Starbucks 2000 Annual Report Download
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Letter to Shareholders starbucks coffee company P. 17
To our Shareholders,
We entered the new Millennium with a great sense of accomplishment and excitement, knowing that
we were poised to share the Starbucks Experience with even more people around the world. Today, the
anticipation we experienced as we began fiscal year 2000 has been more than fulfilled, thanks to the
passion and dedication of our partners (employees), our unwavering commitment to the highest
quality coffee, and the connection that we are fortunate to enjoy with our customers. We believe that
the possibilities for our future achievements are virtually limitless, and we are even more inspired to
climb to greater heights. These are still the early days of building our company and the Starbucks brand.
Starbucks experienced tremendous success and growth in fiscal year 2000. We had record
revenues of $2.2 billion for the year. Our stellar performance included three consecutive quarters of
double-digit comparable store sales increases - an amazing achievement for any retail company of our
size and maturity, culminating in a 9 percent comparable stores sales growth for the full year, the
highest it has been since 1995.
We far exceeded our projected target of 600 new store openings for the year, with 1,035 new company-
owned and licensed locations worldwide, including 778 stores in North America alone. We surpassed
our goal to open 150 international stores, opening 257 international locations by the end of fiscal
year 2000. In the United Kingdom, we opened 63 new locations, well ahead of our target of 50
stores. We also entered a number of international markets including Lebanon, the United Arab
Emirates, Qatar, Hong Kong, Shanghai and Australia, bringing our total number of international
locations to 525 at the end of the fiscal year. During the year we acquired a majority interest in our
Thailand operations. We were also thrilled to announce our plans to enter Switzerland, our first
market in continental Europe. Our remarkable success in virtually every international market we
have entered to date has inspired us to set ambitious targets for the future. We plan to have 650
Starbucks locations throughout Europe by the end of fiscal year 2003, and we believe that customers
in the European market will embrace the Starbucks Experience.
Our outstanding growth is testimony to the strength of the Starbucks brand worldwide. When we
opened our first store in Tokyo, consultants told us that Japanese customers would never use to-go
cups or drink coffee while walking on the street. If you visit Japan today, you will see people proudly
holding Starbucks cups with the logo facing out. As the result of our customers’ warm acceptance,
Starbucks Coffee Japan became profitable in fiscal year 2000 - more than two years ahead of plan.
Additionally, we were extremely pleased that Nikkei Restaurant Magazine, one of Japan’s most respected
food service industry publications, recognized Starbucks as the most preferred restaurant chain in
Tokyo, just four years after our entry into the market. In addition, Interbrand Corporation, the
world’s leading brand consultancy, recently ranked Starbucks as one of the top 75 global brands.
These accomplishments confirm our belief that we have incredible opportunities ahead.
By the end of fiscal year 2000, Starbucks had more than 3,500 locations worldwide, serving more
than 12 million customers per week in 17 countries. We believe that in the past we dramatically
underestimated the size of the global market and the power of the Starbucks brand. We now believe
that we have the potential to have at least 20,000 locations worldwide, with as many as 10,000
locations in international markets.
