ACCT 2101 Augusta University Financial Reporting Case Study

Complete Part F(under Analysis on pg.10). Prepare an Excel spreadsheet showing all your calculations and answers to the questions asked in the case study.Do not answer any other questions.You will be Constructing common-size in come statements and balance sheets for 2013 and 2012.

Augusta University
ACCT 2101
Diane Elizabeth TURNER
Provided by
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TABLE OF CONTENTS
1. Starbucks Corporation
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Starbucks Corporation
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Starbucks Corporation—
Understanding Financial Statements
EXCERPTED WITH PERMISSION FROM
CASES IN FINANCIAL REPORTING
EIGHTH EDITION
ISBN: 978-1-61853-122-3
MICHAEL DRAKE
ELLEN ENGEL
D. ERIC HIRST
MARY LEA MCANALLY
© Copyright 2015 by Cambridge Business Publishers, LLC. All rights reserved. No part of this
publication may be reproduced in any form for any purpose without the written permission of the
publisher.
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ACCT 2101, Augusta University.
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9
Starbucks Corporation—
Understanding Financial Statements
Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed
coffees, Italian-style espresso beverages, cold blended beverages, a variety of complementary food items, a selection
of premium teas, and beverage-related accessories and equipment, primarily through company-operated retail
stores. Starbucks also sells coffee and tea products and licenses its trademark through other channels such as
licensed retail stores and, through certain of its licensees and equity investees, Starbucks produces and sells a
variety of ready-to-drink beverages. (Source: investor.starbucks.com)
Learning Objectives
• Become familiar with a set of financial statements including auditor opinions and significant
accounting policy footnotes.
• Perform a basic analysis and interpretation of the financial statements, including common-size
income statements and balance sheets.
• Recognize the role of estimation in the preparation of financial statements.
Refer to the Starbucks financial statements for fiscal year 2013 (that is, the year ended September 29,
2013).
!
Concepts
!
a. What is the nature of Starbucks’ business? That is, based on what you know about the company and
on the accompanying financial statements, how does Starbucks make money?
b. What financial statements are commonly prepared for external reporting purposes? What titles does
Starbucks give these statements? What does “consolidated” mean?
c. How often do publicly traded corporations typically prepare financial statements for external
reporting purposes?
d. Who is responsible for the financial statements? Discuss the potential users of the Starbucks financial
statements and the type of information they are likely interested in.
e. Who are Starbucks’ external auditors? Describe the two “opinion” letters that Starbucks received in
2013. In your own words, what do these opinions mean? Why are both opinions dated several months
after Starbucks’ year-end?
!
f.
Analysis
!
Use a spreadsheet to construct common-size income statements (which Starbucks calls statements of
earnings) and balance sheets for 2013 and 2012. Common-size income statements scale each income
statement line item by total net revenues (sales). Common-size balance sheets are created by dividing
each figure on a given year’s balance sheet by that year’s total assets, thereby creating a balance sheet
on a “percent of assets” basis. You will use these common-size statements in answering several of the
questions below. (Starbucks’ investor relations website—investor.starbucks.com—contains a link to
SEC filings. The company’s Form 10-K can be found under annual filings and contains an Excel
spreadsheet with financial statement data that may be helpful in creating the common-size
statements).
g. Refer to Starbucks’ balance sheet for fiscal 2013 (the year ended September 29, 2013).
i.
Demonstrate that the accounting equation holds for Starbucks. Recall that the accounting
equation is: Assets = Liabilities + Equity.
Starbucks Corporation—Understanding Financial Statements
1
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ii.
What are Starbucks’ major assets? Calculate the proportion of short-term and long-term assets
for 2013. Does this seem appropriate for a company such as Starbucks?
iii.
In general, what are intangible assets? What is goodwill? What specific intangible assets might
Starbucks have?
iv.
How is Starbucks financed? What proportion of total financing comes from non-owners?
h. Refer to Starbucks’ statement of earnings for fiscal 2013 (the year ended September 29, 2013) and to
the common-size income statement you developed in part f, above.
i.
j.
i.
Review the revenue recognition policies of Starbucks discussed in Note 1 (Summary of
Significant Accounting Policies). Does Starbucks record revenue when they receive cash from
their customers (cash-basis accounting) or do they follow a different rubric (for example,
accrual accounting)? How does Starbucks record revenue on stored value cards (i.e., gift
cards)? What challenges in measuring revenue do you observe? That is, are there any
significant judgments management needs to make in recording sales revenues at Starbucks?
ii.
What are Starbucks’ major expenses?
iii.
Were there any significant changes in the cost structure during the most recent year?
iv.
In fiscal 2013, Starbucks separately reported a litigation charge and included it in operating
income. Why didn’t the company just include this amount within the line item for general and
administrative expenses? Why is it an operating expense?
v.
Was the company profitable during 2013? During 2012? Explain your definition of
“profitable.”
Refer to Starbucks’ fiscal 2013 statement of cash flows.
i.
Compare Starbucks’ net earnings to net cash provided by operating activities and explain the
difference.
ii.
How much cash did Starbucks use for expenditures for property, plant and equipment during
fiscal 2013?
iii.
What amount of dividends did Starbucks pay during the year? How does this amount compare
to the amount of dividends declared as shown in the statement of equity?
Several notes to the financial statements refer to the use of “estimates.” Which accounts on
Starbucks’ balance sheet require estimates? List as many accounts as you can. Are any accounts
estimate-free?
Starbucks Corporation—Understanding Financial Statements
2
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Item 8. Financial Statements and Supplementary Data
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
Sep 29,
2013
Fiscal Year Ended
Net revenues:
Company-operated stores
Licensed stores
CPG, foodservice and other
Total net revenues
Cost of sales including occupancy costs
Store operating expenses
Other operating expenses
Depreciation and amortization expenses
General and administrative expenses
Litigation charge
Total operating expenses
Gain on sale of properties
Income from equity investees
Operating income/(loss)
$
Interest income and other, net
Interest expense
Earnings/(loss) before income taxes
Income taxes
Net earnings including noncontrolling interests
Net earnings attributable to noncontrolling interests
Net earnings attributable to Starbucks
Earnings per share — basic
Earnings per share — diluted
Weighted average shares outstanding:
Basic
Diluted
Cash dividends declared per share
Sep 30,
2012
11,793.2 $
1,360.5
1,738.5
14,892.2
6,382.3
4,286.1
457.2
621.4
937.9
2,784.1
15,469.0

251.4
(325.4)
10,534.5
1,210.3
1,554.7
13,299.5
5,813.3
3,918.1
429.9
550.3
801.2

