<PAGE>
- ----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 28, 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)
Washington 91-1325671
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2401 Utah Avenue South, Seattle, Washington 98134
(Address of Principal Executive Office, including Zip Code)
(206) 447-1575
(Registrant's Telephone Number, including Area Code)
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 [ ]
As of May 1, 1999, there were 181,843,832 shares of the Registrant's Common
Stock outstanding.
- ------------------------------------------------------------------------------
<PAGE>
STARBUCKS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements. . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities and Use of Proceeds. . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 17
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except earnings per share)
<CAPTION>
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
(13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks)
(unaudited) (unaudited)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $375,822 $295,243 $781,460 $616,568
Cost of sales and related
occupancy costs 169,957 133,501 356,256 279,736
Store operating expenses 121,845 95,026 244,449 193,126
Other operating expenses 11,142 8,634 24,450 18,307
Depreciation and
amortization 23,740 17,435 45,634 33,487
General and administrative
expenses 22,371 19,307 42,726 37,090
- -----------------------------------------------------------------------------
Operating income 26,767 21,340 67,945 54,822
Interest and other income 2,431 2,329 4,555 4,486
Interest and other expense (234) (235) (418) (1,080)
- -----------------------------------------------------------------------------
Earnings before
income taxes 28,964 23,434 72,082 58,228
Income taxes 11,007 9,472 27,391 23,310
- -----------------------------------------------------------------------------
Net earnings $17,957 $13,962 $44,691 $34,918
=============================================================================
Net earnings per common share
- basic $ 0.10 $ 0.08 $ 0.25 $ 0.20
Net earnings per common share
- diluted $ 0.10 $ 0.08 $ 0.24 $ 0.19
Weighted average shares outstanding:
Basic 181,370 177,158 180,706 173,557
Diluted 188,349 182,879 186,917 182,383
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 28, September 27,
1999 1998
(unaudited)
- ----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 127,474 $101,663
Short-term investments 38,223 21,874
Accounts receivable 37,971 50,972
Inventories 129,184 143,118
Prepaid expenses and other
current assets 15,883 11,205
Deferred income taxes, net 8,536 8,448
- ----------------------------------------------------------------------
Total current assets 357,271 337,280
Joint ventures and other investments 48,527 38,917
Property, plant and equipment, net 654,224 600,794
Deposits and other assets 20,654 15,685
Goodwill, net 13,663 79
- ----------------------------------------------------------------------
Total $ 1,094,339 $992,755
======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,470 $54,446
Checks drawn in excess of bank balances 34,388 33,634
Accrued compensation and related costs 41,177 35,941
Accrued occupancy costs 19,868 17,526
Other accrued expenses 33,492 37,928
- ----------------------------------------------------------------------
Total current liabilities 183,395 179,475
Deferred income taxes, net 21,607 18,983
Shareholders' equity:
Common stock - Authorized, 300,000,000;
issued and outstanding, 182,551,775 and
179,266,956 shares, respectively,(includes
848,550 common stock units in both periods) 638,516 589,214
Retained earnings 256,937 212,246
Accumulated other comprehensive income (6,116) (7,163)
- ----------------------------------------------------------------------
Total shareholders' equity 889,337 794,297
- ----------------------------------------------------------------------
Total $ 1,094,339 $992,755
======================================================================
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Six Months Ended
- ----------------------------------------------------------------------
March 28, March 29,
1999 1998
(26 Weeks) (26 Weeks)
(unaudited)
- ----------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net earnings $44,691 $34,918
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 50,630 37,154
Deferred income taxes, net 2,479 719
Equity in losses of investees 731 177
Cash provided/(used) by changes in
operating assets and liabilities:
Accounts receivable 13,984 (4,120)
Inventories 11,485 (9,489)
Prepaid expenses and other
current assets (4,473) (1,138)
Accounts payable 1,523 21,401
Accrued compensation and
related costs 4,750 4,636
Accrued occupancy costs 2,342 2,666
Other accrued expenses (6,556) (5,379)
- -----------------------------------------------------------------------
Net cash provided by operating activities 121,586 81,545
Investing activities:
Purchase of investments (80,502) (47,140)
Maturity of investments 59,053 85,640
Sale of investments 0 5,137
Purchases of businesses, net of cash acquired (16,216) 0
Investments in joint ventures (10,002) (6,131)
Distributions from joint ventures 5,500 1,400
Additions to property, plant
and equipment (99,277) (93,993)
Additions to deposits and other assets (4,769) (1,415)
- ----------------------------------------------------------------------
Net cash used by investing activities (146,213) (56,502)
Financing activities:
Decrease in cash provided by checks
drawn in excess of bank balances (114) (7,090)
Proceeds from sale of common stock 3,329 6,881
Exercise of stock options 29,789 8,609
