SBUX - 9.30.2012 - 10K
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2012
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .
Commission File Number: 0-20322
Starbucks Corporation
(Exact Name of Registrant as Specified in its Charter)
Washington
 
91-1325671
(State of Incorporation)
 
(IRS Employer ID)
2401 Utah Avenue South, Seattle, Washington 98134
(206) 447-1575
(Address of principal executive offices, zip code, telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share
 
Nasdaq Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation of S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock on March 30, 2012 as reported on the NASDAQ Global Select Market was $41 billion. As of November 9, 2012, there were 743.6 million shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held on March 20, 2013 have been incorporated by reference into Part III of this Annual Report on Form 10-K.


Table of Contents

STARBUCKS CORPORATION
Form 10-K
For the Fiscal Year Ended September 30, 2012
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
 
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
 


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. These forward-looking statements are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Annual Report on Form 10-K and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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PART I
Item 1.
Business

General
Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 60 countries. Formed in 1985, Starbucks Corporation’s common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “SBUX.” We purchase and roast high-quality coffees that we sell, along with handcrafted coffee, tea and other beverages and a variety of fresh food items, through company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and national foodservice accounts. In addition to our flagship Starbucks brand, our portfolio also includes Tazo® Tea, Seattle’s Best Coffee®, Starbucks VIA® Ready Brew, Starbucks Refreshers™ beverages, Evolution Fresh™, La Boulange bakery brand and the Verismo™ System by Starbucks.
Our objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world. To achieve this goal, we are continuing the disciplined expansion of our global store base. In addition, by leveraging the experience gained through our traditional store model, we continue to offer consumers new coffee products in a variety of forms, across new categories, and through diverse channels. Starbucks Global Responsibility strategy and commitments related to coffee and the communities we do business in, as well as our focus on being an employer of choice, are also key complements to our business strategies.
In this Annual Report on Form 10-K (“10-K” or “Report”) for the fiscal year ended September 30, 2012 (“fiscal 2012”), Starbucks Corporation (together with its subsidiaries) is referred to as “Starbucks,” the “Company,” “we,” “us” or “our.”

Segment Financial Information
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Beginning with the first quarter of fiscal 2012, we redefined our reportable operating segments to align with the three-region leadership and organizational structure of our retail business that took effect at the beginning of fiscal 2012.
The three-region structure includes: 1) Americas, inclusive of the US, Canada, and Latin America; 2) Europe, Middle East, and Africa, collectively referred to as the “EMEA” region; and 3) China / Asia Pacific (“CAP”). Our chief executive officer, who is our chief operating decision maker, manages these businesses, evaluates financial results, and makes key operating decisions based on the new organizational structure. Accordingly, beginning with the first quarter of fiscal 2012, we revised our reportable operating segments from 1) US, 2) International, and 3) Global Consumer Products Group to the following four reportable segments: 1) Americas, 2) EMEA, 3) CAP, and 4) Global Consumer Products Group. In the second quarter of fiscal 2012, we renamed our Global Consumer Products Group segment “Channel Development.” Segment revenues as a percentage of total net revenues for fiscal year 2012 were as follows: Americas (75%), EMEA (9%), CAP (5%), and Channel Development (10%).
Concurrent with the change in reportable operating segments, we revised our prior period financial information to reflect comparable financial information for the new segment structure. Historical financial information presented herein reflects this change.
The Americas, EMEA, and CAP segments include both company-operated and licensed stores. Our Americas segment is our most mature business and has achieved significant scale. Certain markets within EMEA and CAP operations are in the early stages of development and require a more extensive support organization, relative to the current levels of revenue and operating income, than the Americas operations. The Americas and EMEA segments also include foodservice accounts, primarily in Canada and the UK. Our Americas segment also includes the retail and wholesale activities of Bay Bread, LLC (doing business as La Boulange), which was acquired in the fourth quarter of fiscal 2012.

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Our Channel Development segment includes whole bean and ground coffees, premium Tazo® teas, Starbucks VIA® Ready Brew, Starbucks® coffee and Tazo® tea K-Cup® portion packs, a variety of ready-to-drink beverages, such as Starbucks Refreshers™ beverages, and other branded products sold worldwide through channels such as grocery stores, warehouse clubs, convenience stores, and US foodservice accounts.
Seattle’s Best Coffee is reported in “Other” along with Evolution Fresh, Digital Ventures and unallocated corporate expenses that pertain to corporate administrative functions that support our operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. The Other category comprised approximately 1% of total net revenues.
Financial information for Starbucks reportable operating segments and Other is included in Note 17 to the consolidated financial statements included in Item 8 of this 10-K.

Revenue Components
We generate our revenues through company-operated stores, licensed stores, consumer packaged goods ("CPG") and foodservice operations.

Company-operated and Licensed Store Summary as of September 30, 2012

 
Americas
 
As a% of Total
Americas Stores
 
EMEA
 
As a% of Total
EMEA Stores
 
CAP
 
As a% of Total
CAP
Stores
 
Total
 
As a% of
Total Stores
Company-operated stores
7,857

 
61
%
 
882

 
47
%
 
666

 
20
%
 
9,405

 
52
%
Licensed stores
5,046

 
39
%
 
987

 
53
%
 
2,628

 
80
%
 
8,661

 
48
%
Total
12,903

 
100
%
 
1,869

 
100
%
 
3,294

 
100
%
 
18,066

 
100
%
The mix of company-operated versus licensed stores in a given market will vary based on several factors, including the ability to access desirable local retail space, the complexity and expected ultimate size of the market for Starbucks, and the ability to leverage the support infrastructure in an existing geographic region.

Company-operated Stores
Revenue from company-operated stores accounted for 79% of total net revenues during fiscal 2012. Our retail objective is to be the leading retailer and brand of coffee in each of our target markets by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience. The Starbucks Experience is built upon superior customer service as well as clean and well-maintained company-operated stores that reflect the personalities of the communities in which they operate, thereby building a high degree of customer loyalty.
Our strategy for expanding our global retail business is to increase our market share in a disciplined manner, by selectively opening additional stores in new and existing markets, as well as increasing sales in existing stores, to support our long-term strategic objective to maintain Starbucks standing as one of the most recognized and respected brands in the world. Store growth in specific existing markets will vary due to many factors, including the maturity of the market.

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The following is a summary of total company-operated store data for the periods indicated:
 
 
Net Stores Opened (Closed) During the
 Fiscal Year Ended(1)
 
Stores Open as of
 
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
Americas:
 
 
 
 
 
 
 
US
161

 
(2
)
 
6,866

 
6,705

Canada
42

 
37

 
878

 
836

Chile
6

 
5

 
41

 
35

Brazil
25

 
5

 
53

 
28

Puerto Rico

 
(2
)
 
19

 
19

Total Americas
234

 
43

 
7,857

 
7,623

EMEA:
 
 
 
 
 
 
 
UK
(7
)
 
5

 
593

 
600

Germany
7

 
8

 
157

 
150

France
5

 
8

 
67

 
62

Switzerland
4

 

 
50

 
46

Austria

 
2

 
12

 
12

Netherlands
1

 
2

 
3

 
2

Total EMEA
10

 
25

 
882

 
872

CAP:
 
 
 
 
 
 
 
China
130

 
58

 
408

 
278

Thailand
14

 
8

 
155

 
141

Singapore
8

 
8

 
80

 
72

Australia
2

 
(1
)
 
23

 
21

Total CAP
154

 
73

 
666

 
512

Total company-operated
398

 
141

 
9,405

 
9,007

(1)
Store openings are reported net of closures. In the Americas, 279 and 100 company-operated stores were opened during 2012 and 2011, respectively, and 45 and 57 stores were closed during 2012 and 2011, respectively. In EMEA, 27 and 41 company-operated stores were opened during 2012 and 2011, respectively, and 17 and 16 stores were closed during 2012 and 2011, respectively. In CAP, 161 and 87 company-operated stores were opened during 2012 and 2011, respectively, and 7 and 14 stores were closed during 2012 and 2011, respectively.
Starbucks company-operated stores are typically located in high-traffic, high-visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses, and in select rural and off-highway locations. To provide a greater degree of access and convenience for non-pedestrian customers, we continue to selectively expand development of drive-thru stores.
Starbucks stores offer a choice of regular and decaffeinated coffee beverages, a broad selection of Italian-style espresso beverages, cold blended beverages, iced shaken refreshment beverages, a selection of premium Tazo® teas, distinctively packaged roasted whole bean and ground coffees, a variety of Starbucks VIA® Ready Brew soluble coffees, Starbucks® coffee and Tazo® tea K-Cup® portion packs, Starbucks Refreshers™ beverages, juices and bottled water. Starbucks stores also offer an assortment of fresh food items, including selections

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focusing on high-quality ingredients, nutritional value and great flavor. Food items include pastries, prepared breakfast and lunch sandwiches, oatmeal and salads. A focused selection of beverage-making equipment and accessories are also sold in our stores. Each Starbucks store varies its product mix depending upon the size of the store and its location. To complement the in-store experience, our US company-operated Starbucks stores also provide customers free access to wireless internet.
Retail sales mix by product type for company-operated stores:
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
Oct 3,
2010
Beverages
75
%
 
75
%
 
75
%
Food
19
%
 
19
%
 
19
%
Packaged and single serve coffees
4
%
 
4
%
 
4
%
Coffee-making equipment and other merchandise
2
%
 
2
%
 
2
%
Total
100
%
 
100
%
 
100
%

Starbucks Card
The Starbucks stored value card program is designed to increase customer loyalty and the frequency of store visits by cardholders. Starbucks Cards are accepted at company-operated and most licensed stores in North America. The cards are also accepted at a number of international locations. Customers who register their cards in the US, Canada, and certain other countries are enrolled in the My Starbucks Rewards™ program and can receive various benefits depending on the number of Stars earned in a 12-month period.

Licensed Stores
Product sales to and royalty and license fee revenues from our licensed stores accounted for 9% of total revenues in fiscal 2012. In our licensed store operations, we leverage the expertise of our local partners and share our operating and store development experience. Licensees provide improved, and at times the only, access to desirable retail space. Most licensees are prominent retailers with in-depth market knowledge and access. As part of these arrangements, we receive royalties and license fees and sell coffee, tea and related products for resale in licensed locations. Employees working in licensed retail locations are required to follow our detailed store operating procedures and attend training classes similar to those given to employees in company-operated stores. For our Seattle’s Best Coffee brand, we use various forms of licensing, including traditional franchising.

