e10vq
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 1, 2007
OR
     
o   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 or Other Jurisdiction of   (IRS Employer
Incorporation or Organization)   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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Title   Shares Outstanding as of May 7, 2007
     
Common Stock, par value $0.001 per share   740,776,570
 
 

 


 

STARBUCKS CORPORATION
FORM 10-Q
For the Quarterly Period Ended April 1, 2007
Table of Contents
         
    Page
       
 
       
       
    1  
    2  
    3  
    4  
    14  
    29  
    30  
 
       
       
 
       
    30  
    30  
    31  
    31  
    32  
    33  
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32

 


Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except earnings per share)
(unaudited)
                                 
    13 Weeks Ended     26 Weeks Ended  
    April 1,     April 2,     April 1,     April 2,  
    2007     2006     2007     2006  
Net revenues:
                               
Company-operated retail
  $ 1,922,705     $ 1,599,844     $ 3,929,516     $ 3,227,827  
Specialty:
                               
Licensing
    234,807       202,354       488,729       421,504  
Foodservice and other
    98,082       83,624       193,072       170,583  
 
                       
Total specialty
    332,889       285,978       681,801       592,087  
 
                       
Total net revenues
    2,255,594       1,885,822       4,611,317       3,819,914  
 
Cost of sales including occupancy costs
    944,746       760,873       1,929,569       1,538,911  
Store operating expenses
    780,985       665,273       1,552,952       1,287,439  
Other operating expenses
    75,661       63,648       148,199       122,796  
Depreciation and amortization expenses
    113,385       94,508       223,581       185,796  
General and administrative expenses
    126,104       119,611       241,332       242,936  
 
                       
Subtotal operating expenses
    2,040,881       1,703,913       4,095,633       3,377,878  
 
Income from equity investees
    26,261       19,985       45,014       39,705  
 
                       
Operating income
    240,974       201,894       560,698       481,741  
Interest and other income, net
    (592 )     3,063       5,847       3,411  
 
                       
 
Earnings before income taxes
    240,382       204,957       566,545       485,152  
Income taxes
    89,542       77,641       210,753       183,680  
 
                       
 
Net earnings
  $ 150,840     $ 127,316     $ 355,792     $ 301,472  
 
                       
 
                               
Net earnings per common share — basic
  $ 0.20     $ 0.17     $ 0.47     $ 0.39  
Net earnings per common share — diluted
  $ 0.19     $ 0.16     $ 0.46     $ 0.38  
Weighted average shares outstanding:
                               
Basic
    752,497       767,445       755,292       767,250  
Diluted
    774,055       794,613       778,450       793,936  
See Notes to Consolidated Financial Statements.

1


Table of Contents

STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
                 
    April 1,     October 1,  
    2007     2006  
    (unaudited)          
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 200,179     $ 312,606  
Short-term investments — available-for-sale securities
    77,872       87,542  
Short-term investments — trading securities
    65,780       53,496  
Accounts receivable, net of allowances of $4,801 and $3,827, respectively
    240,775       224,271  
Inventories
    578,877       636,222  
Prepaid expenses and other current assets
    124,957       126,874  
Deferred income taxes, net
    96,422       88,777  
 
           
Total current assets
    1,384,862       1,529,788  
 
Long-term investments – available-for-sale securities
    20,994       5,811  
Equity and other investments
    230,594       219,093  
Property, plant and equipment, net
    2,523,870       2,287,899  
Other assets
    228,128       186,917  
Other intangible assets
    39,942       37,955  
Goodwill
    208,485       161,478  
 
           
 
TOTAL ASSETS
  $ 4,636,875     $ 4,428,941  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 279,960     $ 340,937  
Accrued compensation and related costs
    301,050       288,963  
Accrued occupancy costs
    68,006       54,868  
Accrued taxes
    77,910       94,010  
Short-term borrowings
    847,000       700,000  
Other accrued expenses
    244,558       224,154  
Deferred revenue
    300,579       231,926  
Current portion of long-term debt
    769       762  
 
           
Total current liabilities
    2,119,832       1,935,620  
 
Long-term debt
    1,551       1,958  
Other long-term liabilities
    303,193       262,857  
 
           
Total liabilities
    2,424,576       2,200,435  
 
Shareholders’ equity:
               
Common stock ($0.001 par value) — authorized, 1,200,000,000 shares; issued and outstanding, 746,057,192 and 756,602,055 shares, respectively (includes 3,394,184 common stock units in both periods)
    746       756  
Other additional paid-in-capital
    39,393       39,393  
Retained earnings
    2,121,783       2,151,084  
Accumulated other comprehensive income
    50,377       37,273  
 
           
Total shareholders’ equity
    2,212,299       2,228,506  
 
           
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 4,636,875     $ 4,428,941  
 
           
See Notes to Consolidated Financial Statements.

2


Table of Contents

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                 
    26 Weeks Ended  
    April 1,     April 2,  
    2007     2006  
OPERATING ACTIVITIES:
               
Net earnings
  $ 355,792     $ 301,472  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
    235,481       198,633  
Provision for impairments and asset disposals
    13,500       9,153  
Deferred income taxes, net
    (37,162 )     (57,131 )
Equity in income of investees
    (24,935 )     (24,807 )
Distributions of income from equity investees
    32,360       16,393  
Stock-based compensation
    52,180       51,297  
Tax benefit from exercise of stock options
    4,982       520  
Excess tax benefit from exercise of stock options
    (46,347 )     (54,872 )
Net amortization of premium on securities
    432       1,209  
Cash provided/(used) by changes in operating assets and liabilities:
               
Inventories
    60,553       91,975  
Accounts payable
    (60,498 )     8,270  
Accrued compensation and related costs
    10,161       50,099  
Accrued taxes
    27,168       76,716  
Deferred revenue
    68,832       58,250  
Other operating assets and liabilities
    45,320       34,815  
 
           
Net cash provided by operating activities
    737,819       761,992  
 
INVESTING ACTIVITIES:
               
Purchase of available-for-sale securities
    (177,292 )     (356,681 )
Maturity of available-for-sale securities
    134,712       127,604  
Sale of available-for-sale securities
    36,897       154,250  
Acquisitions, net of cash acquired
    (47,304 )     (90,219 )
Net purchases of equity, other investments and other assets
    (31,143 )     (19,103 )
Net additions to property, plant and equipment
    (507,202 )     (310,331 )
 
           
Net cash used by investing activities
    (591,332 )     (494,480 )
 
FINANCING ACTIVITIES:
               
Proceeds from issuance of common stock
    108,202       91,618  
Excess tax benefit from exercise of stock options
    46,347       54,872  
Net borrowings/(repayments) under revolving credit facility
    147,000       (182,000 )
Principal payments on long-term debt
    (401 )     (372 )
Repurchase of common stock
    (563,137 )     (204,186 )
 
           
Net cash used by financing activities
    (261,989 )     (240,068 )
 
Effect of exchange rate changes on cash and cash equivalents
    3,075       1,418  
 
           
Net increase/(decrease) in cash and cash equivalents
    (112,427 )     28,862  
 
CASH AND CASH EQUIVALENTS:
               
Beginning of period
    312,606       173,809  
 
           
 
End of period
  $ 200,179     $ 202,671  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid during the period for:
               
Interest
  $ 14,884     $ 4,444  
Income taxes
  $ 223,653     $ 167,286  
See Notes to Consolidated Financial Statements.

3


Table of Contents

STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks and 26 Weeks Ended April 1, 2007, and April 2, 2006
Note 1: Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited consolidated financial statements as of April 1, 2007, and for the 13-week periods and 26-week periods ended April 1, 2007, and April 2, 2006, have been prepared by Starbucks Corporation (“Starbucks” or the “Company”) under the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the financial information for the 13-week periods and 26-week periods ended April 1, 2007, and April 2, 2006, 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.
The financial information as of October 1, 2006, is derived from the Company’s audited consolidated financial statements and notes for the fiscal year ended October 1, 2006 (“Fiscal 2006”), included in Item 8 in the Fiscal 2006 Annual Report on Form 10-K (together with Amendment No. 1 to the Fiscal 2006 Annual Report on Form 10-K/A, the “10-K”). The information included in this Form 10-Q should be read in conjunction with management’s discussion and analysis and notes to the financial statements in the 10-K.
The results of operations for the 13-week periods and 26-week periods ended April 1, 2007, are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 30, 2007.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006, and the Company will adopt the new requirements in its fiscal first quarter of 2008. The cumulative effects, if any, of adopting FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact, if any, of adopting FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. Starbucks must adopt these new requirements no later than its first fiscal quarter of 2009. Starbucks has not yet determined the effect on the Company’s consolidated financial statements, if any, upon adoption of SFAS 157, or if it will adopt the requirements prior to the first fiscal quarter of 2009.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). The intent of SAB 108 is to reduce diversity in practice for the method companies use to quantify financial statement misstatements, including the effect of prior year uncorrected errors. SAB 108 establishes an approach that requires quantification of financial statement errors using both an income statement and cumulative balance sheet approach. SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 is not expected to have a significant impact on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, or Starbucks first fiscal quarter of 2009. Early adoption is permitted. Starbucks has not yet determined if it will elect to apply any of the provisions of SFAS 159 or what the effect of adoption of the statement would have, if any, on its consolidated financial statements.

4


Table of Contents

Note 2: Acquisition
In October 2006, the Company acquired from H&Q Asia Pacific and other shareholders, 100% equity ownership of High Grown Investment Group (Hong Kong) Limited, which in turn owns 90% of Beijing Mei Da Coffee Co. Ltd. (“Mei Da”), the operator of 61 Starbucks retail stores in Beijing and Tianjin, China, and an authorized licensee of Starbucks Coffee International. Beijing San Yuan Company continues to be a minority shareholder of Mei Da. Due to its majority ownership of these operations, Starbucks applied the consolidation method of accounting subsequent to the date of acquisition.
Note 3: Derivative Financial Instruments
The Company manages its exposure to various risks within the consolidated financial statements according to an umbrella risk policy. Under this policy, Starbucks may engage in transactions involving various derivative instruments, with maturities generally not longer than five years, to hedge assets, liabilities, revenues and purchases.
Cash Flow Hedges
Starbucks, which includes subsidiaries that use their local currency as their functional currency, enters into cash flow derivative instruments to hedge portions of anticipated revenue streams and inventory purchases. Current forward contracts, which comprise the majority of the Company’s derivative instruments, hedge monthly forecasted revenue transactions denominated in Japanese yen and Canadian dollars, as well as forecasted inventory purchases denominated primarily in U.S. dollars for foreign operations. The Company also has futures contracts to hedge the variable price component for a small portion of its price-to-be-fixed green coffee purchase contracts.
The Company had accumulated net derivative gains of $1.9 million, net of taxes, in other comprehensive income as of April 1, 2007, related to cash flow hedges. Of this amount, $1.1 million of net derivative gains pertain to hedging instruments that will be dedesignated within 12 months and will also continue to experience fair value changes before affecting earnings. There was no significant ineffectiveness for cash flow hedges recognized during the 13-week and 26-week periods ended April 1, 2007. No cash flow hedges were discontinued and no ineffectiveness was recognized during the 13-week and 26-week periods ended April 2, 2006. Current contracts will expire within 30 months.
Net Investment Hedges
Net investment derivative instruments are used to hedge the Company’s equity method investment in Starbucks Coffee Japan, Ltd. (“Starbucks Japan”) as well as the Company’s net investments in its Canadian and United Kingdom subsidiaries, to minimize foreign currency exposure. The Company applies the spot-to-spot method for these forward foreign exchange contracts, and under this method the change in fair value of the forward contracts attributable to the changes in spot exchange rates (the effective portion) is reported in other comprehensive income. The remaining change in fair value of the forward contract (the ineffective portion) is reclassified into earnings in “Interest and other income, net.” The Company had accumulated net derivative losses of $4.3 million, net of taxes, in other comprehensive income as of April 1, 2007, related to net investment derivative hedges. Current contracts expire within 27 months.
The following table presents the net gains and losses reclassified from other comprehensive income into the consolidated statements of earnings during the periods indicated for cash flow and net investment hedges (in thousands):
                                 
