E9.9. Financial Statement Reformulation for Starbucks Corporation (Medium) (This exercise builds on Exercise E8.8 in Chapter 8, but can be worked independently) Below are comparative income statements and balance sheets for Starbucks Corpora tion, the retail coffee vendor, for fiscal year ending September 30, 2007, along with a state- ment of shareholders' equity. Read the statements along with the notes under them, then answer the following questices:

a. Prepare a reformulated equity statement for fiscal year 2007 that separates net payout to shareholders from comprehensive income.

b. Prepare a reformulated comprehensive income statement for fiscal year 2007, along with reformulated balance sheets for 2007 and 2006.

c. For fiscal year 2007, calculate the following: return on common equity (ROCE), return on net operating assets (RNOA), and net borrowing cost (NBC). Use beginning-of- year balance sheet amounts in denominators. Also calculate the financial leverage ratio (FLEV) at the beginning of the 2007 fiscal year.

STARBUCKS CORPORATION Consolidated Statements of Earnings (in thousands, except earnings per share) Fiscal Year Ended September 30, 2007 October 1, 2006 Net Company-operated retail $7,998,265 56,583,098 Specialty Licensing 1,026,330 860,576 Food service and other 386,894 343,168 Total specialty 1,413,232 1,203,864 Total net revenues 9,411,497 7,785,942 Cost of sales including occupancy costs 3,999,124 3,178,791 Store operating expenses 3,215,889 2,687,815 Other operating expenses 294,136 253,724 Depreciation and amortization expenses 467,160 387,211 General and administrative expenses 489,249 479,386 Total operating expenses 8,465,558 6,986,927 Income from equity investees 108.006 93,937 Operating income 1,053,945 893,952 Net interest and other income 2,419 12,291 Earnings before income taxes 1,056,364 906,243 income taxes 383,726 324,770 Earnings before cumulative effect of change in accounting principle 672,638 581,473 Cumulative effect of accounting change for FIN 47, net of taxes 17,214 Net earnings $ 672,638 $564,259 Per common share Earnings belare cumulative effect of change in accounting principles-basic Cumulative effect of accounting change for RN 47. net of tax Not earnings-bask Earnings before cumulative effect of change in $ 0.90 $ 0.76 0.02 0.90 0.74 accounting principles-diluted $ 087 $ 0.73 Cumulative effect of accounting change for FIN 47, net of cares Net earnings-diluted Weighted average shares outstanding: Basic Diluted 0.87 749,763 766,114 770,091 792,556 0.02 0.71 Consolidated Balance Sheets in thousands, except share detal Fiscal Year Ended September 30, 2007 October 1, 2006 Assets Current assets: Cash and cash equivalents $ 281,261 $ 312,605 Short-term investments-available-for-sale securities 83,845 87,542 Short-term investments-tracing securities 73.588 53,496 Accounts receivable, net 287,925 224,271 Inventories 691,658 636,222 Prepaid expenses and other current assets 168,757 126,874 Deferred income taxes, net 129,453 88,777 Totalcuments 1,556,487 1,529,788 Long-term investments-available-for-sale securities 21,022 5,811 Equity and other investments 258,846 219,093 Property plant, and equipment, net 2,890,433 2,287,899 Other assets 219.422 186,917 Other intangible assets 42,043 37,955 Goodwill 215,625 161,478 Total Assets $5,343,878 $4,428,941 Liabilities and Shareholders' Equity Current liabilities: Commercial paper and short-term borrowings $ 710,248 $ 700,000 Accounts payable 390,836 340,937 Accrued compensation and related costs 332,331 288,963 Accrued occupancy costs 74,591 54,868 Accrued taxes 92,516 94,010 Other accrued expenses 257,369 224,154 Deferred revenue 295,900 231,926 Current portion of long-term debt 775 762 Total current labies 2,155,566 1,935,520 Long-term debt 550 121 1,958 Other long-term liabilities 354,074 262.857 3,059,761 2.200,435 Total liabilities Shareholders' equity Common stock (50,001 per value-authorized, 1,200,000,000 shares; issued and outstanding, 738,285,285 and 756,632,071 shares, respectively indudes 3,420,448 common stock units in both periods) Other additional paid-in-capital Retained earnings Accumulated other comprehensive income Total shareholders' equity 738 756 39.393 39,393 2,189,356 2,151,084 54,620 37,273 2,284,117 2,228,505 Total liabilities and shareholders' equity $5,343,878 $4,428,941 www Consolidated Statements of Shareholders' Equity fin thousands, except share data) Additional Other Additional Accumulated Other Common Stock Balance, October 1, 2006 Net earnings Unrealized holding loss, net Translation adjustment net of tax Comprehensive income Stock-based compensation Paid-in Shares Amount Capital Paid-in Capital Retained Comprehensive Earnings Income (Loss) Total 756,502,071 $756 $39,393 $2.151.084 $37,273 $2,228,506 672,638 672,638 $20,3801 (20,380) 37,727 37,727 689,585 expense Exercise of stock options, including tax 106,373 12,744,225 13 225.233 106,373 benefit of $95,276 225,246 Sale of common stock, including tax provision of $139 1,908,407 2 46,826 46.828 Repurchase of commos stock 32,969,415) (33) (378,432) (634,356) (1,012,821) Balance, September 30, 2007 738.285.285 $738 $39.393 $2,189,366 $54,620 $2.284.117 Notes: 1. Short term and long-tum investments, available for sale, a debt secu 3. Shoemintated as ring securities are investments in equity munal funds as part of a defed contribution plan for employer. The corresponding defered compensation liability ($36,400 thousand in 2007) is included in and copation and rec 3.340,000 thousand of cash and cash equivalents in both 2007 and 2006 is working cash used in opontos 4. Net interest and ether income in the 2007 income statement includes the following() Interest incom expense Realized gain on aiable-for-livestre Ga Cher operating charges 5. Income from equity lovestnesis aparted after tas 6 The firm's combined state and federal statutory tax rate is 184 percent 7. Usled holding lasses in comprehensive income refer to losses on available-for-b $19.700 (38,200 1.800 26.032 (8.913) $ 2,419 5. Jacome from equity invests is prefera 6 The firm's combined state and federal statutory rate is 184 percent 7. Urealized holding as in corsive income refer to loses on available-for-sale debts Real World Connection Starbucks is dealt with also in Exercises E8.8, E11.9, B12.8, and E14.10.