Tax benefit from exercise of non-qualified
stock options 16,184 4,408
- ----------------------------------------------------------------------
Net cash provided by financing activities 49,188 12,808
- ----------------------------------------------------------------------
Balance, carried forward 24,561 37,851
(Continued on next page)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Balance, brought forward 24,561 37,851
Effect of exchange rate changes
on cash and cash equivalents 1,250 (39)
- -----------------------------------------------------------------------
Net increase in cash and
cash equivalents 25,811 37,812
Cash and cash equivalents:
Beginning of the period 101,663 70,126
- ----------------------------------------------------------------------
End of the period $127,474 $107,938
======================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 90 $3,828
Income taxes 18,789 18,756
Net unrealized holding gain/(loss) 87 (406)
on investments
Conversion of convertible debt into common
stock, net of unamortized issue costs and
accrued interest 0 162,036
Common stock tendered in settlement of stock
options exercised 0 4,859
See notes to consolidated financial statements
</TABLE>
6
<PAGE>
STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks and 26 Weeks Ended March 28, 1999 and March 29, 1998
NOTE 1: FINANCIAL STATEMENT PREPARATION
The consolidated financial statements as of March 28, 1999 and September 27,
1998 and for the 13-week and 26-week periods ended March 28, 1999 and
March 29, 1998 have been prepared by Starbucks Corporation ("Starbucks" or
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The financial information for the 13-week
and 26-week periods ended March 28, 1999 and March 29, 1998 is unaudited,
but, in the opinion of management, reflects all adjustments (consisting only
of normal recurring adjustments and accruals) necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods.
The financial information as of September 27, 1998, is derived from the
Company's audited consolidated financial statements and notes thereto for the
year ended September 27, 1998, and should be read in conjunction with such
financial statements.
Certain reclassifications of prior year's balances have been made to conform
to the current format.
The results of operations for the 13-week and 26-week periods ended March 28,
1999 are not necessarily indicative of the results of operations that may be
achieved for the entire fiscal year ending October 3, 1999.
On March 19, 1999, the Company recorded a 2-for-1 stock split for holders of
record on March 5, 1999. Accordingly, outstanding shares, stock options, and
per share data presented herein have been retroactively restated for all
periods.
NOTE 2: OTHER EVENTS
On January 20, 1999, Starbucks acquired the net assets of Tazo, L.L.C.
("Tazo"), a Portland, Oregon-based tea company that produces premium tea
products. The total purchase price for Tazo was $8.1 million and was
recorded under the purchase method of accounting. The purchase price of Tazo
has been allocated to the underlying assets acquired and liabilities assumed
based on preliminary estimates of their fair values at the date of acquisition.
Estimates may be revised at a later date. The residual of approximately
$7.0 million was recorded to "Goodwill" and is being amortized on a straight-
line basis over 10 years. Contingent consideration of $0.9 million is
currently held in escrow pending resolution of certain potential claims by
Starbucks under the purchase agreement. The contingent consideration amount
is not included in the purchase price above. Once the contingencies are
resolved and the escrow period ends, the Company will record the fair value
of any additional net assets acquired and will record any excess
consideration as additional goodwill. The results of operations of Tazo are
included in the accompanying financial statements from the date of acquisition.
On March 1, 1999, Starbucks acquired the stock of Pasqua Inc. ("Pasqua"), a
San Francisco, California-based roaster and retailer of specialty coffee.
The total purchase price for Pasqua was $9.0 million and was recorded under
the purchase method of accounting. The purchase price of Pasqua has been
allocated to the underlying assets acquired and liabilities assumed based
on preliminary estimates of their fair values at the date of acquisition.
Estimates may be revised at a later date. The residual of approximately $6.8
million was recorded to "Goodwill" and is being amortized on a straight-line
basis over 10 years. Contingent consideration of $1.9 million is currently
held in escrow pending resolution of certain potential claims by Starbucks
under the purchase agreement. The contingent consideration amount is not
included in the purchase price above. Once the contingencies are resolved and
the escrow period ends, the Company will record the fair value of any
additional net assets acquired and will record any excess consideration as
additional goodwill. The results of operations of Pasqua are included in the
accompanying financial statements from the date of acquisition.
7
<PAGE>
Pro forma financial information showing the results of operations as if the
acquisitions had occurred at the beginning of the year is not presented as the
acquisitions would not have had a material impact on previously reported
results.
NOTE 3: EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted average
number of common shares and common stock units outstanding during the period.
The computation of diluted earnings per share includes the dilutive effect of
common stock equivalents consisting of certain shares subject to stock options.
