3 | 147.5 | ||||||
|
Total other accrued liabilities |
$ | 262.8 | $ | 147.5 | ||||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Deferred rent |
$ | 239.7 | $ | 266.0 | ||||
|
Unrecognized tax benefits |
65.1 | 55.1 | ||||||
|
Asset retirement obligations |
47.7 | 43.4 | ||||||
|
Other |
22.6 | 25.1 | ||||||
|
Total other long term liabilities |
$ | 375.1 | $ | 389.6 | ||||
|
|||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Minimum rentals |
$ | 688.5 | $ | 690.0 | $ | 709.1 | ||||||
|
Contingent rentals |
26.1 | 24.7 | 32.0 | |||||||||
|
Total |
$ | 714.6 | $ | 714.7 | $ | 741.1 | ||||||
|
Fiscal Year Ending |
||||
|
2011 |
718.4 | |||
|
2012 |
670.0 | |||
|
2013 |
609.4 | |||
|
2014 |
544.0 | |||
|
2015 |
462.6 | |||
|
Thereafter |
1,079.8 | |||
|
Total minimum lease payments |
$ | 4,084.2 | ||
|
|||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Options |
$ | 76.8 | $ | 61.6 | $ | 57.6 | ||||||
|
RSUs |
36.8 | 16.6 | 5.6 | |||||||||
|
ESPP |
0.0 | 5.0 | 11.8 | |||||||||
|
Total stock-based compensation expense on the consolidated statements of earnings |
$ | 113.6 | $ | 83.2 | $ | 75.0 | ||||||
|
Total related tax benefit |
$ | 40.6 | $ | 29.3 | $ | 24.0 | ||||||
|
Stock-based compensation capitalized in the respective fiscal year — included in net property, plant and equipment and inventories on the consolidated balance sheets |
$ | 1.9 | $ | 1.3 | $ | 1.9 | ||||||
| Employee Stock Options Granted During the Period |
||||||||||||
|
Fiscal Year Ended |
2010 | 2009 | 2008 | |||||||||
|
Expected term (in years) |
4.7 | 4.9 | 4.7 | |||||||||
|
Expected stock price volatility |
43.0 | % | 44.5 | % | 29.3 | % | ||||||
|
Risk-free interest rate |
2.1 | % | 2.2 | % | 3.4 | % | ||||||
|
Expected dividend yield |
0.1 | % | 0.0 | % | 0.0 | % | ||||||
|
Weighted average grant price |
$ | 22.28 | $ | 8.97 | $ | 22.11 | ||||||
|
Estimated fair value per option granted |
$ | 8.50 | $ | 3.61 | $ | 6.85 | ||||||
| Shares Subject to Options |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Contractual Life (Years) |
Aggregate Intrinsic Value |
|||||||||||||
|
Outstanding, September 30, 2007 |
65.5 | $ | 20.97 | 6.2 | $ | 507.5 | ||||||||||
|
Granted |
15.4 | 22.11 | ||||||||||||||
|
Exercised |
(6.6 | ) | 10.71 | |||||||||||||
|
Expired/forfeited |
(11.3 | ) | 28.49 | |||||||||||||
|
Outstanding, September 28, 2008 |
63.0 | 20.96 | 5.7 | 114.9 | ||||||||||||
|
Granted |
30.9 | 8.97 | ||||||||||||||
|
Granted under option exchange program |
4.7 | 14.92 | ||||||||||||||
|
Exercised |
(7.2 | ) | 7.31 | |||||||||||||
|
Expired/forfeited |
(13.5 | ) | 18.99 | |||||||||||||
|
Cancelled under option exchange program |
(14.3 | ) | 29.34 | |||||||||||||
|
Outstanding, September 27, 2009 |
63.6 | 14.75 | 6.7 | 442.4 | ||||||||||||
|
Granted |
14.9 | 22.28 | ||||||||||||||
|
Exercised |
(9.6 | ) | 11.94 | |||||||||||||
|
Expired/forfeited |
(8.2 | ) | 18.73 | |||||||||||||
|
Outstanding, October 3, 2010 |
60.7 | 16.52 | 6.6 | 611.3 | ||||||||||||
|
Exercisable, October 3, 2010 |
27.3 | 17.48 | 4.6 | 264.1 | ||||||||||||
|
Vested and expected to vest, October 3, 2010 |
55.8 | 16.53 | 6.5 | 564.7 | ||||||||||||
| Number of Shares |
Weighted Average Grant Date Fair Value per Share |
Weighted Average Remaining Contractual Life (Years) |
Aggregate Intrinsic Value |
|||||||||||||
|
Nonvested, September 30, 2007 |
0.2 | $ | 27.83 | 3.0 | $ | 4.7 | ||||||||||
|
Granted |
2.0 | 16.43 | ||||||||||||||
|
Vested |
0.0 | 0.00 | ||||||||||||||