Table of contents
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Page 1
...fiscal year 2000. In the United Kingdom, we opened 63 new locations, well ahead of our target of 50 stores. We also entered a number of international markets including Lebanon, the United Arab Emirates, Qatar, Hong Kong, Shanghai and Australia, bringing our total number of international locations to... -
Page 2
... Latte to bring alive the flavor of the season. We also created and unveiled the revolutionary Starbucks Barista Utopia™ vacuum coffee brewing system. This stylish, innovative machine brews the perfect cup of Starbucks ® coffee for our customers to savor at home. Customers gave the Utopia... -
Page 3
... our alliance with Earvin "Magic" Johnson). The morning after these outstanding partners won the fourth largest lottery jackpot in California history, they chose to come to work and cheerfully opened the store at 5:30 a.m. to serve their customers. Starbucks long-term success as a company will... -
Page 4
... quality coffee and related products and by providing superior customer service, thereby building a high degree of customer loyalty. Starbucks strategy for expanding its retail business is to increase its market share in existing markets and to open stores in new markets where the opportunity exists... -
Page 5
... Specialty 345,611 Total net revenues 2,169,218 Merger expenses (2) Operating income 212,252 Internet-related investment losses (3) 58,792 Gain on sale of investment (4) Net earnings $ 94,564 Net earnings per common share -diluted (5) $ 0.49 Cash dividends per share BALANCE SHEET DATA $ 1,423,389... -
Page 6
...revenues Cost of sales and related occupancy costs Gross margin Joint venture income Store operating expenses (1) Other operating expenses (2) Depreciation and amortization General and administrative expenses Merger expenses Operating income Interest and other income, net Internet-related investment... -
Page 7
...During fiscal 2000, Starbucks acquired the outstanding stock of Tympanum, Inc. (d/b/a "Hear Music"), a music retailer, and of Coffee Partners Co. Ltd., the company licensed to operate Starbucks stores in Thailand ("Thailand Operations"). The combined purchase price for these two acquisitions was $14... -
Page 8
..., to one less week of sales in fiscal 2000. Also, occupancy costs have increased as a result of higher average rent expense per square foot as well as the expansion of Company-operated stores into international markets that have higher occupancy costs as a percentage of revenue than North American... -
Page 9
... 2000, the Company invested $25 million in Kozmo.com, Inc. ("Kozmo.com"), an Internet-to-door delivery service for food, entertainment and convenience items. Starbucks and Kozmo.com also entered into a commercial agreement to provide in-store return boxes in Starbucks stores in exchange for cash... -
Page 10
...'s strategy for the grocery channel. In late fiscal 1998, the Company signed a long-term licensing agreement with Kraft Foods, Inc. ("Kraft") to handle the U.S. distribution, marketing and advertising for Starbucks whole bean and ground coffee in grocery, warehouse club and mass merchandise stores... -
Page 11
... office space. The Company also used $35.5 million primarily to make minority investments in Kozmo.com and Cooking.com. The purchases of Hear Music and the Thailand operations used $13.5 million. The Company invested excess cash primarily in short-term, investment-grade marketable debt securities... -
Page 12
... reported as a separate component of accumulated other comprehensive income. As of October 1, 2000, this portfolio comprised 98% of "Short-term investments" on the accompanying consolidated balance sheet. The Company does not hedge its interest rate exposure. equity security price risk The Company... -
Page 13
...EITF") reached a consensus regarding Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," which requires any shipping and handling costs billed to customers in a sale transaction to be classified as revenue. The Company will adopt Issue 00-10 as of October 2, 2000, and does not expect... -
Page 14
... and related costs Accrued occupancy costs Accrued taxes Other accrued expenses Deferred revenue Current portion of long-term debt Total current liabilities Deferred income taxes, net Long-term debt Minority interest Shareholders' equity: Common stock - Authorized, 300,000,000 shares; issued and... -
Page 15
... net revenues Cost of sales and related occupancy costs Gross margin Joint venture income Store operating expenses Other operating expenses Depreciation and amortization General and administrative expenses Merger expenses Operating income Interest and other income, net Internet-related investment... -
Page 16
... and liabilities: Net purchases of trading securities Accounts receivable Inventories Prepaid expenses and other current assets Accounts payable Accrued compensation and related costs Accrued occupancy costs Accrued taxes Minority interest Deferred revenue Other accrued expenses Net cash provided by... -
Page 17
... Unrealized holding losses, net Translation adjustment Comprehensive income Exercise of stock options, including tax benefit of $31,131 4,471,785 Sale of common stock 403,771 Balance, October 1, 2000 188,157,651 See Notes to Consolidated Financial Statements. $ 391,284 162,036 31,245 4,649 589,214... -
Page 18
.... Checks issued but not presented for payment to the bank are reflected as "Checks drawn in excess of bank balances" on the accompanying consolidated financial statements. short-term investments The Company's investments consist primarily of investment-grade marketable debt and equity securities... -
