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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-20322
STARBUCKS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
WASHINGTON 91-1325671
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OR ORGANIZATION)
2401 UTAH AVENUE SOUTH, SEATTLE, WASHINGTON 98134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 447-1575
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation of S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form l0-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Registrant's Common Stock
on December 1, 1999, as reported on the National Market tier of The Nasdaq Stock
Market, Inc. was $4,732,328,104.
As of December 20, 1999, there were 182,699,160 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended October 3, 1999 have been incorporated by reference into Parts II and
IV of this Annual Report on Form 10-K. Portions of the definitive Proxy
Statement for the Registrant's Annual Meeting of Shareholders to be held on
February 14, 2000 have been incorporated by reference into Part III of this
Annual Report on Form 10-K.
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CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements set forth in or incorporated by reference into this
Annual Report on Form 10-K, including anticipated store openings, planned
capital expenditures and trends in or expectations regarding the Company's
operations, specifically including the effect of problems associated with the
year 2000, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based on
currently available operating, financial and competitive information and are
subject to various risks and uncertainties. Actual future results and trends may
differ materially depending on a variety of factors, including, but not limited
to, coffee and other raw materials prices and availability, successful execution
of internal performance and expansion plans, the impact of competition, the
effect of legal proceedings and other risks detailed herein.
PART I
ITEM 1. BUSINESS
General. Starbucks Corporation and its subsidiaries (collectively
"Starbucks" or the "Company") purchases and roasts high quality whole bean
coffees and sells them, along with fresh, rich-brewed coffees, Italian-style
espresso beverages, a variety of pastries and confections, coffee-related
accessories and equipment, and a line of premium teas, primarily through its
Company-operated retail stores. In addition to sales through its
Company-operated retail stores, Starbucks sells coffee and tea products through
other channels of distribution (collectively, "specialty operations").
Starbucks, through its joint venture partnerships, also produces and sells
bottled Frappuccino(R) coffee drink and a line of premium ice creams. The
Company's objective is to establish Starbucks as the most recognized and
respected brand in the world. To achieve this goal, the Company plans to
continue to rapidly expand its retail operations, grow its specialty operations
and selectively pursue other opportunities to leverage the Starbucks brand
through the introduction of new products and the development of new distribution
channels.
Company-Operated Retail Stores. The Company's retail goal is to become the
leading retailer and brand of coffee in each of its target markets by selling
the finest quality coffee and related products and by providing superior
customer service, thereby building a high degree of customer loyalty. Starbucks
strategy for expanding its retail business is to increase its market share in
existing markets and to open stores in new markets where the opportunity exists
to become the leading specialty coffee retailer. In furtherance of this
strategy, the Company opened 460 new stores, converted 56 stores acquired in May
1998 from Seattle Coffee Holdings Limited ("Seattle Coffee Company") to
Starbucks stores and converted 26 stores acquired in March 1999 from Pasqua Inc.
("Pasqua"), a San Francisco based coffee retailer, to Starbucks stores. As of
October 3, 1999, Starbucks had 2,135 Company-operated stores in 34 states, the
District of Columbia, five Canadian provinces and the United Kingdom.
Company-operated retail stores accounted for approximately 85% of net revenues
during the fiscal year ended October 3, 1999 ("fiscal 1999"). The Company
intends to finance additional growth in the number of Company-operated retail
stores with cash flow from operations, supplemented by debt financing, if
necessary.
Starbucks retail stores are typically clustered in high-traffic,
high-visibility locations. Because the Company can vary the size and format of
its stores, Starbucks stores are located in a variety of settings, including
downtown and suburban retail centers, office buildings, supermarket foyers and
on university campuses. While the Company selectively locates stores in suburban
malls, it focuses on stores that are convenient for pedestrian street traffic.
All Starbucks stores offer a choice of regular and decaffeinated coffee
beverages, including at least one "coffee of the day," a broad selection of
Italian-style espresso beverages, a selection of teas and distinctively
packaged, roasted whole bean coffees. Starbucks stores also offer a selection of
fresh pastries and other food items, sodas, juices, and coffee-making equipment
and accessories. Each Starbucks store varies its product mix depending upon the
size of the store and its location. Larger stores carry a broad selection of the
Company's whole bean coffees in various sizes and types of packaging, as well as
an assortment of coffee and espresso-making equipment and accessories such as
coffee grinders, drip coffee makers, espresso machines,
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coffee filters, storage containers, travel tumblers and mugs. Smaller Starbucks
stores and kiosks typically sell a full line of coffee beverages, a more limited
selection of whole bean coffees and a few accessories such as travel tumblers
and logo mugs. During fiscal 1999, the Company's retail sales mix by product
type was approximately 69% handcrafted beverages, 15% food items, 10% whole bean
coffees, and 6% coffee-making equipment and accessories.
Specialty Operations. Starbucks specialty operations strive to develop the
Starbucks brand outside the Company-operated retail store environment through a
number of channels. Starbucks strategy for expanding its specialty operations is
to reach customers where they work, travel, shop and dine by establishing
relationships with prominent third parties who share Starbucks values and
commitment to quality. These relationships take various forms, including
domestic wholesale accounts, domestic retail store licensing agreements, grocery
channel licensing agreements, domestic joint ventures and international
licensing agreements. Starbucks specialty operations also include
direct-to-consumer marketing channels. In certain licensing situations, the
licensee is a joint venture in which Starbucks has an equity ownership interest.
During fiscal 1999, specialty revenues (which include royalties and fees from
licensees as well as product sales) accounted for approximately 15% of the
Company's net revenues.
Domestic Wholesale Accounts. Starbucks sells whole bean and ground coffees
to several types of domestic wholesale accounts, including (i) foodservice
accounts, which include office coffee distributors and institutional foodservice
management companies that service business, industry, education and healthcare
accounts, and hotels, airlines and restaurants; and (ii) warehouse club stores.
During fiscal 1999, sales to domestic wholesale accounts comprised 8% of the
Company's net revenues.
Domestic Retail Store Licensing. Although the Company does not generally
relinquish operational control of its retail stores in North America, in
situations in which a master concessionaire or another company controls or can
provide improved access to desirable retail space, the Company may consider
licensing its operations. As part of these arrangements, Starbucks receives
license fees and royalties and sells coffee and related products for resale in
the licensed locations. Employees working in the licensed locations must follow
Starbucks detailed store-operating procedures and attend training classes
similar to those given to Starbucks store managers and employees. As of October
3, 1999, the Company had 179 licensed stores in continental North America.
Domestic Grocery Licensing. In fiscal 1998, Starbucks entered into a
long-term licensing agreement with Kraft Foods, Inc. ("Kraft") to accelerate the
growth of the Starbucks brand into the grocery channel in the United States.
Pursuant to such agreement, Kraft manages all distribution, marketing,
advertising and promotions for Starbucks whole bean and ground coffee in
grocery, warehouse club and mass merchandise stores. By the end of fiscal 1999,
the Company's whole bean and ground coffees were available in 15 states and
approximately 8,500 supermarkets. The Company expects to achieve national
distribution by the middle of fiscal 2000.
Domestic Joint Ventures. The Company has two non-retail domestic 50-50
joint ventures. The North American Coffee Partnership, a joint venture with the
Pepsi-Cola Company, a division of PepsiCo, Inc., was formed in fiscal 1994 to
develop and distribute ready-to-drink coffee-based products. In May 1996, The
North American Coffee Partnership introduced bottled Frappuccino coffee drink in
selected supermarkets and other retail points of distribution throughout the
west coast of the United States. By the end of fiscal 1999, the joint venture
was distributing Frappuccino to approximately 200,000 supermarkets, convenience
and drug stores and other locations throughout the United States and Canada. The
Company formed a joint venture with Dreyer's Grand Ice Cream, Inc. in fiscal
1996 to develop and distribute Starbucks premium coffee ice creams. By the end
of fiscal 1999, the joint venture was distributing 17 ice cream and novelty
products to over 21,000 supermarkets throughout the United States. (See Note 6
to the Company's consolidated financial statements, "Joint Ventures and Other
Investments," incorporated by reference to the Company's 1999 Annual Report to
Shareholders in Item 8 of this Form 10-K.)
International Licensing. Starbucks retail stores located outside of
continental North America and the United Kingdom are operated through a number
of joint venture and licensing arrangements with prominent retailers. During
fiscal 1999, the Company expanded its international presence by opening 121 new
stores
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outside of North America and the United Kingdom, including the first stores in
China, Malaysia, South Korea, New Zealand and Kuwait. At fiscal year end, the
Company had 82 stores in Japan, 23 in Taiwan, 21 in Singapore, 17 in Hawaii, 14
in the Philippines, 9 in China, 7 in Thailand, 6 in New Zealand, 2 in Malaysia,
2 in Kuwait and 1 in South Korea.
Direct-to-Consumer Marketing. The Company makes fresh Starbucks coffee and
products conveniently available via mail order and on-line. Starbucks publishes
and distributes a mail order catalog that offers its coffees, certain food items
and select coffee-making equipment and accessories and the Company maintains a
web site at www.starbucks.com with an on-line store that allows customers to
browse for and purchase coffee, gifts and other items via the Internet.
Management believes that the Company's direct-to-consumer operations support its
retail store expansion into new markets and reinforce brand recognition in
existing markets.
Product Supply. Starbucks is committed to selling only the finest whole
bean coffees and coffee beverages. To ensure compliance with its rigorous coffee
standards, Starbucks controls its coffee purchasing, roasting and packaging, and
the distribution of coffee to its retail stores. The Company purchases green
coffee beans for its many blends and single origin coffees from coffee-producing
regions around the world and custom roasts them to its exacting standards.
The supply and price of coffee are subject to significant volatility.
Although most coffee trades in the commodity market, coffee of the quality
sought by the Company tends to trade on a negotiated basis at a substantial
premium above commodity coffee prices, depending upon the supply and demand at
the time of purchase. Supply and price can be affected by multiple factors in
the producing countries, including weather, political and economic conditions.
In addition, green coffee prices have been affected in the past, and may be
affected in the future, by the actions of certain organizations and associations
that have historically attempted to influence commodity prices of green coffee
through agreements establishing export quotas or restricting coffee supplies
worldwide.
The Company depends upon its relationships with outside trading companies
and exporters for its supply of green coffee. To secure an adequate supply and
to fix costs for future periods, the Company routinely enters into fixed-price
purchase commitments for future deliveries of coffee. As of October 3, 1999, the
Company had approximately $84 million in fixed-price purchase commitments which,
together with existing inventory, is expected to provide an adequate supply of
green coffee for the majority of fiscal 2000. 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. In addition, the Company
may from time to time purchase and sell coffee futures contracts as a hedging
mechanism to minimize cost risk due to market fluctuations. There can be no
assurance that these activities will successfully protect the Company against
the risks of higher coffee prices or that such activities will not result in the
Company having to pay substantially more for its coffee supply than it would
have been required to pay absent such activities.
In addition to coffee, the Company also purchases significant amounts of
dairy products to support the needs of its retail stores. Fluid milk
requirements are purchased from local processors and distributors to ensure
quality and reliable service. Dairy prices vary throughout the year as supply
and demand fluctuate and are subject to additional changes due to government
regulations. The Company obtains competitive prices through a combination of
competitive bidding and negotiations with its suppliers.
The Company also purchases a broad range of paper and plastic products,
such as paper cups, plastic cold cups, hot cup lids, napkins, straws, shopping
bags and corrugated paper boxes from several companies to support the needs of
its retail stores as well as its manufacturing and distribution operations. The
cost of these materials are somewhat dependent upon commodity paper and plastic
resin costs, but the Company believes it mitigates the effect of short-term raw
material price increases through strategic relationships with key suppliers.
Products other than whole bean coffees and coffee beverages sold in
Starbucks retail stores are obtained through a number of different channels.
Specialty foods, such as fresh pastries and lunch items, are generally purchased
from local sources based on quality and price. Coffee-making equipment, such as
drip and french
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press coffee makers, espresso machines and coffee grinders, are generally
purchased directly from their manufacturers for resale. Coffee-related
accessories, including items bearing the Company's logos and trademarks, are
produced and distributed through contracts with a number of different vendors.
Competition. 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.
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. Both the Company's whole bean coffees and its coffee
beverages compete indirectly against all other coffees on the market. The
Company believes that its customers choose among retailers primarily on the
basis of product quality, service and convenience, and, to a lesser extent, on
price.
Management believes that supermarkets are the most competitive distribution
channel for specialty whole bean coffee, in part because supermarkets offer
customers a variety of choices without having to make a separate trip to a
specialty coffee store. A number of nationwide coffee manufacturers 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.
In addition to the competition for coffee beverage retail sales and whole
bean coffee, 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 operations also face significant
competition from established wholesale and mail order suppliers, some of whom
have greater financial and marketing resources than the Company.
Patents, Trademarks, Copyrights and Domain Names. The Company owns and/or
has applied to register numerous trademarks and service marks in the United
States, Canada and in more than 125 additional countries throughout the world.
Rights to the trademarks and service marks in the United States are generally
held by Starbucks U.S. Brands Corporation, a wholly-owned subsidiary of the
Company, and are used by the Company under license. Some of the Company's
trademarks, including "Starbucks," the Starbucks logo and "Frappuccino," are of
material importance to the Company. Trademarks are generally valid as long as
they are in use and/or their registrations are properly maintained, and they
have not been found to have become generic. Trademark registrations can
generally be renewed indefinitely so long as the marks are in use.
The Company also owns numerous copyrights for its product packaging,
promotional materials, in-store graphics and training materials, among other
things. The Company also holds patents on certain products systems and designs.
In addition, the Company has registered and maintains numerous Internet domain
names, including "Starbucks.com" and "Starbucks.net." While valuable, individual
copyrights, patents and domain names currently held by the Company are not
viewed as material to the Company's business.
Research and Development. The Company's Research and Development department
is comprised of food scientists, engineers, chemists and technicians responsible
for the formulation and technical development of new equipment, food and
beverage products, and manufacturing processes. The department has played a
major role in the expansion of the bottled Frappuccino category and coffee ice
cream offerings. Development of novel coffee ingredients and a new dairy base
have improved the Company's ability to deliver blended Frappuccino worldwide,
while technical support of the tea and juice beverage development has resulted
in new
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formulations and line extensions in the Company's blended fruit and tea beverage
line, Tiazzi(R). The Company spent approximately $5.0 million during fiscal 1999
on technical research and development activities, in addition to customary
product testing and product and process improvements in all areas of the
Company's business.
Seasonality and Quarterly Results. The Company's business is subject to
seasonal fluctuations. Significant portions of the Company's net revenues and
profits are realized during the first quarter of the Company's fiscal year that
includes the December holiday season. In addition, quarterly results are
affected by the timing of the opening of new stores, and the Company's rapid
growth may conceal the impact of other seasonal influences. Because of the
seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full fiscal
year.
Employees. As of October 3, 1999, the Company employed approximately 37,000
individuals, approximately 34,000 in retail stores and regional offices and the
remainder in the Company's administrative, specialty, real estate, roasting, and
warehousing operations. At fiscal year end, employees at 12 of the Company's
stores were represented by unions. Starbucks has entered into a labor agreement
governing such stores that extends until July 2001. The Company believes that
its current relations with its employees are good.