|
Forfeited/Cancelled |
(0.2 | ) | 17.27 | |||||||||||||
|
Nonvested, September 28, 2008 |
2.0 | 17.36 | 2.5 | 30.5 | ||||||||||||
|
Granted |
3.3 | 8.78 | ||||||||||||||
|
Vested |
0.0 | 0.00 | ||||||||||||||
|
Forfeited/Cancelled |
(0.9 | ) | 13.94 | |||||||||||||
|
Nonvested, September 27, 2009 |
4.4 | 11.55 | 1.6 | 88.2 | ||||||||||||
|
Granted |
2.3 | 22.27 | ||||||||||||||
|
Vested |
(0.7 | ) | 16.35 | |||||||||||||
|
Forfeited/Cancelled |
(0.6 | ) | 12.27 | |||||||||||||
|
Nonvested, October 3, 2010 |
5.4 | 13.55 | 1.1 | 140.8 | ||||||||||||
|
|||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Current taxes: |
||||||||||||
|
Federal |
$ | 457.5 | $ | 165.3 | $ | 180.4 | ||||||
|
State |
79.6 | 35.0 | 34.3 | |||||||||
|
Foreign |
38.3 | 26.3 | 40.4 | |||||||||
|
Deferred taxes, net |
(86.7 | ) | (58.2 | ) | (111.1 | ) | ||||||
|
Total |
$ | 488.7 | $ | 168.4 | $ | 144.0 | ||||||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal income tax benefit |
2.5 | % | 2.6 | % | 2.8 | % | ||||||
|
Foreign earnings taxed at lower rates |
-2.5 | % | -2.3 | % | -3.6 | % | ||||||
|
Domestic production activity deduction |
-0.9 | % | -2.3 | % | -2.6 | % | ||||||
|
Credit resulting from employment audit |
0.0 | % | -2.0 | % | 0.0 | % | ||||||
|
Other, net |
-0.1 | % | -0.9 | % | -0.3 | % | ||||||
|
Effective tax rate |
34.0 | % | 30.1 | % | 31.3 | % | ||||||
| Oct 3, 2010 | Sep 27, 2009 | |||||||
|
Deferred tax assets: |
||||||||
|
Property, plant and equipment |
$ | 32.6 | $ | 0.0 | ||||
|
Accrued occupancy costs |
55.2 | 51.5 | ||||||
|
Accrued compensation and related costs |
100.8 | 70.1 | ||||||
|
Other accrued expenses |
25.0 | 24.5 | ||||||
|
Asset retirement obligation asset |
14.9 | 13.9 | ||||||
|
Deferred revenue |
58.4 | 39.3 | ||||||
|
Asset impairments |
94.8 | 99.7 | ||||||
|
Tax credits |
41.0 | 61.4 | ||||||
|
Stock based compensation |
115.9 | 96.6 | ||||||
|
Net operating losses |
43.7 | 20.1 | ||||||
|
Other |
50.6 | 36.0 | ||||||
|
Total |
$ | 632.9 | $ | 513.1 | ||||
|
Valuation allowance |
(88.1 | ) | (20.3 | ) | ||||
|
Total deferred tax asset, net of valuation allowance |
$ | 544.8 | $ | 492.8 | ||||
|
Deferred tax liabilities: |
||||||||
|
Property, plant and equipment |
(26.2 | ) | (45.6 | ) | ||||
|
Other |
(19.1 | ) | (25.4 | ) | ||||
|
Total |
(45.3 | ) | (71.0 | ) | ||||
|
Net deferred tax asset |
$ | 499.5 | $ | 421.8 | ||||
|
Reported as: |
||||||||
|
Current deferred income tax asset |
$ | 304.2 | $ | 286.6 | ||||
|
Long-term deferred income tax asset (included in Other assets) |
195.3 | 135.2 | ||||||
|
Net deferred tax asset |
$ | 499.5 | $ | 421.8 | ||||
| Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | ||||||||||
|
Beginning balance |
$ | 49.1 | $ | 52.6 | $ | 58.3 | ||||||
|
Increase related to prior year tax positions |
35.0 | 4.2 | 64.9 | |||||||||
|
Decrease related to prior year tax positions |
(21.4 | ) | (11.6 | ) | (37.2 | ) | ||||||
|
Increase related to current year tax positions |
14.1 | 8.4 | 17.0 | |||||||||
|
Decrease related to current year tax positions |
(8.1 | ) | (0.9 | ) | (5.4 | ) | ||||||
|
Decreases related to settlements with taxing authorities |
0.0 | (3.0 | ) | (11.1 | ) | |||||||
|
Decreases related to lapsing of statute of limitations |
(0.3 | ) | (0.6 | ) | (33.9 | ) | ||||||
|
Ending balance |
$ | 68.4 | $ | 49.1 | $ | 52.6 | ||||||
|
|||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Net earnings attributable to Starbucks |
$ | 945.6 | $ | 390.8 | $ | 315.5 | ||||||
