<PAGE> 1
As filed with the Securities and Exchange Commission on July 8, 1998.
Registration No. 333-______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
STARBUCKS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
WASHINGTON 5810 91-1325671
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
STARBUCKS CORPORATION
2401 UTAH AVENUE SOUTH
SEATTLE, WASHINGTON 98134
(206) 447-1575
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SHELLEY B. LANZA, ESQ.
SENIOR VICE PRESIDENT, LAW AND CORPORATE AFFAIRS, AND GENERAL COUNSEL
STARBUCKS CORPORATION
2401 UTAH AVENUE SOUTH
SEATTLE, WASHINGTON 98134
(206) 447-1575
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------
Approximate date of commencement of proposed sale of securities to the
public: AT SUCH TIME OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT AS THE SELLING SHAREHOLDERS SHALL DETERMINE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE> 2
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to offering price aggregate offering Amount of
registered be registered per unit(1) price registration fee
- ------------------- ------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock,
no par value 1,817,894 $52.53 $95,493,972 $28,171
================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for purposes of calculating
amount of registration fee, based upon the average of the high and low
prices reported on July 1, 1998, as reported on The Nasdaq Stock Market,
Inc.
ii
<PAGE> 3
PROSPECTUS
--------
[LOGO]
STARBUCKS CORPORATION
1,817,894 Shares of Common Stock
No Par Value Per Share
-------------------------------
This Prospectus relates to up to 1,817,894 shares (the "Common Shares")
of the common stock, no par value per share (the "Common Stock"), of Starbucks
Corporation, a Washington corporation ("Starbucks" or the "Company"), which may
be offered from time to time by the selling shareholders named herein (each a
"Selling Shareholder" and, collectively, the "Selling Shareholders"). Starbucks
will not receive any of the proceeds from the sale of the Common Shares.
Starbucks will bear the costs relating to the registration and listing of the
Common Shares (other than fees and expenses of counsel for the Selling
Shareholders, if any) estimated to be approximately $65,000.00.
The Common Shares are being registered in connection with the
acquisition (the "Acquisition") by Starbucks of all of the equity interests in
Seattle Coffee Holdings Limited, a limited company incorporated in England and
Wales ("Seattle Coffee"). Pursuant to the terms of the Acquisition, Starbucks
agreed to use its best efforts to register the Common Shares received by the
Selling Shareholders in connection with the Acquisition. In connection with the
Acquisition, (i) each Selling Shareholder who is a "U.S. Person" as defined in
Rule 902(o) of Regulation S (a "U.S. Person") promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), entered into an investment
agreement with Starbucks (the "Investment Agreement") and acquired Common Shares
in a transaction exempt from the registration requirements of the Securities
Act, and (ii) each Selling Shareholder who is not a U.S. Person acquired Common
Shares in an offshore transaction pursuant to Regulation S under the Securities
Act.
Shares of Starbucks Common Stock are traded on the National Market Tier
of The Nasdaq Stock Market, Inc. ("Nasdaq") under the symbol SBUX. The average
of the high and low prices of the Common Stock as reported on Nasdaq on July 6,
1998 was $58.28 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DESCRIPTION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is July 8, 1998.
All of the Common Shares to be registered hereby are to be offered or sold by
the Selling Shareholders in ordinary course broker or dealer transactions not
involving an underwritten public offering.
<PAGE> 4
AVAILABLE INFORMATION
Starbucks is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and files reports and other
information with the Securities and Exchange Commission (the "Commission") in
accordance therewith. Such reports, proxy statements, and other information
filed by Starbucks are available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth St., N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including Starbucks, which file
electronically with the Commission. Shares of Common Stock are traded on Nasdaq.
Reports and other information filed by Starbucks can be inspected at the offices
of the National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Starbucks with the Commission are
incorporated by reference in this Prospectus:
1. The Company's Registration Statement on Form 8-A dated June 18, 1992,
which contains a description of the Common Stock, including any amendment
or report filed for the purpose of updating such description.
2. Annual Report on Form 10-K for the fiscal year ended September 28, 1997,
including Exhibit 13 thereto (as the financial statements therein have
been restated in this Registration Statement and Prospectus).
3. Quarterly Report on Form 10-Q for the period ended December 28, 1997 (as
the financial statements therein have been restated in this Registration
Statement and Prospectus).
4. Proxy Statement for the Annual Meeting of Shareholders dated January 1,
1998.
5. Quarterly Report on Form 10-Q for the period ended March 29, 1998 (as the
financial statements therein have been restated in this Registration
Statement and Prospectus).
6. Current Report on Form 8-K (date of earliest event reported: April 29,
1998).
7. Current Report on Form 8-K (date of earliest event reported: June 4,
1998).
All documents filed by Starbucks pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Shares offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof.
Starbucks hereby undertakes to provide without charge to each person to
whom this Prospectus has been delivered, upon the written or oral request of any
such person, a copy of any and all of the foregoing documents incorporated
herein by reference (other than exhibits to such documents that are not
specifically incorporated by reference into the information that this Prospectus
incorporates). Written or telephone requests should be directed to Investor
Relations Department, Starbucks Corporation, 2401 Utah Avenue South, Seattle,
Washington 98134, telephone number (206) 447-1575.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information and representation must not be relied upon as
having been authorized by Starbucks. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the Common Shares
offered hereby in any state to any person to whom it is unlawful to make such
offer in such state. Neither the delivery of this Prospectus nor any sales made
hereunder
2
<PAGE> 5
shall, under any circumstances, create any implication that there has been no
change in the affairs of Starbucks since the date hereof.
This Prospectus constitutes a part of a Registration Statement that
Starbucks has filed with the Commission under the Securities Act, with respect
to the Common Shares. This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the Registration
Statement and related Exhibits thereto for further information with respect to
Starbucks and the Common Shares offered hereby. Such additional information can
be obtained from the Commission's office in Washington, D.C. Any statements
contained herein concerning the provisions of any documents are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
THE COMPANY
Starbucks purchases and roasts high-quality whole bean coffees and sells
them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, a
variety of pastries and confections and coffee-related accessories and
equipment, primarily through its Company-operated retail stores. In addition to
sales through its Company-operated retail stores, Starbucks sells primarily
whole bean coffees through a specialty sales group, a direct response business
and supermarkets. Starbucks, through its joint venture partnerships, also
produces and sells bottled Frappuccino(TM) coffee drink and a line of premium
ice creams. The Company's objective is to establish Starbucks as the most
recognized and respected brand of coffee in the world. To achieve this goal, the
Company plans to continue to rapidly expand its retail operations, grow its
specialty sales and other operations, and selectively pursue opportunities to
leverage the Starbucks brand through the introduction of new products and the
development of new distribution channels.
Starbucks is a Washington corporation and its principal executive
offices are located at 2401 Utah Avenue South, Seattle, Washington 98134, and
its telephone number is (206) 447-1575.
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the Common
Shares offered by this Prospectus.
COFFEE PRICES AND AVAILABILITY. Green coffee commodity prices are
subject to substantial price fluctuations, generally caused by multiple factors,
including weather, political and economic conditions in certain coffee-producing
countries and other supply-related matters. 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, such as the International
Coffee Organization and the Association of Coffee Producing Countries, which
have historically attempted to influence commodity prices of green coffee
through agreements establishing export quotas or restricting coffee supplies
worldwide. The Company's ability to raise sales prices in response to rising
coffee prices may be limited and the Company's gross margin and overall
profitability may decline due to these higher coffee costs.
RELIANCE ON GROWTH STRATEGY. The Company is pursuing an aggressive
growth strategy, the success of which will depend in part upon its ability to
open new stores and to operate existing and new stores profitably. The Company
has grown rapidly from 17 Company-owned stores at the end of 1987 to 1603
Company-owned stores, 122 licensed stores in continental North America and 53
licensed stores outside of North America (primarily in the Pacific Rim) at the
end of June 1998. The Company and its licensees plan to open at least 350 new
stores in Continental North America, 40 new stores in the Pacific Rim and 30 new
stores in the United Kingdom during fiscal 1998. Starbucks expansion will
present numerous operational and competitive challenges to the Company's senior
management and employees and will place significant pressure on the Company's
operating systems. In addition, consumer tastes vary from region to region, and
there can be no assurance that consumers located in the regions in which the
Company intends to expand its retail operations will be as receptive to
specialty coffees as consumers in existing markets. The achievement of the
Company's expansion plans will
3
<PAGE> 6
depend in part upon its ability to (i) select, and compete successfully in, new
markets; (ii) obtain suitable sites at acceptable costs; (iii) hire, train, and
retain qualified personnel; (iv) integrate new stores into existing
distribution, inventory control, and information systems; (v) expand
distribution capabilities; and (vi) maintain quality control. The Company may
incur significant start-up costs in connection with entering new markets. In
addition, the opening of additional stores in current markets could have the
effect of cannibalizing sales at some of the Company's existing stores. There
can be no assurance that the Company will achieve its planned expansion goals,
manage its growth effectively, or operate its existing and new stores
profitability, and the failure of the Company in any of these areas could have
an adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION. The Company's whole bean coffees compete directly against
specialty coffees sold at retail through supermarkets, specialty retailers, and
a growing number of specialty coffee stores. The Company's coffee beverages
compete directly against all restaurant and beverage outlets that serve coffee
and a growing number of espresso stands, carts, and stores. Both the Company's
whole bean coffees and its coffee beverages compete indirectly against all other
coffees on the market.
Management believes that supermarkets pose the greatest competitive
challenge in the whole bean coffee market, in part because supermarkets offer
customers the convenience of not having to make a separate trip to a specialty
coffee store. A number of global coffee manufacturers, such as Kraft Foods,
Inc., The Procter & Gamble Company, and Nestle USA, Inc., are distributing
premium coffee products in supermarkets that may serve as substitutes for the
Company's coffees. Regional specialty coffee companies also sell whole bean
coffees in supermarkets. In addition to the competition generated by supermarket
sales of coffee, Starbucks competes for whole bean coffee sales with franchise
operators and independent specialty coffee stores. In virtually every major
metropolitan area where Starbucks operates and expects to expand, there are
local or regional competitors with substantial market presence in the specialty
coffee business.
The Company's primary competitors for coffee beverage sales are
restaurants, shops, and street carts. In almost all markets in which the Company
does business there has been a significant increase in competition in the
specialty coffee beverage business and management expects this trend to
continue. Although competition in the beverage market is currently fragmented, a
major competitor with substantially greater financial, marketing and operating
resources than the Company could enter this market at any time and compete
directly against the Company.
In addition to the competition for whole bean coffee and coffee beverage
retail sales, the Company faces intense competition from both restaurants and
other specialty retailers for suitable sites for new stores and qualified
personnel to operate both new and existing stores. There can be no assurance
that Starbucks will be able to continue to secure adequate sites at acceptable
rent levels or that the Company will be able to attract a sufficient number of
qualified workers. Starbucks specialty sales and other businesses also face
significant competition from established wholesale and other suppliers, some of
whom have greater financial and marketing resources than the Company.
STOCK PRICE VOLATILITY. There can be no assurance that the Company can
continue to sustain its historical increases in net sales or net earnings, or
comparable store sales. Due to all of the factors described above, it is
possible that in some future quarter or quarters, the Company's operating
results will be below the expectations of public market analysts and investors.
Such event could have an adverse effect on the trading price of the
Company's Common Stock.
USE OF PROCEEDS
Starbucks will not receive any proceeds from the sale of the Common
Shares offered hereby; nor will such proceeds be available for Starbucks use or
benefit.
4
<PAGE> 7
SELLING SHAREHOLDERS
All of the Common Shares described in this Prospectus will be owned
immediately after registration by former shareholders and/or optionholders of
Seattle Coffee (the "Selling Shareholders"). All of the Common Shares offered by
the Selling Shareholders were acquired in connection with the Acquisition. Such
Common Shares represent, in the aggregate, less than 2.1% of Starbucks
outstanding Common Stock. None of the Selling Shareholders has had a material
relationship with Starbucks at any time within the past three years. Scott T.
Svenson and Allyson Svenson, the Chief Executive and Managing Director,
respectively, of Seattle Coffee prior to the consummation of the Acquisition,
are now employed by Starbucks as the chief executive officer and director of
Marketing and Communications, respectively, of Seattle Coffee.
The following table sets forth the names of certain Selling
Shareholders, the aggregate number of shares of Common Stock owned by each such
Selling Shareholder prior to this offering, the aggregate number of Common
Shares to be offered by each Selling Shareholder, and the aggregate number of
shares of Common Stock to be owned by each Selling Shareholder, assuming the
sale of all of such Selling Shareholder's Common Shares in this offering. The 73
Selling Shareholders not individually listed below (the "Remaining Selling
Shareholders") hold, in the aggregate, less than 23% of the Common Shares and
less than one-half of one percent (.5%) of all of the outstanding shares of
Common Stock. No Selling Shareholder will own one percent (1%) or more of the
aggregate number of shares of Common Stock outstanding after this offering.
<TABLE>
<CAPTION>
Shares Offered
Shares Owned for the Selling Shares to be
Selling Prior to the Shareholder's Owned After
Shareholder Offering Account the Offering(1)
------------ --------------- --------------
<S> <C> <C> <C>
Dalguise Limited 586,912 586,912 None
Gary F. Linden, Trustee of the
Allyson Davis Svenson and Scott
Trimble Svenson Revocable
Management Trust 261,233 261,233 None
Scott & Allyson Svenson 103,742 103,742 None
Scott Svenson 10,997 10,997 None
Paulmac Ltd. 124,325 124,325 None
Grange Trustees Limited, as
Trustee for Petrus Trust 124,324 124,324 None
PTC Finance Limited 108,670 108,670 None
Reunion Partners(2) 87,077 87,077 None
Remaining Selling Shareholders 410,814 410,614 200(3)
TOTAL 1,818,094 1,817,894 200(3)
------------ ------------ ------------
</TABLE>
- -----------------
(1) Assumes that all Common Shares are sold by such Selling Shareholder.
(2) Reunion Partners is a Washington general partnership in which Scott
Svenson holds a 39.7% ownership interest.
(3) These shares are held by an investment club in which a Selling
Shareholder has a 7.6% interest.