The computation of diluted earnings per share also assumes conversion of the
Company's convertible subordinated debentures using the "if converted" method,
when such securities are dilutive, with net income adjusted for the after-tax
interest expense and amortization of issuance costs applicable to these
debentures. The Company's convertible subordinated debentures were converted
to equity during the first quarter of fiscal 1998.
NOTE 4: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Coffee:
Unroasted $ 62,316 $ 77,400
Roasted 20,553 18,996
Other merchandise held for sale 37,375 36,850
Packaging and other supplies 8,940 9,872
- -------------------------------------------------------------------
$ 129,184 $ 143,118
===================================================================
</TABLE>
As of March 28, 1999, the Company had fixed-price purchase commitments for
green coffee totaling approximately $134 million.
The Company may, from time to time, enter into futures contracts to hedge
price-to-be-established coffee purchase commitments with the objective of
minimizing cost risk due to market fluctuations. The Company does not hold
or issue derivative instruments for trading purposes. In accordance with
Statement of Financial Accounting Standards ("SFAS") 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 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 cost of coffee purchased.
NOTE 5: NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company will adopt SFAS 131 at the end of fiscal year 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." This
pronouncement will require the Company to recognize certain 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 comprehensive income
until the hedged item is recognized in earnings. The Company expects that
this new standard will not have a significant effect on its results of
operations. SFAS 133 is effective for fiscal years beginning after June 15,
1999.
8
<PAGE>
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
Property, plant, and equipment are recorded at cost and consist of
the following
(in thousands):
<CAPTION>
March 28, September 27,
1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Land $ 3,602 $ 3,602
Building 8,338 8,338
Leasehold improvements 521,703 460,020
Roasting and store equipment 246,282 218,744
Furniture, fixtures and other 91,677 79,953
- ------------------------------------------------------------------
871,602 770,657
Less accumulated depreciation
and amortization (267,144) (218,455)
- ------------------------------------------------------------------
604,458 552,202
Work in progress 49,766 48,592
- ------------------------------------------------------------------
$ 654,224 $ 600,794
==================================================================
</TABLE>
NOTE 7: COMPREHENSIVE INCOME
The Company has adopted SFAS 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 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>
Three months ended Six months ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 17,957 $ 13,962 $ 44,691 $ 34,918
Translation adjustment 237 168 964 (1,098)
Unrealized holding gains/(losses) 28 (58) 21 (406)
Add: reclassification adjustment
for losses realized in net
income 62 0 62 0
-------- -------- -------- --------
Total comprehensive income $ 18,284 14,072 $ 45,738 $ 33,414
========================================================================
</TABLE>
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements herein, including anticipated store openings, planned
capital expenditures, projected goodwill amortization 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 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.
GENERAL
During the 26-week period ending March 28, 1999, Starbucks Corporation
("Starbucks" or the "Company") derived approximately 85% of net revenues
from its Company-operated retail stores. The remaining 15% of net revenues
were derived from the Company's specialty sales operations, which include
product sales to wholesale customers, product sales to and royalties and fees
from licensees, and direct response sales.
The Company's fiscal year ends on the Sunday closest to September 30. Fiscal
year 1998 had 52 weeks. The fiscal year ending on October 3, 1999 will
include 53 weeks.
During the second quarter, Starbucks completed the purchases 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. The results of operations for Tazo
and Pasqua are included in the accompanying financial statements from the dates
of acquisition. See additional disclosure in "Other Events" below.
RESULTS OF OPERATIONS -- FOR THE 13 WEEKS ENDED MARCH 28, 1999, COMPARED TO
THE 13 WEEKS ENDED MARCH 29, 1998
Revenues. Net revenues for the 13 weeks ended March 28, 1999, increased 27%
to $376 million from $295 million for the corresponding period in fiscal 1998.
Retail sales increased 26% to $319 million from $253 million due primarily to
the opening of new retail stores plus an increase in comparable store sales
(sales from stores open 13 months or longer) of 6% for the period. The
increase in comparable store sales resulted from a 5% increase in the number of
transactions combined with an approximate 1% increase in the average dollar
value per transaction. During the 13 weeks ended March 28, 1999, the Company
opened 115 stores in continental North America and 6 in the United Kingdom.
The Company ended the period with 1,828 Company-operated stores in continental
North America and 80 Company-operated stores in the United Kingdom.
Specialty sales revenues increased 36% to $57 million for the 13 weeks ended
March 28, 1999, compared to $42 million for the corresponding period in fiscal
1998. Specialty sales growth was driven primarily by higher sales to
business dining accounts, higher revenues in the grocery category and higher
sales to licensees and joint ventures. Licensees (including those in which
the Company is a joint venture partner) opened 18 stores in continental North
America and 24 stores in international markets. The Company ended the period
with 164 licensed stores in continental North America and 120 licensed stores
in international markets.
