10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended July 3, 2005

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
(Address of principal executive offices)

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

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

Yes þ   No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

Yes þ   No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title	Shares Outstanding as of August 8, 2005
Common Stock, par value $0.001 per share	384,235,405

STARBUCKS CORPORATION

FORM 10-Q

For the Quarterly Period Ended July 3, 2005

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Statements of Earnings		1
Consolidated Balance Sheets		2
Consolidated Statements of Cash Flows		3
Notes to Consolidated Financial Statements		4
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3 Quantitative and Qualitative Disclosures About Market Risk		25
Item 4 Controls and Procedures		26
PART II. OTHER INFORMATION
Item 1 Legal Proceedings		26
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 6 Exhibits		27
Signature		28
Index to Exhibits		E1
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

STARBUCKS CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except earnings per share)
(unaudited)

	13 Weeks Ended				39 Weeks Ended
	July 3,		June 27,		July 3,		June 27,
	2005		2004		2005		2004
			(as restated, see Note 2)				(as restated, see Note 2)
Net revenues:
Company-operated retail	$	1,356,605	$	1,108,055	$	3,999,213	$	3,239,031
Specialty:
Licensing		170,330		145,021		488,835		401,037
Foodservice and other		74,864		65,615		222,011		200,882
Total specialty		245,194		210,636		710,846		601,919
Total net revenues		1,601,799		1,318,691		4,710,059		3,840,950
Cost of sales including occupancy costs		649,831		540,175		1,926,326		1,577,152
Store operating expenses		546,008		448,029		1,599,958		1,279,826
Other operating expenses		48,464		44,259		139,092		128,759
Depreciation and amortization expenses		85,363		72,886		251,694		215,040
General and administrative expenses		90,637		73,357		256,165		223,756
Subtotal operating expenses		1,420,303		1,178,706		4,173,235		3,424,533
Income from equity investees		18,136		13,163		47,395		35,151
Operating income		199,632		153,148		584,219		451,568
Interest and other income, net		3,235		4,424		12,371		11,317
Earnings before income taxes		202,867		157,572		596,590		462,885
Income taxes		77,292		59,992		225,726		176,285
Net earnings	$	125,575	$	97,580	$	370,864	$	286,600
Net earnings per common share — basic	$	0.32	$	0.25	$	0.93	$	0.72
Net earnings per common share — diluted	$	0.31	$	0.24	$	0.90	$	0.70
Weighted average shares outstanding:
Basic		391,816		397,942		397,764		396,853
Diluted		404,019		412,289		411,122		410,587

See Notes to Consolidated Financial Statements.

1

STARBUCKS CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	July 3,		October 3,
	2005		2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	130,112	$	145,053
Short-term investments — available-for-sale securities		183,782		483,157
Short-term investments — trading securities		34,647		24,799
Accounts receivable, net of allowances of $3,149 and $2,231, respectively		148,982		140,226
Inventories		495,542		422,663
Prepaid expenses and other current assets		80,770		71,347
Deferred income taxes, net		66,540		63,650
Total current assets		1,140,375		1,350,895
Long-term investments — available-for-sale securities		83,894		135,179
Equity and other investments		182,067		168,177
Property, plant and equipment, net		1,738,830		1,551,416
Deferred income taxes, net		11,884		—
Other assets		63,490		85,561
Other intangible assets		34,898		26,800
Goodwill		72,543		68,950
TOTAL ASSETS	$	3,327,981	$	3,386,978
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	185,084	$	199,346
Accrued compensation and related costs		216,390		208,927
Accrued occupancy costs		41,657		29,231
Accrued taxes		96,514		62,959
Other accrued expenses		167,929		123,684
Deferred revenue		172,976		121,377
Current portion of long-term debt		745		735
Total current liabilities		881,295		746,259
Deferred income taxes, net		—		21,770
Long-term debt		3,058		3,618
Other long-term liabilities		167,771		144,683
Shareholders’ equity:
Common stock and additional paid-in capital — Authorized, 600,000,000; issued and outstanding, 389,541,200 and 397,405,844 shares, respectively, (includes 1,697,100 common stock units in both periods)		395,333		956,685
Other additional paid-in-capital		39,393		39,393
Retained earnings		1,816,193		1,445,329
Accumulated other comprehensive income		24,938		29,241
Total shareholders’ equity		2,275,857		2,470,648
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,327,981	$	3,386,978

See Notes to Consolidated Financial Statements.

2

STARBUCKS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

	39 Weeks Ended
	July 3,			June 27,
	2005			2004
				(as restated, see Note 2)
OPERATING ACTIVITIES
Net earnings	$	370,864		$	286,600
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		271,795			233,586
Provision for impairments and asset disposals		14,765			9,703
Deferred income taxes, net		(37,484	)		(4,994	)
Equity in income of investees		(27,861	)		(16,708	)
Distribution from equity investees		24,342			25,097
Tax benefit from exercise of non-qualified stock options		99,798			45,045
Net amortization of premium on securities		9,248			8,049
Cash provided/(used) by changes in operating assets and liabilities:
Inventories		(72,292	)		(41,278	)
Accounts payable		(16,440	)		(28,617	)
Accrued compensation and related costs		7,393			45,185
Accrued taxes		32,994			(5,188	)
Deferred revenue		51,616			50,864
Other accrued expenses		16,227			28,968
Other operating assets and liabilities		13,965			5,450
Net cash provided by operating activities		758,930			641,762
INVESTING ACTIVITIES
Purchase of available-for-sale securities		(616,093	)		(685,102	)
Maturity of available-for-sale securities		449,524			108,943
Sale of available-for-sale securities		507,589			215,759
Acquisitions, net of cash acquired		(18,976	)		—
Net sales/(purchases) of equity, other investments and other assets		6,676			(29,786	)
Net additions to property, plant and equipment		(469,522	)		(236,791	)
Net cash used by investing activities		(140,802	)		(626,977	)
FINANCING ACTIVITIES
Proceeds from issuance of common stock		145,870			103,345
Principal payments on long-term debt		(550	)		(540	)
Repurchase of common stock		(777,657	)		(82,204	)
Net cash (used)/provided by financing activities		(632,337	)		20,601
Effect of exchange rate changes on cash and cash equivalents		(732	)		2,493
Net (decrease)/increase in cash and cash equivalents		(14,941	)		37,879
CASH AND CASH EQUIVALENTS
Beginning of period		145,053			99,462
End of the period	$	130,112		$	137,341
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	333		$	409
Income taxes	$	129,530		$	144,999

See Notes to Consolidated Financial Statements.

3

STARBUCKS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 and 39 Weeks Ended July 3, 2005, and June 27, 2004

Note 1: Financial Statement Preparation

The unaudited consolidated financial statements as of July 3, 2005, and for the 13-week and 39-week periods ended July 3, 2005, and June 27, 2004, have been prepared by Starbucks Corporation (“Starbucks” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in the opinion of management, reflect all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the balance sheet, and statements of earnings and cash flows of the Company for the interim periods.

The financial information as of October 3, 2004, is derived from the Company’s audited consolidated financial statements and notes for the fiscal year ended October 3, 2004 (“Fiscal 2004”), included in Item 8 in the Fiscal 2004 Annual Report on Form 10-K/A (Amendment No. 1) (“2004 10-K/A”). The information included in this Form 10-Q should be read in conjunction with management’s discussion and analysis and notes included in the 2004 10-K/A.

The earnings for the 13-week and 39-week periods ended July 3, 2005, are not necessarily indicative of the earnings that may be achieved for the entire fiscal year ending October 2, 2005.

Certain reclassifications of prior year’s balances have been made to conform to the current format. Specifically, Starbucks has reclassified its auction rate securities of $154.1 million, previously classified in “Cash and cash equivalents,” as “Short-term investments — available-for-sale securities” on the consolidated balance sheet as of October 3, 2004. The Company had historically classified these securities as cash equivalents based on management’s ability to liquidate its holdings during the predetermined interest rate reset auctions, which generally occurred within 90 days of acquiring the securities. Although management had determined the risk of failure of an auction process to be remote, the definition of a cash equivalent in Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows” (“SFAS 95”), requires reclassification to short-term investments.

The Company has made corresponding adjustments to its consolidated statement of cash flows for the 39 weeks ended June 27, 2004 to reflect the gross purchases, sales and maturities of auction rate securities as investing activities rather than as a component of cash and cash equivalents. There was no impact on previously reported net earnings, cash flows from operating activities or shareholders’ equity as a result of this reclassification.

