EX-99.1 2 v35395exv99w1.htm EXHIBIT 99.1 exv99w1
 

Exhibit 99.1
     
Starbucks Contact, Investor Relations:
  Starbucks Contact, Media:
JoAnn DeGrande
  Valerie O’Neil
206-318-7893
  206-318-8953
jdegrand@starbucks.com
  voneil@starbucks.com
Starbucks Reports Strong Fourth Quarter and Record Full Year 2007 Results
Revenue Growth of 22 Percent for the Quarter and 21 Percent for Fiscal 2007
Comparable Store Sales Growth of Four Percent for the Quarter and Five Percent for Fiscal Year 2007
Significant Q4 International Operating Margin Expansion
EPS of $0.21 for the Quarter and $0.87 for Fiscal 2007
 
SEATTLE; November 15, 2007 — Starbucks Corporation (NASDAQ: SBUX) today announced financial results for its fiscal fourth quarter and fiscal year ended September 30, 2007.
Fiscal Fourth Quarter 2007 Highlights:
  •   Consolidated net revenues of $2.4 billion, a 22 percent increase
 
  •   Comparable store sales growth of four percent
 
  •   Operating margin improved 30 basis points to 10.2 percent
 
  •   Earnings per share of $0.21, compared to $0.15 per share
Fiscal Year End 2007 Highlights:
  •   2,571 new store openings; 70 percent in the U.S. and 30 percent in International markets
 