Costs and Expenses. Cost of sales and related occupancy costs as a percentage
of net revenues was 45.2% for both the 13 weeks ended March 28, 1999 and the
corresponding period in fiscal 1998. Lower green coffee costs and favorable
10
<PAGE>
product mix shifts within the retail stores offset higher dairy costs, higher
packaging costs, and higher retail occupancy costs, as well as the impact of an
overall business mix shift from higher margin retail sales to lower margin
specialty sales.
Store operating expenses as a percentage of retail sales increased to 38.2%
for the 13 weeks ended March 28, 1999, from 37.5% for the corresponding period
in fiscal 1998. The increase was due primarily to higher payroll-related
expenditures resulting from an increase in average hourly wage rates as well as
a continuing shift in sales mix to the more labor-intensive hand-crafted
beverages. Store operating expenses were also impacted by the greater
significance of the United Kingdom operations, which have higher store operating
expenses relative to retail sales than the North American stores.
Other operating expenses (expenses associated with all operations other than
Company-owned retail, including the Company's share of joint venture profits and
losses) were 19.5% of specialty sales revenue for the 13 weeks ended March 28,
1999, compared to 20.5% for the corresponding period in fiscal 1998. The
decrease was due primarily to lower operating expenses associated with the
grocery business. During 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 began in the first quarter of fiscal 1999.
Depreciation and amortization was 6.3% of net revenues, up from 5.9% of net
revenues in the second quarter of fiscal 1998 due primarily to depreciation on
new information systems projects put into service in the last year.
Depreciation and amortization also includes a partial quarter's amortization of
goodwill related to the Tazo and Pasqua acquisitions. Looking forward, the
quarterly charge for goodwill amortization is expected to be approximately
$0.4 million.
General and administrative expenses as a percentage of net revenues were 6.0%
for the 13 weeks ended March 28, 1999, compared to 6.5% for the same period in
fiscal 1998. This decrease was primarily due to lower payroll-related
expense, rent, and maintenance expense, as a percentage of net revenues.
Income Taxes. The Company's effective tax rate for the 13 weeks ended
March 28, 1999 was 38.0% compared to 40.4% for the corresponding period in
fiscal 1998. Fiscal year 1998 included non-deductible losses incurred by
Seattle Coffee Company prior to the business combination which occurred in the
third quarter of fiscal 1998. The Company expects the effective tax rate to be
38.0% for the remainder of fiscal 1999.
RESULTS OF OPERATIONS -- FOR THE 26 WEEKS ENDED MARCH 28, 1999, COMPARED TO
THE 26 WEEKS ENDED MARCH 29, 1998
Revenues. Net revenues for the 26 weeks ended March 28, 1999, increased 27%
to $781 million from $617 million for the corresponding period in fiscal 1998.
Retail sales increased 25% to $662 million from $528 million due primarily to
the opening of new retail stores combined with an increase in comparable store
sales (sales from stores open 13 months or longer) of 5% for the period. The
increase in comparable store sales resulted from an increase in the number of
transactions, partially offset by a slight (less than 1%) decrease in the
average dollar value per transaction. During the 26 weeks ended March 28, 1999,
the Company opened 212 stores in continental North America and 14 in the United
Kingdom.
Specialty sales revenues increased 36% to $120 million for the 26 weeks ended
March 28, 1999, compared to $88 million for the corresponding period in fiscal
1998. Specialty sales growth was driven primarily by higher revenues in the
grocery category and higher sales to licensees and joint ventures. Licensees
(including those in which the Company is a joint venture partner) opened 27
stores in continental North America and 56 stores in international markets.
Costs and Expenses. Cost of sales and related occupancy costs as a percentage
of net revenues was 45.6% for the 26 weeks ended March 28, 1999 compared to
45.4% for
11
<PAGE>
the corresponding period in fiscal 1998 due to higher occupancy costs. Cost of
sales was negatively impacted by an overall mix shift from retail to specialty
sales, offset by improved retail product margins. Lower green coffee costs
and favorable product mix shifts within the retail stores more than offset
higher dairy costs.
Store operating expenses as a percentage of retail sales increased to 37.0%
for the 26 weeks ended March 28, 1999, from 36.6% for the corresponding period
in fiscal 1998. The increase was due primarily to the increasing significance
of the United Kingdom operations which have higher store operating expenses
relative to retail sales than the North American stores.
Other operating expenses were 20.4% of specialty sales revenue for the 26 weeks
ended March 28, 1999, compared to 20.7% for the corresponding period in fiscal
1998. The decrease was due to lower operating expenses resulting from the
transition of the grocery business to Kraft in the first quarter of fiscal
1999, partially offset by higher payroll and other expenses associated with
supervising licensed operations and the new Tazo tea business.
