10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2002

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	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

2401 Utah Avenue South, Seattle, Washington 98134
(Address of Principal Executive Office, including Zip Code)

(206) 447-1575
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x                       NO o

As of May 13, 2002, there were 386,066,000 shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
EXHIBIT 3.2

STARBUCKS CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

	Page No.
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		18
Item 2. Changes in Securities and Use of Proceeds		18
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 6. Exhibits and Reports on Form 8-K		19
Signature		19

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except earnings per share)

		Three Months Ended				Six Months Ended
		March 31,		April 1,		March 31,		April 1,
		2002		2001		2002		2001
		(13 Weeks)		(13 Weeks)		(26 Weeks)		(26 Weeks)
		(unaudited)				(unaudited)
Net revenues:
	Retail	$	664,262	$	523,277	$	1,346,527	$	1,085,684
	Specialty		118,955		106,011		242,025		210,991
	Total net revenues		783,217		629,288		1,588,552		1,296,675
Cost of sales and related occupancy costs			320,081		271,178		657,110		563,398
Store operating expenses			270,986		208,608		531,476		418,298
Other operating expenses			33,543		23,785		63,868		45,571
Depreciation and amortization			49,972		38,597		100,273		76,159
General and administrative expenses			67,314		42,433		108,443		77,310
Income from equity investees			7,459		6,167		14,044		10,972
	Operating income		48,780		50,854		141,426		126,911
Interest and other income, net			2,135		1,560		4,628		3,273
Gain on sale of investment			—		—		13,361		—
	Earnings before income taxes		50,915		52,414		159,415		130,184
Income taxes			18,838		20,204		58,984		48,979
Net earnings		$	32,077	$	32,210	$	100,431	$	81,205
Net earnings per common share — basic		$	0.08	$	0.08	$	0.26	$	0.21
Net earnings per common share — diluted		$	0.08	$	0.08	$	0.25	$	0.21
Weighted average shares outstanding:
Basic			384,346		380,363		382,563		378,825
Diluted			397,861		395,701		394,917		394,679

See notes to consolidated financial statements

3

STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

			March 31,			September 30,
			2002			2001
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	161,844		$	113,237
	Available-for-sale securities			151,537			101,399
	Trading securities			9,909			5,913
	Accounts receivable, net of allowance of $5,582 and $4,590, respectively			85,971			90,425
	Inventories			172,306			221,253
	Prepaid expenses and other current assets			39,544			29,829
	Deferred income taxes, net			40,691			31,869
		Total current assets		661,802			593,925
Equity and other investments				98,581			63,097
Property, plant and equipment, net				1,195,397			1,135,784
Other assets				42,855			31,868
Goodwill, net				20,967			21,845
		Total	$	2,019,602		$	1,846,519
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	99,600		$	127,905
	Checks drawn in excess of bank balances			48,820			61,987
	Accrued compensation and related costs			91,408			81,458
	Accrued occupancy costs			42,037			35,835
	Accrued taxes			30,679			70,346
	Other accrued expenses			59,298			40,117
	Deferred revenue			39,231			26,919
	Current portion of long-term debt			703			697
		Total current liabilities		411,776			445,264
Deferred income taxes, net				17,208			19,133
Long-term debt				5,424			5,786
Other liabilities				1,032			409
Shareholders’ equity:
	Common stock and additional paid-in capital — $0.001 par value; authorized, 600,000,000; issued and outstanding, 386,521,346 and 380,044,042 shares, respectively, (includes 1,697,100 common stock units in both periods)			874,984			791,622
	Other additional paid-in capital			39,393			—
	Retained earnings			690,144			589,713
	Accumulated other comprehensive loss			(20,359	)		(5,408	)
		Total shareholders’ equity		1,584,162			1,375,927
		Total	$	2,019,602		$	1,846,519

See notes to consolidated financial statements

4

STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

					Six Months Ended
					March 31,			April 1,
					2002			2001
					(26 weeks)			(26 Weeks)
					(unaudited)
Operating activities:
	Net earnings				$	100,431		$	81,205
	Adjustments to reconcile net earnings to net cash provided by operating activities:
			Depreciation and amortization			107,866			82,727
			Gain on sale of investment			(13,361	)		—
			Provision for store remodels and losses on asset disposals			6,971			12,508
			Deferred income taxes, net			(11,557	)		(3,217	)
			Equity in income of investees			(7,547	)		(3,572	)
			Tax benefit from exercise of non-qualified stock options			24,976			25,904
Cash provided/(used) by changes in operating assets and liabilities:
			Net purchases of trading securities			(3,577	)		(3,022	)
			Accounts receivable			4,281			406
			Inventories			48,672			50,203
			Prepaid expenses and other current assets			(6,761	)		(9,035	)
			Accounts payable			(27,655	)		12,581
			Accrued compensation and related costs			10,071			13,270
			Accrued occupancy costs			6,220			3,460
			Accrued taxes			(39,617	)		(7,676	)
			Other liabilities			610			798
			Deferred revenue			12,323			(5,555	)
			Other accrued expenses			19,710			16,292
Net cash provided by operating activities						232,056			267,277
Investing activities:
				Purchase of available-for-sale securities		(159,894	)		(53,012	)
				Maturity of available-for-sale securities		106,260			62,000
				Sale of available-for-sale securities		2,000			2,000
				Changes to equity and other investments		(4,212	)		(12,130	)
				Proceeds from sale of equity investment		14,843			—
				Distributions from joint ventures		8,158			4,099
				Additions to property, plant and equipment		(183,607	)		(161,697	)
				Changes to other assets		(11,690	)		(2,496	)
Net cash used by investing activities						(228,142	)		(161,236	)
Financing activities:
				Decrease in cash provided by checks drawn in excess of bank balances		(13,167	)		(3,695	)
				Proceeds from sale of common stock under employee stock purchase plan		7,681			5,976
				Proceeds from exercise of stock options		52,534			36,455
				Principal payments on long-term debt		(347	)		(320	)
				Repurchase of common stock		(1,829	)		—
Net cash provided by financing activities						44,872			38,416
Effect of exchange rate changes on cash and cash equivalents						(179	)		(94	)
Net increase in cash and cash equivalents						48,607			144,363
Cash and cash equivalents:
	Beginning of the period					113,237			70,817
	End of the period				$	161,844		$	215,180
Supplemental cash flow information:
	Cash paid during the period for:
		Interest			$	94		$	262
		Income taxes				86,038			38,658

See notes to consolidated financial statements

5

STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 Weeks and 26 Weeks Ended March 31, 2002 and April 1, 2001

NOTE 1: FINANCIAL STATEMENT PREPARATION

The consolidated financial statements as of March 31, 2002 and April 1, 2001 and for the 13-week periods and 26-week periods ended March 31, 2002 and April 1, 2001 have been prepared by Starbucks Corporation (“Starbucks” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The financial information for the 13-week periods and 26-week periods ended March 31, 2002 and April 1, 2001 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The financial information as of September 30, 2001, is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended September 30, 2001, and should be read in conjunction with such financial statements.

Certain reclassifications of prior year’s balances have been made to conform to the current format.

The results of operations for the 13-week period and 26-week period ended March 31, 2002 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 29, 2002.

NOTE 2: REVENUE RECOGNITION

In most instances, retail store revenues are recognized when payment is tendered at the point of sale. Revenues from stored value cards are recognized upon redemption. Until the redemption of stored value cards, outstanding customer balances on such cards are included in “Deferred revenue” on the accompanying consolidated balance sheets. Specialty revenues, consisting mainly of product sales, are generally recognized upon shipment to customers. Initial non-refundable fees required under licensing agreements are earned upon substantial performance of services. Royalty revenues based upon a percentage of sales and other continuing fees are recognized when earned. All revenues are recognized net of any discounts.

NOTE 3: NEW ACCOUNTING STANDARDS

In November 2001, the Financial Accounting Standards Board (FASB) issued Emerging Issues Task Force (EITF) No. 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred.” This Issue clarifies the FASB Staff’s position that all reimbursements received for incidental expenses incurred in conjunction with providing services as part of a company’s central on-going operations should be characterized as revenue in the income statement. The Company adopted EITF No. 01-14 on December 31, 2001, and it did not have a material impact on the Company’s consolidated results of operations.

NOTE 4: INVENTORIES

Inventories consist of the following (in thousands):

		March 31,		September 30,
		2002		2001
Coffee:
	Unroasted	$	73,140	$	98,557
	Roasted		24,794		33,958
Other merchandise held for sale			46,108		63,458
Packaging and other supplies			28,264		25,280
Total		$	172,306	$	221,253

As of March 31, 2002, the Company had fixed-price purchase commitments for green coffee totaling approximately $260.7 million.

6

NOTE 5: DERIVATIVE FINANCIAL INSTRUMENTS

The Company manages its exposure to foreign currency risk within the consolidated financial statements according to a hedging policy. Under the policy, the Company may engage in transactions involving various derivative instruments with maturities generally not longer than five years to hedge assets, liabilities, revenues and purchases denominated in foreign currencies.

The Company has several forward foreign exchange contracts that qualify as cash flow hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to hedge a portion of anticipated foreign currency denominated revenue. The Company also has a forward foreign exchange contract that qualifies as a hedge of a net investment in a foreign operation. These contracts expire within 18 months and are intended to minimize certain foreign currency exposures that can be confidently identified and quantified.

For the 13 weeks and 26 weeks ended March 31, 2002 and April 1, 2001, there was no ineffectiveness related to cash flow hedges. For net investment hedges, the spot-to-spot method is used by the Company to calculate effectiveness. As a result of using this method, net gains of $0.1 million and $0.3 million were recognized in earnings for the 13-week and 26-week periods ended March 31, 2002, respectively, and a net gain of $0.5 million was recognized in earnings for both the 13-week and 26-week periods ended April 1, 2001.

The Company had accumulated derivative gains of $3.5 million, net of taxes, in other comprehensive income as of March 31, 2002, related to cash flow and net investment hedges. Of this amount, $1.8 million is expected to be reclassified into earnings within 12 months.

