-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ATNBGPvimnRasbohcaXJLlVMLBKjj9qI7WbtsYb2bqcxgA3k4TP27Vq+kO1N7lS5 nzkEShLSa+iAQUhf+O1M3A== 0000887557-96-000015.txt : 20040401 0000887557-96-000015.hdr.sgml : 20040401 19960812120200 ACCESSION NUMBER: 0000887557-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 DATE AS OF CHANGE: 19970203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARBUCKS CORP CENTRAL INDEX KEY: 0000829224 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING & DRINKING PLACES [5810] IRS NUMBER: 911325671 STATE OF INCORPORATION: WA FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20322 FILM NUMBER: 96608082 BUSINESS ADDRESS: STREET 1: P O BOX 34067 CITY: SEATTLE STATE: WA ZIP: 98124-1067 BUSINESS PHONE: 2064471575 MAIL ADDRESS: STREET 1: 2401 UTAH AVENUE SOUTH CITY: SEATTLE STATE: WA ZIP: 98134 10-Q 1 1996 3RD QUARTER 10-Q 1 - ------------------------------------------------------------------------------- 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 June 30, 1996 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 August 1, 1996, there were 77,358,880 shares of the registrant's Common Stock outstanding. - ------------------------------------------------------------------------------- 2 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. . . 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 14 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 15 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except earnings per share)
Three Months Ended Nine Months Ended June 30, July 2, June 30, July 2, 1996 1995 1996 1995 (13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks) - -------------------------------------------------------------------------- Net sales $176,950 $119,174 $500,095 $335,833 Cost of sales and related occupancy costs 83,164 53,723 246,619 151,344 Store operating expenses 54,757 39,304 148,993 108,648 Other operating expenses 4,941 3,515 14,516 10,116 Depreciation and amortization 9,454 5,918 25,615 15,534 General and administrative expenses 10,014 6,407 26,373 18,643 - ------------------------------------------------------------------------- Operating income 14,620 10,307 37,979 31,548 Interest income 2,829 1,917 7,944 5,273 Gain on sale of investment 0 0 9,201 0 Interest expense (1,960) (907) (6,919) (2,783) - ------------------------------------------------------------------------- Earnings before income taxes 15,489 11,317 48,205 34,038 Income taxes 6,043 4,472 18,802 13,442 - ------------------------------------------------------------------------- Net earnings $9,446 $6,845 $29,403 $20,596 ========================================================================= Net earnings per common and common equivalent share - primary $0.12 $0.09 $0.39 $0.29 ========================================================================= Net earnings per common and common equivalent share - assuming full dilution $0.12 $0.09 $0.38 $0.29 ========================================================================= Weighted average common and common equivalent shares outstanding - primary 78,973 72,861 75,598 70,556 Weighted average common and common equivalent shares outstanding - assuming full dilution 80,535 73,411 80,386 71,336
See notes to consolidated financial statements 3 4 STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
June 30, October 1, 1996 1995 - ---------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 139,944 $ 20,944 Short-term investments 89,860 41,507 Accounts and notes receivable (net of allowance for doubtful accounts of $302 and $242, respectively) 15,140 10,157 Inventories 76,949 123,657 Prepaid expenses and other current assets 5,750 4,746 Deferred income taxes, net 4,853 4,644 - ---------------------------------------------------------------------- Total current assets 332,496 205,655 Joint ventures and equity investments 4,818 11,628 Property, plant and equipment, net 334,339 244,728 Deposits and other assets 8,542 6,167 - ---------------------------------------------------------------------- Total $ 680,195 $468,178 ====================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,695 $28,668 Checks drawn in excess of bank balances 15,047 13,138 Accrued compensation and related costs 12,615 12,786 Accrued interest payable 1,229 650 Other accrued expenses 22,021 15,804 Income taxes payable 2,756 0 - ---------------------------------------------------------------------- Total current liabilities 77,363 71,046 Deferred income taxes, net 5,907 3,490 Capital lease obligation 1,018 1,013 Convertible subordinated debentures 165,020 80,398 Shareholders' equity: Common Stock, no par value -- 150,000,000 shares authorized; 77,188,729 and 70,956,990 shares, respectively, issued and outstanding 355,308 265,679 Retained earnings including cumulative translation adjustment of $(737) and $(435), respectively, and net unrealized holding gain(loss) on investments of $(40) and $34, respectively 75,579 46,552 - ---------------------------------------------------------------------- Total shareholders' equity 430,887 312,231 - ---------------------------------------------------------------------- Total $ 680,195 $ 468,178 ======================================================================