  •   Consolidated net revenues of $9.4 billion, a 21 percent increase
 
  •   Comparable store sales growth of five percent
 
  •   Operating margin contracted 30 basis points to 11.2 percent
 
  •   Earnings per share of $0.87, compared to $0.71 per share
“For the year, we delivered solid results, in spite of a difficult economic and operating environment,” said Jim Donald, president and CEO. “Looking ahead, we believe in the global opportunity for Starbucks, and we remain focused on delivering the highest quality beverages and legendary service, while driving innovation and extending the Starbucks Experience to more customers throughout the world.”
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Consolidated net revenues increased 22 percent to $2.4 billion for the 13 weeks ended September 30, 2007, compared to $2.0 billion for the fiscal fourth quarter of 2006. Net earnings totaled $159 million in the fourth quarter 2007 versus $117 million for the same period a year ago. Earnings per share for the fourth quarter rose to $0.21 from $0.15 in the prior year period. Net earnings and earnings per share in fiscal 2006 included a one-time cumulative accounting charge of $17 million or $0.02 per share recorded in the fourth quarter of fiscal 2006 resulting from the company’s adoption of the new accounting requirements of FIN 47, which addresses asset retirement obligations. Excluding the cumulative effect of the adjustment, fiscal 2007 fourth quarter earnings grew 18 percent and earnings per share increased 24 percent.
Fiscal Year 2007 in Review
Fiscal year 2007 consolidated net revenues increased 21 percent to $9.4 billion, compared to $7.8 billion for the 52 weeks ended October 1, 2006. Company-operated retail revenues in fiscal 2007 rose 21 percent to $8.0 billion from $6.6 billion in fiscal 2006, predominantly due to the opening of 1,342 stores and comparable store sales growth of five percent. The increase in comparable store sales was due to a four percent increase in the average value per transaction and one percent growth in the number of customer transactions. Specialty revenues grew 17 percent to $1.4 billion from $1.2 billion in fiscal 2006.
For fiscal 2007, operating income increased to $1.1 billion, compared to $894 million for fiscal 2006. Operating margin contracted 30 basis points to 11.2 percent of total net revenues for the full year ended September 30, 2007, from 11.5 percent for the same period a year ago. Margin compression was due to higher costs of sales and occupancy costs as a percentage of total net revenues due to a shift in sales to higher cost products and higher distribution costs, rent expense and dairy costs. These cost pressures were offset in part by lower general and administrative and store operating expenses as a percentage of total net revenues.
Net earnings rose to $673 million in fiscal 2007 from $564 million for the previous year. Earnings per share for the period increased to $0.87 compared to $0.71 a year ago. Excluding the adjustment for FIN 47 in fourth quarter 2006, earnings grew 16 percent and earnings per share increased 19 percent.
Fourth Quarter Summary of Results
Company-operated retail revenues increased 21 percent to $2.1 billion for the 13 weeks ended September 30, 2007, from $1.7 billion for the same period in fiscal 2006, resulting primarily from opening 1,342 new company-operated retail stores in the last 12 months and comparable store sales growth of four percent for the quarter. The increase in comparable store sales was due to a four percent increase in the average value per transaction.
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Specialty revenues increased 24 percent to $383 million for the 13 weeks ended September 30, 2007, compared to $309 million for the corresponding period of fiscal 2006. Licensing revenues increased 27 percent to $283 million for the 13 weeks ended September 30, 2007, driven by revenue growth of 44 percent from the company’s Global Consumer Products business, and from higher product sales and royalty revenues from the opening of 1,229 new licensed retail stores in the last 12 months.
Cost of sales including occupancy increased to 43.7 as a percent of total net revenues for the 13 weeks ended September 30, 2007, compared to 41.7 percent in the corresponding 13-week period of fiscal 2006. The increase was primarily due to a shift in sales to higher cost products and higher dairy costs.
Store operating expenses as a percentage of company-operated retail revenues improved to 41.0 percent for the 13 weeks ended September 30, 2007, from 42.1 percent for the corresponding period of fiscal 2006. The improvement was due to the benefit gained from price increases coupled with leverage on regional overhead, partially offset by higher payroll expenditures from wage increases for retail store partners.
Other operating expenses (expenses associated with the company’s specialty operations) decreased to 19.5 percent of total specialty revenues for the 13 weeks ended September 30, 2007, compared to 21.4 percent in the corresponding period of fiscal 2006. The improvement resulted primarily from lower payroll-related expenditures as a percentage of total specialty revenues.
General and administrative expenses as a percentage of total net revenues decreased to 5.0 percent for the fourth quarter fiscal 2007, from 5.8 percent for the corresponding period of fiscal 2006. The improvement was a result of leveraging of the company’s scale and infrastructure against continued global growth.
Operating income increased to $248 million for the 13 weeks ended September 30, 2007, compared to $198 million for the corresponding period of fiscal 2006. Operating margin increased 30 basis points to 10.2 percent of total net revenues for the 13 weeks ended September 30, 2007, from 9.9 percent for the corresponding period of fiscal 2006. Lower store operating expenses, general and administrative expenses, and other operating expenses as a percentage of total net revenues more than offset the increase in cost of sales including occupancy.
Net interest and other was an expense of $1.2 million for the 13 weeks ended September 30, 2007, compared to income of $3.9 million for the corresponding period of fiscal 2006, primarily due to a higher level of borrowings outstanding, which include the $550 million senior notes issued in August 2007.
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Fourth Quarter Results — United States
United States total net revenues increased 19 percent to $1.9 billion for the 13 weeks ended September 30, 2007, compared to $1.6 billion for the corresponding period of fiscal 2006. United States company-operated retail revenues increased 19 percent to $1.7 billion, primarily due to the opening of 1,065 new company-operated retail stores in the last 12 months and comparable store sales growth of four percent for the quarter. Comparable store sales growth was due to a five percent increase in the average value per transaction, which included the impact of price increases taken during the fiscal year, partially offset by a one percent decrease in number of transactions.
Total United States specialty revenues increased 16 percent to $201 million for the 13 weeks ended September 30, 2007, compared to $173 million in the corresponding period of fiscal 2006. United States licensing revenues in the fourth quarter 2007 increased 17 percent to $111 million from $95 million for the same period a year ago. The growth was primarily due to higher product sales and royalty revenues as a result of opening 723 new licensed retail stores in the last 12 months.
United States operating income increased 12 percent to $225 million for the 13 weeks ended September 30, 2007, from $201 million for the corresponding period in fiscal 2006. Operating margin decreased 70 basis points to 12.1 percent of related revenues from 12.8 percent in the corresponding period of fiscal 2006. The decrease was driven by higher cost of sales including occupancy costs, primarily due to higher dairy costs.
Fourth Quarter Results — International
International total net revenues increased 31 percent to $472 million for the 13 weeks ended September 30, 2007, compared to $361 million for the corresponding period of fiscal 2006. International company-operated retail revenues increased 32 percent to $399 million, primarily due to the opening of 277 new company-operated retail stores in the last 12 months, favorable foreign currency exchange for the British pound sterling and Canadian dollar, and comparable store sales growth of six percent for the quarter. The increase in comparable store sales resulted from a five percent increase in the number of customer transactions coupled with a one percent increase in the average value per transaction.
Total International specialty revenues increased by $13 million, or 23 percent, to $73 million for the 13 weeks ended September 30, 2007, compared to $59 million in the corresponding period of fiscal 2006. The growth was primarily due to higher product sales and royalty revenues from opening 506 licensed retail stores in the last 12 months.
International operating income increased to $51 million for the 13 weeks ended September 30, 2007, compared to $27 million in the corresponding period of fiscal 2006. Operating margin increased 350 basis points to 10.8 percent of related revenues from 7.3 percent in the corresponding period of fiscal 2006, primarily due to lower general and administrative expenses and lower store operating expenses as a percentage of related revenues, as well as higher income from equity investees.
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Fourth Quarter Results — Global Consumer Products Group
For the Global Consumer Products Group (CPG), total net revenues increased by $33 million, or 44 percent, to $110 million for the 13 weeks ended September 30, 2007, compared to $76 million for the corresponding period of fiscal 2006. The increase in revenues was primarily due to higher sales of U.S. packaged coffee and tea and increased product sales and royalties in the international ready-to-drink business.
CPG operating income increased to $62 million for the 13 weeks ended September 30, 2007, compared to $47 million in the same period of fiscal 2006. Operating margin decreased to 56.9 percent of related revenues from 61.8 percent in fiscal fourth quarter 2006. Contraction of operating margin for the quarter was due to slower growth in income from equity investees from The North American Coffee Partnership, which produces ready-to-drink beverages.
Fourth Quarter Results — Unallocated Corporate Expenses
Total unallocated corporate expenses as a percentage of total net revenues improved to 3.7 percent for the 13-weeks ended September 30, 2007, from 3.8 percent for the corresponding period of fiscal 2006, primarily due to leverage from growth.
Cash Flow and Balance Sheet
For the 52 weeks ended September 30, 2007, net cash flow from operating activities totaled $1.3 billion, compared to $1.1 billion in the same period a year ago. Capital expenditures for fiscal year 2007 were $1.1 billion, of which approximately 80 percent was used to fund new store openings and existing store remodels.
On August 23rd, the company issued $550 million of 6.25% Senior Notes due in August 2017. The proceeds were primarily used to repay short-term borrowings and fund additional share repurchases.
During the fourth quarter, the company repurchased a total of 12.6 million shares at a cost of $342 million. During fiscal year 2007, Starbucks repurchased 33.0 million shares at a cost of $1.0 billion. At the end of the fiscal fourth quarter, 13.5 million shares remained available for repurchase under the current authorization.
Fiscal 2008 Targets
During the fourth quarter, Starbucks evaluated its plan for fiscal 2008 given the challenging operating environment. As a result, the company has established the following fiscal 2008 targets:
  •   The company has adjusted its new store opening target to approximately 2,500 net new stores on a global basis in fiscal 2008; approximately 900 company-operated locations and 700 licensed locations in the U.S., and approximately 300 company-operated stores and 600 licensed stores in international markets;
 
