Blanca's Portfolio
Starbucks 2012 Annual Report AnalysisDeVry University Blanca FloresFebruary 17, 2013 Table of Contents Graphs………………………………………………………………………………………………………. 3Balance Sheet for assets and liabilities ……………………………………………………………………... 4Introduction……………………………………………………………………………………………………6History…………………………………………………………………………………………………………6Auditors ……………………………………………………………………………………………………….7Legal Problems………………………………………………………………………………………………. 7Assets and Liabilities………………………………………………………………………………………. 7Stock …………………………………………………………………………………………………………..8Employees ……………………………………………………………………………………………………9Global Relations……………………………………………………………………………………………....9Financial Highlights…………………………………………………………………………………………10Legal Proceedings………………………………….………………………………………………………..10Foreign Currency……………………………………………………………………………………………12Conclusion ………………………………………………………………………………………….…….. 13References…………………………………………………………………………………………………...14 Operating Income ( In Millions) Operating Cash Flow & Capital Expenditures (In Millions)Balance Sheet View: Annual Data Quarterly Data| Quarterly DataAll numbers in thousandsPeriod EndingOct 2, 2012Oct 3, 2011Sep 27, 2010AssetsCurrent AssetsCash And Cash Equivalents1,148,100??1,164,000??599,800??Short Term Investments902,600??285,700??66,300??Net Receivables616,900??606,900??557,600??Inventory965,800??543,300??664,900??Other Current Assets161,500??156,500??147,200??Total Current Assets 3,794,900?? 2,756,400?? 2,035,800?? Long Term Investments479,300??533,300??423,500??Property Plant and Equipment2,355,000??2,416,500??2,536,400??Goodwill321,600??262,400??259,100??Intangible Assets111,900??70,800??68,200??Other Assets297,700??346,500??253,800??Total Assets 7,360,400?? 6,385,900?? 5,576,800?? LiabilitiesCurrent LiabilitiesAccounts Payable1,626,500??1,365,000??1,192,300??Other Current Liabilities449,300??414,100??388,700??Total Current Liabilities 2,075,800?? 1,779,100?? 1,581,000?? Long Term Debt549,500??549,400??549,300??Other Liabilities347,800??375,100??389,600??Deferred Long Term Liability Charges- ?- ?- ?Minority Interest2,400??7,600??11,200??Total Liabilities 2,975,500?? 2,711,200?? 2,531,100?? Stockholders' EquityCommon Stock700??700??700??Retained Earnings4,297,400??3,471,200??2,793,200??Capital Surplus40,500??145,600??186,400??Other Stockholder Equity46,300??57,200??65,400??Total Stockholder Equity 4,384,900?? 3,674,700?? 3,045,700?? Net Tangible Assets 3,951,400?? 3,341,500?? 2,718,400?? IntroductionThe first Starbucks to open was in 1970 in Seattle. The name came from Herman Melville’s Moby Dick, an American novel about the 19th century whaling industry. In the 1990s Starbuck expands beyond Seattle. And in 1999 the first Starbucks opens in the Middle East in Souk Shark, Kuwait. Starbucks became one of the first companies to offer stock options to its part-time employees. Starbucks became a publicly traded company with the trading symbol SUBX.. Every single Starbucks store is individually designed. The design team came up with four store designs one for each of the four stages of coffee making they are growing, roasting, brewing, and aroma each of which these designs could be modified for a particular store need. The following individuals are the reasons why Starbucks is so successful they are Howard Schultz he is founder and chairman of the Board, James L. Donald Starbucks Corporation President and Chief Executive Officer, James C. Alling, President of Starbucks coffee of the United States, Martin Coles President of Starbucks Coffee International, Dorothy J Kim, executive vice president of supply chain operations, David A. Pace executive vice president of partner resources, and Michael Casey, Executive vice president of chief financial officer and chief administrative officer. Now Starbucks has more than 16,000 Stores in 48 countries. Starbucks is also know in the industry as having an exceptional real-estate and store development talent Starbucks 2012 Annual Report Analysis Starbucks is one of the largest coffee corporations they not only have to please their customers but they also have to keep a clean and professional environment, Therefore they have auditors Deloitte & Touche. Deloitte is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management, and tax services to selected clients. These firms are members of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee. Each member firm provides services in particular country or countries in which it operates. Starbucks is loved by almost every American in the United States. But even then in 2011 Starbucks had a few sues. In April 23, 2011. William Yockey and family stopped in the Starbucks at 7th street and Pennsylvania Avenue in Northwest. Yockey and his five year old daughter found a camera in the bathroom recording digital images. Another