See notes to consolidated financial statements 4 5 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended - ---------------------------------------------------------------------- June 30, July 2, 1996 1995 (39 Weeks) (39 Weeks) - ---------------------------------------------------------------------- Operating activities: Net earnings $ 29,403 $ 20,596 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 28,072 16,905 Deferred income taxes, net 2,208 (1,676) Equity in losses of investees 1,166 709 Gain on sale of equity investment (9,201) 0 Cash provided (used) by changes in operating assets and liabilities: Accounts and notes receivable (4,985) (2,945) Inventories 46,697 (31,843) Prepaid expenses and other current assets (1,007) (199) Accounts payable (5,038) 8,844 Income taxes payable 2,808 5,475 Accrued compensation and related costs (180) 3,060 Accrued interest payable 1,432 921 Other accrued expenses 5,720 7,005 - ---------------------------------------------------------------------- Net cash provided by operating activities 97,095 26,852 Investing activities: Purchase of short-term investments (128,142) (133,791) Sale of short-term investments 7,711 14,363 Maturity of short-term investments 71,956 46,110 Investments in joint ventures and equity securities (5,690) (11,324) Proceeds from sale of equity investments 20,535 0 Additions to property, plant and equipment (116,471) (90,331) Increase in deposits and other assets (876) (1,712) - ---------------------------------------------------------------------- Net cash used by investing activities (150,977) (176,685) Financing activities: Increase(decrease) in cash provided by checks drawn in excess of bank balances 1,904 (3,339) Proceeds from sale of convertible debentures 165,020 0 Debt issuance costs (4,041) 0 Proceeds from notes payable 0 19,000 Principal repayments of notes payable 0 (19,000) Net proceeds from sale of common stock 0 163,873 Proceeds from sale of common stock under employee stock purchase plan 1,241 0 Exercise of stock options and warrants 5,623 1,804 Tax benefit from exercise of non-qualified stock options 3,705 2,878 Payments on capital lease obligation (266) 0 Payments on subscription notes receivable 0 320 Debt conversion costs (285) 0 - ---------------------------------------------------------------------- Net cash provided by financing activities 172,901 165,536 - ---------------------------------------------------------------------- Balance, carried forward 119,019 15,703
(Continued on next page) 5 Balance, brought forward 119,019 15,703 Effect of exchange rate changes on cash and cash equivalents (19) (6) - ---------------------------------------------------------------------- Net increase in cash and cash equivalents 119,000 15,697 Cash and cash equivalents: Beginning of the period 20,944 8,394 - ---------------------------------------------------------------------- End of the period $ 139,944 $ 24,091 ====================================================================== Supplemental cash flow information: Cash paid during the period for: Interest $ 5,586 $ 1,841 Income taxes 9,960 6,857 Noncash financing and investing transactions: Capital lease obligation incurred 763 0 Net unrealized holding gain(loss) on investments (66) 168 Conversions of convertible debt into common stock, net of unamortized issue costs and accrued interest 79,345 0
See notes to consolidated financial statements 6 7 STARBUCKS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the 13 Weeks and 39 Weeks Ended June 30, 1996 and July 2, 1995 (UNAUDITED) NOTE 1. FINANCIAL STATEMENT PREPARATION: The consolidated financial statements as of June 30, 1996 and October 1, 1995 and for the 13-week and 39-week periods ended June 30, 1996 and July 2, 1995 have been prepared by Starbucks Corporation ("Starbucks" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The financial information for the 13-week and 39-week periods ended June 30, 1996 and July 2, 1995 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 October 1, 1995, is derived from the Company's consolidated financial statements and notes thereto contained in the Company's Annual Report to Shareholders incorporated by reference