Table of Content
1 3 5 9 11
Mission Statement
History of Starbucks
Company Profile
Company Information
Financial Highlights
15 19 21 22 33
Chairman's Statement
Corporate Governance's Statement
Board of Director's Profile
Leadership Team
Corporate Social Reaponsibility Statement
39 41 43 45 55
Corporate's Commitment
Managing Director's Statement
Director's Responsibility Statement
Corporate's Events
Financial Statement
65 69
Statement of Changes in Equity
Proxy Statement
Mission Statement Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.
Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success.
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History of Starbucks Starbucks Corporation is the leading roaster, retailer, and marketer of specialty coffee in the world. Its operations include upwards of 7,300 coffee shops and kiosks in the United States, and nearly 3,000 in 34 other countries, with the largest numbers located in Japan, Canada, the United Kingdom, China, Taiwan, South Korea, the Philippines, Thailand, Malaysia, Mexico, Australia, Germany, and New Zealand.
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64 76 1002 79 26
476
72 184
Today, we are privileged to connect with millions of customers every day with exceptional products and more than 30,000 retail stores in 80 markets.
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In addition to a variety of coffees and coffee drinks, Starbucks shops also feature Tazo teas; pastries and other food items; espresso machines, coffee brewers, and other coffee- and tea-related items; and music CDs. The company also sells many of these products via mail-order and online at starbucks.com. It also wholesales its coffee to restaurants, businesses, education and healthcare institutions, hotels, and airlines.
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Through a joint venture with Pepsi-Cola Company, Starbucks bottles Frappuccino beverages and the Starbucks DoubleShot espresso drink and sells them through supermarkets and convenience and drugstores. Through a partnership with Kraft Foods, Inc., the company sells Starbucks whole bean and ground coffee into grocery, warehouse club, and mass merchandise stores. A third joint venture, with Dreyer’s Grand Ice Cream, Inc., develops superpremium coffee ice creams and distributes them to U.S. supermarkets.
457 From a single small store that opened in 1971 to its status as a 21st-century gourmet coffee giant, Starbucks has led a coffee revolution in the United States and beyond.
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Company Profile Folklore
Starbucks is named after the first mate in Herman Melville’s Moby Dick. Our logo is also inspired by the sea – featuring a twin-tailed siren from Greek mythology.
Our Coffee We’ve always believed in serving the best coffee possible. It's our goal for all of our coffee to be grown under the highest standards of quality, using ethical sourcing practices. Our coffee buyers personally travel to coffee farms in Latin America, Africa and Asia to select high quality beans. And our master roasters bring out the balance and rich flavor of the beans through the signature Starbucks Roast.
Our Stores Our stores are a neighborhood gathering place for meeting friends and family. Our customers enjoy quality service, an inviting atmosphere and an exceptional beverage.
Our Partners We offer some of the finest coffees in the world, grown, prepared and served by the finest people. Our employees, who we call partners, are at the heart of the Starbucks Experience. We believe in treating our partners with respect and dignity. We are proud to offer several landmark programs for our partners, including comprehensive health coverage for eligible full- and part-time partners, access to full college tuition coverage through the Starbucks College Achievement Plan, and equity in the company through Bean Stock.
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Brand Portfolio Starbucks Coffee, Seattle’s Best Coffee, Teavana, Evolution Fresh, Ethos Water and Torrefazione Italia Coffee.
Our Products Starbucks offers a range of exceptional products that customers enjoy in our stores, at home, and on the go. Coffee: More than 30 blends and single-origin premium coffees.Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso beverages, Iced Coffee, Cold Brew, Nitro, Frappuccino® coffee and non-coffee blended beverages, Starbucks Refreshers® beverages, and Teavana® teas.
Merchandise: Coffee- and tea-brewing equipment, mugs and accessories, packaged goods, books and gifts.Fresh Food: Baked pastries, cold and hot sandwiches, salads, salad and grain bowls, oatmeal, yogurt parfaits and fruit cups.Consumer products available where groceries are sold Coffee and Tea: Whole bean and ground coffee (Starbucks and Seattle’s Best Coffee brands), Starbucks VIA® Instant, Starbucks espresso capsules available on the Nespresso and Nescafé Dolce Gusto systems, Starbucks® Coffee K-Cup® pods, Starbucks® and Teavana® Verismo® pods.
Ready-to-Drink (RTD): Starbucks® bottled Frappuccino® coffee drinks, Starbucks Iced Latte, Single Serve Cold Brew, Doubleshot® Coffee Smoothies, Teavana Craft Iced Teas, Teavana Sparkling Craft Iced Teas, Starbucks Discoveries® chilled cup coffees, Starbucks Discoveries Iced Café Favorites®, Starbucks Iced Coffee, Starbucks Doubleshot® espresso drinks, Starbucks Doubleshot® Energy Coffee drinks; Starbucks Refreshers® beverages, Evolution Fresh™ bottled juices.
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Being a Responsible Company At Starbucks, we have always believed in the importance of building a great, enduring company that strikes a balance between profitability and a social conscience. It started with our early travels to the places where our coffee is grown, understanding that our future is inextricably tied to the futures of farmers and their families. We nurtured personal relationships and built a global network of support to create a new way to produce coffee: one that is sustainable, transparent and good for people and the planet. As the threats of climate change have grown, we have been working to help coffee farms adapt and find innovative solutions in how we build and operate our stores, while reducing the environmental impact of our cups, straws and lids. Our stores are often the heart of a neighborhood, and we strive to make each one a welcoming and inclusive Third Place. As we have grown, so too has our opportunity to make a positive impact, from alleviating hunger through our food donation program to making investments in local partnerships and coffee- and tea-origin communities through The Starbucks Foundation. Stitching all these efforts together is a common thread – a green thread – one that is woven in the fabric of our company by the more than 300,000 men and women who proudly wear the green apron. We are dedicated to making our partners proud, providing pay equity and investing in their success. And we are working to hire veterans and military spouses, refugees, Opportunity Youth and those formerly incarcerated, and helping them build their futures once they are with us. As it has been from the beginning, our purpose goes far beyond profit. We believe in the pursuit of doing good.
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Company Information
Our Heritage Every day, we go to work hoping to do two things: share great coffee with our friends and help make the world a little better. It was true when the first Starbucks opened in 1971, and it’s just as true today.
Back then, the company was a single store in Seattle’s historic Pike Place Market. From just a narrow storefront,
To say Starbucks purchases and roasts high-quality whole bean coffees is very true. That’s the essence of what we do – but it hardly tells the whole story.
Starbucks offered some of the world’s finest fresh-roasted
whole bean coffees. The name, inspired by Moby Dick, evoked the romance of the high seas and the seafaring tradition of the early coffee traders. In 1981, Howard Schultz (Starbucks chairman and chief executive officer) had first walked into a Starbucks store. From his first cup of Sumatra, Howard was drawn into Starbucks and joined a year later. In 1983, Howard traveled to Italy and became captivated with Italian coffee bars and the romance of the coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the United States. A place for conversation
and a sense of community. A third place between work and home. He left Starbucks for a short period of time to start his own Il Giornale coffeehouses and returned in August 1987 to purchase Starbucks with the help of local investors. From the beginning , Starbucks set out to be a different kind of company. Not only celebrated coffee and the rich tradition, but that also brought a feeling of connection. Our mission to inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.
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Get to know us and you’ll see: we are so much more than what we brew. Expect More Than Coffee We’re not just passionate purveyors of coffee, but everything else that goes with a full and rewarding coffeehouse experience. We also offer a selection of premium teas, fine pastries and other delectable treats to please the taste buds. And the music you hear in store is chosen for its artistry and appeal. It’s not unusual to see people coming to Starbucks to chat, meet up or even work. We’re a neighborhood gathering place, a part of the daily routine – and we couldn’t be happier about it. We make sure that everything we do is through the human eye – from our commitment to the world's finest coffee, to our way of interacting with our customers and the community to carry out our business in a responsible way.
