REQUIRED

Develop complete forecasts of Starbucks' income statements, balance sheets, and statements of cash flows for Years +1 through +5. As illustrated in this chapter, develop objective and unbiased forecast assumptions for all of Starbucks' future operating, investing, and financing activities through Year +5 and capture those expectations using financial statement forecasts.

 

a.Build your own spreadsheets to develop and capture your financial statement forecast assumptions and data for Starbucks. Building your own financial statement forecast spreadsheets is a valuable learning experience. You can use the PepsiCo examples presented throughout this chapter as models to follow in building your spreadsheets. If you have already had the learning experience of building forecast spreadsheets, you can build your financial statement forecasts using the FSAP template for Starbucks that accompanies this book. If you want to start from scratch, you can download the blank FSAP template from the book's website: www.cengagebrain.com and input the accounting data for Starbucks from Exhibits 10.14–10.16 into the Data Spreadsheet.

b. Starbucks' operating, investing, and financing activities involve primarily opening and operating company-owned retail coffee shops in the United States and around the world. Starbucks' annual reports provide useful data on the number of company-operated stores Starbucks owns, the new stores it opens each year, and the same-store sales growth rates. These data reveal that Starbucks' revenues and revenue growth rates differ significantly across different segments. Use these data, summarized in Exhibit 10.17 as a basis to forecast (1) Starbucks' future sales from existing stores, (2) the number of new company-operated stores Starbucks will open, (3) future sales from new stores, and (4) capital expenditures for new stores.

c. Starbucks' business also involves generating revenues from licensing Starbucks stores and selling Starbucks coffee and other products through foodservice accounts, grocery stores, warehouse clubs, and so on. Use the data in Exhibits 10.17 to build forecasts of future revenues from licensing activities and foodservice and other activities.

d. Use your forecasts of capital expenditures for new stores together with Starbucks' data on property, plant, and equipment and depreciation to build a schedule to forecast property, plant, and equipment and depreciation expense as described in the chapter for PepsiCo.

e. Starbucks appears to use repurchases of common equity shares as the flexible financial account for balancing the balance sheet. Common equity share repurchases are similar to dividends as a mechanism to distribute excess capital to common equity shareholders. Therefore, build your financial statement forecasts using dividends as the flexible financial account.

f. Save your forecast spreadsheets. In subsequent chapters, you will continue to use Starbucks as a comprehensive integrative case. In those chapters, you will apply the valuation models to your forecasts of Starbucks' future earnings, cash flows, and dividends to assess Starbucks' share valueExhibit 10.14     Starbucks Income Statements in Dollar Amounts, Common-Size Percentages, and Percentage Changes (amounts in millions, except per-share amounts) (Integrative Case 10.1)
 
 
 
Exhibit 10.15     Starbucks Balance Sheets in Dollar Amounts, Common-Size Percentages, and Percentage Changes (amounts in millions) (Integrative Case 10.1)
 
 
 
   Exhibit 10.16     Starbucks Consolidated Statements of Cash Flows (amounts in millions) (Integrative Case 10.1)
2010        2011        2012
Net Income                        $  948        $  1,248        $1,385
Add back depreciation and amortization expenses    541        550        581
Add back stock-based compensation expense        77        145        154
Deferred income taxes        -42        106        61
Income from equity affiliates, net of dividends        −17        −33        −49
(Increase) Decrease in accounts receivable        −33        −89        −90
(Increase) Decrease in inventories            123        −422        −273
Increase (Decrease) in accounts payable            −4        228        −105
Increase (Decrease) in other current liabilities        1        −82        24
Increase (Decrease) in deferred revenues        24        36        61
Other addbacks to (subtractions from) net income    52        −52        24
Other operating cash flows                35        −23        −20
Net Cash Flow from Operating Activities            1,705        1,612        1,750
Property, plant and equipment acquired            −441        −415        −851
(Increase) Decrease in marketable securities        −338        −536        48
Investments acquired                    −12        −56        −129
Other investment transactions                   1        −13        −42
Net Cash Flow from Investing Activities            −790        −1,020        −974
Increase (Decrease) in short-term borrowing        0        31        −31
Increase (Decrease) in long-term borrowing        −7        −4        0
Issue of capital stock                    128        235        237
Proceeds from stock option exercises            37        104        170
Share repurchases—treasury stock            −286        −556        −549
Dividend payments                    −171        −390        −513
Other financing transactions                 −48        −28         −59
Net Cash Flow from Financing Activities             346                  608        746
Effects of exchange rate changes on cash        −5         −1          10
Net Change in Cash                    $  564        $  −16        $ 40
Cash and cash equivalents, beginning of year        $  600        $1,164        $1,148
Cash and cash equivalents, end of year            $1,164        $1,148        $1,189