in the Company's Annual Report on Form 10-K for the year ended October 1, 1995, 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 39-week periods ended June 30, 1996, are not necessarily indicative of the Company's results of operations for the entire fiscal year ending September 29, 1996. NOTE 2. CONVERSION OF DEBENTURES: On April 12, 1996, the Company called for redemption its 4-1/2% Convertible Subordinated Debentures due 2003. In total, approximately $80.5 million in principal amount of the debentures was converted into the Company's common stock prior to the redemption date, constituting substantially all of the outstanding principal balance. The total principal amount converted, net of unamortized issue costs, accrued but unpaid interest, and costs of conversion, was credited to common stock. NOTE 3. EARNINGS PER SHARE: Primary earnings per common and common equivalent share equals net earnings divided by the weighted average number of common shares outstanding, after giving effect to dilutive stock options. Fully diluted earnings per common and common equivalent share equals net earnings plus after-tax interest and issuance cost amortization incurred on the 4-1/2% convertible debentures for the 13- and 39-week periods ended June 30, 1996 ($152,000 and $1,332,000, respectively), divided by common shares outstanding after giving effect to dilutive stock options and, for the 13- and 39-week periods ended June 30, 1996, shares assumed to be issued on conversion of the Company's convertible 4-1/2% debentures. The 4-1/2% convertible debentures are not included in the fully diluted earnings per share calculations for the 13- and 39-week periods ended July 2, 1995 because they are not dilutive. The Company's 4-1/4% Subordinated Convertible Debentures due 2002 are not included in the fully diluted earnings per share calculation for the 13- and 39-week periods ended June 30, 1996 because they are not dilutive; these debentures were issued in October 1995, and had no impact on fiscal 1995 earnings per share. 7 8 NOTE 4. INVENTORIES: Inventories consist of the following (in thousands):
June 30, October 1, 1996 1995 - -------------------------------------------------------------- Coffee: Unroasted $ 36,445 $ 75,975 Roasted 9,652 11,612 Other merchandise held for sale 27,112 32,731 Packaging and other supplies 3,740 3,339 - ------------------------------------------------------------- Total $ 76,949 $ 123,657 ============================================================= As of June 30, 1996, the Company had fixed price purchase commitments for green coffee totaling approximately $24 million. NOTE 5. PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment consist of the following (in thousands):
June 30, October 1, 1996 1995 - -------------------------------------------------------------- Land $ 3,602 $ 3,602 Building 8,338 8,338 Leasehold improvements 227,036 162,948 Roasting and store equipment 113,878 82,490 Furniture, fixtures and other 35,992 24,602 - -------------------------------------------------------------- 388,846 281,980 Less accumulated depreciation (78,282) (52,215) - -------------------------------------------------------------- 310,564 229,765 Construction in process 23,775 14,963 - -------------------------------------------------------------- Total $ 334,339 $ 244,728 ==============================================================
NOTE 6. NEW ACCOUNTING STANDARD: In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock- Based Compensation. This pronouncement establishes the accounting and reporting standards for stock-based employee compensation plans, including stock purchase plans, stock options, and stock appreciation rights. This new standard defines a fair value-based method of accounting for these equity instruments. This method measures compensation cost based on the value of the award and recognizes that cost over the service period. Companies may elect to adopt this standard or to continue accounting for these types of equity instruments under current guidance, APB Opinion No. 25, Accounting for Stock Issued to Employees. Companies which elect to continue using the rules of Opinion 25 must make pro forma disclosures of net income and earnings per share as if this new statement had been applied. This new standard is required for fiscal years beginning after December 15, 1995. The Company is in the process of evaluating this statement and its impact on the Company's financial condition and results of operations. 