ITEM 2. PROPERTIES
Starbucks currently operates four roasting and distribution
facilities -- two in the Seattle, Washington area, one in East Manchester
Township, York County, Pennsylvania and one in London, England. In the Seattle
area, the Company owns a roasting plant and distribution facility of
approximately 305,000 square feet and leases a warehouse facility of
approximately 156,000 square feet in Kent, Washington (the "Kent Plant"). The
Company also leases approximately 92,000 square feet in a building in Seattle,
Washington pursuant to a lease extendable through 2001 (the "Seattle Plant"). On
September 1, 1999, the Company purchased a 365,000 square foot roasting and
distribution facility that it previously had leased in York County, Pennsylvania
(the "York Plant"). The Company has an option to purchase an additional parcel
of land adjacent to the York Plant until August 2001. In connection with the
purchase of the York Plant, the Company assumed loans totaling approximately
$7.7 million incurred in connection with its development. The Company also
leases a small roasting and storage facility in London, England that supports
its operations in the United Kingdom. The lease for this facility expires in
2007 unless extended by the parties.
The Company leases approximately 456,000 square feet of a building located
in Seattle, Washington for administrative offices and has options to lease
approximately 100,000 additional square feet in such building. The Company owns
2.36 acres (102,800 square feet) of undeveloped land near its administrative
offices and adjacent to the Seattle Plant, which is used for parking.
As of October 3, 1999, Starbucks operated a total of 2,135 retail stores.
All Starbucks stores are located in leased premises. The Company also leases
space in approximately 50 additional locations for regional, district and other
administrative offices, training facilities and storage, not including certain
seasonal retail storage locations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the ordinary
course of its business, but is not currently a party to any legal proceeding
which the Company believes will have a material adverse effect on the financial
position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated herein by reference
to the section entitled "Shareholder Information" in the Company's 1999 Annual
Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference
to the section entitled "Selected Financial Data" in the Company's 1999 Annual
Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference
to the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1999 Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference
to the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Risk Management" in the
Company's 1999 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to the Consolidated Financial Statements and the notes thereto in the Company's
1999 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company and compliance with
Section 16(a) of the Securities Exchange Act of 1934, as amended, is
incorporated herein by reference to the sections entitled "Proposal
1 -- Election of Directors" and "Executive Compensation -- Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on February 14, 2000
(the "Proxy Statement"). The Company intends to file the Proxy Statement within
120 days after the end of its fiscal year.
The executive officers of the Company, each of whom serves a one-year term
and until his or her successor is elected and qualified, are as follows:
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NAME AGE POSITION EXECUTIVE OFFICER SINCE
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Howard Schultz................... 46 chairman of the board and chief 1985
executive officer
Orin Smith....................... 57 director, president and chief 1990
operating officer
Paul D. Davis.................... 42 president, Retail North America 1999
Peter Maslen..................... 47 president, Starbucks Coffee 1999
International, Inc.
John B. Richards................. 51 president, North American 1997
Operations
Michael Casey.................... 54 executive vice president, chief 1995
financial officer and chief
administrative officer
E. R. (Ted) Garcia............... 52 executive vice president, Supply 1995
Chain and Coffee Operations
Deidra Wager..................... 44 executive vice president and 1993
consultant to Starbucks Coffee
International, Inc.
James Alling..................... 38 senior vice president, Business 1997
Alliances
Bruce Craig...................... 57 senior vice president, Retail 1997
Field Operations
Sharon E. Elliott................ 48 senior vice president, Human 1994
Resources
David W. Frost................... 49 senior vice president, Business 1999
Development
Deborah Gillotti................. 42 senior vice president and general 1997
manager, Starbucks X
Wanda Herndon.................... 47 senior vice president, 1996
Communications and Public Affairs
Shelley B. Lanza................. 43 senior vice president, Law and 1995
Corporate Affairs and general
counsel
Pedro Y. K. Man.................. 45 senior vice president and 1999
president, Starbucks Coffee Asia
Pacific Ltd.
David M. Olsen................... 53 senior vice president 1991
Arthur I. Rubinfeld.............. 46 senior vice president, Store 1992
Development
Engle Saez....................... 49 senior vice president, Retail 1999
Marketing and Product Management
Michael T. Sweeney............... 41 senior vice president, and 1998
president, Starbucks Coffee
Company (U.K.) Limited
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<TABLE>
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NAME AGE POSITION EXECUTIVE OFFICER SINCE
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Mark Wesley...................... 45 senior vice president, Store 1999
Development and Asset Management
Mary Williams.................... 50 senior vice president, Coffee 1997
Howard Wollner................... 46 senior vice president, 1998
Administration and Strategic
Alliance Management
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HOWARD SCHULTZ is the founder of the Company and has been chairman of the
board and chief executive officer since its inception in 1985. From 1985 to June
1994, Mr. Schultz was also the Company's president. From September 1982 to
December 1985, Mr. Schultz was the director of Retail Operations and Marketing
for Starbucks Coffee Company, a predecessor to the Company; and from January
1986 to July 1987, he was the chairman of the board, chief executive officer and
president of Il Giornale Coffee Company, a predecessor to the Company.
ORIN SMITH joined the Company in 1990 and has served as president and chief
operating officer of the Company since June 1994. Prior to June 1994, Mr. Smith
served as the Company's vice president and chief financial officer and later, as
its executive vice president and chief financial officer.
PAUL D. DAVIS joined Starbucks in March 1999 as president of Consumer
Products and was appointed to president, Retail North America in November 1999.
Prior to joining Starbucks, Mr. Davis worked with Frito-Lay, a division of
PepsiCo, Inc. for 14 years where he held several sales, marketing and general
management positions. Most recently, he served as president of Frito-Lay's
Canadian division. Prior to joining Frito-Lay, Mr. Davis held various positions
with Procter & Gamble.
PETER MASLEN joined Starbucks in August 1999 as president, Starbucks Coffee
International, Inc. Prior to joining Starbucks, Mr. Maslen served in various
executive positions with Mars Inc., PepsiCo, Inc. and most recently Tricon
Global Restaurants from 1992 to 1999, including most recently serving as the
Senior Vice President and General Manager of its Central Europe Operations.
JOHN B. RICHARDS joined the Company in September 1997 as president, Retail
North America and was appointed to president, North American Operations in
November 1999. Prior to joining the Company, Mr. Richards served as the
Executive Vice President of Four Seasons Hotels and Resorts for 10 years. Prior
to that time Mr. Richards held various positions with McKinsey & Company and
Procter & Gamble.
MICHAEL CASEY joined Starbucks in August 1995 as senior vice president and
chief financial officer and was promoted to executive vice president, chief
financial officer and chief administrative officer in September 1997. Prior to
joining Starbucks, Mr. Casey served as executive vice president and chief
financial officer of Family Restaurants, Inc. from its inception in 1986. During
his tenure there, he also served as a director from 1986 to 1993, and as
president and chief executive officer of its El Torito Restaurants, Inc.
subsidiary from 1988 to 1993.
E. R. (TED) GARCIA joined Starbucks in April 1995 as senior vice president,
Supply Chain Operations and was promoted to executive vice president, Supply
Chain and Coffee Operations in September 1997. From May 1993 to April 1995, Mr.
Garcia was an executive for Gemini Consulting. From January 1990 until May 1993,
he was the vice president of Operations Strategy for Grand Metropolitan PLC,
Food Sector.
DEIDRA WAGER joined Starbucks in 1992 and served as the Company's senior
vice president, Retail Operations from August 1993 to September 1997 when she
was promoted to executive vice president, Retail Marketing and Operations. In
March 1999, Ms. Wager moved to Tokyo, Japan to serve as a consultant to
Starbucks Coffee International, Inc. and work with Starbucks Coffee Japan
Limited. Prior to joining Starbucks, Ms. Wager held several operations positions
with Taco Bell(R), Inc. from 1988 to 1992.
JAMES ALLING joined Starbucks in September 1997 as senior vice president,
Grocery and became senior vice president, Specialty Sales and Marketing in
December 1998. From 1985 to 1997, Mr. Alling held several marketing and general
management positions for Nestle, U.S.A., including serving as the vice president
and general manager of the ground coffee division.
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BRUCE CRAIG joined Starbucks in October 1992 and served as regional and
then zone vice president for the Southwest. In September 1997, Mr. Craig was
promoted to the position of senior vice president, Retail Field Operations.
Prior to joining Starbucks, Mr. Craig served for 21 years with Burger King Corp.
in various positions, including executive vice president/division manager and as
an owner/operator.
SHARON E. ELLIOTT joined Starbucks in 1994 as senior vice president, Human
Resources. From September 1993 to June 1994, Ms. Elliott served as the corporate
director, staffing and development of Allied Signal Corporation. From July 1987
to August 1993, she held several human resources management positions with
Bristol-Myers Squibb, including serving as the director of human
resources -- corporate staff.
DAVID W. FROST joined Starbucks in July 1999 as senior vice president,
Business Development. Prior to joining Starbucks, Mr. Frost served as a managing
director of Chapman Partners and New Millenium Partners, investment and merchant
banking partnerships, from January 1998 to 1999. From December 1995 to November
1997, Mr. Frost was a managing director for KPMG. Prior to that Mr. Frost served
as vice president, Business Development for the Pillsbury Company and the Food
Sector of Grand Metropolitan PLC.
DEBORAH GILLOTTI joined Starbucks in February 1997 as senior vice president
and chief information officer. In August, 1999 she was named as senior vice
president and general manager, Starbucks X. Prior to joining Starbucks, Ms.
Gillotti served as vice president, Corporate MIS for Duracell International,
Inc. (now a division of the Gillette Company). She also held a variety of
management positions for KPMG Peat Marwick Management Consulting from 1989 to
1993 and with GTE Corporation from 1982 to 1989.
WANDA HERNDON joined Starbucks in July 1995 as vice president,
Communications and Public Affairs and was promoted to senior vice president,
Communications and Public Affairs in November 1996. From February 1990 to June
1995, Ms. Herndon held several communications management positions at DuPont
Company. From November 1978 to February 1990, Ms. Herndon held several public
affairs and marketing communications positions at Dow Chemical Company.
SHELLEY B. LANZA joined Starbucks in June 1995 as senior vice president,
Law and Corporate Affairs and general counsel. From 1986 to 1995, Ms. Lanza
served as vice president and general counsel of Honda of America Manufacturing,
Inc. From 1982 to 1986, Ms. Lanza practiced law at the law firm of Vorys, Sater,
Seymour and Pease in Columbus, Ohio.
PEDRO Y. K. MAN joined Starbucks in April 1999 as senior vice president and
president of Starbucks Coffee Asia Pacific Ltd. Prior to joining Starbucks, Mr.
Man spent over eight years with the Pillsbury Company developing and managing
the Haagen Dazs business in Asia. During that time, Mr. Man served in a number
of positions with Haagen Dazs Far East Limited, most recently serving as vice
president, Haagen Dazs, Asia Pacific.
DAVID M. OLSEN joined Starbucks in 1986 and served as the Company's senior
vice president, Coffee from September 1991 to October 1997. From November 1987
to September 1991, Mr. Olsen served as vice president, Coffee, and from February
1986 to November 1987, he served as the Company's director of training.
ARTHUR I. RUBINFELD joined the Company in 1992 as senior vice president,
Real Estate. From April 1986 to May 1992, Mr. Rubinfeld served as a managing
partner of Epsteen & Associates, a commercial real estate company.
ENGLE SAEZ joined the Company in October 1999 as senior vice president of
Marketing and Product Management. Prior to joining the Company, Mr. Saez spent
five years as president and CEO of The AtlanticRancher Company, Inc., a direct
mail and Internet marketer of upscale, premium quality apparel, footwear and
accessories. Prior to that time, Mr. Saez held senior management positions with
Stride Rite Corporation, Phillips Van Heusen and The Timberland Company.
MICHAEL T. SWEENEY joined the Company in November 1998 as senior vice
president, International. In August 1999, Mr. Sweeney also was named as the
president of Starbucks Coffee Company (UK) Limited. Prior to joining Starbucks,
Mr. Sweeney served from September 1995 to November 1998 as the President of
10
<PAGE> 11
Minnesota Pizza Company, a franchise of Papa Johns, International, which
operated 37 locations. From May 1992 to July 1995, Mr. Sweeney served as the
President of Blockbuster Mid-America, a franchisee of Blockbuster Entertainment,
Inc. that operated 35 locations.
MARK WESLEY joined Starbucks in September 1993 as the real estate manager
for the Southwest Zone and was promoted in September 1994 to director of
Development for the Southwest Zone. In October 1997, Mr. Wesley was promoted to
vice president, Store Development and Asset Management -- Western Region and in
November 1999 he was promoted to his current position, senior vice president,
Store Development and Asset Management.
MARY WILLIAMS joined Starbucks in March 1993 as vice president, Green
Coffee and was promoted to senior vice president, Coffee in October 1997. From
May 1988 to March 1993, Ms. Williams served as president of Klein Bros.
International, Coffee Division.
HOWARD WOLLNER joined Starbucks in January 1992 as vice president,
Administration and was promoted to senior vice president, Administration and
Strategic Alliance Management in October 1998. Prior to joining Starbucks, Mr.
Wollner was executive vice president of Watts Silverstein Associates from July
1990 to July 1991. From 1977 to 1990, Mr. Wollner was associated with Carroon &
Black Corporation where he was president of the Seattle office of C&B Consulting
Group, an employee benefits consulting firm.
There are no family relationships between any directors or executive
officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
section entitled "Executive Compensation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section entitled "Beneficial Ownership of Common Stock" in the Company's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
section entitled "Executive Compensation -- Certain Transactions" in the
Company's Proxy Statement.
11
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on
Form l0-K:
1. Financial Statements.
The following financial statements are incorporated by reference in
Part II, Item 8 of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of October 3, 1999 and September 27,
1998;
Consolidated Statements of Earnings for the fiscal years ending October
3, 1999, September 27, 1998 and September 28, 1997;
Consolidated Statements of Cash Flows for the fiscal years ending
October 3, 1999, September 27, 1998 and September 28, 1997;
Consolidated Statements of Shareholders' Equity for the fiscal years
ending October 3, 1999, September 27, 1998 and September 28, 1997;
Notes to Consolidated Financial Statements; and
Independent Auditors' Report.
2. Financial Statement Schedules.
Financial statement schedules are omitted because they are not
required or are not applicable, or the required information is provided in
the consolidated financial statements or notes thereto described in Item
14(a)(1) above.
