ACCT 2101 AU Starbucks Cooperation Consolidated Balance Case Study Complete Part H(ii, iv, and v) page 1. Prepare an Excel spreadsheet showing all your cal

ACCT 2101 AU Starbucks Cooperation Consolidated Balance Case Study Complete Part H(ii, iv, and v) page 1. Prepare an Excel spreadsheet showing all your calculations and answers to the questions asked in the case study. Do not answer any other questions. If you need to do any calculations, (i.e. calculate the proportion (percentage) of short-term assets) do the calculations in a separate cell. Answers are to be in percentages with two digits of significance. (NOT .35, but 35.12%) 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.
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.
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
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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ACCT 2101, Augusta University.
Any unauthorized use or reproduction of this document is strictly prohibited.
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…
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