8 9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Starbucks Corporation ("Starbucks" or the "Company") derives approximately 86% of net sales from its retail store operations. The Company's specialty sales and direct response (mail order) operations account for the remainder of net sales. The Company's fiscal year ends on the Sunday closest to September 30. Fiscal years ending on September 29, 1996 and October 1, 1995 each include 52 weeks. The following discussion contains forward-looking statements that involve 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, impact of competition, availability of financing, legal proceedings, and other risks detailed in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-K for the year ended October 1, 1995. RESULTS OF OPERATIONS -- FOR THE 13 WEEKS ENDED JUNE 30, 1996, COMPARED TO THE 13 WEEKS ENDED JULY 2, 1995 Revenues. Net sales for the 13 weeks ended June 30, 1996, increased 48% to $176,950,000 from $119,174,000 for the corresponding period in fiscal 1995. Retail sales increased 48% to $153,212,000 from $103,719,000, due to the opening of new retail stores combined with an increase in comparable store sales (sales from stores open 13 months or longer) of 7% for the period. This increase resulted primarily from an increase in the average number of transactions combined with an increase in the average dollar value per transaction. 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 the store concentration has increased. The Company anticipates that this cannibalization, as well as increased competition and other factors, may continue to put downward pressure on its comparable store sales growth in future periods. During the 13 weeks ended June 30, 1996, the Company opened 64 Starbucks stores (including two replacement stores) and converted five Coffee Connection stores to Starbucks stores. Licensees opened nine stores. The Company ended the period with 833 Company-operated stores and 66 licensed stores. Specialty sales increased 60% to $19,855,000 for the 13 weeks ended June 30, 1996, compared to $12,376,000 for the corresponding period in fiscal 1995. Increased sales to airlines, hotels, joint ventures, restaurants, multi-unit retailers, and a chain of wholesale clubs accounted for the majority of the increase in sales. Direct response sales increased 26% to $3,883,000 for the 13 weeks ended June 30, 1996, compared to $3,079,000 for the corresponding period in fiscal 1995. Cost and Expenses. Cost of sales and related occupancy costs as a percentage of net sales increased to 47.0% for the 13 weeks ended June 30, 1996, from 45.1% for the corresponding fiscal 1995 period. This increase was primarily the result of higher green coffee costs as a percentage of sales, partially offset by a shift in the retail sales mix towards higher margin products. Store operating expenses as a percentage of retail sales decreased to 35.7% for the 13 weeks ended June 30, 1996, from 37.9% for the corresponding period in fiscal 1995. The 2.2% of retail sales improvement was due primarily to lower advertising, preopening and payroll-related costs as a percentage of retail sales. Other operating expenses (those associated with specialty sales and direct response as well as joint ventures) as a percentage of net sales decreased to 2.8% for the 13 weeks ended June 30, 1996, from 2.9% for the corresponding period in fiscal 1995. Depreciation and amortization as a percentage of net sales increased 0.3% to 5.3% for the 13 weeks ended June 30, 1996. This increase was due primarily to increased per-store buildout costs in recent years relative to earlier history. 9 10 General and administrative expenses as a percentage of net sales were 5.7% for the 13 weeks ended June 30, 1996, compared to 5.4% for the same period in fiscal 1995. This increase as a percentage of net sales was due to higher rent expense related to the Company's continued expansion of its corporate office space, as well as to higher recruiting and relocation costs as a percentage of net sales, partially offset by leverage on administrative salaries. Operating Income. Operating income for the 13 weeks ended June 30, 1996 increased to $14,620,000 or 8.3% of net sales from $10,307,000 or 8.6% of net sales for the corresponding period in fiscal 1995. Operating income as a percentage of net sales decreased due to lower gross margins, and higher depreciation and amortization and general and administrative expense as a percentage of sales, partially offset by lower store operating expenses as a percentage of sales. Interest Income. Interest income for the 13 weeks ended June 30, 1996 was $2,829,000 compared to $1,917,000 for the corresponding period in fiscal 1995. The increase in interest income is due primarily to higher average investment balances. Interest Expense. Interest expense for the 13 weeks ended June 30, 1996 was $1,960,000 compared to $907,000 for the corresponding period