e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 27,
2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File
Number: 0-20322
Starbucks Corporation
(Exact Name of Registrant as
Specified in Its Charter)
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Washington
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91-1325671
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(State of
Incorporation)
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(IRS Employer
ID)
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2401 Utah
Avenue South
Seattle, Washington 98134
(206) 447-1575
(Address
of principal executive offices, zip code, telephone
number)
Securities
Registered Pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.001 par value per share
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Nasdaq Global Select Market
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Securities
Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation of S-K is not contained
herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or
any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of the last business day of
the registrants most recently completed second fiscal
quarter, based upon the closing sale price of the
registrants common stock on March 27, 2009 as
reported on the NASDAQ Global Select Market was
$8.4 billion. As of November 13, 2009, there were
approximately 740.2 million shares of the registrants
Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the
registrants Annual Meeting of Shareholders to be held on
March 24, 2010 have been incorporated by reference into
Part III of this Annual Report on
Form 10-K.
STARBUCKS
CORPORATION
Form 10-K
For the
Fiscal Year Ended September 27, 2009
TABLE OF
CONTENTS
PART I
General
Starbucks is the premier roaster and retailer of specialty
coffee in the world. Starbucks Corporation was formed in 1985
and its common stock trades on the NASDAQ Global Select Market
(NASDAQ) under the symbol SBUX.
Starbucks (together with its subsidiaries, Starbucks
or the Company) purchases and roasts high-quality
whole bean coffees and sells them, along with fresh, rich-brewed
coffees, Italian-style espresso beverages, cold blended
beverages, a variety of complementary food items, a selection of
premium teas, and beverage-related accessories and equipment,
primarily through Company-operated retail stores. Starbucks also
sells coffee and tea products and licenses its trademark through
other channels such as licensed retail stores and, through
certain of its licensees and equity investees, Starbucks
produces and sells a variety of
ready-to-drink
beverages. All channels outside the Company-operated retail
stores are collectively known as specialty operations.
The Companys objective is to maintain Starbucks standing
as one of the most recognized and respected brands in the world.
To achieve this goal, the Company plans to continue disciplined
global expansion of its retail and licensed store base, to
introduce relevant new products in all its channels, and to
selectively develop new channels of distribution. The
Companys Global Responsibility strategy and commitments
related to coffee and the communities it does business in, as
well as its focus on being an employer of choice, are also key
complements to its business strategies.
Segment
Financial Information
Starbucks has three reportable operating segments, and each
segment provided the indicated percentage of total net revenues
for fiscal year ended September 27, 2009 (fiscal
2009): United States (US) (73%), International
(19%) and Global Consumer Products Group (CPG) (8%).
In the fourth fiscal quarter of 2009, the Company changed the
composition of its reportable segments. The US foodservice
business, which was previously reported in the US segment, is
now reported in the CPG segment, as a result of internal
management realignments within the US and CPG businesses.
Segment information for all prior periods presented has been
revised to reflect this change.
The US and International segments both include Company-operated
retail stores and certain components of specialty operations.
Specialty operations within the US include licensed retail
stores and other initiatives related to the Companys core
business. International specialty operations primarily consist
of retail store licensing operations in nearly 40 countries and
foodservice accounts in Canada and the United Kingdom
(UK). The International segments largest
markets, based on number of Company-operated and licensed retail
stores, are Canada, Japan and the UK. The CPG segment includes
packaged coffee and tea, and other branded products sold
worldwide through channels such as grocery stores, warehouse
clubs and convenience stores, and US foodservice accounts. CPG
operates a significant portion of its business through licensing
arrangements and joint ventures with large consumer products
business partners. This operating model leverages the business
partners existing infrastructures and as a result, the CPG
segment reflects relatively lower revenues, a modest cost
structure, and a resulting higher operating margin, compared to
the Companys other two reporting segments, which consist
primarily of retail stores.
Financial information about Starbucks segments is included in
Note 18 to the consolidated financial statements included
in Item 8 of this Annual Report on
Form 10-K
(10-K
or Report).
1
Revenue
Components
Revenue components as a percentage of total net revenues and
related specialty revenues for the fiscal year ended
September 27, 2009:
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% of
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% of
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Total Net
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Specialty
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Revenues
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Revenues
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Revenues
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Company-operated retail
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84
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%
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Specialty:
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Licensing:
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Retail stores
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8
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50
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%
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Packaged coffee and tea
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4
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23
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Branded products
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<1
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4
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Total licensing
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12
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77
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Foodservice and other:
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Foodservice
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4
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23
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Other initiatives
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<1
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<1
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Total foodservice and other
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4
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23
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Total specialty
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16
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100
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%
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Total net revenues
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100
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%
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Company-operated
and Licensed Retail Store Summary as of September 27,
2009
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As a% of Total
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As a% of Total
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International
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As a% of
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US
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US Stores
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International
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Stores
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Total
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Total Stores
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Company-operated stores
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6,764
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61
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%
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2,068
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38
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%
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8,832
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53
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%
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Licensed stores
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4,364
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39
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3,439
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62
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7,803
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47
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Total
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11,128
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100
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%
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5,507
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100
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%
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16,635
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100
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%
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Starbucks mix of Company-operated versus licensed stores in a
given market will vary based on several factors. Some of these
factors include the ability to access desirable local retail
space, the complexity and expected ultimate size of the market
for Starbucks, and the ability to leverage the Companys
support infrastructure in an existing geographic region.
Company-operated
Retail Stores
The Companys retail goal is to become the leading retailer
and brand of coffee in each of its target markets by selling the
finest quality coffee and related products, and by providing
each customer a unique Starbucks Experience. The
Starbucks Experience is built upon superior customer
service as well as clean and well-maintained Company-operated
retail stores that reflect the personalities of the communities
in which they operate, thereby building a high degree of
customer loyalty.
Starbucks disciplined strategy for expanding its global retail
business is to increase its market share by selectively opening
additional stores in existing markets, opening stores in new
markets, and increasing sales in existing stores, to support its
long term strategic objectives. Store growth in specific
existing markets will vary due to many factors, including the
maturity of the market.
As described in more detail in Managements Discussion and
Analysis in this
10-K,
Starbucks has taken a number of actions in fiscal 2008 and 2009
to rationalize its store portfolio. These actions have included
plans (announced in July 2008 and January 2009) to close a
total of approximately 800 Company-operated stores in the US,
restructure its
2
Australia market, and close approximately 100 additional
Company-operated stores internationally. As of the end of fiscal
2009, nearly all of the approximately 800 US stores, 61 stores
in Australia and 41 stores in other International markets have
been closed. The remaining International closures are expected
to be completed by the end of fiscal 2010.
Starbucks Company-operated retail stores accounted for 84% of
total net revenues during fiscal 2009.
Summary of total Company-operated retail store data for the
periods indicated:
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Net Stores Opened
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(Closed) During the
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Fiscal Year
Ended(1)
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Stores Open as of
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Sep 27, 2009
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Sep 28, 2008
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Sep 27, 2009
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Sep 28, 2008
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US(2)
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(474
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445
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6,764
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7,238
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International(3):
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Canada
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44
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104
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775
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731
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United Kingdom
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2
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84
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666
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664
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China
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13
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37
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191
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178
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Germany
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13
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27
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144
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131
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Thailand
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4
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24
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131
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127
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Singapore
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7
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12
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64
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57
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Australia
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(64
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23
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23
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Other
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6
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12
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74
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68
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Total International
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89
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236
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2,068
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1,979
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Total Company-operated
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(385
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681
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8,832
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9,217
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(1) |
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Store openings are reported net of closures. |
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(2) |
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Of the approximately 800 total US stores identified for closure,
566 stores and 205 stores were closed in fiscal 2009 and 2008,
respectively. |
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(3) |
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Starbucks restructured its Australia market by closing 61 stores
in fiscal 2008. Of the approximately 100 International stores
(incremental to the Australia closures in fiscal
2008) identified for closure, 41 stores were closed in
various markets in fiscal 2009. |
Starbucks retail stores are typically located in high-traffic,
high-visibility locations. Because the Company can vary the size
and format, its stores are located in or near a variety of
settings, including downtown and suburban retail centers, office
buildings and university campuses. The Company also locates
retail stores in select rural and off-highway locations to serve
a broader array of customers outside major metropolitan markets.
To provide a greater degree of access and convenience for
nonpedestrian customers, the Company continues to selectively
expand development of drive-thru retail stores. At the end of
fiscal 2009, the Company operated approximately 2,650 drive-thru
locations, representing approximately 35% of Company-operated
stores in the US and Canada combined.
Starbucks stores offer a choice of regular and decaffeinated
coffee beverages, a broad selection of Italian-style espresso
beverages, cold blended beverages, iced shaken refreshment
beverages, a selection of premium teas, distinctively packaged
roasted whole bean coffees, and its recently launched soluble
coffee Starbucks
VIAtm
Ready Brew (VIA). Starbucks stores also offer a
variety of fresh food items, including healthier choice
selections focusing on high-quality ingredients, nutritional
value and great flavor. Food items include pastries, prepared
breakfast and lunch sandwiches, oatmeal, and salads as well as
sodas, juices and bottled water. Starbucks continues to expand
its food warming program in the US and Canada, with
approximately three-quarters of the stores in these markets
providing warm food items, primarily breakfast sandwiches, as of
September 27, 2009. A selection of beverage-making
equipment and accessories are also sold in the stores. Each
Starbucks store varies its product mix depending upon the size
of the store and its location. Larger stores carry a broad
selection of the Companys whole bean coffees in various
sizes and types of packaging, as well as coffee and
espresso-making equipment and accessories. Smaller Starbucks
stores and kiosks typically sell a full line of coffee
beverages, a limited selection of whole bean coffees and a
smaller selection of coffee and beverage-related accessories.
3
Retail sales mix by product type for Company-operated stores:
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Fiscal Year Ended
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Sep 27, 2009
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Sep 28, 2008
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Sep 30, 2007
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Beverages
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76
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%
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76
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%
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75
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%
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Food
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18
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%
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17
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%
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17
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%
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Coffee-making equipment and other merchandise
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3
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%
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4
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%
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5
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%
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Whole bean coffees
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3
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%
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3
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%
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3
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%
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Total
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100
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%
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100
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%
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100
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%
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Starbucks
Card
The Starbucks Card program is designed to increase customer
loyalty and the frequency of store visits by cardholders.
Starbucks cards can be used in all Company-operated and most
licensed stores in North America, and in a growing number of
international markets. The cards have no expiration date and do
not have any inactivity fees.
Specialty
Operations
Specialty operations strive to develop the Companys brands
outside the Company-operated retail store environment through a
number of channels. Starbucks strategy is to reach customers
where they work, travel, shop and dine by establishing
relationships with prominent third parties that share the
Companys values and commitment to quality. These
relationships take various forms, including licensing
arrangements, foodservice accounts and other initiatives related
to the Companys core businesses. In certain situations,
Starbucks has an equity ownership interest in licensee
operations. During fiscal 2009, specialty revenues (which
include royalties and fees from licensees, as well as product
sales derived from specialty operations) accounted for 16% of
total net revenues.
Licensing
Retail stores
In its licensed retail store operations which include the
Starbucks and Seattles Best Coffee brands, the Company
leverages the expertise of its local partners and shares the
Companys operating and store development experience.
Licensee partners provide improved, and at times the only,
access to desirable retail space. Most licensees are prominent
retailers with in-depth market knowledge and access. As part of
these arrangements, Starbucks receives royalties and license
fees and sells coffee, tea and related products for resale in
licensed locations. Product sales to and royalty and license fee
revenues from US and International licensed retail stores
accounted for 50% of specialty revenues in fiscal 2009.
Employees working in licensed retail locations are required to
follow Starbucks detailed store operating procedures and attend
training classes similar to those given to employees in
Company-operated stores.
Starbucks total licensed retail stores by region and specific
location at fiscal year end 2009:
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Asia Pacific
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Europe/Middle East/Africa
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Americas
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Japan
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875
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Turkey
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123
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US
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4,364
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South Korea
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288
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United Arab Emirates
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91
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Canada
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262
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China
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283
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Spain
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76
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Mexico
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261
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Taiwan
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222
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Greece
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69
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Other
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69
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Philippines
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160
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Saudi Arabia
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68
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Malaysia
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118
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Kuwait
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62
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Indonesia
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74
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France
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52
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New Zealand
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42
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Switzerland
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47
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U.K.
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46
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Other
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151
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Total
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2,062
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Total
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785
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Total
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4,956
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During fiscal 2009, net licensed store openings included 35 in
the US and 305 internationally.
4
Licensing
Packaged coffee and tea
Through a licensing relationship with Kraft Foods, Inc.
(Kraft), the Company sells a selection of Starbucks
and Seattles Best Coffee branded packaged coffees and
Tazo®
teas in grocery and warehouse club stores throughout the US.
Kraft manages all distribution, marketing, advertising and
promotion of these products.
The Company sells packaged coffee and tea internationally both
directly to warehouse club stores, such as Costco Wholesale
Corporation, and to grocery stores through a licensing
relationship with Kraft in Canada, the UK and other European
countries.
The Companys coffees and teas are available in
approximately 39,000 grocery and warehouse club stores, with
33,500 in the US and 5,500 in International markets. Revenues
from this category comprised 23% of specialty revenues in fiscal
2009.
Licensing
Branded products
The Company licenses the rights to produce and market Starbucks
branded products through several partnerships both domestically
and internationally. Significant licensing agreements include:
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The North American Coffee Partnership, a joint venture with the
Pepsi-Cola Company in which Starbucks is a 50% equity investor,
manufactures and markets
ready-to-drink
beverages, including bottled
Frappuccino®
beverages and Starbucks
DoubleShot®
espresso drinks in US and Canada;
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licensing agreements for the manufacturing, marketing and
distribution of Starbucks
Discoveries®,
a
ready-to-drink
chilled cup coffee beverage, and Starbucks
DoubleShot®
espresso drinks in Japan and South Korea;
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a licensing agreement with a partnership formed by Unilever and
Pepsi-Cola Company for the manufacturing, marketing and
distribution of Starbucks super-premium
Tazo®
Tea
ready-to-drink
beverages in the US; and
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a licensing agreement with Unilever for the manufacturing,
marketing and distribution of Starbucks super-premium ice cream
products in the US.
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Collectively, the revenues from these branded products accounted
for 4% of specialty revenues in fiscal 2009.
Foodservice
The Company sells whole bean and ground coffees, including the
Starbucks and Seattles Best Coffee brands, as well as a
selection of premium
Tazo®
teas, VIA and other related products, to institutional
foodservice companies that service business and industry,
education, healthcare, office coffee distributors, hotels,
restaurants, airlines and other retailers. The majority of the
Companys sales in this channel come through national
broadline distribution networks with SYSCO Corporation, US
Foodservicetm,
and other distributors. The Companys total foodservice
operations had over 21,000 accounts, primarily in the US, at
fiscal year end 2009. Revenues from foodservice accounts
comprised 23% of total specialty revenues in fiscal 2009.
Product
Supply
Starbucks is committed to selling only the finest whole bean
coffees and coffee beverages. To ensure compliance with its
rigorous coffee standards, Starbucks controls its coffee
purchasing, roasting and packaging, and the global distribution
of coffee used in its operations. The Company purchases green
coffee beans from coffee-producing regions around the world and
custom roasts them to its exacting standards for its many blends
and single origin coffees.
The supply and price of coffee are subject to significant
volatility. Although most coffee trades in the commodity market,
high-altitude arabica coffee of the quality sought by the
Company tends to trade on a negotiated basis at a substantial
premium above commodity coffee prices, depending upon the supply
and demand at the time of purchase. Supply and price can be
affected by multiple factors in the producing countries,
including weather,
5
political and economic conditions. In addition, green coffee
prices have been affected in the past, and may be affected in
the future, by the actions of certain organizations and
associations that have historically attempted to influence
prices of green coffee through agreements establishing export
quotas or by restricting coffee supplies.
To help ensure sustainability and future supply of high-quality
green coffees and to reinforce the Companys leadership
role in the coffee industry, Starbucks operates Farmer Support
Centers in Costa Rica and Rwanda. The Farmer Support Centers are
staffed with agronomists and sustainability experts who work
with coffee farming communities to promote best practices in
coffee production designed to improve both coffee quality and
yields.
The Company buys coffee using fixed-price and
price-to-be-fixed
purchase commitments, depending on market conditions, to secure
an adequate supply of quality green coffee. As of
September 27, 2009, the Company had $238 million of
purchase commitments which, together with existing inventory, is
expected to provide an adequate supply of green coffee through
fiscal 2010.
The Company depends upon its relationships with coffee
producers, outside trading companies and exporters for its
supply of green coffee. The Company believes, based on
relationships established with its suppliers, the risk of
non-delivery on such purchase commitments is remote.
In addition to coffee, the Company also purchases significant
amounts of dairy products, particularly fluid milk, to support
the needs of its Company-operated retail stores. The
Companys highest volume of dairy purchases are in the US,
Canada and the UK. For these markets, Starbucks purchases
substantially all of its fluid milk requirements from six dairy
suppliers. The Company believes, based on relationships
established with these suppliers, the risk of non-delivery of
sufficient fluid milk to support these retail businesses is
remote.
Products other than whole bean coffees and coffee beverages sold
in Starbucks retail stores are obtained through a number of
different channels. Beverage ingredients other than coffee and
milk, including leaf teas and the Companys selection of
ready-to-drink
beverages, are purchased from several specialty suppliers,
usually under long-term supply contracts. Food products, such as
fresh pastries, breakfast sandwiches and lunch items, are
purchased from national, regional and local sources.
Coffee-making equipment, such as drip and coffee press
coffeemakers, espresso machines and coffee grinders, are
generally purchased directly from their manufacturers.
Beverage-related accessories, including items bearing the
Companys logos and trademarks, are produced and
distributed through contracts with a number of different
suppliers. The Company also purchases a broad range of paper and
plastic products, such as cups and cutlery, from several
companies to support the needs of its retail stores as well as
its manufacturing and distribution operations. The Company
believes, based on relationships established with these
suppliers and manufacturers, the risk of non-delivery is remote.
Competition
The Companys primary competitors for coffee beverage sales
are quick-service restaurants and specialty coffee shops. In
almost all markets in which the Company does business, there are
numerous competitors in the specialty coffee beverage business,
and management expects this situation to continue. The Company
believes that its customers choose among specialty coffee
retailers primarily on the basis of product quality, service and
convenience, as well as price. Starbucks has been experiencing
greater direct competition from large competitors in the US
quick-service restaurant sector and continues to face
competition from well-established companies in many
International markets and in the US ready-to-drink coffee
beverage market.
The Companys whole bean coffees and ground packaged
coffees compete directly against specialty coffees sold through
supermarkets, club stores and specialty retailers. The
Companys whole bean coffees, its coffee beverages, and its
recently launched soluble coffee VIA, compete indirectly against
all other coffees on the market. Starbucks specialty operations
face significant competition from established wholesale and mail
order suppliers, some of whom have greater financial and
marketing resources than the Company.
Starbucks also faces competition from both restaurants and other
specialty retailers for prime retail locations and qualified
personnel to operate both new and existing stores.
6
Patents,
Trademarks, Copyrights and Domain Names
The Company owns and has applied to register numerous trademarks
and service marks in the US and in many additional countries
throughout the world. Some of the Companys trademarks,
including Starbucks, the Starbucks logo, Frappuccino,
Seattles Best Coffee and Tazo are of material importance
to the Company. The duration of trademark registrations varies
from country to country. However, trademarks are generally valid
and may be renewed indefinitely as long as they are in use
and/or their
registrations are properly maintained.
The Company owns numerous copyrights for items such as product
packaging, promotional materials, in-store graphics and training
materials. The Company also holds patents on certain products,
systems and designs. In addition, the Company has registered and
maintains numerous Internet domain names, including
Starbucks.com, Starbucks.net, and
Seattlesbest.com.
Research
and Development
Starbucks research and development teams are responsible for the
technical development of food and beverage products and new
equipment. The Company spent approximately $6.5 million,
$7.2 million and $7.0 million during fiscal 2009, 2008
and 2007, respectively, on technical research and development
activities, in addition to customary product testing and product
and process improvements in all areas of its business.
