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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8
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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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 years balance sheet by that years 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 websiteinvestor.starbucks.comcontains a link to
SEC filings. The companys 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 CorporationUnderstanding Financial Statements
1
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10
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 didnt 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 CorporationUnderstanding Financial Statements
2
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11
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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13
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
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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:
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17
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
Starbucks Corporation
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.
2013 Form 10-K
49
18
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