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Starbucks total licensed stores by country as of September 30, 2012 are as follows:
Americas
 
Europe/Middle East/Africa
 
China / Asia Pacific
US
4,262

 
Turkey
171

 
Japan
965

Mexico
356

 
UK
168

 
South Korea
467

Canada
303

 
United Arab Emirates
99

 
China
292

Other
125

 
Spain
78

 
Taiwan
271

 
 
 
Kuwait
65

 
Philippines
201

 
 
 
Saudi Arabia
64

 
Malaysia
134

 
 
 
Russia
60

 
Indonesia
133

 
 
 
Greece
42

 
Hong Kong
131

 
 
 
Other
240

 
New Zealand
34

Total
5,046

 
Total
987

 
Total
2,628

In the Americas, 351 and 296 licensed stores were opened during 2012 and 2011, respectively, and 81 and 564 licensed stores were closed during 2012 and 2011, respectively. The 564 licensed stores that were closed in the Americas during fiscal 2011 include 475 Seattle’s Best Coffee locations in Borders Bookstores. In EMEA, 139 and 111 licensed stores were opened during 2012 and 2011, respectively, and 38 and 32 licensed stores were closed during 2012 and 2011, respectively. In CAP, 354 and 264 licensed stores were opened during 2012 and 2011, respectively, and 60 and 71 licensed stores were closed during 2012 and 2011, respectively.

Consumer Packaged Goods
Consumer packaged goods includes both domestic and international sales of packaged coffee and tea as well as a variety of ready-to-drink beverages and single-serve coffee and tea products to grocery, warehouse club and specialty retail stores. It also includes revenues from product sales to and licensing revenues from manufacturers that produce and market Starbucks and Seattle’s Best Coffee branded products through licensing agreements. Revenues from sales of consumer packaged goods comprised 8% of total net revenues in fiscal 2012.

Foodservice
Revenues from foodservice accounts comprised 4% of total net revenues in fiscal 2012. We sell Starbucks® and Seattle’s Best Coffee® whole bean and ground coffees, a selection of premium Tazo® teas, Starbucks VIA® Ready Brew, and other coffee and tea related products to institutional foodservice companies that service business and industry, education, healthcare, office coffee distributors, hotels, restaurants, airlines and other retailers. We also sell our Seattle’s Best Coffee® through arrangements with national accounts. The majority of the sales in this channel come through national broadline distribution networks with SYSCO Corporation, US Foodservice, and other distributors.

Product Supply
Starbucks is committed to selling only the finest whole bean coffees and coffee beverages. To ensure compliance with our rigorous coffee standards, we control coffee purchasing, roasting and packaging, and the global distribution of coffee used in our operations. We purchase green coffee beans from multiple coffee-producing regions around the world and custom roast them to our exacting standards, for our many blends and single origin coffees.
The price of coffee is subject to significant volatility. Although most coffee trades in the commodity market, high-altitude arabica coffee of the quality sought by Starbucks tends to trade on a negotiated basis at a premium

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above the “C” coffee commodity price. Both the premium and the commodity price depend upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease, general increase in farm inputs and costs of production, inventory levels and political and economic conditions. Price is also impacted by trading activities in the arabica coffee futures market, including hedge funds and commodity index funds. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies.
We buy coffee using fixed-price and price-to-be-fixed purchase commitments, depending on market conditions, to secure an adequate supply of quality green coffee. Price-to-be-fixed contracts are purchase commitments whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore the price, at which the base “C” coffee commodity price component will be fixed has not yet been established. For these types of contracts, either Starbucks or the seller has the option to select a date on which to “fix” the base “C” coffee commodity price prior to the delivery date. Until prices are fixed, we estimate the total cost of these purchase commitments. Total green coffee purchase commitments as of September 30, 2012 were $854 million, comprised of $557 million under fixed-price contracts and an estimated $297 million under price-to-be-fixed contracts. As of September 30, 2012, approximately $125 million of our price-to-be-fixed contracts were effectively fixed through the use of futures contracts. All price-to-be-fixed contracts as of September 30, 2012 were at the Company’s option to fix the base “C” coffee commodity price component. Total purchase commitments, together with existing inventory, are expected to provide an adequate supply of green coffee through fiscal 2013.
We depend upon our relationships with coffee producers, outside trading companies and exporters for our supply of green coffee. We believe, based on relationships established with our suppliers, the risk of non-delivery on such purchase commitments is remote.
To help ensure sustainability and future supply of high-quality green coffees and to reinforce our leadership role in the coffee industry, Starbucks operates Farmer Support Centers in six countries. The Farmer Support Centers are staffed with agronomists and sustainability experts who work with coffee farming communities to promote best practices in coffee production designed to improve both coffee quality and yields.
In addition to coffee, we also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our company-operated stores. For our largest markets, the US, Canada and the UK, we purchase substantially all of our fluid milk requirements from eight dairy suppliers. We believe, based on relationships established with these suppliers, that the risk of non-delivery of sufficient fluid milk to support our stores is remote.
Products other than whole bean coffees and coffee beverages sold in Starbucks stores include Evolution Fresh™ juices and a number of ready-to-drink beverages that are purchased from several specialty suppliers, usually under long-term supply contracts. Food products, such as pastries, breakfast sandwiches and lunch items, are purchased from national, regional and local sources. We also purchase a broad range of paper and plastic products, such as cups and cutlery, from several companies to support the needs of our retail stores as well as our manufacturing and distribution operations. We believe, based on relationships established with these suppliers and manufacturers, that the risk of non-delivery of these items is remote.


Competition
Our primary competitors for coffee beverage sales are quick-service restaurants and specialty coffee shops. In almost all markets in which we do business, there are numerous competitors in the specialty coffee beverage business. We believe that our customers choose among specialty coffee retailers primarily on the basis of product quality, service and convenience, as well as price. We continue to experience direct competition from large competitors in the US quick-service restaurant sector and the US ready-to-drink coffee beverage market. We also continue to face competition from well-established companies in many international markets.

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Our coffee and tea products sold through our Channel Development segment compete directly against specialty coffees and teas sold through supermarkets, club stores and specialty retailers and compete indirectly against all other coffees and teas on the market. Starbucks also faces competition from both restaurants and other specialty retailers for prime retail locations and qualified personnel to operate both new and existing stores.

Patents, Trademarks, Copyrights and Domain Names
Starbucks owns and has applied to register numerous trademarks and service marks in the US and in additional countries throughout the world. Some of our trademarks, including Starbucks, the Starbucks logo, Seattle’s Best Coffee, Frappuccino, Starbucks VIA and Tazo are of material importance. The duration of trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
We own numerous copyrights for items such as product packaging, promotional materials, in-store graphics and training materials. We also hold patents on certain products, systems and designs. In addition, Starbucks has registered and maintains numerous Internet domain names, including “Starbucks.com”, “Starbucks.net”, and “Seattlesbest.com.”

Seasonality and Quarterly Results
Our business is subject to seasonal fluctuations, including fluctuations resulting from the holiday season. Cash flows from operations are considerably higher in the first fiscal quarter than the remainder of the year. This is largely driven by cash received as Starbucks Cards are purchased and loaded during the holiday season. Since revenues from Starbucks Cards are recognized upon redemption and not when purchased, seasonal fluctuations on the consolidated statements of earnings are much less pronounced. Quarterly results can also be affected by the timing of the opening of new stores and the closing of existing stores. For these reasons, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Employees
Starbucks 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 support facilities, store development, and roasting and warehousing operations. Approximately 40,000 employees were employed outside of the US, with 38,000 in company-operated stores and the remainder in regional support facilities and roasting and warehousing operations. The number of Starbucks employees represented by unions is not significant. We believe our current relations with our employees are good.

Executive officers of the registrant
Name
 
Age
 
Position
Howard Schultz
 
59
 
chairman, president and chief executive officer
Cliff Burrows
 
53
 
president, Starbucks Coffee Americas and US
John Culver
 
52
 
president, Starbucks Coffee China and Asia Pacific
Jeff Hansberry
 
48
 
president, Channel Development and Emerging Brands
Michelle Gass
 
44
 
president, Starbucks Coffee EMEA
Troy Alstead
 
49
 
chief financial officer and chief administrative officer
Lucy Lee Helm
 
55
 
executive vice president, general counsel and secretary

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Howard Schultz is the founder of Starbucks and serves as the chairman, president and chief executive officer. Mr. Schultz has served as chairman of the board since Starbucks inception in 1985 and he resumed his role as president and chief executive officer in January 2008. From June 2000 to February 2005, Mr. Schultz held the title of chief global strategist. From November 1985 to June 2000, he served as chief executive officer. From November 1985 to June 1994, Mr. Schultz also served as president.
Cliff Burrows joined Starbucks in April 2001 and has served as president, Starbucks Coffee Americas and US since October 2011. From March 2008 to October 2011, Mr. Burrows served as president, Starbucks Coffee US. He served as president, Europe, Middle East and Africa (EMEA) from April 2006 to March 2008. He served as vice president and managing director, UK prior to April 2006. Prior to joining Starbucks, Mr. Burrows served in various management positions with Habitat Designs Limited, a furniture and housewares retailer.
John Culver joined Starbucks in August 2002 and has served as president, Starbucks Coffee China and Asia Pacific since October 2011. From December 2009 to October 2011, he served as president, Starbucks Coffee International. Mr. Culver served as executive vice president; president, Global Consumer Products, Foodservice and Seattle's Best Coffee from February 2009 to September 2009, and then as president, Global Consumer Products and Foodservice from October 2009 to November 2009. He previously served as senior vice president; president, Starbucks Coffee Asia Pacific from January 2007 to February 2009, and vice president; general manager, Foodservice from August 2002 to January 2007.
Jeff Hansberry joined Starbucks in June 2010 and has served as president, Channel Development and Emerging Brands since June 2012. From October 2011 to June 2012, he served as president, Channel Development and president, Seattle's Best Coffee. From June 2010 to October 2011, he served as president, Global Consumer Products and Foodservice. Prior to joining Starbucks, Mr. Hansberry served as vice president and general manager, Popular BU for E. & J. Gallo Winery, a family-owned winery, from November 2008 to May 2010. From September 2007 to November 2008, Mr. Hansberry served as vice president and general manager, Value BU, and from April 2005 to August 2007, he served as vice president and general manager Asia, for E. & J. Gallo Winery. Prior to E. & J. Gallo, Mr. Hansberry held various positions with Procter & Gamble.
Michelle Gass joined Starbucks in 1996 and has served as president, Starbucks Coffee EMEA since October 2011. From September 2009 to October 2011, she served as president, Seattle's Best Coffee. Ms. Gass served as senior vice president, Marketing and Category from July 2008 to November 2008, and then as executive vice president, Marketing and Category from December 2008 to September 2009. Ms. Gass previously served as senior vice president, Global Strategy, Office of the ceo from January 2008 to July 2008, senior vice president, Global Product and Brand from August 2007 to January 2008 and senior vice president, U.S. Category Management from May 2004 to August 2007. Ms. Gass served in a number of other positions with Starbucks prior to 2004.
Troy Alstead joined Starbucks in 1992 and has served as chief financial officer and chief administrative officer since November 2008. Mr. Alstead previously served as chief operating officer, Starbucks Greater China from April 2008 to October 2008, senior vice president, Global Finance and Business Operations from August 2007 to April 2008, and senior vice president, Corporate Finance from September 2004 to August 2007. Mr. Alstead served in a number of other senior positions with Starbucks prior to 2004.
Lucy Lee Helm joined Starbucks in September 1999 and has served as executive vice president, general counsel and secretary since May 2012. She served as senior vice president and deputy general counsel from October 2007 to April 2012 and served as interim general counsel and secretary from April 2012 to May 2012.  Ms. Helm previously served as vice president, assistant general counsel from June 2002 to September 2007 and as director, corporate counsel from September 1999 to May 2002.  During her tenure at Starbucks, Ms. Helm has led various teams of the Starbucks legal department, including the Litigation and Brand protection team, the Global Business (Commercial) team and the Litigation and Employment team. Prior to joining Starbucks, Ms. Helm was a principal at the Seattle law firm of Riddell Williams P.S. from 1990 to 1999, where she was a trial lawyer specializing in commercial, insurance coverage and environmental litigation.
There are no family relationships among any of our directors or executive officers.