11,512.8

210.7
Oct 2,
2011
$
9,632.4
1,007.5
1,060.5
11,700.4
4,915.5
3,594.9
392.8
523.3
749.3

10,175.8
30.2
173.7
123.6
(28.1)
1,997.4
94.4
(32.7)
1,728.5
115.9
(33.3)
(229.9)
2,059.1
1,811.1
(238.7)
$
$
$
674.4
1,384.7
0.9
1,383.8
1.83
1.79
$
$
$
563.1
1,248.0
2.3
1,245.7
1.66
1.62
$
754.4
773.0
0.72
$
748.3
769.7
0.56
$
$
$
8.8
0.5
8.3
0.01
0.01
$
749.3
762.3
0.89
See Notes to Consolidated Financial Statements.
Starbucks Corporation
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2013 Form 10-K
43
12
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Sep 29,
2013
Net earnings including noncontrolling interests
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) on available-for-sale securities
Tax (expense)/benefit
Unrealized holding gains/(losses) on cash flow hedging instruments
Tax (expense)/benefit
$
8.8
$
$
1,248.0
0.7
(0.3)
(42.2)
0.7
(0.3)
(12.2)
4.3
4.5
32.8
(12.1)
1.0
(0.4)
(12.1)
46.3
(3.5)
14.8
(4.3)
(26.4)
16.6
(6.1)
(4.4)
(7.4)
0.2
47.1
(24.6)
85.6
(41.6)
$
Oct 2,
2011
1,384.7
(0.6)
Unrealized holding gains/(losses) on net investment hedging
instruments
Tax (expense)/benefit
Reclassification adjustment for net (gains)/losses realized in net
earnings for cash flow hedges
Tax expense/(benefit)
Net unrealized holding gains/(losses)
Translation adjustment
Tax (expense)/benefit
Other comprehensive income/(loss)
Comprehensive income/(loss) including noncontrolling interests
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Starbucks
Sep 30,
2012
0.3
44.3
53.1
0.5
52.6
4.5
6.1
(3.3)
(23.6)
$
1,361.1
0.9
1,360.2
0.9
(10.9)
$
1,237.1
2.3
1,234.8
See Notes to Consolidated Financial Statements.
44
Starbucks Corporation
2013 Form 10-K
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STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
Sep 29,
2013
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Deferred income taxes, net
Total current assets
Long-term investments
Equity and cost investments
Property, plant and equipment, net
Deferred income taxes, net
Other assets
Other intangible assets
Goodwill
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued litigation charge
Accrued liabilities
Insurance reserves
Deferred revenue
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Shareholders’ equity:
Common stock ($0.001 par value) — authorized, 1,200.0 shares; issued and
outstanding, 753.2 shares and 749.3 shares (includes 3.4 common stock units),
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
$
$
$
$
2,575.7
658.1
561.4
1,111.2
287.7
277.3
5,471.4
58.3
496.5
3,200.5
967.0
185.3
274.8
862.9
11,516.7
491.7
2,784.1
1,269.3
178.5
653.7
5,377.3
1,299.4
357.7
7,034.4
0.8
282.1
4,130.3
67.0
4,480.2
2.1
4,482.3
11,516.7
Sep 30,
2012
$
$
$
$
1,188.6
848.4
485.9
1,241.5
196.5
238.7
4,199.6
116.0
459.9
2,658.9
97.3
144.7
143.7
399.1
8,219.2
398.1

1,133.8
167.7
510.2
2,209.8
549.6
345.3
3,104.7
0.7
39.4
5,046.2
22.7
5,109.0
5.5
5,114.5
8,219.2
See Notes to Consolidated Financial Statements.
Starbucks Corporation
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2013 Form 10-K
45
14
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Sep 29,
2013
Fiscal Year Ended
OPERATING ACTIVITIES:
Net earnings including noncontrolling interests
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Litigation charge
Gain on sale of properties
Deferred income taxes, net
Income earned from equity method investees, net of distributions
Gain resulting from sale/acquisition of equity in joint ventures
Stock-based compensation
Other
Cash provided/(used) by changes in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Accrued liabilities and insurance reserves
Deferred revenue
Prepaid expenses, other current assets and other assets
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchase of investments
Sales, maturities and calls of investments
Acquisitions, net of cash acquired
Additions to property, plant and equipment
Proceeds from the sale of property, plant, and equipment
Proceeds from sale of equity in joint ventures
Other
Net cash used by investing activities
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
Principal payments on long-term debt
(Payments)/proceeds from short-term borrowings
Purchase of noncontrolling interest
Proceeds from issuance of common stock
Excess tax benefit on share-based awards
Cash dividends paid
Repurchase of common stock
Minimum tax withholdings on share-based awards
Other
Net cash used by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS:
Beginning of period
End of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of capitalized interest
Income taxes
$
8.8
Sep 30,
2012
$
1,384.7
Oct 2,
2011
$
1,248.0
655.6
2,784.1

(1,045.9)
(56.2)
(80.1)
142.3
23.0
580.6


61.1
(49.3)

153.6
23.6
550.0

(30.2)
106.2
(32.9)
(55.2)
145.2
33.3
(68.3)
152.5
88.7
87.6
139.9
76.3
2,908.3
(90.3)
(273.3)
(105.2)
23.7
60.8
(19.7)
1,750.3
(88.7)
(422.3)
227.5
(81.8)
35.8
(22.5)
1,612.4
(785.9)
1,040.2
(610.4)
(1,151.2)
15.3
108.0
(27.2)
(1,411.2)
(1,748.6)
1,796.4
(129.1)
(856.2)
5.3

(41.8)
(974.0)
(966.0)
430.0
(55.8)
(531.9)
117.4

(13.2)
(1,019.5)
749.7
(35.2)


247.2
258.1
(628.9)
(588.1)
(121.4)
10.4
(108.2)
(1.8)
1,387.1


(30.8)

236.6
169.8
(513.0)
(549.1)
(58.5)
(0.5)
(745.5)
9.7
40.5


30.8
(27.5)
250.4
103.9
(389.5)
(555.9)
(15.0)
(5.2)
(608.0)
(0.8)
(15.9)
$
1,188.6
2,575.7
$
$
34.4
539.1
$
1,148.1
1,188.6
$
1,164.0
1,148.1
$
$
34.4
416.9
$
$
34.4
350.1
See Notes to Consolidated Financial Statements.
46
Starbucks Corporation
2013 Form 10-K
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Starbucks Corporation
2013 Form 10-K
47
16
$
$
$

$
$
$
$

57.2

$
$
$
$

753.2
Noncontrolling interest resulting from divestiture
Balance, September 29, 2013

Cash dividends declared
(10.8)
0.3
Repurchase of common stock
14.4
Sale of common stock, including tax benefit of $0.2
$
$
282.1