3. Exhibits.
The Exhibits listed below and on the accompanying Index to Exhibits
immediately following the signature page hereto are filed as part of, or
incorporated by reference into, this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Starbucks Corporation
(incorporated herein by reference to Exhibit 3. 1 to the
Company's Form 10-Q for the fiscal quarter ended March 31,
1996, filed with the SEC on May 15, 1996)
3.1.1 Amendment dated November 22, 1995 to the Restated Articles
of Incorporation of Starbucks Corporation (incorporated
herein by reference to Exhibit 3.1.1 to the Company's Form
10-Q for the fiscal quarter ended March 31, 1996, filed with
the SEC on May 15, 1996)
3.1.2 Amendment dated March 18, 1996 to the Restated Articles of
Incorporation of Starbucks Corporation (incorporated herein
by reference to Exhibit 3.1.2 to the Company's Form 10-Q for
the quarterly period ended March 31, 1996, filed with the
SEC on May 15, 1996)
3.1.3 Amendment dated March 4, 1999 to the Restated Articles of
Incorporation of Starbucks Corporation (incorporated herein
by reference to Exhibit 3(i) to the Company's Form 10-Q for
the quarterly period ended March 28, 1999, filed with the
SEC on May 12, 1990)
3.2 Amended and Restated Bylaws of Starbucks Corporation
(incorporated herein by reference to Exhibit 3.2 to the
Company's Form 10-Q for the fiscal quarter ended March 31,
1996, filed with the SEC on May 15, 1996)
10.1 Starbucks Corporation Key Employee Stock Option Plan -- 1994
(incorporated herein by reference to Appendix A to the
Company's 1994 Proxy Statement filed with the SEC on
December 23, 1994)*
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.1.1 Starbucks Corporation Key Employee Stock Option
Plan -- 1994, as amended (incorporated herein by reference
to Exhibit 10.1.1 to the Company's Form 10-K for the fiscal
year ended September 29, 1996, filed with the SEC on
December 26, 1996)*
10.2 Starbucks Corporation Amended and Restated 1989 Stock Option
Plan for Non-Employee Directors (incorporated herein by
reference to Appendix A to the Company's Proxy Statement
filed with the SEC on January 13, 1999)*
10.3 Starbucks Corporation 1991 Company-Wide Stock Option Plan,
as amended (incorporated herein by reference to the
Company's Registration Statement No. 33-52528 on Form S-8,
filed with the SEC on September 28, 1992)*
10.3.1 Starbucks Corporation 1991 Company-Wide Stock Option Plan,
as amended (incorporated by reference to Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 29, 1996, filed with the SEC on December 26,
1996)*
10.4 Starbucks Corporation Employee Stock Purchase Plan -- 1995
(incorporated herein by reference to Appendix C to the
Company's 1994 Proxy Statement filed with the SEC on
December 23, 1994)*
10.5 Industrial Lease, dated March 31, 1989, between Starbucks
Corporation and the City of Seattle (successor in interest
to David A. Sabey and Sandra L. Sabey) (incorporated herein
by reference to Exhibit 10.4 to the Company's Registration
Statement No. 33-47951 on Form S-1, filed with the SEC on
May 15, 1992)
10.6 Office Lease, dated as of July 15, 1993, between First and
Utah Street Associates, L.P. and Starbucks Corporation
(incorporated herein by reference to Exhibit 10.17 to the
Company's Form 10-K for the Fiscal Year ended October 3,
1993, filed with the SEC on December 30, 1993)
10.6.1 Second Amendment to Office Lease, dated as of January 1,
1995, between First & Utah Street Associates, L.P. and
Starbucks Corporation (incorporated herein by reference to
the Company's Registration Statement No. 33-93974 on Form
S-3, filed with the SEC on June 27, 1995)
10.6.2 Third Amendment to Office Lease, dated as of September 30,
1995, between First and Utah Street Associates, L.P. and
Starbucks Corporation (incorporated herein by reference to
Exhibit 10.19 to the Company's Form 10-K for the fiscal year
ended October l, 1995, filed with the SEC on December 28,
1995)
10.7 Development Agreement, dated as of February 11, 1994,
between Starbucks Corporation and Host International, Inc.
(incorporated herein by reference to Exhibit 10.18 to the
Company's Form 10-K for the Fiscal Year ended October 2,
1994, filed with the SEC on December 23, 1994)
10.8 Special Warranty Deed, dated March 7, 1994, between Kent
North Corporate Park, as grantor and Starbucks Corporation,
as grantee (incorporated herein by reference to Exhibit
10.14 to the Company's Form 10-K for the Fiscal Year ended
October 2, 1994, filed with the SEC on December 23, 1994)
10.9 Joint Venture and Partnership Agreement, dated August 10,
1994, between Pepsi-Cola Company, a division of PepsiCo,
Inc., and Starbucks New Venture Company (incorporated herein
by reference to Exhibit 10 to the Company's Form 10-Q for
the Quarterly Period ended July 3, 1994, filed with the SEC
on August 16, 1994)
10.10 Lease, dated August 22, 1994, between York County Industrial
Development Corporation and Starbucks Corporation
(incorporated herein by reference to Exhibit l0 to the
Company's Form 10-Q for the Quarterly Period Ended July 2,
1995, filed with the SEC on August 15, 1995)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.14 Master Licensing Agreement between the Company and ARAMARK
Food and Services Group, Inc. dated as of January 30, 1996,
as amended and restated May 7, 1996 (incorporated herein by
reference to Exhibit 10.23 to the Company's Form l0-Q for
the Quarterly Period Ended March 31, 1996, filed with the
SEC on May 15, 1996)
10.15 Starbucks Corporation Executive Management Bonus Plan*
10.16 Starbucks Corporation Management Deferred Compensation Plan
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 filed with the
SEC on January 1, 1998)*
10.17 Starbucks Corporation 1997 Deferred Stock Plan*
11 Computation of Per Share Earnings
13 Portions of the 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of the fiscal year ended October 3, 1999.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
STARBUCKS CORPORATION
By: /s/ HOWARD SCHULTZ
------------------------------------
Howard Schultz
chairman of the Board of Directors
and
chief executive officer
December 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HOWARD SCHULTZ chairman of the Board of December 13, 1999
- ----------------------------------------------------- Directors and chief
Howard Schultz executive officer
/s/ ORIN C. SMITH director, president and December 10, 1999
- ----------------------------------------------------- chief operating Officer
Orin C. Smith
/s/ MICHAEL CASEY executive vice president, December 13, 1999
- ----------------------------------------------------- chief financial officer and
Michael Casey chief administrative officer
(principal financial officer
and principal accounting
officer)
/s/ BARBARA BASS director December 13, 1999
- -----------------------------------------------------
Barbara Bass
/s/ HOWARD BEHAR director December 10, 1999
- -----------------------------------------------------
Howard Behar
/s/ CRAIG J. FOLEY director December 13, 1999
- -----------------------------------------------------
Craig J. Foley
/s/ GREGORY B. MAFFEI director December 13, 1999
- -----------------------------------------------------
Gregory B. Maffei
/s/ ARLEN I. PRENTICE director December 13, 1999
- -----------------------------------------------------
Arlen I. Prentice
/s/ JAMES G. SHENNAN, JR. director December 10, 1999
- -----------------------------------------------------
James G. Shennan, Jr.
/s/ CRAIG E. WEATHERUP director December 14, 1999
- -----------------------------------------------------
Craig E. Weatherup
</TABLE>
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Starbucks Corporation
(incorporated herein by reference to Exhibit 3. 1 to the
Company's Form 10-Q for the fiscal quarter ended March 31,
1996, filed with the SEC on May 15, 1996)
3.1.1 Amendment dated November 22, 1995 to the Restated Articles
of Incorporation of Starbucks Corporation (incorporated
herein by reference to Exhibit 3.1.1 to the Company's Form
10-Q for the fiscal quarter ended March 31, 1996, filed with
the SEC on May 15, 1996)
3.1.2 Amendment dated March 18, 1996 to the Restated Articles of
Incorporation of Starbucks Corporation (incorporated herein
by reference to Exhibit 3.1.2 to the Company's Form 10-Q for
the quarterly period ended March 31, 1996, filed with the
SEC on May 15, 1996)
3.1.3 Amendment dated March 4, 1999 to the Restated Articles of
Incorporation of Starbucks Corporation (incorporated herein
by reference to Exhibit 3(i) to the Company's Form 10-Q for
the quarterly period ended March 28, 1999, filed with the
SEC on May 12, 1990)
3.2 Amended and Restated Bylaws of Starbucks Corporation
(incorporated herein by reference to Exhibit 3.2 to the
Company's Form 10-Q for the fiscal quarter ended March 31,
1996, filed with the SEC on May 15, 1996)
10.1 Starbucks Corporation Key Employee Stock Option Plan -- 1994
(incorporated herein by reference to Appendix A to the
Company's 1994 Proxy Statement filed with the SEC on
December 23, 1994)*
10.1.1 Starbucks Corporation Key Employee Stock Option
Plan -- 1994, as amended (incorporated herein by reference
to Exhibit 10.1.1 to the Company's Form 10-K for the fiscal
year ended September 29, 1996, filed with the SEC on
December 26, 1996)*
10.2 Starbucks Corporation Amended and Restated 1989 Stock Option
Plan for Non-Employee Directors (incorporated herein by
reference to Appendix A to the Company's Proxy Statement
filed with the SEC on January 13, 1999)*
10.3 Starbucks Corporation 1991 Company-Wide Stock Option Plan,
as amended (incorporated herein by reference to the
Company's Registration Statement No. 33-52528 on Form S-8,
filed with the SEC on September 28, 1992)*
10.3.1 Starbucks Corporation 1991 Company-Wide Stock Option Plan,
as amended (incorporated by reference to Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 29, 1996, filed with the SEC on December 26,
1996)*
10.4 Starbucks Corporation Employee Stock Purchase Plan -- 1995
(incorporated herein by reference to Appendix C to the
Company's 1994 Proxy Statement filed with the SEC on
December 23, 1994)*
10.5 Industrial Lease, dated March 31, 1989, between Starbucks
Corporation and the City of Seattle (successor in interest
to David A. Sabey and Sandra L. Sabey) (incorporated herein
by reference to Exhibit 10.4 to the Company's Registration
Statement No. 33-47951 on Form S-1, filed with the SEC on
May 15, 1992)
10.6 Office Lease, dated as of July 15, 1993, between First and
Utah Street Associates, L.P. and Starbucks Corporation
(incorporated herein by reference to Exhibit 10.17 to the
Company's Form 10-K for the Fiscal Year ended October 3,
1993, filed with the SEC on December 30, 1993)
10.6.1 Second Amendment to Office Lease, dated as of January 1,
1995, between First & Utah Street Associates, L.P. and
Starbucks Corporation (incorporated herein by reference to
the Company's Registration Statement No. 33-93974 on Form
S-3, filed with the SEC on June 27, 1995)
10.6.2 Third Amendment to Office Lease, dated as of September 30,
1995, between First and Utah Street Associates, L.P. and
Starbucks Corporation (incorporated herein by reference to
Exhibit 10.19 to the Company's Form 10-K for the fiscal year
ended October l, 1995, filed with the SEC on December 28,
1995)
10.7 Development Agreement, dated as of February 11, 1994,
between Starbucks Corporation and Host International, Inc.
(incorporated herein by reference to Exhibit 10.18 to the
Company's Form 10-K for the Fiscal Year ended October 2,
1994, filed with the SEC on December 23, 1994)
10.8 Special Warranty Deed, dated March 7, 1994, between Kent
North Corporate Park, as grantor and Starbucks Corporation,
as grantee (incorporated herein by reference to Exhibit
10.14 to the Company's Form 10-K for the Fiscal Year ended
October 2, 1994, filed with the SEC on December 23, 1994)
10.9 Joint Venture and Partnership Agreement, dated August 10,
1994, between Pepsi-Cola Company, a division of PepsiCo,
Inc., and Starbucks New Venture Company (incorporated herein
by reference to Exhibit 10 to the Company's Form 10-Q for
the Quarterly Period ended July 3, 1994, filed with the SEC
on August 16, 1994)
10.10 Lease, dated August 22, 1994, between York County Industrial
Development Corporation and Starbucks Corporation
(incorporated herein by reference to Exhibit l0 to the
Company's Form 10-Q for the Quarterly Period Ended July 2,
1995, filed with the SEC on August 15, 1995)
10.14 Master Licensing Agreement between the Company and ARAMARK
Food and Services Group, Inc. dated as of January 30, 1996,
as amended and restated May 7, 1996 (incorporated herein by
reference to Exhibit 10.23 to the Company's Form l0-Q for
the Quarterly Period Ended March 31, 1996, filed with the
SEC on May 15, 1996)
10.15 Starbucks Corporation Executive Management Bonus Plan*
10.16 Starbucks Corporation Management Deferred Compensation Plan
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 filed with the
SEC on January 1, 1998)*
10.17 Starbucks Corporation 1997 Deferred Stock Plan*
11 Computation of Per Share Earnings
13 Portions of the 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.15
EXECUTIVE MANAGEMENT
BONUS PLAN
(AS AMENDED THROUGH NOVEMBER 15, 1999)
PLAN EFFECTIVE DATE September 30, 1996
PURPOSE The purpose of the Plan is to provide an incentive for
the achievement of Goals that support Starbucks
Strategic Plan.
TERMS AND DEFINITIONS
- - PLAN NAME The Executive Management Bonus Plan.
- - PARTICIPANTS Employees serving in positions of executive vice
president and above, as well as certain other senior
officers of the Corporation specified by the
Compensation Committee ("Participants").
- - PLAN PERIOD The Starbucks fiscal year.
- - BASE PAY The monthly pay (annual pay divided by 12) established
for the participant by Starbucks and in effect on the
last day of the Plan Period or, in the case of a
deceased or disabled Participant, on the last day of
participation in the Plan. Starbucks, in conjunction
with the Compensation Committee of the Board of
Directors ("Compensation Committee"), may at any time,
in its sole discretion, prospectively revise the
Participant's Base Pay.
- - BONUS PAYOUT The actual award (expressed in dollars) to the
Participant based on the terms of the Plan.
- - TARGET BONUS A percentage of each Participant's Base Pay as
established each year by the Compensation Committee.
- - PERFORMANCE In accordance with Section 162(m) of the Internal
MEASURES AND Revenue Code, at the beginning of each Plan Period, the
GOALS Compensation Committee selects specific measures among
Earnings Per Share, Return on Capital, Sales Growth and
Volume, and/or Return on Assets as the Objective
Performance Measure or Measures for such Plan Period.
Single or multiple Performance Measures may be selected.
Objective Performance Measures are the basis for 70% of
the total Bonus Payout.
The remaining 30% of the total Bonus Payout is based on
individual Goals with corresponding percentage weights
designed to measure a Participant's achievements.
Each Participant will develop individual Goals for
approval by the Compensation Committee against which
performance under the Plan will be measured.
ELIGIBILITY The senior vice president, Human Resources has the
authority to recommend Participants. The Compensation
Committee has the sole authority to approve Participants
who:
1) remain a Starbucks partner through the end of
the Plan Period, unless employment is
terminated prior to the end of the Plan
Period due to death or disability, and,
2) refrain from engaging during the Plan Period,
directly or indirectly, in any activity which
is competitive with any Starbucks activity.
Participation will conclude upon termination of the
Participant's employment, withdrawal of selection by the
Compensation Committee, transfer to a position
compensated otherwise than as provided in the Plan, or
termination of the Plan by Starbucks.
Starbucks may terminate the Plan or a Participant at any
time and for any reason.
<PAGE> 2
BONUS PAYOUT At the end of the Plan Period, the Compensation
DETERMINATION Committee will oversee the determination of the
Participant's Bonus Payout, as follows:
- - COMPENSATION - Determine extent to which the selected Objective
COMMITTEE MEMBERS Performance Measure or Measures and individual
Goals were achieved.
- Determine the Bonus Payout for each Participant.
The Compensation Committee may exercise its
discretion to determine that the Bonus Payout for
any Participant will be less than (but not
greater than) the amount earned by such
Participant under the Plan. The maximum Bonus
Payout pursuant to the achievement of the
Objective Performance Measure or Measures shall
be $1,000,000.
- Prorate the Bonus Payout for any partner who
becomes a Participant after the start of the Plan
Period, is on a leave of absence for a portion of
the Plan Period, or whose employment with
Starbucks is terminated prior to the end of the
Plan Period because of disability or death.
A prorated Bonus Payout will be calculated by
multiplying the number of full months during
which the Participant participated in the Plan
during the Plan Period. Credit will be given for
a full month if the Participant is eligible for
15 or more calendar days during that month.
- - SENIOR VICE - Review the Bonus Payout against the Plan.
PRESIDENT, HUMAN
RESOURCES
- - PAYROLL - Prepare bonus checks for distribution.
