STARBUCKS CORPORATION

[Pages:37]Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended January 1, 2017

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

(State or Other Jurisdiction of Incorporation or Organization)

91-1325671

(IRS Employer Identification No.)

2401 Utah Avenue South, Seattle, Washington 98134

(Address of principal executive offices)

(206) 447-1575

(Registrant's Telephone Number, including Area Code)

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 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.

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Title

Common Stock, par value $0.001 per share

Shares Outstanding as of January 25, 2017

1,457.4 million

Table of Contents

STARBUCKS CORPORATION FORM 10-Q

For the Quarterly Period Ended January 1, 2017 Table of Contents

PART I. FINANCIAL INFORMATION

Item 1

Financial Statements (Unaudited):

3

Condensed Consolidated Statements of Earnings

3

Condensed Consolidated Statements of Comprehensive Income

4

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Cash Flows

6

Index For Notes to Condensed Consolidated Financial Statements

7

Notes to Condensed Consolidated Financial Statements

8

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4

Controls and Procedures

31

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

32

Item 1A Risk Factors

32

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 6

Exhibits

33

Signatures

34

Table of Contents Item 1. Financial Statements

PART I -- FINANCIAL INFORMATION

STARBUCKS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(in

millions,

except

per

share

data) (unaudited)

Net revenues: Company-operated stores Licensed stores CPG, foodservice and other

Total net revenues Cost of sales including occupancy costs Store operating expenses Other operating expenses Depreciation and amortization expenses General and administrative expenses

Total operating expenses Income from equity investees

Operating income Interest income and other, net Interest expense

Earnings before income taxes Income tax expense

Net earnings including noncontrolling interests Net earnings/(loss) attributable to noncontrolling interests Net earnings attributable to Starbucks Earnings per share - basic Earnings per share - diluted Weighted average shares outstanding: Basic Diluted Cash dividends declared per share

See

Notes

to

Condensed

Consolidated

Financial

Statements.

3

Quarter Ended

Jan 1, 2017

Dec 27, 2015

$

4,469.3 $

4,210.6

602.4 661.2

540.6 622.3

5,732.9 2,295.0 1,638.2

145.4

5,373.5 2,186.2 1,506.2

146.2

249.7

235.5

356.4

305.5

4,684.7

4,379.6

84.4

64.1

1,132.6

1,058.0

24.1 (23.8)

8.1 (16.5)

1,132.9

1,049.6

381.4

361.9

751.5

687.7

(0.3)

0.1

$

751.8 $

687.6

$

0.52 $

0.46

$

0.51 $

0.46

1,457.5

1,485.9

1,470.5

1,503.3

$

0.25 $

0.20

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STARBUCKS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in

millions,

unaudited)

Net earnings including noncontrolling interests

$

Other comprehensive loss, net of tax:

Unrealized holding gains/(losses) on available-for-sale securities

Tax (expense)/benefit

Unrealized gains/(losses) on cash flow hedging instruments

Tax (expense)/benefit

Unrealized gains/(losses) on net investment hedging instruments

Tax (expense)/benefit

Translation adjustment and other

Tax (expense)/benefit

Reclassification adjustment for net (gains)/losses realized in net earnings for available-for-sale securities, hedging instruments, and translation adjustment

Tax expense/(benefit)

Other comprehensive loss

Comprehensive income including noncontrolling interests

Comprehensive income/(loss) attributable to noncontrolling interests

Comprehensive income attributable to Starbucks

$

Quarter Ended

Jan 1, 2017

Dec 27, 2015

751.5 $

687.7

(13.4) 4.1

113.5 (26.5) 41.1 (15.2) (171.8)

--

(81.7)

16.0 (133.9) 617.6

(0.3) 617.9 $

1.0 (0.4) 5.8 (2.7)

-- -- (26.1) 1.7

(7.7)

