corresp
March 23, 2010
VIA EDGAR TRANSMISSION
U.S. Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 3561
100 F Street N.E.
Washington, DC 20549-3561
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Attn: |
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Mr. Lyn Shenk
Branch Chief |
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RE: |
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Starbucks Corporation — Response to Letter dated March 8, 2010 regarding:
Form 10-K: For the Fiscal Year Ended September 27, 2009
File No. 000-20322
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Dear Mr. Shenk:
Starbucks Corporation (“Starbucks” or the “Company”) has received your letter dated March 8,
2010 with respect to the review by the staff (“Staff”) of the Securities and Exchange Commission
(the “Commission”) of the Company’s Form 10-K for the fiscal year ended September 27, 2009.
Starbucks understands the importance of providing full and transparent disclosures in its 1934 Act
filings and appreciates this feedback from the Staff so it can continue to improve its filings.
For your convenience, each of the numbered comments in your March 8, 2010 letter is repeated herein
and the Company’s response is set forth immediately below each such comment.
Form 10-K: For the Year Ended September 27, 2009
Item 1. Business
Company-operated Retail Stores, page 3
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We note that you disclose store openings net of store closures. We believe it would be more
useful to investors to able to see gross store openings and store closures. In future filings,
please consider disclosing the gross number of stores opened and closed. |
Securities and Exchange Commission
Division of Corporation Finance
March 23, 2010
Page 2
RESPONSE:
In response to the Staff’s comment, we will include in future 10-K filings the gross number of both
opened and closed stores.
Product Supply, page 6
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Please tell us and clarify in future filings what is meant by “price to be fixed” purchase
commitments. |
RESPONSE:
In response to the Staff’s comment, in future filings, beginning with our upcoming fiscal second
quarter 10-Q, we will include disclosure to clarify what is meant by “price-to-be fixed purchase
commitments” in a manner substantially similar to the following discussion.
We advise the Staff that price-to-be-fixed contracts are green coffee purchase commitments whereby
the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date at
which the base “C” coffee commodity price component will be fixed has not yet been established. For
these types of contracts, either the buyer (Starbucks) or the seller has the option to select a
date on which to “fix” the base “C” coffee commodity price prior to the delivery date. Until prices
are fixed, we estimate the total cost of these purchase commitments.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Consolidated Results of Operations, page 23
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We note your disclosure regarding the changes in transaction volume and average value per
transaction. In addition to providing these percentages, please revise future filings to
quantify the impacts of these changes on net revenues. For example, please revise future
filings to quantify the actual dollar amount of aggregate net revenue change during the period
attributed to a change in transaction volume. |
RESPONSE:
In response to the Staff’s comment, in future filings, beginning with our upcoming fiscal second
quarter 10-Q, we will quantify the dollar amount of the aggregate net revenue change attributed to
changes in transaction volume and average value per transaction, in addition to providing the
current disclosures with respect to the percentages.
Securities and Exchange Commission
Division of Corporation Finance
March 23, 2010
Page 3
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We note that you discuss certain factors to which changes are attributable but, you do not
quantify some of these factors. For example, you state the cost of sales including occupancy
costs decreased as a percentage of revenues primarily due to the implementation of in-store
operational efficiencies designed to reduce product waste, and due to lower dairy costs in the
US, partially offset by higher coffee costs, but you do not quantify each of the different
factors. In future filings, please ensure that all material factors are analyzed and
quantified to the extent practicable. |
RESPONSE:
In response to the Staff’s comment, in future filings, beginning with our upcoming fiscal second
quarter 10-Q, we will include a quantitative analysis (e.g. impact to percentage of revenues or
dollar impact) of the material factors impacting the line items, to the extent practicable.
Operating Segments, page 26
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In future filings please quantify, discuss, and analyze changes in costs of sales including
occupancy costs and store operating expenses for each segment on a stand-alone basis in
addition to your current disclosure which is made in the context of operating margin. |
RESPONSE:
In response to the Staff’s comment, in future filings, beginning with our upcoming fiscal second
quarter 10-Q, we will enhance the discussion and analysis of changes in costs of sales including
occupancy costs and store operating expenses for each segment on a standalone basis, in addition to
the information disclosed in our fiscal 2009 Form 10-K.
