-----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, UTZ4aWpkP37VAzxnRzGJZ3ilqSxOeRBSLnpORKIV8nhWxlmfaSp2KQMOQCztKKEO jw1hBbKIBC4N+CQ+ThZnIQ== 0000887557-97-000012.txt : 20040401 0000887557-97-000012.hdr.sgml : 20040401 19970513154400 ACCESSION NUMBER: 0000887557-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970513 DATE AS OF CHANGE: 20021220 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: 97602486 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 1997 2ND QUARTER 10-Q - ------------------------------------------------------------- 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 30, 1997 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, 1997, there were 78,349,612 shares of the registrant's Common Stock outstanding. - -------------------------------------------------------------------- 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. . . . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 13 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 14 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except earnings per share)
Three Months Ended Six Months Ended March 30, March 31, March 30, March 31, 1997 1996 1997 1996 (13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks) - -------------------------------------------------------------------------- Net revenues $214,915 $153,609 $454,057 $323,145 Cost of sales and related occupancy costs 99,149 76,938 214,705 163,456 Store operating expenses 69,226 47,002 139,327 94,237 Other operating expenses 6,931 3,788 14,713 9,575 Depreciation and amortization 12,381 8,606 23,856 16,161 General and administrative expenses 13,236 9,720 26,157 16,358 - ------------------------------------------------------------------------- Operating income 13,992 7,555 35,299 23,358 Interest and other income 3,520 2,857 7,415 5,116 Gain on sale of investment 0 9,201 0 9,201 Interest expense (1,834) (2,709) (3,638) (4,959) - ------------------------------------------------------------------------- Earnings before income taxes 15,678 16,904 39,076 32,716 Income taxes 6,035 6,513 15,043 12,759 - ------------------------------------------------------------------------- Net earnings $9,643 $10,391 $24,033 $19,957 ========================================================================= Net earnings per common and common equivalent share - primary $0.12 $0.14 $0.30 $0.27 ========================================================================= Net earnings per common and common equivalent share - fully diluted $0.12 $0.14 $0.30 $0.27 ========================================================================= Weighted average common and common equivalent shares outstanding - primary 81,306 73,680 81,316 73,794 Weighted average common and common equivalent shares outstanding - fully diluted 88,404 79,760 88,421 79,740
See notes to consolidated financial statements 3 STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
March 30, September 29, 1997 1996 - ------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 90,813 $126,215 Short-term investments 122,026 103,221 Accounts and notes receivable 21,378 17,621 Inventories 81,414 83,370 Prepaid expenses and other current assets 8,211 6,534 Deferred income taxes, net 3,707 2,580 - ---------------------------------------------------------------------- Total current assets 327,549 339,541 Joint ventures and equity investments 13,806 4,401 Property, plant and equipment, net 413,955 369,477 Deposits and other assets 15,557 13,194 - ---------------------------------------------------------------------- Total $ 770,867 $726,613 ====================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 40,997 $38,034 Checks drawn in excess of bank balances 19,788 16,241 Accrued compensation and related costs 19,202 15,001 Other accrued expenses 29,717 29,072 Income taxes payable 1,743 2,743 - ---------------------------------------------------------------------- Total current liabilities 111,447 101,091 Deferred income taxes, net 8,602 7,114 Capital lease and other obligations 1,522 1,728 Convertible subordinated debentures 165,020 165,020 Shareholders' equity: Common stock, no par value -- 150,000,000 shares authorized; 78,266,991 and 77,583,868 shares, respectively, issued and outstanding 370,978 361,309 Retained earnings including cumulative translation adjustment of $(818) and $(776), respectively, and net unrealized holding gain on investments of $1,002 and $2,046, respectively 113,298 90,351 - ---------------------------------------------------------------------- Total shareholders' equity 484,276 451,660 - ---------------------------------------------------------------------- Total $ 770,867 $726,613 ======================================================================