5
<PAGE> 8
PLAN OF DISTRIBUTION
Starbucks has been advised by each Selling Shareholder that, subject to
the terms of the Investment Agreement and/or the Form of Acceptance in respect
of the Offer by Starbucks to acquire all of the equity interests in Seattle
Coffee (the "Form of Acceptance"), each Selling Shareholder expects to offer
his, her, or its Common Shares to or through brokers and dealers to be selected
by the Selling Shareholder from time to time. In addition, the Common Shares may
be offered for sale through Nasdaq, in the over-the-counter market, through a
market maker, in one or more private transactions, or a combination of such
methods of sale, at prices and on terms then prevailing, at prices related to
such prices, or at negotiated prices. Each Selling Shareholder may also pledge
all or a portion of the Common Shares owned by him, her, or it as collateral in
loan transactions. Upon default by any such Selling Shareholder, the pledgee in
such loan transaction would have the same rights of sale as such Selling
Shareholder under this Prospectus. Subject to the terms of the Investment
Agreement and/or the Form of Acceptance, each Selling Shareholder may also
transfer Common Shares owned by him, her, or it in other ways not involving
market makers or established trading markets, including directly by gift,
distribution, or other transfer without consideration, and upon any such
transfer the transferee would have the same rights of sale as such Selling
Shareholder under this Prospectus. In addition, any Common Shares covered by
this Prospectus that qualify for sale pursuant to Rule 144 of the Securities
Act, may be sold under Rule 144 rather than pursuant to this Prospectus.
Finally, each Selling Shareholder and any brokers and dealers through whom sales
of the Common Shares are made may be deemed to be "underwriters" within the
meaning of the Securities Act, and the commissions or discounts and other
compensation paid to such persons may be regarded as underwriters' compensation.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
Starbucks by Preston Gates and Ellis LLP. As of the date hereof, attorneys in
such firm who have worked on substantive matters for Starbucks own fewer than
100,000 shares of Common Stock.
EXPERTS
The supplemental consolidated financial statements as of September 28,
1997, and September 29, 1996, and for each of the three years in the period
ended September 28, 1997 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
6
<PAGE> 9
INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The following supplemental consolidated financial statements give
retroactive effect to the acquisition by Starbucks of all of the equity
interests of Seattle Coffee on May 28, 1998. This transaction has been accounted
for as a pooling of interests as described in Notes 1 and 2 to the supplemental
consolidated financial statements.
<TABLE>
<S> <C>
Financial Statements for Fiscal Year 1997
Independent Auditors' Report F-2
Supplemental Consolidated Balance Sheets at September 28, 1997 and
September 29, 1996 F-3
Supplemental Consolidated Statements of Earnings for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995 F-4
Supplemental Consolidated Statements of Cash Flows for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995 F-5
Supplemental Consolidated Statements of Shareholders' Equity for the Years
Ended September 28, 1997, September 29, 1996 and October 1, 1995 F-7
Notes to Supplemental Consolidated Financial Statements for the Years
Ended September 28, 1997, September 29, 1996 and October 1, 1995 F-8
Financial Statements for the First Fiscal Quarter of 1998
Supplemental Consolidated Statements of Earnings for the 13 weeks Ended
December 28, 1997 and December 29, 1996 F-21
Supplemental Consolidated Balance Sheets at December 28, 1997 and
September 28, 1997 F-22
Supplemental Consolidated Statements of Cash Flows for the 13 weeks Ended
December 28, 1997 and December 29, 1996 F-23
Notes to Supplemental Quarterly Consolidated Financial Statements for
the 13 Weeks Ended December 28, 1997 and December 29, 1996 F-24
Financial Statements for the Second Fiscal Quarter of 1998
Supplemental Consolidated Statements of Earnings for the 13 and 26 weeks
Ended March 29, 1998 and March 30, 1997 F-27
Supplemental Consolidated Balance Sheets at March 29, 1998 and
September 28, 1997 F-28
Supplemental Consolidated Statements of Cash Flows for the 26 weeks Ended
March 29, 1998 and March 30, 1997 F-29
Notes to Supplemental Quarterly Consolidated Financial Statements for
the 13 and 26 Weeks Ended March 29, 1998 and March 30, 1997 F-30
</TABLE>
F-1
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
Starbucks Corporation
Seattle, Washington
We have audited the accompanying supplemental consolidated balance sheets of
Starbucks Corporation and subsidiaries (the Company) as of September 28, 1997,
and September 29, 1996, and the related supplemental consolidated statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended September 28, 1997. The supplemental financial statements give
retroactive effect to the merger of Seattle Coffee Holdings Limited ("Seattle
Coffee"), with and into a wholly owned subsidiary of Starbucks Corporation on
May 28, 1998, which has been accounted for as a pooling-of-interests as
described in Notes 1 and 2 to the supplemental financial statements. These
supplemental financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these supplemental
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the supplemental financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall supplemental
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such supplemental consolidated financial statements present
fairly, in all material respects, the financial position of Starbucks
Corporation and subsidiaries as of September 28, 1997, and September 29, 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended September 28, 1997, after giving retroactive effect to
the merger between Starbucks Corporation and subsidiaries and Seattle Coffee as
described in Notes 1 and 2, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Seattle, Washington
June 8, 1998
F-2
<PAGE> 11
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Sept 28, 1997 Sept 29, 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 70,126 $ 127,165
Short-term investments 83,504 103,221
Accounts and notes receivable 31,231 17,768
Inventories 119,767 83,412
Prepaid expenses and other current assets 8,763 6,534
Deferred income taxes, net 4,164 2,580
-------------- --------------
Total current assets 317,555 340,680
Joint ventures and other investments 34,464 4,401
Property, plant, and equipment, net 488,791 370,952
Deposits and other assets 16,342 13,194
-------------- --------------
Total $ 857,152 $ 729,227
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 47,987 $ 38,258
Checks drawn in excess of bank balances 28,582 16,241
Accrued compensation and related costs 25,894 15,001
Accrued interest payable 2,927 3,004
Accrued occupancy costs 12,184 7,976
Other accrued expenses 25,893 20,835
-------------- --------------
Total current liabilities 143,467 101,315
Deferred income taxes, net 12,946 7,114
Capital lease obligations 2,009 1,728
Convertible subordinated debentures 165,020 165,020
Commitments and contingencies (notes 5, 6, 9, and 13)
Shareholders' Equity:
Common stock -- Authorized, 150,000,000 shares;
issued and outstanding, 80,559,023
and 78,711,488 shares, respectively 391,284 364,020
Retained earnings, including cumulative translation
adjustment of $(1,511) and $(679) respectively, and net
unrealized holding gain on investments of $63 and
$2,046, respectively 142,426 90,030
-------------- --------------
Total shareholders' equity 533,710 454,050
Total $ 857,152 $ 729,227
-------------- --------------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-3
<PAGE> 12
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Fiscal year ended: Sept 28, 1997 Sept 29, 1996 Oct 1, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $ 975,389 $ 697,872 $ 465,213
Cost of sales and related occupancy costs 436,942 336,658 211,279
Store operating expenses 314,064 211,575 148,757
Other operating expenses 28,239 19,787 13,932
Depreciation and amortization 52,801 36,019 22,486
General and administrative expenses 57,144 37,258 28,643
------------- ------------- -------------
Operating income 86,199 56,575 40,116
Interest and other income 12,393 11,029 6,792
Interest expense (7,282) (8,739) (3,765)
Gain on sale of investment in Noah's -- 9,218 --
------------- ------------- -------------
Earnings before income taxes 91,310 68,083 43,143
Income taxes 36,099 26,373 17,041
------------- ------------- -------------
Net earnings $ 55,211 $ 41,710 $ 26,102
------------- ------------- -------------
Net earnings per common share - basic $ 0.69 $ 0.56 $ 0.38
Net earnings per common
and common equivalent share - diluted $ 0.66 $ 0.53 $ 0.37
Weighted average common shares outstanding -
basic 79,645 74,667 68,898
Weighted average common shares and common
equivalent shares outstanding - diluted 90,159 80,916 71,309
------------- ------------- -------------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-4
<PAGE> 13
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal year ended: Sept 28, 1997 Sept 29, 1996 Oct 1, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 55,211 $ 41,710 $ 26,102
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 58,864 39,438 24,827
Provision for store remodels and asset disposals 1,049 412 2,745
Deferred income taxes, net 5,490 4,407 84
Equity in losses of investees 2,760 1,935 1,156
Gain on sale of investment in Noah's -- (9,218) --
Cash (used) provided by changes in operating assets and liabilities:
Accounts and notes receivable (13,475) (7,918) (4,456)
Inventories (36,382) 40,237 (67,579)
Prepaid expenses and other current assets (2,236) (1,769) 519
Accounts payable 9,559 9,527 19,590
Accrued compensation and related costs 10,871 2,208 3,717
Accrued interest payable (77) 3,207 24
Accrued occupancy costs 4,208 3,345 2,353
Other accrued expenses 4,452 8,860 3,469
------------- ------------- -------------
Net cash provided by operating activities 100,294 136,381 12,551
Investing Activities:
Purchase of investments (171,631) (178,643) (136,256)
Sale of investments 9,257 17,144 27,702
Maturity of investments 173,665 103,056 74,808
Investments in joint ventures and other investments (27,624) (6,040) (12,484)
Proceeds from sale of equity investments -- 20,550 --
Additions to property, plant, and equipment (174,363) (163,284) (129,386)
Additions to deposits and other assets (1,004) (1,132) (854)
------------- ------------- -------------
Net cash used by investing activities (191,700) (208,349) (176,470)
Financing Activities:
Increase in cash provided by checks drawn in excess of bank balances 12,287 3,096 1,180
Proceeds from sale of convertible debentures -- 165,020 --
Debt issuance costs -- (4,045) --
Proceeds from notes payable -- -- 19,000
Principal repayments of notes payable -- -- (19,000)
Net proceeds from sale of common stock 1,696 2,711 163,873
Proceeds from sale of common stock under employee stock purchase plan 2,313 1,735 263
Exercise of stock options and warrants 13,629 8,032 3,157
Tax benefit from exercise of nonqualified stock options 9,626 6,808 4,754
Payments received on subscription notes receivable -- -- 3,671
Payments on capital lease obligations (1,566) (575) (147)
Debt conversion costs -- (290) --
Advances to landlord (3,600) (4,300) (300)
------------- ------------- -------------
Net cash provided by financing activities 34,385 178,192 176,451
Effect of exchange rate changes on cash and cash equivalents (18) (3) 18
Decrease (increase) in cash and cash equivalents (57,039) 106,221 12,550
Cash and Cash Equivalents:
Beginning of year 127,165 20,944 8,394
End of year $ 70,126 $ 127,165 $ 20,944
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-5
<PAGE> 14
STARBUCKS CORPORATION
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Fiscal year ended: Sept 28, 1997 Sept 29, 1996 Oct 1, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 7,179 $ 5,630 $ 3,738
Income taxes 19,679 12,127 10,761
Noncash Financing and Investing Transactions:
Equipment acquired under capital lease $ 2,434 $ 2,089 $ 1,522
Net unrealized holding gain (loss) on investments (1,983) 2,012 141
Conversion of convertible debt into common stock,
net of unamortized issue costs -- 79,345 100
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-6
<PAGE> 15
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Common stock
------------------------------ Retained
Shares Amount earnings Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, October 2, 1994 57,936,988 $ 89,861 $ 20,037 $ 109,898
Exercise of stock options including
tax benefit of $4,754 945,780 7,911 -- 7,911
Sale of common stock 12,050,000 163,873 -- 163,873
Payments received on stock
subscription notes -- 3,671 -- 3,671
Conversions of convertible debt into
common stock 6,798 100 -- 100
Sale of common stock under employee
stock purchase plan 17,424 263 -- 263
Net earnings -- -- 26,102 26,102
Unrealized holding gain, net -- -- 141 141
Translation adjustment -- -- 272 272
---------- ---------- ---------- ----------
Balance, October 1, 1995 70,956,990 265,679 46,552 312,231
Exercise of stock options including
tax benefit of $6,808 1,177,736 14,840 -- 14,840
Sale of common stock 1,127,620 2,711 2,711
Conversions of convertible debt into
common stock 5,359,769 79,055 -- 79,055
Sale of common stock under employee
stock purchase plan 89,373 1,735 -- 1,735
Net earnings -- -- 41,710 41,710
Unrealized holding gain, net -- -- 2,012 2,012
Translation adjustment -- -- (244) (244)
---------- ---------- ---------- ----------
Balance, September 29, 1996 78,711,488 364,020 90,030 454,050
Exercise of stock options including
tax benefit of $9,626 1,381,915 23,255 -- 23,255
Sale of common stock 372,649 1,696 1,696
Sale of common stock under employee
stock purchase plan 92,971 2,313 -- 2,313
Net earnings -- -- 55,211 55,211
Unrealized holding loss, net -- -- (1,983) (1,983)
Translation adjustment -- -- (832) (832)
---------- ---------- ---------- ----------
Balance, September 28, 1997 80,559,023 $ 391,284 $ 142,426 $ 533,710
---------- ---------- ---------- ----------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-7
<PAGE> 16
STARBUCKS CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 29, 1996, AND OCTOBER 1, 1995)
Note 1: Summary of Significant Accounting Policies
BASIS OF PRESENTATION. The supplemental consolidated financial statements as of
and for the periods ending September 28, 1997, September 29, 1996 and October 1,
1995 have been prepared by Starbucks Corporation ("Starbucks" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). As described in Note 2, on May 28, 1998, the Company acquired all
of the equity interests of Seattle Coffee Holdings Limited ("Seattle Coffee").
These supplemental consolidated financial statements have been prepared under
the pooling of interests method of accounting and reflect the combined financial
position and operating results of Starbucks and its wholly owned subsidiaries,
including Seattle Coffee, for all periods presented. These supplemental
consolidated financial statements will become the historical financial
statements of the Company when the Company issues its financial statements for
the third fiscal quarter of 1998. Investments in unconsolidated joint ventures
are accounted for under the equity method. Material intercompany transactions
during the periods covered by these supplemental consolidated financial
statements have been eliminated.