incident that happened in 2011 was the sued that Starbucks received for discrimination against disability people. This all happened when the employee requested a stool or small stepladder to help her reach the coffee slinging equipment the manager at El Paso Starbucks fired newly hired barista Elsa Sallard. The Starbucks EEOC suit alleges that the company not only failed to grant Elsa Sallard a reasonable accommodation so that she could perform her duties despite her dwarfism the company fired her because of her being a disable person. This sue cost Starbucks $75,000 for discriminating disability people. Now Starbucks has to sell at least 33,000 lattes to make up for the lost. This sue did effect their financial statement, because even though Starbucks had the money to pay for the sue they still consider it a loss of profit earned by the year. However Starbucks had an assets of 7,360,400??for 2011. They had an increase of 13% since 2010. As for their Liabilities at the end of 2011 they had 2,975,500??and they had and increase of 8% since 2010. Even with the problems that they had in the year they still managed to earn more profit since the previous year. Thanks to the Customer who can’t live without their coffee in the morning Starbucks managed to recover from the lost of the sue.Starbucks has been a public business since 1992. Since the Initial Public Offering in 1992 Starbucks has had 2 for 1 stock splits. Date Split Adj. price ex-date Sept. 29, 1993 $1.67 Sept. 30, 1993 Dec. 1, 1995$2.59 Dec. 4, 1995 Mar. 19, 1999 $7.01 Mar. 22, 1999 Apr. 27, 2001 $9.29 Apr. 30, 2001 Oct. 21, 2005 $27.51 Oct. 24, 2005 Starbucks offers a Direct Stock Purchase and Sale Program administered by their transfer agent, Bank of New York Mellon Shareowner Services. The BuyDirect Plan offers stockholders the ability to purchase initial shares of starbucks common stock or make subsequent purchases directly from Bank of New York Mellon, Reinvest all or part of your Starbucks cash dividends to purchase additional stock, direct deposit cash dividends, safe keep stock certificates, and sell stock and pay lower fees than those generally charged by stockbrokers for small transactions. The following table shows the quarterly high and low sale prices per share of Starbucks common stock as reported by NASDAQ for each quarter during the last two fiscal years and the quarterly cash dividend declared per share of our common stock during the periods indicated:2012/2011 High Low Cash Dividends DeclaredFourth Quarter……………………… $42.00/$27.08 $33.72/$22.50 $0.17/$0.13Third Quarter………………………40.26/28.50 34.61/23.95 .13/0.13Second Quarter………………….38.21/26.00 30.75/21.26 .13/0.10First Quarter…………………..33.15/23.80 25.37/18.69 0.13/0.00As of November 11 ,2012 Starbucks had approximately 21,900 shareholders. EmployeesStarbucks employed approximately 160,000 people worldwide as of September 30, 2012. In the US, Starbucks employed approximately 120,000 people, with 113,000 in company-operated stores and the remainder in supportfacilities, store development, and roasting and warehousing operations. Approximately 40,000 employees wereemployed outside of the US, with 38,000 in company-operated stores and the remainder in regional supportfacilities and roasting and warehousing operations. The number of Starbucks employees represented by unions isnot significant. Starbucks believes that their current relations with their employees are good.Global ResponsibilityStarbucks is committed to being a deeply responsible company in the communities where they do business around the world. Their focus is on ethically sourcing high-quality coffee, reducing their environmental impacts and contributing positively to communities. Starbucks Global Responsibility strategy and commitments are integralto their overall business strategy. As a result, Starbucks believes they can deliver benefits to the stakeholders, including employees, business partners, customers, suppliers, shareholders, community members and others. Economic conditions in the US and certain international markets could adversely affect their business and financial results.As a retailer that is dependent upon consumer discretionary spending, our results of operations are sensitive to changes in macro-economic conditions. Their customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, increased fuel and energy costs, higher interest rates, higher taxes, reduced access to credit and lower home prices. Any resulting decreases in customer traffic and/or average value per transaction will negatively impact our financial performance as reduced revenues result in sales de-leveraging which creates downward pressure on margins. There is also a risk that if negative economic conditions persist for a long period of