Note 17 Operating Segments and Related Information (in Part)
17. Business Segment and Geographic Area Information (in Part)
Geographic Data
Case 8-2
W O R K I N G O N T H E R A I L R O A D Segment Reporting
For the Years Ended December 31,
2006 2005 2004
Operating revenues:
United States $348,608 72.8% $299,440 77.7% $226,521 74.6%
Canada 55,555 11.6% 50,960 13.2% 44,008 14.5%
Australia 46,520 9.7% — 0.0% — 0.0%
Mexico 28,163 5.9% 34,989 9.1% 33,255 10.9%
Total operating
revenues $478,846 100.0% $385,389 100.0% $303,784 100.0%
b. Determine the indicated return on investment if help were hired to operate the station.
c. Why is there a difference between the rates of return in (a) and (b)? Discuss.
d. Determine the cash flow for 2008 if John serves as the manager and 2008 turns out to be the same as 2007. Do not include the cost of the hired help. No inven- tory is on hand at the date of purchase, but an inventory of $10,000 is on hand at the end of the year. There are no receivables or liabilities.
e. Indicate some other considerations that should be analyzed.
f. Should John purchase the station?
∗“We are a leading owner and operator of short line and regional freight railroads in the United States, Australia, Canada, and Mexico and own a minority interest in a railroad in Bolivia.” 10-K
December 31,
2006 2005
Long-lived assets located in:
United States $602,238 80.3% $734,636 86.3%
Canada 104,807 14.0% 71,726 8.4%
Australia 36,364 4.8% — 0.0%
Mexico 6,736 0.9% 45,140 5.3%
Total long-lived assets $750,145 100.0% $851,502 100.0%
Required a. Prepare horizontal common-size analysis for operating revenues. Comment on the results.
b. Prepare horizontal common-size analysis for long-lived assets. Comment on the results.
c. Comment on the vertical common-size analysis for operating revenues.
d. Comment on the vertical common-size analysis for long-lived assets.
e. Comment on the absolute numbers for operating revenues.
f. Comment on the absolute numbers for long-lived assets.
Starbucks presented the following in its 2006 annual report:
Notes to Consolidated Financial Statements (in Part) Note 19: Segment Reporting (in Part)
Segment information is prepared on the same basis that the Company’s management reviews financial information for operational decision making purposes. Beginning in the fiscal fourth quarter of 2006, the Company increased its reporting segments from two to three to include a Global CPG segment in addition to the United States and International segments. This addi- tional operating segment reflects the culmination of internal management realignments in fiscal 2006, and the successful development and launch of certain branded products in the United States and internationally, commencing in fiscal 2005 and continuing throughout fiscal 2006. Additionally, with the 100% acquisition of the Company’s operations in Hawaii in fiscal 2006 and the shift in internal management of this market to the United States, these operations have been moved from the International segment into the United States segment.
Segment information for all prior periods presented has been revised to reflect these changes.
United States
The Company’s United States operations (“United States”) represent 83% of total Company- operated retail revenues, 57% of total specialty revenues and 79% of total net revenues.
United States operations sell coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise primarily through Company-operated retail stores. Specialty Operations within the United States include licensed retail stores, foodservice accounts and other initiatives related to the Company’s core business.
International
The Company’s International operations (“International”) represent the remaining 17% of Company-operated retail revenues and 18% of total specialty revenues as well as 17% of total net revenues. International operations sell coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise through Company-operated retail stores in the United Kingdom, Canada, Thailand, Australia, Germany, China, Singapore, Puerto Rico, Chile and Ireland. Specialty Operations in International primarily include retail store licensing operations in more than 25 countries and foodservice accounts in Canada and the United Kingdom. The Company’s International operations are in various early stages of development that require a more extensive support organization, relative to the current levels of revenue and operating income, than in the United States.
Global Consumer Products Group
The Company’s CPG segment represents 25% of total specialty revenues and 4% of total net reve- nues. CPG operations sell a selection of whole bean and ground coffees as well as a selection of premium Tazo® teas through licensing arrangements with Kraft and other grocery and ware- house club stores in United States and international markets. CPG operations also produce and sell ready-to-drink beverages which include, among others, bottled Frappuccino® coffee drinks and Starbucks DoubleShot® espresso drinks, and Starbucks® superpremium ice creams, through its joint venuture partnerships and StarbucksTMCoffee and Cream Liqueurs through a marketing and distribution agreement. Through other manufacturing, distribution and co-packing agree- ments, the Company produces and sells ready-to-drink products in international locations.