  •   Comparable store sales growth in the range of three to five percent;
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  •   Total net revenue growth of approximately 17 to 18 percent;
 
  •   Total company operating margin to expand slightly year-over-year, with improvement expected to be in the second half of fiscal 2008;
  •   U.S. operating margin relatively stable and International operating margin improvement of at least 100 basis points over fiscal 2007;
  •   Diluted earnings per share in the range of $1.02 to $1.05 representing 17 percent to 21 percent growth, with earnings per share expansion expected to be greater in the second half of fiscal 2008;
  •   First quarter fiscal 2008 earnings per share of $0.28; impacted by ongoing dairy cost pressure coupled with expectations of continued softness in the U.S. consumer and economic environment compared to first quarter fiscal 2007;
  •   Effective tax rate in-line with fiscal 2007; and,
 
  •   Capital expenditures in-line with the $1.1 billion invested in fiscal 2007.
Pete Bocian, chief financial officer, commented, “Given the current economic environment, and the commodity costs that are not expected to ease until the latter part of the year, we expect EPS expansion to be greater in the second half of fiscal 2008.”
Conference Call
Starbucks will be holding a conference call today at 2:00 p.m. PST, which will be hosted by Jim Donald, president and ceo, Martin Coles, chief operating officer, and Pete Bocian, executive vice president and chief financial officer. The call will be broadcast live over the Internet and can be accessed at the company’s web site address of http://investor.starbucks.com. A replay of the call will be available via telephone through 5:30 p.m. PST on Thursday, November 22, 2007, by calling 1-800-642-1687, reservation number 4132564. A posting of speaker remarks and a replay of the call will also be available via the Investor Relations page on Starbucks.com through approximately 5:00 p.m. PST on Friday, December 14, 2007, at the following URL: http://investor.starbucks.com.
The company’s consolidated statements of earnings, operating segment results, and other additional information have been provided on the following pages in accordance with current year classifications. This information should be reviewed in conjunction with this press release. Please refer to the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 14, 2006, as amended by Amendment No.1 to Annual Report on Form 10-K/A filed on December 21, 2006, for additional information.
About Starbucks
Starbucks Coffee Company provides an uplifting experience that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time. To share in the experience, visit www.starbucks.com.
Forward-Looking Statements
This release includes forward-looking statements about trends in or expectations regarding: store openings, comparable store sales, net revenue, earnings per share, operating margin, commodity costs, effective tax rate, and capital expenditures. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors including, but not limited to, coffee, dairy and other raw material prices and availability, successful execution of internal performance and expansion plans, fluctuations in U.S. and international economies and currencies, the impact of initiatives by competitors, the effect of legal proceedings, and other risks detailed in the company’s filings with the Securities and Exchange Commission, including the “Risk Factors” section of Starbucks Annual Report on Form 10-K for the fiscal year ended October 1, 2006. The company assumes no obligation to update any of these forward-looking statements.
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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
                                         
