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Starbucks Corp. (SBUX)
Analysis of Property, Plant and Equipment
Advanced level
Accounting Policy on Property, Plant and Equipment
Property, plant and equipment, which includes assets under capital leases, 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 is computed using the straight-line method over estimated useful lives of the assets, generally ranging from 2 to 15 years for equipment and 30 to 40 years for buildings. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life, generally 10 years. For leases with renewal periods at the option, Starbucks generally uses the original lease term, excluding renewal option periods, to determine estimated useful lives. If failure to exercise a renewal option imposes an economic penalty to Starbucks, Starbucks may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of the appropriate estimated useful lives.
The portion of depreciation expense related to production and distribution facilities is included in cost of sales on Starbucks’ consolidated statements of earnings. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. When assets are disposed of, whether through retirement or sale, the net gain or loss is recognized in net earnings. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell.
Starbucks evaluates property, plant and equipment for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, Starbucks first compares the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, Starbucks determines if Starbucks has an impairment loss by comparing the carrying value of the asset to the asset’s estimated fair value and recognize an impairment charge when the asset’s carrying value exceeds its estimated fair value. The fair value of the asset is estimated using a discounted cash flow model based on forecasted future revenues and operating costs, using internal projections. Property, plant and equipment assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For company-operated store assets, the impairment test is performed at the individual store asset group level.
Starbucks recognized net disposition charges of $64.6 million, $32.8 million, and $46.9 million in fiscal 2019, 2018, and 2017, respectively. Additionally, Starbucks recognized net impairment charges of $43.4 million, $42.8 million, and $56.1 million in fiscal 2019, 2018, and 2017, respectively. Of the total net impairment charges, $7.1 million and $37.0 million in fiscal 2019 and 2018, respectively, were restructuring related and recorded in restructuring and impairment expenses. Unless it is restructuring related, the nature of the underlying asset that is impaired or disposed of will determine the operating expense line on which the related impact is recorded on Starbucks’ consolidated statements of earnings.
Source: 10-K (filing date: 2019-11-15).
Property, Plant and Equipment Disclosure
Starbucks Corp., balance sheet: property, plant and equipment
US$ in thousands
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
| Item | Description | The company |
|---|---|---|
| Property, plant and equipment, gross | Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | Starbucks Corp.’s property, plant and equipment, gross increased from 2017 to 2018 and from 2018 to 2019. |
| Property, plant and equipment, net | Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | Starbucks Corp.’s property, plant and equipment, net increased from 2017 to 2018 and from 2018 to 2019. |
Asset Age Ratios (Summary)
Starbucks Corp., asset age ratios
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
| Asset age ratio | Description | The company |
|---|---|---|
| Average age ratio | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. | Starbucks Corp.’s average age ratio of depreciable property, plant and equipment improved from 2017 to 2018 and from 2018 to 2019. |
Average Age
Based on: 10-K (filing date: 2019-11-15), 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14).
2019 Calculations
1 Average age = 100 × Accumulated depreciation ÷ (Property, plant and equipment, gross – Land)
= 100 × ÷ ( – ) =
| Asset age ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company’s fixed asset base is old or new. Newer assets are likely to be more efficient. | Starbucks Corp.’s average age ratio of depreciable property, plant and equipment improved from 2017 to 2018 and from 2018 to 2019. |