See notes to consolidated financial statements 4 STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended - ---------------------------------------------------------------------- March 30, March31, 1997 1996 (26 Weeks) (26 Weeks) - ---------------------------------------------------------------------- Operating activities: Net earnings $ 24,033 $19,957 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 26,583 17,647 Deferred income taxes, net 1,015 1,534 Equity in losses of investees 2,176 550 Gain on sale of equity investment 0 (9,201) Cash provided/(used) by changes in operating assets and liabilities: Accounts and notes receivable (3,757) (1,962) Inventories 1,955 32,833 Prepaid expenses and other current assets (1,677) 289 Accounts payable 2,953 (9,000) Income taxes payable (999) 1,031 Accrued compensation and related costs 4,200 (2,193) Other accrued expenses 199 5,790 - ----------------------------------------------------------------------- Net cash provided by operating activities 56,681 57,275 Investing activities: Purchase of short-term investments (107,010) (89,930) Maturity of short-term investments 76,760 3,488 Sale of short-term investments 9,747 35,966 Investments in joint ventures and equity securities (11,581) (4,040) Proceeds from sale of equity investments 0 20,535 Additions to property, plant and equipment (69,569) (75,451) Increase in deposits and other assets (3,116) (638) - ---------------------------------------------------------------------- Net cash used by investing activities (104,769) (110,070) Financing activities: Increase/(decrease) in cash provided by checks drawn in excess of bank balances 3,546 (1,473) Proceeds from sale of convertible debentures 0 165,020 Debt issuance costs 0 (4,040) Proceeds from sale of common stock under employee stock purchase plan 684 768 Exercise of stock options 5,388 1,935 Tax benefit from exercise of non-qualified stock options 3,597 921 Payments on capital lease and other obligations (525) (125) - ---------------------------------------------------------------------- Net cash provided by financing activities 12,690 163,006 - ---------------------------------------------------------------------- Balance, carried forward (35,398) 110,211 (Continued on next page) 5 Balance, brought forward (35,398) 110,211 Effect of exchange rate changes on cash and cash equivalents (4) (26) - --------------------------------------------------------------------- Net (decrease)/increase in cash and (35,402) 110,185 cash equivalents Cash and cash equivalents: Beginning of the period 126,215 20,944 - --------------------------------------------------------------------- End of the period $ 90,813 $131,129 ===================================================================== Supplemental cash flow information: Cash paid during the period for: Interest $ 3,614 $ 1,895 Income taxes 11,259 8,608 Noncash financing and investing transactions: Obligation incurred on fixed asset addition 764 0 Net unrealized holding gain on investments 1,044 113 Conversion of convertible debt into common stock, net of unamortized issue costs 0 426
See notes to consolidated financial statements 6 STARBUCKS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the 13 Weeks and 26 Weeks Ended March 30,1997 and March 31, 1996 (UNAUDITED) NOTE 1. FINANCIAL STATEMENT PREPARATION: The consolidated financial statements as of March 30, 1997 and September 29, 1996 and for the 13-week and 26- week periods ended March 30, 1997 and March 31, 1996 have been prepared by Starbucks Corporation ("Starbucks" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The financial information for the 13-week and 26-week periods ended March 30, 1997 and March 31, 1996 is unaudited, but, in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of September 29, 1996, 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/A for the year ended September 29, 1996, 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 30, 1997, are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 28, 1997. NOTE 2. EARNINGS PER SHARE: The computation of primary earnings per share is based on the weighted average number of shares outstanding during the period plus dilutive common stock equivalents consisting primarily of certain shares subject to stock options. The computation of fully diluted earnings per share assumes conversion of the Company's convertible subordinated debentures using the "if converted" method, when such securities are dilutive, with net income adjusted for the after-tax interest expense and amortization of issuance costs applicable to these debentures. See Note 5 for discussion of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." NOTE 3. INVENTORIES:
Inventories consist of the following (in thousands): March 30, September 29, 1997 1996 - ------------------------------------------------------------------- Coffee: Unroasted $ 41,546 $ 37,127 Roasted 8,453 9,753 Other merchandise held for sale 25,753 29,518 Packaging and other supplies 5,662 6,972 - ------------------------------------------------------------------ $ 81,414 $ 83,370 ================================================================== As of March 30, 1997, the Company had fixed price purchase commitments for green coffee totaling approximately $81.5 million.
