Starbucks 2015 Annual Report Download - page 66

During fiscal 2015, the acquisition date fair value of goodwill increased due to revisions that decreased the acquisition date fair
value of accrued liabilities and deferred income taxes (noncurrent) and increased the acquisition date fair value of other-long-
term liabilities. None of the adjustments had a material effect on our current or interim period consolidated financial statements.
The assets acquired and liabilities assumed are reported within our China/Asia Pacific segment. Other current and long-term
assets acquired primarily include various deposits, specifically lease and key money deposits. Accrued liabilities and other
long-term liabilities assumed primarily include the financing obligations associated with the build-to-suit leases discussed
below, as well as asset retirement obligations.
The intangible assets are finite-lived and include reacquired rights, licensing agreements with Starbucks Japan's current
licensees and Starbucks Japan's customer loyalty program. The reacquired rights of $305.0 million represent the fair value,
calculated over the remaining original contractual period, to exclusively operate licensed Starbucks® retail stores in Japan.
These rights will be amortized on a straight-line basis through March 2021, or over a period of approximately 6.4 years. The
licensing agreements were valued at $15.0 million and will be amortized on a straight-line basis over a period of approximately
10.9 years, which is based on the remaining terms of the respective licensing agreements. The customer loyalty program was
valued at $3.0 million and will be amortized on a straight-line basis over a period of 4.0 years, which represents the period
during which we expect to benefit from these customer relationships.
Below is a tabular summary of the acquired intangible assets as of September 27, 2015, for which the gross balances in total are
$33.7 million lower than as of the October 31, 2014 acquisition date due to foreign currency translation (in millions):
Sep 27, 2015
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Reacquired rights $ 273.2 $ (39.0) $ 234.2
Licensing agreements 13.4 (1.1) 12.3
Customer loyalty program 2.7 (0.6) 2.1
Total acquired finite-lived intangible assets $ 289.3 $ (40.7) $ 248.6
Amortization expense for these finite-lived intangible assets for the year ended September 27, 2015 was $41.0 million and is
estimated to be approximately $44 million each year for the next five years and approximately $29 million thereafter.
The $815.6 million of goodwill represents the intangible assets that do not qualify for separate recognition and primarily
includes the acquired customer base, the acquired workforce including store partners in the region that have strong
relationships with these customers, the existing geographic retail and online presence, and the expected geographic presence in
new channels. The goodwill was allocated to the China/Asia Pacific segment and is not deductible for income tax purposes.
Due to foreign currency translation, the balance of goodwill related to the acquisition declined $85.1 million to $730.5 million
as of September 27, 2015.
As a part of this acquisition, we acquired a significant number of operating leases, including $7.5 million of favorable lease
assets, which are included in prepaid expenses and other current assets and other long-term assets, and $15.5 million of
unfavorable lease liabilities, which are included in accrued liabilities and other long-term liabilities on the consolidated balance
sheets. The fair values of these assets and liabilities were determined based on market terms for similar leases as of the date of
the acquisition, and will be amortized on a straight-line basis as rent expense, or a reduction of rent expense, respectively, in
cost of sales including occupancy costs on the consolidated statements of earnings over the remaining terms of the leases, for
which the weighted-average period was 9.4 years as of the October 31, 2014 acquisition date. We recorded a net reduction of
rent expense of $0.8 million for the year ended September 27, 2015, in connection with the leases acquired.
Additionally, we acquired a number of build-to-suit lease arrangements that are accounted for as financing leases. Starbucks
Japan is the deemed owner of buildings under build-to-suit lease accounting requirements since Starbucks Japan has significant
involvement with the respective lessors and does not qualify for sales recognition under sale-leaseback accounting guidance.
Accordingly, we have recorded the acquired buildings in property, plant and equipment, and the assumed lease financing
obligations, representing the related future minimum lease payments, in other long-term liabilities, with the current portion
recorded in accrued occupancy costs within accrued liabilities on the consolidated balance sheets. These financing obligations
will be amortized based on the terms of the related lease agreements.
62 Starbucks Corporation 2015 Form 10-K