DESCRIPTION OF BUSINESS. Starbucks purchases and roasts high-quality whole bean
coffees and sells them, along with a variety of coffee beverages, pastries,
confections, and coffee-related accessories and equipment, primarily through
Company-operated and licensed retail stores located throughout the United
States, in parts of Canada, the United Kingdom, and the Pacific Rim. In addition
to sales through its Company-owned retail stores, the Company sells primarily
whole bean coffees through a specialty sales group and a direct response
business. Starbucks, through its joint venture partnerships, also produces and
sells bottled Frappuccino(TM) coffee drink and a line of premium coffee ice
creams.
FISCAL YEAR END. The Company's fiscal year ends on the Sunday closest to
September 30. Fiscal years 1997, 1996, and 1995 each had 52 weeks.
ESTIMATES AND ASSUMPTIONS. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Actual results may differ from these
estimates.
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.
CASH MANAGEMENT. The Company's cash management system provides for the
reimbursement of all major bank disbursement accounts on a daily basis. Checks
issued but not presented for payment to the bank are reflected as "Checks drawn
in excess of bank balances" in the accompanying financial statements.
INVESTMENTS. The Company's investments consist primarily of investment-grade
marketable debt securities, all of which are classified as available-for-sale
and recorded at fair value as defined below. Unrealized holding gains and losses
are recorded, net of any tax effect, as a component of retained earnings.
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 Company's investments in marketable debt and
equity securities is based upon the quoted market price on the last business day
of the fiscal year plus accrued interest, if any. The fair value and amortized
cost of the Company's investments (short- and long-term) at September 28, 1997,
were
F-8
<PAGE> 17
$88.7 million and $88.6 million, respectively. The fair value and amortized cost
of the Company's short-term investments at September 29, 1996, were $103.2
million and $99.9 million, respectively. For further detail on investments, see
Note 4. The fair value of the Company's 4-1/4% Convertible Subordinated
Debentures due 2002 (see Note 8) is based on the quoted market price on the last
business day of the fiscal year. As of September 28, 1997, the fair value and
principal amount of the 4-1/4% Convertible Subordinated Debentures due 2002 were
$294.6 million and $165.0 million, respectively. The fair value and principal
amount of these Debentures at September 29, 1996, were $248.0 million and $165.0
million, respectively.
INVENTORIES. Inventories are stated at the lower of cost (primarily moving
average cost) or market.
PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment are carried at
cost less accumulated depreciation and amortization. Depreciation of property,
plant, and equipment, which includes amortization of assets under capital
leases, is provided on the straight-line method over estimated useful lives,
generally ranging from three to seven years for equipment and 40 years for
buildings. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the related lease life, generally ten years. The
portion of depreciation expense related to production and distribution
facilities is included in "Cost of sales and related occupancy costs". When
facts and circumstances indicate that the cost of long-lived assets may be
impaired, an evaluation of recoverability is performed by comparing the carrying
value of the asset to projected future cash flows. Upon indication that the
carrying value of such assets may not be recoverable, the Company recognizes an
impairment loss by a charge against current operations.
HEDGING AND FUTURES CONTRACTS. The Company, from time to time, enters into
futures contracts to hedge price-to-be-established coffee purchase commitments
with the objective of minimizing cost risk due to market fluctuations. The
Company does not hold or issue derivative instruments for trading purposes. In
accordance with SFAS 80 "Accounting for Futures Contracts," these futures
contracts meet the hedge criteria and are accounted for as hedges. Gains and
losses are calculated based on the difference between the cost basis and the
market value of the coffee contracts. Accordingly, gains and losses are deferred
and recognized as adjustments to the carrying amount of coffee inventory when
purchased, and recognized in results of operations as coffee products are sold.
The market risk related to coffee futures is substantially offset by changes in
the cost of coffee purchased. The Company did not purchase or sell futures
contracts during fiscal 1997, 1996, or 1995.
ADVERTISING. The Company expenses costs of advertising the first time the
advertising campaign takes place, except for direct response advertising, which
is capitalized and amortized over its expected period of future benefit. Direct
response advertising consists primarily of mail order catalog costs and customer
retention program costs. Catalog costs are amortized over the period from the
catalog mailing until the issuance of the next catalog, typically three months.
Customer retention program costs are amortized over six months.
STORE PREOPENING EXPENSES. Costs incurred in connection with start-up and
promotion of new store openings are expensed as incurred.
RENT EXPENSE. Certain of the Company's lease agreements provide for scheduled
rent increases during the lease terms, or for rental payments commencing at a
date other than the date of initial occupancy. Rent expenses are recognized on a
straight-line basis over the terms of the leases.
FOREIGN CURRENCY TRANSLATION. The accumulated foreign currency translation
relates to the Company's operations in Canada and the United Kingdom. Assets and
liabilities are translated at exchange rates in effect at the balance sheet date
and income and expense accounts at the average exchange rates during the year.
Resulting translation adjustments are recorded directly to a separate component
of shareholders' equity.
F-9
<PAGE> 18
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 reporting basis and the tax basis of the
Company's assets and liabilities.
EARNINGS PER SHARE. The computation of basic earnings per share, in accordance
with Statement of Financial Accounting Standards ("SFAS") 128 "Earnings per
Share," is based on the weighted average number of common shares outstanding
during the period. The numbers of shares resulting from this computation for
fiscal 1997, 1996, and 1995 were 79.6 million, 74.7 million, and 68.9 million,
respectively.
The computation of diluted earnings per share, in accordance with SFAS 128,
includes the dilutive effect of common stock equivalents consisting of certain
shares subject to stock options for both Starbucks and Seattle Coffee
during the year using the treasury stock method. The computation of diluted
earnings per share also assumes conversion of the Company's convertible
subordinated debentures using the "if converted" method, when such securities
are dilutive, with net income adjusted for the after-tax interest expense and
amortization of issuance costs applicable to these debentures. The numbers of
shares resulting from this computation for fiscal 1997, 1996, and 1995 were 90.2
million, 80.9 million, and 71.3 million, respectively. All periods presented
have been calculated in accordance with SFAS 128.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130 "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company will adopt SFAS 130 in fiscal
1999.
In June 1997, the FASB issued SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information," which changes the way public companies
report information about operating segments. The Company will adopt SFAS 131 in
fiscal 1999. This statement, which is based on the management approach to
segment reporting, establishes requirements to report selected segment
information quarterly and to report entity-wide disclosures about products and
services, major customers, and the major countries in which the Company holds
assets and reports revenues.
Management believes that the adoption of these new standards will not have a
material impact on the Company's financial position or results of operations.
RECLASSIFICATIONS. Certain reclassifications of prior years' balances have been
made to conform to the fiscal 1997 presentation.
Note 2: Seattle Coffee
On May 28, 1998, the Company acquired all of the equity interests of Seattle
Coffee, a United Kingdom roaster/retailer of specialty coffee, in exchange for
1,817,894 shares of Starbucks common stock.
The business combination transaction has been accounted for as a pooling of
interests for accounting and financial reporting purposes. The
pooling-of-interests method of accounting is intended to present as a single
interest two or more common shareholders' interests which were previously
independent; accordingly, the historical financial statements for the periods
prior to the business combination are restated as though the companies had been
combined. The restated financial statements are adjusted to conform the
accounting policies and fiscal reporting periods to Starbucks accounting
policies and fiscal reporting periods.
F-10
<PAGE> 19
This transaction is expected to result in one-time transaction and other related
after-tax charges of approximately $0.14 per share in the third fiscal quarter
of 1998.
The following table compares amounts previously reported by Starbucks prior to
the transaction with combined amounts for fiscal 1997 and 1996. Fiscal 1995
results have not been restated, as Seattle Coffee results of operations were not
material to the combined totals (in thousands, except earnings per share):
<TABLE>
<CAPTION>
1997 Starbucks Seattle Coffee Combined
---------- -------------- ----------
<S> <C> <C> <C>
Net revenues $ 966,946 $ 8,443 $ 975,389
Net earnings 57,412 (2,201) 55,211
Net earnings per share-diluted $ 0.70 $ (0.04) $ 0.66
1996
Net revenues $ 696,481 $ 1,391 $ 697,872
Net earnings 42,128 (418) 41,710
Net earnings per share-diluted $ 0.54 $ (0.01) $ 0.53
---------- -------------- ----------
</TABLE>
Note 3: Cash and Cash Equivalents
Cash and cash equivalents consist of the following (in thousands):
<TABLE>
<CAPTION>
Sept 28, 1997 Sept 29, 1996
------------- -------------
<S> <C> <C>
Operating funds and interest-bearing deposits $ 14,482 $ 12,019
Commercial paper 39,649 93,306
Money market funds 8,152 14,590
Local government obligations 4,022 7,250
Corporate debt securities 3,821 --
------------- -------------
$ 70,126 $ 127,165
------------- -------------
</TABLE>
F-11
<PAGE> 20
Note 4: Investments
The Company's investments, including aggregate fair values, cost, gross
unrealized holding gains, and gross unrealized holding losses, consist of the
following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Fair Amortized holding holding
September 28, 1997 value cost gains losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current investments:
Corporate debt securities $ 25,948 $ 25,944 $ 10 $ (6)
U.S. Government obligations 30,532 30,540 8 (16)
Commercial paper 25,720 25,721 -- (1)
Marketable equity securities 1,304 1,198 106 --
---------- ---------- ---------- ----------
$ 83,504 $ 83,403 $ 124 $ (23)
---------- ---------- ---------- ----------
Non-current investments:
Corporate debt securities $ 4,196 $ 4,194 $ 2 $ --
U.S. Government obligations 1,005 1,006 -- (1)
---------- ---------- ---------- ----------
$ 5,201 $ 5,200 $ 2 $ (1)
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Fair Amortized holding holding
September 29, 1996 value cost gains losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current investments:
Corporate debt securities $ 33,112 $ 33,118 $ 11 $ (17)
U.S. Government obligations 45,041 45,017 36 (12)
Commercial paper 19,958 19,959 -- (1)
Marketable equity securities 5,110 1,800 3,310 --
---------- ---------- ---------- ----------
$ 103,221 $ 99,894 $ 3,357 $ (30)
---------- ---------- ---------- ----------
</TABLE>
All investments are classified as available-for-sale as of September 28, 1997
and September 29, 1996. Securities with remaining maturity dates of one year or
less are classified as short-term investments. Securities with remaining
maturity dates beyond one year are classified as long-term and are included in
the line item "Joint ventures and other investments" in the accompanying balance
sheets. The specific identification method is used to determine a cost basis for
computing realized gains and losses.
During fiscal 1995, the Company invested $11.3 million in cash for shares of
Noah's New York Bagel, Inc. ("Noah's") Series B Preferred Stock. On February 1,
1996, Noah's merged with Einstein Brothers Bagels, Inc. In exchange for its
investment in Noah's, the Company received $20.6 million in cash and recognized
a $9.2 million pre-tax gain ($5.7 million net of tax) on the transaction.
In fiscal 1997, 1996, and 1995, proceeds from the sale of investment securities
were $9.3 million, $17.1 million, and $27.7 million, respectively. Gross
realized gains and losses were not material in 1997, 1996, and 1995 except for
the sale of Noah's stock, which occurred in fiscal 1996.
F-12
<PAGE> 21
Note 5: Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
Sept 28, 1997 Sept 29, 1996
------------- -------------
<S> <C> <C>
Coffee
Unroasted $ 65,296 $ 37,127
Roasted 13,954 9,759
Other merchandise held for sale 33,253 29,542
Packaging and other supplies 7,264 6,984
------------- -------------
$ 119,767 $ 83,412
------------- -------------
</TABLE>
As of September 28, 1997, the Company had fixed price inventory purchase
commitments for green coffee totaling approximately $54 million. The Company
believes, based on relationships established with its suppliers in the past,
that the risk of non-delivery on such purchase commitments is remote.
Note 6: Joint Ventures and Other Investments
JOINT VENTURES. Starbucks has entered into several joint ventures, all of which
are accounted for using the equity method. The Company's share of joint venture
income or losses is included in "Other operating expenses."
The Company has domestic joint ventures with two companies to produce and
distribute Starbucks branded coffee-related products. During fiscal 1994, the
Company entered into a 50/50 joint venture and partnership agreement (the
"Partnership Agreement") with Pepsi-Cola Company ("Pepsi") to develop
ready-to-drink coffee-based beverages. During fiscal 1996, the Company modified
the Partnership Agreement to revise the allocation of start-up risks and
expenses between partners. Also during fiscal 1996, the Company entered into a
50/50 joint venture agreement with Dreyer's Grand Ice Cream, Inc. to develop and
distribute premium coffee ice creams.
The Company is a partner in two other joint ventures. During fiscal 1996, the
Company signed an agreement with SAZABY Inc., a Japanese retailer and
restaurateur, to form a joint venture partnership (50/50) to develop Starbucks
retail stores in Japan. On August 3, 1996, the Company entered into a joint
venture partnership as a 5% partner with Cafe Hawaii Partners to develop
Starbucks retail stores in Hawaii.
The Company's investments in and losses from these joint ventures are as follows
(in thousands):
<TABLE>
<CAPTION>
Pepsi All other
joint venture joint ventures Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance, October 2, 1994 $ 300 $ -- $ 300
Allocated share of losses (1,156) -- (1,156)
Capital contributions 1,150 -- 1,150
------------- ------------- -------------
Balance, October 1, 1995 294 -- 294
Allocated share of losses (401) (1,534) (1,935)
Capital contributions 2,725 3,315 6,040
------------- ------------- -------------
Balance, September 29, 1996 2,618 1,781 4,399
Allocated share of losses (2,384) (376) (2,760)
Capital contributions 27,259 365 27,624
------------- ------------- -------------
Balance, September 28, 1997 $ 27,493 $ 1,770 $ 29,263
------------- ------------- -------------
</TABLE>
F-13
<PAGE> 22
Note 7: Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and consist of the following
(in thousands):
<TABLE>
<CAPTION>
Sept 28, 1997 Sept 29, 1996
------------- -------------
<S> <C> <C>
Land $ 3,602 $ 3,602
Building 8,338 8,338
Leasehold improvements 352,640 256,134
Roasting and store equipment 168,929 121,261
Furniture, fixtures, and other 49,790 39,084
------------- -------------
583,299 428,419
Less accumulated depreciation
and amortization (144,068) (88,071)
------------- -------------
439,231 340,348
Work in progress 49,560 30,604
------------- -------------
$ 488,791 $ 370,952
------------- -------------
</TABLE>
Note 8: Convertible Subordinated Debentures
During fiscal 1993, the Company issued $80.5 million in principal amount of
4-1/2% Convertible Subordinated Debentures Due 2003. On April 12, 1996, the
Company called these debentures for redemption. The total principal amount
converted, net of unamortized issue costs, accrued but unpaid interest, and
costs of conversion was credited to common stock.