Case 8-3
T H E S TO R Y O F S TA R B U C K S — I N S E G M E N T S Starbucks Corporation∗
∗“Starbucks purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of complementary food items, coffee-related acces- sories and equipment, a selection of premium teas and a line of compact discs, primarily through company-operated retail stores.” 10-K
(continued)
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in Note 1. Operating income represents earn- ings before “Interest and other income, net” and “Income taxes.” Allocations of portions of corporate overhead, interest or income taxes to the segments are not significant.
Identifiable assets by segment are those assets used in the Company’s operations in each segment. Unallocated corporate assets include cash and investments, unallocated assets of the corporate headquarters and roasting facilities, deferred taxes and certain other intan- gibles. Management evaluates performance of segments based on net revenues and operat- ing expenses.
The table below represents information by operating segment for the fiscal years noted (in thousands):
Case 8-3
T H E S TO R Y O F S TA R B U C K S — I N S E G M E N T S ( C o n t i n u e d )
Unallocated
United States International Global CPG Corporate(1) Total Fiscal 2006
Net Revenues:
Company-operated retail $5,495,240 $1,087,858 $ — $ — $6,583,098
Specialty:
Licensing 369,155 186,050 305,471 — 860,676
Foodservice and other 314,162 29,006 — — 343,168
Total specialty 683,317 215,056 305,471 — 1,203,844
Total net revenues 6,178,557 1,302,914 305,471 — 7,786,942
Earnings/(loss) before income taxes 957,631 109,494 166,918 (327,800) 906,243
Depreciation and amortization 284,625 66,800 108 35,678 387,211
Income from equity investees 151 34,370 59,416 — 93,937
Equity method investments — 163,566 41,438 — 205,004
Identifiable assets 1,996,295 746,398 94,160 1,592,088 4,428,941
Net impairment and disposition losses 9,395 10,084 — 143 19,622
Net capital expenditures 545,074 112,054 286 113,816 771,230
(1) Unallocated corporate includes certain general and administrative expenses, related depreciation and amortiza- tion expenses and amounts included in “Interest and other income, net” on the consolidated statements of earnings.
Note: Fiscal 2005 and fiscal 2004 are not presented with the case.
The tables below represent information by geographic area (in thousands):
FISCAL YEAR ENDED Oct. 1, 2006 Oct. 2, 2005 Oct. 3, 2004
Net revenues from external customers:
United States $6,478,142 $5,346,967 $ 4,501,288
Foreign countries 1,308,800 1,022,333 792,959
Total $7,786,942 $6,369,300 $ 5,294,247
No customer accounts for 10% or more of the Company’s revenues. Revenues from foreign countries are based on the geographic location of the customers and consist primarily of rev- enues from the United Kingdom and Canada, which together account for approximately 75%
of foreign net revenues.
FISCAL YEAR ENDED Oct. 1, 2006 Oct. 2, 2005 Oct. 3, 2004
Long-lived assets:
United States $2,446,126 $1,914,846 $1,739,638
Foreign countries 453,027 389,513 299,740
Total $2,899,153 $2,304,359 $2,039,378
(continued)
Case 8-4
S C O R E B O A R D S , E L E C T R O N I C D I S P L AY S , E TC .
Daktronics∗included this statement in its 2005 annual report:
Years Ended
April 30, 2005 May 1, 2004 May 3, 2003
Net sales $230,346 $209,907 $177,764
Cost of goods sold 157,137 137,436 118,633
Gross profit 73,209 72,471 59,131
Operating expenses:
Selling 32,840 27,305 24,966
General and administrative 10,434 9,510 7,422
Product design and development 10,499 8,126 6,918
53,773 44,941 39,306
Operating income 19,436 27,530 19,825
Nonoperating income (expense):
Interest income 1,453 1,014 694
Interest expense (211) (478) (897)
Other income (expense), net 768 586 974
Income before income taxes and
minority interest 21,446 28,652 20,596
Income tax expense 5,786 10,907 8,107
Income before minority interest 15,660 17,745 12,489
Minority interest in income of subsidiary — (18) (31)
Net income $ 15,660 $ 17,727 $ 12,458
Earnings per share:
Basic $ 0.83 $ 0.95 $ 0.68
Diluted $ 0.78 $ 0.89 $ 0.64
Daktronics, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share data)
April 30, May 1,
Assets 2005 2004
Current Assets:
Cash and cash equivalents $ 15,961 $ 12,255
Marketable securities 8,105 4,001
Accounts receivable, less allowance for doubtful accounts 23,762 28,686
∗“We are the world’s leading supplier of electronic scoreboards, large electronic display systems, marketing services, digital messaging solutions and related software and services for sports, commercial and transportation applica- tions.” 10-K
Required a. For fiscal 2006, prepare a vertical common-size analysis for net revenues using total net revenues as the base.