    13 Weeks Ended     13 Weeks Ended  
    Sept 30,     Oct 1,     %     Sept 30,     Oct 1,  
    2007     2006     Change     2007     2006  
    (in thousands, except per share data)     As a % of total net revenues  
Net revenues:
                                        
Company-operated retail
   $ 2,057,977     $ 1,694,294       21.5 %     84.3 %     84.6 %
Specialty:
                                        
Licensing
     282,705       222,905       26.8       11.6       11.1  
Food service and other
     100,253       86,156       16.4       4.1       4.3  
                 
Total specialty
     382,958       309,061       23.9       15.7       15.4  
                 
Total net revenues
     2,440,935       2,003,355       21.8       100.0       100.0  
 
                                        
Cost of sales including occupancy costs
     1,065,674       834,991       27.6       43.7       41.7  
Store operating expenses (a)
     843,725       713,774       18.2       34.6       35.6  
Other operating expenses (b)
     74,510       66,230       12.5       3.0       3.3  
Depreciation and amortization expenses
     124,170       102,876       20.7       5.1       5.1  
General and administrative expenses
     123,312       116,412       5.9       5.0       5.8  
                 
Subtotal operating expenses
     2,231,391       1,834,283       21.6       91.4       91.5  
 
                                        
Income from equity investees
     38,489       28,566       34.7       1.6       1.4  
                 
Operating income
     248,033       197,638       25.5       10.2       9.9  
 
                                        
Net interest and other (expense) / income
     (1,187 )     3,852               (0.1 )     0.2  
                 
Earnings before income taxes
     246,846       201,490       22.5       10.1       10.1  
 
                                        
Income taxes (c)
     88,343       66,987               3.6       3.4  
                 
Earnings before cumulative effect
     158,503       134,503       17.8       6.5       6.7  
 
                                        
Cumulative effect of accounting change
     —       17,214               —       0.8  
                 
Net earnings
   $ 158,503     $ 117,289       35.1       6.5 %     5.9 %
                 
 
                                        
Earnings before cumulative effect of change in accounting principle — diluted
     0.21       0.17       23.5                  
Cumulative effect of accounting change
     —       0.02                          
 
                                    
Net earnings per common share — diluted
   $ 0.21     $ 0.15       40.0 %                
 
                                    
Weighted avg. shares outstanding — diluted
     759,113       784,196                          
 
(a)   As a percentage of related company-operated retail revenues, store operating expenses were 41.0 percent for the 13 weeks ended September 30, 2007, and 42.1 percent for the 13 weeks ended October 1, 2006.
 
(b)   As a percentage of related total specialty revenues, other operating expenses were 19.5 percent for the 13 weeks ended September 30, 2007, and 21.4 percent for the 13 weeks ended October 1, 2006.
 
(c)   The effective tax rates were 35.8 percent for the 13 weeks ended September 30, 2007, and 33.2 percent for the 13 weeks ended October 1, 2006.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
                                         
    52 Weeks Ended     52 Weeks Ended  
    Sept 30,     Oct 1,     %     Sept 30,     Oct 1,  
    2007     2006     Change     2007     2006  
    (in thousands, except per share data)     As a % of total net revenues  
Net revenues:
                                        
Company-operated retail
   $ 7,998,265     $ 6,583,098       21.5 %     85.0 %     84.5 %
Specialty:
                                        
Licensing
     1,026,338       860,676       19.2       10.9       11.1  
Food service and other
     386,894       343,168       12.7       4.1       4.4  
                 
Total specialty
     1,413,232       1,203,844       17.4       15.0       15.5  
                 
Total net revenues
     9,411,497       7,786,942       20.9       100.0       100.0  
 
                                        
Cost of sales including occupancy costs
     3,999,124       3,178,791       25.8       42.5       40.8  
Store operating expenses (a)
     3,215,889       2,687,815       19.6       34.2       34.5  
Other operating expenses (b)
     294,136       253,724       15.9       3.1       3.3  
Depreciation and amortization expenses
     467,160       387,211       20.6       4.9       5.0  
General and administrative expenses
     489,249       479,386       2.1       5.2       6.1  
                 
