Edgar Filing: STARBUCKS CORP

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

¨ 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

(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨	Non-accelerated filer	¨	Smaller reporting company	¨

Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Title	Shares Outstanding as of April 24, 2019
Common Stock, par value $0.001 per share	1,211.2 million

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STARBUCKS CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2019

Table of Contents




PART I. FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited):	3
	Condensed Consolidated Statements of Earnings	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Equity	7
	Index For Notes to Condensed Consolidated Financial Statements	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4	Controls and Procedures	45

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6	Exhibits	47
Signatures		48

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PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

STARBUCKS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(in millions, except per share data)

(unaudited)



	Quarter Ended						Two Quarters Ended
	Mar 31, 2019			Apr 1, 2018			Mar 31, 2019			Apr 1, 2018
Net revenues:
Company-operated stores	$	5,159.0		$	4,828.0		$	10,529.3		$	9,569.8
Licensed stores	678.2			625.6			1,415.3			1,308.0
Other	468.7			578.2			994.1			1,227.7
Total net revenues	6,305.9			6,031.8			12,938.7			12,105.5
Cost of sales including occupancy costs	2,603.8			2,514.7			5,362.5			5,016.4
Store operating expenses	1,949.6			1,789.6			3,942.6			3,526.5
Other operating expenses	82.3			120.8			175.6			250.3
Depreciation and amortization expenses	356.2			331.6			689.6			590.4
General and administrative expenses	475.6			420.6			938.9			813.1
Restructuring and impairments	43.0			134.7			86.2			162.3
Total operating expenses	5,510.5			5,312.0			11,195.4			10,359.0
Income from equity investees	62.3			52.7			130.1			142.1
Operating income	857.7			772.5			1,873.4			1,888.6
Gain resulting from acquisition of joint venture	—			47.6			—			1,373.9
Gains/(loss) resulting from divestiture of certain operations	21.0			(4.9		)	21.0			496.3
Interest income and other, net	15.2			35.5			39.9			123.7
Interest expense	(73.9		)	(35.1		)	(148.9		)	(61.0		)
Earnings before income taxes	820.0			815.6			1,785.4			3,821.5
Income tax expense	161.2			155.8			366.4			911.6
Net earnings including noncontrolling interests	658.8			659.8			1,419.0			2,909.9
Net loss attributable to noncontrolling interests	(4.4		)	(0.3		)	(4.6		)	(0.4		)
Net earnings attributable to Starbucks	$	663.2		$	660.1		$	1,423.6		$	2,910.3
Earnings per share - basic	$	0.54		$	0.47		$	1.15		$	2.07
Earnings per share - diluted	$	0.53		$	0.47		$	1.14		$	2.05
Weighted average shares outstanding:
Basic	1,239.2			1,394.9			1,240.6			1,407.9
Diluted	1,250.7			1,406.6			1,252.1			1,420.5

See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions, unaudited)



	Quarter Ended						Two Quarters Ended
	Mar 31, 2019			Apr 1, 2018			Mar 31, 2019			Apr 1, 2018
Net earnings including noncontrolling interests	$	658.8		$	659.8		$	1,419.0		$	2,909.9
Other comprehensive income/(loss), net of tax:
Unrealized holding gains/(losses) on available-for-sale debt securities	3.7			(3.3		)	5.9			(6.0		)
Tax (expense)/benefit	(0.8		)	0.7			(1.3		)	1.7
Unrealized gains/(losses) on cash flow hedging instruments	(12.4		)	(43.1		)	(21.5		)	(45.4		)
Tax (expense)/benefit	3.5			8.8			5.3			9.2
Unrealized gains/(losses) on net investment hedging instruments	2.9			(43.9		)	(19.0		)	(44.2		)
Tax (expense)/benefit	(0.7		)	11.1			4.9			11.1
Translation adjustment and other	78.3			179.2			79.9			211.6
Tax (expense)/benefit	1.4			(0.7		)	1.4			2.2
Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale debt securities, hedging instruments, and translation adjustment	(5.8		)	55.3			2.3			55.5
Tax expense/(benefit)	1.6			(5.9		)	0.9			(7.2		)
Other comprehensive income/(loss)	71.7			158.2			58.8			188.5
Comprehensive income including noncontrolling interests	730.5			818.0			1,477.8			3,098.4
Comprehensive loss attributable to noncontrolling interests	(4.4		)	(0.3		)	(4.6		)	(0.4		)
Comprehensive income attributable to Starbucks	$	734.9		$	818.3		$	1,482.4		$	3,098.8