    13 Weeks Ended   26 Weeks Ended
    April 1,   April 2,   April 1,   April 2,
    2007   2006   2007   2006
         
Cash flow hedges:
                               
Reclassified gains into total net revenues
  $ 682     $ 451     $ 990     $ 872  
Reclassified losses into cost of sales
    (48 )     (1,932 )     (1,075 )     (3,568 )
         
Net reclassified gains /(losses) — cash flow hedges
    634       (1,481 )     (85 )     (2,696 )
Net reclassified gains — net investment hedges
    1,280       576       2,617       999  
         
 
                               
Total
  $ 1,914     $ (905 )   $ 2,532     $ (1,697 )
         

5


Table of Contents

Other Derivatives
Starbucks entered into foreign currency forward contracts that are not designated as hedging instruments for accounting purposes. These contracts are recorded at fair value, with the changes in fair value recognized in “Interest and other income, net” on the consolidated statements of earnings. For the 13-week and 26-week periods ended April 1, 2007, these forward contracts resulted in net losses of $2.3 million. These losses were partially offset by the financial impact of translating foreign currency denominated payables and receivables, which are also recognized in “Interest and other income, net.” No similar contracts were held as of April 2, 2006.
Note 4: Inventories
Inventories consist of the following (in thousands):
                         
    April 1,     October 1,     April 2,  
    2007     2006     2006  
Coffee:
                       
Unroasted
  $ 288,667     $ 328,051     $ 245,117  
Roasted
    77,910       80,199       63,486  
Other merchandise held for sale
    130,722       146,345       79,250  
Packaging and other supplies
    81,578       81,627       68,842  
 
                 
Total
  $ 578,877     $ 636,222     $ 456,695  
 
                 
Other merchandise held for sale includes, among other items, brewing equipment, serveware and tea.
As of April 1, 2007, the Company had committed to fixed-price purchase contracts for green coffee totaling $446 million. The Company believes, based on relationships established with its suppliers in the past, the risk of non-delivery on such purchase commitments is remote.
Note 5: Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist of the following (in thousands):
                 
    April 1,     October 1,  
    2007     2006  
Land
  $ 37,783     $ 32,350  
Buildings
    135,868       109,129  
Leasehold improvements
    2,743,959       2,436,503  
Store equipment
    895,777       784,444  
Roasting equipment
    203,101       197,004  
Furniture, fixtures and other
    546,235       523,275  
 
           
 
    4,562,723       4,082,705  
Less: accumulated depreciation and amortization
    (2,192,059 )     (1,969,804 )
 
           
 
    2,370,664       2,112,901  
Work in progress
    153,206       174,998  
 
           
Property, plant and equipment, net
  $ 2,523,870     $ 2,287,899  
 
           
Note 6: Short-term Borrowings
In August 2005, the Company entered into a $500 million unsecured five-year revolving credit facility (the “facility”) with various banks, of which $100 million may be used for issuances of letters of credit. The facility is available for working capital, capital expenditures and other corporate purposes, which may include acquisitions and share repurchases. In August 2006, the Company increased its borrowing capacity under the facility to $1 billion, as provided in the original credit facility. In December of 2006, the Company extended the term of the facility by one year to August 2011. The interest rate for borrowings under the facility ranges from 0.11% to 0.27% over LIBOR or an alternate base rate, which is the greater of the bank prime rate or the Federal Funds Rate plus 0.50%. The specific spread over LIBOR will depend upon the Company’s performance under specified financial criteria.
As of April 1, 2007, the Company had $847 million outstanding, as well as a letter of credit of $12.9 million which reduces the borrowing capacity under the credit facility. As of October 1, 2006, the Company had $700 million outstanding, as well as a letter of credit of $11.9 million. For the 26-week period ended April 1, 2007, the Company had additional borrowings of $576 million under the facility and made principal repayments of $429 million. The weighted average contractual interest rates were 5.5% at both April 1, 2007 and October 1, 2006. The facility

6


Table of Contents

contains provisions requiring the Company to maintain compliance with certain covenants, including the maintenance of certain financial ratios. As of April 1, 2007 and October 1, 2006, the Company was in compliance with each of these covenants.
Interest expense, net of interest capitalized, was $6.8 million and $13.8 million for the 13 weeks and 26 weeks ended April 1, 2007, respectively. Interest expense was $1.8 million and $4.4 million for the 13 weeks and 26 weeks ended April 2, 2006, respectively. For the 13 weeks and 26 weeks ended April 1, 2007, $1.1 million and $1.9 million, respectively, of interest expense was capitalized. No interest was capitalized for the 13 weeks and 26 weeks ended April 2, 2006.
On March 27, 2007, the Company established a commercial paper program (the “program”). Under the program the Company may issue unsecured commercial paper notes, up to a maximum aggregate amount outstanding at any time of $1 billion, with individual maturities that may vary, but not exceed 397 days from the date of issue. The program is backstopped by the Company’s revolving facility, and the combined borrowing limit remains at $1 billion for the program and the facility. Under the program, the Company may issue commercial paper from time to time, and the proceeds of the commercial paper financing will be used for working capital, capital expenditures and other corporate purposes, which may include acquisitions and share repurchases. As of April 1, 2007, there had been no issuances of commercial paper. Initial issuances of commercial paper will be used to refinance earlier borrowings under the credit facility.
Note 7: Other Long-term Liabilities
The Company’s other long-term liabilities consist of the following (in thousands):
                 
    April 1,     October 1,  
    2007     2006  
Deferred rent
  $ 231,246     $ 203,903  
Asset retirement obligations
    41,015       34,271  
Minority interest
    15,012       10,739  
Other
    15,920       13,944  
 
           
Total
  $ 303,193     $ 262,857  
 
           
Deferred rent liabilities represent amounts for tenant improvement allowances, rent escalation clauses and rent holidays related to certain operating leases. The Company amortizes deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of earnings.
Asset retirement obligations represent the estimated fair value of the Company’s future costs of removing leasehold improvements at the termination of leases for certain stores and administrative facilities.
Minority interest represents the collective ownership interests of minority shareholders for operations accounted for under the consolidation method, in which Starbucks owns less than 100% of the equity interest.
The other remaining long-term liabilities generally include obligations to be settled or paid for one year beyond each period presented, for items such as guarantees, hedging instruments, the long-term portion of capital lease obligations and donation commitments.
Note 8: Shareholders’ Equity
In addition to 1.2 billion shares of authorized common stock with $0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding at April 1, 2007.
Under the Company’s authorized share repurchase program, Starbucks acquired 17.9 million shares at an average price of $33.22 for a total accrual-based cost of $594 million for the 26-week period ended April 1, 2007. The related cash amount used to repurchase shares for the 26-week period ended April 1, 2007 was $563 million. The difference between the two amounts represents the effect of the net change in unsettled trades totaling $31 million from October 1, 2006. Starbucks acquired 6.1 million shares at an average price of $29.00 for a total accrual-based cost of $178 million during the 26-week period ended April 2, 2006. The related cash amount used to repurchase shares for the 26-week period ended April 2, 2006 was $204 million. The difference between the two amounts represents the effect of the net change in unsettled trades totaling $26 million from October 2, 2005. Share repurchases were funded through cash, cash equivalents, available-for-sale securities and borrowings under the

7


Table of Contents

revolving credit facility and were part of the Company’s active capital management program. On May 1, 2007, the Starbucks Board of Directors authorized the repurchase of up to 25 million additional shares of the Company’s common stock. As of May 1, 2007, a total of up to 26.1 million shares remained available for repurchase, under the current and previous authorizations.
Comprehensive Income
Comprehensive income includes all changes in equity during the period, except those resulting from transactions with shareholders and subsidiaries of the Company. It has two components: net earnings and other comprehensive income. Accumulated other comprehensive income reported on the Company’s consolidated balance sheets consists of foreign currency translation adjustments and the unrealized gains and losses, net of applicable taxes, on available-for-sale securities and on derivative instruments designated and qualifying as cash flow and net investment hedges.
Comprehensive income, net of related tax effects, is as follows (in thousands):
                                 
    13 Weeks Ended     26 Weeks Ended  
    April 1,     April 2,     April 1,     April 2,  
    2007     2006     2007     2006  
Net earnings
  $ 150,840     $ 127,316     $ 355,792     $ 301,472  
 
Unrealized holding gains/(losses) on cash flow hedging instruments
    (1,546 )     570       3,996       (698 )
Unrealized holding gains/(losses) on net investment hedging instruments
    (978 )     (93 )     (1,086 )     1,244  
Unrealized holding gains on available-for-sale securities
    84       911       162       867  
Reclassification adjustment for net losses realized in net earnings for available-for-sale securities
    1       16       1       6  
 
                               
Reclassification adjustment for net losses realized in net earnings for cash flow hedges
    356       906       1,109       2,016  
 
                       
Net unrealized gain/(loss)
    (2,083 )     2,310       4,182       3,435  
Translation adjustment
    3,673       5,450       8,922       1,830  
 
                       
Total comprehensive income
  $ 152,430     $ 135,076     $ 368,896     $ 306,737  
 
                       
The favorable translation adjustment change for the 13-week period ended April 1, 2007, of $3.7 million was primarily due to the weakening of the U.S. dollar against the euro. The favorable translation adjustment change for the 13-week period ended April 2, 2006, of $5.4 million was primarily due to the weakening of the U.S. dollar against several currencies, such as the euro, British pound sterling and Korean won.
The favorable translation adjustment change for the 26-week period ended April 1, 2007, of $8.9 million was primarily due to the weakening of the U.S. dollar against several currencies, such as the euro and British pound sterling, offset in part by the strengthening of the U.S. dollar against the Canadian dollar. The favorable translation adjustment change for the 26-week period ended April 2, 2006, of $1.8 million was primarily due to the weakening of the U.S. dollar against several currencies, such as the Korean won, Taiwan dollar and Chinese renminbi, partially offset by the strengthening of the U.S. dollar against the Japanese yen.
The components of accumulated other comprehensive income, net of tax, as presented on the consolidated balance sheets were as follows (in thousands):
                 
    April 1,     October 1,  
    2007     2006  
Net unrealized holding losses on available-for-sale securities
  $ (91 )   $ (254 )
Net unrealized holding losses on hedging instruments
    (2,397 )     (6,416 )
Translation adjustment
    52,865       43,943  
 
           
Accumulated other comprehensive income
  $ 50,377     $ 37,273  
 
           
As of April 1, 2007, the translation adjustment of $52.9 million was net of tax provisions of $7.9 million. As of October 1, 2006, the translation adjustment of $43.9 million was net of tax provisions of $7.3 million.

