Starbucks 2005 Annual Report Download - page 50

discounted and are estimated, in part, by considering historical claims experience, demographic factors,
severity factors and other actuarial assumptions. The estimated accruals for these liabilities, portions of which
are calculated by third party actuarial firms, could be significantly affected if future occurrences and claims
differ from these assumptions and historical trends. As of October 2, 2005, and October 3, 2004, these reserves
were $91.6 million and $77.6 million, respectively, and were included in ""Accrued compensation and related
costs'' and ""Other accrued expenses'' on the consolidated balance sheets.
Revenue Recognition
Consolidated revenues are presented net of intercompany eliminations for wholly owned subsidiaries and for
licensees accounted for under the equity method, based on the Company's percentage ownership. Addition-
ally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives,
including coupon redemptions and rebates.
Retail Revenues
Company-operated retail store revenues are recognized when payment is tendered at the point of sale.
Revenues from stored value cards are recognized upon redemption. Until the redemption of stored value cards,
outstanding customer balances on these cards are included in ""Deferred revenue'' on the consolidated balance
sheets.
Specialty Revenues
Specialty revenues consist primarily of product sales to customers other than through Company-operated
retail stores, as well as royalties and other fees generated from licensing operations. Sales of coffee, tea and
related products are generally recognized upon shipment to customers, depending on contract terms. Shipping
charges billed to customers are also recognized as revenue, and the related shipping costs are included in
""Cost of sales including occupancy costs'' on the consolidated statements of earnings.
Specific to retail store licensing arrangements, initial nonrefundable development fees are recognized upon
substantial performance of services for new market business development activities, such as initial business,
real estate and store development planning, as well as providing operational materials and functional training
courses for opening new licensed retail markets. Additional store licensing fees are recognized when new
licensed stores are opened. Royalty revenues based upon a percentage of reported sales and other continuing
fees, such as marketing and service fees, are recognized on a monthly basis when earned.
Other arrangements involving multiple elements and deliverables as well as upfront fees are individually
evaluated for revenue recognition. Cash payments received in advance of product or service delivery are
recorded as deferred revenue.
Advertising
The Company expenses most advertising costs as they are incurred, except for certain production costs of
advertising that are expensed the first time the advertising campaign takes place and direct-response
advertising, which is capitalized and amortized over its expected period of future benefits. Direct-response
advertising consists primarily of customer acquisition expenses including applications for customers to apply
for the Starbucks Card Duetto
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. These capitalized costs are amortized over the life of the credit card which is
estimated to be three years.
Total advertising expenses, recorded in ""Store operating expenses'', ""Other operating expenses'' and ""General
and administrative expenses'' on the consolidated statements of earnings totaled $87.7 million, $67.2 million
and $49.6 million in fiscal 2005, 2004 and 2003, respectively. As of October 2, 2005, and October 3, 2004,
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