|
Transfers (to) from the noncontrolling interest: |
||||||||||||
|
Decrease in additional paid-in capital for purchase of 50% interest in subsidiary |
(26.8 | ) | 0.0 | 0.0 | ||||||||
|
Change from net earnings attributable to Starbucks and transfers to noncontrolling interest |
$ | 918.8 | $ | 390.8 | $ | 315.5 | ||||||
|
|||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||||||||||||||
|
Beverage |
$ | 6,750.3 | 63 | % | $ | 6,238.4 | 64 | % | $ | 6,663.3 | 64 | % | ||||||||||||
|
Food |
1,878.7 | 18 | % | 1,680.2 | 17 | % | 1,511.7 | 15 | % | |||||||||||||||
|
Whole bean and soluble coffees |
1,131.3 | 10 | % | 965.2 | 10 | % | 987.8 | 9 | % | |||||||||||||||
|
Other(1) |
947.1 | 9 | % | 890.8 | 9 | % | 1,220.2 | 12 | % | |||||||||||||||
|
Total |
$ | 10,707.4 | 100 | % | $ | 9,774.6 | 100 | % | $ | 10,383.0 | 100 | % | ||||||||||||
| (1) |
Other includes royalty and licensing revenues, beverage-related accessories and equipment revenues. |
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Net revenues from external customers: |
||||||||||||
|
United States |
$ | 8,335.4 | $ | 7,787.7 | $ | 8,227.0 | ||||||
|
Other countries |
2,372.0 | 1,986.9 | 2,156.0 | |||||||||
|
Total |
$ | 10,707.4 | $ | 9,774.6 | $ | 10,383.0 | ||||||
| Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | ||||||||||
|
Long-lived assets: |
||||||||||||
|
United States |
$ | 2,807.9 | $ | 2,776.7 | $ | 3,099.9 | ||||||
|
Other countries |
821.6 | 764.3 | 824.8 | |||||||||
|
Total |
$ | 3,629.5 | $ | 3,541.0 | $ | 3,924.7 | ||||||
| United States | International | CPG | Other | Total | ||||||||||||||||
|
Fiscal 2010: |
||||||||||||||||||||
|
Total net revenues |
$ | 7,560.4 | $ | 2,288.8 | $ | 707.4 | $ | 150.8 | $ | 10,707.4 | ||||||||||
|
Depreciation and amortization |
350.7 | 108.6 | 3.7 | 47.4 | 510.4 | |||||||||||||||
|
Income (loss) from equity investees |
0.0 | 80.8 | 70.6 | (3.3 | ) | 148.1 | ||||||||||||||
|
Operating income/(loss) |
1,291.1 | 225.2 | 261.4 | (358.3 | ) | 1,419.4 | ||||||||||||||
|
Total assets |
1,482.9 | 1,272.8 | 54.1 | 3,576.1 | 6,385.9 | |||||||||||||||
|
Fiscal 2009: |
||||||||||||||||||||
|
Total net revenues |
$ | 7,061.7 | $ | 1,914.3 | $ | 674.4 | $ | 124.2 | $ | 9,774.6 | ||||||||||
|
Depreciation and amortization |
377.9 | 102.2 | 4.8 | 49.8 | 534.7 | |||||||||||||||
|
Income from equity investees |
0.5 | 53.6 | 67.8 | 0.0 | 121.9 | |||||||||||||||
|
Operating income/(loss) |
530.1 | 91.2 | 281.8 | (341.1 | ) | 562.0 | ||||||||||||||
|
Total assets |
1,640.8 | 1,071.3 | 71.1 | 2,793.6 | 5,576.8 | |||||||||||||||
|
Fiscal 2008: |
||||||||||||||||||||
|
Total net revenues |
$ | 7,491.2 | $ | 2,099.6 | $ | 680.9 | $ | 111.3 | $ | 10,383.0 | ||||||||||
|
Depreciation and amortization |
395.1 | 108.6 | 5.4 | 40.2 | 549.3 | |||||||||||||||
|
Income (loss) from equity investees |
(1.3 | ) | 54.2 | 60.7 | 0.0 | 113.6 | ||||||||||||||
|
Operating income/(loss) |
454.0 | 108.8 | 269.9 | (328.8 | ) | 503.9 | ||||||||||||||
|
Total assets |
1,956.9 | 1,066.0 | 54.6 | 2,595.1 | 5,672.6 | |||||||||||||||
|
Fiscal Year Ended |
Oct 3, 2010 | Sep 27, 2009 | Sep 28, 2008 | |||||||||
|
Operating income |
$ | 1,419.4 | $ | 562.0 | $ | 503.9 | ||||||
|
Interest income and other, net |
50.3 | 37.0 | 5.2 | |||||||||
|
Interest expense |
(32.7 | ) | (39.1 | ) | (53.4 | ) | ||||||
|
Earnings before income taxes |
$ | 1,437.0 | $ | 559.9 | $ | 455.7 | ||||||
|
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