7 NOTE 4. PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment consist of the following (in thousands): March 30, September 29, 1997 1996 - ------------------------------------------------------------------- Land $ 3,602 $ 3,602 Building 8,338 8,338 Leasehold improvements 301,660 255,567 Roasting and store equipment 145,310 120,575 Furniture, fixtures and other 49,832 38,794 - ------------------------------------------------------------------ 508,742 426,876 Less accumulated depreciation and amortization (113,319) (88,003) - ------------------------------------------------------------------ 395,423 338,873 Construction in process 18,532 30,604 - ------------------------------------------------------------------ $ 413,955 $ 369,477 ==================================================================
NOTE 5. NEW ACCOUNTING STANDARD: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This pronouncement specifies the computation, presentation and disclosure requirements for earnings per share (EPS) and will supersede APB Opinion 15. The new standard modifies the calculation of earnings per share by replacing the computation of "Primary EPS" with "Basic EPS" which excludes the dilutive effect of common stock equivalents. Additionally, the standard replaces "Fully Diluted EPS" with "Diluted EPS." The calculation of common stock equivalents using the treasury stock method is modified under Diluted EPS to always utilize an average share price during the period as compared to the APB Opinion 15 method which utilizes the higher of average or ending stock price. The standard becomes effective for financial statements for both interim and annual periods ending after December 15, 1997. Early application is not permitted; however, an entity is permitted to disclose pro forma EPS computed using this standard in periods prior to required adoption. Based on this new standard, earnings per share for the 13- and 26- week periods ending March 30, 1997 and March 31, 1996 would be as follows:
Pro forma earnings per share under FAS 128: March 30, March 31, March 30, March 31, 1997 1996 1997 1996 (13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks) =========================================================================== Basic Earnings per share $ 0.12 $ 0.15 $ 0.31 $ 0.28 =========================================================================== Diluted Earnings per share $ 0.12 $ 0.14 $ 0.30 $ 0.27 ===========================================================================
8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General During the 26-week period ending March 30, 1997, Starbucks Corporation ("Starbucks" or the "Company") derived approximately 86% of net revenues from its Company-operated retail stores. The Company's specialty sales operations, which include product sales to and royalties and fees from wholesale customers, licensees, and joint ventures, accounted for approximately 11% of net revenues. Direct response operations accounted for the remainder of net revenues. The Company's fiscal year ends on the Sunday closest to September 30. Fiscal years ending on September 28, 1997 and September 29, 1996 each include 52 weeks. Some of the following information, including anticipated store openings, planned capital expenditures, and trends in the Company's operations, are forward-looking statements which 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, impact of competition, availability of financing, legal proceedings, and other risks detailed herein and in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-K/A for the year ended September 29, 1996. RESULTS OF OPERATIONS -- FOR THE 13 WEEKS ENDED MARCH 30, 1997, COMPARED TO THE 13 WEEKS ENDED MARCH 31, 1996 Revenues. Net revenues for the 13 weeks ended March 30, 1997, increased 40% to $214.9 million from $153.6 million for the corresponding period in fiscal 1996. Retail sales increased 40% to $185.1 million from $132.3 million 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 5% for the period. The increase in comparable store sales resulted primarily from an increase in the number of transactions. The Company anticipates its expansion strategy of clustering stores in existing markets, 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 March 30, 1997, the Company opened 72 stores in continental North America, including stores in the major new markets of Miami, Florida and Detroit, Michigan. The Company ended the period with 1,094 Company-operated stores in continental North America. Specialty sales revenues increased 41% to $25.5 million for the 13 weeks ended March 30, 1997, compared to $18.0 million for the corresponding period in fiscal 1996. Increased sales to joint ventures, a chain of membership warehouse clubs, office coffee distributors, and business dining accounts made up the majority of the increase in revenues. During the 13 weeks ended March 30, 1997, licensees (including those in which the Company is a joint venture partner) opened three stores in continental North America and three stores in the Pacific Rim. The Company ended the period with 83 licensed stores in continental North America and eight licensed stores in the Pacific Rim. Direct response sales increased 33% to $4.4 million for the 13 weeks ended March 30, 1997, compared to $3.3 million for the corresponding period in fiscal 1996. Cost and Expenses. Cost of sales and related occupancy costs as a percentage of net revenues decreased to 46.1% for the 13 weeks ended March 30, 1997, from 50.1% for the corresponding fiscal 1996 period. This decrease as a percentage of net revenues was primarily the result of lower green coffee costs. Store operating expenses as a percentage of retail sales increased to 37.4% for the 13 weeks ended March 30, 1997, from 35.5% for the corresponding period in fiscal 1996. The 1.9% increase was due primarily to higher store labor and higher advertising expenses as a percentage of retail sales. Other operating expenses (those associated with the Company's specialty sales and direct response operations as well as the Company's share of profits and losses of its joint ventures) increased to 3.2% of net revenues for the 13 weeks ended March 30, 1997, from 2.5% for the corresponding period in fiscal 1996. The increase was attributable primarily to an increase in the Company's share of joint venture losses during the period compared with the same period in fiscal 1996. 