8


Table of Contents

Note 9: Stock-Based Compensation
Stock Options
Stock options to purchase the Company’s common stock are granted at prices at or above the fair market value on the date of grant. The majority of options become exercisable in four equal installments beginning a year from the date of grant and generally expire 10 years from the date of grant. Certain options granted prior to October 1, 2006 become exercisable in three equal installments beginning a year from the date of grant. Options granted to non-employee directors generally vest over one year. Nearly all outstanding stock options are non-qualified stock options.
The fair value of stock awards was estimated at the date of grant using the Black-Scholes-Merton option valuation model with the following weighted average assumptions for the 13 and 26 weeks ended April 1, 2007, and April 2, 2006:
                                 
    Employee Stock Options
    13 Weeks Ended   26 Weeks Ended
    April 1, 2007   April 2, 2006   April 1, 2007   April 2, 2006
Expected term (in years)
    4.5       4.4       4.7       4.4  
Expected stock price volatility
    26.9 %     28.3 %     29.0 %     28.9 %
Risk-free interest rate
    4.6 %     4.6 %     4.6 %     4.4 %
Expected dividend yield
    0.0 %     0.0 %     0.0 %     0.0 %
Estimated fair value per option granted
  $ 10.22     $ 10.86     $ 11.97     $ 9.54  
The assumptions used to calculate the fair value of stock awards granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.
For the 26-week periods ended April 1, 2007 and April 2, 2006, total pretax compensation cost recognized for share-based payment plans was $52.2 million and $50.6 million, respectively, and the total income tax benefit recognized in the statements of earnings from these plans was $17.8 million and $17.3 million, respectively.
The following summarizes all stock option transactions from October 1, 2006 through April 1, 2007 (no restricted stock, restricted stock units or stock appreciation rights were outstanding for any of these periods):
                                 
            Weighted   Weighted    
            Average   Average   Aggregate
    Shares   Exercise   Remaining   Intrinsic
    Subject to   Price   Contractual   Value
    Options   per Share   Life   (in thousands)
Outstanding, October 1, 2006
    69,419,871     $ 16.83       6.2     $ 1,196,209  
Granted
    11,427,899       36.65                  
Exercised
    (6,511,839 )     13.08                  
Forfeited/Cancelled
    (1,766,127 )     28.89                  
 
                               
Outstanding, April 1, 2007
    72,569,804       19.97       6.3       886,698  
 
                               
Exercisable, April 1, 2007
    46,049,878       13.54       5.0       821,681  
Vested and expected to vest, April 1, 2007
    70,146,981       19.46       6.2       885,606  
The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount optionees would have realized if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price on that day. As of April 1, 2007, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $144 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 25 months.
The Company issues new shares of common stock upon exercise of stock options. As of April 1, 2007, there were 58.6 million shares of common stock available for issuance pursuant to future stock option grants.

9


Table of Contents

Note 10: Earnings Per Share
The following table presents the calculation of net earnings per common share – basic and diluted (in thousands, except earnings per share):
                                 
    13 Weeks Ended     26 Weeks Ended  
    April 1,     April 2,     April 1,     April 2,  
    2007     2006     2007     2006  
Net earnings
  $ 150,840     $ 127,316     $ 355,792     $ 301,472  
Weighted average common shares and common stock units outstanding (for basic calculation)
    752,497       767,445       755,292       767,250  
Dilutive effect of outstanding common stock options
    21,558       27,168       23,158       26,686  
 
                       
Weighted average common and common equivalent shares outstanding (for diluted calculation)
    774,055       794,613       778,450       793,936  
 
                       
 
                               
Net earnings per common share — basic
  $ 0.20     $ 0.17     $ 0.47     $ 0.39  
Net earnings per common and common equivalent share — diluted
  $ 0.19     $ 0.16     $ 0.46     $ 0.38  
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) using the treasury stock method. These options are excluded from the computation of earnings per share if their effect is antidilutive. The antidilutive options totaled 11.8 million and 12.0 million for the 13-week periods ended April 1, 2007 and April 2, 2006, respectively. The antidilutive options totaled 8.5 million and 10.1 million for the 26-week periods ended April 1, 2007 and April 2, 2006, respectively.
Note 11: Commitments and Contingencies
Guarantees
The Company has unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and related interest and fees of an unconsolidated equity investee, Starbucks Japan. The guarantees continue until the loans, including accrued interest and fees, have been paid in full, with the final loan amount due in 2014. The maximum amount is limited to the sum of unpaid principal and interest amounts, as well as other related expenses. These amounts will vary based on fluctuations in the yen foreign exchange rate. As of April 1, 2007, the maximum amount of the guarantees was approximately $5.4 million. Since there has been no modification of these loan guarantees subsequent to the Company’s adoption of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indebtedness of Others,” Starbucks has applied the disclosure provisions only and has not recorded the guarantee on its consolidated balance sheet.
Starbucks has commitments under which it unconditionally guarantees its proportionate share of certain borrowings of unconsolidated equity investees. The Company’s maximum exposure under these commitments is approximately $9.3 million, excluding interest and other related costs, and these commitments expire between 2007 and 2012. As of April 1, 2007, the Company recorded $3.6 million to “Equity and other investments” and “Other long-term liabilities” on the consolidated balance sheet for the fair value of the guarantee arrangements.
Legal Proceedings
On June 3, 2004, two then-current employees of the Company filed a lawsuit, entitled Sean Pendlebury and Laurel Overton v. Starbucks Coffee Company, in the U.S. District Court for the Southern District of Florida claiming the Company violated requirements of the Fair Labor Standards Act (“FLSA”). The suit alleges that the Company misclassified its retail store managers as exempt from the overtime provisions of the FLSA, and that each manager therefore is entitled to overtime compensation for any week in which he or she worked more than 40 hours during the three years before joining the suit as a plaintiff, and for as long as they remain a manager thereafter. Plaintiffs seek to represent themselves and all similarly situated U.S. current and former store managers of the Company. Plaintiffs seek reimbursement for an unspecified amount of unpaid overtime compensation, liquidated damages, attorney’s fees and costs. Plaintiffs also filed on June 3, 2004 a motion for conditional collective action treatment and court-supervised notice to additional putative class members under the opt-in procedures in section 16(b) of the FLSA. On January 3, 2005, the district court entered an order authorizing nationwide notice of the lawsuit to all current and former store managers employed by the Company during the three years before the suit was filed. The Company filed a motion for summary judgment as to the claims of the named plaintiffs on September 24, 2004. The court denied that motion because this case was in the early stages of discovery, but the court noted that the Company may resubmit this motion at a later date. Starbucks believes that the plaintiffs are properly classified as exempt under the federal wage laws. The Company cannot estimate the possible loss to the Company, if any, and believes

10


Table of Contents

that a loss in this case is unlikely. Trial is currently set for August 2007. The Company intends to vigorously defend the lawsuit.
On October 8, 2004, a former hourly employee of the Company filed a lawsuit in San Diego County Superior Court entitled Jou Chau v. Starbucks Coffee Company. The lawsuit alleges that the Company violated the California Labor Code by allowing shift supervisors to receive tips. More specifically, the lawsuit alleges that since shift supervisors direct the work of baristas, they qualify as “agents” of the Company and are therefore excluded from receiving tips under California Labor Code Section 351, which prohibits employers and their agents from collecting or receiving tips left by patrons for other employees. The lawsuit further alleges that because the tipping practices violate the Labor Code, they also are unfair practices under the California Unfair Competition Law. In addition to recovery of an unspecified amount of tips distributed to shift supervisors, the lawsuit seeks penalties under California Labor Code Section 203 for willful failure to pay wages due. Plaintiff also seeks attorneys’ fees and costs. On March 30, 2006, the Court issued an order certifying the case as a class action, with the plaintiff representing a class of all persons employed as baristas in the state of California since October 8, 2000. In March 2007, notice of action was sent to approximately 120,000 potential members of the class. The Company cannot estimate the possible loss to the Company, if any. Trial is currently set for December 2007. The Company believes its practices comply with California law, and the Company intends to vigorously defend the lawsuit.
On March 11, 2005, a former employee of the Company filed a lawsuit, entitled James Falcon v. Starbucks Corporation and Does 1 through 100, in the U.S. District Court for the Southern District of Texas claiming that the Company violated requirements of the FLSA. Specifically, the plaintiff claims that the Company misclassified its retail assistant store managers as exempt from the overtime provisions of the FLSA and that each assistant manager therefore is entitled to overtime compensation for any week in which he or she worked more than 40 hours during the three years before joining the suit as a plaintiff, and for as long as they remain an assistant manager thereafter. On August 18, 2005, the plaintiff amended his complaint to include allegations that he and other retail assistant store managers were not paid overtime compensation for all hours worked in excess of 40 hours in a work week after they were re-classified as non-exempt employees in September 2002. In both claims, Plaintiff seeks to represent himself and a putative class of all current and former assistant store managers employed by the Company in the United States from March 11, 2002 until the present. He also seeks, on behalf of himself and the class, reimbursement for an unspecified amount of unpaid overtime compensation, liquidated damages, injunctive relief, and attorney’s fees and costs. On September 13, 2005, the plaintiff filed a motion for conditional collective action treatment and court-supervised notice to all putative class members under the opt-in procedures in section 16(b) of the FLSA. On November 29, 2005, the court entered an order authorizing notice to the class of the existence of the lawsuit and their opportunity to join as plaintiffs. The Company has a policy requiring that all non-exempt partners, including assistant store managers, be paid for all hours worked, including any hours worked in excess of 40 per week. The Company also believes that this policy is, and at all relevant times has been, communicated and followed consistently. Further, the Company believes that the plaintiff and other assistant store managers were properly classified as exempt under the FLSA prior to September 2002. The Company cannot estimate the possible loss to the Company, if any, and believes that a loss in this case is unlikely. No trial date has been set. The Company intends to vigorously defend the lawsuit.
The Company is party to various other legal proceedings arising in the ordinary course of its business, but it is not currently a party to any legal proceeding that management believes would have a material adverse effect on the consolidated financial position or results of operations of the Company.