Subtotal operating expenses
     8,465,558       6,986,927       21.2       89.9       89.7  
 
                                        
Income from equity investees
     108,006       93,937       15.0       1.1       1.2  
                 
Operating income
     1,053,945       893,952       17.9       11.2       11.5  
 
                                        
Net interest and other (expense) / income
     2,419       12,291               —       0.1  
                 
Earnings before income taxes
     1,056,364       906,243       16.6       11.2       11.6  
 
                                        
Income taxes (c)
     383,726       324,770               4.1       4.1  
                 
Earnings before cumulative effect
     672,638       581,473       15.7       7.1       7.5  
 
                                        
Cumulative effect of accounting change
     —       17,214               —       0.3  
                 
Net earnings
   $ 672,638     $ 564,259       19.2       7.1 %     7.2 %
                 
 
                                        
Earnings before cumulative effect of accounting change — diluted
     0.87       0.73       19.2                  
Cumulative effect of accounting change
     —       0.02                          
 
                                    
Net earnings per common share — diluted
   $ 0.87     $ 0.71       22.5 %                
 
                                    
Weighted avg. shares outstanding — diluted
     770,091       792,556                          
 
(a)   As a percentage of related company-operated retail revenues, store operating expenses were 40.2 percent for the 52 weeks ended September 30, 2007, and 40.8 percent for the 52 weeks ended October 1, 2006.
 
(b)   As a percentage of related total specialty revenues, other operating expenses were 20.8 percent for the 52 weeks ended September 30, 2007, and 21.1 percent for the 52 weeks ended October 1, 2006.
 
(c)   The effective tax rates were 36.3 percent for the 52 weeks ended September 30, 2007, and 35.8 percent for the 52 weeks ended October 1, 2006.

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Segment Results
The tables below present reportable segment results net of intersegment eliminations (in thousands):
                                         
United States   Sept 30,   Oct 1,   %   Sept 30,   Oct 1,
    2007   2006   Change   2007   2006
                            As a % of U.S. total net
                            revenues
13 Weeks Ended
                                        
Net revenues:
                                        
Company-operated retail
   $ 1,658,978     $ 1,392,089       19.2 %     89.2 %     88.9 %
Specialty:
                                        
Licensing
     110,932       95,155       16.6       6.0       6.1  
Food service and other
     89,584       78,226       14.5       4.8       5.0  
                 
Total specialty
     200,516       173,381       15.7       10.8       11.1  
                 
Total net revenues
     1,859,494       1,565,470       18.8       100.0       100.0  
 
                                        
Cost of sales including occupancy costs
     774,921       617,178       25.6       41.7       39.4  
Store operating expenses (a)
     699,433       600,676       16.4       37.6       38.4  
Other operating expenses (b)
     48,742       47,444       2.7       2.6       3.1  
Depreciation and amortization expenses
     93,273       75,169       24.1       5.0       4.8  
General and administrative expenses
     19,324       24,124       (19.9 )     1.0       1.5  
 
                                        
                 
Total operating expenses
     1,635,693       1,364,591       19.9       87.9       87.2  
 
                                        
Income from equity investees
     768       —     nm     —       —  
                 
Operating income
   $ 224,569     $ 200,879       11.8 %     12.1 %     12.8 %
                 
52 Weeks Ended
                                        
Net revenues:
                                        
Company-operated retail
   $ 6,560,864     $ 5,495,240       19.4 %     89.3 %     88.9 %
Specialty:
                                        
Licensing
     439,161       369,155       19.0       6.0       6.0  
Food service and other
     348,968       314,162       11.1       4.7       5.1  
                 
Total specialty
     788,129       683,317       15.3       10.7       11.1  
                 
Total net revenues
     7,348,993       6,178,557       18.9       100.0       100.0  
 
                                        
Cost of sales including occupancy costs
     2,956,231       2,374,485       24.5       40.2       38.4  
Store operating expenses (c)
     2,684,196       2,280,044       17.7       36.5       36.9  
Other operating expenses (d)
     204,672       190,624       7.4       2.8       3.1  
Depreciation and amortization expenses
     348,199       284,625       22.3       4.7       4.6  
General and administrative expenses
     85,948       93,754       (8.3 )     1.2       1.5  
                 
Total operating expenses
     6,279,246       5,223,532       20.2       85.4       84.5  
 
                                        
Income from equity investees
     768       151     nm     —       —  
                 
Operating income
   $ 1,070,515     $ 955,176       12.1 %     14.6 %     15.5 %
                 
 
(a)   As a percentage of related company-operated retail revenues, store operating expenses were 42.2 percent for the 13 weeks ended September 30, 2007, and 43.1 percent for the 13 weeks ended October 1, 2006.
 
(b)   As a percentage of related total specialty revenues, other operating expenses were 24.3 percent for the 13 weeks ended September 30, 2007, and 27.4 percent for the 13 weeks ended October 1, 2006.
 
(c)   As a percentage of related company-operated retail revenues, store operating expenses were 40.9 percent for the 52 weeks ended September 30, 2007, and 41.5 percent for the 52 weeks ended October 1, 2006.
 
(d)   As a percentage of related total specialty revenues, other operating expenses were 26.0 percent for the 52 weeks ended September 30, 2007, and 27.9 percent for the 52 weeks ended October 1, 2006.
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-page 10-
                                         
International   Sept 30,   Oct 1,   %   Sept 30,   Oct 1,
    2007   2006   Change   2007   2006
                            As a % of International
                            total net revenues
13 Weeks Ended
                                        
Net revenues:
                                        
Company-operated retail
   $ 398,999     $ 302,205       32.0 %     84.6 %     83.6 %
Specialty:
                                        
Licensing
     62,110       51,351       21.0       13.2       14.2  
Food service and other
     10,669       7,930       34.5       2.2       2.2  
                 
Total specialty
     72,779       59,281       22.8       15.4       16.4  
                 
Total net revenues
     471,778       361,486       30.5       100.0       100.0  
 
                                        
Cost of sales including occupancy costs
     225,052       172,053       30.8       47.7       47.6  
Store operating expenses (a)
     144,292       113,098       27.6       30.6       31.3  
Other operating expenses (b)
     20,599       15,755       30.7       4.4       4.4  
Depreciation and amortization expenses
     21,764       18,245       19.3       4.6       5.0  
General and administrative expenses
     21,892       23,171       (5.5 )     4.6       6.4  
                 
Total operating expenses
     433,599       342,322       26.7       91.9       94.7  
 
                                        
Income from equity investees
     12,874       7,358       75.0       2.7       2.0  
                 
Operating income
   $ 51,053     $ 26,522       92.5 %     10.8 %     7.3 %
                 
52 Weeks Ended
                                        
Net revenues:
                                        
Company-operated retail
   $ 1,437,401     $ 1,087,858       32.1 %     84.7 %     83.5 %
Specialty:
                                        
Licensing
     220,832       186,050       18.7       13.0       14.3  
Food service and other
     37,926       29,006       30.8       2.3       2.2  
                 
Total specialty
     258,758       215,056       20.3       15.3       16.5  
                 
Total net revenues
     1,696,159       1,302,914       30.2       100.0       100.0  
 
                                        
Cost of sales including occupancy costs
     824,594       625,008       31.9       48.6       48.0  
Store operating expenses (c)
     531,693       407,771       30.4       31.4       31.3  
Other operating expenses (d)
     69,881       50,900       37.3       4.1       3.9  
Depreciation and amortization expenses
     84,165       66,800       26.0       5.0       5.1  
General and administrative expenses
     93,806       78,337       19.7       5.5       6.0  
                 
Total operating expenses
     1,604,139       1,228,816       30.5       94.6       94.3  
 
                                        
Income from equity investees
     45,723       34,370       33.0       2.7       2.6  
                 
Operating income
   $ 137,743     $ 108,468       27.0 %     8.1 %     8.3 %
                 
 
(a)   As a percentage of related company-operated retail revenues, store operating expenses were 36.2 percent for the 13 weeks ended September 30, 2007, and 37.4 percent for the 13 weeks ended October 1, 2006.
 
(b)   As a percentage of related total specialty revenues, other operating expenses were 28.3 percent for the 13 weeks ended September 30, 2007, and 26.6 percent for the 13 weeks ended October 1, 2006.
 
(c)   As a percentage of related company-operated retail revenues, store operating expenses were 37.0 percent for the 52 weeks ended September 30, 2007, and 37.5 percent for the 52 weeks ended October 1, 2006.
 