2.7 (25.7) 662.0

0.1 661.9

See

Notes

to

Condensed

Consolidated

Financial

Statements. 4

Table of Contents

STARBUCKS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS

(in

millions,

except

per

share

data) (unaudited)

ASSETS Current assets:

Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets

Total current assets Long-term investments Equity and cost investments Property, plant and equipment, net Deferred income taxes, net Other long-term assets Other intangible assets Goodwill TOTAL ASSETS

LIABILITIES AND EQUITY Current liabilities:

Accounts payable Accrued liabilities Insurance reserves Stored value card liability Current portion of long-term debt

Total current liabilities Long-term debt Other long-term liabilities

Total liabilities Shareholders' equity:

Common stock ($0.001 par value) -- authorized, 2,400.0 shares; issued and outstanding, 1,457.2 and 1,460.5 shares, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss

Total shareholders' equity Noncontrolling interests

Total equity TOTAL LIABILITIES AND EQUITY

See

Notes

to

Condensed

Consolidated

Financial

Statements.

5

Jan 1, 2017

Oct 2, 2016

$

2,034.6 $

2,128.8

140.8

134.4

865.1

768.8

1,218.7

1,378.5

357.0

347.4

4,616.2

4,757.9

1,278.3

1,141.7

373.7

354.5

4,478.5

4,533.8

806.1

885.4

394.9

403.3

470.6

516.3

1,599.0

1,719.6

$

14,017.3 $

14,312.5

$

662.5 $

730.6

1,944.9

1,999.1

211.6

246.0

1,578.3

1,171.2

--

399.9

4,397.3

4,546.8

3,185.7

3,185.3

631.2

689.7

8,214.2

8,421.8

1.5

1.5

41.1

41.1

5,996.3

5,949.8

(242.3)

(108.4)

5,796.6

5,884.0

6.5

6.7

5,803.1

5,890.7

$

14,017.3 $

14,312.5

Table of Contents

STARBUCKS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in

millions,

unaudited)

OPERATING ACTIVITIES:

Net earnings including noncontrolling interests

$

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

Deferred income taxes, net Income earned from equity method investees Distributions received from equity method investees Gain resulting from sale of equity in joint venture

Stock-based compensation

Excess tax benefit on share-based awards Other Cash provided by changes in operating assets and liabilities:

Accounts receivable

Inventories Accounts payable Stored value card liability Other operating assets and liabilities

Net cash provided by operating activities

INVESTING ACTIVITIES:

Purchases of investments

Sales of investments Maturities and calls of investments Additions to property, plant and equipment

Proceeds from sale of equity in joint venture

Other Net cash used by investing activities

FINANCING ACTIVITIES: Principal payments on long-term debt Proceeds from issuance of common stock Excess tax benefit on share-based awards

Cash dividends paid

Repurchase of common stock Minimum tax withholdings on share-based awards Other

Net cash used by financing activities

Effect of exchange rate changes on cash and cash equivalents Net (decrease)/increase in cash and cash equivalents

CASH AND CASH EQUIVALENTS: Beginning of period

End of period

$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest, net of capitalized interest

$

Income taxes, net of refunds

$

See

Notes

to

Condensed

Consolidated

Financial

Statements. 6

Quarter Ended

Jan 1, 2017

Dec 27, 2015

751.5 $

687.7

263.2 56.4 (65.3) 39.1

-- 55.0 (34.1) 9.3

247.3 225.2 (47.0)

69.3 (0.6) 57.3 (67.2) 18.0

(128.7) 146.4 (34.7) 425.0 12.6 1,495.7

(65.1) 60.6 (28.2) 468.9 9.8 1,636.0

(323.4) 149.6 18.1 (307.4)

-- 61.6 (401.5)

(145.6) 85.3 0.8

(331.8) 30.2 1.0

(360.1)

(400.0) 51.2 34.1

(364.0) (408.1) (68.3)

0.1 (1,155.0)

(33.4) (94.2)