11


Table of Contents

Note 12: Segment Reporting
Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision making purposes. The tables below present information by operating segment (in thousands):
                                         
    United                   Unallocated    
13 Weeks Ended   States   International   Global CPG   Corporate (1)   Total
April 1, 2007
                                       
Net Revenues:
                                       
Company-operated retail
  $ 1,595,389     $ 327,316     $     $     $ 1,922,705  
Specialty:
                                       
Licensing
    104,790       51,205       78,812             234,807  
Foodservice and other
    89,251       8,831                   98,082  
Total specialty
    194,041       60,036       78,812             332,889  
Total net revenues
    1,789,430       387,352       78,812             2,255,594  
Earnings/(loss) before income taxes
    269,954       22,284       37,659       (89,515 )     240,382  
Depreciation and amortization
    84,429       20,649       21       8,286       113,385  
Income from equity investees
          12,916       13,345             26,261  
Net impairment and disposition losses
    2,807       6,178             1,046       10,031  
 
                                       
April 2, 2006
                                       
Net Revenues:
                                       
Company-operated retail
  $ 1,351,563     $ 248,281     $     $     $ 1,599,844  
Specialty:
                                       
Licensing
    81,451       42,725       78,178             202,354  
Foodservice and other
    76,584       7,040                   83,624  
Total specialty
    158,035       49,765       78,178             285,978  
Total net revenues
    1,509,598       298,046       78,178             1,885,822  
Earnings/(loss) before income taxes
    231,439       19,575       38,028       (84,085 )     204,957  
Depreciation and amortization
    69,534       16,286       27       8,661       94,508  
Income from equity investees
    27       9,125       10,833             19,985  
Net impairment and disposition losses/(gains)
    1,870       3,684             (150 )     5,404  
                                         
    United                   Unallocated    
26 Weeks Ended   States   International   Global CPG   Corporate (1)   Total
April 1, 2007
                                       
Net Revenues:
                                       
Company-operated retail
  $ 3,255,652     $ 673,864     $     $     $ 3,929,516  
Specialty:
                                       
Licensing
    218,099       101,069       169,561             488,729  
Foodservice and other
    175,578       17,494                   193,072  
Total specialty
    393,677       118,563       169,561             681,801  
Total net revenues
    3,649,329       792,427       169,561             4,611,317  
Earnings/(loss) before income taxes
    596,692       55,822       79,260       (165,229 )     566,545  
Depreciation and amortization
    165,792       41,114       43       16,632       223,581  
Income from equity investees
          20,940       24,074             45,014  
Net impairment and disposition losses
    5,240       7,212       2       1,046       13,500  
 
                                       
April 2, 2006
                                       
Net Revenues:
                                       
Company-operated retail
  $ 2,722,250     $ 505,577     $     $     $ 3,227,827  
Specialty:
                                       
Licensing
    177,734       85,034       158,736             421,504  
Foodservice and other
    156,955       13,628                   170,583  
Total specialty
    334,689       98,662       158,736             592,087  
Total net revenues
    3,056,939       604,239       158,736             3,819,914  
Earnings/(loss) before income taxes
    529,921       53,398       80,605       (178,772 )     485,152  
Depreciation and amortization
    137,218       31,295       61       17,222       185,796  
Income from equity investees
    151       16,903       22,651             39,705  
Net impairment and disposition losses/(gains)
    3,912       5,256             (15 )     9,153  
 
(1)   Unallocated corporate includes certain general and administrative expenses, related depreciation and amortization expenses and amounts included in “Interest and other income, net” on the consolidated statements of earnings.

12


Table of Contents

The table below represents information by geographic area (in thousands):
                                 
    13 Weeks Ended     26 Weeks Ended  
    April 1,     April 2,     April 1,     April 2,  
    2007     2006     2007     2006  
Net revenues from external customers:
                               
United States
  $ 1,860,974     $ 1,586,704     $ 3,805,658     $ 3,211,571  
Foreign countries
    394,620       299,118       805,659       608,343  
 
                       
Total
  $ 2,255,594     $ 1,885,822     $ 4,611,317     $ 3,819,914  
 
                       
No customer accounts for 10% or more of the Company’s revenues. Revenues from foreign countries are based on the geographic location of the customers and consist primarily of revenues from the United Kingdom and Canada, which together account for approximately 72% of foreign net revenues.

13


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements herein, including anticipated store openings, trends in or expectations regarding Starbucks Corporation’s comparable store sales and revenue growth, operating income as a percentage of total net revenues, effective tax rate, cash flow requirements and capital expenditures all constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, coffee, dairy and other raw materials prices and availability, successful execution of internal performance and expansion plans, fluctuations in United States and international economies and currencies, ramifications from the war on terrorism, or other international events or developments, the impact of competitors’ initiatives, the effect of legal proceedings, and other risks detailed herein and in Starbucks Corporation’s other filings with the SEC, including the Item 1A. “Risks Factors” section of the 10-K.
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. Users should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. The Company is under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the 10-K.
General
Starbucks Corporation’s fiscal year ends on the Sunday closest to September 30. Fiscal year 2006 had 52 weeks and the fiscal year ending on September 30, 2007 will also include 52 weeks. All references to store counts, including data for new store openings, are reported net of related store closures.
Management Overview
During both the 13 and 26 week periods ended April 1, 2007, the Company’s continued focus on execution in all areas of its business, from U.S. and International Company-operated retail operations to the Company’s specialty operations, delivered solid financial performance. Management believes that its ability to achieve the balance between growing the core business and building the foundation for future growth is the key to increasing long-term shareholder value. Starbucks quarterly and year-to-date fiscal 2007 performance reflects the Company’s ongoing commitment to achieving this balance.
The primary driver of the Company’s revenue growth continues to be the opening of new retail stores, both Company-operated and licensed, in pursuit of the Company’s objective to establish Starbucks as one of the most recognized and respected brands in the world. Starbucks opened 1,288 new stores in the first half of fiscal 2007 and plans to open approximately 2,400 stores in fiscal 2007.
In addition to opening new retail stores, Starbucks works to increase revenues generated at new and existing Company-operated stores by attracting new customers and increasing the frequency of visits by current customers. The strategy is to increase comparable store sales by continuously improving the level of customer service, introducing innovative products and improving speed of service through training, technology and process improvement.
Global comparable store sales for Company-operated markets increased by 4% for the 13-week period ended April 1, 2007, and increased 5% over the first half of fiscal 2007. Comparable store sales growth for fiscal 2007 is expected to be in the target range of 3% to 7%.
In licensed retail operations, Starbucks shares operating and store development experience to help licensees improve the profitability of existing stores and build new stores. Internationally, the Company’s strategy is to selectively increase its equity stake in licensed international operations as these markets develop. In the first quarter of fiscal 2007, the Company purchased a 90% stake in its previously-licensed operations in Beijing and Tianjin, China.

14


Table of Contents

Starbucks has three reportable segments: United States, International and the Global Consumer Products Group (“CPG”).
The United States and International segments both include Company-operated retail stores, licensed retail stores and foodservice operations. The United States segment has been operating significantly longer than the International segment and has developed deeper awareness of, and attachment to, the Starbucks brand and stores among its customer base. As a result, the United States segment has significantly more stores, higher average sales per store, and higher total revenues than the International segment. Further, certain market costs, particularly occupancy costs, are lower in the United States segment than in the markets of the International segment. As a result of the relative strength of the brand in the United States segment, the number of stores, the higher unit volumes, and the lower market costs, the United States segment has a higher operating margin than the less-developed International segment.
The Company’s International store base continues to increase rapidly and Starbucks is achieving a growing contribution from established international markets while at the same time investing in emerging markets, such as China. The Company’s newer international markets require a more extensive support organization, relative to the current levels of revenue and operating income. The Company’s ongoing investments in International infrastructure can be expected to cause variability in quarterly operating margins for the International segment.
The CPG segment includes the Company’s grocery and warehouse club business as well as branded products operations worldwide. The CPG segment operates primarily through joint ventures and licensing arrangements with large consumer products business partners, most significantly The North American Coffee Partnership with the Pepsi-Cola Company for distribution of ready-to-drink beverages, and with Kraft Foods Inc. for distribution of packaged coffees and teas. This operating model allows the CPG segment to leverage the business partners’ existing infrastructures and to extend the Starbucks brand in an efficient way. Most of the customer revenues from the ready-to-drink and packaged coffee channels are recognized by the joint venture or licensed business partner, not by the CPG segment, and the results of the Company’s joint ventures are included on a net basis in “Income from equity investees” on the consolidated statements of earnings. As a result, the CPG segment reflects relatively lower revenues, a modest cost structure, and a resulting higher operating margin, compared to the Company’s other two reporting segments, which consist primarily of retail stores.
The combination of more retail stores, comparable store sales growth of 4% and growth in other business channels resulted in a 20% increase in total net revenues for the 13-week period ended April 1, 2007, compared to the same period of fiscal 2006. The Company expects consolidated total net revenue growth of approximately 20% in fiscal 2007.
Operating income as a percentage of total net revenues was 10.7% for both the 13 weeks ended April 1, 2007 and April 2, 2006, due to higher cost of sales including occupancy costs offset by lower store operating expenses and lower general and administrative expenses as a percentage of total net revenues. For the second half of fiscal 2007, the Company expects modest improvement in year-over-year operating margin, primarily in the fourth quarter, despite the more challenging cost environment, particularly in labor and dairy costs. Net earnings increased by 18% in the 13-week period ended April 1, 2007, compared to the same period in fiscal 2006.

15


Table of Contents

Results of Operations for the 13 Weeks Ended April 1, 2007 and April 2, 2006
CONSOLIDATED RESULTS
The following table presents the consolidated statements of earnings as well as the percentage relationship to total net revenues of items included in the Company’s consolidated statements of earnings (amounts in thousands):
                                         
    13 Weeks Ended             13 Weeks Ended  
    April 1,     April 2,     %     April 1,     April 2,  
    2007     2006     Change     2007     2006  
STATEMENTS OF EARNINGS DATA
                                       
                            As a % of total net revenues  
Net revenues:
                                       
Company-operated retail
  $ 1,922,705     $ 1,599,844       20.2 %     85.2 %     84.8 %
Specialty:
                                       
Licensing
    234,807       202,354       16.0       10.4       10.7  
Foodservice and other
    98,082       83,624       17.3       4.4       4.5  
 
                               
Total specialty
    332,889       285,978       16.4       14.8       15.2  
 
                               
Total net revenues
    2,255,594       1,885,822       19.6       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    944,746       760,873               41.9       40.3  
Store operating expenses (1)
    780,985       665,273               34.6       35.4  
Other operating expenses (2)
    75,661       63,648               3.4       3.4  
Depreciation and amortization expenses
    113,385       94,508               5.0       5.0  
General and administrative expenses
    126,104       119,611               5.6       6.3  
 
                               
Subtotal operating expenses
    2,040,881       1,703,913       19.8       90.5       90.4  
Income from equity investees
    26,261       19,985               1.2       1.1  
 
                               
Operating income
    240,974       201,894       19.4       10.7       10.7  
Interest and other income, net
    (592 )     3,063               0.0       0.2  
 
                               
Earnings before income taxes
    240,382       204,957               10.7       10.9  
Income taxes
    89,542       77,641               4.0       4.1  
 
