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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
¥ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2007
or
nTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 0-20322
Starbucks Corporation
(Exact name of registrant as specified in its charter)
Washington 91-1325671
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2401 Utah Avenue South
Seattle, Washington 98134
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code):
(206) 447-1575
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, $0.001 Par Value Per Share
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¥No n
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes nNo ¥
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 ¥No n
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. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer ¥Accelerated Filer nNon-Accelerated Filer n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes nNo ¥
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of
the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s
common stock on March 30, 2007 as reported on the NASDAQ Global Select Market was $22.7 billion.
As of November 16, 2007, there were approximately 730.4 million shares of the registrant’s Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held on
March 19, 2008 have been incorporated by reference into Part III of this Annual Report on Form 10-K.

Table of contents

  • Page 1
    ...Employer Identification No.) 2401 Utah Avenue South Seattle, Washington 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: Common Stock, $0.001 Par Value Per Share...

  • Page 2
    ... Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services...

  • Page 3
    ...Seattle's Best Coffee» and Torrefazione Italia» coffee. Segment Financial Information Starbucks has three reportable operating segments: United States, International and Global Consumer Products Group ("CPG"). The United States and International segments both include Company-operated retail stores...

  • Page 4
    ...Sept 30, 2007 Oct 1, 2006 Stores Open as of Sept 30, 2007 Oct 1, 2006 United States ...International: Canada ...United Kingdom ...China(2) ...Germany ...Thailand ...Australia ...Singapore ...Other ...Total International(2) ...Total Company-operated ...(1) Store openings are reported net of closures...

  • Page 5
    ... strive to develop the Company's brands 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...

  • Page 6
    ... the United States. Kraft manages all distribution, marketing, advertising and promotion of these products. The Company sells packaged coffee and tea internationally both directly to warehouse club customers such as Costco and through an expanded licensing relationship with Kraft. In February 2007...

  • Page 7
    ... supply of green coffee through fiscal 2008. The Company believes, based on relationships established with its suppliers, the risk of non-delivery on such purchase commitments is remote. During fiscal 2007, "C" coffee commodity prices traded on the New York Board of Trade within a price range...

  • Page 8
    ... generally purchased directly from their manufacturers. Coffee-related accessories, including items bearing the Company's logos and trademarks, are produced and distributed through contracts with a number of different suppliers. Competition The Company's primary competitors for coffee beverage sales...

  • Page 9
    ...or furnished to the SEC. The Company's corporate governance policies, ethics code and Board of Directors' committee charters are also posted within this section of the website. The information on the Company's website is not part of this or any other report Starbucks files with, or furnishes to, the...

  • Page 10
    ... increased health care costs, general market wage levels and worker's compensation insurance costs; • construction costs associated with new store openings; • information technology costs and other logistical resources necessary to maintain and support the global growth of the Company's business...

  • Page 11
    ... expand may not embrace Starbucks products to the same extent as consumers in the Company's existing markets. Occupancy costs and store operating expenses are also sometimes higher internationally than in the United States due to higher rents for prime store locations or costs of compliance with...

  • Page 12
    ... and partnership relationships, particularly in its International markets. Licensees are often authorized to use the Starbucks logo and provide Starbucks-branded beverages, food and other products directly to customers. The Company provides training and support to, and monitors the operations of...

  • Page 13
    ..., to locate and hire sufficient numbers of key employees to meet the Company's growth targets, to maintain an effective system of internal controls for a globally dispersed enterprise and to train employees worldwide to deliver a consistently high quality product and customer experience. • The...

  • Page 14
    ... product sales and reduced efficiency of the Company's operations, and significant capital investments could be required to remediate the problem. • Failure of the Company's internal control over financial reporting could harm its business and financial results. Starbucks management is responsible...

  • Page 15
    ... cash flows to be sufficient to meet operating expenses, debt service costs, and capital expenditures required to support projected new store openings and investments in existing and new markets. In addition, management does not expect to increase leverage to levels that would inhibit the Company...

  • Page 16
    ... Global Consumer Products and Seattle's Best Coffee executive vice president, chief financial officer and chief administrative officer executive vice president, general counsel and secretary executive vice president, Supply Chain Operations executive vice president, Partner Resources Howard Schultz...