BONUS PAYOUT - The Bonus Payout will be made as soon as
administratively feasible and is expected to be
approximately 45 to 60 days after the end of the
Plan Period.
- No amount is due and owing before the Bonus Payout has
been determined.
- The Bonus Payout will be granted to Participants in
cash separate from, and not added to, Base Pay.
- The Bonus Payout will be taxed at the flat IRS rate
plus applicable state and local rates for bonus
payments.
ADMINISTRATION The Plan is administered by the senior vice president
Human Resources in conjunction with the Compensation
Committee. In the event of a dispute regarding the Plan,
the Participant may seek resolution through the senior
vice president Human Resources and the Compensation
Committee.
TERMINATION OF The Plan is not a contract of employment for any period
EMPLOYMENT of time. The Participant may resign or be terminated at
any time for any or no reason. Employment and
termination of employment are governed by Starbucks
policy and not by the Plan.
REVISIONS TO THE PLAN The Plan will be reviewed by the senior vice president
Human Resources and the Compensation Committee on a
periodic basis for revisions. Starbucks reserves the
right at its discretion with or without notice, to
review, change amend or cancel the Plan, at any time.
<PAGE> 1
EXHIBIT 10.17
STARBUCKS CORPORATION
1997 DEFERRED STOCK PLAN
1. The Plan. The purpose of this Starbucks Corporation 1997 Deferred
Stock Plan (the "Deferred Stock Plan") is to assist a select group of key
employees in maintaining their level of ownership of the common stock, no par
value per share (the "Common Stock"), of Starbucks Corporation (the "Company")
by providing a way to defer the proceeds from exercises of stock options granted
under the Company's Amended and Restated 1985 Stock Option Plan, the Company's
Key Employee Stock Option Plan - 1994 and such other stock option plan or plans
as may be in effect from time to time (the "Stock Option Plans"). The Deferred
Stock Plan is an unfunded liability of the Company for federal income tax
purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Participants in the Deferred Stock Plan are
general unsecured creditors of the Company with respect to assets held by the
Company pursuant to this Deferred Stock Plan.
2. Definitions. Capitalized terms used but not otherwise defined in the
Deferred Stock Plan shall have the meanings set forth below:
"Board" shall mean the Board of Directors of Starbucks Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock Unit" shall mean a derivative security of the Company
entitling the holder thereof to receive (i) at the time of the payment of any
cash or stock dividend by the Company on its Common Stock (other than a stock
dividend effectuating a stock split), that amount of cash or that number of
shares distributed to the holder of a share of Common Stock and (ii) at the time
of payment of Proceeds pursuant to the terms hereof and any Election Form, one
share of Common Stock.
"Compensation Committee" shall mean the Compensation Committee of the
Board of Directors of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exercise Price" shall mean the exercise price of Options granted under
the Stock Option Plans as set forth in the stock option grant agreement relating
to such Options.
"Fair Market Value" shall mean the closing bid price of the Company's
Common Stock on the national exchange, over-the-counter or other stock market on
which the Company is listed on the specified day and, if such day is not a
trading day on such exchange or stock market, the closing price on the prior
trading day. If the Company's Common Stock ceases to be publicly traded on a
national exchange or stock market, the Fair Market Value shall be determined by
the Board.
"Mature Shares" shall mean shares of the Company's Common Stock owned by
a Participant for six months or more at the time of the exercise of Options.
"Options" shall mean all of the non-qualified stock options granted
pursuant to a specific grant under one of the Company's Stock Option Plans. Such
Options must be fully exercisable pursuant to the terms of the applicable Stock
Option Plan and the stock option grant agreement pertaining to such Options.
"Participants" shall mean those persons designated by the Compensation
Committee of the Board as participants in this Deferred Stock Plan.
"Proceeds" shall mean the proceeds of an exercise of Options. In the
event of an exercise with the payment of the Exercise Price in cash, such
proceeds shall be the number of shares of Common Stock subject to Options being
exercised. In the event of an exercise pursuant to the tender of or attestation
to previously acquired shares of Common Stock, the proceeds shall be the number
of shares of Common Stock subject to such Options, less the number of shares of
Common Stock with a value equal to the aggregate Exercise Price payable to the
Company
<PAGE> 2
upon exercise of the Options. For purposes of determining the Proceeds, the
number of shares of Common Stock with a value equal to the aggregate Exercise
Price shall be determined by dividing the aggregate Exercise Price of the
Options by the Fair Market Value of a share of Common Stock on the date of
exercise, and rounding down to the next lowest whole number.
"Securities Act" shall mean the Securities Act of 1933, as amended.
3. Administration of the Plan. The Deferred Stock Plan shall be
administered by the Compensation Committee which shall, in its sole discretion,
determine the persons who may participate in and the terms and conditions of
deferrals under the Deferred Stock Plan. The Compensation Committee shall have
the authority to interpret the Deferred Stock Plan and to adopt from time to
time such guidelines, rules, agreements and documents for the administration of
the Deferred Stock Plan as it deems necessary or appropriate.
4. Deferral of Proceeds of Stock Option Exercises. A Participant may
elect to defer the receipt of Proceeds of the exercise of Options by executing
and delivering a deferral election form, substantially in the form attached
hereto as Exhibit A and subject to the conditions hereinafter set forth (an
"Election Form"), to the chairman of the Compensation Committee and delivering a
copy thereof to the general counsel of the Company. Such election to defer
receipt of the Proceeds pursuant to this Deferred Stock Plan shall be
irrevocable. The Election Form must be received by the Chairman of the
Compensation Committee and a copy must be received by the general counsel at
least six months prior to the date that the Options will be exercised (or such
shorter period as may be approved in advance by the Compensation Committee).
5. Duration of Deferral. The Election Form must specify the time period
during which receipt of the Proceeds is deferred. Such period must be at least
five years from the date of exercise of the Options, but may be longer at the
discretion of the Participant. A Participant may extend the deferral period
relating to Options previously deferred by executing and delivering an addition
Election Form with respect to such Options to the chairman of the Compensation
Committee and the general counsel of the Company at any time up to one year
before the previous deferral expires.
6. Exercise of Options. Participants shall exercise Options by
delivering a Notice of Exercise to Human Resources - Stock Administration prior
to the date of exercise of the Options. Such notice shall either (i) be
accompanied by a check in payment of the aggregate Exercise Price of the Options
or (ii) shall request an exercise of such Options pursuant to the tender of or
attestation to the ownership of previously acquired shares of Common Stock and
contain an attestation by the Participant that he or she owns Mature Shares with
a value equal to or greater than the aggregate Exercise Price of the Options.
7. Payment of Proceeds. Unless otherwise specified in the Election Form
pertaining to the Options and their Proceeds, upon the expiration of the
deferral period, the Company shall pay the Proceeds to the Participant in one
payment by issuing shares of Common Stock. Participants may elect to receive the
Proceeds in several payments over a number of years or may elect to receive that
portion of the Proceeds having a specified value in several payments over a
number of years by specifying the desired payment terms in the Election Form.
Notwithstanding any election by the Participant, in the event of the
Participant's death, the Committee shall promptly determine, in its sole
discretion after consideration of the tax and other consequences of such
decision, whether to pay the Proceeds into the Participant's estate immediately
or to defer payment in accordance with the terms specified in the Election Form.
A Participant may specify in his or her Election Form that payment of the
Proceeds shall be made to a designated beneficiary or beneficiaries upon his or
her death.
8. Payment of Proceeds in Special Circumstances. Notwithstanding any
election made by a Participant and the terms thereof, upon (i) any occurrence
causing a Participant to become substantially or completely disabled or (ii) the
occurrence of an unforeseeable emergency beyond the reasonable control of a
Participant that causes or threatens to cause severe financial hardship to a
Participant or his or her family if early withdrawal of Proceeds is not
permitted, then, at the request of such Participant the Committee may, in its
sole discretion, approve the payment of the Proceeds prior to the expiration of
the deferral period specified in the Election Form pertaining to specified
Options and the Proceeds thereof. Any early payment of Proceeds shall be limited
to the amount reasonably necessary to meet the emergency.
<PAGE> 3
9. Deferred Compensation Account. Upon the exercise by a Participant
pursuant to Section 6 hereof of Options subject to an Election Form, the Company
shall establish a deferred compensation account for such Participant. The
Company shall issue and credit to such account the number of Common Stock Units
equal to the number of shares of Common Stock constituting the Proceeds. If the
Company declares and pays cash or stock dividends on its Common Stock (other
than a stock dividend effectuating a stock split) the Company shall pay such
dividends to the Participant directly. In the event of a stock split or reverse
stock split, the number of Common Stock Units in each Participant's account
shall be adjusted appropriately. In the event of a merger or other corporate
event effecting a payment for or exchange of the Company's outstanding
securities, Common Stock Units shall be treated as if they were shares of Common
Stock owned by the Participant, except that the Compensation Committee shall
determine, in its sole discretion and on an individual Participant basis,
whether such payments or shares received in exchange for the Company's Common
Stock shall be subject to the terms of the Election Form pertaining to the
Options and Proceeds thereof reflected as Common Stock Units in each
Participant's deferred compensation account. Upon the expiration of a deferral
period specified by a Participant in an Election Form, or upon the date
specified for a partial payment of the Proceeds by a Participant in an Election
Form, the number of Common Stock Units in a Participant's account shall be
reduced by the number of shares of Common Stock issued to the Participant in
payment of the Proceeds.
10. Tax Withholding upon Payment. Prior to the date of any payment of
Proceeds, a Participant shall arrange for the payment of required tax
withholdings for federal, state and local income taxes and any other applicable
taxes by either delivering such tax withholding amounts to the Company or by
authorizing the Company to withhold shares of Common Stock with a value equal to
such tax withholdings from the payment of the Proceeds.
11. Assignment of Deferred Compensation Account. A Participant may not
sell, transfer, assign, pledge or otherwise encumber the balance in his or her
deferred compensation account. A Participant may, however, specify in his or her
Election Form a beneficiary or beneficiaries to receive the Proceeds upon his or
her death.
12. Amendment or Termination of the Plan. The Compensation Committee may
modify or amend this Deferred Stock Plan at any time; provided, however, that no
modification or amendment may adversely affect deferrals made prior to the date
thereof without the written consent of the affected Participant. The
Compensation Committee may also terminate the Deferred Stock Plan, but such
termination shall not affect the Company's obligations to pay Proceeds to
Participants pursuant to any deferral made prior to the effective date of such
termination.
13. Governing Law. This Deferred Stock Plan shall be governed by federal
laws and the laws of the State of Washington.
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
October 3, September 27, September 28,
1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALCULATION OF NET EARNINGS
PER COMMON SHARE - BASIC
Net earnings $101,693 $ 68,372 $ 55,211
- ----------------------------------------------------------------------------------------------
Weighted average common shares
and common stock units outstanding 181,842 176,110 159,289
- ----------------------------------------------------------------------------------------------
Net earnings per common share - basic $ 0.56 $ 0.39 $ 0.35
- ----------------------------------------------------------------------------------------------
CALCULATION OF NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE - DILUTED: (1)
Net earnings calculation:
Net earnings $101,693 $ 68,372 $ 55,211
Add after-tax interest
expense on debentures -- 348 4,300
Add after-tax amortization of issuance
costs related to the debentures -- 30 354
- ----------------------------------------------------------------------------------------------
Adjusted net earnings $101,693 $ 68,750 $ 59,865
- ----------------------------------------------------------------------------------------------
Weighted average shares outstanding calculation:
Weighted average common shares and common
stock units outstanding 181,842 176,110 159,289
Dilutive effect of outstanding common
stock options 6,689 6,257 6,833
Assuming conversion of convertible
subordinated debentures -- 1,404 14,195
- ----------------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 188,531 183,771 180,317
- ----------------------------------------------------------------------------------------------
Net earnings per common and common
equivalent share - diluted $ 0.54 $ 0.37 $ 0.33
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Diluted earnings per share assumes conversion of the Company's
formerly outstanding convertible subordinated debentures using the "if
converted" method when such securities were dilutive, with income
adjusted for the after-tax interest expense and amortization applicable
to these debentures.
<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL DATA
In thousands, except earnings per share and store operating data
The following selected financial data have been derived from the consolidated
financial statements of the Company. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto.
<TABLE>
<CAPTION>
As of and for the OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997 SEPT 29, 1996 OCT 1, 1995
fiscal year ended(1) (53 Wks) (52 Wks) (52 Wks) (52 Wks) (52 Wks)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA
Net Revenues
Retail $1,423,389 $1,102,574 $836,291 $601,458 $402,655
Specialty(2) 256,756 206,128 139,098 96,414 62,558
- ----------------------------------------------------------------------------------------------------------------------------
Total net revenues 1,680,145 1,308,702 975,389 697,872 465,213
Merger expenses(3) -- 8,930 -- -- --
Operating income 156,711 109,216 86,199 56,575 40,116
Gain on sale of investment(4) -- -- -- 9,218 --
Net earnings $ 101,693 $ 68,372 $ 55,211 $ 41,710 $ 26,102
Net earnings per common
share -- diluted(5) $ 0.54 $ 0.37 $ 0.33 $ 0.27 $ 0.18
Cash dividends per share -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 134,903 $ 157,805 $172,079 $239,365 $134,304
Total assets 1,252,514 992,755 857,152 729,227 468,178
Long-term debt
(including current portion) 9,057 1,803 168,832 167,980 81,773
Shareholders' equity 961,013 794,297 533,710 454,050 312,231
- ----------------------------------------------------------------------------------------------------------------------------
STORE OPERATING DATA
Percentage change
in comparable store sales(6) 6% 5% 5% 7% 9%
Stores open at year-end
Continental North America
Company-operated stores 2,038 1,622 1,270 929 627
Licensed stores 179 133 94 75 49
International
Company-operated stores --
United Kingdom 97 66 31 9 1
Licensed stores 184 65 17 2 --
- ----------------------------------------------------------------------------------------------------------------------------
Total stores 2,498 1,886 1,412 1,015 677
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company's fiscal year ends on the Sunday closest to September 30.
Fiscal year 1999 included 53 weeks and fiscal years 1995 to 1998 each
included 52 weeks.
(2) Specialty revenues include product sales to and royalties and fees from
the Company's licensees.
(3) Merger expenses relate to the business combination with Seattle Coffee
Holdings Limited in fiscal 1998.
(4) Gain on sale of investment relates to the sale of Noah's New York
Bagels, Inc. stock in fiscal 1996.
(5) Earnings per share is based on the weighted average number of shares
outstanding during the period plus common stock equivalents consisting
of certain shares subject to stock options. In addition, the
presentation of diluted earnings per share assumes conversion of the
Company's formerly outstanding convertible subordinated debentures using
the "if converted" method when such securities were dilutive, with net
income adjusted for the after-tax interest expense and amortization
applicable to these debentures. Earnings per share data for fiscal years
1995 through 1998 have been restated to reflect the two-for-one stock
splits in fiscal 1999 and 1996.
(6) Includes only Company-operated stores open 13 months or longer.
<PAGE> 2
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements set forth in this Annual Report, including anticipated store
openings, planned capital expenditures and trends in or expectations regarding
the Company's operations, specifically including the effect of problems
associated with the Year 2000, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on currently available operating, financial and competitive
information and are subject to various risks and uncertainties. Actual future
results and trends may differ materially depending on a variety of factors,
including, but not limited to, coffee and other raw materials prices and
availability, successful execution of internal performance and expansion plans,
the impact of competition, the effect of legal proceedings and other risks
detailed herein and in the Company's annual and quarterly filings with the
Securities and Exchange Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Starbucks presently derives approximately 85% of net revenues from its
Company-operated retail stores. The remaining 15% of net revenues is derived
from the Company's specialty operations, which include sales to wholesale
accounts and licensees, royalty and license fee income and sales through its
direct-to-consumer business and its on-line store at www.starbucks.com. The
Company's fiscal year ends on the Sunday closest to September 30. Fiscal year
1999 had 53 weeks, and fiscal years 1998 and 1997 each had 52 weeks. The fiscal
year ending on October 1, 2000, will include 52 weeks.