                               
Net earnings
  $ 150,840     $ 127,316       18.5 %     6.7 %     6.8 %
 
                               
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 40.6% for the 13 weeks ended April 1, 2007, and 41.6% for the 13 weeks ended April 2, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 22.7% for the 13 weeks ended April 1, 2007, and 22.3% for the 13 weeks ended April 2, 2006.
Net revenues for the 13 weeks ended April 1, 2007, increased 20% to $2.3 billion from $1.9 billion for the corresponding period of fiscal 2006, driven by increases in both Company-operated retail revenues and specialty operations. Net revenues are expected to grow approximately 20% in fiscal 2007 compared to fiscal 2006.
During the 13-week period ended April 1, 2007, Starbucks derived 85% of total net revenues from its Company-operated retail stores. Company-operated retail revenues increased 20% to $1.9 billion for the 13 weeks ended April 1, 2007, from $1.6 billion for the same period in fiscal 2006. The increase was primarily attributable to the opening of 1,279 new Company-operated retail stores in the last 12 months and comparable store sales growth of 4% for the 13 weeks ended April 1, 2007. The increase in comparable store sales was due to a 3% increase in the average value per transaction and a 1% increase in the number of customer transactions.
The Company derived the remaining 15% of total net revenues from channels outside the Company-operated retail stores, collectively known as specialty operations. Specialty revenues, which include licensing revenues and foodservice and other revenues, increased 16% to $333 million for the 13 weeks ended April 1, 2007, from $286 million for the corresponding period of fiscal 2006.
Licensing revenues, which are derived from retail store licensing arrangements, as well as grocery, warehouse club and certain other branded-product operations, increased 16% to $235 million for the 13 weeks ended April 1, 2007, from $202 million for the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from the opening of 1,224 new licensed retail stores in the last 12 months.
Foodservice and other revenues increased 17% to $98 million for the 13 weeks ended April 1, 2007, from $84 million for the corresponding period of fiscal 2006. The increase was primarily attributable to growth in new and existing accounts in the U.S. foodservice business.
Cost of sales including occupancy costs increased to 41.9% of total net revenues for the 13 weeks ended April 1,

16


Table of Contents

2007, compared to 40.3% for the corresponding period of fiscal 2006. The increase was primarily due to a shift in sales to higher cost products, increased distribution costs due to the Company’s expanding store base and food programs, and higher rent expense attributed to growth in higher priced real estate markets.
Store operating expenses as a percentage of Company-operated retail revenues decreased to 40.6% for the 13 weeks ended April 1, 2007, from 41.6% for the corresponding period of fiscal 2006. This decrease was primarily due to higher provisions for incentive compensation in the prior year due to exceptionally strong performance.
Other operating expenses, expenses associated with the Company’s specialty operations, increased to 22.7% of total specialty revenues for the 13 weeks ended April 1, 2007, compared to 22.3% in the corresponding period of fiscal 2006. The increase was primarily due to higher marketing costs related to market expansion of ready-to-drink coffee beverages in the Asia-Pacific region.
Depreciation and amortization expenses increased to $113 million for the 13 weeks ended April 1, 2007, compared to $95 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 1,279 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses were 5.0% for both periods.
General and administrative expenses increased to $126 million for the 13 weeks ended April 1, 2007, compared to $120 million for the corresponding period of fiscal 2006. The increase was primarily due to higher payroll-related expenditures and professional fees in support of continued global growth, partially offset by lower provisions for incentive compensation due to exceptional performance in the prior year. As a percentage of total net revenues, general and administrative expenses decreased to 5.6% for the 13 weeks ended April 1, 2007, from 6.3% for the corresponding period of fiscal 2006.
Income from equity investees increased 31% to $26 million for the 13 weeks ended April 1, 2007, compared to $20 million for the corresponding period of fiscal 2006. The increase was primarily from the North American Coffee Partnership, which produces ready-to-drink beverages, including Starbucks bottled Frappuccino® coffee drinks and Starbucks DoubleShot® espresso drinks, and higher equity income from international investees.
Operating income increased 19% to $241 million for the 13 weeks ended April 1, 2007, compared to $202 million for the corresponding period of fiscal 2006. Operating margin was 10.7% of total net revenues for both the 13 weeks ended April 1, 2007, and April 2, 2006. For the 13 weeks ended April 1, 2007, higher cost of sales including occupancy costs were offset by lower store operating expenses and lower general and administrative expenses as a percentage of total net revenues.
Net interest and other income decreased to expense of $0.6 million for the 13 weeks ended April 1, 2007, compared to income of $3.1 million for the corresponding period of fiscal 2006, primarily due to higher borrowings and higher interest rates on the Company’s revolving credit facility.
Income taxes for the 13 weeks ended April 1, 2007, resulted in an effective tax rate of 37.2%, compared to 37.9% for the corresponding period of fiscal 2006. The Company currently estimates that its effective tax rate for fiscal year 2007 will approximate 37%, with quarterly variations.
Net earnings for the 13 weeks ended April 1, 2007, increased 18% to $151 million from $127 million for the same period in fiscal 2006. Diluted earnings per share increased by 19% to $0.19 for the 13 weeks ended April 1, 2007, compared to $0.16 per share for the comparable period in fiscal 2006.

17


Table of Contents

SEGMENT RESULTS
Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision-making purposes. The following tables summarize the Company’s results of operations by segment (in thousands):
United States
                                         
    13 Weeks Ended   13 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of U.S. total net
                            revenues
Net revenues:
                                       
Company-operated retail
  $ 1,595,389     $ 1,351,563       18.0 %     89.2 %     89.5 %
Specialty:
                                       
Licensing
    104,790       81,451       28.7       5.8       5.4  
Foodservice and other
    89,251       76,584       16.5       5.0       5.1  
                     
Total specialty
    194,041       158,035       22.8       10.8       10.5  
                     
Total net revenues
    1,789,430       1,509,598       18.5       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    707,957       569,264               39.6       37.7  
Store operating expenses (1)
    653,791       568,088               36.5       37.6  
Other operating expenses (2)
    52,020       48,109               2.9       3.2  
Depreciation and amortization expenses
    84,429       69,534               4.7       4.6  
General and administrative expenses
    23,651       23,587               1.3       1.6  
                     
Subtotal operating expenses
    1,521,848       1,278,582       19.0       85.0       84.7  
 
                                       
Income from equity investees
          27               0.0       0.0  
                     
Operating income
  $ 267,582     $ 231,043       15.8 %     15.0 %     15.3 %
                 
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 41.0% for the 13 weeks ended April 1, 2007, and 42.0% for the 13 weeks ended April 2, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 26.8% for the 13 weeks ended April 1, 2007, and 30.4% for the 13 weeks ended April 2, 2006.
The United States operating segment (“United States”) sells coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise primarily through Company-operated retail stores. Specialty operations within the United States include licensed retail stores, foodservice accounts and other initiatives related to the Company’s core business.
United States total net revenues increased 19% to $1.8 billion for the 13 weeks ended April 1, 2007, compared to $1.5 billion for the corresponding period of fiscal 2006.
United States Company-operated retail revenues increased 18% to $1.6 billion for the 13 weeks ended April 1, 2007, compared to $1.4 billion for the corresponding period of fiscal 2006, primarily due to the opening of 1,042 new Company-operated retail stores in the last 12 months and comparable store sales growth of 3% for the quarter resulting from a 3% increase in the average value per transaction.
Total United States specialty revenues increased 23% to $194 million for the 13 weeks ended April 1, 2007, compared to $158 million in the corresponding period of fiscal 2006. United States licensing revenues increased 29% to $105 million, compared to $81 million for the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues as a result of opening 768 new licensed retail stores in the last 12 months. United States foodservice and other revenues increased 17% to $89 million, from $77 million in fiscal 2006, primarily due to growth in new and existing foodservice accounts.
United States operating income increased 16% to $268 million for the 13 weeks ended April 1, 2007, compared to $231 million for the same period in fiscal 2006. Operating margin decreased to 15.0% of related revenues from a record second quarter high of 15.3% in the corresponding period of fiscal 2006. The decrease was due to higher cost of sales including occupancy costs, primarily due to a shift in sales to higher cost products, such as food and merchandise, higher rent expenses and increased distribution costs due to expansion of the Company’s store base

18


Table of Contents

and food programs. Partially offsetting this was lower store operating expenses as a percentage of total net revenues, primarily resulting from higher provisions for incentive compensation in the prior year due to exceptionally strong performance.
International
                                         
    13 Weeks Ended   13 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of International total
                            net revenues
Net revenues:
                                       
Company-operated retail
  $ 327,316     $ 248,281       31.8 %     84.5 %     83.3 %
Specialty:
                                       
Licensing
    51,205       42,725       19.8       13.2       14.3  
Foodservice and other
    8,831       7,040       25.4       2.3       2.4  
                   
Total specialty
    60,036       49,765       20.6       15.5       16.7  
                   
Total net revenues
    387,352       298,046       30.0       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    189,184       144,816               48.8       48.6  
Store operating expenses (1)
    127,194       97,185               32.9       32.6  
Other operating expenses (2)
    16,769       11,376               4.3       3.8  
Depreciation and amortization expenses
    20,649       16,286               5.3       5.5  
General and administrative expenses
    25,342       18,184               6.5       6.1  
                   
Subtotal operating expenses
    379,138       287,847       31.7       97.8       96.6  
 
                                       
Income from equity investees
    12,916       9,125               3.3       3.1  
                   
Operating income
  $ 21,130     $ 19,324       9.3 %     5.5 %     6.5 %
                 
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 38.9% for the 13 weeks ended April 1, 2007, and 39.1% for the 13 weeks ended April 2, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 27.9% for the 13 weeks ended April 1, 2007, and 22.9% for the 13 weeks ended April 2, 2006.
The International operating segment (“International”) sells coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise through Company-operated retail stores in Canada, the United Kingdom, China, Thailand, Australia, Germany, Singapore, Puerto Rico, Chile and Ireland. Specialty operations in International primarily include retail store licensing operations in more than 25 other countries and foodservice accounts in Canada and the United Kingdom. The Company’s International store base continues to increase rapidly and Starbucks is achieving a growing contribution from established areas of the business while at the same time investing in emerging markets and channels. Many of the Company’s International operations are in early stages of development that require a more extensive support organization, relative to the current levels of revenue and operating income, than in the United States. This continuing investment is part of the Company’s long-term, balanced plan for profitable growth.
International total net revenues increased 30% to $387 million for the 13 weeks ended April 1, 2007, compared to $298 million for the corresponding period of fiscal 2006.
International Company-operated retail revenues increased 32% to $327 million for the 13 weeks ended April 1, 2007, compared to $248 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 237 new Company-operated retail stores in the last 12 months, comparable store sales growth of 7% for the quarter and favorable foreign currency exchange for the British pound sterling. The increase in comparable store sales resulted from a 5% increase in the number of customer transactions coupled with a 2% increase in the average value per transaction.
Total International specialty revenues increased 21% to $60 million for the 13 weeks ended April 1, 2007, compared to $50 million in the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from opening 456 new licensed retail stores in the last 12 months and growth in new and existing foodservice accounts.
International operating income increased 9% to $21 million for the 13 weeks ended April 1, 2007, compared to $19

19


Table of Contents

million in the corresponding period of fiscal 2006. Operating margin decreased to 5.5% of related revenues from 6.5% in the corresponding period of fiscal 2006, primarily due to higher other operating expenses and general and administrative expenses as a percentage of total net revenues resulting from increased payroll-related expenditures to support continued rapid international store growth.
Global Consumer Products Group
                                         
    13 Weeks Ended   13 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of CPG total net
                            revenues
Net revenues:
                                       
Specialty:
                                       
Licensing
  $ 78,812     $ 78,178       0.8 %     100.0 %     100.0 %
                 
Total specialty
    78,812       78,178       0.8       100.0       100.0  
                 
Total net revenues
    78,812       78,178       0.8       100.0       100.0  
 
                                       
Cost of sales
    47,605       46,793               60.4       59.9  
Other operating expenses
    6,872       4,163               8.7       5.3  
Depreciation and amortization expenses
    21       27               0.0       0.0  
                 
Subtotal operating expenses
    54,498       50,983       6.9       69.1       65.2  
 