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Financial Highlights Fiscal 2018 Re-segmentation In the fourth quarter of fiscal 2018, we realigned our organizational and operating segment structures in support of a newly established Global Coffee Alliance. The scope of the arrangement converts the majority of our previously defined Channel Development segment operations, as well as certain smaller businesses previously reported in the Americas, EMEA and All Other Segments, from company-owned to licensed operations with Nestlé. Our reportable segments have been restated as if those smaller businesses were previously within our Channel Development segment. In addition, we combined All Other Segments and Unallocated Corporate into one non-reportable segment entitled Corporate and Other. Further, in an effort to report operating expenses in line with the corresponding revenue-generating activities, we have changed the classification of certain costs, primarily within our CAP segment and mainly from other operating expenses to general and administrative expenses. Concurrent with the change in reportable segments and realignment of certain operating expenses noted above, we revised our prior period financial information to be consistent with the current period presentation. There was no impact on consolidated net revenues, total operating expenses, operating income, or net earnings as a result of these changes. We have posted additional details pertaining to these updates, including restated GAAP and non-GAAP P&Ls for FY17 and FY18, on the Supplemental Financial Data page of our Investor Relations website (http://investor.starbucks.com).
Full Year Financial Results Quarter Ended Sep 30, 2018
Sales Growth
Change In Transactions
Change In Ticket
Consolidated
2%
(1)%
3%
Americas
2%
(1)%
3%
CAP
1%
(1)%
2%
EMEA
0%
(3)%
3%
Comparable Store Sales (1)
(1) Includes only Starbucks company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates. (2) Company-operated stores represent 15% of the EMEA segment store portfolio as of September 30, 2018. Year Ended
Operating Result ($ in millions, except per share amounts)
Sep 30, 2018
Oct 1, 2017
Change
1,985
2,254
(269)
Revenues
$ 24,719.5
$ 22,386.8
10%
Operating Income
$ 3,888.3
$ 4,134.7
(6)%
Operating Margin
15.7%
18.5%
(280) bps
EPS
$ 3.24
$ 1.97
64%
Net New Stores (1)
(1) Fiscal 2018 net new stores include the net closure of 313 Teavana-branded stores.
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Quarter Ended Sep 30, 2018
Fourth Quarter Fiscal 2018 Summary
Sales Growth
Change In Transactions
Change In Ticket
3%
(1%)
4%
4%
(1%)
5%
Comparable Store Sales (1)
1%
(1%)
2%
Consolidated
2%
0%
2%
Americas CAP EMEA (1) Includes only Starbucks company-operated stores open 13 months or longer. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates. (2) Company-operated stores represent 15% of the EMEA segment store portfolio as of September 30, 2018. Quarter Ended
Operating Result ($ in millions, except per share amounts)
Sep 30, 2018
Oct 1, 2017
Change
604
603
1
$ 6, 303.6
$ 5,698.3
11%
Operating Income
$ 956.6
$ 1,022.5
(6)%
Operating Margin
12.5%
17.9%
(270) bps
EPS
0.56%
$ 0.54
4%
Net New Stores Revenues
Consolidated net revenues grew 11% over Q4 FY17 to $6.3 billion in Q4 FY18, primarily driven by incremental revenues from the impact of our ownership change in East China at the end of Q1 FY18, incremental revenues from 1,997 net new Starbucks store openings over the past 12 months, and 3% growth in global comparable store sales, partially offset by licensing our CPG and foodservice businesses to Nestlé following the close of the deal on August 26, 2018. Consolidated operating income declined 6% to $956.6 million in Q4 FY18, down from $1,022.5 million in Q4 FY17. Consolidated operating margin declined 270 basis points to 15.2%, primarily driven by streamline-driven activities, including licensing our CPG and foodservice businesses to Nestlé following the close of the deal on August 26, 2018, the impact of our ownership change in East China at the end of Q1 FY18, and the sale of our Tazo brand in Q1 FY18. Additionally, operating margin was adversely impacted by higher investments in our store partners (employees), and food and beverage-related mix shifts, partially offset by sales leverage.
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Q4 Americas Segment Results Quarter Ended Sep 30, 2018 Sep 30, 2018
Oct 1, 2017
Change
250
257
(7)
$ 4,254.2
$ 3941.3
8%
Operating Income
$ 928.5
$ 901.5
3%
Operating Margin
21.8%
22.9%
(110) bps
($ in millions) Net New Stores Revenues
Net revenues for the Americas segment grew 8% over Q4 FY17 to $4.3 billion in Q4 FY18, primarily driven by incremental revenues from 895 net new store openings over the past 12 months and 4% growth in comparable store sales, partially offset by the absence of revenue related to the sale of our Brazil retail operations to a licensed partner in Q2 FY18. Operating income grew 3% to $928.5 million in Q4 FY18, up from $901.5 million in Q4 FY17. Operating margin of 21.8% declined 110 basis points, primarily due to higher investments in our store partners (employees) and food and beverage-related mix shifts, partially offset by sales leverage.
Q4 China/Asia Pacific Segment Results Quarter Ended Sep 30, 2018
Oct 1, 2017
Change
278
296
(18)
Revenues
$ 1,214.6
$ 859.9
41%
Operating Income
$ 232.2
$ 201.7
15%
Operating Margin
19.1%
23.5%
(440) bps
($ in millions) Net New Stores
Net revenues for the China/Asia Pacific segment grew 41% over Q4 FY17 to $1,214.6 million in Q4 FY18, primarily driven by incremental revenues from the impact of our ownership change in East China at the end of Q1 FY18, incremental revenues from 756 net new store openings over the past 12 months, and a 1% increase in comparable store sales, partially offset by the absence of revenue related to the sale of our Singapore retail operations to a licensed partner in Q4 FY17. Q4 FY18 operating income of $232.2 million grew 15% over Q4 FY17 operating income of $201.7 million. Operating margin declined 440 basis points to 19.1%, primarily due to the impact of our ownership change in East China at the end of Q1 FY18.
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Q4 EMEA Segment Results Quarter Ended Sep 30, 2018
Oct 1, 2017
Change
83
104
(21)
Revenues
$ 267.3
$ 255.1
5%
Operating Income
$ 10.8
$ 29.0
(63)%
Operating Margin
4.0%
11.4%
(740) bps
($ in millions) Net New Stores
Net revenues for the EMEA segment grew 5% over Q4 FY17 to $267.3 million in Q4 FY18, primarily driven by incremental revenues from the opening of 356 net new licensed stores over the past 12 months and 2% growth in comparable store sales, partially offset by unfavorable foreign currency translation. Operating income of $10.8 million in Q4 FY18 declined 63% versus operating income of $29.0 million in Q4 FY17. Operating margin declined 740 basis points to 4.0%, primarily due to higher business restructuring costs and impairment of the remaining goodwill related to our Switzerland retail business, partially offset by lapping a tax settlement expense in the prior year.
Q4 Channel Development Segment Results Quarter Ended Sep 30, 2018
Oct 1, 2017
Change
Revenues
$ 539.3
$ 576.5
(6)%
Operating Income
$ 190.8
$ 265.4
(28)%
Operating Margin
35.4%
46.0%
(1,060) bps
($ in millions)
Net revenues for the Channel Development segment of $539.3 million in Q4 FY18 decreased 6% versus the prior year quarter primarily due to licensing our CPG and foodservice businesses to Nestlé following the close of the deal on August 26, 2018 and the net impact from the sale of our Tazo brand in Q1 FY18, partially offset by an increase in sales of our packaged coffee and premium single-serve products. Operating income of $190.8 million in Q4 FY18 declined 28% compared to Q4 FY17. Operating margin declined 1,060 basis points to 35.4%, primarily driven by streamline-driven activities, including licensing our CPG and foodservice businesses to Nestlé following the close of the deal on August 26, 2018 and the sale of our Tazo brand in Q1 FY18. Additionally, operating margin was adversely impacted by higher marketing expenses. 14
Chairman's Statement
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Dear Fellow Shareholders: Thank you for your support of Starbucks in 2018. This was a pivotal year for the Company, as we continued to streamline the business to amplify our focus on core value drivers and, with Howard Schultz’s retirement, transitioned from founder-led to founderinspired. Our goal is to drive growth at scale, and in many respects, it is a new era at Starbucks: we are growing off a larger base, requiring a sharper strategic focus and greater discipline. Nevertheless, Starbucks mission, values and guiding principles remain core to who we are as a Company.