The Company's net revenues increased from $1.3 billion in fiscal 1998 to $1.7
billion in fiscal 1999, due primarily to the Company's store expansion program
and comparable store sales increases. Comparable store sales increased by 6%, 5%
and 5% in fiscal 1999, 1998 and 1997, respectively. As part of its expansion
strategy of clustering stores in existing markets, Starbucks has experienced a
certain level of cannibalization of existing stores by new stores as store
concentration has increased. However, management believes such cannibalization
has been justified by the incremental sales and return on new store investments.
This cannibalization, as well as increased competition and other factors, may
continue to put downward pressure on the Company's comparable store sales growth
in future periods.
The following table sets forth the percentage relationship to total net
revenues, unless otherwise indicated, of certain items included in the Company's
consolidated statements of earnings:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
(53 Wks) (52 Wks) (52 Wks)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF EARNINGS DATA
Net revenues
Retail 84.7% 84.2% 85.7%
Specialty 15.3 15.8 14.3
- ----------------------------------------------------------------------------------------------------------
Total net revenues 100.0 100.0 100.0
Cost of sales and related occupancy costs 44.1 44.2 44.8
- ----------------------------------------------------------------------------------------------------------
Gross margin 55.9 55.8 55.2
Store operating expenses(1) 38.2 38.0 37.6
Other operating expenses(2) 20.0 21.1 20.3
Depreciation and amortization 5.8 5.5 5.4
General and administrative expenses 5.3 5.9 5.9
Merger expenses 0.0 0.7 0.0
Operating income 9.3 8.3 8.8
Interest and other income 0.5 0.7 1.3
Interest and other expense (0.0) (0.1) (0.7)
- ----------------------------------------------------------------------------------------------------------
Earnings before income taxes 9.8 8.9 9.4
Income taxes 3.7 3.7 3.7
- ----------------------------------------------------------------------------------------------------------
Net earnings 6.1 % 5.2% 5.7 %
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shown as a percentage of retail revenues.
(2) Shown as a percentage of specialty revenues.
<PAGE> 3
BUSINESS COMBINATIONS
During the second quarter of fiscal 1999, Starbucks acquired the net assets of
Tazo, L.L.C. ("Tazo"), a Portland, Oregon-based tea company that produces
premium tea products, and Pasqua Inc. ("Pasqua"), a San Francisco,
California-based roaster and retailer of specialty coffee. Both of these
acquisitions were accounted for under the purchase method of accounting. The
results of operations for Tazo and Pasqua are included in the accompanying
consolidated financial statements from the dates of acquisition. During the
third quarter of fiscal 1998, Starbucks acquired the United Kingdom-based
Seattle Coffee Holdings Limited ("Seattle Coffee Company") in a
pooling-of-interests transaction (the "Transaction"). In conjunction with the
Transaction, Starbucks recorded pre-tax charges of $8.9 million in direct merger
costs and $6.6 million in other charges associated with the integration of
Seattle Coffee Company. The historical financial statements for the periods
prior to the Transaction were restated as though the companies had always been
combined.
RESULTS OF OPERATIONS -- FISCAL 1999 COMPARED TO FISCAL 1998
REVENUES
Net revenues increased 28% to $1.7 billion for fiscal 1999, compared to $1.3
billion for fiscal 1998. Retail sales increased 29% to $1.4 billion from $1.1
billion. The increase in retail sales was due to the addition of new
Company-operated stores, comparable store sales growth of 6% and sales for the
53rd week of the fiscal year. Comparable store sales percentages have been
calculated excluding the 53rd week of fiscal 1999. The increase in comparable
store sales resulted from a 5% increase in the number of transactions and a 1%
increase in the average dollar value per transaction. During fiscal 1999, the
Company opened 424 stores in continental North America and 36 stores in the
United Kingdom. As of fiscal year-end, there were 2,038 Company-operated stores
in continental North America and 97 in the United Kingdom. During fiscal 2000,
the Company expects to open at least 350 Company-operated stores in North
America and 50 in the United Kingdom.
Specialty revenues increased 25% to $257 million for fiscal 1999 from $206
million for fiscal 1998. The increase was driven primarily by higher sales to
licensees and joint ventures and business dining customers. Licensees (including
those in which the Company is a joint venture partner) opened 44 stores in
continental North America and 121 stores in international markets. The Company
ended the year with 179 licensed stores in continental North America and 184
licensed stores in international markets. During fiscal 2000, the Company
expects to open at least 200 licensed stores.
GROSS MARGIN
Gross margin increased to 55.9% for fiscal 1999 from 55.8% in fiscal 1998. The
positive impact on gross margin of lower green coffee costs was partially offset
by lower gross margins associated with a change in the Company's strategy for
the grocery channel. In late fiscal 1998, the Company signed a long-term
licensing agreement with Kraft Foods, Inc. ("Kraft") to handle the U.S.
distribution, marketing and advertising for Starbucks whole bean and ground
coffee in grocery, warehouse club and mass merchandise stores. The transition to
Kraft occurred in the first quarter of fiscal 1999.
<PAGE> 4
EXPENSES
Store operating expenses as a percentage of retail sales increased to 38.2% for
fiscal 1999 from 37.5% for fiscal 1998, excluding costs associated with the
Transaction. This was due primarily to higher payroll-related expenditures
resulting from both an increase in average hourly wage rates and a continuing
shift in sales to handcrafted beverages, which are more labor intensive.
Including the Transaction costs, store operating expenses for fiscal 1998 were
38.0% of retail sales.
Other operating expenses (expenses associated with all operations other than
Company-owned retail stores, including the Company's share of joint venture
profits and losses) were 20.0% of specialty revenues during fiscal 1999,
compared to 21.1% for fiscal 1998. This decrease was attributable to lower
operating expenses associated with the grocery channel after the transition to
Kraft, partially offset by higher payroll expense supporting other channels.
Depreciation and amortization was 5.8% of net revenues, up from 5.5%
of net revenues for fiscal 1998, primarily due to depreciation on new
information systems put into service in late fiscal 1998 and during fiscal 1999.
General and administrative expenses were 5.3% of net revenues during fiscal 1999
compared to 5.9% for fiscal 1998, primarily due to proportionately lower
payroll-related expenses.
INCOME TAXES
The Company's effective tax rate for fiscal 1999 was 38.0% compared to 41.2% for
fiscal 1998. The effective tax rate in fiscal 1998 was impacted by
non-deductible losses of Seattle Coffee Company prior to the Transaction. Fiscal
1998's rate was also affected by Transaction-related costs. Management expects
the effective tax rate to be approximately 38% during fiscal 2000.
RESULTS OF OPERATIONS -- FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES
Net revenues increased 34% to $1.3 billion for fiscal 1998, compared to $975
million for fiscal 1997. Retail sales increased 32% to $1.1 billion from $836
million. The increase in retail sales was due primarily to the addition of new
Company-operated stores. In addition, comparable store sales increased 5% for
the 52 weeks ended September 27, 1998 compared to the same 52-week period in
fiscal 1997. Comparable store sales increases resulted from an increase in the
number of transactions combined with an increase in the average dollar value per
transaction. The increase in average dollar value per transaction was primarily
due to the sales price increases effected during fiscal 1997. During fiscal
1998, the Company opened 357 stores in continental North America and 37 stores
in the United Kingdom. By fiscal year-end, there were 1,622 Company-operated
stores in continental North America and 66 in the United Kingdom.
Specialty revenues increased 48% to $206 million for fiscal 1998 from $139
million for fiscal 1997. The increase was due primarily to increased sales and
license fees in the grocery category, increased sales to the Company's joint
ventures and licensees and higher wholesale club sales. The Company sells
roasted coffee to its joint venture with Pepsi-Cola Company, a division of
PepsiCo, Inc. (the "North American Coffee Partnership"), for use in the
manufacture of its bottled Frappuccino(R) coffee drink. The Company also sells
coffee extract to Dreyer's Grand Ice Cream, Inc. ("Dreyer's") for use in the
manufacture of Starbucks branded ice creams sold by the Company's joint venture
with Dreyer's (the "Ice Cream Joint Venture"). Licensees (including those in
which the Company is a joint venture partner) opened 45 stores in continental
North America and 48 stores in international markets. The Company ended the year
with 133 licensed stores in continental North America and 65 licensed stores in
international markets.
<PAGE> 5
GROSS MARGIN
Gross margin increased to 55.8% for fiscal 1998 compared to 55.2% for fiscal
1997. This increase was primarily the result of prior year sales price increases
partially offset by higher green coffee costs.
Store operating expenses as a percentage of retail sales increased to 38.0% for
fiscal 1998 from 37.6% for fiscal 1997. This was due to integration costs
associated with the Transaction. Excluding these costs, store operating expenses
for fiscal 1998 would have been 37.5% of retail sales.
Other operating expenses (expenses associated with the Company's specialty
operations, as well as the Company's share of joint venture profits and losses)
increased to 21.1% of specialty revenues for fiscal 1998 from 20.3% for fiscal
1997. The increase was attributable to higher advertising expenses and higher
payroll-related costs for the Company's international and grocery businesses,
partially offset by improved results of both the North American Coffee
Partnership and the Ice Cream Joint Venture.
MERGER EXPENSES
Merger expenses of $8.9 million consisted mainly of investment banking, legal
and accounting fees.
INTEREST AND OTHER INCOME
Interest and other income for fiscal 1998 was $8.5 million, compared to $12.4
million for fiscal 1997. The decrease was primarily due to lower average
investment balances.
INTEREST AND OTHER EXPENSE
Interest and other expense for fiscal 1998 was $1.4 million compared to $7.3
million for fiscal 1997. The decrease was due to the conversion of the Company's
$165.0 million 4 1/4% Convertible Subordinated Debentures to common stock during
the first quarter of fiscal 1998.
INCOME TAXES
The Company's effective tax rate for fiscal 1998 was 41.2% compared to 39.5% in
fiscal 1997. The effective tax rate in both years was impacted by non-deductible
losses of Seattle Coffee Company prior to the Transaction. Fiscal 1998's rate
was also affected by Transaction-related costs. Excluding the impact of
Transaction-related costs, the effective tax rate for fiscal 1998 would have
been 38.3%.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended fiscal 1999 with $117.8 million in total cash and short-term
investments. Working capital as of October 3, 1999, totaled $134.9 million
compared to $157.8 million at September 27, 1998. Cash and cash equivalents
decreased by $35.2 million during fiscal 1999 to $66.4 million at October 3,
1999. This decrease was offset by an increase in short-term investments of $29.5
million during the same period.
Cash provided by operating activities for fiscal 1999 totaled $210.6 million and
resulted primarily from net earnings before non-cash charges of $210.1 million.
Cash used by investing activities for fiscal 1999 totaled $336.3 million. This
included capital additions to property, plant and equipment of $261.8 million
related to opening 460 new Company-operated retail stores and remodeling certain
existing stores, purchasing roasting and packaging equipment for the Company's
roasting and distribution facilities, enhancing information systems and
expanding existing office space. The purchases of Pasqua and Tazo used $15.7
million. During fiscal 1999, the Company made equity investments of $10.5
million in its international joint ventures. The Company received $5.7 million
in distributions from the North American Coffee Partnership and $3.3 million in
distributions from the Ice Cream Joint Venture. The Company also used $28.3
million to make minority investments in Living.com, Inc. and Talk City, Inc. The
Company invested excess cash primarily in short-term, investment-grade
marketable debt securities. The net activity in the Company's marketable
securities portfolio during fiscal 1999 provided $34.1 million.
<PAGE> 6
Cash provided by financing activities for fiscal 1999 totaled $90.5 million.
This included $29.9 million of checks issued but not presented for payment,
$52.4 million generated from the exercise of employee stock options and the
related income tax benefit available to the Company upon exercise of such
options and $9.4 million generated from the Company's employee stock purchase
plan. As options granted under the Company's stock option plans are exercised,
the Company will continue to receive proceeds and a tax deduction; however,
neither the amounts nor the timing thereof can be predicted.
Cash requirements for fiscal 2000, other than normal operating expenses, are
expected to consist primarily of capital expenditures related to the addition of
new Company-operated retail stores. The Company plans to open at least 400
Company-operated stores during fiscal 2000. The Company also anticipates
incurring additional expenditures for enhancing its production capacity and
information systems and remodeling certain existing stores. While there can be
no assurance that current expectations will be realized, management expects
capital expenditures for fiscal 2000 to be approximately $300 million.
Management believes that existing cash and investments plus cash generated from
operations should be sufficient to finance capital requirements for its core
businesses through fiscal 2000. New joint ventures, other new business
opportunities or store expansion rates substantially in excess of that presently
planned may require outside funding.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. Computer programs with
time-sensitive software, at the Company and elsewhere, may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to produce and distribute products,
process transactions or engage in similar normal business activities. To address
the Year 2000 issue and its risks, the Company formed a cross-functional Task
Force, headed by senior management, to evaluate the risks and implement
appropriate remediation and contingency plans.
The Company's preparations for the Year 2000 have been divided into two
categories, MIS-supported systems and other systems and issues. "MIS-supported"
systems are those telephone and computer systems that are acquired, installed
and maintained by the Company's Management Information Systems ("MIS")
department. These systems include all of the software applications generally
available on the Company's computer network, as well as many applications used
by particular departments or in connection with specific functions (for example,
payroll and general accounting software). Single-user applications and a few
specialized systems maintained by certain departments within the Company are not
considered MIS-supported systems. The Company's MIS department is primarily
responsible for addressing Year 2000 compliance issues arising from all
MIS-supported systems, while the Year 2000 Task Force is primarily responsible
for Year 2000 compliance issues arising from non-MIS-supported systems and from
relationships with critical product and service providers.
The majority of computer and telephony applications at Starbucks are relatively
recent purchases that are not expected to be affected by the Year 2000 problem.
All of the MIS-supported systems used at Starbucks have been identified and
evaluated. Where necessary, the Company has remediated such systems by
installing system upgrades or rewriting code. As the suppliers of telephone and
computer systems or software to the Company have worked to address Year 2000
issues with their own products, several have uncovered new or additional
problems relating to their systems or software and have so notified the Company.
In some cases, these new or additional issues have necessitated additional
remediation or testing of the Company's systems. As part of the remediation
process, the Company's MIS department has tested each critical system and
networked application.
To address issues arising from non-MIS-supported systems or embedded chips and
to evaluate the Company's exposure to third parties' failures to remediate their
Year 2000 problems, the
<PAGE> 7
Company has identified the critical product and service suppliers for each of
its business units and departments. The Company has solicited information from
these critical suppliers and others about their remediation and contingency
plans and their ability to meet the Company's needs in the Year 2000. By the end
of fiscal 1999, the Company had received responses from approximately 93% of
these product and service suppliers, virtually all of which indicate that they
are actively addressing the Year 2000 issue. The Company has worked with these
suppliers to complete additional remediation steps and is working with all of
its critical product and service suppliers to develop appropriate contingency
plans. The contingency plans include, among other actions, purchasing additional
inventory prior to the end of 1999, identifying alternate sources of products
and services and establishing alternate ways to accomplish critical business
functions. The Company has prepared contingency plans for each of its critical
business units or departments and conducted tests of certain critical
non-MIS-supported systems. Despite these efforts, there can be no guarantee that
the other companies on which the Company relies will be prepared for the Year
2000 and that their Year 2000 problems will not have an adverse effect on the
Company.