During the first quarter of fiscal 1996, the Company issued approximately $165.0
million in principal amount of 4-1/4% Convertible Subordinated Debentures Due
2002 (the "Debentures"). Net proceeds to the Company were approximately $161.0
million. Interest was payable on May 1 and November 1 of each year. The
Debentures were convertible into common stock of the Company at a price of
$23.25, subject to adjustment under certain conditions, and were redeemable on
or after November 10, 1997 at the option of the Company, at specified redemption
prices and subject to certain conditions. Costs incurred in connection with the
issuance of the Debentures were included in "Deposits and other assets" and were
amortized on a straight-line basis over the seven-year period to maturity.
On October 21, 1997, the Company called the Debentures for redemption.
Substantially all of these Debentures were converted into approximately 7.1
million shares of the Company's common stock prior to the redemption date.
Note 9: Leases
The Company leases retail stores, roasting and distribution facilities, and
office space under operating leases expiring through 2023. Most lease agreements
contain renewal options and rent escalation clauses. Certain leases provide for
contingent rentals based upon gross sales. The Company also leases certain
computer equipment and software under agreements classified as capital leases
with original lease terms ranging from two to four years.
F-14
<PAGE> 23
Rental expense under these lease agreements was as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year ended: Sept 28, 1997 Sept 29, 1996 Oct 1, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Minimum rentals $ 54,093 $ 37,675 $ 21,590
Contingent rentals 1,193 1,190 1,088
------------- ------------- -------------
$ 55,286 $ 38,865 $ 22,678
------------- ------------- -------------
</TABLE>
Minimum future rental payments under non-cancelable lease obligations as of
September 28, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year ending: Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1998 $ 2,155 $ 54,521
1999 1,543 54,793
2000 783 55,023
2001 -- 55,327
2002 -- 55,226
Thereafter -- 218,450
----------- -----------
Total minimum lease payments $ 4,481 $ 493,340
Less: Amounts representing interest
and other expenses (669)
----------- -----------
Present value of net minimum
lease payments 3,812
----------- -----------
Less: Current portion (1,803)
----------- -----------
Long-term capital lease obligations $ 2,009
----------- -----------
</TABLE>
Assets recorded under capital leases are included in "Property, plant, and
equipment" within the "Furniture, fixtures, and other" category. Assets recorded
under capital leases, net of accumulated amortization, totaled $3.9 million and
$3.6 million at September 28, 1997, and September 29, 1996, respectively.
The Company opened a roasting and distribution facility in York County,
Pennsylvania in September 1995 (the "York Plant"). Under the terms of this lease
agreement, the Company has an option to purchase the land and building
comprising the York Plant for approximately $14 million within five years of the
date of occupancy. Such option to purchase also provides that the Company may
purchase, within seven years of occupancy, additional land adjacent to the York
Plant.
Note 10: Shareholders' Equity
In November 1994, the Company completed a public offering of 12,050,000 shares
of newly issued common stock for proceeds of approximately $163.9 million, net
of expenses.
The Company's common stock was split two-for-one on December 1, 1995. All
applicable share and per-share data in these consolidated financial statements
have been restated to give effect to this stock split.
On February 28, 1996, the Company's shareholders approved an amendment to the
Company's articles of incorporation increasing the number of authorized common
shares from 100,000,000 to 150,000,000.
F-15
<PAGE> 24
The Company has authorized 7,500,000 shares of its preferred stock, none of
which is outstanding at September 28, 1997.
Share amounts outstanding are based on the historical outstanding shares of both
Starbucks and Seattle Coffee adjusted for the exchange of 1,817,894 shares of
Starbucks stock for all of the equity interests of Seattle Coffee.
Note 11: Employee Benefit Plans
The Company maintains several stock option plans under which the Company may
grant incentive stock options and nonqualified stock options to employees and
non-employee directors. Stock options have been granted at prices at or above
the fair market value on the date of grant. Options vest and expire according to
terms established at the grant date.
The following summarizes all stock option transactions from October 2, 1994,
through September 28, 1997.
<TABLE>
<CAPTION>
Weighted average
price
Shares per share
----------- ----------------
<S> <C> <C>
Outstanding, October 2, 1994 6,117,966 $ 6.61
Granted 2,853,476 13.19
Exercised (945,780) 3.34
Cancelled (1,151,006) 10.12
---------- -------------
Outstanding, October 1, 1995 6,874,656 9.52
Granted 2,538,466 18.64
Exercised (1,177,736) 6.78
Cancelled (449,158) 13.99
---------- -------------
Outstanding, September 29, 1996 7,786,228 12.69
Granted 2,929,796 33.24
Exercised (1,381,915) 9.92
Cancelled (380,448) 21.30
---------- -------------
Outstanding, September 28, 1997 8,953,661 $ 19.32
---------- -------------
Exercisable, September 28, 1997 3,713,676 $ 10.86
---------- -------------
</TABLE>
At September 29, 1996 and October 1, 1995, 3,316,967 and 3,108,578 outstanding
options, respectively, were exercisable. The weighted average exercise prices
for options were $8.43 and $6.36 at September 29, 1996 and October 1, 1995,
respectively.
At September 28, 1997, there were 10,640,907 shares of common stock reserved for
issuance pursuant to future stock option grants.
F-16
<PAGE> 25
Additional information regarding options outstanding as of September 28, 1997 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- --------------- --------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.33 $ 8.91 1,750,141 3.36 $ 5.98 1,650,024 $ 5.00
10.28 14.56 2,344,737 6.77 12.44 1,355,532 12.44
15.00 18.81 1,564,803 8.02 18.43 383,811 18.15
19.38 32.50 926,701 8.35 24.35 305,213 24.91
33.00 43.50 2,367,279 9.16 34.62 19,096 34.58
- --------------- --------- ----------- ------------- --------- -------------
$ 0.33 $ 43.50 8,953,661 7.12 $ 19.32 3,713,676 $ 10.86
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. During fiscal 1995, the Company implemented an
employee stock purchase plan. The Company's plan provides that eligible
employees may contribute up to 10% of their base earnings toward the quarterly
purchase of the Company's common stock up to $25,000 of common stock. The
employee's purchase price is 85% of the lesser of the fair market value of the
stock on the first business day or the last business day of the quarterly
offering period. No compensation expense is recorded in connection with the
plan. The total number of shares issuable under the plan is 4,000,000. There
were 92,971 shares issued under the plan during fiscal 1997 at prices ranging
from $23.59 to $25.71. There were 89,373 shares issued under the plan during
fiscal 1996 at prices ranging from $15.99 to $24.65. There were 17,424 shares
issued under the plan during fiscal 1995 at a price of $15.09. Of the 14,583
employees eligible to participate, 2,549 were participants in the plan as of
September 28, 1997.
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company accounts for its
stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and its related interpretations. Accordingly, no compensation expense
has been recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") requires the disclosure of pro forma net income
(loss) and net income (loss) per share as if the Company adopted the fair value
method as of the beginning of fiscal 1996. The fair value of stock-based awards
to employees is calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
Employee Stock Options Employee Stock Purchase Plan
-------------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Expected life (years) 1.5 - 6 1.5 - 6 .25 .25
Expected volatility 40% 40% 45 - 47% 39 - 61%
Risk-free interest rate 5.41 - 6.54% 5.01 - 6.74% 5.27 - 5.53% 5.27 - 5.49%
Expected dividend yield 0.0% 0.0% 0.0% 0.0%
</TABLE>
The Company's valuations are based upon a multiple option valuation approach and
forfeitures are recognized as they occur. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options,
which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective
F-17
<PAGE> 26
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
As required by SFAS 123, the Company has determined that the weighted average
estimated fair values of options granted during fiscal 1997 and 1996 were $10.85
and $5.64 per share, respectively. Had compensation costs for the Company's
stock-based compensation plans been accounted for using the fair value method of
accounting described by SFAS 123, the Company's net income and earnings per
share would have been as follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
Pro Forma
Fiscal Year Ended: As Reported Under SFAS 123
------------- --------------
<S> <C> <C>
September 28, 1997
Net Income $ 55,211 $ 45,808
Net earnings per common & common
equivalent share:
Basic $ 0.69 $ 0.58
Diluted $ 0.66 $ 0.56
September 29, 1996
Net Income $ 41,710 $ 37,801
Net earnings per common & common
equivalent share:
Basic $ 0.56 $ 0.51
Diluted $ 0.53 $ 0.49
</TABLE>
In applying SFAS 123, the impact of outstanding non-vested stock options granted
prior to 1996 has been excluded from the pro forma calculations; accordingly,
the 1997 and 1996 pro forma adjustments are not indicative of future period pro
forma adjustments.
DEFINED CONTRIBUTION PLANS. Starbucks maintains voluntary defined contribution
plans covering eligible employees as defined in the plan documents.
Participating employees may elect to defer and contribute a percentage of their
compensation to the plan, not to exceed the dollar amount set by law. The
Company matches 25% of each employee's contribution up to a maximum of the first
4% of each employee's compensation.
The Company's matching contributions to the plans were approximately $0.6
million, $0.3 million, and $0.3 million for fiscal 1997, 1996, and 1995,
respectively.
DEFERRED STOCK PLAN. During the first quarter of fiscal 1998, the Company
adopted a Deferred Stock Plan for certain key employees that enables
participants in the plan to defer receipt of ownership of common shares from the
exercise of non-qualified stock options. The minimum deferral period is five
years.
F-18
<PAGE> 27
Note 12: Income Taxes
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal year ended: Sept 28, 1997 Sept 29, 1996 Oct 1, 1995
------------- ------------- -----------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.6 3.1 3.6
Other 0.9 0.6 0.9
------------- ------------- -----------
Effective tax rate 39.5% 38.7% 39.5%
------------- ------------- -----------
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal year ended: Sept 28, 1997 Sept 29, 1996 Oct 1, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Currently payable:
Federal $ 25,884 $ 19,568 $ 14,672
State 4,725 2,398 2,285
Deferred liability 5,490 4,407 84
------------- ------------- -------------
$ 36,099 $ 26,373 $ 17,041
------------- ------------- -------------
</TABLE>
Deferred income taxes (benefits) reflect the tax effect of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and amounts as measured for tax purposes. The tax effect of temporary
differences and carryforwards that cause significant portions of deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
Sept 28, 1997 Sept 29, 1996
------------- -------------
<S> <C> <C>
Depreciation $ 17,136 $ 10,699
Accrued rent (4,356) (2,839)
Accrued compensation and related costs (1,786) (1,219)
Inventory (1,474) (1,531)
Unrealized holding gain on investments, net 39 1,281
Other, net (777) (1,857)
------------- -------------
$ 8,782 $ 4,534
------------- -------------
</TABLE>
Taxes payable of $4.5 million and $2.7 million are included in "Other accrued
expenses" as of September 28, 1997 and September 29, 1996, respectively.
Note 13: Commitments and Contingencies
Under the amended terms of the Company's corporate office lease, the Company
provides financing to the building owner to be used exclusively for facilities
and leasehold development costs to accommodate the Company. Under this
agreement, the Company advanced approximately $3.6 million, $4.3 million and
$0.3 million during fiscal 1997, 1996, and 1995, respectively. As of September
28, 1997 and September 29, 1996, the amounts outstanding under the agreement
F-19
<PAGE> 28
totaled $8.2 million and $4.6 million, respectively. These amounts are included
in "Deposits and other assets" on the balance sheet. The maximum amount
available under the agreement is $17.0 million. Any funds advanced by the
Company will be repaid with interest at 9.5% over a term not to exceed 20 years.
During fiscal 1997, the Company, through its Seattle Coffee subsidiary, entered
into a financing arrangement for a line of credit for $5.0 million, an overdraft
facility of $0.8 million and a rental guarantee of $0.5 million. As of September
28, 1997, the amount outstanding on the line of credit of $2.8 million is
included in "Accounts payable" on the balance sheet. Upon completion of the
acquisition of Seattle Coffee, the amount outstanding on the line of credit was
repaid.
In the normal course of business, the Company has various legal claims and other
contingent matters outstanding. Management believes that any ultimate liability
arising from these actions would not have a material adverse effect on the
Company's results of operations or financial condition as of and for the fiscal
year ended September 28, 1997.
Note 14: Related Party Transactions
An employee director of the Company serves as chairman of a wholesale customer
of the Company. Sales to this customer were $31.0 million, $22.7 million, and
$18.5 million for fiscal 1997, 1996, and 1995, respectively. Amounts receivable
from this customer totaled $4.6 million and $2.7 million as of September 28,
1997 and September 29, 1996, respectively.