Page 19
... cash equivalents approximates fair value because of the short-term maturity of those instruments. The fair value of the Company's investments in marketable debt and equity securities is based upon the quoted market price on the last business day of the fiscal year. The fair value and amortized cost... -
Page 20
...and per-share data in these consolidated financial statements have been restated to give effect to this stock split. earnings per share The computation of basic earnings per share is based on the weighted average number of shares and common stock units outstanding during the period. The computation... -
Page 21
...During fiscal 2000, Starbucks acquired the outstanding stock of Tympanum, Inc. (d/b/a "Hear Music"), a music retailer, and of Coffee Partners Co. Ltd., the company licensed to operate Starbucks stores in Thailand ("Thailand Operations"). The combined purchase price for these two acquisitions was $14... -
Page 22
...VALUE AMORTIZED COST GROSS UNREALIZED HOLDING GAINS GROSS UNREALIZED HOLDING LOSSES October 1, 2000: Short-term investments - available-for-sale: U.S. Government obligations Commercial paper Marketable equity securities Total Short-term investments - trading Total short-term investments $ $ $ 10... -
Page 23
..." on the accompanying consolidated statements of earnings. This line includes both the Company's proportionate share of gross margin resulting from the sale of coffee and other products to the joint ventures and the Company's proportionate share of royalty and license fee revenues received from the... -
Page 24
... fiscal 2000, the Company invested $25.0 million in Kozmo.com, an Internet-to-door delivery service for food, entertainment and convenience items. Starbucks and Kozmo.com also entered into a commercial agreement to provide in-store return boxes in Starbucks stores in exchange for cash, a channel for... -
Page 25
...The Company leases retail stores, roasting and distribution facilities and office space under operating leases expiring through 2023. Most lease agreements contain renewal options and rent escalation clauses. Certain leases provide for contingent rentals based upon gross sales. Rental expense under... -
Page 26
... 16,762,482 shares of common stock available for issuance pursuant to future stock option grants. Additional information regarding options outstanding as of October 1, 2000, is as follows: OPTIONS OUTSTANDING WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS) WEIGHTED AVERAGE EXERCISE PRICE OPTIONS... -
Page 27
... Company's common stock. The employees' purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of the quarterly offering period. No compensation expense is recorded in connection with the plan. The total number of shares issuable... -
Page 28
...that the weighted average estimated fair values of options granted during fiscal 2000, 1999 and 1998 were $10.74, $8.86 and $7.20 per share, respectively. Had compensation costs for the Company's stock-based compensation plans been accounted for using the fair value method of accounting described by... -
Page 29
... earnings Add after-tax interest expense on debentures Add after-tax amortization of issuance costs related to the debentures Adjusted net earnings Weighted average common shares and common stock units outstanding Dilutive effect of outstanding common stock options Assuming conversion of convertible... -
Page 30
... and regularly reviewed by the Company's senior management. The Company is organized into a number of business units. The Company's North American retail business sells coffee beverages, whole bean coffees and related hardware and equipment through Company-operated retail stores in the United States... -
Page 31
...income, net Internet-related investment losses Total earnings before income taxes DEPRECIATION AND AMORTIZATION: North American retail All other business units Unallocated corporate expenses Total depreciation and amortization INCOME ( LOSSES ) FROM EQUITY METHOD INVESTEES: All other business units... -
Page 32
...720 $ 1,308,702 United States Foreign countries Total Revenues from foreign countries are based on the location of the customers and consist primarily of revenues from Canada and the United Kingdom. No customer accounts for 10% or more of the Company's revenues. Oct 1, 2000 LONG-LIVED ASSETS: Oct... -
Page 33
...t i ng The management of Starbucks Corporation is responsible for the preparation and integrity of the financial statements included in this Annual Report to Shareholders. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of... -
Page 34
St a r buck s Cor por a t i on (Seattle, Washington) We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries (the Company) as of October 1, 2000, and October 3, 1999, and the related consolidated statements of earnings, shareholders' equity and cash ... -
Page 35
...on market information and dividend policy The Company's Common Stock is traded on the National Market tier of The Nasdaq Stock Market, Inc. ("Nasdaq"), under the symbol "SBUX". The following table sets forth the quarterly high and low closing sale prices per share of the Common Stock as reported by... -
Page 36
..., Marketing and Category Management H owa r d Wo l l n e r senior vice president, Starbucks Coffee International Strategic Business Systems James Alling senior vice president, Business Alliances John Alderson senior vice president, Southwest Zone Lee Gelb senior vice president, Human Resources...