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Sustainable, long-term growth Our view is that to continue to drive sustainable growth, we must evolve our relevance to customers — and executing against this vision requires focus on our most important strategic priorities. To that end, we began streamlining our business in 2017, and in 2018 we
advanced this initiative through a combination of retail market alignment, business simplification and the landmark deal to form the Global Coffee Alliance with Nestlé. While these measures are part of our long game, we began to see significant traction by year-end. Our record fourth quarter performance reflected meaningful sequential improvement in virtually every critical operating metric. Moreover, we entered fiscal 2019 executing against a clear growth agenda, with a focus on our long-term growth markets, the U.S. and China.
Effective executive leadership As we enter this next phase of driving growth at scale, we are transforming to increase the velocity of innovation that is relevant to our customers, inspiring to our partners and meaningful to the business. We are embracing change and have evolved the executive leadership team to match current needs. Key additions in the past year and a half include Rosalind G. Brewer as our chief operating officer; Rachel A. Gonzalez as general counsel
and secretary; and Patrick J. Grismer as chief financial officer. All bring exceptional qualifications to their important roles and value to an already strong executive leadership team that will drive growth in the years ahead.
High-functioning board The board of directors remains as high functioning and engaged as ever, continuously monitoring the Company’s business strategy, leadership, operations and risk management
in the dynamic business environment in which we operate. Our governance is valuesbased, and the board has long been comprised of accomplished leaders representing diverse backgrounds and experience. After adding three new independent directors in 2017, Howard’s retirement along with the departure of other long-serving members in 2018 updated the dynamic in the boardroom. We move forward with an average tenure of just eight years, an independent board chair and vice chair and three strong leaders, Jørgen Vig Knudstorp, Mary N. Dillon and Mellody Hobson, as chairs of our Nominating and Corporate Governance Committee, Compensation and Management Development Committee and Audit and Compliance Committee, respectively. Your
board exhibited strong oversight and engagement on our strategy, collaboration with management and advocacy on the part of shareholders in 2018, and we look forward to engaging with you and obtaining your feedback through Starbucks governance outreach program in the year ahead. 17
On behalf of our board of directors and management team, we cordially invite you to attend the 2019 Annual Meeting of Shareholders on March 20, 2019 at 10:00 a.m. PT. Please note the new location at the WAMU Theater next to CenturyLink Field, in Seattle, Washington. More information about attending the Annual Meeting appears on the back cover of this proxy statement. The matters to be acted upon are described in the notice of Annual Meeting of Shareholders and the proxy statement. At the Annual Meeting of Shareholders, we will also report on our operations and respond to questions from shareholders. As always, we anticipate a large number of attendees at the Annual Meeting of Shareholders. The new location at WAMU Theater allows us to increase the seating capacity, however, seating will be on a first-come, first-served basis. As we have done before, we will also provide a live webcast of the meeting from the Investor Relations website at http://investor.starbucks.com. We hope this provides those unable to attend the meeting the opportunity to hear Starbucks leaders discuss our operating results and plans for the future. Thank you for your continued investment in Starbucks.
Howard D. Schultz
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Corporate Governance's Statement
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Our commitment In June 2018, Howard Schultz retired from Starbucks. In recognition of Howard’s 36-year contribution to Starbucks,
the board awarded him the honorary title of chairman emeritus. Upon Howard’s retirement, Myron E. (Mike) Ullman, III was named chair an d Mellody Hobson was named vice chair. This transition was fully disclosed to shareholders in June 2018 and is summarized in the Starbucks 2019 Proxy Statement. As part of our Starbucks mission, we are committed to maintaining uncompromising principles in the development process. In this regard, our Board of Directors has adopted
governance principles and committee charters to lead Starbucks governance practices. Currently, our board has 13 directors, a substantial majority of whom meet all of the independence requirements of NASDAQ® and the U.S. Securities and Exchange Commission.
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Board of Director's Profile
Javier G. Teruel
Clara Shih
Richard E. Allison, Jr.
Jørgen Vig Knudstorp
Andrew Campion
Colgate - Palmolive Company Retired Vice Chairman
Hearsay Systems, Inc. Chief Executive Officer
Domino’s Chief Executive Officer
LEGO Brand Group Executive Chairman
NIKE Executive Vice President and Chief Financial Officer
Mary N. Dillon
Isabel Ge Mahe
Kevin Johnson
Joshua Cooper Ramo
Satya Nadella
Ulta Salon, Cosmetics & Fragrance, Inc. Chief Executive Officer
Apple Inc. Vice President and Managing Director Of Greater China
Starbucks President and Chief Executive Officer
Kissinger Associates Co-Chief Executive Officer and Vice Chairman
Microsoft Corporation Chief Executive Officer and Director
Rosalind (Roz) G. Brewer
Myron E. Ullman Iii
Mellody Hobson
Independent Starbucks Board of Directors Chair J.c. Penney Company, Inc., Former Chairman
Independent Starbucks Board of Directors Vice Chair Ariel Investments, Llc, Co-Chief Executive Officer and President
Starbucks Chief Operating Officer and Group President
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Leadership Team
Kevin Johnson President and Chief Executive Officer
Rosalind (Roz) Brewer Chief Operating Officer and Group President
Andy Adams
Kelly Bengston
Luigi Bonini
Senior Vice President, Store Development
Senior Vice President, Chief Procurement Officer, Global Sourcing
Senior Vice President, Global Product Innovation
Brady Brewer
Martin Brok
Michelle Burns
Cliff Burrows
Michael Conway
Senior Vice President, Digital Customer Experience
President, Starbucks Europe, Middle East and Africa
Senior Vice President, Global Coffee & Tea
Group President, Siren Retail
Executive Vice President, President, Starbucks Canada
John Culver
George Dowdie
Chris Fallon
Tom Ferguson
Mark Fordham
Group President, International, Channel Development and Global Coffee & Tea
Senior Vice President, Global Food Safety, Quality & Regulatory
Senior Vice President, Business Technology
Senior Vice President, International Retail Operations
Senior Vice President and Deputy General Counsel, Law & Corporate Affairs
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Jon Francis
Angela Lis
Shannon Garcia
Sumitro Ghosh
Rachel Gonzalez
Senior Vice President, Analytics and Market Research
Senior Vice President, Partner Resources, Global Retail
Senior Vice President, U.s. Operations
Senior Vice President, Siren Retail
Executive Vice President General Counsel and Secretary
Patrick Grismer
Josh Guenser
Lucy Lee Helm
Scott Keller
John Kelly
Executive Vice President and Chief Financial Officer
Senior Vice President, Americas Finance
Executive Vice President, Chief Partner Officer
Senior Vice President, Store Development & Design
Senior Vice President, Global Public Affairs & Social Impact
Janet Landers
Jen Frisch
Holly May
Hans Melotte
Senior Vice President, Business Technology
Senior Vice President, Partner Resources, U.s. Retail, Licensed Stores and Operations Services
Gerri MartinFlickinger
Senior Vice President, Global Total Rewards
Executive Vice President, Global Supply Chain
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Executive Vice President, Chief Technology Officer
Takafumi Minaguchi
Duncan Moir
Carl Mount
Liz Muller
Denise Nelsen
Chief Executive Officer, Starbucks Japan
President, Global Channel Development
Senior Vice President, Logistics & U.s. Retail Supply Chain
Senior Vice President, Chief Design Officer
Senior Vice President, U.s. Operations
Mark Ring
Matthew Ryan
Sandra Stark
Sara Trilling
Leo Tsoi
Senior Vice President, U.s Licensed Stores and Latin America
Executive Vice President, Chief Marketing Officer
Senior Vice President, U.s. Beverage Category and Global Innovation
Senior Vice President and President, Starbucks Asia Pacific
Chief Operating Officer, Starbucks China
Jill Walker
Vivek Varma
Jeff Wile
Rossann Williams
Belinda Wong
Senior Vice President, Corporate Financial Services, and Chief Accounting Officer
Executive Vice President, Public Affairs
Senior Vice President, Retail and Core Technology Services
Executive Vice President, President, U.s. Retail
Chairman And Chief Executive Officer, Starbucks China
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Partners cheer during an apron presentation ceremony on Saturday, Oct. 20, 2018, at Starbucks first U.S. Signing Store in Washington, D.C. The store is led by a diverse team of employees who are all fluent in American Sign Language. The store ,inspired by a similar store in Kuala Lumpur, Malaysia, that opened
in 2016, is down the street from Gallaudet University, a bilingual (English and ASL) institution for Deaf and hard-of-hearing students. The infrastructure and experiences in the Washington store were designed to create the best possible experience for partners and customers, whether they are Deaf, hard of hearing or hearing. (Joshua Trujillo, Starbucks) 25
The store by mployees who are all fluent in American Sign Language 26
For the 3rd year, Starbucks has worked to support Mary’s Place 27
Six-year-old Treerindia Kaur looks through the window of her mom’s car on Oct. 25, 2018, after being picked up at school. The Kaur family spent their first night experiencing homelessness sleeping in their car, before coming to Mary’s Place, a Seattle-based service for women and families. Mary’s Place helps homeless women and families find shelter and a path to stable housing. For the third year, Starbucks has worked to support Mary’s Place through the No Child Sleeps Outside campaign to bring homeless families indoors and eventually into housing. (Luanne Dietz, Starbucks) 28
We care more about the customer than the sales volume 29
Starbucks partners kick off a discussion about race and bias at a Starbucks store in White Center, Wash., on May 29, 2018. About 8,000 company-owned Starbucks stores in the United States closed for four hours so store partners could participate in discussion and learning around race and bias. (Joshua Trujillo, Starbucks)
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Navy veteran Jacquelyn Dyer and Air Force Veteran Stephen King raise the flag outside Dog Tag Bakery in Washington, D.C., April 30, 2018. Starbucks partnered with Dog Tag, selling the bakery’s brownies in stores. Dog Tag offers veterans a five-month transitional training program in which the fellows spend the morning taking business classes through Georgetown University and afternoons gaining hands-on experience learning what it’s like to run a small business and practice the craft of being a baker. (Joshua Trujillo, Starbucks)
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Veterans have a five-month transitional training program 32
Corporate Social Responsibility Statement
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Greener Power By investing in clean, green energy at scale, we are both powering our stores with renewable energy, reducing our environmental impact, and supporting access to green power in the communities in which we operate. Renewable energy is a key climate mitigation strategy and has an overall positive impact to local air quality through a reduction in pollution tied to traditional brown power plants. In 2004, Starbucks undertook its firstever inventory of its own greenhouse gas emissions. That analysis revealed that 70 percent of emissions came from the purchase of electricity to power stores.