See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(unaudited)



	Mar 31, 2019			Sep 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	2,055.1		$	8,756.3
Short-term investments	76.6			181.5
Accounts receivable, net	703.6			693.1
Inventories	1,443.0			1,400.5
Prepaid expenses and other current assets	674.0			1,462.8
Total current assets	4,952.3			12,494.2
Long-term investments	251.9			267.7
Equity investments	309.3			334.7
Property, plant and equipment, net	6,135.5			5,929.1
Deferred income taxes, net	1,006.6			134.7
Other long-term assets	464.5			412.2
Other intangible assets	918.3			1,042.2
Goodwill	3,603.5			3,541.6
TOTAL ASSETS	$	17,641.9		$	24,156.4
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable	$	1,096.7		$	1,179.3
Accrued liabilities	2,569.3			2,298.4
Insurance reserves	221.0			213.7
Current portion of deferred revenue	1,311.4			1,642.9
Short-term debt	75.0			—
Current portion of long-term debt	—			349.9
Total current liabilities	5,273.4			5,684.2
Long-term debt	9,141.5			9,090.2
Deferred revenue	6,761.9			6,775.7
Other long-term liabilities	1,500.3			1,430.5
Total liabilities	22,677.1			22,980.6
Shareholders’ equity/(deficit):
Common stock ($0.001 par value) — authorized, 2,400.0 shares; issued and outstanding, 1,210.0 and 1,309.1 shares, respectively	1.2			1.3
Additional paid-in capital	41.1			41.1
Retained earnings/(deficit)	(4,807.7		)	1,457.4
Accumulated other comprehensive loss	(271.5		)	(330.3		)
Total shareholders’ equity/(deficit)	(5,036.9		)	1,169.5
Noncontrolling interests	1.7			6.3
Total equity/(deficit)	(5,035.2		)	1,175.8
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)	$	17,641.9		$	24,156.4

See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions, unaudited)



	Two Quarters Ended
	Mar 31, 2019			Apr 1, 2018
OPERATING ACTIVITIES:
Net earnings including noncontrolling interests	$	1,419.0		$	2,909.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	723.5			617.6
Deferred income taxes, net	(714.5		)	732.6
Income earned from equity method investees	(108.2		)	(107.4		)
Distributions received from equity method investees	93.3			144.3
Gain resulting from acquisition of joint venture	—			(1,373.9		)
Net gain resulting from divestiture of certain retail operations	(21.0		)	(496.3		)
Stock-based compensation	192.1			116.5
Goodwill impairments	5.4			28.5
Other	91.1			1.3
Cash provided by changes in operating assets and liabilities:
Accounts receivable	9.8			5.2
Inventories	(51.0		)	10.3
Prepaid expenses and other current assets	774.6			(677.7		)
Accounts payable	(83.4		)	25.5
Deferred revenue	9.4			163.7
Other operating assets and liabilities	429.3			188.4
Net cash provided by operating activities	2,769.4			2,288.5
INVESTING ACTIVITIES:
Purchases of investments	(150.2		)	(52.0		)
Sales of investments	218.3			388.7
Maturities and calls of investments	55.1			26.5
Additions to property, plant and equipment	(845.6		)	(896.7		)
Acquisition of equity in joint venture, net of cash acquired	—			(1,311.3		)
Net proceeds from the divestiture of certain operations	48.5			608.2
Other	(37.1		)	(2.3		)
Net cash used in investing activities	(711.0		)	(1,238.9		)
FINANCING ACTIVITIES:
Proceeds from issuance of commercial paper	75.0			—
Proceeds from issuance of long-term debt	—			2,596.5
Repayments of long-term debt	(350.0		)	—
Proceeds from issuance of common stock	275.7			106.3
Cash dividends paid	(894.5		)	(847.9		)
Repurchase of common stock	(7,827.9		)	(3,192.1		)
Minimum tax withholdings on share-based awards	(56.3		)	(57.6		)
Other	0.1			(17.7		)
Net cash used by financing activities	(8,777.9		)	(1,412.5		)
Effect of exchange rate changes on cash and cash equivalents	18.3			42.6
Net increase/(decrease) in cash and cash equivalents	(6,701.2		)	(320.3		)
CASH AND CASH EQUIVALENTS:
Beginning of period	8,756.3			2,462.3
End of period	$	2,055.1		$	2,142.0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of capitalized interest	$	132.7		$	47.7
Income taxes/(refunds)	$	(168.8	)	$	723.4