Item 8. Financial Statements and Supplementary Data
Note 1. Summary of Significant Accounting Policies
Allowance for Doubtful Accounts and Inventories, page 46
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In future filings please provide a roll-forward of your allowance for doubtful accounts and
inventory reserves. Please refer to Rule 5-04 of Regulation S-X for further guidance. |
RESPONSE:
We advise the Staff that we annually consider the guidance in Rule 5-04 of Regulation S-X relating
to Valuation and Qualifying Accounts. Rule 5-04 provides that, “Valuation and qualifying accounts
and reserves as to which the additions, deductions, and balances were not individually significant
may be grouped in one total and in such case the
Securities and Exchange Commission
Division of Corporation Finance
March 23, 2010
Page 4
information called for under columns C and D of
the schedule (see template included within the Rule 12-09) need not be given.” We have previously
provided in our disclosures the total amounts of our allowance for doubtful accounts and inventory
reserves; however, the amounts of additions and reductions to those reserves have not been material
and have therefore not been disclosed. We therefore respectfully advise the Staff that we will
include such schedule in future 10-K filings to the extent the activity becomes material. Our
current disclosure of the total amounts of the allowance for doubtful accounts and inventory
reserves only includes the current and prior year balance sheet amounts. In our future 10-K filings
we will include the reserve amounts for the full three year period.
Supplementally, we provide the Staff with the following table which illustrates the additions and
reductions to our valuation and qualifying accounts for fiscal 2009, and the immaterial nature of
such amounts (in millions):
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Balance at |
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beginning of fiscal |
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Balance at |
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year |
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end of fiscal year |
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Sep 28, 2008 |
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Additions |
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Reductions |
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Sep 29, 2009 |
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Allowance for doubtful accounts |
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$ |
4.5 |
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$ |
2.7 |
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$ |
(2.2 |
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5.0 |
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Inventory reserves |
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$ |
25.5 |
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$ |
13.6 |
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$ |
(18.0 |
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$ |
21.1 |
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Note 9. Other Intangibles Assets and Goodwill, page 61
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Please tell us and disclose in future filings what your reporting units are and how goodwill
is allocated amongst these reporting units. Additionally, we noted that you closed
approximately 771 US company operated retail stores and an additional 102 international
company operated retail store during fiscal year 2008 and 2009 combined. However, it appears
that there was no impact on goodwill as a result of these store closures. Please tell us how
you considered the guidance in paragraphs 350-20-35-51 through 350-20-35-57 of the FASB
Accounting Standards Codification or formerly paragraph 39 of FAS 142. |
RESPONSE:
In response to the Staff’s comments, in future 10-K filings we will include disclosure to clarify
what our reporting units are and how goodwill is allocated among our reporting units. We advise the
Staff that we currently have three operating segments (U.S.,
International, and Global Consumer Products Group), each of which are
reportable segments. Our reporting units are components of our
operating segments and are primarily defined based on geographical location. Each of our reporting
units constitutes a business and has discrete financial information that is
Securities and Exchange Commission
Division of Corporation Finance
March 23, 2010
Page 5
regularly reviewed by segment management. Goodwill has been allocated to 15 different reporting
units based primarily on the location of the acquired entity.
During fiscal years 2008 and 2009, we undertook efforts to rationalize our portfolio of stores and
closed specific underperforming stores within various geographic markets. However, we did not exit
or substantially reduce our presence in any given market containing goodwill. Given the close
proximity of our stores, in most markets we experienced migration of a portion of the revenues from
closed stores to other nearby Starbucks stores. Further, in many cases we were able to redeploy
employees and equipment from closed stores to other Company-operated stores. Upon the store
closings, we disposed of only those store assets which could not be transferred to other stores.
The disposed of set of assets consisted primarily of abandoned leasehold improvements. We
recognized lease exit obligations concurrently with the store closures.
During fiscal years 2008 and 2009, of the total gross Company-operated stores closed in the US,
approximately 40 of those stores were in reporting units containing goodwill. Internationally,
approximately 60 of the total gross Company-operated stores closed were in reporting units
containing goodwill.
We have considered the guidance in section 350-20-35-51 through 350-20-35-57 of the FASB Accounting
Standards Codification, which requires that when a portion of a reporting unit that constitutes a
business is disposed of, goodwill associated with that business shall be included in the carrying
amount of that business in determining the gain or loss on disposal. During fiscal years 2008 and
2009, the guidance that we considered in evaluating the definition of a business was contained in
EITF 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or
of a Business. Based on our evaluation, we concluded that the disposed of set of assets did not
constitute a business as defined by EITF 98-3.
