e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 29, 2009
OR
|
|
|
o |
|
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 Incorporation or Organization)
|
|
(IRS Employer Identification No.) |
2401 Utah Avenue South, Seattle, Washington 98134
(Address of principal executive offices)
(206) 447-1575
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
|
|
|
Title |
|
Shares Outstanding as of May 4, 2009 |
Common Stock, par value $0.001 per share
|
|
735.9 million |
STARBUCKS CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 29, 2009
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except earnings per share)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail |
|
$ |
1,961.8 |
|
|
$ |
2,142.9 |
|
|
$ |
4,138.0 |
|
|
$ |
4,494.4 |
|
Specialty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing |
|
|
282.8 |
|
|
|
274.4 |
|
|
|
617.1 |
|
|
|
579.2 |
|
Foodservice and other |
|
|
88.7 |
|
|
|
108.7 |
|
|
|
193.4 |
|
|
|
220.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty |
|
|
371.5 |
|
|
|
383.1 |
|
|
|
810.5 |
|
|
|
799.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
|
2,333.3 |
|
|
|
2,526.0 |
|
|
|
4,948.5 |
|
|
|
5,293.6 |
|
Cost of sales including occupancy costs |
|
|
1,043.5 |
|
|
|
1,106.7 |
|
|
|
2,240.3 |
|
|
|
2,292.7 |
|
Store operating expenses |
|
|
819.6 |
|
|
|
927.1 |
|
|
|
1,756.2 |
|
|
|
1,854.4 |
|
Other operating expenses |
|
|
64.0 |
|
|
|
82.8 |
|
|
|
136.6 |
|
|
|
168.5 |
|
Depreciation and amortization expenses |
|
|
134.1 |
|
|
|
138.1 |
|
|
|
268.4 |
|
|
|
271.3 |
|
General and administrative expenses |
|
|
104.3 |
|
|
|
117.6 |
|
|
|
209.5 |
|
|
|
243.5 |
|
Restructuring charges |
|
|
152.1 |
|
|
|
|
|
|
|
227.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,317.6 |
|
|
|
2,372.3 |
|
|
|
4,838.6 |
|
|
|
4,830.4 |
|
Income from equity investees |
|
|
25.2 |
|
|
|
24.5 |
|
|
|
48.7 |
|
|
|
48.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
40.9 |
|
|
|
178.2 |
|
|
|
158.6 |
|
|
|
511.3 |
|
Interest income and other, net |
|
|
2.9 |
|
|
|
0.2 |
|
|
|
(3.5 |
) |
|
|
10.9 |
|
Interest expense |
|
|
(8.9 |
) |
|
|
(11.2 |
) |
|
|
(21.9 |
) |
|
|
(28.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
34.9 |
|
|
|
167.2 |
|
|
|
133.2 |
|
|
|
493.9 |
|
Income taxes |
|
|
9.9 |
|
|
|
58.5 |
|
|
|
43.9 |
|
|
|
177.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
25.0 |
|
|
$ |
108.7 |
|
|
$ |
89.3 |
|
|
$ |
316.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share basic |
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.43 |
|
Net earnings per common share diluted |
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.43 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
738.0 |
|
|
|
728.7 |
|
|
|
737.2 |
|
|
|
730.1 |
|
Diluted |
|
|
739.9 |
|
|
|
739.3 |
|
|
|
739.5 |
|
|
|
742.2 |
|
See Notes to Condensed Consolidated Financial Statements.
3
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
Sep 28, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
253.2 |
|
|
$ |
269.8 |
|
Short-term
investments available-for-sale securities |
|
|
7.8 |
|
|
|
3.0 |
|
Short-term
investments trading securities |
|
|
33.5 |
|
|
|
49.5 |
|
Accounts receivable, net |
|
|
309.3 |
|
|
|
329.5 |
|
Inventories |
|
|
627.8 |
|
|
|
692.8 |
|
Prepaid expenses and other current assets |
|
|
159.6 |
|
|
|
169.2 |
|
Deferred income taxes, net |
|
|
212.9 |
|
|
|
234.2 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,604.1 |
|
|
|
1,748.0 |
|
Long-term
investments available-for-sale securities |
|
|
77.2 |
|
|
|
71.4 |
|
Equity and cost investments |
|
|
310.2 |
|
|
|
302.6 |
|
Property, plant and equipment, net |
|
|
2,658.0 |
|
|
|
2,956.4 |
|
Other assets |
|
|
303.4 |
|
|
|
261.1 |
|
Other intangible assets |
|
|
67.3 |
|
|
|
66.6 |
|
Goodwill |
|
|
261.1 |
|
|
|
266.5 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
5,281.3 |
|
|
$ |
5,672.6 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Commercial paper and short-term borrowings |
|
$ |
226.0 |
|
|
$ |
713.0 |
|
Accounts payable |
|
|
266.5 |
|
|
|
324.9 |
|
Accrued compensation and related costs |
|
|
236.6 |
|
|
|
253.6 |
|
Accrued occupancy costs |
|
|
135.9 |
|
|
|
136.1 |
|
Accrued taxes |
|
|
101.6 |
|
|
|
76.1 |
|
Insurance reserves |
|
|
148.3 |
|
|
|
152.5 |
|
Other accrued expenses |
|
|
139.1 |
|
|
|
164.4 |
|
Deferred revenue |
|
|
431.4 |
|
|
|
368.4 |
|
Current portion of long-term debt |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,685.9 |
|
|
|
2,189.7 |
|
Long-term debt |
|
|
549.4 |
|
|
|
549.6 |
|
Other long-term liabilities |
|
|
415.6 |
|
|
|
442.4 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,650.9 |
|
|
|
3,181.7 |
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock ($0.001 par value) authorized, 1,200.0
shares; issued and outstanding, 739.1 and 735.5
shares, respectively (includes 3.4 common stock units
in both periods) |
|
|
0.7 |
|
|
|
0.7 |
|
Additional paid-in-capital |
|
|
61.2 |
|
|
|
|
|
Other additional paid-in-capital |
|
|
39.4 |
|
|
|
39.4 |
|
Retained earnings |
|
|
2,491.7 |
|
|
|
2,402.4 |
|
Accumulated other comprehensive income |
|
|
37.4 |
|
|
|
48.4 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,630.4 |
|
|
|
2,490.9 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
5,281.3 |
|
|
$ |
5,672.6 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
STARBUCKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
89.3 |
|
|
$ |
316.8 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
282.2 |
|
|
|
286.3 |
|
Provision for impairments and asset disposals |
|
|
145.7 |
|
|
|
42.4 |
|
Deferred income taxes, net |
|
|
(29.9 |
) |
|
|
(15.7 |
) |
Equity in income of investees |
|
|
(29.6 |
) |
|
|
(22.9 |
) |
Distributions of income from equity investees |
|
|
18.8 |
|
|
|
17.3 |
|
Stock-based compensation |
|
|
42.5 |
|
|
|
39.3 |
|
Tax benefit from exercise of stock options |
|
|
0.6 |
|
|
|
2.8 |
|
Excess tax benefit from exercise of stock options |
|
|
(5.9 |
) |
|
|
(7.7 |
) |
Other |
|
|
16.1 |
|
|
|
(0.2 |
) |
Cash provided/(used) by changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Inventories |
|
|
59.9 |
|
|
|
87.8 |
|
Accounts payable |
|
|
(47.3 |
) |
|
|
(70.0 |
) |
Accrued taxes |
|
|
29.9 |
|
|
|
(53.4 |
) |
Deferred revenue |
|
|
66.9 |
|
|
|
79.8 |
|
Other operating assets and liabilities |
|
|
76.2 |
|
|
|
62.5 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
715.4 |
|
|
|
765.1 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of available-for-sale securities |
|
|
(7.0 |
) |
|
|
(56.6 |
) |
Maturity of available-for-sale securities |
|
|
|
|
|
|
15.3 |
|
Sale of available-for-sale securities |
|
|
|
|
|
|
75.9 |
|
Net purchases of equity, other investments and other assets |
|
|
(10.7 |
) |
|
|
(26.9 |
) |
Net additions to property, plant and equipment |
|
|
(236.9 |
) |
|
|
(505.1 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(254.6 |
) |
|
|
(497.4 |
) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Repayments of commercial paper |
|
|
(21,335.5 |
) |
|
|
(44,798.7 |
) |
Proceeds from issuance of commercial paper |
|
|
20,928.4 |
|
|
|
44,789.1 |
|
Repayments of short-term borrowings |
|
|
(1,113.0 |
) |
|
|
|
|
Proceeds from short-term borrowings |
|
|
1,033.0 |
|
|
|
1.1 |
|
Proceeds from issuance of common stock |
|
|
17.1 |
|
|
|
59.3 |
|
Excess tax benefit from exercise of stock options |
|
|
5.9 |
|
|
|
7.7 |
|
Principal payments on long term debt |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
Repurchase of common stock |
|
|
|
|
|
|
(311.4 |
) |
Other |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(465.2 |
) |
|
|
(253.9 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(12.2 |
) |
|
|
8.3 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(16.6 |
) |
|
|
22.1 |
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
269.8 |
|
|
|
281.3 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
253.2 |
|
|
$ |
303.4 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Net repayments of short-term borrowings for the period |
|
$ |
(487.1 |
) |
|
$ |
(8.5 |
) |
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest, net of capitalized interest |
|
$ |
22.6 |
|
|
$ |
27.8 |
|
Income taxes |
|
$ |
47.1 |
|
|
$ |
231.0 |
|
See Notes to Condensed Consolidated Financial Statements.
5
STARBUCKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks and 26 Weeks Ended March 29, 2009
(unaudited)
Note 1: Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited condensed consolidated financial statements as of March 29, 2009, and for the 13-week
and 26-week periods ended March 29, 2009 and March 30, 2008, have been prepared by Starbucks
Corporation (Starbucks or the Company) under the rules and regulations of the Securities and
Exchange Commission (the SEC). In the opinion of management, the financial information for the
13-week and 26-week periods ended March 29, 2009 and March 30, 2008 reflects all adjustments and
accruals, which are of a normal recurring nature, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim periods.
The financial information as of September 28, 2008 is derived from the Companys audited
consolidated financial statements and notes for the fiscal year ended September 28, 2008 (fiscal
2008), included in Item 8 in the Fiscal 2008 Annual Report on Form 10-K (the 10-K). The
information included in this Quarterly Report on Form 10-Q (the 10-Q) should be read in
conjunction with managements discussion and analysis and notes to the financial statements in the
10-K.
The results of operations for the 13-week and 26-week periods ended March 29, 2009 are not
necessarily indicative of the results of operations that may be achieved for the entire fiscal year
ending September 27, 2009 (fiscal 2009).
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements.
