Starbucks 2014 Annual Report Download - page 60

56 Starbucks Corporation 2014 Form 10-K
distributor. License fee revenues from manufacturers are based on a percentage of sales and are recognized on a monthly basis
when earned. National foodservice account revenues are recognized, when the product is received by the customer or
distributor.
Sales to customers through CPG channels and national foodservice accounts, including sales to national distributors, are
recognized net of certain fees paid to the customer. We characterize these fees as a reduction of revenue unless we are able to
identify a sufficiently separable benefit from the customer's purchase of our products such that we could have entered into an
exchange transaction with a party other than the customer in order to receive such benefit, and we can reasonably estimate the
fair value of such benefit.
Stored Value Cards
Revenues from our stored value cards, primarily Starbucks Cards, are recognized when redeemed or when we recognize
breakage income, which occurs when the likelihood of redemption, based on historical experience, is deemed to be remote.
Outstanding customer balances are included in deferred revenue on the consolidated balance sheets. There are no expiration
dates on our stored value cards, and we do not charge any service fees that cause a decrement to customer balances. While we
will continue to honor all stored value cards presented for payment, management may determine the likelihood of redemption
to be remote for certain cards due to long periods of inactivity. In these circumstances, if management also determines there is
no requirement for remitting balances to government agencies under unclaimed property laws, card balances may then be
recognized as breakage income in net interest income and other in the consolidated statements of earnings. In fiscal 2014, 2013,
and 2012, we recognized breakage income of $38.3 million, $33.0 million, and $65.8 million, respectively.
Customers in the US, Canada, and certain other countries who register their Starbucks Card are automatically enrolled in the
My Starbucks Rewards® loyalty program and earn reward points ("Stars") with each purchase at participating Starbucks®,
Teavana®, Evolution Fresh™ and La Boulange® stores, as well as on certain packaged coffee products purchased in select
Starbucks® stores, at StarbucksStore.com, and through CPG channels. Reward program members receive various benefits
depending on factors such as the number of Stars earned in a 12-month period. The value of Stars earned by our program
members towards free product is included in deferred revenue and recorded as a reduction in revenue at the time the Stars are
earned, based on the value of Stars that are projected to be redeemed.
Marketing & Advertising
Our annual marketing expenses include many components, one of which is advertising costs. We expense most advertising
costs as they are incurred, except for certain production costs that are expensed the first time the advertising takes place.
Marketing expenses totaled $315.5 million, $306.8 million and $277.9 million in fiscal 2014, 2013, and 2012, respectively.
Included in these costs were advertising expenses, which totaled $198.9 million, $205.8 million and $182.4 million in fiscal
2014, 2013, and 2012, respectively.
Store Preopening Expenses
Costs incurred in connection with the start-up and promotion of new store openings are expensed as incurred.
Operating Leases
We lease retail stores, roasting, distribution and warehouse facilities, and office space for corporate administrative purposes
under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, lease premiums, rent
escalation clauses and/or contingent rent provisions. We recognize amortization of lease incentives, premiums and minimum
rent expenses on a straight-line basis beginning on the date of initial possession, which is generally when we enter the space
and begin to make improvements in preparation for intended use.
For tenant improvement allowances and rent holidays, we record a deferred rent liability within accrued liabilities, or other
long-term liabilities, on the consolidated balance sheets and amortize the deferred rent over the terms of the leases as reductions
to rent expense in the consolidated statements of earnings.
For premiums paid upfront to enter a lease agreement, we record a prepaid rent asset in prepaid expenses and other current
assets on the consolidated balance sheets and amortize the deferred rent over the terms of the leases as additional rent expense
in the consolidated statements of earnings.
For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of
initial possession, we record minimum rent expense on a straight-line basis over the terms of the leases in the consolidated
statements of earnings.