We note that EITF 98-3 defines a business as “a self-sustaining integrated set of activities and
assets conducted and managed for the purpose of providing a return to investors. A business
consists of (a) inputs, (b) processes applied to those inputs, and (c) resulting outputs that are
used to generate revenues. For a transferred set of activities and assets to be a business, it must
contain all of the inputs and processes necessary for it to continue to conduct normal operations
after the transferred set is separated from the transferor, which includes the ability to sustain a
revenue stream by providing its outputs to customers.” We advise the Staff that as a part of our
store closure activities, certain long-lived assets were disposed of, leases were exited and a
portion of our store employees were terminated. We do not believe this disposed of set of assets
constitutes a business as defined by EITF 98-3, as it does not contain the inputs and processes
necessary to continue to conduct normal operations, including the ability to generate revenues, as
follows:
Securities and Exchange Commission
Division of Corporation Finance
March 23, 2010
Page 6
Inputs (long-lived assets, including intangible assets or rights to the use of
long-lived assets; intellectual property; the ability to obtain access to necessary
materials or rights; employees) — As noted above, the inputs disposed of as a part of our
store closures in 2008 and 2009 represented primarily leasehold improvements and lease
arrangements, and did not include a significant portion of the inputs used in our revenue
generating activities. Inventory, the ability to obtain access to products, supplies,
equipment , intellectual property including branding, and many employees were retained
by the Company and transferred to other Starbucks stores.
Processes (the existence of systems, standards, protocols, conventions, and rules
that act to define the processes necessary for normal, self-sustaining operations, such as
(i) strategic management processes, (ii) operational processes, and (iii) resource
management processes) — The assets disposed of as a part of our store closures in 2008 and
2009 did not include the disposal of any of the systems, standards, protocols, conventions,
and rules that act to define the processes necessary for normal, self-sustaining
operations. For example, we retained our point-of-sale software, labor scheduling software,
operational processes and employee know-how, procurement and distribution management and
back office support processes.
Outputs (the ability to obtain access to the customers that purchase the outputs of
the transferred set) — Because the inputs and processes retained are significant, we
believe that the disposed set of assets is not capable of generating outputs to obtain
access to customers.
Under EITF 98-3, a transferred set of activities and assets fails the definition of a business if
it excludes one or more of the above items such that it is not possible for the set to continue
normal operations and sustain a revenue stream by providing its products and/or services to
customers. We believe that the inputs and processes retained by Starbucks (e.g. customer retention,
employees, equipment, intellectual property, systems and protocols) are significant missing items,
and the degree of difficulty and the level of investment necessary to obtain access to or to
acquire the missing items would be significant, that is, such missing items are more than “minor.”
As a result, without the necessary inputs, processes and outputs described above, the long-lived
assets and leases would be insufficient to conduct normal operations and therefore do not
constitute a business.
We supplementally advise the Staff that while no goodwill was allocated to the disposed of assets
in determining the gain or loss on disposal of the related assets, the impact of these under
performing stores was a factor in the determination of the fair value of our
reporting units and resulted in a $7 million impairment of goodwill recorded in the fiscal third
quarter of 2009 in our Hawaii reporting unit.
Securities and Exchange Commission
Division of Corporation Finance
March 23, 2010
Page 7
In connection with the Company’s responses to the comments in your March 8, 2010 letter, the
Company acknowledges that:
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the Company is responsible for the adequacy and accuracy of the disclosure in its
filings; |
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Staff comments or changes to the disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the filing; and |
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the Company may not assert Staff comments as a defense in any proceeding initiated by
the Commission or any persons under the federal securities laws of the United States. |
We appreciate your consideration of the responses provided herein and look forward to hearing
from you shortly if you have any additional comments based upon such responses. Please contact
either Sophie Hager Hume, vice president, Securities and Corporate Law (by telephone at
206/318-6195 or by facsimile at 206/903-4156), or the undersigned (by telephone at 206/318-7681 or
by facsimile at 206/318-0672).
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Very truly yours,
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/s/ Troy Alstead
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Troy Alstead |
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executive vice president, chief financial officer and
chief administrative officer |
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cc: |
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Ms. Aamira Chaudhry — Securities and Exchange Commission (via facsimile)
Mr. John Salata — Deloitte & Touche LLP, Seattle
Ms. Paula E. Boggs, executive vice president, general counsel and secretary
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