NOTE 6: EQUITY INVESTMENT TRANSACTIONS

On October 10, 2001, the Company sold 30,000 of its existing shares of Starbucks Coffee Japan, Ltd. (“Starbucks Japan”) at approximately $495 per share, net of related costs. In connection with this sale, the Company received cash proceeds of $14.8 million. The Company’s ownership interest in Starbucks Japan was reduced from 50.0% to 47.5% following the sale of the aforementioned shares. The Company recorded a gain from this sale of $13.4 million on the accompanying consolidated statement of earnings.

Also on October 10, 2001, Starbucks Japan issued 220,000 shares of common stock at approximately $495 per share, net of related costs, in an initial public offering in Japan. In connection with this offering, the Company’s ownership interest in Starbucks Japan was reduced from 47.5% to 40.1%. The Company recorded a credit to “Other additional paid-in capital” on the accompanying consolidated balance sheet of $39.4 million, reflecting the increase in value of its share of the net assets of Starbucks Japan related to the stock offering. As of March 31, 2002, the quoted closing price of Starbucks Japan shares was approximately $206.

NOTE 7: PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are recorded at cost and consist of the following (in thousands):

	March 31,			September 30,
	2002			2001
Land	$	11,311		$	6,023
Building		30,461			19,795
Leasehold improvements		1,064,206			960,732
Roasting and store equipment		481,544			421,150
Furniture, fixtures and other		258,486			239,900
		1,846,008			1,647,600
Less accumulated depreciation and amortization		(705,150	)		(605,247	)
		1,140,858			1,042,353
Work in progress		54,539			93,431
Property, plant and equipment, net	$	1,195,397		$	1,135,784

7

NOTE 8: SHAREHOLDERS’ EQUITY

As part of its authorized share repurchase program initiated during September 2001, the Company may acquire up to $60.0 million of its common stock in the open market. Since the share repurchase program’s inception, the Company has acquired 3.5 million shares at a cost of $51.6 million. During the 26 weeks ended March 31, 2002, the Company acquired 125,000 shares at a cost of $1.8 million.

NOTE 9: COMPREHENSIVE INCOME

Comprehensive income, net of related tax effects, is as follows (in thousands):

		Three months ended						Six months ended
		March 31,			April 1,			March 31,			April 1,
		2002			2001			2002			2001
Net earnings		$	32,077		$	32,210		$	100,431		$	81,205
	Unrealized holding gains on cash flow hedging instruments		587			1,488			1,827			1,971
	Unrealized holding gains on net investment hedge		136			886			1,305			886
	Unrealized holding gains (losses) on available-for-sale investments		92			158			54			(12	)
	Reclassification adjustment for net (gains) losses realized in net earnings		(641	)		—			(1,807	)		14
Net unrealized gain			174			2,532			1,379			2,859
Translation adjustment			(1,789	)		(10,101	)		(16,330	)		(8,588	)
Total comprehensive income		$	30,462		$	24,641		$	85,480		$	75,476

NOTE 10: EARNINGS PER SHARE

The following table represents the calculation of net earnings per common share - - basic (in thousands, except earnings per share data):

	Three months ended				Six months ended
	March 31,		April 1,		March 31,		April 1,
	2002		2001		2002		2001
Net earnings	$	32,077	$	32,210	$	100,431	$	81,205
Weighted average common shares and common stock units outstanding		384,346		380,363		382,563		378,825
Net earnings per common share — basic	$	0.08	$	0.08	$	0.26	$	0.21

8

The following table represents the calculation of net earnings per common and common equivalent share — diluted (in thousands, except per share data):

	Three months ended				Six months ended
	March 31,		April 1,		March 31,		April 1,
	2002		2001		2002		2001
Net earnings	$	32,077	$	32,210	$	100,431	$	81,205
Weighted average shares outstanding calculation:
Weighted average common shares and common stock units outstanding		384,346		380,363		382,563		378,825
Dilutive effect of outstanding common stock options		13,515		15,338		12,354		15,854
Weighted average common and common equivalent shares outstanding		397,861		395,701		394,917		394,679
Net earnings per common and common equivalent share— diluted	$	0.08	$	0.08	$	0.25	$	0.21

Options with exercise prices greater than the average market price for the periods indicated were not included in the computation of diluted earnings per share. These options totaled 0.5 million and 0.3 million for the 13 weeks ended March 31, 2002 and April 1, 2001, respectively, and 8.8 million and 0.4 million for the 26 weeks ended March 31, 2002 and April 1, 2001, respectively.

NOTE 11: LEGAL PROCEEDINGS

On June 20, 2001, and July 2, 2001, two purported class action lawsuits against the Company entitled James Carr, et.al. v. Starbucks Corporation and Olivia Shields, et.al. v. Starbucks Corporation were filed in the Superior Courts of California, Alameda and Los Angeles Counties, respectively. Each lawsuit subsequently was removed to the United States District Court, Northern District of California and Central District of California, respectively. Each of the lawsuits was filed by two plaintiffs who are current or former store managers and assistant store managers on behalf of themselves and other similarly situated store managers, assistant store managers and retail management trainees. The lawsuits alleged that the Company improperly classified such employees as exempt under California’s wage and hour laws and sought damages, restitution, reclassification and attorneys fees and costs. On April 19, 2002, Starbucks announced that it had reached an agreement to settle the lawsuits to fully resolve all claims brought by the plaintiffs without engaging in protracted litigation. Starbucks recorded an $18.0 million charge, which is included in “General and administrative expenses” on the accompanying consolidated statement of earnings, for the estimated payment of claims to eligible class members, attorneys’ fees and costs, and costs to a third-party claims administrator, as well as applicable employer payroll taxes.

In addition to the California lawsuits described above, the Company is party to various 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 financial position or results of operations of the Company.

NOTE 12: SEGMENT REPORTING

Starbucks is organized into a number of business units which correspond to the Company’s operating segments.

North American Retail

North American Retail, which represents over 90% of total retail revenues and almost 80% of total net revenues, sells coffee and other beverages, whole bean coffees, complementary food, hardware and merchandise through Company-operated retail stores in the United States and Canada.

Business Alliances

Business Alliances, which represents over 40% of total specialty revenues and approximately 7% of total net revenues, sells whole bean and ground coffees through foodservice accounts. In addition, Business Alliances sells coffee and related products for resale through North American retail store licensing agreements and receives license fees and royalties.

9

All Other Business Units

The remainder of the Company’s business units individually represent less than 10% of total net revenues. These include International Retail (comprised of international Company-operated retail stores), international retail store licensing, grocery channel licensing, warehouse club accounts, direct-to-consumer marketing channels, joint ventures and other initiatives related to the Company’s core businesses. These business units are managed and evaluated independently and do not meet the quantitative thresholds of a reportable segment under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

Revenues from these segments include both sales to unaffiliated customers and sales between segments, which are accounted for on a basis consistent with sales to unaffiliated customers. Segment information has been prepared using a management approach that is consistent with the basis and manner in which the Company’s management internally reviews financial information for operational decision making purposes. However, intersegment revenues, consisting primarily of product sales to and from subsidiaries and equity method investees, and other intersegment transactions, which are included in the information presented below, have been eliminated on the accompanying consolidated financial statements.

The tables below present information by operating segment (in thousands):

	Three months ended						Six months ended
	March 31,			April 1,			March 31,			April 1,
	2002			2001			2002			2001
NET REVENUES:
North American Retail	$	616,618		$	492,310		$	1,250,473		$	1,023,388
Business Alliances		53,374			48,305			107,349			96,894
All other business units		126,814			101,967			260,013			198,078
Intersegment revenues		(13,589	)		(13,294	)		(29,283	)		(21,685	)
Total net revenues	$	783,217		$	629,288		$	1,588,552		$	1,296,675
EARNINGS BEFORE INCOME TAXES:
North American Retail	$	99,812		$	73,891		$	210,748		$	166,300
Business Alliances		11,424			11,121			26,095			23,450
All other business units		13,157			15,813			31,074			28,898
Unallocated corporate expenses		(75,799	)		(48,770	)		(126,210	)		(90,366	)
Intersegment eliminations		186			(1,201	)		(281	)		(1,371	)
Operating Income		48,780			50,854			141,426			126,911
Interest and other income, net		2,135			1,560			4,628			3,273
Gain on sale of investment		—			—			13,361			—
Earnings before income taxes	$	50,915		$	52,414		$	159,415		$	130,184

General and administrative expenses and certain depreciation and amortization expenses included in the “unallocated corporate expenses” line pertain to corporate functions that are not specifically attributable to the Company’s operating segments. The fiscal 2002 periods include the $18.0 million litigation settlement charge as described in Note 11.

The table below represents information by geographic area (in thousands):

	Three months ended				Six months ended
	March 31,		April 1,		March 31,		April 1,
	2002		2001		2002		2001
NET REVENUES FROM EXTERNAL CUSTOMERS:
United States	$	678,393	$	551,461	$	1,374,741	$	1,134,596
Foreign countries		104,824		77,827		213,811		162,079
Total net revenues	$	783,217	$	629,288	$	1,588,552	$	1,296,675

Foreign revenues are classified based on the location of the customers and consist primarily of revenues from the United Kingdom and Canada.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements herein, including anticipated store and market openings, planned capital expenditures and trends in or expectations regarding Starbucks Corporation’s operations and financial results, 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 and other raw materials prices and availability, successful execution of internal performance and expansion plans, the effect of slowing United States and international economies, the effect of legal proceedings and other risks detailed herein and in Starbucks Corporation’s other filings with the Securities and Exchange Commission.

GENERAL

Starbucks Corporation’s fiscal year ends on the Sunday closest to September 30. Fiscal year 2001 had 52 weeks. The fiscal year ending on September 29, 2002 will also include 52 weeks.

Starbucks Corporation (“Starbucks” or the “Company”) is organized into a number of business units which correspond to the Company’s operating segments:

North American Retail

North American Retail, which represents over 90% of total retail revenues and almost 80% of total net revenues, sells coffee and other beverages, whole bean coffees, complementary food, hardware and merchandise through Company-operated retail stores in the United States and Canada.

Business Alliances

Business Alliances, which represents over 40% of total specialty revenues and approximately 7% of total net revenues, sells whole bean and ground coffees through foodservice accounts. In addition, Business Alliances sells coffee and related products for resale through North American retail store licensing agreements and receives license fees and royalties.