9 Depreciation and amortization as a percentage of net revenues increased 0.2% to 5.8% for the 13 weeks ended March 30, 1997. General and administrative expenses as a percentage of net revenues were 6.2% for the 13 weeks ended March 30, 1997, compared to 6.3% for the same period in fiscal 1996. Interest and other income for the 13 weeks ended March 30, 1997 was $3.5 million compared to $2.9 million for the corresponding period in fiscal 1996. The increase in interest and other income is due to gains on sale of investments, higher interest rates and higher average investment balances. Interest expense for the 13 weeks ended March 30, 1997 was $1.8 million compared to $2.7 million for the corresponding period in fiscal 1996. The decrease was due primarily to the conversion of the Company's 4-1/2% Convertible Subordinated Debentures due 2003 to equity during the third quarter of fiscal 1996. Income Taxes. The Company's effective tax rate for the 13 weeks ended March 30, 1997 was 38.5% which was unchanged from the corresponding period in fiscal 1996. RESULTS OF OPERATIONS -- FOR THE 26 WEEKS ENDED MARCH 30, 1997, COMPARED TO THE 26 WEEKS ENDED MARCH 31, 1996 Revenues. Net revenues for the 26 weeks ended March 30, 1997, increased 41% to $454.1 million from $323.1 million for the corresponding period in fiscal 1996. Retail sales increased 40% to $390.4 million from $278.0 million, due to the opening of new retail stores combined with an increase in comparable store sales of 4% for the period. The increase in comparable store sales resulted primarily from an increase in the number of transactions. During the 26 weeks ended March 30, 1997, the Company opened 165 stores in continental North America, including stores in the major new markets of Phoenix, Arizona; Miami, Florida; and Detroit, Michigan. Specialty sales revenues increased 46% to $50.5 million for the 26 weeks ended March 30, 1997, compared to $34.6 million for the corresponding period in fiscal 1996. Increased sales to joint ventures, a chain of membership warehouse clubs, office coffee distributors, and hotels accounted for the majority of the increase in revenues. During the 26 weeks ended March 30, 1997, licensees (including those in which the Company is a joint venture partner) opened eight stores in continental North America and six stores in the Pacific Rim. Direct response sales increased 25% to $13.1 million for the 26 weeks ended March 30, 1997, compared to $10.5 million for the corresponding period in fiscal 1996. Costs and Expenses. Cost of sales and related occupancy costs as a percentage of net revenues decreased to 47.3% for the 26 weeks ended March 30, 1997, from 50.6% for the corresponding period in fiscal 1996. This decrease was primarily the result of lower green coffee costs as a percentage of net revenues. Store operating expenses as a percentage of retail sales increased to 35.7% from 33.9% for the corresponding period in fiscal 1996. The 1.8% of retail sales increase reflects higher payroll-related expenses and regional overhead costs as a percentage of retail sales. Regional overhead costs increased as a percentage of retail sales due primarily to costs incurred in conjunction with opening eight new markets during the first six months of fiscal 1997, as compared to two new market openings during the comparable period in fiscal 1996. Other operating expenses as a percentage of net revenues increased to 3.2% for the 26 weeks ended March 30, 1997, from 3.0% for the corresponding period in fiscal 1996. Consistent with second quarter results, the increase was attributable primarily to an increase in the Company's share of joint venture losses during the period compared with the same period in fiscal 1996. Depreciation and amortization as a percentage of net revenues increased 0.3% to 5.3% for the 26 weeks ended March 30, 1997. General and administrative expenses as a percentage of net revenues were 5.8% for the 26 weeks ended March 30, 1997, compared to 5.1% for the same period in fiscal 1996. This increase as a percentage of net revenues was due primarily to higher payroll- related costs, which were tightly constrained during the corresponding period in fiscal 1996. 10 Interest income for the 26 weeks ended March 30, 1997 was $7.4 million compared to $5.1 million for the corresponding period in 1996. The increase in interest and other income was due primarily to higher average investment balances and gains on sale of investments. Interest expense for the 26 weeks ended March 30, 1997 was $3.6 million compared to $5.0 million for the corresponding period in fiscal 1996. The decrease was due primarily to the conversion of the Company's 4-1/2% Convertible Subordinated Debentures due 2003 to equity during the third quarter of fiscal 1996. Income Taxes. The Company's effective tax rate for the 26 weeks ended March 30, 1997 was 38.5% compared to 39% for the corresponding period in fiscal 1996. This decrease is due primarily to changes in state tax allocation and apportionment factors as well as tax- saving strategies. Management expects the effective tax rate may increase as the Company expands activities in higher tax jurisdictions. LIQUIDITY AND CAPITAL RESOURCES The Company ended the period with $212.8 million in total cash and investments and working capital of $216.1 million. Cash provided