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Global Responsibility
We are committed to being a deeply responsible company in the communities where we do business around the world. Our focus is on ethically sourcing high-quality coffee, reducing our environmental impacts and contributing positively to communities. Starbucks Global Responsibility strategy and commitments are integral to our overall business strategy. As a result, we believe we deliver benefits to our stakeholders, including employees, business partners, customers, suppliers, shareholders, community members and others. For an overview of Starbucks Global Responsibility strategy and commitments, please visit www.starbucks.com.


Available Information
Starbucks 10-K reports, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission (“SEC”), are publicly available free of charge on the Investor Relations section of our website at investor.starbucks.com or at www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. Our corporate governance policies, code of ethics and Board committee charters and policies are also posted on the Investor Relations section of Starbucks website at investor.starbucks.com. The information on our website is not part of this or any other report Starbucks files with, or furnishes to, the SEC.

Item 1A.
Risk Factors
You should carefully consider the risks described below. If any of the risks and uncertainties described in the cautionary factors described below actually occurs, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. Moreover, we operate in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all these factors on our business, financial condition or results of operation.
Our financial condition and results of operations are sensitive to, and may be adversely affected by, a number of factors, many of which are largely outside our control.
Our operating results have been in the past and will continue to be subject to a number of factors, many of which are largely outside our control. Any one or more of the factors set forth below could adversely impact our business, financial condition and/or results of operations:
lower customer traffic or average value per transaction, which negatively impacts comparable store sales, net revenues, operating income, operating margins and earnings per share, due to:
the impact of initiatives by competitors and increased competition generally;  
customers trading down to lower priced products within Starbucks, and/or shifting to competitors with lower priced products;
lack of customer acceptance of new products or price increases necessary to cover costs of new products and/or higher input costs;
unfavorable general economic conditions in the markets in which we operate that adversely affect consumer spending;
declines in general consumer demand for specialty coffee products; or
adverse impacts resulting from negative publicity regarding our business practices or the health effects of consuming our products;
cost increases that are either wholly or partially beyond our control, such as:
commodity costs for commodities that can only be partially hedged, such as fluid milk and high-quality arabica coffee;

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labor costs such as increased health care costs, general market wage levels and workers' compensation insurance costs;
adverse outcomes of current or future litigation; or
construction costs associated with new store openings and remodeling of existing stores;
any material interruption in our supply chain beyond our control, such as material interruption of roasted coffee supply due to the casualty loss of any of our roasting plants or the failures of third-party suppliers, or interruptions in service by common carriers that ship goods within our distribution channels, or trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions;
delays in store openings for reasons beyond our control, or a lack of desirable real estate locations available for lease at reasonable rates, either of which could keep us from meeting annual store opening targets and, in turn, negatively impact net revenues, operating income and earnings per share;
the degree to which we enter into, maintain, develop, and are able to negotiate appropriate terms and conditions, and enforce, commercial and other agreements;
the impact on our business, especially in our larger or fast growing markets, due to labor discord, war, terrorism (including incidents targeting us), political instability, boycotts, social unrest, and natural disasters, including health pandemics that lead to avoidance of public places or restrictions on public gatherings such as in our stores or cause a material disruption in our supply chain; and
deterioration in our credit ratings, which could limit the availability of additional financing and increase the cost of obtaining financing.
Economic conditions in the US and certain international markets could adversely affect our 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. Our 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.
We may not be successful in implementing important strategic initiatives, which may have an adverse impact on our business and financial results.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial results. These strategic initiatives are designed to improve our results of operations and drive long-term shareholder value, and include:
successfully leveraging Starbucks brand portfolio outside the company-operated store base, including our increased focus on international licensed stores;
focusing on relevant product innovation and profitable new growth platforms;
continuing to accelerate the growth of our Channel Development business;
balancing disciplined global store growth and existing store renovation while meeting target store-level unit economics in a given market; 
timely completing certain supply chain capacity expansion initiatives, including increased roasting capacity and construction of a new soluble products plant and a new Evolution FreshTM plant; and
executing a multi-channel advertising and marketing campaign to effectively communicate our message directly to Starbucks consumers and employees.

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We face intense competition in each of our channels and markets, which could lead to reduced profitability.
The specialty coffee market is intensely competitive, including with respect to product quality, service, convenience, and price, and we face significant competition in each of our channels and markets. Accordingly, we do not have leadership positions in all channels and markets. In the US, the ongoing focus by large competitors in the quick-service restaurant sector on selling high-quality specialty coffee beverages could adversely affect our sales and results of operations. Similarly, continued competition from well-established competitors in our international markets could hinder growth and adversely affect our sales and results of operations in those markets. Increased competition in the US packaged coffee and tea and single-serve and ready-to-drink coffee beverage markets, including from new and large entrants to this market, could adversely affect the profitability of the Channel Development segment.
We are highly dependent on the financial performance of our Americas operating segment.
Our financial performance is highly dependent on our Americas operating segment, as it comprised approximately 75% of consolidated total net revenues in fiscal 2012. If revenue trends slow or decline, our business and financial results could be adversely affected, and because the Americas segment is relatively mature and produces the large majority of our operating cash flows, could result in reduced cash flows for funding the expansion of our international business and for returning cash to shareholders.
We are increasingly dependent on the success of our EMEA and CAP operating segments in order to achieve our growth targets.
Our future growth increasingly depends on the growth and sustained profitability of our EMEA and CAP operating segments. Some or all of our international market business units (“MBUs”), which we generally define by the countries in which they operate, may not be successful in their operations or in achieving expected growth, which ultimately requires achieving consistent, stable net revenues and earnings. The performance of these international operations may be adversely affected by economic downturns in one or more of our large MBUs. In particular, our Japan, UK, and China MBUs account for a significant portion of the net revenue and earnings of our EMEA and CAP segments and a decline in the performance of any of these MBUs could have a material adverse impact on the results of our international operations.
Additionally, some factors that will be critical to the success of the EMEA and CAP segments are different than those affecting our US stores and licensees. Tastes naturally vary by region, and consumers in some MBUs may not embrace our products to the same extent as consumers in the US or other international markets. Occupancy costs and store operating expenses can be higher internationally than in the US due to higher rents for prime store locations or costs of compliance with country-specific regulatory requirements. Because many of our international operations are in an early phase of development, operating expenses as a percentage of related revenues are often higher compared to more developed operations, such as in the US. Additionally, our international joint venture partners or licensees may face capital constraints or other factors that may limit the speed at which they are able to expand and develop in a certain market.
Our international operations are also subject to additional inherent risks of conducting business abroad, such as:
foreign currency exchange rate fluctuations, or requirements to transact in specific currencies;
changes or uncertainties in economic, legal, regulatory, social and political conditions in our markets;
interpretation and application of laws and regulations;
restrictive actions of foreign or US governmental authorities affecting trade and foreign investment, especially during periods of heightened tension between the US and such foreign governmental authorities, including protective measures such as export and customs duties and tariffs, government intervention favoring local competitors, and restrictions on the level of foreign ownership;
import or other business licensing requirements;
the enforceability of intellectual property and contract rights;

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limitations on the repatriation of funds and foreign currency exchange restrictions due to current or new US and international regulations;
in developing economies, the growth rate in the portion of the population achieving targeted levels of disposable income may not be as fast as we forecast;
difficulty in staffing, developing and managing foreign operations and supply chain logistics, including ensuring the consistency of product quality and service, due to distance, language and cultural differences, as well as challenges in recruiting and retaining high quality employees in local markets;
local laws that make it more expensive and complex to negotiate with, retain or terminate employees;
delays in store openings for reasons beyond our control, competition with locally relevant competitors or a lack of desirable real estate locations available for lease at reasonable rates, any of which could keep us from meeting annual store opening targets and, in turn, negatively impact net revenues, operating income and earnings per share; and
disruption in energy supplies affecting our markets.

Moreover, many of the foregoing risks are particularly acute in developing countries, which are important to our long-term growth prospects.
Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans or other commodities could have an adverse impact on our business and financial results.
We purchase, roast, and sell high-quality whole bean arabica coffee beans and related coffee products. The price of coffee is subject to significant volatility and, although coffee prices have come down from their near-record highs of 2011, they are still above the historical average price of coffee and may again increase significantly due to factors described below. The high-quality arabica coffee of the quality we seek tends to trade on a negotiated basis at a premium above the “C” price. This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly. Increases in the “C” coffee commodity price do increase the price of high-quality arabica coffee and also impact our ability to enter into fixed-price purchase commitments. We frequently enter into supply contracts whereby the quality, quantity, delivery period, and other negotiated terms are agreed upon, but the date, and therefore price, at which the base “C” coffee commodity price component will be fixed has not yet been established. These are known as price-to-be-fixed contracts. The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries, including weather, natural disasters, crop disease, general increase in farm inputs and costs of production, inventory levels and political and economic conditions, as well as the actions of certain organizations and associations that have historically attempted to influence prices of green coffee through agreements establishing export quotas or by restricting coffee supplies. Speculative trading in coffee commodities can also influence coffee prices. Because of the significance of coffee beans to our operations, combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities, increases in the cost of high-quality arabica coffee beans could have an adverse impact on our profitability. In addition, if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage, we may not be able to fulfill the demand for our coffee, which could have an adverse impact on our profitability.
In addition to coffee, we also purchase significant amounts of dairy products, particularly fluid milk, to support the needs of our company-operated retail stores. Although less material to our operations than coffee or dairy, other commodities including but not limited to those related to food inputs and energy, are important to our operations. Increases in the cost of dairy products and other commodities could have an adverse impact on our profitability.