Depreciation and amortization was 5.8% of net revenues, up from 5.4% of net
revenues in the corresponding period of fiscal 1998 due primarily to
depreciation on new information systems projects put into service in the last
year.
General and administrative expenses as a percentage of net revenues were 5.5%
for the 26 weeks ended March 28, 1999, compared to 6.0% for the same period in
fiscal 1998. This decrease was due to slower growth in payroll-related and
all other administrative expenses relative to net revenue growth.
Interest and other expense for the 26 weeks ended March 28, 1999 was $0.4
million compared to $1.1 million for the corresponding period in 1998. The
decrease is due to the conversion of the Company's convertible subordinated
debentures to common stock during the first quarter of fiscal 1998.
Income Taxes. The Company's effective tax rate for the 26 weeks ended
March 28, 1999 was 38.0% compared to 40.0% for the corresponding period in
fiscal 1998. Fiscal year 1998 included non-deductible losses incurred by
Seattle Coffee Company prior to the business combination which occurred in the
third quarter of fiscal 1998.
OTHER EVENTS
On January 20, 1999, Starbucks acquired the net assets of Tazo, L.L.C.
("Tazo"), a Portland, Oregon-based tea company that produces premium tea
products. The total purchase price for Tazo was $ 8.1 million and was
recorded under the purchase method of accounting. The purchase price of Tazo
has been allocated to the underlying assets acquired and liabilities assumed
based on prelimary estimates of their fair values at the date of acquisition.
Estimates may be revised at a later date. The residual of approximately $7.0
million was recorded to "Goodwill" and is being amortized on a straight-line
basis over 10 years. Contingent consideration of $0.9 million is currently
held in escrow pending resolution of certain potential claims by Starbucks
under the purchase agreement. The contingent consideration amount is not
included in the purchase price above. Once the contingencies are resolved and
the escrow period ends, the Company will record the fair value of any
additional net assets acquired and will record any excess consideration as
additional goodwill. The results of operations of Tazo are included in the
accompanying financial statements from the date of acquisition.
On March 1, 1999, Starbucks acquired the stock of Pasqua Inc. ("Pasqua"), a
San Francisco, California-based roaster and retailer of specialty coffee. The
total purchase price for Pasqua was $9.0 million and was recorded under the
purchase method of accounting. The purchase price of Pasqua has been allocated
to the underlying assets acquired and liabilities assumed based on
preliminary estimates of their fair values at the date of acquisition.
Estimates may be revised at a later date. The residual of approximately $6.8
million was recorded to "Goodwill" and is being amortized on a straight-line
basis over 10 years. Contingent consideration of $1.9 million is currently
held in escrow pending resolution of certain potential
12
<PAGE>
claims by Starbucks under the purchase agreement. The contingent
consideration amount is not included in the purchase price above. Once the
contingencies are resolved and the escrow period ends, the Company will
record the fair value of any additional net assets acquired and will record any
excess consideration as additional goodwill. The results of operations of
Pasqua are included in the accompanying financial statements from the date of
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the period with $165.7 million in total cash and short-term
investments and working capital of $173.9 million. Cash and cash equivalents
increased by $25.8 million for the 26 weeks ended March 28, 1999 to $127.5
million. Cash provided by operating activities totaled $121.6 million for the
first 26 weeks of fiscal 1999, resulting primarily from net earnings before
non-cash charges of $98.5 million, a $14.0 million decrease in accounts
receivable and a $11.5 million decrease in inventories.
Cash used by investing activities for the first 26 weeks of fiscal 1999
totaled $146.2 million. This included capital additions to property, plant and
equipment of $99.3 million related to opening 226 new Company-operated stores,
enhancing information systems, purchasing roasting and packaging equipment, and
remodeling certain existing stores. The acquisition of Tazo and Pasqua used
$16.2 million. During the 26-week period ending March 28, 1999, the Company
made equity investments of $10.0 million in its joint ventures and received
$5.5 million in distributions from its domestic joint ventures. 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 the 26-week period used $21.4 million.
Cash provided from financing activities for the first 26 weeks of fiscal 1999
totaled $49.2 million and included cash generated from the exercise of employee
stock options and the related income tax benefit available to the Company upon
exercise of such options and cash generated from the Company's employee stock
purchase plan. As options granted under the Company's stock option plans
vest and are exercised, the Company will continue to receive proceeds and a tax
deduction; however, neither the amounts nor timing can be predicted.
Cash requirements for the remainder of fiscal 1999, 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 and its
licensees plan to open a total of at least 400 new stores in continental North
America and 130 in international markets during fiscal 1999. The Company
also anticipates making additional expenditures for enhancing its production
capacity and information systems and remodeling certain existing stores.