by operating activities totaled $56.7 million for the first 26 weeks of fiscal 1997 resulting primarily from net earnings before non- cash charges of $53.8 million. Cash provided from financing activities for the first 26 weeks of fiscal 1997 totaled $12.7 million. The exercise of employee stock options and the related income tax benefit available to the Company upon exercise of these options provided approximately $9.0 million. An increase in checks drawn in excess of bank balances provided an additional $3.5 million. Cash used by investing activities for the first 26 weeks of fiscal 1997 totaled $104.8 million. This included capital additions to property, plant and equipment of $69.6 million related to opening 165 new Company-operated stores, remodeling certain existing stores, purchasing roasting and packaging equipment, enhancing existing information systems, and expanding existing office space. The Company invested excess cash in short-term investment-grade marketable debt securities. 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 information systems. While there can be no assurance that current expectations will be realized and plans are subject to change upon further review, management expects capital expenditures for the remainder of fiscal 1997 to be approximately $100 million. During the first 26 weeks of fiscal 1997, the Company invested $11.6 million in its joint ventures and currently anticipates additional cash requirements of approximately $18 million for its domestic joint ventures and international expansion during the remainder of fiscal 1997. 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 the first 26 weeks of fiscal 1997, the Company provided approximately $1.5 million under this agreement, bringing the total amount outstanding under this agreement to $6.0 million as of March 30, 1997. 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 the existing cash and investments plus cash generated from operations should be sufficient to finance capital requirements for its core businesses for fiscal 1997 and into fiscal 1998. Any new joint ventures, other new business opportunities, or store expansion rates substantially in excess of that presently planned may require additional debt or equity financing. COFFEE PRICES AND AVAILABILITY AND GENERAL RISK CONDITIONS Green coffee commodity prices are subject to substantial price fluctuations, generally a result of reports of adverse growing conditions in certain coffee- producing countries. During the first six months of fiscal 1997, worldwide green coffee commodity prices have increased significantly. As discussed below, the Company believes it has an adequate supply of green coffee. In March 1997, the Company effected a sales price increase on its whole bean coffees and most of its coffee beverages to mitigate the effects of increases in its costs of supply. 11 The Company enters into fixed price purchase commitments in order to secure an adequate supply of quality green coffee and establish firm prices for future periods. As of March 30, 1997, the Company had approximately $81.5 million in fixed price purchase commitments which, together with existing inventory, management believes will provide an adequate supply of green coffee for the remainder of fiscal 1997 and into fiscal 1998. Based on relationships established with its suppliers in the past, management believes the risk of non-delivery on such purchase commitments is remote. In addition to fluctuating coffee prices, the Company's future results of operations and earnings could be significantly impacted by other factors such as increased competition within the specialty coffee industry, the Company's ability to find optimal store locations at favorable lease rates, 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. 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 revenues 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 the Company's securities. 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. 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 the seasonality of the Company's business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. NEW ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This pronouncement specifies the computation, presentation and disclosure requirements for earnings per share (EPS) and will supersede APB Opinion 15. The new standard modifies the calculation of earnings per share by replacing the computation of "Primary EPS" with "Basic EPS" which excludes the dilutive effect of common stock equivalents. Additionally, the standard replaces "Fully Diluted EPS" with "Diluted EPS." The calculation of common stock equivalents using the treasury stock method is modified under Diluted EPS to always utilize an average share price during the period as compared to the APB Opinion 15 method which utilizes the higher of average or ending stock price. The standard becomes effective for financial statements for both interim and annual periods ending after December 15, 1997. Early application is not permitted; however, an entity is permitted to disclose pro forma EPS computed using this standard in periods prior to required adoption. Based on this new standard, earnings per share for the 13- and 26- week periods ending March 30, 1997 and March 31, 1996 would be as follows:
Pro forma earnings per share under FAS 128: March 30, March 31, March 30, March 31, 1997 1996 1997 1996 (13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks) =========================================================================== Basic Earnings per share $ 0.12 $ 0.15 $ 0.31 $ 0.28 =========================================================================== Diluted Earnings per share $ 0.12 $ 0.14 $ 0.30 $ 0.27 =========================================================================== Refer to Exhibit 11 for Primary and Fully Diluted EPS as reported.