in fiscal 1995. The increase in interest expense is due to interest on the Company's 4-1/4% convertible debentures issued in October 1995, partially offset by the reduction in interest on the Company's 4-1/2% convertible debentures which converted to equity during the quarter. Income Taxes. The Company's effective tax rate for the 13 weeks ended June 30, 1996 was 39.0% compared to 39.5% for the corresponding period in fiscal 1995. This decrease is due primarily to a decrease in the effective state tax rate due to changes in the allocation and apportionment factors. RESULTS OF OPERATIONS -- FOR THE 39 WEEKS ENDED JUNE 30, 1996, COMPARED TO THE 39 WEEKS ENDED JULY 2, 1995 Revenues. Net sales for the 39 weeks ended June 30, 1996, increased 49% to $500,095,000 from $335,833,000 for the corresponding period in fiscal 1995. Retail sales increased 49% to $431,243,000 from $288,726,000, due to the addition of new retail stores combined with an increase in comparable store sales of 6%. The comparable store sales increases resulted primarily from an increase in the number of transactions combined with an increase in the average dollar value per transaction. During the 39 weeks ended June 30, 1996, the Company opened 211 Starbucks stores (including four replacement stores), converted six Coffee Connection stores to Starbucks stores, and closed one store. Licensees opened 17 new stores. The Company anticipates at least 72 new Company-operated and licensed stores will be opened during the remainder of fiscal 1996. Specialty sales increased 54% to $54,495,000 for the 39 weeks ended June 30, 1996, compared to $35,356,000 for the corresponding period in fiscal 1995. Increased sales to airlines, hotels, a chain of wholesale clubs, restaurants, and multi-unit retailers accounted for the majority of the increase in sales. Direct response sales increased 22% to $14,357,000 for the 39 weeks ended June 30, 1996, compared to $11,751,000 for the corresponding period in fiscal 1995. Costs and Expenses. Cost of sales and related occupancy costs as a percentage of net sales increased to 49.3% for the 39 weeks ended June 30 1996, from 45.1% for the corresponding fiscal 1995 period. This increase was primarily the result of higher green coffee costs and higher occupancy costs as a percentage of sales, partially offset by a shift in the retail sales mix towards higher margin products. Store operating expenses as a percentage of retail sales decreased to 34.5% from 37.6% for the corresponding period in fiscal 1995. The 3.1% of retail sales improvement reflects lower advertising, regional overhead, payroll-related costs, and preopening expenses as a percentage of retail sales. Other operating expenses as a percentage of net sales decreased 0.1% to 2.9%. Depreciation and amortization as a percentage of net sales increased 0.5% to 5.1% for the 39 weeks ended June 30, 1996. The increase in depreciation and amortization is due primarily to increased per-store buildout costs in recent years relative to earlier history. 10 11 General and administrative expenses as a percentage of net sales were 5.3% for the 39 weeks ended June 30, 1996, compared to 5.6% for the same period in fiscal 1995. This decrease as a percentage of net sales was due primarily to lower payroll-related costs which were partially offset by higher rent expense from the Company's expansion of its corporate office space. Operating Income. Operating income for the 39 weeks ended June 30, 1996 increased to $37,979,000 or 7.6% of net sales from $31,548,000 or 9.4% of net sales for the corresponding period in fiscal 1995. Operating income as a percentage of net sales decreased due to lower gross margins and higher depreciation and amortization expense as a percentage of sales, partially offset by lower store operating and general and administrative expenses as a percentage of sales. Interest Income. Interest income for the 39 weeks ended June 30, 1996 was $7,944,000 compared to $5,273,000 for the corresponding period in 1995. The increase in interest income is due primarily to higher average investment balances. Gain on Sale of Investment. On March 31, 1995, the Company invested $11.3 million in cash for shares of Noah's New York Bagels, Inc. ("Noah's") Series B Preferred Stock, representing approximately 20% ownership in Noah's. On February 1, 1996, Noah's was merged with Einstein Brothers Bagels, Inc. ("Einstein Brothers"), a retailer operating primarily in the Eastern United States. In exchange for its investment in Noah's, the Company received $20.5 million in cash. The Company realized a $9.2 million pre-tax gain ($5.6 million net of tax) on this transaction. Concurrently, the Company purchased $1.8 million of Einstein