Note 15: Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for fiscal years 1997 and 1996 is as
follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
First Second Third Fourth
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1997 quarter:
Net revenues $ 240,154 $ 216,269 $ 244,241 $ 274,725
Gross margin 124,053 116,297 140,406 157,691
Net earnings 13,886 9,241 14,199 17,885
Net earnings per
common and common
equivalent share --
diluted $ 0.17 $ 0.12 $ 0.17 $ 0.21
1996 quarter:
Net revenues $ 169,798 $ 153,838 $ 177,205 $ 197,031
Gross margin 83,022 76,790 93,921 107,481
Net earnings 9,359 10,416 9,454 12,481
Net earnings per
common and common
equivalent share --
diluted $ 0.12 $ 0.14 $ 0.12 $ 0.15
------------- ------------- ------------- -------------
</TABLE>
F-20
<PAGE> 29
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
December 28, December 29,
1997 1996
(13 Weeks) (13 Weeks)
(unaudited)
------------- -------------
<S> <C> <C>
Net revenues $ 321,325 $ 240,154
Cost of sales and related
occupancy costs 146,235 116,101
Store operating expenses 98,101 71,016
Other operating expenses 9,674 7,779
Depreciation and amortization 16,051 11,576
General and administrative
expenses 17,783 12,920
------------- -------------
Operating income 33,481 20,762
Interest and other income 2,157 3,936
Interest expense (845) (1,804)
------------- -------------
Earnings before income taxes 34,793 22,894
Income taxes 13,838 9,008
------------- -------------
Net earnings $ 20,955 $ 13,886
------------- -------------
Net earnings per common share - basic $ 0.25 $ 0.18
Net earnings per common and
common equivalent share - diluted $ 0.23 $ 0.17
Weighted average common shares
outstanding - basic 84,978 78,905
Weighed average common and
common equivalent shares - diluted 90,962 89,726
------------- -------------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-21
<PAGE> 30
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(In thousands, except numbers of shares)
<TABLE>
<CAPTION>
December 28, September 28,
1997 1997
(unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 105,646 $ 70,126
Short-term investments 76,927 83,504
Accounts and notes receivable 35,761 31,231
Inventories 116,012 119,767
Prepaid expenses and other current assets 9,395 8,763
Deferred income taxes, net 6,483 4,164
------------- -------------
Total current assets 350,224 317,555
Joint ventures and other investments 35,364 34,464
Property, plant and equipment, net 520,602 488,791
Deposits and other assets 13,614 16,342
------------- -------------
Total $ 919,804 $ 857,152
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,091 $ 47,987
Checks drawn in excess of bank balances 33,243 28,582
Accrued compensation and related costs 27,226 25,894
Accrued interest payable - 2,927
Accrued occupancy costs 14,022 12,184
Other accrued expenses 41,241 25,893
------------- -------------
Total current liabilities 177,823 143,467
Deferred income taxes, net 14,912 12,946
Capital lease obligations 1,656 2,009
Convertible subordinated debentures -- 165,020
Shareholders' equity:
Common stock, no par value -- 150,000,000 shares
authorized; 88,316,635 (includes 424,275 common
stock units) and 80,559,023 shares, respectively,
issued and outstanding 563,646 391,284
Retained earnings, including cumulative
translation adjustment of $(2,777) and $(1,511),
respectively, and net unrealized holding (loss) gain
on investments of $(285) and $63, respectively 161,767 142,426
------------- -------------
Total shareholders' equity 725,413 533,710
Total $ 919,804 $ 857,152
------------- -------------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-22
<PAGE> 31
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
December 28, December 29,
1997 1996
(13 Weeks) (13 Weeks)
(unaudited)
---------------------------------
<S> <C> <C>
Operating activities:
Net earnings $ 20,955 $ 13,886
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 17,764 12,603
Deferred income taxes, net (134) 1,159
Equity in losses of investees 45 1,318
Cash provided (used) by changes in operating assets and liabilities:
Accounts and notes receivable (4,557) (1,032)
Inventories 3,714 19,861
Prepaid expenses and other current assets (640) (363)
Accounts payable 13,740 (7,413)
Income taxes payable 9,905 3,863
Accrued compensation and related costs 1,292 750
Accrued occupancy costs 1,838 1,280
Accrued interest payable (2,927) (1,792)
Other accrued expenses 5,601 2,407
------------- -------------
Net cash provided by operating activities 66,596 46,527
Investing activities:
Purchase of investments (22,698) (51,442)
Maturity of investments 28,740 882
Sale of investments 4,150 31,700
Investments in joint ventures and equity securities (6,131) (35)
Distributions from joint venture 1,000 0
Additions to property, plant and equipment (49,979) (37,734)
Additions to deposits and other assets (443) (1,579)
------------- -------------
Net cash used by investing activities (45,361) (58,208)
Financing activities:
Increase in cash provided by checks
drawn in excess of bank balances 4,631 6,817
Proceeds from sale of common stock
under employee stock purchase plan 879 684
Exercise of stock options 2,950 2,868
Tax benefit from exercise of non-qualified stock options 1,565 1,912
Payments on capital lease obligations (545) (217)
Proceeds from sale of common stock 4,912 1,919
------------- -------------
Net cash provided by financing activities 14,392 13,983
Effect of exchange rate changes
on cash and cash equivalents (107) 35
------------- -------------
Increase in cash and cash equivalents 35,520 2,337
Cash and cash equivalents:
Beginning of the period 70,126 127,165
End of the period $ 105,646 $ 129,502
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 3,679 $ 3,555
Income taxes 2,569 2,071
Noncash financing and investing transactions:
Net unrealized holding loss on investments (348) (344)
Conversion of convertible debt into common
stock, net of unamortized issue costs and
accrued interest 162,056 --
Common stock tendered in settlement of stock
options exercised 4,859 --
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-23
<PAGE> 32
STARBUCKS CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks Ended December 28, 1997 and December 29, 1996
Note 1: Financial Statement Preparation
The supplemental consolidated financial statements as of December 28, 1997 and
September 28, 1997 and for the 13-week periods ended December 28, 1997 and
December 29, 1996 have been prepared by Starbucks Corporation ("Starbucks" or
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). As described in Note 2, on May 28, 1998, the
Company acquired all of the equity interests of Seattle Coffee Holdings Limited
("Seattle Coffee"). These supplemental consolidated financial statements have
been prepared under the pooling of interests method of accounting and reflect
the combined financial position and operating results of Starbucks and its
wholly owned subsidiaries including, Seattle Coffee, for all periods presented.
The financial information for the 13-week periods ended December 28, 1997 and
December 29, 1996 is unaudited, but, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments and accruals)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods.
The financial information as of September 28, 1997, is derived from the
Company's audited supplemental consolidated financial statements and notes
thereto for the year ended September 28, 1997 included in this Registration
Statement, and should be read in conjunction with such financial statements.
Certain reclassifications of prior year's balances have been made to conform to
the current format.
The results of operations for the 13-week periods ended December 28, 1997, are
not necessarily indicative of the results of operations that may be achieved for
the entire fiscal year ending September 27, 1998.
Note 2: Seattle Coffee
On May 28, 1998, the Company acquired all of the equity interests of Seattle
Coffee, a United Kingdom roaster/retailer of specialty coffee, in exchange for
1,817,894 shares of Starbucks common stock.
The business combination transaction has been accounted for as a pooling of
interests for accounting and financial reporting purposes. The
pooling-of-interests method of accounting is intended to present as a single
interest two or more common shareholders' interests which were previously
independent; accordingly, the historical financial statements for the periods
prior to the business combination are restated as though the companies had been
combined. The restated financial statements are adjusted to conform the
accounting policies and fiscal reporting periods to Starbucks accounting
policies and fiscal reporting periods.
This transaction is expected to result in one-time transaction and other related
after-tax charges of approximately $0.14 per share in the third fiscal quarter
of 1998.
F-24
<PAGE> 33
The following table compares amounts previously reported by Starbucks prior to
the transaction with combined amounts for fiscal 1998 and 1997 (in thousands,
except earnings per share):
<TABLE>
<CAPTION>
Starbucks Seattle Coffee Combined
------------- ------------- -------------
<S> <C> <C> <C>
Q1 1998
Net revenues $ 316,952 $ 4,373 $ 321,325
Net earnings 22,104 (1,149) 20,955
Net earnings
per share-diluted $ 0.25 $ (0.02) $ 0.23
Q1 1997
Net revenues $ 239,142 $ 1,012 $ 240,154
Net earnings 14,390 (504) 13,886
Net earnings
per share-diluted $ 0.18 $ (0.01) $ 0.17
</TABLE>
Note 3: Earnings Per Share
During the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) 128 "Earnings per Share." The computation
of basic earnings per share, in accordance with SFAS 128, is based on the
weighted average number of common shares outstanding during the period. The
computation of diluted earnings per share, in accordance with SFAS 128, also
includes the dilutive effect of common stock equivalents consisting primarily of
certain shares subject to stock options. The computation of diluted earnings per
share assumes conversion of the Company's convertible subordinated debentures
using the "if converted" method, when such securities are dilutive, with net
income adjusted for the after-tax interest expense and amortization of issuance
costs applicable to these debentures. All periods presented have been calculated
in accordance with SFAS 128.
Note 4: Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 28, September 28,
1997 1997
------------- -------------
<S> <C> <C>
Coffee:
Unroasted $ 63,143 $ 65,296
Roasted 16,418 13,954
Other merchandise held for sale 29,719 33,253
Packaging and other supplies 6,732 7,264
------------- -------------
$ 116,012 $ 119,767
------------- -------------
</TABLE>
As of December 28, 1997, the Company had fixed-price purchase commitments for
green coffee totaling approximately $44 million.
F-25
<PAGE> 34
Note 5: Property, Plant, and Equipment
Property, plant, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 28, September 28,
1997 1997
------------- -------------
<S> <C> <C>
Land $ 3,602 $ 3,602
Building 8,338 8,338
Leasehold improvements 377,637 352,640
Roasting and store equipment 178,314 168,929
Furniture, fixtures and other 60,458 49,790
------------- -------------
628,349 583,299
Less accumulated depreciation
and amortization (158,921) (144,068)
------------- -------------
469,428 439,231
Work in progress 51,174 49,560
------------- -------------
$ 520,602 $ 488,791
------------- -------------
</TABLE>
Note 6: Convertible Subordinated Debentures
On October 21, 1997, the Company called for redemption its 4 1/4% Convertible
Subordinated Debentures Due 2002. Substantially all of these debentures were
converted into the Company's common stock prior to the redemption date. The
total principal amount converted, net of unamortized issue costs, accrued but
unpaid interest, and costs of conversion, was credited to common stock.
Note 7: Deferred Stock Plan
During the first quarter of fiscal 1998, the Company adopted a Deferred Stock
Plan for certain key employees that enables participants in the plan to defer
receipt of ownership of common shares from the exercise of non-qualified stock
options. The minimum deferral period is five years. During the first quarter of
fiscal 1998, receipt of 424,275 shares was deferred under the terms of this
plan. The rights to receive these shares, represented by common stock units, are
included in the calculation of basic and diluted earnings per share as common
stock equivalents.
F-26
<PAGE> 35
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 295,243 $ 216,269 $ 616,568 $ 456,424
Cost of sales and related
occupancy costs 133,501 99,972 279,736 216,071
Store operating expenses 95,026 70,057 193,126 141,073
Other operating expenses 8,634 6,931 18,307 14,713
Depreciation and amortization 17,435 12,494 33,487 24,070
General and administrative
expenses 19,307 13,236 37,090 26,157
------------- ------------- ------------- -------------
Operating income 21,340 13,579 54,822 34,340
Interest and other income 2,329 3,531 4,486 7,468
Interest expense (235) (1,834) (1,080) (3,638)
------------- ------------- ------------- -------------
Earnings before income taxes 23,434 15,276 58,228 38,170
Income taxes 9,472 6,035 23,310 15,043
------------- ------------- ------------- -------------
Net earnings $ 13,962 $ 9,241 $ 34,918 $ 23,127
------------- ------------- ------------- -------------
Net earnings per common share - basic $ 0.16 $ 0.12 $ 0.40 $ 0.29
Net earnings per common and
common equivalent share - diluted $ 0.15 $ 0.12 $ 0.39 $ 0.28
Weighted average common shares
outstanding - basic 88,579 79,425 86,778 79,164
Weighted average common and
common equivalent shares
outstanding - diluted 91,440 89,822 91,191 89,766
------------- ------------- ------------- -------------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-27
<PAGE> 36
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(In thousands, except numbers of shares)
<TABLE>
<CAPTION>
March 29, September 28,
1998 1997
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 107,938 $ 70,126
Short-term investments 44,402 83,504
Accounts and notes receivable 35,333 31,231
Inventories 129,223 119,767
Prepaid expenses and other current assets 9,893 8,763
Deferred income taxes, net 5,813 4,164
------------- -------------
Total current assets 332,602 317,555
Joint ventures and other equity investments 33,818 34,464
Property, plant and equipment, net 545,416 488,791
Deposits and other assets 14,400 16,342
------------- -------------
Total $ 926,236 $ 857,152
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 69,711 $ 47,987
Checks drawn in excess of bank balances 21,518 28,582
Accrued compensation and related costs 30,564 25,894
Accrued occupancy costs 14,850 12,184
Other accrued expenses 24,164 28,820
------------- -------------
Total current liabilities 160,807 143,467
Deferred income taxes, net 15,058 12,946
Capital lease and other obligations 1,313 2,009
Convertible subordinated debentures -- 165,020
Shareholders' equity:
Common stock, no par value -- 150,000,000 shares authorized;
88,789,274 (includes 424,275 common stock units) and 80,559,023
shares, respectively, issued and outstanding 573,218 391,284
Retained earnings including cumulative translation
adjustment of $(2,609) and $(1,511), respectively, and net
unrealized holding (loss) gain on investments of $(343) and $63,
respectively 175,840 142,426
------------- -------------
Total shareholders' equity 749,058 533,710
Total $ 926,236 $ 857,152
------------- -------------
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-28
<PAGE> 37
STARBUCKS CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
March 29, March 30,
1998 1997
(26 Weeks) (26 Weeks)
------------- -------------
(unaudited)
<S> <C> <C>
Operating activities:
Net earnings $ 34,918 $ 23,127
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 37,154 26,797
Deferred income taxes, net 719 1,015
Equity in losses of investees 177 2,176
Cash provided (used) by changes in
operating assets and liabilities:
Accounts and notes receivable (4,120) (3,865)
Inventories (9,489) 1,853
Prepaid expenses and other current assets (1,138) (1,677)
Accounts payable 21,401 3,175
Accrued compensation and related costs 4,636 4,200
Accrued occupancy costs 2,666 1,939
Other accrued expenses (4,288) (2,739)
------------- -------------
Net cash provided by operating activities 82,636 56,001
Investing activities:
Purchase of short-term investments (47,140) (107,010)
Maturity of short-term investments 85,640 76,760
Sale of investments 5,137 9,747
Investments in joint ventures and equity securities (6,131) (11,581)
Distributions from joint venture 1,400 0
Additions to property, plant and equipment (93,993) (71,614)
Additions to deposits and other assets (1,415) (3,116)
------------- -------------
Net cash used by investing activities (56,502) (106,814)
Financing activities:
(Decrease)/increase in cash provided by checks
drawn in excess of bank balances (7,090) 3,546
Proceeds from sale of common stock
under employee stock purchase plan 2,020 684
Exercise of stock options 8,609 5,388
Tax benefit from exercise of non-qualified
stock options 4,408 3,597
Payments on capital lease obligations (1,091) (525)
Proceeds from the sale of common stock 4,861 1,783
------------- -------------
Net cash provided by financing activities 11,717 14,473
Effect of exchange rate changes
on cash and cash equivalents (39) 1
------------- -------------
Net increase (decrease) in cash and 37,812 (36,339)
cash equivalents
Cash and cash equivalents:
Beginning of the period 70,126 127,165
End of the period $ 107,938 $ 90,826
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 3,828 $ 3,614
Income taxes 18,756 11,259
Noncash financing and investing activities:
Net unrealized holding (loss) gain on
investments (406) 1,044
Conversion of convertible debt into common
stock, net of unamortized issue costs and
accrued interest 162,036 --
Common stock tendered in settlement of stock
options exercised 4,859 --
</TABLE>
See Notes to Supplemental Consolidated Financial Statements
F-29
<PAGE> 38
STARBUCKS CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks and 26 Weeks Ended March 29, 1998 and March 30, 1997
Note 1: Financial Statement Preparation
The supplemental consolidated financial statements as of March 29, 1998 and
September 28, 1997 and for the 13-week and 26-week periods ended March 29, 1998
and March 30, 1997 have been prepared by Starbucks Corporation ("Starbucks" or
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). As described in Note 2, on May 28, 1998, the
Company acquired all of the equity interests of Seattle Coffee Holdings Limited
("Seattle Coffee"). These supplemental consolidated financial statements have
been prepared under the pooling of interests method of accounting and reflect
the combined financial position and operating results of Starbucks and its
wholly owned subsidiaries including, Seattle Coffee, for all periods presented.
