Questions: 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?

Balance, October 3, 2010 Net earnings Other comprehensive income/(loss) Stock-based compensation expense Exercise of stock options, including tax benefit of $96.1 Sale of common stock, including tax benefit of $0.1 Repurchase of common stock Cash dividends declared Purchase of noncontrolling interests M Balance, October 2, 2011 Net earnings www Other comprehensive income/(loss) Stock-based compensation expense B Exercise of stock options, including tax benefit of $167.3 Baad.com.mm Sale of common stock, including tax benefit of $0.2 Repurchase of common stock .. Cash dividends declared Noncontrolling interest resulting from acquisition Balance, September 30, 2012 P Net earnings Other Other comprehensive income/(loss) fresh based compr Stock-based compensation expense Exercise of stock options, including tax benefit of $259.9 Sale of common stock, including tax benefit of $0.2 Repurchase of common stock Cash dividends declared Noncontrolling interest resulting from divestiture Balance, September 29, 2013 Common Stock Shares 742.6 17.3 0.5 -15.6 744.8 16.5 0.3 -12.3 749.3 14.4 0.3 -10.8 753.2 $ Amount 0.7 0.7 0.7 - 0.1 $ $ 0.8 $ STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EQUITY (in millions) Additional Paid-in Capital 145.6 $ 147.2 312.5 19.1 -555.9 (28.0 40.5 155.2 326.1 19.5 -501.9 39.4 144.1 366.7 20.4 -288.5 282.1 $ $ $ Retained Earnings 3,471.20 1,245.70 -419.5 4,297.40 1,383.80 -91.3 -543.7 5,046.20 8.3 -255.6 -668.6 4,130.30 $ $ Accumulated Other Comprehensive Income/(Loss) 57.2 $ -10.9 46.3 -23.6 22.7 44.3 67 $ Shareholders Equity 3,674.70 1,245.70 -10.9 147.2 312.5 19.1 -555.9 -419.5 -28 4,384.90 1,383.80 -23.6 155.2 326.1 19.5 -593.2 -543.7 5,109.00 23 8.3 44.3 1441 144.1 366.8 366.8 20.4 -544.1 -668.6 4,480.20 $ $ $ $ Noncontrolling Interest 7.6 2.3 -7.5 2.4 0.9 2.2 5.5 0.5 -3.9 2.1 $ $ $ $ Total 3,682.30 1,248.00 -10.9 147.2 312.5 19.1 -555.9 B -419.5 (35.5 4,387.30 www.comm 1,384.70 M -23.6 155.2 326.1 19.5 -593.2 -543.7 2.2 5,114.50 80 8.8 442 44.3 1441 144.1 366.8 366.8 20.4 204 -544.1 -668.6 -3.9 4,482.30 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 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (in millions, except per share data) $ $ $ $ $ Sep 29, 2013 11,793.20 1,360.50 1,738.50 14,892.20 6,382.30 4,286.10 457.2 621.4 937.9 2,784.10 15,469.00 $ 251.4 -325.4 123.6 -28.1 -229.9 -238.7 8.8 0.5 8.3 $ 0.01 $ 0.01 $ 749.3 762.3 0.89 $ Sep 30, 2012 10,534.50 1,210.30 1,554.70 13,299.50 5,813.30 3,918.10 429.9 550.3 801.2 11,512.80 210.7 1,997.40 94.4 -32.7 2,059.10 674.4 1,384.70 0.9 1,383.80 1.83 1.79 754.4 773 0.72 $ $ Oct 2, 2011 9,632.40 1,007.50 1,060.50 11,700.40 4,915.50 3,594.90 392.8 523.3 749.3 10,175.80 30.2 173.7 1,728.50 115.9 -33.3 CAN 1,811.10 563.1 1,248.00 2.3 1,245.70 1.66 1.62 748.3 769.7 0.56 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 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 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) 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 29, 2013 8.8 -0.6 0.2 47.1 -24.6 32.8 -12.1 46.3 -3.5 85.6 -41.6 0.3 44.3 53.1 0.5 52.6 $ $ Sep 30, 2012 1,384.70 0.7 -0.3 -42.2 4.3 1 -0.4 14.8 -4.3 -26.4 6.1 -3.3 -23.6 1,361.10 0.9 1,360.20 $ Oct 2, 2011 1,248.00 0.7 -0.3 -12.2 4.5 -12.1 4.5 16.6 THE -6.1 -4.4 -7.4 0.9 -10.9 1,237.10 2.3 1,234.80 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 Current liabilities: Accounts payable Accrued litigation charge Accrued liabilities Insurance