We have invested in renewable energy since 2005, steadily increasing our purchases of renewable energy certificates until we achieved our goal of obtaining 100 percent of the electricity powering global companyoperated stores from renewable sources in 2015. As we embark on the next chapter of our renewable energy strategy, we continue to use our scale to drive in novation across the renewable energy sector. We are taking the next step with direct investments in new geographically relevant renewable energy projects. In North Carolina, we have invested in a 140,000-acre solar farm which delivers enough clean energy to power more than 600 Starbucks stores in state and neighboring Virginia, Delaware, Kentucky, Maryland, West Virginia and Washington, D.C. And in Washington state, we’re working with Puget Sound Energy to power more than 100 Starbucks stores and our roasting facility in Kent, with wind power from a wind farm in nearby Olympia. In 2015, Starbucks joined with other companies in the commitment to 100 percent renewable energy through membership with RE100 and adherence to the RE100 Buyers Principles to improve our global reporting and purchasing methodology. We are working to source 100 percent renewable energy for global store operations as well as our global supply chain, headquarters and office locations. We are committed to purchasing renewable energy for each global market from projects in the same grid region and promoting local renewable energy generation in all of the global communities where we operate.
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Investing in Renewable Energy
In addition to reducing our energy use, we are also focused on advancing renewable energy sources through our purchasing practices and investments. We remained one of the Environmental Protection Agency’s top purchasers of renewable energy in the U.S In 2018, Starbucks made direct investments in wind and solar energy. In North Carolina, a 140,000 acre solar farm delivers enough clean energy to power the equivalent of the energy consumed by 600 Starbucks stores in state and
neighboring Virginia, Delaware, Kentucky, Maryland, West Virginia and Washington, D.C. In addition, two wind projects will launch in 2019 to power 116 Seattle-area stores and the nearby Kent Roasting Plant and 360 stores in Illinois.
The Green-E certified Renewable Energy Certificates (RECs) we purchase encourage the development of new clean-energy sources by providing windfarm owners with additional revenue.This, in turn, helps the wind farmers sell electricity at prices competitive with power plants that use fossil fuels. We are proud to have purchased RECs equivalent to 100% of the energy used in our U.S. and Canada company-operated stores through 2018. We are working with our international market partners to identify and plan for purchasing more locally relevant renewable energy going forward.
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(1)
(2)
(3)
(1) We purchase energy and renewable energy certificates from colar farms and wind farms.In the U.S. and Canada we source renewable from a number of projects, including directly from a solar farm in North Carolina and wind farms under construction in Illinois and Washington. (2) Energy is transferred to the power grid. Both renewable energy and conventional energy coexist here. (3) Our stores take energy from the grid. We help feed enough green power into the grid to match 100% of the electricity
used by Starbucks stores in the U.S. and Canada.
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Greener Cups and Packaging
We are decreasing the waste associated with our business, increasing recycling and promoting reusability.Double the recycled content, recyclability and compostability, and reusability of our cups and packaging by 2022. Each year, an estimated 600 billion paper and plastic cups are distributed globally*, and though Starbucks cups only account for an estimated 1 percent of that total, we are invested in finding a more sustainable solution. We have made substantial progress to reduce the impact of waste generated in our stores through cup innovation and improved packaging design, advocacy for local recycling infrastructure, and offering reusable cups.
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Cup Innovation Starbucks has continually worked to reduce the environmental impact of our cups and lids. In 1997, we introduced a hot cup sleeve to eliminate the popular practice of double-cupping. In 2006, Starbucks developed paper cups
manufactured with 10 percent post-consumer recycled fiber, the first cup of its kind in the food packaging industry to be approved by the U.S. Food and Drug Administration in 2006. We also introduced a more recyclable cup lid in 2016 which allowed the cup to be more widely accepted.
In 2018, Starbucks, in partnership with Closed Loop Partners, launched a global effort to bring together entrepreneurs, industry leaders, and recyclers to identify and commercialize the next generation of recyclable and or compostable cup solutions via the NextGen Cup Consortium and Challenge And, we have also committed to phasing out plastic straws from our 29,000 stores worldwide by 2020, eliminating more than 1 billion straws a year. Plastic straws will be replaced with a lightweight, recyclable strawless lid, with paper or alternative material straws available for blended beverages, and plastic straws upon request for Starbucks customers who need or request one.
Recycling Recycling ChartStarbucks has been a leading national retailer in advocating for increased access to recycling programs throughout the country.Recycling seems like a simple, straightforward initiative but it’s actually quite challenging. Our customers’ ability to recycle our cups, whether at home, at work, in public spaces or in our stores, is dependent upon multiple factors, including local government policies and access to recycling markets such as paper mills and plastic processors. The current patchwork approach with varying regulations city by city makes it challenging and confusing for customers to know where and when to recycle or compost their cup. As part of Starbucks involvement, we advocate for model legislation and best practices. In conjunction with the National League of Cities to make access more widely available, ensuring consistency and reducing confusion about what materials are recyclable or compostable. In addition, we are working with companies and organizations along the supply chain as a member of the Food Packaging Institute’s Paper Recovery Alliance and Plastics Recovery Group. Ultimately, we want our packaging to be recyclable in both material and practice, so that our customers have access to recycling services wherever they choose to dispose of their waste.
Reusability Reusable cups are also an important component of our overall waste reduction strategy. Since 1985 we’ve rewarded our customers with a discount when they bring in personal cups or tumblers, or use for-here serveware available in our stores. In 2013 we launched a $2 reusable cup in the U.S. and Canada, and a £1cup in the United Kingdom.Sustainability is about choices. We encourage our customers to join us in envisioning a sustainable future and choose reusability whenever possible.
38
Corporate's Commitment Our Mission To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.
39
Here are the principles of how we live that every day:
Our Coffee It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care and improving the lives of people who grow them. We care deeply about all of this; our work is never done.
Our Partners We’re called partners, because it’s not just a job, it’s our passion. Together, we embrace diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard.
Our Customers When we are fully engaged, we connect with, laugh with and uplift the lives of our customers – even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection.
Our Stores When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life – sometimes slow and savored, sometimes faster. Always full of humanity.
Our neighborhood Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action – bringing together our partners, customers and the community to contribute every day. Now we see that our responsibility – and our potential for good – is even larger. The world is looking to Starbucks to set the new standard, yet again.
