10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended September 29, 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 incorporation or organization)	(IRS Employer Identification No.)
2401 Utah Avenue South Seattle, Washington 98134	98134
(Address of principal executive offices)	(Zip Code)

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

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $0.001 Par Value Per Share

      Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation of S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Registrant’s Common Stock on December 16, 2002 as reported on the National Market tier of The NASDAQ Stock Market, Inc. was $6,451,558,299.

      As of December 16, 2002, there were 387,464,184 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended September 29, 2002, have been incorporated by reference into Parts II and IV of this Annual Report on Form 10-K. Portions of the definitive Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held on March 25, 2003 have been incorporated by reference into Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
Exhibit 10.11
EXHIBIT 13
EXHIBIT 21
EXHIBIT 23
EXHIBIT 99

STARBUCKS CORPORATION

FORM 10-K

For the Fiscal Year Ended September 29, 2002

TABLE OF CONTENTS

PART I
Item 1	Business	1
Item 2	Properties	6
Item 3	Legal Proceedings	6
Item 4	Submission of Matters to a Vote of Security Holders	7
PART II
Item 5	Market for the Registrant’s Common Equity and Related Stockholder Matters	7
Item 6	Selected Financial Data	7
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	7
Item 8	Financial Statements and Supplementary Data	7
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	7
PART III
Item 10	Directors and Executive Officers of the Registrant	8
Item 11	Executive Compensation	9
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	9
Item 13	Certain Relationships and Related Transactions	9
Item 14	Controls and Procedures	10
PART IV
Item 15	Exhibits, Financial Statement Schedules and Reports on Form 8-K	10

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES

LITIGATION REFORM ACT OF 1995

      Certain statements set forth in or incorporated by reference into this Annual Report on Form 10-K, including anticipated Company-operated and licensed store openings, planned capital expenditures, expected cash requirements and trends in or expectations regarding the Company’s operations, 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 impact of competition, the effect of legal proceedings and other risks detailed herein.

PART I

Item 1.     Business

      Starbucks Corporation (together with its subsidiaries, “Starbucks” or the “Company”) purchases and roasts high-quality whole bean coffees and sells them, along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a variety of pastries and confections, coffee-related accessories and equipment, a selection of premium teas and a line of compact discs primarily through Company-operated retail stores. Starbucks sells coffee and tea products through other channels of distribution, and, through certain of its equity investees, Starbucks also produces and sells bottled Frappuccino® and Starbucks DoubleShot^TM coffee drinks and a line of premium ice creams. These non-retail channels are collectively known as “Specialty Operations.” The Company’s objective is to establish Starbucks as the most recognized and respected brand in the world. To achieve this goal, the Company plans to continue rapid expansion of its retail operations, grow its Specialty Operations and selectively pursue other opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.

Company-operated Retail Stores

      The Company’s retail goal is to become the leading retailer and brand of coffee in each of its target markets by selling the finest quality coffee and related products and by providing superior customer service, thereby building a high degree of customer loyalty. Starbucks strategy for expanding its retail business is to increase its market share in existing markets and to open stores in new markets where the opportunity exists to become the leading specialty coffee retailer. In support of this strategy, Starbucks opened 614 new Company-operated stores during the fiscal year ended September 29, 2002 (“fiscal 2002”). All store openings are reported net of closures. At fiscal year end, Starbucks had 3,496 Company-operated stores in 43 states, the District of Columbia and five Canadian provinces (which comprise the Company’s North American Retail operating segment), as well as 322 stores in the United Kingdom, 33 stores in Australia and 29 stores in Thailand (which comprise the Company’s International Retail business unit). Company-operated retail stores accounted for approximately 85% of net revenues during fiscal 2002.

      Starbucks retail stores are typically located in high-traffic, high-visibility locations. Because the Company can vary the size and format, its stores are located in a variety of settings, including downtown and suburban retail centers, office buildings and university campuses. While the Company selectively locates stores in suburban malls, it focuses on stores that have convenient access for pedestrians and drivers.

      All Starbucks stores offer a choice of regular and decaffeinated coffee beverages, including at least one “coffee of the day,” a broad selection of Italian-style espresso beverages, cold blended beverages, a selection of teas and distinctively packaged roasted whole bean coffees. Starbucks stores also offer a selection of fresh pastries and other food items, sodas, juices, coffee-making equipment and accessories, a selection of compact discs, games and seasonal novelty items. Each Starbucks store varies its product mix depending upon the size of the store and its location. Larger stores carry a broad selection of the Company’s whole bean coffees in various sizes and types of packaging, as well as an assortment of coffee and espresso-making equipment and

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accessories such as coffee grinders, coffee makers, espresso machines, coffee filters, storage containers, travel tumblers and mugs. Smaller Starbucks stores and kiosks typically sell a full line of coffee beverages, a more limited selection of whole bean coffees and a few accessories such as travel tumblers and logo mugs. Approximately 500 Starbucks stores carry a selection of “grab and go” sandwiches and salads. During fiscal 2002, the Company’s retail sales mix by product type was approximately 77% beverages, 13% food items, 6% whole bean coffees and 4% coffee-making equipment and accessories.

Specialty Operations

      Starbucks Specialty Operations strive to develop the Starbucks brand outside the Company-operated retail store environment through a number of channels. Starbucks strategy is to reach customers where they work, travel, shop and dine by establishing relationships with prominent third parties that share the Company’s values and commitment to quality. These relationships take various forms, including arrangements through Business Alliances, international retail store licensing agreements, grocery channel licensing agreements, warehouse club accounts, interactive operations, equity investees and other initiatives related to the Company’s core businesses. In certain situations, Starbucks has an equity ownership interest in licensee operations. During fiscal 2002, specialty revenues (which include royalties and fees from licensees as well as product sales derived from Specialty Operations) accounted for approximately 15% of the Company’s net revenues.

      North American Foodservice Accounts and North American Retail Store Licensing together comprise the Business Alliances operating segment and represents approximately 45% of specialty revenues.

Foodservice Accounts

      The Company sells whole bean and ground coffees to office coffee distributors, hotels, airlines, retailers and restaurants as well as institutional foodservice companies that service business, industry, education and healthcare accounts. In fiscal 2002, the Company had approximately 5,600 foodservice accounts, and revenues from these accounts comprised approximately 27% of specialty revenues.

Retail Store Licensing

      Although the Company does not generally relinquish operational control of its retail stores in North America, in situations in which a master concessionaire or another company controls or can provide improved access to desirable retail space, the Company licenses its operations. As part of these arrangements, Starbucks receives license fees and royalties and sells coffee and related products for resale in the licensed locations. Employees working in the licensed locations must follow Starbucks detailed store-operating procedures and attend training classes similar to those given to Starbucks store managers and employees. During fiscal 2002, Starbucks opened 269 licensed retail stores. As of September 29, 2002, the Company had 1,078 licensed stores in continental North America. Revenues from these stores accounted for approximately 18% of specialty revenues in fiscal 2002.

      The remainder of the Company’s business units include international retail store licensing, grocery channel licensing, warehouse club accounts, interactive operations, equity investees and other initiatives. These business units comprised approximately 55% of specialty revenues in fiscal 2002.

International Retail Store Licensing

      The Company’s retail stores located outside of North America, the United Kingdom, Thailand and Australia are operated through a number of licensing arrangements with prominent retailers. During fiscal 2002, Starbucks expanded its international presence by opening 294 new international licensed stores, including the first stores in Austria, Oman, Spain, Germany, Indonesia, Mexico, Puerto Rico and Greece. Licensing arrangements are managed within three operating regions, based primarily on geography.

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      At fiscal year end, the Company had a total of 928 licensed international retail stores located in the following operating regions:

Asia-Pacific
		Europe/Middle East/Africa
				Latin America
Japan	397	United Arab Emirates	23	Hawaii	30
Taiwan	99	Saudi Arabia	22	Mexico	1
China	88	Kuwait	16	Puerto Rico	1
South Korea	53	Switzerland	12
Philippines	49	Lebanon	11
New Zealand	34	Israel	6
Singapore	32	Austria	5
Malaysia	26	Spain	5
Indonesia	5	Germany	4
		Qatar	3
		Bahrain	2
		Greece	2
		Oman	2
Total	783		113		32

      Product sales to, and royalty and license fee revenues from, licensed international retail stores accounted for approximately 17% of specialty revenues in fiscal 2002.

Grocery Channel Licensing

      Starbucks has a licensing agreement with Kraft Foods, Inc. (“Kraft”) to market and distribute Starbucks whole bean and ground coffees in the grocery channel in the United States. Pursuant to that agreement, Kraft manages all distribution, marketing, advertising and promotions for Starbucks whole bean and ground coffee in grocery and mass merchandise stores and pays a royalty to Starbucks based on a percentage of total net sales. By the end of fiscal 2002, the Company’s whole bean and ground coffees were available throughout the United States in approximately 18,000 supermarkets. Revenues from the grocery channel accounted for approximately 13% of specialty revenues in fiscal 2002.

Warehouse Club Accounts

      The Company sells whole bean and ground coffees to warehouse club chains in North America. As part of its agreement with Starbucks to market and distribute to the grocery channel, Kraft distributes Starbucks products to warehouse club stores, for which the Company pays a distribution fee. Revenues from warehouse club accounts represented approximately 13% of specialty revenues in fiscal 2002.

Interactive Operations

      The Company makes Starbucks coffee and coffee-related products conveniently available via mail order and online. The Company maintains a web site at Starbucks.com with an online store that allows customers to purchase coffee, gifts and other items via the Internet. Starbucks also publishes and distributes a catalog of business gifts that offer coffees, certain food items and select coffee-making equipment and accessories. Additionally, Starbucks offers customers high-speed wireless Internet access at approximately 1,650 enabled Company-operated retail stores.

      Management believes these interactive operations support its retail store expansion into new markets and reinforce brand recognition and the Starbucks Experience for customers in existing markets. The Company’s interactive operations accounted for approximately 7% of specialty revenues in fiscal 2002.

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Equity Investees and Other Initiatives

      The Company has two partnerships to produce and distribute Starbucks branded products. The North American Coffee Partnership with the Pepsi-Cola Company develops and distributes bottled Frappuccino and Starbucks DoubleShot coffee drinks. The Starbucks Ice Cream Partnership with Dreyer’s Grand Ice Cream, Inc. develops and distributes premium ice creams. Starbucks sells roasted coffee for use by equity investees, and these revenues accounted for approximately 2% of specialty revenues in fiscal 2002.

      The Company has several other initiatives related to its core businesses that are intended to enhance the customers’ experience at Starbucks retail stores. For example, the Company has marketed a selection of premium tea products since the acquisition of Tazo, L.L.C. in 1999. Collectively, these initiatives accounted for approximately 3% of specialty revenues in fiscal 2002.

Product Supply

      Starbucks is committed to selling only the finest whole bean coffees and coffee beverages. To ensure compliance with its rigorous coffee standards, Starbucks controls its coffee purchasing, roasting and packaging, and the distribution of coffee to its retail stores. The Company purchases green coffee beans from coffee-producing regions around the world and custom roasts them to its exacting standards for its many blends and single origin coffees.

      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 prices of green coffee through agreements establishing export quotas or restricting coffee supplies.

      The Company depends upon its relationships with coffee producers, outside trading companies and exporters for its supply of green coffee. World coffee prices reached historic lows during fiscal 2002. In an effort to encourage the continuing supply of high quality coffee, the Company is negotiating contracts with its suppliers at levels equal to prior years, and has been successful in securing long-term contracts on this basis. The Company routinely enters into fixed-price purchase commitments for future deliveries of coffee. As of September 29, 2002, the Company had $242.2 million in fixed-price purchase commitments which, together with existing inventory, are expected to provide an adequate supply of green coffee for 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. There can be no assurance that these activities will successfully protect the Company against the risks of higher coffee prices or that such activities will not result in the Company having to pay substantially more for its coffee supply than it would have been required to pay absent such activities.

      In addition to coffee, the Company also purchases significant amounts of dairy products to support the needs of its retail stores. Fluid milk is purchased from multiple suppliers who have processing facilities near concentrations of Starbucks retail stores. Dairy prices vary throughout the year as supply and demand fluctuate and are subject to additional changes due to government regulations.

      The Company also purchases a broad range of paper and plastic products, such as paper cups, plastic cold cups, hot cup lids, napkins, straws, shopping bags and corrugated paper boxes from several companies to support the needs of its retail stores as well as its manufacturing and distribution operations. The cost of these materials are somewhat dependent upon commodity paper and plastic resin costs, but the Company believes it mitigates the effect of short-term raw material price increases through strategic relationships with key suppliers.

      Products other than whole bean coffees and coffee beverages sold in Starbucks retail stores are obtained through a number of different channels. Beverage ingredients other than coffee and milk are purchased from several specialty manufacturers, usually pursuant to long-term supply contracts. Specialty foods, such as fresh pastries and lunch items, are generally purchased from both regional and local sources based on quality and

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price. Coffee-making equipment, such as drip, vacuum and French press coffee makers, espresso machines and coffee grinders, are generally purchased directly from their manufacturers for resale. Coffee-related accessories, including items bearing the Company’s logos and trademarks, are produced and distributed through contracts with a number of different vendors.

Competition

      The Company’s primary competitors for coffee beverage sales are restaurants, coffee shops, and street carts. In almost all markets in which the Company does business, there are numerous competitors in the specialty coffee beverage business, and management expects this situation to continue. Although competition in the beverage market is currently fragmented, a major competitor with substantially greater financial, marketing and operating resources than the Company could enter this market at any time and compete directly against the Company.

      The Company’s whole bean coffees compete directly against specialty coffees sold at retail through supermarkets, specialty retailers and a growing number of specialty coffee stores. Both the Company’s whole bean coffees and its coffee beverages compete indirectly against all other coffees on the market. The Company believes that its customers choose among retailers primarily on the basis of product quality, service and convenience, and, to a lesser extent, on price.

      Management believes that supermarkets are the most competitive distribution channel for specialty whole bean coffee, in part because supermarkets offer customers a variety of choices without having to make a separate trip to a specialty coffee store. A number of nationwide coffee manufacturers are distributing premium coffee products in supermarkets that may serve as substitutes for the Company’s coffees. Regional specialty coffee companies also sell whole bean coffees in supermarkets.

      In addition to the competition generated by supermarket sales of coffee, Starbucks competes for whole bean coffee sales with franchise operators and independent specialty coffee stores. In virtually every major metropolitan area where Starbucks operates and expects to expand, there are local or regional competitors with substantial market presence in the specialty coffee business. Starbucks Specialty Operations also face significant competition from established wholesale and mail order suppliers, some of whom have greater financial and marketing resources than the Company.

      In addition, the Company faces intense competition from both restaurants and other specialty retailers for suitable sites for new stores and qualified personnel to operate both new and existing stores. There can be no assurance that Starbucks will be able to continue to secure adequate sites at acceptable rent levels or that the Company will be able to attract a sufficient number of qualified workers.

Patents, Trademarks, Copyrights and Domain Names

      The Company owns and/or has applied to register numerous trademarks and service marks in the United States, Canada and in more than 125 additional countries throughout the world. Rights to the trademarks and service marks in the United States are generally held by Starbucks U.S. Brands Corporation, a wholly-owned subsidiary of the Company, and are used by the Company under license. Some of the Company’s trademarks, including “Starbucks,” the Starbucks logo and “Frappuccino,” are of material importance to the Company. The duration of trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained, and they have not been found to have become generic.

      The Company also owns numerous copyrights for its product packaging, promotional materials, in-store graphics and training materials, among other things. The Company also holds patents on certain products, systems and designs. In addition, the Company has registered and maintains numerous Internet domain names, including “Starbucks.com” and “Starbucks.net.” While valuable, individual copyrights, patents and domain names currently held by the Company are not viewed as material to the Company’s business.

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Research and Development

      The Company’s research and development efforts are led by food scientists, engineers, chemists and culinarians in the Research and Development department. This team is responsible for the technical development of food and beverage products and new equipment. Recent development efforts have resulted in successful flavor line extensions for latte beverages, coffee and non-coffee based Frappuccino blended beverages and new items for the Company’s morning pastry and lunch lines. The department also introduced improvements in base ingredients and approved a new supplier to aid in the distribution of products to international markets and formulation changes to tea-based beverages. The Company spent approximately $3.6 million during fiscal 2002 on technical research and development activities, in addition to customary product testing and product and process improvements in all areas of the Company’s business.

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 that 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.

Employees

      As of September 29, 2002, the Company employed approximately 62,000 people, approximately 57,000 in retail stores and the remainder in the Company’s regional offices and administrative, specialty, store development, roasting and warehousing operations. At fiscal year end, employees at 10 of the Company’s stores and a group of 11 maintenance mechanics and technicians at one roasting plant were represented by unions. The Company believes that its current relations with its employees are good.

Item 2. Properties

      Starbucks currently operates three roasting and distribution facilities. In the Seattle area, the Company owns a roasting plant and distribution facility of approximately 305,000 square feet and leases a warehouse facility of approximately 200,000 square feet in Kent, Washington. The Company also owns a 365,000 square foot roasting and distribution facility and a 297,000 square foot green coffee bean storage warehouse in York County, Pennsylvania. Starbucks presently leases a small roasting and storage facility in London, England to support its operations in Europe and the Middle East. The Company is nearing completion of a 70,000 square foot roasting plant in The Netherlands, and will relocate its European roasting facilities there during fiscal 2003. To support its growth, the Company acquired 100 acres of land in Minden, Nevada and has recently completed construction on a 360,000 square foot roasting and distribution facility.

      The Company leases approximately 760,000 square feet of a building located in Seattle, Washington for administrative offices and has options to lease approximately 240,000 additional square feet in the same building. The Company owns 2.36 acres of undeveloped land near its administrative offices that is used for parking.

      As of September 29, 2002, Starbucks operated a total of 5,886 retail stores. All Starbucks stores are located in leased premises. The Company also leases space in approximately 90 additional locations for regional, district and other administrative offices, training facilities and storage, not including certain seasonal retail storage locations.

Item 3. 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. On April 19, 2002,

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Starbucks announced that it had reached an agreement to settle both lawsuits and fully resolve all claims brought by the plaintiffs without engaging in protracted litigation. Accordingly, Starbucks recorded an $18.0 million charge, which is included in “General and administrative expenses” on the consolidated statement of earnings, for the estimated payment of claims to eligible class members, attorney’s fees and costs, and costs to a third-party claims administrator, as well as applicable employer payroll taxes. On December 17, 2002, the settlement was approved. Claims under the settlement agreement will be paid on a “claims made” basis. The Company expects most claims will be paid in the second quarter of fiscal 2003.

      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 4. Submission of Matters to a Vote of Security Holders.

      No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2002.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

      The information required by this item is incorporated herein by reference to the section entitled “Shareholder Information” in the Company’s Fiscal 2002 Annual Report to Shareholders, and is also attached in Exhibit 13 hereto.

Item 6. Selected Financial Data

      The information required by this item is incorporated herein by reference to the section entitled “Selected Financial Data” in the Company’s Fiscal 2002 Annual Report to Shareholders, and is also attached in Exhibit 13 hereto.

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

      The information required by this item is incorporated herein by reference to the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Fiscal 2002 Annual Report to Shareholders, and is also attached in Exhibit 13 hereto.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      The information required by this item is incorporated herein by reference to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Coffee Prices, Availability and General Risk Conditions” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Risk Management” in the Company’s Fiscal 2002 Annual Report to Shareholders, and is also attached in Exhibit 13 hereto.

Item 8. Financial Statements and Supplementary Data

      The information required by this item is incorporated herein by reference to the Consolidated Financial Statements and the notes thereto in the Company’s Fiscal 2002 Annual Report to Shareholders, and is also attached in Exhibit 13 hereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

      None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

      Information concerning the directors of the Company and compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference to the sections entitled “Proposal 1 — Election of Directors” and “Executive Compensation — Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on March 25, 2003 (the “Proxy Statement”). The Company intends to file the Proxy Statement within 120 days after the end of its fiscal year.

      The executive officers of the Company are as follows:

Name	Age		Position	Since
Howard Schultz		49	chairman of the Board of Directors and chief global strategist		1985
Orin C. Smith		60	director, president and chief executive officer		1990
Howard Behar		58	director, president, North America Operations		1989
Peter Maslen		50	president, Starbucks Coffee International, Inc.		1999
Michael Casey		57	executive vice president, chief financial officer and chief administrative officer		1995
Eduardo R. (Ted) Garcia		55	executive vice president, Supply Chain and Coffee Operations		1995
Paula E. Boggs		43	executive vice president, general counsel and secretary		2002
Dave Pace		43	executive vice president, Partner Resources		2002
Deidra Wager		47	executive vice president; chief retail officer, Starbucks Coffee Japan, Ltd.		1993
Wanda Herndon		50	senior vice president, Worldwide Public Affairs		1996

      Howard Schultz is the founder of the Company and has been chairman of the board since its inception in 1985. Mr. Schultz served as chief executive officer from 1985 until June 2000, when he transitioned into the role of chief global strategist. From 1985 to June 1994, Mr. Schultz was also the Company’s president. From September 1982 to December 1985, Mr. Schultz was the director of Retail Operations and Marketing for Starbucks Coffee Company, and from January 1986 to July 1987, he was the chairman of the board, chief executive officer and president of Il Giornale Coffee Company, a predecessor to the Company.

      Orin C. Smith joined the Company in 1990 and has served as president and chief executive officer of the Company since June 2000. From June 1994 to June 2000, Mr. Smith served as the Company’s president and chief operating officer. Prior to June 1994, Mr. Smith served as the Company’s vice president and chief financial officer and later, as its executive vice president and chief financial officer.

      Howard Behar joined the Company in August 1989 as vice president, Retail Stores and was promoted to senior vice president, Retail Operations in January 1991. Mr. Behar served as the Company’s executive vice president, Sales and Operations from February 1993 until June 1994 when he became president, Starbucks Coffee International, Inc., a position he held until his retirement in late 1999. Mr. Behar rejoined the Company in September 2001 as president, North American Operations. Mr. Behar has served as a member of the Board of Directors since January 1996.

      Peter Maslen joined Starbucks in August 1999 as president, Starbucks Coffee International, Inc. Prior to joining Starbucks, Mr. Maslen served in various executive positions within Asia Pacific and Europe with Mars Inc., PepsiCo, Inc. and Tricon Global Restaurants (now YUM! Brands, Inc.). From 1992 to 1999, as senior vice president with Tricon, he served as president of its German, Swiss, Austrian and Central Europe divisions.

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      Michael Casey joined Starbucks in August 1995 as senior vice president and chief financial officer and was promoted to executive vice president, chief financial officer and chief administrative officer in September 1997. Prior to joining Starbucks, Mr. Casey served as executive vice president and chief financial officer of Family Restaurants, Inc. from its inception in 1986. During his tenure there, he also served as a director from 1986 to 1993, and as president and chief executive officer of its El Torito Restaurants, Inc. subsidiary from 1988 to 1993.

      Eduardo R. (Ted) Garcia joined Starbucks in April 1995 as senior vice president, Supply Chain Operations and was promoted to executive vice president, Supply Chain and Coffee Operations in September 1997. From May 1993 to April 1995, Mr. Garcia was an executive for Gemini Consulting. From January 1990 until May 1993, he was the vice president of Operations Strategy for Grand Metropolitan PLC, Food Sector.