  • Page 17
    ... executive level management sales and operations positions with NIKE Inc., Letsbuyit.com and Gateway, Inc. Launi Skinner joined Starbucks in August 1993 and was promoted to president, Starbucks Coffee U.S. in September 2007. Ms. Skinner previously served as the Company's senior vice president, Store...

  • Page 18
    ... paying a cash dividend in the near future. The following table provides information regarding repurchases by the Company of its common stock during the 13-week period ended September 30, 2007: ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased as Part of Publicly Announced Plans...

  • Page 19
    ... assume an investment of $100 on that date and the reinvestment of dividends paid since that date. Starbucks has never paid a dividend on its common stock. The stock price performance shown in the graph is not necessarily indicative of future price performance. 350 300 Starbucks Corporation S&P 500...

  • Page 20
    ... per common share - diluted ...Cash dividends per share ...BALANCE SHEET Working capital (deficit)(2) ...Total assets ...Short-term borrowings(3) ...Long-term debt (including current portion)(4) ...Shareholders' equity ...STORE INFORMATION Percentage change in comparable store sales(5) United States...

  • Page 21
    ...-year notes with a stated interest rate of 6.25%. (5) Includes only Starbucks Company-operated retail stores open 13 months or longer. Comparable store sales percentage for fiscal 2004 excludes the extra sales week. (6) Store openings are reported net of closures. (7) International store information...

  • Page 22
    ...in comparable store sales was due to a 4% increase in the average value per transaction and 1% growth in the number of customer transactions. The Company opened a total of 2,571 new companyoperated and licensed stores during the year, with 70% in the U.S. and 30% in International markets, to end the...

  • Page 23
    ... that support the operating segments but are not specifically attributable to or managed by any segment are not included in the reported financial results of the operating segments. These unallocated corporate expenses include certain general and administrative expenses, related depreciation and...

  • Page 24
    ... ...Total specialty ...Total net revenues ...Cost of sales including occupancy costs ...Store operating expenses(1) ...Other operating expenses(2) ...Depreciation and amortization expenses ...General and administrative expenses ...Total operating expenses ...Income from equity investees ...Operating...

  • Page 25
    ...primarily due to the opening of 1,342 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 4.9% for the fiscal 2007, compared to 5.0% for fiscal 2006. General and administrative expenses increased to $489...

  • Page 26
    ... Company's management reviews financial information for operational decision-making purposes. Starbucks has three reportable operating segments: United States, International and CPG. "Unallocated Corporate" includes expenses pertaining to corporate administrative functions that support the operating...

  • Page 27
    ...overhead costs in fiscal 2007. General and administrative expenses were lower primarily due to decreased salary and related benefits expense as well as lower professional fees. The decline in other operating expenses as a percentage of total net revenues was primarily due to controlled discretionary...

  • Page 28
    ... ...Total specialty ...Total net revenues ...Cost of sales including occupancy costs ...Store operating expenses(1) ...Other operating expenses(2) ...Depreciation and amortization expenses ...General and administrative expenses ...Total operating expenses ...Income from equity investees ...Operating...

  • Page 29
    ...Weeks Ended Sept 30, Oct 1, 2007 2006 As a % of CPG total net revenues Net revenues: Specialty: Licensing ...Total specialty ...Cost of sales ...Other operating expenses ...Depreciation and amortization expenses ...General and administrative expenses...Total operating expenses ...Income from equity...

  • Page 30
    ... new international markets. Depreciation and amortization expenses increased to $387 million in fiscal 2006, from $340 million in fiscal 2005. The increase of $47 million was due to the opening of 1,043 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues...

  • Page 31
    ...314,162 Total specialty ...Total net revenues ...Cost of sales including occupancy costs ...Store operating expenses(1) ...Other operating expenses(2) ...Depreciation and amortization expenses ...General and administrative expenses ...Total operating expenses ...Income from equity investees ...683...