b. For fiscal year ended, net revenues from external customers, prepare a horizontal common-size analysis using October 3, 2004, as the base.
c. For fiscal year ended, long-lived assets, prepare a horizontal common-size analysis using October 3, 2004, as the base.
d. Comment on the results in (a), (b), and (c).
Case 8-3
T H E S TO R Y O F S TA R B U C K S — I N S E G M E N T S ( C o n t i n u e d )
(continued)
April 30, May 1,
2005 2004
Current maturities of long-term receivables 5,196 3,771
Inventories 24,612 16,604
Costs and estimated earnings in excess of billings 15,301 12,862
Prepaid expenses and other 1,725 905
Deferred income taxes 5,076 4,375
Income taxes receivable 1,812 813
Rental equipment available for sale 2,733 2,706
Total current assets 104,283 86,978
Property and equipment, net 31,053 25,096
Advertising rights, net 1,722 1,415
Long-term receivables, less current maturities 9,900 10,267
Goodwill 2,621 1,411
Intangible and other assets 1,101 920
Deferred income taxes 782 149
$151,462 $126,236
Liabilities and Shareholders’ Equity Current Liabilities:
Notes payable, bank $ 79 $ 214
Accounts payable 17,121 12,586
Accrued expenses and warranty obligations 10,973 9,911
Current maturities of long-term debt 909 1,181
Current maturities of long-term marketing obligations 304 115
Billings in excess of costs and estimated earnings 5,463 6,761
Customer deposits 4,164 2,829
Deferred maintenance revenue 2,983 1,700
Total current liabilities 41,996 35,297
Long-term debt, less current maturities 171 1,148
Long-term marketing obligations, less current maturities 595 350
Deferred income 1,357 1,134
Deferred income taxes 3,433 2,043
5,556 4,675
Shareholders’ Equity:
Common stock, no par value, authorized 60,000,000 shares; 19,165,369 and 18,886,492 shares issued at
April 30, 2005 and May 1, 2004, respectively 17,739 16,406
Additional paid-in capital 2,684 2,274
Retained earnings 83,337 67,677
Treasury stock, at cost, 19,680 shares (9) (9)
Accumulated other comprehensive income (loss) 159 (84)
103,910 86,264
$151,462 $126,236
Required a. Compute the following for 2005 and 2004:
1. Net profit margin
2. Total asset turnover (use year-end assets) 3. Return on assets (use year-end assets) 4. Operating income margin
5. Return on operating assets (use year-end assets) 6. Sales to fixed assets (use year-end fixed assets)
7. Return on investment (use year-end balance sheet accounts) 8. Return on total equity (use year-end equity)
9. Return on common equity (use year-end common equity) 10. Gross profit margin
b. Comment on the trends in (a).
Case 8-4
S C O R E B O A R D S , E L E C T R O N I C D I S P L AY S , E TC . ( C o n t i n u e d )
Case 8-5
YA H O O ! S E R V I C E S
YAHOO! INC.