(288.5)
20.4
366.7
144.1
$
4,130.3

(668.6)
(255.6)



$
See Notes to Consolidated Financial Statements.
0.8




0.1

8.3

22.7





67.0






Exercise of stock options, including tax benefit of
$259.9


5,046.2

(543.7)
(91.3)


Stock-based compensation expense

39.4


(501.9)
19.5
326.1

44.3

0.7





155.2

Other comprehensive income/(loss)
Net earnings
749.3
Noncontrolling interest resulting from acquisition
Balance, September 30, 2012

Cash dividends declared
(12.3)
0.3
Repurchase of common stock
16.5
Sale of common stock, including tax benefit of $0.2

1,383.8
46.3






Exercise of stock options, including tax benefit of
$167.3


4,297.4

(419.5)



Stock-based compensation expense

40.5
(28.0)

(555.9)
19.1
312.5
(23.6)

0.7






1,245.7
3,471.2
Other comprehensive income/(loss)
Net earnings
744.8
Purchase of noncontrolling interests
Balance, October 2, 2011

Cash dividends declared
(15.6)
0.5
Repurchase of common stock
17.3
Sale of common stock, including tax benefit of $0.1
147.2

145.6

Exercise of stock options, including tax benefit of
$96.1


0.7
Retained
Earnings
Stock-based compensation expense

$
Additional Paidin Capital
(10.9)

742.6
Amount
Accumulated
Other
Comprehensive
Income/(Loss)
Other comprehensive income/(loss)
Net earnings
Balance, October 3, 2010
Shares
Common Stock
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
$
$
$
$
4,480.2

(668.6)
(544.1)
20.4
366.8
144.1
44.3
8.3
5,109.0

(543.7)
(593.2)
19.5
326.1
155.2
(23.6)
1,383.8
4,384.9
(28.0)
(419.5)
(555.9)
19.1
312.5
147.2
(10.9)
1,245.7
3,674.7
Shareholders’
Equity
$
$
$
$
2.1
(3.9)






0.5
5.5
2.2






0.9
2.4
(7.5)






