As footnoted regulars know, the weekly Friday Night Dump is rarely boring. Because of that, we recently began providing a special feed to our paid subscribers that just focuses on these late Friday disclosures. But we wanted to share something that we found in the proxy that Starbucks filed after 5 pm last Friday because it raises an interesting question about truthiness when it comes to personal jet usage disclosures in SEC filings.
It was on pg. 54 that a disclosure about a new arrangement with Chairman and CEO Howard Schultz caught our attention. Here’s a snip:
At the end of fiscal 2013, Starbucks entered into a series of agreements under which Starbucks acquired the right to use an aircraft leased by an entity owned by Mr. Schultz (“Sublessor”) to address the Company’s need for additional flight capacity for business purposes. Under an exclusive sublease agreement with the Sublessor, Starbucks subleases and operates the aircraft for a monthly rent of $269,297 and is responsible for the operation of the aircraft, aircraft maintenance, insurance and all other overhead costs. The sublease will terminate upon Mr. Schultz’s discontinuation of day-to-day activities in Starbucks management or may be terminated sooner by either party upon 45 days’ notice.
The disclosure goes on to note that the company gets reimbursed for Schultz’ personal use of the aircraft one month in advance and that Schultz paid the company nearly $500K, which is “equal to one and one-half times the estimated monthly costs for his personal use of the aircraft” when the agreement was signed (whenever that was. We couldn’t find a copy of the agreement in Starbucks filings). The proxy notes that during the last month of 2013, Schultz paid the company an additional $332,316 for his use during the first month of fiscal 2014.
There were a few things that surprised us about this disclosure. For one, those are some big numbers for personal use. If October 2014 represents a typical month, that means that Schultz’s personal plane use will come in at $4 million this year, a number that far exceeds any other CEO personal use that we’ve seen disclosed in filings. In over 10 years of reading these types of disclosures, only Abercrombie CEO Michael Jeffries has come close, as we footnoted here. The number also far exceeds any prior disclosure that Starbucks has made about Schultz’s prior personal use. In fiscal 2012, that number was $428K for the year.
It seems hard to believe that Schultz suddenly increased his personal use by a multiple of nine. Which leaves us with the other option: the earlier number way understated the actual cost, which we’ve long thought to be the case — not just at Starbucks, but at most companies that disclose personal use of the corporate jet for their CEOs.
It’s pretty rare to see even a big company break $500K on this item and many companies have imposed limits on personal use, capping the number at $200K or a certain number of flight hours per year. But that’s likely due to the way companies choose to calculate that number by using the price of a first-class ticket and stripping out various other fixed expenses.
Starbucks doesn’t provide much detail on how it arrived at the $332,316. But it does raise an interesting question: if Schultz is spending nearly $4 million a year on personal use, what’s the real number at other companies?