The Company presently believes that the most reasonably likely worst case
scenario concerning the Year 2000 is that certain critical product and service
providers will not be Year 2000 compliant and will be unable to deliver products
and services in a timely manner. The Company believes that its geographically
dispersed retail stores and large supplier base will significantly mitigate any
adverse impact from suppliers' delays or failures, but that the Company remains
vulnerable to (i) delays in deliveries by a few suppliers who are the sole
source of certain products and services; (ii) disruption of the components of
its distribution operations, including ports, trucking and air freight services;
and (iii) local or regional retail store shutdowns as a result of problems with
infrastructure such as power, water and sewer service. To support the Company's
business, particularly the retail stores, in the event that any problems occur,
the Company has prepared a Year 2000 event room with backup generator power to
monitor the rollover of the Company's systems to the new year and address any
other Year 2000 issues.
The Company has spent approximately $1.4 million in direct costs for the Year
2000 compliance project through the end of fiscal 1999 and expects to spend
approximately $2.0 million for the project. The total cost of all remediation
efforts is management's best estimate, which is based on numerous assumptions
about future events, including the continued availability of certain resources,
third party modification plans and other factors. There can be no guarantee that
these estimates will prove true and actual results could differ significantly
from those projected.
COFFEE PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS
The supply and price of coffee are subject to significant volatility. Although
most coffee trades in the commodity market, coffee of the quality sought by the
Company tends to trade on a negotiated basis at a substantial premium above
commodity coffee prices, depending upon the supply and demand at the time of
purchase. Supply and price can be affected by multiple factors in the producing
countries, including weather, political and economic conditions. In addition,
green coffee prices have been affected in the past, and may be affected in the
future, by the actions of certain organizations and associations that have
historically attempted to influence 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 profitability could be adversely affected if
coffee prices were to rise substantially.
The Company enters into fixed-price purchase commitments in order to secure an
adequate supply of quality green coffee and bring greater certainty to the cost
of sales in future periods. As of October 3, 1999, the Company had approximately
$84 million in fixed-price purchase commitments which, together with existing
inventory, is expected to provide an adequate supply of green coffee for the
majority of fiscal 2000. 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.
<PAGE> 8
To further reduce its exposure to rising coffee costs, the Company may, from
time to time, enter into futures contracts to hedge price-to-be-established
coffee purchase commitments. The specific risks associated with these activities
are described below in "Financial Risk Management."
In addition to fluctuating coffee prices, management believes that the Company's
future results of operations and earnings could be significantly impacted by
other factors such as increased competition within the specialty coffee
industry, the Company's ability to find optimal store locations at favorable
lease rates, increased costs associated with opening and operating retail stores
and the Company's continued ability to hire, train and retain qualified
personnel.
FINANCIAL RISK MANAGEMENT
The Company maintains investment portfolio holdings of various issuers, types
and maturities. These securities are classified as available-for-sale and are
recorded on the balance sheet at fair value with unrealized gains or losses
reported as a separate component of accumulated other comprehensive income. As
of October 3, 1999, approximately 76% of the total portfolio was invested in
short-term marketable debt securities with maturities of less than one year. An
additional 15% was invested in long-term U.S. Government obligations with
maturities of 12 to 18 months and the remaining 9% was invested in marketable
equity securities. The Company does not hedge its interest rate exposure.
The Company is subject to foreign currency exchange rate exposure, primarily
related to its foreign retail operations in Canada and the United Kingdom.
Historically, this exposure has had a minimal impact on the Company. At the
present time, the Company does not hedge foreign currency risk, but may do so in
the future.
The Company may, from time to time, enter into futures contracts to hedge
price-to-be-fixed 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 Statement of
Financial Accounting Standards ("SFAS") No. 80, "Accounting for Futures
Contracts," these futures contracts meet the hedge criteria and are accounted
for as hedges. Accordingly, gains and losses are deferred and recognized as
adjustments to the carrying value of coffee inventory when purchased and
recognized in results of operations as coffee products are sold. Gains and
losses are calculated based on the difference between the cost basis and the
market value of the coffee contracts. The market risk related to coffee futures
is substantially offset by changes in the costs of coffee purchased.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal fluctuations. Significant portions
of the Company's net revenues and profits are realized during the first quarter
of the Company's fiscal year, which includes the December holiday season. In
addition, quarterly results are affected by the timing of the opening of new
stores, and the Company's rapid growth may conceal the impact of other seasonal
influences. Because of the seasonality of the Company's business, results for
any quarter are not necessarily indicative of the results that may be achieved
for the full fiscal year.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
pronouncement will require the Company to recognize derivatives on its balance
sheet at fair value. Changes in the fair values of derivatives that qualify as
cash-flow hedges will be recognized in accumulated other comprehensive income
until the hedged item is recognized in earnings. The Company is in the process
of evaluating the impact of this new accounting standard and does not expect
that it will have a significant effect on its results of operations. The FASB
subsequently issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133",
which postpones initial application until fiscal years beginning after June 15,
2000. The Company expects to adopt SFAS No. 133 in fiscal 2001.
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
In thousands, except share data
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OCT 3, 1999 SEPT 27, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 66,419 $ 101,663
Short-term investments 51,367 21,874
Accounts receivable 47,646 50,972
Inventories 180,886 143,118
Prepaid expenses and other current assets 19,049 11,205
Deferred income taxes, net 21,133 8,448
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 386,500 337,280
Joint ventures and other investments 68,060 38,917
Property, plant and equipment, net 760,289 600,794
Deposits and other assets 23,474 15,685
Goodwill, net 14,191 79
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 1,252,514 $ 992,755
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 56,108 $ 49,861
Checks drawn in excess of bank balances 64,211 33,634
Accrued compensation and related costs 43,872 35,941
Accrued occupancy costs 23,017 17,526
Accrued taxes 30,752 18,323
Other accrued expenses 33,637 24,190
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 251,597 179,475
Deferred income taxes, net 32,886 18,983
Long-term debt 7,018 --
Commitments and contingencies (notes 5, 9 and 13)
SHAREHOLDERS' EQUITY
Common stock -- Authorized, 300,000,000 shares; issued and
outstanding, 183,282,095 and 179,266,956 shares, respectively
(includes 848,550 common stock units in both years) 651,020 589,214
Retained earnings 313,939 212,246
Accumulated other comprehensive loss (3,946) (7,163)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 961,013 794,297
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 1,252,514 $ 992,755
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 10
CONSOLIDATED STATEMENTS OF EARNINGS
In thousands, except earnings per share
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 1,680,145 $ 1,308,702 $ 975,389
Cost of sales and related occupancy costs 741,010 578,483 436,942
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin 939,135 730,219 538,447
Store operating expenses 543,572 418,476 314,064
Other operating expenses 51,374 43,479 28,239
Depreciation and amortization 97,797 72,543 52,801
General and administrative expenses 89,681 77,575 57,144
Merger expenses -- 8,930 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 156,711 109,216 86,199
Interest and other income 8,678 8,515 12,393
Interest and other expense (1,363) (1,381) (7,282)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 164,026 116,350 91,310
Income taxes 62,333 47,978 36,099
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 101,693 $ 68,372 $ 55,211
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share -- basic $ 0.56 $ 0.39 $ 0.35
Net earnings per common share -- diluted $ 0.54 $ 0.37 $ 0.33
Weighted average shares outstanding
Basic 181,842 176,110 159,289
Diluted 188,531 183,771 180,317
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 101,693 $ 68,372 $ 55,211
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization 107,512 80,901 58,864
Provision for store remodels and losses on asset disposals 2,456 7,234 1,049
Conversion of compensatory options into common stock -- 1,158 --
Deferred income taxes, net 794 2,125 5,490
Equity in (income) losses of investees (2,318) 14 2,760
Cash (used) provided by changes in operating assets and liabilities
Accounts receivable 3,838 (19,790) (13,475)
Inventories (36,405) (23,496) (36,382)
Prepaid expenses and other current assets (7,552) (2,497) (2,236)
Accounts payable 4,711 4,601 9,559
Accrued compensation and related costs 7,586 9,943 10,871
Accrued occupancy costs 5,517 5,342 4,208
Accrued taxes 12,429 7,173 3,850
Other accrued expenses 10,313 1,799 525
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 210,574 142,879 100,294
INVESTING ACTIVITIES
Purchase of investments (122,800) (51,354) (171,631)
Sale of investments 3,633 5,138 9,257
Maturity of investments 85,053 112,080 173,665
Purchase of businesses, net of cash acquired (15,662) -- --
Investments in joint ventures and other investments (30,780) (12,418) (27,624)
Distributions from joint ventures 8,983 2,750 --
Additions to property, plant and equipment (261,781) (201,855) (174,363)
Proceeds from sales of property, plant and equipment 3,927 -- --
Additions to deposits and other assets (6,866) (3,184) (4,604)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (336,293) (148,843) (195,300)
FINANCING ACTIVITIES
Increase in cash provided by checks drawn in excess of bank balances 29,912 4,846 12,287
Proceeds from sale of common stock
under employee stock purchase plan 9,386 4,649 4,009
Exercise of stock options 33,799 20,755 13,629
Tax benefit from exercise of nonqualified stock options 18,621 9,332 9,626
Payments on long-term debt (1,189) (1,993) (1,566)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 90,529 37,589 37,985
Effect of exchange rate changes on cash and cash equivalents (54) (88) (18)
- ------------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (35,244) 31,537 (57,039)
CASH AND CASH EQUIVALENTS
Beginning of year 101,663 70,126 127,165
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $ 66,419 $ 101,663 $ 70,126
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 442 $ 4,130 $ 7,179
Income taxes 35,366 32,643 19,679
NONCASH FINANCING AND INVESTING TRANSACTIONS
Liabilities assumed in conjunction with the acquisition
of land and building 7,746 -- --
Net unrealized holding gains (losses) on investments 683 (595) (1,983)
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 --
Equipment acquired under capital lease -- -- 2,434
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In thousands, except share data
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1996 157,422,976 $364,020 $ 88,663 $ 1,367 $ 454,050
Net earnings -- -- 55,211 -- 55,211
Unrealized holding losses, net -- -- -- (1,983) (1,983)
Translation adjustment -- -- -- (832) (832)
---------
Comprehensive income 52,396
---------
Exercise of stock options,
including tax benefit of $9,626 2,763,830 23,255 -- -- 23,255
Sale of common stock 931,240 4,009 -- -- 4,009
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 28, 1997 161,118,046 391,284 143,874 (1,448) 533,710
Net earnings -- -- 68,372 -- 68,372
Unrealized holding losses, net -- -- -- (595) (595)
Translation adjustment -- -- -- (5,120) (5,120)
---------
Comprehensive income 62,657
---------
Conversion of convertible debt
into common stock 14,194,054 162,036 -- -- 162,036
Common stock units issued
under deferred stock
plan, net of shares tendered 848,550 -- -- -- --
Exercise of stock options,
including tax benefit of $9,332 2,834,528 31,245 -- -- 31,245
Sale of common stock 271,778 4,649 -- -- 4,649
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 27, 1998 179,266,956 589,214 212,246 (7,163) 794,297
Net earnings -- -- 101,693 -- 101,693
Unrealized holding gains, net -- -- -- 683 683
Translation adjustment -- -- -- 2,534 2,534
---------
Comprehensive income 104,910
---------
Exercise of stock options,
including tax benefit of $18,621 3,522,908 52,420 -- -- 52,420
Sale of common stock 492,231 9,386 -- -- 9,386
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, October 3, 1999 183,282,095 $651,020 $313,939 $(3,946) $ 961,013
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended October 3, 1999, September 27, 1998 and September 28, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Starbucks Corporation and its subsidiaries (collectively "Starbucks" or the
"Company") purchases and roasts high quality whole bean coffees and sells them,
along with fresh, rich-brewed coffees, Italian-style espresso beverages, a
variety of pastries and confections, coffee-related accessories and equipment
and a line of premium teas, primarily through its Company-operated retail
stores. In addition to sales through its Company-operated retail stores,
Starbucks sells coffee and tea products through other channels of distribution
(collectively, "specialty operations"). Starbucks, through its joint venture
partnerships, also produces and sells bottled Frappuccino(R) coffee drink and a
line of premium ice creams. The Company's objective is to establish Starbucks as
the most recognized and respected brand in the world. To achieve this goal, the
Company plans to continue to rapidly expand its retail operations, grow its
specialty operations and selectively pursue other opportunities to leverage the
Starbucks brand through the introduction of new products and the development of
new distribution channels.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the financial position and
operating results of Starbucks and its subsidiaries. Material intercompany
transactions have been eliminated.
Investments in unconsolidated joint ventures are accounted for under the equity
method, as the Company does not exercise control over the operating and
financial policies of such joint ventures.
FISCAL YEAR-END
The Company's fiscal year ends on the Sunday closest to September 30.
The fiscal year ended October 3, 1999, included 53 weeks. Fiscal years 1998 and
1997 each included 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 consolidated financial statements.
INVESTMENTS
The Company's investments consist primarily of investment-grade marketable debt
and equity securities, all of which are classified as available-for-sale and
recorded at fair value. Unrealized holding gains and losses are recorded, net of
any tax effect, as a separate component of accumulated other comprehensive
income.
<PAGE> 14
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 October 3, 1999, were $56.4 million and $56.2 million,
respectively. The fair value and amortized cost of the Company's investments at
September 27, 1998, were $21.9 million and $22.7 million, respectively. For
further information on investments, see Note 4. The carrying value of long-term
debt approximates fair value.
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 two 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" in the accompanying consolidated statements of earnings.
GOODWILL
The excess purchase price paid over net assets of businesses acquired is
amortized on a straight-line basis over the period of expected benefit, which
ranges from ten to twenty years.
LONG-LIVED ASSETS
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 assets 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 may, from time to time, enter into futures contracts to hedge
price-to-be-fixed 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 Statement of
Financial Accounting Standards ("SFAS") No. 80 "Accounting for Futures
Contracts," these futures contracts meet the hedge criteria and are accounted
for as hedges. Accordingly, gains and losses are deferred and recognized as
adjustments to the carrying value of coffee inventory when purchased and
recognized in results of operations as coffee products are sold. Gains and
losses are calculated based on the difference between the cost basis and the
market value of the coffee contracts. The market risk related to coffee futures
is substantially offset by changes in the costs of coffee purchased. The Company
had no open futures contracts as of October 3, 1999, or September 27, 1998.
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, generally
three to twelve months.
STORE PREOPENING EXPENSES
Costs incurred in connection with the start-up and promotion of new store
openings are expensed as incurred.
<PAGE> 15
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. Minimum rental expenses are recognized on a
straight-line basis over the terms of the leases.
FOREIGN CURRENCY TRANSLATION
The Company's international operations use their local currency as their
functional currency. 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
as a separate component of accumulated other comprehensive income.
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.
STOCK SPLIT
On March 19, 1999, the Company effected a two-for-one stock split for its
holders of record on March 5, 1999. All applicable share and per-share data in
these consolidated financial statements have been restated to give effect to
this stock split.
EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted average
number of shares and common stock units outstanding during the period. The
numbers of shares resulting from this computation for fiscal 1999, 1998 and 1997
were 181.8 million, 176.1 million and 159.3 million, respectively.