12 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 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders of the Company was held on March 6, 1997 for the purposes of electing two directors to serve until the annual meeting for the 1999 fiscal year; approving a proposal to increase by 7,025,000 the number of shares reserved for issuance under the Company's Key Employee Stock Option Plan- 1994; approving the material terms of the objective performance goals under the Company's Executive Management Bonus Plan; and ratifying the selection of the independent auditors for fiscal 1997. All proposals were approved. The table below shows the results of the shareholders' voting:
Votes in Votes Broker Favor Opposed Abstain Non-Votes ----------- ----------- ------------ ------------ Election of Directors Howard P. Behar 71,861,519 --- 474,622 --- James G. Shennan, Jr. 72,103,651 --- 232,490 --- Approve increase in shares reserved for issuance under the Company's Key Employees Stock Option Plan-1994 34,351,463 19,466,065 338,028 18,180,585 Approve material terms of the objective performance goals of the Company's Executive Management Bonus Plan 68,890,550 1,377,818 417,179 1,650,594 Ratification of independent auditors 72,015,423 129,713 191,005 ---
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 1997 and 1998:
Director Term expires at the annual meeting for fiscal: - ------------------------------------------------------------------------- Jeffrey H. Brotman 1997 Arlen I. Prentice 1997 Orin C. Smith 1997 Craig J. Foley 1998 Howard Schultz 1998 Barbara Bass 1998
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 March 30, 1997. 13 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: May 12, 1997 By: /s/ Michael Casey ---------------------- Michael Casey senior vice president and chief financial officer Signing on behalf of the registrant and as principal financial officer 14 STARBUCKS CORPORATION --------------------- EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended Six Months Ended March 30, March 31, March 30, March 31, 1997 1996 1997 1996 (13 Weeks) (13 Weeks) (26 Weeks) (26 Weeks) - ------------------------------------------------------------------------- NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE CALCULATION - -PRIMARY: Net earnings $ 9,643 $10,391 $ 24,033 $19,957 ========================================================================= Weighted average common and common equivalent shares calculation-primary: Weighted average number of common shares outstanding 78,127 71,257 77,925 71,186 Dilutive effect of outstanding common stock options 3,179 2,423 3,391 2,608 - ------------------------------------------------------------------------- Weighted average common and common equivalent shares- primary 81,306 73,680 81,316 73,794 ========================================================================= Net earnings per common and common equivalent share -primary $ 0.12 $ 0.14 $ 0.30 $0.27 ======================================================================== NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE CALCULATION - -FULLY DILUTED(1): Net earnings calculation: Net earnings $ 9,643 $ 10,391 $ 24,033 $19,957 Add after tax interest expense on Debentures 1,075 548 2,151 1,100 Add after tax amortization of issuance costs related to the Debentures 89 40 178 79 - ------------------------------------------------------------------------- Adjusted net earnings $ 10,807 $ 10,979 $ 26,362 $21,136 ========================================================================= Weighted average common and common equivalent shares calculation-fully diluted: Weighted average number of common shares outstanding 78,127 71,257 77,925 71,186 Dilutive effect of outstanding common stock options 3,179 3,172 3,398 3,214 Assuming conversion of Convertible Subordinated Debentures 7,098 5,331 7,098 5,340 - ------------------------------------------------------------------------- Weighted average common and common equivalent shares -fully diluted 88,404 79,760 88,421 79,740 ========================================================================= Net earnings per common and common equivalent share -fully diluted $ 0.12 $ 0.14 $ 0.30 $ 0.27 ========================================================================
- ------------------- (1) Fully 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. 15 EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STARBUCKS CORPORATION SECOND QUARTER FISCAL 1997 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-28-1997 SEP-30-1996 MAR-30-1997 90,813 122,026 21,378 228 81,414 327,549 527,274 113,319 770,867 111,447 165,020 0 0 370,978 113,298 770,867 454,057 454,057 214,705 214,705 204,053 0 3,638 39,076 15,043 24,033 0 0 0 24,033 0.30 0.30
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