Seasonality
and Quarterly Results
The Companys business is subject to seasonal fluctuations,
including fluctuations resulting from the holiday season. The
Companys cash flows from operations are considerably
higher in the first fiscal quarter than the remainder of the
year. This is largely driven by cash received as Starbucks Cards
are purchased and loaded during the holiday season. Since
revenues from the Starbucks Card are recognized upon redemption
and not when purchased, seasonal fluctuations on the
consolidated statements of earnings are much less pronounced.
Quarterly results are affected by the timing of the opening of
new stores and the closing of existing stores. For these
reasons, results for any quarter are not necessarily indicative
of the results that may be achieved for the full fiscal year.
Employees
The Company employed approximately 142,000 people worldwide
as of September 27, 2009. In the US, Starbucks employed
approximately 111,000 people, with 105,000 in
Company-operated retail stores and the remainder in the
Companys administrative and regional offices, and store
development, roasting and warehousing operations. Approximately
31,000 employees were employed outside of the US, with
30,000 in Company-operated retail stores and the remainder in
the Companys regional support facilities and roasting and
warehousing operations. The number of the Companys
employees represented by unions is not significant. Starbucks
believes its current relations with its employees are good.
Global
Responsibility
Starbucks is committed to being a deeply responsible company in
the communities where it does business around the world. The
Companys focus is on ethically sourcing high-quality
coffee, reducing its environmental impacts and contributing
positively to communities. Starbucks Global Responsibility
strategy and commitments are integral to the Companys
overall business strategy. As a result, Starbucks believes it
delivers benefits to the Company and its stakeholders, including
employees, business partners, customers, suppliers,
shareholders, community members and others. For an overview of
Starbucks Global Responsibility strategy and commitments, please
visit www.starbucks.com.
Available
Information
Starbucks
10-K
reports, along with all other reports and amendments filed with
or furnished to the Securities and Exchange Commission
(SEC), are publicly available free of charge on the
Investor Relations section of Starbucks website at
http://investor.starbucks.com
or at www.sec.gov as soon as reasonably practicable after these
materials
7
are filed with or furnished to the SEC. The Companys
corporate governance policies, code of ethics and Board
committee charters and policies are also posted on the Investor
Relations section of Starbucks website at
http://investor.starbucks.com.
The information on the Companys website is not part of
this or any other report Starbucks files with, or furnishes to,
the SEC.
Starbucks is including this Cautionary Statement to make
applicable and take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 (the
Act) for forward-looking statements. This
10-K
includes forward-looking statements within the meaning of the
Act. Forward-looking statements can be identified by the fact
that they do not relate strictly to historical or current facts.
They often include words such as believes,
expects, anticipates,
estimates, intends, plans,
seeks or words of similar meaning, or future or
conditional verbs, such as will, should,
could, may, aims,
intends, or projects. A forward-looking
statement is neither a prediction nor a guarantee of future
events or circumstances, and those future events or
circumstances may not occur. Investors should not place undue
reliance on the forward-looking statements, which speak only as
of the date of this Report. These forward-looking statements are
all based on currently available operating, financial and
competitive information and are subject to various risks and
uncertainties. The Companys actual future results and
trends may differ materially depending on a variety of factors,
including, but not limited to, the risks and uncertainties
discussed below.
If any of the risks and uncertainties described in the
cautionary factors described below actually occurs, Starbucks
business, financial condition and results of operations could be
materially and adversely affected. The factors listed below are
not exhaustive. Other sections of this
10-K include
additional factors that could materially and adversely impact
Starbucks business, financial condition and results of
operations. Moreover, Starbucks operates in a very competitive
and rapidly changing environment. New factors emerge from time
to time and it is not possible for management to predict the
impact of all these factors on Starbucks business, financial
condition or results of operation or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors
should not rely on forward-looking statements as a prediction of
actual results. Any or all of the forward-looking statements
contained in this
10-K and any
other public statement made by Starbucks or its management may
turn out to be incorrect. Starbucks expressly disclaims any
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
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Starbucks
financial condition and results of operations are sensitive to,
and may be adversely affected by, a number of factors, many of
which are largely outside the Companys
control.
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The Companys operating results have been in the past and
will continue to be subject to a number of factors, many of
which are largely outside the Companys control. Any one or
more of the factors set forth below could adversely impact
Starbucks business, financial condition
and/or
results of operations:
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lower customer traffic or average value per transaction, which
negatively impacts comparable store sales, net revenues,
operating income, operating margins and earnings per share, due
to:
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the impact of initiatives by competitors and increased
competition generally;
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customers trading down to lower priced products within
Starbucks,
and/or
shifting to competitors with lower priced products;
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lack of customer acceptance of new products or price increases
necessary to cover costs of new products
and/or
higher input costs;
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unfavorable general economic conditions in the markets in which
Starbucks operates that adversely affect consumer spending;
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declines in general consumer demand for specialty coffee
products; or
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8
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adverse impacts resulting from negative publicity regarding the
Companys business practices or the health effects of
consuming its products;
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cost increases that are either wholly or partially beyond the
Companys control, such as:
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commodity costs for commodities that can only be partially
hedged, such as fluid milk, and to a lesser extent, high quality
arabica coffee (See also the discussion under
Product Supply in Item 1);
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labor costs such as increased health care costs, general market
wage levels and workers compensation insurance costs;
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litigation against Starbucks, particularly class action
litigation;
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construction costs associated with new store openings; or
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information technology costs and other logistical resources
necessary to maintain and support the global growth of the
Companys business;
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delays in store openings for reasons beyond the Companys
control, or a lack of desirable real estate locations available
for lease at reasonable rates, either of which could keep the
Company from meeting annual store opening targets and, in turn,
negatively impact net revenues, operating income and earnings
per share;
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any material interruption in the Companys supply chain
beyond its control, such as material interruption of roasted
coffee supply due to the casualty loss of any of the
Companys roasting plants or the failures of third-party
suppliers, or interruptions in service by common carriers that
ship goods within the Companys distribution channels, or
trade restrictions, such as increased tariffs or quotas,
embargoes or customs restrictions; and
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the impact on Starbucks business of factors such as labor
discord, war, terrorism (including incidents targeting
Starbucks), political instability in certain markets and natural
disasters.
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The
Company may not be successful in implementing important
strategic initiatives, which may have a material adverse impact
on its business and financial results.
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There is no assurance that the Company will be able to implement
important strategic initiatives in accordance with its
expectations, which may result in a material adverse impact on
the Companys business and financial results. These
strategic initiatives are designed to drive long-term
shareholder value and improve Starbucks results of operations,
and include:
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ongoing initiatives to improve the current state of the business
by refocusing on the customer experience in the stores, new
products and store design elements, and new training and tools
for the Companys store partners to help them give
customers a superior experience;
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balancing disciplined global store growth while meeting target
store-level unit economics in a given market;
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executing a multi-channel advertising and marketing campaign to
effectively communicate the Companys message directly to
Starbucks consumers and partners; and
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focusing on relevant innovation and profitable growth platforms,
such as the recent introduction of Starbucks soluble coffee, VIA.
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Economic
conditions in the US and certain International markets could
adversely affect the Companys business and financial
results.
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As a retailer that is dependent upon consumer discretionary
spending, the Companys results of operations are sensitive
to changes in macro-economic conditions. Starbucks customers may
have less money for discretionary purchases as a result of job
losses, foreclosures, bankruptcies, reduced access to credit and
falling home prices. Any resulting decreases in customer traffic
or average value per transaction will negatively impact the
Companys
9
financial performance as reduced revenues result in sales
de-leveraging which creates downward pressure on margins. There
is also a risk that if negative economic conditions persist for
a long period of time, consumers may make long-lasting changes
to their discretionary purchasing behavior, including less
frequent discretionary purchases on a more permanent basis.
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Failure
to meet market expectations for Starbucks financial performance
will likely adversely affect the market price and volatility of
Starbucks stock.
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The Companys failure to meet market expectations going
forward, particularly with respect to operating margins,
earnings per share, comparable store sales, and net revenues,
will likely result in a decline
and/or
increased volatility in the market price of Starbucks stock.
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Starbucks
is highly dependent on the financial performance of its US
operating segment.
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The Companys financial performance is highly dependent on
its US operating segment, which comprised approximately
three-quarters of consolidated total net revenues in fiscal
2009. The Company continued to experience negative traffic in
its US stores in fiscal 2009, which adversely affected the
operating results of the US segment and the Company as a whole.
Although the US segments operating results improved in
fiscal 2009 compared to fiscal 2008 due to the Companys
restructuring efforts, if improvements in its financial
performance do not continue, the Companys business and
financial results will continue to be adversely affected.
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Starbucks
is increasingly dependent on the success of its International
operating segment in order to achieve its growth
targets.
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The Companys future growth increasingly depends on the
growth and sustained profitability of its International
operating segment. Some or all of the Companys
International market business units (MBUs), which
Starbucks generally defines by the countries or regions in which
they operate, may not be successful in their operations or in
achieving expected growth, which ultimately requires achieving
consistent, stable net revenues and earnings. The performance of
the International operating segment may be adversely affected by
economic downturns in one or more of the Companys large
MBUs. Additionally, some factors that will be critical to the
success of International MBUs are different than those affecting
the Companys US stores and licensees. Tastes naturally
vary by region, and consumers in new international markets into
which Starbucks and its licensees expand may not embrace
Starbucks products to the same extent as consumers in the
Companys existing markets. Occupancy costs and store
operating expenses are also sometimes higher internationally
than in the US due to higher rents for prime store locations or
costs of compliance with country-specific regulatory
requirements. Because many of the Companys International
operations are in an early phase of development, operating
expenses as a percentage of related revenues are often higher
compared to US operations. The Companys International
operations are also subject to additional inherent risks of
conducting business abroad, such as:
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foreign currency exchange rate fluctuations;
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changes or uncertainties in economic, legal, regulatory, social
and political conditions in the Companys markets;
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interpretation and application of laws and regulations;
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restrictive actions of foreign or US governmental authorities
affecting trade and foreign investment, including protective
measures such as export and customs duties and tariffs and
restrictions on the level of foreign ownership;
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import or other business licensing requirements;
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the enforceability of intellectual property and contract rights;
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limitations on the repatriation of funds and foreign currency
exchange restrictions;
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10
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in developing economies, the growth rate in the portion of the
population achieving targeted levels of disposable income may
not be as fast as the Company forecasts;
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difficulty in staffing, developing and managing foreign
operations, including ensuring the consistency of product
quality and service, due to distance, language and cultural
differences; and
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local laws that make it more expensive and complex to negotiate
with, retain or terminate employees.
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Moreover, many of the foregoing risks are particularly acute in
developing countries, which are important to the Companys
long-term growth prospects.
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Starbucks
International operating segment is highly dependent on the
financial performance of its Canada, Japan and UK
market.
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Starbucks Canada, Japan and UK markets account for a significant
portion of the net revenues and profit contribution of the
Companys International operating segment. Any significant
decline in the financial performance of one of these key markets
may have a material adverse impact on the results of operations
of the entire International operating segment, if not partially
or fully offset by positive financial performance from the other
two major markets.
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Starbucks
faces intense competition in the specialty coffee market, which
could lead to reduced profitability.
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A description of the general competitive conditions in which
Starbucks operates appears under Competition in
Item 1. In the US, the continued focus by one or more large
competitors in the quick-service restaurant sector on selling
high-quality specialty coffee beverages at a low cost has
attracted Starbucks customers and could, if the numbers become
large enough, adversely affect the Companys sales and
results of operations. Similarly, continued competition from
well-established competitors in international markets could
hinder growth and adversely affect the Companys sales and
results of operations in those markets. The Company faces
increased competition from larger well-known competitors which
have greater resources. Increasing competition from the US
packaged coffee and tea and
ready-to-drink
coffee beverage markets could adversely affect the profitability
of the CPG segment and the Companys results of operations.
Given its premium brand, Starbucks may be impacted more severely
than its competitors by customers trading down to lower priced
coffee beverages and related products.
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A
regional or global health pandemic could severely affect
Starbucks business.
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A health pandemic is a disease outbreak that spreads rapidly and
widely by infection and affects many individuals in an area or
population at the same time. If a regional or global health
pandemic were to occur, depending upon its duration and
severity, the Companys business could be severely
affected. Starbucks has positioned itself as a third place
between home and work where people can gather together for human
connection. Customers might avoid public gathering places in the
event of a health pandemic, and local, regional or national
governments might limit or ban public gatherings to halt or
delay the spread of disease. A regional or global health
pandemic might also adversely impact the Companys business
by disrupting or delaying production and delivery of materials
and products in its supply chain and by causing staffing
shortages in its stores. The impact of a health pandemic on
Starbucks might be disproportionately greater than on other
companies that depend less on the gathering of people together
for the sale, use or license of their products and services.
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The
Companys success depends substantially on the value of the
Starbucks brand.
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Starbucks believes it has built an excellent reputation globally
for the quality of its products, for delivery of a consistently
positive consumer experience and for its corporate social
responsibility programs. The Starbucks brand has been highly
rated in several global brand value studies. To be successful in
the future, particularly outside of US, where the Starbucks
brand is less well-known, management believes it must preserve,
grow and leverage the value of the Starbucks brand across its
sales channels. Brand value is based in part on consumer
perceptions as to a variety of subjective qualities. Even
isolated business incidents that erode consumer trust,
particularly if the incidents
11
receive considerable publicity or result in litigation, can
significantly reduce brand value. Consumer demand for the
Companys products and its brand equity could diminish
significantly if Starbucks fails to preserve the quality of its
products, is perceived to act in an unethical or socially
irresponsible manner or fails to deliver a consistently positive
consumer experience in each of its markets.
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The
Companys business depends in large part on the success of
its business partners and suppliers, and the Companys
brand and reputation may be harmed by actions taken by third
parties that are outside of the Companys
control.
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The Companys business strategy, including its plans for
new stores, foodservice, branded products and other initiatives,
relies significantly on a variety of licensee and partnership
relationships, particularly in its International markets.
Licensees are often authorized to use the Starbucks logo and
provide Starbucks-branded beverages, food and other products
directly to customers. The Company provides training and support
to, and monitors the operations of, these business partners, but
the product quality and service they deliver to Starbucks
customers may be diminished by any number of factors beyond the
Companys control, including financial pressures.
Management believes customers expect the same quality of
products and service from the Companys licensees as they
do from Starbucks and the Company strives to ensure customers
have the same experience whether they visit a Company-operated
or licensed store. Any shortcoming of a Starbucks business
partner, particularly an issue affecting the quality of the
service experience or the safety of beverages or food, may be
attributed by customers to Starbucks, thus damaging the
Companys reputation and brand value and potentially
affecting the results of operations.
The Companys products and in particular, its coffee and
tea products, are sourced from a wide variety of domestic and
international vendors. The Company relies on international
vendors to provide high quality product that comply with
applicable laws. The Companys ability to find qualified
vendors who meet our standards and supply products in a timely
and efficient manner is a significant challenge, especially with
respect to goods sourced from outside the US. These issues could
negatively impact the Companys business and profitability.
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The
loss of key personnel or difficulties recruiting and retaining
qualified personnel could jeopardize the Companys ability
to meet its financial targets.
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The Companys success depends substantially on the
contributions and abilities of key executives and other
employees, and on its ability to recruit and retain high quality
employees to work in and manage Starbucks stores. Starbucks must
continue to recruit, retain and motivate management and other
employees sufficient to maintain its current business and
support its projected growth. A loss of key employees or a
significant shortage of high quality store employees could
jeopardize the Companys ability to meet its financial
targets.
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Effectively
managing the Companys growth is challenging.
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Effectively managing growth can be challenging, particularly as
Starbucks expands into new markets internationally, where it
must balance the need for flexibility and a degree of autonomy
for local management against the need for consistency with the
Companys goals, philosophy and standards. Growth can make
it increasingly difficult to ensure a consistent supply of high
quality raw materials, to locate and hire sufficient numbers of
key employees to meet the Companys financial targets, to
maintain an effective system of internal controls for a globally
dispersed enterprise and to train employees worldwide to deliver
a consistently high quality product and customer experience.
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Adverse
public or medical opinions about the health effects of consuming
the Companys products, as well as reports of incidents
involving food-borne illnesses or food tampering, whether or not
accurate, could harm its business.
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Some Starbucks products contain caffeine, dairy products, sugar
and other active compounds, the health effects of which are the
subject of increasing public scrutiny, including the suggestion
that excessive consumption of caffeine, dairy products, sugar
and other active compounds can lead to a variety of adverse
health effects. There has also been greater public awareness
that sedentary lifestyles, combined with excessive consumption
of high-calorie foods, have led to a rapidly rising rate of
obesity. Particularly in the US, there is increasing consumer
awareness of health
12
risks, including obesity, due in part to increasing publicity
and attention from health organizations, as well as increased
consumer litigation based on alleged adverse health impacts of
consumption of various food products. While Starbucks has a
variety of healthier choice beverage and food items, including
items that are low in caffeine and calories, an unfavorable
report on the health effects of caffeine or other compounds
present in the Companys products, or negative publicity or
litigation arising from other health risks such as obesity,
could significantly reduce the demand for the Companys
beverages and food products.
Similarly, instances or reports, whether true or not, of unclean
water supply, food-borne illnesses and food tampering have in
the past severely injured the reputations of companies in the
food processing, grocery and quick-service restaurant sectors
and could in the future affect the Company as well. Any report
linking Starbucks to the use of unclean water, food-borne
illnesses or food tampering could damage its brand value,
immediately and severely hurt sales of its beverages and food
products, and possibly lead to product liability claims. Clean
water is critical to the preparation of specialty coffee
beverages. The Companys ability to ensure a clean water
supply to its stores is limited, particularly in some
International locations. If customers become ill from food-borne
illnesses, the Company could also be forced to temporarily close
some stores. In addition, instances of food-borne illnesses or
food tampering, even those occurring solely at the restaurants
or stores of competitors, could, by resulting in negative
publicity about the foodservice industry, adversely affect
Starbucks sales on a regional or global basis. A decrease in
customer traffic as a result of these health concerns or
negative publicity, or as a result of a temporary closure of any
of the Companys stores, could materially harm the
Companys business and results of operations.
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Deterioration
in operating performance could lead to increased leverage, which
may harm the Companys financial condition and results of
operations.
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Any reduction in cash flow relative to the level of the
Companys financial obligations would result in an increase
in leverage. Any increase in leverage could lead to
deterioration in Starbucks credit ratings, which could limit the
availability of additional financing and increase its cost of
obtaining financing. In addition, an increase in leverage could
raise the likelihood of a financial covenant breach which in
turn could limit the Companys access to existing funding
under its credit facility.