                                       
Income from equity investees
    13,345       10,833               16.9       13.8  
                 
Operating income
  $ 37,659     $ 38,028       (1.0 %)     47.8 %     48.6 %
                 
The Global Consumer Products Group (“CPG”) sells a selection of whole bean and ground coffees as well as a selection of premium Tazo® teas through licensing arrangements in United States and international markets. CPG also produces and sells ready-to-drink beverages which include, among others, Starbucks bottled Frappuccino® coffee drinks, Starbucks DoubleShot® espresso drinks, Discoveries™ products, Starbucks® superpremium ice creams and Starbucks™ Coffee and Cream Liqueurs through its joint ventures and marketing and distribution agreements.
CPG total net revenues increased 1% to $79 million for the 13 weeks ended April 1, 2007, compared to $78 million for the corresponding period of fiscal 2006. The increase was primarily due to increased product sales and royalties in the International ready-to-drink business. Partially offsetting this was decreased shipments into the U.S. packaged coffee and tea distribution system, despite higher sales to grocery retailers, resulting in lower inventory levels throughout the system.
CPG operating income was $38 million for the 13 weeks ended April 1, 2007, relatively flat with the corresponding period of fiscal 2006. Operating margin decreased to 47.8% of related revenues, from 48.6% in fiscal 2006, primarily due to increased other operating expenses. The increase in other operating expenses was due to higher marketing expenditures to support continued international expansion of ready-to-drink beverages. Partially offsetting the increase in other operating expenses was higher income from equity investees attributable to the ready-to-drink beverage business in the U.S.
Unallocated Corporate
                                         
    13 Weeks Ended   13 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of total net
                            revenues
Depreciation and amortization expenses
  $ 8,286     $ 8,661               0.4 %     0.5 %
General and administrative expenses
    77,111       77,840               3.4       4.1  
                 
Operating loss
  $ (85,397 )   $ (86,501 )     1.3 %     (3.8 %)     (4.6 %)
                 
Unallocated corporate expenses pertain to corporate administrative functions that support but are not specifically attributable to the Company’s operating segments, and include related depreciation and amortization expenses.
Unallocated corporate expenses decreased to $85 million for the 13 weeks ended April 1, 2007, compared to $87 million in the corresponding period of fiscal 2006. The decrease was primarily due to higher provisions for incentive

20


Table of Contents

compensation in the prior year due to exceptional performance. Total unallocated corporate expenses as a percentage of total net revenues decreased to 3.8% for the 13 weeks ended April 1, 2007, from 4.6% for the 13 weeks ended April 2, 2006.
Results of Operations for the 26 Weeks Ended April 1, 2007 and April 2, 2006
CONSOLIDATED RESULTS
The following table presents the consolidated statements of earnings as well as the percentage relationship to total net revenues of items included in the Company’s consolidated statements of earnings (amounts in thousands):
                                         
    26 Weeks Ended             26 Weeks Ended  
    April 1,     April 2,     %     April 1,     April 2,  
    2007     2006     Change     2007     2006  
STATEMENTS OF EARNINGS DATA
                                       
                            As a % of total net revenues  
Net revenues:
                                       
Company-operated retail
  $ 3,929,516     $ 3,227,827       21.7 %     85.2 %     84.5 %
Specialty:
                                       
Licensing
    488,729       421,504       15.9       10.6       11.0  
Foodservice and other
    193,072       170,583       13.2       4.2       4.5  
 
                               
Total specialty
    681,801       592,087       15.2       14.8       15.5  
 
                               
Total net revenues
    4,611,317       3,819,914       20.7       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    1,929,569       1,538,911               41.8       40.3  
Store operating expenses (1)
    1,552,952       1,287,439               33.7       33.6  
Other operating expenses (2)
    148,199       122,796               3.3       3.2  
Depreciation and amortization expenses
    223,581       185,796               4.8       4.9  
General and administrative expenses
    241,332       242,936               5.2       6.4  
 
                               
Subtotal operating expenses
    4,095,633       3,377,878       21.2       88.8       88.4  
Income from equity investees
    45,014       39,705               1.0       1.0  
 
                               
Operating income
    560,698       481,741       16.4       12.2       12.6  
Interest and other income, net
    5,847       3,411               0.1       0.1  
 
                               
Earnings before income taxes
    566,545       485,152               12.3       12.7  
Income taxes
    210,753       183,680               4.6       4.8  
 
                               
Net earnings
  $ 355,792     $ 301,472       18.0 %     7.7 %     7.9 %
 
                               
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 39.5% for the 26 weeks ended April 1, 2007, and 39.9% for the 26 weeks ended April 2, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 21.7% for the 26 weeks ended April 1, 2007, and 20.7% for the 26 weeks ended April 2, 2006.
Net revenues for the 26 weeks ended April 1, 2007, increased 21% to $4.6 billion from $3.8 billion for the corresponding period of fiscal 2006, driven by increases in both Company-operated retail revenues and specialty operations. Net revenues are expected to grow approximately 20% in fiscal 2007 compared to fiscal 2006.
During the 26-week period ended April 1, 2007, Starbucks derived 85% of total net revenues from its Company-operated retail stores. Company-operated retail revenues increased 22% to $3.9 billion for the 26 weeks ended April 1, 2007, from $3.2 billion for the same period in fiscal 2006. The increase was primarily attributable to the opening of 1,279 new Company-operated retail stores in the last 12 months and comparable store sales growth of 5% for the 26 weeks ended April 1, 2007. The increase in comparable store sales was due to a 3% increase in the average value per transaction and a 2% increase in the number of customer transactions.
The Company derived the remaining 15% of total net revenues from its specialty operations. Specialty revenues, which include licensing revenues and foodservice and other revenues, increased 15% to $682 million for the 26 weeks ended April 1, 2007, from $592 million for the corresponding period of fiscal 2006.
Licensing revenues, which are derived from retail store licensing arrangements, as well as grocery, warehouse club and certain other branded-product operations, increased 16% to $489 million for the 26 weeks ended April 1, 2007, from $422 million for the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from the opening of 1,224 new licensed retail stores in the last 12 months.

21


Table of Contents

Foodservice and other revenues increased 13% to $193 million for the 26 weeks ended April 1, 2007, from $171 million for the corresponding period of fiscal 2006. The increase was primarily attributable to growth in new and existing accounts in the U.S. foodservice business.
Cost of sales including occupancy costs increased to 41.8% of total net revenues for the 26 weeks ended April 1, 2007, compared to 40.3% for the corresponding period of fiscal 2006. The increase was primarily due to a shift in sales to higher cost products, increased distribution costs due to the Company’s expanding store base and food programs, and higher rent expense attributed to growth in higher priced real estate markets.
Store operating expenses as a percentage of Company-operated retail revenues decreased to 39.5% for the 26 weeks ended April 1, 2007, from 39.9% for the corresponding period of fiscal 2006. The decrease was primarily due to higher provisions for incentive compensation in the prior year due to exceptionally strong performance.
Other operating expenses, expenses associated with the Company’s specialty operations, increased to 21.7% of total specialty revenues for the 26 weeks ended April 1, 2007, compared to 20.7% in the corresponding period of fiscal 2006. The increase was primarily due to increased payroll-related expenditures to support the growth in the International licensed stores operations as well as higher marketing costs related to expansion of ready-to-drink coffee beverages in the Asia-Pacific region.
Depreciation and amortization expenses increased to $224 million for the 26 weeks ended April 1, 2007, compared to $186 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 1,279 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 4.8% for the 26 weeks ended April 1, 2007, from 4.9% for the corresponding period of fiscal 2006.
General and administrative expenses decreased to $241 million for the 26 weeks ended April 1, 2007, compared to $243 million for the corresponding period of fiscal 2006. This decrease was primarily due to lower provisions for incentive compensation compared to exceptional performance in the prior year and unusually high charitable contributions in the prior year. These were partially offset by increased payroll-related expenditures and higher professional fees in support of continued global growth and systems infrastructure development in the current year. As a percentage of total net revenues, general and administrative expenses decreased to 5.2% for the 26 weeks ended April 1, 2007, from 6.4% for the corresponding period of fiscal 2006.
Income from equity investees increased 13% to $45 million for the 26 weeks ended April 1, 2007, compared to $40 million for the corresponding period of fiscal 2006. The increase was primarily due to higher equity income from international investees, and higher income from the North American Coffee Partnership, which produces ready-to-drink beverages, including Starbucks bottled Frappuccino® coffee drinks and Starbucks DoubleShot® espresso drinks.
Operating income increased 16% to $561 million for the 26 weeks ended April 1, 2007, compared to $482 million for the corresponding period of fiscal 2006. Operating margin decreased to 12.2% of total net revenues for the 26 weeks ended April 1, 2007, compared to 12.6% for the corresponding period of fiscal 2006, primarily due to higher cost of sales including occupancy costs, partially offset by lower general and administrative expenses.
Net interest and other income increased to $5.8 million for the 26 weeks ended April 1, 2007, compared to $3.4 million in the corresponding period of fiscal 2006, primarily due to foreign exchange gains in the current year compared to foreign exchange losses in the prior year and higher income recognized from unredeemed stored value cards. These were partially offset by increased interest expense due to higher borrowings and higher interest rates on the Company’s revolving credit facility.
Income taxes for the 26 weeks ended April 1, 2007, resulted in an effective tax rate of 37.2%, compared to 37.9% for the corresponding period of fiscal 2006. The Company currently estimates that its effective tax rate for fiscal year 2007 will approximate 37%, with quarterly variations.
Net earnings for the 26 weeks ended April 1, 2007, increased 18% to $356 million from $301 million for the same period of fiscal 2006. Diluted earnings per share increased by 21% to $0.46 for the 26 weeks ended April 1, 2007, compared to $0.38 per share for the comparable period in fiscal 2006.