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Our success depends substantially on the value of our brands and failure to preserve their value could have a negative impact on our financial results.
We believe we have built an excellent reputation globally for the quality of our products, for delivery of a consistently positive consumer experience and for our corporate social responsibility programs. The Starbucks brand has been highly rated in several global brand value studies. To be successful in the future, particularly outside of US, where the Starbucks brand and our other brands are less well-known, we believe we must preserve, grow and leverage the value of our brands across all sales channels. Brand value is based in part on consumer perceptions on a variety of subjective qualities. Even isolated business incidents that erode consumer trust, such as contaminated food, recalls or privacy breaches, particularly if the incidents receive considerable publicity or result in litigation, can significantly reduce brand value and have a negative impact on our financial results. Consumer demand for our products and our brand equity could diminish significantly if we or our licensees fail to preserve the quality of our products, are perceived to act in an unethical or socially irresponsible manner or fail to deliver a consistently positive consumer experience in each of our markets. Additionally, inconsistent uses of our brand and other of our intellectual property assets, as well as failure to protect our intellectual property, including from unauthorized uses of our brand or other of our intellectual property assets, can erode consumer trust and our brand value and have a negative impact on our financial results.
Our business depends in large part on the success of our business partners and suppliers, and our brand and reputation may be harmed by actions taken by third parties that are outside of our control.
Our business strategy, including our plans for new stores, foodservice, branded products and other initiatives, relies significantly on a variety of business partners, and licensee and partnership relationships, particularly in our international markets. Licensees are often authorized to use our logos and provide branded beverages, food and other products directly to customers. We provide training and support to, and monitor the operations of, certain of these business partners, but the product quality and service they deliver may be diminished by any number of factors beyond our control, including financial pressures. We believe customers expect the same quality of products and service from our licensees as they do from us and we strive to ensure customers have the same experience whether they visit a company-operated or licensed store. Any shortcoming of a Starbucks business partner, particularly an issue affecting the quality of the service experience, the safety of beverages or food or compliance with laws and regulations, may be attributed by customers to us, thus damaging our reputation and brand value and potentially affecting our results of operations.
Our food and beverage products are sourced from a wide variety of domestic and international business partners in our supply chain operations, and in certain cases are produced or sourced by our licensees directly. We rely on these suppliers and vendors to provide high quality products and to comply with applicable laws. Our ability to find qualified suppliers and vendors who meet our standards and supply products in a timely and efficient manner is a significant challenge, especially with respect to goods sourced from outside the US. A vendor's or supplier's failure to meet our standards, provide products in a timely and efficient manner, and comply with applicable laws is beyond our control. These issues could negatively impact our business and profitability.
Failure to meet market expectations for our financial performance will likely adversely affect the market price and volatility of our stock.
Failure to meet market expectations going forward, particularly with respect to operating margins, earnings per share, comparable store sales, operating cash flows, and net revenues, will likely result in a decline and/or increased volatility in the market price of our stock. In addition, price and volume fluctuations in the stock market as a whole may affect the market price of our stock in ways that may be unrelated to our financial performance.  

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The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business and financial results.
Much of our future success depends on the continued availability and service of senior management personnel. The loss of any of our executive officers or other key senior management personnel could harm our business. We must continue to recruit, retain and motivate management and other employees sufficiently, both to maintain our current business and to execute our strategic initiatives, some of which involve ongoing expansion in business channels outside of our traditional company-operated store model. Our success also depends substantially on the contributions and abilities of our retail store employees whom we rely on to give customers a superior in-store experience. Accordingly, our performance depends on our ability to recruit and retain high quality employees to work in and manage our stores, both domestically and internationally. If we are unable to recruit, retain and motivate employees sufficiently to maintain our current business and support our projected growth, our business and financial performance may be adversely affected.
Adverse public or medical opinions about the health effects of consuming our products, as well as reports of incidents involving food-borne illnesses, food tampering or food contamination, whether or not accurate, could harm our business.
Some of our products contain caffeine, dairy products, sugar and other active compounds, the health effects of which are the subject of public scrutiny, including the suggestion that excessive consumption of caffeine, dairy products, sugar and other active compounds can lead to a variety of adverse health effects. Particularly in the US, there is increasing consumer awareness of health risks, including obesity, due in part to increased publicity and attention from health organizations, as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food products. While we have a variety of beverage and food items, including items that are coffee-free and have reduced calories, an unfavorable report on the health effects of caffeine or other compounds present in our products, or negative publicity or litigation arising from certain health risks could significantly reduce the demand for our beverages and food products.
Similarly, instances or reports, whether true or not, of unclean water supply, food-borne illnesses, food tampering and food contamination, either during manufacturing, packaging or preparation, have in the past severely injured the reputations of companies in the food processing, grocery and quick-service restaurant sectors and could affect us as well. Any report linking us to the use of unclean water, food-borne illnesses, food tampering or food contamination could damage our brand value and severely hurt sales of our beverages and food products, and possibly lead to product liability claims, litigation (including class actions) or damages. Clean water is critical to the preparation of coffee and tea beverages and our ability to ensure a clean water supply to our stores can be limited, particularly in some international locations. If customers become ill from food-borne illnesses, tampering or contamination, we could also be forced to temporarily close some stores. In addition, instances of food-borne illnesses, food tampering or food contamination, even those occurring solely at the restaurants or stores of competitors, could, by resulting in negative publicity about the foodservice industry, adversely affect our sales on a regional or global basis. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our stores, as well adverse results of claims or litigation, could materially harm our business and results of operations.
Effectively managing growth both in our retail store business and our Channel Development business is challenging and places significant strain on our management and employees and our operational, financial, and other resources.
Effectively managing growth can be challenging, particularly as we continue to expand into new channels outside the retail store model, increase our focus on our Channel Development business, and expand into new markets internationally where we must balance the need for flexibility and a degree of autonomy for local management against the need for consistency with our goals, philosophy and standards. Growth can make it increasingly difficult to ensure a consistent supply of high-quality raw materials, to locate and hire sufficient numbers of key employees, to maintain an effective system of internal controls for a globally dispersed

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enterprise and to train employees worldwide to deliver a consistently high quality product and customer experience.
As we pursue strategic acquisitions, divestitures or joint ventures, we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
We have recently completed several acquisitions and we continue to evaluate potential acquisitions, divestitures, or joint ventures with third parties. These transactions create risks such as:
disruption of our ongoing business, including loss of management focus on existing businesses;
problems retaining key personnel;
operating losses and expenses of the businesses we acquire or in which we invest;
the potential impairment of tangible assets, intangible assets and goodwill acquired in the acquisitions;
the difficulty of incorporating an acquired business into our business and unanticipated expenses related to such integration; and
potential unknown liabilities associated with a business we acquire or in which we invest
In the event of any future acquisitions, we might need to issue additional equity securities, spend our cash, incur debt, or take on contingent liabilities, any of which could reduce our profitability and harm our business.
We rely heavily on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our ability to effectively operate our business and expose us to potential liability and loss of revenues.
We rely heavily on information technology systems across our operations, including for administrative functions, point-of-sale processing and payment in our stores and online, management of our supply chain, Starbucks Cards, online business and various other processes and transactions. Our ability to effectively manage our business and coordinate the production, distribution and sale of our products depends significantly on the reliability, integrity and capacity of these systems. We also rely on third party providers for some of these information technology systems and support. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could cause material negative impacts to our product sales, the efficiency of our operations and our financial results. Significant capital investments and other expenditures could be required to remedy the problem. Furthermore, security breaches of our employees' or customers' private data could result in a violation of applicable U.S. and international privacy and other laws, loss of revenues from the potential adverse impact to our reputation and our ability to retain or attract new customers, and could result in litigation, potential liability and the imposition of penalties.
The effect of changes to healthcare laws in the United States may increase the number of employees who choose to participate in our healthcare plans, which may significantly increase our healthcare costs and negatively impact our financial results.
Since 1988 we have offered comprehensive healthcare coverage to eligible full-time and part-time employees in the US. We currently have relatively low minimum work hour requirements for our US employees to be eligible for healthcare coverage under our healthcare plans but for various reasons many of our eligible employees choose not to participate in our plans. However, many of such eligible employees who currently choose not to participate in our healthcare plans may find it more advantageous to do so when recent changes to healthcare laws in the United States become effective in 2014. Such changes include potential fees to persons for not obtaining healthcare coverage and being ineligible for certain healthcare subsidies if an employee is eligible for healthcare coverage under an employer's plan. If a large portion of current eligible employees who

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currently choose not to participate in our plans choose to enroll when or after the law becomes effective, it may significantly increase our healthcare coverage costs and negatively impact on our financial results.
Failure to comply with applicable laws and regulations could harm our business and financial results.
Our policies and procedures are designed to comply with all applicable laws, accounting and reporting requirements, tax rules and other regulations and requirements, including those imposed by the SEC, NASDAQ, and foreign countries, as well as applicable trade, labor, healthcare, privacy, food, anti-bribery and corruption and merchandise laws. The complexity of the regulatory environment in which we operate and the related cost of compliance are both increasing due to additional or changing legal and regulatory requirements, our ongoing expansion into new markets and new channels, together with the fact that foreign laws occasionally conflict with domestic laws. In addition to potential damage to our reputation and brand, failure to comply with the various laws and regulations as well as changes in laws and regulations or the manner in which they are interpreted or applied, may result in civil and criminal liability, damages, fines and penalties, increased cost of regulatory compliance and restatements of our financial statements.


Item 1B.
Unresolved Staff Comments
None.

Item 2.
Properties
The significant properties used by Starbucks in connection with its roasting, distribution and corporate administrative operations, serving all segments, are as follows:
Location
Approximate Size
in Square Feet
 
Purpose
Rancho Cucamonga, CA
265,000

 
Manufacturing
Carson Valley, NV
384,000

 
Roasting, distribution and warehouse
York County, PA
748,000

 
Roasting, distribution and warehouse
Sandy Run, SC
117,000

 
Roasting and distribution
Auburn, WA
351,000

 
Warehouse and distribution
Kent, WA
332,000

 
Roasting and distribution
Seattle, WA
1,000,000

 
Corporate administrative
Amsterdam, Netherlands
97,000

 
Roasting and distribution
Basildon, United Kingdom
142,000

 
Warehouse and distribution
We own our roasting facilities and lease the majority of our warehousing and distribution locations. As of September 30, 2012, Starbucks had approximately 9,400 company-operated stores, almost all of which are leased. We also lease space in various locations worldwide for regional, district and other administrative offices, training facilities and storage.