Consolidated Statements of Operations (In thousands, except per share amounts)
Years Ended December 31,
2002 2003 2004
Revenues $ 953,067 $1,625,097 $3,574,517
Cost of revenues 162,881 358,103 1,298,559
Gross profit 790,186 1,266,994 2,275,958
Operating expenses:
Sales and marketing 429,968 530,613 778,029
Product development 141,766 207,285 368,760
General and administrative 100,676 157,027 262,602
Stock compensation expense∗ 8,402 22,029 32,290
Amortization of intangibles 21,186 54,374 145,696
Total operating expenses 701,998 971,328 1,587,377
Income from operations 88,188 295,666 688,581
Other income, net 69,287 47,506 496,443
Income before income taxes, earnings in equity interests, minority interests and cumulative
effect of accounting change 157,475 343,172 1,185,024
Provision for income taxes (71,290) (147,024) (437,966)
Earnings in equity interests 22,301 47,652 94,991
Minority interests in operations of consolidated
subsidiaries (1,551) (5,921) (2,496)
Net income before cumulative effect of
accounting change 106,935 237,879 839,553
Cumulative effect of accounting change (64,120) — —
Net income $ 42,815 $ 237,879 $ 839,553
Net income per share—basic
Net income per share before cumulative effect of
accounting change $ 0.09 $ 0.19 $ 0.62
Cumulative effect of accounting change per share (0.05) — —
Net income per share—basic $ 0.04 $ 0.19 $ 0.62
Net income per share—diluted
Net income per share before cumulative effect of
accounting change $ 0.09 $ 0.18 $ 0.58
Cumulative effect of accounting change per share (0.05) — —
Net income per share—diluted $ 0.04 $ 0.18 $ 0.58
Shares used in per share calculation—basic 1,187,677 1,233,480 1,353,439 Shares used in per share calculation—diluted 1,220,120 1,310,796 1,452,499
∗Stock compensation expense by function:
Sales and marketing $ 1,424 $ 5,785 $ 9,620
Product development 1,702 10,526 12,010
General and administrative 5,276 5,718 10,660
Total stock compensation expense $ 8,402 $ 22,029 $ 32,290
YAHOO! INC.
Consolidated Balance Sheets (In thousands, except par values)
December 31,
Assets 2003 2004
Current assets:
Cash and cash equivalents $ 415,892 $ 823,723
Marketable debt securities 893,625 1,875,964
“Yahoo! Inc., together with its consolidated subsidiaries, . . . is a leading global internet brand and one of the most trafficked internet destinations worldwide. . . .” 10-K
(continued)
December 31,
2003 2004
Marketable equity securities — 812,288
Accounts receivable, net of allowance of $31,961 and
$34,215, respectively 282,415 479,993
Prepaid expenses and other current assets 129,777 98,507
Total current assets 1,721,709 4,090,475
Long-term marketable debt securities 1,256,698 1,042,575
Property and equipment, net 449,512 531,696
Goodwill 1,805,561 2,550,957
Intangible assets, net 445,640 480,666
Other assets 252,534 481,832
Total assets $5,931,654 $9,178,201
Liabilities and Stockholders’ Equity Current liabilities:
Accounts payable $ 31,890 $ 48,205
Accrued expenses and other current liabilities 483,628 853,115
Deferred revenue 192,278 279,387
Total current liabilities 707,796 1,180,707
Long-term deferred revenue — 65,875
Long-term debt 750,000 750,000
Other long-term liabilities 72,890 35,907
Commitments and contingencies (Note 13)
Minority interests in consolidated subsidiaries 37,478 44,266
Stockholders’ equity:
Preferred Stock, $0.001 par value; 10,000 shares
authorized; none issued or outstanding — —
Common Stock, $0.001 par value; 10,000,000 shares authorized; 1,321,408 and 1,383,584 issued and
outstanding, respectively 1,354 1,416
Additional paid-in capital 4,340,514 5,682,884
Deferred stock-based compensation (52,374) (28,541)
Treasury stock (159,988) (159,988)
Retained earnings 230,386 1,069,939
Accumulated other comprehensive income 3,598 535,736
Total stockholders’ equity 4,363,490 7,101,446
Total liabilities and stockholders’ equity $5,931,654 $9,178,201
The accompanying notes are an integral part of these consolidated financial statements.
Required a. Compute the following for 2004 and 2003:
1. Net profit margin
2. Total asset turnover (use year-end total assets) 3. Return on assets (use year-end total assets) 4. Operating income margin
5. Return on operating assets (use year-end operating assets) 6. Sales to fixed assets (use year-end fixed assets)
7. Return on investment (use year-end long-term liabilities & equity) 8. Return on total equity (use year-end total equity)
9. Gross profit margin b. Comment on the trends in (a).
c. 1. Prepare a horizontal common-size consolidated statement of operations for 2002–2004. Use 2002 as the base.
2. Comment on the results in (1).
Case 8-5
YA H O O ! S E R V I C E S ( C o n t i n u e d )
Case 8-6
E AT AT M Y R E S TA U R A N T — P R O F I TA B I L I T Y V I E W
With this case, we review the profitability of several restaurant companies. The restaurant companies reviewed and the year-end dates are as follows:
1. Yum Brands, Inc. (December 30, 2006; December 30, 2005)
“Yum consists of six operating segments: KFC, Pizza Hut, Taco Bell, LSS/A&W, Yum Restaurants International . . . and Yum Restaurants China.” 10-K