Brothers restricted common stock. This investment is accounted for under the cost method. Interest Expense. Interest expense for the 39 weeks ended June 30, 1996 was $6,919,000 compared to $2,783,000 for the corresponding period in fiscal 1995. The increase in interest expense is due primarily to interest on the Company's convertible debentures issued in October 1995. Income Taxes. The Company's effective tax rate for the 39 weeks ended June 30, 1996 was 39.0% compared to 39.5% for the corresponding period in fiscal 1995. This decrease is due primarily to a decrease in the effective state tax rate due to changes in the allocation and apportionment factors. LIQUIDITY AND CAPITAL RESOURCES The Company ended the period with $229.8 million in total cash and investments. Working capital as of June 30, 1996 totaled $255.1 million compared to $134.6 million at October 1, 1995. The increase of $120.5 million was due primarily to proceeds from an October 1995 offering of 4-1/4% Convertible Subordinated Debentures due 2002 which generated proceeds of $161.0 million, net of issuance costs. Cash provided by operating activities totaled $97.1 million for the first 39 weeks of fiscal 1996. This was due primarily to net income before non-cash charges and gains of $51.6 million and a decrease in inventories of $46.7 million, primarily due to lower green coffee inventories. Cash provided from financing activities for the first 39 weeks of fiscal 1996 totaled $172.9 million. This includes the Company's October 1995 offering of convertible debentures discussed above. Cash provided from financing activities also included cash generated in connection with the exercise of options to purchase shares of the Company's common stock and the related income tax benefit available to the Company upon exercise of such options, as well as cash generated in connection with the Company's employee stock purchase plan. The Company may continue to receive proceeds and a tax deduction as a result of its employees participating in stock purchase and option plans; however, neither the amounts nor the timing thereof can be predicted. 11 12 Cash used by investing activities for the first 39 weeks of fiscal 1996 totaled $151.0 million. This included capital expenditures (additions to property, plant and equipment) of $116.5 million. Capital expenditures included the costs to open 211 new Company-operated stores, remodel certain existing stores, purchase roasting and packaging equipment, expand existing office space, and enhance existing information systems. The Company received $20.5 million for the sale of its investment in Noah's and concurrently purchased $1.8 million of common stock in Einstein Brothers. The Company's wholly-owned subsidiary, Starbucks Coffee International, Inc. ("SBI"), contributed $2.4 million to its joint venture with SAZABY, Inc. ("SAZABY JV"). The Company made equity investments of $1.2 million in its 50/50 joint venture with Pepsi-Cola Company ("Pepsi JV") and $0.3 million in its joint venture with Dreyer's Grand Ice Cream, Inc. ("Dreyer's JV") Excess cash was invested in investment-grade marketable debt securities, the majority of which are classified as cash equivalents. Future cash requirements, 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 also anticipates remodeling certain existing stores and incurring additional expenditures for enhancing its production capacity and computer systems. Planned capital expenditures for the remainder of fiscal 1996 are estimated to be approximately $50 million. The Company will also have cash requirements for the Pepsi JV, Dreyer's JV and international expansion. In addition, under the terms of the Company's corporate office lease, the Company has agreed to provide financing to the building owner to be used exclusively for facilities and leasehold development costs to accommodate the Company. During fiscal 1996, the Company has provided approximately $2.5 million under this agreement. During the remainder of fiscal 1996, the Company intends to provide additional funds of approximately $1.2 million under this agreement. The maximum amount available under the agreement is $17 million. Any funds advanced by the Company will be repaid with interest over a term not to exceed 20 years. Management believes that it can obtain lower occupancy costs as a result of this arrangement than through a traditional lease of comparable office space. Management believes that the existing cash and investments plus cash generated from operations should be sufficient to finance capital requirements for its core businesses for the remainder of fiscal 1996 and through fiscal 1997. Any new joint ventures or other new business opportunities may require