Our Shareholders We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks – and everyone it touches – can endure and thrive.
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Managing Director's Statement
Starbucks Announces Three New Appointments to Board of Directors Company appoints Ritch Allison, Domino’s CEO; Andrew Campion, NIKE CFO; and Isabel Ge Mahe, Apple’s Vice President and Managing Director of Greater China.These additions expand Starbucks Board of world-class, values-based leaders, as it continues to build an enduring company.
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Seattle – Starbucks Corporation (NASDAQ: SBUX) announced today the appointment of Richard (Ritch) E. Allison, Jr., Chief Executive Officer of Domino’s; Andrew (Andy) Campion, Executive Vice President and Chief Financial Officer of NIKE; and Isabel Ge Mahe, Apple’s Vice President and Managing Director of Greater China, to the Starbucks Board of Directors. These appointments increase Starbucks Board of Directors to 13. “As we pursue our goal of building an enduring company, I couldn’t be more excited to have Ritch, Andy and Isabel join our world-class board
of directors,” said Kevin Johnson, Starbucks president and chief executive officer. “Their expertise across global technology, retail and customer experience at scale will accelerate our drive to innovate in a way that’s relevant to our customers and inspiring to our partners.” All three joined the Starbucks Board of Directors effective Sept. 11, 2019. Other members of the Starbucks Board of Directors include: Myron E. Ullman III, Mellody Hobson, Roz Brewer, Mary Dillon, Kevin Johnson, Jørgen Vig Knudstorp, Satya Nadella, Joshua Cooper Ramo, Clara Shih and Javier Teruel. Allison has served as Domino’s Chief Executive Officer since July 2018. He previously served as President, Domino’s International from October 2014 to July 2018, after joining the company in March 2011 as Executive
Vice President of International. Allison will serve on the company’s Compensation and Management Development Committee. Campion will serve on the company’s Audit and Compliance Committee. He joined NIKE in 2007 and since 2015 has served as Executive Vice President and Chief Financial Officer of NIKE, Inc., with responsibility for all aspects of strategy and financial management.
Ge Mahe joined Apple in 2008, overseeing the development of cellular, Wi-Fi, Bluetooth, Near Field Communication (NFC), location and motion technologies for nearly every Apple product. She also played a key role
in developing new China-specific features for iPhone and iPad. In her current role, she provides leadership and coordination across Apple’s China-based team. She will join the company’s Nominating and Corporate Governance Committee. “We are pleased to welcome Ritch, Andy and Isabel as new independent directors to the Starbucks board,” said Starbucks Chair Myron E. Ullman III. ”The addition of these directors complements our existing skills and experiences, and we are confident they will provide valuable perspectives as we continue to execute our strategy, drive growth and build long-term shareholder value for Starbucks.”
42
Director's Responsibility Statement
We are committed to maintaining our uncompromising principles while we grow. 43
In this regard, our Board of Directors has adopted governance principles, committee charters and policies to lead Starbucks governance practices. Currently, our board has 13 directors, a substantial majority of whom meet all of the independence requirements of NASDAQ® and the U.S. Securities and Exchange Commission.
A good point about Starbucks Coffee’s mission statement is that it is sufficiently abstract to make it applicable to future business scenarios. However, this corporate mission does not satisfy many of the conventional characteristics of ideal mission
statements. For example, Starbucks’s mission statement does not inform about target customers, types of products, and target markets. While the company presents a facet of its business philosophy, the resulting corporate mission needs improvement to satisfy ideal conventions. Thus, it is recommended that Starbucks add such pieces of information in its corporate mission statement to improve the matching of the statement with the business and its operations.
Starbucks Coffee’s vision statement is concise, clear, and inspiring, especially in terms of achieving and maintaining the premier status in the coffeehouse and coffee industry. This focus on leadership is a motivator that challenges management and other members of the company’s human resources. Moreover, the corporate vision is stable in terms of applicability to future business scenarios at Starbucks
Corporation. For example, the “premier purveyor” component is expected to remain applicable in the long term. However, the company fails to include new business operations and products in the corporate vision statement. For example, tea, pastries, and merchandise (consumer goods) are now part of the product mix, as outlined in Starbucks’s marketing mix or 4P. These products are not yet included in the company’s corporate vision statement. Thus, a recommendation is to improve Starbucks’s corporate vision by adding these pieces of information regarding various products, to make the vision more accurate in representing the business.
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Corporate's Events
Participants line up to enter the 100,000 Opportunities Initiative Atlanta Hiring Fair, on May 3, 2018. More than 2,600 young Atlantans attended the fair, hundreds of whom walked away with job offers from 50 participating employers. Joshua Trujillo, Starbucks
45
Christian Hughes, 20, watches as his twin brother, Christopher, works on tying a tie at their home in a suburb of Atlanta. The next day, May 3, 2018, Christopher attended the 100,000 Opportunities Initiative Atlanta Hiring Fair and was offered a job by Starbucks. Joshua Trujillo, Starbucks
46
Colombia-based Starbucks agronomist Liliana Arango looks at a coffee tree at Hacienda Alsacia, Starbucks coffee farm in Costa Rica, on Aug. 6, 2018. Starbucks agronomists and coffee specialists from around the world were brought together at the Starbucks-owned farm for a conference to share data and techniques as they work to improve the coffee industry and improve the lives of coffee farmers around the world. Joshua Trujillo, Starbucks
47
Banners hang in the atrium of Starbucks corporate headquarters in Seattle on Oct. 28, 2018, the day after the mass shooting at the Tree of Life synagogue in Pittsburgh. Joshua Trujillo, Starbucks
48
Starbucks chief executive officer Kevin Johnson and founder Howard Schultz take a selfie from stage after Schultz spoke to partners during his farewell ceremony at the Starbucks Support Center on June 25, 2018. Joshua Trujillo, Starbucks
49
The Pride flag is raised on the roof of the Starbucks Support Center in Seattle on June 18, 2018. The flag raising has become of feature of Pride week events in Seattle. Joshua Trujillo, Starbucks
50
Starbucks Reserve Roastery New York City managing director Raul Adorno leads Starbucks partners as they open the doors to customers on Dec. 14, 2018. Connor Surdi, Starbucks
51
Barista Joe Stodola makes a siphon brew at the experience bar during the grand opening of the Starbucks Reserve Roastery in New York City. Joshua Trujillo, Starbucks
52
Singer Tony Bennett meets with musician St. Vincent during a VIP opening party at the Starbucks Reserve Roastery in New York City on Dec. 13, 2018. Joshua Trujillo, Starbucks
53
Coffee is roasted at the Starbucks Reserve Roastery New York City on Dec. 11, 2018. New York has been an important market for Starbucks; the roastery is the company’s fourth inspiring coffee extravaganza around the world. Connor Surdi, Starbucks