While there can be no assurance that amounts and timing of the expenditures
will occur as planned, management expects capital expenditures for the
remainder of fiscal 1999 to be approximately $150 million, excluding any major
new initiatives.
Management recently announced its intention to pursue business opportunities on
the Internet. In order to do so, the Company may invest in, and possibly
acquire, related businesses. The strategy for developing this business is
still being formulated and related capital requirements are not yet known.
Management believes that existing cash and investments plus cash generated from
operations should be sufficient to finance capital requirements for the
remainder of fiscal 1999, barring any major new initiatives. Longer term, the
Company expects to reach its goal of at least 2,500 stores in continental North
America by the end of the year 2000 and at least 500 stores in the Pacific Rim
and 500 stores in Europe by the end of 2003, using cash flow generated from
operations supplemented by debt financing, if necessary.
13
<PAGE>
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, at
the Company and elsewhere, with time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
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 has
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 communications 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
catalogued, evaluated for potential exposures and remediation plans developed
as appropriate. By the fourth quarter of fiscal 1999, the vast majority of
remediation activity in the form of code corrections and application testing
is expected to be completed. Contingency planning activities and overall
integration testing coordination will continue throughout the balance of
fiscal 1999. Some final integration testing and conversion preparation
efforts may extend into early first quarter of fiscal 2000.
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 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 the second quarter of
fiscal 1999, the Company had received responses from approximately 75% of these
product and service suppliers, virtually all of which indicate that they are
actively addressing the Year 2000 issues. The Company is continuing to solicit
and track responses to its inquiries and has begun to work with its suppliers
to develop appropriate contingency plans. The contingency plans may 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 expects
to complete initial contingency planning for each of its business units or
departments by mid 1999 and to conduct tests of certain critical non-MIS
supported systems (even if the Company has received assurances of compliance)
through the end of the fiscal year. 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 is vulnerable to (i) delays in
14
<PAGE>
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.
The Company has spent approximately $0.9 million in direct costs for the Year
2000 compliance project through the second quarter of fiscal 1999 and expects
to spend an additional $1.1 million to complete its remediation efforts. The
total cost to complete remediation efforts and the dates by which the Company
expects to complete its Year 2000 remediation and testing processes are
management's best estimates, which are 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 AND AVAILABILITY AND GENERAL RISK CONDITIONS
Green coffee commodity prices are subject to substantial price fluctuations,
caused by various factors including weather, political and economic
conditions in certain coffee-producing countries and other supply-related
concerns. 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 March 28, 1999, the Company had
approximately $134 million in fixed-price purchase commitments which, together
with existing inventory, is expected to provide an adequate supply of green
coffee well into 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.
To further reduce its exposure to rising coffee costs, the Company, from time
to time, enters into futures contracts to hedge price-to-be-established coffee
purchase commitments. The specific risks associated with these activities are
described below in Item 3 "Quantitative and Qualitative Disclosures about Market
Risk."
In addition to fluctuating coffee prices, management believes that the
Company's future results of operations and earnings could be significantly
impacted by factors such as increased competition within the specialty coffee
industry, the Company's ability to find optimal store locations at favorable
lease rates, the increased costs associated with opening and operating retail
stores in new markets, and the Company's ability to hire, train and retain
qualified personnel.
Management recently announced its intention to pursue business opportunities on
the Internet. As this is outside the Company's historical area of expertise,
there is inherently more risk. Also, the Company faces intense competition for
Internet business. There can be no assurance that the Company's future results
of operations will not be adversely impacted by new Internet business ventures.
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
seasonal influences. Because of
15
<PAGE>
the seasonality of the Company's business and its overall growth, 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 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company will adopt SFAS 131 at the end of fiscal year 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." This pronouncement will require the
Company to recognize certain 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 comprehensive income until the hedged item is recognized in
earnings. The Company expects that this new standard will not have a
significant effect on its results of operations. SFAS 133 is effective for
fiscal years beginning after June 15, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. The
Company does not hedge its interest rate exposures.
The Company is subject to foreign currency exchange rate exposure, primarily
related to its 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 hedge
known transaction exposure in the future.
The Company may, from time to time, enter into futures contracts to hedge
price-to-be-established coffee purchase commitments with the objective of
minimizing cost risk due to market fluctuations. The Company does not hold
or issue derivative instruments for trading purposes. In accordance with
Statement of Financial Accounting Standards 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 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 cost of coffee purchased.