2.3
7.6
Noncontrolling
Interest
$
$
$
$
4,482.3
(3.9)
(668.6)
(544.1)
20.4
366.8
144.1
44.3
8.8
5,114.5
2.2
(543.7)
(593.2)
19.5
326.1
155.2
(23.6)
1,384.7
4,387.3
(35.5)
(419.5)
(555.9)
19.1
312.5
147.2
(10.9)
1,248.0
3,682.3
Total
STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 29, 2013, September 30, 2012 and October 2, 2011
Note 1:
Summary of Significant Accounting Policies
Description of Business
We purchase and roast high-quality coffees that we sell, along with handcrafted coffee and tea beverages and a variety of fresh
food items, through our company-operated stores. We also sell a variety of coffee and tea products and license our trademarks
through other channels such as licensed stores, grocery and national foodservice accounts.
In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or
“our.”
We have four reportable operating segments: 1) Americas, inclusive of the US, Canada, and Latin America; 2) Europe, Middle
East, and Africa (“EMEA”); 3) China / Asia Pacific (“CAP”) and 4) Channel Development. Teavana, Seattle’s Best Coffee,
Evolution Fresh and our Digital Ventures business are included in All Other Segments. Unallocated corporate operating
expenses, which pertain primarily to corporate administrative functions that support the operating segments but are not
specifically attributable to or managed by any segment, are presented as a reconciling item between total segment operating
results and consolidated financial results.
Additional details on the nature of our business and our reportable operating segments are included in Note 16 of these
Consolidated Financial Statements.
Principles of Consolidation
The consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly owned
subsidiaries and investees that we control. 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 years 2013, 2012 and 2011 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, future asset retirement obligations, and inventory reserves; assumptions underlying selfinsurance reserves and income from unredeemed stored value cards; 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 we believe credit risk to be minimal.
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. Also included in our available-for-sale investment portfolio are certificates of deposit placed through an
account registry service. 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
48
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maturities of less than one year and those identified by management at the time of purchase to be used to fund operations
within one year are classified as short term. All other available-for-sale securities, including all of our auction rate 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. We review 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 whether we have the intent to
sell or will likely be required to sell before the securities 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.
We also have a trading securities portfolio, which is comprised of marketable 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.
Fair Value
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction
between market participants. We determine fair value based on the following:
Level 1: The carrying value of cash and cash equivalents approximates fair value because of the short-term nature of these
instruments. For government treasury securities, we use quoted prices in active markets for identical assets to determine fair
value.
Level 2: For corporate and agency bonds, for which a quoted market price is not available for identical assets, we determine fair
value based upon the quoted market price of similar assets or the present value of expected future cash flows, calculated by
applying revenue multiples to estimate future operating results and using discount rates appropriate for the duration and the
risks involved. Fair values for commercial paper are estimated using a discounted cash flow calculation that applies current
imputed interest rates of similar securities. Fair values for certificates of deposit are estimated using a discounted cash flow
calculation that applies current interest rates to aggregate expected maturities. 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.
Level 3: We determine fair value of our auction rate securities using an internally developed valuation model, using inputs that
include interest rate curves, credit and liquidity spreads, and effective maturity.
Derivative Instruments
We manage our exposure to various risks within the consolidated financial statements according to a market price risk
management policy. Under this policy, we may engage in transactions involving various derivative instruments to hedge
interest rates, commodity prices and foreign currency denominated revenues, purchases, assets and liabilities. We generally do
not offset derivative assets and liabilities in our consolidated balance sheets or enter into derivative instruments with maturities
longer than five years.
We enter into fixed-price and price-to-be-fixed green coffee purchase commitments. Price-to-be-fixed contracts are purchase
commitments whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and
therefore price, 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. For both fixed-price and price-to-be-fixed purchase commitments, we expect to take delivery of and to utilize the
coffee in a reasonable period of time and in the conduct of normal business. Accordingly, these purchase commitments qualify
as normal purchases and are not recorded at fair value on our balance sheets.
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
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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.
Certain foreign currency forward contracts, commodity swap contracts, and futures contracts 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 September 29, 2013 and September 30, 2012, the allowance for doubtful accounts was
$5.7 million and $5.6 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 inventory and for estimated shrinkage between physical inventory counts. Inventory reserves are based on
inventory obsolescence trends, historical experience and application of the specific identification method. As of September 29,
2013 and September 30, 2012, inventory reserves were $52.0 million and $22.6 million, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation. Cost includes all direct costs necessary to
acquire and prepare assets for use, including internal labor and overhead in some cases. 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 2 to 15 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 the 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 recognized in net earnings.
Goodwill
We test goodwill for impairment on an annual basis during our third fiscal quarter, 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. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine
if the fair value of the reporting unit is more likely than not greater than its carrying amount. If we do not perform a qualitative
assessment or if the fair value of the reporting unit is not more likely than not greater than its carrying amount, we calculate the
implied estimated fair value of the reporting unit. 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 our 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-transferable assets. 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. There were no goodwill impairment charges
recorded during fiscal 2013, 2012, and 2011.
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Other Intangible Assets
Other intangible assets consist primarily of trade names and trademarks with indefinite lives, which are tested for impairment
annually during the third quarter of the fiscal year, or more frequently if events or changes in circumstances indicate that assets
might be impaired. When evaluating other intangible assets for impairment, we may first perform a qualitative assessment to
determine if the fair value of the intangible asset group is more likely than not greater than its carrying amount. If we do not
perform the qualitative assessment or if the fair value of the intangible asset group is not more likely than not greater than its
carrying amount, we calculate the implied estimated fair value of the intangible asset group. If the carrying amount of the
intangible asset group 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.
Definite-lived intangible assets, which mainly consist of acquired rights, trade secrets, 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. There were no other intangible asset impairment charges recorded during fiscal 2013,
2012, and 2011.
Long-lived Assets
When facts and circumstances indicate that the carrying values of long-lived assets may not be recoverable, we evaluate longlived assets for impairment. We first compare the carrying value of the asset to the asset’s estimated future cash flows
(undiscounted). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss
based on the asset’s estimated fair value. The fair value of the assets is estimated using a discounted cash flow model based on
forecasted future revenues and operating costs, using internal projections. Property, plant and equipment assets are grouped at
the lowest level for which there is identifiable cash flows when assessing impairment. Cash flows for company-operated store
assets are identified at the individual store level. Long-lived assets to be disposed of are reported at the lower of their carrying
amount, or fair value less estimated costs to sell.
We recognized net disposition and impairment losses of $30.1 million, $31.7 million, and $36.2 million in fiscal 2013, 2012,
and 2011, respectively. The nature of the underlying asset that is impaired will determine which operating expense line the
impairment charge is recorded in on the consolidated statements of earnings. For assets within our retail operations, net
impairment and disposition losses are recorded in store operating expenses. For all other assets, these losses are recorded in
cost of sales including occupancy costs, other operating expenses, or general and administrative expenses.
Insurance Reserves
We use a combination of insurance and self-insurance mechanisms, including a wholly owned captive insurance entity and
participation in a reinsurance treaty, to provide for the potential liabilities for certain risks, including workers’ compensation,
healthcare benefits, general liability, property insurance, and director and officers’ liability insurance. Liabilities associated with
the risks that are retained by us are not discounted and are estimated, in part, by considering historical claims experience,
demographic, exposure and severity factors, and other actuarial assumptions.
Revenue Recognition
Consolidated revenues are presented net of intercompany eliminations for wholly owned subsidiaries and investees controlled
by us and for product sales to and royalty and other fees from licensees accounted for under the equity method. Additionally,
consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon
redemptions and rebates.
Company-operated Stores Revenues
Company-operated stores revenues are recognized when payment is tendered at the point of sale. Company-operated store
revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing
authorities.
Licensed Stores Revenues
Licensed stores revenues consist of product sales to licensed stores, as well as royalties and other fees paid by licensees to use
the Starbucks brand. Sales of coffee, tea and related products are generally recognized upon shipment to licensees, depending
on contract terms. Shipping charges billed to licensees 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.
Initial nonrefundable development fees for licensed stores 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
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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.
CPG, Foodservice and Other Revenues
CPG, foodservice and other revenues primarily consist of packaged coffee and tea as well as a variety of ready-to-drink
beverages and single-serve coffee and tea products to grocery, warehouse club and specialty retail stores, sales to our national
foodservice accounts, and revenues from sales of products to and license fee revenues from manufacturers that produce and
market Starbucks and Seattle’s Best Coffee branded products through licensing agreements. Sales of coffee, tea, ready-to-drink
beverages and related products to grocery and warehouse club stores are generally recognized when received by the customer
or distributor, depending on contract terms. Revenues are recorded net of sales discounts given to customers for trade
promotions and other incentives and for sales return allowances, which are determined based on historical patterns.
Revenues from sales of products to manufacturers that produce and market Starbucks and Seattle’s Best Coffee branded
products through licensing agreements are generally recognized when the product is received by the manufacturer or
distributor. License fee revenues from manufacturers are based on a percentage of sales and are recognized on a monthly basis
when earned. National foodservice account revenues are recognized when the product is received by the customer or
distributor.
Stored Value Cards
Revenues from our stored value cards, primarily Starbucks Cards, are recognized when redeemed or when the likelihood of
redemption, based on historical experience, is deemed to be remote. 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 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 September 29, 2013, September 30, 2012, and October 2, 2011, income
recognized on unredeemed stored value card balances was $33.0 million, $65.8 million, and $46.9 million, respectively.
Customers in the US, Canada, the UK and Germany who register their Starbucks Card are automatically enrolled in the My
Starbucks Rewards™ program and earn reward points (“Stars”) with each purchase. Reward program members receive various
benefits depending on the number of Stars earned in a 12-month period. The value of Stars earned by our program members
towards free product is included in deferred revenue and recorded as a reduction in revenue at the time the Stars are earned,
based on the value of Stars that are projected to be redeemed.
Marketing & Advertising
Our annual marketing expenses include many components, one of which is advertising costs. 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.
Marketing expenses totaled $306.8 million, $277.9 million and $244.0 million in fiscal 2013, 2012, and 2011, respectively.
Included in these costs were advertising expenses, which totaled $205.8 million, $182.4 million and $141.4 million in fiscal
2013, 2012, and 2011, respectively.
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 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 on the consolidated balance sheets and
amortize the deferred rent over the terms of the leases as additional rent expense on the consolidated statements of earnings.
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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 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
same depreciation convention as 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, included
in cost of sales including occupancy costs, in the consolidated statements of earnings. As of September 29, 2013 and
September 30, 2012, our net ARO asset included in property, plant and equipment was $3.8 million and $8.8 million,
respectively, and our net ARO liability included in other long-term liabilities was $27.7 million and $42.6 million, respectively.
Stock-based Compensation
We maintain 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 an employee stock purchase plan (“ESPP”). RSUs issued by us are equivalent to nonvested shares
under the applicable accounting guidance. We record stock-based compensation expense based on the fair value of stock
awards at the grant date and recognize the expense over the related service period following a graded vesting expense schedule.
For stock option awards we use the Black-Scholes-Merton option pricing model to measure fair value. For RSUs, fair value is
calculated using the stock price at the date of grant.
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
routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if,
based on all available evidence, we determine that some portion of the tax benefit will not be realized. 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 relevant taxing authorities, based on the technical merits of our 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 based on the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share is computed based on the weighted average number of shares of common stock and the
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effect of dilutive potential common shares outstanding during the period, calculated using the treasury stock method. Dilutive
potential common shares include outstanding stock options and RSUs. 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 July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance requires the unrecognized tax
benefit to be presented in the financial statements as a reduction to a deferred tax asset. When a deferred tax asset is not
available, or the asset is not intended to be used for this purpose, an entity should present the unrecognized tax benefit in the
financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset. The guidance will
become effective for us at the beginning of our first quarter of fiscal 2015. We do not expect the adoption of this guidance will
have a material impact on our financial statements.
In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon
derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This
guidance requires a parent to release any related cumulative translation adjustment into net income only if the sale or transfer
results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had
resided. The guidance will become effective for us at the beginning of our first quarter of fiscal 2015. We do not expect the
adoption of this guidance will have a material impact on our financial statements.
In February 2013, the FASB issued guidance that adds additional disclosure requirements for items reclassified out of
accumulated other comprehensive income. This guidance requires the disclosure of significant amounts reclassified from each
component of accumulated other comprehensive income and the income statement line items affected by the reclassification.
The guidance will become effective for us at the beginning of our first quarter of fiscal 2014. The adoption of this guidance will
result in the disclosure of reclassifications from accumulated other comprehensive income by component in the consolidated
statements of comprehensive income either on the face of the consolidated statements of earnings or in the Notes.
In January 2013, the FASB issued guidance clarifying the scope of disclosure requirements for offsetting assets and liabilities.
The amended guidance limits the scope of balance sheet offsetting disclosures to derivatives, repurchase agreements, and
securities lending transactions to the extent that they are offset in the financial statements or subject to an enforceable master
netting arrangement or similar agreement. The guidance will become effective for us at the beginning of our first quarter of
fiscal 2014. We do not expect the adoption of this guidance will have a material impact on our financial statements.
In July 2012, the FASB issued guidance that revises the requirements around how entities test indefinite-lived intangible assets,
other than goodwill, for impairment. The guidance allows companies to perform a qualitative assessment before calculating the
fair value of the indefinite-lived intangible asset. If entities determine, on the basis of qualitative factors, that the fair value of
the indefinite-lived intangible asset is more likely than not greater than the carrying amount, a quantitative calculation would
not be needed. The guidance became effective for us at the beginning of our first quarter of fiscal 2013. The adoption of this
guidance did not have a material impact on our financial statements.
In June 2011, the FASB issued guidance that revises the manner in which entities present comprehensive income in their
financial statements. The guidance requires entities to report the components of comprehensive income in either a single,
continuous statement or two separate but consecutive statements. The guidance became effective for us at the beginning of our
first quarter of fiscal 2013. In adopting this guidance, we added the consolidated statements of comprehensive income
following our consolidated statements of earnings.
Reclassifications
Change in shared service allocations
Effective at the beginning of fiscal 2012, we implemented a strategic realignment of our organizational structure designed to
accelerate our global growth strategy. A president for each region, reporting directly to our chief executive officer, was
appointed to oversee the company-operated retail business working closely with both the licensed and joint-venture business
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partners in each market. The regional presidents were to also work closely with our Channel Development team to continue
building out our brands and channels in each region.
In connection with the changes to our organizational structure and reporting, we changed the accountability for, and reporting
of, certain indirect overhead costs. Certain indirect merchandising, manufacturing costs and back-office shared service costs,
which were previously allocated to segment level costs of sales and operating expenses, are now managed at a corporate level
and are reported within unallocated corporate expenses. These expenses have therefore been removed from the segment level
financial results. In order to conform prior period classifications with the new alignment, the historical consolidated financial
statements have been recast with the following adjustments to previously reported amounts (in millions):
Year Ended October 2, 2011
As Filed
Total net revenues
$
Cost of sales including occupancy costs
Store operating expenses
Other operating expenses
Depreciation and amortization expenses
General and administrative expenses
Total operating expenses
Gain on sale of properties
Income from equity investees
Operating income
$
Reclass
11,700.4
4,949.3
3,665.1
402.0
523.3
636.1
10,175.8
30.2
173.7
1,728.5
$
$
As Adjusted
— $
(33.8)
(70.2)
(9.2)