reserves Deferred revenue Total current liabilities Additional paid-in capital Retained earnings STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (in millions, except per share data) 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 Accumulated other comprehensive income Total shareholders' equity Noncontrolling interests Total equity TOTAL LIABILITIES AND EQUITY ASSETS LIABILITIES AND EQUITY $ $ $ $ Sep 29, 2013 2,575.70 658.1 561.4 1,111.20 287.7 277.3 5,471.40 58.3 496.5 3,200.50 967 185.3 274.8 862.9 11,516.70 2,784.10 1,269.30 491.7 $ 178.5 653.7 5,377.30 1,299.40 357.7 7,034.40 0.8 282.1 4,130.30 67 4,480.20 2.1 $ 4,482.30 11,516.70 $ $ Sep 30, 2012 1,188.60 848.4 485.9 1,241.50 196.5 238.7 4,199.60 116 459.9 2,658.90 97.3 144.7 143.7 399.1 8,219.20 398.1 1,133.80 167.7 510.2 2,209.80 549.6 345.3 3,104.70 0.7 39.4 5,046.20 22.7 5,109.00 5.5 5,114.50 8,219.20 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 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) 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 $ $ $ $ Sep 29, 2013 8.8 $ 655.6 2,784.10 -1,045.90 -56.2 -80.1 142.3 23 -68.3 152.5 88.7 87.6 139.9 76.3 2,908.30 -785.9 1,040.20 -610.4 -1,151.20 15.3 108 -27.2 -1,411.20 749.7 -35.2 247.2 258.1 -628.9 -588.1 -121.4 10.4 -108.2 -1.8 1,387.10 1,188.60 2,575.70 $ 34.4 $ 539.1 $ Sep 30, 2012 1,384.70 580.6 61.1 -49.3 153.6 23.6 -90.3 -273.3 -105.2 23.7 60.8 -19.7 1,750.30 -1,748.60 1,796.40 -129.1 -856.2 5.3 -41.8 -974 -30.8 236.6 169.8 -513 -549.1 -58.5 -0.5 -745.5 9.7 40.5 1,148.10 1,188.60 $ $ 34.4 $ 416.9 $ Oct 2, 2011 1,248.00 550 -30.2 106.2 -32.9 -55.2 145.2 33.3 -88.7 -422.3 227.5 -81.8 35.8 -22.5 1,612.40 -966 430 -55.8 -531.9 117.4 -13.2 -1,019.50 30.8 -27.5 250.4 103.9 -389.5 -555.9 -15 -5.2 -608 -0.8 -15.9 1,164.00 1,148.10 34.4 350.1 Balance, October 3, 2010 Net earnings Other comprehensive income/(loss) Stock-based compensation expense Exercise of stock options, including tax benefit of $96.1 Sale of common stock, including tax benefit of $0.1 Repurchase of common stock Cash dividends declared Purchase of noncontrolling interests M Balance, October 2, 2011 Net earnings www Other comprehensive income/(loss) Stock-based compensation expense B Exercise of stock options, including tax benefit of $167.3 Baad.com.mm Sale of common stock, including tax benefit of $0.2 Repurchase of common stock .. Cash dividends declared Noncontrolling interest resulting from acquisition Balance, September 30, 2012 P Net earnings Other Other comprehensive income/(loss) fresh based compr Stock-based compensation expense Exercise of stock options, including tax benefit of $259.9 Sale of common stock, including tax benefit of $0.2 Repurchase of common stock Cash dividends declared Noncontrolling interest resulting from divestiture Balance, September 29, 2013 Common Stock Shares 742.6 17.3 0.5 -15.6 744.8 16.5 0.3 -12.3 749.3 14.4 0.3 -10.8 753.2 $ Amount 0.7 0.7 0.7 - 0.1 $ $ 0.8 $ STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EQUITY (in millions) Additional Paid-in Capital 145.6 $ 147.2 312.5 19.1 -555.9 (28.0 40.5 155.2 326.1 19.5 -501.9 39.4 144.1 366.7 20.4 -288.5 282.1 $ $ $ Retained Earnings 3,471.20 1,245.70 -419.5 4,297.40 1,383.80 -91.3 -543.7 5,046.20 8.3 -255.6 -668.6 4,130.30 $ $ Accumulated Other Comprehensive Income/(Loss) 57.2 $ -10.9 46.3 -23.6 22.7 44.3 67 $ Shareholders Equity 3,674.70 1,245.70 -10.9 147.2 312.5 19.1 -555.9 -419.5 -28 4,384.90 1,383.80 -23.6 155.2 326.1 19.5 -593.2 -543.7 5,109.00 23 8.3 44.3 1441 144.1 366.8 366.8 