  • Page 32
    ... ...Total specialty ...Total net revenues ...Cost of sales including occupancy costs ...Store operating expenses(1) ...Other operating expenses(2) ...Depreciation and amortization expenses ...General and administrative expenses...Total operating expenses ...Income from equity investees ...Operating...

  • Page 33
    ... % Change 52 Weeks Ended Oct 1, Oct 2, 2006 2005 As a % of CPG total net revenues Net revenues: Specialty: Licensing...$305,471 Total specialty ...Cost of sales ...Other operating expenses ...Depreciation and amortization expenses ...General and administrative expenses ...Total operating expenses...

  • Page 34
    ...fund claim payouts totaled approximately $98 million as of September 30, 2007. The Company manages the balance of its cash and liquid investments in order to internally fund operating needs and make scheduled payments on short-term borrowings. In determining the appropriate capital structure for the...

  • Page 35
    ... accrued taxes payable due to the timing of payments provided $86 million. Cash used by investing activities for fiscal 2007 totaled $1.2 billion. Net capital additions to property, plant and equipment used $1.1 billion, primarily from opening 1,342 new Company-operated retail stores and remodeling...

  • Page 36
    ... and has not recorded the guarantees on its consolidated balance sheet. COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONS Commodity price risk represents the Company's primary market risk, generated by its purchases of green coffee and dairy products. The Company purchases, roasts and sells...

  • Page 37
    ...-fixed contracts for coffee purchases, the Company may enter into commodity hedges to manage commodity price risk using financial derivative instruments. The Company performed a sensitivity analysis based on a 10% change in the underlying commodity prices of its commodity hedges, as of the end of...

  • Page 38
    ...application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. Starbucks considers its policies on impairment of long-lived assets, stock-based compensation, operating leases, self insurance reserves and income taxes...

  • Page 39
    ... value of stock-based compensation; however based on an analysis using changes in certain assumptions that could be reasonably possible in the near term, management believes the effect on the expense recognized for fiscal 2007 would not have been material. Operating Leases Starbucks leases retail...

  • Page 40
    ... About Market Risk The information required by this item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Commodity Prices, Availability and General Risk Conditions" and "Management's Discussion and Analysis...

  • Page 41
    ... Net revenues: Company-operated retail ...Specialty: Licensing ...Foodservice and other ...Total specialty ...Total net revenues ...Cost of sales including occupancy costs ...Store operating expenses ...Other operating expenses ...Depreciation and amortization expenses ...General and administrative...

  • Page 42
    STARBUCKS CORPORATION CONSOLIDATED BALANCE SHEETS Fiscal Year Ended Sept 30, Oct 1, 2007 2006 In thousands, except share data ASSETS Current assets: Cash and cash equivalents ...Short-term investments - available-for-sale securities ...Short-term investments - trading securities ...Accounts ...

  • Page 43
    ...of stock options ...(93,055) (117,368) - Net amortization of premium on securities ...653 2,013 10,097 Cash provided/(used) by changes in operating assets and liabilities: Inventories ...(48,576) (85,527) (121,618) Accounts payable ...36,068 104,966 9,717 Accrued compensation and related costs ...38...

  • Page 44
    STARBUCKS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Additional Other Additional Paid-in Paid-in Retained Capital Capital Earnings In thousands, except share data Accumulated Other Comprehensive Income/(Loss) Common Stock Shares Amount Total Balance, October 3, 2004 ...Net ...

  • Page 45
    ... discs, Seattle's Best Coffee» and Torrefazione Italia» coffee. Principles of Consolidation The consolidated financial statements reflect the financial position and operating results of Starbucks, including wholly owned subsidiaries and investees controlled by the Company. Investments in entities...

  • Page 46
    ... 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...

  • Page 47
    ... an economic penalty to Starbucks, management may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of appropriate estimated useful lives. The portion of depreciation expense related to production and distribution...

  • Page 48
    .... Outstanding customer balances are included in "Deferred revenue" on the consolidated balance sheets. There are no expiration dates on the Company's stored value cards or gift certificates, and Starbucks does not charge any service fees that cause a decrement to customer balances. While the Company...

  • Page 49
    ... fees generated from licensing operations. Sales of coffee, tea and related products are generally recognized upon shipment to customers, depending on contract terms. Shipping charges billed to customers are also recognized as revenue, and the related shipping costs are included in "Cost of sales...