The computation of diluted earnings per share 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 formerly outstanding convertible subordinated debentures using the "if
converted" method when such securities were dilutive, with net income adjusted
for the after-tax interest expense and amortization applicable to these
debentures. The numbers of shares resulting from this computation for fiscal
1999, 1998 and 1997 were 188.5 million, 183.8 million and 180.3 million,
respectively. Options with exercise prices greater than the average market price
were not included in the computation of diluted earnings per share. These
options totaled 0.6 million, 0.3 million and 0.6 million for fiscal 1999, 1998
and 1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
pronouncement will require the Company to recognize derivatives on its balance
sheet at fair value. Changes in the fair values of derivatives that qualify as
cash-flow hedges will be recognized in accumulated other comprehensive income
until the hedged item is recognized in earnings. The Company is in the process
of evaluating the impact of this new accounting standard and does not expect
that it will have a significant effect on its results of operations. The FASB
subsequently issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133",
which postpones initial application until fiscal years beginning after June 15,
2000. The Company expects to adopt SFAS No. 133 in fiscal 2001.
RECLASSIFICATIONS
Certain reclassifications of prior years' balances have been made to conform to
the fiscal 1999 presentation.
<PAGE> 16
NOTE 2: BUSINESS COMBINATIONS
During the second quarter of fiscal 1999, Starbucks acquired the net assets of
Tazo, L.L.C. ("Tazo"), a Portland, Oregon-based tea company that produces
premium tea products, and the stock of Pasqua Inc. ("Pasqua"), a San Francisco,
California-based roaster and retailer of specialty coffee. The combined purchase
price for these two acquisitions was $16.5 million. The excess purchase price
over the net assets acquired was recorded to goodwill and is being amortized
over a period of ten to twenty years. Both of these acquisitions were accounted
for under the purchase method of accounting. The results of operations of Tazo
and Pasqua have been included in the consolidated financial statements of the
Company from the dates of acquisition. Pro forma results of operations have not
been presented because the effects of these acquisitions were not material on
either an individual or aggregate basis.
On May 28, 1998, the Company acquired all of the equity interests of Seattle
Coffee Holdings Limited ("Seattle Coffee Company"), a United Kingdom-based
roaster and retailer of specialty coffee, in exchange for 3.6 million shares of
Starbucks common stock. This business combination (the "Transaction") was
accounted for as a pooling-of-interests for accounting and financial reporting
purposes. Accordingly, the historical financial statements for the periods prior
to the business combination were restated as though the companies had always
been combined. The restated financial statements were adjusted to conform the
accounting policies and fiscal reporting periods of Seattle Coffee Company to
Starbucks accounting policies and fiscal reporting periods. The Transaction
resulted in pre-tax charges of $8.9 million in direct merger costs and $6.6
million in other costs associated with the integration of Seattle Coffee
Company.
The following summarizes the Company's net revenues, net earnings and earnings
per share for the periods prior to and following the Transaction (in thousands,
except earnings per share):
<TABLE>
<CAPTION>
SEATTLE
COFFEE
STARBUCKS COMPANY COMBINED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
34 Weeks prior to the Transaction
Net revenues $805,151 $ 15,675 $820,826
Net earnings 45,811 (3,312) 42,499
Net earnings per share -- diluted 0.25 (0.02) 0.23
- --------------------------------------------------------------------------------------------------------------------
18 Weeks after the Transaction
Net revenues $487,876
Net earnings 25,873
Net earnings per share -- diluted 0.15
- --------------------------------------------------------------------------------------------------------------------
1997
Net revenues $966,946 $ 8,443 $975,389
Net earnings 57,412 (2,201) 55,211
Net earnings per share -- diluted 0.35 (0.02) 0.33
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
NOTE 3: CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following (in thousands):
<TABLE>
<CAPTION>
OCT 3, 1999 SEPT 27, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operating funds and interest-bearing deposits $ 39,926 $ 26,564
Commercial paper 7,980 67,024
Money market funds 18,513 8,075
- ----------------------------------------------------------------------------------------
$ 66,419 $101,663
- ----------------------------------------------------------------------------------------
</TABLE>
NOTE 4: INVESTMENTS
The Company's investments consist of the following (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
FAIR AMORTIZED HOLDING HOLDING
October 3,1999 VALUE COST GAINS LOSSES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current investments
Corporate debt securities $17,233 $17,123 $ 155 $ (45)
U.S. Government obligations 4,988 4,976 13 (1)
Commercial paper 18,706 18,751 -- (45)
Mutual funds 2,056 2,002 73 (19)
Marketable equity securities 8,384 8,258 313 (187)
- ------------------------------------------------------------------------------------------------------------
$51,367 $51,110 $ 554 $ (297)
- ------------------------------------------------------------------------------------------------------------
Non-current investments
U.S. Government obligations $ 5,028 $ 5,044 $ -- $ (16)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
FAIR AMORTIZED HOLDING HOLDING
September 27, 1998 VALUE COST GAINS LOSSES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current investments
Corporate debt securities $11,356 $11,373 $ 20 $ (37)
U.S. Government obligations 10,410 10,409 1 --
Marketable equity securities 108 958 -- (850)
- ------------------------------------------------------------------------------------------------------------
$21,874 $22,740 $ 21 $ (887)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
All investments are classified as available-for-sale as of October 3,1999 and
September 27, 1998. Securities with remaining maturities of one year or less are
classified as short-term investments. Securities with remaining maturities
longer than one year are classified as long-term and are included in the line
item "Joint ventures and other investments" in the accompanying consolidated
balance sheets. The specific identification method is used to determine a cost
basis for computing realized gains and losses.
In fiscal 1999, 1998 and 1997, proceeds from the sale of investment securities
were $3.6 million, $5.1 million and $9.3 million, respectively. Gross realized
gains and losses were not material in 1999, 1998 and 1997.
<PAGE> 18
NOTE 5: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
OCT 3, 1999 SEPT 27, 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Coffee
Unroasted $ 95,001 $ 77,400
Roasted 28,065 18,996
Other merchandise held for sale 46,655 36,850
Packaging and other supplies 11,165 9,872
- ----------------------------------------------------------------------------------
$180,886 $143,118
- ----------------------------------------------------------------------------------
</TABLE>
As of October 3, 1999, the Company had fixed-price inventory purchase
commitments for green coffee totaling approximately $84 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
Starbucks has several joint ventures that are accounted for using the equity
method. The Company's share of joint venture income or losses is included in
"Other operating expenses" in the accompanying consolidated statements of
earnings.
The Company has two joint ventures to produce and distribute Starbucks branded
products: a 50/50 joint venture and partnership agreement with Pepsi-Cola
Company ("Pepsi") to develop ready-to-drink coffee-based beverages and a 50/50
joint venture agreement with Dreyer's Grand Ice Cream, Inc. to develop and
distribute premium ice creams.
The Company is a partner in several other joint ventures that operate licensed
Starbucks retail stores. The Company has a 50/50 joint venture partnership with
SAZABY Inc., a Japanese retailer and restauranteur, to develop Starbucks retail
stores in Japan. The Company also has a 5% interest in a joint venture to
develop Starbucks retail stores in Hawaii and a 5% interest in a joint venture
to develop Starbucks retail stores in Taiwan.
The Company's investments in these joint ventures are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PEPSI ALL OTHER
JOINT JOINT
VENTURE VENTURES TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Allocated share of (losses) income (30) 16 (14)
Distributions from joint ventures -- (2,750) (2,750)
Capital contributions 7,616 4,802 12,418
- --------------------------------------------------------------------------------------------------
Balance, September 27, 1998 35,079 3,838 38,917
Allocated share of (losses) income 3,046 (728) 2,318
Distributions from joint ventures (5,733) (3,250) (8,983)
Capital contributions -- 10,466 10,466
- --------------------------------------------------------------------------------------------------
Balance, October 3, 1999 $ 32,392 $ 10,326 $ 42,718
- --------------------------------------------------------------------------------------------------
</TABLE>
In addition, the Company has a consolidated 50/50 joint venture with Johnson
Development Corporation to develop retail stores in under-served urban
communities.
As of October 3,1999, the Company had a $20.3 million investment in convertible
securities of Living.com, Inc. Subsequent to year-end, the investment was
converted into shares of Living.com, Inc. Series B Preferred Stock.
<PAGE> 19
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and consist of the following
(in thousands):
<TABLE>
<CAPTION>
OCT 3, 1999 SEPT 27, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 5,084 $ 3,602
Building 19,795 8,338
Leasehold improvements 591,640 460,020
Roasting and store equipment 273,612 218,744
Furniture, fixtures and other 130,223 79,953
- ----------------------------------------------------------------------------------------------
1,020,354 770,657
Less accumulated depreciation and amortization (320,982) (218,455)
- ----------------------------------------------------------------------------------------------
699,372 552,202
Work in progress 60,917 48,592
- ----------------------------------------------------------------------------------------------
$ 760,289 $ 600,794
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTE 8: LONG-TERM DEBT
In September 1999, the Company purchased the land and building comprising its
York County, Pennsylvania roasting plant and distribution facility. The total
purchase price was $12.9 million. In connection with this purchase, the Company
assumed loans totaling $7.7 million from the York County Industrial Development
Corporation. Maturities of these loans range from 9.5 to 10.5 years, with
interest rates from 0.0% to 2.0%.
Scheduled principal payments on long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal year ending
- --------------------------------------------------------------------------------
<S> <C>
2000 $ 673
2001 685
2002 697
2003 710
2004 722
Thereafter 4,204
- --------------------------------------------------------------------------------
Total principal payments $7,691
- --------------------------------------------------------------------------------
</TABLE>
During fiscal 1996, the Company issued $165.0 million in principal amount of
4 1/4% Convertible Subordinated Debentures due 2002. On October 21, 1997, 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.
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.
Rental expense under these lease agreements was as follows (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $95,613 $75,912 $54,093
Contingent rentals 1,581 1,406 1,193
- -----------------------------------------------------------------------------------
$97,194 $77,318 $55,286
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
Minimum future rental payments under non-cancelable lease obligations as of
October 3, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal year ending
- --------------------------------------------------------------------------------
<S> <C>
2000 $ 98,515
2001 99,459
2002 99,133
2003 95,827
2004 90,405
Thereafter 321,941
- --------------------------------------------------------------------------------
Total minimum lease payments $805,280
- --------------------------------------------------------------------------------
</TABLE>
NOTE 10: SHAREHOLDERS' EQUITY
The Company has authorized 7,500,000 shares of its preferred stock, none of
which was outstanding at October 3, 1999.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of the
first quarter of fiscal 1999. Comprehensive income includes all changes in
equity during the period, except those resulting from transactions with
shareholders of the Company. It has two components: net income and other
comprehensive income. Accumulated other comprehensive income (loss) reported on
the Company's consolidated balance sheets consists of foreign currency
translation adjustments and the unrealized gains and losses, net of applicable
taxes, on available-for-sale securities. Comprehensive income, net of related
tax effects, is as follows (in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $101,693 $ 68,372 $ 55,211
Unrealized holding gains (losses) on
investments, net of tax (provision)
benefit of ($155), $373 and $1,242
in 1999, 1998 and 1997, respectively 252 (595) (1,983)
Reclassification adjustment for losses
realized in net income, net of tax benefit of $270 431 -- --
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) 683 (595) (1,983)
- ---------------------------------------------------------------------------------------------------------------------
Translation adjustment 2,534 (5,120) (832)
- ---------------------------------------------------------------------------------------------------------------------
Total comprehensive income $104,910 $ 62,657 $ 52,396
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
NOTE 11: EMPLOYEE STOCK AND BENEFIT PLANS
STOCK OPTION PLANS
The Company maintains several stock option plans under which the Company may
grant incentive stock options and non-qualified stock options to employees,
consultants 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 September 30, 1996,
through October 3, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE SHARES AVERAGE
SHARES EXERCISE SUBJECT TO EXERCISE
SUBJECT TO PRICE EXERCISABLE PRICE
OPTIONS PER SHARE OPTIONS PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, September 30, 1996 15,572,456 $ 6.35 6,633,934 $ 4.22
Granted 5,859,592 16.62
Exercised (2,763,830) 4.96
Cancelled (760,896) 10.65
- ---------------------------------------------------------------------------------------------------------------------
Outstanding, September 28, 1997 17,907,322 9.66 7,427,352 5.43
Granted 6,508,632 18.52
Exercised (3,683,078) 6.13
Cancelled (1,229,478) 11.79
- ---------------------------------------------------------------------------------------------------------------------
Outstanding, September 27, 1998 19,503,398 13.10 7,560,806 8.49
Granted 8,051,998 22.97
Exercised (3,522,908) 9.53
Cancelled (1,461,937) 18.99
- ---------------------------------------------------------------------------------------------------------------------
Outstanding, October 3, 1999 22,570,551 $ 16.84 12,080,825 $ 13.55
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
At October 3, 1999, there were 10,620,149 shares of common stock available for
issuance pursuant to future stock option grants.
Additional information regarding options outstanding as of October 3, 1999, 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> <C>
$ 0.37 $ 6.28 2,483,329 3.71 $ 4.58 2,469,329 $ 4.57
6.31 9.41 2,480,518 5.68 8.57 2,191,796 8.51
9.69 18.41 9,148,398 7.51 16.93 5,281,766 16.43
19.42 26.25 7,948,806 9.09 21.96 2,137,934 21.98
35.31 35.31 509,500 9.68 35.31 -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ 0.37 $ 35.31 22,570,551 7.50 $ 16.84 12,080,825 $ 13.55
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan which provides that eligible
employees may contribute up to 10% of their base earnings, up to $25,000
annually, toward the quarterly purchase of the Company's 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 8,000,000. There
were 492,231 shares issued under the plan during fiscal 1999 at prices ranging
from $14.05 to $25.18. There were 271,778 shares issued under the plan during
fiscal 1998 at prices ranging from $15.99 to $19.58. There were 185,492 shares
issued under the plan during fiscal 1997 at prices ranging from $11.79 to
$12.86. Of the 18,555 employees eligible to participate, 4,972 were participants
in the plan as of October 3, 1999.
DEFERRED STOCK PLAN
The Company has 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. As of October 3, 1999, receipt of 848,550 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.
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.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure
of pro forma net income and net income per share as if the Company adopted the
fair-value method of accounting for stock-based awards 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
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected life (years) 1.5 - 6 1.5 - 6 1.5 - 6 .25 .25 .25
Expected volatility 50% 45% 40% 44 - 66% 37 - 45% 45 - 47%
Risk-free interest rate 4.60 - 6.21% 5.28 - 6.05% 5.41 - 6.54% 4.26 - 5.63% 5.26 - 5.74% 5.27 - 5.53%
Expected dividend yield 0.0% 0.0% 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. The Company's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate.
<PAGE> 23
As required by SFAS No. 123, the Company has determined that the weighted
average estimated fair values of options granted during fiscal 1999, 1998 and
1997 were $8.86, $7.20 and $5.42 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 No. 123, the Company's net
earnings and earnings per share would have been as follows (in thousands, except
earnings per share):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRO FORMA
UNDER SFAS
Fiscal year ended AS REPORTED NO. 123
- --------------------------------------------------------------------------------
<S> <C> <C>
October 3, 1999
Net earnings $ 101,693 $ 75,326
Net earnings per common share
Basic $ 0.56 $ 0.41
Diluted $ 0.54 $ 0.40
September 27, 1998
Net earnings $ 68,372 $ 51,595
Net earnings per common share
Basic $ 0.39 $ 0.30
Diluted $ 0.37 $ 0.28
September 28, 1997
Net earnings $ 55,211 $ 45,808
Net earnings per common share
Basic $ 0.35 $ 0.29
Diluted $ 0.33 $ 0.28
- --------------------------------------------------------------------------------
</TABLE>
In applying SFAS No. 123, the impact of outstanding stock options granted prior
to 1996 has been excluded from the pro forma calculations; accordingly, the
1999, 1998 and 1997 pro forma adjustments are not necessarily 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. For certain plans, the Company matches 25%
of each employee's eligible contribution up to a maximum of the first 4% of each
employee's compensation.