The Companys ability to satisfy its operating lease
obligations and make payments of principal and interest on its
indebtedness depends on its future performance. Should the
Company experience deterioration in operating performance, it
will have less cash flow available to meet these obligations. In
addition, if such deterioration were to lead to the closure of
underperforming stores, the Company would need to fund the costs
of terminating store leases. If Starbucks is unable to generate
sufficient cash flow from operations in the future to satisfy
these financial obligations, it may be required to, among other
things:
|
|
|
|
|
seek additional financing in the debt or equity markets;
|
|
|
|
refinance or restructure all or a portion of its indebtedness;
|
|
|
|
sell selected assets; or
|
|
|
|
reduce or delay planned capital or operating expenditures.
|
Such measures might not be sufficient to enable Starbucks to
satisfy its financial obligations. In addition, any such
financing, refinancing or sale of assets might not be available
on economically favorable terms.
|
|
|
Starbucks
relies heavily on information technology in its operations, and
any material failure, inadequacy, interruption or security
failure of that technology could harm the Companys ability
to effectively operate its business.
|
Starbucks relies heavily on information technology systems
across its operations, including for management of its supply
chain,
point-of-sale
processing in its stores, and various other processes and
transactions. The Companys ability to effectively manage
its business and coordinate the production, distribution and
sale of its products depends significantly on the reliability
and capacity of these systems. The failure of these systems to
operate effectively, problems with transitioning to upgraded or
replacement systems, or a breach in security of these systems
could
13
cause delays in product sales and reduced efficiency of the
Companys operations, and significant capital investments
could be required to remediate the problem.
|
|
|
Failure
of the Company to comply with applicable laws and regulations
could harm its business and financial results.
|
Starbucks policies and procedures are designed to comply with
all applicable laws and regulations, including those imposed by
the SEC, NASDAQ, and foreign countries, as well as applicable
labor laws. Additional legal and regulatory requirements,
together with the fact that foreign laws occasionally conflict
with domestic laws, increase the complexity of the regulatory
environment in which the Company operates and the related cost
of compliance. Failure to comply with the various laws and
regulations may result in damage to Starbucks reputation, civil
and criminal liability, fines and penalties, increased cost of
regulatory compliance and restatements of the Companys
financial statements.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Properties used by Starbucks in connection with its roasting and
distribution operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Size
|
|
|
Owned or
|
|
|
|
Location
|
|
in Square Feet
|
|
|
Leased
|
|
|
Purpose
|
|
Kent, WA
|
|
|
332,000
|
|
|
|
Owned
|
|
|
Roasting and distribution
|
Kent, WA
|
|
|
215,000
|
|
|
|
Leased
|
|
|
Warehouse
|
Renton, WA
|
|
|
125,000
|
|
|
|
Leased
|
|
|
Warehouse
|
York County, PA
|
|
|
450,000
|
|
|
|
Owned
|
|
|
Roasting and distribution
|
York County, PA
|
|
|
298,000
|
|
|
|
Owned
|
|
|
Warehouse
|
York County, PA
|
|
|
118,000
|
|
|
|
Leased
|
|
|
Warehouse
|
Carson Valley, NV
|
|
|
360,000
|
|
|
|
Owned
|
|
|
Roasting and distribution
|
Sandy Run, SC
|
|
|
117,000
|
|
|
|
Owned
|
|
|
Roasting and distribution
|
Portland, OR
|
|
|
68,000
|
|
|
|
Leased
|
|
|
Warehouse
|
Basildon, United Kingdom
|
|
|
142,000
|
|
|
|
Leased
|
|
|
Warehouse and distribution
|
Amsterdam, Netherlands
|
|
|
97,000
|
|
|
|
Leased
|
|
|
Roasting and distribution
|
The Company leases approximately 1.0 million square feet of
office space in Seattle, Washington for corporate administrative
purposes. Also in Seattle, Washington, the Company owns a
205,000 square foot office building (previously occupied by
the Company, but now leased to other parties) and an adjacent
285,000 square foot office building, which is currently
being marketed for lease.
As of September 27, 2009, Starbucks had more than 8,800
Company-operated retail stores, almost all of which are leased.
The Company also leases space in approximately 130 additional
locations for regional, district and other administrative
offices, training facilities and storage, not including certain
seasonal retail storage locations.
|
|
Item 3.
|
Legal
Proceedings
|
See discussion of Legal Proceedings in Note 17 to the
consolidated financial statements included in Item 8 of
this Report.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth fiscal quarter of 2009.
14
Executive
officers of the registrant
Executive officers of the Company:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Howard Schultz
|
|
|
56
|
|
|
chairman, president and chief executive officer
|
Cliff Burrows
|
|
|
50
|
|
|
president, Starbucks Coffee US
|
Martin Coles
|
|
|
54
|
|
|
president, Starbucks Coffee International
|
John Culver
|
|
|
49
|
|
|
president, Global Consumer Products and Foodservice
|
Michelle Gass
|
|
|
41
|
|
|
president, Seattles Best Coffee
|
Arthur Rubinfeld
|
|
|
55
|
|
|
president, Global Development
|
Annie Young-Scrivner
|
|
|
40
|
|
|
chief marketing officer
|
Troy Alstead
|
|
|
46
|
|
|
executive vice president, chief financial officer and chief
administrative officer
|
Paula E. Boggs
|
|
|
50
|
|
|
executive vice president, general counsel and secretary
|
Peter D. Gibbons
|
|
|
48
|
|
|
executive vice president, Global Supply Chain Operations
|
Kalen Holmes
|
|
|
43
|
|
|
executive vice president, Partner Resources
|
Olden Lee
|
|
|
68
|
|
|
interim executive vice president, Partner Resources
|
Howard Schultz is the founder of Starbucks and serves as
the Companys chairman, president and chief executive
officer. Mr. Schultz has served as chairman of the board
since the Companys inception in 1985 and he resumed his
role as president and chief executive officer in January 2008.
From June 2000 to February 2005, Mr. Schultz held the title
of chief global strategist. From November 1985 to June 2000, he
served as chief executive officer. From November 1985 to June
1994, Mr. Schultz also served as president.
Cliff Burrows joined Starbucks in April 2001 and has
served as president, Starbucks Coffee US since March 2008.
Mr. Burrows served as president, Europe, Middle East and
Africa (EMEA) from April 2006 to March 2008. He served as vice
president and managing director, UK prior to April 2006. Prior
to joining Starbucks, Mr. Burrows served in various
management positions with Habitat Designs Limited, a furniture
and housewares retailer.
Martin P. Coles joined Starbucks in April 2004 as
president, Starbucks Coffee International, and, in July 2008,
reassumed this role, after having served as chief operating
officer from September 2007 to July 2008. Prior to joining
Starbucks, Mr. Coles served as an executive vice president
of Reebok International, Ltd. a sports and fitness products
company, from December 2001 to February 2004. Prior to joining
Reebok International, Ltd., Mr. Coles held several
executive level management sales and operations positions with
NIKE Inc., Letsbuyit.com and Gateway, Inc.
John Culver joined Starbucks in August 2002 and has
served as president, Global Consumer Products and Foodservice
since September 2009. Mr. Culver served as executive vice
president; president, Global Consumer Products, Foodservice and
Seattles Best Coffee from February 2009 to September 2009.
He previously served as senior vice president; president,
Starbucks Coffee Asia Pacific from January 2007 to February
2009, and vice president; general manager, Foodservice from
August 2002 to January 2007.
Michelle Gass joined Starbucks in 1996 and has served as
the Companys president, Seattles Best Coffee since
September 2009. Ms. Gass served as senior vice president,
Marketing and Category from July 2008 to November 2008, and then
as executive vice president, Marketing and Category from
December 2008 to September 2009. Ms. Gass previously served
as senior vice president, Global Strategy, Office of the ceo
from January 2008 to July 2008, senior vice president, Global
Product and Brand from August 2007 to January 2008, senior vice
president, and U.S. Category Management from May 2004 to
August 2007. Ms. Gass served in a number of other positions
with Starbucks prior to 2004.
15
Arthur Rubinfeld rejoined Starbucks in February 2008 as
president, Global Development. Mr. Rubinfeld also serves as
president of AIRVISION LLC, an advisory firm specializing in
brand positioning that he founded in June 2002. From March 2006
to February 2008, Mr. Rubinfeld served as executive vice
president, Corporate Strategy and chief development officer at
Potbelly Sandwich Works. Prior to 2002, Mr. Rubinfeld held
several positions in Store Development at Starbucks.
Annie Young-Scrivner joined Starbucks in September 2009
as chief marketing officer. Prior to joining Starbucks,
Ms. Young-Scrivner served as Chief Marketing Officer and
Vice President of Sales for Quaker Foods and Snacks, a division
of PepsiCo, Inc. From October 2006 to November 2008, she served
as Region President of PepsiCo Foods for Greater China. From
2005 to 2006, Ms. Young-Scrivner served as Vice President
of Sales for PepsiCo Beverages in Greater China. She also served
in a number of other leadership roles at PepsiCo prior to 2005.
Troy Alstead joined Starbucks in 1992 and has served as
executive vice president, chief financial officer and chief
administrative officer since November 2008. Mr. Alstead
previously served as chief operating officer, Starbucks Greater
China from April 2008 to October 2008, senior vice president,
Global Finance and Business Operations from August 2007 to April
2008, and senior vice president, Corporate Finance from
September 2004 to August 2007. Mr. Alstead served in a
number of other senior positions with Starbucks prior to 2004.
Paula E. Boggs joined Starbucks in September 2002 as
executive vice president, general counsel and secretary. Prior
to joining Starbucks, Ms. Boggs served as vice president,
legal, for products, operations and information technology at
Dell Computer Corporation from 1997 to 2002. From 1995 to 1997,
Ms. Boggs was a partner with the law firm of Preston
Gates & Ellis (now K&L Gates). Ms. Boggs
served in several roles at the Pentagon, White House and US
Department of Justice between 1984 and 1995.
Peter D. Gibbons joined Starbucks in February 2007 and
has served as executive vice president, Global Supply Chain
Operations since July 2008. From February 2007 to July 2008,
Mr. Gibbons served as senior vice president, Global
Manufacturing Operations. From March 1999 to February 2007,
Mr. Gibbons was executive vice president, Supply Chain, of
The Glidden Company, a subsidiary of ICI Americas, Inc.
Kalen Holmes joined Starbucks in November 2009 as
executive vice president, Partner Resources. Prior to joining
Starbucks, Ms. Holmes served as HR General Manager for the
Entertainment and Devices division at Microsoft Corporation, a
worldwide provider of software, services and solutions, from
December 2007 to November 2009. From December 2005 to December
2007, Ms. Holmes was HR General Manager for
Microsofts Server and Tools Division. From September 2003
to December 2005, she served as HR General Manager for
Microsofts Corporate Staff business unit. Prior to 2003,
Ms. Holmes served as an HR leader at companies such as
Bristol-Myers Squibb Company, PepsiCo, Inc., Enron Corporation,
pcOrder.com, Inc., and Trilogy Inc., managing multiple
geographies and diverse business units.
Olden Lee has served as interim executive vice president,
Partner Resources since April 2009. Mr. Lee has been a
Starbucks director since June 2003. Mr. Lee undertook the
role of interim head of Partner Resources while the Company
searched for an executive vice president, Partner Resources.
Mr. Lee will continue with the Company on an interim basis
to assist Ms. Holmes and ensure a smooth transition. Prior
to serving in his current role, Mr. Lee worked with
PepsiCo, Inc. for 28 years in a variety of positions,
including serving as senior vice president of human resources of
its Taco Bell division and senior vice president and chief
personnel officer of its KFC division.
There are no family relationships among any directors or
executive officers of the Company.
16
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities
|
SHAREHOLDER
INFORMATION
MARKET
INFORMATION AND DIVIDEND POLICY
The Companys common stock is traded on NASDAQ, under the
symbol SBUX.
Quarterly high and low closing sale prices per share of the
Companys common stock as reported by NASDAQ for each
quarter during the last two fiscal years:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
September 27, 2009:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
20.76
|
|
|
$
|
12.97
|
|
Third Quarter
|
|
|
15.30
|
|
|
|
11.11
|
|
Second Quarter
|
|
|
12.39
|
|
|
|
8.27
|
|
First Quarter
|
|
|
14.87
|
|
|
|
7.17
|
|
September 28, 2008:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
16.92
|
|
|
$
|
13.58
|
|
Third Quarter
|
|
|
18.60
|
|
|
|
15.66
|
|
Second Quarter
|
|
|
20.47
|
|
|
|
16.80
|
|
First Quarter
|
|
|
26.84
|
|
|
|
20.03
|
|
As of November 13, 2009, the Company had approximately
21,600 shareholders of record. This does not include
persons whose stock is in nominee or street name
accounts through brokers.
Starbucks has never paid any dividends on its common stock. Any
future decision to pay cash dividends will be at the discretion
of the Companys Board of Directors and will be dependent
on the Companys operating performance, financial
condition, capital expenditure requirements, and other such
factors that the Board of Directors considers relevant.
ISSUER
PURCHASES OF EQUITY SECURITIES
The following table provides information regarding repurchases
by the Company of its common stock during the 13-week period
ended September 27, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
Shares that May
|
|
|
|
Total
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Yet Be
|
|
|
|
Number of
|
|
|
Price
|
|
|
Announced
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Paid per
|
|
|
Plans or
|
|
|
Under the Plans
|
|
|
|
Purchased(2)
|
|
|
Share
|
|
|
Programs(3)
|
|
|
or
Programs(3)
|
|
|
Period(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2009 July 26, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,272,128
|
|
July 27, 2009 August 23, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,272,128
|
|
August 24, 2009 September 27, 2009
|
|
|
1,780
|
|
|
$
|
18.69
|
|
|
|
|
|
|
|
6,272,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Monthly information is presented by reference to the
Companys fiscal months during the fourth quarter of fiscal
2009. |
|
(2) |
|
These amounts represent shares surrendered to the Company to pay
the exercise price and/or to satisfy tax withholding obligations
in connection with stock swap exercises of employee stock
options. |
|
(3) |
|
The Companys share repurchase program is conducted under
authorizations made from time to time by the Companys
Board of Directors. The Board of Directors authorized the
repurchase of 25 million shares of common stock (publicly
announced on May 3, 2007) and later authorized the
repurchase of up to five million additional shares (publicly
announced on January 30, 2008). Neither of these
authorizations has an expiration date. |
17
Performance
Comparison Graph
The following graph depicts the Companys total return to
shareholders from October 3, 2004 through
September 27, 2009, relative to the performance of the
Standard & Poors 500 Index, the NASDAQ Composite
Index, and the Standard & Poors 500 Consumer
Discretionary Sector, a peer group that includes Starbucks. All
indices shown in the graph have been reset to a base of 100 as
of October 3, 2004, and assume an investment of $100 on
that date and the reinvestment of dividends paid since that
date. Starbucks has never paid a dividend on its common stock.
The stock price performance shown in the graph is not
necessarily indicative of future price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/3/04
|
|
|
10/2/05
|
|
|
10/1/06
|
|
|
9/30/07
|
|
|
9/28/08
|
|
|
9/27/09
|
Starbucks Corporation
|
|
|
$
|
100.00
|
|
|
|
$
|
106.10
|
|
|
|
$
|
144.22
|
|
|
|
$
|
110.97
|
|
|
|
$
|
63.36
|
|
|
|
$
|
83.99
|
|
S&P 500
|
|
|
$
|
100.00
|
|
|
|
$
|
112.25
|
|
|
|
$
|
124.37
|
|
|
|
$
|
144.81
|
|
|
|
$
|
112.99
|
|
|
|
$
|
105.18
|
|
NASDAQ Composite
|
|
|
$
|
100.00
|
|
|
|
$
|
113.78
|
|
|
|
$
|
121.50
|
|
|
|
$
|
143.37
|
|
|
|
$
|
109.15
|
|
|
|
$
|
112.55
|
|
S&P Consumer Discretionary
|
|
|
$
|
100.00
|
|
|
|
$
|
105.05
|
|
|
|
$
|
114.35
|
|
|
|
$
|
121.59
|
|
|
|
$
|
94.34
|
|
|
|
$
|
94.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Item 6.
|
Selected
Financial Data
|
In
millions, except earnings per share and store
information
The following selected financial data are derived from the
consolidated financial statements of the Company. The data below
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Risk Factors, and the
Companys consolidated financial statements and notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
Oct 1,
|
|
|
Oct 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
As of and for the Fiscal Year
Ended(1)
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
8,180.1
|
|
|
$
|
8,771.9
|
|
|
$
|
7,998.3
|
|
|
$
|
6,583.1
|
|
|
$
|
5,391.9
|
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
1,222.3
|
|
|
|
1,171.6
|
|
|
|
1,026.3
|
|
|
|
860.6
|
|
|
|
673.0
|
|
Foodservice and other
|
|
|
372.2
|
|
|
|
439.5
|
|
|
|
386.9
|
|
|
|
343.2
|
|
|
|
304.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
1,594.5
|
|
|
|
1,611.1
|
|
|
|
1,413.2
|
|
|
|
1,203.8
|
|
|
|
977.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
9.774.6
|
|
|
$
|
10,383.0
|
|
|
$
|
9,411.5
|
|
|
$
|
7,786.9
|
|
|
$
|
6,369.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income(2)
|
|
$
|
562.0
|
|
|
$
|
503.9
|
|
|
$
|
1,053.9
|
|
|
$
|
894.0
|
|
|
$
|
780.5
|
|
Earnings before cumulative effect of change in accounting
principle
|
|
|
390.8
|
|
|
|
315.5
|
|
|
|
672.6
|
|
|
|
581.5
|
|
|
|
494.4
|
|
Cumulative effect of accounting change for asset retirement
obligations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.2
|
|
|
|
|
|
Net earnings
|
|
$
|
390.8
|
|
|
$
|
315.5
|
|
|
$
|
672.6
|
|
|
$
|
564.3
|
|
|
$
|
494.4
|
|
Earnings per common share before cumulative effect of change in
accounting principle diluted (EPS)
|
|
$
|
0.52
|
|
|
$
|
0.43
|
|
|
$
|
0.87
|
|
|
$
|
0.73
|
|
|
$
|
0.61
|
|
Cumulative effect of accounting change for asset retirement
obligations, net of taxes per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
EPS diluted
|
|
$
|
0.52
|
|
|
$
|
0.43
|
|
|
$
|
0.87
|
|
|
$
|
0.71
|
|
|
$
|
0.61
|
|
Net cash provided by operating activities
|
|
$
|
1,389.0
|
|
|
$
|
1,258.7
|
|
|
$
|
1,331.2
|
|
|
$
|
1,131.6
|
|
|
$
|
922.9
|
|
Capital expenditures (additions to property, plant and equipment)
|
|
$
|
445.6
|
|
|
$
|
984.5
|
|
|
$
|
1,080.3
|
|
|
$
|
771.2
|
|
|
$
|
643.3
|
|
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,576.8
|
|
|
$
|
5,672.6
|
|
|
$
|
5,343.9
|
|
|
$
|
4,428.9
|
|
|
$
|
3,513.7
|
|
Short-term borrowings
|
|
|
|
|
|
|
713.0
|
|
|
|
710.3
|
|
|
|
700.0
|
|
|
|
277.0
|
|
Long-term debt (including current portion)
|
|
|
549.5
|
|
|
|
550.3
|
|
|
|
550.9
|
|
|
|
2.7
|
|
|
|
3.6
|
|
Shareholders equity
|
|
$
|
3,045.7
|
|
|
$
|
2,490.9
|
|
|
$
|
2,284.1
|
|
|
$
|
2,228.5
|
|
|
$
|
2,090.3
|
|
STORE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in comparable store
sales(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
(6
|
)%
|
|
|
(5
|
)%
|
|
|
4
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
International
|
|
|
(2
|
)%
|
|
|
2
|
%
|
|
|
7
|
%
|
|
|
8
|
%
|
|
|
6
|
%
|
Consolidated
|
|
|
(6
|
)%
|
|
|
(3
|
)%
|
|
|
5
|
%
|
|
|
7
|
%
|
|
|
8
|
%
|
Net stores opened (closed) during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operated stores
|
|
|
(474
|
)
|
|
|
445
|
|
|
|
1,065
|
|
|
|
810
|
|
|
|
580
|
|
Licensed stores
|
|
|
35
|
|
|
|
438
|
|
|
|
723
|
|
|
|
733
|
|
|
|
596
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operated stores
|
|
|
89
|
|
|
|
236
|
|
|
|
286
|
|
|
|
240
|
|
|
|
177
|
|
Licensed stores
|
|
|
305
|
|
|
|
550
|
|
|
|
497
|
|
|
|
416
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(45
|
)
|
|
|
1,669
|
|
|
|
2,571
|
|
|
|
2,199
|
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
Oct 1,
|
|
|
Oct 2,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
As of and for the Fiscal Year
Ended(1)
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
(52 Wks)
|
|
|
Stores open at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
|
|
6,764
|
|
|
|
7,238
|
|
|
|
6,793
|
|
|
|
5,728
|
|
|
|
4,918
|
|
Licensed stores
|
|
|
4,364
|
|
|
|
4,329
|
|
|
|
3,891
|
|
|
|
3,168
|
|
|
|
2,435
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated stores
|
|
|
2,068
|
|
|
|
1,979
|
|
|
|
1,743
|
|
|
|
1,457
|
|
|
|
1,217
|
|
Licensed stores
|
|
|
3,439
|
|
|
|
3,134
|
|
|
|
2,584
|
|
|
|
2,087
|
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,635
|
|
|
|
16,680
|
|
|
|
15,011
|
|
|
|
12,440
|
|
|
|
10,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys fiscal year ends on the Sunday closest to
September 30. |
|
(2) |
|
Fiscal 2009 and 2008 results include pretax restructuring
charges of $332.4 million and $266.9 million,
respectively. |
|
(3) |
|
Includes only Starbucks Company-operated retail stores open
13 months or longer. |
20
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
General
Starbucks Corporations fiscal year ends on the Sunday
closest to September 30. The fiscal years ended on
September 27, 2009, September 28, 2008 and
September 30, 2007 all included 52 weeks. Starbucks
2010 fiscal year will include 53 weeks, with the
53rd week
falling in its fourth fiscal quarter. All references to store
counts, including data for new store openings, are reported net
of related store closures, unless otherwise noted.