Starbucks adopted SFAS 157 for its financial assets and liabilities effective September 29, 2008
(see Note 4 for additional disclosures). As permitted by FSP FAS 157-2, SFAS 157 is effective for
nonfinancial assets and liabilities for Starbucks first fiscal quarter of 2010. The Company
continues to evaluate the potential impact of the adoption of SFAS 157 related to its nonfinancial
assets and liabilities.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which
replaces SFAS 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities assumed,
any resulting goodwill, and any noncontrolling interest in the acquiree. SFAS 141R also provides
for disclosures to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R will be effective for Starbucks first fiscal quarter
of 2010 and must be applied prospectively to business combinations completed in fiscal 2010 and
beyond.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research Bulletin No. 51, which establishes accounting and
reporting standards for noncontrolling interests (minority interests) in subsidiaries. SFAS 160
clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of
equity separate from the parents equity. SFAS 160 will be effective for Starbucks first fiscal
quarter of 2010 and must be applied prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. The Company is currently evaluating the potential
impact that adoption may have on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133, which requires enhanced disclosures about an
entitys derivative instruments and hedging activities. SFAS 161 became effective in Starbucks
second fiscal quarter of 2009 (see Note 3 for the new disclosures).
6
In early April 2009, three FASB Staff Positions were issued. FSP FAS 157-4 addresses determining
fair values in inactive markets. FSP FAS 115-2 addresses other-than-temporary impairments for debt
securities. FSP FAS 107-1 requires interim disclosures about fair value of financial instruments.
All three FSPs will be effective for Starbucks third fiscal quarter of 2009. The Company is
currently evaluating the potential impact that adoption may have on its consolidated financial
statements.
Note 2: Restructuring Charges
In the second quarter of fiscal 2009, Starbucks continued to execute its restructuring efforts to
position the Company for long-term profitable growth. These efforts are focused on both the global
Company-operated store base and the non-retail support organization. Starbucks actions to
rationalize its store portfolio have included the July 2008 and January 2009 announcements of plans
to close a total of approximately 800 underperforming Company-operated stores in the US,
restructure its Australia market and close 61 stores, and close approximately 100 other
underperforming Company-operated stores internationally. Since those announcements, 507 US stores
and 64 International stores have been closed.
US store closures In the second quarter of fiscal 2009, the Company closed 119 of the
approximately 600 stores announced in July 2008, bringing the total number of US closures under
this restructuring action to 503 stores as of the end of the second quarter. The Company also
closed four of the approximately 200 stores announced for closure in January 2009. The Company
expects to complete the majority of US store closures by the end of fiscal 2009, and recognize the
associated lease exit costs concurrently with the actual closures.
International store closures - During the second quarter of 2009, the Company closed three of the
approximately 100 stores announced for closure in January 2009. The Company expects these closures
to extend into the first half of fiscal 2010, and will recognize the associated lease exit costs
concurrently with the actual closures.
Workforce reduction and other related costs Workforce reductions related to store closures and
non-store support positions resulted in the recognition of $13.9 million in employee termination
costs in the second quarter of fiscal 2009. In addition, Starbucks recognized a $21.0 million
valuation adjustment on corporate office facilities that were no longer intended to be occupied by
the Company.
Restructuring charges by type and a reconciliation of the associated accrued liability were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Exit |
|
|
|
|
|
Employee |
|
|
|
|
and Other |
|
Asset |
|
Termination |
|
|
|
|
Related Costs |
|
Impairments |
|
Costs |
|
Total |
Total expected costs |
|
$ |
329.7 |
|
|
$ |
331.8 |
|
|
$ |
39.6 |
|
|
$ |
701.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses recognized during the 13 weeks ended March 29, 2009 (1) |
|
|
50.4 |
|
|
|
87.8 |
|
|
|
13.9 |
|
|
|
152.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses recognized during the 26 weeks ended March 29, 2009 (1) |
|
|
91.0 |
|
|
|
120.2 |
|
|
|
16.4 |
|
|
|
227.6 |
|
Costs incurred during the 13 weeks ended March 29, 2009 (1) |
|
|
50.3 |
|
|
|
87.8 |
|
|
|
13.9 |
|
|
|
152.0 |
|
Costs incurred during the 26 weeks ended March 29, 2009 (1) |
|
|
76.4 |
|
|
|
120.2 |
|
|
|
16.4 |
|
|
|
213.0 |
|
Costs incurred cumulative to date |
|
|
139.0 |
|
|
|
321.8 |
|
|
|
33.9 |
|
|
|
494.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability as of September 28, 2008 |
|
$ |
48.0 |
|
|
$ |
|
|
|
$ |
5.4 |
|
|
$ |
53.4 |
|
Costs incurred, excluding non-cash charges and credits (2) |
|
|
87.5 |
|
|
|
|
|
|
|
16.4 |
|
|
|
103.9 |
|
Cash payments |
|
|
(77.3 |
) |
|
|
|
|
|
|
(18.4 |
) |
|
|
(95.7 |
) |
|
|
|
Accrued liability as of March 29, 2009 |
|
$ |
58.2 |
|
|
$ |
|
|
|
$ |
3.4 |
|
|
$ |
61.6 |
|
|
|
|
7
Restructuring charges by reportable segment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
|
|
US |
|
International |
|
Corporate (3) |
|
Total |
Total expected costs |
|
$ |
501.9 |
|
|
$ |
102.6 |
|
|
$ |
96.6 |
|
|
$ |
701.1 |
|
Expenses recognized during the 13 weeks ended March 29, 2009 (1) |
|
|
106.8 |
|
|
|
14.9 |
|
|
|
30.4 |
|
|
|
152.1 |
|
Expenses recognized during the 26 weeks ended March 29, 2009 (1) |
|
|
161.2 |
|
|
|
16.9 |
|
|
|
49.5 |
|
|
|
227.6 |
|
Costs incurred during the 13 weeks ended March 29, 2009 (1) |
|
|
106.6 |
|
|
|
14.9 |
|
|
|
30.5 |
|
|
|
152.0 |
|
Costs incurred during the 26 weeks ended March 29, 2009 (1) |
|
|
146.5 |
|
|
|
16.9 |
|
|
|
49.6 |
|
|
|
213.0 |
|
Costs incurred cumulative to date |
|
|
372.2 |
|
|
|
36.1 |
|
|
|
86.4 |
|
|
|
494.7 |
|
|
|
|
(1) |
|
The difference between expenses recognized and costs incurred within the period
is due to a number of termination agreements that were finalized in one period for store
closures to occur in a subsequent period. Such termination fees are amortized on a
straight-line basis from the date of the termination agreement to the date of closure. |
|
(2) |
|
Non-cash charges and credits for Lease Exit and Other Related Costs primarily
represent deferred rent balances recognized as expense credits at the cease-use date. |
|
(3) |
|
Includes $0.2 million of employee termination costs for the Global CPG segment
for the 13 and 26 week periods ended March 29, 2009. |
Note 3: Derivative Financial Instruments
The Company manages its exposure to certain market-based risks through an umbrella risk management
policy. Under this policy, market-based risks are quantified and evaluated for potential
mitigation strategies, such as entering into hedging transactions. Hedging instruments may include
derivatives used to hedge interest rates, commodity prices, and foreign currency denominated
revenues, purchases, assets and liabilities.
The Company records all derivatives on the consolidated balance sheets at fair value. For a cash
flow hedge, the effective portion of the derivatives gain or loss is initially reported as a
component of other comprehensive income (OCI) and subsequently reclassified into net earnings
when the hedged exposure affects net earnings. For a net investment hedge, the effective portion of
the derivatives gain or loss is reported as a component of OCI.
See Note 4 for additional information on the Companys fair value measurements related to
derivative instruments.
Cash Flow Hedges
The Company and certain subsidiaries enter into cash flow derivative instruments to hedge portions
of anticipated revenue streams and inventory purchases in currencies other than the entitys
functional currency. Outstanding forward contracts, which comprise the majority of the Companys
derivative instruments, hedge monthly forecasted revenue transactions denominated in Japanese yen
and Canadian dollars, as well as forecasted inventory purchases denominated in US dollars for
foreign operations. From time to time, the Company also uses futures contracts to hedge the
variable price component for a small portion of its price-to-be-fixed green coffee purchase
contracts.
The Company had accumulated net derivative gains of $16.9 million, net of taxes, in other
comprehensive income as of March 29, 2009, related to cash flow hedges. Of this amount, $4.0
million of net derivative gains pertains to hedging instruments that will be dedesignated within 12
months and will also continue to experience fair value changes before affecting earnings. No cash
flow hedges were discontinued during the 13 week and 26 week periods ended March 29, 2009 and March
30, 2008. Outstanding contracts will expire within 42 months.
Net Investment Hedges
Net investment derivative instruments are used to hedge the Companys equity method investment in
Starbucks Coffee Japan, Ltd. (Starbucks Japan) as well as the Companys net investments in its
Canada, UK and China subsidiaries, to minimize foreign currency exposure.
8
The Company had accumulated net derivative losses of $10.2 million, net of taxes, in other
comprehensive income as of March 29, 2009, related to net investment derivative hedges. Outstanding
contracts expire within 23 months.
Other Derivatives
The Company enters into certain foreign currency forward contracts that are not designated as
hedging instruments under SFAS 133 to mitigate the translation risk of certain balance sheet items.
These contracts are recorded at fair value, with the changes in fair value recognized in Interest
income and other, net on the consolidated statements of earnings. The impact of the fair value
adjustments on earnings is largely offset by the financial impact of translating foreign currency
denominated payables and receivables, which is also recognized in Interest income and other, net.
The following table presents the fair values of derivative instruments on the consolidated balance
sheet as of March 29, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2009 |
|
|
|
|
|
Assets |
|
|
Liabilities |
|
|
|
Contract Type |
|
Balance sheet Location |
|
Fair Value |
|
|
Balance sheet Location |
|
Fair Value |
|
Derivatives designated as hedging instruments under SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges |
|
|
Foreign Exchange |
|
Prepaid expenses and other current assets |
|
$ |
13.8 |
|
|
Other accrued expenses |
|
$ |
3.9 |
|
|
|
Foreign Exchange |
|
Other assets |
|
|
24.9 |
|
|
Other long-term liabilities |
|
|
1.4 |
|
|
|
Commodity |
|
Prepaid expenses and other current assets |
|
|
|
|
|
Other accrued expenses |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.7 |
|
|
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Hedges |
|
|
Foreign Exchange |
|
Prepaid expenses and other current assets |
|
|
11.2 |
|
|
Other accrued expenses |
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives under SFAS 133 |
|
$ |
49.9 |
|
|
|
|
$ |
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
Prepaid expenses and other current assets |
|
$ |
4.8 |
|
|
Other accrued expenses |
|
$ |
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives not under SFAS 133 |
|
|
4.8 |
|
|
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
$ |
54.7 |
|
|
|
|
$ |
12.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the effect of derivative instruments on the consolidated statement of
earnings for the 13-week and 26-week periods ended March 29, 2009 (in millions):
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) reclassed from |
|
|
|
Gain/(Loss) recognized in OCI |
|
|
|
|
Accumulated OCI to Net Earnings |
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss) reclassified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from Accumulated OCI into Net |
|
13 Weeks |
|
|
26 Weeks |
|
Contract Type |
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
Earnings - Effective Portion |
|
Ended |
|
|
Ended |
|
Derivatives designated as hedging instruments under SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange (1) |
|
$ |
13.5 |
|
|
$ |
13.1 |
|
|
Total net revenue |
|
$ |
(1.4 |
) |
|
$ |
(2.2 |
) |
Foreign Exchange |
|
|
(1.4 |
) |
|
|
26.1 |
|
|
Cost of sales including occupancy costs |
|
|
2.1 |
|
|
|
3.0 |
|
Commodity |
|
|
(0.4 |
) |
|
|
2.4 |
|
|
Cost of sales including occupancy costs |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Interest rate (3) |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.7 |
|
|
|
41.6 |
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange (2) |
|
|
8.2 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19.9 |
|
|
$ |
46.0 |
|
|
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
recognized in Net Earnings |
|
|
|
Location of Gain/(Loss) recognized in |
|
13 Weeks |
|
|
26 Weeks |
|
|
|
Net Earnings |
|
Ended |
|
|
Ended |
|
Derivatives not designated as hedging instruments under SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange |
|
Interest Income and Other, net |
|
$ |
5.9 |
|
|
$ |
45.5 |
|
|
|
|
(1) |
|
During both the 13 weeks and 26 weeks ended March 29, 2009, $0.5 million was recognized in
Interest income and other, net, related to the ineffective portion. |
|
(2) |
|
During the 13 weeks and 26 weeks ended March 29, 2009, $(0.1) million and $2.7 million,
respectively, were recognized in Interest income and other, net, related to the ineffective
portion. |
|
(3) |
|
The Company entered into, dedesignated and settled forward interest rate contracts to
hedge movements in interest rates prior to issuing its $550 million 6.25% Senior Notes in fiscal
2007. The resulting net losses from these contracts will continue to be reclassified to Interest
expense on the consolidated statements of earnings over the life of the Senior Notes due in
2017. |
The Company had the following outstanding derivative contracts as of March 29, 2009, based on
notional amounts:
|
|
|
$759 million US dollars in foreign exchange contracts; and |
|
|
|
|
$4.8 million in green coffee futures contracts. |
Note 4: Fair Value Measurements
The Company adopted SFAS 157 for its financial assets and liabilities effective September 29, 2008,
and will adopt SFAS 157 for nonfinancial assets and liabilities in the first fiscal quarter of
2010. The two-step adoption is in accordance with FSP FAS 157-2, which allows for the delay of the
effective date of SFAS 157 for nonfinancial assets and liabilities. The Company continues to
evaluate the potential impact of the adoption of SFAS 157 fair value measurements related to its
property, plant and equipment, goodwill and other intangible assets.
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 also
establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
|
|
|
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or
liabilities traded in active markets. |
|
|
|
|
Level 2: Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. |
|
|
|
|
Level 3: Inputs that are generally unobservable. These inputs may be used with
internally developed methodologies that result in managements best estimate of fair value. |
10
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the financial assets and liabilities measured at fair value on a
recurring basis as of March 29, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities |
|
$ |
33.5 |
|
|
$ |
33.5 |
|
|
$ |
|
|
|
$ |
|
|
Available-for-sale securities |
|
|
85.0 |
|
|
|
|
|
|
|
22.4 |
|
|
|
62.6 |
|
Derivatives |
|
|
54.7 |
|
|
|
|
|
|
|
54.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
173.2 |
|
|
$ |
33.5 |
|
|
$ |
77.1 |
|
|
$ |
62.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
$ |
12.6 |
|
|
$ |
1.0 |
|
|
$ |
11.6 |
|
|
$ |
|
|
Trading securities include mutual funds and exchange-traded-funds, which the Company holds as an
economic hedge against its liability under the Management Deferred Compensation Plan. For these
securities, the Company uses quoted prices in active markets for identical assets to determine
their fair value, thus they are considered to be Level 1 instruments.
Available-for-sale securities include corporate bonds and auction-rate securities (ARS)
collateralized by student loans, substantially all of which are guaranteed by the United States
Department of Education. The Company uses observable direct and indirect inputs for corporate
bonds, which are considered Level 2 instruments. Level 3 securities are comprised solely of ARS,
all of which are considered to be illiquid due to the auction failures that began in mid-February
2008. The Company values ARS using an internally developed valuation model, whose inputs include
interest rate curves, credit and liquidity spreads, and effective maturity.
Derivative assets and liabilities include foreign currency forward contracts and coffee futures
contracts. Where applicable, the Company uses quoted prices in an active market for identical
derivative assets and liabilities that are traded in exchanges. These derivative assets and
liabilities are coffee futures contracts and are included in Level 1. Derivative assets and
liabilities included in Level 2 are over-the-counter currency forward contracts whose fair values
are estimated using industry-standard valuation models. Such models project future cash flows and
discount the future amounts to a present value using market-based observable inputs, including
interest rate curves, foreign exchange rates, forward and spot prices for currencies.
Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis
The following table presents the changes in Level 3 instruments measured on a recurring basis for
the 26 weeks ended March 29, 2009 (in millions):
|
|
|
|
|
|
|
ARS |
|
Beginning balance, September 28, 2008 |
|
$ |
59.8 |
|
Total reduction in unrealized losses included in other comprehensive income |
|
|
2.8 |
|
Purchases, issuances, and settlements |
|
|
|
|
Transfers in (out) of Level 3 |
|
|
|
|
|
|
|
|
Ending balance, March 29, 2009 |
|
$ |
62.6 |
|
|
|
|
|
Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company measures certain financial assets, including its cost and equity method investments, at
fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed
to be other-than-temporarily impaired. During the 13 weeks and 26 weeks ended March 29, 2009, the
Company did not record any other-than-temporary impairments for these financial assets.
11
Note 5: Inventories
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
Sep 28, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Coffee: |
|
|
|
|
|
|
|
|
|
|
|
|
Unroasted |
|
$ |
359.9 |
|
|
$ |
377.7 |
|
|
$ |
318.5 |
|
Roasted |
|
|
64.8 |
|
|
|
89.6 |
|
|
|
70.0 |
|
Other merchandise held for sale |
|
|
96.1 |
|
|
|
120.6 |
|
|
|
122.2 |
|
Packaging and other supplies |
|
|
107.0 |
|
|
|
104.9 |
|
|
|
96.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
627.8 |
|
|
$ |
692.8 |
|
|
$ |
607.3 |
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2009, the Company had committed to purchasing green coffee totaling $397 million
under fixed-price contracts and an estimated $58 million under price-to-be-fixed contracts. The
Company believes, based on relationships established with its suppliers in the past, the risk of
non-delivery on such purchase commitments is remote.
Note 6: Property, Plant and Equipment
Property, plant and equipment consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
Sep 28, |
|
|
|
2009 |
|
|
2008 |
|
Land |
|
$ |
57.5 |
|
|
$ |
59.1 |
|
Buildings |
|
|
233.1 |
|
|
|
217.7 |
|
Leasehold improvements |
|
|
3,248.6 |
|
|
|
3,363.1 |
|
Store equipment |
|
|
1,052.2 |
|
|
|
1,045.3 |
|
Roasting equipment |
|
|
264.7 |
|
|
|
220.7 |
|
Furniture, fixtures and other |
|
|
615.6 |
|
|
|
517.8 |
|
Work in progress |
|
|
118.5 |
|
|
|
293.6 |
|
|
|
|
|
|
|
|
|
|
|
5,590.2 |
|
|
|
5,717.3 |
|
Less accumulated depreciation and amortization |
|
|
(2,932.2 |
) |
|
|
(2,760.9 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
2,658.0 |
|
|
$ |
2,956.4 |
|
|
|
|
|
|
|
|
Note 7: Debt
The Companys debt consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
Sep 28, |
|
|
|
2009 |
|
|
2008 |
|
Commercial paper program (weighted average interest rate of 1.6% and 3.4%, respectively) |
|
$ |
6.0 |
|
|
$ |
413.0 |
|
Revolving credit facility (weighted average interest rate of 1.2% and 3.5%, respectively) |
|
|
220.0 |
|
|
|
300.0 |
|
Current portion of long-term debt |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
Short-term debt |
|
|
226.5 |
|
|
|
713.7 |
|
6.25% Senior Notes (due Aug 2017) |
|
|
549.2 |
|
|
|
549.2 |
|
Other long-term debt |
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
549.4 |
|
|
|
549.6 |
|
|
|
|
|
|
|
|
Total debt |
|
$ |
775.9 |
|
|
$ |
1,263.3 |
|
|
|
|
|
|
|
|
The estimated fair value of the Companys $550 million 6.25% Senior Notes was approximately $514
million as of March 29, 2009.
12
Note 8: Other Long-term Liabilities
The Companys other long-term liabilities consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Mar 29, |
|
|
Sep 28, |
|
|
|
2009 |
|
|
2008 |
|
Deferred rent |
|
$ |
283.9 |
|
|
$ |
303.9 |
|
Unrecognized tax benefits |
|
|
61.5 |
|
|
|
60.4 |
|
Asset retirement obligations |
|
|
41.5 |
|
|
|
44.6 |
|
Minority interest |
|
|
18.4 |
|
|
|
18.3 |
|
Other |
|
|
10.3 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
Total |
|
$ |
415.6 |
|
|
$ |
442.4 |
|
|
|
|
|
|
|
|
Note 9: Shareholders Equity
In addition to 1.2 billion shares of authorized common stock with $0.001 par value per share, the
Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of
March 29, 2009.
Share repurchase activity under the Companys publicly announced plans was as follows (in millions,
except for average price data):
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
|
Mar 29, 2009 |
|
Mar 30, 2008 |
Number of shares acquired |
|
|
|
|
|
|
12.2 |
|
Average price per share of acquired shares |
|
|
|
|
|
$ |
24.12 |
|
|
|
|
|
|
|
|
|
|
Total accrual-based cost of acquired shares |
|
|
|
|
|
$ |
295.3 |
|
Total cash-based cost of acquired shares |
|
|
|
|
|
$ |
311.4 |
|
Comprehensive Income
Comprehensive income, net of related tax effects, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, 2009 |
|
|
Mar 30, 2008 |
|
|
Mar 29, 2009 |
|
|
Mar 30, 2008 |
|
Net earnings |
|
$ |
25.0 |
|
|
$ |
108.7 |
|
|
$ |
89.3 |
|
|
$ |
316.8 |
|
Unrealized holding gains/(losses) on available-for-sale securities |
|
|
0.2 |
|
|
|
|
|
|
|
2.3 |
|
|
|
|
|
Unrealized holding gains/(losses) on cash flow hedging instruments |
|
|
8.0 |
|
|
|
1.3 |
|
|
|
25.6 |
|
|
|
0.4 |
|
Unrealized holding gains/(losses) on net investment hedging
instruments |
|
|
5.1 |
|
|
|
(4.8 |
) |
|
|
2.7 |
|
|
|
(5.4 |
) |
Reclassification adjustment for net (gains)/losses realized in
net earnings for cash flow hedges |
|
|
0.9 |
|
|
|
1.3 |
|
|
|
0.5 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain/(loss) |
|
|
14.2 |
|
|
|
(2.2 |
) |
|
|
31.1 |
|
|
|
(2.6 |
) |
Translation adjustment |
|
|
(21.7 |
) |
|
|
22.7 |
|
|
|
(42.1 |
) |
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
17.5 |
|
|
$ |
129.2 |
|
|
$ |
78.3 |
|
|
$ |
347.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of tax, were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Mar 29, 2009 |
|
|
Sep 28, 2008 |
|
Net unrealized gains/(losses) on available-for-sale securities |
|
$ |
(1.8 |
) |
|
$ |
(4.1 |
) |
Net unrealized gains/(losses) on hedging instruments |
|
|
6.6 |
|
|
|
(22.2 |
) |
Translation adjustment |
|
|
32.6 |
|
|
|
74.7 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
37.4 |
|
|
$ |
48.4 |
|
|
|
|
|
|
|
|
As of March 29, 2009, the translation adjustment of $32.6 million was net of tax provisions of $9.9
million. As of September 28, 2008, the translation adjustment of $74.7 million was net of tax
provisions of $7.0 million.
13
Note 10: Employee Stock Plans
The Company maintains several equity incentive plans under which it may grant non-qualified stock
options, incentive stock options, restricted stock, restricted stock units (RSUs), or stock
appreciation rights to employees, non-employee directors and consultants. As of March 29, 2009,
there were 23.4 million shares of common stock available for issuance pursuant to future
equity-based compensation awards. The Company also has employee stock purchase plans (ESPP).
The following table presents total stock-based compensation expense recognized in the consolidated
statements of earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, 2009 |
|
|
Mar 30, 2008 |
|
|
Mar 29, 2009 |
|
|
Mar 30, 2008 |
|
Stock option expense |
|
$ |
14.7 |
|
|
$ |
10.8 |
|
|
$ |
31.1 |
|
|
$ |
31.9 |
|
RSU expense |
|
|
3.1 |
|
|
|
1.0 |
|
|
|
6.5 |
|
|
|
1.0 |
|
ESPP expense |
|
|
2.4 |
|
|
|
3.2 |
|
|
|
4.9 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
20.2 |
|
|
$ |
15.0 |
|
|
$ |
42.5 |
|
|
$ |
39.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
The following table presents the weighted average assumptions used to value stock options granted
during the period, along with the related weighted average grant price for the 13-week and 26-week
periods ended March 29, 2009 and March 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
|
Mar 29, 2009 |
|
Mar 30, 2008 |
|
Mar 29, 2009 |
|
Mar 30, 2008 |
Expected term (in years) |
|
|
4.6 |
|
|
|
4.5 |
|
|
|
4.9 |
|
|
|
4.8 |
|
Expected stock price volatility |
|
|
46.1 |
% |
|
|
34.7 |
% |
|
|
44.5 |
% |
|
|
29.3 |
% |
Risk-free interest rate |
|
|
1.8 |
% |
|
|
2.0 |
% |
|
|
2.2 |
% |
|
|
3.4 |
% |
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant price |
|
$ |
10.44 |
|
|
$ |
18.10 |
|
|
$ |
8.70 |
|
|
$ |
22.59 |
|
Estimated fair value per option granted |
|
$ |
4.16 |
|
|
$ |
5.69 |
|
|
$ |
3.51 |
|
|
$ |
7.01 |
|
The assumptions used to calculate the fair value of stock options granted are evaluated and
revised, as necessary, to reflect market conditions and the Companys experience.
The following table summarizes all stock option transactions from September 29, 2008 through March
29, 2009 (in millions, except per share and contractual life amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
Shares |
|
Exercise |
|
Remaining |
|
Aggregate |
|
|
Subject to |
|
Price |
|
Contractual |
|
Intrinsic |
|
|
Options |
|
per Share |
|
Life (Years) |
|
Value |
Outstanding, September 28, 2008 |
|
|
63.0 |
|
|
$ |
20.96 |
|
|
|
5.7 |
|
|
$ |
114.9 |
|
Granted |
|
|
29.6 |
|
|
|
8.70 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4.0 |
) |
|
|
5.75 |
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled |
|
|
(7.7 |
) |
|
|
18.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 29, 2009 |
|
|
80.9 |
|
|
|
17.40 |
|
|
|
6.9 |
|
|
|
116.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 29, 2009 |
|
|
41.6 |
|
|
|
20.29 |
|
|
|
4.6 |
|
|
|
34.5 |
|
Vested and expected to vest, March 29, 2009 |
|
|
72.5 |
|
|
|
17.98 |
|
|
|
6.6 |
|
|
|
96.1 |
|
The closing market value of the Companys stock on March 27, 2009 was $11.77. As of March 29, 2009,
total unrecognized stock-based compensation expense related to nonvested stock options was
approximately $97 million, before income taxes, and is expected to be recognized over a weighted
average period of approximately 3.1 years.
14
RSUs
The Company has both time-vested and performance-based RSUs. Time-vested RSUs are awarded to
eligible employees and entitle the grantee to receive shares of common stock at the end of a
vesting period, subject solely to the employees continuing employment. The Companys
performance-based RSUs are awarded to eligible employees and entitle the grantee to receive shares
of common stock if the Company achieves target earnings per share for the full fiscal year in the
year of award, and the grantee remains employed during the subsequent vesting period. The fair
value of RSUs is based on the closing price of Starbucks common stock on the award date. Expense
for performance-based RSUs is recognized when it is probable the performance goal will be achieved.
The following table summarizes all RSU transactions from September 29, 2008 through March 29, 2009
(in millions, except per share and contractual life amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
Number |
|
Grant Date |
|
Remaining |
|
Aggregate |
|
|
of |
|
Fair Value |
|
Contractual |
|
Intrinsic |
|
|
Shares |
|
per Share |
|
Life (Years) |
|
Value |
Nonvested, September 28, 2008 |
|
|
2.0 |
|
|
$ |
17.36 |
|
|
|
2.5 |
|
|
$ |
30.5 |
|
Granted |
|
|
3.3 |
|
|
|
8.71 |
|
|
|
|
|
|
|
|
|
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled |
|
|
(0.6 |
) |
|
|
14.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested, March 29, 2009 |
|
|
4.7 |
|
|
|
11.78 |
|
|
|
2.1 |
|
|
|
55.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2009, total unrecognized stock-based compensation expense related to nonvested RSUs
was approximately $43 million, before income taxes, and is expected to be recognized over a
weighted average period of approximately 2.9 years.
Note 11: Earnings Per Share
The following table presents the calculation of net earnings per common share (EPS) basic and
diluted (in millions, except EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net earnings |
|
$ |
25.0 |
|
|
$ |
108.7 |
|
|
$ |
89.3 |
|
|
$ |
316.8 |
|
Weighted average common shares and common stock units
outstanding (for basic calculation) |
|
|
738.0 |
|
|
|
728.7 |
|
|
|
737.2 |
|
|
|
730.1 |
|
Dilutive effect of outstanding common stock options and RSUs |
|
|
1.9 |
|
|
|
10.6 |
|
|
|
2.3 |
|
|
|
12.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares
outstanding (for diluted calculation) |
|
|
739.9 |
|
|
|
739.3 |
|
|
|
739.5 |
|
|
|
742.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS basic |
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.43 |
|
EPS diluted |
|
$ |
0.03 |
|
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.43 |
|
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of
outstanding stock options (both vested and non-vested) and unvested RSUs, using the treasury stock
method. Potential dilutive shares are excluded from the computation of earnings per share if their
effect is antidilutive. The number of antidilutive options and RSUs totaled 74.2 million and 43.7
million for the 13-week periods ended March 29, 2009 and March 30, 2008, respectively. The number
of antidilutive options and RSUs totaled 71.4 million and 40.8 million for the 26-week periods
ended March 29, 2009 and March 30, 2008, respectively.
15
Note 12: Commitments and Contingencies
Guarantees
The following table presents information on unconditional guarantees as of March 29, 2009 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value estimate |
|
|
Maximum |
|
Year Guarantee |
|
recorded on |
|
|
Exposure |
|
Expires in |
|
Balance Sheet |
Japanese yen-denominated bank loans (Starbucks
Japan an unconsolidated equity investee) |
|
$ |
3.4 |
|
|
|
2014 |
|
|
$ |
|
(1) |
Borrowings of other unconsolidated equity investees |
|
$ |
16.1 |
|
|
|
2009 to 2012 |
|
|
$ |
3.8 |
|
|
|
|
(1) |
|
Since there has been no modification of these loan guarantees subsequent to the
Companys adoption of FASB Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,
Starbucks has applied the disclosure provisions only and has not recorded the guarantees on
its consolidated balance sheets. |
Legal Proceedings
On October 8, 2004, a former hourly employee of the Company filed a lawsuit in San Diego County
Superior Court entitled Jou Chau v. Starbucks Coffee Company. The lawsuit alleges that the Company
violated the California Labor Code by allowing shift supervisors to receive tips. More
specifically, the lawsuit alleges that since shift supervisors direct the work of baristas, they
qualify as agents of the Company and are therefore excluded from receiving tips under California
Labor Code Section 351, which prohibits employers and their agents from collecting or receiving
tips left by patrons for other employees. The lawsuit further alleges that because the tipping
practices violate the Labor Code, they also are unfair practices under the California Unfair
Competition Law. In addition to recovery of an unspecified amount of tips distributed to shift
supervisors, the lawsuit seeks penalties under California Labor Code Section 203 for willful
failure to pay wages due. Plaintiff also seeks attorneys fees and costs. On February 28, 2008, the
court ruled against the Company in the liability phase of the trial and on March 20, 2008 the court
ordered the Company to pay approximately $87 million in restitution, plus interest. The Company has
appealed the decision to the California Court of Appeals. Starbucks believes that while the adverse
ruling by the trial judge in this case makes the possibility of loss somewhat more likely, the
Company is only at the very beginning of the appellate process. Starbucks believes that the
likelihood that the Company will ultimately incur a loss in connection with this litigation is
reasonably possible rather than probable. The Company has not accrued any loss related to this
litigation.
On June 30, 2005, three individuals, Erik Lords, Hon Yeung, and Donald Brown, filed a lawsuit in
Orange County Superior Court, California. The lawsuit alleges that the Company violated the
California Labor Code section 432.8 by asking job applicants to disclose at the time of application
convictions for marijuana-related offenses more than two years old. The California Court of Appeals
issued a ruling on December 10, 2008 instructing the trial judge to enter summary judgment against
plaintiffs and the California Supreme Court has rejected the plaintiffs appeal. The matter is now
back before the trial court awaiting final dismissal.
The Company is party to various other legal proceedings arising in the ordinary course of its
business, but it is not currently a party to any legal proceeding that management believes would
have a material adverse effect on the consolidated financial position or results of operations of
the Company.
16
Note 13: Segment Reporting
Segment information is prepared on the same basis that the Companys management reviews financial
information for operational decision making purposes. The tables below present information by
operating segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United |
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
13 Weeks Ended |
|
States |
|
International |
|
Global CPG |
|
Corporate(1) |
|
Total |
March 29, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail revenues |
|
$ |
1,602.2 |
|
|
$ |
359.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,961.8 |
|
Licensing revenues |
|
|
123.9 |
|
|
|
64.1 |
|
|
|
94.8 |
|
|
|
|
|
|
|
282.8 |
|
Foodservice and other revenues |
|
|
78.7 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
88.7 |
|
Total net revenues |
|
|
1,804.8 |
|
|
|
433.7 |
|
|
|
94.8 |
|
|
|
|
|
|
|
2,333.3 |
|
Depreciation and amortization |
|
|
97.2 |
|
|
|
23.9 |
|
|
|
|
|
|
|
13.0 |
|
|
|
134.1 |
|
Income from equity investees |
|
|
|
|
|
|
11.1 |
|
|
|
14.1 |
|
|
|
|
|
|
|
25.2 |
|
Operating income/(loss) |
|
|
90.6 |
|
|
|
6.0 |
|
|
|
45.3 |
|
|
|
(101.0 |
) |
|
|
40.9 |
|
Earnings/(loss) before income taxes |
|
|
94.3 |
|
|
|
7.2 |
|
|
|
45.3 |
|
|
|
(111.9 |
) |
|
|
34.9 |
|
Net impairment and disposition losses |
|
|
42.4 |
|
|
|
15.0 |
|
|
|
|
|
|
|
23.0 |
|
|
|
80.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail revenues |
|
$ |
1,725.5 |
|
|
$ |
417.4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,142.9 |
|
Licensing revenues |
|
|
115.1 |
|
|
|
63.0 |
|
|
|
96.3 |
|
|
|
|
|
|
|
274.4 |
|
Foodservice and other revenues |
|
|
95.7 |
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
108.7 |
|
Total net revenues |
|
|
1,936.3 |
|
|
|
493.4 |
|
|
|
96.3 |
|
|
|
|
|
|
|
2,526.0 |
|
Depreciation and amortization |
|
|
102.2 |
|
|
|
26.5 |
|
|
|
|
|
|
|
9.4 |
|
|
|
138.1 |
|
Income/(loss) from equity investees |
|
|
(0.7 |
) |
|
|
15.2 |
|
|
|
10.0 |
|
|
|
|
|
|
|
24.5 |
|
Operating income/(loss) |
|
|
193.9 |
|
|
|
17.8 |
|
|
|
42.7 |
|
|
|
(76.2 |
) |
|
|
178.2 |
|
Earnings/(loss) before income taxes |
|
|
194.3 |
|
|
|
22.6 |
|
|
|
42.7 |
|
|
|
(92.4 |
) |
|
|
167.2 |
|
Net impairment and disposition losses |
|
|
27.8 |
|
|
|
9.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
37.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail revenues |
|
$ |
3,364.0 |
|
|
$ |
774.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,138.0 |
|
Licensing revenues |
|
|
274.8 |
|
|
|
133.2 |
|
|
|
209.1 |
|
|
|
|
|
|
|
617.1 |
|
Foodservice and other revenues |
|
|
171.2 |
|
|
|
22.2 |
|
|
|
|
|
|
|
|
|
|
|
193.4 |
|
Total net revenues |
|
|
3,810.0 |
|
|
|
929.4 |
|
|
|
209.1 |
|
|
|
|
|
|
|
4,948.5 |
|
Depreciation and amortization |
|
|
194.6 |
|
|
|
49.3 |
|
|
|
|
|
|
|
24.5 |
|
|
|
268.4 |
|
Income from equity investees |
|
|
0.5 |
|
|
|
23.0 |
|
|
|
25.2 |
|
|
|
|
|
|
|
48.7 |
|
Operating income/(loss) |
|
|
224.6 |
|
|
|
18.9 |
|
|
|
96.8 |
|
|
|
(181.7 |
) |
|
|
158.6 |
|
Earnings/(loss) before income taxes |
|
|
235.0 |
|
|
|
12.8 |
|
|
|
96.8 |
|
|
|
(211.4 |
) |
|
|
133.2 |
|
Net impairment and disposition losses |
|
|
73.3 |
|
|
|
31.4 |
|
|
|
|
|
|
|
41.0 |
|
|
|
145.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail revenues |
|
$ |
3,615.8 |
|
|
$ |
878.6 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,494.4 |
|
Licensing revenues |
|
|
253.0 |
|
|
|
129.3 |
|
|
|
196.9 |
|
|
|
|
|
|
|
579.2 |
|
Foodservice and other revenues |
|
|
193.7 |
|
|
|
26.3 |
|
|
|
|
|
|
|
|
|
|
|
220.0 |
|
Total net revenues |
|
|
4,062.5 |
|
|
|
1,034.2 |
|
|
|
196.9 |
|
|
|
|
|
|
|
5,293.6 |
|
Depreciation and amortization |
|
|
200.6 |
|
|
|
52.2 |
|
|
|
|
|
|
|
18.5 |
|
|
|
271.3 |
|
Income/(loss) from equity investees |
|
|
(0.3 |
) |
|
|
27.3 |
|
|
|
21.1 |
|
|
|
|
|
|
|
48.1 |
|
Operating income/(loss) |
|
|
504.8 |
|
|
|
71.9 |
|
|
|
93.3 |
|
|
|
(158.7 |
) |
|
|
511.3 |
|
Earnings/(loss) before income taxes |
|
|
512.2 |
|
|
|
80.8 |
|
|
|
93.3 |
|
|
|
(192.4 |
) |
|
|
493.9 |
|
Net impairment and disposition losses |
|
|
31.5 |
|
|
|
10.8 |
|
|
|
|
|
|
|
0.1 |
|
|
|
42.4 |
|
|
|
|
(1) |
|
Unallocated Corporate includes expenses pertaining to corporate administrative
functions that support the operating segments but are not specifically attributable to or
managed by any segment and are not included in the reported financial results of the operating
segments. These unallocated corporate expenses include certain general and administrative
expenses, related depreciation and amortization expenses, restructuring charges, and amounts
included in Interest income and other, net and Interest expense on the consolidated
statements of earnings. |
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements herein, including statements regarding trends in or expectations relating to the
expected effects of the Companys restructuring and other initiatives and charges, expenses and
potential cost reductions relating thereto, liquidity, other financial results, capital
expenditures, cash from operations, free cash flow, anticipated store openings and closings, and
economic conditions in the US and other international markets all constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on currently available operating, financial and competitive information and
are subject to various risks and uncertainties. Actual future results and trends may differ
materially depending on a variety of factors, including, but not limited to, coffee, dairy and
other raw materials prices and availability, successful execution of the Companys restructuring
and other initiatives, successful execution of internal performance and expansion plans,
fluctuations in US and international economies and currencies, the impact of competitors
initiatives, the effect of legal proceedings, and other risks detailed in Part I Item IA. Risk
Factors in the Companys 10-K.
A forward-looking statement is neither a prediction nor a guarantee of future events or
circumstances, and those future events or circumstances may not occur. Users should not place undue
reliance on the forward-looking statements, which speak only as of the date of this report. The
Company is under no obligation to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
This information should be read in conjunction with the condensed consolidated financial statements
and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial
statements and notes, and Managements Discussion and Analysis of Financial Condition and Results
of Operations, contained in the 10-K.
General
Starbucks Corporations fiscal year ends on the Sunday closest to September 30. All references to
store counts, including data for new store openings, are reported net of store closures, unless
otherwise noted.
Management Overview
Fiscal 2009 Second Quarter in Review
In the second quarter of fiscal 2009, Starbucks continued to execute the restructuring efforts that
it began in fiscal 2008 to position the Company for long-term profitable growth. These efforts were
focused on both the global Company-operated store base and the non-retail support organization.
Cost reduction initiatives targeting over $500 million of permanent reductions in the Companys
cost structure in fiscal 2009 proceeded as planned. These targeted cost reductions and associated
efficiency efforts, along with a more profitable Company-operated store base, have been designed to
move Starbucks toward a more sustainable business model, one that is less reliant on high revenue
growth to drive profitability, while preserving the fundamental strengths and values of the brand.
The Company believes its continued strong cash flow generation, solid balance sheet, and healthy
liquidity provide it with the financial flexibility to implement the restructuring efforts as well
as make investments in its core business.
Starbucks second quarter results were significantly impacted by the ongoing global recession and
negative comparable store sales, as well as the costs associated with the store closures and other
restructuring actions. Consolidated comparable store sales declined by 8% for the second quarter of
fiscal 2009, with comparable store sales declines of 8% in the US and 3% in International for the
period. Consolidated comparable store sales declined by 9% for the first quarter of fiscal 2009.
Management believes that the negative comparable store sales are in large part a result of the
ongoing global economic crisis and its effects on consumers discretionary spending, although other
factors within the Companys control, such as the previous rapid pace of store openings and store
level execution, have also impacted the Companys recent performance. However, the Company has
started to realize the positive effects of its cost reductions and efficiency initiatives and
expects the impact of such initiatives on the Companys financial results to increase over the
remainder of fiscal 2009.
Starbucks efforts to rationalize its global store portfolio have included the July 2008 and January
2009 announcements of plans to close a total of approximately 800 Company-operated stores in the
US, restructure its Australia market and close 61 stores, and close
approximately 100 other Company-operated stores internationally. Since July 2008, 507 US stores
and 64 International stores have been closed. The majority of the remaining store closures are
expected to occur by the end of fiscal 2009.
18
Financial Highlights for the second quarter and year to date periods of fiscal 2009:
|
|
|
Consolidated operating income was $41 million for the second quarter of fiscal 2009
compared to $178 million in the prior year period, and operating margin was 1.8% compared
with 7.1% in the prior year period. Approximately 650 basis points of the decrease in
operating margin was a result of restructuring charges, the large majority of which related
to US store closures. |
|
|
|
|
EPS for the second quarter of fiscal 2009 was $0.03, compared to EPS of $0.15 earned in
the prior year. Restructuring charges impacted EPS by approximately $0.13 per share in the
second quarter of fiscal 2009. |
|
|
|
|
Cash flow from operations was $715 million for the 26 weeks ended March 29, 2009,
compared with $765 million for the same period in fiscal 2008, while capital expenditures
declined to $237 million for the 26 weeks ended March 29, 2009 versus $505 million for the
previous year period. Available operating cash flows during the first half of fiscal 2009
were primarily used to reduce short-term borrowings to $226 million, down from $713 million
at the beginning of the fiscal year. |
|
|
|
|
Also in the second quarter, the Company delivered approximately $120 million in cost
reductions, exceeding the targeted $100 million for the second quarter, and resulting in
year-to-date cost reductions of approximately $195 million. The cost reduction initiatives
are focused on store closures, headcount reductions, in-store efficiencies and supply chain
improvements. |
Fiscal 2009 Full Year Outlook
|
|
|
Stores. Starbucks now expects to add approximately 20 net new stores to its global store
base for the full fiscal year 2009. This revised target includes a net reduction of
approximately 425 Company-operated stores in the US and the net addition of approximately
60 Company-operated stores internationally. The Company now expects to open approximately
65 net new licensed stores in the US and approximately 320 net new licensed stores
internationally. |
|
|
|
|
Capital expenditures and cash flows. For fiscal 2009 capital expenditures are expected
to be approximately $600 million. The Company estimates that fiscal year 2009 cash from
operations will exceed $1 billion, with resulting free cash flow* in excess of $500
million. Starbucks defines free cash flow as cash from operations less capital
expenditures. |
|
|
|
|
Cost reductions. The Company is on track to achieve its goal of reducing costs by
approximately $500 million in fiscal 2009. As noted above, approximately $195 million of
cost reductions have been achieved in the first half of fiscal 2009. Starbucks expects to
deliver cost reductions of approximately $150 million in the third quarter, and
approximately $175 million in the fourth quarter of fiscal 2009, for a total of over $500
million for the full year. |
|
|
|
* |
|
Free cash flow is a non-GAAP financial measure and may not be comparable to similar measures
used by other companies. Free cash flow is used in addition to and in conjunction with results
presented in accordance with GAAP and free cash flow should not be relied upon to the exclusion of
GAAP financial measures. The disclosure of free cash flow is intended to supplement investors
understanding of the Companys operating performance. |
19
Results of Operations for the 13 Weeks and 26 Weeks Ended March 29, 2009 and March 30, 2008 (in millions)
Consolidated results of operations
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
|
|
|
|
26 Weeks Ended |
|
|
|
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
% |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
% |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated retail |
|
$ |
1,961.8 |
|
|
$ |
2,142.9 |
|
|
|
(8.5 |
%) |
|
$ |
4,138.0 |
|
|
$ |
4,494.4 |
|
|
|
(7.9 |
%) |
Specialty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing |
|
|
282.8 |
|
|
|
274.4 |
|
|
|
3.1 |
|
|
|
617.1 |
|
|
|
579.2 |
|
|
|
6.5 |
|
Foodservice and other |
|
|
88.7 |
|
|
|
108.7 |
|
|
|
(18.4 |
) |
|
|
193.4 |
|
|
|
220.0 |
|
|
|
(12.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total specialty |
|
|
371.5 |
|
|
|
383.1 |
|
|
|
(3.0 |
) |
|
|
810.5 |
|
|
|
799.2 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
2,333.3 |
|
|
$ |
2,526.0 |
|
|
|
(7.6 |
%) |
|
$ |
4,948.5 |
|
|
$ |
5,293.6 |
|
|
|
(6.5 |
%) |
Net revenues for the 13 weeks and 26 weeks ended March 29, 2009 decreased compared to the
corresponding periods of fiscal 2008, driven by decreases in Company-operated retail operations.
Starbucks derived 84% of total net revenues from its Company-operated retail stores during the 13
weeks and 26 weeks ended March 29, 2009. The US segment contributed approximately 77% of total net
revenues. The decrease in consolidated net revenues was driven by a decrease in consolidated
comparable store sales in both the 13 weeks and 26 weeks ended March 29, 2009. US comparable store
sales declined 8% and 9% during the 13 weeks and 26 weeks ended March 29, 2009, respectively, due
both to a decrease in the volume of transactions and in the average value per transaction.
International total net revenues also contracted for the 13 weeks and 26 weeks ended March 29, 2009
compared to the same periods last year, primarily due to the stronger US dollar relative to the
British pound and Canadian dollar. Also contributing to the decrease in International revenues was
a 3% decline in comparable store sales, driven largely by the weakening economic environment in UK
and Canada.
The Company derived the remaining 16% of total net revenues from licensing and foodservice channels
outside the Company-operated retail stores, collectively known as specialty operations. Licensing
revenues are derived from retail store licensing arrangements as well as grocery, warehouse club
and certain other branded-product operations. The decline in foodservice and other revenues in the
second quarter of fiscal 2009 was primarily due to the impact of the current economic environment
on the Companys sales in the office coffee and lodging channels.
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
Cost of sales including occupancy costs |
|
$ |
1,043.5 |
|
|
$ |
1,106.7 |
|
|
|
44.7 |
% |
|
|
43.8 |
% |
|
$ |
2,240.3 |
|
|
$ |
2,292.7 |
|
|
|
45.3 |
% |
|
|
43.3 |
% |
Store operating expenses |
|
|
819.6 |
|
|
|
927.1 |
|
|
|
35.1 |
|
|
|
36.7 |
|
|
|
1,756.2 |
|
|
|
1,854.4 |
|
|
|
35.5 |
|
|
|
35.0 |
|
Other operating expenses |
|
|
64.0 |
|
|
|
82.8 |
|
|
|
2.7 |
|
|
|
3.3 |
|
|
|
136.6 |
|
|
|
168.5 |
|
|
|
2.8 |
|
|
|
3.2 |
|
Depreciation and amortization expenses |
|
|
134.1 |
|
|
|
138.1 |
|
|
|
5.7 |
|
|
|
5.5 |
|
|
|
268.4 |
|
|
|
271.3 |
|
|
|
5.4 |
|
|
|
5.1 |
|
General and administrative expenses |
|
|
104.3 |
|
|
|
117.6 |
|
|
|
4.5 |
|
|
|
4.7 |
|
|
|
209.5 |
|
|
|
243.5 |
|
|
|
4.2 |
|
|
|
4.6 |
|
Restructuring charges |
|
|
152.1 |
|
|
|
|
|
|
|
6.5 |
|
|
|
|
|
|
|
227.6 |
|
|
|
|
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,317.6 |
|
|
|
2,372.3 |
|
|
|
99.3 |
|
|
|
93.9 |
|
|
|
4,838.6 |
|
|
|
4,830.4 |
|
|
|
97.8 |
|
|
|
91.2 |
|
Income from equity investees |
|
|
25.2 |
|
|
|
24.5 |
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
48.7 |
|
|
|
48.1 |
|
|
|
1.0 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
40.9 |
|
|
$ |
178.2 |
|
|
|
1.8 |
% |
|
|
7.1 |
% |
|
$ |
158.6 |
|
|
$ |
511.3 |
|
|
|
3.2 |
% |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental ratios
as a % of related revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses |
|
|
|
|
|
|
|
|
|
|
41.8 |
% |
|
|
43.3 |
% |
|
|
|
|
|
|
|
|
|
|
42.4 |
% |
|
|
41.3 |
% |
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
17.2 |
% |
|
|
21.6 |
% |
|
|
|
|
|
|
|
|
|
|
16.9 |
% |
|
|
21.1 |
% |
20
Cost of sales including occupancy costs as a percentage of total revenues increased primarily due
to higher coffee and beverage costs as a result of a mix shift to lower margin products. Coffee
commodity costs increased but were more than offset by lower dairy costs. Occupancy costs also
increased as a percentage of total revenues due to sales deleverage on lower retail revenues.
Store operating expenses as a percentage of Company-operated retail revenues decreased for the 13
weeks ended March 29, 2009 due primarily to reduced headcount in the regional overhead support
organization as a result of the Companys restructuring efforts, controlled discretionary spending,
and higher impairment charges recorded in the prior year. For the 26 weeks ended March 29, 2009,
store operating expenses as a percentage of Company-operated retail revenues increased primarily
due to sales deleverage resulting in higher payroll expenditures as a percentage of revenues in
both US and International segments.
Restructuring charges include lease exit and other costs associated with the plan announced in July
2008 to close approximately 600 Company-operated US stores and the plan announced in January 2009
to close approximately 300 additional Company-operated stores in both US and International
markets. Of these, a total of 510 stores have been closed as of the end of the second quarter of
fiscal 2009. The majority of the remaining store closures are expected to occur by the end of
fiscal 2009, and the related lease exit costs are expected to be recognized during that time frame.
See Note 2 for further discussion.
Operating income and net earnings:
Operating margin compression was primarily due to the restructuring charges recognized during the
13 and 26 weeks ended March 29, 2009, and to higher cost of sales including occupancy costs as
described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
Operating income |
|
$ |
40.9 |
|
|
$ |
178.2 |
|
|
|
1.8 |
% |
|
|
7.1 |
% |
|
$ |
158.6 |
|
|
$ |
511.3 |
|
|
|
3.2 |
% |
|
|
9.7 |
% |
Interest income and other, net |
|
|
2.9 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.0 |
|
|
|
(3.5 |
) |
|
|
10.9 |
|
|
|
(0.1 |
) |
|
|
0.2 |
|
Interest expense |
|
|
(8.9 |
) |
|
|
(11.2 |
) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(21.9 |
) |
|
|
(28.3 |
) |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
34.9 |
|
|
|
167.2 |
|
|
|
1.5 |
|
|
|
6.6 |
|
|
|
133.2 |
|
|
|
493.9 |
|
|
|
2.7 |
|
|
|
9.3 |
|
Income taxes |
|
|
9.9 |
|
|
|
58.5 |
|
|
|
0.4 |
|
|
|
2.3 |
|
|
|
43.9 |
|
|
|
177.1 |
|
|
|
0.9 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
25.0 |
|
|
$ |
108.7 |
|
|
|
1.1 |
% |
|
|
4.3 |
% |
|
$ |
89.3 |
|
|
$ |
316.8 |
|
|
|
1.8 |
% |
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
|
|
|
|
|
|
|
|
28.4 |
% |
|
|
35.0 |
% |
|
|
|
|
|
|
|
|
|
|
33.0 |
% |
|
|
35.9 |
% |
Interest expense decreased due to a lower average balance of short term borrowings and lower
average short term borrowing rates, in fiscal 2009 compared to fiscal 2008.
The effective tax rate for the 13 weeks and 26 weeks ended March 29, 2009 decreased primarily due
to the higher proportion of income earned in foreign jurisdictions which have lower tax rates, as
well as the proportionately larger effect of the domestic manufacturing deduction for manufacturing
activities in the US, due to the lower level of pretax earnings in fiscal 2009 compared to the
prior year.
21
Operating Segments
Segment information is prepared on the same basis that the Companys management reviews financial
information for operational decision-making purposes. The following tables summarize the Companys
results of operations by segment:
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
|
Mar 29, |
|
Mar 30, |
|
Mar 29, |
|
Mar 30, |
|
Mar 29, |
|
Mar 30, |
|
Mar 29, |
|
Mar 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
% of US |
|
|
|
|
|
|
|
|
|
% of US |
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
Net Revenues |
Total net revenues |
|
$ |
1,804.8 |
|
|
$ |
1,936.3 |
|
|
|
|
|
|
|
|
|
|
$ |
3,810.0 |
|
|
$ |
4,062.5 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,714.2 |
|
|
|
1,741.7 |
|
|
|
95.0 |
% |
|
|
89.9 |
% |
|
|
3,585.9 |
|
|
|
3,557.4 |
|
|
|
94.1 |
|
|
|
87.6 |
% |
Operating income |
|
|
90.6 |
|
|
|
193.9 |
|
|
|
5.0 |
% |
|
|
10.0 |
% |
|
|
224.6 |
|
|
|
504.8 |
|
|
|
5.9 |
% |
|
|
12.4 |
% |
Total net revenues decreased 7% and 6%, respectively, for the 13 weeks and 26 weeks ended March
29, 2009 due to lower retail revenues and specialty revenues. Company-operated retail revenues
decreased primarily due to an 8% decline in comparable store sales for the 13 weeks ended March 29,
2009 and a 9% decline for the 26-week period. The Company-operated retail business continued to
experience deteriorating trends in transactions and ticket value, largely driven by the US economic
downturn.
Operating margin contracted for the 13 weeks and 26 weeks ended March 29, 2009 primarily due to
restructuring charges of $106.8 million and $161.2 million, respectively. The operating margin was
also impacted by higher cost of sales including occupancy costs resulting primarily from reduced
sales leverage on fixed occupancy costs, and higher beverage costs related to new product
innovations. Store operating expenses as a percentage of Company-operated retail revenues improved
in the second fiscal quarter of 2009 primarily due to reduced headcount in the regional overhead
support organization as a result of the Companys restructuring efforts.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
% of International |
|
|
|
|
|
|
|
|
|
|
% of International |
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
Total net revenues |
|
$ |
433.7 |
|
|
$ |
493.4 |
|
|
|
|
|
|
|
|
|
|
$ |
929.4 |
|
|
$ |
1,034.2 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
438.8 |
|
|
|
490.8 |
|
|
|
101.2 |
% |
|
|
99.5 |
% |
|
|
933.5 |
|
|
|
989.6 |
|
|
|
100.4 |
% |
|
|
95.7 |
% |
Income from equity investees |
|
|
11.1 |
|
|
|
15.2 |
|
|
|
2.6 |
% |
|
|
3.1 |
|
|
|
23.0 |
|
|
|
27.3 |
|
|
|
2.5 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
6.0 |
|
|
$ |
17.8 |
|
|
|
1.4 |
% |
|
|
3.6 |
% |
|
$ |
18.9 |
|
|
$ |
71.9 |
|
|
|
2.0 |
% |
|
|
7.0 |
% |
Total net revenues decreased 12% and 10%, respectively, for the 13 weeks and 26 weeks ended March
29, 2009 due to lower retail revenues. Company-operated retail revenue decreased due to the
strengthening of the US dollar against the British pound and the Canadian dollar, and a 3% decline
in comparable store sales, driven largely by the weakening economic environment in UK and Canada.
Operating margin contracted for the 13 weeks and 26 weeks ended March 29, 2009 primarily due to
restructuring charges of $14.9 million and $16.9 million, respectively. The operating margin was
also impacted by higher cost of sales including occupancy costs resulting primarily from higher
coffee and beverage costs as a result of a mix shift to lower margin products. For the 26 weeks
ended March 29, 2009, higher distribution costs also contributed to the contraction.
22
Global Consumer Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
|
26 Weeks Ended |
|
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
Mar 29, |
|
|
Mar 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
% of CPG |
|
|
|
|
|
|
|
|
|
|
% of CPG |
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
Total specialty revenues |
|
$ |
94.8 |
|
|
$ |
96.3 |
|
|
|
|
|
|
|
|
|
|
$ |
209.1 |
|
|
$ |
196.9 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
63.6 |
|
|
|
63.6 |
|
|
|
67.1 |
% |
|
|
66.0 |
% |
|
|
137.5 |
|
|
|
124.7 |
|
|
|
65.8 |
% |
|
|
63.3 |
% |
Income from equity investees |
|
|
14.1 |
|
|
|
10.0 |
|
|
|
14.9 |
|
|
|
10.4 |
|
|
|
25.2 |
|
|
|
21.1 |
|
|
|
12.1 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
45.3 |
|
|
$ |
42.7 |
|
|
|
47.8 |
% |
|
|
44.3 |
% |
|
$ |
96.8 |
|
|
$ |
93.3 |
|
|
|
46.3 |
% |
|
|
47.4 |
% |
Total specialty revenues decreased 2% for the 13 weeks ended March 29, 2009 due primarily to
increased promotional discounts on sales of packaged coffee from Kraft, the Companys distribution
partner, to the retail trade and lower sales volume. Total specialty revenues increased 6% for the
26 weeks ended March 29, 2009 primarily due to an increase in packaged coffee sales to Kraft and
higher royalties from the international ready-to-drink business.
Operating margin increased for the 13 weeks ended March 29, 2009 due to lower income from equity
investees in the prior year period as a result of product write-offs within The North American
Coffee Partnership joint venture. Contraction of operating margin for the 26 weeks ended March 29,
2009 was primarily due to higher coffee commodity costs and promotional programs with discounts to
the retailers in the current year period.
Unallocated Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
26 Weeks Ended |
|
|
Mar 29, |
|
Mar 30, |
|
Mar 29, |
|
Mar 30, |
|
Mar 29, |
|
Mar 30, |
|
Mar 29, |
|
Mar 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
Net Revenues |
Operating loss |
|
$ |
101.0 |
|
|
$ |
76.2 |
|
|
|
4.3 |
% |
|
|
3.0 |
% |
|
$ |
181.7 |
|
|
$ |
158.7 |
|
|
|
3.7 |
% |
|
|
3.0 |
% |
Total unallocated corporate expenses increased primarily as a result of restructuring charges
incurred for corporate office facilities that were no longer intended to be occupied by the Company
due to the reduction in positions within the non-store organization.
Financial Condition and Liquidity
The Companys existing cash and liquid investments were $294.5 million and $322.3 million as of
March 29, 2009 and September 28, 2008, respectively.
The Company manages its cash and liquid investments in order to internally fund operating needs and
make scheduled interest and principal payments on its borrowings.
Included in the cash and liquid investment balances are the following:
|
|
|
A portfolio of unrestricted trading securities, designed to hedge the Companys liability
under its MDCP. The value of this portfolio was $33.5 million and $49.5 million as of March
29, 2009 and September 28, 2008, respectively. The decrease was primarily driven by declines
in market values of the underlying equity funds. See Note 4 for further details. |
|
|
|
|
Unrestricted cash and liquid securities held within the Companys wholly owned captive
insurance company to fund claim payouts. The value of these unrestricted cash and liquid
securities was approximately $30.7 million and $35.6 million as of March 29, 2009 and
September 28, 2008, respectively. |
As of March 29, 2009, the Company had $85.0 million invested in available-for-sale securities,
consisting primarily of auction rate securities. As described in more detail in Note 4 in the 10-K,
while the ongoing auction failures will limit the liquidity of these investments for some period of
time, the Company does not believe the auction failures will materially impact its ability to fund
its working capital needs, capital expenditures or other business requirements.
23
Credit rating agencies currently rate the Companys borrowings as follows:
|
|
|
|
|
Description |
|
Standard & Poors |
|
Moodys |
Short-term debt
|
|
A-3
|
|
P-2 |
Senior unsecured long term debt
|
|
BBB
|
|
Baa2 |
Outlook
|
|
Negative
|
|
Negative |
On January 29, 2009, Moodys Investors Service placed the Companys Baa2 senior unsecured long-term
rating and Prime-2 short-term rating on review for possible downgrade. The review was prompted by
the Companys announcement on January 28, 2009 that Starbucks continued to experience a substantial
decline in net earnings and store traffic. At the date this 10-Q was filed, Moodys had not yet
completed its review.
On February 2, 2009, Standard & Poors Ratings Services announced its decision to place the
Companys A-2 short-term rating on CreditWatch with negative implications as a consequence of its
decision to review the Companys corporate credit rating in the near term. On February 9, 2009
Standard & Poors removed the Company from CreditWatch, downgraded the Companys short term rating
from A-2 to A-3, and maintained the long term rating at BBB but revised the outlook to negative.
As a result of the short-term rating downgrade to A-3, commercial paper has become less liquid and
more expensive than borrowing under Starbucks credit facility. Consequently, the Company is now
utilizing its credit facility for almost all short-term borrowing needs. Management is unlikely to
make significant use of its commercial paper program until its short-term ratings improve.
Despite limited access to the commercial paper markets, management believes that cash flow from
operations and the $1 billion in short-term borrowing capacity under the Companys revolving credit
facility will be sufficient to fund the business for the foreseeable future.
The Companys credit facility contains provisions requiring Starbucks to maintain compliance with
certain covenants, including a minimum fixed charge coverage ratio. As of March 29, 2009 and
September 28, 2008, the Company was in compliance with each of these covenants. The Company had
previously announced that it would consider pursuing an amendment to its facility to accommodate
the impact of restructuring charges to the fixed-charge coverage ratio, associated with the
approximately 300 additional store closures announced on January 28, 2009. However, as Starbucks
has progressed through the initial store closures, the Company determined that the impact of lease
termination and lease exit expenditures for the second half of the fiscal year will be lower than
previously expected. The Company is now in a position where it no longer requires an amendment to
accommodate the restructuring charges associated with the closure of those additional 300 stores.
However, the Company has determined that a technical amendment is appropriate in order to more
accurately reflect the parties intent with respect to Amendment No. 4 to the credit facility,
which was entered into in October 2008. The Company expects to execute this clarifying amendment
with the lenders some time in the third fiscal quarter of 2009, and does not expect this amendment
to have any impact on its borrowing terms, facility size, or covenant ratio.
The $550 million of 10-year 6.25% Senior Notes, issued in the fourth quarter of fiscal 2007, also
require Starbucks to maintain compliance with certain covenants that limit future liens and sale
and leaseback transactions on certain material properties. As of March 29, 2009 and September 28,
2008, the Company was in compliance with each of these covenants.
During the 26 weeks ended March 29, 2009, cash flow from operations allowed the Company to reduce
its short-term borrowings to $226 million from $713 million. Based on its forecast for operating
cash flows and capital expenditures for the remainder of fiscal 2009, the Company expects
short-term borrowings to decline in the third and fourth quarters of fiscal 2009.
The Company expects to use its cash and liquid investments, including any borrowings under its
revolving credit facility and commercial paper program to invest in its core businesses, including
new beverage innovations, as well as other new business opportunities related to its core
businesses. The Company may use its available cash resources to make proportionate capital
contributions to its equity method and cost method investees. Any decisions to increase its
ownership interest in its equity method investees or licensed operations will be driven by
valuation and fit with the Companys ownership strategy and are likely to be infrequent.
Depending on market conditions and within the constraint of maintaining an appropriate capital
structure, Starbucks may repurchase shares of its common stock under its authorized share
repurchase program. Due to the ongoing challenging operating and economic
24
environment, the Company continues to be conservative in its uses of cash, and did not repurchase
any shares in the first half of fiscal 2009 and does not currently anticipate any share repurchases
in the remaining quarters of fiscal 2009. Management believes that cash flows generated from
operations and existing cash and liquid investments should be sufficient to finance capital
requirements for its core businesses for the foreseeable future, as well as to fund the cost of
lease termination and remaining severance costs from the US and International store closures.
Significant new joint ventures, acquisitions and/or other new business opportunities may require
additional outside funding.
Other than normal operating expenses, cash requirements for fiscal 2009 are expected to consist
primarily of capital expenditures for remodeling and refurbishment of existing Company-operated
retail stores, new Company-operated retail stores, and new equipment to support enhanced quality
standards and expanded offerings in the stores. Other capital expenditures in fiscal 2009 are
expected to consist principally of investments in information technology systems and in the
Companys global supply chain operations. Total capital expenditures for fiscal 2009 are expected
to be approximately $600 million.
Cash provided by operating activities decreased by $49.7 million to $715.4 million for the 26 weeks
ended March 29, 2009 compared to the corresponding period of fiscal 2008. The decrease was
primarily due to lower net earnings in the current year.
Cash used by investing activities for the 26 weeks ended March 29, 2009 totaled $254.6 million. Net
capital additions to property, plant and equipment used $236.9 million, primarily from opening new
Company-operated retail stores and remodeling certain existing stores during the first two quarters
of fiscal 2009.
Cash used by financing activities for the 26 weeks ended March 29, 2009 totaled $465.2 million. Net
repayments of commercial paper and short-term borrowings under the credit facility were $487.1
million. There were no repurchases of the Companys common stock during the first half of the
fiscal year. As of March 29, 2009, a total of $226.0 million in borrowings were outstanding under
the combined commercial paper program and revolving credit facility, as well as $14.1 million in
letters of credit which were outstanding under the credit facility, leaving $759.9 million of
capacity available under the $1 billion combined commercial paper program and revolving credit
facility.
Contractual Obligations
There have been no material changes during the period covered by this 10-Q, outside of the ordinary
course of the Companys business, to the contractual obligations specified in the table of
contractual obligations included in the section Managements Discussion and Analysis of Financial
Condition and Results of Operations included in the 10-K.
Off-Balance Sheet Arrangements
The Companys off-balance sheet arrangements relate to guarantees and are detailed in Note 12 in
this 10-Q.
Commodity Prices, Availability and General Risk Conditions
Commodity price risk represents the Companys primary market risk, generated by its purchases of
green coffee and dairy products. The Company purchases, roasts and sells high quality whole bean
arabica coffee and related products and risk arises from the price volatility of green coffee. In
addition to coffee, the Company also purchases significant amounts of dairy products to support the
needs of its Company-operated retail stores. The price and availability of these commodities
directly impact the Companys results of operations and can be expected to impact its future
results of operations. For additional details see Product Supply in Item 1, as well as Risk
Factors in Item 1A of the
10-K.
Seasonality and Quarterly Results
The Companys business is subject to seasonal fluctuations, including fluctuations resulting from
the holiday season. The Companys cash flows from operations are considerably higher in the first
fiscal quarter than the remainder of the year. This is largely driven by cash received as Starbucks
Cards are purchased and loaded during the holiday season. Since revenues from the Starbucks Card
are recognized upon redemption and not when purchased, seasonal fluctuations on the consolidated
statements of earnings are much less pronounced. Quarterly results are affected by the timing of
the opening of new stores and the closing of existing stores. For these reasons, results for any
quarter are not necessarily indicative of the results that may be achieved for the full fiscal
year.
25
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 in this 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to changes in commodity prices, foreign currency
exchange rates, equity security prices and interest rates.
Foreign Currency Exchange Risk
As discussed in Note 3 in this 10-Q, Starbucks enters into certain hedging transactions to help
mitigate its exposure to foreign currency denominated revenues, purchases, assets and liabilities.
The following table summarizes the potential impact to the Companys future net earnings and other
comprehensive income (OCI) from changes in the fair value of these derivative financial
instruments due in turn to a change in the value of the US dollar as compared to the level of
foreign exchange rates. The information provided below relates only to the hedging instruments and
does not represent the corresponding changes in the underlying hedged items (in millions):
March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(Decrease) to Net Earnings |
|
Increase/(Decrease) to OCI |
|
|
10% Increase in |
|
10% Decrease in |
|
10% Increase in |
|
10% Decrease in |
|
|
Underlying Rate |
|
Underlying Rate |
|
Underlying Rate |
|
Underlying Rate |
Foreign currency hedges |
|
$ |
58 |
|
|
$ |
(63 |
) |
|
$ |
16 |
|
|
$ |
(16 |
) |
Commodity Price Risk, Equity Security Price Risk and Interest Rate Risk
There has been no material change in the commodity price risk, equity security price risk, or
interest rate risk discussed in Item 7A of the 10-K.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that material
information required to be disclosed in the Companys periodic reports filed or submitted under the
Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. Starbucks
disclosure controls and procedures are also designed to ensure that information required to be
disclosed in the reports the Company files or submits under the Exchange Act is accumulated and
communicated to the Companys management, including its principal executive officer and principal
financial officer as appropriate, to allow timely decisions regarding required disclosure.
During the second quarter the Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the principal executive officer and the
principal financial officer, of the effectiveness of the design and operation of the disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based
upon that evaluation, the Companys chief executive officer and chief financial officer concluded
that the Companys disclosure controls and procedures were effective, as of the end of the period
covered by this report (March 29, 2009).
During the second quarter of fiscal 2009, there were no changes in the Companys internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that
materially affected or are reasonably likely to materially affect internal control over financial
reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits
31.1 and 31.2, respectively, to this 10-Q.
26
PART II OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of Legal Proceedings in Note 12 of this 10-Q.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in the 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding repurchases by the Company of its common stock
during the 13-week period ended March 29, 2009:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Number of |
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
Shares that May |
|
|
Total |
|
Average |
|
Part of Publicly |
|
Yet Be |
|
|
Number of |
|
Price |
|
Announced |
|
Purchased |
|
|
Shares |
|
Paid per |
|
Plans or |
|
Under the Plans |
Period (1) |
|
Purchased (2) |
|
Share |
|
Programs (3) |
|
or Programs (3) |
December 29, 2008 January 25, 2009 |
|
|
2,292 |
|
|
$ |
10.14 |
|
|
|
|
|
|
|
6,272,128 |
|
January 26, 2009 February 22, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,272,128 |
|
February 23, 2009 March 29, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,272,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Monthly information is presented by reference to the Companys fiscal months during the
second quarter of fiscal 2009. |
|
(2) |
|
These amounts represent shares surrendered to the Company to pay the exercise price and/or to
satisfy tax withholding obligations in connection with stock swap exercises of employee stock
options. |
|
(3) |
|
The Companys share repurchase program is conducted under authorizations made from time to
time by the Companys Board of Directors. The Board of Directors initially authorized the
repurchase of 25 million shares of common stock (publicly announced on May 3, 2007) and later
authorized the repurchase of up to five million additional shares (publicly announced on
January 30, 2008). Neither of these authorizations has an expiration date. |
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on March 18, 2009, the shareholders
elected the directors to serve for terms of one year and until their successors are elected and
qualified. In addition, shareholders approved the proposal to amend existing equity plans to allow
for a one-time stock option exchange program for employees other than directors and executive
officers. Shareholders also ratified the Audit and Compliance Committees selection of Deloitte &
Touche LLP to serve as the Companys independent registered public accounting firm for fiscal 2009.
27
The table below shows the results of the shareholders voting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes in |
|
|
|
|
|
|
|
Broker |
|
|
Favor |
|
Votes Against |
|
Abstentions |
|
Non-Votes |
Election of Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard Schultz |
|
|
594,647,698 |
|
|
|
10,571,732 |
|
|
|
1,441,582 |
|
|
|
N/A |
|
Barbara Bass |
|
|
561,896,139 |
|
|
|
42,530,870 |
|
|
|
2,234,003 |
|
|
|
N/A |
|
William W. Bradley |
|
|
561,797,775 |
|
|
|
42,658,606 |
|
|
|
2,204,631 |
|
|
|
N/A |
|
Mellody Hobson |
|
|
595,190,383 |
|
|
|
9,282,879 |
|
|
|
2,187,750 |
|
|
|
N/A |
|
Kevin R. Johnson |
|
|
594,850,943 |
|
|
|
9,505,006 |
|
|
|
2,305,063 |
|
|
|
N/A |
|
Olden Lee |
|
|
561,857,606 |
|
|
|
42,432,377 |
|
|
|
2,371,029 |
|
|
|
N/A |
|
Sheryl Sandberg |
|
|
595,178,052 |
|
|
|
9,357,993 |
|
|
|
2,124,967 |
|
|
|
N/A |
|
James G. Shennan Jr. |
|
|
593,387,766 |
|
|
|
10,887,733 |
|
|
|
2,385,513 |
|
|
|
N/A |
|
Javier G. Teruel |
|
|
592,184,673 |
|
|
|
12,135,587 |
|
|
|
2,340,752 |
|
|
|
N/A |
|
Myron E. Ullman, III |
|
|
562,105,169 |
|
|
|
42,279,865 |
|
|
|
2,275,978 |
|
|
|
N/A |
|
Craig E. Weatherup |
|
|
594,935,523 |
|
|
|
9,283,738 |
|
|
|
2,441,751 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approval to amend existing equity plans |
|
|
347,040,167 |
|
|
|
84,919,207 |
|
|
|
1,331,356 |
|
|
|
173,370,282 |
|
Ratification of independent registered
public accounting firm |
|
|
598,626,721 |
|
|
|
6,503,336 |
|
|
|
1,530,955 |
|
|
|
N/A |
|
Item 6. Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
Exhibit |
|
|
|
|
|
|
|
Date of |
|
Exhibit |
|
Filed |
No. |
|
Exhibit Description |
|
Form |
|
File No. |
|
First Filing |
|
Number |
|
Herewith |
|
3.2 |
|
|
Starbucks Corporation Amended and Restated Bylaws
|
|
8-K
|
|
0-20322
|
|
1/12/2009
|
|
|
3.2 |
|
|
|
|
|
10.1* |
|
|
Starbucks Corporation 2005 Amended and Restated
Long-Term Equity Incentive Plan (as amended and restated
effective March 18, 2009)
|
|
8-K
|
|
0-20322
|
|
3/20/2009
|
|
|
10.1 |
|
|
|
|
|
10.2* |
|
|
Starbucks Corporation Amended and Restated Key Employee
Stock Option Plan-1994 (as amended and restated
effective March 18, 2009)
|
|
8-K
|
|
0-20322
|
|
3/20/2009
|
|
|
10.2 |
|
|
|
|
|
10.3* |
|
|
Starbucks Corporation 1991 Company-Wide Stock Option
Plan (as amended and restated effective March 18, 2009)
|
|
8-K
|
|
0-20322
|
|
3/20/2009
|
|
|
10.3 |
|
|
|
|
|
10.4* |
|
|
Letter Agreement dated February 5, 2009 between
Starbucks Corporation and John Culver
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
31.1 |
|
|
Certification of Principal Executive Officer Pursuant to
Rule 13a-14 of the Securities Exchange Act of 1934, As
Adopted Pursuant to Section 302 of the Sarbanes Oxley
Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
31.2 |
|
|
Certification of Principal Financial Officer Pursuant to
Rule 13a-14 of the Securities Exchange Act of 1934, As
Adopted Pursuant to Section 302 of the Sarbanes Oxley
Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
32 |
|
|
Certifications of Principal Executive Officer and
Principal Financial Officer Pursuant to 18 USC. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
* |
|
Denotes a compensatory plan, contract or arrangement in which the Companys directors or
executive officers may participate. |
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
STARBUCKS CORPORATION
|
|
|
May 6, 2009 |
|
| | |
|
|
By: |
/s/ Troy Alstead
|
|
|
|
Troy Alstead |
|
|
|
executive vice president, chief financial officer
and chief administrative officer
Signing on behalf of the registrant and as
principal financial officer |
|
|
29