Starbucks 2015 Annual Report Download - page 67

The table below summarizes our estimated minimum future rental payments under the acquired non-cancelable operating leases
and lease financing arrangements as of September 27, 2015 (in millions):
Operating
Leases
Lease Financing
Arrangements
Year 1 $ 83.7 $ 2.8
Year 2 66.5 2.8
Year 3 49.0 2.8
Year 4 37.5 2.8
Year 5 30.3 2.7
Thereafter 129.4 24.8
Total minimum lease payments $ 396.4 $ 38.7
The fair value of the noncontrolling interest in Starbucks Japan was estimated by applying the market approach. Specifically,
the fair value was determined based on the purchase price we expected to pay for the remaining 21% noncontrolling interest,
which was comprised of a set market price and a premium above the market price. The market price premium is a customary
business practice for public tender offer transactions in Japan, so we believe this is what a market participant would pay and
should be included in the fair value determination.
As a result of this acquisition, we remeasured the carrying value of our preexisting 39.5% equity method investment to fair value,
which resulted in a pre-tax gain of $390.6 million that was presented separately as gain resulting from acquisition of joint venture
within other income and expenses on the consolidated statements of earnings. The fair value of $577.0 million was calculated
using an average of the income and market approach. The income approach fair value measurement was based on significant
inputs that are not observable in the market and thus represents a fair value measurement categorized within Level 3 of the fair
value hierarchy. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses,
as well as the selection of an appropriate discount rate. Estimates of revenue growth and operating expenses were based on internal
projections and considered the historical performance of stores, local market economics and the business environment impacting
the stores' performance. The discount rate applied was based on Starbucks Japan's weighted-average cost of capital and included
a company-specific risk premium. The market approach fair value measurement was based on the implied fair value of Starbucks
Japan using the purchase price of Sazaby's 39.5% ownership interest and the expected purchase price of the 21% remaining
noncontrolling interest.
We began consolidating Starbucks Japan's results of operations and cash flows into our consolidated financial statements
beginning after October 31, 2014. For the year ended September 27, 2015, Starbucks Japan's net revenues and net earnings
included in our consolidated statements of earnings were $1.1 billion and $108.5 million, respectively.
The following table provides the supplemental pro forma revenue and net earnings of the combined entity had the acquisition
date of Starbucks Japan been the first day of our first quarter of fiscal 2014 rather than during our first quarter of fiscal 2015 (in
millions):
Pro Forma (unaudited)
Year Ended
Sep 27, 2015 Sep 28, 2014
Revenue $ 19,254.5 $ 17,646.4
Net earnings attributable to Starbucks(1) 2,380.9 2,449.9
(1) The pro forma net earnings attributable to Starbucks for fiscal 2014 includes the acquisition-related gain of $390.6 million,
and transaction and integration costs of $13.6 million for the year ended September 28, 2014.
The amounts in the supplemental pro forma earnings for the periods presented above fully eliminate intercompany transactions,
apply our accounting policies and reflect adjustments for additional occupancy costs, depreciation and amortization that would
have been charged assuming the same fair value adjustments to leases, property, plant and equipment and acquired intangibles
had been applied on September 30, 2013. These pro forma results are unaudited and are not necessarily indicative of results of
operations that would have occurred had the acquisition actually occurred in the prior year period or indicative of the results of
operations for any future period.
We initiated the second tender offer step on November 10, 2014 to acquire the remaining 21% ownership interest held by the
public shareholders and option holders of Starbucks Japan's common stock, with the objective of acquiring all of the remaining
outstanding shares including outstanding stock options. At the close of the second tender offer period on December 22, 2014,
we funded the second tender offer step to acquire an additional 14.7% ownership interest for ¥31 billion in cash, or $258
Starbucks Corporation 2015 Form 10-K 63