-- 48.4 67.2 (297.0) (245.8) (101.3) (0.2) (528.7) (13.8) 733.4

2,128.8 2,034.6 $

1,530.1 2,263.5

41.1 $

34.4

270.8 $

86.7

Table of Contents

STARBUCKS CORPORATION INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1

Summary of Significant Accounting Policies

8

Note 2

Acquisitions and Divestitures

9

Note 3

Derivative Financial Instruments

9

Note 4

Fair Value Measurements

12

Note 5

Inventories

14

Note 6

Supplemental Balance Sheet Information

14

Note 7

Debt

15

Note 8

Equity

16

Note 9

Employee Stock Plans

17

Note 10

Earnings per Share

18

Note 11

Segment Reporting

18

7

Table of Contents

STARBUCKS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1: Summary of Significant Accounting Policies

Financial

Statement

Preparation

The unaudited condensed consolidated financial statements as of January 1, 2017 , and for the quarter s ended January 1, 2017 and December 27, 2015 , have been prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, the financial information for the quarter s ended January 1, 2017 and December 27, 2015 reflects all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. In this Quarterly Report on Form 10-Q ("10Q"), Starbucks Corporation is referred to as "Starbucks," the "Company," "we," "us" or "our."

The financial information as of October 2, 2016 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 2, 2016 ("fiscal 2016 ") included in Item 8 in the Fiscal 2016 Annual Report on Form 10-K (the "10-K"). The information included in this 10-Q should be read in conjunction with the footnotes and management's discussion and analysis of the consolidated financial statements in the 10-K.

The results of operations for the quarter ended January 1, 2017 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 1, 2017 ("fiscal 2017 ").

Recent

Accounting

Pronouncements

In October 2016, the Financial Accounting Standards Board ("FASB") issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings at the beginning of our first quarter of fiscal 2019 but permits adoption in an earlier period. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.

In June 2016, the FASB issued guidance on the measurement and recognition of credit losses on most financial assets. For trade receivables, loans, and held-tomaturity debt securities, the current probable loss recognition methodology is being replaced by an expected credit loss model. For available-for-sale debt securities, the recognition model on credit losses is generally unchanged, except the losses will be presented as an adjustable allowance. The guidance will be applied retrospectively with the cumulative effect recognized as of the date of adoption. The guidance will become effective at the beginning of our first quarter of fiscal 2021 but can be adopted as early as the beginning of our first quarter of fiscal 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements and the timing of adoption.

In March 2016, the FASB issued guidance related to stock-based compensation, which changes the accounting and classification of excess tax benefits and minimum tax withholdings on share-based awards. The guidance becomes effective at the beginning of our first quarter of fiscal 2018 but permits adoption in an earlier period. With this adoption, excess tax benefits and tax deficiencies related to stock-based compensation will be prospectively reflected as income tax expense in our consolidated statement of earnings instead of additional paid-in capital on our consolidated balance sheet. Additionally, within our consolidated statement of cash flows, this guidance will require excess tax benefits to be presented as an operating activity, rather than a financing activity, in the same manner as other cash flows related to income taxes. We are currently evaluating the timing and impact of adopting this guidance; however, as a result of the presentation requirements associated with the standard, we expect this adoption to have a significant impact on our consolidated statements of earnings, earnings per share and consolidated statement of cash flows.

In March 2016, the FASB issued guidance for financial liabilities resulting from selling prepaid stored value products that are redeemable at third-party merchants. Under the new guidance, expected breakage amounts associated with these products must be recognized proportionately in earnings as redemption occurs. Our current accounting policy of applying the remote method to all of our stored value cards, including cards redeemable at the third-party licensed locations, will no longer be allowed. The guidance will become effective at the beginning of our first quarter of fiscal 2019, with the option to adopt in an earlier period. As the guidance and timing of transition are consistent with the new revenue recognition standard issued by the FASB in May 2014 and discussed below, we expect to implement the provisions of both standards in the same period.

In February 2016, the FASB issued guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for

8

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