At the beginning of fiscal 2001, Starbucks combined its foodservice and domestic retail store licensing operations to form Business Alliances. As a result of this internal reorganization and the manner in which the operations of foodservice and domestic retail store licensing are measured and evaluated as one combined business unit, the Company’s management determined that separate segment reporting of Business Alliances was appropriate under Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (SFAS No. 131).

All Other Business Units

The remainder of the Company’s business units individually represent less than 10% of total net revenues. These include International Retail (comprised of international Company-operated retail stores), international retail store licensing, grocery channel licensing, warehouse club accounts, direct-to-consumer marketing channels, joint ventures and other initiatives related to the Company’s core businesses. These business units are managed and evaluated independently and do not meet the quantitative thresholds of a reportable segment under SFAS No. 131.

Segment information is prepared using a management approach that is consistent with the basis and manner in which the Company’s management internally reviews financial information for operational decision making purposes. However, intersegment transactions have been eliminated for Management’s Discussion & Analysis to comply with accounting principles generally accepted in the United States of America.

RESULTS OF OPERATIONS — FOR THE 13 WEEKS ENDED MARCH 31, 2002, COMPARED TO THE 13 WEEKS ENDED APRIL 1, 2001

SYSTEMWIDE RETAIL STORE SALES

Systemwide retail store sales, which include net sales for both Company-operated and licensed retail stores, were $895 million for the second quarter of fiscal 2002, an increase of 32% from $679 million in the second quarter of fiscal 2001, primarily due to the opening of 1,233 stores in the last 12 months. Systemwide retail store sales provide a broad perspective of global brand sales; however, they exclude net revenues from non-retail channels.

11

REVENUES

During the 13-week period ended March 31, 2002, Starbucks derived approximately 83% of net revenues from its Company-operated retail stores. Retail revenues include North American Retail and International Retail business units. The remaining 17% of net revenues is derived from the Company’s Specialty Operations, which includes Business Alliances and all other non-retail business units.

The table below reconciles revenues by operating segment to revenues on the accompanying consolidated statements of earnings (in thousands):

		Three Months Ended
		March 31,			April 1,
		2002			2001
NET REVENUES:
North American Retail		$	616,618		$	492,310
International Retail			47,644			30,967
	Subtotal Retail revenues		664,262			523,277
Business Alliances			53,374			48,305
All other business units (excluding International Retail)			79,170			71,000
Intersegment revenues			(13,589	)		(13,294	)
	Subtotal Specialty revenues		118,955			106,011
Total net revenues		$	783,217		$	629,288

TOTAL NET REVENUES

Net revenues for the 13 weeks ended March 31, 2001, increased 24% to $783.2 million from $629.3 million for the corresponding period in fiscal 2001.

REVENUES BY SEGMENT

North American Retail

North American Retail revenues increased by $124.3 million, or 25%, to $616.6 million for the second quarter of fiscal 2002 from $492.3 million during the same period of fiscal 2001, primarily due to the opening of new retail stores plus an increase in comparable store sales of 7% for the period. The increase in comparable store sales resulted from an 8% increase in the number of transactions combined with a 1% decrease in the average dollar value per transaction. The continuing shift in sales mix to beverages and the absence of a price increase has resulted in a slight decrease in the average transaction value. During the 13 weeks ended March 31, 2002, Starbucks opened 124 North American Retail stores, ending the period with 3,278 stores. During fiscal 2002, Starbucks expects to open at least 525 North American Retail stores.

Business Alliances

Business Alliances revenues increased by $5.1 million, or 10%, to $53.4 million from $48.3 million, primarily due to opening of new licensed stores and the resulting increase in royalties from and product sales to those licensees. During the 13 weeks ended March 31, 2002, licensees opened 71 stores in continental North America, ending the period with 962 licensed stores. During fiscal 2002, the Company expects licensees to open at least 300 stores in North America.

All Other Business Units (including International Retail)

Revenues for all other business units increased by $24.5 million, or 28%, to $113.2 million from $88.7 million. This increase was mainly related to the growth in the number of international Company-operated and licensed stores. During the 13 weeks ended March 31, 2002, Starbucks opened 7 Company-operated stores in the United Kingdom, 3 in Australia, 1 in Thailand and 58 international licensed stores (included licensees in which the Company has an equity interest). As of March 31, 2002, there were 350 Company-operated stores and 778 licensed stores in international markets. During fiscal 2002, Starbucks expects to open at least 100 Company-operated stores and 275 licensed stores in international markets.

RESULTS OF OPERATIONS

Cost of sales and related occupancy costs decreased to 40.9% of net revenues for the second quarter of fiscal 2002 from 43.1% in fiscal 2001. The decrease was primarily due to the shift in sales mix to higher margin products and the continued benefit from lower green coffee costs, partially offset by the continuing trend of increased International Retail and North American Retail rent expense.

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Store operating expenses as a percentage of retail revenues increased to 40.8% for the 13 weeks ended March 31, 2002, from 39.9% for the corresponding period in fiscal 2001. The increase was due to higher payroll-related expenditures for North American Retail employees.

Other operating expenses (expenses associated with non-retail operations) were 28.2% of specialty revenues for the 13 weeks ended March 31, 2002, compared to 22.4% for the corresponding period in fiscal 2001. The increase is a result of the continuing investment in support of both domestic and international licensee channels.

Depreciation and amortization expenses as a percentage of net revenues increased to 6.4% for the 13 weeks ended March 31, 2002, from 6.1% for the corresponding period in fiscal 2001. The increase is primarily due to computer and communication equipment upgrades in International Retail and North American Retail stores.

General and administrative expenses were $67.3 million for the 13 weeks ended March 31, 2002, compared to $42.4 million for the same period in fiscal 2001 primarily due to the $18 million litigation settlement charge in fiscal 2002, as well as higher payroll-related expenditures and professional fees.

Income from equity investees was $7.5 million for the second quarter of fiscal 2002, compared to $6.2 million in the second quarter of fiscal 2001. The increase was primarily due to improved profitability from the North American Coffee Partnership, the Company’s joint venture with the Pepsi-Cola Company, which experienced favorable results from extended product lines and manufacturing efficiencies, and to a lesser extent, from the Starbucks Ice Cream Partnership, the Company’s joint venture with Dreyer’s Grand Ice Cream, Inc., due to increased sales volumes as well as a price increase.

Operating income decreased 4% to $48.8 million from $50.9 million in the second quarter of fiscal 2001. The operating margin declined to 6.2% of total net revenues in the second quarter of fiscal 2002 compared to 8.1% in the same period in fiscal 2001 primarily due to the $18 million litigation settlement charge recorded during the second quarter of fiscal 2002, as well as other expenses discussed above. This decrease was partially offset by the improvement in cost of sales and related occupancy costs primarily due to the shift in sales mix to higher margin products and the continued benefit from lower green coffee costs.

RESULTS OF OPERATIONS BY SEGMENT

The table below reconciles results of operations on the accompanying consolidated statements of earnings to operating results by segment for the three months ended (in thousands):

	March 31, 2002									April 1, 2001
	Consoli-			Inter-			Segment			Consoli-			Inter-			Segment
	dated			segment			Results			dated			segment			Results
EARNINGS BEFORE INCOME TAXES:
North American Retail	$	101,826		$	(2,014	)	$	99,812		$	73,891		$	—		$	73,891
Business Alliances		11,663			(239	)		11,424			11,121			—			11,121
All other business units		11,090			2,067			13,157			14,612			1,201			15,813
Intersegment eliminations		—			186			186			—			(1,201	)		(1,201	)
Unallocated corporate expenses		(75,799	)		—			(75,799	)		(48,770	)		—			(48,770	)
Operating Income	$	48,780		$	—		$	48,780		$	50,854		$	—		$	50,854

North American Retail

Operating income for North American Retail increased by 38% to $101.8 million from $73.9 million in the first quarter of fiscal 2001. The North American Retail operating margin increased to 16.5% of related revenues from 15% in the prior year, due to the shift in retail sales mix to higher margin products and lower green coffee costs, partially offset by higher payroll-related expenditures, rent expense and depreciation.

Business Alliances

Operating income for Business Alliances increased by 5% to $11.7 million from $11.1 million in fiscal 2001. The segment’s operating margin decreased to 21.9% of related revenues from 23.0% in the prior year, due to the development of internal resources to support geographic expansion of Business Alliances.

All Other Business Units

Operating income for all other business units decreased to $11.1 million from $14.6 million in fiscal 2001. The segment’s operating margin decreased to 9.8% of related revenues from 16.5% in the prior year, primarily due to increased International Retail rent, payroll-related expenditures, and higher operating expenses associated

13

with the development of internal resources to support the international expansion of the licensee channel. These increases were partially offset by lower green coffee costs.

General and administrative expenses and certain depreciation and amortization expenses included in the “unallocated corporate expenses” line pertain to corporate functions that are not specifically attributable to the Company’s operating segments. The 13 weeks ended March 31, 2002 includes the $18.0 million litigation settlement charge.

RESULTS OF OPERATIONS — FOR THE 26 WEEKS ENDED MARCH 31, 2002, COMPARED TO THE 26 WEEKS ENDED APRIL 1, 2001

SYSTEMWIDE RETAIL STORE SALES

Systemwide retail store sales were $1.8 billion for the 26 weeks ended March 31, 2002, an increase of 29% from $1.4 billion for the same period in fiscal 2001 primarily due to the opening of additional stores in the last 12 months.

REVENUES

During the 26-week period ended March 31, 2002, Starbucks derived approximately 85% of net revenues from its Company-operated retail stores. The remaining 15% of net revenues is derived from the Company’s Specialty Operations.

The table below reconciles revenues by operating segment to revenues on the accompanying consolidated statements of earnings (in thousands):

		Six Months Ended
		March 31,			April 1,
		2002			2001
NET REVENUES:
North American Retail		$	1,250,473		$	1,023,388
International Retail			96,054			62,296
	Subtotal Retail revenues		1,346,527			1,085,684
Business Alliances			107,349			96,894
All other business units (excluding International Retail)			163,959			135,782
Intersegment revenues			(29,283	)		(21,685	)
	Subtotal Specialty revenues		242,025			210,991
Total net revenues		$	1,588,552		$	1,296,675

TOTAL NET REVENUES

Net revenues for the 26 weeks ended March 31, 2002, increased 23% to $1.6 billion from $1.3 billion for the corresponding period in fiscal 2001.