113.2




$
11,700.4
4,915.5
3,594.9
392.8
523.3
749.3
10,175.8
30.2
173.7
1,728.5
There was no impact on consolidated net revenues, total operating expenses, operating income, or net earnings as a result of
this change. Additional discussion regarding the change in our organizational structure and segment results is included at Note
16.
Effective in the second half of fiscal 2013, there were further changes to the leadership team which resulted in the promotion of
two of these regional presidents to the role of group president. In these new roles, the group presidents have oversight of
multiple operating segments. However, this did not change how we manage costs or report on our segment results and therefore
did not have an impact on the historical presentation of our financial statements.
Note 2: Acquisitions and Divestitures
In the fourth quarter of fiscal 2013, we acquired a 49% equity method ownership interest in Starbucks Spain from our licensee
partner Sigla S.A. (Grupo Vips) for approximately $33 million in cash.
During the fourth quarter of 2013, we sold our 82% interest in Starbucks Coffee Chile S.A. to our joint venture partner Alsea,
S.A.B. de C.V., converting this to a 100% licensed market, for a total purchase price of $68.6 million, which includes final
working capital adjustments. This transaction resulted in a gain of $45.9 million, which was included in net interest income and
other in the consolidated statements of earnings.
In the third quarter of fiscal 2013, we acquired 100% ownership of a coffee farm in Costa Rica for $8.1 million in cash. The fair
value of the net assets acquired on the acquisition date primarily comprises property, plant and equipment.
On December 31, 2012, we acquired 100% of the outstanding shares of Teavana Holdings, Inc. (“Teavana”), a specialty retailer
of premium loose-leaf teas, authentic artisanal teawares and other tea-related merchandise, to elevate our tea offerings as well
as expand our domestic and global tea footprint. We acquired Teavana for $615.8 million in cash. Of the total cash paid, $12.2
million was excluded from the purchase price allocation below as it represents contingent consideration receivable. At closing,
we also repaid $35.2 million for long term debt outstanding on Teavana’s balance sheet, which was recognized separately from
the business combination. The following table summarizes the allocation of the purchase price to the fair values of the assets
acquired and liabilities assumed on the closing date (in millions):
Starbucks Corporation
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2013 Form 10-K
55
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Starbucks Corporation
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries (the “Company”) as
of September 29, 2013 and September 30, 2012, and the related consolidated statements of earnings, comprehensive income,
equity, and cash flows for each of the three years in the period ended September 29, 2013. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Starbucks
Corporation and subsidiaries as of September 29, 2013 and September 30, 2012, and the results of their operations and their
cash flows for each of the three years in the period ended September 29, 2013, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of September 29, 2013, based on criteria established in Internal
Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated November 18, 2013 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ Deloitte & Touche LLP
Seattle, Washington
November 18, 2013
Starbucks Corporation
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2013 Form 10-K
77
25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in
our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure
controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and
principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
During the fourth quarter of fiscal 2013, we carried out an evaluation, under the supervision and with the participation of our
management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and
procedures were effective, as of the end of the period covered by this report (September 29, 2013).
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially
affect internal control over financial reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively,
to this 10-K.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting
for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal
control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our
transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that
could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its
inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement
of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control — Integrated Framework (the “1992 Framework”), issued by the
Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation
of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion
on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was
effective as of September 29, 2013.
Our internal control over financial reporting as of September 29, 2013, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
78
Starbucks Corporation
2013 Form 10-K
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26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Starbucks Corporation
Seattle, Washington
We have audited the internal control over financial reporting of Starbucks Corporation and subsidiaries (the “Company”) as of
September 29, 2013, based on criteria established in Internal Control — Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 29, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements as of and for the fiscal year ended September 29, 2013, of the Company and our report
dated November 18, 2013 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Seattle, Washington
November 18, 2013
Starbucks Corporation
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2013 Form 10-K
79
27
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28
Starbucks Corporation—
Understanding Financial Statements
EXCERPTED WITH PERMISSION FROM
CASES IN FINANCIAL REPORTING
EIGHTH EDITION
ISBN: 978-1-61853-122-3
MICHAEL DRAKE
ELLEN ENGEL
D. ERIC HIRST
MARY LEA MCANALLY
© Copyright 2015 by Cambridge Business Publishers, LLC. All rights reserved. No part of this
publication may be reproduced in any form for any purpose without the written permission of the
publisher.
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ACCT 2101, Augusta University.
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Starbucks Corporation—
Understanding Financial Statements
Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed
coffees, Italian-style espresso beverages, cold blended beverages, a variety of complementary food items, a selection
of premium teas, and beverage-related accessories and equipment, primarily through company-operated retail
stores. Starbucks also sells coffee and tea products and licenses its trademark through other channels such as
licensed retail stores and, through certain of its licensees and equity investees, Starbucks produces and sells a
variety of ready-to-drink beverages. (Source: investor.starbucks.com)
Learning Objectives
• Become familiar with a set of financial statements including auditor opinions and significant
accounting policy footnotes.
• Perform a basic analysis and interpretation of the financial statements, including common-size
income statements and balance sheets.
• Recognize the role of estimation in the preparation of financial statements.
Refer to the Starbucks financial statements for fiscal year 2013 (that is, the year ended September 29,
2013).
!
Concepts
!
a. What is the nature of Starbucks’ business? That is, based on what you know about the company and
on the accompanying financial statements, how does Starbucks make money?
b. What financial statements are commonly prepared for external reporting purposes? What titles does
Starbucks give these statements? What does “consolidated” mean?
c. How often do publicly traded corporations typically prepare financial statements for external
reporting purposes?
d. Who is responsible for the financial statements? Discuss the potential users of the Starbucks financial
statements and the type of information they are likely interested in.
e. Who are Starbucks’ external auditors? Describe the two “opinion” letters that Starbucks received in
2013. In your own words, what do these opinions mean? Why are both opinions dated several months
after Starbucks’ year-end?
!
f.
Analysis
!
Use a spreadsheet to construct common-size income statements (which Starbucks calls statements of
earnings) and balance sheets for 2013 and 2012. Common-size income statements scale each income
statement line item by total net revenues (sales). Common-size balance sheets are created by dividing
each figure on a given year’s balance sheet by that year’s total assets, thereby creating a balance sheet
on a “percent of assets” basis. You will use these common-size statements in answering several of the
questions below. (Starbucks’ investor relations website—investor.starbucks.com—contains a link to
SEC filings. The company’s Form 10-K can be found under annual filings and contains an Excel
spreadsheet with financial statement data that may be helpful in creating the common-size
statements).
g. Refer to Starbucks’ balance sheet for fiscal 2013 (the year ended September 29, 2013).
i.
Demonstrate that the accounting equation holds for Starbucks. Recall that the accounting
equation is: Assets = Liabilities + Equity.
Starbucks Corporation—Understanding Financial Statements
1
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any purpose without the written permission of the publisher.
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ii.
What are Starbucks’ major assets? Calculate the proportion of short-term and long-term assets
for 2013. Does this seem appropriate for a company such as Starbucks?
iii.
In general, what are intangible assets? What is goodwill? What specific intangible assets might
Starbucks have?
iv.
How is Starbucks financed? What proportion of total financing comes from non-owners?
h. Refer to Starbucks’ statement of earnings for fiscal 2013 (the year ended September 29, 2013) and to
the common-size income statement you developed in part f, above.
i.
j.
i.
Review the revenue recognition policies of Starbucks discussed in Note 1 (Summary of
Significant Accounting Policies). Does Starbucks record revenue when they receive cash from
their customers (cash-basis accounting) or do they follow a different rubric (for example,
accrual accounting)? How does Starbucks record revenue on stored value cards (i.e., gift
cards)? What challenges in measuring revenue do you observe? That is, are there any
significant judgments management needs to make in recording sales revenues at Starbucks?
ii.
What are Starbucks’ major expenses?
iii.
Were there any significant changes in the cost structure during the most recent year?
iv.
In fiscal 2013, Starbucks separately reported a litigation charge and included it in operating
income. Why didn’t the company just include this amount within the line item for general and
administrative expenses? Why is it an operating expense?
v.
Was the company profitable during 2013? During 2012? Explain your definition of
“profitable.”
Refer to Starbucks’ fiscal 2013 statement of cash flows.
i.
Compare Starbucks’ net earnings to net cash provided by operating activities and explain the
difference.
ii.
How much cash did Starbucks use for expenditures for property, plant and equipment during
fiscal 2013?
iii.
What amount of dividends did Starbucks pay during the year? How does this amount compare
to the amount of dividends declared as shown in the statement of equity?
Several notes to the financial statements refer to the use of “estimates.” Which accounts on
Starbucks’ balance sheet require estimates? List as many accounts as you can. Are any accounts
estimate-free?
Starbucks Corporation—Understanding Financial Statements
2
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Item 8. Financial Statements and Supplementary Data
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
Sep 29,
2013
Fiscal Year Ended
Net revenues:
Company-operated stores
Licensed stores
CPG, foodservice and other
Total net revenues
Cost of sales including occupancy costs
Store operating expenses
Other operating expenses
Depreciation and amortization expenses
General and administrative expenses
Litigation charge
Total operating expenses
Gain on sale of properties
Income from equity investees
Operating income/(loss)
$
Interest income and other, net
Interest expense
Earnings/(loss) before income taxes
Income taxes
Net earnings including noncontrolling interests
Net earnings attributable to noncontrolling interests
Net earnings attributable to Starbucks
Earnings per share — basic
Earnings per share — diluted
Weighted average shares outstanding:
Basic
Diluted
Cash dividends declared per share
Sep 30,
2012
11,793.2 $
1,360.5
1,738.5
14,892.2
6,382.3
4,286.1
457.2
621.4
937.9
2,784.1
15,469.0

