Starbucks 2007 Annual Report Download - page 49

Retail Revenues
Company-operated retail store revenues are recognized when payment is tendered at the point of sale. Starbucks
maintains a sales return allowance, to reduce retail revenues for estimated future product returns, including brewing
equipment, based on historical patterns. Retail store revenues are reported net of sales, use or other transaction taxes
that are collected from customers and remitted to taxing authorities.
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. For certain licensing arrangements, where the
Company intends to acquire an ownership interest, the initial nonrefundable development fees are deferred to
“Other long-term liabilities” on the consolidated balance sheets until acquisition, at which point the fees are
reflected as a reduction of the Company’s investment.
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 in
“Deferred revenue” until earned.
Advertising
The Company expenses most advertising costs as they are incurred, except for certain production costs 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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Visa». 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 $103.5 million, $107.5 million and
$87.7 million in fiscal 2007, 2006 and 2005, respectively. As of September 30, 2007 and October 1, 2006,
$12.0 million and $19.2 million, respectively, of capitalized advertising costs were recorded in “Prepaid expenses
and other current assets” and “Other assets” on the consolidated balance sheets.
Research and Development
Starbucks expenses research and development costs as they are incurred. The Company spent approximately
$7.0 million, $6.5 million and $6.2 million during fiscal 2007, 2006 and 2005, respectively, on technical research
and development activities, in addition to customary product testing and product and process improvements in all
areas of its business.
Store Preopening Expenses
Costs incurred in connection with the start-up and promotion of new store openings are expensed as incurred.
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