time or worsen, consumers may make long-lasting changes to their discretionary purchasing behavior, including less frequent discretionary purchases on a more permanent basis.Financial Highlights? Total net revenues increased 14% to $13.3 billion in fiscal 2012 compared to $11.7 billion in fiscal 2011.The increase was due primarily to a 7% increase in global comparable store sales, 50% revenue growth inChannel Development, and 20% growth in licensed stores revenue. The comparable store sales growth in company-operated stores was comprised of a 6% increase in the number of transactions and a 1% increase in average ticket.? Consolidated operating income was $2.0 billion in fiscal 2012 compared to $1.7 billion in fiscal 2011 and operating margin increased to 15.0% compared to 14.8% in fiscal 2011. The operating margin expansion was driven by increased sales leverage and the absence of charges in fiscal 2012 related to the Seattle's Best Coffee store closures in Border's bookstores, partially offset by higher commodity costs.? EPS for fiscal 2012 was $1.79, compared to EPS of $1.62 reported in fiscal 2011, with the increase driven by the improved sales leverage, partially offset by the impact of higher commodity costs in fiscal 2012 and certain gains recorded in the fourth quarter of fiscal 2011, including a gain from a fair market value adjustment resulting from the acquisition of the remaining ownership interest in our joint venture in Switzerland and Austria as well as a gain on the sale of corporate real estate.? Cash flow from operations was $1.8 billion in fiscal 2012 compared to $1.6 billion in fiscal 2011. Capital expenditures were approximately $856 million in fiscal 2012 compared to $532 million in fiscal 2011. Available operating cash flow after capital expenditures during fiscal 2012 was directed at returning approximately $1.1 billion of cash to our shareholders via share repurchases and dividends.Legal ProceedingsIn the first quarter of fiscal 2011, Starbucks notified Kraft Foods Global, Inc. (“Kraft”) that we were discontinuing our distribution arrangement with Kraft on March 1, 2011 due to material breaches by Kraft of its obligations under the Supply and License Agreement between the Company and Kraft, dated March 29, 2004 (the “Agreement”), which defined the main distribution arrangement between the parties. Through our arrangement with Kraft, Starbucks sold a selection of Starbucks and Seattle's Best Coffee branded packaged coffees in grocery and warehouse club stores throughout the US, and to grocery stores in Canada, the UK and 18 other European countries. Kraft managed the distribution, marketing, advertising and promotion of these products. Kraft denies it has materially breached the Agreement. On November 29, 2010, Starbucks received a notice of arbitration from Kraft putting the commercial dispute between the parties into binding arbitration pursuant to the terms of the Agreement. In addition to denying it materially breached the Agreement, Kraft further alleges that if Starbucks wished to terminate the Agreement it must compensate Kraft as provided in the Agreement in an amount equal to the fair value of the Agreement, with an additional premium of up to 35% under certain circumstances. On December 6, 2010, Kraft commenced a federal court action against Starbucks, entitled Kraft Foods Global, Inc. v. Starbucks Corporation, in the U.S. District Court for the Southern District of New York (the “District Court”) seeking injunctive relief to prevent Starbucks from terminating the distribution arrangement until the parties' dispute is resolved through the arbitration proceeding. On January 28, 2011, the District Court denied Kraft's request for injunctive relief. Kraft appealed the District Court's decision to the Second Circuit Court of Appeals. On February 25, 2011, the Second Circuit Court of Appeals affirmed the District Court's decision. As a result, Starbucks is in full control of our packaged coffee business as of March 1, 2011. While Starbucks believes we have valid claims of material breach by Kraft under the Agreement that allowed us to terminate the Agreement and certain other relationships with Kraft without compensation to Kraft, there exists the possibility of material adverse outcomes to Starbucks in the arbitration or to resolve the matter. Although Kraft disclosed to the press and in federal court filings a $750 million offer Starbucks made to Kraft in August 2010 to avoid litigation and ensure a smooth transition of the business, the figure is not a proper basis upon which to estimate a possible outcome of the arbitration but was based upon facts and circumstances at the time. Kraft rejected the offer immediately and did not provide a counter-offer, effectively ending the