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Fiscal 2001 Annual Report 17
Dear Shareholders,
As you know, Starbucks is dedicated to sourcing the highest quality coffees available throughout the
world.To that end, we are committed to encouraging and expanding the production of high quality,
sustainably grown coffee, which we believe is the key to a healthier future for our industry. Starbucks
defines sustainability as an economically viable model that addresses the social and environmental
needs of all the participants in the coffee supply chain, from producer to consumer.
For some time, Starbucks has been in the process of defining a new purchasing philosophy.While we
are committed to addressing social and environmental concerns, we also think that there are
compelling business reasons to effect change in the worldwide coffee market. By enlisting the support
of coffee suppliers who are like minded sustainability advocates, we hope to create a network of
industry leaders who will join us in finding a way to create positive changes within our global coffee
community. And while we do not underestimate the difficulty of such an endeavor,we have concluded
that over the long term our collective choices are quite clear. The coffee industry must undergo
internal change to ensure a solid future.
In partnership with The Center for Environmental Leadership in Business, a division of Conservation
International (CI), and other outside resources, we have developed a set of guidelines that we believe
will not only protect our high quality standards, but also will promote the long-term viability of the
high quality coffee market.We are focusing on quality, economics, environment and people. It is our
intention to provide financial incentives along the supply chain that will promote a healthier industry,
as well as enlist our current suppliers and others as partners in developing truly sustainable sources for
the world’s best coffees.
The guidelines, which will be introduced as a pilot program for the 2002 and 2003 crop years, are
based on the following four criteria:
•Quality Baselines – maintaining Starbucks quality standards
•Social Conditions – conforming to local laws and applicable international conventions related to
employee wages and benefits, occupational health and safety, and labor and human rights
•Environmental Concerns – growing and processing standards that contribute to conservation of
soil and water and to biological diversity
•Economic Issues – benefiting rural communities by boosting producer incomes, expanding
employment and educational opportunities and enhancing local infrastructure and public services
We will use feedback from suppliers and our own experience to make adjustments to the program
during the pilot phase.
We are gratified by the supportive response this program is receiving from producers and other
industry players, and we are extremely enthusiastic about the potential long-term benefits to those in
coffee-origin countries.
Sincerely,
Mary Williams
senior vice president, Coffee
If you would like to learn more about this program, please refer to our Web site at Starbucks.com.

Table of contents

  • Page 1
    ... on quality, economics, environment and people. It is our intention to provide financial incentives along the supply chain that will promote a healthier industry, as well as enlist our current suppliers and others as partners in developing truly sustainable sources for the world's best coffees. The...

  • Page 2
    FI N AN C I AL H I G H LI G H T S N ET R EVEN UES (in millions) $2,649.0 $2,177.6 $1,686.8 $1,308.7 $975.4 1997 1998 1999 2000 2001 N O RTH AMER ICAN AND INTER NATIO NAL STO R ES 4,709 {total} 3,501 {total} 2,498 {total} 1,886 {total} 1,412 {total} 1997 1998 1999 2000 CO MPANY-O ...

  • Page 3
    ... of new products and the development of new distribution channels. The Company's retail goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing superior customer service, thereby building...

  • Page 4
    ...2,229,594 Specialty 419,386 Total net revenues 2,648,980 Merger expenses (2) O perating income 281,094 Internet-related investment losses (3) 2,940 Net earnings $ 181,210 Net earnings per common share - diluted (4) $ 0.46 Cash dividends per share BALANCE SHEET DATA $ 1,823,607 354,007 2,177,614 212...

  • Page 5
    ... ended STATEMENTS O F EAR NINGS DATA Sept 30, 2001 (52 Wks) O ct 1, 2000 (52 Wks) O ct 3, 1999 (53 Wks) Net revenues: R etail Specialty Total net revenues Cost of sales and related occupancy costs Store operating expenses (1) O ther operating expenses (2) Depreciation and amortization General...

  • Page 6
    ... in sales mix to higher-margin products.These factors were partially offset by higher occupancy costs as a result of higher average rent expense per square foot as well as the expansion of Companyoperated stores into international markets that have higher occupancy costs as a percentage of revenues...

  • Page 7
    ... as the distribution of infrastructure and administrative costs over an expanded revenue base. Starbucks Coffee Japan, Ltd. had 289 stores open as of September 30, 2001, compared to 154 stores open as of O ctober 1, 2000. Internet-related Investment Losses During fiscal 2001, the Company determined...

  • Page 8
    ...one less week of sales in fiscal 2000. Also, occupancy costs have increased as a result of higher average rent expense per square foot as well as the expansion of Company-operated stores into international markets that have higher occupancy costs as a percentage of revenue than North American retail...

  • Page 9
    ...-door delivery service for food, entertainment and convenience items. Starbucks and Kozmo.com also entered into a commercial agreement to provide in-store return boxes in Starbucks stores in exchange for cash, a channel for selling the Company's products and other marketing opportunities. In...

  • Page 10
    ... used by investing activities for fiscal 2001 totaled $433.1 million.This included capital additions to property, plant and equipment of $384.2 million related to opening 647 new Company-operated retail stores, remodeling certain existing stores, enhancing information systems, purchasing roasting...

  • Page 11
    ... Management The Company is exposed to market risk related to foreign currency exchange rates, equity security prices and changes in interest rates. FO R EIGN C U R R EN C Y EXC H AN GE R ISK The majority of the Company's revenue, expense and capital purchasing activities are transacted in United...

  • Page 12
    ...shares. The Company recorded a gain from this sale of $13 million. Also on O ctober 10, 2001, Starbucks Japan issued and sold 220,000 shares of common stock at approximately $495.00 per share, net of related costs, in an initial public offering in Japan. In connection with this offering, the Company...

  • Page 13
    ... 2001 Annual Report 29 Consolidated Statements of Earnings In thousands, except earnings per share Fiscal year ended Net revenues: R etail Specialty Total net revenues Cost of sales and related occupancy costs Store operating expenses O ther operating expenses Depreciation and amortization General...

  • Page 14
    ... share data Sept 30, 2001 ASSETS O ct 1, 2000 Current assets: Cash and cash equivalents Short-term investments - Available-for-sale securities Short-term investments - Trading securities Accounts receivable, net of allowances of $4,590 and $2,941, respectively Inventories Prepaid expenses and...

  • Page 15
    ... of nonqualified stock options Cash provided/ (used) by changes in operating assets and liabilities: Net purchases of trading securities Accounts receivable Inventories Prepaid expenses and other current assets Accounts payable Accrued compensation and related costs Accrued occupancy costs Accrued...

  • Page 16
    Consolidated Statements of Shareholders' Equity In thousands, except share data COMMON STOCK SHAR ES AMOUNT ADDITIONAL PAID-IN CAPITAL R ETAINED EAR NINGS ACCUMULATED OTHER COMPR EHENSIVE INCOME/ (LOSS) TOTAL Balance, September 27, 1998 Net earnings Unrealized holding gains, net Translation ...

  • Page 17
    ... The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Checks issued but not presented for payment to the bank are reflected as "Checks drawn in excess of bank balances" on the accompanying consolidated financial statements. SH...

  • Page 18
    ... T Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation of property, plant and equipment, which includes amortization of assets under capital leases, is provided on the straight-line method over estimated useful lives, generally ranging from...

  • Page 19
    ..., 2001. All applicable share and per-share data in these consolidated financial statements have been restated to give effect to this stock split. EAR N IN GS PER SH AR E The computation of basic earnings per share is based on the weighted average number of shares and common stock units outstanding...

  • Page 20
    ... fiscal 2001 presentation. Note 2: Business Combinations During fiscal 2000, Starbucks acquired the outstanding stock of Tympanum, Inc. (d/ b/ a "Hear Music"), a music retailer, and of Coffee Partners Co. Ltd., the company licensed to operate Starbucks stores in Thailand.The combined purchase price...

  • Page 21
    ...350 $ $ (200) (200) O ctober 1, 2000: Short-term investments - available-for-sale securities: U.S. Government obligations Commercial paper Marketable equity securities Total Short-term investments - trading securities Total short-term investments FAIR VALUE AMO RTIZED CO ST GRO SS GRO SS UNR...

  • Page 22
    ... and other income, net" on the accompanying consolidated statement of earnings.There was no ineffectiveness related to cash flow hedges for the 52week period ended September 30, 2001. For net investment hedges, the spot-to-spot method is used by the Company to calculate effectiveness. As a result of...

  • Page 23
    ... Internet-to-door delivery service for food, entertainment and convenience items. Starbucks and Kozmo.com also entered into a commercial agreement to provide in-store return boxes in Starbucks stores in exchange for cash, a channel for selling the Company's products and other marketing opportunities...

  • Page 24
    ...building comprising its York County, Pennsylvania, roasting plant and distribution facility. The total purchase price was $12.9 million. In connection with this purchase, the Company assumed loans totaling $7.7 million from the York County Industrial Development Corporation. The remaining maturities...

  • Page 25
    Fiscal 2001 Annual Report 41 Note 12: Shareholders' Equity O n December 15, 2000, the Company amended and restated its Articles of Incorporation to, among other things, change the par value of the Company's common stock and preferred stock from no par value per share to $0.001 par value per share....

  • Page 26
    ... of the first day of the quarterly offering period for each calendar year). No compensation expense is recorded in connection with the plan. The total number of shares issuable under the plan is 16,000,000. There were 813,635 shares issued under the plan during fiscal 2001 at prices ranging from $12...

  • Page 27
    ... that the weighted average estimated fair values of options granted during fiscal 2001, 2000 and 1999 were $8.98, $5.37 and $4.43 per share, respectively. Had compensation costs for the Company's stock-based compensation plans been accounted for using the fair value method of accounting described by...

  • Page 28
    ...in thousands): Sept 30, 2001 Deferred tax assets: Loss on investments Accrued rent Accrued compensation and related costs O ther accrued expenses O ther Total Valuation allowance Total deferred tax asset, net of valuation allowance Deferred tax liabilities: Depreciation Investments in joint ventures...

  • Page 29
    ...shares. The Company recorded a gain from this sale of $13 million. Also on O ctober 10, 2001, Starbucks Japan issued and sold 220,000 shares of common stock at approximately $495.00 per share, net of related costs, in an initial public offering in Japan. In connection with this offering, the Company...

  • Page 30
    ... used in the Company's operations in each segment. General corporate assets include cash and investments, unallocated assets of the corporate headquarters and roasting facilities, deferred taxes and certain intangibles. Management evaluates performance of the segments based on direct product sales...

  • Page 31
    ... consist primarily of retail revenues from Canada and the United Kingdom as well as specialty revenues generated from product sales to its international licensees. No customer accounts for 10% or more of the Company's revenues. Sept 30, 2001 LO NG-LIVED ASSETS: United States Foreign countries Total...

  • Page 32
    ... Financial Information (unaudited) Summarized quarterly financial information for fiscal years 2001 and 2000 is as follows (in thousands, except earnings per share): FIR ST 2001 quarter: Net revenues O perating income Net earnings Net earnings per common share - diluted 2000 quarter: Net revenues...

  • Page 33
    ... Reporting The management of Starbucks Corporation is responsible for the preparation and integrity of the financial statements included in this Annual R eport to Shareholders. The financial statements have been prepared in conformity with accounting principles generally accepted in the United...

  • Page 34
    ... sheets of Starbucks Corporation and subsidiaries (the Company) as of September 30, 2001, and O ctober 1, 2000, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are...

  • Page 35
    ...communicating openly about its business practices and performance. This led the Company to publish its first annual corporate social responsibility report for the 2001 fiscal year. The R eport can be viewed by visiting the Investor R elations' internet address listed above. To receive a copy by mail...

  • Page 36
    ... Supply Chain and Coffee Operations €EDRO Y.K. MAN senior vice president; president, Starbucks Coffee Asia Pacific Ltd. fARBARA fASS Gerson Bakar Foundation president 2HELLEY B. vANZA executive vice president, Partner Resources, Law and Corporate Affairs, Corporate Social Responsibility, general...