  • Page 50
    ... the leases on the consolidated statements of earnings. Certain leases provide for contingent rents, which are determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability in "Accrued occupancy costs" on the consolidated balance sheets and...

  • Page 51
    ... of the Securities Exchange Act of 1934. In accordance with the Washington Business Corporation Act, share repurchases are not displayed separately as treasury stock on the consolidated balance sheets or consolidated statements of shareholders' equity. Instead, the par value of repurchased shares is...

  • Page 52
    ...statements. Note 2: Business Acquisitions In the first quarter of fiscal 2007, the Company purchased a 90% stake in its previously-licensed operations in Beijing, China. Due to its majority ownership of these operations, Starbucks applied the consolidation method of accounting subsequent to the date...

  • Page 53
    ... Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value September 30, 2007 Short-term investments - available-for-sale securities: State and local government obligations ...$ 81,366 U.S. government agency obligations ...2,500 Total ...Short-term investments - trading...

  • Page 54
    ... recorded for other than temporary impairments during fiscal years 2007, 2006 or 2005. Trading securities are comprised mainly of marketable equity mutual funds that approximate a portion of the Company's liability under the Management Deferred Compensation Plan ("MDCP"), a defined contribution plan...

  • Page 55
    ... the 52-week periods ended October 1, 2006 and October 2, 2005. Outstanding contracts will expire within 24 months. Net Investment Hedges Net investment derivative instruments are used to hedge the Company's equity method investment in Starbucks Coffee Japan, Ltd. ("Starbucks Japan") as well as...

  • Page 56
    ... investments ...Total ...Equity Method $234,468 24,378 $258,846 $205,004 14,089 $219,093 The Company's equity investees and ownership interests by reportable operating segment are as follows: Fiscal Year Ended Sept 30, 2007 Oct 1, 2006 United States StarCon, LLC ...International Starbucks Coffee...

  • Page 57
    ... sales and store license fees. As of September 30, 2007, there was $1.6 million of accounts payable on the consolidated balance sheet to equity investees related to product purchases. There was no accounts payable balance as of October 1, 2006. As of September 30, 2007, the aggregate market value...

  • Page 58
    ... amount of goodwill by reportable operating segment for the fiscal year ended September 30, 2007 are as follows (in thousands): United States International Global CPG Total Balance as of October 1, 2006 ...Business Acquisitions (see Note 2) ...Purchase price adjustment of previous acquisitions...

  • Page 59
    ...financing will be used for working capital, capital expenditures and other corporate purposes, which may include acquisitions and share repurchases. As of September 30, 2007, the Company had $710 million in borrowings outstanding under the program with a weighted average interest rate of 5.4%. As of...

  • Page 60
    ... clauses and rent holidays related to certain operating leases. The Company amortizes deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of earnings. Asset retirement obligations represent the estimated fair value of the Company's future costs of...

  • Page 61
    ... 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...

  • Page 62
    ... of tax provisions of $7.3 million. Note 13: Employee Stock and Benefit Plans The Company maintains several equity incentive plans under which it may grant non-qualified stock options, incentive stock options, restricted stock, RSUs, or stock appreciation rights to employees, non-employee directors...

  • Page 63
    ... 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, because the stock option grant price equaled the market price on the date of grant, and any purchase discounts under the Company's stock purchase plans were within statutory limits, no compensation expense was...

  • Page 64
    ...ESPP expense ...Total stock-based compensation expense on the consolidated statements of earnings ...Total related tax benefit ...Stock-based compensation capitalized in the current fiscal year, as included in "Property, plant and equipment, net" and "Inventories" on the consolidated balance sheets...

  • Page 65
    ... of outstanding options, is before applicable income taxes and represents the amount optionees would have realized if all in-the-money options had been exercised on the last business day of the period indicated. As of September 30, 2007, total unrecognized stock-based compensation expense related to...

  • Page 66
    ... fair value of common stock. RSUs entitle the grantee to receive shares of common stock at the end of a vesting period, subject to the executive's continuing employment. As of September 30, 2007, there were 0.2 million RSUs outstanding and total unrecognized stock-based compensation expense related...