The financial information for the 13-week and 26-week periods ended March 29,
1998 and March 30, 1997 is unaudited, but, in the opinion of management,
reflects all adjustments (consisting only of normal recurring adjustments and
accruals) necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods.
The financial information as of September 28, 1997, is derived from the
Company's audited supplemental consolidated financial statements and notes
thereto for the year ended September 28, 1997 included in this Registration
Statement, and should be read in conjunction with such financial statements.
Certain reclassifications of prior year's balances have been made to conform to
the current format.
The results of operations for the 13-week and 26-week periods ended March 29,
1998 are not necessarily indicative of the results of operations that may be
achieved for the entire fiscal year ending September 27, 1998.
Note 2: Seattle Coffee
On May 28, 1998, the Company acquired all of the equity interests of Seattle
Coffee, a United Kingdom roaster/retailer of specialty coffee, in exchange for
1,817,894 shares of Starbucks common stock.
The business combination transaction has been accounted for as a pooling of
interests for accounting and financial reporting purposes. The
pooling-of-interests method of accounting is intended to present as a single
interest two or more common shareholders' interests which were previously
independent; accordingly, the historical financial statements for the periods
prior to the business combination are restated as though the companies had been
combined. The restated financial statements are adjusted to conform the
accounting policies and fiscal reporting periods to Starbucks accounting
policies and fiscal reporting periods.
This transaction is expected to result in one-time transaction and other related
after-tax charges of approximately $0.14 per share in the third fiscal quarter
of 1998.
F-30
<PAGE> 39
The following table compares amounts previously reported by Starbucks prior to
the transaction with combined amounts for fiscal 1998 and 1997 (in thousands,
except earnings per share):
<TABLE>
<CAPTION>
Starbucks Seattle Coffee Combined
------------- -------------- -------------
<S> <C> <C> <C>
Q2 1998
Net revenues $ 289,606 $ 5,637 $ 295,243
Net earnings 15,135 (1,173) 13,962
Net earnings
per share-diluted $ 0.17 $ (0.02) $ 0.15
Q2 1997
Net revenues $ 214,915 $ 1,354 $ 216,269
Net earnings 9,643 (402) 9,241
Net earnings
per share-diluted $ 0.12 $ -- $ 0.12
------------- -------------- -------------
</TABLE>
Note 3: Earnings Per Share
The computation of basic earnings per share, in accordance with Statement of
Financial Accounting Standards ("SFAS") 128 "Earnings per Share," is based on
the weighted average number of common shares and common stock units outstanding
during the period. The computation of diluted earnings per share, in accordance
with SFAS 128, includes the dilutive effect of common stock equivalents
consisting of certain shares subject to stock options. The computation of
diluted earnings per share also assumes conversion of the Company's convertible
subordinated debentures using the "if converted" method, when such securities
are dilutive, with net income adjusted for the after-tax interest expense and
amortization of issuance costs applicable to these debentures. The convertible
subordinated debentures were converted to equity in the first quarter of fiscal
1998. All periods presented have been calculated in accordance with SFAS 128.
Note 4: Deferred Stock Plan
During the first quarter of fiscal 1998, the Company adopted a Deferred Stock
Plan for certain key employees that enables participants in the plan to defer
receipt of ownership of common shares from the exercise of non-qualified stock
options. The minimum deferral period is five years. During the first quarter of
fiscal 1998, receipt of 424,275 shares was deferred under the terms of this
plan. The rights to receive these shares, represented by common stock units, are
included in the calculation of basic and diluted earnings per share as common
stock equivalents.
F-31
<PAGE> 40
Note 5: Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 29, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Coffee:
Unroasted $ 77,826 $ 65,296
Roasted 13,490 13,954
Other merchandise held for sale 30,923 33,253
Packaging and other supplies 6,984 7,264
------------- -------------
$ 129,223 $ 119,767
------------- -------------
</TABLE>
As of March 29, 1998, the Company had fixed price purchase commitments for green
coffee totaling approximately $55 million.
The Company, from time to time, enters into futures contracts to hedge
price-to-be-established coffee purchase commitments with the objective of
minimizing cost risk due to market fluctuations. The Company does not hold or
issue derivative instruments for trading purposes. In accordance with SFAS 80
"Accounting for Futures Contracts," these futures contracts meet the hedge
criteria and are accounted for as hedges. Gains and losses are calculated based
on the difference between the cost basis and the market value of the coffee
contracts. Accordingly, gains and losses are deferred and recognized as
adjustments to the carrying amount of coffee inventory when purchased, and
recognized in results of operations as coffee products are sold. The market risk
related to coffee futures is substantially offset by changes in the cost of
coffee purchased. The aggregate commitment underlying the Company's futures
contracts and deferred losses from the hedged coffee were immaterial as of March
29, 1998. Such losses in fair value, if realized, would be offset by lower costs
of coffee purchased during the remainder of fiscal 1998 and 1999.
Note 6: Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and consist of the following
(in thousands):
<TABLE>
<CAPTION>
March 29, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Land $ 3,602 $ 3,602
Building 8,338 8,338
Leasehold improvements 402,128 352,640
Roasting and store equipment 191,996 168,929
Furniture, fixtures and other 64,567 49,790
------------- -------------
670,631 583,299
Less accumulated depreciation
and amortization (177,928) (144,068)
------------- -------------
492,703 439,231
Work in progress 52,713 49,560
------------- -------------
$ 545,416 $ 488,791
------------- -------------
</TABLE>
F-32
<PAGE> 41
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee ............................... $ 28,171.00
Nasdaq Listing Fee ................................. 17,500.00
Accounting Fees and Expenses ....................... 6,000.00
Legal Fees and Expenses ............................ 10,000.00
Printing Expenses .................................. 3,000.00
Miscellaneous ...................................... 329.00
Total ......................................... $ 65,000.00
=============
</TABLE>
ITEM. 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Amended and Restated Bylaws of Starbucks authorizes
Starbucks to indemnify any present or former director or officer to the fullest
extent not prohibited by the Washington Business Corporation Act (the "WBCA") or
other applicable law. Chapter 23B.8.510 and .570 of the WBCA authorizes a
corporation to indemnify its directors, officers, employees, or agents in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including provisions permitting advances for expenses incurred)
arising under the Securities Act.
Article X of the Restated Articles of Incorporation of Starbucks, as
amended, provides that, to the fullest extent that the WBCA permits the
limitation or elimination of directors' liability, a director shall not be
liable to Starbucks or its shareholders for monetary damages as a result of acts
or omissions as a director.
Pursuant to the Registration Rights Agreement by and among Starbucks and
each of the Selling Shareholders, the directors and officers of Starbucks are
entitled to indemnification by each of the Selling Shareholders against any
cause of action, loss, claim, damage, or liability to the extent it arises out
of or is based upon the failure of any Selling Shareholder (or his donees,
legatees, or pledgees) to comply with the Prospectus delivery requirements under
the federal securities laws or any applicable state securities laws or upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in this Registration Statement and the Prospectus contained herein, as the
same shall be amended or supplemented, made in reliance upon or in conformity
with written information furnished to Starbucks by such Selling Shareholder.
In addition, Starbucks maintains directors' and officers' liability
insurance under which Starbucks directors and officers are insured against loss
(as defined in the policy) as a result of claims brought against them for their
wrongful acts in such capacities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
4 --Form of Registration Rights Agreement between Starbucks and
each of the Selling Shareholders.
5 --Opinion of Preston Gates and Ellis LLP as to the legality of
the securities being registered.
11 --Computations of Per Share Earnings.
12 --Ratio of Earnings to Fixed Charges.
</TABLE>
II-1
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
23.1 --Consent of Preston Gates and Ellis LLP (included in Exhibit
5).
23.2 --Consent of Deloitte & Touche LLP.
24 --Powers of Attorney (included in signature page).
27 --Financial Data Schedules.
</TABLE>
- -----------
All exhibits are filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post- effective amendment thereof) that, individually or
in the aggregate, represent a fundamental change in the
information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by Starbucks
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in this registration statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination
of the offering.
4. That for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 43
5. That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Seattle, State of Washington, on the 7th day of July,
1998.
STARBUCKS CORPORATION
/s/ Howard Schultz
By: ------------------------------------
Howard Schultz
Chief Executive Officer and Chairman
of the Board of Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose name and
signature appears below constitutes and appoints Howard Schultz and Orin C.
Smith, and each of them, his or her true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and any and all Registration Statements filed pursuant to Rule 462 under the
Securities Act, and to file the same with all exhibits thereto, and all
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
STARBUCKS CORPORATION
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Howard Schultz Chief Executive Officer and
- ---------------------------- Chairman of the Board of Directors July 7, 1998
Howard Schultz
/s/ Orin C. Smith President, Chief Operating Officer and Director July 1, 1998
- ----------------------------
Orin C. Smith
/s/ Howard P. Behar President, Starbucks Coffee International, Inc.
- ---------------------------- and Director July 1, 1998
Howard P. Behar
/s/ Michael Casey Executive Vice President, Chief Financial
- ---------------------------- Officer and Chief Administrative Officer
Michael Casey (principal financial officer and principal
accounting officer) July 2 , 1998
</TABLE>
II-4
<PAGE> 45
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Barbara Bass Director July 6, 1998
- ----------------------------
Barbara Bass
/s/ Jeffrey H. Brotman Director July 2, 1998
- ----------------------------
Jeffrey H. Brotman
/s/ Craig J. Foley Director July 6, 1998
- ----------------------------
Craig J. Foley
/s/ Arlen I. Prentice Director July 7, 1998
- ----------------------------
Arlen I. Prentice
/s/ James G. Shennan Director July 6, 1998
- ----------------------------
James G. Shennan
</TABLE>
II-5
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4 Form of Registration Rights Agreement between Starbucks
and each of the Selling Shareholders.
5 Opinion of Preston Gates & Ellis LLP as to
the legality of the securities being registered.
11 Computations of Per Share Earnings.
12 Ratio of Earnings to Fixed Charges.
23.1 Consent of Preston Gates & Ellis LLP
(included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
24 Powers of Attorney (included in signature page).
27 Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, entered into this ____ day of ________ 1998
between Starbucks Corporation, a Washington corporation (the "COMPANY"), and
certain shareholders of Seattle Coffee Holdings Limited ("SEATTLE") whose names
and addresses are set out in Annex I (the "SHAREHOLDERS") who will be
shareholders of the Company upon the consummation of the transactions described
in the Offer Document dated April 29, 1998 delivered by the Company to the
Shareholders (the "OFFER DOCUMENT").
WITNESSETH:
WHEREAS, pursuant to the Offer Document, the Company is to acquire from the
Shareholders the entire issued and to be issued share capital of Seattle (the
"ACQUISITION");
WHEREAS, pursuant to the terms set out in the Offer Document, the Company will
issue to the Shareholders on the date of the consummation of the Acquisition the
number of shares of common stock of the Company, no par value set forth in the
Offer Document (the "FREE SHARES"), and will issue to the escrow agents the
number of shares of common stock of the Company, no par value, which are to be
held in escrow pursuant to the escrow arrangements set forth in Appendix 4 of
the Offer Document and which are subject to cancellation, in whole or in part,
by the Company until released from escrow (the "HOLD BACK SHARES"); and
WHEREAS, in connection with the consummation of the Acquisition and subject to
the terms of this Agreement, the Company has agreed to provide the Shareholders
with certain rights to require the Company to register the Free Shares and the
Hold Back Shares released from escrow to the Shareholders (collectively, the
"REGISTRABLE SECURITIES") with the Securities and Exchange Commission (the
"COMMISSION") and applicable state securities agencies in order to permit the
free transferability and sale of the Registrable Securities by the Shareholders.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, the parties agree as follows:
1. REGISTRATION RIGHT
1.1 The Company will prepare and file, promptly following the
consummation of the Acquisition, and thereafter use its best
efforts to cause to become effective, on, or as soon as practicable
after, the date on which the Company publicly releases financial
results covering 30 days of post-Acquisition combined operations, a
registration statement on Form S-3 or any equivalent form to be
selected by the Company ("REGISTRATION STATEMENT"). Notwithstanding
the foregoing, if Form S-3 shall be or become unavailable, the
Company shall register the Registrable Securities on Form S-1. The
Registration Statement will (i) incorporate and describe a plan of
distribution acceptable to the Company and the Sellers'
Representative (as such term is defined in the Offer Document) (ii)
be filed under and comply with the Securities Act of 1933, as
amended (the "ACT") and (iii) cover the Registrable Securities. The
Company will use its best efforts to cause the Registration
Statement to remain effective until the three hundred sixty-fifth
day (including any days during which the Company suspends the
Shareholders' right to sell under the Registration Statement
pursuant to Section 1.3 hereof) after the date it is declared
effective the staff of the Commission (the "Effective Date").