Overview
Fiscal 2009 was a challenging year for Starbucks. The Company
was confronted with extraordinary economic and operating
challenges in addition to facing an increasingly competitive
landscape. Although the global economy has shown some signs of
improvement recently, management recognizes the difficult
economic situation that many consumers are still facing and does
not expect that to significantly change over the course of
fiscal 2010. This challenging economic environment has strained
consumer discretionary spending in the US and internationally,
which in turn has impacted Company revenues, comparable store
sales, operating income and operating margins. Starbucks
responded to this difficult environment with a more disciplined
focus on operations and the introduction of initiatives to
permanently improve the Companys cost structure. The
result is an underlying business model that is less reliant on
high revenue growth to drive profitability, and that still
preserves the fundamental strengths and values of the Starbucks
brand. The primary initiatives in this strategy include
rationalizing the global Company-operated store portfolio,
right-sizing the non-retail support organization, and reducing
the Companys cost structure, while renewing the focus on
service excellence in the stores and delivering relevant
innovation.
Starbucks actions to rationalize its global store portfolio have
included the planned closure of nearly 1,000 Company-operated
stores globally. At the end of fiscal 2009, nearly all of the
approximately 800 US Company-operated stores, 61 stores in
Australia and 41 Company-operated stores in other International
markets had been closed. The remaining International store
closures are expected to be completed by the end of fiscal 2010.
Initiatives targeting reductions in the Companys cost
structure in fiscal 2009 proceeded as planned, with full-year
costs of $580 million removed from the Companys cost
structure. These targeted cost reductions and associated
operational efficiency efforts, along with a more profitable
Company-operated store base, have moved Starbucks toward a more
sustainable business model, while preserving the fundamental
strengths and values of the brand. The operational efficiency
efforts are primarily focused on store level execution and
include improved staffing models and better management of waste
in coffee, dairy and food.
Starbucks actions to improve the customer experience have
resulted in a more focused effort toward in-store offerings, and
simplifying the demands on store partners (employees), while
concurrently raising already-high standards for beverage and
food offerings, customer service and the overall in-store
experience. The effects of these efforts have already been seen
in the Companys improved customer satisfaction scores.
Starbucks has a renewed focus on relevant product innovation and
the disciplined expansion and leveraging of its existing
products and sales channels. For example, Starbucks
VIAtm
Ready Brew coffee was launched in fiscal 2009 and is designed to
capture a significant share of both the $21 billion global
instant coffee category and the single-serve market. The Company
intends to drive sales within the retail store base and CPG
channels, both in the US and internationally.
The Company continues to maintain a solid financial foundation,
with no short term debt outstanding at the end of fiscal 2009
and with cash and liquid investments totaling more than
$650 million. This solid financial position and continued
strong cash flow generation have provided Starbucks with the
financial flexibility to implement its restructuring efforts as
well as make ongoing investments in its core business.
Fiscal
2010 The View Ahead
For fiscal 2010, the Company expects revenues to grow in the
low-to-mid
single digits compared to fiscal 2009, driven by modestly
positive comparable store sales, a
53rd
fiscal week, and approximately 100 planned net new
21
stores in the US and approximately 200 net new stores in
International markets. Both the US and International net new
additions are expected to be primarily licensed stores.
Given these revenue expectations, combined with the
Companys reduced cost structure, in-store operating
efficiencies, and lower restructuring charges, Starbucks
currently expects significant improvement in its consolidated
operating margin in fiscal 2010. Operating cash flow for fiscal
2010 is currently expected to reach approximately
$1.4 billion and capital expenditures are expected to range
from $500 million to $550 million.
Operating
Segment Overview
Starbucks has three reportable operating segments: US,
International and CPG. The US foodservice business, which was
previously reported in the US segment, is now reported in the
CPG segment, as a result of internal management realignments
within the US and CPG businesses. Segment information for all
prior periods presented has been revised to reflect this change.
The US and International segments both include Company-operated
retail stores and licensed retail stores. Licensed stores
frequently have a higher operating margin than Company-operated
stores. Under the licensed model, Starbucks receives a reduced
share of the total store revenues, but this is more than offset
by the reduction in its share of costs as these are primarily
borne by the licensee. The International segment has a higher
relative share of licensed stores versus Company-operated
compared to the US segment; however, the US segment has been
operating significantly longer than the International segment
and has developed deeper awareness of, and attachment to, the
Starbucks brand and stores among its customer base. As a result,
the more mature US segment has significantly more stores, and
higher total revenues than the International segment. Average
sales per store are also higher in the US due to various factors
including length of time in market and local income levels.
Further, certain market costs, particularly occupancy costs, are
lower in the US segment compared to the average for the
International segment, which comprises a more diverse group of
operations. As a result of the relative strength of the brand in
the US segment, the number of stores, the higher unit volumes,
and the lower market costs, the US segment, despite its higher
relative percentage of Company-operated stores, has a higher
operating margin, excluding restructuring costs, than the
less-developed International segment.
The Companys International store base continues to expand
and Starbucks has been focusing on achieving sustainable growth
from established international markets while at the same time
investing in emerging markets, such as China, Brazil and Russia.
The Companys newer international markets require a more
extensive support organization, relative to the current levels
of revenue and operating income.
The CPG segment includes packaged coffee and tea, and other
branded products operations worldwide, and the US foodservice
business. For the packaged coffee and tea and branded products,
Starbucks operates primarily through licensing arrangements and
joint ventures with large consumer products business partners,
most significantly with Kraft for distribution of packaged
coffees and teas, and The North American Coffee Partnership with
the Pepsi-Cola Company for manufacturing and distribution of
ready-to-drink
beverages. This operating model allows the CPG segment to
leverage the business partners existing infrastructures
and to extend the Starbucks brand in an efficient way. Most of
the customer revenues from the packaged coffee and
ready-to-drink
products are recognized as revenues by the licensed or joint
venture business partner, not by the CPG segment. Royalties and
payments from our licensing agreements are recorded under
licensing revenue, and the proportionate share of the results of
the Companys joint ventures are included, on a net basis,
in Income from equity investees on the consolidated statements
of earnings. The US foodservice business sells coffee and other
related products to institutional foodservice companies with the
majority of its sales through national broadline distribution
networks. The CPG segment reflects relatively lower revenues, a
modest cost structure, and a resulting higher operating margin,
compared to the Companys other two reporting segments,
which consist primarily of retail stores.
Expenses pertaining to corporate administrative functions that
support the operating segments but are not specifically
attributable to or managed by any segment are not included in
the reported financial results of the operating segments. These
unallocated corporate expenses include certain general and
administrative expenses, related depreciation and amortization
expenses, corporate restructuring charges and amounts included
in Net interest income and other and Interest expense on the
consolidated statements of earnings.
22
Acquisitions
See Note 19 to the consolidated financial statements in
this 10-K.
RESULTS
OF OPERATIONS FISCAL 2009 COMPARED TO FISCAL
2008
Financial
Highlights
|
|
|
Consolidated operating income was $562 million for fiscal
2009 compared to $504 million in fiscal 2008, and operating
margin improved to 5.7% compared to 4.9% in fiscal 2008. Cost
reduction initiatives and related operational efficiency efforts
contributed significantly to the margin improvement, offset in
part by higher restructuring charges incurred in fiscal 2009
compared to fiscal 2008 as Starbucks continued its work to
rationalize its global store portfolio and support organization.
|
|
|
EPS for fiscal 2009 was $0.52, compared to EPS of $0.43 reported
in fiscal 2008. Restructuring charges impacted EPS by
approximately $0.28 per share in fiscal 2009 and restructuring
and other transformation costs impacted EPS by approximately
$0.28 in fiscal 2008.
|
|
|
Cash flow from operations was $1.4 billion in fiscal 2009
compared to $1.3 billion in fiscal 2008, while capital
expenditures declined to $446 million in fiscal 2009 from
$985 million in fiscal 2008. Available operating cash flow
during fiscal 2009 was primarily used to reduce short-term
borrowings to a zero balance in fiscal 2009, down from
$713 million at the beginning of the fiscal year.
|
|
|
The Company realized approximately $580 million in
reductions to its cost structure in fiscal 2009, with the
initiatives focused on store closures, headcount reductions,
in-store efficiencies and supply chain improvements.
|
Consolidated results of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
8,180.1
|
|
|
$
|
8,771.9
|
|
|
|
(6.7
|
)%
|
|
|
83.7
|
%
|
|
|
84.5
|
%
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
1,222.3
|
|
|
|
1,171.6
|
|
|
|
4.3
|
|
|
|
12.5
|
|
|
|
11.3
|
|
Foodservice and other
|
|
|
372.2
|
|
|
|
439.5
|
|
|
|
(15.3
|
)
|
|
|
3.8
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
1,594.5
|
|
|
|
1,611.1
|
|
|
|
(1.0
|
)
|
|
|
16.3
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
9,774.6
|
|
|
$
|
10,383.0
|
|
|
|
(5.9
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Company-operated retail revenues decreased from fiscal 2008,
primarily attributable to a 6% decline in comparable store
sales, comprised of a 4% decline in transactions and a 2%
decline in the average value per transaction. Foreign currency
translation also contributed to the decline with the effects of
a stronger US dollar relative to the British pound and Canadian
dollar. The weakness in consolidated comparable store sales was
driven by the US segment, with a comparable store sales decline
of 6% for the year. The International segment experienced a 2%
decline in comparable store sales.
The Company derived 16% of total net revenues from channels
outside the Company-operated retail stores, collectively known
as specialty operations. The decrease in Foodservice and other
revenue was primarily due to the softness in the hospitality
industry.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Revenues
|
|
|
Cost of sales including occupancy costs
|
|
$
|
4,324.9
|
|
|
$
|
4,645.3
|
|
|
|
(6.9
|
)%
|
|
|
44.2
|
%
|
|
|
44.7
|
%
|
Store operating expenses
|
|
|
3,425.1
|
|
|
|
3,745.1
|
|
|
|
(8.5
|
)
|
|
|
35.0
|
|
|
|
36.1
|
|
Other operating expenses
|
|
|
264.4
|
|
|
|
330.1
|
|
|
|
(19.9
|
)
|
|
|
2.7
|
|
|
|
3.2
|
|
Depreciation and amortization expenses
|
|
|
534.7
|
|
|
|
549.3
|
|
|
|
(2.7
|
)
|
|
|
5.5
|
|
|
|
5.3
|
|
General and administrative expenses
|
|
|
453.0
|
|
|
|
456.0
|
|
|
|
(0.7
|
)
|
|
|
4.6
|
|
|
|
4.4
|
|
Restructuring charges
|
|
|
332.4
|
|
|
|
266.9
|
|
|
|
24.5
|
|
|
|
3.4
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,334.5
|
|
|
|
9,992.7
|
|
|
|
(6.6
|
)
|
|
|
95.5
|
|
|
|
96.2
|
|
Income from equity investees
|
|
|
121.9
|
|
|
|
113.6
|
|
|
|
7.3
|
|
|
|
1.2
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
562.0
|
|
|
$
|
503.9
|
|
|
|
11.5
|
%
|
|
|
5.7
|
%
|
|
|
4.9
|
%
|
Supplemental ratios as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.9
|
%
|
|
|
42.7
|
%
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.6
|
%
|
|
|
20.5
|
%
|
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.
Store operating expenses as a percentage of Company-operated
retail revenues decreased primarily due to reduced headcount and
spending in the regional support organization as a result of
Starbucks restructuring efforts, and the effect of initiatives
to improve store labor efficiencies.
Restructuring charges include lease exit and related costs
associated with the actions to rationalize the Companys
global store portfolio and reduce the global cost structure. See
Note 2 to the consolidated financial statements for further
discussion.
Operating margin expansion was primarily due to the improved
labor efficiency and reduced product waste in Company-operated
stores, partially offset by increased restructuring charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Revenues
|
|
|
Operating income
|
|
$
|
562.0
|
|
|
$
|
503.9
|
|
|
|
11.5
|
%
|
|
|
5.7
|
%
|
|
|
4.9
|
%
|
Interest income and other, net
|
|
|
36.3
|
|
|
|
9.0
|
|
|
|
nm
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Interest expense
|
|
|
(39.1
|
)
|
|
|
(53.4
|
)
|
|
|
(26.8
|
)
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
559.2
|
|
|
|
459.5
|
|
|
|
21.7
|
|
|
|
5.7
|
|
|
|
4.4
|
|
Income taxes
|
|
|
168.4
|
|
|
|
144.0
|
|
|
|
16.9
|
|
|
|
1.7
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
390.8
|
|
|
$
|
315.5
|
|
|
|
23.9
|
%
|
|
|
4.0
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.1
|
%
|
|
|
31.3
|
%
|
Net interest income and other increased due primarily to the
impact of foreign currency fluctuations on certain balance sheet
amounts. Also contributing to the increase were lower unrealized
market value losses on the Companys trading securities
portfolio compared to fiscal 2008. As described in more detail
in Note 3 to the consolidated financial statements, the
trading securities approximate a portion of the Companys
liability under its Management Deferred Compensation Plan
(MDCP). The MDCP liability also increases and
decreases with changes in investment performance, with this
offsetting impact recorded in General and administrative
expenses on the consolidated statements of earnings. Interest
expense decreased due to a lower average balance of short term
24
borrowings and lower average short term borrowing rates in
fiscal 2009 compared to the prior year. At the end of fiscal
2009, the Company had no short term debt.
The relatively low 2009 effective tax rate was primarily due to
a tax benefit recognized for retroactive tax credits and an
income tax credit related to the settlement of an employment tax
audit in fiscal 2009. As a result of the audit settlement,
approximately $17 million of expense was recorded in Store
operating expenses, with an offsetting income tax credit and no
impact to net earnings. The effective tax rate for fiscal 2010
is expected to be in the range of 34% to 35%.
Operating
Segments
Segment information is prepared on the same basis that the
Companys management reviews financial information for
operational decision making purposes. Starbucks has three
reportable operating segments: US, International and CPG.
Unallocated Corporate includes expenses pertaining to corporate
administrative functions that support the operating segments but
are not specifically attributable to or managed by any segment
and are not included in the reported financial results of the
operating segments. Operating income represents earnings before
Net interest income and other, Interest expense and Income taxes.
The US foodservice business, which was previously reported in
the US segment, is now reported in the CPG segment, as a result
of internal management realignments within the US and CPG
businesses. Segment information for all prior periods presented
has been revised to reflect this change.
The following tables summarize the Companys results of
operations by segment for fiscal 2009 and 2008 (in
millions).
United
States
The US operating segment sells coffee and other beverages,
complementary food, whole bean coffees, and coffee brewing
equipment and merchandise primarily through Company-operated
retail stores. Specialty operations within the US include
licensed retail stores and other initiatives related to the
Companys core business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of US Total Net Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
6,572.1
|
|
|
$
|
6,997.7
|
|
|
|
(6.1
|
)%
|
|
|
92.5
|
%
|
|
|
92.9
|
%
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
528.9
|
|
|
|
504.2
|
|
|
|
4.9
|
|
|
|
7.4
|
|
|
|
6.7
|
|
Other
|
|
|
3.6
|
|
|
|
30.1
|
|
|
|
(88.0
|
)
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
532.5
|
|
|
|
534.3
|
|
|
|
(0.3
|
)
|
|
|
7.5
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
7,104.6
|
|
|
$
|
7,532.0
|
|
|
|
(5.7
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
25
Company-operated retail revenues decreased year over year
primarily due to a 6% decrease in comparable store sales,
comprised of a 4% decrease in transactions, and a 2% decrease in
average value per transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of US Total Net Revenues
|
|
|
Cost of sales including occupancy costs
|
|
$
|
2,965.7
|
|
|
$
|
3,206.3
|
|
|
|
(7.5
|
)%
|
|
|
41.7
|
%
|
|
|
42.6
|
%
|
Store operating expenses
|
|
|
2,815.1
|
|
|
|
3,081.0
|
|
|
|
(8.6
|
)
|
|
|
39.6
|
|
|
|
40.9
|
|
Other operating expenses
|
|
|
81.4
|
|
|
|
111.7
|
|
|
|
(27.1
|
)
|
|
|
1.1
|
|
|
|
1.5
|
|
Depreciation and amortization expenses
|
|
|
378.1
|
|
|
|
395.4
|
|
|
|
(4.4
|
)
|
|
|
5.3
|
|
|
|
5.2
|
|
General and administrative expenses
|
|
|
86.7
|
|
|
|
71.2
|
|
|
|
21.8
|
|
|
|
1.2
|
|
|
|
0.9
|
|
Restructuring charges
|
|
|
246.3
|
|
|
|
210.9
|
|
|
|
16.8
|
|
|
|
3.5
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,573.3
|
|
|
|
7,076.5
|
|
|
|
(7.1
|
)
|
|
|
92.5
|
|
|
|
94.0
|
|
Income (loss) from equity investees
|
|
|
0.5
|
|
|
|
(1.3
|
)
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
531.8
|
|
|
$
|
454.2
|
|
|
|
17.1
|
%
|
|
|
7.5
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental ratios as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.8
|
%
|
|
|
44.0
|
%
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.3
|
%
|
|
|
20.9
|
%
|
Operating margin expanded primarily due to lower store operating
expenses, lower cost of sales including occupancy costs, and
lower other operating expenses as a percentage of total
revenues. This improvement was primarily due to operational
changes designed to improve labor efficiency and reduce product
waste in Company-operated stores, and to lower non-store support
costs. Partially offsetting the favorability were higher
restructuring charges during the year. The Company incurred
higher lease exit and related costs due to the higher number of
actual store closures compared to the prior year period.
International
The International operating segment sells coffee and other
beverages, complementary food, whole bean coffees, and coffee
brewing equipment and merchandise through Company-operated
retail stores in Canada, the UK and several other markets.
Specialty operations primarily include retail store licensing
operations in nearly 40 other countries and foodservice
accounts, primarily in Canada and the UK. The Companys
International store base continues to expand and Starbucks
expects to achieve a growing contribution from established areas
of the business while at the same time investing in emerging
markets and channels. Many of the Companys International
operations are in early stages of development that require a
more extensive support organization, relative to the current
levels of revenue and operating income, than in the US. This
continuing investment is part of the Companys long-term,
balanced plan for profitable growth.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of International Total Net Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
1,608.0
|
|
|
$
|
1,774.2
|
|
|
|
(9.4
|
)%
|
|
|
83.7
|
%
|
|
|
84.3
|
%
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
266.2
|
|
|
|
274.8
|
|
|
|
(3.1
|
)
|
|
|
13.9
|
|
|
|
13.1
|
|
Foodservice and other
|
|
|
46.2
|
|
|
|
54.4
|
|
|
|
(15.1
|
)
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
312.4
|
|
|
|
329.2
|
|
|
|
(5.1
|
)
|
|
|
16.3
|
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
1,920.4
|
|
|
$
|
2,103.4
|
|
|
|
(8.7
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
26
Company-operated retail revenues decreased primarily due to
unfavorable foreign currency exchange rates, particularly for
the British pound and Canadian dollar. Partially offsetting the
decrease were the net new store openings of 89 Company-operated
stores.