20.4 -544.1 -668.6 4,480.20 $ $ $ $ Noncontrolling Interest 7.6 2.3 -7.5 2.4 0.9 2.2 5.5 0.5 -3.9 2.1 $ $ $ $ Total 3,682.30 1,248.00 -10.9 147.2 312.5 19.1 -555.9 B -419.5 (35.5 4,387.30 www.comm 1,384.70 M -23.6 155.2 326.1 19.5 -593.2 -543.7 2.2 5,114.50 80 8.8 442 44.3 1441 144.1 366.8 366.8 20.4 204 -544.1 -668.6 -3.9 4,482.30 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 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (in millions, except per share data) $ $ $ $ $ Sep 29, 2013 11,793.20 1,360.50 1,738.50 14,892.20 6,382.30 4,286.10 457.2 621.4 937.9 2,784.10 15,469.00 $ 251.4 -325.4 123.6 -28.1 -229.9 -238.7 8.8 0.5 8.3 $ 0.01 $ 0.01 $ 749.3 762.3 0.89 $ Sep 30, 2012 10,534.50 1,210.30 1,554.70 13,299.50 5,813.30 3,918.10 429.9 550.3 801.2 11,512.80 210.7 1,997.40 94.4 -32.7 2,059.10 674.4 1,384.70 0.9 1,383.80 1.83 1.79 754.4 773 0.72 $ $ Oct 2, 2011 9,632.40 1,007.50 1,060.50 11,700.40 4,915.50 3,594.90 392.8 523.3 749.3 10,175.80 30.2 173.7 1,728.50 115.9 -33.3 CAN 1,811.10 563.1 1,248.00 2.3 1,245.70 1.66 1.62 748.3 769.7 0.56 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 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 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) 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 29, 2013 8.8 -0.6 0.2 47.1 -24.6 32.8 -12.1 46.3 -3.5 85.6 -41.6 0.3 44.3 53.1 0.5 52.6 $ $ Sep 30, 2012 1,384.70 0.7 -0.3 -42.2 4.3 1 -0.4 14.8 -4.3 -26.4 6.1 -3.3 -23.6 1,361.10 0.9 1,360.20 $ Oct 2, 2011 1,248.00 0.7 -0.3 -12.2 4.5 -12.1 4.5 16.6 THE -6.1 -4.4 -7.4 0.9 -10.9 1,237.10 2.3 1,234.80 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 Current liabilities: Accounts payable Accrued litigation charge Accrued liabilities Insurance reserves Deferred revenue Total current liabilities Additional paid-in capital Retained earnings STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (in millions, except per share data) 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 Accumulated other comprehensive income Total shareholders' equity Noncontrolling interests Total equity TOTAL LIABILITIES AND EQUITY ASSETS LIABILITIES AND EQUITY $ $ $ $ Sep 29, 2013 2,575.70 658.1 561.4 1,111.20 287.7 277.3 5,471.40 58.3 496.5 3,200.50 967 185.3 274.8 862.9 11,516.70 2,784.10 1,269.30 491.7 $ 178.5 653.7 5,377.30 1,299.40 357.7 7,034.40 0.8 282.1 4,130.30 67 4,480.20 2.1 $ 4,482.30 11,516.70 $ $ Sep 30, 2012 1,188.60 848.4 485.9 1,241.50 196.5 238.7 4,199.60 116 459.9 2,658.90 97.3 144.7 143.7 399.1 8,219.20 398.1 1,133.80 167.7 510.2 2,209.80 549.6 345.3 3,104.70 0.7 39.4 5,046.20 22.7 5,109.00 5.5 5,114.50 8,219.20 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 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) 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 $ $ $ $ Sep 29, 2013 8.8 $ 655.6 2,784.10 -1,045.90 -56.2 -80.1 142.3 23 -68.3 152.5 88.7 87.6 139.9 76.3 2,908.30 -785.9 1,040.20 -610.4 -1,151.20 15.3 108 -27.2 -1,411.20 749.7 -35.2 247.2 258.1 -628.9 -588.1 -121.4 10.4 -108.2 -1.8 1,387.10 1,188.60 2,575.70 $ 34.4 $ 539.1 $ Sep 30, 2012 1,384.70 580.6 61.1 -49.3 153.6 23.6 -90.3 -273.3 -105.2 23.7 60.8 -19.7 1,750.30 -1,748.60 1,796.40 -129.1 -856.2 5.3 -41.8 -974 -30.8 236.6 169.8 -513 -549.1 -58.5 -0.5 -745.5 9.7 40.5 1,148.10 1,188.60 $ $ 34.4 $ 416.9 $ Oct 2, 2011 1,248.00 550 -30.2 106.2 -32.9 -55.2 145.2 33.3 -88.7 -422.3 227.5 -81.8 35.8 -22.5 1,612.40 -966 430 -55.8 -531.9 117.4 -13.2 -1,019.50 30.8 -27.5 250.4 103.9 -389.5 -555.9 -15 -5.2 -608 -0.8 -15.9 1,164.00 1,148.10 34.4 350.1