Item 3.
Legal Proceedings
In 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

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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.

Item 4.
Mine Safety Disclosures

Not applicable.



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PART II

Item 5.
Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

SHAREHOLDER INFORMATION

MARKET INFORMATION AND DIVIDEND POLICY
Starbucks common stock is traded on NASDAQ, under the symbol “SBUX.”
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:
 
High
 
Low
 
Cash Dividends
Declared
2012:
 
 
 
 
 
Fourth Quarter
$
54.28

 
$
43.04

 
$
0.21

Third Quarter
62.00

 
51.03

 
0.17

Second Quarter
56.55

 
45.28

 
0.17

First Quarter
46.50

 
35.12

 
0.17

2011:
 
 
 
 
 
Fourth Quarter
$
42.00

 
$
33.72

 
$
0.17

Third Quarter
40.26

 
34.61

 
0.13

Second Quarter
38.21

 
30.75

 
0.13

First Quarter
33.15

 
25.37

 
0.13

As of November 9, 2012, we had approximately 18,500 shareholders of record. This does not include persons whose stock is in nominee or “street name” accounts through brokers.
Future decisions to pay cash dividends continue to be at the discretion of the Board of Directors and will be dependent on our operating performance, financial condition, capital expenditure requirements, and other such factors that the Board of Directors considers relevant.


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ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information regarding repurchases of our common stock during the quarter ended September 30, 2012:
 
 
Total
Number of
Shares
Purchased
 
Average
Price
Paid  per
Share
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
 
Maximum
Number of
Shares that May
Yet Be
Purchased
Under the Plans
or Programs (2)
Period(1)
 
 
 
 
 
 
 
 
July 2, 2012 — July 29, 2012
 

 
$

 

 
24,015,356

July 30, 2012 — August 26, 2012
 
5,265,260

 
46.44

 
5,265,260

 
18,750,096

August 27, 2012 — September 30, 2012
 
6,622,320

 
50.27

 
6,622,320

 
12,127,776

Total
 
11,887,580

 
$
48.58

 
11,887,580

 
 
(1)
Monthly information is presented by reference to our fiscal months during the fourth quarter of fiscal 2012.
(2)
The share repurchase program is conducted under authorizations made from time to time by our Board of Directors. On March 24, 2010 we publicly announced the authorization of up to an additional 15 million shares, on November 15, 2010 we publicly announced the authorization of up to an additional 10 million shares, and on November 3, 2011 we publicly announced the authorization of up to an additional 20 million shares. These authorizations have no expiration date.
On November 14, 2012, our Board of Directors authorized the repurchase of up to an additional 25 million shares, in addition to the 12.1 million shares that remained available for repurchase at September 30, 2012 under previous authorizations. As with previous authorizations, shares may be repurchased in open market transactions, including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The timing, manner, price and amount of repurchases will be determined in the Company's discretion and the share repurchase program may be suspended, terminated or modified at any time for any reason.


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Performance Comparison Graph
The following graph depicts the total return to shareholders from September 30, 2007 through September 30, 2012, relative to the performance of the Standard & Poor’s 500 Index, the NASDAQ Composite Index, and the Standard & Poor’s 500 Consumer Discretionary Sector, a peer group that includes Starbucks. All indices shown in the graph have been reset to a base of 100 as of September 30, 2007, and assume an investment of $100 on that date and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.


 
9/30/2007

9/28/2008

9/27/2009

10/3/2010

10/2/2011

9/30/2012

Starbucks Corporation
100.00

57.10

75.69

99.93

145.94

201.33

S&P 500
100.00

78.02

72.63

80.01

80.93

105.37

NASDAQ Composite
100.00

69.59

74.90

84.99

86.87

110.79

S&P Consumer Discretionary
100.00

77.59

77.55

95.87

101.79

139.08




21

Table of Contents


Item 6.
Selected Financial Data

The following selected financial data are derived from the consolidated financial statements. The data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and the consolidated financial statements and notes.
Financial Information (in millions, except per share data):
 
As of and for the Fiscal Year Ended(1)
Sep  30,
2012
(52 Wks)
 
Oct  2,
2011
(52 Wks)
 
Oct  3,
2010
(53 Wks)
 
Sep  27,
2009
(52 Wks)
 
Sep 28,
2008
(52 Wks)
 
 
Results of Operations
 
 
 
 
 
 
 
 
 
 
Net revenues:
 
 
 
 
 
 
 
 
 
 
Company-operated stores
$
10,534.5

 
$
9,632.4

 
$
8,963.5

 
$
8,180.1

 
$
8,771.9

 
Licensed stores(2)
1,210.3

 
1,007.5

 
875.2

 
795.0

 
779.0

 
CPG, foodservice and other(2)
1,554.7

 
1,060.5

 
868.7

 
799.5

 
832.1

 
Total net revenues
$
13,299.5

 
$
11,700.4

 
$
10,707.4

 
$
9,774.6

 
$
10,383.0

 
Operating income(3)
$
1,997.4

 
$
1,728.5

 
$
1,419.4

 
$
562.0

 
$
503.9

 
Net earnings including noncontrolling interests
1,384.7

 
1,248.0

 
948.3

 
391.5

 
311.7

 
Net earnings (loss) attributable to noncontrolling interests
0.9

 
2.3

 
2.7

 
0.7

 
(3.8
)
 
Net earnings attributable to Starbucks
1,383.8

 
1,245.7

 
945.6

 
390.8

 
315.5

 
EPS — diluted
1.79

 
1.62

 
1.24

 
0.52

 
0.43

 
Cash dividends declared per share
0.72

 
0.56

 
0.36

 

 

 
Net cash provided by operating activities
1,750.3

 
1,612.4

 
1,704.9

 
1,389.0

 
1,258.7

 
Capital expenditures (additions to property, plant and equipment)
856.2

 
531.9

 
440.7

 
445.6

 
984.5

 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
Total assets
$
8,219.2

 
$
7,360.4

 
$
6,385.9

 
$
5,576.8

 
$
5,672.6

 
Short-term borrowings

 

 

 

 
713.0

 
Long-term debt (including current portion)
549.6

 
549.5

 
549.4

 
549.5

 
550.3

 
Shareholders’ equity
5,109.0

 
4,384.9

 
3,674.7

 
3,045.7

 
2,490.9

(1)
Our fiscal year ends on the Sunday closest to September 30. The fiscal year ended on October 3, 2010 included 53 weeks with the 53rd week falling in our fourth fiscal quarter.
(2)
Includes the revenue reclassification described in Note 1. For fiscal years 2010, 2009, and 2008, we reclassified $465.7 million, $427.3 million, and $392.6 million, respectively, from the previously named “Licensing” revenue to “CPG, foodservice and other” revenue.
(3)
Fiscal 2010, 2009, and 2008 results include pretax restructuring charges of $53.0 million, $332.4 million, and $266.9 million, respectively.


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Table of Contents

Comparable Store Sales:
 
Fiscal Year Ended
Sep  30,
2012
(52 Wks)
 
Oct  2,
2011
(52 Wks)
 
Oct  3,
2010
(53 Wks)
 
Sep  27,
2009
(52 Wks)
 
Sep 28,
2008
(52 Wks)
 
 
Percentage change in comparable store sales(4)
 
 
 
 
 
 
 
 
 
 
Americas
 
 
 
 
 
 
 
 
 
 
Sales growth
8
%
 
8
%
 
7
 %
 
(6
)%
 
(4
)%
 
Change in transactions
6
%
 
5
%
 
3
 %
 
(4
)%
 
(4
)%
 
Change in ticket
2
%
 
2
%
 
3
 %
 
(2
)%
 
 %
 
EMEA
 
 
 
 
 
 
 
 
 
 
Sales growth
%
 
3
%
 
5
 %
 
(3
)%
 
1
 %
 
Change in transactions
%
 
3
%
 
6
 %
 
 %
 
(3
)%
 
Change in ticket
%
 
%
 
(1
)%
 
(3
)%
 
4
 %
 
China / Asia Pacific
 
 
 
 
 
 
 
 
 
 
Sales growth
15
%
 
22
%
 
11
 %
 
2
 %
 
8
 %
 
Change in transactions
11
%
 
20
%
 
9
 %
 
 %
 
4
 %
 
Change in ticket
3
%
 
2
%
 
2
 %
 
2
 %
 
3
 %
 
Consolidated
 
 
 
 
 
 
 
 
 
 
Sales growth
7
%
 
8
%
 
7
 %
 
(6
)%
 
(3
)%
 
Change in transactions
6
%
 
6
%
 
4
 %
 
(4
)%
 
(4
)%
 
Change in ticket
1
%
 
2
%
 
3
 %
 
(2
)%
 
 %
(4)
Includes only Starbucks company-operated stores open 13 months or longer. For fiscal year 2010, comparable store sales percentages were calculated excluding the 53rd week. Comparable store sales exclude the effect of fluctuations in foreign currency exchange rates.


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Table of Contents

Store Count Data:
 
As of and for the Fiscal Year Ended
Sep  30,
2012
(52 Wks)
 
Oct  2,
2011
(52 Wks)
 
Oct  3,
2010
(53 Wks)
 
Sep  27,
2009
(52 Wks)
 
Sep 28,
2008
(52 Wks)
 
 
Net stores opened (closed) during the year:
 
 
 
 
 
 
 
 
 
 
Americas
 
 
 
 
 
 
 
 
 
 
Company-operated stores
234

 
43

 
(33
)
 
(417
)
 
561

 
Licensed stores(5)
270

 
(268
)
 
111

 
101

 
558

 
EMEA(6)
 
 
 
 
 
 
 
 
 
 
Company-operated stores
10

 
25

 
(64
)
 
20

 
127

 
Licensed stores
101

 
79

 
100

 
98

 
153

 
China / Asia Pacific
 
 
 
 
 
 
 
 
 
 
Company-operated stores
154

 
73

 
30

 
24

 
9

 
Licensed stores
294

 
193

 
79

 
129

 
261

 
Total
1,063

 
145

 
223

 
(45
)
 
1,669

 
Stores open at year end:
 
 
 
 
 
 
 
 
 
 
Americas
 
 
 
 
 
 
 
 
 
 
Company-operated stores
7,857

 
7,623

 
7,580

 
7,613

 
8,030

 
Licensed stores
5,046

 
4,776

 
5,044

 
4,933

 
4,832

 
EMEA(6)
 
 
 
 
 
 
 
 
 
 
Company-operated stores
882

 
872

 
847

 
911

 
891

 
Licensed stores
987

 
886

 
807

 
707

 
609

 
China / Asia Pacific
 
 
 
 
 
 
 
 
 
 
Company-operated stores
666

 
512

 
439

 
409

 
385

 
Licensed stores
2,628

 
2,334

 
2,141

 
2,062

 
1,933

 
Total
18,066

 
17,003

 
16,858

 
16,635

 
16,680

(5)
Includes the closure of 475 licensed Seattle’s Best Coffee locations in Borders Bookstores during fiscal 2011.
(6)
EMEA store data has been adjusted for the acquisition of store locations in Austria and Switzerland in the fourth quarter of fiscal 2011 by reclassifying historical information from licensed stores to company-operated stores, and the transfer of certain company-operated stores to licensees in the fourth quarter of fiscal 2012.


24

Table of Contents

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

General
Our fiscal year ends on the Sunday closest to September 30. The fiscal year ended on October 3, 2010 included 53 weeks with the 53rd week falling in the fourth fiscal quarter. The fiscal years ended on October 2, 2011 and September 30, 2012 both included 52 weeks. Comparable store sales percentages for fiscal 2010 are calculated excluding the 53rd week. All references to store counts, including data for new store openings, are reported net of related store closures, unless otherwise noted.

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 in Channel 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.

Overview
Starbucks results for fiscal 2012 reflect the strength of our global business model. We continue to execute on our new regional operating model which we implemented at the beginning of fiscal 2012. We now have four reportable operating segments: Americas; Europe, Middle East, and Africa ("EMEA"); China / Asia Pacific ("CAP") and Channel Development. Each segment is managed by an operating segment president.
Total net revenues increased 14% to $13.3 billion driven by global comparable store sales growth of 7% and a 50% increase in Channel Development revenue. This growth drove increased sales leverage and resulted in higher operating margin and net earnings compared to fiscal 2011. This helped mitigate the impact of higher commodity costs, mostly coffee, which negatively impacted operating income by approximately $214 million for the year, equivalent to approximately 160 basis points of impact on operating margin.
Our Americas business continued its strong momentum and contributed 75% of total net revenues in fiscal 2012. The revenue growth for the year was driven by an 8% increase in comparable store sales, comprised of a 6% increase in traffic and a 2% increase in average ticket. This sales growth, combined with a continued focus on operational efficiencies, drove increased sales leverage that offset the impact of higher commodity costs. Looking forward, we expect to continue driving sales growth and profitability through continued store efficiency efforts, new store development, and expanding our pipeline of new product offerings to increase revenues throughout all dayparts.

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Table of Contents

EMEA segment results reflect both the investments we have begun making as part of our transformation plan for the region, as well as the macro-economic headwinds we, and others, face there. This resulted in flat comparable store sales and operating income of $10 million for fiscal 2012, a decrease of $30 million compared to fiscal 2011. We started the year by putting in place a new leadership team that is focused on increasing the Starbucks brand presence, health and relevancy across the region, improving the profitability of the existing store base through a focus on revenue growth and operating costs, and identifying opportunities for new store growth through licensing arrangements. We expect the investments we are making as part of this transformation effort will result in improved operating performance as we progress on our plan towards mid-teens operating margin; however, this turnaround will take time to gain traction.
CAP segment revenues increased 31%, driven by new store growth and comparable store sales of 15%. This segment continues to grow rapidly and is becoming a more meaningful contributor to overall company profitability. We expect continued growth will be from a mix of new store openings and comparable store sales growth. China continues to be a significant growth opportunity for us as we remain on track to reach our goal of 1,500 stores in 2015. In addition, other key markets such as Japan, Korea, Thailand, Singapore and Indonesia all continue to be profitable and provide a solid foundation for continued growth in the region.
Our Channel Development segment represents another important, profitable growth opportunity for us. Channel Development results were a solid contributor to overall revenue growth with a 50% increase in revenues primarily due to sales of Starbucks and Tazo branded K-Cup® portion packs which launched at the start of fiscal 2012 and our transition to a direct distribution model for packaged coffee, which occurred during the second quarter of fiscal 2011. High commodity costs continued to be a significant drag on operating margin; however, despite these higher costs, operating income increased $61 million to $349 million for fiscal 2012. We expect continued innovation and new product offerings such as the Verismo™ system by Starbucks and Starbucks Refreshers™ beverages will drive further growth and profitability within this segment over time.

Fiscal 2013 — The View Ahead
For fiscal year 2013, we expect moderate revenue growth driven by mid single-digit increased comparable store sales, new store openings and strong growth in the Channel Development business. Licensed stores will comprise between one-half and two-thirds of new store openings.
We expect continued robust consolidated operating margin and EPS improvement compared to fiscal 2012, reflecting the strength of our global business and the pipeline of profitable growth initiatives.
We expect increased capital expenditures in fiscal 2013 compared to fiscal 2012, reflecting additional investments in store renovations, new store growth and manufacturing capacity.

Operating Segment Overview
Starbucks has four reportable operating segments: Americas, Europe, Middle East, and Africa ("EMEA"), China and Asia Pacific ("CAP") and Channel Development. Seattle’s Best Coffee is reported in “Other,” along with Evolution Fresh, Digital Ventures and unallocated corporate expenses that pertain to corporate administrative functions that support our operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments.
The Americas, EMEA and CAP segments include company-operated stores and licensed stores. Licensed stores generally have a higher operating margin than company-operated stores. Under the licensed model, Starbucks receives a reduced share of the total store revenues, but this is more than offset by the reduction in its share of costs as these are primarily incurred by the licensee. The EMEA and CAP segments have a higher relative share of licensed stores versus company-operated stores compared to the Americas segment; however, the Americas segment has been operating significantly longer than the other segments and has developed deeper awareness of, and attachment to, the Starbucks brand and stores among its customer base. As a result, the more mature Americas segment has significantly more stores and higher total revenues than the other segments. Average sales per store are also higher in the Americas due to various factors including length of time in market and local income levels.

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Table of Contents

Starbucks store base in EMEA and CAP continues to expand and we continue to focus on achieving sustainable growth from established international markets while at the same time investing in emerging markets, such as China. Occupancy costs and store operating expenses can be higher in certain international markets than in the Americas segment due to higher rents for prime store locations or costs of compliance with country-specific regulatory requirements. Because many of our international operations are in an early phase of development, operating expenses as a percentage of related revenues are often higher compared to the Americas segment. International markets in the early stages of development require a more extensive support organization, relative to the current levels of revenue and operating income, than the Americas.
The Channel Development segment includes packaged coffee and tea, a variety of ready-to-drink beverages, single-serve coffee and tea products and other branded product operations worldwide, as well as the US foodservice business. In prior years through the first several months of fiscal 2011, we sold a selection of Starbucks and Seattle’s Best Coffee branded packaged coffees and Tazo® teas in grocery and warehouse club stores throughout the US and to grocery stores in Canada, the UK and other European countries through a distribution arrangement with Kraft Foods Global, Inc. Kraft managed the distribution, marketing, advertising and promotion of these products as a part of that arrangement. During fiscal 2011, we successfully transitioned these businesses including the marketing, advertising, and promotion of these products, from our previous distribution arrangement with Kraft and began selling these products directly to the grocery and warehouse club stores. Our Channel Development segment also includes ready-to-drink beverages, which are primarily manufactured and distributed through The North American Coffee Partnership, a joint venture with the Pepsi-Cola Company. The proportionate share of the results of the joint venture is included, on a net basis, in income from equity investees on the consolidated statements of earnings. The US foodservice business sells coffee and other related products to institutional foodservice companies with the majority of its sales through national broad-line distribution networks. The Channel Development segment reflects a modest cost structure and a resulting higher operating margin, compared to the other reporting segments, which consist primarily of retail stores.

Acquisitions
See Note 2 to the consolidated financial statements in this 10-K.

RESULTS OF OPERATIONS — FISCAL 2012 COMPARED TO FISCAL 2011

Consolidated results of operations (in millions):
Revenues
 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
%
Change
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
 
 
% of Total
Net Revenues
 
Net revenues:
 
 
 
 
 
 
 
 
 
 
Company-operated stores
$
10,534.5

 
$
9,632.4

 
9.4
%
 
79.2
%
 
82.3
%
 
Licensed stores
1,210.3

 
1,007.5

 
20.1
%
 
9.1
%
 
8.6
%
 
CPG, foodservice and other
1,554.7

 
1,060.5

 
46.6
%
 
11.7
%
 
9.1
%
 
Total net revenues
$
13,299.5

 
$
11,700.4

 
13.7
%
 
100.0
%
 
100.0
%
Consolidated net revenues were $13.3 billion for fiscal 2012, an increase of 13.7%, or $1.6 billion over fiscal 2011, primarily due to increased revenues from company-operated stores (contributing $902 million), driven by an increase in comparable store sales (approximately 7%, or $680 million). Also contributing to the increase were

27

Table of Contents

incremental revenues from net new company-operated store openings over the past 12 months (approximately $184 million).

Licensed store revenues contributed $203 million to the increase in total net revenues in fiscal 2012, primarily due to higher product sales to and royalty revenues from our licensees, resulting from improved comparable store sales and the opening of 665 net new licensed stores over the past 12 months.
CPG, foodservice and other revenues increased $494 million, primarily due to sales of Starbucks and Tazo branded K-Cup® portion packs launched in the CPG channel on November 1, 2011 (approximately $232 million). The benefit of recognizing full revenue from packaged coffee and tea under the direct distribution model (approximately $78 million) and an increase in foodservice revenues (approximately $50 million) also contributed.

Operating Expenses
 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
% of Total
Net Revenues
 
Cost of sales including occupancy costs
$
5,813.3

 
$
4,915.5

 
43.7
%
 
42.0
%
 
Store operating expenses
3,918.1

 
3,594.9

 
29.5
%
 
30.7
%
 
Other operating expenses
429.9

 
392.8

 
3.2
%
 
3.4
%
 
Depreciation and amortization expenses
550.3

 
523.3

 
4.1
%
 
4.5
%
 
General and administrative expenses
801.2

 
749.3

 
6.0
%
 
6.4
%
 
Total operating expenses
11,512.8

 
10,175.8

 
86.6
%
 
87.0
%
 
Gain on sale of properties

 
30.2

 
%
 
0.3
%
 
Income from equity investees
210.7

 
173.7

 
1.6
%
 
1.5
%
 
Operating income
$
1,997.4

 
$
1,728.5

 
15.0
%
 
14.8
%
 
Supplemental ratios as a % of related revenues:
 
 
 
 
 
 
 
 
Store operating expenses
 
 
 
 
37.2
%
 
37.3
%
Cost of sales including occupancy costs as a percentage of total net revenues increased 170 basis points, driven by increased commodity costs (approximately 160 basis points), primarily due to higher coffee costs.
Store operating expenses as a percentage of total net revenues decreased 120 basis points, due to increased Channel Development and licensed store revenues. Store operating expenses as a percent of company-operated store revenues decreased 10 basis points due to increased sales leverage.

Other operating expenses as a percentage of total net revenues decreased 20 basis points. As a percentage of net revenues excluding company-operated store revenues, other operating expenses decreased 350 basis points. This decrease was primarily driven by increased sales leverage (approximately 150 basis points), the absence of charges in fiscal 2012 related to the Seattle’s Best Coffee store closures in Borders bookstores (approximately 80 basis points) and a shift in the timing of marketing spend (approximately 60 basis points).
Income from equity investees increased $37.0 million, primarily due to an increase in income from our North American Coffee Partnership (approximately $13 million), Japan (approximately $11 million) and Shanghai (approximately $10 million) joint venture operations.
The combination of these changes, along with increased sales leverage on depreciation and amortization (approximately 40 basis points) and general and administrative expenses (approximately 40 basis points), resulted in an increase in operating margin of 20 basis points over fiscal 2011.


28

Table of Contents

Other Income and Expenses
 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
% of Total
Net Revenues
 
Operating income
$
1,997.4

 
$
1,728.5

 
15.0
 %
 
14.8
 %
 
Interest income and other, net
94.4

 
115.9

 
0.7
 %
 
1.0
 %
 
Interest expense
(32.7
)
 
(33.3
)
 
(0.2
)%
 
(0.3
)%
 
Earnings before income taxes
2,059.1

 
1,811.1

 
15.5
 %
 
15.5
 %
 
Income taxes
674.4

 
563.1

 
5.1
 %
 
4.8
 %
 
Net earnings including noncontrolling interests
1,384.7

 
1,248.0

 
10.4
 %
 
10.7
 %
 
Net earnings (loss) attributable to noncontrolling interests
0.9

 
2.3

 
 %
 
 %
 
Net earnings attributable to Starbucks
$
1,383.8

 
$
1,245.7

 
10.4
 %
 
10.6
 %
 
Effective tax rate including noncontrolling interests
 
 
 
 
32.8
 %
 
31.1
 %
Net interest income and other decreased $21 million over the prior year, primarily due to the absence of the gain recognized in the fourth quarter of fiscal 2011 resulting from the acquisition of the remaining interest in our previous joint venture operations in Switzerland and Austria (approximately $55 million), partially offset by the recognition of additional income associated with unredeemed gifts cards in the second quarter of fiscal 2012 (approximately $29 million), following a court ruling related to state unclaimed property laws.

Income taxes for the fiscal year ended 2012 resulted in an effective tax rate of 32.8% compared to 31.1% for fiscal year 2011.  The rate increased in fiscal year 2012 primarily due to tax benefits recognized in fiscal 2011 from the Switzerland and Austria transaction and the release of foreign valuation allowances. The effective tax rate for fiscal 2013 is expected to be approximately 33%.


29

Table of Contents

Segment Information
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. The following tables summarize the results of operations by segment (in millions):
Americas
 
Fiscal Year Ended
 
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
 
As a % of Americas 
Total Net Revenues
 
Total net revenues
 
$
9,936.0

 
$
9,065.0

 
100.0
%
 
100.0
%
 
Cost of sales including occupancy costs
 
3,885.5

 
3,512.7

 
39.1
%
 
38.8
%
 
Store operating expenses
 
3,427.8

 
3,184.2

 
34.5
%
 
35.1
%
 
Other operating expenses
 
83.8

 
75.8

 
0.8
%
 
0.8
%
 
Depreciation and amortization expenses
 
392.3

 
390.8

 
3.9
%
 
4.3
%
 
General and administrative expenses
 
74.3

 
60.8

 
0.7
%
 
0.7
%
 
Total operating expenses
 
7,863.7

 
7,224.3

 
79.1
%
 
79.7
%
 
Income from equity investees
 
2.1

 
1.6

 
%
 
%
 
Operating income
 
$
2,074.4

 
$
1,842.3

 
20.9
%
 
20.3
%
 
Supplemental ratios as a % of related revenues:
 
 
 
 
 
 
 
 
 
Store operating expenses
 
 
 
 
 
37.8
%
 
38.1
%

Revenues
Americas total net revenues for fiscal 2012 increased 10%, or $871 million, primarily due to increased revenues from company-operated stores (contributing $712 million), driven by an increase in comparable store sales (approximately 8%, or $626 million). Also contributing to the increase were incremental revenues from net new company-operated store openings over the past 12 months (approximately $100 million).

Licensed store revenues also contributed to the increase in total net revenues with an increase of $149 million in fiscal 2012 over the prior year period, primarily due to higher product sales to and royalty revenues from our licensees, resulting from improved comparable store sales and the opening of 270 net new licensed stores over the past 12 months.
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 30 basis points, primarily driven by higher commodity costs (approximately 110 basis points), mainly coffee, partially offset by increased sales leverage on occupancy costs (approximately 70 basis points).
Store operating expenses as a percentage of total net revenues decreased 60 basis points. Increased licensed store revenues contributed approximately 30 basis points of the decrease. Store operating expenses as a percentage of company-operated store revenues decreased 30 basis points, primarily due to increased sales leverage (approximately 70 basis points), partially offset by higher debit card transaction fees (approximately 20 basis points).


30

Table of Contents

Other operating expenses as a percentage of total net revenues was flat over prior year. As a percentage of net revenues excluding company-operated store revenues, other operating expenses decreased 100 basis points, primarily driven by increased sales leverage.
The combination of these changes, along with increased sales leverage on depreciation and amortization expense (approximately 40 basis points), resulted in an increase in operating margin of 60 basis points over fiscal 2011.


EMEA
 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
    As a % of EMEA 
Total Net Revenues
 
Total net revenues
$
1,141.3

 
$
1,046.8

 
100.0
%
 
100.0
%
 
Cost of sales including occupancy costs
597.3

 
530.3

 
52.3
%
 
50.7
%
 
Store operating expenses
371.1

 
327.3

 
32.5
%
 
31.3
%
 
Other operating expenses
33.6

 
36.5

 
2.9
%
 
3.5
%
 
Depreciation and amortization expenses
57.1

 
53.4

 
5.0
%
 
5.1
%
 
General and administrative expenses
72.1

 
65.0

 
6.3
%
 
6.2
%
 
Total operating expenses
1,131.2

 
1,012.5

 
99.1
%
 
96.7
%
 
Income from equity investees
0.3

 
6.0

 
%
 
0.6
%
 
Operating income
$
10.4

 
$
40.3

 
0.9
%
 
3.8
%
 
Supplemental ratios as a % of related revenues:
 
 
 
 
 
 
 
 
Store operating expenses
 
 
 
 
38.3
%
 
36.1
%
Revenues
EMEA total net revenues for fiscal 2012 increased 9%, or $95 million, primarily driven by increased revenues from company-operated stores (contributing $63 million), due to the acquisition of the remaining interest in our previous joint venture operations in Switzerland and Austria in the fourth quarter of fiscal 2011 (approximately $80 million), partially offset by unfavorable foreign currency fluctuations (approximately $33 million).
An increase in licensed store revenues of $27 million also contributed to the increase in total net revenues, primarily due to higher product sales to and royalty revenues from our licensees, resulting from the opening of 101 net new licensed stores over the past 12 months.
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues increased 160 basis points, primarily driven by higher costs related to the transition to a consolidated food and dairy distribution model in the UK that began in the first quarter of fiscal 2012 (approximately 180 basis points). These costs are expected to decline over time as the full benefits of the transition are realized. Also contributing to the decrease were costs related to store portfolio optimization initiatives occurring in the fourth quarter of fiscal 2012 (approximately 60 basis points), partially offset by increased sales leverage on occupancy costs.
Store operating expenses as a percentage of total net revenues increased 120 basis points. Store operating expenses as a percentage of company-operated store revenues increased 220 basis points, primarily driven by asset impairments related to underperforming stores (approximately 140 basis points). Also contributing to the decrease were costs related to store portfolio optimization initiatives occurring in the fourth quarter of fiscal 2012 (approximately 40 basis points).

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Other operating expenses as a percentage of total net revenues decreased 60 basis points. Excluding the impact of company-operated store revenues, other operating expenses decreased 640 basis points, primarily driven by operational efficiencies.
Income from equity investees declined to $0.3 million in fiscal 2012, due to the acquisition of the remaining interest in our previous joint venture operations in Switzerland and Austria.
The above changes contributed to a decrease in operating margin of 290 basis points over the prior year.


China / Asia Pacific

 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
    As a % of CAP 
Total Net Revenues
 
Total net revenues
$
721.4

 
$
552.3

 
100.0
%
 
100.0
%
 
Cost of sales including occupancy costs
362.8

 
282.0

 
50.3
%
 
51.1
%
 
Store operating expenses
119.2

 
83.4

 
16.5
%
 
15.1
%
 
Other operating expenses
47.0

 
35.7

 
6.5
%
 
6.5
%
 
Depreciation and amortization expenses
23.2

 
18.1

 
3.2
%
 
3.3
%
 
General and administrative expenses
38.1

 
32.9

 
5.3
%
 
6.0
%
 
Restructuring charges

 

 
%
 
%
 
Total operating expenses
590.3

 
452.1

 
81.8
%
 
81.9
%
 
Income from equity investees
122.4

 
92.9

 
17.0
%
 
16.8
%
 
Operating income
$
253.5

 
$
193.1

 
35.1
%
 
35.0
%
 
Supplemental ratios as a % of related revenues:
 
 
 
 
 
 
 
 
Store operating expenses
 
 
 
 
24.4
%
 
23.1
%
Revenues
China / Asia Pacific total net revenues for fiscal 2012 increased 31%, or $169 million, primarily driven by increased revenues from company-operated stores (contributing $128 million). The increase in company-operated store revenues was primarily due to the opening of 154 net new stores over the past 12 months (approximately $71 million) and an increase in comparable store sales (approximately 15%, or $53 million).
Also contributing to the increase in revenues was an increase in licensed store revenues of $41 million, due to increased royalty revenues from and product sales to licensees, primarily driven by 294 net new licensed store openings over the past 12 months.
Operating Expenses
Cost of sales including occupancy costs as a percentage of total net revenues decreased 80 basis points primarily driven by the accelerated growth of company-operated stores, which contribute a higher gross margin, in China (approximately 140 basis points), partially offset by increased commodity costs (approximately 120 basis points), mainly higher coffee costs.
Store operating expenses as a percentage of total net revenues increased 140 basis points. Store operating expenses as a percentage of company-operated store revenues increased 130 basis points, primarily driven by increased costs associated with the expansion efforts of company-operated stores in mainland China.

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Income from equity investees increased $30 million, primarily driven by an increase in income from our Japan (approximately $11 million) and Shanghai (approximately $10 million) joint venture operations.
The combination of these changes, along with increased sales leverage on depreciation and amortization (approximately 10 basis points) and general and administrative expenses (approximately 70 basis points), resulted in an increase in operating margin of 10 basis points over fiscal 2011.

Channel Development

 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
Sep 30,
2012
 
Oct 2,
2011
 
 
 
 
 
 
 
    As a % of Channel Development 
Total Net Revenues
 
Total net revenues
$
1,292.2

 
$
860.5

 
100.0
%
 
100.0
%
 
Cost of sales
827.6

 
487.5

 
64.0
%
 
56.7
%
 
Other operating expenses
191.1

 
151.8

 
14.8
%
 
17.6
%
 
Depreciation and amortization expenses
1.3

 
2.4

 
0.1
%
 
0.3
%
 
General and administrative expenses
8.9

 
6.6

 
0.7
%
 
0.8
%
 
Total operating expenses
1,028.9

 
648.3

 
79.6
%
 
75.3
%
 
Income from equity investees
85.2

 
75.6

 
6.6
%
 
8.8
%
 
Operating income
$
348.5

 
$
287.8

 
27.0
%
 
33.4
%
Revenues
Channel Development total net revenues for fiscal 2012 increased 50%, or $432 million, primarily due to sales of Starbucks and Tazo branded K-Cup® portion packs (approximately $232 million). The benefit of recognizing full revenue from packaged coffee and tea sales under the direct distribution model through the second quarter of fiscal 2012 (approximately $70 million) and increased foodservice revenues (approximately $33 million) also contributed.
Operating Expenses
Cost of sales as a percentage of total net revenues increased 730 basis points, primarily due to increased commodity costs (approximately 570 basis points), mainly coffee, and a shift in our product mix driven by the introduction of Starbucks and Tazo branded K-Cup® portion packs (approximately 140 basis points).
Other operating expenses as a percentage of total net revenues decreased 280 basis points, primarily due to increased sales leverage.
Income from equity investees increased $10 million over the prior year period, driven by increased income from our North American Coffee Partnership joint venture. Income from equity investees declined as a percentage of total net revenues (approximately 220 basis points) primarily due to the growth in segment revenues.
The combination of these changes resulted in a decrease in operating margin of 640 basis points over fiscal 2011.


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Table of Contents

Other
 
Fiscal Year Ended
Sep 30,
2012
 
Oct 2,
2011
 
% Change
 
 
 
 
 
 
 
 
 
Total net revenues
$
208.6

 
$
175.8

 
18.7
 %
 
Cost of sales
140.1

 
103.0

 
36.0
 %
 
Other operating expenses
74.4

 
93.0

 
(20.0
)%
 
Depreciation and amortization expenses
76.4

 
58.6

 
30.4
 %
 
General and administrative expenses
607.8

 
584.0

 
4.1
 %
 
Total operating expenses
898.7

 
838.6

 
7.2
 %
 
Gain on sale of properties

 
30.2

 
(100.0
)%
 
Income from equity investees
0.7

 
(2.4
)
 
nm

 
Operating loss
$
(689.4
)
 
$
(635.0
)
 
8.6
 %
Other includes operating results from Seattle’s Best Coffee, Evolution Fresh, and Digital Ventures, as well as expenses pertaining to corporate administrative functions that support our operating segments but are not specifically attributable to, or managed by, any segment and are not included in the reported financial results of the operating segments.
Other total net revenues increased $33 million, primarily due to incremental revenues from Evolution Fresh, which was acquired during the first quarter of fiscal 2012.
Total operating expenses increased $60 million, primarily due to increased cost of sales resulting from higher commodity costs, primarily coffee, and higher general and administrative expenses to support the growth of the business.

RESULTS OF OPERATIONS — FISCAL 2011 COMPARED TO FISCAL 2010

Consolidated results of operations (in millions):
Revenues
 
Fiscal Year Ended
Oct 2,
2011
 
Oct 3,
2010
 
%
Change
 
Oct 2,
2011
 
Oct 3,
2010
 
 
 
 
 
 
 
 
 
% of Total
Net Revenues
 
Net revenues:
 
 
 
 
 
 
 
 
 
 
Company-operated stores
$
9,632.4

 
$
8,963.5

 
7.5
%
 
82.3
%
 
83.7
%
 
Licensed stores
1,007.5

 
875.2

 
15.1
%
 
8.6
%
 
8.2
%
 
CPG, foodservice and other
1,060.5

 
868.7

 
22.1
%
 
9.1
%
 
8.1
%
 
Total net revenues
$
11,700.4

 
$
10,707.4

 
9.3
%
 
100.0
%
 
100.0
%
Consolidated net revenues were $11.7 billion for fiscal 2011, an increase of 9%, or $993 million over fiscal 2010. The increase was primarily due to an increase in company-operated store revenues driven by an 8% increase in global comparable stores sales (contributing approximately $672 million). The increase in comparable store sales was due to a 6% increase in number of transactions (contributing approximately $499 million) and a 2% increase in average value per transaction (contributing approximately $173 million). Also contributing to the increase in

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Table of Contents

total net revenues was favorable foreign currency translation (approximately $126 million) resulting from a weakening of the US dollar relative to foreign currencies and an increase in licensed store revenues (approximately $106 million). This increase was partially offset by the impact of the extra week in fiscal 2010 (approximately $207 million).

Operating Expenses
 
Fiscal Year Ended
Oct 2,
2011
 
Oct 3,
2010
 
Oct 2,
2011
 
Oct 3,
2010
 
 
 
 
 
 
 
% of Total
Net Revenues
 
Cost of sales including occupancy costs
$
4,915.5

 
$
4,416.5

 
42.0
%
 
41.2
%
 
Store operating expenses
3,594.9

 
3,471.9

 
30.7
%
 
32.4
%
 
Other operating expenses
392.8

 
279.7

 
3.4
%
 
2.6
%
 
Depreciation and amortization expenses
523.3

 
510.4

 
4.5
%
 
4.8
%
 
General and administrative expenses
749.3

 
704.6

 
6.4
%
 
6.6
%
 
Restructuring charges

 
53.0

 
%
 
0.5
%
 
Total operating expenses
10,175.8

 
9,436.1

 
87.0
%
 
88.1
%
 
Gain on sale of properties
30.2

 

 
0.3
%
 
%
 
Income from equity investees
173.7

 
148.1

 
1.5
%
 
1.4
%
 
Operating income
$
1,728.5

 
$
1,419.4

 
14.8
%
 
13.3
%
 
Supplemental ratios as a % of related revenues:
 
 
 
 
 
 
 
 
Store operating expenses
 
 
 
 
37.3
%
 
38.7
%
Cost of sales including occupancy costs as a percentage of total net revenues increased 80 basis points. The increase was primarily due to higher commodity costs (approximately 220 basis points), mainly driven by increased coffee costs. Partially offsetting this increase was lower occupancy costs as a percentage of total net revenues (approximately 70 basis points), driven by increased sales leverage.
Store operating expenses as a percentage of total net revenues decreased 170 basis points primarily due to increased sales leverage.
Other operating expenses as a percentage of total net revenues increased 80 basis points primarily due to higher expenses to support the direct distribution model for packaged coffee and tea (approximately 40 basis points) and the impairment of certain assets in our Seattle’s Best Coffee business associated with the Borders bankruptcy in April 2011 (approximately 20 basis points).
The above changes contributed to an overall increase in operating margin of 150 basis points for fiscal 2011. Considering the impact from all line items, the primary drivers for the increase in operating margin for fiscal 2011 were increased sales leverage (approximately 300 basis points), the absence of restructuring charges in the current year (approximately 50 basis points) and the gain on the sale of corporate real estate in fiscal 2011 (approximately 30 basis points). These increases were partially offset by higher commodity costs (approximately 220 basis points).


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Table of Contents

Other Income and Expenses
 
Fiscal Year Ended
Oct 2,
2011
 
Oct 3,
2010
 
Oct 2,
2011
 
Oct 3,
2010
 
 
 
 
 
 
 
% of Total
Net Revenues
 
Operating income
$
1,728.5

 
$
1,419.4

 
14.8
 %
 
13.3
 %
 
Interest income and other, net
115.9

 
50.3

 
1.0
 %
 
0.5
 %
 
Interest expense
(33.3
)
 
(32.7
)
 
(0.3
)%
 
(0.3
)%
 
Earnings before income taxes
1,811.1

 
1,437.0

 
15.5
 %
 
13.4
 %
 
Income taxes
563.1

 
488.7

 
4.8
 %
 
4.6
 %
 
Net earnings including noncontrolling interests
1,248.0

 
948.3

 
10.7
 %
 
8.9
 %
 
Net earnings (loss) attributable to noncontrolling interests
2.3

 
2.7

 
 %
 
 %
 
Net earnings attributable to Starbucks
$
1,245.7

 
$
945.6

 
10.6
 %
 
8.8
 %
 
Effective tax rate including noncontrolling interests
 
 
 
 
31.1
 %
 
34.0
 %
Net interest income and other increased $66 million over the prior year. The increase primarily resulted from the gain recorded in the fourth quarter of fiscal 2011 related to our acquisition of the remaining ownership interest in our joint venture operations in Switzerland and Austria (approximately $55 million).
Income taxes for the fiscal year ended 2011 resulted in an effective tax rate of 31.1% compared to 34.0% for fiscal 2010. The lower rate in fiscal 2011 was primarily due to a benefit from the Switzerland and Austria transaction and to an increase in income in foreign jurisdictions having lower tax rates.

Segment Information
The following tables summarize our results of operations by segment for fiscal 2011 and 2010 (in millions).

Americas
 
Fiscal Year Ended
Oct 2,
2011
 
Oct 3,
2010
 
Oct 2,
2011
 
Oct 3,
2010
 
 
 
 
 
 
 
As a % of Americas Total
Net Revenues
 
Total net revenues
$
9,065.0

 
$
8,488.5

 
100.0
%
 
100.0
%
 
Cost of sales including occupancy costs
3,512.7

 
3,258.5

 
38.8
%
 
38.4
%
 
Store operating expenses
3,184.2

 
3,083.3

 
35.1
%
 
36.3
%
 
Other operating expenses
75.8

 
63.1

 
0.8
%
 
0.7
%
 
Depreciation and amortization expenses
390.8

 
392.9

 
4.3
%
 
4.6
%
 
General and administrative expenses
60.8

 
56.4

 
0.7
%
 
0.7
%
 
Restructuring charges

 
28.4

 
%
 
0.3
%
 
Total operating expenses
7,224.3

 
6,882.6

 
79.7
%
 
81.1
%
 
Income from equity investees
1.6

 
0.9

 
%
 

 
Operating income
$
1,842.3