Exhibit 10.17     Sales Analysis and Store Operating Data (dollar amounts in millions; allow for rounding) (Integrative Case 10.1)
2010        2011        2012
Total Revenues:            
Company-operated stores                $ 8,963.5     $ 9,632.4     $ 10,534.5
Licensed stores                        875.2         1,007.5         1,210.3;
CPG, foodservice and other                868.7         1,060.5         1,554.7
Total revenues                        $10,707.4     $11,700.4     $13,299.5
Growth rates                                9.3%         13.7%        
Sales by Segment and Type:                
Company-Operated Stores                $ 8,963.5     $ 9,632.4     $10,534.5
Growth rates                                7.5%         9.4%
Number of company stores                8,866         9,007         9,405
Sales/Average store                    $ 1.007         $ 1.078         $ 1.144
Sales growth/Average store                        7.0%         6.2%
Licensing                        $   875.2     $ 1,007.5     $ 1,210.3
Growth rates                                15.1%         20.1%
Number of company stores                7,992         7,996         8,661
Sales/Average store                    $   0.112     $   0.126     $   0.145
Sales growth/Average store                        13.0%         15.3%
CPG, Foodservice, and Other                $   868.7     $ 1,060.5     $ 1,554.7
Growth rates                                 22.1%           46.6%
Total revenues                        $10,707.4     $11,700.4     $13,299.5
Americas
Net new stores opened (closed) during the year:        
Company-operated                    (33)        43         234
Licensed                        111         (268)        270
Total                            78         (225)        504
Total stores:                        
Company-operated                    7,580        7,623         7,857
Licensed                        5,044         4,776         5,046
Total                            12,624         12,399         12,903
Revenues:                                
Company-operated                            $ 8,365.5     $ 9,077.0
Revenues per store/year                                $1.173
Growth rate                                        8%
Licensed                                $   676.7     $   825.8
Revenues per store/year                                $   0.168
Europe, Middle East, Africa (EMEA)
Net new stores opened (closed) during the year:
Company-operated                    (64)        25         10
Licensed                        100         79         101
Total                            36         104         111
Total stores:
Company-operated                    847         872         882
Licensed                        807         886         987
Total                            1,654         1,758         1,869
Revenues:
Company-operated                            $ 905.5         $ 968.3        
Revenues per store/year                                $ 1.104
Growth rate                                        0%
Licensed                                $ 112.2        $ 139.5
Revenues per store/year                                $ 0.149
China Asia Pacific (CAP)
Net new stores opened during the year:
Company-operated                    30        73        154
Licensed                        79        193         294
Total                            109         266         448
Total stores:            
Company-operated                    439         512         666
Licensed                        2,141         2,334         2,628
Total                            2,580         2,846         3,294
Revenues:                                
Company-operated                            $ 361.4         $ 489.2
Revenues per store/year                                $   0.831
Growth rate                                        15%
Licensed                                $   190.9    $ 232.2
Revenues per store/year                                $   0.094
CPG, Foodservice, and Other
(including Americas, EMEA, CAP)                
Revenues                        $   868.7     $  1,060.5     $  1,554.7
Growth rates                                22.1%         46.6%

Note: Management guidance, disclosed in 2012 and again at the end of the first quarter in Year +1, indicates Starbucks is planning to open roughly 1,300 new stores during Year +1 (300 owned and 300 licensed stores in the Americas; 200 owned and 400 licensed stores in the China Asia Pacific segment; and 34 owned and 66 licensed stores in the Europe, Middle East and Africa segment). Starbucks management also indicated they expect to incur $1,200 million in capital expenditures during Year +1. Management did not provide guidance beyond Year +1. (Wahlen 844-850)