1.2 The Company shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed
by it pursuant to this Section if, at the time of such registration,
counsel for the Company is reasonably of the opinion that a material
event or pending transaction of the Company or any of its
subsidiaries renders the filing of such Registration Statement
inappropriate at the time; provided, that the Company shall promptly
make such filing as soon as the conditions which permit it to delay
such filing no longer exist.
1.3 At any time and from time to time following the Effective Date, if
the Chief Executive Officer or Chief Financial Officer of the
Company concludes in good faith that the Registration Statement must
be amended or the prospectus included therein must be supplemented
in order to disclose facts required to be disclosed by applicable
securities laws, the Company may notify the Shareholders who are
selling Registrable Securities thereunder (the "SELLING
SHAREHOLDERS") that their right to sell Registrable Securities
pursuant to the Registration Statement has been suspended. Each
Shareholder agrees that, upon receipt of any such notice, such
Shareholder will keep confidential the fact
-1-
<PAGE> 2
that such notification has been given and the content of such
notification and forthwith discontinue disposition of Registrable
Securities until such Shareholder's receipt of a notice terminating
such suspension or containing copies of the supplemented or amended
prospectus contemplated by Section 3.4 hereof, as the case may be. If
so directed by the Company, such Shareholder will deliver to the
Company all copies of the prospectus covering such Registrable
Securities current at the time of receipt of the notice suspending the
Selling Shareholder's rights to sell Registrable Securities.
1.4 No securities to be sold by the Company shall be included in the
Registration Statement. However, the holders of the Registrable
Securities acknowledge that the Company may file other registration
statements registering securities and may also make distributions of
securities (within the meaning of Regulation M under the Securities
Exchange Act of 1934, as amended ("Regulation M")) during the period
the Registration Statement is effective. In the event the Company
files other registration statements or commences distributions of
securities within the meaning of Regulation M during such period, it
will notify the Selling Shareholders and will direct the Selling
Shareholders to suspend any sales under the Registration Statement to
the extent necessary to comply with the provisions of Regulation M.
The Selling Shareholders will suspend sales of Shares to the extent
necessary to comply with the provisions of Regulation M.
2. COVENANTS OF THE SHAREHOLDERS
By execution of this Agreement, the Shareholders hereby undertake to
provide all such information and materials and take all such actions and
execute all such documents as may be required in order to permit the
Company (i) to comply with all applicable requirements of the Commission
and to obtain acceleration of the Effective Date and (ii) to list the
Registrable Securities on the stock exchange or stock market on which the
Company's equity securities are then listed.
3. COVENANTS OF THE COMPANY
So long as the Company is under an obligation pursuant to the provisions of
Section 1, the Company shall:
3.1 prepare and file with the Commission such amendments and supplements
to such Registration Statement and the prospectus forming part of such
Registration Statement as may be necessary to implement the terms of
this Agreement and to keep such Registration Statement effective until
the three hundred sixty-fifth day (including any days during which the
Company suspends the Selling Shareholder's right to sell under the
Registration Statement pursuant to Section 1.3 hereof) after the
Effective Date;
3.2 furnish to the Selling Shareholders such number of copies of a
prospectus, including, without limitation, a preliminary prospectus
(if applicable), in conformity with the requirements of the Act, and
such other documents as the Selling Shareholders may reasonably
request in order to facilitate the public sale or other disposition of
such Registrable Securities;
3.3 use its best efforts to register or qualify, not later than the
Effective Date, the Registrable Securities covered by such
Registration Statement under the securities or "blue sky" laws of such
jurisdictions within the United States as the Selling Shareholders may
reasonably request and do any and all other acts or things which may
be necessary or advisable to enable the Selling Shareholders to
consummate the public sale or other disposition in such jurisdictions
of such Registrable Securities; provided, however, that the Company
shall not be required to qualify as a foreign corporation or to
execute a general service of process in any such jurisdiction;
3.4 promptly notify the Selling Shareholders, at any time when a
prospectus relating to the Registrable Securities being distributed is
required to be delivered under the Act, of the happening of any event
as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing and promptly prepare,
file with the Commission and furnish to the Selling Shareholders a
reasonable number of copies of a supplement to, or an amendment of,
such prospectus as may be necessary, or make any other appropriate
filing with the Commission pursuant to the Securities Exchange Act of
1934, as amended, which will be incorporated by reference into the
Registration Statement so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact
-2-
<PAGE> 3
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
3.5 use its best efforts to furnish, at the request of any Selling
Shareholder, an opinion of counsel (which counsel may be the general
counsel of the Company), covering such matters relating to the Company
and the issuance of the Shares as are typically covered by opinions of
issuer's counsel in secondary offerings under the Act; and
3.6 use its best efforts to cause all of the Registrable Securities as to
which the Selling Shareholders shall have requested registration to be
listed on any recognized securities exchange or stock market,
including, without limitation, The Nasdaq Stock Market, Inc., on which
the Company's equity securities are then listed and to maintain the
currency and effectiveness of any such listings.
4. COSTS AND EXPENSES
Except for expenses referred to in the following sentence, the Company
shall bear the entire cost and expense of any registration and listing of
the Registrable Securities, including, without limitation, all registration
and filing fees, printing expenses, the fees and expenses of the Company's
counsel and its independent accountants and all other out-of-pocket
expenses incident to the preparation, printing and filing under the Act of
the Registration Statement and all amendments and supplements thereto, the
cost of furnishing copies of each preliminary prospectus, each final
prospectus and each amendment or supplement thereto to brokers and dealers
and other purchasers of the securities so registered, and the costs and
expenses incurred in connection with the qualification of the securities so
registered under "blue sky" or other state securities laws. Notwithstanding
the foregoing, the Company shall not be liable or responsible for the fees
and expenses of counsel, if any, for the Selling Shareholders, or any
underwriting discounts and commissions attributable to Registrable
Securities registered at the request of the Selling Shareholders. All such
fees and expenses not paid by the Company shall be prorated on the basis of
the number of shares of Registrable Securities and paid by the Selling
Shareholders.
5. INDEMNIFICATION
5.1 Indemnity to the Selling Shareholders. The Company shall indemnify
each Selling Shareholder, its officers and directors, if any, as well
as any person who controls such Selling Shareholder, if any, against
all claims, losses, damages, liabilities and expenses resulting from
any untrue statement or alleged untrue statement of a material fact
contained in a prospectus or in any related Registration Statement,
notification or similar filing under the securities laws of any
jurisdiction or from any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statement therein not misleading, except insofar as the same may have
been based upon information concerning such Selling Shareholder
furnished in writing to the Company by such Selling Shareholder
expressly for use therein and used in accordance with such writing.
5.2 Indemnity to the Company. Each Selling Shareholder, by requesting
registration of his, her or its Registrable Securities, agrees to
furnish to the Company such information as may be requested by the
Company and which is necessary or required by then applicable
securities laws, the rules and regulations thereunder and any stock
exchange or stock market in connection with any registration,
qualification or listing of the Registrable Securities and to
indemnify the Company, its officers, directors, employees and any
person who controls the Company, against all claims, losses, damages,
liabilities and expenses resulting from the utilization of such
information furnished in writing to the Company expressly for use
therein and used in accordance with such writing.
5.3 Indemnification Procedures. If any action is brought or any claim is
made against any party entitled to be indemnified pursuant to this
Section 5 in respect of which indemnity may be sought against the
indemnifying party pursuant to this Section 5, such party shall
promptly notify the indemnifying party in writing of the institution
of such action or the making of such claim and the indemnifying party
shall assume the defense of such action or claim, including the
employment of counsel and payment of expenses. Such indemnified party
shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the
expense of such party unless the employment of such counsel shall have
been authorized in writing by the indemnifying party in connection
with the defense of such action or claim or such indemnified party or
parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to
those available to the indemnifying party or that there otherwise
exists a conflict of interest (in which case the indemnifying party
shall not have the right to direct any
-3-
<PAGE> 4
different or additional defense of such action or claim on behalf of
the indemnified party or parties), in any of which events such fees
and expenses of not more than one additional counsel in each relevant
jurisdiction for the indemnified parties shall be borne by the
indemnifying party. Except as expressly provided above, if the
indemnifying party shall not previously have assumed the defense of
any such action or claim, at such time as the indemnifying party does
assume the defense of such action or claim, the indemnifying party
shall thereafter be liable to any person indemnified pursuant to this
Agreement for any legal or other expenses subsequently incurred by
such person in investigating, preparing or defending against such
action or claim. Anything in this paragraph to the contrary
notwithstanding, the indemnifying party shall not be liable for any
settlement of any claim or action effected without its written
consent.
5.4 If the indemnification provided for in this Section 5 is unavailable
or insufficient to hold harmless an indemnified party under
Subsections 5.1 or 5.2 above, then each indemnifying party shall
contribute in the amount paid or payable by such indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to in Subsections 5.1 or 5.2 above in such
proportion as is appropriate to reflect the relative fault of the
Company on the one hand and the Selling Shareholders on the other in
connection with the misstatement or omission which resulted in such
losses, claims, damages or liabilities (or actions in respect
thereof). The relative fault is determined by reference to, among
other things, whether the misstatement or omission relates to
information prepared by the Company or the Selling Shareholder and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
6. MISCELLANEOUS
6.1 Notices. Notices given under this Agreement shall be deemed received
three business days after mailing to the addresses for the parties set
forth below and may be delivered by telex or other telecommunications
device producing a document setting forth such notices, in which case,
such notices shall be deemed received on the day confirmation of such
transmission is received by the sender.
If to the Company: Starbucks Corporation
2401 Utah Avenue South
Seattle, Washington 98134
Attention: Corporate Counsel, Securities
Facsimile No.: (206) 442-7793
If to the Shareholders, at the addresses and facsimile numbers (if
any) specified with respect thereto in Annex I.
6.2 Binding Agreement. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective
permitted successors and assigns.
6.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Washington without regard to the choice of
law principles thereof.
6.4 Assignability. The rights of any Shareholder hereunder may be assigned
(without impairing the rights of such Shareholder with respect to
Registrable Securities the Shareholder continues to hold) or
transferred to (i) a member of a Shareholder's immediate family or a
trust for the benefit of a member of a Shareholder's family, (ii) any
affiliate (as defined in Rule 144 under the Act) of a Shareholder,
(iii) any partner of a Shareholder that is a partnership or any
beneficiary of a Shareholder that is a trust, or (iv) any person that
acquires Registrable Securities valued at $50,000 or more in the
Acquisition. Upon any such assignment or transfer, each transferee
shall be deemed to have the accepted rights and obligations of a
Shareholder hereunder on the terms set forth herein and shall be
deemed for all purposes of this Agreement to be a "Shareholder," and
shall be entitled to be included as a Selling Shareholder in the
Registration Statement.
6.5 Succeeding Securities. If the Registrable Securities of the Company
covered by this Agreement are converted into any other security of the
Company or any other corporation, the terms of this Agreement shall
apply with full force and effect to any such other security, and the
obligations of the Company to effect registration shall include such
other filings, qualifications, notices and similar acts as may be
necessary to enable the Shareholders to realize the benefits of
registration provided by this Agreement.
-4-
<PAGE> 5
6.6 Other Registration Rights. Nothing in this Agreement shall prohibit
the company from registering securities other than the Registrable
Securities or from granting registration rights on its securities in
the future which do not conflict with the rights granted under this
Agreement.
6.7 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do
not constitute a part of this Agreement.
6.8 Complete Agreement; Severability. The Agreement (including any
schedules, exhibits and annexes attached hereto) constitutes the
entire agreement and understanding among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, written or oral, with respect thereto. If any
provision of this Agreement shall be held to be illegal, invalid or
unenforceable under any applicable law, then such contravention or
invalidity shall not invalidate the entire Agreement. Such provision
shall be deemed to be modified to the extent necessary to render it
legal, valid and enforceable, and if no such modification shall render
it legal, valid and enforceable, then this Agreement shall be
construed as if not containing the provision held to be invalid, and
the rights and obligations of the parties shall be construed and
enforced accordingly.
6.9 Counterparts. This Agreement may be executed in two (2) counterparts,
each of which shall be deemed an original, but both of which together
shall constitute one and the same agreement.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
STARBUCKS CORPORATION
BY:
ITS:____________________________________
EXECUTED ON BEHALF OF THE SHAREHOLDERS
BY:
THEIR: Attorney-In-Fact
-6-
<PAGE> 1
EXHIBIT 5
OPINION OF PRESTON GATES & ELLIS LLP
July 8, 1998
Starbucks Corporation
2401 Utah Avenue South
Seattle, Washington 98134
Re: Registration Statement on Form S-3
Ladies and Gentleman:
In connection with the registration of shares of Common Stock, no par
value per share (the "Shares"), of Starbucks Corporation (the "Company") with
the Securities and Exchange Commission on a Registration Statement on Form S-3
(the "Registration Statement"), relating to the sales of the Shares by certain
selling shareholders named in the Registration Statement, we have examined such
documents, records and matters of law as we have considered relevant.
Based on this review, it is our opinion that the Shares are validly
issued, fully paid and non-assessable under the Washington Business
Corporation Act.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of this Registration Statement.
Very truly yours,
PRESTON GATES & ELLIS LLP
By: /s/ G. SCOTT GREENBURG
---------------------------
G. Scott Greenburg
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
September 28, September 29, October 1,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CALCULATION OF EARNINGS
PER COMMON SHARE-BASIC
Net earnings $ 55,211 $ 41,710 $ 26,102
------------- ------------- -------------
Weighted average shares outstanding calculation:
Weighted average shares outstanding 79,645 74,667 68,898
------------- ------------- -------------
Net earnings per common share $ 0.69 $ 0.56 $ 0.38
------------- ------------- -------------
CALCULATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE-DILUTED:(1)
Net earnings calculation:
Net earnings $ 55,211 $ 41,710 $ 26,102
Add after-tax interest
expense on debentures 4,300 1,248 --
Add after-tax amortization of issuance
costs related to the debentures 354 93 --
------------- ------------- -------------
Adjusted net earnings $ 59,865 $ 43,051 $ 26,102
------------- ------------- -------------
Weighted average shares outstanding calculation:
Weighted average number of common
shares outstanding 79,645 74,667 68,898
Dilutive effect of outstanding common
stock options and warrants 3,416 3,223 2,411
Assuming conversion of convertible
subordinated debentures 7,098 3,026 --
------------- ------------- -------------
Weighted average shares outstanding 90,159 80,916 71,309
------------- ------------- -------------
Net earnings per common and common
equivalent share-diluted $ 0.66 $ 0.53 $ 0.37
------------- ------------- -------------
</TABLE>
(1) Diluted earnings per share assumes conversion of the Company's
convertible subordinated debentures using the "if converted" method,
when such securities are dilutive, with income adjusted for the
after-tax interest expense and amortization applicable to these
debentures.