Specialty revenues decreased primarily due to continued softness
in the hospitality industry and unfavorable foreign currency
exchange rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of International Total Net Revenues
|
|
|
Cost of sales including occupancy costs
|
|
$
|
963.7
|
|
|
$
|
1,054.0
|
|
|
|
(8.6
|
)%
|
|
|
50.2
|
%
|
|
|
50.1
|
%
|
Store operating expenses
|
|
|
610.0
|
|
|
|
664.1
|
|
|
|
(8.1
|
)
|
|
|
31.8
|
|
|
|
31.6
|
|
Other operating expenses
|
|
|
72.9
|
|
|
|
88.5
|
|
|
|
(17.6
|
)
|
|
|
3.8
|
|
|
|
4.2
|
|
Depreciation and amortization expenses
|
|
|
102.5
|
|
|
|
108.8
|
|
|
|
(5.8
|
)
|
|
|
5.3
|
|
|
|
5.2
|
|
General and administrative expenses
|
|
|
105.0
|
|
|
|
113.0
|
|
|
|
(7.1
|
)
|
|
|
5.5
|
|
|
|
5.4
|
|
Restructuring charges
|
|
|
27.0
|
|
|
|
19.2
|
|
|
|
40.6
|
|
|
|
1.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,881.1
|
|
|
|
2,047.6
|
|
|
|
(8.1
|
)
|
|
|
98.0
|
|
|
|
97.3
|
|
Income from equity investees
|
|
|
53.6
|
|
|
|
54.2
|
|
|
|
(1.1
|
)
|
|
|
2.8
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
92.9
|
|
|
$
|
110.0
|
|
|
|
(15.5
|
)%
|
|
|
4.8
|
%
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental ratios as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.9
|
%
|
|
|
37.4
|
%
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.3
|
%
|
|
|
26.9
|
%
|
Operating margin decreased primarily due to higher restructuring
charges and higher store operating expenses as a percentage of
total revenues. Restructuring charges of $27.0 million
recognized during the year had a 50 basis point impact on
operating margin compared to the prior year, due to the
previously announced store closures. Higher store operating
expenses as of percentage of Company-operated retail revenues
were driven by an increase in store impairment charges and a
decline in sales leverage impacting salaries and benefits.
Partially offsetting the decrease in operating margin were lower
other operating expenses due to headcount reductions in the
non-store support functions.
Global
Consumer Products Group
CPGs licensing revenue is from selling a selection of
whole bean and ground coffees and premium
Tazo®
teas through licensing arrangements in US and international
markets, and also producing and selling a variety of
ready-to-drink
beverages through its joint ventures and marketing and
distribution agreements. The foodservice revenue is from the US
foodservice business, which sells coffee and other related
products to institutional foodservice companies with the
majority of its sales through national broadline distribution
networks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of CPG Total Net Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
$
|
427.2
|
|
|
$
|
392.6
|
|
|
|
8.8
|
%
|
|
|
57.0
|
%
|
|
|
52.5
|
%
|
Foodservice
|
|
|
322.4
|
|
|
|
355.0
|
|
|
|
(9.2
|
)
|
|
|
43.0
|
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
$
|
749.6
|
|
|
$
|
747.6
|
|
|
|
0.3
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
27
Total net revenues increased primarily due to higher revenues
from packaged coffees, partially offset by lower foodservice
revenues caused by continued softness in the hospitality
industry.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of CPG Total Revenues
|
|
|
Cost of sales
|
|
$
|
395.5
|
|
|
$
|
385.0
|
|
|
|
2.7
|
%
|
|
|
52.8
|
%
|
|
|
51.5
|
%
|
Other operating expenses
|
|
|
110.1
|
|
|
|
129.9
|
|
|
|
(15.2
|
)
|
|
|
14.7
|
|
|
|
17.4
|
|
Depreciation and amortization expenses
|
|
|
5.7
|
|
|
|
6.3
|
|
|
|
(9.5
|
)
|
|
|
0.8
|
|
|
|
0.8
|
|
General and administrative expenses
|
|
|
8.8
|
|
|
|
7.9
|
|
|
|
11.4
|
|
|
|
1.2
|
|
|
|
1.1
|
|
Restructuring charges
|
|
|
1.0
|
|
|
|
|
|
|
|
nm
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
521.1
|
|
|
|
529.1
|
|
|
|
(1.5
|
)
|
|
|
69.5
|
|
|
|
70.8
|
|
Income from equity investees
|
|
|
67.8
|
|
|
|
60.7
|
|
|
|
11.7
|
|
|
|
9.0
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
296.3
|
|
|
$
|
279.2
|
|
|
|
6.1
|
%
|
|
|
39.5
|
%
|
|
|
37.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth of operating margin was primarily due to lower other
operating expenses in the foodservice business due to lower
compensation costs and lower marketing expenses.
Unallocated
Corporate
Unallocated corporate expenses pertain to corporate
administrative functions that support, but are not specifically
attributable to the Companys operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
%
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of Total Net Revenues
|
|
|
Depreciation and amortization expenses
|
|
$
|
48.4
|
|
|
$
|
38.8
|
|
|
|
24.7
|
%
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
General and administrative expenses
|
|
|
252.5
|
|
|
|
263.9
|
|
|
|
(4.3
|
)
|
|
|
2.6
|
|
|
|
2.5
|
|
Restructuring charges
|
|
|
58.1
|
|
|
|
36.8
|
|
|
|
57.9
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(359.0
|
)
|
|
$
|
(339.5
|
)
|
|
|
(5.7
|
)%
|
|
|
(3.7
|
)%
|
|
|
(3.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unallocated corporate expenses increased primarily as a
result of restructuring charges incurred for corporate office
facilities that were no longer occupied by the Company due to
the reduction in positions within the non-store support
organization.
RESULTS
OF OPERATIONS FISCAL 2008 COMPARED TO FISCAL
2007
Consolidated
results of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
8,771.9
|
|
|
$
|
7,998.3
|
|
|
|
9.7
|
%
|
|
|
84.5
|
%
|
|
|
85.0
|
%
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
1,171.6
|
|
|
|
1,026.3
|
|
|
|
14.2
|
|
|
|
11.3
|
|
|
|
10.9
|
|
Foodservice and other
|
|
|
439.5
|
|
|
|
386.9
|
|
|
|
13.6
|
|
|
|
4.2
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
1,611.1
|
|
|
|
1,413.2
|
|
|
|
14.0
|
|
|
|
15.5
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
10,383.0
|
|
|
$
|
9,411.5
|
|
|
|
10.3
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
28
Net revenues for the fiscal year ended 2008 increased due to
growth in both Company-operated retail revenues and specialty
operations.
During fiscal 2008, Starbucks derived 84% of total net revenues
from its Company-operated retail stores. Company-operated retail
revenues increased, primarily attributable to the opening of 681
new Company-operated retail stores in fiscal 2008, offset by
negative 3% comparable store sales for the same period. Revenue
growth was slower than in previous years due to a combination of
declining comparable store sales and a decrease in the number of
net new stores opened during fiscal 2008. The weakness in
consolidated comparable store sales was driven by the US
segment, which posted a comparable store sales decline of 5% for
the year. Partially offsetting this was 2% comparable store
sales growth in the International segment. Within fiscal 2008,
consolidated quarterly revenue growth decelerated each quarter
and comparable store sales declined each quarter, reflecting the
ongoing challenging economic conditions in the US.
The Company derived the remaining 16% of total net revenues from
specialty operations. Licensing revenues increased primarily due
to higher product sales and royalty revenues from the opening of
988 new licensed retail stores in fiscal 2008. The increase in
Foodservice and other revenues was primarily driven by growth in
new and existing accounts in the foodservice business in the US.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Revenues
|
|
|
Cost of sales including occupancy costs
|
|
$
|
4,645.3
|
|
|
$
|
3,999.1
|
|
|
|
16.2
|
%
|
|
|
44.7
|
%
|
|
|
42.5
|
%
|
Store operating expenses
|
|
|
3,745.1
|
|
|
|
3,215.9
|
|
|
|
16.5
|
|
|
|
36.1
|
|
|
|
34.2
|
|
Other operating expenses
|
|
|
330.1
|
|
|
|
294.2
|
|
|
|
12.2
|
|
|
|
3.2
|
|
|
|
3.1
|
|
Depreciation and amortization expenses
|
|
|
549.3
|
|
|
|
467.2
|
|
|
|
17.6
|
|
|
|
5.3
|
|
|
|
5.0
|
|
General and administrative expenses
|
|
|
456.0
|
|
|
|
489.2
|
|
|
|
(6.8
|
)
|
|
|
4.4
|
|
|
|
5.2
|
|
Restructuring charges
|
|
|
266.9
|
|
|
|
|
|
|
|
nm
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,992.7
|
|
|
|
8,465.6
|
|
|
|
18.0
|
|
|
|
96.2
|
|
|
|
89.9
|
|
Income from equity investees
|
|
|
113.6
|
|
|
|
108.0
|
|
|
|
5.2
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
503.9
|
|
|
$
|
1,053.9
|
|
|
|
(52.2
|
)%
|
|
|
4.9
|
%
|
|
|
11.2
|
%
|
Supplemental ratios as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
|
|
|
|
|
|
|
|
42.7
|
%
|
|
|
40.2
|
%
|
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
20.5
|
%
|
|
|
20.8
|
%
|
|
|
|
|
Since many of the Companys operating expenses are fixed in
nature, the softness in US revenues during fiscal 2008 impacted
nearly all consolidated and US segment operating expense line
items when viewed as a percentage of sales, and pressured
operating margins.
Cost of sales including occupancy costs increased primarily due
to higher distribution costs and higher rent expenses as a
percentage of revenues. Store operating expenses as a percentage
of Company-operated retail revenues increased primarily due to
higher payroll expenditures as a percentage of revenues coupled
with impairment provisions in the US business, primarily driven
by the slowdown in projected store openings. Depreciation and
amortization expenses increased primarily due to the opening of
681 new Company-operated retail stores in fiscal 2008. General
and administrative expenses decreased primarily due to lower
payroll-related expenses. Restructuring charges include asset
impairment, lease exit and severance costs. These costs are
associated with the closure of underperforming stores in the US
and Australia, and the rationalization of the Companys
leadership structure and non-store organization.
29
Operating margin compression was primarily due to lower
revenues; in addition, restructuring charges accounted for
approximately 40% of the decrease.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net Revenues
|
|
|
Operating income
|
|
$
|
503.9
|
|
|
$
|
1,053.9
|
|
|
|
(52.2
|
)%
|
|
|
4.9
|
%
|
|
|
11.2
|
%
|
Interest income and other, net
|
|
|
9.0
|
|
|
|
40.4
|
|
|
|
(77.7
|
)
|
|
|
0.1
|
|
|
|
0.4
|
|
Interest expense
|
|
|
(53.4
|
)
|
|
|
(38.0
|
)
|
|
|
40.5
|
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
459.5
|
|
|
|
1,056.3
|
|
|
|
(56.5
|
)
|
|
|
4.4
|
|
|
|
11.2
|
|
Income taxes
|
|
|
144.0
|
|
|
|
383.7
|
|
|
|
(62.5
|
)
|
|
|
1.4
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
315.5
|
|
|
$
|
672.6
|
|
|
|
(53.1
|
)%
|
|
|
3.0
|
%
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and other decreased due primarily to
unrealized market value losses on the Companys trading
securities portfolio. The trading securities approximate a
portion of the Companys liability under its MDCP plan. The
MDCP liability also increases and decreases with changes in
investment performance, with this offsetting impact recorded in
General and administrative expenses on the consolidated
statements of earnings. Interest expense increased due to the
Companys issuance of $550 million of
10-year
6.25% Senior Notes in August of fiscal 2007.
Income taxes for fiscal 2008 resulted in an effective tax rate
of 31.3% compared to 36.3% for fiscal 2007. The lower rate was
due to the higher proportion of income earned in foreign
jurisdictions which have lower tax rates, as well as an increase
in the domestic manufacturing deduction for manufacturing
activities in the US.
United
States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of US Total Net Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
6,997.7
|
|
|
$
|
6,560.9
|
|
|
|
6.7
|
%
|
|
|
92.9
|
%
|
|
|
93.4
|
%
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
504.2
|
|
|
|
439.1
|
|
|
|
14.8
|
|
|
|
6.7
|
|
|
|
6.3
|
|
Other
|
|
|
30.1
|
|
|
|
22.9
|
|
|
|
31.4
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
534.3
|
|
|
|
462.0
|
|
|
|
15.6
|
|
|
|
7.1
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
7,532.0
|
|
|
$
|
7,022.9
|
|
|
|
7.2
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
30
Company-operated retail revenues increased primarily due to the
opening of 445 new Company-operated retail stores in fiscal
2008, partially offset by a 5% decrease in comparable store
sales for fiscal 2008. The US Company-operated retail business
continued to experience deteriorating trends in transactions
during the year, driven by the US economic slowdown. Licensing
revenues increased primarily due to higher product sales and
royalty revenues as a result of opening 438 new licensed retail
stores in fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of US Total Net Revenues
|
|
|
Cost of sales including occupancy costs
|
|
$
|
3,206.3
|
|
|
$
|
2,804.0
|
|
|
|
14.3
|
%
|
|
|
42.6
|
%
|
|
|
39.9
|
%
|
Store operating expenses
|
|
|
3,081.0
|
|
|
|
2,684.2
|
|
|
|
14.8
|
|
|
|
40.9
|
|
|
|
38.2
|
|
Other operating expenses
|
|
|
111.7
|
|
|
|
104.5
|
|
|
|
6.9
|
|
|
|
1.5
|
|
|
|
1.5
|
|
Depreciation and amortization expenses
|
|
|
395.4
|
|
|
|
341.7
|
|
|
|
15.7
|
|
|
|
5.2
|
|
|
|
4.9
|
|
General and administrative expenses
|
|
|
71.2
|
|
|
|
84.1
|
|
|
|
(15.3
|
)
|
|
|
0.9
|
|
|
|
1.2
|
|
Restructuring charges
|
|
|
210.9
|
|
|
|
|
|
|
|
nm
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,076.5
|
|
|
|
6,018.5
|
|
|
|
17.6
|
|
|
|
94.0
|
|
|
|
85.7
|
|
Income (loss) from equity investees
|
|
|
(1.3
|
)
|
|
|
0.8
|
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
454.2
|
|
|
$
|
1,005.2
|
|
|
|
(54.8
|
)%
|
|
|
6.0
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental ratios as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44.0
|
%
|
|
|
40.9
|
%
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.9
|
%
|
|
|
22.6
|
%
|
Operating margin contracted significantly primarily due to
restructuring charges incurred and to softer revenues due to
weak traffic, as well as higher cost of sales including
occupancy costs and higher store operating expenses as a
percentage of revenues. Restructuring charges of
$210.9 million had a 280 basis point impact on the
operating margin. The increase in cost of sales including
occupancy costs was primarily due to higher distribution costs
and higher rent expenses as a percentage of revenues. Higher
store operating expenses was due to the softer sales, higher
payroll-related expenditures, and charges from canceling future
store sites and asset impairments.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of International
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
1,774.2
|
|
|
$
|
1,437.4
|
|
|
|
23.4
|
%
|
|
|
84.3
|
%
|
|
|
84.7
|
%
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
274.8
|
|
|
|
220.9
|
|
|
|
24.4
|
|
|
|
13.1
|
|
|
|
13.0
|
|
Foodservice and other
|
|
|
54.4
|
|
|
|
37.9
|
|
|
|
43.5
|
|
|
|
2.6
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
329.2
|
|
|
|
258.8
|
|
|
|
27.2
|
|
|
|
15.7
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
2,103.4
|
|
|
$
|
1,696.2
|
|
|
|
24.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Company-operated retail revenues increased due to the opening of
236 new Company-operated retail stores in fiscal 2008, favorable
foreign currency exchange rates, primarily on the Canadian
dollar, and comparable store sales growth of 2% for fiscal 2008.
In the fourth quarter of fiscal 2008, Company-operated retail
revenues grew at a slower rate
year-over-year
of 12% and comparable store sales were flat compared to the same
quarter in fiscal 2007, both driven by slowdowns in the UK and
Canada, due to the weakening global economy.
31
Specialty revenues increased primarily due to higher product
sales and royalty revenues from opening 550 new licensed retail
stores in fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of International
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Cost of sales including occupancy costs
|
|
$
|
1,054.0
|
|
|
$
|
824.6
|
|
|
|
27.8
|
%
|
|
|
50.1
|
%
|
|
|
48.6
|
%
|
Store operating expenses
|
|
|
664.1
|
|
|
|
531.7
|
|
|
|
24.9
|
|
|
|
31.6
|
|
|
|
31.3
|
|
Other operating expenses
|
|
|
88.5
|
|
|
|
69.9
|
|
|
|
26.6
|
|
|
|
4.2
|
|
|
|
4.1
|
|
Depreciation and amortization expenses
|
|
|
108.8
|
|
|
|
84.2
|
|
|
|
29.2
|
|
|
|
5.2
|
|
|
|
5.0
|
|
General and administrative expenses
|
|
|
113.0
|
|
|
|
93.8
|
|
|
|
20.5
|
|
|
|
5.4
|
|
|
|
5.5
|
|
Restructuring charges
|
|
|
19.2
|
|
|
|
|
|
|
|
nm
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,047.6
|
|
|
|
1,604.2
|
|
|
|
27.6
|
|
|
|
97.3
|
|
|
|
94.6
|
|
Income from equity investees
|
|
|
54.2
|
|
|
|
45.7
|
|
|
|
18.6
|
|
|
|
2.6
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
110.0
|
|
|
$
|
137.7
|
|
|
|
(20.1
|
)%
|
|
|
5.2
|
%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental ratios as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.4
|
%
|
|
|
37.0
|
%
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.9
|
%
|
|
|
27.0
|
%
|
Operating margin decreased primarily due to higher cost of sales
including occupancy costs driven by continued expansion of lunch
and warming programs in Canada, higher distribution costs, and
higher building maintenance expense due to store renovation
activities. In addition, restructuring charges of
$19.2 million recognized in fiscal 2008 had a 90 basis
point impact on the operating margin, nearly all due to the
closure of 61 Company-operated stores in Australia.
Global
Consumer Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of CPG Total Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
$
|
392.6
|
|
|
$
|
366.3
|
|
|
|
7.2
|
%
|
|
|
52.5
|
%
|
|
|
52.9
|
%
|
Foodservice
|
|
|
355.0
|
|
|
|
326.1
|
|
|
|
8.9
|
%
|
|
|
47.5
|
|
|
|
47.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
$
|
747.6
|
|
|
$
|
692.4
|
|
|
|
8.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
32
Foodservice revenues increased primarily due to growth in new
and existing foodservice accounts, and licensing revenue
increased due to higher royalties and product sales in the
international
ready-to-drink
business and increased sales of US packaged tea and
International club packaged coffee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of CPG
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Cost of sales
|
|
$
|
385.0
|
|
|
$
|
370.5
|
|
|
|
3.9
|
%
|
|
|
51.5
|
%
|
|
|
53.5
|
%
|
Other operating expenses
|
|
|
129.9
|
|
|
|
119.8
|
|
|
|
8.4
|
|
|
|
17.4
|
|
|
|
17.3
|
|
Depreciation and amortization expenses
|
|
|
6.3
|
|
|
|
6.6
|
|
|
|
(4.5
|
)
|
|
|
0.8
|
|
|
|
1.0
|
|
General and administrative expenses
|
|
|
7.9
|
|
|
|
8.1
|
|
|
|
(2.5
|
)
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
529.1
|
|
|
|
505.0
|
|
|
|
4.8
|
|
|
|
70.8
|
|
|
|
72.9
|
|
Income from equity investees
|
|
|
60.7
|
|
|
|
61.5
|
|
|
|
(1.3
|
)
|
|
|
8.1
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
279.2
|
|
|
$
|
248.9
|
|
|
|
12.2
|
%
|
|
|
37.3
|
%
|
|
|
35.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth of operating margin was primarily due to lower cost of
sales as a percentage of revenues, partially offset by lower
income from equity investees. Lower cost of sales was primarily
due to a sales mix shift to more profitable products.
