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Homework answers / question archive / Exhibit 3
Exhibit 3.36 presents a statement of cash flows for Starbucks for 2006, 2007, and 2008. This statement is an expanded version of the statement of cash flows for Starbucks shown in Exhibit 1.28.
a. Explain why equity in income of investees appears as a subtraction when net income is converted to cash flow from operations.
b. Compute the amount of cash received from investees as dividends each year. To answer this question, you need to refer to the income statement of Starbucks in Exhibit 1.27 in Chapter 1 (Integrative Case 1.1).
c. Explain why stock-based compensation appears as an addition to net income to compute cash flow from operations.
d. Discuss the relation between net income and cash flow from operations for each of the three years.
e. Discuss the relation between cash flows from operating, investing, and financing activities for each of the three years.
f. Refer to the income statement for Starbucks in Exhibit 1.27 in Chapter 1 (Integrative Case 1.1). Compute the amount of EBITDA for 2006, 2007, and 2008.
g. Discuss the relationships among net income, non-working capital adjustments, working capital adjustments, operating cash flows, and EBITDA for the three years. Are the patterns similar or different? What are the primary determinants of the dif- ferences between the summary measures net income, operating cash flows, and EBITDA?
Starbucks Corporation
Comparative Statements of Cash Flows (amounts in millions)
(Case 3.1)
|
|
Sept. 28, |
Sept. 30, |
Oct. 1, |
|
Fiscal Year Ended: |
2008 |
2007 |
2006 |
Net earnings $ 315.5 $ 672.6 $ 564.3
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
Cumulative effect of accounting change for FIN 47, net of taxes |
— |
— |
17.2 |
|
Depreciation and amortization |
604.5 |
491.2 |
412.6 |
|
Provision for impairments and asset disposals |
325.0 |
26.0 |
19.6 |
|
Deferred income taxes, net |
(117.1) |
(37.3) |
(84.3) |
|
Equity in income of investees |
(61.3) |
(65.7) |
(60.6) |
|
Distributions of income from equity investees |
52.6 |
65.9 |
49.2 |
|
Stock-based compensation |
75.0 |
103.9 |
105.7 |
|
Tax benefit from exercise of stock options |
3.8 |
7.7 |
1.3 |
|
Excess tax benefit from exercise of stock options |
(14.7) |
(93.1) |
(117.4) |
|
Other Cash provided (used) by changes in operating assets and liabilities: Inventories |
(0.1)
(0.6) |
0.7
(48.6) |
2.0
(85.5) |
|
Accounts payable |
(63.9) |
36.1 |
105.0 |
|
Accrued taxes |
7.3 |
86.4 |
132.7 |
|
Deferred revenue |
72.4 |
63.2 |
56.6 |
|
Other operating assets and liabilities |
60.3 |
22.2 |
13.2 |
|
Net Cash Provided by Operating Activities |
$ 1,258.7 |
$ 1,331.2 |
$1,131.6 |
|
INVESTING ACTIVITIES Purchase of available-for-sale securities |
$ (71.8) |
$ (237.4) |
$ (639.2) |
|
Maturity of available-for-sale securities |
20.0 |
178.2 |
269.1 |
|
Sale of available-for-sale securities |
75.9 |
47.5 |
431.2 |
|
Acquisitions, net of cash acquired Net purchases of equity, other investments, and other assets |
(74.2)
(52.0) |
(53.3)
(56.6) |
(91.7)
(39.2) |
|
Net additions to property, plant, and equipment |
(984.5) |
(1,080.3) |
(771.2) |
|
Net Cash Used by Investing Activities |
$ (1,086.6) |
$ (1,201.9) |
$ (841.0) |
|
FINANCING ACTIVITIES Repayments of commercial paper |
$(66,068.0) |
$(16,600.9) |
— |
|
Proceeds from issuance of commercial paper |
65,770.8 |
17,311.1 |
— |
|
Repayments of short-term borrowings |
(228.8) |
(1,470.0) |
$ (993.1) |
|
Proceeds from short-term borrowings |
528.2 |
770.0 |
1,416.1 |
|
Proceeds from issuance of common stock |
112.3 |
176.9 |
159.2 |
|
|
|
|
(Continued) |
EXHIBIT 3.36 (Continued)
|
Fiscal Year Ended: |
Sept. 28, 2008 |
Sept. 30, 2007 |
Oct. 1, 2006 |
|
Excess tax benefit from exercise of stock options |
14.7 |
93.1 |
117.4 |
|
Principal payments on long-term debt |
(0.6) |
(0.8) |
(0.9) |
|
Proceeds from issuance of long-term debt |
— |
549.0 |
— |
|
Repurchase of common stock |
(311.4) |
(996.8) |
(854.0) |
|
Other |
(1.7) |
(3.5) |
— |
|
Net Cash Used by Financing Activities |
$(184.5) |
$(171.9) |
$(155.3) |
|
Effect of exchange rate changes on cash and cash equivalents |
0.9 |
11.3 |
3.5 |
|
Net increase (decrease) in cash and cash equivalents |
$ (11.5) |
$ (31.3) |
$ 138.8 |
|
CASH AND CASH EQUIVALENTS Beginning of period |
281.3 |
312.6 |
173.8 |
|
End of the Period |
$ 269.8 |
$ 281.3 |
$ 312.6 |
h. The income statement in Exhibit 1.27 in Chapter 1 (Integrative Case 1.1) shows depreciation and amortization expense as follows:
|
2006 |
2007 |
2008 |
|
$387.2 |
$467.2 |
$549.3 |
However, the statement of cash flows shows addbacks for depreciation and amor- tization as follows:
|
2006 |
2007 |
2008 |
|
$412.6 |
$491.2 |
$604.5 |
Explain why the amount on the income statement differs from the amount on the statement of cash flows each year.