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Financial Statement We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries (the “Company”) as of September 30, 2018 and October 1, 2017, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended September 30, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018 and October 1, 2017, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2018, based on criteria established inInternal Control Integrated Framework (2013) issued by the Committeeof Sponsoring Organizations of the Treadway Commission and our report dated November 16, 2018, expression Unqualified opinion on the company's internal control over financial reporting. These financial statements are the responsibility of the company's management to express an opinion on the company's financial statements based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
55
56
CONSOLIDATED BALANCE SHEETS (unaudited, in millions, except per share data)
ASSETS Current assets:
$ 8,756.3
$ 2,462.3
181.5
228.6
Cash and cash equivalents
693.1
870.4
1,400.5
1,364.0
Short-term investments Inventories
1,462.8
358.1
12,494.8
5,283.4
Long-term investments
267.7
5542.3
Equity and cost investments
334.7
481.6
5,929.1
4,919.5
134.7
795.4
Other long-term assets
412.2
362.8
Other intangible assets
1,042.2
441.4
Prepaid expenses and other current assets Total current assets
Property, plant and equipment, net Deferred income taxes, net
3,541.6
1,539.2
$ 24,156.4
$ 14,365.6
Accounts payable
$ 1,179.3
$ 782.5
Accrued liabilities
2,298.4
1,934.5
213.7
215.2
1,642.9
1,288.5
349.9
-
5,684.2
4,220.7
9,090.2
3,932.6
Goodwill TOTAL ASSETS
LIABILITIES AND EQUITY Current liabilities:
Insurance reserves Stored value card liability and current portion of deferred revenue Current portion of long-term debt Total current liabilities Long-term debt Deferred revenue
6,775.7
4.4
Other long-term liabilities
1,430.5
750.9
22,9806
8,908.6
Total liabilities Shareholder's equity:
Common stock ($ 0.001 par value) - authorized, 2, 400.0 shares; issued and outstanding, 1, 309.1 anad 1, 431.6 shares, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders' equity Noncontrolling interests Total equity TOTAL LIABILITIIES AND EQUITY
57
1.3
1.4
41.1
41.1
1,457.4
5,563.2
(330.3)
(155.6)
1,169.5
5,450.1
6.3
6.9
1,175.8
5,457.0
$ 25,156.4
$ 14,365.6
CONSOLIDATED STATEMENTS OF EARNINGS (unaudited, in millions, except per share data)
Quarter Ended Sep 30, 2018
Oct 1, 2017
Quarter Ended % Change
Sep 30, 2018
Oct 1, 2017
As a % of total net revenues Net revenues: Company-operated stores
$ 5,060.1
$ 4,477.0
13.0%
80.3%
78.6%
683.6
617.6
10.7
10.8
10.8
Licensed stores
559.9
603.7
(7.3)
8.9
10.6
Total net revenues
6,303.6
5,698.3
10.6
100.0
100.0
Cost of sales including occupancy costs
2,604.6
2,352.1
10.7
41.3
41.3
1,841.6
1,639.8
12.3
29.2
28.8
Other
Store operating expenses Other operating expenses
165.7
114.4
37.0
2.5
2.0
Depreciation and amortization expenses
3266
255.4
27.9
5.2
4.5
460.0
402.7
14.2
7.3
7.1
45.2
33.3
35.7
0.7
0.6
Total operating expenses
5,434.7
4,797.7
13.3
86.2
84.2
Income from equity invesrees
87.7
121.9
(28.1)
1.4
2.1
956.6
1,022.5
(6.4)
15.2
17.9
2.9
83.9
(96.5)
-
1.5
36.2
67.7
(46.5)
0.6
1.2
(63.8)
(22.3)
186.1
(1.0)
(0.4)
General and administrative expenses Restructuring and impairments
Operating income Net gain resulting from divestiture of certain operations Interest income and other, net Interest expense Earnings before income taxes Income tax expenses Net earnings including noncontrolling interests Net earnings/ (loss) attributable to noncontrolling interests
931.9
1,151.8
(19.1)
14.8
20.2
175.5
362.5
(51.6)
2.8
6.4
756.4
789.3
(4.2)
12.0
13.9
0.6
0.8
(25.0)
-
-
12.0%
13.8%
36.4%
36.6%
$ 755.8
$ 788.5
(4.1)
Net earnings per common share - diluted
$0.56
$0.54
3.7%
Weighted avg. shares outstanding - diluted
1,348.7
1,451.2
Cash dividends declared per share
$ 0.36
$ 0.30
Net earnings attributable to Starbucks
Suppplemental Ratios: Store operating expenses as a % of company-operated store revenues Other operating expenses as a % of non-company-operated store revenues
12.6%
9.4%
Effective tax rate including noncontrolling interests
18.8%
31.5%
58
Quarter Ended Sep 30, 2018
Oct 1, 2017
Quarter Ended % Change
Sep 30, 2018
Oct 1, 2017
As a % of total net revenues Net revenues: Company-operated stores
$ 19,690.3
$ 17,650.7
11.6%
79.7%
78.8%
2,652.2
2,355.0
12.6
10.7
10.5
Licensed stores
2,377.0
2,381.1
(0.2)
9.6
10.6
Total ney revenues
24,719.5
22,386.8
10.4
100.0
100.0
Cost of sales including occupancy costs
10,174.5
9,034.3
12.6
41.2
40.4
7,193.2
6,493.3
10.8
29.1
29.0
Other
Store operating expenses
539.3
500.3
7.8
2.2
2.2
Depreciation and amortization expenses
1,247.0
1,011.4
23.3
5.0
4.5
General and administrative expenses
1,759.0
1,450.7
21.3
7.1
6.5
224.4
153.5
46.2
0.9
0.7
Total operating expenses
21,137.4
18,643.5
13.4
85.5
83.3
Income from equity investees
301.2
391.4
(23.0)
1.2
1.7
3,88.3.3
4,134.7
(6.1)
15.7
18.5
1,376.4
-
nm
5.6
-
499.2
93.5
nm
2.0
0.4
191.4
181.8
5.3
0.8
0.8
Other operating expenses
Restructuring and impairments
Operating income Gain resulting from acquisition of joint venture Net gain resulting from divestiture of certain operations Interest income and other, net
(170.3)
(92.5)
84.1
(0.7)
(0.4)
5,780.0
4,317.5
33.9
23.4
19.3
Interest expense Earnings before income taxes Income tax expense
1,262.0
1,432.6
(11.9)
5.1
6.4
Net earnings including noncontrolling interests
4,518.0
2,884.9
56.6
18.3
12.9
(0.3)
0.2
nm
-
-
$4,518.3
$ 2,884.7
56.6
18.3%
12.9%
64.5%
Store operating expenses as a % of company-operated store revenues
36.5%
36.8%
Other operating expenses as a % of non-company-operated store revenues
10.7%
10.6%
Effective tax rate including noncontrolling interests
21.8%
33.2%
Net earnings/(loss) attributable to noncontrolling interests Net earnings attributable to Starbucks Net earnings per common share - diluted
$3.24
$ 1.97
Weighted avg. shares outstanding - diluted
1,394.6
1,461.5
$1.32
$1.05
Cash dividends declared per share Supplemental Ratios:
(1) Represents the gain resulting from the acquisition of our East China joint venture. (2) Primarily includes the gains on the sales of our Tazo brand and Taiwan joint venture for $347.9 million and $156.6 million, respectively, in FY18. FY17 primarily represents the gain on the sale of our Singapore retail operations of $83.9 million
59
Segment Results (in millions) Americas Sep 30, 2018
Oct 1, 2017
% Change
Sep 30, 2018
Oct 1, 2017
As a % of total net revenues
Quarter Ended Net revenues: Company-operated stores
$ 3,784.7
$ 3,524.1
7.4%
89.0%
89.4%
466.0
414.7
12.4
11.0
10.5
Licensed stores
3.5
2.5
40.0
0.1
0.1
Total net revenues
4,254.2
3,941.3
7.9
100.0
100.0
Cost of sales including occupancy costs
1,606.3
1,477.4
8.7
37.8
37.5
Store operating expens
1,455.0
1,326.0
9.7
34.2
33.6
Other
Other operating expenses Depreciation and amortization expenses General and administrative expenses Restructuring and impairments Total operating expenses Operating income
40.8
32.6
25.2
1.0
0.8
160.6
154.3
4.1
3.8
3.9
50.6
45.4
11.5
1.2
1.2
12.4
4.1
nm
0.3
0.1
3,325.7
3,039.8
9.4
78.2
77.1
$ 928.5
$ 901.5
3.0%
21.8%
22.9%
38.4%
37.6%
8.7%
7.8%
Supplemental Ratios: Store operating expenses as a % of company-operated store revenues Other operating expenses as a % of non-company-operated store revenues Year Ended Net revenues: Company-operated stores
$ 14,905.1
13,996.4
6.5%
89.1%
89.6%
1,814.0
1,617.3
12.2
10.8
10.4
Licensed stores
13.1
6.3
107.9
0.1
-
16,732.2
15,620.0
7.1
100.0
100.0
Cost of sales including occupancy costs
6,301.2
5,695.0
10.6
37.7
36.5
Store operating expenses
5,747.9
5,320.2
8.0
34.4
34.1
Other operating expenses
150.0
130.8
14.7
0.9
0.8
Depreciation and amortization expenses
638.3
614.9
3.8
3.8
3.9
General and administrative expenses
247.0
201.4
22.6
1.5
1.3
33.4
4.1
nm
0.2
-
Other Total net revenues
Restructuring and impairments
13,117.8
11,966.4
9.6
78.4
76.6
$ 3,614.4
$ 3,653.6
(1.1)%
21.6%
23.4%
38.6%
38.0%
8.2%
8.1%
Total operating expenses Operating income Supplemental Ratios: Store operating expenses as a % of company-operated store revenues
Other operating expenses as a % of non-company-operated store revenues
60
China/Asia Pacific (CAP) Sep 30, 2018