outside funding. COFFEE PRICES AND AVAILABILITY AND GENERAL RISK CONDITIONS The following important factors, among others, could impact the Company's actual results and could cause such results to differ materially from those expressed in the Company's forward-looking statements. Green coffee commodity prices are subject to substantial price fluctuations, generally a result of reports of adverse growing conditions in certain coffee-producing countries. Due to green coffee commodity price increases, the Company effected sales price increases during fiscal 1994 and 1995 in its coffee beverages and whole bean coffees to mitigate the effects of increases in its costs of supply. Because the Company had established fixed purchase prices for some of its supply of green coffees, the Company's margins were favorably impacted by such sales price increases during much of fiscal 1995. During the latter part of fiscal 1995 and the first nine months of fiscal 1996, gross margins were negatively impacted relative to the prior year by the sell-through of higher-cost coffee inventories. The Company enters into fixed price purchase commitments in order to secure an adequate supply of quality green coffee and fix a cost for future periods. As of June 30, 1996 the Company had approximately $24 million in fixed price purchase commitments which, together with existing inventory, the Company believes will provide an adequate supply of green coffee for the remainder of fiscal 1996 and into fiscal 1997. The Company believes that, based on relationships established with its suppliers in the past, the risk of non-delivery on such purchase commitments is remote. In addition to fluctuating coffee prices, management believes that in the future, the Company's 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, the increased costs associated with opening and operating retail stores in new markets, the Company's continued ability to hire, train and retain qualified personnel, and the Company's ability to obtain adequate capital to finance its planned expansion. 12 13 Due to the factors noted above, the Company's future earnings and the prices of the Company's securities may be subject to volatility. There can be no assurance that the Company will continue to generate increases in net sales and net earnings, or growth in comparable store sales. Any variance in the factors noted above, or other areas, from what is expected by investors could have an immediate and adverse effect on the trading price of Company's securities. SEASONALITY AND QUARTERLY RESULTS The Company's business is subject to seasonal fluctuations. A significant portion of the Company's net sales 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. The Company's rapid growth may conceal the impact of seasonal influences. Because of the seasonality of the Company's business, results for the 39 weeks ended June 30, 1996, are not necessarily indicative of the results that may be achieved for the full fiscal year ended September 29, 1996. NEW ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock- Based Compensation. This pronouncement establishes the accounting and reporting standards for stock-based employee compensation plans, including: stock purchase plans, stock options, and stock appreciation rights. This new standard defines a fair value-based method of accounting for these equity instruments. This method measures compensation cost based on the value of the award and recognizes that cost over the service period. Companies may elect to adopt this standard or to continue accounting for these types of equity instruments under current guidance, APB Opinion No. 25, Accounting for Stock Issued to Employees. Companies which elect to continue using the rules of Opinion 25 must make pro forma disclosures of net income and earnings per share as if this new statement had been applied. This new standard is required for fiscal years beginning after December 15, 1995. The Company is in the process of evaluating this statement and its impact on the Company's financial condition and results of operations. 13 14 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 the Company believes would have a material adverse effect on the financial position or results of operations of the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 11 Statement re: computation of per share earnings 27 Financial data schedule (b) Forms 8-K: No reports on Form 8-K were filed by the Company during the 13-week period ended June 30, 1996. 