Additionally, the Company has reclassified its distributions received from equity investees on the consolidated statement of cash flows, from investing activities to operating activities, for the 39 weeks ended June 27, 2004. These distributions represented returns on the underlying equity investments, and therefore have been reclassified to be in accordance with the provisions of SFAS 95. There was no impact on the previously reported consolidated statements of earnings or consolidated balance sheets as a result of this reclassification.

Note 2: Restatement of Financial Statements

On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of America (“GAAP”). In light of this letter, the Company’s management initiated a review of its lease-related accounting and determined that its then-current method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (tenant improvement allowances) and its then-current method of accounting for rent holidays were not in accordance with GAAP.

The Company had historically accounted for tenant improvement allowances as reductions to the related leasehold improvement asset on the consolidated balance sheets and capital expenditures in investing activities on the consolidated statements of cash flows. Management determined that the appropriate interpretation of Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 88-1, “Issues Relating to Accounting for Leases,” requires these allowances to be recorded as deferred rent liabilities on the consolidated balance sheets and as a component of operating activities on the consolidated statements of cash flows. Additionally, this adjustment results in a reclassification of the deferred rent amortization from “Depreciation and amortization expenses” to “Cost of sales including occupancy costs” on the consolidated statements of earnings.

The Company had historically recognized rent holiday periods on a straight-line basis over the lease term commencing with the initial occupancy date, or Company-operated retail store opening date. The store opening date coincided with the

4

commencement of business operations, which is the intended use of the property. Management re-evaluated FASB Technical Bulletin No. 85-3, “Accounting for Operating Leases with Scheduled Rent Increases,” and determined that the lease term should commence on the date the Company takes possession of the leased space for construction purposes, which is generally two months prior to a store opening date. Excluding tax impacts, the correction of this accounting requires the Company to record additional deferred rent in “Accrued occupancy costs” and “Other long-term liabilities” and to adjust “Retained earnings” on the consolidated balance sheets as well as to correct amortization in “Cost of sales including occupancy costs” on the consolidated statements of earnings.

As a result of the above, the Company previously restated its consolidated balance sheet as of October 3, 2004 in its 2004 10-K/A. Following is a summary of the effects of the lease accounting corrections and the retroactive adjustments as discussed in Note 4 from the Company’s acquisition of 100% of its licensed operations in Germany on the Company’s consolidated statements of earnings for the 13 and 39 weeks ended June 27, 2004 (in thousands, except share data):

13 Weeks Ended June 27, 2004	Consolidated Statement of Earnings
	As Previously
	Reported		Adjustments			As Restated
Cost of sales including occupancy costs	$	542,148	$	(1,973	)	$	540,175
Depreciation and amortization expenses		70,550		2,336			72,886
Income from equity investees		13,459		(296	)		13,163
Operating income		153,807		(659	)		153,148
Earnings before income taxes		158,231		(659	)		157,572
Income taxes		60,127		(135	)		59,992
Net earnings		98,104		(524	)		97,580
Net earnings per common share — basic	$	0.25	$	—		$	0.25
Net earnings per common share — diluted	$	0.24	$	—		$	0.24

39 Weeks Ended June 27, 2004	Consolidated Statement of Earnings
	As Previously
	Reported		Adjustments			As Restated
Cost of sales including occupancy costs	$	1,582,534	$	(5,382	)	$	1,577,152
Depreciation and amortization expenses		208,379		6,661			215,040
Income from equity investees		36,152		(1,001	)		35,151
Operating income		453,848		(2,280	)		451,568
Earnings before income taxes		465,165		(2,280	)		462,885
Income taxes		176,762		(477	)		176,285
Net earnings		288,403		(1,803	)		286,600
Net earnings per common share — basic	$	0.73	$	(.01	)	$	0.72
Net earnings per common share — diluted	$	0.70	$	—		$	0.70

Following is a summary of the effects of the lease accounting corrections, adjustments for the Germany acquisition, and the reclassifications for auction rate securities and distributions from equity investees as discussed in Note 1, on the Company’s consolidated statement of cash flows for the 39 weeks ended June 27, 2004 (in thousands):

39 Weeks Ended June 27, 2004	Consolidated Statement of Cash Flows
	As Previously
	Reported			Adjustments			As Restated
Net cash provided by operating activities	$	600,663		$	41,099		$	641,762
Net cash used by investing activities	$	(441,291	)	$	(185,686	)	$	(626,977)

Note 3: Summary of Significant Accounting Policies

Accounting for Stock-Based Compensation

The Company maintains several stock compensation plans under which, among other instruments, incentive stock options and non-qualified stock options may be granted to employees, consultants and non-employee directors. The Company also maintains employee stock purchase plans (“ESPP”). Starbucks accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the stock option grant price equals the market price on the date of grant, and any purchase discounts under the ESPP are within statutory limits, no compensation expense is recognized by the Company for stock-based compensation.

5

Had compensation cost been recognized based upon the estimated fair value on the grant date of stock-based compensation in accordance with SFAS No. 123, “Accounting for Stock Based Compensation,” (“SFAS 123”) as amended by SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure,” the Company’s net earnings and earnings per share by using the Black-Scholes option valuation model would have been as follows (in thousands, except earnings per share):

	13 Weeks Ended						39 Weeks Ended
	July 3,			June 27,			July 3,			June 27,
	2005			2004			2005			2004
Net earnings	$	125,575		$	97,580		$	370,864		$	286,600
Deduct: stock-based compensation expense determined under fair value method, net of tax		(15,276	)		(11,299	)		(43,553	)		(31,838	)
Pro forma net income	$	110,299		$	86,281		$	327,311		$	254,762
Earnings per share:
Basic — as reported	$	0.32		$	0.25		$	0.93		$	0.72
Deduct: stock-based compensation expense determined under fair value method, net of tax		(0.04	)		(0.03	)		(0.11	)		(0.08	)
Basic — pro forma	$	0.28		$	0.22		$	0.82		$	0.64
Diluted — as reported	$	0.31		$	0.24		$	0.90		$	0.70
Deduct: stock-based compensation expense determined under fair value method, net of tax		(0.04	)		(0.03	)		(0.11	)		(0.08	)
Diluted — pro forma	$	0.27		$	0.21		$	0.79		$	0.62

The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s actual experience under the plans.

Recently Issued Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS 123. SFAS 123R will require Starbucks to, among other things, measure all employee stock-based compensation awards using a fair value method and record such expense in the Company’s consolidated financial statements. The provisions of SFAS 123R, as amended by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment,” are effective no later than the beginning of the next fiscal year that begins after June 15, 2005, and Starbucks will adopt the new requirements in its first fiscal quarter of 2006 using the modified prospective transition method. The adoption of SFAS 123R will reduce the Company’s future net earnings. Management continues to evaluate the impacts of SFAS 123R and related interpretations to quantify the expected financial impacts.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 requires the recognition of a liability for the fair value of a legally-required conditional asset retirement obligation when incurred, if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company has not yet determined the impact of adoption on its consolidated statement of earnings and balance sheet.

In December 2004, the FASB issued Staff Position No. FAS 109-1, “Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004” (“FSP 109-1”). FSP 109-1 states that qualified domestic production activities should be accounted for as a special deduction under SFAS No. 109, “Accounting for Income Taxes,” and not be treated as a rate reduction. The provisions of FSP 109-1 are effective immediately. The Company continues to evaluate the impact of the new Act, which will allow Starbucks to qualify for a benefit beginning in fiscal 2006.

In December 2004, the FASB issued Staff Position No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”). The American Jobs Creation Act allows a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. The Company may elect to repatriate earnings in either fiscal 2005 or fiscal 2006. FSP 109-2 provides accounting and disclosure guidance for the repatriation provision. Although FSP 109-2 is effective immediately, it allows companies additional time beyond the enactment date to evaluate the effects of the provision on its plan for investment or repatriation of unremitted foreign earnings. The Company continues to evaluate the impact of the new Act to determine whether it will repatriate foreign earnings and the impact, if any, this pronouncement will have on its consolidated financial statements. In addition, the U.S. Treasury Department is

6

expected to provide additional clarifying guidance on certain elements of the repatriation provision. Earnings under consideration for repatriation range from $0 to $100 million and the related income tax effects from such repatriation cannot be reasonably estimated at this time. As provided in FSP 109-2, Starbucks has not adjusted its tax expense or deferred tax liability to reflect the repatriation provision.

In November 2004, the FASB issued Statement No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. The provisions of SFAS 151 are effective for fiscal years beginning after June 15, 2005. The adoption of SFAS 151 in fiscal 2006 is not expected to have a significant impact on the Company’s consolidated balance sheet or statement of earnings.