The Company's matching contributions to the plans were approximately $0.9
million, $0.8 million and $0.6 million for fiscal 1999, 1998 and 1997,
respectively.
<PAGE> 24
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 OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 3.7 3.8 3.6
Non deductible losses and merger costs -- 2.6 1.0
Other, net (0.7) (0.2) (0.1)
- -------------------------------------------------------------------------------------------------------
Effective tax rate 38.0% 41.2% 39.5%
- -------------------------------------------------------------------------------------------------------
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $52,207 $39,267 $25,884
State 9,332 6,586 4,725
Deferred liability 794 2,125 5,490
- --------------------------------------------------------------------------------------
$62,333 $47,978 $36,099
- --------------------------------------------------------------------------------------
</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>
- ---------------------------------------------------------------------------------------
Oct 3, 1999 Sept 27, 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 29,826 $ 24,240
Accrued rent (8,234) (6,252)
Investments in joint ventures 3,990 2,400
Accrued compensation and related costs (5,622) (4,096)
Other, net (8,207) (5,757)
- ---------------------------------------------------------------------------------------
$ 11,753 $ 10,535
- ---------------------------------------------------------------------------------------
</TABLE>
Taxes payable of $16.3 million and $8.7 million are included in "Accrued taxes"
in the accompanying consolidated balance sheets as of October 3, 1999, and
September 27, 1998, respectively.
NOTE 13: COMMITMENTS AND CONTINGENCIES
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 October 3, 1999.
NOTE 14: SEGMENT REPORTING
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which establishes reporting and
disclosure standards for an enterprise's operating segments. Operating segments
are defined as components of an enterprise for which separate financial
information is available and regularly reviewed by the Company's senior
management.
The Company is organized into a number of business units. The Company's North
American retail business sells coffee beverages, whole bean coffees and related
hardware and equipment through Company-operated retail stores in the United
States and Canada. The Company also has a subsidiary that owns and operates
retail stores in the United Kingdom. These two retail segments are managed by
different presidents within the Company and are measured and evaluated
separately by senior management.
The Company operates through several other business units, each of which is
managed and evaluated independently. These other business units are organized
around the strategic relationships that govern the distribution of products to
the customer. These relationships include domestic
<PAGE> 25
wholesale accounts, domestic retail store and grocery channel licensing
agreements, international licensing agreements and direct-to-consumer business.
Revenues from these segments include both sales to unaffiliated customers and
intersegment sales, which are accounted for on a basis consistent with sales to
unaffiliated customers. Intersegment sales and other intersegment transactions
have been eliminated in the accompanying consolidated financial statements.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies in Note 1. Operating
income represents earnings before interest and other income/expense and income
taxes. No allocations of overhead, interest or income taxes are made to the
segments. Identifiable assets by segment are those assets used in the Company's
operations in each segment. General corporate assets include cash and
investments, unallocated assets of the corporate headquarters and deferred tax
assets. Management evaluates performance of the segments based upon direct
product sales and operating costs.
The tables below present information by operating segment (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
North American retail $ 1,375,018 $ 1,076,731 $ 828,074
All other business units 320,604 238,798 152,564
Intersegment revenues (15,477) (6,827) (5,249)
- ------------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,680,145 $ 1,308,702 $ 975,389
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
North American retail $ 209,338 $ 161,334 $ 121,673
All other business units 55,998 45,943 29,566
Unallocated corporate expenses (107,460) (89,069) (65,040)
Merger expenses -- (8,930) --
Intersegment eliminations (1,165) (62) --
Interest, net 7,315 7,134 5,111
- ------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 164,026 $ 116,350 $ 91,310
- ------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
North American retail $ 72,252 $ 56,328 $ 42,526
All other business units 7,766 4,721 2,379
Unallocated corporate expenses 17,779 11,494 7,896
- ------------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 97,797 $ 72,543 $ 52,801
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSSES) FROM EQUITY METHOD INVESTEES
All other business units $ 2,318 $ (14) $ (2,760)
Intersegment eliminations 874 1,048 718
- ------------------------------------------------------------------------------------------------------------------------
Total income (losses) from
equity method investees $ 3,192 $ 1,034 $ (2,042)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
OCT 3, 1999 SEPT 27, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
IDENTIFIABLE ASSETS
North American retail $ 587,823 $ 465,626
All other business units 97,544 107,115
General corporate assets 567,147 420,014
- -----------------------------------------------------------------------------------------------
Total assets $1,252,514 $ 992,755
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
The tables below present information by geographic area (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Fiscal year ended OCT 3, 1999 SEPT 27, 1998 SEPT 28, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS
United States $1,490,133 $1,173,982 $ 884,314
Foreign countries 190,012 134,720 91,075
- ------------------------------------------------------------------------------------------------------
Total $1,680,145 $1,308,702 $ 975,389
- ------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from foreign countries are based on the location of the customers and
consist primarily of revenues from Canada and the United Kingdom. No customer
accounts for 10% or more of the Company's revenues.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
OCT 3, 1999 SEPT 27, 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
LONG-LIVED ASSETS
United States $680,344 $549,730
Foreign countries 79,945 51,064
- ----------------------------------------------------------------------------------
Total $760,289 $600,794
- ----------------------------------------------------------------------------------
</TABLE>
Assets attributed to foreign countries are based on the country in which those
assets are located.
NOTE 15: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal years 1999 and 1998 is as
follows (in thousands, except earnings per share):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 quarter
Net revenues $405,638 $375,822 $423,792 $474,893
Gross margin 219,338 205,865 238,772 275,160
Net earnings 26,733 17,957 24,635 32,368
Net earnings per common share -- diluted $ 0.14 $ 0.10 $ 0.13 $ 0.17
- ----------------------------------------------------------------------------------------------------------------------
1998 quarter
Net revenues $321,325 $295,243 $334,429 $357,705
Gross margin 175,090 161,742 189,348 204,039
Net earnings 20,955 13,962 7,899 25,556
Net earnings per common share -- diluted $ 0.12 $ 0.08 $ 0.04 $ 0.14
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
STARBUCKS CORPORATION
(Seattle, Washington)
We have audited the accompanying consolidated balance sheets of Starbucks
Corporation and subsidiaries (the Company) as of October 3, 1999, and September
27, 1998, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the three years in the period ended October
3, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 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 financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Starbucks Corporation and
subsidiaries as of October 3, 1999, and September 27, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended October 3, 1999, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
December 10, 1999
<PAGE> 28
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Starbucks Corporation is responsible for the preparation and
integrity of the financial statements included in this Annual Report to
Shareholders. The financial statements have been prepared in conformity with
generally accepted accounting principles and include amounts based on
management's best judgment where necessary. Financial information included
elsewhere in this Annual Report is consistent with these financial statements.
Management maintains a system of internal controls and procedures designed to
provide reasonable assurance that transactions are executed in accordance with
proper authorization, that transactions are properly recorded in the Company's
records, that assets are safeguarded and that accountability for assets is
maintained. The concept of reasonable assurance is based on the recognition that
the cost of maintaining our system of internal accounting controls should not
exceed benefits expected to be derived from the system. Internal controls and
procedures are periodically reviewed and revised, when appropriate, due to
changing circumstances and requirements.
Independent auditors are appointed by the Company's Board of Directors and
ratified by the Company's shareholders to audit the financial statements in
accordance with generally accepted auditing standards and to independently
assess the fair presentation of the Company's financial position, results of
operations and cash flows. Their report appears in this Annual Report.
The Audit Committee, all of whose members are outside directors, is responsible
for monitoring the Company's accounting and reporting practices. The Audit
Committee meets periodically with management and the independent auditors to
ensure that each is properly discharging its responsibilities. The independent
auditors have full and free access to the Committee without the presence of
management to discuss the results of their audits, the adequacy of internal
accounting controls and the quality of financial reporting.
/s/ HOWARD SCHULTZ /s/ ORIN SMITH /s/ MICHAEL CASEY
HOWARD SCHULTZ ORIN SMITH MICHAEL CASEY
chairman and president and executive vice president,
chief executive officer chief operating officer chief financial officer and
chief administrative officer
<PAGE> 29
SHAREHOLDER INFORMATION
MARKET INFORMATION AND DIVIDEND POLICY
The Company's Common Stock is traded on the National Market tier of The Nasdaq
Stock Market, Inc. ("Nasdaq"), under the symbol "SBUX". The following table sets
forth the quarterly high and low closing sale prices per share of the Common
Stock as reported by Nasdaq for each quarter during the last two fiscal years.
All prices shown reflect the two-for-one stock split effected March 19, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
HIGH LOW
- --------------------------------------------------------------------------------
<S> <C> <C>
October 3, 1999
First Quarter $26 11/16 $16 9/16
Second Quarter 30 11/16 23 9/32
Third Quarter 39 3/4 28 1/16
Fourth Quarter 37 9/16 20 1/16
September 27, 1998
First Quarter $20 29/32 $15 23/32
Second Quarter 21 17/32 16 13/16
Third Quarter 27 1/16 21 9/16
Fourth Quarter 29 9/32 14 19/32
- --------------------------------------------------------------------------------
</TABLE>
As of December 1, 1999, the Company had 8,904 shareholders of record. The
Company has never paid any dividends on its Common Stock. The Company presently
intends to retain earnings for use in its business and, therefore, does not
anticipate paying a cash dividend in the near future.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 3,
1999, WITHOUT THE EXHIBITS THERETO, MAY BE OBTAINED WITHOUT CHARGE BY ACCESSING
THE COMPANY'S FILINGS AT WWW.SEC.GOV OR BY SENDING A REQUEST TO INVESTOR
RELATIONS AT THE ADDRESS OR PHONE NUMBER BELOW.
Quarterly information is available to all shareholders immediately upon its
release, free of charge, via fax, by calling (800) 239-0317 or through access on
the Internet at www.businesswire.com/cnn/sbux.htm. To receive a copy by mail,
please send your request to:
INVESTOR RELATIONS
Investor Relations -- M/S S-FP1
Starbucks Corporation
P.O. Box 34067
Seattle, WA 98124-1067
(206) 447-1575, ext. 87118
<PAGE> 30
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Howard Schultz
Starbucks Corporation,
chairman of the board and
chief executive officer
Orin C. Smith
Starbucks Corporation,
president and
chief operating officer
Arlen I. Prentice
Kibble & Prentice,
co-chairman and
chief executive officer
Barbara Bass
Gerson Bakar Foundation,
president
Craig J. Foley
Wickham Capital Corp.,
president
Craig E. Weatherup
The Pepsi Bottling Group,
chairman and
chief executive officer
Gregory B. Maffei
Microsoft Corporation,
senior vice president and
chief financial officer
Howard P. Behar
director
James G. Shennan, Jr.
Trinity Ventures,
general partner
EXECUTIVE OFFICERS
PRESIDENTS
John B. Richards
president,
North American Operations
Paul D. Davis
president,
Retail North America
Peter Maslen
president,
Starbucks Coffee International, Inc.
EXECUTIVE VICE PRESIDENTS
Deidra Wager
executive vice president, Retail
Eduardo R. Garcia
executive vice president,
Supply Chain and Coffee Operations
Michael Casey
executive vice president,
chief financial officer and
chief administrative officer
SENIOR VICE PRESIDENTS
Arthur Rubinfeld
senior vice president,
Store Development
Bruce Craig
senior vice president,
Retail Field Operations
David W. Frost
senior vice president,
New Business Development
David Olsen
senior vice president
Deborah Gillotti
senior vice president and
general manager, Starbucks X
Engle Saez
senior vice president,
Retail Marketing and
Product Management
Howard Wollner
senior vice president,
Administration and Strategic
Alliance Management
James Alling
senior vice president,
Business Alliances
Mark Wesley
senior vice president,
Store Development and
Asset Management
Mary Williams
senior vice president, Coffee
Michael T. Sweeney
senior vice president and president,
Starbucks Coffee Company (UK) Limited
Pedro Y.K. Man
senior vice president and president,
Starbucks Coffee Asia Pacific Ltd.
Sharon Elliott
senior vice president,
Human Resources
Shelley B. Lanza
senior vice president,
Law and Corporate Affairs,
and general counsel
Wanda Herndon
senior vice president,
Communications and Public Affairs
SECRETARY OF CORPORATION
G. Scott Greenburg
secretary
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Coffee Connection, Inc.
Starbucks New Venture Company
Starbucks Coffee International, Inc.
Starbucks Holding Company
Starbucks Manufacturing Corporation
SBI Nevada, Inc.
(a wholly-owned subsidiary of Starbucks Coffee International, Inc.)
Circadia Corporation
Starbucks U.S. Brands Corporation
Starbucks Asset Management Corporation
(a wholly-owned subsidiary of Starbucks U.S. Brands Corporation)
Starbucks Foreign Sales Corporation
Starbucks Coffee Holdings (UK) Limited
Starbucks Coffee Company (UK) Limited
(a wholly-owned subsidiary of Starbucks Coffee Holdings (UK) Limited)
Seattle Coffee Company International
(a wholly-owned subsidiary of Starbucks Coffee Holdings (UK) Limited)
Torz & Macatonia Limited
(a wholly-owned subsidiary of Starbucks Coffee Holdings (UK) Limited)
Tazo Tea Company
Pasqua Inc.
Starbucks Coffee France, EURL
(a wholly-owned subsidiary of Starbucks Coffee International, Inc.)
Starbucks Coffee Asia Pacific Ltd.
(a wholly-owned subsidiary of Starbucks Coffee International, Inc.)
Starbucks Coffee Company (Australia) Pty Ltd
(a 90% owned subsidiary of the Registrant)
Tympanum, Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-52524, 33-52526, 33-52528, 33-92208, 33-92184, and 333-65181 of Starbucks
Corporation on Forms S-8 of our report dated December 10, 1999, incorporated by
reference in the Annual Report on Form 10-K of Starbucks Corporation for year
ended October 3, 1999.
DELOITTE & TOUCHE LLP
Seattle, Washington
December 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STARBUCKS
CORPORATION FISCAL YEAR ENDED 10/3/99 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-03-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> OCT-03-1999
<CASH> 66,419
<SECURITIES> 56,395
<RECEIVABLES> 48,873
<ALLOWANCES> 1,227
<INVENTORY> 180,886
<CURRENT-ASSETS> 386,500
<PP&E> 1,081,271
<DEPRECIATION> 320,982
<TOTAL-ASSETS> 1,252,514
<CURRENT-LIABILITIES> 251,597
<BONDS> 7,018
0
0
<COMMON> 651,020
<OTHER-SE> 309,933
<TOTAL-LIABILITY-AND-EQUITY> 1,252,514
<SALES> 1,680,145
<TOTAL-REVENUES> 1,680,145
<CGS> 741,010
<TOTAL-COSTS> 741,010
<OTHER-EXPENSES> 782,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,363
<INCOME-PRETAX> 164,026
<INCOME-TAX> 62,333
<INCOME-CONTINUING> 101,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,693
<EPS-BASIC> .56
<EPS-DILUTED> .54
</TABLE>