discussions between the parties with regard to any payment. Moreover, the offer was made prior to our investigation of Kraft's breaches and without consideration of Kraft's continuing failure to comply with material terms of the agreements. On April 2, 2012, Starbucks and Kraft exchanged expert reports regarding alleged damages on their affirmative claims. Starbucks claimed damages of up to $62.9 million from the loss of sales resulting from Kraft's failure to use commercially reasonable efforts to market Starbucks? coffee, plus attorney fees. Kraft's expert opined that the fair market value of the Agreement was $1.9 billion. After applying a 35% premium and 9% interest, Kraft claimed damages of up to $2.9 billion, plus attorney fees. The arbitration hearing commenced on July 11, 2012 and was completed on August 3. Starbucks presented evidence of material breaches on Kraft's part and sought nominal damages from Kraft for those breaches. Kraft presented evidence denying it had breached the parties' Agreement and sought damages of $2.9 billion plus attorney fees. We expect a decision from the Arbitrator in the first half of fiscal 2013. At this time, Starbucks believes an unfavorable outcome with respect to the arbitration is not probable, but as noted above is reasonably possible. As also noted above, Starbucks believes we have valid claims of material breach by Kraft under the Agreement that allowed us to terminate the Agreement without compensation to Kraft. In addition, Starbucks believes Kraft's damage estimates are highly inflated and based upon faulty analysis. As a result, we cannot reasonably estimate the possible loss. Accordingly, no loss contingency has been recorded for this matter. Starbucks is party to various other legal proceedings arising in the ordinary course of business, including certain employment litigation cases that have been certified as class or collective actions, but, except as noted above, is not currently a party to any legal proceeding that management believes could have a material adverse effect on our consolidated financial position, results of operations or cash flows.Foreign CurrencyWe enter into forward and swap contracts to hedge portions of cash flows of anticipated revenue streams and inventory purchases in currencies other than the entity's functional currency. Net derivative losses from cash flow hedges of $2.9 million and $11.1 million, net of taxes, were included in accumulated other comprehensive income as of September 30, 2012 and October 2, 2011, respectively. Of the net derivative losses accumulated as of September 30, 2012, $2.9 million pertains to derivative instruments that will be designated as cash flow hedges within 12 months and will also continue to experience fair value changes before affecting earnings. Outstanding contracts will expire within 12 months. We also enter into net investment derivative instruments to hedge our equity method investment in Starbucks Coffee Japan, Ltd., to minimize foreign currency exposure. Net derivative losses from net investment hedges of $33.6 million and $34.2 million, net of taxes, were included in accumulated other comprehensive income as of September 30, 2012 and October 2, 2011, respectively. Outstanding contracts will expire within 29 months. In addition to the hedging instruments above, to mitigate the translation risk of certain balance sheet items, we enter into certain foreign currency swap contracts that are not designated as hedging instruments. These contracts are recorded at fair value, with the changes in fair value recognized in net interest income and other on the consolidated statements of earnings. Gains and losses from these instruments are largely offset by the financial impact of translating foreign currency denominated payables and receivables, which is also recognized in net interest income and other. As a Conclusion Starbucks has increased their profit, assets, liabilities, stock share holders, etc. Starbucks has had a very successful 2012. Even though threw the year Starbucks had their ups and downs with the sues that they faced and the profit that they lost they still managed to increase the earning from the previous year. With an assets of 7,360,400 for 2012. They had an increase of 13% since 2011. As for their Liabilities at the end of 2012 they had 2,975,500 and they had and increase of 8% since 2011. Starbucks is a large coffee company that is still growing while providing all their customers with great coffee. I recommend anyone who wants to invest in a good company should invest in Starbucks. They always manage to have great profit and extremely well cash flow I would invest in Starbucks without a doubt. "References ". ................
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