REVENUES BY SEGMENT

North American Retail

North American Retail revenues increased by $227.1 million, or 22%, to $1.3 billion from $1.0 billion, primarily due to the opening of new retail stores plus an increase in comparable store sales of 5% for the period. The increase in comparable store sales resulted from a 6% increase in the number of transactions combined with a 1% decrease in the average dollar value per transaction. The continuing shift in sales mix to beverages and the absence of a price increase resulted in a slight decrease in the average transaction value. During the 26 weeks ended March 31, 2002, Starbucks opened 307 North American Retail stores.

Business Alliances

Business Alliances revenues increased by $10.5 million, or 11%, to $107.3 million from $96.9 million, primarily due to opening of new licensed stores and the resulting increase in royalties from and product sales to those licensees. During the 26 weeks ended March 31, 2002, licensees opened 153 stores in continental North America.

All Other Business Units (including International Retail)

Revenues related to all other business units increased by $54.3 million, or 31%, to $230.7 million from $176.4 million. This increase was mainly related to the growth in the number of international Company-operated and licensed stores as well higher revenues from warehouse club accounts. During the 26 weeks ended March 31, 2002, Starbucks opened 144 international licensed stores (included licensees in which the

14

Company has an equity interest), 43 Company-operated stores in the United Kingdom, 11 in Australia and 1 in Thailand.

RESULTS OF OPERATIONS

Cost of sales and related occupancy costs decreased to 41.4% of net revenues for fiscal 2002 from 43.4% in fiscal 2001. The decrease was primarily due to the shift in sales mix to higher margin products and the continued benefit from lower green coffee costs, partially offset by higher rent expense for both International Retail and North American Retail.

Store operating expenses as a percentage of retail revenues increased to 39.5% for the 26 weeks ended March 31, 2002, from 38.5% for the corresponding period in fiscal 2001. The increase was due to higher payroll-related expenditures resulting from higher average wage rates and the continuing shift in sales to more labor-intensive handcrafted beverages.

Other operating expenses (expenses associated with non-retail operations) were 26.4% of specialty revenues compared to 21.6% in fiscal 2001. The increase is attributed to the continuing growth of licensee channels, both international and domestic, as the Company expands these businesses geographically and develops its internal resources to support them, as well as provisions for asset disposals, higher advertising expenditures for the Company’s direct-to-consumer catalog channel and increased professional fees.

Depreciation and amortization expenses as a percentage of net revenues increased to 6.3% for the 26 weeks ended March 31, 2002, from 5.9% for the corresponding period in fiscal 2001 due to system and equipment upgrades in North American Retail and International Retail stores.

General and administrative expenses were $108.4 million in fiscal 2002 compared to $77.3 million in fiscal 2001. The increase is a result of the litigation settlement charge recorded in fiscal 2002 as well as higher payroll-related expenditures.

Income from equity investees was $14.0 million for the 26 weeks ended March 31, 2002, compared to $11.0 million for the corresponding period in fiscal 2001. The increase was primarily due to improved profitability from the North American Coffee Partnership resulting from extended product lines and manufacturing efficiencies, as well as improvements in Starbucks Coffee Japan, Ltd. related to higher royalty rates and additional stores. The addition of Starbucks Coffee Korea Co, Ltd., as a new profitable joint venture also contributed modestly to increased income for equity investments.

Operating income increased 11% to $141.4 million for the 26 weeks ended March 31, 2002 compared to $126.9 million in the corresponding period in fiscal 2001. The operating margin declined to 8.9% of total net revenues from 9.8% in the same period in fiscal 2001 due to expenses as discussed above partially offset by cost of sales improvements.

RESULTS OF OPERATIONS BY SEGMENT

The table below reconciles results of operations on the accompanying consolidated statements of earnings to operating results by segment for the six months ended (in thousands):

	March 31, 2002									April 1, 2001
	Consoli-			Inter-			Segment			Consoli-			Inter-			Segment
	dated			segment			Results			dated			segment			Results
EARNINGS BEFORE INCOME TAXES:
North American Retail	$	213,736		$	(2,988	)	$	210,748		$	166,300		$	—		$	166,300
Business Alliances		26,587			(492	)		26,095			23,450			—			23,450
All other business units		27,313			3,761			31,074			27,527			1,371			28,898
Intersegment eliminations		—			(281	)		(281	)		—			(1,371	)		(1,371	)
Unallocated corporate expenses		(126,210	)		—			(126,210	)		(90,366	)		—			(90,366	)
Operating Income	$	141,426		$	—		$	141,426		$	126,911		$	—		$	126,911

North American Retail

Operating income for North American Retail increased 29% to $213.7 million for the 26 weeks ended March 31, 2002 compared to $166.3 million in the corresponding period in fiscal 2001. The North American Retail operating margin increased to 17.1% of related revenues from 16.2% in the prior year, due to the shift in retail sales mix to higher margin products and lower green coffee costs, partially offset by higher payroll-related expenditures, rent expense and depreciation.

15

Business Alliances

Operating income for Business Alliances increased 13% to $26.6 million from $23.5 million in fiscal 2001. The segment’s operating margin increased to 24.8% of related revenues from 24.2% in the prior year, due to cost of sales improvements partially offset by increased expenses related to the development of internal resources to support geographic expansion of Business Alliances.

All Other Business Units

Operating income for all other business units remained constant at approximately $27 million. The segment’s operating margin decreased to 11.8% of related revenues from 15.6% in the prior year, primarily due to increased International Retail rent, higher operating expenses associated with the development of internal resources to support the international expansion of the licensee channel, and higher payroll-related expenditures. These increases were partially offset by cost of sales improvements.

LIQUIDITY AND CAPITAL RESOURCES

The Company ended the period with total cash and cash equivalents and short-term investments of $323.3 million. Working capital as of March 31, 2002, totaled $250.0 million compared to $214.3 as of April 1, 2001. Cash and cash equivalents increased by $48.6 million for the 26 weeks ended March 31, 2002 to $161.8 million. The Company intends to use its available cash resources to invest in its existing businesses and other new business opportunities related to its core businesses and to complete the remaining $8.4 million of a previously authorized $60.0 million share repurchase program.

Cash provided by operating activities totaled $232.1 million for the first 26 weeks of fiscal 2002, resulting primarily from net earnings and non-cash items of $207.8 million and decreases in inventory of $48.7 million. The increase in other accrued expenses provided $19.7 million, $18 million of which was for the litigation settlement charge. Decreases in accounts payable and accrued taxes used $67.3 million resulting from differences in the timing of purchases and payments.

Cash used by investing activities for the 26 weeks ended March 31, 2002, totaled $228.1 million. This included capital additions to property, plant and equipment of $183.6 million related to opening 362 new Company-operated retail stores, purchasing land for the Company’s new roasting and distribution facility in Nevada, expanding the warehouse space at the roasting facility in York, Pennsylvania, remodeling certain existing stores and enhancing information systems. The Company invested excess cash primarily in short-term, investment-grade marketable debt securities. The net activity in the Company’s marketable securities portfolio during the 26-week period used $51.6 million. Proceeds from the sale of a portion of the Company’s shares in Starbucks Japan provided $14.8 million.

Cash provided by financing activities for the first 26 weeks of fiscal 2002 totaled $44.9 million. This included $60.2 million generated by the exercise of employee stock options and by the Company’s employee stock purchase plan. As options granted under the Company’s stock option plans vest and are exercised, the Company will continue to receive proceeds and may receive a tax deduction; however, neither the amounts nor timing can be predicted. A decrease in checks not yet presented for payment used $13.2 million. On September 17, 2001, the Company announced a share repurchase program to acquire up to $60.0 million of the Company’s common stock from time to time on the open market. Share repurchases are at the discretion of management and depend on market conditions, capital requirements and such other factors as the Company may consider relevant. During the 26-week period ending March 31, 2002, the Company had repurchased 125,000 shares, which used $1.8 million of cash. Since inception of the share repurchase program, Starbucks has repurchased 3.5 million shares using $51.6 million of the $60.0 million approved for the program.

Cash requirements for the remainder of fiscal 2002, other than normal operating expenses, are expected to consist primarily of capital expenditures related to the addition of new Company-operated retail stores. The Company plans to open at least 625 Company-operated stores during fiscal 2002. The Company also anticipates incurring additional expenditures for remodeling certain existing stores and enhancing its production capacity and information systems. While there can be no assurance that current expectations will be realized, management expects capital expenditures for the remainder of fiscal 2002 to be approximately $240 million, bringing the total for fiscal 2002 to approximately $425 million.

Management believes that existing cash and investments plus cash generated from operations should be sufficient to finance capital requirements for its core businesses for the foreseeable future. New joint ventures, other new business opportunities or store expansion rates substantially in excess of that presently planned may require outside funding.

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COFFEE PRICES AND AVAILABILITY AND GENERAL RISK CONDITIONS

The supply and price of coffee are subject to significant volatility. Although most coffee trades in the commodity market, coffee of the quality sought by the Company tends to trade on a negotiated basis at a substantial premium above commodity coffee prices, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors in the producing countries, including weather, political and economic conditions. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to influence commodity prices of green coffee through agreements establishing export quotas or restricting coffee supplies worldwide. The Company’s ability to raise sales prices in response to rising coffee prices may be limited and the Company’s profitability could be adversely affected if coffee prices were to rise substantially.

The Company depends upon its relationships with outside trading companies and exporters for its supply of green coffee. Because world coffee prices have recently experienced 30-year lows, the Company is negotiating contracts with its suppliers at levels equal to prior years in order to encourage the continuing supply of high quality coffee in the future and has been successful in securing long-term contracts on this basis. The Company enters into fixed-price purchase commitments in order to secure an adequate supply of quality green coffee and bring greater certainty to the cost of sales in future periods. As of March 31, 2002, the Company had approximately $260.7 million in fixed-price purchase commitments which, together with existing inventory, is expected to provide an adequate supply of green coffee through 2003. The Company believes, based on relationships established with its suppliers in the past, that the risk of non-delivery on such purchase commitments is low.

In addition to fluctuating coffee prices, management believes that the Company’s future results of operations and earnings could be significantly impacted by other factors such as increased competition within the specialty coffee industry, the Company’s ability to find optimal store locations at favorable lease rates, increased costs associated with opening and operating retail stores in new markets, increases in the cost of dairy products and the Company’s continued ability to hire, train and retain qualified personnel.

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 December 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.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Starbucks prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period (see Note 1 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K). Actual results could differ from those estimates.

Critical accounting policies are those that management believes are both most important to the portrayal of the Company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

Starbucks considers its policy on impairment of long-lived assets to be most critical in understanding the judgments that are involved in preparing its consolidated financial statements:

Impairment of Long-Lived Assets

When facts and circumstances indicate that the carrying values of long-lived assets, including intangibles, may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to projected future cash flows in addition to other quantitative and qualitative analyses. Upon indication that the carrying value of such assets may not be recoverable, the Company

17

recognizes an impairment loss as a charge against current operations. Property, plant and equipment assets are grouped at the lowest level for which there are identifiable cash flows when assessing impairment. Cash flows for retail assets are identified at the individual store level. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell. Judgments made by the Company related to the expected useful lives of long-lived assets and the ability of the Company to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge.

NEW ACCOUNTING STANDARDS

In November 2001, the Financial Accounting Standards Board (FASB) issued Emerging Issues Task Force (EITF) No. 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred.” This Issue clarifies the FASB Staff’s position that all reimbursements received for incidental expenses incurred in conjunction with providing services as part of a company’s central on-going operations should be characterized as revenue in the income statement. The Company adopted EITF No. 01-14 on December 31, 2001, and it did not have a material impact on the Company’s consolidated results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the information to be disclosed under this Item 3 pursuant to Item 305 of Regulation S-K since the disclosure provided for the fiscal year ended September 30, 2001. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Risk Management” in the Company’s Fiscal 2001 Annual Report to Shareholders, which is incorporated by reference into Item 7A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2001 and attached as Exhibit 13 thereto.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As previously reported in the Company’s Form 10-K for the fiscal year ended September 30, 2001 and the Company’s Form 10-Q for the period ended December 31, 2001, on June 20, 2001, and July 2, 2001, two purported class action lawsuits against the Company entitled James Carr, et.al. v. Starbucks Corporation and Olivia Shields, et.al. v. Starbucks Corporation were filed in the Superior Courts of California, Alameda and Los Angeles Counties, respectively. Each lawsuit subsequently was removed to the United States District Court, Northern District of California and Central District of California, respectively. Each of the lawsuits was filed by two plaintiffs who are current or former store managers and assistant store managers on behalf of themselves and other similarly situated store managers, assistant store managers and retail management trainees. The lawsuits alleged that the Company improperly classified such employees as exempt under California’s wage and hour laws and sought damages, restitution, reclassification and attorneys fees and costs. On April 19, 2002, Starbucks announced that it had reached an agreement to settle the lawsuits to fully resolve all claims brought by the plaintiffs without engaging in protracted litigation. Starbucks recorded an $18.0 million charge, which is included in “General and administrative expenses” on the accompanying consolidated statement of earnings, for the estimated payment of claims to eligible class members, attorneys’ fees and costs, and costs to a third-party claims administrator, as well as applicable employer payroll taxes.

In addition to the California lawsuits described above, the Company is party to various 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 financial position or results of operations of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On May 8, 2002, the Board of Directors of the Company approved an amendment to the Amended and Restated Bylaws of the Company (i) to specify the business that may be brought properly before an Annual Meeting of Shareholders, and (ii) to require shareholders to provide notice of such business and nominations to the Board of Directors to the secretary of the Company prior to the Annual Meeting of Shareholders. A copy of the Amended and Restated Bylaws of the Company is attached hereto as Exhibit 3.2.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual meeting of shareholders of the Company held on February 26, 2002, the shareholders (i) elected three Class 3 directors to serve until the Annual Meeting of Shareholders to be held in early 2005, (ii) ratified the selection of the independent auditors for fiscal 2002, (iii) approved the material terms of the Company’s Executive Management Bonus Plan, (iv) rejected a shareholder proposal to declassify the Company’s Board of Directors, and (v) rejected a shareholder proposal to identify and label all food products manufactured or sold by the Company that may contain genetically modified ingredients.

The table below shows the results of the shareholders’ voting:

		Votes in		Votes		Votes Withheld/		Broker
		Favor		Against		Abstentions		Non-Votes
Election of Class 3 Directors:
Barbara Bass			332,397,798		0		3,217,810		0
Craig J. Foley			331,733,798		0		3,881,810		0
Howard Schultz			331,797,665		0		3,817,943		0
Ratification of independent auditors			330,613,789		3,438,858		1,562,961		0
Approve the material terms of the Company’s Executive Management Bonus Plan			322,329,448		9,681,415		3,604,745		0
	Shareholder proposal to declassify the Company’s Board of Directors		84,197,037		151,411,461		4,062,615		95,944,495
Shareholder proposal to identify and label all food products that may contain genetically modified ingredients			15,844,775		213,374,022		10,452,316		95,944,495

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits:
	The Exhibit listed below is filed as part of this Quarterly Report on Form 10-Q:
	3.2 Amended and Restated Bylaws of Starbucks Corporation
(b)	Current Reports on Forms 8-K filed during the 13 weeks ended March 31, 2002:
	The Company filed a Current Report on Form 8-K on April 23, 2002 announcing its settlement of two California class action lawsuits.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		STARBUCKS CORPORATION
Dated: May 15, 2002	By:	/s/ Michael Casey
		Michael Casey executive vice president and chief financial officer
		Signing on behalf of the registrant and as principal financial officer

19 EX-3.2 3 v81769ex3-2.txt EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF STARBUCKS CORPORATION (AS AMENDED AND RESTATED THROUGH MAY 8, 2002) ARTICLE I. SHAREHOLDERS Section 1.1 Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held each year on a date between January 1 and June 30, with a specific date and time to be determined from time to time by the Board of Directors. The failure to hold an annual meeting at the time stated in these bylaws does not affect the validity of any corporate action. At each annual meeting of shareholders, the shareholders shall elect a class of directors as set forth in Section 2.1 hereof and in the Corporation's Articles of Incorporation, and transact such other business as may properly be brought before the meeting. No business may be transacted at an annual meeting of shareholders other than business that is (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any shareholder of the corporation (i) who is a shareholder on the date of the giving of the notice provided for in Section 1.4 hereof and on the record date for the determination of shareholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in Section 1.12 hereof. Section 1.2 Special Meetings. Special meetings of the shareholders may be held upon call of the Board of Directors or of the President and shall be called by the Board of Directors or the President upon the delivery of a written request of the holders of ten percent of the outstanding stock entitled to vote to the Secretary of the Corporation. Section 1.3 Meeting Place. All meetings of the shareholders shall be held at a location determined from time to time by the Board of Directors, and the place at which any such meeting shall be held shall be stated in the notice of the meeting. Section 1.4 Notice of Meetings. Written notice of the time and place of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be delivered personally or mailed not less than ten days nor more than 60 days before the date of the meeting to each shareholder of record entitled to vote, at the address appearing upon the stock transfer books of the Corporation. If the shareholders will be voting on (i) an amendment to the Articles of Incorporation, (ii) a plan of merger or share exchange, (iii) the sale of all or substantially all of the Corporation's assets, or (iv) the dissolution of the Corporation, notice shall be delivered personally or mailed not less than 20 nor more than 60 days before the date of the meeting. Meetings may be held without notice if all shareholders entitled to vote are present or represented by proxy or if notice is waived by those not present or so represented at the beginning of the meeting. Section 1.5 Waiver of Notice. Notice of time, place and purpose of any meeting may be waived in writing before or after the time of the meeting, and will be waived by any shareholder by his or her attendance at such meeting in person or by proxy unless at the beginning of the meeting such shareholder objects to the meeting or the transaction of business at such meeting. Any shareholder waiving his or her right to notice shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 1.6 Quorum. Except as otherwise required by law: (a) A quorum at any annual or special meeting of shareholders shall consist of shareholders representing, either in person or by proxy, a majority of the outstanding shares of the Corporation entitled to vote at such meeting. If a quorum is not present, the holders of a majority of the shares so present or represented may adjourn the meeting from time to time until a quorum is present. (b) Action on a matter other than the election of directors is approved if the votes cast favoring the action exceed the number of votes cast opposing the action. Section 1.7 Organization of Meetings. Meetings of the shareholders shall be presided over by the President, but if the President is not present, then by a Vice President. If neither the President nor a Vice President is present, by a chairman to be chosen at the meeting. The Secretary of the Corporation shall act as Secretary of the meeting, if present. Section 1.8 Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation or other officer of the Corporation or agent authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in such proxy. Any proxy regular on its face shall be presumed to be valid. Section 1.9 Shareholders' Action Without Meeting. Any action required or which may be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Section 1.10 Action of Shareholders by Communication Equipment. Shareholders may participate in a meeting of shareholders by means of a conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 1.11 List of Shareholders. At least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, shall be made. Such list shall be arranged in alphabetical order with the address of and number of shares held by each shareholder. Such record shall be kept on file at the principal office of the Corporation for a period of ten days prior to such meeting. The record shall be produced and kept open at the time and place of such meeting for the inspection of any shareholder. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. Section 1.12 Notice of Shareholder Business to be Conducted at the Annual Meeting of Shareholders. In order for a shareholder to properly bring any item of business before an annual meeting of shareholders, such shareholder must give timely notice thereof in proper written form to the Secretary of the Corporation. This Section 1.12 shall constitute an "advance notice provision" for purposes of Rule 14a-4(c)(1), promulgated under the Securities Exchange Act of 1934, as such rule may be amended from time to time (the "Exchange Act"). (a) To be timely, a shareholder's notice to the Secretary must be delivered at the principal executive offices of the Corporation not less than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of shareholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after the date of the immediately preceding annual meeting of shareholders, notice by the shareholder must be received no later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. (b) To be in proper form, a shareholder's notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of such shareholder, (iii) the class or series and number of shares of 2 capital stock of the Corporation that are owned beneficially or of record by such shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business and (v) a representation that such shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. (c) A shareholder intending to nominate one or more persons for election as a Director at an annual meeting must comply with the notice provisions set forth in Section 1.12(a) and Section 1.12(b) hereof (as such provisions may be amended from time to time) for such nomination or nominations to be properly brought before such meeting. In addition, for a nomination to be made properly by a shareholder, the notice to the Secretary of the Corporation must set forth (i) as to each person whom the shareholder proposes to nominate for election as a director (A) the name, age, business address and residence address of the person being nominated, (B) the principal occupation or employment of the person being nominated, (C) the class or series and number of shares of capital stock of the Corporation that are owned beneficially or of record by the person being nominated and (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (b) as to the shareholder giving the notice, any information (in addition to the information required pursuant to Section 1.12 (a) and Section 1.12(b) hereof) relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. ARTICLE II. DIRECTORS Section 2.1 Number, Election, and Powers (a) All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of the Board of Directors, except as may be otherwise provided in the Articles of Incorporation. The Board of Directors shall consist of nine members. The number of directors may be changed by a resolution of the Board of Directors or by a vote of the shareholders at the annual shareholders' meeting. (b) Directors shall serve staggered terms as set forth in the Articles of Incorporation of the Corporation. Each director shall hold office for the term for which elected and until his or her successor shall have been elected and qualified. (c) Directors need not be shareholders or residents of the state of Washington. In addition to the powers and authorities expressly conferred upon the Corporation by these Bylaws and the Articles of Incorporation, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders. Section 2.2 Vacancies. Any vacancy occurring in the Board of Directors, whether caused by resignation, death or otherwise, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill any vacancy shall hold office for the unexpired term of his or her predecessor and until his or her successor is elected and qualified. Any directorship to be filled by reason of an increase in the number of directors may be filled by the Board of Directors for a term of office continuing only until the next election of directors by the shareholders. Section 2.3 Quorum. A majority of the members of the Board of Directors then holding office shall constitute a quorum for the transaction of business, but if at any meeting of the Board of 3 Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. Section 2.4 Removal of Directors. Except as otherwise provided by law or by the Articles of Incorporation, at a meeting of shareholders called expressly for that purpose at which a quorum exists, the entire Board of Directors or any member thereof may be removed with or without cause by a vote of the holders of a majority of the shares present and entitled to vote for the election of directors. Section 2.5 Regular Meetings. (a) Meetings of the Board of Directors shall be held from time to time at the principal place of business of the Corporation or at such other place or places, either within or without the state of Washington, as the Board of Directors may from time to time designate. (b) Regular meetings of any committee designated by the Board of Directors may be held at the principal place of business of the Corporation or at such other place or places, either within or without the state of Washington as such committee may from time to time designate. The schedule for meetings of any committee shall be set by said committee. Section 2.6 Special Meetings. (a) Special meetings of the Board of Directors may be called at any time by the President, Secretary or by any one Director, to be held at the principal place of business of the Corporation or at such other place or places as the Board of Directors or the person or persons calling such meeting may from time to time designate. (b) Special meetings of any committee may be called at any time by such person or persons and with such notice as shall be specified for such committee by the Board of Directors, or in the absence of such specification, in the manner and with the notice required for special meetings of the Board of Directors. Section 2.7 Notice of Special Meetings. Notice of each special meeting of the Board of Directors shall be delivered to each Director at least two days before the meeting. The notice of any special meeting shall identify the business to be transacted at or the purpose of the special meeting. Section 2.8 Committees. The Board of Directors may, in its discretion, by resolution passed by a majority of the whole Board of Directors, appoint various committees consisting of two or more members, including an Executive Committee, which shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing such committee. A majority of any such committee, composed of more than two members, may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have the power at any time to change the members of any such committee, to fill vacancies, and to discharge any such committee. Section 2.9 Action by Directors Without a Meeting. Any action required or which might be taken at a meeting of the Board of Directors or of a committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken or to be taken, shall be signed by all of the directors, or all of the members of the committee, as the case may be. Such consent shall be filed in the Corporation's minute book, or with the records of the committee so acting. Section 2.10 Meeting by Telephone. Members of the Board of Directors or any committee designated by the Bylaws or appointed by the Board of Directors may participate in a meeting of such Board of Directors or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. 4 ARTICLE III. CONFLICTS OF INTEREST The Corporation may enter into contracts and otherwise transact business as vendor, purchaser, or otherwise, with its directors and officers and with corporations, associations, firms, and entities in which they are or may be or become interested as directors, officers, shareholders, members, or otherwise, as freely as though such adverse interest did not exist, even though the vote, action, or presence of such director or officer may be necessary to obligate the Corporation upon such contracts or transactions; and, in the absence of fraud, no such contract or transaction shall be voided and no such director or officer shall be held liable to account to the Corporation, by reason of such adverse interests or by reason of any fiduciary relationship to the Corporation arising out of such office or stock ownership, for any profit or benefit realized through any such contract or transaction; provided that in the case of directors, such director makes the disclosures required by RCW 23B.08.710 through RCW 23.B.08.710, and in the case of officers of the Corporation the nature of the interest of such officer, be disclosed or known to the Board of Directors of the Corporation. Officers need make no disclosure under this article when their interest is less than or equal to five percent of the voting power or control of the other corporation, association, firm or entity. ARTICLE IV. OFFICERS Section 4.1 Election or Appointment. The Board of Directors, as soon as practicable after the election of directors held each year, shall appoint a President and a Secretary, and from time to time may appoint a Chairman of the Board, one or more Vice Presidents, a Treasurer and such Assistant Secretaries, Assistant Treasurers and other officers as it may deem proper. Any two or more offices may be held by the same person, except the offices of President and Secretary. Unless otherwise required by law, no officer need be a shareholder of the Corporation or a member of the Board of Directors. Section 4.2 Term. The term of office of all officers shall be one year or until their respective successors are appointed. Any officer may be removed from office at any time by the affirmative vote of a majority of the Board of Directors or by the action of the duly appointed superior officer to whom he or she reports. The vacancy so created may be filled by the Board of Directors or by such duly appointed superior officer. Section 4.3 Removal. Any officer appointed by the Board of Directors may be removed with or without cause by the Board of Directors or the duly appointed superior officer to which such officer reports, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4.4 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause, may be filled by the Board of Directors or by a duly appointed superior officer. Section 4.5 Delegation. In the case of the absence or inability to act of any officer of the Corporation and of any person herein authorized to act in such person's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer, employee or agent. Section 4.6 Bonds. The Board of Directors may, by resolution, require any or all of the officers to give bonds to the Corporation, with sufficient surety or sureties, conditioned for the faithful performance of the duties of their respective offices, and to comply with such other conditions as may from time to time be required by the Board of Directors. Section 4.7 President. The President shall be the principal executive officer of the Corporation and, subject to the Board of Directors' control, shall supervise and control all of the business and affairs of the Corporation. When present, the President shall preside over all meetings of shareholders and directors. With the Secretary or other officer of the Corporation authorized by the Board of Directors, he may sign certificates for shares of the Corporation, deeds, mortgages, bonds, contracts, or other instruments that the Board of Directors has authorized to be executed, except when the signing and 5 execution thereof has been expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or is required by law to be otherwise signed or executed by some other officer or in some other manner. In general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 4.8 Secretary. The Secretary shall: (a) keep the minutes of shareholders' and Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) have responsibility for maintaining the corporate records and the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) sign with the President or other officer of the Corporation authorized by the Board of Directors certificates for shares of the Corporation, the issuance of which have been authorized by resolution of the Board of Directors; (e) have general responsibility for the stock transfer books of the Corporation; and (f) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or by the Board of Directors. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 5.1 Contracts. The Board of Directors may authorize any officer, employee or agent to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Section 5.2 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer, employee or agent of the Corporation and in such manner as is from time to time determined by resolution of the Board of Directors. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 6.1 Issuance of Shares. No shares of the Corporation shall be issued unless authorized by the Board of Directors. Such authorization shall include the maximum number of shares to be issued and the consideration to be received for each share. No certificate shall be issued for any share until such share is fully paid. Section 6.2 Certificates for Shares. Certificates representing shares of the Corporation shall be signed by the Chairman of the Board or the President and by the Secretary and shall include on their face written notice of any restrictions which the Board of Directors may impose on the transferability of such shares. All certificates shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and canceled except that in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 6.3 Transfers. (a) Transfers of shares shall be made only upon the share transfer books of the Corporation, kept at the registered office of the Corporation or at its principal place of business, or at the office of its transfer agent or registrar, and before a new certificate is issued the old certificate shall be surrendered for cancellation. The Board of Directors may, by resolution, open a share register in any state 6 of the United States, and may employ an agent or agents to keep such register, and to record transfers of shares therein. (b) Shares shall be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificate or an assignment separate from certificate, or by a written power of attorney to sell, assign and transfer the same, signed by the holder of said certificate. No shares of stock shall be transferred on the books of the Corporation until the outstanding certificates therefor have been surrendered to the Corporation. The Board of Directors may, by resolution, adopt appropriate procedures to allow transfers of shares, the certificates for which have been lost, stolen, mutilated or destroyed. Section 6.4 Restriction on Transfer. All certificates representing unregistered shares of the Corporation shall bear an appropriate restrictive legend on the face of the certificate or on the reverse of the certificate. ARTICLE VII. SEAL The seal of this Corporation shall consist of the name of the Corporation and the state and year of its incorporation. ARTICLE VIII. INDEMNIFICATION Section 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or, being or having been such a director, officer, employee or agent, he or she is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the full extent authorized by the Washington Business Corporation Act or other applicable law, as the same exists or may hereafter be amended, against all expense, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that except as provided in Paragraph 8.2 of this Article with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Paragraph 8.1 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director, officer, employee, or agent, to repay all amounts so advanced if it shall ultimately be determined that such director, officer, employee, or agent is not entitled to be indemnified under this Paragraph 8.1 or otherwise. Section 8.2 Right of Claimant To Bring Suit. If a claim under Paragraph 8.1 of this article is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such 7 claim. The claimant shall be presumed to be entitled to indemnification under this article upon submission of a written claim (and, in an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition, where the required undertaking has been tendered to the Corporation) and thereafter the Corporation shall have the burden of proof to overcome the presumption that the claimant is not so entitled. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of, or reimbursement or advancement, of expenses to the claimant is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled. Section 8.3 Non-exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors, or otherwise. Section 8.4 Insurance Contracts and Funding. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Washington Business Corporation Act. The Corporation may enter into contracts with any director, officer, employee, or agent of the Corporation in furtherance of the provisions of this Article and may create a trust fund, grant a security interest, or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this article. Section 8.5 Indemnification of Employees and Agents of the Corporation. The Corporation may, by action of its Board of Directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to employees and agents of the Corporation with the same scope and effect as the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or otherwise. ARTICLE IX. BOOKS AND RECORDS The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and Board of Directors; and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Any books, records, and minutes may be in written form or any other form capable of being converted into written form within a reasonable time. ARTICLE X. AMENDMENTS Except to the extent prohibited by law, and only upon a vote of two-thirds of the Board of Directors, these Bylaws may be altered, amended or repealed, and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. Amended December 14, 1987; January 18, 1991; May 29, 1991; June 4, 1992; September 27, 1993; May 17, 1995; December 20, 1995; November 14, 2000; and May 8, 2002. 8 -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     EXHIBIT 3.2



                              AMENDED AND RESTATED
                                     BYLAWS
                                       OF
                              STARBUCKS CORPORATION

                  (AS AMENDED AND RESTATED THROUGH MAY 8, 2002)


                             ARTICLE I. SHAREHOLDERS

        Section 1.1 Annual Meeting. The annual meeting of the shareholders of
the Corporation shall be held each year on a date between January 1 and June 30,
with a specific date and time to be determined from time to time by the Board of
Directors. The failure to hold an annual meeting at the time stated in these
bylaws does not affect the validity of any corporate action. At each annual
meeting of shareholders, the shareholders shall elect a class of directors as
set forth in Section 2.1 hereof and in the Corporation's Articles of
Incorporation, and transact such other business as may properly be brought
before the meeting. No business may be transacted at an annual meeting of
shareholders other than business that is (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any shareholder of the corporation (i) who
is a shareholder on the date of the giving of the notice provided for in Section
1.4 hereof and on the record date for the determination of shareholders entitled
to vote at such annual meeting and (ii) who complies with the notice procedures
set forth in Section 1.12 hereof.

        Section 1.2 Special Meetings. Special meetings of the shareholders may
be held upon call of the Board of Directors or of the President and shall be
called by the Board of Directors or the President upon the delivery of a written
request of the holders of ten percent of the outstanding stock entitled to vote
to the Secretary of the Corporation.

        Section 1.3 Meeting Place. All meetings of the shareholders shall be
held at a location determined from time to time by the Board of Directors, and
the place at which any such meeting shall be held shall be stated in the notice
of the meeting.

        Section 1.4 Notice of Meetings. Written notice of the time and place of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called shall be delivered personally or mailed not less
than ten days nor more than 60 days before the date of the meeting to each
shareholder of record entitled to vote, at the address appearing upon the stock
transfer books of the Corporation. If the shareholders will be voting on (i) an
amendment to the Articles of Incorporation, (ii) a plan of merger or share
exchange, (iii) the sale of all or substantially all of the Corporation's
assets, or (iv) the dissolution of the Corporation, notice shall be delivered
personally or mailed not less than 20 nor more than 60 days before the date of
the meeting. Meetings may be held without notice if all shareholders entitled to
vote are present or represented by proxy or if notice is waived by those not
present or so represented at the beginning of the meeting.

        Section 1.5 Waiver of Notice. Notice of time, place and purpose of any
meeting may be waived in writing before or after the time of the meeting, and
will be waived by any shareholder by his or her attendance at such meeting in
person or by proxy unless at the beginning of the meeting such shareholder
objects to the meeting or the transaction of business at such meeting. Any
shareholder waiving his or her right to notice shall be bound by the proceedings
of any such meeting in all respects as if due notice thereof had been given.

        Section 1.6 Quorum. Except as otherwise required by law:

        (a) A quorum at any annual or special meeting of shareholders shall
consist of shareholders representing, either in person or by proxy, a majority
of the outstanding shares of the Corporation entitled to



vote at such meeting. If a quorum is not present, the holders of a majority of
the shares so present or represented may adjourn the meeting from time to time
until a quorum is present.

        (b) Action on a matter other than the election of directors is approved
if the votes cast favoring the action exceed the number of votes cast opposing
the action.

        Section 1.7 Organization of Meetings. Meetings of the shareholders shall
be presided over by the President, but if the President is not present, then by
a Vice President. If neither the President nor a Vice President is present, by a
chairman to be chosen at the meeting. The Secretary of the Corporation shall act
as Secretary of the meeting, if present.

        Section 1.8 Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
Corporation or other officer of the Corporation or agent authorized to tabulate
votes before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in such proxy.
Any proxy regular on its face shall be presumed to be valid.

        Section 1.9 Shareholders' Action Without Meeting. Any action required or
which may be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing setting forth the action so taken shall be
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof.

        Section 1.10 Action of Shareholders by Communication Equipment.
Shareholders may participate in a meeting of shareholders by means of a
conference telephone or similar communication equipment by means of which all
persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.

        Section 1.11 List of Shareholders. At least ten days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting, or any adjournment thereof, shall be made. Such list shall be arranged
in alphabetical order with the address of and number of shares held by each
shareholder. Such record shall be kept on file at the principal office of the
Corporation for a period of ten days prior to such meeting. The record shall be
produced and kept open at the time and place of such meeting for the inspection
of any shareholder. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.

        Section 1.12 Notice of Shareholder Business to be Conducted at the
Annual Meeting of Shareholders. In order for a shareholder to properly bring any
item of business before an annual meeting of shareholders, such shareholder must
give timely notice thereof in proper written form to the Secretary of the
Corporation. This Section 1.12 shall constitute an "advance notice provision"
for purposes of Rule 14a-4(c)(1), promulgated under the Securities Exchange Act
of 1934, as such rule may be amended from time to time (the "Exchange Act").

        (a) To be timely, a shareholder's notice to the Secretary must be
delivered at the principal executive offices of the Corporation not less than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of shareholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after the date of the immediately preceding annual meeting of shareholders,
notice by the shareholder must be received no later than the close of business
on the tenth (10th) day following the day on which notice of the date of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever first occurs.

        (b) To be in proper form, a shareholder's notice to the Secretary must
set forth as to each matter such shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address of such shareholder, (iii) the class or
series and number of shares of



                                       2


capital stock of the Corporation that are owned beneficially or of record by
such shareholder, (iv) a description of all arrangements or understandings
between such shareholder and any other person or persons (including their names)
in connection with the proposal of such business by such shareholder and any
material interest of such shareholder in such business and (v) a representation
that such shareholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.

        (c) A shareholder intending to nominate one or more persons for election
as a Director at an annual meeting must comply with the notice provisions set
forth in Section 1.12(a) and Section 1.12(b) hereof (as such provisions may be
amended from time to time) for such nomination or nominations to be properly
brought before such meeting. In addition, for a nomination to be made properly
by a shareholder, the notice to the Secretary of the Corporation must set forth
(i) as to each person whom the shareholder proposes to nominate for election as
a director (A) the name, age, business address and residence address of the
person being nominated, (B) the principal occupation or employment of the person
being nominated, (C) the class or series and number of shares of capital stock
of the Corporation that are owned beneficially or of record by the person being
nominated and (D) any other information relating to the person that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with the solicitation of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder; and (b) as to the shareholder giving the notice, any
information (in addition to the information required pursuant to Section 1.12
(a) and Section 1.12(b) hereof) relating to such shareholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with the solicitation of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.


                              ARTICLE II. DIRECTORS

        Section 2.1 Number, Election, and Powers

        (a) All corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of the Board of Directors, except as may be otherwise provided in the
Articles of Incorporation. The Board of Directors shall consist of nine members.
The number of directors may be changed by a resolution of the Board of Directors
or by a vote of the shareholders at the annual shareholders' meeting.

        (b) Directors shall serve staggered terms as set forth in the Articles
of Incorporation of the Corporation. Each director shall hold office for the
term for which elected and until his or her successor shall have been elected
and qualified.

        (c) Directors need not be shareholders or residents of the state of
Washington. In addition to the powers and authorities expressly conferred upon
the Corporation by these Bylaws and the Articles of Incorporation, the Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Articles of Incorporation or by
these Bylaws directed or required to be exercised or done by the shareholders.

        Section 2.2 Vacancies. Any vacancy occurring in the Board of Directors,
whether caused by resignation, death or otherwise, may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill any vacancy shall
hold office for the unexpired term of his or her predecessor and until his or
her successor is elected and qualified. Any directorship to be filled by reason
of an increase in the number of directors may be filled by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.

        Section 2.3 Quorum. A majority of the members of the Board of Directors
then holding office shall constitute a quorum for the transaction of business,
but if at any meeting of the Board of



                                       3


Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum shall have been
obtained.

        Section 2.4 Removal of Directors. Except as otherwise provided by law or
by the Articles of Incorporation, at a meeting of shareholders called expressly
for that purpose at which a quorum exists, the entire Board of Directors or any
member thereof may be removed with or without cause by a vote of the holders of
a majority of the shares present and entitled to vote for the election of
directors.

        Section 2.5 Regular Meetings.

        (a) Meetings of the Board of Directors shall be held from time to time
at the principal place of business of the Corporation or at such other place or
places, either within or without the state of Washington, as the Board of
Directors may from time to time designate.

        (b) Regular meetings of any committee designated by the Board of
Directors may be held at the principal place of business of the Corporation or
at such other place or places, either within or without the state of Washington
as such committee may from time to time designate. The schedule for meetings of
any committee shall be set by said committee.

        Section 2.6 Special Meetings.

        (a) Special meetings of the Board of Directors may be called at any time
by the President, Secretary or by any one Director, to be held at the principal
place of business of the Corporation or at such other place or places as the
Board of Directors or the person or persons calling such meeting may from time
to time designate.

        (b) Special meetings of any committee may be called at any time by such
person or persons and with such notice as shall be specified for such committee
by the Board of Directors, or in the absence of such specification, in the
manner and with the notice required for special meetings of the Board of
Directors.

        Section 2.7 Notice of Special Meetings. Notice of each special meeting
of the Board of Directors shall be delivered to each Director at least two days
before the meeting. The notice of any special meeting shall identify the
business to be transacted at or the purpose of the special meeting.

        Section 2.8 Committees. The Board of Directors may, in its discretion,
by resolution passed by a majority of the whole Board of Directors, appoint
various committees consisting of two or more members, including an Executive
Committee, which shall have and may exercise such powers as shall be conferred
or authorized by the resolution appointing such committee. A majority of any
such committee, composed of more than two members, may determine its action and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have the power at any time to
change the members of any such committee, to fill vacancies, and to discharge
any such committee.

        Section 2.9 Action by Directors Without a Meeting. Any action required
or which might be taken at a meeting of the Board of Directors or of a committee
thereof may be taken without a meeting if a consent in writing, setting forth
the action so taken or to be taken, shall be signed by all of the directors, or
all of the members of the committee, as the case may be. Such consent shall be
filed in the Corporation's minute book, or with the records of the committee so
acting.

        Section 2.10 Meeting by Telephone. Members of the Board of Directors or
any committee designated by the Bylaws or appointed by the Board of Directors
may participate in a meeting of such Board of Directors or committee by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.



                                       4


                       ARTICLE III. CONFLICTS OF INTEREST

The Corporation may enter into contracts and otherwise transact business as
vendor, purchaser, or otherwise, with its directors and officers and with
corporations, associations, firms, and entities in which they are or may be or
become interested as directors, officers, shareholders, members, or otherwise,
as freely as though such adverse interest did not exist, even though the vote,
action, or presence of such director or officer may be necessary to obligate the
Corporation upon such contracts or transactions; and, in the absence of fraud,
no such contract or transaction shall be voided and no such director or officer
shall be held liable to account to the Corporation, by reason of such adverse
interests or by reason of any fiduciary relationship to the Corporation arising
out of such office or stock ownership, for any profit or benefit realized
through any such contract or transaction; provided that in the case of
directors, such director makes the disclosures required by RCW 23B.08.710
through RCW 23.B.08.710, and in the case of officers of the Corporation the
nature of the interest of such officer, be disclosed or known to the Board of
Directors of the Corporation. Officers need make no disclosure under this
article when their interest is less than or equal to five percent of the voting
power or control of the other corporation, association, firm or entity.


                              ARTICLE IV. OFFICERS

        Section 4.1 Election or Appointment. The Board of Directors, as soon as
practicable after the election of directors held each year, shall appoint a
President and a Secretary, and from time to time may appoint a Chairman of the
Board, one or more Vice Presidents, a Treasurer and such Assistant Secretaries,
Assistant Treasurers and other officers as it may deem proper. Any two or more
offices may be held by the same person, except the offices of President and
Secretary. Unless otherwise required by law, no officer need be a shareholder of
the Corporation or a member of the Board of Directors.

        Section 4.2 Term. The term of office of all officers shall be one year
or until their respective successors are appointed. Any officer may be removed
from office at any time by the affirmative vote of a majority of the Board of
Directors or by the action of the duly appointed superior officer to whom he or
she reports. The vacancy so created may be filled by the Board of Directors or
by such duly appointed superior officer.

        Section 4.3 Removal. Any officer appointed by the Board of Directors may
be removed with or without cause by the Board of Directors or the duly appointed
superior officer to which such officer reports, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.

        Section 4.4 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, may be filled by the
Board of Directors or by a duly appointed superior officer.

        Section 4.5 Delegation. In the case of the absence or inability to act
of any officer of the Corporation and of any person herein authorized to act in
such person's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer, employee or agent.

        Section 4.6 Bonds. The Board of Directors may, by resolution, require
any or all of the officers to give bonds to the Corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the duties of
their respective offices, and to comply with such other conditions as may from
time to time be required by the Board of Directors.

        Section 4.7 President. The President shall be the principal executive
officer of the Corporation and, subject to the Board of Directors' control,
shall supervise and control all of the business and affairs of the Corporation.
When present, the President shall preside over all meetings of shareholders and
directors. With the Secretary or other officer of the Corporation authorized by
the Board of Directors, he may sign certificates for shares of the Corporation,
deeds, mortgages, bonds, contracts, or other instruments that the Board of
Directors has authorized to be executed, except when the signing and



                                       5


execution thereof has been expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the Corporation or is required by
law to be otherwise signed or executed by some other officer or in some other
manner. In general, he shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.

        Section 4.8 Secretary. The Secretary shall: (a) keep the minutes of
shareholders' and Board of Directors' meetings in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) have responsibility for
maintaining the corporate records and the seal of the Corporation and see that
the seal of the Corporation is affixed to all documents, the execution of which
on behalf of the Corporation under its seal is duly authorized; (d) sign with
the President or other officer of the Corporation authorized by the Board of
Directors certificates for shares of the Corporation, the issuance of which have
been authorized by resolution of the Board of Directors; (e) have general
responsibility for the stock transfer books of the Corporation; and (f) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President or by
the Board of Directors.


                ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS

        Section 5.1 Contracts. The Board of Directors may authorize any officer,
employee or agent to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation.

        Section 5.2 Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer, employee or agent of
the Corporation and in such manner as is from time to time determined by
resolution of the Board of Directors.


             ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER

        Section 6.1 Issuance of Shares. No shares of the Corporation shall be
issued unless authorized by the Board of Directors. Such authorization shall
include the maximum number of shares to be issued and the consideration to be
received for each share. No certificate shall be issued for any share until such
share is fully paid.

        Section 6.2 Certificates for Shares. Certificates representing shares of
the Corporation shall be signed by the Chairman of the Board or the President
and by the Secretary and shall include on their face written notice of any
restrictions which the Board of Directors may impose on the transferability of
such shares. All certificates shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificates for a like number of
shares shall have been surrendered and canceled except that in case of a lost,
destroyed or mutilated certificate, a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board of Directors may prescribe.

        Section 6.3 Transfers.

               (a) Transfers of shares shall be made only upon the share
transfer books of the Corporation, kept at the registered office of the
Corporation or at its principal place of business, or at the office of its
transfer agent or registrar, and before a new certificate is issued the old
certificate shall be surrendered for cancellation. The Board of Directors may,
by resolution, open a share register in any state



                                       6


of the United States, and may employ an agent or agents to keep such register,
and to record transfers of shares therein.

               (b) Shares shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from certificate, or by a written power of
attorney to sell, assign and transfer the same, signed by the holder of said
certificate. No shares of stock shall be transferred on the books of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation. The Board of Directors may, by resolution, adopt appropriate
procedures to allow transfers of shares, the certificates for which have been
lost, stolen, mutilated or destroyed.

        Section 6.4 Restriction on Transfer. All certificates representing
unregistered shares of the Corporation shall bear an appropriate restrictive
legend on the face of the certificate or on the reverse of the certificate.


                                ARTICLE VII. SEAL

        The seal of this Corporation shall consist of the name of the
Corporation and the state and year of its incorporation.


                          ARTICLE VIII. INDEMNIFICATION

        Section 8.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director, officer, employee, or agent of
the Corporation or, being or having been such a director, officer, employee or
agent, he or she is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent, shall be indemnified and held harmless by the Corporation to the full
extent authorized by the Washington Business Corporation Act or other applicable
law, as the same exists or may hereafter be amended, against all expense,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts to be paid in settlement) actually and reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of his or her heirs,
executors, and administrators; provided, however, that except as provided in
Paragraph 8.2 of this Article with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Paragraph 8.1 shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses in advance of the final disposition
of a proceeding shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director, officer, employee, or agent, to
repay all amounts so advanced if it shall ultimately be determined that such
director, officer, employee, or agent is not entitled to be indemnified under
this Paragraph 8.1 or otherwise.

        Section 8.2 Right of Claimant To Bring Suit. If a claim under Paragraph
8.1 of this article is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for expenses incurred in defending a proceeding in advance of its
final disposition, in which case the applicable period shall be twenty days, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, to the extent successful in whole or
in part, the claimant shall be entitled to be paid also the expense of
prosecuting such



                                       7


claim. The claimant shall be presumed to be entitled to indemnification under
this article upon submission of a written claim (and, in an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition, where the required undertaking has been tendered to the
Corporation) and thereafter the Corporation shall have the burden of proof to
overcome the presumption that the claimant is not so entitled. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of, or reimbursement or
advancement, of expenses to the claimant is proper in the circumstances nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant is not
entitled to indemnification or to the reimbursement or advancement of expenses
shall be a defense to the action or create a presumption that the claimant is
not so entitled.

        Section 8.3 Non-exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.

        Section 8.4 Insurance Contracts and Funding. The Corporation may
maintain insurance, at its expense, to protect itself and any director, officer,
employee, or agent of the Corporation or another corporation, partnership, joint
venture, trust, or other enterprise against any expense, liability, or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability, or loss under the Washington Business
Corporation Act. The Corporation may enter into contracts with any director,
officer, employee, or agent of the Corporation in furtherance of the provisions
of this Article and may create a trust fund, grant a security interest, or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this article.

        Section 8.5 Indemnification of Employees and Agents of the Corporation.
The Corporation may, by action of its Board of Directors from time to time,
provide indemnification and pay expenses in advance of the final disposition of
a proceeding to employees and agents of the Corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.


                          ARTICLE IX. BOOKS AND RECORDS

        The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders and Board
of Directors; and shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders and the number
and class of the shares held by each. Any books, records, and minutes may be in
written form or any other form capable of being converted into written form
within a reasonable time.


                              ARTICLE X. AMENDMENTS

        Except to the extent prohibited by law, and only upon a vote of
two-thirds of the Board of Directors, these Bylaws may be altered, amended or
repealed, and new Bylaws may be adopted by the Board of Directors at any regular
or special meeting of the Board of Directors.

Amended December 14, 1987; January 18, 1991; May 29, 1991; June 4, 1992;
September 27, 1993; May 17, 1995; December 20, 1995; November 14, 2000; and
May 8, 2002.



                                       8