Starbucks Corporation 10-K Summary: Fiscal Year Ended September 29, 2002
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended September 29, 2002. Starbucks Corporation operates as a global retailer of specialty coffee and tea, primarily through Company-operated retail stores and "Specialty Operations" (licensing, foodservice, grocery, and equity partnerships). The company's strategy focuses on rapid expansion of retail operations and brand leverage through new distribution channels.
Key Financial Metrics and Operational Data
Note: Specific revenue, profit, cash flow, and margin figures are incorporated by reference to the Annual Report to Shareholders (Exhibit 13) and are not explicitly stated in the provided text.
- Store Count: Total of 5,886 retail stores at year-end.
- Company-operated: 3,496 (North America) + 384 (International: UK, Australia, Thailand).
- Licensed: 1,078 (North America) + 928 (International).
- Revenue Mix:
- Company-operated retail stores: ~85% of net revenues.
- Specialty Operations: ~15% of net revenues.
- Product Mix (Retail): 77% beverages, 13% food items, 6% whole bean coffees, 4% equipment/accessories.
- Employees: Approximately 62,000 (57,000 in retail).
- Market Capitalization: $6.45 billion (based on Dec 16, 2002 closing price).
- Outstanding Shares: 387,464,184 (as of Dec 16, 2002).
Material Changes and Operational Highlights
- Expansion: Opened 614 new Company-operated stores and 269 licensed retail stores in North America during fiscal 2002. Internationally, opened 294 licensed stores, entering new markets including Austria, Oman, Spain, Germany, Indonesia, Mexico, Puerto Rico, and Greece.
- Legal Settlement: Settled two California class-action lawsuits regarding employment practices. Recorded an $18.0 million charge in General and Administrative expenses. Payment expected primarily in Q2 fiscal 2003.
- Supply Chain: World coffee prices reached historic lows. Starbucks secured long-term fixed-price contracts totaling $242.2 million to ensure supply for 2003, mitigating the risk of future price volatility.
- Facilities: Completed a 360,000 sq. ft. roasting and distribution facility in Minden, Nevada. Nearing completion of a 70,000 sq. ft. roasting plant in the Netherlands.
Guidance, Risks, and Management Commentary
- Forward-Looking Statements: Management anticipates continued rapid expansion but notes that actual results may differ due to raw material prices, economic conditions, and competition.
- Key Risks:
- Commodity Prices: Volatility in green coffee, dairy, and paper/plastic costs. While prices were low in 2002, the company notes no assurance against future price spikes.
- Competition: Intense competition for retail sites and qualified personnel. Fragmented beverage market with potential for major competitors to enter.
- Seasonality: Significant revenue and profit concentration in the first fiscal quarter (holiday season).
- Management Commentary: Emphasizes the "Starbucks Experience" and customer loyalty as primary differentiators over price. R&D spending was approximately $3.6 million for technical development.
Investor Verification Checklist
- Verify the specific revenue, net income, and cash flow figures in the Consolidated Financial Statements (incorporated by reference in Exhibit 13), as they are not detailed in this text.
- Confirm the impact of the $18.0 million legal settlement on the full-year earnings per share and cash flow projections for fiscal 2003.
- Review the fixed-price coffee purchase commitments ($242.2 million) to assess exposure if market prices rise significantly above contract levels.
- Monitor the execution of the international expansion strategy, particularly in newly entered markets (e.g., Germany, Spain, Indonesia).
- Assess the stock repurchase program authorized in June 2002 (up to 10 million shares) and its impact on share count and liquidity.