      Paula E. Boggs joined Starbucks in September 2002 as executive vice president, general counsel and secretary. Prior to joining Starbucks, Ms. Boggs served as vice president, legal, for products, operations and information technology at Dell Computer Corporation from 1997 to 2002. From 1995 to 1997, Ms. Boggs was a partner with Preston Gates & Ellis. Ms. Boggs served in several roles at the Pentagon, White House and U.S. Department of Justice between 1984 and 1995.

      Dave Pace joined Starbucks in July 2002 as executive vice president of Partner Resources. From 2000 to 2002, Mr. Pace was the president of i2 Technologies. From 1999 to 2000 Mr. Pace served as the chief human resources officer for HomeGrocer.com. From 1995 to 1999, he served as senior vice president of human resources for Tricon Restaurants International (now YUM! Brands, Inc.).

      Deidra Wager joined Starbucks in 1992 and served as the Company’s senior vice president, Retail Operations from August 1993 to September 1997 when she was promoted to executive vice president, Retail. In March 1999, Ms. Wager moved to Tokyo, Japan where she serves as chief retail officer for Starbucks Coffee Japan, Ltd. and serves on the Board of Directors. From 1988 to 1992, Ms. Wager held several operations positions with Taco Bell®, Inc.

      Wanda Herndon joined Starbucks in July 1995 as vice president, Communications and Public Affairs and was promoted to senior vice president, Communications and Public Affairs (now known as Worldwide Public Affairs) in November 1996. From February 1990 to June 1995, Ms. Herndon held several communications management positions at DuPont Company. From November 1978 to February 1990, Ms. Herndon held several public affairs and marketing communications positions at The Dow Chemical Company.

      There are no family relationships between any directors or executive officers of the Company.

Item 11. Executive Compensation

      The information required by this item is incorporated by reference to the section entitled “Executive Compensation” in the Company’s Proxy Statement for the Annual Meeting of Shareholders on March 25, 2003.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

      The information required by this item is incorporated by reference to the sections entitled “Beneficial Ownership of Common Stock” and “Equity Compensation Plans” in the Company’s Proxy Statement for the Annual Meeting of Shareholders on March 25, 2003.

Item 13. Certain Relationships and Related Transactions

      The information required by this item is incorporated by reference to the section entitled “Executive Compensation — Certain Transactions” in the Company’s Proxy Statement for the Annual Meeting of Shareholders on March 25, 2003.

9

Item 14. Controls and Procedures

      (a)     Evaluation of disclosure controls and procedures

      The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) and 15d-14(c) within 90 days of the filing date of this Annual Report on Form 10-K. Based on the evaluation, under the supervision and with the participation of the Company’s management, the Company’s chief executive officer and chief financial officer have concluded that these disclosure controls and procedures are effective.

      (b)     Changes in internal controls

      There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls subsequent to the date of their evaluation. As a result, no corrective actions were required or undertaken.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)     The following documents are filed as a part of this Annual Report on Form 10-K:

1.     Financial Statements

      The following financial statements are incorporated by reference in Part II, Item 8 of this Annual Report on Form 10-K:

•  Consolidated Statements of Earnings for the fiscal years ended September 29, 2002, September 30, 2001, and October 1, 2000;

•  Consolidated Balance Sheets as of September 29, 2002, and September 30, 2001;

•  Consolidated Statements of Cash Flows for the fiscal years ended September 29, 2002, September 30, 2001, and October 1, 2000;

•  Consolidated Statements of Shareholders’ Equity for the fiscal years ended September 29, 2002, September 30, 2001, and October 1, 2000;

•  Notes to Consolidated Financial Statements; and

•  Independent Auditors’ Report

2.     Financial Statement Schedules

      Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes thereto described in Item 15(a)(1) above.

3.     Exhibits

      The Exhibits listed in the Index to Exhibits, which appears immediately following the signature page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K.

      (b)     Reports on Form 8-K.

      The Company filed a Current Report on Form 8-K on August 5, 2002 announcing that its president and chief executive officer and its executive vice president and chief financial officer had submitted sworn statements to the Securities Exchange Commission pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934, as amended. On June 19, 2002, the Company filed a Current Report on Form 8-K announcing the authorization of repurchase of up to 10 million shares of the Company’s common stock. On April 24, 2002, the Company filed a Current Report on Form 8-K announcing that it had reached an agreement to settle two California class action lawsuits filed in 2001.

10

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STARBUCKS CORPORATION

By:  /s/ HOWARD SCHULTZ

Howard Schultz

chairman of the Board of Directors and

chief global strategist

December 20, 2002

      Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature		Title	Date
By:	/s/ HOWARD SCHULTZ Howard Schultz	chairman of the Board of Directors and chief global strategist	December 20, 2002
By:	/s/ ORIN C. SMITH Orin C. Smith	director, president and chief executive officer	December 20, 2002
By:	/s/ HOWARD BEHAR Howard Behar	director, president, North American Operations	December 20, 2002
By:	/s/ MICHAEL CASEY Michael Casey	executive vice president, chief financial officer and chief administrative officer (principal financial officer and principal accounting officer)	December 20, 2002
By:	/s/ BARBARA BASS Barbara Bass	director	December 20, 2002
By:	/s/ CRAIG J. FOLEY Craig J. Foley	director	December 20, 2002
By:	/s/ GREGORY B. MAFFEI Gregory B. Maffei	director	December 20, 2002
By:	/s/ ARLEN I. PRENTICE Arlen I. Prentice	director	December 20, 2002
By:	/s/ JAMES G. SHENNAN, JR. James G. Shennan, Jr.	director	December 20, 2002
By:	/s/ CRAIG E. WEATHERUP Craig E. Weatherup	director	December 20, 2002

11

INDEX TO EXHIBITS

Exhibit
Number			Description
	3	.1	Restated Articles of Incorporation of Starbucks Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended April 1, 2001, filed with the Securities Exchange Commission on May 16, 2001)
	3	.2	Amended and Restated Bylaws of Starbucks Corporation (incorporated herein by reference to Exhibit 3.2 to the Company’s Form 10-Q for the quarter ended March 31, 2002, filed with the Securities Exchange Commission on May 15, 2002)
	10	.1	Starbucks Corporation Amended and Restated Key Employee Stock Option Plan — 1994 (incorporated herein by reference to Appendix A to the Company’s Proxy Statement filed with the SEC on January 11, 2000)
	10	.2	Starbucks Corporation Amended and Restated 1989 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Appendix A to the Company’s Proxy Statement filed with the SEC on January 13, 1999)
	10	.3	Starbucks Corporation 1991 Company-Wide Stock Option Plan, as amended and restated through August 28, 2000 (incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-K for the Fiscal Year ended October 1, 2000, filed with the SEC on December 22, 2000)
	10	.3.1	Starbucks Corporation 1991 Company-Wide Stock Option Plan — Rules of the UK Sub-Plan, as amended and restated through August 28, 2000 (incorporated herein by reference to Exhibit 10.3.1 to the Company’s Form 10-K for the Fiscal Year ended October 1, 2000, filed with the SEC on December 22, 2000)
	10	.4	Starbucks Corporation Employee Stock Purchase Plan — 1995, as amended and restated through June 30, 2000 (incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-K for the Fiscal Year ended October 1, 2000, filed with the SEC on December 22, 2000)
	10	.5	Amended and Restated Lease, dated as of January 1, 2001, between First and Utah Street Associates, L.P. and Starbucks Corporation (incorporated herein by reference to Exhibit 10.5 to the Company’s Form 10-K for the Fiscal Year ended September 30, 2001, filed with the SEC on December 20, 2001)
	10	.6	Joint Venture and Partnership Agreement, dated August 10, 1994, between Pepsi-Cola Company, a division of PepsiCo, Inc., and Starbucks New Venture Company (incorporated herein by reference to Exhibit 10 to the Company’s Form 10-Q for the Quarterly Period ended July 3, 1994, filed with the SEC on August 16, 1994)
	10	.7	Starbucks Corporation Executive Management Bonus Plan (incorporated herein by reference to Exhibit 10.15 to the Company’s Form 10-K for the Fiscal Year ended October 3, 1999 filed with the SEC on December 23, 1999)
	10	.8	Starbucks Corporation Management Deferred Compensation Plan (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on January 1, 1998)
	10	.9	Starbucks Corporation 1997 Deferred Stock Plan (incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the Fiscal Year ended October 3, 1999 filed with the SEC on December 23, 1999)
	10	.10	Purchase Agreement, dated as of June 14, 2001, between Starbucks Manufacturing Corporation and CVBP LLC (incorporated herein by reference to Exhibit 10.12 to the Company’s Form 10-K for the Fiscal Year ended September 30, 2001, filed with the SEC on December 20, 2001)
	10	.10.1	First Amendment to Purchase Agreement, dated as of November 7, 2001, between Starbucks Manufacturing Corporation and CVBP LLC (incorporated herein by reference to Exhibit 10.12.1 to the Company’s Form 10-K for the Fiscal Year ended September 30, 2001, filed with the SEC on December 20, 2001)
	10	.11	Lease, dated February 15, 2002, between Multimodaal Transportcentrum Amsterdam Wespoint v.o.f. and Starbucks Corporation.

Exhibit
Number		Description
	13	Portions of the Fiscal 2002 Annual Report To Shareholders
	21	Subsidiaries of the Registrant
	23	Independent Auditors’ Consent
	99	Certification of the Annual Report of Starbucks Corporation on Form 10-K for the fiscal year ended September 29, 2002 filed with the SEC on December 20, 2002.

EX-10.11

                                                                   EXHIBIT 10.11

                  LEASE AGREEMENT PERTAINING TO OFFICE PREMISES

and other industrial Units not in accordance with Article 7A: 1624 of the Dutch
Civil Code

      The undersigned Multimodaal Transportcentrum Amsterdam Westpoint v.o.f.,
established at Cacaoweg 20, in Amsterdam (1047 BM) in the Netherlands,
hereinafter to be referred to as "Lessor," duly represented in this matter by Mr
A.C. Ramselaar by power of attorney, and Starbucks Manufacturing EMEA B.V., a
Dutch corporation, duly represented in this matter by Mr W.J. O'Shea,
hereinafter to be referred to as "Lessee" hereby agree as follows:

                   The Leased Premises, Designated Use and Use

      1.1 This Lease Agreement pertains to warehouses (together approximately
6415 m(2)), office space on the ground floor level consisting of approximately
1160 m2 ("Ground Floor Office Space"), office space on the first floor level
consisting of approximately 1160 m2 ("First Floor Office Space") (the Ground
Floor Office Space and the First Floor Office Space are collectively referred to
herein as the "Office Space") and a designated parking area, to be constructed
by Lessor as outlined and specified in Section 5 herein, situated at Westpoint
II, referred to in the land register as: Municipality of Haarlemmerliede en
Spaarnwoude, Section L, number 3114 (partial) and fully known to both parties,
hereinafter to be referred to as the "Leased Premises," and as shown on EXHIBIT
A attached hereto and made a part hereof, as specified on the preliminary plans
attached as EXHIBIT B and the technical description attached as EXHIBIT C (as
used herein the term Leased Premises also refers to the "leased premises" as
expanded from time to time pursuant to the terms hereof).

      1.2 Lessee shall have the right to occupy and/or use the Leased Premises
for any lawful purpose or purposes, subject to the restrictions contained in
Lessee's environmental permit and in the ground lease, including without
limitation as a business accommodation for uses such as production,
manufacturing, distribution and warehousing, including without limitation coffee
roasting, distributing, manufacturing and storage, with ancillary offices.

      1.3 The maximum load to which the floors of the industrial Units within
the Leased Premises may be subjected is 2.500 kg/m2. However, a part of the
floors of the industrial Units within the Leased Premises is reinforced and may
be subjected to 4000 kg/m(2), this part is specified in EXHIBIT D, attached
hereto and made a part hereof. The maximum load to which the floors of the
offices within the Leased Premises may be subjected is 500 kg/m2. The floors may
not be subjected to any load that exceeds the maximum permissible load.

      1.4 As of the date of the signing of the present Lease Agreement, Lessor
and the Municipality of Amsterdam, the bare owner (the "Owner"), shall have
entered into a ground lease in (the "Ground Lease") more particularly described
in EXHIBIT E attached hereto and made a part hereof. Pursuant to the letter from
the Owner to Lessee, dated 31 October 2001, attached as EXHIBIT F, the Owner has
consented to this lease, the Owner has consented to Lessee becoming a ground
lessee of the Leased Premises if Lessee exercises its option to purchase the
Leased Premises with Lessee in such event, and the Owner has consented that in
that event a direct ground lease relationship between the owner and Lessee in
respect of the Leased Premises will arise. Lessor hereby agrees that it will at
all times comply with all of the covenants, terms, conditions and obligations of
the Ground Lease, that it will keep the Ground Lease in full force and effect
and that

                                       1

this lease and all of Lessee's rights hereunder are not and will not be subject,
in a manner disadvantageous to Lessee, to any liens.

General Terms and Conditions

2.1 The General Terms and Conditions applicable to lease agreements pertaining
to the lease of office space and other industrial Units not in accordance with
Article 7A: 1624 of the Dutch Civil Code, as filed at the Office of the District
Court in `s-Gravenhage on 29 February 1996, registered under number 34/1996
(hereinafter referred to as "the General Terms and Conditions") are considered
to constitute an integral part of this Lease Agreement. The content of the said
General Terms and Conditions is known to the parties hereto and Lessee has
received a copy of said General Terms and Conditions.

2.2 The General Terms and Conditions referred to in the previous clause apply to
the extent that the provisions set out in this Lease Agreement do not expressly
stipulate otherwise, unless the application of the said General Terms and
Conditions is not possible in the case of the Leased Premises.

Duration, Renewal and Termination of the Lease Agreement

3.1 This Lease Agreement is entered into for a period of ten (10) years and the
number of days between the date of Substantial Completion of the Leased Premises
and the Commencement Date, commencing on the date on which the Leased Premises
are Substantially Completed (as such term is defined in Section 5 below). For
practical purposes, the Commencement Date of the Lease Agreement will be deemed
to coincide with the first day of the month following the month in which the
Leased Premises are Substantially Completed.

3.2 Following the expiry of the term of the lease referred to in the previous
clause, this Lease Agreement is to be extended for an additional period of five
(5) years, unless this Lease Agreement has been terminated by Lessee in
accordance with the stipulation set out in clause 3.3 hereof. Upon the expiry of
the first option period as referred to above, the Lease Agreement will be
renewed 3 more times, each time by 5 years, unless Lessee terminates the present
Lease Agreement by the end of a current lease period in accordance with the
stipulation set out in Section 3.3 and Section 3.4. Lessor may thus not
terminate until by the end of the thirtieth year of the lease, also with due
observance of a term of at least 9 calendar months.

3.3 Termination of this Lease Agreement is to be by means of notice of
termination issued towards the end of a term of the lease with due observance of
a period of notice of at least nine (9) calendar months. Lessor will serve a
reminder notice in writing to Lessee at least twelve (12) calendar months before
the end of a term of this lease, in order to signal to Lessee that a notice of
termination might be issued by Lessee.

3.4 Notice of termination is to be served in the form of a writ or to be sent by
registered letter.

3.5 Premature termination of this lease is possible in the event that one of the
circumstances listed in Article 7 of the General Terms and Conditions arises.

                                       2

3.6 This Lease Agreement may also end automatically in accordance with the
provisions set forth in Section 5 hereof.

Payment Obligation, Term of Payment

4.1 The payment obligation (the "Rent") incumbent upon Lessee under the terms of
this Lease Agreement comprises:

                        the Base Rent (as such term is defined herein)

                        the Additional Rent (as such term is defined herein)

                        the fee for any additional amenities and services
                        described in Section 7 plus any value added tax that may
                        apply

                        the value added tax that applies to the Base Rent and
                        Additional Rent or an equivalent sum in the cases
                        referred to in Section 13.2 of this Lease Agreement.

4.2 At the outset of the Lease Agreement, Lessee shall pay the sum of one
hundred and thirteen euros and forty-four eurocents (113.44) (two hundred and
fifty (250) guilders)/m(2) on an annual basis for that portion of the Office
Space which is more particularly shown on the drawing attached hereto as EXHIBIT
B and as indicatively technically described in the document attached hereto as
EXHIBIT C (the "Finished Office Space"), fifty-five euros and thirty-six
eurocents (55.36) (one hundred twenty-two (122) guilders)/m(2) for warehouse
space, and forty-five euros and thirty-seven eurocents (45.37) (one hundred
(100) guilders)/m(2) for the remaining portion of the Office Space that may be
completed in the future in accordance with Section 5.14 (the "Unfinished Office
Space") (collectively, the "Base Rent"). The Base Rent for the Unfinished Office
Space shall increase to one hundred and thirteen euros and forty-four eurocents
(113.44) (two hundred fifty (250) guilders)/m(2) per annum upon the completion
in accordance with Section 5.14. In the event that Lessee desires to lease
additional exclusive parking spaces (in addition to those provided under Section
13.7 below), Lessee shall provide written notice to Lessor. Such notice shall
include the number of additional exclusive parking spaces requested by Lessee.
Provided such additional exclusive parking spaces are available, Lessor shall
lease such additional exclusive parking spaces to Lessee. Lessee and Lessor
shall reasonably agree on the location of all such additional exclusive parking
spaces. Lessee shall pay the sum of thirteen euros and sixty-one eurocents
(13.61) (thirty (30) guilders)/m(2) on an annual basis per additional exclusive
parking space leased to Lessee.

4.3 The Base Rent is established and indexed on the basis of the price index
that applies as per 1 September 2002. The Base Rent shall be revised for the
first time on the first (1st) anniversary of the Commencement Date, and every
year thereafter on an annual basis in accordance with Article 4 of the General
Terms and Conditions. The above also applies to the rent for the additional
exclusive parking space(s) referred to in the last sentence of Section 4.2.

4.4.1 For the Additional Improvements referred to in Section 5, Lessee shall pay
an amount equal to: (a) the annual amortization of the Additional Improvements
increased by (b) interest on the amount of the prime costs of the Additional
Improvements, which interest rate shall be equal to the effective interest rate
of the financing arrangement that Lessor will conclude hereto, after approval by
Lessee, to finance the Additional Improvements and commence as of the date which
is the latter

                                       3


of: (i) the date of the investments concerned or (ii) the date on which Lessee's
obligation to begin paying Rent hereunder commences pursuant to Section 4.5
below, and also to be increased by (c) an additional two percent (2%) to cover
the development fee and risks for Westpoint (the "Additional Rent"). Upon the
full amortization of the Additional Improvements, Lessee shall no longer be
liable for the payment of Additional Rent. The amortization term for the
Additional Improvements shall be calculated as follows: (i) the Additional
Improvements related to the base building shall have an amortization term based
on the economic lifecycle of the Additional Improvements concerned and
determined in accordance with generally accepted accounting principles
consistently applied, but in no event will such term be less than ten (10)
years, and (ii) all other Additional Improvements shall have an amortization
term of 10 years. Lessor shall include the costs of the 13.1 meter clear height,
increased floor loading, and increased pile lengths (if necessary) in the Base
Rent as stated above and those improvements are therefore not characterised as
Additional Improvements. If Lessee terminates the Lease Agreement before expiry
of the amortization term of the Additional Improvements, Lessee shall within 3
months of the end of the lease compensate Lessor for the portion of the cost
price of the Additional Improvements concerned that was not amortized, increased
by any costs involved in the early repayment of the financing arrangement
concluded by Lessor for the purpose of those Additional Improvements, all this
in so far as not pertaining to Additional Improvements that are taken over by
subsequent lessees within two (2) years of the end date of the present Lease
Agreement. Lessor will inform Lessee in writing of subsequent leases until two
(2) years after the end date of the present Lease Agreement.

4.4.2 Lessee and Lessor have agreed a separate arrangement with regard to the
installation of a sprinkler system, based on a proposal by Lessor to Lessee,
dated 22 October 2001, and attached to the present agreement as EXHIBIT G, in
the manner set out in this Section 4.4.2. The sprinkler system to be installed
within the framework of the present agreement is capable of providing the entire
Westpoint II building, as currently envisaged by Lessor, the said building
consisting of 6 phases, with sprinkler facilities. The costs involved in the
installation of the sprinkler system can therefore be divided into the costs
involved in installation of the central sprinkler system, the so-called
"capacity costs", and the costs involved in the installation of the sprinkler
facilities per phase that are to be connected to the central sprinkler
installation, the so-called "direct costs", all this as explained in EXHIBIT G.
The direct costs for the sprinkler facilities of a certain phase will be
entirely for Lessee's account - in the manner to be set out below - if Lessee
leases the phase concerned and as soon as the sprinkler facilities concerned
have been realised (in the first instance, the Leased Premises will comprise
only phase 1). At Lessee's discretion, Lessee may either pay the direct costs by
characterising the sprinkler facilities related to the direct costs as
Additional Improvements, resulting in an Additional Rent to be calculated in
accordance with Section 4.4.1, or by paying the direct costs concerned directly
to the relevant contractor. Each of the parties shall pay one half of the
capacity costs. Lessee shall pay its portion of the capacity costs via the
Additional Rent with due observance of Section 4.4.1. As no more than
approximately 24.5% of the capacity costs pertains to phase 1, assuming the
final realisation and lease of all phases, the payment by Lessee of the
Additional Rent in respect of the remaining 25.5% of the capacity costs will be
decreased if and as soon as Lessor leases phases 2 and/or 3 to a third party, in
proportion to the floor area included in such lease. The direct costs and the
capacity costs shall have an amortization term of 20 years. Upon termination of
the Lease Agreement, Lessee will not be obliged to remove the sprinkler system
and the sprinkler provisions as referred to in EXHIBIT G.

4.5 Lessee's liability for Base and Additional Rent increased by the turnover
tax due thereon shall commence one month after the date on which the Leased
Premises were Substantially

                                       4

Completed as referred to in Section 5. As from the date on which the Leased
Premises are Substantially Completed, as referred to in Section 5, Lessee shall
also pay the advance referred to in Section 4.6 and the turnover tax due
thereon.

4.6 Payment of the fee for the ancillary amenities and services referred to in
Section 7 is to be provided for by means of a system of advance payment with
final settlement at a later date, as described in Article 12 of the General
Terms and Conditions. At the outset of this Lease Agreement, the advance for
amenities and services amounts to nine euros and eight eurocents (9.08) (twenty
(20) guilders)/m2 for Finished Office Space (provided that such amount shall not
be applicable to the Unfinished Office Space until such time that the Unfinished
Office Space rent increase commences), one euro and thirty-six eurocents (1.36)
(three (3) guilders)/m2 for warehouse space, and twenty-three eurocents (0.23)
(fifty cents (0.5) guilders)/m2 for the exclusive parking space(s) for Lessee,
all on an annual basis.

4.7 The Base Rent, the Additional Rent, the advance payment relating to the fee
for the additional amenities and services and the value added tax, or the
equivalent sum as stipulated in Section 13.2, of this Lease Agreement are to be
paid in advance as a lump sum in the amount of two monthly instalments. Payment
is to be made by means of transfer to the bank account yet to be stipulated by
Lessor on or before the first day of the relevant calendar month.

                                 "Build to Suit"

5.1 Lessor shall construct, for its own account and risk, the spaces referred to
in Section 4.2, which shall include access roads, driveways and the parking area
in accordance with the Plans attached hereto as EXHIBITS A, B AND C (the
"Preliminary Plans") and as possibly adjusted on account of any law, ordinance,
rule or regulation (hereinafter: the "Basic Facilities"). Initially, Lessor
shall construct the Office Space pursuant to the standards set forth in EXHIBITS
B AND C (excluding, however, the Unfinished Office Space, which shall be
completed in accordance with the provisions of Section 5.14 below).

During the term of the present agreement, Lessee may request that Lessor
realises or has realised Additional Improvements with regard to the Leased
Premises (hereinafter and above referred to as Additional Improvements). To the
extent that the request must be deemed reasonably acceptable to Lessor, the
parties will in mutual consultation attempt to reach an agreement on all aspects
of the Additional Improvements concerned, with due observance of Section 4.4.1.

Lessor shall be responsible for paying the costs of the design and construction,
provided that if as a result of the environmental permit obtained by Lessee
additional improvements need to be constructed, such improvements shall be
included in the Additional Improvements.

A final set of Construction Plans (the "Final Plans") is to be approved by both
Lessor and Lessee in writing prior to commencement of construction, provided
that such Final Plans shall be consistent with the Preliminary Plans and that
which was agreed at the site meetings.

Lessor shall be responsible for procuring all necessary licenses and permits for
the construction of the Basic Facilities and will use best endeavours to procure
all necessary licenses and permits for the construction of the Additional
Improvements (the "Permits"), with the exception that Lessee shall

                                       5

be responsible for obtaining the environmental permit necessary for its
operation of a coffee roasting plant, warehouse and distribution centre. All
costs related to the environmental permit are for Lessee's account. Procuring
the Permits will have to be done in close consultation between Lessee and Lessor
and Lessee will have to assist Lessor in procuring the permits as much as
possible.

5.2 Lessor shall have the right to select and approve the contractor who will
carry out the construction work referred to in Section 5.1, which contractor
will be Hercuton B.V. and/or Ooms Bouwmaatschappij B.V. Lessor shall be
exclusively responsible vis-a-vis Lessee for constructing the Additional
Improvements. In connection with the construction of the Additional
Improvements, Lessee shall have the right to require Lessor to acquire bids from
at least two (2) contractors that are reasonably acceptable to Lessee, which
bids shall be itemised in detail reasonably satisfactory to Lessee, and Lessee
shall be furnished copies of all bids received by Lessor. Lessee shall have the
right to select the contractor(s) who will construct the Additional
Improvements, notwithstanding the fact that the contractor to be selected has to
be reasonably acceptable for Lessor. However, Lessee assumes no obligations with
respect to the manner or quality of this construction.

5.3 Lessor shall (i) commence construction of the Basic Facilities and
realisation of the Additional Improvements agreed prior to the start of the
construction as soon as reasonably possible after obtaining all Permits (ii)
diligently proceed with the construction of the Basic Facilities and those
Additional Improvements, and (iii) achieve Substantial Completion (as such term
is defined below) of the same as soon as reasonably possible but in any event
within seven (7) months after obtaining the Permits referred to in Section 5.1,
including the environmental permit. Substantial Completion of the construction
of the Basic Facilities and the realisation of the Additional Improvements
agreed prior to the start of the construction shall be determined to be the
point at which (a) Lessor and its Architect deliver to Lessee a notice of
Substantial Completion, (b) Lessor delivers possession of the Leased Premises to
Lessee and (c) the construction of the Basic Facilities and the realisation of
the Additional Improvements that were agreed prior to the start of the
construction are Substantially Completed in accordance with the Final Plans
referred to in Section 5.1, subject only to minor items that will not and do not
materially interfere with Lessee's occupancy of the Leased Premises
(hereinafter: "Substantial Completion" or "Substantially Completed").

5.4 Lessor has indicated to Lessee that some lead time will be involved in the
acquisition of piles and piling equipment. The lead times and dates for ordering
such materials are described in EXHIBIT H attached hereto and made a part
hereof. No later than two weeks before issuance of the building permit, Lessee
shall notify Lessor if Lessor should order such materials or not order such
materials. If Lessee instructs Lessor to order such materials, then said seven
(7) month period described above shall not be changed and Lessee shall be
obligated to (i) pay the costs which Lessor incurs in that regard and shown in
EXHIBIT H or (ii) compensate the actual damages incurred by Lessor with respect
to the cancellation of the order for such materials, in so far as that damage is
lower than the aforementioned costs, if Lessee terminates the present agreement
pursuant to Section 5.12 and Lessor consequently cancels the order. If Lessee
fails to instruct Lessor to order such materials, the said seven (7) month
period shall be extended by one day for each day of delay in ordering such
materials beyond the specified date therefore shown in EXHIBIT H, Lessor shall
then order such materials immediately upon receipt of Lessee's notice to order
such materials.

                                       6

5.5 Lessor shall advise Lessee no less frequently than monthly regarding the
status of the construction of the Basic Facilities and the Additional
Improvements. In addition, Lessor shall provide Lessee with at least ten (10)
days notice of the anticipated Substantial Completion date of the Basic
Facilities and the Additional Improvements agreed prior to the start of the
construction. Lessee shall have the right to have Lessee's Representative (as
such term is defined below) attend all job meetings with the contractor(s) and
the Architect, and Lessor shall keep Lessee advised as to the scheduling of all
such meetings.

5.6 Lessee shall, at all times, have the right to inspect the progress of the
construction work. Lessee shall give Lessor written notice of any incomplete
work, unsatisfactory conditions or defects (the "Punch List Items") within
thirty (30) days after the discovery of the same, and Lessor shall, in so far as
obligated thereto, comply with Lessee's requirements in that regard as soon as
possible. In addition, Lessee shall give Lessor written notice of any latent
defects discovered by Lessee after the Commencement Date promptly after the
discovery thereof and Lessor shall, in so far as obligated thereto, cause such
latent defects to be corrected as soon as reasonably possible and entirely for
its own account.

5.7 If Lessee requires any change, addition or alteration (collectively, a
"Change") in the (preliminary and/or final) Plans, Lessee shall notify Lessor of
such Change in writing ("Lessee's Change Notice"), providing detailed plans
and/or drawings showing such Change. Lessor shall not unreasonably withhold its
consent to any such Change in the Plans and Lessor shall inform Lessee of its
initial response within (5) business days In principle, Change Notices as
referred to above shall be given to Lessor at weekly site meetings only; in the
event of urgency, Change Notices may be sent to Lessor by registered letter,
signed return receipt requested. At the subsequent site meeting, Lessee will be
informed of the additional or lower costs involved in the Change or the (change
of the) Additional Rent proposed in relation thereto as well as the additional
construction time reasonable required for the Change concerned, after which
Lessee shall inform Lessor of its decision in that regard without delay. Lessee
may either pay the agreed price for the additional work directly to Lessor, or,
if applicable, to the contractor concerned, or have the agreed additional work
included in the Additional Rent in accordance with Section 4.4.1.

5.8 In the event that the construction of Basic Facilities and the realisation
of the Additional Improvements agreed prior to the start of the construction has
not reached Substantial Completion within seven (7) months of obtaining all of
the Permits required hereunder, including the environmental permit, Lessee will
forfeit a penalty equal to one (1) time the daily amount of Base Rent and
Additional Rent due for each day the Substantial Completion is delayed beyond
such time for the first forty-five (45) days of such delay and two (2) times the
daily amount of Base Rent and Additional Rent due for each day the Substantial
Completion is delayed for any days of delay beyond such forty-five (45) day
period. Within 3 business days after establishing an exceeding of the term for
Substantial Completion of the Leased Premises Lessor will inform Lessee in
writing, well documented, what the causes of the delay have been and within what
term and in which manner the Leased Premises may reasonably be expected still to
be Substantially Completed. If the aforesaid term is exceeded by 90 days or
less, Lessor will not be liable for any damage incurred and costs made by Lessee
as a result thereof. In case of an exceeding of the aforesaid term of
Substantial Completion that amount to an exceeding of more than 90 days Lessee
will be able to use, for the benefit of her interests, all claim and remedy
possibilities mentioned in the Dutch Civil Code in relation to an attributable
default or a default, notwithstanding naturally the requirements that the Civil
Code formulates for use of those possibilities and without prejudice to the
defences accruing to

                                       7

Lessor under the Dutch Civil Code. In case of an exceeding of the term for
substantial Completion Lessor will use best endeavours to still Substantially
Complete (or cause Substantial Completion of) the Leased Premises as soon as
possible.

5.9 Prior to the Completion, Lessee, its agents, contractors or employees shall
have the right to enter the construction site for the purpose of installing
Lessee's cabling, telecommunications and computer equipment, office furniture,
roasting and packaging equipment, racking and other furniture, fixtures and
equipment necessary for Lessee's use of the Leased Premises, provided that
Lessee shall consult with Lessor about such entry of the construction site and
Lessor's construction work is not materially interfered with.

5.10 The building shall be connected to a public sanitary sewer, potable water
supply, storm sewer, electricity and gas (the "Utilities"), which must be
adequate to serve the needs of Lessee in operation of the business which Lessee
intends to operate upon the Leased Premises, as those needs are described in
EXHIBIT C.

5.11 Lessor shall comply with all national, state, county, and city laws and
ordinances presently affecting or respecting the Leased Premises in the
construction of the Basic Facilities and the Additional Improvements.

5.12 Lessor has supplied the plans, documents and specifications required for
the building permit meanwhile applied for by Lessor. Lessee has supplied the
documents required for the environmental permit meanwhile applied for by Lessee.
Lessee may, but shall not be obligated to, terminate this lease if the building
permit and/or the environmental permit is denied, or is not finally and
irrevocably issued by April 15, 2002. Lessee shall not, however, terminate this
lease prior to June 1, 2002, if these permits can be reasonably expected to be
finally and irrevocably issued on or before this date. If the building permit
and/or environmental permit is not finally and irrevocably issued by June 1,
2002, then Lessee may terminate this Lease. In the event that a governmental
agency that is to grant the said Permits requires a modification in the Plans
that is reasonably unacceptable to Lessee and/or Lessor, the said permits will
be deemed not to have been granted, and Lessee or Lessor may terminate this
lease with immediate effect. In the event that this lease is terminated pursuant
to this Section 5.12, the parties hereto shall have no further rights or
obligations hereunder, unless such delay is a result of any breach of any
provision of this lease by Lessor or Lessee and without prejudice to the
obligation to compensate costs or damage as referred to in Section 5.4.

5.13 Lessor has good title of ground lease to the Leased Premises free and clear
of all liens per the date of signing this agreement, and per the date of signing
this agreement free from special charges and restrictions in the sense of
Article 7:15 of the Dutch Civil Code, other than described in EXHIBIT E and
other than knowledgeable from the public registers of the land register. For the
avoidance of doubt: after the date of signing this agreement Lessor is entirely
free to create security rights in respect of the Leased Premises, which will be
subordinated to this Lease Agreement and will not (cannot) infringe on the
continuity of this Lease Agreement.

5.14 At any time during the term hereof, Lessee may give Lessor written notice
that Lessor should undertake completion of the unfinished Office Space. Upon
receipt of such written notice, Lessor shall, at Lessor's sole cost and expense,
undertake the said completion and shall complete the work within one hundred and
twenty (120) days after Lessor's receipt of Lessee's notice, on the basis of a
completion level and a division of work or costs involved between Lessee and
Lessor as

                                       8

set out in and arising from the documents attached hereto as EXHIBIT B and
EXHIBIT C. The realisation and substantial completion and the Commencement Date
of the office space referred to above are otherwise subject to the provisions of
Section 5 above, in so far as relevant to that completion .

Turnover Tax

6.1 All amounts mentioned in this lease are exclusive of turnover tax. Lessee is
required to pay turnover tax on the Base Rent and the Additional Rent and the
fee for additional supplies and services. Turnover tax will be charged by Lessor
and is required to be paid together with the rent and the fee for additional
supplies and services, or the advance payment for these.

6.2 Referring to the Decision of 10 April 1996, no. VB 96/354, amended by the
Decision of 24 March 1999, no. VB 99/571, parties agree that Lessor will charge
Lessee turnover tax on the rent as from the commencement of the lease. Referring
to above-mentioned Decision, Lessor and lessee waive the submission of a joint
request opting for taxed rent as referred to in Article 11, paragraph 1,
subparagraph b, under 5, of the Turnover Tax Act 1968.

6.3 The stipulations in Article 15.1, 15.2 and 15.3 of the general conditions do
not apply to this lease.

6.4 Lessee hereby declares that its financial year commences on 1 October and
ends on 30 September.

6.5 Lessor explicitly states that it will include this lease in its
administration in accordance with the provisions of Section 34a of the Turnover
Tax Act 1968.

Amenities and Services

7.1 The Parties agree that Lessor provides the additional amenities and services
set out in EXHIBIT I to Lessee.

Guarantee by the Group of Companies

8.1 Lessee is not obliged to furnish any bank guarantee because Starbucks
Corporation provides surety vis-a-vis Lessor for the obligations of Lessee under
this agreement in accordance with EXHIBIT J.

Administrator and representation during the construction

9.1 Lessor is to act as the administrator until further notice.

9.2 Lessee has designated Mr D. Organ as its sole representative with respect to
the matters set forth in this lease with respect to the construction and
realisation of the Basic Facilities and the Additional Improvements, who shall
have full authority and responsibility to act on behalf of Lessee as required in
this lease with respect to the construction and realisation of the Basic
Facilities and the Additional Improvements until further notice by Lessee.
Lessee may at any time appoint a new representative as referred to above, after
written notice to Lessor.

                                       9

9.3 Lessor has designated Mr A.C. Ramselaar as its sole representative with
respect to the matters set forth in this lease with respect to the construction
and realisation of the Basic Facilities and the Additional Improvements, who,
until further notice by Lessor, shall have full authority and responsibility to
act on behalf of Lessor as required in this lease with respect to the
construction and realisation of the Basic Facilities and the Additional
Improvements. Lessor may at any time appoint a new representative as referred to
above, after written notice to Lessee.

Appendices

10.1 All of the appendices listed at the end of this agreement form part of the
present agreement.

Proviso

11.1 Lessee is aware of the fact that the project of which the Leased Premises
are a part is still under construction. Lessor reserves the right to (instruct a
third party) to introduce any changes in the plans and/or any alterations to the
project and the Leased Premises are reasonably necessary and related to the
construction of the adjacent parts of the building and adjacent industrial park
known as Westpoint II, provided, however, that the said changes in the plans or
alterations may not impair the quality and/or the utility of the Leased
Premises.

Delivery of the Leased Premises at the end of this Lease Agreement

12.1 Upon delivery, the condition of the Leased Premises shall be laid down in a
dated delivery report drawn up in duplicate and signed by both parties, with
each of the parties retaining a copy of the said delivery report.

12.2 In the event of termination of this Lease Agreement the two parties to the
agreement are to act in accordance with the provisions set out in Article 5 of
the General Terms and Conditions, on the understanding that the reference to
Article 1, clause 2, should read "the delivery report as referred to in the
Section 12, paragraph 1, of the Lease Agreement." With regard to the silo
building, the provisions of Section 13, paragraph 11, of the Lease Agreement
apply. With regard to the sprinkler system and the sprinkler provisions as
referred to in EXHIBIT G, only the provisions of the last sentence of Section
4.4.2 apply.

Special Terms and Conditions

13.1 In the event that and to the extent that there are pipelines, cables,
cables ducts and/or meter cabinets (serving other industrial Units) in or only
accessible via the Leased Premises, Lessee hereby warrants vis-a-vis Lessor that
the said pipelines, cables, cables ducts and/or meter cabinets are and shall
continue to be freely accessible at all times. With regard to inspections and/or
work in or on the said pipelines, cables, cables ducts and/or meter cabinets or
any other such items, the provisions set out in Article 10 of the General Terms
and Conditions and any other relevant provisions apply.

13.2 Value Added Tax Clause

            (a) Lessee and Lessor declare explicitly that the rent level was set
on the basis that Lessee will continue to use the Leased Premises, or have it
used, for activities of which at least

                                       10

the legally determined percentage or percentage yet to be determined is eligible
for deduction of BTW on the grounds of which rent subject to turnover tax can be
opted for.

            (b) Lessee declares that it will use the Leased Premises for
purposes for which the right exists to make a complete or practically complete
(at least 90%) deduction of BTW pursuant to Section 15 of the Turnover Tax Act
1968 and that Lessee belongs to one of the branches of industry indicated by the
State Secretary in order of 19 December 1995, no. VB 95/3796 and subsequently
amended, being employer's organisations, estate agents, travel agents and
working conditions services with an independent legal status.

            (c) If Lessee does not use or no longer uses the Leased Premises for
activities which entitle it to deduct turnover tax as referred to above, Lessee
will no longer owe Lessor turnover tax on the rent, but Lessee will owe Lessor
in addition to the rent exclusive of turnover tax commencing on the date on
which the rent is exempted from turnover tax by way of a separate payment to
Lessor such an amount that the latter is fully compensated for:

                        (i) The turnover tax which is no longer deductible as a
                  result of the cancellation of the possibility to deduct
                  turnover tax from the operating costs of and/or from
                  investments in the Leased Premises.

                        (ii) The turnover tax which Lessor has to pay to the tax
                  authorities and/or can no longer reclaim from the tax
                  authorities as a result of the cancellation of the possibility
                  to deduct turnover tax due to a recalculation of the taxed
                  rent as referred to in Clause 15, subsection 4 of the Wet op
                  de omzetbelasting 1968 (Turnover Tax Act 1968) or revision as
                  referred to in Sections 11, 12 and 13 of the
                  Uitvoeringsbeschikking omzetbelasting 1968 (Turnover Tax
                  Implementation) Decree 1968).

                        (iii) All other loss which Lessor incurs as a result of
                  the cancellation of the possibility to deduct turnover tax.

            (d) If a situation as referred to in (c) occurs, Lessor will inform
Lessee what amounts must be paid by Lessor to the tax authorities and provide
insight into the other losses as referred to in (c).

      Lessor will give its co-operation if Lessee wishes to have Lessor's
specification checked by an independent registered accountant. The costs of this
will be at Lessee's expense.

      The financial loss incurred by Lessor as a result of the cancellation of
the taxed rent must be paid by Lessee on Lessor's first demand.

            (e) Lessee will be obliged to inform Lessor by means of a signed
statement within four (4) weeks of the end of its financial year in which it
started to lease the Leased Premises (also if it has been made available wholly
of partially to a third party), whether or not it has used the Leased Premises
in the past financial year for purposes for which a right, as laid down in
Clause 15 of the Wet op de omzetbelasting 1968, to make a complete or
practically complete (at least 90%) deduction of turnover tax exists and belongs
to one of the branches of industry designated by the State Secretary in his
decree of 19 December 1995, no. VB 95/3796 and subsequently amended,

                                       11

being employer's organisations, estate agents, travel agents and working
conditions services with an independent legal status.

         Lessee shall furthermore be obliged to inform Lessor after each
successive financial year by means of a signed statement within four weeks
following the end of the financial year concerned if the Leased Premises (also
if it has been made available wholly or partially to a third party) were not
used for purposes for which a right, as laid down in Clause 15 of the Wet op de
omzetbelasting 1968, to make a complete or practically complete (at least 90%)
deduction of turnover tax exists and belongs to one of the branches of industry
designated by the State Secretary in his decree of 19 December 1995, no. VB
95/3796 and subsequently amended, being employer's organisations, estate agents,
travel agents and working conditions services with an independent legal status.
In both cases Lessee will be obliged to send a copy of the statement to the tax
authorities within the same period.

            (f) If Lessee does not fulfil the aforementioned obligation to
provide information or if it turns out in retrospect that its assumptions were
incorrect, and it turns out in retrospect that Lessor has wrongly charged
turnover tax on the rent, Lessee shall be in default, and Lessor shall be
entitled to recover the resulting financial disadvantage from Lessee. This
disadvantage concerns the full turnover tax still due by Lessor to the tax
authorities plus interest, as well as the turnover tax which Lessor cannot
deduct. The stipulations in this Section contain an arrangement for compensation
in the event that the taxed rent ceases to be applicable with retroactive
effect, in addition to the arrangement set out in this Section 13.2. The
additional loss which results for Lessor from the retroactive effect, will be
payable by Lessee immediately, in full and as a lump sum. Lessor will give its
co-operation if Lessee wishes to have Lessor's specification of this additional
loss checked by an independent registered accountant. The costs of this will be
at Lessee's expense.

            (g) The stipulations set out in this Section will also apply if
Lessor is confronted with a loss after the termination of the lease, whether
premature or not, due to the cancellation of the taxed rent agreed upon by the
parties. This loss will then be payable by Lessee to Lessor immediately, in full
and as a lump sum.

13.3 Option to Expand the Leased Premises. Lessor hereby grants to Lessee an
option to expand the Leased Premises in accordance with the terms described
herein (the "Expansion Option"). During the term of the Expansion Option, Lessee
may expand the Leased Premises by electing to amend the terms of this lease, so
that one or two (2) similar Units directly adjacent to the Leased Premises,
which Units are more particularly shown on EXHIBIT K attached hereto, will form
part of the Leased Premises. Any time that Lessee exercises the Expansion Option
with respect to either one or both of the two (2) Units described above, such
Unit(s) shall be replaced with additional adjacent Unit(s), which additional
Unit(s) shall be subject to the rights contained in this Section 13.3 (the
"Expansion Replacement Unit(s)"), in so far as such additional units are
actually still available or will become available at that time. If no such
additional units are or will become available, the expansion option will not
apply at that time. The procedure for the replacement of Unit(s) described in
the preceding sentence shall be reapplied any time that Lessee exercises its
right to lease Unit(s) under this Section 13.3. The term of the Expansion Option
shall commence as of the date of the signing of the present agreement and expire
three (3) years from the Commencement Date referred to in Section 3.1 (the
"3-Year Date"). During this period, Lessee shall not be required to pay any fee

                                       12

or compensation to Lessor in connection with the Expansion Option. Lessee shall
have the option to extend the term of the Expansion Option up to three (3)
consecutive times for a period of twelve (12) months each, provided that Lessee
and Lessor then reach an agreement about the conditions to be attached thereto.
In the event that Lessee exercises its rights under this Section 13.3, this
lease shall be amended to include the additional Units into the definition of
the Leased Premises. Such amendment(s) to the lease shall be on the same
material terms and conditions that apply to the existing Lease Agreement at the
moment of exercising (including but not limited to the then applicable Rent),
with the exception of the 7-months construction period referred to in Section 5.
Upon exercise of the expansion option, Lessor shall start the construction of
the additional unit(s) and/or the Additional Improvements without delay and
complete same within a reasonable term. The lease of the additional Unit(s)
shall expire co-terminously with the existing lease, as such may be extended.

13.4 First Right of Refusal to Lease Additional Space. Without limiting the
provisions of Section 13.3 above, Lessor hereby grants to Lessee a first right
of refusal to lease the four (4) adjacent units more particularly described in
EXHIBIT K attached hereto and made a part hereof (collectively the "Units" and
individually a "Unit") for the term of the lease, as may be extended. In the
event that Lessor, or Lessor's heirs, executors, successors or assigns, at any
time during the term of this lease or any extension thereof, intends or intend
to conclude a lease agreement with regard to the Unit with a third party, Lessor
or Lessor's heirs, executors, successors or assigns shall provide written notice
to Lessee, which notice shall set forth the rent and all other terms and
conditions of the intention concerned (the "Notice of Lease"). At Lessee's first
request, Lessor shall furnish plausible proof to Lessee, evidencing that a
concrete third party actually wishes to lease the Unit(s) concerned at the rent
and subject to other the terms and conditions set out in the Notice of Lease.
Within 10 days of receipt of the Notice of Lease, Lessee shall inform Lessor by
registered letter of whether it wishes to lease the unit referred to in the
Notice of Lease on the conditions set out in the Notice of Lease. If Lessee
timely exercises this first right of refusal in accordance with the conditions
accepted by Lessee, as set out in the Notice of Lease, a lease agreement with
regard to the unit concerned will be effected. If Lessee fails to respond within
the said term or informs Lessor within the said term that it does not intend to
exercise its right of first refusal, Lessor will be authorised to lease the unit
referred to in the Notice of Lease to third parties, provided not on conditions
more favourable to the said third parties than those set out in the Notice of
Lease. In the event that any material term of the Notice of Lease is
subsequently modified to the detriment of Lessee, the process described in this
Section 13.4 shall be reapplied. Each time when a Unit or Units is (are) leased
to a third party or to Lessee pursuant to this Section 13.4, the unit(s)
concerned shall be replaced by additional adjacent unit(s), which additional
unit(s) shall be subject to rights contained in this Section 13.4, in so far as
such additional units are or will become actually available at that time. If no
such units are or will be available, the right of first refusal set out in this
Section 13.4 does not apply at that time. The lease of the unit(s) ends
simultaneously with the existing lease agreement or extensions thereof.

13.5 Option to Purchase The Leased Premises. As from the signing of the present
agreement up to and including 3 years after the Commencement Date, Lessor shall
not sell or offer for sale the Leased Premises and the ground lease in respect
of the Leased Premises. Lessor hereby grants to Lessee an exclusive and
irrevocable option (the "Option") - commencing at the date of signing this
Agreement and valid for the term of the Agreement - to purchase the Leased
Premises and the ground lease in respect of the Leased Premises for the price
and upon the terms and conditions specified in this Article. The Option shall be
exclusive for a term of 3 years after the Commencement Date. During the term of
the present agreement, Lessee may exercise the Option

                                       13

by giving Lessor notice of its intent to exercise the Option. Upon exercising
the Option, Lessor shall be obligated to sell and convey to Lessee and Lessee
shall be obligated to purchase from Lessor the Leased Premises and the ground
lease in respect of the Leased Premises for a purchase price equal to (i) eleven
and one half times the annual Base Rent, minus the annual ground rent Lessee
will become payable as soon as it has become the leaseholder (formula: 11.5 x
(annual base rent minus annual ground rent)), (ii) increased by the unamortized
value of the Additional Improvement and increased by any costs involved in the
early repayment of the financing arrangement concerned, (iii) increased by any
transfer tax and/or turnover tax and notarial charges due. In the event of
exercise of the purchase option, the parties will agree a provisional date for
the conveyance not later than 3 months after the date on which Lessor received
notice from Lessee that the latter intended to exercise the purchase option,
such also on account of Lessor's ground lease. The parties will then jointly
contact the Municipality of Amsterdam in order to effect a division and
conveyance of lessor's current right of ground lease, in so far as pertaining to
the Leased Premises, or creation of a new ground lease in respect of the Leased
Premises for the benefit of Lessee. The terms (including the ground rent) of the
divided right of ground lease or the new right of ground lease shall be
reasonably acceptable to Lessor and Lessee. Failing which the purchase option
will be deemed not exercised or no purchase agreement will be deemed concluded
and the Lease Agreement will be continued unchanged. The terms set out in
EXHIBITS E AND F are at any rate deemed to be reasonably acceptable to the
parties. The terms of the conveyance or the creation of the new ground lease
shall otherwise be consistent with the terms of such deeds and commercial
customs in the area in which the Property is located. Lessor and Lessee agree
that immediately after the signing of this agreement, the option as regulated in
this Section 13.5 will be entered in the public registers of the Land Register,
subject to co-operation of the Land Register, such for Lessee's account.

13.6 Right of First Refusal to Purchase the Leased Premises. In the event that
Lessor, or Lessor's heirs, executors, successors or assigns, during the term of
this lease intends or intend to sell the Leased Premises or any portion thereof
to a third party, Lessor or Lessor's heirs, executors, successors or assigns
shall provide written notice to Lessee, which notice shall set forth purchase
price, as well as all other terms and conditions of such intention (the "Notice
of Sale"). At Lessee's first request, Lessor shall furnish plausible proof to
Lessee, evidencing that a concrete third party actually wishes to purchase the
Leased Premises and the Ground Lease in respect of the Leased Premises at the
price and subject to the other terms and conditions set out in the Notice of
Sale. Lessee shall inform Lessor by registered letter of whether it wishes to
purchase the Leased Premises and the Ground Lease pertaining to the Leased
Premises within 30 days of receipt of the Notice of Sale. Lessee may choose to
purchase the Leased Premises (and the Ground Lease) at the same price and on the
same terms of the offer set forth in the Notice of Sale or - such until 3 years
after the Commencement Date - per the terms of the Option set forth in section
13.5. If Lessee fails to respond within the 30-days term or informs Lessor
within the said term that it does not intend to exercise its right of first
refusal referred to in this Section or its purchase option referred to in
Section 13.5 (until 3 years after the Commencement Date), Lessor will be
authorised to sell the Leased Premises and the Ground Lease pertaining to the
Leased Premises to third parties, provided not on conditions more favourable to
the said third parties than those set out in the Notice of Sale or - if
applicable - set out in Section 13.5. If any substantial term of the Notice of
Sale is changed afterwards to the detriment of Lessee, the procedure set out in
this Section 13.6 shall be re-applied. If Lessee does timely inform Lessor that
it intends to exercise its right of first refusal referred to in this Section or
- - if applicable - its purchase option referred to in Section 13.5, a purchase
agreement

                                       14

with regard to the leased premises and the ground lease will arise between
lessor and lessee, on the terms set out in the Notice of Sale or - if applicable
- - the terms set out in Section 13.5. In addition, the parties will agree a
provisional date for the transfer not later than 3 months after the date on
which Lessor received notice from Lessee that the latter intended to exercise
its right of first refusal or - if applicable - the purchase option, such also
on account of Lessor's ground lease. The parties will then jointly contact the
Municipality of Amsterdam in order to effect transfer of the Leased Premises/the
current ground lease of lessor, in so far as pertaining to the Leased Premises,
or creation of a new ground lease in respect of the Leased Premises for the
benefit of Lessee. The conditions of the division/transfer of the existing
ground lease in respect of the Leased Premises or the conditions of the creation
of a new ground lease in respect of the Leased Premises shall be reasonably
acceptable to Lessee and Lessor. The conditions set out in EXHIBITS E AND F
shall at any rate be deemed to be reasonably acceptable. In the event that any
material term of the Notice of Sale is subsequently modified to the detriment of
Lessee, the process set out in this Section 13.6 shall be reapplied. The rights
contained in this Section 13.6 shall be applicable to any and all intended sales
of the Leased Premises for the duration of the term of this lease. If the Leased
Premises (and the Ground Lease) are transferred to a third party, the option to
purchase the leased premises referred to in Section 13.5 will expire, but
Lessee's right of first refusal to purchase the Leased Premises referred to in
this Section 13.6 will continue to have effect for a period of no more than ten
(10) years after the Commencement Date as referred to in Section 3.1. A third
party in the sense of this Section does not refer to a legal entity of the group
of companies to which Lessor belongs.

      If 3 years after the Commencement Date a situation arises of apparently
simultaneous receipt by Lessor of the notice of Lessee that it exercises the
Purchase Option in Section 13.5 and receipt by Lessee of the Notice of Sale, and
if there is reasonable doubt with regard to which event occurred first, Section
13.6 will prevail.

13.7 Parking Space. Lessor will provide for (paved) parking facilities for 50
passenger cars reasonably adjacent to the Leased Premises, designated to be
exclusively used by Lessee, as situated and indicated in the drawings attached
to this Lease Agreement as EXHIBIT A. The use of these parking facilities by
Lessee is included in the agreed lease price. Lessee cannot enforce any claims
against Lessor if third parties without authorisation make use of the parking
spaces. Lessee may place signs with its brand/name on or near the parking
spaces.

13.8 Signage's. Lessor has given approval to Lessee to establish signage's to or
near the Leased Premises, in order to make clearly visible that Starbucks is
established at Westpoint. The design of these signage's will be handed to Lessor
for prior review. This approval will primarily focus on the question whether the
intended signage's are not out of tune, in size or nature, with the existing
signage's of all Lessees on Westpoint II. The signage's must be in accordance
with statutory and local regulations. It is the responsibility of Lessee to
obtain all the necessary permits for the signage's.

13.9 Exclusivity. Lessor will not lease space at Amsterdam Westpoint I and
Westpoint II to third parties that roast coffee at the location and Lessor will
impose the same obligation on its legal successor in the form of a perpetual
clause.

13.10 Sensitivity of Coffee to Odours. In order to prevent damages to the coffee
as a result of odour emissions by other lessees of Lessor, Lessor will include
in all new lease agreements with respect to Units at Westpoint II, the
obligation for those lessees to refrain from causing any

                                       15

repeatedly recurring emission of odours, that may adversely affect the coffee of
Starbucks, which means that those lessees would at least would have to refrain
from the following activities:

(a)   Coffee roasting

(b)   Manufacturing of perfumeries or other scented products (cosmetics, scented
      household products, etc.)

(c)   Paint manufacturing or paint application operations

(d)   Private or municipal waste treatment

(e)   Operations that raise, slaughter or process livestock or fish

(f)   Activities involving heavy use of solvents, degreasers or lubricants

(g)   Chemical manufacturing or petroleum refining or processing



      In addition, Lessor guarantees that any existing lease agreements with
respect to the Units mentioned here above do not permit the forbidden activities
as described in this clause and that Lessor will not provide consent under any
of these lease agreements to change activities towards the forbidden activities
as described in this clause. For the avoidance of doubt the parties expressly
agree that logistic activities with respect to the odorous goods indicated above
and cocoa storage and distribution will not be forbidden and furthermore, that
this clause only refers to repeatedly recurring emission of odours in relation
to manufacturing activities.

13.11 Silo building. During the lease term Lessor will, at Lessee's first
written request, construct and build the silo building, subject to the
conditions laid down in Section 5 of the present Agreement, with the exception
of the 7-months construction period, and furthermore in accordance with
requirements yet to be worked out by the parties. The costs of the concrete
structure of the silo building until a height of 13.1m will be for account of
Lessor and will be included in the Base Rent, whereby the Base Rent rate per m2
for the silo building - assuming the same specification level as the warehouse
space - will be equal to the base rent per m2 for the warehouse space of the
Leased Premises, to be increased by indexation pursuant to Section 4.3. A steel
structure will bring the silo building to a height of 22 m. The costs of this
steel structure will be considered Additional Improvements and the Additional
Rent related to this improvement shall be calculated as described in Section
4.4. It is agreed that the parties will make further agreements about the
amortization term when Lessee has requested the construction of a silo building.
Upon expiry of the present Lease Agreement, Lessor shall attempt to lease the
silo building to a third party.

      Lessee will receive 50% of any amount in excess of the annually indexed
Base Rent that Lessor generates from the lease of the silo building in the
period of ten (10) years after termination of this lease. Upon expiry of such
ten (10) year period, Lessor (and its successors) will be under no restriction
any more with respect to exploiting the silo building and all the income
stemming from the silo building will be fully for the account of Lessor. If the
steel top structure would have to be demolished on reasonable grounds, then
Lessee would have to pay the costs thereof (but not the costs of closing the
roof again).

                                       16

13.12 Where the present agreement or the General Terms and Conditions require
Lessor's consent, Lessor shall not unreasonably withhold its consent.

13.13 Lessee accepts that future building activities will take place at
Westpoint II. Lessor will start building new Units at the other end of the
Westpoint II site, in order to reserve for expansion by Lessee for as long as
possible. Lessor must use best endeavours not to hinder the activities of Lessee
as a result of the building activities. In any event the normal course of
business of Lessee must be able to be continued.

13.14 Lessee is aware that Lessor intends to realise a container debarking
terminal at the quayside alongside the Leased Premises, with a stacking area for
containers. This will not restrict normal operations of Lessee and access of
trucks to the loading docks. The containers will not block the view to the water
from the offices.

13.15    Changes to the General Conditions

                  Article 2.2. The second and third sentence of this Article are
                  replaced by the following:

                  "Lessee shall also observe the instructions given in writing
                  or by word of mouth by or on behalf of Lessor in the interests
                  of the proper use of the Leased Premises and of the inside and
                  outside areas, the installations and fixtures in the building
                  or complex which the Leased Premises are part of, if and
                  insofar as Lessee has been consulted properly by Lessor in
                  advance about the content of these instructions and if and
                  insofar as these instructions can be considered to be
                  reasonable and necessary. Lessee will - in principle - not be
                  bound to unreasonable instructions by or on behalf of Lessor
                  which have an adverse effect on the justified interests of
                  Lessee, on the rights of Lessee stemming from this Lease
                  Agreement or on the activities of Lessee. The instructions by
                  Lessor may inter alia relate to maintenance, image, noise
                  level, order, fire regulations, parking behaviour and the good
                  functioning of the installations, the building or the complex
                  which the Leased Premises are part of."

                  Articles 2.6.1 to 2.6.3 of the General Conditions are replaced
                  by the following:

                  Article 2.6.1. "Lessee knows that Lessor had a soil survey
                  report prepared by Omegam, called Nulonderzoek "Westpoint II",
                  Ruigoordweg in Amsterdam-Westpoint, reference 1106311/VO1,
                  dated 17 May 2001. The said report is attached to the present
                  agreement as EXHIBIT L. To Lessor's knowledge, the report
                  gives a true, accurate and complete description of the
                  condition of the soil of the parcel of land on which the Basic
                  Facilities and the Additional Improvements are to be
                  constructed. As the report dates from 17 May 2001, the Parties
                  agree to instruct Omegam to conduct an additional soil survey
                  and prepare a report thereon, the costs of which will be
                  shared by the parties (on a 50/50 basis). The said survey and
                  report shall be based on sampling of the soil of the parcel of
                  land on which the Basic Facilities and the Additional
                  Improvements are to be constructed, after slags and/or other
                  levelling-up materials have been applied but just prior to the
                  start of the

                                       17

                  construction of the foundation. Lessee shall receive the
                  report timely before the start of the work on the foundation.
                  If Lessee has reasonable doubts about the accuracy of the
                  report it may have a further soil survey carried out for its
                  own account. If same leads to a delay, the seven-months term
                  referred to in Sections 5.3 and 5.8 will be extended. The
                  parties shall consult with each other about the term of the
                  extension.

                  Lessee is neither liable nor responsible for any
                  (environmentally) hazardous materials, the condition of the
                  environment or other circumstances as described in the
                  aforementioned reports. The term "hazardous materials" refers
                  to (environmentally) hazardous materials, (environmentally)
                  hazardous waste substances or (environmentally) hazardous
                  substances set out in or regulated by applicable laws or
                  regulations, in particular the Wet Bodembescherming (Soil
                  Protection Act) and the Wet Milieubeheer (Environmental
                  Control Act)

                  Any contamination of the leased premises established in the
                  aforementioned reports shall be cleaned up for Lessor's risk
                  and account, if Lessor is obligated thereto under current
                  regulations. The cleaning up shall be executed in the manner
                  prescribed by relevant applicable acts and regulations. In the
                  event of "serious soil contamination", as defined in the Soil
                  Protection Act and located on the place where the building
                  under consideration is to be built, Lessor shall clean up that
                  contamination before the start of construction work and the
                  seven-months (7) building term will be extended by the term
                  required for the cleaning up. If the consequences of the said
                  contamination are reasonably unacceptable to Lessor and/or
                  Lessee, the parties will seek a solution in mutual
                  consultation, taking into account the interests of both
                  parties.

                   At the end of the lease as well as in the event of transfer
                  of the Leased Premises (and the ground rent) to Lessee, a
                  similar soil survey will be carried out. If higher
                  concentrations of one or more of the substances to which
                  Omegam's previous surveys pertained are then found in, on or
                  around the Leased Premises, same will be deemed an indication
                  of Lessee having caused that contamination.

                  Article 2.6.2. "It is forbidden to Lessee, its personnel or
                  persons or goods under its control to contaminate in any way
                  (the soil of) the Leased Premises and Lessee shall compensate
                  the damage arising from contamination caused by Lessee, its
                  personnel or persons or goods under its control and he shall
                  be liable to Lessor and third parties for expenses relating to
                  the removal of such contamination or for the taking of other
                  measures.

                  Article 2.6.3. "Lessor does not indemnify Lessee against
                  (Government) orders for further investigation or the taking of
                  measures, unless those orders are related to a contamination
                  that has been caused by Lessor or pollution that was already
                  present on or in the Leased Premises prior to the Commencement
                  Date."

                  Article 2.10.2. Article 2.10.2 of the General Conditions is
                  not applicable:

                  1. with respect to Lessee's construction plans described in
                  EXHIBIT M;

                                       18

                  2. interior alteration that are non-structural, if and insofar
                  these alterations do not adversely affect the Leased Premises;

                  3. structural alterations, subject to prior written approval
                  of Lessor, which approval can only be withheld on reasonable
                  grounds.

                  Articles 3.1 and 3.2. Contrary to the provisions in Articles
                  3.1. and 3.2 of the General Conditions it was agreed that:

                  1. sublease is permitted after prior written approval of
                  Lessor, which approval can only be withheld on reasonable
                  grounds;

                  2. transfer of the rights and obligations under the lease
                  agreement to a company of which all shares are directly or
                  indirectly held by Starbuck Corporation is permitted

                  Article 6.5. The words "gross" and "serious" in this Article
                  are considered to be deleted.

                  Article 6.6. The words "gross" and "serious" in this Article
                  are considered to be deleted.

                  Article 9.3. In addition to this Article 9.3 it is agreed that
                  Lessee is entitled to a 30 days cure period after written
                  notice by Lessor to cure the concerned defaults, before the
                  lessor can conduct the maintenance as described in this
                  Article himself.

13.18 Environmental Testing. At any time during the term hereof, Lessee may
undertake such environmental testing with respect to the Leased Premises and the
Land as Lessee deems desirable, including, without limitation, soil and ground
water testing.

14.1 Choice of law. The parties declare that the present agreement as well as
the guarantee attached as EXHIBIT J are governed by Dutch law.

14.2 Dutch version. The parties declare that only the Dutch version of the
present agreement will be binding. The English version of the agreement,
attached as an appendix to the present agreement, is for information purposes
only and in no way relevant to the legal relationship between the parties or the
parties' intent.

14.3 The Dutch Court has jurisdiction. The civil court in Amsterdam will have
exclusive jurisdiction to adjudicate any disputes arising from or related to the
present agreement, both in the first instance and on appeal.

                            [Signature Page Follows]

                                       19

         Drawn up and signed in Amsterdam on ____________________________.


Lessor:                                 Lessee:


- -------------------------------         -------------------------------
Name:                                   Name:
     --------------------------              --------------------------
Title:                                  Title:
     --------------------------              --------------------------
Date:                                   Date:
     --------------------------              --------------------------

                                       20

LIST OF APPENDICES AND EXHIBITS



EXHIBITS:
                       
Exhibit A:                the Leased Premises (indicated by means of hatching)
Exhibit B:                Preliminary Plans (as attached to the application for the Building Permit)
Exhibit C:                Technical Description (as to be provided by the contractor)
Exhibit D:                reinforced floor area (increased maximum floor load)
Exhibit E:                deeds of temporary issue of leasehold land
Exhibit F:                letter for the Gemeentelijk Havenbedrijf Amsterdam, dated 31 October 2001 (reference:
                          01.06923)

Exhibit G:                Sprinkler system proposal

Exhibit H:                letter about the piling equipment and materials required
Exhibit I:                list of addition amenities and services
Exhibit J:                guarantee

Exhibit K:                expansion option and first right of refusal to lease additional space
Exhibit L:                soil survey report "Nulonderzoek "Westpoint II", Ruigoordweg in Amsterdam-Westpoint,
                          prepared by Omegam, dated 17 May 2001, project number 1106311
Exhibit M:                Lessee's construction drawings


APPENDICES:

General Terms and Conditions lease of office space and other industrial Units
not in accordance with Article 7A: 1624 of the Dutch Civil Code

Power of attorney Westpoint

English translation of the present agreement




                                       21

EX-13

EXHIBIT 13


SELECTED FINANCIAL DATA
In thousands, except earnings per share and store operating data

The following selected financial data have been derived from the consolidated
financial statements of the Company. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto.



- -----------------------------------------------------------------------------------------------------------------------------
As of and for the                              Sept 29, 2002    Sept 30, 2001   Oct 1, 2000     Oct 3, 1999     Sept 27, 1998
fiscal year ended (1)                             (52 Wks)        (52 Wks)        (52 Wks)        (53 Wks)         (52 Wks)
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                 
RESULTS OF OPERATIONS DATA
Net revenues:
      Retail                                   $  2,792,904     $  2,229,594    $  1,823,607    $  1,423,389    $  1,102,574
      Specialty                                     496,004          419,386         354,007         263,439         206,128
- -----------------------------------------------------------------------------------------------------------------------------
Total net revenues                                3,288,908        2,648,980       2,177,614       1,686,828       1,308,702
Merger expenses (2)                                      --               --              --              --           8,930
Operating income                                    318,725          281,094         212,252         156,711         109,216
Internet-related investment losses (3)                   --            2,940          58,792              --              --
Gain on sale of investment (4)                       13,361               --              --              --              --
Net earnings                                   $    215,073     $    181,210    $     94,564    $    101,693    $     68,372
Net earnings per common share - diluted (5)    $       0.54     $       0.46    $       0.24    $       0.27    $       0.19
Cash dividends per share                                 --               --              --              --              --
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital                                $    310,048     $    148,661    $    146,568    $    135,303    $    157,805
Total assets                                      2,292,736        1,846,519       1,491,546       1,252,514         992,755
Long-term debt (including current portion)            5,786            6,483           7,168           7,691           1,803
Shareholders' equity                              1,726,638        1,375,927       1,148,399         961,013         794,297
- -----------------------------------------------------------------------------------------------------------------------------
STORE OPERATING DATA
Percentage change in comparable store
sales (6)
      North America                                      7%               5%              9%              6%              5%
      International                                    (3)%               2%             23%             20%             28%
      Consolidated                                       6%               5%              9%              6%              5%

Systemwide retail store sales (7)              $  3,796,000     $  2,950,000    $  2,250,000    $  1,633,000    $  1,190,000
Systemwide stores opened during the year: (8)
      Continental North America
           Company-operated stores                      525              525             408             416             352
           Licensed stores                              269              279             351              46              39
      International
           Company-operated stores                       89              122              76              31              35
           Licensed stores                              294              282             168             119              48
- -----------------------------------------------------------------------------------------------------------------------------
      Total                                           1,177            1,208           1,003             612             474
- -----------------------------------------------------------------------------------------------------------------------------
Systemwide stores open at year end:
      Continental North America
           Company-operated stores                    3,496            2,971           2,446           2,038           1,622
           Licensed stores                            1,078              809             530             179             133
      International
           Company-operated stores                      384              295             173              97              66
           Licensed stores                              928              634             352             184              65
- -----------------------------------------------------------------------------------------------------------------------------
      Total                                           5,886            4,709           3,501           2,498           1,886
- -----------------------------------------------------------------------------------------------------------------------------


(1)   The Company's fiscal year ends on the Sunday closest to September 30. All
      fiscal years presented include 52 weeks, except fiscal 1999, which
      includes 53 weeks.

(2)   Merger expenses relate to the business combination with Seattle Coffee
      Holdings Limited.

(3)   See Notes to Consolidated Financial Statements (Notes 4 and 7).

(4)   See Notes to Consolidated Financial Statements (Note 7).

(5)   See Notes to Consolidated Financial Statements (Note 1). Earnings per
      share data for fiscal years presented have been restated to reflect the
      two-for-one stock splits in fiscal 2001 and 1999.

(6)   Includes only Company-operated stores open 13 months or longer.

(7)   Systemwide retail store sales include sales at Company-operated and
      licensed stores and are believed by management to measure global
      penetration of Starbucks retail stores.

(8)   Systemwide store openings are reported net of closures.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

GENERAL

Starbucks Corporation's fiscal year ends on the Sunday closest to September 30.
Fiscal years 2002, 2001 and 2000 each had 52 weeks. The fiscal year ending on
September 28, 2003, will also include 52 weeks.

Starbucks Corporation (together with its subsidiaries, "Starbucks" or the
"Company") is organized into a number of business units that correspond to the
Company's operating segments:

North American Retail

North American Retail, which represents 92.5% of total retail revenues and 78.6%
of total net revenues, sells coffee and other beverages, whole bean coffees,
complementary food, coffee brewing equipment and merchandise through
Company-operated retail stores in the United States and Canada.

Business Alliances

At the beginning of fiscal 2001, the Company's North American foodservice and
retail store licensing operations were combined into a single business unit due
to their common customer universe and the determination that separate segment
reporting of Business Alliances was appropriate under Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information."

Business Alliances, which represents 44.8% of total specialty revenues and 6.8%
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.

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, interactive
operations, equity investees and other initiatives related to the Company's core
businesses. These business units are managed and evaluated independently and do
not meet the quantitative threshold 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.

The following table sets forth the percentage relationship to total net
revenues, unless otherwise indicated, of certain items included in the Company's
consolidated statements of earnings:



- ---------------------------------------------------------------------------------------
Fiscal year ended                           Sept 29, 2002   Sept 30, 2001   Oct 1, 2000
                                              (52 Wks)        (52 Wks)        (52 Wks)
- ---------------------------------------------------------------------------------------
                                                                   
STATEMENTS OF EARNINGS DATA
Net revenues:
      Retail                                        84.9%           84.2%         83.7%
      Specialty                                     15.1            15.8          16.3
- ---------------------------------------------------------------------------------------
Total net revenues                                 100.0           100.0         100.0

Cost of sales and related occupancy costs           41.0            42.0          44.2
Store operating expenses (1)                        40.1            39.3          38.7
Other operating expenses (2)                        25.6            22.3          22.2
Depreciation and amortization expenses               6.3             6.2           6.0
General and administrative expenses                  6.1             5.7           5.1

Income from equity investees                         1.1             1.1           0.9

      Operating income                               9.7            10.6           9.7

Interest and other income, net                       0.3             0.4           0.3
Internet-related investment losses                     -             0.1           2.7
Gain on sale of investment                           0.4               -             -
- ---------------------------------------------------------------------------------------
      Earnings before income taxes                  10.4            10.9           7.3
Income taxes                                         3.9             4.1           3.0
- ---------------------------------------------------------------------------------------
      Net earnings                                   6.5%            6.8%          4.3%
- ---------------------------------------------------------------------------------------


(1)   Shown as a percentage of retail revenues.
(2)   Shown as a percentage of specialty revenues.

BUSINESS COMBINATIONS

During fiscal 2000, Starbucks acquired the outstanding stock of Tympanum, Inc.
(d/b/a "Hear Music"), a music retailer, and Coffee Partners Co. Ltd., the
company licensed to operate Starbucks stores in Thailand. The combined purchase
price for these two acquisitions was $14.1 million. The acquisitions were
accounted for under the purchase method of accounting, and the results of
operations of the acquired companies are included on the accompanying
consolidated financial statements from the dates of acquisition. There were no
business combinations during fiscal 2001 and 2002.

RESULTS OF OPERATIONS -- FISCAL 2002 COMPARED TO FISCAL 2001

SYSTEMWIDE RETAIL STORE SALES

Systemwide retail store sales, which include net sales for both Company-operated
and licensed retail stores, were $3.8 billion in fiscal 2002, an increase of 29%
from $3.0 billion in fiscal 2001, primarily due to the opening of 1,177 new
stores and strong comparable store sales growth in North America.

During fiscal 2003, Starbucks expects to open at least 1,200 new stores,
including approximately 525 Company-operated and 225 licensed stores in North
America, and 75 Company-operated and 375 licensed stores internationally.

CONSOLIDATED NET REVENUES

During the fiscal year ended September 29, 2002, Starbucks derived approximately
85% of net revenues from its Company-operated retail stores. Retail revenues
include the North American Retail and International Retail business units. The
remaining 15% of net revenues was derived from the Company's Specialty
Operations, which includes Business Alliances and all other non-retail business
units.

Net revenues increased 24% from $2.6 billion in fiscal 2001 to $3.3 billion in
fiscal 2002, primarily due to the Company's store expansion program and
comparable store sales increases. Comparable store sales increased by 6%, 5%,
and 9% in fiscal 2002, 2001 and 2000, respectively. As a result of its
expansion strategy of clustering stores in existing markets, Starbucks has
experienced a certain level of cannibalization of sales of existing stores by
new stores as store concentration has increased. However, management believes
such cannibalization has been justified by the incremental sales and return on
new store

investments. This cannibalization, as well as increased competition, slowing
economies and other factors, may put downward pressure on the Company's
comparable store sales growth in future periods.

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



- --------------------------------------------------------------------------------------------------------
Fiscal year ended                                            Sept 29, 2002   Sept 30, 2001   Oct 1, 2000
- --------------------------------------------------------------------------------------------------------
                                                                                    
North American Retail                                        $   2,583,756   $   2,086,354   $ 1,734,929
International Retail                                               209,148         143,240        88,678
- --------------------------------------------------------------------------------------------------------
      Subtotal - Retail revenues                                 2,792,904       2,229,594     1,823,607
- --------------------------------------------------------------------------------------------------------
Business Alliances                                                 222,410         193,574       160,812
All other business units (excluding International Retail)          344,425         276,603       216,402
Intersegment revenues (1)                                          (70,831)        (50,791)      (23,207)
- --------------------------------------------------------------------------------------------------------
      Subtotal - Specialty revenues                                496,004         419,386       354,007
- --------------------------------------------------------------------------------------------------------
Total net revenues                                           $   3,288,908   $   2,648,980   $ 2,177,614
- --------------------------------------------------------------------------------------------------------


(1)   Intersegment revenues consist primarily of product sales to and from
      subsidiaries and equity method investees.

NET REVENUES BY SEGMENT

North American Retail

North American Retail revenues increased by $497.4 million, or 24%, to $2.6
billion in fiscal 2002, from $2.1 billion in fiscal 2001, primarily due to the
opening of 525 new retail stores in fiscal 2002 and comparable store sales
growth of 7% for the period. The increase in comparable store sales was due to
higher transaction volume. Management believes increased customer traffic was
driven by new product innovation, which continues to broaden the customer base
during non-peak hours of operation, and by expanding the Company's capacity to
satisfy customer demand through enhanced technology, training and execution at
retail stores.

Business Alliances

Business Alliances revenues increased by $28.8 million, or 15%, to $222.4
million in fiscal 2002, from $193.6 million in fiscal 2001, primarily due to the
opening of 269 new licensed stores in fiscal 2002 and the resulting increase in
royalty revenues from and product sales to those licensees.

All other business units (including International Retail, net of Intersegment
revenues)

Revenues for all other business units increased by $113.6 million, or 31%, to
$482.7 million for fiscal 2002, from $369.1 million in the corresponding period
in fiscal 2001. This increase was mainly related to growth in the number of
international Company-operated and licensed retail stores.

CONSOLIDATED RESULTS OF OPERATIONS

Cost of sales and related occupancy costs decreased to 41.0% of net revenues in
fiscal 2002, from 42.0% in fiscal 2001. The decrease was primarily due to a
shift in sales mix to higher margin products, such as hand-crafted beverages, as
well as lower green coffee costs. Starbucks does not expect a benefit from lower
green coffee costs in fiscal 2003, as the Company has moved away from
formula-based commodity exchange pricing contracts, and is instead basing most
contracts on higher, fixed prices to encourage the continuing supply of high
quality green coffee. Improvements in cost of sales were partially offset by
higher occupancy costs due to increased repair and maintenance activities on
Company-operated retail stores and the continuing trend of higher retail rent
expense.

Store operating expenses as a percentage of retail revenues increased to 40.1%
in fiscal 2002, from 39.3% in fiscal 2001. The restaurant portion of retail
revenues, which is comprised of made-to-order beverages and fresh food, was a
higher proportion of total retail revenues in fiscal 2002. This resulted in
higher payroll-related expenditures due to the continuing shift in sales to more
labor-intensive handcrafted beverages as well as higher average wage rates.
Higher provisions for retail store asset impairment and disposals of $26.0
million in fiscal 2002 compared to $7.3 million in fiscal 2001 also contributed
to the unfavorable variance.

Starbucks regularly monitors the financial results of its Company-operated
retail stores and accumulates historical operating measures to identify
performance trends in various markets. Provisions for asset impairment are
recorded when, among other things, retail stores are unable to generate current
and future estimated undiscounted cash flows in excess of asset carrying values.
Gains and losses on disposals are generated primarily through renovation
activities.

Other operating expenses (expenses associated with non-retail operations) were
25.6% of specialty revenues in fiscal 2002, compared to 22.3% in fiscal 2001.
The increase was a result of continued development of the Company's
international infrastructure, including additional regional offices and
employees supporting global expansion, as well as higher advertising
expenditures from the Company's interactive operations.

Depreciation and amortization expenses increased to $205.6 million in fiscal
2002, from $163.5 million in fiscal 2001. The increase was primarily due to the
opening of 525 new North American and 89 new international Company-operated
retail stores.

General and administrative expenses increased to $202.2 million in fiscal 2002,
compared to $151.4 million in fiscal 2001. The increase was primarily due to
higher payroll-related expenditures and an $18.0 million litigation settlement
charge related to two class action lawsuits.

Operating income increased 13.4% to $318.7 million in fiscal 2002, from $281.1
million in fiscal 2001. The operating margin decreased to 9.7% of total net
revenues in fiscal 2002, compared to 10.6% in fiscal 2001 primarily due to
higher operating expenses partially offset by cost of sales improvements, as
discussed above.

RESULTS OF OPERATIONS BY SEGMENT

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



- --------------------------------------------------------------------------------------------
Fiscal year ended September 29, 2002:          Consolidated   Intersegment   Segment Results
- --------------------------------------------------------------------------------------------
                                                                    
North American Retail                           $  432,513     $       --       $  432,513
Business Alliances                                  56,605             --           56,605
All other business units                            62,914            107           63,021
Intersegment eliminations (1)                           --           (107)            (107)
Unallocated corporate expenses                    (233,307)            --         (233,307)
- --------------------------------------------------------------------------------------------
        Operating income                        $  318,725     $       --       $  318,725
- --------------------------------------------------------------------------------------------
Fiscal year ended September 30, 2001:
- --------------------------------------------------------------------------------------------
North American Retail                           $  336,434     $       --       $  336,434
Business Alliances                                  50,165             --           50,165
All other business units                            68,783          1,333           70,116
Intersegment eliminations (1)                           --         (1,333)          (1,333)
Unallocated corporate expenses                    (174,288)            --         (174,288)
- --------------------------------------------------------------------------------------------
        Operating income                        $  281,094     $       --       $  281,094
- --------------------------------------------------------------------------------------------
Fiscal year ended October 1, 2000:
- --------------------------------------------------------------------------------------------
North American Retail                           $  249,924     $       --       $  249,924
Business Alliances                                  43,777             --           43,777
All other business units                            53,453           (130)          53,323
Intersegment eliminations (1)                           --            130              130
Unallocated corporate expenses                    (134,902)            --         (134,902)
- --------------------------------------------------------------------------------------------
        Operating income                        $  212,252     $       --       $  212,252
- --------------------------------------------------------------------------------------------


(1)   Intersegment eliminations consist primarily of product sales and related
      cost of sales to and from subsidiaries and equity investees.

North American Retail

Operating income for North American Retail increased by 28.6% to $432.5 million
in fiscal 2002, from $336.4 million in fiscal 2001. Operating margin increased
to 16.7% of related revenues from 16.1% in the prior year, primarily due to
improvements in cost of sales related to the shift to higher margin products and
lower green coffee and dairy costs, partially offset by increased
payroll-related expenditures resulting from the continuing shift in sales to
more labor-intensive handcrafted beverages and higher average wage rates.

Business Alliances

Operating income for Business Alliances increased by 12.8% to $56.6 million in
fiscal 2002, from $50.2 million in fiscal 2001. Operating margin decreased to
25.5% of related revenues from 25.9% in the prior year primarily due to the
significant amount of infrastructure investment made in fiscal 2002 to grow the
domestic licensee channel.

All other business units

Operating income for all other business units decreased 8.5% to $62.9 million in
fiscal 2002, from $68.8 million in fiscal 2001. Operating margin decreased to
13.0% of related revenues from 18.6% in the prior year, primarily due to
increased international store maintenance and rent costs for Company-operated
stores, as well as provisions for asset impairment.

Unallocated corporate expenses

Unallocated corporate expenses pertain to corporate functions that are not
specifically attributable to the Company's operating segments and include
"General and administrative expenses" and related depreciation and amortization
expenses. Depreciation and amortization expenses of $31.1 million and $22.9
million are included in unallocated corporate expenses for fiscal 2002 and 2001,
respectively.

INCOME FROM EQUITY INVESTEES

Income from equity investees was $35.8 million in fiscal 2002, compared to $28.6
million in fiscal 2001. The increase was primarily due to the improved
profitability of the North American Coffee Partnership as a result of increased
sales volume from extensions of its product line and expansion of geographic
distribution, as well as improvements in its cost of goods sold primarily due to
manufacturing efficiencies. Additionally, the net earnings of Starbucks Coffee
Korea Co., Ltd. improved as a result of an increase in retail stores to 53 in
fiscal 2002, compared to 24 in fiscal 2001. These increases were partially
offset by slightly lower contributions from Starbucks Coffee Japan, Ltd. due to
lower profitability as well as the reduction of our ownership interest from
50.0% to 40.1% at the beginning of fiscal 2002. See "Gain on Sale of Investment"
discussion for additional information.

INTEREST AND OTHER INCOME, NET

Net interest and other income, which primarily consists of investment income,
decreased to $9.3 million in fiscal 2002, from $10.8 million in fiscal 2001,
primarily as a result of lower interest rates on cash, cash equivalents and
short-term securities.

GAIN ON SALE OF INVESTMENT

On October 10, 2001, the Company sold 30,000 of its 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 and recorded a gain of $13.4 million on the accompanying consolidated
statement of earnings. The Company's ownership interest in Starbucks Japan was
reduced from 50.0% to 47.5% following the sale of the shares.

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 "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 September
29, 2002, the quoted closing price of Starbucks Japan shares was approximately
$203 per share.

INCOME TAXES

The Company's effective tax rates were 37.0% in fiscal 2002 and 37.3% in fiscal
2001. The effective tax rate in fiscal 2001 was impacted by the establishment of
valuation allowances against deferred tax benefits resulting from losses from
investments in majority-owned foreign subsidiaries and Internet-related
investment losses. Management determined that a portion of these losses may not
be realizable for tax purposes within the allowable carryforward period.
Excluding the impact of these allowances, the effective tax rate would have been
37.0% in fiscal 2001.

RESULTS OF OPERATIONS -- FISCAL 2001 COMPARED TO FISCAL 2000

SYSTEMWIDE RETAIL STORE SALES

Systemwide retail store sales were $3.0 billion in fiscal 2001, an increase of
31% from $2.3 billion in fiscal 2000, primarily due to the opening of 1,208
stores.

CONSOLIDATED NET REVENUES

During the fiscal year ended September 30, 2001, Starbucks derived approximately
84% of net revenues from its Company-operated retail stores. The remaining 16%
of net revenues was derived from the Company's Specialty Operations. Total net
revenues in fiscal 2001 increased 22% to $2.6 billion from $2.2 billion in
fiscal 2000.

NET REVENUES BY SEGMENT

North American Retail

North American Retail revenues increased by $351.4 million, or 20%, to $2.1
billion in fiscal 2001, from $1.7 billion in fiscal 2000, primarily due to the
addition of new Company-operated retail stores and comparable store sales growth
of 5%. The increase in comparable store sales resulted from a 2% increase in the
number of transactions and a 3% increase in the average dollar value per
transaction.

Business Alliances

Business Alliances revenues increased by $32.8 million, or 20%, to $193.6
million in fiscal 2001, from $160.8 million in fiscal 2000, primarily due to the
opening of new licensed stores and the resulting increase in royalty revenues
from and product sales to those licensees.

All other business units (including International Retail, net of Intersegment
revenues)

Revenues for all other business units increased by $87.2 million, or 31%, to
$369.1 million in fiscal 2001, from $281.9 million in fiscal 2000. This increase
was mainly related to growth in the number of international Company-operated and
licensed retail stores.

CONSOLIDATED RESULTS OF OPERATIONS

Cost of sales and related occupancy costs decreased to 42.0% of net revenues in
fiscal 2001, from 44.2% in the corresponding period in fiscal 2000. The decrease
resulted from several factors, including lower green coffee costs, the impact of
retail beverage sales price increases, continued cost savings from procurement
initiatives and shifts in sales mix to higher margin products. These factors
were partially offset by higher occupancy costs as a result of higher average
rent expense per square foot as well as the expansion of Company-operated stores
in international markets that have higher occupancy costs as a percentage of
revenues than North American retail operations.

Store operating expenses as a percentage of retail revenues increased to 39.3%
in fiscal 2001, from 38.7% in fiscal 2000. The increase was primarily due to
higher payroll-related expenditures resulting from higher average wage rates and
the continuing shift to more labor-intensive handcrafted beverages, partially
offset by leverage gained from regional overhead expenses distributed over an
expanded revenue base and reductions in advertising expenses.

Other operating expenses were 22.3% of specialty revenues in fiscal 2001,
compared to 22.2% in fiscal 2000. The increase was attributable to the Company's
licensee channels, both international and domestic, as the Company expands these
businesses geographically and continues to develop its internal resources for
future growth. These costs were partially offset by lower advertising expenses
for the Company's interactive operations.

Depreciation and amortization expenses increased to $163.5 million in fiscal
2001, from $130.2 million in fiscal 2000. The increase was mainly the result of
opening new North American and international retail stores.

General and administrative expenses increased to $151.4 million in fiscal 2001,
compared to $110.2 million in fiscal 2000. The increase was primarily due to
higher payroll-related expenditures, professional fees, provisions for obsolete
software, charitable donations and uninsured expenses resulting from the
Nisqually earthquake in fiscal 2001.

Operating income increased 32.4% to $281.1 million in fiscal 2001, from $212.3
million in fiscal 2000. The operating margin increased to 10.6% of total net
revenues in fiscal 2001, compared to 9.7% in the same period in fiscal 2000
primarily due to growth of total net revenues and improvements in cost of sales,
as discussed above.

RESULTS OF OPERATIONS BY SEGMENT

North American Retail

Operating income for North American Retail increased by 34.6% to $336.4 million
in fiscal 2001, from $249.9 million in fiscal 2000. Operating margin increased
to 16.1% of related revenues from 14.4% in the prior year, primarily due to the
shift in sales to higher margin products and benefits from lower green coffee
costs.

Business Alliances

Operating income for Business Alliances increased by 14.6% to $50.2 million in
fiscal 2001, from $43.8 million in fiscal 2000. Operating margin decreased to
25.9% of related revenues from 27.2% in the prior year primarily due to
increased operating expenses resulting from the build up of infrastructure to
support the expansion of the domestic licensee channel.

All other business units

Operating income for all other business units increased by 28.7% to $68.8
million in fiscal 2001, from $53.4 million in fiscal 2000. Operating margin
decreased slightly to 18.6% of related revenues from 19.0% in the prior year,
primarily due to higher International Retail payroll-related expenditures
partially offset by reductions in advertising expenses for the Company's
interactive operations.

Unallocated corporate expenses

Unallocated corporate expenses pertain to corporate functions that are not
specifically attributable to the Company's operating segments and include
"General and administrative expenses" and certain depreciation and amortization
expenses. Depreciation and amortization expenses of $22.9 million and $24.7
million are included in unallocated corporate expenses for fiscal 2001 and 2000,
respectively.

INCOME FROM EQUITY INVESTEES

Income from equity investees was $28.6 million in fiscal 2001, compared to $20.3
million in fiscal 2000. The increase was primarily due to the improved
profitability of the North American Coffee Partnership that resulted from
increased sales volume from extensions of its product line and expansion of
geographic distribution, as well as improvements in its cost of goods sold
primarily due to manufacturing efficiencies. The increase was also due to
improved operating results of Starbucks Coffee Japan, Ltd., attributable to
additional profitable store locations as well as the distribution of
infrastructure and administrative costs over an expanded revenue base. Starbucks
Coffee Japan, Ltd. had 289 stores open as of September 30, 2001, compared to 154
stores open as of October 1, 2000.

INTERNET-RELATED INVESTMENT LOSSES

During fiscal 2001, the Company determined that its investments in
Internet-related companies had suffered declines in value. The Company's
management deemed these declines as other than temporary due to the sustained
weak conditions in the Internet industry as reflected in the bankruptcy or
liquidation proceedings of numerous comparable companies and the significant
decline in stock market valuation of the sector, the declining financial
condition of each company in which the Company had invested, the unfavorable
prospects of such companies obtaining additional funding and the length of time
and extent to which the quoted market values had been less than cost for
publicly traded companies. As a result, the Company recognized losses totaling
$2.9 million to write off the Company's remaining investment in Kozmo.com, which
was liquidated during fiscal 2001, and to reduce its investment in Liveworld,
Inc. (previously known as Talk City, Inc.).

INCOME TAXES

The Company's effective tax rates of 37.3% in fiscal 2001 and 41.1% in fiscal
2000 were both impacted by the establishment of valuation allowances against
deferred tax benefits resulting from Internet-related investment losses.
Management determined that a portion of these losses may not be realizable for
tax purposes within the allowable carryforward period. Excluding the impact of
these allowances, the effective tax rates would have been 37.0% and 37.6% in
fiscal 2001 and 2000, respectively. The decrease to 37.0% in fiscal 2001 from
37.6% in fiscal 2000 was due to tax planning efforts.

LIQUIDITY AND CAPITAL RESOURCES

The Company had $402.2 million in cash and cash equivalents and short-term
investments at the end of fiscal 2002. Working capital as of September 29, 2002,
totaled $310.0 million compared to $148.7 million as of September 30, 2001. Cash
and cash equivalents increased by $61.3 million during fiscal 2002 to $174.6
million. This increase was in addition to an increase in short-term investments
of $120.4 million during the same period. The Company intends to use its
available cash resources to invest in its core businesses and other new business
opportunities related to its core businesses. Depending on market conditions,
Starbucks may acquire additional shares of its common stock pursuant to its
stock repurchase plan.

Cash provided by operating activities in fiscal 2002 totaled $477.7 million and
resulted primarily from net earnings and non-cash charges of $465.8 million. The
increase in accrued compensation and related costs contributed $24.1 million
primarily due to an increase in the number of employees. In addition, the
increase in other accrued expenses provided $34.0 million, $18.0

million of which was for the litigation settlement charge recorded in fiscal
2002, and the remaining change is due to the growth of the Company's operations.
Inventory purchases to supply a larger number of retail stores used $41.4
million.

Cash used by investing activities in fiscal 2002 totaled $485.3 million. This
included capital additions to property, plant and equipment of $375.5 million
mainly related to opening 614 new Company-operated retail stores, remodeling
certain existing stores, and purchasing land and constructing the Company's new
roasting and distribution facility in Nevada. The net activity in the Company's
marketable securities portfolio during fiscal 2002 used $116.9 million of cash.
Excess cash was invested primarily in short-term, investment-grade securities.
An increase in other assets used $24.5 million, mainly relating to an increase
in long-term receivables. During fiscal 2002, the Company made equity
investments of $6.1 million in its international investees, excluding the
effects of foreign currency fluctuations. The Company received $22.8 million in
distributions mainly from the North American Coffee Partnership. Proceeds from
the sale of a portion of the Company's shares in Starbucks Japan provided $14.8
million.

Cash provided by financing activities in fiscal 2002 totaled $67.4 million. This
included $91.3 million generated from the exercise of employee stock options and
$16.2 million generated from the Company's employee stock purchase plan. As
options granted under the Company's stock option plans are exercised, the
Company will continue to receive proceeds and a tax deduction; however, neither
the amounts nor the timing thereof can be predicted. The increase in checks
issued but not presented for payment provided $12.9 million. During fiscal 2002,
the Company purchased 2.6 million shares of its common stock in accordance with
authorized repurchase plans using $52.2 million of cash. Of this amount, $10.2
million was used to repurchase 515,000 shares to complete the $60.0 million
repurchase plan initiated in September 2001. $42.0 million was used to
repurchase 2.1 million shares in accordance with the 10.0 million share
repurchase plan introduced in June 2002. There were approximately 7.9 million
additional shares authorized for repurchase under this plan as of September 29,
2002. Share repurchases are at the discretion of management, in accordance with
the terms of each plan, and depend on market conditions, capital requirements
and such other factors as the Company may consider relevant.

Cash requirements in fiscal 2003, other than normal operating expenses, are
expected to consist primarily of capital expenditures related to the addition of
new Company-operated retail stores. Starbucks plans to open at least 600
Company-operated stores during fiscal 2003. 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 in fiscal 2003 to be approximately $425 million.

Management believes that existing cash and investments as well as cash generated
from operations should be sufficient to finance capital requirements for its
core businesses through 2003. New joint ventures, other new business
opportunities or store expansion rates substantially in excess of those
presently planned may require outside funding.

COFFEE PRICES, 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
Starbucks 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 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 September 29, 2002, the Company had
approximately $242.2 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, fluctuating dairy prices, the Company's ability to find optimal store
locations at favorable lease rates, increased costs associated with opening and
operating retail stores and the Company's continued ability to hire, train and
retain qualified personnel.

FINANCIAL RISK MANAGEMENT

The Company is exposed to market risk related to foreign currency exchange
rates, equity security prices and changes in interest rates.

FOREIGN CURRENCY EXCHANGE RISK

The majority of the Company's revenue, expense and capital purchasing activities
are transacted in United States dollars. However, because a portion of the
Company's operations consists of activities outside of the United States, the
Company has transactions in other currencies, primarily the Canadian dollar,
British pound and Japanese yen. As part of its risk management strategy, the
Company frequently evaluates its foreign currency exchange risk by monitoring
market data and external factors that may influence exchange rate fluctuations.
As a result, Starbucks may engage in transactions involving various derivative
instruments, with maturities generally not exceeding five years, to hedge
assets, liabilities, revenues and purchases denominated in foreign currencies.
During fiscal 2002, the Company entered into forward foreign exchange contracts
that qualify as cash flow hedges under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," to hedge a portion of anticipated
international revenue. In addition, Starbucks entered into a forward foreign
exchange contract that qualifies as a hedge of its net investment in a foreign
operation. These contracts expire within 24 months.

EQUITY SECURITY PRICE RISK

The Company has minimal exposure to price fluctuations on equity mutual funds
within the trading portfolio. The trading securities are designated to
approximate the Company's liability under the Management Deferred Compensation
Plan ("MDCP"). A corresponding liability is included in "Accrued compensation
and related costs" on the accompanying consolidated balance sheets. These
investments are recorded at fair value with unrealized gains and losses
recognized in "Interest and other income, net." The offsetting changes in the
MDCP liability are recorded in "General and administrative expenses" on the
accompanying consolidated statements of earnings.

INTEREST RATE RISK

The Company's diversified available-for-sale portfolio consists mainly of fixed
income instruments. The primary objectives of these investments are to preserve
capital and liquidity. Available-for-sale securities are of investment grade and
are recorded on the balance sheet at fair value with unrealized gains and losses
reported as a separate component of ((Accumulated other comprehensive
income/loss.)) The Company does not hedge its interest rate exposure.

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

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 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 material
impairment charges.

NEW ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires, among other
things, the use of a nonamortization approach for purchased goodwill and certain
intangibles. Goodwill and certain intangibles with indefinite lives will not be
amortized but instead will be reviewed for impairment at least annually.
Remaining intangibles with finite useful lives will continue to be amortized. As
of September 29, 2002, the Company had goodwill and other intangible assets, net
of accumulated amortization, of $19.9 million and $9.9 million, respectively,
which are subject to the transitional assessment provisions of SFAS No. 142. The
adoption of SFAS No. 142 on September 30, 2002, will not have a material impact
on future results of operations or the Company's financial position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 144 retains the fundamental provisions of SFAS No. 121, but sets
forth new criteria for asset classification and broadens the scope of qualifying
discontinued operations. The Company's adoption of SFAS No. 144 on September 30,
2002 will not have a material impact on the Company's consolidated financial
position and results of operations.

In November 2001, 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.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," which elaborates on existing disclosure of most
guarantees, and clarifies when a company must recognize an initial liability for
the fair value of obligations it assumes under guarantee agreements. The initial
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements of the Interpretation are effective for the Company's fiscal year
2003. Starbucks does not expect the adoption of this Interpretation to have a
material impact on the Company's financial position or disclosures.

CONSOLIDATED STATEMENTS OF EARNINGS

In thousands, except earnings per share



- --------------------------------------------------------------------------------------------
Fiscal year ended                              Sept 29, 2002   Sept 30, 2001    Oct 1, 2000
- --------------------------------------------------------------------------------------------
                                                                      
Net revenues:
  Retail                                       $   2,792,904   $   2,229,594   $   1,823,607
  Specialty                                          496,004         419,386         354,007
- --------------------------------------------------------------------------------------------
    Total net revenues                             3,288,908       2,648,980       2,177,614
Cost of sales and related occupancy costs          1,350,011       1,112,785         961,885
Store operating expenses                           1,121,108         875,473         704,898
Other operating expenses                             127,178          93,326          78,445
Depreciation and amortization expenses               205,557         163,501         130,232
General and administrative expenses                  202,161         151,416         110,202
Income from equity investees                          35,832          28,615          20,300
- --------------------------------------------------------------------------------------------
Operating income                                     318,725         281,094         212,252
Interest and other income, net                         9,300          10,768           7,110
Internet-related investment losses                        --           2,940          58,792
Gain on sale of investment                            13,361              --              --
- --------------------------------------------------------------------------------------------
Earnings before income taxes                         341,386         288,922         160,570
Income taxes                                         126,313         107,712          66,006
- --------------------------------------------------------------------------------------------
    Net earnings                               $     215,073   $     181,210   $      94,564
- --------------------------------------------------------------------------------------------

Net earnings per common share - basic          $        0.56   $        0.48   $        0.25
Net earnings per common share - diluted        $        0.54   $        0.46   $        0.24

Weighted average shares outstanding:
    Basic                                            385,575         380,566         371,191
    Diluted                                          397,526         394,349         385,999
- --------------------------------------------------------------------------------------------


See Notes to Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEETS

In thousands, except share data



- ------------------------------------------------------------------------------------------------------------------------
                                                                                         Sept 29, 2002     Sept 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
                                                                                                     
ASSETS
Current assets:
      Cash and cash equivalents                                                          $     174,572     $     113,237
      Short-term investments - Available-for-sale securities                                   217,302           101,399
      Short-term investments - Trading securities                                               10,360             5,913
      Accounts receivable, net of allowances of $3,680 and $4,590, respectively                 97,573            90,425
      Inventories                                                                              263,174           221,253
      Prepaid expenses and other current assets                                                 42,351            29,829
      Deferred income taxes, net                                                                42,206            31,869
- ------------------------------------------------------------------------------------------------------------------------
           Total current assets                                                                847,538           593,925
Equity and other investments                                                                   105,986            63,097
Property, plant and equipment, net                                                           1,265,756         1,135,784
Other assets                                                                                    53,554            31,868
Goodwill, net                                                                                   19,902            21,845
- ------------------------------------------------------------------------------------------------------------------------
      TOTAL ASSETS                                                                       $   2,292,736     $   1,846,519
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
      Accounts payable                                                                   $     135,994     $     127,905
      Checks drawn in excess of bank balances                                                   74,895            61,987
      Accrued compensation and related costs                                                   105,899            81,458
      Accrued occupancy costs                                                                   51,195            35,835
      Accrued taxes                                                                             54,244            70,346
      Other accrued expenses                                                                    72,289            40,117
      Deferred revenue                                                                          42,264            26,919
      Current portion of long-term debt                                                            710               697
- ------------------------------------------------------------------------------------------------------------------------
           Total current liabilities                                                           537,490           445,264
Deferred income taxes, net                                                                      22,496            19,133
Long-term debt                                                                                   5,076             5,786
Other long-term liabilities                                                                      1,036               409
Shareholders' equity:
      Common stock and additional paid-in capital - Authorized, 600,000,000 shares;
        issued and outstanding, 388,228,592 and 380,044,042  shares, respectively
        (includes 1,697,100 common stock units in both years)                                  891,040           791,622
      Other additional paid-in capital                                                          39,393                --
      Retained earnings                                                                        804,786           589,713
      Accumulated other comprehensive loss                                                      (8,581)           (5,408)
- ------------------------------------------------------------------------------------------------------------------------
           Total shareholders' equity                                                        1,726,638         1,375,927
- ------------------------------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                         $   2,292,736     $   1,846,519
- ------------------------------------------------------------------------------------------------------------------------


See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands



- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended                                                                     Sept 29, 2002   Sept 30, 2001    Oct 1, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
                                                                                                             
Net earnings                                                                          $     215,073   $     181,210   $      94,564
Adjustments to reconcile net earnings to net cash provided
     by operating activities:
      Depreciation and amortization                                                         221,141         177,087         142,171
      Gain on sale of investment                                                            (13,361)             --              --
      Internet-related investment losses                                                         --           2,940          58,792
      Provision for impairment and asset disposals                                           26,852          11,044           5,753
      Deferred income taxes, net                                                             (6,088)         (6,068)        (18,252)
      Equity in income of investees                                                         (21,972)        (15,713)        (15,139)
      Tax benefit from exercise of non-qualified stock options                               44,199          30,899          31,131
      Cash provided/(used) by changes in operating assets and liabilities:
           Net purchases of trading securities                                               (5,699)         (4,032)         (1,414)
           Accounts receivable                                                               (6,703)        (20,399)        (25,013)
           Inventories                                                                      (41,379)        (19,704)        (19,495)
           Prepaid expenses and other current assets                                        (12,460)        (10,919)            885
           Accounts payable                                                                   5,463          54,117          15,561
           Accrued compensation and related costs                                            24,087          12,098          25,415
           Accrued occupancy costs                                                           15,343           6,797           6,007
           Accrued taxes                                                                    (16,154)         34,548           5,026
           Deferred revenue                                                                  15,321          19,594           6,836
           Other accrued expenses                                                            34,022           2,806           5,746
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                   477,685         456,305         318,574

INVESTING ACTIVITIES:
     Purchase of available-for-sale securities                                             (339,968)       (184,187)       (118,501)
     Maturity of available-for-sale securities                                               78,349          93,500          58,750
     Sale of available-for-sale securities                                                  144,760          46,931          49,238
     Purchase of businesses, net of cash acquired                                                --              --         (13,522)
     Additions to equity and other investments                                               (6,137)        (12,874)        (43,930)
     Proceeds from sale of equity investment                                                 14,843              --              --
     Distributions from equity investees                                                     22,834          16,863          14,279
     Additions to property, plant and equipment                                            (375,474)       (384,215)       (316,450)
     Additions to other assets                                                              (24,547)         (4,550)         (3,096)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                                      (485,340)       (428,532)       (373,232)

FINANCING ACTIVITIES:
     Increase/(decrease) in cash provided by checks drawn in excess of bank balances         12,908           5,655          (7,479)
     Proceeds from sale of common stock under employee stock purchase plan                   16,191          12,977          10,258
     Proceeds from exercise of stock options                                                 91,276          46,662          58,463
     Principal payments on long-term debt                                                      (697)           (685)         (1,889)
     Repurchase of common stock                                                             (52,248)        (49,788)             --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                    67,430          14,821          59,353
Effect of exchange rate changes on cash and cash equivalents                                  1,560            (174)           (297)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                                    61,335          42,420           4,398

CASH AND CASH EQUIVALENTS:
Beginning of year                                                                           113,237          70,817          66,419
- ------------------------------------------------------------------------------------------------------------------------------------
End of year                                                                           $     174,572   $     113,237   $      70,817
- ------------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
      Interest                                                                        $         303   $         432   $         411
      Income taxes                                                                          105,339          47,690          51,856
- ------------------------------------------------------------------------------------------------------------------------------------


See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

In thousands, except share data



- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Accumulated
                                                                           Additional                      Other
                                                  Common Stock              Paid-In       Retained     Comprehensive
                                              Shares         Amount         Capital       Earnings     Income/(Loss)     Total
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Balance, October 3, 1999                    366,564,190   $        366   $    650,654   $    313,939   $     (3,946)  $    961,013
      Net earnings                                   --             --             --         94,564             --         94,564
      Unrealized holding losses, net                 --             --             --             --           (163)          (163)
      Translation adjustment                         --             --             --             --         (6,867)        (6,867)
                                                                                                                      ------------
      Comprehensive income                                                                                                  87,534
                                                                                                                      ------------
      Exercise of stock options,
        including tax benefit of $31,131      8,943,570              9         89,585             --             --         89,594
      Sale of common stock                      807,542              1         10,257             --             --         10,258
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, October 1, 2000                    376,315,302            376        750,496        408,503        (10,976)     1,148,399
      Net earnings                                   --             --             --        181,210             --        181,210
      Unrealized holding gains, net                  --             --             --             --          2,087          2,087
      Translation adjustment                         --             --             --             --          3,481          3,481
                                                                                                                      ------------
      Comprehensive income                                                                                                 186,778
                                                                                                                      ------------
      Exercise of stock options,
        including tax benefit of $ 30,899     6,289,892              6         77,555             --             --         77,561
      Sale of common stock                      813,848              1         12,976             --             --         12,977
      Repurchase of common stock             (3,375,000)            (3)       (49,785)            --             --        (49,788)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001                 380,044,042            380        791,242        589,713         (5,408)     1,375,927
      Net earnings                                   --             --             --        215,073             --        215,073
      Unrealized holding losses, net                 --             --             --             --         (1,509)        (1,509)
      Translation adjustment                         --             --             --             --         (1,664)        (1,664)
                                                                                                                      ------------
      Comprehensive income                                                                                                 211,900
                                                                                                                      ------------
      Equity adjustment related to equity
        investee transaction                         --             --         39,393             --             --         39,393
      Exercise of stock options,
        including tax benefit of $44,199      9,830,136             10        135,465             --             --        135,475
      Sale of common stock                      991,742              1         16,190             --             --         16,191
      Repurchase of common stock             (2,637,328)            (3)       (52,245)            --             --        (52,248)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 29, 2002                 388,228,592   $        388   $    930,045   $    804,786   $     (8,581)  $  1,726,638
- ----------------------------------------------------------------------------------------------------------------------------------


See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 29, 2002, September 30, 2001, and October 1, 2000

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Starbucks Corporation (together with its subsidiaries, "Starbucks" or the
"Company") purchases and roasts high-quality whole bean coffees and sells them,
along with fresh, rich-brewed coffees, Italian-style espresso beverages, cold
blended beverages, a variety of pastries and confections, coffee-related
accessories and equipment, a selection of premium teas and a line of compact
discs primarily through its Company-operated retail stores. Starbucks sells
coffee and tea products through other channels of distribution, and, through
certain of its equity investees, Starbucks also produces and sells bottled
Frappuccino(R) and Starbucks DoubleShot(TM) coffee drinks and a line of premium
ice creams. These non-retail channels are collectively known as "Specialty
Operations." The Company's objective is to establish Starbucks as the most
recognized and respected brand in the world. To achieve this goal, the Company
plans to continue rapid expansion of its retail operations, grow its Specialty
Operations and selectively pursue other opportunities to leverage the Starbucks
brand through the introduction of new products and the development of new
distribution channels.

Principles of Consolidation

The consolidated financial statements reflect the financial position and
operating results of Starbucks, which includes wholly owned subsidiaries and
investees controlled by the Company.

Investments in entities which the Company does not control, but has the ability
to exercise significant influence over operating and financial policies, are
accounted for under the equity method. Investments in entities in which
Starbucks does not have the ability to exercise significant influence are
accounted for under the cost method.

All significant intercompany transactions have been eliminated.

Fiscal Year-End

The Company's fiscal year ends on the Sunday closest to September 30. The fiscal
years ended September 29, 2002, September 30, 2001, and October 1, 2000, each
included 52 weeks.

Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three
months or less at the time of purchase to be cash equivalents.

Cash Management

The Company's cash management system provides for the reimbursement of all major
bank disbursement accounts on a daily basis. Checks issued but not presented for
payment to the bank are reflected as "Checks drawn in excess of bank balances"
on the accompanying consolidated financial statements.

Short-term Investments

The Company's short-term investments, which generally have maturities of more
than three months and less than one year, consist primarily of investment-grade
marketable debt and equity securities as well as bond and equity mutual funds,
all of which are classified as trading or available-for-sale. Trading securities
are recorded at fair value with unrealized holding gains and losses included in
net earnings. Available-for-sale securities are recorded at fair value, and
unrealized holding gains and losses are recorded, net of tax, as a separate
component of accumulated other comprehensive income. Unrealized losses are
charged against net earnings when a decline in fair value is determined to be
other than temporary. Realized gains and losses are accounted for on the
specific identification method. Purchases and sales are recorded on a trade date
basis.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents approximates fair value because
of the short-term maturity of those instruments. The fair value of the Company's
investments in marketable debt and equity securities as well as bond and equity
mutual funds is based upon the quoted market price on the last business day of
the fiscal year.

For equity securities of companies that are privately held, or where an
observable quoted market price does not exist, the Company estimates fair value
using a variety of valuation methodologies. Such methodologies include comparing
the security with securities of publicly traded companies in similar lines of
business, applying revenue multiples to estimated future operating results for
the private company and estimating discounted cash flows for that company. For
further information on investments, see Notes 4 and 7. The carrying value of
long-term debt approximates fair value.

Derivative Instruments

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

The Company follows Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
and interpreted, which requires that all derivatives be recorded on the balance
sheet at fair value. The accounting for changes in the fair value of derivative
instruments depends on the intended use and resulting designation. The Company
designates its derivatives based upon the criteria established by SFAS No. 133.
For a derivative designated as a fair value hedge, the gain or loss generated
from the change in fair value is recognized in net earnings in the period of
change together with the offsetting loss or gain on the hedged item. For a
derivative designated as a cash flow hedge, the effective portion of the
derivative's gain or loss is initially reported as a component of other
comprehensive income ("OCI") and subsequently reclassified into net earnings
when the hedged exposure affects net earnings. For a derivative designated as a
net investment hedge, the effective portion of the derivative's gain or loss is
reported as a component of the foreign currency translation adjustment, a
component of OCI. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in net earnings in the period of change.

Cash flow hedges related to anticipated transactions are designated and
documented at the inception of each hedge by matching the terms of the contract
to the underlying transaction. Once established, cash flow hedges are generally
not removed until maturity. The Company classifies the cash flows from hedging
transactions in the same category as the cash flows from the respective hedged
items.

Forward contract effectiveness for cash flow hedges is calculated by comparing
the fair value of the contract to the change in value of the anticipated
transaction using forward rates on a monthly basis. For net investment hedges,
the spot-to-spot method is used to calculate effectiveness. Any ineffectiveness
is recognized immediately in "Interest and other income, net" on the
accompanying consolidated statements of earnings.

Inventories

Inventories are stated at the lower of cost (primarily moving average cost) or
market.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation.
Depreciation of property, plant and equipment, which includes assets under
capital leases, is provided on the straight-line method over estimated useful
lives, generally ranging from two to seven years for equipment and 30 to 40
years for buildings. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the related lease life, generally ten years. The
portion of depreciation expense related to production and distribution
facilities is included in "Cost of sales and related occupancy costs" on the
accompanying consolidated statements of earnings. The costs of repairs and
maintenance are expensed when incurred, while expenditures for refurbishments
and improvements that significantly add to the productive capacity or extend the
useful life of an asset are capitalized. When assets are retired or sold, the
asset cost and related accumulated depreciation are eliminated with any
remaining gain or loss reflected in net earnings.

Goodwill and Other Intangible Assets

The Company's intangible assets mainly consist of goodwill, trademarks, patents
and copyrights. These assets are amortized on a straight-line basis over the
period of expected benefit, which ranges from ten to twenty years. Starbucks
will adopt SFAS No. 142, "Goodwill and Other Intangible Assets" in fiscal 2003.
Accordingly, goodwill and certain intangibles with indefinite lives will not be
amortized but instead will be reviewed for impairment at least annually.
Remaining intangibles with finite useful lives will continue to be amortized. As
of September 29, 2002, Starbucks had goodwill and other intangible assets, net
of accumulated amortization, of $19.9 million and $9.9 million, respectively,
which are subject to the transitional assessment provisions of SFAS No. 142. The
Company's management has determined that the adoption of SFAS No. 142 will not
have a material impact on results of operations or the Company's consolidated
financial position.

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 recognizes an impairment loss by 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.

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 receipt by 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.

Advertising

The Company expenses costs of advertising the first time the advertising
campaign takes place, except for direct-to-consumer advertising, which is
capitalized and amortized over its expected period of future benefit, generally
six to twelve months. Net capitalized direct-to-consumer advertising costs were
$0.8 million and $0.9 million as of September 29, 2002, and September 30, 2001,
respectively, and are included in "Prepaid expenses and other current assets" on
the accompanying consolidated balance sheets. Total advertising expenses,
recorded in "Store operating expenses" and "Other operating expenses," on the
accompanying consolidated statements of earnings were $25.6 million, $28.8
million and $32.6 million in 2002, 2001 and 2000, respectively.

Store Preopening Expenses

Costs incurred in connection with the start-up and promotion of new store
openings are expensed as incurred.

Rent Expense

Certain of the Company's lease agreements provide for scheduled rent increases
during the lease terms or for rental payments commencing at a date other than
the date of initial occupancy. Minimum rental expenses are recognized on a
straight-line basis over the terms of the leases.

Stock-based Compensation

The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock options,
if any, is measured by the excess of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value based method of
accounting for stock-based employee compensation plans. The Company follows the
disclosure requirements of SFAS No. 123, see Note 12, and intends to disclose
stock-based compensation information quarterly in fiscal 2003.

Foreign Currency Translation

The Company's international operations use their local currency as their
functional currency. Assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Income and expense accounts are translated at
the average monthly exchange rates during the year. Resulting translation
adjustments are recorded as a separate component of accumulated other
comprehensive income.

Income Taxes

The Company computes income taxes using the asset and liability method, under
which deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities.

Stock Split

On April 27, 2001, the Company effected a two-for-one stock split of its $0.001
par value common stock for holders of record on March 30, 2001. All applicable
share and per-share data in these consolidated financial statements have been
restated to give effect to this stock split.

Earnings Per Share

The computation of basic earnings per share is based on the weighted average
number of shares and common stock units outstanding during the period. The
computation of diluted earnings per share includes the dilutive effect of common
stock equivalents consisting of certain shares subject to stock options.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 144 retains the fundamental
provisions of SFAS No. 121, but sets forth new criteria for asset classification
and broadens the scope of qualifying discontinued operations. The Company's
adoption of SFAS No. 144 on September 30, 2002 will not have a material impact
on the Company's consolidated financial position and results of operations.

In November 2001, 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.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," which elaborates on existing disclosure of most
guarantees, and clarifies when a company must recognize an initial liability for
the fair value of obligations it assumes under guarantee agreements. The initial
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements of the Interpretation are effective for the Company's fiscal year
2003. Starbucks does not expect the adoption of this Interpretation to have a
material impact on the Company's consolidated financial position or disclosures.

Reclassifications

Certain reclassifications of prior years' balances have been made to conform to
the fiscal 2002 presentation.

NOTE 2: BUSINESS COMBINATIONS

During fiscal 2000, Starbucks acquired the outstanding stock of Tympanum, Inc.
(d/b/a "Hear Music"), a music retailer, and Coffee Partners Co. Ltd., the
company licensed to operate Starbucks stores in Thailand. The combined purchase
price for these two acquisitions was $14.1 million. The acquisitions were
accounted for under the purchase method of accounting. Results of operations of
the acquired companies are included on the accompanying consolidated financial
statements from the dates of acquisition. There were no business combinations
during fiscal 2001 and 2002.

NOTE 3: CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following (in thousands):



- ---------------------------------------------------------------------------------------
                                                         Sept 29, 2002    Sept 30, 2001
- ---------------------------------------------------------------------------------------
                                                                    
Operating funds and interest-bearing deposits            $     163,592    $      51,164
Commercial paper                                                    --            1,698
Money market funds                                              10,980           60,375
- ---------------------------------------------------------------------------------------
Total                                                    $     174,572    $     113,237
- ---------------------------------------------------------------------------------------


NOTE 4: SHORT-TERM INVESTMENTS

The Company's short-term investments consist of the following (in thousands):



- ---------------------------------------------------------------------------------------------------------------------
                                                                              Gross           Gross
                                                                           Unrealized      Unrealized
                                                             Amortized       Holding         Holding          Fair
September 29, 2002:                                            Cost           Gains          Losses           Value
- ---------------------------------------------------------------------------------------------------------------------
                                                                                                
Short-term investments - available-for-sale securities:
      State and local government obligations                 $ 155,471     $      244      $      (16)      $ 155,699
      U.S. government obligations                                2,406              4              --           2,410
      Mutual funds                                              32,000            211              --          32,211
      Commercial paper                                          26,982             --              --          26,982
- ---------------------------------------------------------------------------------------------------------------------
Total                                                        $ 216,859     $      459      $      (16)      $ 217,302
Short-term investments - trading securities                     13,210                                         10,360
                                                             ---------                                      ---------
Total short-term investments                                 $ 230,069                                      $ 227,662
- ---------------------------------------------------------------------------------------------------------------------




- ---------------------------------------------------------------------------------------------------------------------
                                                                              Gross           Gross
                                                                           Unrealized      Unrealized
                                                             Amortized       Holding         Holding          Fair
September 30, 2001:                                            Cost           Gains          Losses           Value
- ---------------------------------------------------------------------------------------------------------------------
                                                                                                
Short-term investments - available-for-sale securities:
      U.S. government obligations                            $   1,999     $       18      $       --       $   2,017
      Commercial paper                                          98,000          1,332              --          99,332
      Marketable equity securities                                 250             --            (200)             50
- ---------------------------------------------------------------------------------------------------------------------
Total                                                        $ 100,249     $    1,350      $     (200)      $ 101,399
Short-term investments - trading securities                      7,448                                          5,913
                                                             ---------                                      ---------
Total short-term investments                                 $ 107,697                                      $ 107,312
- ---------------------------------------------------------------------------------------------------------------------


In fiscal 2002, 2001 and 2000, proceeds from the sale of investment securities
were $144.8 million, $46.9 million and $49.2 million, respectively. Gross
realized gains from the sale of securities were $1.7 million in 2002. There were
no gross realized losses in 2002, and gross realized gains and losses from the
sale of securities were not material in 2001 and 2000.

During fiscal 2001 and 2000, the Company recognized losses of $0.9 million and
$6.8 million, respectively, on its investment in the common stock of Liveworld,
Inc. (previously known as Talk City, Inc.), due to impairments that were
determined by management to be other than temporary.

The trading securities are comprised mainly of marketable equity mutual funds
designated to approximate the Company's liability under the Management Deferred
Compensation Plan. The corresponding deferred compensation liability of $10.4
million in fiscal 2002 and $6.0 million in fiscal 2001 is included in "Accrued
compensation and related costs" on the accompanying consolidated balance sheets.
In fiscal 2002 and 2001, the changes in net unrealized holding losses in the
trading portfolio included in earnings were $1.3 million and $1.9 million,
respectively.

NOTE 5: DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges

During fiscal 2001 and 2002, the Company entered into forward foreign exchange
contracts that qualify as cash flow hedges under SFAS No. 133 to hedge portions
of anticipated product and royalty revenues denominated in Japanese yen and
Canadian dollars. These contracts expire within 24 months. The Company had
accumulated net derivative gains of $0.8 million, net of taxes, in other
comprehensive income as of September 29, 2002, related to cash flow hedges. Of
this amount, $0.3 million of net derivative losses will be reclassified into net
earnings within 12 months. There was no ineffectiveness related to cash flow
hedges for the fiscal years ended September 29, 2002, and September 30, 2001.

Net Investment Hedges

During fiscal 2001 and 2002, the Company entered into forward foreign exchange
contracts that qualify as hedges of the Company's net investment in Starbucks
Coffee Japan, Ltd. These contracts expire within 19 months and are intended to
minimize foreign currency exposure to fluctuations in the Japanese yen. As a
result of using the spot-to-spot method, the Company recognized net gains of
$1.8 million and $1.4 million during the fiscal years ended September 29, 2002,
and September 30, 2001, respectively. In addition, the Company had accumulated
net derivative losses of $0.5 million, net of taxes, in other comprehensive
income as of September 29, 2002.

NOTE 6: INVENTORIES

Inventories consist of the following (in thousands):



- --------------------------------------------------------------------------------
                                                 Sept 29, 2002     Sept 30, 2001
- --------------------------------------------------------------------------------
                                                             
Coffee:
  Unroasted                                      $     128,173     $      98,557
  Roasted                                               35,770            33,958
Other merchandise held for sale                         65,403            63,458
Packaging and other supplies                            33,828            25,280
- --------------------------------------------------------------------------------
Total                                            $     263,174     $     221,253
- --------------------------------------------------------------------------------


The increase in inventories is consistent with the Company's overall retail
store growth.

As of September 29, 2002, the Company had fixed-price inventory purchase
contracts for green coffee totaling approximately $242.2 million. 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.

NOTE 7: EQUITY AND OTHER INVESTMENTS

The Company's equity and other investments consist of the following (in
thousands):



- --------------------------------------------------------------------------------
                                   Sept 29, 2002   Sept 30, 2001    Oct 1, 2000
- --------------------------------------------------------------------------------
                                                          
Equity method investments          $      94,698   $      57,758   $      51,268
Cost method investments                    9,086           3,118             783
Other investments                          2,202           2,221           3,788
- --------------------------------------------------------------------------------
Total                              $     105,986   $      63,097   $      55,839
- --------------------------------------------------------------------------------


Equity Method

The Company's equity investees and ownership interests are as follows:



- --------------------------------------------------------------------------------
                                     Sept 29, 2002   Sept 30, 2001   Oct 1, 2000
- --------------------------------------------------------------------------------
                                                            
North American Coffee Partnership            50.0%           50.0%         50.0%
The Starbucks Ice Cream Partnership          50.0%           50.0%         50.0%
Starbucks Coffee Japan, Ltd.                 40.1%           50.0%         50.0%
Starbucks Coffee Korea Co., Ltd.             50.0%           50.0%            -
Coffee Partners Hawaii                        5.0%            5.0%          5.0%
- --------------------------------------------------------------------------------


The Company has two partnerships to produce and distribute Starbucks branded
products. The North American Coffee Partnership with the Pepsi-Cola Company
develops and distributes bottled Frappuccino and Starbucks DoubleShot coffee
drinks. The Starbucks Ice Cream Partnership with Dreyer's Grand Ice Cream, Inc.
develops and distributes premium ice creams.

The Company is an equity owner in several other entities that operate licensed
Starbucks retail stores, including Starbucks Coffee Japan, Ltd., Starbucks
Coffee Korea Co., Ltd., and Coffee Partners Hawaii, a general partnership.

On October 10, 2001, the Company sold 30,000 of its 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 and recorded a gain of $13.4 million on the accompanying consolidated
statement of earnings. The Company's ownership interest in Starbucks Japan was
reduced from 50.0% to 47.5% following the sale of the shares.

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%. Starbucks recorded
"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 September 29,
2002, the quoted closing price of Starbucks Japan shares was approximately $203
per share.

The Company's share of income and losses is included in "Income from equity
investees" on the accompanying consolidated statements of earnings. Also
included is the Company's proportionate share of gross margin resulting from
coffee and other product sales to, and royalty and license fee revenues
generated from, equity investees. Revenues generated from these related

parties, net of eliminations, were $57.1 million, $40.6 million and $27.0
million in fiscal 2002, 2001 and 2000, respectively. Related costs of sales, net
of eliminations, were $32.8 million, $25.9 million and $19.4 million in fiscal
2002, 2001 and 2000, respectively.

Cost Method

Starbucks has equity interests in entities to develop Starbucks retail stores in
Taiwan, China, Austria, Switzerland, Puerto Rico, Germany, Spain, Mexico, Greece
and Israel. Starbucks has the ability to acquire additional interests in its
cost method investees at certain intervals during each respective development
period. Depending on the Company's total percentage ownership interest and its
ability to exercise significant influence, additional investments may require
the retroactive application of the equity method of accounting.

Other Investments

Starbucks has investments in privately held equity securities that are recorded
at their estimated fair values.

In fiscal 1999 and 2000, the Company invested $20.3 million in living.com, Inc.
("living.com"), an online furniture retailer, $10.0 million in Cooking.com, Inc.
("Cooking.com"), a privately held Web-based retailer of cookware, accessories
and specialty foods and provider of information about cooking, and $25.0 million
in Kozmo.com, an Internet-to-door delivery service for food, entertainment and
convenience items. During fiscal 2000 and 2001, the Company determined that
these investments had suffered declines in value that were other than temporary.
As a result, the Company recognized losses of $52.0 million to reduce its
investments in living.com, Cooking.com and Kozmo.com to their aggregate fair
value as of October 1, 2000. During fiscal 2001, Starbucks recognized a loss
totaling $2.0 million to write off its remaining investment in Kozmo.com. There
were no investment write-offs in fiscal 2002.

NOTE 8: PROPERTY, PLANT AND EQUIPMENT

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



- --------------------------------------------------------------------------------
                                                 Sept 29, 2002     Sept 30, 2001
- --------------------------------------------------------------------------------
                                                             
Land                                             $      11,310     $       6,023
Buildings                                               30,961            19,795
Leasehold improvements                               1,131,382           960,732
Roasting and store equipment                           516,129           421,150
Furniture, fixtures and other                          282,068           239,900
- --------------------------------------------------------------------------------
                                                     1,971,850         1,647,600
Less accumulated depreciation and amortization        (814,427)         (605,247)
- --------------------------------------------------------------------------------
                                                     1,157,423         1,042,353
Work in progress                                       108,333            93,431
- --------------------------------------------------------------------------------
Property, plant and equipment, net               $   1,265,756     $   1,135,784
- --------------------------------------------------------------------------------


The increase in property, plant and equipment from September 30, 2001, to
September 29, 2002, is mainly a result of opening new Company-operated retail
stores, remodeling certain existing stores, and purchasing land and constructing
the Company's new roasting and distribution facility in Nevada.

NOTE 9: LONG-TERM DEBT

In September 1999, the Company purchased the land and building comprising its
York County, Pennsylvania, roasting plant and distribution facility. The total
purchase price was $12.9 million. In connection with this purchase, the Company
assumed loans totaling $7.7 million from the York County Industrial Development
Corporation. The remaining maturities of these loans range from 7 to 8 years,
with interest rates from 0.0% to 2.0%.

Scheduled principal payments on long-term debt are as follows (in thousands):



- --------------------------------------------------------------------------------
Fiscal year ending
- --------------------------------------------------------------------------------
                                                                       
2003                                                                      $  710
2004                                                                         722
2005                                                                         735
2006                                                                         748
2007                                                                         762
Thereafter                                                                 2,109
- --------------------------------------------------------------------------------
Total principal payments                                                  $5,786
- --------------------------------------------------------------------------------


NOTE 10: LEASES

The Company leases retail stores, roasting and distribution facilities and
office space under operating leases expiring through 2025. Most lease agreements
contain renewal options and rent escalation clauses. Certain leases provide for
contingent rentals based upon gross sales.

Rental expense under these lease agreements was as follows (in thousands):



- --------------------------------------------------------------------------------
Fiscal year ended                  Sept 29, 2002   Sept 30, 2001    Oct 1, 2000
- --------------------------------------------------------------------------------
                                                          
Minimum rentals - Retail           $     200,827   $     150,510   $     114,239
Minimum rentals - Other                   19,143          16,033          12,910
Contingent rentals                         5,415           4,018           3,743
- --------------------------------------------------------------------------------
Total                              $     225,385   $     170,561   $     130,892
- --------------------------------------------------------------------------------


Minimum future rental payments under non-cancelable lease obligations as of
September 29, 2002, are as follows (in thousands):



- --------------------------------------------------------------------------------
Fiscal year ending
- --------------------------------------------------------------------------------
                                                                  
2003                                                                 $   248,016
2004                                                                     243,519
2005                                                                     232,641
2006                                                                     219,384
2007                                                                     203,395
Thereafter                                                               863,874
- --------------------------------------------------------------------------------
Total minimum lease payments                                         $ 2,010,829
- --------------------------------------------------------------------------------


NOTE 11: SHAREHOLDERS' EQUITY

During fiscal 2001, the Company amended and restated its Articles of
Incorporation to, among other things, change the par value of the Company's
common stock and preferred stock from no par value per share to $0.001 par value
per share.

In addition to 600.0 million shares of authorized common stock, the Company has
authorized 7.5 million shares of preferred stock, none of which was outstanding
at September 29, 2002.

In September 2001, the Company's Board of Directors approved a plan to
repurchase up to $60.0 million of its common stock in the open market. This plan
was completed through the acquisition of 515,000 shares and 3.4 million shares
during fiscal years 2002 and 2001, respectively.

In June 2002, the Board of Directors authorized the repurchase of up to an
additional 10.0 million shares of common stock. During fiscal year 2002, the
Company acquired 2.1 million shares at a cost of $42.0 million, leaving 7.9
million additional shares authorized for repurchase under this plan as of
September 29, 2002.

Comprehensive Income

Comprehensive income includes all changes in equity during the period, except
those resulting from transactions with shareholders and subsidiaries of the
Company. It has two components: net earnings and other comprehensive income.
Accumulated other comprehensive loss reported on the Company's consolidated
balance sheets consists of foreign currency translation adjustments and the
unrealized gains and losses, net of applicable taxes, on available-for-sale
securities and on derivative instruments designated and qualifying as cash flow
and net investment hedges. Comprehensive income, net of related tax effects, is
as follows (in thousands):



- --------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended                                                                 Sept 29, 2002    Sept 30, 2001    Oct 1, 2000
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
Net earnings                                                                      $     215,073    $     181,210   $      94,564
      Unrealized holding gains/(losses) on available-for-sale securities,
        net of tax benefit/(provision) of ($231), ($434) and $52 in
        2002, 2001 and 2000, respectively                                                   394              738             (85)
      Unrealized holding gains on cash flow hedges, net of tax provision
        of $1,066, $683 and $0 in 2002, 2001 and 2000, respectively                       1,815            1,163              --
      Unrealized holding gains/(losses) on net investment hedges, net of
        tax benefit/(provision) of $415, ($109) and $0 in 2002, 2001
        and  2000, respectively                                                            (706)             186              --
      Reclassification adjustment for gains realized in net income, net of tax
        provision of $1,769, $0 and $48 in 2002, 2001 and 2000, respectively             (3,012)              --             (78)
- --------------------------------------------------------------------------------------------------------------------------------
      Net unrealized gain/(loss)                                                         (1,509)           2,087            (163)
- --------------------------------------------------------------------------------------------------------------------------------
      Translation adjustment                                                             (1,664)           3,481          (6,867)
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                                                        $     211,900    $     186,778   $      87,534
- --------------------------------------------------------------------------------------------------------------------------------


NOTE 12: EMPLOYEE STOCK AND BENEFIT PLANS

Stock Option Plans

The Company maintains several stock option plans under which the Company may
grant incentive stock options and non-qualified stock options to employees,
consultants and non-employee directors. Stock options have been granted at
prices at or above the fair market value on the date of grant. Options vest and
expire according to terms established at the grant date.

The following summarizes all stock option transactions from October 3, 1999,
through September 29, 2002:



- ------------------------------------------------------------------------------------------------------
                                                            Weighted                         Weighted
                                                            Average         Shares           Average
                                          Shares            Exercise       Subject to        Exercise
                                        Subject to           Price        Exercisable         Price
                                          Options          Per Share        Options         Per Share
- ------------------------------------------------------------------------------------------------------
                                                                                
Outstanding, October 3, 1999            45,141,102         $    8.42      24,161,650        $    6.78
      Granted                            9,410,330             12.42
      Exercised                         (8,943,570)             6.54
      Cancelled                         (3,718,136)            10.71
- ------------------------------------------------------------------------------------------------------
Outstanding, October 1, 2000            41,889,726              9.55      20,330,740             7.82
      Granted                            9,907,292             20.48
      Exercised                         (6,289,892)             7.45
      Cancelled                         (2,496,195)            14.22
- ------------------------------------------------------------------------------------------------------
Outstanding, September 30, 2001         43,010,931             12.13      24,407,135             9.16
      Granted                           10,262,709             15.79
      Exercised                         (9,830,136)             9.29
      Cancelled                         (2,983,701)            15.15
- ------------------------------------------------------------------------------------------------------
Outstanding, September 29, 2002         40,459,803         $   13.55      20,975,598        $   11.07
- ------------------------------------------------------------------------------------------------------


As of September 29, 2002, there were 34.8 million shares of common stock
available for issuance pursuant to future stock option grants.

Additional information regarding options outstanding as of September 29, 2002,
is as follows:



                                         Options Outstanding                   Options Exercisable
                              ----------------------------------------     ---------------------------
                                              Weighted
                                               Average        Weighted                        Weighted
                                              Remaining       Average                         Average
        Range of                             Contractual      Exercise                        Exercise
     Exercise Prices            Shares       Life (Years)      Price         Shares            Price
- ------------------------------------------------------------------------------------------------------
                                                                            
 $ 2.84     -     $  9.20      9,762,067         4.05         $   7.45      9,250,255         $   7.36
   9.21     -       11.63      9,577,220         6.47            11.07      6,768,224            10.95
  11.88     -       14.80      9,991,522         8.50            14.37      1,539,580            13.00
  15.34     -       20.19      8,546,478         8.10            19.70      2,389,383            19.67
  20.25     -       25.11      2,582,516         8.70            22.34      1,028,156            22.26
- ------------------------------------------------------------------------------------------------------
 $ 2.84     -     $ 25.11     40,459,803         6.87         $  13.55     20,975,598         $  11.07
- ------------------------------------------------------------------------------------------------------


Employee Stock Purchase Plans

The Company has an employee stock purchase plan which provides that eligible
employees may contribute up to 10% of their base earnings towards the quarterly
purchase of the Company's common stock. The employee's purchase price is 85% of
the lesser of the fair market value of the stock on the first business day or
the last business day of the quarterly offering period. Employees may purchase
shares having a fair market value of up to $25,000 (measured as of the first day
of each quarterly offering period for each calendar year). No compensation
expense is recorded in connection with the plan. The total number of shares
issuable under the plan is 16.0 million. There were 991,742 shares issued under
the plan during fiscal 2002 at prices ranging from $12.58 to $19.81. There were
813,635 shares issued under the plan during fiscal 2001 at prices ranging from
$12.70 to $18.28. There were 807,542 shares issued under the plan during fiscal
2000 at prices ranging from $10.19 to $16.36. The plan has purchased a total of
4.9 million shares since inception, leaving 11.1 million shares
available for future issuance. Of the 32,950 employees eligible to participate,
9,126 were participants in the plan as of September 29, 2002.

Starbucks has an additional employee stock purchase plan which allows eligible
United Kingdom employees to save towards the purchase of the Company's common
stock. The plan is in compliance with applicable tax laws in the United Kingdom.
The employee's purchase price is 85% of the fair value of the stock on the first
business day of a three-year offering period. No compensation expense was
recorded in connection with the plan during fiscal 2002. The total number of
shares issuable under the plan is 600,000, none of which have been issued as of
September 29, 2002.

Deferred Stock Plan

The Company has a deferred stock plan for certain key employees that enables
participants in the plan to defer receipt of ownership of common shares from the
exercise of non-qualified stock options. The minimum deferral period is five
years. As of September 29, 2002, receipt of 1,697,100 shares was deferred under
the terms of this plan. The rights to receive these shares, represented by
common stock units, are included in the calculation of basic and diluted
earnings per share as common stock equivalents.

Accounting for Stock-based Compensation

As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for stock-based compensation in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees," and its related interpretations.
Accordingly, because the grant price equals the market price on the date of
grant, no compensation expense is recognized for stock options issued to
employees.

Had compensation cost for the Company's stock options been recognized based upon
the estimated fair value on the grant date under the fair value methodology
prescribed by SFAS No. 123, the Company's net earnings and earnings per share
would have been as follows (in thousands, except earnings per share):



- --------------------------------------------------------------------------------
                                                                     Pro Forma
                                                      As             Under SFAS
Fiscal year ended                                  Reported           No. 123
- --------------------------------------------------------------------------------
                                                              
September 29, 2002:
      Net earnings                               $    215,073       $    177,627
      Net earnings per common share:
           Basic                                 $       0.56       $       0.46
           Diluted                               $       0.54       $       0.45
- --------------------------------------------------------------------------------
September 30, 2001:
      Net earnings                               $    181,210       $    140,675
      Net earnings per common share:
           Basic                                 $       0.48       $       0.37
           Diluted                               $       0.46       $       0.36
- --------------------------------------------------------------------------------
October 1, 2000:
      Net earnings                               $     94,564       $     66,241
      Net earnings per common share:
           Basic                                 $       0.25       $       0.18
           Diluted                               $       0.24       $       0.17
- --------------------------------------------------------------------------------


The fair value of stock-based awards to employees is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:



- ----------------------------------------------------------------------------------------------------------------------------
                                           Employee Stock Options                      Employee Stock Purchase Plan
                                --------------------------------------------    --------------------------------------------
                                    2002            2001            2000            2002           2001            2000
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                              
Expected life (years)              2 - 5           2 - 5           2 - 6            0.25           0.25            0.25
Expected volatility               43 - 54%          57%             55%           33 - 51%        41 - 49%        42 - 82%
Risk-free interest rate         1.63 - 4.96%    2.37 - 5.90%    5.65 - 6.87%    1.93 - 2.73%    2.35 - 4.68%    5.97 - 6.40%
Expected dividend yield             0.00%           0.00%           0.00%           0.00%          0.00%           0.00%
- ----------------------------------------------------------------------------------------------------------------------------


The Company's valuations are based upon a multiple option valuation approach,
and forfeitures are recognized as they occur. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options,
which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions,
including the expected stock-price volatility. The Company's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate. Because Company stock options do not trade on a
secondary exchange, employees can receive no value nor derive any benefit from
holding stock options under these plans without an increase, above the grant
price, in the market price of the Company's stock. Such an increase in stock
price would benefit all stockholders commensurately.

As required by SFAS No. 123, the Company has determined that the weighted
average estimated fair values of options granted during fiscal 2002, 2001 and
2000 were $6.48, $8.98 and $5.37 per share, respectively.

In applying SFAS No. 123, the impact of outstanding stock options granted prior
to 1996 has been excluded from the pro forma calculations; accordingly, the 2002
pro forma adjustments are not necessarily indicative of future period pro forma
adjustments.

Defined Contribution Plans

Starbucks maintains voluntary defined contribution plans covering eligible
employees as defined in the plan documents. Participating employees may elect to
defer and contribute a portion of their compensation to the plan up to plan
limits of approximately 19%, not to exceed the dollar amounts set by applicable
laws. Effective January 1, 2003, participating employees may elect to defer and
contribute up to 50% of their compensation. For certain plans, the Company
matched 25% of each employee's eligible contribution up to a maximum of the
first 4% of each employee's compensation. Beginning April 1, 2002, the Company's
matching contributions for the majority of its plans were increased to a maximum
of 150%, depending on participants' years of service.

The Company's matching contributions to all plans were approximately $3.1
million, $1.6 million and $1.1 million in fiscal 2002, 2001 and 2000,
respectively.

NOTE 13: INCOME TAXES

A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:



- ----------------------------------------------------------------------------------------------------------
Fiscal year ended                                         Sept 29, 2002     Sept 30, 2001     Oct 1, 2000
- ----------------------------------------------------------------------------------------------------------
                                                                                     
Statutory rate                                                    35.0%              35.0%           35.0%
State income taxes, net of federal income tax benefit              3.4                3.8             3.7
Valuation allowance change from prior year                        (0.9)               0.9             3.5
Other, net                                                        (0.5)              (2.4)           (1.1)
- ----------------------------------------------------------------------------------------------------------
Effective tax rate                                                37.0%              37.3%           41.1%
- ----------------------------------------------------------------------------------------------------------


The provision for income taxes consists of the following (in thousands):



- --------------------------------------------------------------------------------
Fiscal year ended              Sept 29, 2002     Sept 30, 2001      Oct 1, 2000
- --------------------------------------------------------------------------------
                                                          
Currently payable:
  Federal                      $     109,154     $      91,750     $      70,157
  State                               16,820            17,656            12,500
  Foreign                              5,807             3,198             1,601
Deferred tax asset, net               (5,468)           (4,892)          (18,252)
- --------------------------------------------------------------------------------
Total                          $     126,313     $     107,712     $      66,006
- --------------------------------------------------------------------------------


Deferred income taxes or tax benefits reflect the tax effect of temporary
differences between the amounts of assets and liabilities for financial
reporting purposes and amounts as measured for tax purposes. The Company will
establish a valuation allowance if it is more likely than not these items will
either expire before the Company is able to realize their benefits, or that
future deductibility is uncertain. Periodically, the valuation allowance is
reviewed and adjusted based on management's assessments of realizable deferred
tax assets. The valuation allowance as of September 29, 2002, was related to
losses from investments in majority-owned foreign subsidiaries; the valuation
allowance as of September 30, 2001, was related to losses from investments in
majority-owned foreign subsidiaries and from Internet-related companies. The tax
effect of temporary differences and carryforwards that cause significant
portions of deferred tax assets and liabilities is as follows (in thousands):



- ------------------------------------------------------------------------------------------
                                                            Sept 29, 2002    Sept 30, 2001
- ------------------------------------------------------------------------------------------
                                                                       
Deferred tax assets:
       Equity and other investments                         $      14,026    $       3,784
       Capital loss carry forwards                                  6,077           17,448
       Accrued occupancy costs                                     14,597           12,317
       Accrued compensation and related costs                      12,726            9,898
       Other accrued expenses                                      16,608            7,245
       Foreign tax credits                                         10,199            5,199
       Other                                                        6,971              164
- ------------------------------------------------------------------------------------------
       Total                                                       81,204           56,055
       Valuation allowance                                         (5,476)          (8,704)
- ------------------------------------------------------------------------------------------
Total deferred tax asset, net of valuation allowance               75,728           47,351
Deferred tax liabilities:
       Property, plant and equipment                              (50,819)         (34,260)
       Other                                                       (5,199)            (355)
- ------------------------------------------------------------------------------------------
       Total                                                      (56,018)         (34,615)
- ------------------------------------------------------------------------------------------
Net deferred tax asset                                      $      19,710    $      12,736
- ------------------------------------------------------------------------------------------


As of September 29, 2002, the Company had foreign tax credit carryforwards of
$10.2 million with expiration dates between fiscal years 2004 and 2008. The
Company also had capital loss carryforwards of $15.8 million expiring in 2006.

Taxes currently payable of $32.8 million and $50.3 million are included in
"Accrued taxes" on the accompanying consolidated balance sheets as of September
29, 2002, and September 30, 2001, respectively.

NOTE 14: EARNINGS PER SHARE

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



- ------------------------------------------------------------------------------------------------------------------------------
Fiscal year ended                                                              Sept 29, 2002     Sept 30, 2001     Oct 1, 2000
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
Net earnings                                                                   $     215,073     $     181,210     $    94,564
      Weighted average common shares and common stock units outstanding              385,575           380,566         371,191
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share - basic                                          $        0.56     $        0.48     $      0.25
- ------------------------------------------------------------------------------------------------------------------------------


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



- -----------------------------------------------------------------------------------------------------------------------------
Fiscal year ended                                                               Sept 29, 2002    Sept 30, 2001    Oct 1, 2000
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                         
Net earnings                                                                    $     215,073    $     181,210    $    94,564
      Weighted average common shares and common stock units outstanding               385,575          380,566        371,191
      Dilutive effect of outstanding common stock options                              11,951           13,783         14,808
- -----------------------------------------------------------------------------------------------------------------------------
        Weighted average common and common equivalent shares outstanding              397,526          394,349        385,999
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings per common and common equivalent share - diluted                   $        0.54    $        0.46    $      0.24
- -----------------------------------------------------------------------------------------------------------------------------


Options with exercise prices greater than the average market price were not
included in the computation of diluted earnings per share. These options totaled
1.8 million, 0.9 million and 0.3 million in fiscal 2002, 2001 and 2000,
respectively.

NOTE 15: COMMITMENTS AND CONTINGENCIES

In connection with various yen denominated bank loans entered into by Starbucks
Coffee Japan, Ltd., the Company guaranteed approximately $11.8 million of the
outstanding debt in the event of default by Starbucks Coffee Japan, Ltd.

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. On April 19, 2002,
Starbucks announced that it had reached an agreement to settle both lawsuits and
fully resolve all claims brought by the plaintiffs without engaging in
protracted litigation. Accordingly, Starbucks recorded an $18.0 million charge,
which is included in "General and administrative expenses" on the accompanying
consolidated financial statement of earnings, for the estimated payment of
claims to eligible class members, attorney's fees and costs, and costs to a
third-party claims administrator, as well as applicable employer payroll taxes.
On December 17, 2002, the settlement was approved. Claims under the settlement
agreement will be paid on a "claims made" basis. The Company expects most claims
will be paid in the second quarter of fiscal 2003.

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 consolidated financial position or results
of operations of the Company.

NOTE 16: SEGMENT REPORTING

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 92.5% of total retail revenues and 78.6%
of total net revenues, sells coffee and other beverages, whole bean coffees,
complementary food, coffee brewing equipment and merchandise through
Company-operated retail stores in the United States and Canada.

Business Alliances

At the beginning of fiscal 2001, the Company's North American foodservice and
retail store licensing operations were combined into a single business unit due
to their common customer universe and the determination that separate segment
reporting of Business Alliances was appropriate under SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."

Business Alliances, which represents 44.8% of total specialty revenues and 6.8%
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.

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, interactive
operations, equity investees 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.

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 accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies in Note 1. Operating
income represents earnings before "Interest and other income, net,"
"Internet-related investment losses," "Gain on sale of investment" and "Income
taxes." No allocations of overhead, interest or income taxes are made to the
segments. Identifiable assets by segment are those assets used in the Company's
operations in each segment. General corporate assets include cash and
investments, unallocated assets of the corporate headquarters and roasting
facilities, deferred taxes and certain intangibles. Management evaluates
performance of the segments based on direct product sales and operating costs.

The table below presents information by operating segment (in thousands):



- ------------------------------------------------------------------------------------------------------------------
                                                                                     Intersegment
                                            North                      All other     eliminations/
                                           American       Business      business     Unallocated
Fiscal year ended                          Retail(1)       Alliances    units(1)     corporate(2)          Total
- ------------------------------------------------------------------------------------------------------------------
                                                                                        
Fiscal 2002:
Total net revenues                        $2,583,756     $ 222,410     $ 553,573       $ (70,831)      $ 3,288,908
Earnings before income taxes (1) (2)         432,513        56,605        63,021        (210,753)          341,386
Depreciation and amortization expenses       143,337         6,153        27,331          28,736           205,557
Income from equity investees                       -             -        22,014          13,818            35,832
Identifiable assets                          897,651        51,662       357,997         985,426         2,292,736
- ------------------------------------------------------------------------------------------------------------------
Fiscal 2001:
Total net revenues                        $2,086,354     $ 193,574     $ 419,843       $ (50,791)      $ 2,648,980
Earnings before income taxes (1) (2)         336,434        50,165        70,116        (167,793)          288,922
Depreciation and amortization expenses       115,061         5,278        17,768          25,394           163,501
Income from equity investees                       -             -        17,556          11,059            28,615
Identifiable assets                          873,306        57,578       217,027         698,608         1,846,519
- ------------------------------------------------------------------------------------------------------------------
Fiscal 2000:
Total net revenues                        $1,734,929     $ 160,812     $ 305,080       $ (23,207)       $ 2,177,614
Earnings before income taxes (1) (2)         249,924        43,777        53,323        (186,454)           160,570
Depreciation and amortization expenses        94,312         3,547        10,117          22,256            130,232
Income from equity investees                       -             -        15,139           5,161             20,300
Identifiable assets                          664,773        52,596       111,521         659,434          1,488,324
- ------------------------------------------------------------------------------------------------------------------

(1) North American Retail and International Retail regularly monitor the
financial results of their Company-operated retail stores and accumulate
historical operating measures to identify performance trends in various markets.
Provisions for long-lived asset impairment are recorded when, among other
things, retail stores are unable to generate current and future estimated
undiscounted cash flows in excess of asset carrying values, consisting primarily
of leasehold improvements. Gains and losses on disposals are generated primarily
through renovation activities. As a result of these activities, Starbucks
recorded provisions and net losses of $26.0 million, $7.3 million and $4.4
million in fiscal 2002, 2001 and 2000, respectively.

(2) Unallocated corporate includes general and administrative expenses, certain
depreciation expenses on general and administrative related assets, as well as
amounts included in "Interest and other income, net," "Internet-related
investment losses," and "Gain on sale of investment" on the accompanying
consolidated statements of earnings.

The tables below represent information by geographic area (in thousands):



- --------------------------------------------------------------------------------------------------
Fiscal year ended                                Sept 29, 2002     Sept 30, 2001      Oct 1, 2000
- --------------------------------------------------------------------------------------------------
                                                                            
Net Revenues from external customers:
United States                                    $   2,830,650     $   2,301,013     $   1,910,092
Foreign countries                                      458,258           347,967           267,522
- --------------------------------------------------------------------------------------------------
Total                                            $   3,288,908     $   2,648,980     $   2,177,614
- --------------------------------------------------------------------------------------------------


Revenues from foreign countries are based on the location of the customers and
consist primarily of retail revenues from Canada and the United Kingdom as well
as specialty revenues generated from product sales to international licensees.
No customer accounts for 10% or more of the Company's revenues.



- --------------------------------------------------------------------------------
Fiscal year ended              Sept 29, 2002     Sept 30, 2001      Oct 1, 2000
- --------------------------------------------------------------------------------
                                                          
Long-lived assets:
United States                  $   1,206,101     $   1,065,448     $     915,762
Foreign countries                    239,097           187,146           114,328
- --------------------------------------------------------------------------------
Total                          $   1,445,198     $   1,252,594     $   1,030,090
- --------------------------------------------------------------------------------


Assets attributed to foreign countries are based on the country in which those
assets are located.

NOTE 17: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial information in fiscal 2002 and 2001 is as
follows (in thousands, except earnings per share):



- ------------------------------------------------------------------------------------------
                                                  First     Second      Third      Fourth
- ------------------------------------------------------------------------------------------
                                                                     
2002 quarter:
     Net revenues                               $ 805,335  $ 783,217  $ 835,158  $ 865,198
     Operating income                              92,646     48,780     87,709     89,590
     Net earnings                                  68,355     32,077     56,174     58,467
     Net earnings per common share - diluted    $    0.17  $    0.08  $    0.14  $    0.15
- ------------------------------------------------------------------------------------------
2001 quarter:
     Net revenues                               $ 667,387  $ 629,288  $ 662,769  $ 689,536
     Operating income                              76,057     50,854     71,307     82,876
     Net earnings                                  48,995     32,210     46,757     53,248
     Net earnings per common share - diluted    $    0.12  $    0.08  $    0.12  $    0.14
- ------------------------------------------------------------------------------------------


MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Starbucks Corporation is responsible for the preparation and
integrity of the financial statements included in this Annual Report to
Shareholders. The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America and
include amounts based on management's best estimates and judgments where
necessary. Financial information included elsewhere in this Annual Report is
consistent with these financial statements.

Management maintains a system of internal controls and procedures designed to
provide reasonable assurance that transactions are executed in accordance with
proper authorization, transactions are properly recorded in the Company's
records, assets are safeguarded and accountability for assets is maintained. The
concept of reasonable assurance is based on the recognition that the cost of
maintaining our system of internal accounting controls should not exceed
benefits expected to be derived from the system. Internal controls and
procedures are periodically reviewed and revised, when appropriate, due to
changing circumstances and requirements. In addition, the Company's internal
audit department assesses the effectiveness and adequacy of internal controls on
a regular basis and recommends improvements when appropriate. Management
considers the internal auditors' and independent auditors' recommendations
concerning the Company's internal controls and takes steps to implement those
that are believed to be appropriate in the circumstances.

Independent auditors are appointed by the Company's Board of Directors and
ratified by the Company's shareholders to audit the financial statements in
accordance with auditing standards generally accepted in the United States of
America and to independently assess the fair presentation of the Company's
financial position, results of operations and cash flows. Their report appears
in this Annual Report.

The Audit Committee, all of whose members are outside directors, is responsible
for monitoring the Company's accounting and reporting practices. The Audit
Committee meets periodically with management, the independent auditors and the
internal auditors, jointly and separately, to review financial reporting matters
as well as to ensure that each is properly discharging its responsibilities. The
independent auditors and the internal auditors have full and free access to the
Committee without the presence of management to discuss the results of their
audits, the adequacy of internal accounting controls and the quality of
financial reporting.

/s/ ORIN C. SMITH                             /s/ MICHAEL CASEY
ORIN C. SMITH                                 MICHAEL CASEY
president and                                 executive vice president,
chief executive officer                       chief financial officer and
                                              chief administrative officer

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF STARBUCKS CORPORATION
SEATTLE, WASHINGTON

We have audited the accompanying consolidated balance sheets of Starbucks
Corporation and subsidiaries (the Company) as of September 29, 2002, and
September 30, 2001, and the related consolidated statements of earnings,
shareholders' equity and cash flows for the years ended September 29, 2002,
September 30, 2001, and October 1, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 29,
2002, and September 30, 2001, and the results of its operations and its cash
flows for the years ended September 29, 2002, September 30, 2001, and October 1,
2000, in conformity with accounting principles generally accepted in the United
States of America.

/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
December 4, 2002

SHAREHOLDER INFORMATION

MARKET INFORMATION AND DIVIDEND POLICY

The Company's common stock is traded on the National Market tier of The Nasdaq
Stock Market, Inc. ("Nasdaq"), under the symbol "SBUX." The following table sets
forth the quarterly high and low closing sale prices per share of the common
stock as reported by Nasdaq for each quarter during the last two fiscal years.
All prices shown reflect the two-for-one stock split effected April 27, 2001.



- --------------------------------------------------------------------------------
                                                        HIGH               LOW
- --------------------------------------------------------------------------------
                                                                  
September 29, 2002:
      Fourth Quarter                                  $  24.36          $  18.63
      Third Quarter                                      25.63             22.02
      Second Quarter                                     24.07             19.51
      First Quarter                                      19.91             14.56
September 30, 2001:
      Fourth Quarter                                  $  22.77          $  14.00
      Third Quarter                                      23.00             18.58
      Second Quarter                                     25.00             20.03
      First Quarter                                      24.94             19.16
- --------------------------------------------------------------------------------


As of December 16, 2002, the Company had 11,004 shareholders of record. The
Company has never paid any dividends on its common stock. The Company presently
intends to retain earnings for use in its business and, therefore, does not
anticipate paying a cash dividend in the near future.

The Company's Annual Report on Form 10-K for the fiscal year ended September 29,
2002, without the exhibits thereto, may be obtained without charge by accessing
the Company's filings at www.sec.gov or by sending a request to Investor
Relations at the address, phone number or email address below.

Quarterly information is available to all shareholders immediately upon its
release, free of charge, via fax, by calling 1-800-239-0317 or through access on
the Internet at www.businesswire.com/cnn/sbux.htm. To receive a copy by mail,
please send your request to:

INVESTOR RELATIONS
Investor Relations -- M/S S-FP1
Starbucks Corporation
P.O. Box 34067
Seattle, WA 98124-1067
(206) 447-1575, ext. 87118
www.starbucks.com/aboutus/investor.asp

CORPORATE SOCIAL RESPONSIBILITY

Starbucks demonstrates its commitment to corporate social responsibility ("CSR")
by conducting its business in ways that produce social, environmental and
economic benefits to the communities where Starbucks operates. The Company
aligns its principles for social responsibility with its overall strategy and
business operations. As a result, Starbucks believes it delivers benefits to the
Company and its stakeholders - partners, customers, suppliers, shareholders,
community members and others - while distinguishing Starbucks as a leader within
the coffee industry.

Providing open communication and transparency helps the Company be accountable
to its stakeholders. To support this goal, Starbucks publishes a CSR Annual
Report. Starbucks fiscal 2002 CSR Annual Report is available online at
www.starbucks.com/aboutus/csr.asp. To request a printed copy of the report, call
1-800-STARBUC (1-800-782-7282) and dial "0" to be connected with a service
representative, or fax your request to 1-800-782-7286.

EX-21

EXHIBIT 21


STARBUCKS CORPORATION

      Starbucks New Venture Company (a Washington corporation)
      Starbucks Coffee International, Inc. (a Washington corporation)
            SBI Nevada, Inc. (a Nevada corporation)
            Starbucks Coffee France, EURL (a French limited liability company)
            Starbucks Coffee Asia Pacific Limited (a Hong Kong corporation)
            SCI Ventures, S.L. (a Spanish limited liability company)
            SCI Europe I, Inc. (a Washington corporation)
            SCI Europe II, Inc. (a Washington corporation)
                  Starbucks Coffee Trading Company Sarl (a Swiss C.V.)
                  Rain City C.V. (a Dutch Limited Partnership)
                  Starbucks Coffee EMEA B.V. (a Dutch B.V.)
                  Starbucks Manufacturing EMEA B.V. (a Dutch B.V.)
                  Emerald City C.V. (a Dutch Limited Partnership)
      Starbucks Manufacturing Corporation (a Washington corporation)
      Circadia Corporation (a Delaware corporation d/b/a Cafe Starbucks in
         Washington and Circadia Coffee House in California)
      Starbucks U.S. Brands Corporation (a California corporation)
      Starbucks Foreign Sales Corporation (a Barbados corporation)
      Starbucks Asset Management Corporation (a California corporation)
      Starbucks Coffee Holdings (UK) Limited (a UK corporation)
      Starbucks Coffee Company (UK) Limited (a UK corporation d/b/a Starbucks,
         Starbucks Coffee and Starbucks Coffee Company)
      Seattle Coffee Company (International) Limited (a UK corporation)
      Torz & Macatonia Limited (a UK corporation)
      Tazo Tea Company (a Washington corporation)
      Starbucks Coffee Company (Australia) Pty. Ltd. (an Australian corporation
         d/b/a Starbucks, Starbucks Coffee and Starbucks Coffee Company)
      Starbucks Coffee (Thailand) Ltd. (a Thai corporation d/b/a Starbucks,
         Starbucks Coffee and Starbucks Coffee Company)
      Starbucks Coffee Canada, Inc. (a Canadian Corporation)
      Urban Coffee Opportunities, LLC (a Washington limited liability company
         d/b/a Starbucks, Starbucks Coffee and Starbucks Coffee Company)

EX-23

EXHIBIT 23


                          INDEPENDENT AUDITORS' CONSENT

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
33-52524, 33-52526, 33-52528, 33-92208, 33-92184, 333-65181, 333-94987,
333-37442, 333-70648 and 333-101806 of Starbucks Corporation on Forms S-8 of our
report dated December 4, 2002, incorporated by reference in and attached as an
exhibit to the Annual Report on Form 10-K of Starbucks Corporation for the
fiscal year ended September 29, 2002.


/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
December 19, 2002

EX-99

EXHIBIT 99

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Starbucks Corporation ("the Company") on
Form 10-K for the Fiscal Year ended September 29, 2002, as filed with
the Securities and Exchange Commission on the date hereof ("the Report"),

I, Orin C. Smith, president chief executive officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

     (1)  The Report fully complies with the requirements of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects the financial condition and results of operations of
          the Company.


                                        /s/ORIN C. SMITH
                                        ----------------------------------------
                                        Orin C. Smith,
                                        president and chief executive officer

I, Michael Casey, executive vice president, chief financial officer and chief
administrative officer (principal financial officer and principal accounting
officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge and belief, that:

     (1)  The report fully complies with the requirements of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects the financial condition and results of operations of
          the Company.



                                        /s/MICHAEL CASEY
                                        ----------------------------------------
                                        Michael Casey,
                                        executive vice president, chief
                                        financial officer and chief
                                        administrative officer (principal
                                        financial officer and principal
                                        accounting officer)