14 15 SIGNATURES 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: August 9, 1996 By: /s/ Michael Casey ----------------------- Michael Casey chief financial officer Signing on behalf of the registrant and as principal financial officer 15 16 STARBUCKS CORPORATION --------------------- EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended Nine Months Ended June 30, July 2, June 30, July 2, 1996 1995 1996 1995 (13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks) - ------------------------------------------------------------------------- NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE CALCULATION - PRIMARY: - ------------------------------------------------------------------------- Net earnings $9,446 $6,845 $29,403 $20,596 ========================================================================= Weighted average shares outstanding calculation - primary: Weighted average number of common shares outstanding 75,575 70,576 72,649 68,317 Dilutive effect of outstanding common stock options 3,398 2,285 2,949 2,239 - ------------------------------------------------------------------------- Weighted average common and common equivalent shares - primary 78,973 72,861 75,598 70,556 ========================================================================= Net earnings per common and common equivalent share - primary $0.12 $0.09 $0.39 $0.29 ========================================================================= NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE CALCULATION - ASSUMING FULL DILUTION: Net earnings calculation: Net earnings $9,446 $6,845 $29,403 $20,596 Add after tax interest expense: on 4-1/2% Debentures 138 0 1,239 0 Add after tax amortization of issuance costs: related to 4-1/2% Debentures 14 0 93 0 - ------------------------------------------------------------------------- Net earnings - assuming full dilution $9,598 $6,845 $30,735 $20,596 ========================================================================= Weighted average shares outstanding calculation - assuming full dilution: Weighted average number of common shares outstanding 75,575 70,576 72,649 68,317 Dilutive effect of outstanding common stock options 3,535 2,835 3,702 3,019 Assuming conversion of 4-1/2% Convertible Subordinated Debentures due 2003 1,425 0 4,035 0 - ------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding - assuming full dilution 80,535 73,411 80,386 71,336 ========================================================================= Net earnings per common and common equivalent share - assuming full dilution $ 0.12 $ 0.09 $ 0.38 $ 0.29 =========================================================================
16 17 STARBUCKS CORPORATION --------------------- EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (CONTINUED) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended Nine Months Ended June 30, July 2, June 30, July 2, 1996 1995 1996 1995 (13 Weeks) (13 Weeks) (39 Weeks) (39 Weeks) - ------------------------------------------------------------------------- ADDITIONAL FULLY DILUTED COMPUTATION (1): Net earnings calculation: Net earnings $9,446 $6,845 $29,403 $20,596 Add after tax interest expense: on 4-1/2% Debentures 138 548 1,239 1,637 on 4-1/4% Debentures 1,067 0 2,961 0 Add after tax amortization of issuance costs: related to 4-1/2% Debentures 14 40 93 117 related to 4-1/4% Debentures 88 0 235 0 - ------------------------------------------------------------------------- Net earnings - assuming full dilution $10,753 $7,433 $33,931 $22,350 ========================================================================= Weighted average shares outstanding calculation - assuming full dilution: Weighted average number of common shares outstanding 75,575 70,576 72,649 68,317 Dilutive effect of outstanding common stock options 3,535 2,835 3,702 3,019 Assuming conversion of 4-1/2% Convertible Subordinated Debentures due 2003 1,425 5,367 4,035 5,367 Assuming conversion of 4-1/4% Convertible Subordinated Debentures due 2002 7,098 0 6,525 0 - ------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding - assuming full dilution 87,633 78,778 86,911 76,703 ========================================================================= Net earnings per common and common equivalent share - assuming full dilution $ 0.12 $ 0.09 $ 0.39 $ 0.29 =========================================================================
- ------------------- (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. 17 EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STARBUCKS CORPORATION THIRD QUARTER 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000887557 STARBUCKS CORPORATION 1,000 9-MOS SEP-29-1996 OCT-02-1995 JUN-30-1996 139,944 89,860 15,140 302 76,949 332,496 412,621 78,282 680,195 77,363 165,020 0 0 355,308 75,579 680,195 500,095 500,095 246,619 246,619 215,497 0 6,919 48,205 18,802 29,403 0 0 0 29,403 0.39 0.38
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