PART II. OTHER INFORMATION
ITEM 1. 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
that management believes would have a material adverse effect on the financial
position or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 19, 1999, the Company effected a two-for-one stock split of its
Common Stock for holders of record on March 5, 1999. In connection therewith,
the Company amended its Restated Articles of Incorporation to authorize the
issuance of up to 300,000,000 shares of Common Stock, no par value per share.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on February 23, 1999
for the purposes of electing three Class 3 directors to serve until the Annual
Meeting of Shareholders for fiscal year 2001, one class Class 1 director to
serve until the Annual Meeting of Shareholders for fiscal 1999, one Class 2
director to serve until the Annual Meeting of Shareholders for fiscal 2000;
approving the amendment and restatement of the Starbucks Corporation 1989 Stock
Option Plan for Non-Employee Directors to extend the term of the plan,
increase by 1,450,000(1) the number of shares of the Company's Common Stock
reserved for issuance under the plan and increase the number of options granted
annually to each non-employee director from 20,000 to 25,000; and ratifying the
selection of the independent auditors for fiscal 1999. All proposals were
approved. The table below shows the results of the shareholders'
voting:
<TABLE>
<CAPTION>
Votes in Votes Votes
Favor(1) Against(1) Abstain(1)
----------- ------------ -----------
<S> <C> <C> <C>
Election of Directors
Class 3 Directors:
Barbara Bass 161,478,450 0 1,064,288
Craig J. Foley 161,469,954 0 1,072,784
Howard Schultz 161,489,314 0 1,053,424
Class 1 Director:
Craig E. Weatherup 161,324,424 0 1,218,314
Class 2 Director:
Gregory B. Maffei 161,320,636 0 1,222,102
Approve the amendment and
restatement of the Company's
Stock Option Plan for Non-
Employee Directors - 1989 120,439,018 41,277,902 825,818
Ratification of
independent auditors 161,833,432 349,906 359,400
</TABLE>
Because all proposals were routine, there were no broker non-votes.
(1) All share numbers have been restated to reflect the 2-for-1 stock split
that occurred on March 19, 1999.
The following members of the Board of Directors, who were not up for
re-election during the current year, have terms that expire at the annual
meeting for the fiscal years 1999 and 2000:
Director Term expires at the
annual meeting for fiscal:
- -------------------------------------------------------------------------
Howard P. Behar 1999
James G. Shennan 1999
Arlen I. Prentice 2000
Orin C. Smith 2000
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3(i) Restated Articles of Incorporation
11 Statement re: computation of per share earnings
27 Financial Data Schedule
17
<PAGE>
(b) Current Reports on Forms 8-K filed during the 13 weeks ended
March 28,1999:
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARBUCKS CORPORATION
Dated: May 12, 1999 By: /s/ Michael Casey
----------------------
Michael Casey
executive vice president and
chief financial officer
Signing on behalf of the
registrant and as principal
financial officer
18
<PAGE>
EXHIBIT 3(i)
RESTATED ARTICLES OF INCORPORATION
OF
STARBUCKS CORPORATION
Pursuant to RCW 23B.10.070, the following Restated Articles of
Incorporation are hereby submitted for filing:
ARTICLE 1. NAME
The name of this corporation is Starbucks Corporation.
ARTICLE 2. DURATION
The period of this corporation's duration is perpetual.
ARTICLE 3. PURPOSES
This corporation is organized for the purposes of transacting any and
all business for which corporations may be incorporated under Title 23A of
the Revised Code of Washington, as amended, including, but not limited to
establishing and operating retailcoffee and espresso bars in the State of
Washington and in other states.
ARTICLE 4. SHARES
The Corporation shall have authority to issue 307,500,000 shares of
capital stock, of which 300,000,000 shares will be common stock, and,
7,500,000 shares will be preferred stock.
4.1 Common Stock. The Corporation shall have authority to issue up
to 300,000,000 shares of common stock, each share without par value.
4.2 Preferred Stock. The Corporation shall have authority to issue
up to 7,500,000 shares of preferred stock, each share without par value. The
Board of Directors shall have all rights afforded by applicable law to
establish series of said preferred shares, the rights and preferences of each
such series to be set forth in appropriate resolutions of the Board.
ARTICLE 5. DIRECTORS
5.1 Number of Directors. The number of directors of this Corporation
shall be fixed by the bylaws and may be increased or decreased from time to
time in the manner specified herein.
5.2 Terms of Directors. Beginning with the Board of Directors
elected at the first Annual Meeting of Shareholders held after all series of
Preferred Stock outstanding as of May 20, 1992 are converted to Common Stock,
the terms of office of all Directors shall be staggered by dividing the total
number of Directors into three groups, with each group containing one-third of
the total
19
<PAGE>
number of Directors, as near as may be. The terms of Directors in the first
group will expire at the first annual shareholders' meeting after their
election, the terms of the second group will expire at the second annual
shareholders' meeting after their election, and the terms of the third group
will expire at the third annual shareholders' meeting after their election. At
each annual shareholders' meeting held thereafter, Directors shall be chosen for
a term of three years to succeed those whose terms expire.