See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Quarter Ended March 31, 2019 and April 1, 2018

(in millions, except per share data, unaudited)



	Common Stock		Additional Paid-in Capital			Retained Earnings/(Deficit)			Accumulated Other Comprehensive Income/(Loss)			Shareholders’ Equity			Noncontrolling Interests			Total
Balance, December 30, 2018	$	1.2	$	41.1		$	(2,584.0	)	$	(343.2	)	$	(2,884.9	)	$	6.1		$	(2,878.8	)
Net earnings	—		—			663.2			—			663.2			(4.4		)	658.8
Other comprehensive income	—		—			—			71.7			71.7			—			71.7
Stock-based compensation expense	—		96.0			—			—			96.0			—			96.0
Exercise of stock options/vesting of RSUs	—		158.0			—			—			158.0			—			158.0
Sale of common stock	—		8.3			—			—			8.3			—			8.3
Repurchase of common stock	—		(262.3		)	(2,450.9		)	—			(2,713.2		)	—			(2,713.2		)
Cash dividends declared, $0.36 per share	—		—			(436.0		)	—			(436.0		)	—			(436.0		)
Balance, March 31, 2019	$	1.2	$	41.1		$	(4,807.7	)	$	(271.5	)	$	(5,036.9	)	$	1.7		$	(5,035.2	)

Balance, December 31, 2017	$	1.4	$	41.1		$	5,834.9		$	(125.3	)	$	5,752.1		$	6.8		$	5,758.9
Net earnings	—		—			660.1			—			660.1			(0.3		)	659.8
Other comprehensive income	—		—			—			158.2			158.2			—			158.2
Stock-based compensation expense	—		55.8			—			—			55.8			—			55.8
Exercise of stock options/vesting of RSUs	—		42.5			—			—			42.5			—			42.5
Sale of common stock	—		7.9			—			—			7.9			—			7.9
Repurchase of common stock			(106.2		)	(1,447.0		)	—			(1,553.2		)	—			(1,553.2		)
Cash dividends declared, $0.30 per share	—		—			(412.2		)	—			(412.2		)	—			(412.2		)
Balance, April 1, 2018	$	1.4	$	41.1		$	4,635.8		$	32.9		$	4,711.2		$	6.5		$	4,717.7

See Notes to Condensed Consolidated Financial Statements.

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STARBUCKS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Two Quarters Ended March 31, 2019 and April 1, 2018

(in millions, except per share data, unaudited)



	Common Stock			Additional Paid-in Capital			Retained Earnings/(Deficit)			Accumulated Other Comprehensive Income/(Loss)			Shareholders’ Equity			Noncontrolling Interests			Total
Balance, September 30, 2018	$	1.3		$	41.1		$	1,457.4		$	(330.3	)	$	1,169.5		$	6.3		$	1,175.8
Cumulative effect of adoption of new accounting guidance	—			—			495.6			—			495.6			—			495.6
Net earnings	—			—			1,423.6			—			1,423.6			(4.6		)	1,419.0
Other comprehensive income	—			—			—			58.8			58.8			—			58.8
Stock-based compensation expense	—			194.0			—			—			194.0			—			194.0
Exercise of stock options/vesting of RSUs	—			203.0			—			—			203.0			—			203.0
Sale of common stock	—			16.4			—			—			16.4			—			16.4
Repurchase of common stock	(0.1		)	(413.4		)	(7,299.7		)	—			(7,713.2		)	—			(7,713.2		)
Cash dividends declared, $0.72 per share	—			—			(884.6		)	—			(884.6		)	—			(884.6		)
Balance, March 31, 2019	$	1.2		$	41.1		$	(4,807.7	)	$	(271.5	)	$	(5,036.9	)	$	1.7		$	(5,035.2	)

Balance, October 1, 2017	$	1.4		$	41.1		$	5,563.2		$	(155.6	)	$	5,450.1		$	6.9		$	5,457.0
Net earnings	—			—			2,910.3			—			2,910.3			(0.4		)	2,909.9
Other comprehensive income	—			—			—			188.5			188.5			—			188.5
Stock-based compensation expense	—			118.0			—			—			118.0			—			118.0
Exercise of stock options/vesting of RSUs	—			33.4			—			—			33.4