(d)   As a percentage of related total specialty revenues, other operating expenses were 27.0 percent for the 52 weeks ended September 30, 2007, and 23.7 percent for the 52 weeks ended October 1, 2006.
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-page 11-
                                         
    Sept 30,   Oct 1,   %   Sept 30,   Oct 1,
Global Consumer Products Group (CPG)   2007   2006   Change   2007   2006
                            As a % of CPG total net revenues
13 Weeks Ended
                                        
Net revenues:
                                        
Specialty:
                                        
Licensing
   $ 109,663     $ 76,399       43.5 %     100.0 %     100.0 %
                 
Total specialty
     109,663       76,399       43.5       100.0       100.0  
                 
Total net revenues
     109,663       76,399       43.5       100.0       100.0  
 
                                        
Cost of sales
     65,701       45,760       43.6       59.9       59.9  
Other operating expenses
     5,169       3,031       70.5       4.7       4.0  
Depreciation and amortization expenses
     15       21       (28.6 )     —       —  
General and administrative expenses
     1,269       1,583       (19.8 )     1.2       2.1  
                 
Total operating expenses
     72,154       50,395       43.2       65.8       66.0  
 
                                        
Income from equity investees
     24,847       21,208       17.2       22.7       27.8  
                 
Operating income
   $ 62,356     $ 47,212       32.1 %     56.9 %     61.8 %
                 
 
                                        
52 Weeks Ended
                                        
Net revenues:
                                        
Specialty:
                                        
Licensing
   $ 366,345     $ 305,471       19.9 %     100.0 %     100.0 %
                 
Total specialty
     366,345       305,471       19.9       100.0       100.0  
                 
Total net revenues
     366,345       305,471       19.9       100.0       100.0  
 
                                        
Cost of sales
     218,299       179,298       21.8       59.6       58.7  
Other operating expenses
     19,583       12,200       60.5       5.4       4.0  
Depreciation and amortization expenses
     76       108       (29.6 )     —       —  
General and administrative expenses
     6,349       6,363       (0.2 )     1.7       2.1  
                 
Total operating expenses
     244,307       197,969       23.4       66.7       64.8  
 
                                        
Income from equity investees
     61,515       59,416       3.5       16.8       19.4  
                 
Operating income
   $ 183,553     $ 166,918       10.0 %     50.1 %     54.6 %
                 
                                         
    Sept 30,   Oct 1,   %   Sept 30,   Oct 1,
Unallocated Corporate   2007   2006   Change   2007   2006
                            As a % of total net revenues
13 Weeks Ended
                                        
Depreciation and amortization expenses
   $ 9,118     $ 9,441       (3.4 )%     0.4 %     0.4 %
General and administrative expenses
     80,827       67,534       19.7       3.3       3.4  
                 
Operating loss
   $ (89,945 )   $ (76,975 )     16.8 %     (3.7 )%     (3.8 )%
                 
 
                                        
52 Weeks Ended
                                        
Depreciation and amortization expenses
   $ 34,720     $ 35,678       (2.7 )%     0.4 %     0.4 %
General and administrative expenses
     303,146       300,932       0.7       3.2       3.9  
                 
Operating loss
   $ (337,866 )   $ (336,610 )     0.4 %     (3.6 )%     (4.3 )%
                 
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-page 12-

STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
                 
    September 30,     October 1,  
    2007     2006  
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 281,261     $ 312,606  
Short-term investments — available-for-sale securities
     83,845       87,542  
Short-term investments — trading securities
     73,588       53,496  
Accounts receivable, net
     287,925       224,271  
Inventories
     691,658       636,222  
Prepaid expenses and other current assets
     148,757       126,874  
Deferred income taxes, net
     129,453       88,777  
 
            
Total current assets
     1,696,487       1,529,788  
 
                
Long-term investments — available-for-sale securities
     21,022       5,811  
Equity and other investments
     258,846       219,093  
Property, plant and equipment, net
     2,890,433       2,287,899  
Other assets
     219,422       186,917  
Other intangible assets
     42,043       37,955  
Goodwill
     215,625       161,478  
 
            
TOTAL ASSETS
   $ 5,343,878     $ 4,428,941  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current liabilities:
                
Commercial paper and short-term borrowings
   $ 710,248     $ 700,000  
Accounts payable
     390,836       340,937  
Accrued compensation and related costs
     332,331       288,963  
Accrued occupancy costs
     74,591       54,868  
Accrued taxes
     92,516       94,010  
Other accrued expenses
     257,369       224,154  
Deferred revenue
     296,900       231,926  
Current portion of long-term debt
     775       762  
 
            
Total current liabilities
     2,155,566       1,935,620  
 
                
Long-term debt
     550,121       1,958  
Other long-term liabilities
     354,074       262,857  
 
            
Total liabilities
     3,059,761       2,200,435  
 
                
Shareholders’ equity:
                
Common stock ($0.001 par value) — authorized, 1,200,000,000 shares; issued and outstanding, 738,285,285 and 756,602,055 shares, respectively, (includes 3,420,448 common stock units in both periods)
     738       756  
Other additional paid-in-capital
     39,393       39,393  
Retained earnings
     2,189,366       2,151,084  
Accumulated other comprehensive income
     54,620       37,273  
 