ARTICLE 6. PREEMPTIVE RIGHTS
6.1 Common Stock. Shareholders of the Common Stock of this
corporation shall not have preemptive rights to acquire shares of stock or
securities convertible into shares of stock issued by the corporation.
6.2 Preferred Stock. Holders of Preferred Stock shall have
preemptive rights subject to the rights and preferences as described under
Article 4 of these Articles of Incorporation
ARTICLE 7. CUMULATIVE VOTING
Shareholders of this Corporation shall not have the right to cumulate
votes in the election of directors.
ARTICLE 8. AMENDMENTS OF ARTICLES OF INCORPORATION
The Corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation, in the manner now or hereafter
prescribed by law. All rights and powers conferred herein on shareholders
and directors are subject to this reserved power.
ARTICLE 9. INCORPORATOR
The name and address of the incorporator is G. Scott Greenburg, Shidler
McBroom Gates & Lucas, 3500 First Interstate Center, Seattle, Washington, 98104.
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation
or elimination of the liability of directors, a director of the Corporation
shall not be liable to the Corporation or its shareholders for monetary
damages for his acts or omissions as a director. Any amendment to or repeal of
this Article 11 shall not adversely affect any right or protection of a
director of theCorporation for or with respect to any acts or omissions
occurring prior to such amendment or repeal.
20
<PAGE>
The undersigned, as Secretary of Starbucks Corporation, executes these
Restated Articles of Incorporation as duplicate originals under penalty of
perjury this 11th day of September, 1992.
STARBUCKS CORPORATION
/s/ G. Scott Greenburg
______________________
G. Scott Greenburg
Secretary
21
<PAGE>
<TABLE>
STARBUCKS CORPORATION
---------------------
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<CAPTION>
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
(13 Weeks) (26 Weeks)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALCULATION OF EARNINGS PER COMMON
SHARE-BASIC:
Net earnings $ 17,957 $ 13,962 $ 44,691 $34,918
==============================================================================
Weighted average common shares and
common stock units outstanding 181,370 177,158 180,706 173,557
==============================================================================
Net earnings per common share-basic $ 0.10 $ 0.08 $ 0.25 $0.20
==============================================================================
CALCULATION OF EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE-DILUTED(1):
Net earnings calculation:
Net earnings $ 17,957 $ 13,962 $ 44,691 $ 34,918
Add after-tax interest
expense on debentures 0 0 0 348
Add after-tax amortization of issuance
costs related to the debentures 0 0 0 30
- -----------------------------------------------------------------------------
Adjusted net earnings $ 17,957 $ 13,962 $ 44,691 $ 35,296
=============================================================================
Weighted average shares outstanding
calculation:
Weighted average common shares
and common stock units outstanding 181,370 177,158 180,706 173,557
Dilutive effect of outstanding common
stock options 6,979 5,721 6,211 6,018
Assuming conversion of convertible
subordinated debentures 0 0 0 2,808
- ----------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 188,349 182,879 186,917 182,383
============================================================================
Net earnings per common and
common equivalent share-diluted $ 0.10 $ 0.08 $0.24 $0.19
============================================================================
(1) Diluted earnings per share assumes conversion of the Company's convertible
subordinated debentures using the "if converted" method, when such securities
are dilutive, with income adjusted for the after-tax interest expense and
amortization applicable to these debentures. The Company's convertible
subordinated debentures were converted to equity during the first quarter of
fiscal 1998.
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Starbucks Corporation second quarter fiscal 1999 consolidated financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-3-1999
<PERIOD-START> SEP-28-1999
<PERIOD-END> MAR-28-1999
<CASH> 127,474
<SECURITIES> 38,223
<RECEIVABLES> 38,589
<ALLOWANCES> 618
<INVENTORY> 129,184
<CURRENT-ASSETS> 357,271
<PP&E> 921,368
<DEPRECIATION> 267,144
<TOTAL-ASSETS> 1,094,339
<CURRENT-LIABILITIES> 183,395
<BONDS> 0
0
0
<COMMON> 638,516
<OTHER-SE> 250,821
<TOTAL-LIABILITY-AND-EQUITY> 1,094,339
<SALES> 781,460
<TOTAL-REVENUES> 781,460
<CGS> 356,256
<TOTAL-COSTS> 356,256
<OTHER-EXPENSES> 357,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 72,082
<INCOME-TAX> 27,391
<INCOME-CONTINUING> 44,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,691
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