Oct 1, 2017
% Change
Sep 30, 2018
Oct 1, 2017
As a % of total net revenues
Quarter Ended Net revenues: $ 1,119.3
$ 770.0
93.0
88.7
2.3
1.2
Total net revenues
1,214.6
859.9
Cost of sales including occupancy costs
509.3
370.2
Store operating expenses
313.4
226.6
Other operating expenses
4.3
3.8
Company-operated stores Licensed stores Other
45.4%
92.2%
89.5%
4.8
7.7
10.3
91.7
0.2
0.1
41.2
100.0
100.0
37.6
41.9
43.1
38.3
25.8
26.4
13.2
0.4
0.4
116.1
53.3
117.8
9.6
6.2
65.8
62.9
4.6
5.4
7.3
Total operating expenses
1,008.9
716.8
40.8
83.1
83.4
Income from equity investees
26.5
58.6
(54.8)
2.2
6.8
$ 232.2
$ 201.7
15.1%
19.1%
23.5%
28.0%
29.4%
4.5%
4.2%
91.6%
89.7%
Depreciation and amortization expenses General and administrative expenses
Operating income Supplemental Ratios: Store operating expenses as a % of company-operated store revenues
Other operating expenses as a % of non-company-operated store revenues Year Ended Net revenues: $ 4,096.9
$ 2,906.0
365.7
327.4
11.7
8.2
10.1
11.0
6.8
61.8
0.2
0.2
Total net revenues
4,473.6
3,240.2
38.1
100.0
100.0
Cost of sales including occupancy costs
1.,898.3
1,396.2
36.0
42.4
43.1
Store operating expenses
1,148.7
845.5
35.9
25.7
26.1
Other operating expenses
22.9
21.2
8.0
0.5
0.7
Company-operated stores Licensed stores Other
41.0%
412.1
202.2
103.8
9.2
6.2
241.6
207.1
16.7
5.4
6.4
Total operating expenses
3,723.6
2,672.2
39.3
83..2
82.5
Income from equity investees
117.4
197.0
(40.4)
2.6
6.1
$ 867.4
$ 765.2
13.4%
19.4%
23.6%
28.0%
29.1%
6.1%
6.3%
Depreciation and amortization expenses General and administrative expenses
Operating income Supplemental Ratios: Store operating expenses as a % of company-operated store revenues
Other operating expenses as a % of non-company-operated store revenues
61
EMEA Sep 30, 2018
Oct 1, 2017
% Change
Sep 30, 2018
Oct 1, 2017
As a % of total net revenues
Quarter Ended Net revenues: Company-operated stores
$ 142.5
$ 141.4
124.6 0.2
Licensed stores Other
0.8%
53.3%
55.4%
113.7
9.6
46.6
44.6
-
nm
0.1
-
Total net revenues
267.3
255.1
4.8
100.0
100.0
Cost of sales including occupancy costs
138.5
134.0
3.4
51.8
52.5
Store operating expenses
55.7
63.1
(11.7)
20.8
24.7
Other operating expenses
15.8
11.8
33.9
5.9
4.6
Depreciation and amortization expenses
8.2
8.2
-
3.1
3.2
General and administrative expenses
11.7
9.0
30.0
4.4
3.5
26.6
-
nm
10.0
-
Total operating expenses
256.5
226.1
13.4
96.0
88.6
Operating income
$ 10.8
$ 29.0
(62.8)%
4.0%
11.4%
Store operating expenses as a % of company-operated store revenues
39.1%
44.6%
Other operating expenses as a % of non-company-operated store revenues
12.7%
10.4%
Restructuring and impairments
Supplemental Ratios:
Year Ended Net revenues: Company-operated stores
$ 575.6
$ 551.0
4.5%
54.9%
57.5%
471.3
407.7
15.6
45.0
42.5
1.1
-
nm
0.1
-
Licensed stores Other Total net revenues
1,048.0
958.7
9.3
100.0
100.0
Cost of sales including occupancy costs
559.2
508.6
9.9
53.4
53.1
Store operating expenses
266.0
214.1
5.6
21.6
22.3
Other operating expenses
62.8
51.3
22.4
6.0
5.4
Depreciation and amortization expenses
31.7
30.6
3.6
3.0
3.2
General and administrative expenses
51.7
41.7
24.0
4.9
4.3
55.1
17.9
207.8
5.3
1.9
Total operating expenses
986.5
864.2
14.2
84.1
90.1
Operating income
$ 61.5
$ 94.5
(34.9)%
5.9%
9.9%
Store operating expenses as a % of company-operated store revenues
39.3%
38.9%
Other operating expenses as a % of non-company-operated store revenues
133.3%
12.6%
Restructuring and impairments
Supplemental Ratios:
62
Channel Development Sep 30, 2018
Oct 1, 2017
% Change
Sep 30, 2018
Oct 1, 2017
As a % of total net revenues
Quarter Ended $ 539.3
$ 576.5
(6.5)%
Cost of sales
314.3
331.9
0.8
58.3
54.1
Other operating expenses
92.0
58.9
56.2
17.1
10.2
0.1
0.7
(85.7)
-
0.1
3.3
2.9
13.8
0.6
0.5
409.7
374.4
9.4
76.0
64.9
Net revenues:
Depreciation and amortization expenses General and administrative expenses Total operating expenses Income from equity investees Operating income
61.2
63.3
(3.3)
11.3
11.0
$190.8
$ 265.4
(28.1)%
35.4%
46.0%
$2,297.3
$2,256.6
1.8%
1,252.3
1.209.3
3.6
54.5
53.6
286.5
260.4
10.0
12.5
11.5
1.3
3.0
(56.7)
0.1
0.1
13.9
11.3
23.0
0.6
0.5
1,554.0
1,484.0
4.7
67.6
65.8
Year Ended Net revenues Cost of sales Other operating expenses Depreciation and amortization expenses General and administrative expenses Total operating expenses Income from equity investees Operating income
63
183.8
194.4
(5.5)
8.0
8.6
$927.1
$967.0
(4.1)%
40.4$
42.9%
Corporate and Other
Quarter Ended
Sep 30, 2018
Oct 1, 2017
% Change
Net revenues: Company-operated stores Licensed stores
$ 13.6
$ 41.5
-
0.5
(67.2)% nm
Other
14.6
23.5
(37.9)
Total net revenues
28.2
65.5
(56.9)
Cost of sales including occupancy costs
36.2
58.6
(38.2)
17.5
24.1
(27.4) (47.9)
Store operating expenses Other operating expenses Depreciation and amortization expenses General and administrative expenses Restructuring and impairments Total operating expenses Operating loss
3.8
7.3
41.6
38.9
6.9
328.6
282.5
16.3
6.2
29.2
(78.8)
43.9
440.6
(1.5)
$ (405.7)
$ (375.1)
8.2%
$ 112.7
$ 197.3
Year Ended Net revenues: Company-operated stores Licensed stores Other
(42.9)%
1.2
2.6
(53.8)
54.5
111.4
(51.1)
Total net revenues
168.4
311.3
(45.9)
Cost of sales including occupancy costs
163.5
225.2
(27.4)
Store operating expenses
70.6
113.5
(37.8)
Other operating expenses
17.1
36.6
(53.3)
Depreciation and amortization expenses General and administrative expenses Restructuring and impairments Total operating expenses Operating loss
163.6
160.7
1.8
1,204.8
989.2
21.8
134.9
131.5
3.3
1,755.5
1,656.7
6.0
$ (1,587.1)
$ (1,345.4)
18.0%
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Statement of Changes in Equity Equity Compensation Plan Information The following table provides information as of September 30, 2018 regarding total shares subject to outstanding stock options and rights and total additional shares available for issuance under our existing equity incentive and employee stock purchase plans Plan Category
Equity compensation plans approved by security holders Equity compensation plans notapproved by security holders Total
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Number of Securities to be Issued Upon Exercise of
Weighted-Average Exercise Price of Outstanding
Number of Securities Remaining Available for
Outstanding Options, Warrants and Rights (a)
Options, Warrants and Rights
Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
38,512,960
29.89(1)
38,512,960
67,002,854(2) 2,621,562(3)
29.89(1)
69,624,416
(1) The weighted-average exercise price takes into account 11,189,729 shares under approved plans issuable upon vesting of outstanding RSUs and PRSUs at target which have no exercise price. The weighted average exercise price solely with respect to options outstanding under the approved plans is $42.13. (2) Consists of 56,906,827 shares remaining available for issuance under the 2005 Long-Term Equity Incentive Plan and 10,096,027 shares remaining available for issuance under the 1995 Employee Stock Purchase Plan. Shares available for issuance under the 2005 Long-Term Equity Incentive Plan may be issued pursuant to stock options, restricted stock, RSUs and stock appreciation rights. (3) Consists of shares remaining available for issuance under the UK Share Incentive Plan. Our UK Share Incentive Plan, which is a plan approved by Her Majesty’s Revenue & Customs of the United Kingdom, allows eligible partners in the United Kingdom to purchase shares of our common stock through payroll deductions during six-month offering periods at the lower of the market price at the beginning and the market price at the end of the offering period. We award one matching share for each six shares purchased under the UK Share Incentive Plan. The total number of shares issuable under the UK Share Incentive Plan is 2,800,000, of which 178,438 have been issued. The UK Share Incentive Plan was suspended in May 2009.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in millions)
Fiscal Year Ended
Sep 30, 2018
Oct 1, 2017
Oct 2, 2016
$ 4,518.3
$ 2,884.9
$ 2,818.9
1,305.9
1,067.1