22


Table of Contents

SEGMENT RESULTS
Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision-making purposes. The following tables summarize the Company’s results of operations by segment (in thousands):
United States
                                         
    26 Weeks Ended   26 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of U.S. total net
                            revenues
Net revenues:
                                       
Company-operated retail
  $ 3,255,652     $ 2,722,250       19.6 %     89.2 %     89.1 %
Specialty:
                                       
Licensing
    218,099       177,734       22.7       6.0       5.8  
Foodservice and other
    175,578       156,955       11.9       4.8       5.1  
                 
Total specialty
    393,677       334,689       17.6       10.8       10.9  
                 
Total net revenues
    3,649,329       3,056,939       19.4       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    1,439,078       1,156,710               39.4       37.8  
Store operating expenses (1)
    1,302,168       1,096,863               35.7       35.9  
Other operating expenses (2)
    104,145       92,216               2.9       3.0  
Depreciation and amortization expenses
    165,792       137,218               4.5       4.5  
General and administrative expenses
    45,410       45,120               1.3       1.5  
                 
Subtotal operating expenses
    3,056,593       2,528,127       20.9       83.8       82.7  
 
                                       
Income from equity investees
          151               0.0       0.0  
                 
Operating income
  $ 592,736     $ 528,963       12.1 %     16.2 %     17.3 %
                 
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 40.0% for the 26 weeks ended April 1, 2007, and 40.3% for the 26 weeks ended April 2, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 26.5% for the 26 weeks ended April 1, 2007, and 27.6% for the 26 weeks ended April 2, 2006.
United States total net revenues increased 19% to $3.6 billion for the 26 weeks ended April 1, 2007, compared to $3.1 billion for the corresponding period of fiscal 2006.
United States Company-operated retail revenues increased 20% to $3.3 billion for the 26 weeks ended April 1, 2007, compared to $2.7 billion for the corresponding period of fiscal 2006, primarily due to the opening of 1,042 new Company-operated retail stores in the last 12 months and comparable store sales growth of 4% for the 26 weeks ended April 1, 2007. The increase in comparable store sales was due to a 3% increase in the average value per transaction and a 1% increase in the number of customer transactions.
Total United States specialty revenues increased 18% to $394 million for the 26 weeks ended April 1, 2007, compared to $335 million in the corresponding period of fiscal 2006. United States licensing revenues increased 23% to $218 million, compared to $178 million for the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues as a result of opening 768 new licensed retail stores in the last 12 months. United States foodservice and other revenues increased 12% to $176 million, from $157 million in fiscal 2006, primarily due to growth in new and existing foodservice accounts.
United States operating income increased by 12% to $593 million for the 26 weeks ended April 1, 2007, compared to $529 million for the same period in fiscal 2006. Operating margin decreased to 16.2% of related revenues from 17.3% in the corresponding period of fiscal 2006, primarily due to higher cost of sales including occupancy costs. Cost of sales including occupancy costs increased primarily due to a shift in sales to higher cost products such as food and merchandise, increased distribution costs due to the expansion of the Company’s store base and food programs, and higher rent expense. Partially offsetting this was lower store operating expenses and lower general and administrative expenses as a percentage of total net revenues, primarily resulting from higher provisions for incentive compensation in the prior year due to exceptionally strong performance.

23


Table of Contents

International
                                         
    26 Weeks Ended   26 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of International total
                            net revenues
Net revenues:
                                       
Company-operated retail
  $ 673,864     $ 505,577       33.3 %     85.0 %     83.7 %
Specialty:
                                       
Licensing
    101,069       85,034       18.9       12.8       14.1  
Foodservice and other
    17,494       13,628       28.4       2.2       2.2  
                 
Total specialty
    118,563       98,662       20.2       15.0       16.3  
                 
Total net revenues
    792,427       604,239       31.1       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    389,295       290,244               49.1       48.0  
Store operating expenses (1)
    250,784       190,576               31.7       31.6  
Other operating expenses (2)
    30,918       21,816               3.9       3.6  
Depreciation and amortization expenses
    41,114       31,295               5.2       5.2  
General and administrative expenses
    47,053       34,371               5.9       5.7  
                 
Subtotal operating expenses
    759,164       568,302       33.6       95.8       94.1  
 
                                       
Income from equity investees
    20,940       16,903               2.6       2.8  
                 
Operating income
  $ 54,203     $ 52,840       2.6 %     6.8 %     8.7 %
                 
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 37.2% for the 26 weeks ended April 1, 2007, and 37.7% for the 26 weeks ended April 2, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 26.1% for the 26 weeks ended April 1, 2007, and 22.1% for the 26 weeks ended April 2, 2006.
International total net revenues increased 31% to $792 million for the 26 weeks ended April 1, 2007, compared to $604 million for the corresponding period of fiscal 2006.
International Company-operated retail revenues increased 33% to $674 million for the 26 weeks ended April 1, 2007, compared to $506 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 237 new Company-operated retail stores in the last 12 months, comparable store sales growth of 8% for the 26 weeks ended April 1, 2007 and favorable foreign currency exchange for the British pound sterling. The increase in comparable store sales resulted from a 6% increase in the number of customer transactions coupled with a 2% increase in the average value per transaction.
Total International specialty revenues increased 20% to $119 million for the 26 weeks ended April 1, 2007, compared to $99 million in the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from opening 456 new licensed retail stores in the last 12 months and growth in new and existing foodservice accounts.
International operating income increased 3% to $54 million for the 26 weeks ended April 1, 2007, compared to $53 million in the corresponding period of fiscal 2006. Operating margin decreased to 6.8% of related revenues from 8.7% in the corresponding period of fiscal 2006, primarily due to higher cost of sales including occupancy costs, higher other operating expenses and higher general and administrative expenses. The increase in cost of sales including occupancy costs was primarily due to accounting corrections totaling $3.4 million in the first fiscal quarter, and to increased distribution costs due to the Company’s expanding store base and food programs. Higher other operating expenses and general and administrative expenses as a percentage of total net revenues resulted from increased payroll-related expenditures to support continued rapid international store growth.

24


Table of Contents

Global Consumer Products Group
                                         
    26 Weeks Ended   26 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of CPG total net
                            revenues
Net revenues:
                                       
Specialty:
                                       
Licensing
  $ 169,561     $ 158,736       6.8 %     100.0 %     100.0 %
                 
Total specialty
    169,561       158,736       6.8       100.0       100.0  
                 
Total net revenues
    169,561       158,736       6.8       100.0       100.0  
 
                                       
Cost of sales
    101,196       91,957               59.7       57.9  
Other operating expenses
    13,136       8,764               7.8       5.6  
Depreciation and amortization expenses
    43       61               0.0       0.0  
                 
Subtotal operating expenses
    114,375       100,782       13.5       67.5       63.5  
 
                                       
Income from equity investees
    24,074       22,651               14.2       14.3  
                 
Operating income
  $ 79,260     $ 80,605       (1.7 %)     46.7 %     50.8 %
                 
CPG total net revenues increased 7% to $170 million for the 26 weeks ended April 1, 2007, compared to $159 million for the corresponding period of fiscal 2006. The increase was primarily due to increased product sales and royalties in the International ready-to-drink business as well as an increase in product sales in the International packaged coffee and tea business through grocery and warehouse club channels.
CPG operating income decreased slightly to $79 million for the 26 weeks ended April 1, 2007, compared to $81 million for the corresponding period of fiscal 2006. Operating margin decreased to 46.7% of related revenues, from 50.8% in fiscal 2006, primarily due to higher other operating expenses and higher cost of sales. Other operating expenses increased primarily due to higher marketing expenditures to support continued international expansion of ready-to-drink beverages. Cost of sales increased primarily due to a shift in sales to higher cost products.
Unallocated Corporate
                                         
    26 Weeks Ended   26 Weeks Ended
    April 1,   April 2,   %   April 1,   April 2,
    2007   2006   Change   2007   2006
                            As a % of total net
                            revenues
Depreciation and amortization expenses
  $ 16,632     $ 17,222               0.4 %     0.4 %
General and administrative expenses
    148,869       163,445               3.2       4.3  
                     
Operating loss
  $ (165,501 )   $ (180,667 )     8.4 %     (3.6 %)     (4.7 %)
                     
Unallocated corporate expenses decreased to $166 million for the 26 weeks ended April 1, 2007, compared to $181 million in the corresponding period of fiscal 2006. The decrease was primarily due to higher provisions for incentive compensation in the prior year due to exceptional performance and unusually high charitable contributions in the prior year. These were partially offset by increased payroll-related expenditures and higher professional fees in support of continued global growth and systems infrastructure development. Total unallocated corporate expenses as a percentage of total net revenues decreased to 3.6% for the 26 weeks ended April 1, 2007, from 4.7% for the corresponding period of fiscal 2006.

25


Table of Contents

Liquidity and Capital Resources
The following table represents components of the Company’s most liquid assets (in thousands):
                 
    April 1,     October 1,  
    2007     2006  
Cash and cash equivalents
  $ 200,179     $ 312,606  
Short-term investments – available-for-sale securities
    77,872       87,542  
Short-term investments – trading securities
    65,780       53,496  
Long-term investments – available-for-sale securities
    20,994       5,811  
 
           
 
Total cash, cash equivalents and liquid investments
  $ 364,825     $ 459,455  
 
           
The Company manages its cash and cash equivalents, and liquid investments in order to internally fund operating needs and make scheduled payments on short-term borrowings.
The Company intends to use its cash and liquid investments, including any borrowings under its $1 billion commercial paper program, which is backstopped by the existing revolving credit facility, to invest in its core businesses and other new business opportunities related to its core businesses. The Company may use its available cash resources to make proportionate capital contributions to its equity method and cost method investees, as well as purchase larger ownership interests in selected equity method investees and licensed operations, particularly in international markets. Management believes that strong cash flow generated from operations, existing cash and liquid investments, as well as borrowing capacity under the commercial paper program should be sufficient to finance capital requirements for its core businesses for the foreseeable future. Depending on available liquidity and market conditions, Starbucks may repurchase shares of its common stock under its authorized share repurchase program. A portion of share repurchases in the past have been funded using the Company’s $1 billion credit facility. Outstanding borrowings under the facility were $847 million and letters of credit given were $13 million as of April 1, 2007, leaving $140 million of capacity under the facility. Accordingly, significant additional share repurchases in excess of cash flow will be limited in the absence of additional borrowing authorizations. Significant new joint ventures, acquisitions, and/or other new business opportunities may also require additional outside funding.
Other than for normal operating expenses, cash requirements for fiscal 2007 are expected to consist primarily of capital expenditures for new Company-operated retail stores and the remodeling and refurbishment of existing Company-operated retail stores, as well as potential increased investments in International licensees and for additional share repurchases, if any. Management expects capital expenditures to be in the range of $950 million to $1.0 billion in fiscal 2007, primarily driven by new store development and existing store renovations.
Cash provided by operating activities totaled $738 million for the 26 weeks ended April 1, 2007. Net earnings provided $356 million and the effect of noncash depreciation and amortization expenses further increased cash provided by operating activities by $235 million. In addition, growth in Starbucks Card balances provided $69 million in deferred revenue.
Cash used by investing activities for the 26 weeks ended April 1, 2007 totaled $591 million. Net capital additions to property, plant and equipment used $507 million, primarily from opening 671 new Company-operated retail stores and remodeling certain existing stores during the first half of fiscal 2007. This amount includes the effect of the net change in non-cash capital accruals totaling $54 million. During the 26 weeks ended April 1, 2007, the Company used $47 million, net of cash acquired, to purchase 90% equity ownership in the Company’s previously licensed operations in Beijing and Tianjin, China.
Cash used by financing activities for the 26 weeks ended April 1, 2007 totaled $262 million. Cash used to repurchase shares of the Company’s common stock totaled $563 million. This amount, and the effect of the net change in unsettled trades totaling $31 million from October 1, 2006, together represent the total accrual-based cost of the share repurchase program for the first half of fiscal 2007. Share repurchases, up to the limit authorized by the Board of Directors, are at the discretion of management and depend on market conditions, capital requirements and other factors. On May 1, 2007, the Starbucks Board of Directors authorized the repurchase of up to 25 million additional shares of the Company’s common stock. As of May 1, 2007, a total of up to 26.1 million shares remained available for repurchase, under the current and previous authorizations.
Partially offsetting cash used for share repurchases, were net borrowings under the Company’s revolving credit facility of $147 million during the 26 weeks ended April 1, 2007, which consisted of additional gross borrowings of $576 million offset by gross principal repayments of $429 million. In addition, there were proceeds of $108 million

26


Table of Contents

from the exercise of employee stock options and the sale of the Company’s common stock from employee stock purchase plans. As options granted are exercised, the Company will continue to receive proceeds and a tax deduction; however, the amounts and the timing cannot be predicted.
Store Data
The following table summarizes the Company’s retail store information:
                                                 