Unallocated
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
|
%
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Depreciation and amortization expenses
|
|
$
|
38.8
|
|
|
$
|
34.7
|
|
|
|
11.8
|
%
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
General and administrative expenses
|
|
|
263.9
|
|
|
|
303.2
|
|
|
|
(13.0
|
)
|
|
|
2.5
|
|
|
|
3.2
|
|
Restructuring charges
|
|
|
36.8
|
|
|
|
|
|
|
|
nm
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(339.5
|
)
|
|
$
|
(337.9
|
)
|
|
|
0.5
|
%
|
|
|
(3.3
|
)%
|
|
|
(3.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unallocated corporate expenses remained relatively flat
due to lower payroll-related expenditures, which were offset by
restructuring charges incurred for corporate office facilities
that were no longer occupied by the Company due to the reduction
in positions within Starbucks leadership structure and non-store
organization.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Companys existing cash and liquid investments were
$666.1 million and $322.3 million as of
September 27, 2009 and September 28, 2008,
respectively.
The Company manages its cash and liquid investments in order to
internally fund operating needs and make scheduled interest and
principal payments on its borrowings.
Included in the cash and liquid investment balances are the
following:
|
|
|
|
|
A portfolio of unrestricted trading securities, designed to
hedge the Companys liability under the MDCP. The value of
this portfolio was $44.8 million and $49.5 million as
of September 27, 2009 and September 28, 2008,
respectively. The decrease was primarily driven by declines in
market values of the underlying equity funds. See Note 3
for further details.
|
|
|
|
Unrestricted cash and liquid securities held within the
Companys wholly owned captive insurance company to fund
claim payouts. The value of these unrestricted cash and liquid
securities was approximately $11.8 million and
$24.0 million as of September 27, 2009 and
September 28, 2008, respectively.
|
33
As of September 27, 2009, the Company had
$92.7 million invested in
available-for-sale
securities. Included in
available-for-sale
securities were $55.7 million of auction rate securities
(ARS), compared with $59.8 million of ARS held
as of September 28, 2008, with the decrease due to calls of
individual securities. As described in more detail in
Note 3, while the ongoing auction failures will limit the
liquidity of these investments for some period of time, the
Company does not believe the auction failures will materially
impact its ability to fund its working capital needs, capital
expenditures or other business requirements.
Credit rating agencies currently rate the Companys
borrowings as follows:
|
|
|
|
|
|
|
|
|
Description
|
|
Standard & Poors
|
|
|
Moodys
|
|
|
Short-term debt
|
|
|
A-2
|
|
|
|
P-3
|
|
Senior unsecured long-term debt
|
|
|
BBB
|
|
|
|
Baa3
|
|
Outlook
|
|
|
Stable
|
|
|
|
Stable
|
|
On August 28, 2009, Standard and Poors Ratings
Services revised its outlook on the Companys credit
ratings to stable from negative based on improved credit metrics
and stabilizing performance. The rating agency also affirmed the
BBB corporate credit rating on the Company and raised the
short-term rating to
A-2 from
A-3 to
conform with the stable rating outlook. As a result of the
Moodys
P-3
short-term rating issued in May 2009, commercial paper has
become less liquid and more expensive than borrowing under the
Companys credit facility. Consequently, the Company
utilized its credit facility for almost all short-term borrowing
needs subsequent to May 2009. In the latter half of the year the
Company reduced its total short-term borrowings to a zero
balance due to strong operating cash flows and lower capital
spending on new Company-operated stores. Management is unlikely
to make significant use of its commercial paper program until
its Moodys short-term ratings improve.
Despite limited access to the commercial paper markets,
management believes that cash flow from operations and its
existing cash and liquid investments, supplemented as needed by
the $1 billion in short-term borrowing capacity under the
Companys revolving credit facility, will be sufficient to
finance capital requirements for its core businesses for the
foreseeable future, as well as to fund the cost of lease
termination and related costs from the remaining international
store closures. Significant new joint ventures, acquisitions
and/or other
new business opportunities may require additional outside
funding.
The Companys credit facility contains provisions requiring
Starbucks to maintain compliance with certain covenants,
including a minimum fixed charge coverage ratio. On June 8,
2009, the credit facility was amended to more accurately reflect
the parties intent with respect to Amendment No. 4 to
the credit facility. Amendment No. 5 to the credit facility
did not impact the Companys borrowing terms, facility
size, or covenant ratio, and was completed at minimal cost to
the Company. As of September 27, 2009 and
September 28, 2008, the Company was in compliance with each
of these covenants.
The $550 million of
10-year
6.25% Senior Notes, issued in fiscal 2007, also require
Starbucks to maintain compliance with certain covenants that
limit future liens and sale and leaseback transactions on
certain material properties. As of September 27, 2009 and
September 28, 2008, the Company was in compliance with each
of these covenants.
The Company generated strong operating cash flow during the year
ended September 27, 2009 and used its free cash flow to
reduce its short-term borrowings from $713.0 million at the
end of fiscal 2008 to a zero balance at the end of fiscal 2009
and to increase the balance of its cash and liquid investments.
The Company expects to use its cash and liquid investments,
including any borrowings under its credit facility and
commercial paper program, to invest in its core businesses,
including new beverage and product innovations, as well as other
new business opportunities related to its core businesses. The
Company may use its available cash resources to make
proportionate capital contributions to its equity method and
cost method investees. Any decisions to increase its ownership
interest in its equity method investees or licensed operations
will be driven by valuation and fit with the Companys
ownership strategy and are likely to be infrequent.
Depending on market conditions and within the constraint of
maintaining an appropriate capital structure, Starbucks may
repurchase shares of its common stock under its authorized share
repurchase program. Starbucks
34
did not repurchase any shares in fiscal 2009 under the
Companys share repurchase program; however, the Company
will continue to evaluate share repurchases and cash dividends
in the future as a use for excess cash generated by the business.
Other than normal operating expenses, cash requirements for
fiscal 2010 are expected to consist primarily of capital
expenditures for remodeling and refurbishment of, and equipment
upgrades for, existing Company-operated retail stores; systems
and technology investments in the stores and in the support
infrastructure; and new Company-operated retail stores. Total
capital expenditures for fiscal 2010 are expected to range from
$500 million to $550 million.
Cash provided by operating activities was $1.4 billion for
fiscal 2009 compared to $1.3 billion for fiscal 2008. Cash
used by investing activities for fiscal 2009 totaled
$421.1 million compared to $1.1 billion in fiscal
2008. The decrease was due to lower capital expenditures in
fiscal 2009 compared to fiscal 2008 due to opening significantly
fewer new Company-operated stores.
Cash used by financing activities for the year ended
September 27, 2009 totaled $642.2 million, with net
repayments of commercial paper and short-term borrowings under
the credit facility totaling $713.1 million. As of
September 27, 2009, a total of $14.1 million in
letters of credit were outstanding under the credit facility,
leaving $985.9 million of capacity available under the
$1 billion combined commercial paper program and revolving
credit facility.
The following table summarizes the Companys contractual
obligations and borrowings as of September 27, 2009, and
the timing and effect that such commitments are expected to have
on the Companys liquidity and capital requirements in
future periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than 1
|
|
|
1 - 3
|
|
|
3 - 5
|
|
|
More than
|
|
Contractual
Obligations(1)
|
|
Total
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Debt
obligations(2)
|
|
$
|
825.4
|
|
|
$
|
34.7
|
|
|
$
|
68.8
|
|
|
$
|
68.8
|
|
|
$
|
653.1
|
|
Operating lease
obligations(3)
|
|
|
4,389.2
|
|
|
|
706.7
|
|
|
|
1,281.3
|
|
|
|
1,039.1
|
|
|
|
1,362.1
|
|
Purchase
obligations(4)
|
|
|
308.3
|
|
|
|
264.1
|
|
|
|
34.2
|
|
|
|
9.5
|
|
|
|
0.5
|
|
Other
obligations(5)
|
|
|
109.7
|
|
|
|
3.3
|
|
|
|
22.8
|
|
|
|
6.8
|
|
|
|
76.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,632.6
|
|
|
$
|
1,008.8
|
|
|
$
|
1,407.1
|
|
|
$
|
1,124.2
|
|
|
$
|
2,092.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Income tax liabilities for uncertain tax positions were excluded
as the Company is not able to make a reasonably reliable
estimate of the amount and period of related future payments. As
of September 27, 2009, the Company had $49.1 million
of gross unrecognized tax benefits for uncertain tax positions. |
|
(2) |
|
Debt amounts include principal maturities and expected interest
payments on the long-term debt. |
|
(3) |
|
Amounts include the direct lease obligations, excluding any
taxes, insurance and other related expenses. |
|
(4) |
|
Purchase obligations include agreements to purchase goods or
services that are enforceable and legally binding on Starbucks
and that specify all significant terms. Purchase obligations
relate primarily to green coffee. |
|
(5) |
|
Other obligations include other long-term liabilities primarily
consisting of asset retirement obligations, capital lease
obligations and hedging instruments. |
Starbucks expects to fund these commitments primarily with
operating cash flows generated in the normal course of business,
as well as ongoing borrowings under the combined commercial
paper program and revolving credit facility.
Off-Balance
Sheet Arrangement
The Companys off-balance sheet arrangements relate to
certain guarantees and are detailed in Note 17 to the
consolidated financial statements in this
10-K.
35
COMMODITY
PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS
Commodity price risk represents the Companys primary
market risk, generated by its purchases of green coffee and
dairy products, among other things. The Company purchases,
roasts and sells high-quality whole bean arabica coffee
and related products and risk arises from the price volatility
of green coffee. In addition to coffee, the Company also
purchases significant amounts of dairy products to support the
needs of its Company-operated retail stores. The price and
availability of these commodities directly impacts the
Companys results of operations and can be expected to
impact its future results of operations. For additional details
see Product Supply in Item 1, as well as Risk Factors in
Item 1A of this
10-K.
FINANCIAL
RISK MANAGEMENT
Market risk is defined as the risk of losses due to changes in
commodity prices, foreign currency exchange rates, equity
security prices, and interest rates. The Company manages its
exposure to various market-based risks according to an umbrella
risk management policy. Under this policy, market-based risks
are quantified and evaluated for potential mitigation
strategies, such as entering into hedging transactions. The
umbrella risk management policy governs the hedging instruments
the business may use and limits the risk to net earnings. The
Company also monitors and limits the amount of associated
counterparty credit risk. Additionally, this policy restricts,
among other things, the amount of market-based risk the Company
will tolerate before implementing approved hedging strategies
and prohibits speculative trading activity. In general, hedging
instruments do not have maturities in excess of five years.
The sensitivity analyses disclosed below provide only a limited,
point-in-time
view of the market risk of the financial instruments discussed.
The actual impact of the respective underlying rates and price
changes on the financial instruments may differ significantly
from those shown in the sensitivity analyses.
Commodity
Price Risk
The Company purchases commodity inputs, including coffee, dairy
products and diesel that are used in its operations and are
subject to price fluctuations that impact its financial results.
In addition to fixed-price contracts and
price-to-be-fixed
contracts for coffee purchases, the Company has entered into
commodity hedges to manage commodity price risk using financial
derivative instruments. The Company performed a sensitivity
analysis based on a 10% change in the underlying commodity
prices of its commodity hedges, as of the end of fiscal 2009,
and determined that such a change would not have a significant
effect on the fair value of these instruments.
Foreign
Currency Exchange Risk
The majority of the Companys revenue, expense and capital
purchasing activities are transacted in US dollars. However,
because a portion of the Companys operations consists of
activities outside of the US, the Company has transactions in
other currencies, primarily the Canadian dollar, British pound,
euro, and Japanese yen. As a result, Starbucks may engage in
transactions involving various derivative instruments to hedge
revenues, inventory purchases, assets, and liabilities
denominated in foreign currencies.
As of September 27, 2009, the Company had forward foreign
exchange contracts that hedge portions of anticipated
international revenue streams and inventory purchases. In
addition, Starbucks had forward foreign exchange contracts that
qualify as accounting hedges of its net investment in Starbucks
Japan, as well as the Companys net investments in its
Canada subsidiary, to minimize foreign currency exposure.
The Company also had forward foreign exchange contracts that are
not designated as hedging instruments for accounting purposes
(free standing derivatives), but which largely offset the
financial impact of translating certain foreign currency
denominated payables and receivables. Increases or decreases in
the fair value of these hedges are generally offset by
corresponding decreases or increases in the US dollar value of
the Companys foreign currency denominated payables and
receivables (i.e. hedged items) that would occur
within the hedging period.
The following table summarizes the potential impact to the
Companys future net earnings and other comprehensive
income (OCI) from changes in the fair value of these
derivative financial instruments due in turn to a change in the
36
value of the US dollar as compared to the level of foreign
exchange rates. The information provided below relates only to
the hedging instruments and does not represent the corresponding
changes in the underlying hedged items (in millions):
September 27,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) to Net Earnings
|
|
Increase/(Decrease) to OCI
|
|
|
10% Increase in
|
|
10% Decrease in
|
|
10% Increase in
|
|
10% Decrease in
|
|
|
Underlying Rate
|
|
Underlying Rate
|
|
Underlying Rate
|
|
Underlying Rate
|
|
Foreign currency hedges
|
|
$
|
58
|
|
|
|
(58
|
)
|
|
|
13
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Security Price Risk
The Company has minimal exposure to price fluctuations on equity
mutual funds and equity exchange-traded funds within its trading
portfolio. The trading securities approximate a portion of the
Companys liability under the MDCP. A corresponding
liability is included in Accrued compensation and related costs
on the consolidated balance sheets. These investments are
recorded at fair value with unrealized gains and losses
recognized in Net interest income and other in the consolidated
statements of earnings. The offsetting changes in the MDCP
liability are recorded in General and administrative expenses.
The Company performed a sensitivity analysis based on a 10%
change in the underlying equity prices of its investments as of
the end of fiscal 2009, and determined that such a change would
not have a significant effect on the fair value of these
instruments.
Interest
Rate Risk
The Company utilizes short-term and long-term financing and may
use interest rate hedges to manage the effect of interest rate
changes on its existing debt as well as the anticipated issuance
of new debt. At the end of fiscal years 2009 and 2008, the
Company did not have any interest rate hedge agreements
outstanding.
The following table summarizes the impact of a change in
interest rates on the fair value of the Companys debt
(in millions):
September 27,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value
|
|
|
|
|
|
|
100 Basis Point Increase in
|
|
|
100 Basis Point Decrease in
|
|
|
|
Fair Value
|
|
|
Underlying Rate
|
|
|
Underlying Rate
|
|
|
Debt
|
|
$
|
591.8
|
|
|
|
(39.8
|
)
|
|
|
39.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys
available-for-sale
securities comprise a diversified portfolio consisting mainly of
fixed income instruments. The primary objectives of these
investments are to preserve capital and liquidity. As of
September 27, 2009, the Companys long-term
available-for-sale
securities included ARS. Please see Note 3 for further
information.
Available-for-sale
securities are recorded on the consolidated balance sheets at
fair value with unrealized gains and losses reported as a
component of Accumulated other comprehensive income. The Company
does not hedge the interest rate exposure on its
available-for-sale
securities. The Company performed a sensitivity analysis based
on a 100 basis point change in the underlying interest rate
of its
available-for-sale
securities as of the end of fiscal 2009, and determined that
such a change would not have a significant effect on the fair
value of these instruments.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that management believes
are both most important to the portrayal of the Companys
financial condition and results, and require managements
most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters
that are inherently uncertain. Judgments and uncertainties
affecting the application of those policies may result in
materially different amounts being reported under different
conditions or using different assumptions.
37
Starbucks considers its policies on asset impairment,
stock-based compensation, operating leases, self insurance
reserves and income taxes to be the most critical in
understanding the judgments that are involved in preparing its
consolidated financial statements.
Asset
Impairment
When facts and circumstances indicate that the carrying values
of long-lived assets may be impaired, an evaluation of
recoverability is performed by comparing the carrying values of
the assets to projected future cash flows, in addition to other
quantitative and qualitative analyses. For goodwill and other
indefinite-lived intangible assets, impairment tests are
performed annually and more frequently if facts and
circumstances indicate carrying values exceed estimated fair
values and if indefinite useful lives are no longer appropriate
for the Companys trademarks. Upon determination that the
carrying values of such assets are in excess of their estimated
fair values, the Company recognizes an impairment loss as a
charge against current operations. Judgments made by the Company
related to the expected useful lives of long-lived assets and
the ability of the Company to realize undiscounted cash flows in
excess of the carrying amounts of such assets are affected by
factors such as the ongoing maintenance and improvements of the
assets, changes in economic conditions and changes in operating
performance. As the Company assesses the ongoing expected cash
flows and carrying amounts of its long-lived assets, these
factors could cause the Company to realize material impairment
charges.
Stock-based
Compensation
Starbucks accounts for stock-based compensation in accordance
with fair value recognition provisions, under which the Company
uses the Black-Scholes-Merton option pricing model which
requires the input of subjective assumptions. These assumptions
include estimating the length of time employees will retain
their stock options before exercising them (expected
term), the estimated volatility of the Companys
common stock price over the expected term and the number of
options that will ultimately not complete their vesting
requirements. Changes in the subjective assumptions could
materially affect the estimate of fair value of stock-based
compensation; however based on an analysis using changes in
certain assumptions that could be reasonably possible in the
near term, management believes the effect on the expense
recognized for fiscal 2009 would not have been material.
Operating
Leases
Starbucks leases retail stores, roasting and distribution
facilities and office space under operating leases. The Company
provides for an estimate of asset retirement obligation
(ARO) expense at the lease inception date for
operating leases with requirements to remove leasehold
improvements at the end of the lease term. Estimating AROs
involves subjective assumptions regarding both the amount and
timing of actual future retirement costs. Future actual costs
could differ significantly from amounts initially estimated. In
addition, the large number of operating leases and the
significant number of international markets in which the Company
has operating leases adds administrative complexity to the
calculation of ARO expense, as well as to the other technical
accounting requirements of operating leases such as contingent
rent. Estimating the cost of certain lease exit costs involves
subjective assumptions, including the time it would take to
sublease the leased location and the related potential sublease
income. The estimated accruals for these costs could be
significantly affected if future experience differs from that
used in the initial estimate.
Self
Insurance Reserves
The Company uses a combination of insurance and self-insurance
mechanisms, including a wholly owned captive insurance entity
and participation in a reinsurance pool, to provide for the
potential liabilities for certain risks, including workers
compensation, healthcare benefits, general liability, property
insurance, and director and officers liability insurance.
Liabilities associated with the risks that are retained by the
Company are not discounted and are estimated, in part, by
considering historical claims experience, demographic factors,
severity factors and other actuarial assumptions. The estimated
accruals for these liabilities could be significantly affected
if future occurrences and claims differ from these assumptions
and historical trends.
38
Income
Taxes
Starbucks recognizes deferred tax assets and liabilities based
on the differences between the financial statement carrying
amounts and the tax basis of assets and liabilities and accrues
for uncertain tax positions. Deferred tax assets and liabilities
are measured using current enacted tax rates in effect for the
years in which those temporary differences are expected to
reverse. Judgment is required in determining the provision for
income taxes and related accruals, deferred tax assets and
liabilities. These include establishing a valuation allowance
related to the ability to realize certain deferred tax assets.
Accounting for uncertain tax positions requires significant
judgments, including estimating the amount, timing and
likelihood of ultimate settlement. Although the Company believes
that its estimates are reasonable, actual results could differ
from these estimates.
RECENT
ACCOUNTING PRONOUNCEMENTS
See Note 1 to the consolidated financial statements in this
10-K.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The information required by this item is incorporated by
reference to the section entitled Managements
Discussion and Analysis of Financial Condition and Results of
Operations Commodity Prices, Availability and
General Risk Conditions and Managements
Discussion and Analysis of Financial Condition and Results of
Operations Financial Risk Management in
Item 7 of this Report.
39
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
STARBUCKS
CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In Millions, except earnings per
share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail
|
|
$
|
8,180.1
|
|
|
$
|
8,771.9
|
|
|
$
|
7,998.3
|
|
Specialty:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
|
|
|
1,222.3
|
|
|
|
1,171.6
|
|
|
|
1,026.3
|
|
Foodservice and other
|
|
|
372.2
|
|
|
|
439.5
|
|
|
|
386.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty
|
|
|
1,594.5
|
|
|
|
1,611.1
|
|
|
|
1,413.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
9,774.6
|
|
|
|
10,383.0
|
|
|
|
9,411.5
|
|
Cost of sales including occupancy costs
|
|
|
4,324.9
|
|
|
|
4,645.3
|
|
|
|
3,999.1
|
|
Store operating expenses
|
|
|
3,425.1
|
|
|
|
3,745.1
|
|
|
|
3,215.9
|
|
Other operating expenses
|
|
|
264.4
|
|
|
|
330.1
|
|
|
|
294.2
|
|
Depreciation and amortization expenses
|
|
|
534.7
|
|
|
|
549.3
|
|
|
|
467.2
|
|
General and administrative expenses
|
|
|
453.0
|
|
|
|
456.0
|
|
|
|
489.2
|
|
Restructuring charges
|
|
|
332.4
|
|
|
|
266.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,334.5
|
|
|
|
9,992.7
|
|
|
|
8,465.6
|
|
Income from equity investees
|
|
|
121.9
|
|
|
|
113.6
|
|
|
|
108.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
562.0
|
|
|
|
503.9
|
|
|
|
1,053.9
|
|
Interest income and other, net
|
|
|
36.3
|
|
|
|
9.0
|
|
|
|
40.4
|
|
Interest expense
|
|
|
(39.1
|
)
|
|
|
(53.4
|
)
|
|
|
(38.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
559.2
|
|
|
|
459.5
|
|
|
|
1,056.3
|
|
Income taxes
|
|
|
168.4
|
|
|
|
144.0
|
|
|
|
383.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
390.8
|
|
|
$
|
315.5
|
|
|
$
|
672.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings basic
|
|
$
|
0.53
|
|
|
$
|
0.43
|
|
|
$
|
0.90
|
|
Net earnings diluted
|
|
$
|
0.52
|
|
|
$
|
0.43
|
|
|
$
|
0.87
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
738.7
|
|
|
|
731.5
|
|
|
|
749.8
|
|
Diluted
|
|
|
745.9
|
|
|
|
741.7
|
|
|
|
770.1
|
|
See Notes to Consolidated Financial Statements.
40
STARBUCKS
CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
599.8
|
|
|
$
|
269.8
|
|
Short-term investments
available-for-sale
securities
|
|
|
21.5
|
|
|
|
3.0
|
|
Short-term investments trading securities
|
|
|
44.8
|
|
|
|
49.5
|
|
Accounts receivable, net
|
|
|
271.0
|
|
|
|
329.5
|
|
Inventories
|
|
|
664.9
|
|
|
|
692.8
|
|
Prepaid expenses and other current assets
|
|
|
147.2
|
|
|
|
169.2
|
|
Deferred income taxes, net
|
|
|
286.6
|
|
|
|
234.2
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,035.8
|
|
|
|
1,748.0
|
|
Long-term investments
available-for-sale
securities
|
|
|
71.2
|
|
|
|
71.4
|
|
Equity and cost investments
|
|
|
352.3
|
|
|
|
302.6
|
|
Property, plant and equipment, net
|
|
|
2,536.4
|
|
|
|
2,956.4
|
|
Other assets
|
|
|
253.8
|
|
|
|
261.1
|
|
Other intangible assets
|
|
|
68.2
|
|
|
|
66.6
|
|
Goodwill
|
|
|
259.1
|
|
|
|
266.5
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
5,576.8
|
|
|
$
|
5,672.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Commercial paper and short-term borrowings
|
|
$
|
|
|
|
$
|
713.0
|
|
Accounts payable
|
|
|
267.1
|
|
|
|
324.9
|
|
Accrued compensation and related costs
|
|
|
307.5
|
|
|
|
253.6
|
|
Accrued occupancy costs
|
|
|
188.1
|
|
|
|
136.1
|
|
Accrued taxes
|
|
|
127.8
|
|
|
|
76.1
|
|
Insurance reserves
|
|
|
154.3
|
|
|
|
152.5
|
|
Other accrued expenses
|
|
|
147.3
|
|
|
|
164.4
|
|
Deferred revenue
|
|
|
388.7
|
|
|
|
368.4
|
|
Current portion of long-term debt
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,581.0
|
|
|
|
2,189.7
|
|
Long-term debt
|
|
|
549.3
|
|
|
|
549.6
|
|
Other long-term liabilities
|
|
|
400.8
|
|
|
|
442.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,531.1
|
|
|
|
3,181.7
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock ($0.001 par value) authorized,
1,200.0 shares; issued and outstanding, 742.9 and
735.5 shares, respectively (includes 3.4 common stock units
in both periods)
|
|
|
0.7
|
|
|
|
0.7
|
|
Additional paid-in capital
|
|
|
147.0
|
|
|
|
|
|
Other additional
paid-in-capital
|
|
|
39.4
|
|
|
|
39.4
|
|
Retained earnings
|
|
|
2,793.2
|
|
|
|
2,402.4
|
|
Accumulated other comprehensive income
|
|
|
65.4
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,045.7
|
|
|
|
2,490.9
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
5,576.8
|
|
|
$
|
5,672.6
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
41
STARBUCKS
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sep 27,
|
|
|
Sep 28,
|
|
|
Sep 30,
|
|
Fiscal Year Ended
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
390.8
|
|
|
$
|
315.5
|
|
|
$
|
672.6
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
563.3
|
|
|
|
604.5
|
|
|
|
491.2
|
|
Provision for impairments and asset disposals
|
|
|
224.4
|
|
|
|
325.0
|
|
|
|
26.0
|
|
Deferred income taxes
|
|
|
(69.6
|
)
|
|
|
(117.1
|
)
|
|
|
(37.3
|
)
|
Equity in income of investees
|
|
|
(78.4
|
)
|
|
|
(61.3
|
)
|
|
|
(65.7
|
)
|
Distributions of income from equity investees
|
|
|
53.0
|
|
|
|
52.6
|
|
|
|
65.9
|
|
Stock-based compensation
|
|
|
83.2
|
|
|
|
75.0
|
|
|
|
103.9
|
|
Tax benefit from exercise of stock options
|
|
|
2.0
|
|
|
|
3.8
|
|
|
|
7.7
|
|
Excess tax benefit from exercise of stock options
|
|
|
(15.9
|
)
|
|
|
(14.7
|
)
|
|
|
(93.1
|
)
|
Other
|
|
|
5.4
|
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
Cash provided/(used) by changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
28.5
|
|
|
|
(0.6
|
)
|
|
|
(48.6
|
)
|
Accounts payable
|
|
|
(53.0
|
)
|
|
|
(63.9
|
)
|
|
|
36.1
|
|
Accrued taxes
|
|
|
57.2
|
|
|
|
7.3
|
|
|
|
86.4
|
|
Deferred revenue
|
|
|
16.3
|
|
|
|
72.4
|
|
|
|
63.2
|
|
Other operating assets
|
|
|
120.5
|
|
|
|
(11.2
|
)
|
|
|
(92.7
|
)
|
Other operating liabilities
|
|
|
61.3
|
|
|
|
71.5
|
|
|
|
114.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,389.0
|
|
|
|
1,258.7
|
|
|
|
1,331.2
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
available-for-sale
securities
|
|
|
(129.2
|
)
|
|
|
(71.8
|
)
|
|
|
(237.4
|
)
|
Maturities and calls of
available-for-sale
securities
|
|
|
111.0
|
|
|
|
20.0
|
|
|
|
178.2
|
|
Sales of
available-for-sale
securities
|
|
|
5.0
|
|
|
|
75.9
|
|
|
|
47.5
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(74.2
|
)
|
|
|
(53.3
|
)
|
Net purchases of equity, other investments and other assets
|
|
|
(4.8
|
)
|
|
|
(52.0
|
)
|
|
|
(56.6
|
)
|
Additions to property, plant and equipment
|
|
|
(445.6
|
)
|
|
|
(984.5
|
)
|
|
|
(1,080.3
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
42.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(421.1
|
)
|
|
|
(1,086.6
|
)
|
|
|
(1,201.9
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of commercial paper
|
|
|
20,965.4
|
|
|
|
65,770.8
|
|
|
|
17,311.1
|
|
Repayments of commercial paper
|
|
|
(21,378.5
|
)
|
|
|
(66,068.0
|
)
|
|
|
(16,600.9
|
)
|
Proceeds from short-term borrowings
|
|
|
1,338.0
|
|
|
|
528.2
|
|
|
|
770.0
|
|
Repayments of short-term borrowings
|
|
|
(1,638.0
|
)
|
|
|
(228.8
|
)
|
|
|
(1,470.0
|
)
|
Proceeds from issuance of common stock
|
|
|
57.3
|
|
|
|
112.3
|
|
|
|
176.9
|
|
Excess tax benefit from exercise of stock options
|
|
|
15.9
|
|
|
|
14.7
|
|
|
|
93.1
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
549.0
|
|
Principal payments on long-term debt
|
|
|
(0.7
|
)
|
|
|
(0.6
|
)
|
|
|
(0.8
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
(311.4
|
)
|
|
|
(996.8
|
)
|
Other
|
|
|
(1.6
|
)
|
|
|
(1.7
|
)
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(642.2
|
)
|
|
|
(184.5
|
)
|
|
|
(171.9
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
4.3
|
|
|
|
0.9
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
330.0
|
|
|
|
(11.5
|
)
|
|
|
(31.3
|
)
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
269.8
|
|
|
|
281.3
|
|
|
|
312.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
599.8
|
|
|
$
|
269.8
|
|
|
$
|
281.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings and commercial paper for the
period
|
|
$
|
(713.1
|
)
|
|
$
|
2.2
|
|
|
$
|
10.2
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of capitalized interest
|
|
$
|
39.8
|
|
|
$
|
52.7
|
|
|
$
|
35.3
|
|
Income taxes
|
|
$
|
162.0
|
|
|
$
|
259.5
|
|
|
$
|
342.2
|
|
See Notes to Consolidated Financial Statements.
42
STARBUCKS
CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(Loss)
|
|
|
Total
|
|
|
Balance, October 1, 2006
|
|
|
756.6
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
39.4
|
|
|
$
|
2,151.1
|
|
|
$
|
37.3
|
|
|
$
|
2,228.5
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
672.6
|
|
|
|
|
|
|
|
672.6
|
|
Unrealized holding loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.4
|
)
|
|
|
(20.4
|
)
|
Translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.7
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
106.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106.4
|
|
Exercise of stock options, including tax benefit of $95.3
|
|
|
12.8
|
|
|
|
|
|
|
|
225.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225.2
|
|
Sale of common stock, including tax provision of $0.1
|
|
|
1.9
|
|
|
|
|
|
|
|
46.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.8
|
|
Repurchase of common stock
|
|
|
(33.0
|
)
|
|
|
|
|
|
|
(378.4
|
)
|
|
|
|
|
|
|
(634.3
|
)
|
|
|
|
|
|
|
(1,012.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
738.3
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
39.4
|
|
|
$
|
2,189.4
|
|
|
$
|
54.6
|
|
|
$
|
2,284.1
|
|
Cumulative impact of adoption of accounting requirements for
uncertain tax positions
|
|
|
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(3.3
|
)
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315.5
|
|
|
|
|
|
|
|
315.5
|
|
Unrealized holding gain, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.8
|
|
Translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.0
|
)
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
76.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76.8
|
|
Exercise of stock options, including tax benefit of $8.4
|
|
|
6.6
|
|
|
|
|
|
|
|
77.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77.4
|
|
Sale of common stock, including tax benefit of $0.1
|
|
|
2.8
|
|
|
|
|
|
|
|
41.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.9
|
|
Repurchase of common stock
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
(194.5
|
)
|
|
|
|
|
|
|
(100.8
|
)
|
|
|
|
|
|
|
(295.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 28, 2008
|
|
|
735.5
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
39.4
|
|
|
$
|
2,402.4
|
|
|
$
|
48.4
|
|
|
$
|
2,490.9
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390.8
|
|
|
|
|
|
|
|
390.8
|
|
Unrealized holding gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
1.8
|
|
Translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.2
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
84.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.3
|
|
Exercise of stock options, including tax benefit of $5.3
|
|
|
4.9
|
|
|
|
|
|
|
|
35.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.9
|
|
Sale of common stock, including tax benefit of $0.1
|
|
|
2.5
|
|
|
|
|
|
|
|
26.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 27, 2009
|
|
|
742.9
|
|
|
$
|
0.7
|
|
|
$
|
147.0
|
|
|
$
|
39.4
|
|
|
$
|
2,793.2
|
|
|
$
|
65.4
|
|
|
$
|
3,045.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
43
STARBUCKS
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Fiscal
Years ended September 27, 2009, September 28, 2008 and
September 30, 2007
|
|
Note 1:
|
Summary
of Significant Accounting Policies
|
Description
of Business
Starbucks Corporation (together with its subsidiaries,
Starbucks or the Company) purchases and
roasts high-quality whole bean coffees and sells them, along
with fresh, rich-brewed coffees, Italian-style espresso
beverages, cold blended beverages, a variety of complementary
food items, a selection of premium teas, and beverage-related
accessories and equipment, primarily through its
Company-operated retail stores. Starbucks also sells coffee and
tea products and licenses its trademark through other channels
such as licensed stores, and through certain of its licensees
and equity investees, Starbucks produces and sells a variety of
ready-to-drink
beverages. All channels outside the Company-operated retail
stores are collectively known as specialty operations.
Additional details on the nature of the Companys business
are in Item 1 of this
10-K.
Starbucks has three reportable operating segments: United States
(US), International and Global Consumer Products
Group (CPG). See Note 18 for additional details.
Principles
of Consolidation
The consolidated financial statements reflect the financial
position and operating results of Starbucks, including wholly
owned subsidiaries and investees controlled by the Company.
Investments in entities that the Company does not control, but
has the ability to exercise significant influence over operating
and financial policies, are accounted for under the equity
method. Investments in entities in which Starbucks does not have
the ability to exercise significant influence are accounted for
under the cost method. Intercompany transactions and balances
have been eliminated.
Fiscal
Year End
Starbucks fiscal year ends on the Sunday closest to
September 30. The fiscal years ended on September 27,
2009, September 28, 2008 and September 30, 2007 all
included 52 weeks. Starbucks 2010 fiscal year will include
53 weeks, with the
53rd week
falling in its fourth fiscal quarter.
Subsequent
Events
The Company evaluated subsequent events and transactions for
potential recognition or disclosure in the financial statements
through November 20, 2009, the day the financial statements
were issued.
Estimates
and Assumptions
Preparing financial statements in conformity with accounting
principles generally accepted in the United States of America
(GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Examples include, but are
not limited to, estimates for asset and goodwill impairments,
stock-based compensation forfeiture rates, and future asset
retirement obligations; assumptions underlying self-insurance
reserves; and the potential outcome of future tax consequences
of events that have been recognized in the financial statements.
Actual results and outcomes may differ from these estimates and
assumptions.
Cash
and Cash Equivalents
The Company considers all highly liquid instruments with a
maturity of three months or less at the time of purchase to be
cash equivalents. The Company maintains cash and cash equivalent
balances with financial institutions that
44
exceed federally insured limits. The Company has not experienced
any losses related to these balances, and management believes
its credit risk to be minimal.
Cash
Management
The Companys cash management system provides for the
funding of all major bank disbursement accounts on a daily basis
as checks are presented for payment. Under this system,
outstanding checks are in excess of the cash balances at certain
banks, which creates book overdrafts. Book overdrafts are
presented as a current liability in Accounts payable on the
consolidated balance sheets.
Short-term
and Long-term Investments
The Companys short-term and long-term investments consist
primarily of investment grade debt securities, equity mutual
funds, and equity exchange-traded funds, all of which are
classified as
available-for-sale
or trading. As of September 27, 2009, a substantial portion
of the Companys
available-for-sale
investments consisted of auction rate securities, as described
in more detail in Note 3. Trading securities are recorded
at fair value with unrealized holding gains and losses included
in net earnings.
Available-for-sale
securities are recorded at fair value, and unrealized holding
gains and losses are recorded, net of tax, as a component of
accumulated other comprehensive income.
Available-for-sale
securities with remaining maturities of less than one year and
those identified by management at time of purchase for funding
operations in less than one year are classified as short term,
and all other
available-for-sale
securities are classified as long term. Unrealized losses are
charged against net earnings when a decline in fair value is
determined to be other than temporary. Management reviews
several factors to determine whether a loss is other than
temporary, such as the length and extent of the fair value
decline, the financial condition and near term prospects of the
issuer, and for equity investments, the Companys intent
and ability to hold the security for a period of time sufficient
to allow for any anticipated recovery in fair value. For debt
securities, management also evaluates whether the Company has
the intent to sell or will likely be required to sell before its
anticipated recovery. Realized gains and losses are accounted
for on the specific identification method. Purchases and sales
are recorded on a trade date basis.
Fair
Value of Financial Instruments
The carrying value of cash and cash equivalents approximates
fair value because of the short-term maturity of those
instruments. The fair value of the Companys investments in
marketable debt and equity securities, equity mutual funds and
equity exchange-traded funds, is based upon the quoted market
price on the last business day of the fiscal year. Where an
observable quoted market price for a security does not exist,
the Company estimates fair value using a variety of valuation
methodologies. Such methodologies include comparing the security
with securities of publicly traded companies in similar lines of
business, applying revenue multiples to estimated future
operating results and estimating discounted cash flows. See
Note 3 and 7 for additional information and Note 5 for
the methods used to measure fair value. The fair value of the
Companys debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining
maturities. The carrying value of short-term debt approximates
fair value. The estimated fair value of Starbucks
$550 million of 6.25% Senior Notes was approximately
$591 million and $536 million as of September 27,
2009 and September 28, 2008, respectively.
Derivative
Instruments
The Company manages its exposure to various risks within the
consolidated financial statements according to an umbrella risk
management policy. Under this policy, Starbucks may engage in
transactions involving various derivative instruments, with
maturities generally not longer than five years, to hedge
interest rates, commodity prices, and foreign currency
denominated revenues, purchases, assets and liabilities.
The Company records all derivatives on the balance sheets at
fair value. For a cash flow hedge, the effective portion of the
derivatives gain or loss is initially reported as a
component of other comprehensive income (OCI) and
45
subsequently reclassified into net earnings when the hedged
exposure affects net earnings. For a net investment hedge, the
effective portion of the derivatives gain or loss is
reported as a component of OCI.
Cash flow hedges related to anticipated transactions are
designated and documented at the inception of each hedge by
matching the terms of the contract to the underlying
transaction. The Company classifies the cash flows from hedging
transactions in the same categories as the cash flows from the
respective hedged items. Once established, cash flow hedges are
generally not removed until maturity unless an anticipated
transaction is no longer likely to occur. For discontinued or
dedesignated cash flow hedges, the related accumulated
derivative gains or losses are recognized in Net interest income
and other on the consolidated statements of earnings.
Forward contract effectiveness for cash flow hedges is
calculated by comparing the fair value of the contract to the
change in value of the anticipated transaction using forward
rates on a monthly basis. For net investment hedges, the
spot-to-spot
method is used to calculate effectiveness. Under this method,
the change in fair value of the forward contract attributable to
the changes in spot exchange rates (the effective portion) is
reported as a component of OCI. The remaining change in fair
value of the forward contract (the ineffective portion) is
reclassified into net earnings. Any ineffectiveness is
recognized immediately in Net interest income and other on the
consolidated statements of earnings.
The Company also enters into certain foreign currency forward
contracts and commodity swap and futures contracts that are not
designated as hedging instruments for accounting purposes. These
contracts are recorded at fair value, with the changes in fair
value recognized in Net interest income and other on the
consolidated statements of earnings.
See Note 5 for additional information on the Companys
fair value measurements related to derivative instruments.
Allowance
for Doubtful Accounts
Allowance for doubtful accounts is calculated based on
historical experience, customer credit risk and application of
the specific identification method. As of September 27,
2009 and September 28, 2008, the allowance for doubtful
accounts was $5.0 million and $4.5 million,
respectively.
Inventories
Inventories are stated at the lower of cost (primarily moving
average cost) or market. The Company records inventory reserves
for obsolete and slow-moving items and for estimated shrinkage
between physical inventory counts. Inventory reserves are based
on inventory turnover trends, historical experience and
application of the specific identification method. As of
September 27, 2009 and September 28, 2008, inventory
reserves were $21.1 million and $25.5 million,
respectively.
Property,
Plant and Equipment
Property, plant and equipment are carried at cost less
accumulated depreciation. Depreciation of property, plant and
equipment, which includes assets under capital leases, is
provided on the straight-line method over estimated useful
lives, generally ranging from two to seven years for equipment
and 30 to 40 years for buildings. Leasehold improvements
are amortized over the shorter of their estimated useful lives
or the related lease life, generally 10 years. For leases
with renewal periods at the Companys option, Starbucks
generally uses the original lease term, excluding renewal option
periods, to determine estimated useful lives. If failure to
exercise a renewal option imposes an economic penalty to
Starbucks, management may determine at the inception of the
lease that renewal is reasonably assured and include the renewal
option period in the determination of appropriate estimated
useful lives. The portion of depreciation expense related to
production and distribution facilities is included in Cost of
sales including occupancy costs on the consolidated statements
of earnings. The costs of repairs and maintenance are expensed
when incurred, while expenditures for refurbishments and
improvements that significantly add to the productive capacity
or extend the useful life of an asset are capitalized. When
assets are retired or sold, the asset cost and related
accumulated depreciation are eliminated with any remaining gain
or loss reflected in net earnings.
46
Goodwill
The Company tests its goodwill for impairment on an annual
basis, or more frequently if circumstances indicate reporting
unit carrying values exceed their fair values. Fair value is
estimated by projecting discounted cash flows from the reporting
unit in addition to other quantitative and qualitative analyses.
If the carrying amount of goodwill exceeds the implied estimated
fair value, an impairment charge to current operations is
recorded to reduce the carrying value to the implied estimated
fair value.
Starbucks conducted its annual test for its consolidated
entities in the third fiscal quarter, resulting in
$7 million of goodwill impairment in fiscal 2009 related to
the US operating segments Hawaii reporting unit, which is
comprised of retail store operations. The current and future
projected operating results for the Hawaii operations, which
were acquired in fiscal 2006, were lower than originally
anticipated due to the overall economic slowdown and its impact
on the travel industry in particular, resulting in a partial
impairment of the related goodwill. There was no impairment of
goodwill in fiscal 2008 and 2007.
Other
Intangible Assets
Other intangible assets consist primarily of trademarks with
indefinite lives which are tested for impairment annually or
more frequently if indefinite useful lives are no longer
appropriate. Definite-lived intangible assets, which mainly
consist of contract-based patents and copyrights, are amortized
over their estimated useful lives, and are tested for impairment
when facts and circumstances indicate that the carrying values
may not be recoverable. For further information on other
intangible assets, see Note 9. Based on the impairment
tests performed there was no impairment of other intangible
assets in fiscal 2009, 2008 and 2007.
Long-lived
Assets
When facts and circumstances indicate that the carrying values
of long-lived assets may be impaired, an evaluation of
recoverability is performed by comparing the carrying values of
the assets to projected undiscounted future cash flows in
addition to other quantitative and qualitative analyses. Upon
indication that the carrying values of such assets may not be
recoverable, the Company compares the fair value of long-lived
assets to their carrying value and recognizes an impairment loss
by a charge to net earnings for the excess of carrying value
over fair value. The fair value of the assets is estimated using
the discounted future cash flows of the assets. Property, plant
and equipment assets are grouped at the lowest level for which
there are identifiable cash flows when assessing impairment.
Cash flows for retail assets are identified at the individual
store level. Long-lived assets to be disposed of are reported at
the lower of their carrying amount, or fair value less estimated
costs to sell.
The Company recognized net impairment and disposition losses of
$224.4 million, $325.0 million and $26.0 million
in fiscal 2009, 2008 and 2007, respectively, primarily due to
underperforming Company-operated retail stores. The net losses
in fiscal 2009 and 2008 include $129.2 million and
$201.6 million, respectively, of asset impairments related
to the US and International store closures and charges incurred
for office facilities no longer occupied by the Company due to
the reduction in positions within Starbucks leadership structure
and non-store organization. See Note 2 for further details.
Depending on the underlying asset that is impaired, these losses
may be recorded in any one of the operating expense lines on the
consolidated statements of earnings: for retail operations, the
net impairment and disposition losses are recorded in
Restructuring charges and Store operating expenses; for
specialty operations, these losses are recorded in Restructuring
charges and Other operating expenses; and for all other
operations, these losses are recorded in Cost of sales including
occupancy costs, General and administrative expenses, or
Restructuring charges.
Insurance
Reserves
The Company uses a combination of insurance and self-insurance
mechanisms, including a wholly owned captive insurance entity
and participation in a reinsurance pool, to provide for the
potential liabilities for certain risks, including workers
compensation, healthcare benefits, general liability, property
insurance, and director and officers liability insurance.
Liabilities associated with the risks that are retained by the
Company are not discounted
47
and are estimated, in part, by considering historical claims
experience, demographic factors, severity factors and other
actuarial assumptions.
Revenue
Recognition
Consolidated revenues are presented net of intercompany
eliminations for wholly owned subsidiaries and investees
controlled by the Company and for licensees accounted for under
the equity method, based on the Companys percentage
ownership. Additionally, consolidated revenues are recognized
net of any discounts, returns, allowances and sales incentives,
including coupon redemptions and rebates.
Stored
Value Cards
Revenues from the Companys stored value cards, such as the
Starbucks Card, and gift certificates are recognized when
tendered for payment, or upon redemption. Outstanding customer
balances are included in Deferred revenue on the consolidated
balance sheets. There are no expiration dates on the
Companys stored value cards or gift certificates, and
Starbucks does not charge any service fees that cause a
decrement to customer balances.
While the Company will continue to honor all stored value cards
and gift certificates presented for payment, management may
determine the likelihood of redemption to be remote for certain
card and certificate balances due to, among other things, 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 and
certificate balances may then be recognized in the consolidated
statements of earnings in Net interest income and other. For the
fiscal years ended September 27, 2009, September 28,
2008 and September 30, 2007 income recognized on unredeemed
stored value card balances and gift certificates was
$26.0 million, $13.6 million and $12.9 million,
respectively.
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 Companys 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.
48
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.
Advertising expenses, recorded in Store operating expenses,
Other operating expenses and General and administrative expenses
on the consolidated statements of earnings, totaled
$126.3 million, $129.0 million and $103.5 million
in fiscal 2009, 2008 and 2007, respectively. As of
September 27, 2009 and September 28, 2008,
$7.2 million and $8.8 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 $6.5 million,
$7.2 million and $7.0 million during fiscal 2009, 2008
and 2007, 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.
Operating
Leases
Starbucks leases retail stores, roasting and distribution
facilities and office space under operating leases. Most lease
agreements contain tenant improvement allowances, rent holidays,
lease premiums, rent escalation clauses
and/or
contingent rent provisions. For purposes of recognizing
incentives, premiums and minimum rental expenses on a
straight-line basis over the terms of the leases, the Company
uses the date of initial possession to begin amortization, which
is generally when the Company enters the space and begins to
make improvements in preparation of intended use.
For tenant improvement allowances and rent holidays, the Company
records a deferred rent liability in Accrued occupancy costs and
Other long-term liabilities on the consolidated balance sheets
and amortizes the deferred rent over the terms of the leases as
reductions to rent expense on the consolidated statements of
earnings.
For premiums paid upfront to enter a lease agreement, the
Company records a deferred rent asset in Prepaid expenses and
other current assets and Other assets on the consolidated
balance sheets and then amortizes the deferred rent over the
terms of the leases as additional rent expense on 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 occupancy, the Company records minimum rental expenses
on a straight-line basis over the terms of the leases on the
consolidated statements of earnings.
Certain leases provide for contingent rents, which are
determined as a percentage of gross sales in excess of specified
levels. The Company records a contingent rent liability in
Accrued occupancy costs on the consolidated balance sheets and
the corresponding rent expense when specified levels have been
achieved or when management determines that achieving the
specified levels during the fiscal year is probable.
When ceasing operations in Company-operated stores under
operating leases, in cases where the lease contract specifies a
termination fee due to the landlord, the Company records such
expense at the time written notice is given to the landlord. In
cases where terms, including termination fees, are yet to be
negotiated with the landlord, the Company will record the
expense upon signing of an agreement with the landlord. Finally,
in cases where the landlord does not allow the Company to
prematurely exit its lease, but allows for subleasing, the
Company estimates the fair value of any sublease income that can
be generated from the location and expenses the present value of
the excess of remaining lease payments to the landlord over the
projected sublease income at the cease-use date.
49
Asset
Retirement Obligations
Starbucks recognizes a liability for the fair value of required
asset retirement obligations (ARO) when such
obligations are incurred. The Companys AROs are primarily
associated with leasehold improvements which, at the end of a
lease, the Company is contractually obligated to remove in order
to comply with the lease agreement. At the inception of a lease
with such conditions, the Company records an ARO liability and a
corresponding capital asset in an amount equal to the estimated
fair value of the obligation. The liability is estimated based
on a number of assumptions requiring managements judgment,
including store closing costs, cost inflation rates and discount
rates, and is accreted to its projected future value over time.
The capitalized asset is depreciated using the convention for
depreciation of leasehold improvement assets. Upon satisfaction
of the ARO conditions, any difference between the recorded ARO
liability and the actual retirement costs incurred is recognized
as an operating gain or loss in the consolidated statements of
earnings. As of September 27, 2009 and September 28,
2008, the Companys net ARO asset included in Net property,
plant and equipment was $15.1 million and
$18.5 million, respectively, while the Companys net
ARO liability included in Other long-term liabilities was
$43.4 million and $44.6 million, as of the same
respective dates.
Stock-based
Compensation
The Company maintains several equity incentive plans under which
it may grant non-qualified stock options, incentive stock
options, restricted stock, restricted stock units
(RSUs) or stock appreciation rights to employees,
non-employee directors and consultants. The Company also has
employee stock purchase plans (ESPP). RSUs issued by
the Company are equivalent to nonvested shares under the
applicable accounting guidance. See Note 14 for additional
details.
Foreign
Currency Translation
The Companys international operations generally use their
local currency as their functional currency. Assets and
liabilities are translated at exchange rates in effect at the
balance sheet date. Income and expense accounts are translated
at the average monthly exchange rates during the year. Resulting
translation adjustments are recorded as a component of
Accumulated other comprehensive income on the consolidated
balance sheets.
Income
Taxes
The Company computes income taxes using the asset and liability
method, under which deferred income taxes are provided for the
temporary differences between the financial statement carrying
amounts and the tax basis of the Companys assets and
liabilities. The Company will establish a valuation allowance
for deferred tax assets if it is more likely than not that these
items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.
Periodically, the valuation allowance is reviewed and adjusted
based on managements assessments of realizable deferred
tax assets.
Starbucks adopted the new accounting requirements for uncertain
tax positions on the first day of the Companys first
fiscal quarter of 2008. The cumulative impact of adopting the
new accounting requirements is shown in the consolidated
statements of shareholders equity. The Company recognizes
the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the
financial statements from such a position are measured based on
the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement. The Company recognizes
interest and penalties related to income tax matters in income
tax expense. See Note 15 for additional details.
Earnings
per Share
Basic earnings per share is computed on the basis of the
weighted average number of shares and common stock units that
were outstanding during the period. Diluted earnings per share
includes the dilutive effect of common stock equivalents
consisting of certain shares subject to stock options and RSUs,
using the treasury stock method. Performance-based RSUs are
considered diluted when the related performance criterion has
been met.
50
Common
Stock Share Repurchases
The Company may repurchase shares of its common stock under a
program authorized by its Board of Directors including pursuant
to a contract, instruction or written plan meeting the
requirements of
Rule 10b5-1(c)(1)
of the Securities Exchange Act of 1934. In accordance with the
Washington Business Corporation Act, share repurchases are not
displayed separately as treasury stock on the consolidated
balance sheets or consolidated statements of shareholders
equity. Instead, the par value of repurchased shares is deducted
from Common stock and the remaining excess repurchase price over
par value is deducted from Additional paid-in capital and from
Retained earnings, once additional paid-in capital is depleted.
See Note 13 for additional information.
Recent
Accounting Pronouncements
Starbucks adopted the new guidance issued by the Financial
Accounting Standards Board (FASB) for fair value
measurement for its financial assets and liabilities effective
September 29, 2008 (see Note 5 for additional
disclosures). The guidance defines fair value, establishes a
framework for measuring fair value in GAAP and expands
disclosures about fair value measurements. This guidance is
effective for nonfinancial assets and liabilities for Starbucks
first fiscal quarter of 2010. The Company believes that the
adoption of this new guidance for its nonfinancial assets and
liabilities will not have a material impact on its financial
statements.
In December 2007, the FASB issued authoritative guidance on
business combinations, establishing principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any resulting goodwill, and any noncontrolling interest
in an acquiree. The guidance also provides for disclosures to
enable users of the financial statements to evaluate the nature
and financial effects of the business combination. This new
guidance will be effective for Starbucks first fiscal quarter of
2010 and must be applied prospectively to business combinations
completed in fiscal 2010 and beyond.
In December 2007, the FASB issued authoritative guidance on
accounting and reporting for noncontrolling interests in
subsidiaries. The guidance clarifies that a noncontrolling
interest in a subsidiary should be accounted for as a component
of equity separate from the parents equity. Starbucks will
apply the new guidance relating to noncontrolling interests
beginning in the first fiscal quarter of 2010 on a prospective
basis, except for the presentation and disclosure requirements,
which will be applied retrospectively. The adoption of this
guidance will not have a material impact on the Companys
financial statements.
In June 2009, the FASB issued authoritative guidance on the
consolidation of variable interest entities (VIE),
which will be effective for Starbucks first fiscal quarter of
2011. The new guidance requires a qualitative approach to
identifying a controlling financial interest in a variable
interest entity, and requires ongoing assessment of whether an
entity is a VIE and whether an interest in a VIE makes the
holder the primary beneficiary of the VIE. The Company is
currently evaluating the impact that adoption may have on its
consolidated financial statements.
|
|
Note 2:
|
Restructuring
Charges
|
In fiscal 2009, Starbucks continued to execute its restructuring
efforts to position the Company for long-term profitable growth.
These efforts have been focused on both the global
Company-operated store base and the non-retail support
organization. Starbucks actions to rationalize its store
portfolio have included plans (announced in July 2008 and
January 2009) to close approximately 800 Company-operated
stores in the US, restructure its Australia market, and close
approximately 100 additional Company-operated stores
internationally. Since those announcements, nearly all of the
approximately 800 US stores, 61 stores in Australia and 41 in
other International markets have been closed.
US Store Closures In fiscal 2009, the Company
closed 383 of the approximately 600 stores announced in July
2008, bringing the total number of US closures under this
restructuring action to 588 stores. The Company also closed 183
of the approximately 200 stores announced for closure in January
2009.
International Store Closures During fiscal
2009, the Company closed 41 of the approximately 100 stores
announced for closure in January 2009. The Company expects to
complete the remaining closures in fiscal 2010, and will
recognize the associated lease exit costs concurrently with the
actual closures.
51
Workforce Reduction and Other Related Costs
Workforce reductions related to store closures and non-store
support positions resulted in the recognition of
$19.0 million in employee termination costs in fiscal 2009.
In addition, in fiscal 2009, Starbucks recognized
$47.8 million of valuation adjustments on corporate office
facilities that were no longer intended to be occupied by the
Company.
Restructuring charges by type and a reconciliation of the
associated accrued liability (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Exit
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
and Other
|
|
|
Asset
|
|
|
Termination
|
|
|
|
|
|
|
Related Costs
|
|
|
Impairments
|
|
|
Costs
|
|
|
Total
|
|
|
Total expected costs
|
|
$
|
263.1
|
|
|
$
|
330.8
|
|
|
$
|
37.0
|
|
|
$
|
630.9
|
|
Expenses recognized in fiscal
2009(1)
|
|
|
184.2
|
|
|
|
129.2
|
|
|
|
19.0
|
|
|
|
332.4
|
|
Expenses recognized in fiscal
2008(1)
|
|
|
47.8
|
|
|
|
201.6
|
|
|
|
17.5
|
|
|
|
266.9
|
|
Costs incurred in fiscal
2009(1)
|
|
|
169.5
|
|
|
|
129.2
|
|
|
|
19.0
|
|
|
|
317.7
|
|
Costs incurred in fiscal
2008(1)
|
|
|
62.6
|
|
|
|
201.6
|
|
|
|
17.5
|
|
|
|
281.7
|
|
Costs incurred cumulative to date
|
|
|
232.1
|
|
|
|
330.8
|
|
|
|
36.5
|
|
|
|
599.4
|
|
Accrued liability as of September 30, 2007
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Costs incurred in fiscal 2008, excluding non-cash charges and
credits(2)
|
|
|
72.4
|
|
|
|
|
|
|
|
17.5
|
|
|
|
89.9
|
|
Cash payments
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
(36.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability as of September 28, 2008
|
|
|
48.0
|
|
|
|
|
|
|
|
5.4
|
|
|
|
53.4
|
|
Costs incurred in fiscal 2009, excluding non-cash charges and
credits(2)
|
|
|
192.6
|
|
|
|
|
|
|
|
19.0
|
|
|
|
211.6
|
|
Cash payments
|
|
|
(137.8
|
)
|
|
|
|
|
|
|
(23.2
|
)
|
|
|
(161.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability as of September 27, 2009
|
|
$
|
102.8
|
|
|
|
|
|
|
$
|
1.2
|
|
|
$
|
104.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges by reportable segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
US
|
|
International
|
|
Corporate(3)
|
|
Total
|
|
Total expected costs
|
|
$
|
458.8
|
|
|
$
|
75.9
|
|
|
$
|
96.2
|
|
|
$
|
630.9
|
|
Expenses recognized in fiscal
2009(1)
|
|
|
246.3
|
|
|
|
27.0
|
|
|
|
59.1
|
|
|
|
332.4
|
|
Expenses recognized in fiscal
2008(1)
|
|
|
210.9
|
|
|
|
19.2
|
|
|
|
36.8
|
|
|
|
266.9
|
|
Costs incurred in fiscal
2009(1)
|
|
|
231.4
|
|
|
|
27.1
|
|
|
|
59.2
|
|
|
|
317.7
|
|
Costs incurred in fiscal
2008(1)
|
|
|
225.7
|
|
|
|
19.2
|
|
|
|
36.8
|
|
|
|
281.7
|
|
Costs incurred cumulative to date
|
|
|
457.1
|
|
|
|
46.3
|
|
|
|
96.0
|
|
|
|
599.4
|
|
|
|
|
(1) |
|
The difference between expenses recognized and costs incurred
within a period is due to lease termination agreements that were
finalized in one period for store closures to occur in a
subsequent period. Such termination fees are amortized on a
straight-line basis from the date of the termination agreement
to the date of closure. |
|
(2) |
|
Non-cash charges and credits for Lease exit and other related
costs primarily represent deferred rent balances recognized as
expense credits at the cease-use date. |
|
(3) |
|
Includes $1.0 million of employee termination costs for the
CPG segment for fiscal 2009. |
52
Short-term and long-term investments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
September 27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
2.5
|
|
|
|
|
|
|
|
|
|
|
$
|
2.5
|
|
Government treasury securities
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21.5
|
|
|
|
|
|
|
|
|
|
|
|
21.5
|
|
Short-term investments trading securities
|
|
|
58.5
|
|
|
|
|
|
|
|
|
|
|
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
80.0
|
|
|
|
|
|
|
|
|
|
|
$
|
66.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local government obligations
|
|
$
|
57.8
|
|
|
$
|
|
|
|
$
|
(2.1
|
)
|
|
$
|
55.7
|
|
Corporate debt securities
|
|
|
14.7
|
|
|
|
0.8
|
|
|
|
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
72.5
|
|
|
$
|
0.8
|
|
|
$
|
(2.1
|
)
|
|
$
|
71.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Short-term investments trading securities
|
|
|
58.2
|
|
|
|
|
|
|
|
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
61.2
|
|
|
|
|
|
|
|
|
|
|
$
|
52.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local government obligations
|
|
$
|
65.8
|
|
|
$
|
|
|
|
$
|
(6.0
|
)
|
|
$
|
59.8
|
|
Corporate debt securities
|
|
|
12.1
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|