Note 4: Business Acquisitions

On April 6, 2005, Starbucks acquired substantially all of the assets of Ethos Brands, LLC, (“Ethos”), a privately held bottled water company based in Santa Monica, California, for $8 million. The earnings of Ethos are included in the accompanying consolidated financial statements from the date of acquisition.

In November 2004, Starbucks increased its equity ownership from 18% to 100% for its licensed operations in Germany. As a result, management determined that a change in accounting method, from the cost method to the consolidation method, was necessary and included adjusting previously reported information for the Company’s proportionate share of net losses of 18% as required by APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The cumulative effect of the accounting change for prior periods resulted in a reduction of retained earnings of $3.6 million as of October 4, 2004. See Note 19 in the Company’s 2004 10-K/A for additional information.

Note 5: Inventories

Inventories consist of the following (in thousands):

	July 3,		October 3,
	2005		2004
Coffee:
Unroasted	$	315,993	$	233,903
Roasted		42,827		46,070
Other merchandise held for sale		73,825		81,565
Packaging and other supplies		62,897		61,125
Total	$	495,542	$	422,663

As of July 3, 2005, the Company had committed to fixed-price purchase contracts for green coffee totaling $261 million. The Company believes, based on relationships established with its suppliers, the risk of non-delivery on such purchase commitments is remote.

Note 6: Derivative Financial Instruments

The Company manages its exposure to various risks within the consolidated financial statements according to an umbrella risk management policy. Under this policy, Starbucks may engage in transactions involving various derivative instruments, with maturities generally not longer than five years, to hedge assets, liabilities, revenues and purchases.

Cash Flow Hedges

Starbucks and its subsidiaries, which include entities that use their local currency as their functional currency, enter into cash flow derivative instruments to hedge portions of anticipated revenue streams and inventory purchases. Current forward contracts hedge monthly forecasted revenue transactions denominated in Japanese yen and Canadian dollars, as well as forecasted inventory purchases denominated in U.S. dollars, euros and Swiss francs, for foreign operations. Additionally, the Company has swap contracts to hedge a portion of its forecasted U.S. fluid milk purchases. The effect of these swaps will fix the price paid by Starbucks for the monthly volume of milk purchases covered under the contracts on approximately 10% and 6% of its forecasted U.S. fluid milk purchases in fiscal 2005 and 2006, respectively.

The Company had accumulated net derivative losses of $3.7 million, net of taxes, in other comprehensive income as of July 3, 2005, related to cash flow hedges. Of this amount, $2.8 million of net derivative losses will be reclassified into earnings within 12 months. No cash flow hedges were discontinued during the 13-week or 39-week periods ended July 3, 2005, and June 27, 2004. Current contracts will expire within 15 months.

7

Net Investment Hedges

Net investment derivative instruments hedge the Company’s equity method investment in Starbucks Coffee Japan, Ltd. to minimize foreign currency exposure to fluctuations in the Japanese yen. The Company applies the spot-to-spot method for these forward foreign exchange contracts, and under this method the change in fair value of the forward contracts attributable to the changes in spot exchange rates (the effective portion) is reported in other comprehensive income. The remaining change in fair value of the forward contract (the ineffective portion) is reclassified into earnings in “Interest and other income, net.” The Company had accumulated net derivative losses of $3.8 million, net of taxes, in other comprehensive income as of July 3, 2005, related to net investment derivative hedges. Current contracts expire within 21 months.

The following table presents the net gains and losses reclassified from other comprehensive income into the statements of earnings during the periods indicated for cash flow and net investment hedges (in thousands):

	13 Weeks Ended						39 Weeks Ended
	July 3,			June 27,			July 3,			June 27,
	2005			2004			2005			2004
Cash flow hedges:
Reclassified losses into total net revenues	$	(49	)	$	(195	)	$	(812	)	$	(1,227	)
Reclassified losses into cost of sales		(1,028	)		(105	)		(3,286	)		(553	)
Net reclassified losses — cash flow hedges		(1,077	)		(300	)		(4,098	)		(1,780	)
Net reclassified gains/(losses) — net investment hedges		553			(280	)		763			44
Total	$	(524	)	$	(580	)	$	(3,335	)	$	(1,736	)

Note 7: Property, Plant and Equipment

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

	July 3,			October 3,
	2005			2004
Land	$	13,118		$	13,118
Buildings		68,524			66,468
Leasehold improvements		1,830,289			1,605,907
Store equipment		632,740			530,798
Roasting equipment		164,898			152,949
Furniture, fixtures and other		467,457			415,307
		3,177,026			2,784,547
Less: accumulated depreciation and amortization		(1,558,085	)		(1,326,266	)
		1,618,941			1,458,281
Work in progress		119,889			93,135
Property, plant and equipment, net	$	1,738,830		$	1,551,416

Note 8: Shareholders’ Equity

Starbucks may acquire shares of its common stock under its authorized share repurchase program and depending on market conditions. Share repurchases are funded through cash, cash equivalents and available-for-sale securities. Starbucks acquired 16 million shares at an average price of $50.47 for a total cost of $807 million during the 39-week period ended July 3, 2005. Starbucks acquired 2 million shares at an average price of $37.29 for a total cost of $82 million during the 39-week period ended June 27, 2004. As of July 3, 2005, the Company had 12.6 million additional shares authorized for repurchase.

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Note 9: Comprehensive Income

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

	13 Weeks Ended						39 Weeks Ended
	July 3,			June 27,			July 3,			June 27,
	2005			2004			2005			2004
Net earnings	$	125,575		$	97,580		$	370,864		$	286,600
Unrealized holding gains/(losses) on cash flow hedging instruments		713			521			(2,307	)		(1,806	)
Unrealized holding gains/(losses) on net investment hedging instruments		1,412			620			486			(1,377	)
Unrealized holding gains/(losses) on available-for-sale securities		3			(1,313	)		(1,339	)		(1,177	)
Reclassification adjustment for losses realized in net earnings		1,848			507			3,651			886
Net unrealized gains/(losses)		3,976			335			491			(3,474	)
Translation adjustment		(21,060	)		(4,717	)		(4,794	)		15,943
Total comprehensive income	$	108,491		$	93,198		$	366,561		$	299,069

The unfavorable translation adjustment change for the 13-week period ended July 3, 2005 of $21.1 million was primarily due to the strengthening of the U.S. dollar against the euro and British pound sterling. The unfavorable translation adjustment change for the 13-week period ended June 27, 2004 of $4.7 million was primarily due to the strengthening of the U.S. dollar against the Canadian dollar and Japanese yen.

For the 39-week period ended July 3, 2005, the unfavorable translation adjustment change of $4.8 million was primarily due to the strengthening of the U.S. dollar against the euro. The favorable translation adjustment change for the 39-week period ended June 27, 2004, of $15.9 million was primarily due to the weakening of the U.S. dollar against the British pound sterling and Japanese yen.

The components of accumulated other comprehensive income, net of tax, were as follows (in thousands):

	July 3,			October 3,
	2005			2004
Net unrealized holding losses on available-for-sale securities	$	(767	)	$	(523	)
Net unrealized holding losses on hedging instruments		(7,529	)		(8,264	)
Translation adjustment		33,234			38,028
Accumulated other comprehensive income	$	24,938		$	29,241

Note 10: Earnings Per Share

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

	13 Weeks Ended				39 Weeks Ended
	July 3,		June 27,		July 3,		June 27,
	2005		2004		2005		2004
Net earnings	$	125,575	$	97,580	$	370,864	$	286,600
Weighted average common shares and common stock units outstanding (for basic calculation)		391,816		397,942		397,764		396,853
Dilutive effect of outstanding common stock options		12,203		14,347		13,358		13,734
Weighted average common and common equivalent shares outstanding (for diluted calculation)		404,019		412,289		411,122		410,587
Net earnings per common share — basic	$	0.32	$	0.25	$	0.93	$	0.72
Net earnings per common and common equivalent share — diluted	$	0.31	$	0.24	$	0.90	$	0.70

Options with exercise prices greater than the average market price were not included in the computation of diluted

9

earnings per share. For the 13-week period ended July 3, 2005, these options totaled 6.7 million and for the 13-week period ended June 27, 2004, these options totaled thirteen thousand during which periods the average market price of the Company’s common stock was $52.01 and $39.84, respectively. For the 39-week period ended July 3, 2005, these options totaled 5.6 million and for the 39-week period ended June 27, 2004, these options totaled one hundred twenty thousand during which periods the average market price of the Company’s common stock was $53.48 and $35.74, respectively.

Note 11: Commitments and Contingencies

The Company has unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and related interest and fees of an unconsolidated equity investee, Starbucks Coffee Japan, Ltd. The guarantees continue until the loans, including accrued interest and fees, have been paid in full, with the final loan amount due in 2014. The maximum amount is limited to the sum of unpaid principal and interest amounts, as well as other related expenses. These amounts will vary based on fluctuations in the yen foreign exchange rate. As of July 3, 2005, the maximum amount of the guarantees was approximately $9.8 million. Since there has been no modification of these loan guarantees subsequent to the Company’s adoption of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indebtedness of Others,” Starbucks has applied the disclosure provisions only and has not recorded the guarantee on its consolidated balance sheet.

During the 39-week period ended July 3, 2005, Starbucks entered into commitments under which it unconditionally guaranteed its proportionate share, or 50%, of bank line of credit borrowings of certain unconsolidated equity investees. The Company’s maximum exposure under these commitments is approximately $4.7 million, excluding interest and other related costs, and the majority of these commitments expire in 2007. As of July 3, 2005, the Company recorded $2.7 million to “Equity and other investments” and “Other long-term liabilities” on the consolidated balance sheet for the fair value of the guarantee arrangements.

Coffee brewing and espresso equipment sold to customers through Company-operated and licensed retail stores as well as equipment sold to the Company’s licensees for use in retail licensing operations are under warranty for defects in materials and workmanship for a period ranging from 12 to 24 months. The Company establishes an accrual for estimated warranty costs at the time of sale, based on historical experience. Product warranty costs and changes to the related accrual were not significant for the 39-week period ended July 3, 2005.

On June 3, 2004, two current employees of the Company filed a lawsuit, entitled Sean Pendlebury and Laurel Overton v. Starbucks Coffee Company, in the U.S. District Court for the Southern District of Florida claiming the Company violated requirements of the Fair Labor Standards Act (FLSA). The suit alleges that the Company misclassified its retail store managers as exempt from the overtime provisions of the FLSA and that the managers are therefore entitled to overtime compensation for any week in which they worked more than 40 hours during the past three years. Plaintiffs seek to represent themselves and all similarly situated U.S. current and former store managers of the Company. Plaintiffs seek reimbursement for an unspecified amount of unpaid overtime compensation, liquidated damages, attorney’s fees and costs. Plaintiffs also filed on June 3, 2004 a motion for conditional collective action treatment and court-supervised notice to additional putative class members under the opt-in procedures in section 16(b) of the FLSA. On January 3, 2005, the district court entered an order authorizing nationwide notice of the lawsuit to all current and former store managers employed by the Company during the past three years. The Company filed a motion for summary judgment as to the claims of the named plaintiffs on September 24, 2004. The court denied that motion because this case is in the early stages of discovery, but the court noted that the Company may resubmit this motion at a later date. Starbucks believes that the plaintiffs are properly classified as exempt under the federal wage laws and that a loss in this case is unlikely. Due to the early status of this case, the Company cannot estimate the possible loss to the Company, if any. Trial currently is set for early 2006, and the Company intends to vigorously defend the lawsuit.

In addition to the lawsuit 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 balance sheet or statement of earnings of the Company.

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Note 12: Segment Reporting

Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision making purposes. The tables below present information by operating segment (in thousands):

	United				Unallocated
13 Weeks Ended	States(1)		International(1)		Corporate(2)			Total
July 3, 2005
Total net revenues	$	1,339,440	$	262,359	$	—		$	1,601,799
Earnings/(loss) before income taxes		245,070		18,922		(61,125	)		202,867
Depreciation and amortization expenses		63,027		14,015		8,321			85,363
Income from equity investees		10,105		8,031		—			18,136
June 27, 2004
Total net revenues	$	1,120,269	$	198,422	$	—		$	1,318,691
Earnings/(loss) before income taxes		188,879		13,427		(44,734	)		157,572
Depreciation and amortization expenses		53,097		11,696		8,093			72,886
Income from equity investees		8,530		4,633		—			13,163

	United				Unallocated
39 Weeks Ended	States(1)		International(1)		Corporate(2)			Total
July 3, 2005
Total net revenues	$	3,954,631	$	755,428	$	—		$	4,710,059
Earnings/(loss) before income taxes		706,774		56,205		(166,389	)		596,590
Depreciation and amortization expenses		185,181		41,232		25,281			251,694
Income from equity investees		27,377		20,018		—			47,395
June 27, 2004
Total net revenues	$	3,266,359	$	574,591	$	—		$	3,840,950
Earnings/(loss) before income taxes		575,990		32,206		(145,311	)		462,885
Depreciation and amortization expenses		156,352		34,041		24,647			215,040
Income from equity investees		21,647		13,504		—			35,151

(1)	For purposes of internal management and segment reporting, licensed operations in Hawaii and Puerto Rico are included in the International segment.
(2)	Unallocated corporate includes certain general and administrative expenses, related depreciation and amortization expenses and amounts included in “Interest and other income, net” on the accompanying consolidated statements of earnings.

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

	13 Weeks Ended				39 Weeks Ended
	July 3,		June 27,		July 3,		June 27,
	2005		2004		2005		2004
Net revenues from external customers:
United States	$	1,342,787	$	1,122,800	$	3,963,508	$	3,273,843
Foreign countries		259,012		195,891		746,551		567,107
Total	$	1,601,799	$	1,318,691	$	4,710,059	$	3,840,950

Revenues from foreign countries are based on the geographic location of the customers and consist primarily of revenues from the United Kingdom and Canada, which together account for approximately 80% of foreign net revenues. No customer accounts for 10% or more of the Company’s revenues.

Note 13: Subsequent Events

In July 2005, Starbucks increased its equity ownership to 51% and 100% in its licensed operations in Southern China and Chile, respectively, for a combined total of approximately $15 million. Previously, the Company owned 5% in Coffee Concepts (Southern China) Limited and 15% in Sur-Andino Café S.A. Retroactive application of the equity method of accounting for these investments, which were previously accounted for under the cost method, is not expected to significantly impact the Company’s previously reported consolidated balance sheets or statements of earnings. The Company will use the consolidation method to account for its 51% ownership in Southern China and its 100% ownership in Chile.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements herein, including anticipated store openings, trends in or expectations regarding Starbucks Corporation’s revenue and net earnings growth, effective tax rate, cash flow requirements and capital expenditures, all constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, coffee, dairy and other raw materials prices and availability, successful execution of internal performance and expansion plans, fluctuations in United States and international economies and currencies, the ability to manage the impact on the Company’s business of disruptions such as regional political instability, war, terrorist activities, and health epidemics or pandemics, the impact of competitors’ initiatives, the effect of legal proceedings, and other risks detailed herein and in Starbucks Corporation’s other filings with the Securities and Exchange Commission (“SEC”), including the “Certain Additional Risks and Uncertainties” section of the Starbucks Annual Report on Form 10-K/A for the fiscal year ended October 3, 2004.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Users should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. The Company is under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 3, 2004.

General

Starbucks Corporation’s fiscal year ends on the Sunday closest to September 30. Fiscal year 2004 had 53 weeks, with the 53^rd week falling in the fiscal fourth quarter. The fiscal year ending on October 2, 2005 will include 52 weeks.

Restatement of Financial Statements

On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of America (“GAAP”). The Company’s management determined that its then-current method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (tenant improvement allowances) and its then-current method of accounting for rent holidays were not in accordance with GAAP. As a result, the Company restated its consolidated financial statements for the fiscal year ended October 3, 2004. For additional information, see Note 2 to the audited consolidated financial statements in the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 3, 2004.

See Note 2 in Item 1 of this Report for a summary of the effect of this change on the Company’s consolidated statement of earnings and cash flows for the 13 and 39 weeks ended June 27, 2004.

Management Overview

During both the 13 and 39-week periods ended July 3, 2005, all areas of Starbucks business, from U.S. and International Company-operated retail operations to the Company’s specialty businesses, delivered strong financial performance. Starbucks believes the Company’s ability to achieve the balance between growing the core business and building the foundation for future growth is the key to increasing long-term shareholder value. Starbucks quarterly and year-to-date fiscal 2005 performance reflects the Company’s continuing commitment to achieving this balance.

The primary driver of the Company’s revenue growth continues to be the opening of new retail stores, both Company-operated and licensed, in pursuit of the Company’s objective to establish Starbucks as one of the most recognized and respected brands in the world. With a presence in 35 countries, management continues to believe that the Company’s long-term goal of 15,000 Starbucks retail locations throughout the United States and at least 15,000 stores in International markets is achievable.

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In addition to opening new retail stores, Starbucks is targeting to increase revenues generated at new and existing Company-operated stores by attracting new customers and increasing the frequency of visits by current customers. The strategy is to increase first year average store sales and comparable store sales by continuously improving the level of customer service, introducing innovative products and improving the speed of service through training, technology and process improvement.

In licensed retail operations, Starbucks shares operating and store development experience to help licensees improve the profitability of existing stores and build new stores, which is expected to generate additional royalty income and product sales. The Company’s strategy is to selectively increase its equity stake in licensed international operations as these markets develop.

The combination of more retail stores, higher revenues from existing stores including comparable store sales growth of 7% and growth in other business channels in both the United States and International operating segments resulted in a 21% increase in total net revenues for the 13 weeks ended July 3, 2005, compared to the same period of fiscal 2004. This was slightly above the Company’s three to five year revenue growth target of approximately 20%. Comparable store sales growth was 8% for the 39 weeks ended July 3, 2005, compared to the same period of fiscal 2004.

Since additional retail stores can leverage existing support organizations and facilities, the Company’s infrastructure can be expanded more slowly than the rate of revenue growth and generate margin improvement. For the 13 weeks ended July 3, 2005, operating income as a percentage of total net revenues increased to 12.5% from 11.6% in the same period of fiscal 2004, and net earnings increased by 29%, compared to the same period in fiscal 2004. For the 39 weeks ended July 3, 2005, operating income as a percentage of total net revenues increased to 12.4% from 11.8% in the same period of fiscal 2004, and net earnings increased by 29%, compared to the same period in fiscal 2004. These results demonstrated the Company’s ability to improve operating margin while at the same time making strategic investments in the core retail business and in emerging specialty channels. The Company’s International operations delivered improved operating results, primarily due to leverage gained on most operating expenses distributed over an expanded revenue base. In recent fiscal years, the Company made substantial infrastructure investments in corporate and regional support facilities and personnel, as well as established more efficient distribution networks. Such investments were necessary to support the Company’s planned international expansion, which is now realizing substantial benefit from this foundation.

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Results of Operations for the 13 Weeks Ended July 3, 2005, and June 27, 2004

CONSOLIDATED RESULTS

The following table presents the consolidated statement of earnings as well as the percentage relationship to total net revenues, unless otherwise indicated, of items included in the Company’s consolidated statement of earnings (amounts in thousands):

	July 3,		% of			June 27,		% of
13 Weeks Ended	2005		Revenues			2004		Revenues
STATEMENTS OF EARNINGS DATA
Net revenues:
Company-operated retail	$	1,356,605		84.7	%	$	1,108,055		84.0	%
Specialty:
Licensing		170,330		10.6			145,021		11.0
Foodservice and other		74,864		4.7			65,615		5.0
Total specialty		245,194		15.3			210,636		16.0
Total net revenues		1,601,799		100.0			1,318,691		100.0
Cost of sales including occupancy costs		649,831		40.6			540,175		41.0
Store operating expenses		546,008		40.2	(1)		448,029		40.4	(1)
Other operating expenses		48,464		19.8	(2)		44,259		21.0	(2)
Depreciation and amortization expenses		85,363		5.3			72,886		5.5
General and administrative expenses		90,637		5.7			73,357		5.6
Subtotal operating expenses		1,420,303		88.7			1,178,706		89.4
Income from equity investees		18,136		1.1			13,163		1.0
Operating income		199,632		12.5			153,148		11.6
Interest and other income, net		3,235		0.2			4,424		0.3
Earnings before income taxes		202,867		12.7			157,572		11.9
Income taxes		77,292		4.9			59,992		4.5
Net earnings	$	125,575		7.8	%	$	97,580		7.4	%

(1)	Shown as a percentage of related Company-operated retail revenues.
(2)	Shown as a percentage of related total specialty revenues.

Total net revenues for the 13 weeks ended July 3, 2005, increased 21% to $1.6 billion from $1.3 billion for the corresponding period of fiscal 2004, driven by increases in both Company-operated retail revenues and specialty operations.

During the 13-week period ended July 3, 2005, Starbucks derived 85% of total net revenues from its Company-operated retail stores. Company-operated retail revenues increased 22% to $1.4 billion for the 13 weeks ended July 3, 2005, from $1.1 billion for the same period in fiscal 2004. The increase was primarily attributable to the opening of 713 new Company-operated retail stores in the last 12 months and comparable store sales growth of 7% for the 13 weeks ended July 3, 2005. The increase in comparable store sales was due to a 4% increase in the average value per transaction and a 3% increase in the number of customer transactions. The increase in average value per transaction was primarily attributable to a beverage price increase in October 2004 in the Company’s U.S. and Canadian markets. Management believes increased traffic in Company-operated retail stores continues to be driven by sustained popularity of core products, new product innovation, a high level of customer satisfaction and improved speed of service through enhanced technology, training and execution at retail stores.

The Company derived the remaining 15% of total net revenues from its specialty operations. Specialty revenues, which include licensing revenues and foodservice and other revenues, increased 16% to $245 million for the 13 weeks ended July 3, 2005, from $211 million for the corresponding period of fiscal 2004.

Licensing revenues, which are derived from retail store licensing arrangements, grocery and warehouse club licensing, and certain other branded-product operations, increased 17% to $170 million for the 13 weeks ended July 3, 2005, from $145 million for the corresponding period of fiscal 2004. The increase was primarily attributable to higher product sales and royalty revenues from the opening of 839 new licensed retail stores in the last 12 months.

Foodservice and other revenues increased 14% to $75 million for the 13 weeks ended July 3, 2005, from $66 million for the corresponding period of fiscal 2004. The increase was primarily attributable to the growth in new and existing U.S.

14

and International foodservice accounts.

Cost of sales including occupancy costs decreased to 40.6% of total net revenues for the 13 weeks ended July 3, 2005, compared to 41.0% for the corresponding period of fiscal 2004. The decrease was primarily due to a higher average revenue per retail transaction, offset in part by higher average rent expense in International markets. Dairy costs were moderately lower for the 13 weeks ended July 3, 2005, compared to the same period in fiscal 2004.

Store operating expenses as a percentage of Company-operated retail revenues decreased to 40.2% for the 13 weeks ended July 3, 2005, from 40.4% for the corresponding period of fiscal 2004, primarily due to higher average revenue per retail transaction, partially offset by higher payroll expenditures. In order to facilitate ongoing, accelerated retail store growth, the Company has been increasing the number of assistant store managers and opening a higher number of drive-thru locations over the past year, which has contributed to the higher payroll expenditures.

Other operating expenses (expenses associated with the Company’s specialty operations) decreased to 19.8% of total specialty revenues for the 13 weeks ended July 3, 2005, compared to 21.0% in the corresponding period of fiscal 2004. The decrease was primarily due to lower expenditures within the grocery and warehouse club channels, partially offset by higher costs associated with expanding emerging specialty businesses, such as music and consumer products.

Depreciation and amortization expenses increased to $85 million for the 13 weeks ended July 3, 2005, compared to $73 million for the corresponding period of fiscal 2004. The increase was primarily due to the opening of 713 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 5.3% for the 13 weeks ended July 3, 2005, from 5.5% for the corresponding 13-week period of fiscal 2004.

General and administrative expenses increased to $91 million for the 13 weeks ended July 3, 2005, compared to $73 million for the corresponding period of fiscal 2004. The increase was primarily due to higher provisions for incentive compensation and increased charitable commitments. As a percentage of total net revenues, general and administrative expenses increased to 5.7% for the 13 weeks ended July 3, 2005 from 5.6% for the corresponding period of fiscal 2004.

Income from equity investees increased to $18 million for the 13 weeks ended July 3, 2005, compared to $13 million for the corresponding period of fiscal 2004. The increase was primarily due to volume-driven operating results for The North American Coffee Partnership, which produces bottled Frappuccino® coffee drinks and Starbucks DoubleShot® espresso drink, and improved operating results from international investees, particularly Korea and Japan.

Operating income increased 30% to $200 million for the 13 weeks ended July 3, 2005, compared to $153 million for the corresponding 13-week period of fiscal 2004. As a result of lower store and other operating expenses as a percentage of related revenues, operating margin increased to 12.5% of total net revenues for the 13 weeks ended July 3, 2005, compared to 11.6% for the corresponding period of fiscal 2004.

Interest and other income decreased 27% to $3 million for the 13 weeks ended July 3, 2005, compared to $4 million for the corresponding 13-week period of fiscal 2004, primarily due to higher realized losses on sales of securities and lower realized foreign currency exchange gains compared to fiscal 2004. Starbucks funded the majority of its share repurchases during the 13 weeks ended July 3, 2005, through the sales of its available-for-sale securities, which contributed to the increased amount of realized losses.

Income taxes for the 13-week periods ended July 3, 2005 and June 27, 2004 both resulted in an effective tax rate of 38.1%.

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SEGMENT RESULTS

Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision-making purposes. The following tables summarize the Company’s statements of earnings by segment (amounts in thousands):

			% of					% of						% of
			United					Inter-						Total
	United		States			Inter-		national			Unallocated			Net
13 Weeks Ended July 3, 2005	States		Revenue			national		Revenue			Corporate			Revenues			Consolidated
Net revenues:
Company-operated retail	$	1,141,555		85.2	%	$	215,050		82.0	%	$	—			—	%	$	1,356,605
Specialty:
Licensing		129,355		9.7			40,975		15.6			—			—			170,330
Foodservice and other		68,530		5.1			6,334		2.4			—			—			74,864
Total specialty		197,885		14.8			47,309		18.0			—			—			245,194
Total net revenues		1,339,440		100.0			262,359		100.0			—			—			1,601,799
Cost of sales including occupancy costs		516,368		38.6			133,463		50.9			—			—			649,831
Store operating expenses		465,021		40.7	(1)		80,987		37.7	(1)		—			—			546,008
Other operating expenses		40,793		20.6	(2)		7,671		16.2	(2)		—			—			48,464
Depreciation and amortization expenses		63,027		4.7			14,015		5.3			8,321			0.5			85,363
General and administrative expenses		19,266		1.4			15,332		5.8			56,039			3.5			90,637
Income from equity investees		10,105		0.8			8,031		3.1			—			—			18,136
Operating income/(loss)	$	245,070		18.3	%	$	18,922		7.2	%	$	(64,360	)		(4.0	)%	$	199,632

			% of					% of						% of
			United					Inter-						Total
	United		States			Inter-		national			Unallocated			Net
13 Weeks Ended June 27, 2004	States		Revenue			national		Revenue			Corporate			Revenues			Consolidated
(as restated)
Net revenues:
Company-operated retail	$	947,379		84.6	%	$	160,676		81.0	%	$	—			—	%	$	1,108,055
Specialty:
Licensing		111,857		10.0			33,164		16.7			—			—			145,021
Foodservice and other		61,033		5.4			4,582		2.3			—			—			65,615
Total specialty		172,890		15.4			37,746		19.0			—			—			210,636
Total net revenues		1,120,269		100.0			198,422		100.0			—			—			1,318,691
Cost of sales including occupancy costs		440,515		39.3			99,660		50.2			—			—			540,175
Store operating expenses		388,337		41.0	(1)		59,692		37.2	(1)		—			—			448,029
Other operating expenses		37,711		21.8	(2)		6,548		17.3	(2)		—			—			44,259
Depreciation and amortization expenses		53,097		4.7			11,696		5.9			8,093			0.6			72,886
General and administrative expenses		20,260		1.8			12,032		6.1			41,065			3.1			73,357
Income from equity investees		8,530		0.8			4,633		2.3			—			—			13,163
Operating income/(loss)	$	188,879		16.9	%	$	13,427		6.8	%	$	(49,158	)		(3.7	)%	$	153,148

(1)	Shown as a percentage of related Company-operated retail revenues.
(2)	Shown as a percentage of related total specialty revenues.

United States

United States operations (“United States”) sells coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise primarily through Company-operated retail stores. Specialty operations within the United States include retail store and other licensing operations, foodservice accounts and other initiatives related to the Company’s core businesses.

United States total net revenues increased by $219 million, or 20%, to $1.3 billion for the 13 weeks ended July 3, 2005, compared to $1.1 billion for the corresponding period of fiscal 2004.

United States Company-operated retail revenues increased by $194 million, or 20%, to $1.1 billion for the 13 weeks ended

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July 3, 2005, compared to $947 million for the corresponding period of fiscal 2004, primarily due to the opening of 585 new Company-operated retail stores in the last 12 months and comparable store sales growth of 7% for the quarter. The increase in comparable store sales was due to a 4% increase in the average value per transaction, including 3% attributable to a beverage price increase in October 2004, and a 3% increase in the number of customer transactions.

Total United States specialty revenues increased $25 million, or 14%, to $198 million for the 13 weeks ended July 3, 2005, compared to $173 million in the corresponding period of fiscal 2004. United States licensing revenues increased $17 million, or 16%, to $129 million, compared to $112 million for the corresponding period of fiscal 2004. The increase was primarily due to higher product sales and royalty revenues as a result of opening 519 new licensed retail stores in the last 12 months, and, to a lesser extent, growth in the grocery and warehouse club business. United States foodservice and other revenues increased 12%, to $69 million from $61 million in fiscal 2004, primarily due to growth in new and existing foodservice accounts.

United States operating income increased by 30% to $245 million for the 13 weeks ended July 3, 2005, from $189 million for the same period in fiscal 2004. Operating margin increased to 18.3% of related revenues from 16.9% in the corresponding period of fiscal 2004, primarily due to leverage from strong revenue growth and cost control throughout all areas of the business.

International

International operations (“International”) sells coffee and other beverages, whole bean coffees, complementary food, coffee brewing equipment and merchandise through Company-operated retail stores in Canada, the United Kingdom, Thailand, Australia, Singapore, Germany and China. Specialty operations in International primarily include retail store licensing operations in more than 25 other countries and foodservice accounts in Canada and the United Kingdom. Certain of the Company’s International operations are in various early stages of development that necessitate a more extensive support organization relative to the current levels of revenue and operating income, than in the United States.

International total net revenues increased $64 million, or 32%, to $262 million for the 13 weeks ended July 3, 2005, compared to $198 million for the corresponding period of fiscal 2004.

International Company-operated retail revenues increased $54 million, or 34%, to $215 million for the 13 weeks ended July 3, 2005, compared to $161 million for the corresponding period of fiscal 2004, primarily due to the opening of 128 new Company-operated retail stores in the last 12 months, comparable store sales growth of 7% for the quarter and favorable foreign currency exchange rates for both the Canadian dollar and the British pound sterling. The increase in comparable store sales resulted from a 4% increase in the number of customer transactions coupled with a 3% increase in the average value per transaction.

Total International specialty revenues increased $10 million, or 25%, to $47 million for the 13 weeks ended July 3, 2005, compared to $38 million in the corresponding period of fiscal 2004. The increase was primarily due to higher product sales and royalty revenues from opening 320 new licensed retail stores in the last 12 months and growth in new and existing international foodservice accounts.

International operating income increased by 41% to $19 million for the 13 weeks ended July 3, 2005, compared to $13 million in the corresponding period of fiscal 2004. Operating margin increased to 7.2% of related revenues from 6.8% in the corresponding period of fiscal 2004, due to leverage gained on fixed costs distributed over an expanded revenue base and increased income from equity investees, particularly in Korea and Japan.

Unallocated Corporate

Unallocated corporate expenses pertain to certain functions, such as executive management, accounting, administration, tax, treasury, and information technology infrastructure, which are not specifically attributable to the Company’s operating segments, and include related depreciation and amortization expenses. Unallocated corporate expenses increased to $64 million for the 13 weeks ended July 3, 2005, compared to $49 million in the corresponding period of fiscal 2004, primarily due to higher payroll-related expenditures and increased charitable commitments. The higher payroll-related expenditures resulted from modest headcount growth and higher provisions for incentive compensation. Total unallocated corporate expenses as a percentage of total net revenues increased to 4.0% for the 13 weeks ended July 3, 2005 compared to 3.7% for the corresponding period of fiscal 2004.

17

Results of Operations for the 39 Weeks Ended July 3, 2005, and June 27, 2004

CONSOLIDATED RESULTS

The following table presents the consolidated statement of earnings as well as the percentage relationship to total net revenues, unless otherwise indicated, of items included in the Company’s consolidated statement of earnings (amounts in thousands):

	July 3,		% of			June 27,		% of
39 Weeks Ended	2005		Revenues			2004		Revenues
STATEMENTS OF EARNINGS DATA
Net revenues:
Company-operated retail	$	3,999,213		84.9	%	$	3,239,031		84.3	%
Specialty:
Licensing		488,835		10.4			401,037		10.5
Foodservice and other		222,011		4.7			200,882		5.2
Total specialty		710,846		15.1			601,919		15.7
Total net revenues		4,710,059		100.0			3,840,950		100.0
Cost of sales including occupancy costs		1,926,326		40.9			1,577,152		41.1
Store operating expenses		1,599,958		40.0	(1)		1,279,826		39.5	(1)
Other operating expenses		139,092		19.6	(2)		128,759		21.4	(2)
Depreciation and amortization expenses		251,694		5.3			215,040		5.6
General and administrative expenses		256,165		5.4			223,756		5.8
Subtotal operating expenses		4,173,235		88.6			3,424,533		89.2
Income from equity investees		47,395		1.0			35,151		0.9
Operating income		584,219		12.4			451,568		11.8
Interest and other income, net		12,371		0.3			11,317		0.3
Earnings before income taxes		596,590		12.7			462,885		12.1
Income taxes		225,726		4.8			176,285		4.6
Net earnings	$	370,864		7.9	%	$	286,600		7.5	%

(1)	Shown as a percentage of related Company-operated retail revenues.
(2)	Shown as a percentage of related total specialty revenues.

Total net revenues for the 39 weeks ended July 3, 2005, increased 23% to $4.7 billion from $3.8 billion for the corresponding period of fiscal 2004, driven by increases in both Company-operated retail revenues and specialty operations.

During the 39-week period ended July 3, 2005, Starbucks derived 85% of total net revenues from its Company-operated retail stores. Company-operated retail revenues increased 23% to $4.0 billion for the 39 weeks ended July 3, 2005, from $3.2 billion for the same period in fiscal 2004. The increase was primarily attributable to the opening of 713 new Company-operated retail stores in the last 12 months and comparable store sales growth of 8% for the 39 weeks ended July 3, 2005. The increase in comparable store sales was due to a 4% increase in the number of customer transactions and a 4% increase in the average value per transaction. Management believes increased traffic in Company-operated retail stores continues to be driven by sustained popularity of core products, new product innovation, a high level of customer satisfaction and improved speed of service through enhanced technology, training and execution at retail stores. The increase in average value per transaction was primarily due to a beverage price increase in October 2004 in the Company’s U.S. and Canadian markets.

The Company derived the remaining 15% of total net revenues from its specialty operations. Specialty revenues, which include licensing revenues and foodservice and other revenues, increased 18% to $711 million for the 39 weeks ended July 3, 2005, from $602 million for the corresponding period of fiscal 2004.

Licensing revenues, which are derived from retail store licensing arrangements, grocery and warehouse club licensing, and certain other branded-product operations, increased 22% to $489 million for the 39 weeks ended July 3, 2005, from $401 million for the corresponding period of fiscal 2004. The increase was primarily a result of higher product sales and royalty revenues from the opening of 839 new licensed retail stores in the last 12 months.

Foodservice and other revenues increased 11% to $222 million for the 39 weeks ended July 3, 2005, from $201 million for the corresponding period of fiscal 2004. The increase was primarily attributable to the growth in new and existing U.S.

18

and International foodservice accounts.

Cost of sales including occupancy costs as a percentage of total net revenues decreased to 40.9% for the 39 weeks ended July 3, 2005, from 41.1% for the corresponding period of fiscal 2004. The decrease was primarily due to higher average revenue per retail transaction, offset in part by higher initial costs associated with the continued expansion of the lunch program in Company-operated stores.

Store operating expenses as a percentage of Company-operated retail revenues increased to 40.0% for the 39 weeks ended July 3, 2005, from 39.5% for the corresponding period of fiscal 2004. The increase was primarily due to higher payroll-related expenditures, as well as higher maintenance and repair expenditures to ensure a consistent Starbucks Experience in existing stores. The higher payroll-related expenditures were primarily the result of increasing the number of assistant store managers, opening a higher number of drive-thru locations over the past year, and extended store operating hours. The Starbucks Experience, or third place experience after home and work, is built upon superior customer service as well as clean and well-maintained Company-operated retail stores.

Other operating expenses (expenses associated with the Company’s specialty operations) decreased to 19.6% of total specialty revenues for the 39 weeks ended July 3, 2005, compared to 21.4% in the corresponding period of fiscal 2004. The decrease was primarily due to lower expenditures within the grocery and warehouse club channels and efficiencies gained from expansion of the foodservice distribution network, partially offset by higher costs associated with the expanding emerging specialty businesses, such as music and consumer products.

Depreciation and amortization expenses increased to $252 million for the 39 weeks ended July 3, 2005, compared to $215 million for the corresponding period of fiscal 2004. The increase was primarily due to the opening of 713 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses decreased to 5.3% for the 39 weeks ended July 3, 2005, from 5.6% for the corresponding 39-week period of fiscal 2004.

General and administrative expenses increased to $256 million for the 39 weeks ended July 3, 2005, compared to $224 million for the corresponding period of fiscal 2004. The increase was primarily due to higher payroll-related expenditures and professional fees in support of both domestic and international expansion, as well as increased charitable commitments. As a percentage of total net revenues, general and administrative expenses decreased to 5.4% for the 39 weeks ended July 3, 2005 from 5.8% for the corresponding period of fiscal 2004.

Income from equity investees increased to $47 million for the 39 weeks ended July 3, 2005, compared to $35 million for the corresponding period of fiscal 2004. The increase was primarily due to volume driven operating results for The North American Coffee Partnership, which produces bottled Frappuccino® coffee drinks and Starbucks DoubleShot® espresso drink, and improved operating results from international investees, particularly in Japan and Korea.

Operating income increased 29% to $584 million for the 39 weeks ended July 3, 2005, compared to $452 million for the corresponding 39-week period of fiscal 2004. Operating margin increased to 12.4% of total net revenues for the 39 weeks ended July 3, 2005, compared to 11.8% for the corresponding period of fiscal 2004, primarily due to strong revenue growth and cost control throughout most areas of the business, partially offset by higher retail store operating expenses as discussed above.

Interest and other income increased to $12 million for the 39 weeks ended July 3, 2005, compared to $11 million in the corresponding period of fiscal 2004, primarily due to interest income earned on higher cash and liquid investment balances for the 39 weeks ended July 3, 2005, compared to the corresponding period in fiscal 2004. Partially offsetting this increase were higher realized losses on available-for-sale securities and foreign exchange losses versus gains in fiscal 2004.

Income taxes for the 39 weeks ended July 3, 2005 resulted in an effective tax rate of 37.8%, compared to 38.1% in the corresponding period of fiscal 2004.

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SEGMENT RESULTS

Segment information is prepared on the basis that the Company’s management reviews financial information for operational decision-making purposes. The following tables summarize the Company’s statements of earnings by segment (amounts in thousands):

			% of					% of
			United					Inter-						% of
	United		States			Inter-		national			Unallocated			Total
39 Weeks Ended July 3, 2005	States		Revenue			national		Revenue			Corporate			Net Revenues			Consolidated
Net revenues:
Company-operated retail	$	3,375,922		85.4	%	$	623,291		82.5	%	$	—			—	%	$	3,999,213
Specialty:
Licensing		374,626		9.5			114,209		15.1			—			—			488,835
Foodservice and other		204,083		5.1			17,928		2.4			—			—			222,011
Total specialty		578,709		14.6			132,137		17.5			—			—			710,846
Total net revenues		3,954,631		100.0			755,428		100.0			—			—			4,710,059
Cost of sales including occupancy costs		1,542,157		39.0			384,169		50.9			—			—			1,926,326
Store operating expenses		1,365,920		40.5	(1)		234,038		37.5	(1)		—			—			1,599,958
Other operating expenses		116,737		20.2	(2)		22,355		16.9	(2)		—			—			139,092
Depreciation and amortization expenses		185,181		4.7			41,232		5.5			25,281			0.5			251,694
General and administrative expenses		65,239		1.6			37,447		5.0			153,479			3.3			256,165
Income from equity investees		27,377		0.7			20,018		2.6			—			—			47,395
Operating income/(loss)	$	706,774		17.9	%	$	56,205		7.4	%	$	(178,760	)		(3.8	)%	$	584,219

			% of					% of						% of
			United					Inter-						Total
	United		States			Inter-		national			Unallocated			Net
39 Weeks Ended June 27, 2004	States		Revenue			national		Revenue			Corporate			Revenues			Consolidated
(as restated)
Net revenues:
Company-operated retail	$	2,770,172		84.8	%	$	468,859		81.6	%	$	—			—	%	$	3,239,031
Specialty:
Licensing		307,630		9.4			93,407		16.3			—			—			401,037
Foodservice and other		188,557		5.8			12,325		2.1			—			—			200,882
Total specialty		496,187		15.2			105,732		18.4			—			—			601,919
Total net revenues		3,266,359		100.0			574,591		100.0			—			—			3,840,950
Cost of sales including occupancy costs		1,284,162		39.3			292,990		51.0			—			—			1,577,152
Store operating expenses		1,106,830		40.0	(1)		172,996		36.9	(1)		—			—			1,279,826
Other operating expenses		109,411		22.1	(2)		19,348		18.3	(2)		—			—			128,759
Depreciation and amortization expenses		156,352		4.8			34,041		5.9			24,647			0.6			215,040
General and administrative expenses		55,261		1.7			36,514		6.4			131,981			3.5			223,756
Income from equity investees		21,647		0.7			13,504		2.4			—			—			35,151
Operating income/(loss)	$	575,990		17.6	%	$	32,206		5.6	%	$	(156,628	)		(4.1	)%	$	451,568

⁽¹⁾ Shown as a percentage of related Company-operated retail revenues.