251.4
(325.4)
10,534.5
1,210.3
1,554.7
13,299.5
5,813.3
3,918.1
429.9
550.3
801.2

11,512.8

210.7
Oct 2,
2011
$
9,632.4
1,007.5
1,060.5
11,700.4
4,915.5
3,594.9
392.8
523.3
749.3

10,175.8
30.2
173.7
123.6
(28.1)
1,997.4
94.4
(32.7)
1,728.5
115.9
(33.3)
(229.9)
2,059.1
1,811.1
(238.7)
$
$
$
674.4
1,384.7
0.9
1,383.8
1.83
1.79
$
$
$
563.1
1,248.0
2.3
1,245.7
1.66
1.62
$
754.4
773.0
0.72
$
748.3
769.7
0.56
$
$
$
8.8
0.5
8.3
0.01
0.01
$
749.3
762.3
0.89
See Notes to Consolidated Financial Statements.
Starbucks Corporation
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2013 Form 10-K
43
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Sep 29,
2013
Net earnings including noncontrolling interests
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) on available-for-sale securities
Tax (expense)/benefit
Unrealized holding gains/(losses) on cash flow hedging instruments
Tax (expense)/benefit
$
8.8
$
Starbucks Corporation
1,248.0
0.7
(0.3)
(12.2)
4.3
4.5
32.8
(12.1)
1.0
(0.4)
(12.1)
46.3
(3.5)
14.8
(4.3)
(26.4)
16.6
(6.1)
(4.4)
(7.4)
85.6
(41.6)
0.3
44.3
53.1
0.5
52.6
4.5
6.1
(3.3)
(23.6)
$
1,361.1
0.9
1,360.2
See Notes to Consolidated Financial Statements.
44
$
0.7
(0.3)
(42.2)
0.2
47.1
(24.6)
$
Oct 2,
2011
1,384.7
(0.6)
Unrealized holding gains/(losses) on net investment hedging
instruments
Tax (expense)/benefit
Reclassification adjustment for net (gains)/losses realized in net
earnings for cash flow hedges
Tax expense/(benefit)
Net unrealized holding gains/(losses)
Translation adjustment
Tax (expense)/benefit
Other comprehensive income/(loss)
Comprehensive income/(loss) including noncontrolling interests
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Starbucks
Sep 30,
2012
2013 Form 10-K
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0.9
(10.9)
$
1,237.1
2.3
1,234.8
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
Sep 29,
2013
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Deferred income taxes, net
Total current assets
Long-term investments
Equity and cost investments
Property, plant and equipment, net
Deferred income taxes, net
Other assets
Other intangible assets
Goodwill
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued litigation charge
Accrued liabilities
Insurance reserves
Deferred revenue
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Shareholders’ equity:
Common stock ($0.001 par value) — authorized, 1,200.0 shares; issued and
outstanding, 753.2 shares and 749.3 shares (includes 3.4 common stock units),
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
$
$
$
$
2,575.7
658.1
561.4
1,111.2
287.7
277.3
5,471.4
58.3
496.5
3,200.5
967.0
185.3
274.8
862.9
11,516.7
491.7
2,784.1
1,269.3
178.5
653.7
5,377.3
1,299.4
357.7
7,034.4
0.8
282.1
4,130.3
67.0
4,480.2
2.1
4,482.3
11,516.7
Sep 30,
2012
$
$
$
$
1,188.6
848.4
485.9
1,241.5
196.5
238.7
4,199.6
116.0
459.9
2,658.9
97.3
144.7
143.7
399.1
8,219.2
398.1

1,133.8
167.7
510.2
2,209.8
549.6
345.3
3,104.7
0.7
39.4
5,046.2
22.7
5,109.0
5.5
5,114.5
8,219.2
See Notes to Consolidated Financial Statements.
Starbucks Corporation
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2013 Form 10-K
45
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Sep 29,
2013
Fiscal Year Ended
OPERATING ACTIVITIES:
Net earnings including noncontrolling interests
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Litigation charge
Gain on sale of properties
Deferred income taxes, net
Income earned from equity method investees, net of distributions
Gain resulting from sale/acquisition of equity in joint ventures
Stock-based compensation
Other
Cash provided/(used) by changes in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Accrued liabilities and insurance reserves
Deferred revenue
Prepaid expenses, other current assets and other assets
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchase of investments
Sales, maturities and calls of investments
Acquisitions, net of cash acquired
Additions to property, plant and equipment
Proceeds from the sale of property, plant, and equipment
Proceeds from sale of equity in joint ventures
Other
Net cash used by investing activities
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
Principal payments on long-term debt
(Payments)/proceeds from short-term borrowings
Purchase of noncontrolling interest
Proceeds from issuance of common stock
Excess tax benefit on share-based awards
Cash dividends paid
Repurchase of common stock
Minimum tax withholdings on share-based awards
Other
Net cash used by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS:
Beginning of period
End of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of capitalized interest
Income taxes
$
8.8
Sep 30,
2012
$
Starbucks Corporation
$
1,248.0
655.6
2,784.1

(1,045.9)
(56.2)
(80.1)
142.3
23.0
580.6


61.1
(49.3)

153.6
23.6
550.0

(30.2)
106.2
(32.9)
(55.2)
145.2
33.3
(68.3)
152.5
88.7
87.6
139.9
76.3
2,908.3
(90.3)
(273.3)
(105.2)
23.7
60.8
(19.7)
1,750.3
(88.7)
(422.3)
227.5
(81.8)
35.8
(22.5)
1,612.4
(785.9)
1,040.2
(610.4)
(1,151.2)
15.3
108.0
(27.2)
(1,411.2)
(1,748.6)
1,796.4
(129.1)
(856.2)
5.3