  • Page 67
    ..., 2007 Oct 1, 2006 Deferred tax assets: Accrued occupancy costs ...Accrued compensation and related costs ...Other accrued expenses ...Foreign tax credits ...Other...Total ...Valuation allowance ...Total deferred tax asset, net of valuation allowance ...Deferred tax liabilities: Property, plant and...

  • Page 68
    ... a controlling interest in The Basketball Club. Terms of the team sponsorship agreements did not change as a result of the related party relationship. In June 2005, a then-member of the Company's Board of Directors was appointed president and chief financial officer of Oracle Corporation. Starbucks...

  • Page 69
    ...filed a lawsuit in San Diego County Superior Court entitled Jou Chau v. Starbucks Coffee Company. The lawsuit alleges that the Company violated the California Labor Code by allowing shift supervisors to receive tips. More specifically, the lawsuit alleges that since shift supervisors direct the work...

  • Page 70
    ...California Labor Code section 432.8 by asking job applicants to disclose at the time of application convictions for marijuana related offenses more than two years old. Plaintiffs also seek attorneys' fees and costs. On November 1, 2007, the Court issued an order certifying the case as a class action...

  • Page 71
    ... that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments. These unallocated corporate expenses include certain general and administrative expenses, related depreciation and...

  • Page 72
    ... information by operating segment for the fiscal years noted (in thousands): United States International Global CPG Unallocated Corporate Total Fiscal 2007: Net Revenues: Company-operated retail ...Specialty: Licensing ...Foodservice and other ...Total specialty ...Total net revenues ...Operating...

  • Page 73
    ... of revenues from the UK and Canada, which together account for approximately 71% of net revenues from other countries for fiscal 2007. Fiscal Year Ended Sept 30, 2007 Oct 1, 2006 Oct 2, 2005 Long-lived assets: United States ...Other countries ...Total ...Note 19: Quarterly Financial Information...

  • Page 74
    ... ON CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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...

  • Page 75
    ... and forms. Starbucks disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and...

  • Page 76
    ... opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other...

  • Page 77
    ...Beneficial Ownership Reporting Compliance" and "Corporate Governance - Board Committees and Related Matters" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on March 19, 2008 (the "Proxy Statement"). Information regarding the Company's executive officers...

  • Page 78
    ... Consolidated Statements of Shareholders' Equity for the fiscal years ended September 30, 2007, October 1, 2006, and October 2, 2005; • Notes to Consolidated Financial Statements; and • Reports of Independent Registered Public Accounting Firm 2. Financial Statement Schedules Financial statement...

  • Page 79
    ...chairman of the Board of Directors November 29, 2007 president and chief executive officer, director executive vice president, chief financial officer and chief administrative officer (principal financial officer and principal accounting officer) director November 29, 2007 November 29, 2007 By...

  • Page 80
    Signature Title Date By: /s/ William W. Bradley William W. Bradley By: /s/ Mellody Hobson ...director November 29, 2007 director November 29, 2007 director November 29, 2007 director November 29, 2007 director November 29, 2007 director November 29, 2007 director November 29, 2007...

  • Page 81
    ... Corporation Management Deferred Compensation Plan Starbucks Corporation 1997 Deferred Stock Plan Starbucks Corporation UK Share Save Plan Starbucks Corporation Directors Deferred Compensation Plan, as amended and restated effective September 29, 2003 Amended and Restated Employment Agreement dated...

  • Page 82
    ...Long-Term Equity Incentive Plan Stock Option Grant Agreement for Purchase of Stock under the 2005 Company-Wide Sub-Plan to the Starbucks Corporation 2005 Long-Term Equity Incentive Plan Credit Agreement dated August 12, 2005 among Starbucks Corporation, Bank of America, N.A., as Administrative Agent...

  • Page 83
    ... dated July 16, 2007 between Starbucks Corporation and Launi Skinner Computation of Ratio of Earnings to Fixed Charges Subsidiaries of Starbucks Corporation Consent of Independent Registered Public Accounting Firm Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities...