Starbucks 2012 Annual Report Analysis
DeVry University
Blanca Flores
February 17, 2013
2
Starbucks Annual Report Analysis
Table of Contents
Graphs………………………………………………………………………………………………………. 3
Balance Sheet for assets and liabilities ……………………………………………………………………... 4
Introduction……………………………………………………………………………………………………6
History…………………………………………………………………………………………………………6
Auditors ……………………………………………………………………………………………………….7
Legal Problems………………………………………………………………………………………………. 7
Assets and Liabilities………………………………………………………………………………………. 7
Stock …………………………………………………………………………………………………………..8
Employees ……………………………………………………………………………………………………9
Global Relations……………………………………………………………………………………………....9
Financial Highlights…………………………………………………………………………………………10
Legal Proceedings………………………………….………………………………………………………..10
Foreign Currency……………………………………………………………………………………………12
Conclusion ………………………………………………………………………………………….…….. 13
References…………………………………………………………………………………………………...14
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Starbucks Annual Report Analysis
Operating Income ( In Millions)
$1,800
Net Revenue
(In Billions)
14
$1,600
$1,400
$1,200
$1,000
12
$800
10
$600
8
$400
6
$200
4
$0
2
2010
2011
2012
GAAP
NON-GAAP
0
2010
2011
2012
Operating Cash Flow & Capital Expenditures (In Millions)
$1,800
Comparable store
sales Growth
$1,600
$1,400
$1,200
Cash from
operations
$1,000
7%
8%
$800
Capital
Expenditures
$600
2010
-6%
2011
2012
$400
$200
$0
2010 2011 2012
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Starbucks Annual Report Analysis
Balance Sheet
View: Annual Data Quarterly Data| Quarterly Data
Period Ending
All numbers in thousands
Oct 2, 2012
Oct 3, 2011
Sep 27, 2010
1,148,100
1,164,000
599,800
Short Term Investments
902,600
285,700
66,300
Net Receivables
616,900
606,900
557,600
Inventory
965,800
543,300
664,900
Other Current Assets
161,500
156,500
147,200
3,794,900
2,756,400
2,035,800
479,300
533,300
423,500
2,355,000
2,416,500
2,536,400
Goodwill
321,600
262,400
259,100
Intangible Assets
111,900
70,800
68,200
Other Assets
297,700
346,500
253,800
Total Assets
7,360,400
6,385,900
5,576,800
1,626,500
1,365,000
1,192,300
449,300
414,100
388,700
2,075,800
1,779,100
1,581,000
Long Term Debt
549,500
549,400
549,300
Other Liabilities
347,800
375,100
389,600
-
-
-
Assets
Current Assets
Cash And Cash Equivalents
Total Current Assets
Long Term Investments
Property Plant and Equipment
Liabilities
Current Liabilities
Accounts Payable
Other Current Liabilities
Total Current Liabilities
Deferred Long Term Liability Charges
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Starbucks Annual Report Analysis
Minority Interest
2,400
7,600
11,200
Total Liabilities
2,975,500
2,711,200
2,531,100
700
700
700
4,297,400
3,471,200
2,793,200
Capital Surplus
40,500
145,600
186,400
Other Stockholder Equity
46,300
57,200
65,400
Total Stockholder Equity
4,384,900
3,674,700
3,045,700
Net Tangible Assets
3,951,400
3,341,500
2,718,400
Stockholders' Equity
Common Stock
Retained Earnings
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Starbucks Annual Report Analysis
Introduction
The first Starbucks to open was in 1970 in Seattle. The name came from Herman Melville’s Moby Dick, an
American novel about the 19th century whaling industry. In the 1990s Starbuck expands beyond Seattle. And in
1999 the first Starbucks opens in the Middle East in Souk Shark, Kuwait. Starbucks became one of the first
companies to offer stock options to its part-time employees. Starbucks became a publicly traded company with the
trading symbol SUBX.. Every single Starbucks store is individually designed. The design team came up with four
store designs one for each of the four stages of coffee making they are growing, roasting, brewing, and aroma each
of which these designs could be modified for a particular store need. The following individuals are the reasons why
Starbucks is so successful they are Howard Schultz he is founder and chairman of the Board, James L. Donald
Starbucks Corporation President and Chief Executive Officer, James C. Alling, President of Starbucks coffee of the
United States, Martin Coles President of Starbucks Coffee International, Dorothy J Kim, executive vice president
of supply chain operations, David A. Pace executive vice president of partner resources, and Michael Casey,
Executive vice president of chief financial officer and chief administrative officer. Now Starbucks has more than
16,000 Stores in 48 countries. Starbucks is also know in the industry as having an exceptional real-estate and store
development talent
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Starbucks Annual Report Analysis
Starbucks 2012 Annual Report Analysis
Starbucks is one of the largest coffee corporations they not only have to please their customers but
they also have to keep a clean and professional environment, Therefore they have auditors Deloitte & Touche.
Deloitte is the brand under which tens of thousands of dedicated professionals in independent firms throughout the
world collaborate to provide audit, consulting, financial advisory, risk management, and tax services to selected
clients. These firms are members of Deloitte Touche Tohmatsu Limited, a UK private company limited by
guarantee. Each member firm provides services in particular country or countries in which it operates.
Starbucks is loved by almost every American in the United States. But even then in 2011 Starbucks had a
few sues. In April 23, 2011. William Yockey and family stopped in the Starbucks at 7 th street and Pennsylvania
Avenue in Northwest. Yockey and his five year old daughter found a camera in the bathroom recording digital
images. Another incident that happened in 2011 was the sued that Starbucks received for discrimination against
disability people. This all happened when the employee requested a stool or small stepladder to help her reach the
coffee slinging equipment the manager at El Paso Starbucks fired newly hired barista Elsa Sallard. The Starbucks
EEOC suit alleges that the company not only failed to grant Elsa Sallard a reasonable accommodation so that she
could perform her duties despite her dwarfism the company fired her because of her being a disable person. This
sue cost Starbucks $75,000 for discriminating disability people. Now Starbucks has to sell at least 33,000 lattes to
make up for the lost. This sue did effect their financial statement, because even though Starbucks had the money to
pay for the sue they still consider it a loss of profit earned by the year.
However Starbucks had an assets of 7,360,400 for 2011. They had an increase of 13% since 2010.
As for their Liabilities at the end of 2011 they had 2,975,500 and they had and increase of 8% since 2010. Even
with the problems that they had in the year they still managed to earn more profit since the previous year. Thanks to
the Customer who can’t live without their coffee in the morning Starbucks managed to recover from the lost of the
sue.
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Starbucks Annual Report Analysis
Starbucks has been a public business since 1992. Since the Initial Public Offering in 1992 Starbucks has
had 2 for 1 stock splits.
Date
Split Adj. price
ex-date
Sept. 29, 1993
$1.67
Sept. 30, 1993
Dec. 1, 1995
$2.59
Dec. 4, 1995
Mar. 19, 1999
$7.01
Mar. 22, 1999
Apr. 27, 2001
$9.29
Apr. 30, 2001
Oct. 21, 2005
$27.51
Oct. 24, 2005
Starbucks offers a Direct Stock Purchase and Sale Program administered by their transfer agent, Bank of
New York Mellon Shareowner Services. The BuyDirect Plan offers stockholders the ability to purchase initial
shares of starbucks common stock or make subsequent purchases directly from Bank of New York Mellon, Reinvest
all or part of your Starbucks cash dividends to purchase additional stock, direct deposit cash dividends, safe keep
stock certificates, and sell stock and pay lower fees than those generally charged by stockbrokers for small
transactions. The following table shows the quarterly high and low sale prices per share of Starbucks common stock
as reported by NASDAQ for each quarter during the last two fiscal years and the quarterly cash dividend declared
per share of our common stock during the periods indicated:
2012/2011
High
Fourth Quarter……………………… $42.00/$27.08
Low
$33.72/$22.50
Cash Dividends Declared
$0.17/$0.13
Third Quarter………………………40.26/28.50
34.61/23.95
.13/0.13
Second Quarter………………….38.21/26.00
30.75/21.26
.13/0.10
First Quarter…………………..33.15/23.80
25.37/18.69
As of November 11 ,2012 Starbucks had approximately 21,900 shareholders.
0.13/0.00
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Starbucks Annual Report Analysis
Employees
Starbucks employed approximately 160,000 people worldwide as of September 30, 2012. In the US, Starbucks
employed approximately 120,000 people, with 113,000 in company-operated stores and the remainder in support
facilities, store development, and roasting and warehousing operations. Approximately 40,000 employees were
employed outside of the US, with 38,000 in company-operated stores and the remainder in regional support
facilities and roasting and warehousing operations. The number of Starbucks employees represented by unions is
not significant. Starbucks believes that their current relations with their employees are good.
Global Responsibility
Starbucks is committed to being a deeply responsible company in the communities where they do business around
the world. Their focus is on ethically sourcing high-quality coffee, reducing their environmental impacts and
contributing positively to communities. Starbucks Global Responsibility strategy and commitments are integral
to their overall business strategy. As a result, Starbucks believes they can deliver benefits to the stakeholders,
including employees, business partners, customers, suppliers, shareholders, community members and others.
Economic conditions in the US and certain international markets could adversely affect their business and
financial results.
As a retailer that is dependent upon consumer discretionary spending, our results of operations are sensitive to
changes in macro-economic conditions. Their customers may have less money for discretionary purchases as a result
of job losses, foreclosures, bankruptcies, increased fuel and energy costs, higher interest rates, higher taxes, reduced
access to credit and lower home prices. Any resulting decreases in customer traffic and/or average value per
transaction will negatively impact our financial performance as reduced revenues result in sales de-leveraging which
creates downward pressure on margins. There is also a risk that if negative economic conditions persist for a long
period of time or worsen, consumers may make long-lasting changes to their discretionary purchasing behavior,
including less frequent discretionary purchases on a more permanent basis.
Financial Highlights
• Total net revenues increased 14% to $13.3 billion in fiscal 2012 compared to $11.7 billion in fiscal 2011.
The increase was due primarily to a 7% increase in global comparable store sales, 50% revenue growth in
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Starbucks Annual Report Analysis
Channel Development, and 20% growth in licensed stores revenue. The comparable store sales growth in companyoperated stores was comprised of a 6% increase in the number of transactions and a 1% increase in average ticket.
• Consolidated operating income was $2.0 billion in fiscal 2012 compared to $1.7 billion in fiscal 2011 and
operating margin increased to 15.0% compared to 14.8% in fiscal 2011. The operating margin expansion was driven
by increased sales leverage and the absence of charges in fiscal 2012 related to the Seattle's Best Coffee store
closures in Border's bookstores, partially offset by higher commodity costs.
• EPS for fiscal 2012 was $1.79, compared to EPS of $1.62 reported in fiscal 2011, with the increase driven by the
improved sales leverage, partially offset by the impact of higher commodity costs in fiscal 2012 and certain gains
recorded in the fourth quarter of fiscal 2011, including a gain from a fair market value adjustment resulting from the
acquisition of the remaining ownership interest in our joint venture in Switzerland and Austria as well as a gain on
the sale of corporate real estate.
• Cash flow from operations was $1.8 billion in fiscal 2012 compared to $1.6 billion in fiscal 2011. Capital
expenditures were approximately $856 million in fiscal 2012 compared to $532 million in fiscal 2011. Available
operating cash flow after capital expenditures during fiscal 2012 was directed at returning approximately $1.1
billion of cash to our shareholders via share repurchases and dividends.
Legal Proceedings
In the first quarter of fiscal 2011, Starbucks notified Kraft Foods Global, Inc. (“Kraft”) that we were discontinuing
our distribution arrangement with Kraft on March 1, 2011 due to material breaches by Kraft of its obligations under
the Supply and License Agreement between the Company and Kraft, dated March 29, 2004 (the “Agreement”),
which defined the main distribution arrangement between the parties. Through our arrangement with Kraft,
Starbucks sold a selection of Starbucks and Seattle's Best Coffee branded packaged coffees in grocery and
warehouse club stores throughout the US, and to grocery stores in Canada, the UK and 18 other European countries.
Kraft managed the distribution, marketing, advertising and promotion of these products. Kraft denies it has
materially breached the Agreement. On November 29, 2010, Starbucks received a notice of arbitration from Kraft
putting the commercial dispute between the parties into binding arbitration pursuant to the terms of the Agreement.
In addition to denying it materially breached the Agreement, Kraft further alleges that if Starbucks wished to
terminate the Agreement it must compensate Kraft as provided in the Agreement in an amount equal to the fair value
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Starbucks Annual Report Analysis
of the Agreement, with an additional premium of up to 35% under certain circumstances. On December 6, 2010,
Kraft commenced a federal court action against Starbucks, entitled Kraft Foods Global, Inc. v. Starbucks
Corporation, in the U.S. District Court for the Southern District of New York (the “District Court”) seeking
injunctive relief to prevent Starbucks from terminating the distribution arrangement until the parties' dispute is
resolved through the arbitration proceeding. On January 28, 2011, the District Court denied Kraft's request for
injunctive relief. Kraft appealed the District Court's decision to the Second Circuit Court of Appeals. On February
25, 2011, the Second Circuit Court of Appeals affirmed the District Court's decision. As a result, Starbucks is in full
control of our packaged coffee business as of March 1, 2011. While Starbucks believes we have valid claims of
material breach by Kraft under the Agreement that allowed us to terminate the Agreement and certain other
relationships with Kraft without compensation to Kraft, there exists the possibility of material adverse outcomes to
Starbucks in the arbitration or to resolve the matter. Although Kraft disclosed to the press and in federal court filings
a $750 million offer Starbucks made to Kraft in August 2010 to avoid litigation and ensure a smooth transition of
the business, the figure is not a proper basis upon which to estimate a possible outcome of the arbitration but was
based upon facts and circumstances at the time. Kraft rejected the offer immediately and did not provide a counteroffer, effectively ending the discussions between the parties with regard to any payment. Moreover, the offer was
made prior to our investigation of Kraft's breaches and without consideration of Kraft's continuing failure to comply
with material terms of the agreements. On April 2, 2012, Starbucks and Kraft exchanged expert reports regarding
alleged damages on their affirmative claims. Starbucks claimed damages of up to $62.9 million from the loss of
sales resulting from Kraft's failure to use commercially reasonable efforts to market Starbucks® coffee, plus
attorney fees. Kraft's expert opined that the fair market value of the Agreement was $1.9 billion. After applying a
35% premium and 9% interest, Kraft claimed damages of up to $2.9 billion, plus attorney fees. The arbitration
hearing commenced on July 11, 2012 and was completed on August 3. Starbucks presented evidence of material
breaches on Kraft's part and sought nominal damages from Kraft for those breaches. Kraft presented evidence
denying it had breached the parties' Agreement and sought damages of $2.9 billion plus attorney fees. We expect a
decision from the Arbitrator in the first half of fiscal 2013. At this time, Starbucks believes an unfavorable outcome
with respect to the arbitration is not probable, but as noted above is reasonably possible. As also noted above,
Starbucks believes we have valid claims of material breach by Kraft under the Agreement that allowed us to
terminate the Agreement without compensation to Kraft. In addition, Starbucks believes Kraft's damage estimates
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Starbucks Annual Report Analysis
are highly inflated and based upon faulty analysis. As a result, we cannot reasonably estimate the possible loss.
Accordingly, no loss contingency has been recorded for this matter. Starbucks is party to various other legal
proceedings arising in the ordinary course of business, including certain employment litigation cases that have been
certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding
that management believes could have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
Foreign Currency
We enter into forward and swap contracts to hedge portions of cash flows of anticipated revenue streams and
inventory purchases in currencies other than the entity's functional currency. Net derivative losses from cash flow
hedges of $2.9 million and $11.1 million, net of taxes, were included in accumulated other comprehensive income as
of September 30, 2012 and October 2, 2011, respectively. Of the net derivative losses accumulated as of September
30, 2012, $2.9 million pertains to derivative instruments that will be designated as cash flow hedges within 12
months and will also continue to experience fair value changes before affecting earnings. Outstanding contracts will
expire within 12 months. We also enter into net investment derivative instruments to hedge our equity method
investment in Starbucks Coffee Japan, Ltd., to minimize foreign currency exposure. Net derivative losses from net
investment hedges of $33.6 million and $34.2 million, net of taxes, were included in accumulated other
comprehensive income as of September 30, 2012 and October 2, 2011, respectively. Outstanding contracts will
expire within 29 months. In addition to the hedging instruments above, to mitigate the translation risk of certain
balance sheet items, we enter into certain foreign currency swap contracts that are not designated as hedging
instruments. These contracts are recorded at fair value, with the changes in fair value recognized in net interest
income and other on the consolidated statements of earnings. Gains and losses from these instruments are largely
offset by the financial impact of translating foreign currency denominated payables and receivables, which is also
recognized in net interest income and other.
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Starbucks Annual Report Analysis
As a Conclusion Starbucks has increased their profit, assets, liabilities, stock share holders, etc. Starbucks
has had a very successful 2012. Even though threw the year Starbucks had their ups and downs with the sues that
they faced and the profit that they lost they still managed to increase the earning from the previous year. With an
assets of 7,360,400 for 2012. They had an increase of 13% since 2011. As for their Liabilities at the end of 2012
they had 2,975,500 and they had and increase of 8% since 2011. Starbucks is a large coffee company that is still
growing while providing all their customers with great coffee. I recommend anyone who wants to invest in a good
company should invest in Starbucks. They always manage to have great profit and extremely well cash flow I would
invest in Starbucks without a doubt.
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Starbucks Annual Report Analysis
"References ".
http://dcist.com/2011/09/tourist_sues_starbucks_after_daught.php
http://finance.yahoo.com/q/bs?s=sbux+Balance+Sheet&annual
http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-faq#26964
http://Starbucks.com
http://starbucksgossip.typepad.com/_/2011/08/starbucks-pays-75000-to-settle-dwarf-baristaslawsuit-.html