(41.8)
(974.0)
(966.0)
430.0
(55.8)
(531.9)
117.4

(13.2)
(1,019.5)
749.7
(35.2)


247.2
258.1
(628.9)
(588.1)
(121.4)
10.4
(108.2)
(1.8)
1,387.1


(30.8)

236.6
169.8
(513.0)
(549.1)
(58.5)
(0.5)
(745.5)
9.7
40.5


30.8
(27.5)
250.4
103.9
(389.5)
(555.9)
(15.0)
(5.2)
(608.0)
(0.8)
(15.9)
$
1,188.6
2,575.7
$
$
34.4
539.1
$
1,148.1
1,188.6
$
1,164.0
1,148.1
$
$
34.4
416.9
$
$
34.4
350.1
See Notes to Consolidated Financial Statements.
46
1,384.7
Oct 2,
2011
2013 Form 10-K
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Starbucks Corporation
2013 Form 10-K
47
$
$
$

$
$
$
$

57.2

$
$
$
$

753.2
Noncontrolling interest resulting from divestiture
Balance, September 29, 2013

Cash dividends declared
(10.8)
0.3
Repurchase of common stock
14.4
Sale of common stock, including tax benefit of $0.2
$
$
282.1


(288.5)
20.4
366.7
144.1
$
4,130.3

(668.6)
(255.6)



$
See Notes to Consolidated Financial Statements.
0.8




0.1

8.3

22.7





67.0






Exercise of stock options, including tax benefit of
$259.9


5,046.2

(543.7)
(91.3)


Stock-based compensation expense

39.4


(501.9)
19.5
326.1

44.3

0.7





155.2

Other comprehensive income/(loss)
Net earnings
749.3
Noncontrolling interest resulting from acquisition
Balance, September 30, 2012

Cash dividends declared
(12.3)
0.3
Repurchase of common stock
16.5
Sale of common stock, including tax benefit of $0.2

1,383.8
46.3






Exercise of stock options, including tax benefit of
$167.3


4,297.4

(419.5)



Stock-based compensation expense

40.5
(28.0)

(555.9)
19.1
312.5
(23.6)

0.7






1,245.7
3,471.2
Other comprehensive income/(loss)
Net earnings
744.8
Purchase of noncontrolling interests
Balance, October 2, 2011

Cash dividends declared
(15.6)
0.5
Repurchase of common stock
17.3
Sale of common stock, including tax benefit of $0.1
147.2

145.6

Exercise of stock options, including tax benefit of
$96.1


0.7
Retained
Earnings
Stock-based compensation expense

$
Additional Paidin Capital
(10.9)

742.6
Amount
Accumulated
Other
Comprehensive
Income/(Loss)
Other comprehensive income/(loss)
Net earnings
Balance, October 3, 2010
Shares
Common Stock
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
$
$
$
$
4,480.2

(668.6)
(544.1)
20.4
366.8
144.1
44.3
8.3
5,109.0

(543.7)
(593.2)
19.5
326.1
155.2
(23.6)
1,383.8
4,384.9
(28.0)
(419.5)
(555.9)
19.1
312.5
147.2
(10.9)
1,245.7
3,674.7
Shareholders’
Equity
$
$
$
$
2.1
(3.9)






0.5
5.5
2.2






0.9
2.4
(7.5)






2.3
7.6
Noncontrolling
Interest
$
$
$
$
4,482.3
(3.9)
(668.6)
(544.1)
20.4
366.8
144.1
44.3
8.8
5,114.5
2.2
(543.7)
(593.2)
19.5
326.1
155.2
(23.6)
1,384.7
4,387.3
(35.5)
(419.5)
(555.9)
19.1
312.5
147.2
(10.9)
1,248.0
3,682.3
Total
STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 29, 2013, September 30, 2012 and October 2, 2011
Note 1:
Summary of Significant Accounting Policies
Description of Business
We purchase and roast high-quality coffees that we sell, along with handcrafted coffee and tea beverages and a variety of fresh
food items, through our company-operated stores. We also sell a variety of coffee and tea products and license our trademarks
through other channels such as licensed stores, grocery and national foodservice accounts.
In this 10-K, Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or
“our.”
We have four reportable operating segments: 1) Americas, inclusive of the US, Canada, and Latin America; 2) Europe, Middle
East, and Africa (“EMEA”); 3) China / Asia Pacific (“CAP”) and 4) Channel Development. Teavana, Seattle’s Best Coffee,
Evolution Fresh and our Digital Ventures business are included in All Other Segments. Unallocated corporate operating
expenses, which pertain primarily to corporate administrative functions that support the operating segments but are not
specifically attributable to or managed by any segment, are presented as a reconciling item between total segment operating
results and consolidated financial results.
Additional details on the nature of our business and our reportable operating segments are included in Note 16 of these
Consolidated Financial Statements.
Principles of Consolidation
The consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly owned
subsidiaries and investees that we control. 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 years 2013, 2012 and 2011 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, future asset retirement obligations, and inventory reserves; assumptions underlying selfinsurance reserves and income from unredeemed stored value cards; 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 we believe credit risk to be minimal.
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. Also included in our available-for-sale investment portfolio are certificates of deposit placed through an
account registry service. 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
48
Starbucks Corporation
2013 Form 10-K
This document is authorized for use by Na’Aim Colbert, from 1/15/2020 to 5/15/2020, in the course:
ACCT 2101, Augusta University.
Any unauthorized use or reproduction of this document is strictly prohibited.
maturities of less than one year and those identified by management at the time of purchase to be used to fund operations
within one year are classified as short term. All other available-for-sale securities, including all of our auction rate 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. We review 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 whether we have the intent to
sell or will likely be required to sell before the securities 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.
We also have a trading securities portfolio, which is comprised of marketable 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.
Fair Value
Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction
between market participants. We determine fair value based on the following:
Level 1: The carrying value of cash and cash equivalents approximates fair value because of the short-term nature of these
instruments. For government treasury securities, we use quoted prices in active markets for identical assets to determine fair
value.
Level 2: For corporate and agency bonds, for which a quoted market price is not available for identical assets, we determine fair
value based upon the quoted market price of similar assets or the present value of expected future cash flows, calculated by
applying revenue multiples to estimate future operating results and using discount rates appropriate for the duration and the
risks involved. Fair values for commercial paper are estimated using a discounted cash flow calculation that applies current
imputed interest rates of similar securities. Fair values for certificates of deposit are estimated using a discounted cash flow
calculation that applies current interest rates to aggregate expected maturities. The fair value of our long-term debt is estimated
based on the quoted market prices for …

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