<PAGE> 2
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
December 28, December 29,
1997 1996
(13 Weeks) (13 Weeks)
------------- -------------
<S> <C> <C>
CALCULATION OF EARNINGS
PER COMMON SHARE-BASIC
Net earnings $ 20,955 $ 13,886
------------- -------------
Weighted average shares outstanding calculation:
Weighted average shares outstanding 84,978 78,905
------------- -------------
Net earnings per share $ 0.25 $ 0.18
------------- -------------
CALCULATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE-DILUTED:(1)
Net earnings calculation:
Net earnings $ 20,955 $ 13,886
Add after-tax interest
expense on debentures 348 1,075
Add after-tax amortization of issuance
costs related to the debentures 30 89
------------- -------------
Adjusted net earnings $ 21,333 $ 15,050
------------- -------------
Weighted average shares outstanding calculation:
Weighted average number of common
shares and common stock units outstanding 84,978 78,905
Dilutive effect of outstanding common
stock options and warrants 3,176 3,723
Assuming conversion of convertible
subordinated debentures 2,808 7,098
------------- -------------
Weighted average shares outstanding 90,962 89,726
------------- -------------
Net earnings per common and common
equivalent share-diluted $ 0.23 $ 0.17
------------- -------------
</TABLE>
(1) Diluted earnings per share assumes conversion of the Company's
convertible subordinated debentures using the "if converted" method,
when such securities are dilutive, with income adjusted for the
after-tax interest expense and amortization applicable to these
debentures.
<PAGE> 3
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CALCULATION OF EARNINGS
PER COMMON SHARE-BASIC
Net earnings $ 13,962 $ 9,241 $ 34,918 $ 23,127
------------- ------------- ------------- -------------
Weighted average shares outstanding calculation:
Weighted average shares outstanding 88,579 79,425 86,778 79,164
------------- ------------- ------------- -------------
Net earnings per share $ 0.16 $ 0.12 $ 0.40 $ 0.29
------------- ------------- ------------- -------------
CALCULATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE-DILUTED:(1)
Net earnings calculation:
Net earnings $ 13,962 $ 9,241 $ 34,918 $ 23,127
Add after-tax interest
expense on debentures 0 1,075 348 2,151
Add after-tax amortization of issuance
costs related to the debentures 0 89 30 178
------------- ------------- ------------- -------------
Adjusted net earnings $ 13,962 $ 10,405 $ 35,296 $ 25,456
------------- ------------- ------------- -------------
Weighted average shares outstanding calculation:
Weighted average number of common
shares and common stock units outstanding 88,579 79,425 86,778 79,164
Dilutive effect of outstanding common
stock options and warrants 2,861 3,299 3,009 3,504
Assuming conversion of convertible
subordinated debentures 0 7,098 1,404 7,098
------------- ------------- ------------- -------------
Weighted average shares outstanding 91,440 89,822 91,191 89,766
------------- ------------- ------------- -------------
Net Earnings per common and common
equivalent share-diluted $ 0.15 $ 0.12 $ 0.39 $ 0.28
------------- ------------- ------------- -------------
</TABLE>
(1) Diluted earnings per share assumes conversion of the Company's
convertible subordinated debentures using the "if converted" method,
when such securities are dilutive, with income adjusted for the
after-tax interest expense and amortization applicable to these
debentures.
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES (1)
(In thousands, except ratio data)
<TABLE>
<CAPTION>
September 28, September 29, October 1, October 2, October 3,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS:
Earnings before income
taxes $ 91,310 $ 68,083 $ 43,143 $ 17,754 $ 13,526
Interest expense 7,282 8,739 3,765 3,807 772
Amortization of debt
expense 578 682 260 260 43
Portion of rents
representative of
interest factor 28,030 20,847 14,713 7,144 3,892
Less: Capitalized interest (241) (306) (160) (99) --
------------ ------------ ------------ ------------ ------------
Total earnings
(as calculated) $ 126,959 $ 98,045 $ 61,721 $ 28,866 $ 18,233
------------ ------------ ------------ ------------ ------------
COMPUTATION OF FIXED CHARGES:
Interest expense $ 7,282 $ 8,739 $ 3,765 $ 3,807 $ 772
Amortization of debt expense 578 682 260 260 43
Portion of rents
representative of
interest factor 28,030 20,847 14,713 7,144 3,892
------------ ------------ ------------ ------------ ------------
Total fixed charges $ 35,890 $ 30,268 $ 18,738 $ 11,211 $ 4,707
------------ ------------ ------------ ------------ ------------
Ratio of earnings
to fixed charges 3.54x 3.24x 3.29x 2.57x 3.87x
------------ ------------ ------------ ------------ ------------
</TABLE>
(1) For purposes of computing the ratio of earnings to fixed charges,
earnings include earnings before income taxes, amortization of debt
expense, and interest expense, including that portion of rental expense
attributable to interest costs. Fixed charges consist of interest
expense, including that portion of rental expense attributable to
interest costs, and interest capitalized during the period.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement on Form S-3 of
Starbucks Corporation of our report dated June 8, 1998, appearing in the
Prospectus, which is part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Seattle, Washington
July 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS SECOND QUARTER 1996 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AS SUMMARIZED IN THE REGISTRATION STATEMENT ON FORM S-3
FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> MAR-31-1996
<CASH> 131,174
<SECURITIES> 91,870
<RECEIVABLES> 12,388
<ALLOWANCES> 225
<INVENTORY> 90,822
<CURRENT-ASSETS> 335,177
<PP&E> 371,360
<DEPRECIATION> 68,305
<TOTAL-ASSETS> 652,420
<CURRENT-LIABILITIES> 65,519
<BONDS> 245,747
0
0
<COMMON> 270,263
<OTHER-SE> 65,818
<TOTAL-LIABILITY-AND-EQUITY> 652,420
<SALES> 323,635
<TOTAL-REVENUES> 323,635
<CGS> 163,824
<TOTAL-COSTS> 136,824
<OTHER-EXPENSES> 136,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,959
<INCOME-PRETAX> 32,534
<INCOME-TAX> 12,759
<INCOME-CONTINUING> 19,775
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,775
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION THIRD QUARTER 1996 SUPPLEMENTAL CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL
CONSOLIDATED FINANCIAL STATEMENTS AS SUMMARIZED IN THE REGISTRATION STATEMENTS
ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> JUN-30-1996
<CASH> 141,966
<SECURITIES> 89,860
<RECEIVABLES> 15,523
<ALLOWANCES> 302
<INVENTORY> 76,974
<CURRENT-ASSETS> 334,624
<PP&E> 413,124
<DEPRECIATION> 78,320
<TOTAL-ASSETS> 682,788
<CURRENT-LIABILITIES> 77,459
<BONDS> 166,038
0
0
<COMMON> 357,998
<OTHER-SE> 75,386
<TOTAL-LIABILITY-AND-EQUITY> 682,788
<SALES> 500,840
<TOTAL-REVENUES> 500,840
<CGS> 247,108
<TOTAL-COSTS> 247,108
<OTHER-EXPENSES> 215,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,919
<INCOME-PRETAX> 48,032
<INCOME-TAX> 18,802
<INCOME-CONTINUING> 29,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,230
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION FISCAL YEAR 1996 SUPPLEMENTAL CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SUPPLEMENTAL
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT ON FORM
S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1996
<PERIOD-END> SEP-29-1996
<CASH> 127,165
<SECURITIES> 103,221
<RECEIVABLES> 17,884
<ALLOWANCES> 116
<INVENTORY> 83,412
<CURRENT-ASSETS> 340,680
<PP&E> 459,023
<DEPRECIATION> 88,071
<TOTAL-ASSETS> 729,227
<CURRENT-LIABILITIES> 101,315
<BONDS> 166,748
0
0
<COMMON> 364,020
<OTHER-SE> 90,030
<TOTAL-LIABILITY-AND-EQUITY> 729,227
<SALES> 697,872
<TOTAL-REVENUES> 697,872
<CGS> 336,658
<TOTAL-COSTS> 336,658
<OTHER-EXPENSES> 304,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,739
<INCOME-PRETAX> 68,083
<INCOME-TAX> 26,373
<INCOME-CONTINUING> 41,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,710
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION FIRST QUARTER FISCAL 1997 SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-29-1996
<CASH> 129,502
<SECURITIES> 121,522
<RECEIVABLES> 18,983
<ALLOWANCES> 180
<INVENTORY> 63,561
<CURRENT-ASSETS> 343,230
<PP&E> 496,661
<DEPRECIATION> 100,273
<TOTAL-ASSETS> 757,365
<CURRENT-LIABILITIES> 107,223
<BONDS> 166,431
0
0
<COMMON> 371,403
<OTHER-SE> 103,887
<TOTAL-LIABILITY-AND-EQUITY> 757,365
<SALES> 240,154
<TOTAL-REVENUES> 240,154
<CGS> 116,101
<TOTAL-COSTS> 116,101
<OTHER-EXPENSES> 103,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,804
<INCOME-PRETAX> 22,894
<INCOME-TAX> 9,008
<INCOME-CONTINUING> 13,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,886
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION SECOND QUARTER FISCAL 1997 SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 90,826
<SECURITIES> 122,026
<RECEIVABLES> 21,861
<ALLOWANCES> 228
<INVENTORY> 81,560
<CURRENT-ASSETS> 327,962
<PP&E> 530,895
<DEPRECIATION> 113,601
<TOTAL-ASSETS> 774,619
<CURRENT-LIABILITIES> 111,877
<BONDS> 166,542
0
0
<COMMON> 375,472
<OTHER-SE> 112,126
<TOTAL-LIABILITY-AND-EQUITY> 774,619
<SALES> 456,424
<TOTAL-REVENUES> 456,424
<CGS> 216,071
<TOTAL-COSTS> 216,071
<OTHER-EXPENSES> 206,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,638
<INCOME-PRETAX> 38,170
<INCOME-TAX> 15,043
<INCOME-CONTINUING> 23,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,127
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION THIRD QUARTER FISCAL 1997 SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS AS SUMMARIZED IN THE REGISTRATION
STATEMENT ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 90,773
<SECURITIES> 92,032
<RECEIVABLES> 18,471
<ALLOWANCES> 280
<INVENTORY> 110,141
<CURRENT-ASSETS> 324,375
<PP&E> 574,462
<DEPRECIATION> 128,368
<TOTAL-ASSETS> 811,410
<CURRENT-LIABILITIES> 125,713
<BONDS> 166,348
0
0
<COMMON> 382,281
<OTHER-SE> 124,762
<TOTAL-LIABILITY-AND-EQUITY> 811,410
<SALES> 700,665
<TOTAL-REVENUES> 700,665
<CGS> 319,906
<TOTAL-COSTS> 319,906
<OTHER-EXPENSES> 323,849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,454
<INCOME-PRETAX> 61,521
<INCOME-TAX> 24,194
<INCOME-CONTINUING> 37,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,327
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION FISCAL 1997 SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 70,126
<SECURITIES> 83,504
<RECEIVABLES> 31,504
<ALLOWANCES> 273
<INVENTORY> 119,767
<CURRENT-ASSETS> 317,555
<PP&E> 632,859
<DEPRECIATION> 144,068
<TOTAL-ASSETS> 857,152
<CURRENT-LIABILITIES> 143,467
<BONDS> 167,029
0
0
<COMMON> 391,284
<OTHER-SE> 142,426
<TOTAL-LIABILITY-AND-EQUITY> 857,152
<SALES> 975,389
<TOTAL-REVENUES> 975,389
<CGS> 436,942
<TOTAL-COSTS> 436,942
<OTHER-EXPENSES> 452,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,282
<INCOME-PRETAX> 91,310
<INCOME-TAX> 36,099
<INCOME-CONTINUING> 55,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,211
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION FIRST QUARTER FISCAL 1998 SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<CASH> 105,646
<SECURITIES> 76,927
<RECEIVABLES> 36,116
<ALLOWANCES> 355
<INVENTORY> 116,012
<CURRENT-ASSETS> 350,224
<PP&E> 679,523
<DEPRECIATION> 158,921
<TOTAL-ASSETS> 919,804
<CURRENT-LIABILITIES> 177,823
<BONDS> 1,656
0
0
<COMMON> 563,646
<OTHER-SE> 161,767
<TOTAL-LIABILITY-AND-EQUITY> 919,804
<SALES> 321,325
<TOTAL-REVENUES> 321,325
<CGS> 146,235
<TOTAL-COSTS> 146,235
<OTHER-EXPENSES> 141,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 845
<INCOME-PRETAX> 34,793
<INCOME-TAX> 13,838
<INCOME-CONTINUING> 20,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,955
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STARBUCKS CORPORATION SECOND QUARTER FISCAL 1998 SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-3 FILING DATED JULY 8, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 107,938
<SECURITIES> 44,402
<RECEIVABLES> 35,768
<ALLOWANCES> 435
<INVENTORY> 129,223
<CURRENT-ASSETS> 332,602
<PP&E> 723,344
<DEPRECIATION> 177,928
<TOTAL-ASSETS> 926,236
<CURRENT-LIABILITIES> 160,807
<BONDS> 1,313
0
0
<COMMON> 573,218
<OTHER-SE> 175,840
<TOTAL-LIABILITY-AND-EQUITY> 926,236
<SALES> 616,568
<TOTAL-REVENUES> 616,568
<CGS> 279,736
<TOTAL-COSTS> 279,736
<OTHER-EXPENSES> 282,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,080
<INCOME-PRETAX> 58,228
<INCOME-TAX> 23,310
<INCOME-CONTINUING> 34,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,918
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