1,303.1
OPERATING ACTIVITIES: Net earnings including noncontrolling interests Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Deferred income taxes, net Income earned from equity method investees
714.9
95.1
265.7
(242.8)
(310.2)
(250.2)
226.8
186.6
223.3
(1,376.4)
-
-
(499.2)
(93.5)
(6.1)
250.3
176.0
218.1
Goodwill impairments
37.6
87.2
-
Other
89.0
3
45.1
131.0
(96.8)
(55.6)
Distributions received from equity method investees Gain resulting from acquisition of joint venture Net gain resulting from divestiture of certain retail operations Stock-based compensation
Cash provided by changes in operating assets and liabilities: Accounts receivable Inventories
(41.2)
14.0
(67.5)
Accounts payable
391.6
464
46.9
Deferred Revenue
7,109.4
130.8
180.4
Other operating assets and liabilities
(677.4)
(4.7)
248.8
Net cash provided by operating activities
11,937.8
4,251.8
4,697.9
Purchases of investments
(191.9)
(674.4)
(1,585.7)
Sales of investments
459.0
1,054.5
680.7
45.3
149.6
27.9
INVESTING ACTIVITIES:
Maturities and calls of investments Acquisitions, net of cash acquired Additions to property, plant and equipment Net proceeds from the divestiture of certain operations Other Net cash used by investing activities
67
(1,311.3)
-
-
(1,976.4)
(1,519.4)
(1,440.3)
608.2
85.4
69.6
5.6
54.3
24.9
(2,361.5)
(850.0)
(2,222.9)
FINANCING ACTIVITIES: Proceeds from issuance of long-term debt Repayments of long-term debt Proceeds from issuance of common stock
5,584.1
750.2
1,254.5
-
(400.0)
-
153.9
150.8
160.7
Cash dividends paid
(1,743.4)
(1,450.4)
(1,178.0)
Repurchase of common stock
()7,133.5
(2,024.5)
(1,995.6)
(62.7)
(82.8)
(106.0)
Minimum tax withholdings on share-based awards Other Net cash used by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase/(decrease) in cash and cash equivalents
(41.2)
(4.4)
(8.4)
(3,242.8)
(3,079.1)
(1,872.8)
(39.5)
10.8
(3.5)
6,294.0
333.5
598.7
CASH AND CASH EQUIVALENTS: Beginning of period End of period
2,462.3
2,128.8
1,530.1
$ 8,756.3
$ 2,462.3
$ 2,128.8
$ 137.1
$ 96.6
$ 74.7
$ 1,176.9
$ 1,389.1
$ 878.7
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of capitalized interest Income taxes, net of refunds
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Proxy Statement We are making this proxy statement available to you on January 25, 2019 in connection with the solicitation of proxies by our board of directors for the Starbucks Corporation 2019 Annual Meeting of Shareholders. At Starbucks and in this proxy statement, we refer to our employees as “partners.” Also in this proxy statement, we sometimes refer to Starbucks as the “Company,” “we” or “us,” and to the 2019 Annual Meeting of Shareholders as the “Annual Meeting.” When we refer to the Company’s fiscal year, we mean the annual period ending on the Sunday closest to September 30 of the stated year. Information in this proxy statement for 2018 generally refers to our 2018 fiscal year, which was from October 2, 2017 through September 30, 2018 (“fiscal 2018”). Fiscal years 2018 and 2017 each included 52 weeks. Fiscal 2016 included 53 weeks with the additional week falling in our fourth fiscal quarter.
Voting Information Record Date The record date for the Annual Meeting is January 11, 2018. On the record date, there were 1,405,314,293 shares of our common stock outstanding and there were no outstanding shares of any other class of stock.
Voting Your Proxy Holders of shares of common stock are entitled to cast one vote per share on all matters. Proxies will be voted as instructed by the shareholder or shareholders granting the proxy.
Unless contrary instructions are specified, if the proxy is completed and submitted (and not revoked) prior to the Annual Meeting, the shares of Starbucks common stock represented by the proxy will be voted: (i) FOR the election of each of the twelve director
candidates nominated by the board of directors; (ii) FOR approval of the advisory resolution on our executive compensation; (iii) FOR ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2018 (“fiscal 2018”); (iv) AGAINST the shareholder proposal regarding proxy access bylaw amendments; (v) AGAINST the shareholder proposal regarding a report on sustainable packaging; (vi) AGAINST the shareholder proposal regarding a report on paid family leave; (vii) AGAINST the shareholder proposal
regarding a diversity report and (viii) in accordance with the best judgment of the named proxies on any other matters properly brought before the Annual Meeting.
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Revoking Your Proxy If you are a registered shareholder (meaning, a shareholder who holds shares issued in his or her name and therefore appears on the share register) and have executed a proxy, you may revoke or change your proxy at any time before it is exercised by: (i) executing and delivering a later-dated proxy card to our corporate secretary prior to the Annual Meeting; (ii) delivering written notice of revocation of the proxy to our corporate secretary prior to the Annual Meeting; or (iii) attending and voting in person at the Annual Meeting. Attendance at the Annual Meeting, in and of itself, will not constitute a revocation of a proxy. If you voted by telephone or the Internet and wish to change your vote, you may call the toll-free number or go to the website,
as may be applicable in the case of your earlier vote, and follow the directions for revoking or changing your vote. If your shares are held in the name of a broker, bank or other holder of record, you should follow the voting instructions you receive from the holder of record to revoke or change your vote.
Vote Required The presence, in person or by proxy, of holders of a majority of the outstanding shares of Starbucks common stock is required to constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and “broker non-votes” (shares held by a broker or nominee that does not have discretionary authority to vote on a particular matter and has not received voting instructions from its client) are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. We have majority voting procedures for the election of directors in uncontested elections. If a quorum is present, a nominee for election to a position on the board of directors will be elected as a director if the votes cast for the nominee exceed the votes cast against the nominee. The term of any incumbent director who does not receive a majority of votes cast in an election held under the majority voting standard terminates on the earliest to occur of: (i) 90 days from the date on which the voting results of the election are certified; (ii) the date the board of directors fills the position; or (iii) the date the director resigns. If a quorum is present, approval of the advisory resolution on executive compensation, ratification of the selection of Deloitte & Touche LLP as our independent registered public
accounting firm and approval of all shareholder proposals, and any other matters that properly come before the meeting, require that the votes cast in favor of such actions exceed the votes cast opposing such actions. The following will not be considered votes cast and will not count in determining the election of any director nominee or approval of the other proposals: (i) broker non-votes; (ii) a share whose ballot is marked as abstain; and (iii) a share otherwise present at the Annual Meeting but for which there is an abstention;
and (iv) a share otherwise present at the Annual Meeting but which is not voted. Unless you provide voting instructions to any broker holding shares on your behalf, your broker may not use discretionary authority to vote your shares on any of the matters to be considered at the Annual Meeting other than the ratification of our independent registered public accounting firm. Please vote your proxy so your vote can be counted. Proxies and ballots will be received and tabulated by Broadridge Financial Services, our inspector of elections for the Annual Meeting.
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