    Net stores opened during the period    
    13-week period   26-week period   Stores open as of
    April 1,   April 2,   April 1,   April 2,   April 1,   April 2,
    2007   2006   2007   2006   2007   2006
United States:
                                               
Company-operated stores (1)
    271       157       553       321       6,281       5,239  
Licensed stores
    142       132       365       330       3,533       2,765  
 
                                               
 
    413       289       918       651       9,814       8,004  
 
                                               
 
                                               
International:
                                               
Company-operated stores (1)
    42       54       118       114       1,553       1,316  
Licensed stores (1)
    105       81       252       219       2,361       1,905  
 
                                               
 
    147       135       370       333       3,914       3,221  
 
                                               
 
                                               
Total
    560       424       1,288       984       13,728       11,225  
 
                                               
 
(1)   International store data has been adjusted for the acquisition of the Beijing operations by reclassifying historical information from Licensed Stores to Company-operated Stores. United States store data was also adjusted to align with the Hawaii operations segment change by reclassifying historical information from International Company-operated stores to the United States.
Starbucks plans to open approximately 2,400 new stores on a global basis in fiscal 2007. In the United States, Starbucks plans to open approximately 1,000 Company-operated locations and 700 licensed locations. In International markets, Starbucks plans to open approximately 300 Company-operated stores and 400 licensed stores.
Contractual Obligations
There have been no material changes during the period covered by this report, outside of the ordinary course of the Company’s business, to the contractual obligations specified in the table of contractual obligations included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 10-K.
Off-Balance Sheet Arrangement
The Company has unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and related interest and fees of an unconsolidated equity investee, Starbucks Japan. The guarantees continue until the loans, including accrued interest and fees, have been paid in full, with the final loan amount due in 2014. The maximum amount is limited to the sum of unpaid principal and interest amounts, as well as other related expenses. These amounts will vary based on fluctuations in the yen foreign exchange rate. As of April 1, 2007, the maximum amount of the guarantees was approximately $5.4 million. Since there has been no modification of these loan guarantees subsequent to the Company’s adoption of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indebtedness of Others,” Starbucks has applied the disclosure provisions only and has not recorded the guarantees on its balance sheet.
Commodity Prices, Availability and General Risk Conditions
The Company manages its exposure to various risks within the consolidated financial statements according to an umbrella risk management policy. Under this policy, market-based risks, including commodity costs and foreign currency exchange rates, are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions. Additionally, this policy restricts, among other things, the amount of market-based risk the Company will tolerate before implementing approved hedging strategies and prohibits speculative trading activity.

27


Table of Contents

The Company purchases significant amounts of coffee and dairy products to support the needs of its Company-operated retail stores. The price and availability of these commodities directly impacts the Company’s results of operations and can be expected to impact its future results of operations. For additional details see “Product Supply” in Item 1, as well as “Risk Factors” in Item 1A of the 10-K.
Seasonality and Quarterly Results
The Company’s business is subject to seasonal fluctuations. Significant portions of the Company’s net revenues and profits are realized during the first quarter of the Company’s fiscal year, which includes the holiday season. In addition, quarterly results are affected by the timing of the opening of new stores, and the Company’s rapid growth may conceal the impact of other seasonal influences. Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the Company will adopt the new requirements in its fiscal first quarter of 2008. The cumulative effects, if any, of adopting FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact, if any, of adopting FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. Starbucks must adopt these new requirements no later than its first fiscal quarter of 2009. Starbucks has not yet determined the effect on the Company’s consolidated financial statements, if any, upon adoption of SFAS 157, or if it will adopt the requirements prior to the first fiscal quarter of 2009.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). The intent of SAB 108 is to reduce diversity in practice for the method companies use to quantify financial statement misstatements, including the effect of prior year uncorrected errors. SAB 108 establishes an approach that requires quantification of financial statement errors using both an income statement and a cumulative balance sheet approach. SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 is not expected to have a significant impact on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, or Starbucks first fiscal quarter of 2009. Early adoption is permitted. Starbucks has not yet determined if it will elect to apply any of the provisions of SFAS 159 and what the effect of adoption of the statement would have, if any, on its consolidated financial statements.

28


Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to foreign currency exchange rates, equity security prices and changes in interest rates.
Foreign Currency Exchange Risk
As of April 1, 2007, the Company had forward foreign exchange contracts that qualify as cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to hedge portions of anticipated international revenue streams and inventory purchases. In addition, Starbucks had forward foreign exchange contracts that qualify as accounting hedges of its net investment in Starbucks Japan, as well as the Company’s net investments in its Canadian and U.K. subsidiaries, to minimize foreign currency exposure. Starbucks also had forward foreign exchange contracts that are not designated as hedging instruments for accounting purposes (free standing derivatives), but which partially offset the financial impact of translating foreign currency denominated payables and receivables.
Consistent with the nature of the economic hedges provided by these foreign exchange contracts, increases or decreases in their fair values would be mostly offset by corresponding decreases or increases in the U.S. dollar value of the Company’s foreign investment, future foreign currency royalty fee payments, inventory purchases, and foreign currency denominated payables and receivables (i.e. “hedged items”) that would occur within the hedging period. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items.
Based on the foreign exchange contracts outstanding as of April 1, 2007, a 10% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract as of April 1, 2007, would result in a reduced fair value of these derivative financial instruments of approximately $50 million. Of this total, approximately $31 million relates to cash flow hedges of revenue streams and inventory purchases, and free standing derivatives that may in turn reduce the Company’s future net earnings. The remaining $19 million relates to hedges of net investments in foreign operations that may reduce future accumulated other comprehensive income on the consolidated balance sheet since the underlying investments are not expected to be sold in the foreseeable future.
Conversely, a 10% appreciation of the U.S. dollar would result in an increase in the fair value of these instruments of approximately $47 million. Of this total, approximately $27 million relates to cash flow hedges of revenue streams and inventory purchases, and free standing derivatives that may in turn increase the Company’s future net earnings, while the remaining $20 million relates to hedges of net investments in foreign operations that may increase future accumulated other comprehensive income.
Equity Security Price Risk and Interest Rate Risk
There has been no material change in the equity security price risk or interest rate risk discussed in Item 7A of the Company’s 10-K.

29


Table of Contents

Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the Company’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Starbucks disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
During the quarter the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report (April 1, 2007).
During the second quarter of fiscal 2007, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected or are reasonably likely to materially affect internal control over financial reporting.
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively, to this Quarterly Report on Form 10-Q.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of Legal Proceedings in Note 11 to the consolidated financial statements included in Item 1 of this Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding repurchases by the Company of its common stock during the 13-week period ended April 1, 2007:
ISSUER PURCHASES OF EQUITY SECURITIES
                                 
                    Total Number   Maximum
                    of Shares   Number of
                    Purchased as   Shares that May
    Total   Average   Part of Publicly   Yet Be
    Number of   Price   Announced   Purchased
    Shares   Paid per   Plans or   Under the Plans
Period (1)   Purchased   Share   Programs(2)   or Programs(2)
January 1, 2007 – January 28, 2007
    3,074,943     $ 35.10       3,074,943       14,818,012  
January 29, 2007 – February 25, 2007
    4,033,400       33.40       4,033,400       10,784,612  
February 26, 2007 – April 1, 2007
    7,192,100       30.90       7,192,100       3,592,512  
 
                               
Total
    14,300,443       32.51       14,300,443          
 
                               
 
(1)   Monthly information is presented by reference to the Company’s fiscal months during the second quarter of fiscal 2007.
 
(2)   The Company’s share repurchase program is conducted under authorizations made from time to time by the Company’s Board of Directors. The shares reported in the table are covered by a Board authorization to repurchase 25 million shares of common stock, publicly announced on August 2, 2006. On May 3, 2007, the Company announced that on May 1, 2007 its Board of Directors authorized the repurchase of up to 25 million additional shares of the Company’s common stock. Neither of these authorizations has an expiration date.

30


Table of Contents

Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on March 21, 2007, the shareholders elected the directors to serve for terms of one year and until their successors are elected and qualified, and approved the material terms of the Company’s Executive Management Bonus Plan. In addition, shareholders ratified the Audit and Compliance Committee of the Board’s selection of Deloitte & Touche LLP to serve as the Company’s independent registered public accounting firm for fiscal 2007.
The table below shows the results of the shareholders’ voting:
                                 
    Votes in           Votes Withheld/   Broker Non-
    Favor   Votes Against   Abstentions   Voted
Election of Directors:
                               
Howard Schultz
    666,321,015       N/A       14,825,013       N/A  
Barbara Bass
    663,716,401       N/A       17,429,627       N/A  
Howard P. Behar
    664,828,618       N/A       16,317,410       N/A  
William W. Bradley
    674,162,948       N/A       6,983,080       N/A  
James L. Donald
    666,660,495       N/A       14,485,533       N/A  
Mellody Hobson
    672,590,752       N/A       8,555,276       N/A  
Olden Lee
    674,291,943       N/A       6,854,085       N/A  
James G. Shennan
    664,837,525       N/A       16,308,503       N/A  
Javier G. Teruel
    674,511,762       N/A       6,634,266       N/A  
Myron E. Ullman, III
    674,215,988       N/A       6,930,040       N/A  
Craig E. Weatherup
    674,515,926       N/A       6,630,102       N/A  
 
                               
Approval of material terms of the Starbucks Executive Management Bonus Plan
    643,028,656       29,620,140       8,496,229       1,003  
 
                               
Ratification of independent registered public accounting firm
    664,403,223       11,325,156       5,417,447       202  
Item 6. Exhibits
(a) Exhibits:
                             
        Incorporated by Reference    
Exhibit               Date of   Exhibit   Filed
No.   Exhibit Description   Form   File No.   First Filing   Number   Herewith
10.1.1
  Commercial Paper Dealer Agreement between Starbucks Corporation and Banc of America Securities LLC, dated as of March 27, 2007   8-K   0-20322   3/27/07     10.1.1      
 
                           
10.1.2
  Commercial Paper Dealer Agreement between Starbucks Corporation and Goldman, Sachs & Co., dated as of March 27, 2007   8-K   0-20322   3/27/07     10.1.2      
 
                           
31.1
  Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               X
 
                           
31.2
  Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               X
 
                           
32
  Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               X

31


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  STARBUCKS CORPORATION
 
 
May 11, 2007  By:   /s/ Michael Casey    
    Michael Casey   
    executive vice president, chief financial officer and chief administrative officer  
 
    Signing on behalf of the registrant and as principal financial officer   
 

32


Table of Contents

INDEX TO EXHIBITS
                             
        Incorporated by Reference    
Exhibit               Date of   Exhibit   Filed
No.   Exhibit Description   Form   File No.   First Filing   Number   Herewith
10.1.1
  Commercial Paper Dealer Agreement between Starbucks Corporation and Banc of America Securities LLC, dated March 27, 2007   8-K   0-20322   3/27/07     10.1.1      
 
                           
10.1.2
  Commercial Paper Dealer Agreement between Starbucks Corporation and Goldman, Sachs & Co., dated as of March 27, 2007   8-K   0-20322   3/27/07     10.1.2      
 
                           
31.1
  Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               X
 
                           
31.2
  Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               X
 
                           
32
  Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               X

33