            
Total shareholders’ equity
     2,284,117       2,228,506  
 
            
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 5,343,878     $ 4,428,941  
 
            
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-page 13-
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
                 
    52 Weeks Ended  
    Sept 30,     Oct 1,  
    2007     2006  
OPERATING ACTIVITIES:
                
Net earnings
   $ 672,638     $ 564,259  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Cumulative effect of accounting change for FIN47, net of taxes
     —       17,214  
Depreciation and amortization
     491,238       412,625  
Provision for impairments and asset disposals
     26,032       19,622  
Deferred income taxes, net
     (37,326 )     (84,324 )
Equity in income of investees
     (65,743 )     (60,570 )
Distributions from equity investees
     65,927       49,238  
Stock-based compensation
     103,865       105,664  
Tax benefit from exercise of stock options
     7,705       1,318  
Excess tax benefit from exercise of stock options
     (93,055 )     (117,368 )
Net amortization of premium on securities
     653       2,013  
Cash provided/(used) by changes in operating assets and liabilities:
                
Inventories
     (48,576 )     (85,527 )
Accounts payable
     36,068       104,966  
Accrued compensation and related costs
     38,628       54,424  
Accrued taxes
     86,371       132,725  
Deferred revenue
     63,233       56,547  
Other operating assets and liabilities
     (16,437 )     (41,193 )
 
            
Net cash provided by operating activities
     1,331,221       1,131,633  
 
                
INVESTING ACTIVITIES:
                
Purchase of available-for-sale securities
     (237,422 )     (639,192 )
Maturity of available-for-sale securities
     178,167       269,134  
Sale of available-for-sale securities
     47,497       431,181  
Acquisitions, net of cash acquired
     (53,293 )     (91,734 )
Net purchases of equity, other investments and other assets
     (56,552 )     (39,199 )
Net additions to property, plant and equipment
     (1,080,348 )     (771,230 )
 
            
Net cash used by investing activities
     (1,201,951 )     (841,040 )
 
                
FINANCING ACTIVITIES:
                
Repayments of commercial paper
     (16,600,841 )     —  
Proceeds from issuance of commercial paper
     17,311,089       —  
Repayments of short-term borrowings
     (1,470,000 )     (993,093 )
Proceeds from short-term borrowings
     770,000       1,416,093  
Proceeds from issuance of common stock
     176,937       159,249  
Excess tax benefit from exercise of stock options
     93,055       117,368  
Principal payments on long-term debt
     (784 )     (898 )
Proceeds from issuance of long-term debt
     548,960       —  
Repurchase of common stock
     (996,798 )     (854,045 )
Other
     (3,505 )     —  
 
            
Net cash used by financing activities
     (171,887 )     (155,326 )
Effect of exchange rate changes on cash and cash equivalents
     11,272       3,530  
 
            
Net increase/(decrease) in cash and cash equivalents
     (31,345 )     138,797  
 
                
CASH AND CASH EQUIVALENTS:
                
Beginning of period
     312,606       173,809  
 
            
 
                
End of the period
   $ 281,261     $ 312,606  
 
            
 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid during the period for:
                
Interest, net of capitalized interest
   $ 35,294     $ 10,576  
Income taxes
   $ 342,223     $ 274,134  

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-page 14-
Fiscal Fourth Quarter 2007 Store Data
The company’s store data for the periods presented are as follows:
                                                 
    Net stores opened during the period    
    13-week period   52-week period   Stores open as of
    Sept 30,   Oct 1,   Sept 30,   Oct 1,   Sept 30,   Oct 1,
    2007   2006   2007   2006   2007   2006
United States:
                                                
Company-operated Stores(1)
     227       278       1,065       810       6,793       5,728  
Licensed Stores
     162       216       723       733       3,891       3,168  
 
              
 
     389       494       1,788       1,543       10,684       8,896  
 
              
International:
                                                
Company-operated Stores(1)
     99       75       277       233       1,712       1,435  
Licensed Stores(1)
     127       87       506       423       2,615       2,109  
 
              
 
     226       162       783       656       4,327       3,544  
 
              
 
                                                
Total
     615       656       2,571       2,199       15,011       12,440  
 
              
 
(1)   International store data has been adjusted for the acquisition of the Beijing operations by reclassifying historical information from Licensed Stores to company-operated Stores. United States store data was also adjusted to align with the Hawaii operations segment change by reclassifying historical information from International company-operated stores to the United States.
© 2007 Starbucks Coffee Company. All rights reserved.

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