⁽²⁾ Shown as a percentage of related total specialty revenues.

United States

United States total net revenues increased by $688 million, or 21%, to $4.0 billion for the 39 weeks ended July 3, 2005, compared to $3.3 billion for the corresponding period of fiscal 2004.

United States Company-operated retail revenues increased by $606 million, or 22%, to $3.4 billion for the 39 weeks ended July 3, 2005, compared to $2.8 billion for the corresponding period of fiscal 2004, primarily due to the opening of 585 new Company-operated retail stores in the last 12 months and comparable store sales growth of 9% for the 39 weeks ended July 3, 2005. The increase in comparable store sales was due to a 5% increase in the number of customer transactions and a 4% increase in the average value per transaction.

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Total United States specialty revenues increased $83 million, or 17%, to $579 million for the 39 weeks ended July 3, 2005, compared to $496 million in the corresponding period of fiscal 2004. United States licensing revenues increased $67 million, or 22%, to $375 million, compared to $308 million for the corresponding period of fiscal 2004. The increase was primarily due to higher product sales and royalty revenues as a result of opening 519 new licensed retail stores in the last 12 months, and, to a lesser extent, growth in the grocery and warehouse club channels. United States foodservice and other revenues increased $16 million, or 8%, to $204 million from $189 million in fiscal 2004, primarily due to growth in new and existing foodservice accounts.

United States operating income increased by 23% to $707 million for the 39 weeks ended July 3, 2005, from $576 million for the same period in fiscal 2004. Operating margin increased to 17.9% of related revenues from 17.6% in the corresponding period of fiscal 2004, primarily due to leverage from strong revenue growth and cost control throughout the business, partially offset by higher store operating expenses. Increased store operating expenses resulted from higher payroll-related expenditures as well as higher maintenance and repair expenditures to ensure a consistent Starbucks Experience in existing stores. The higher payroll-related expenditures were primarily the result of increasing the number of assistant store managers, opening a higher number of drive-thru locations over the past year, and extended store operating hours.

International

International total net revenues increased $181 million, or 31%, to $755 million for the 39 weeks ended July 3, 2005, compared to $575 million for the corresponding period of fiscal 2004.

International Company-operated retail revenues increased $154 million, or 33%, to $623 million for the 39 weeks ended July 3, 2005, compared to $469 million for the corresponding period for fiscal 2004, primarily due to the opening of 128 new Company-operated retail stores in the last 12 months, favorable foreign currency exchange rates for both the Canadian dollar and British pound sterling, and comparable store sales growth of 7% for the 39 weeks ended July 3, 2005. The increase in comparable store sales resulted from a 4% increase in the number of customer transactions coupled with a 3% increase in the average value per transaction.

Total International specialty revenues increased $26 million, or 25%, to $132 million for the 39 weeks ended July 3, 2005, compared to $106 million in the corresponding period of fiscal 2004. The increase was primarily due to higher product sales and royalty revenues from opening 320 new licensed retail stores in the last 12 months and growth in new and existing international foodservice accounts, particularly in the United Kingdom.

International operating income increased to $56 million for the 39 weeks ended July 3, 2005, from $32 million in the corresponding period of fiscal 2004. Operating margin increased to 7.4% of related revenues from 5.6% in the corresponding period of fiscal 2004, primarily due to leverage gained on fixed costs distributed over an expanded revenue base.

Unallocated Corporate

Unallocated corporate expenses pertain to certain functions, such as executive management, accounting, administration, tax, treasury, and information technology infrastructure, which are not specifically attributable to the Company’s operating segments, and include related depreciation and amortization expenses. Unallocated corporate expenses increased to $179 million for the 39 weeks ended July 3, 2005, compared to $157 million in the corresponding period of fiscal 2004. The increase was primarily due to higher payroll-related expenditures as well as higher professional fees, in support of both domestic and international expansion. Total unallocated corporate expenses as a percentage of total net revenues decreased to 3.8% for the 39 weeks ended July 3, 2005 compared to 4.1% for the corresponding period of fiscal 2004.

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Liquidity and Capital Resources

The following table represents components of the Company’s most liquid assets (in thousands):

	July 3,		October 3,
	2005		2004
Cash and cash equivalents	$	130,112	$	145,053
Short-term investments — available-for-sale and trading securities		218,429		507,956
Long-term investments — available-for-sale securities		83,894		135,179
Total	$	432,435	$	788,188

Starbucks has reclassified its auction rate securities of $154.1 million, previously classified in “Cash and cash equivalents,” as “Short-term investments — available-for-sale securities” on the consolidated balance sheet as of October 3, 2004. The Company had historically classified these securities as cash equivalents based on management’s ability to liquidate its holdings during the predetermined interest rate reset auctions, which generally occurred within 90 days of acquiring the securities. Although management had determined the risk of failure of an auction process to be remote, the definition of a cash equivalent in Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,” required reclassification to short-term investments.

The Company has made corresponding adjustments to its consolidated statement of cash flows for the prior year to reflect the gross purchases, sales and maturities of auction rate securities as investing activities rather than as a component of cash and cash equivalents. There was no impact on previously reported cash flows from operating activities as a result of the reclassification.

The Company manages its cash, cash equivalents and liquid investments in order to internally fund operating needs. Cash and cash equivalents decreased by $15 million for the 39 weeks ended July 3, 2005, to $130 million. The Company had $432 million in total cash and cash equivalents and liquid investments at July 3, 2005, a decrease of $356 million compared to $788 million at October 3, 2004, due primarily to the sale of securities to fund common stock share repurchases.

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. The Company may use its available cash resources to make proportionate capital contributions to its equity method and cost method investees, as well as purchase larger ownership interest in selected equity method investees, particularly in international markets. Depending on market conditions, Starbucks may acquire additional shares of its common stock under its authorized share repurchase program. Management believes that existing cash and investments, as well as the strong cash flow generated from operations, should be sufficient to finance capital requirements for its core businesses for the foreseeable future. Significant new joint ventures, acquisitions, share repurchases and/or other new business opportunities will likely require outside funding.

Other than normal operating expenses, cash requirements for the remainder of fiscal 2005 are expected to consist primarily of capital expenditures for new Company-operated retail stores and the remodeling and refurbishment of existing Company-operated retail stores, as well as for any additional share repurchases. Management expects capital expenditures in fiscal 2005 to be at the low end of its original fiscal 2005 estimated range of $600 million to $650 million. For fiscal 2006, management expects capital expenditures to be in the range of $700 million to $725 million, related to opening approximately 850 Company-operated stores on a global basis, remodeling certain existing stores and enhancing its production capacity and information systems.

Cash provided by operating activities totaled $759 million for the 39 weeks ended July 3, 2005. Net earnings provided $371 million, further increased by non-cash depreciation and amortization expenses of $272 million and the tax benefit from the exercise of non-qualified stock options of $100 million.

Cash used by investing activities for the 39 weeks ended July 3, 2005, totaled $141 million. Net capital additions to property, plant and equipment used $470 million primarily for opening 465 new Company-operated retail stores and remodeling certain existing stores. Gross capital additions for the 39 weeks ended July 3, 2005, were $491 million and were offset by impairment provisions and foreign currency translation adjustments totaling $21 million. In November 2004, the Company increased its equity ownership from 18% to 100% for its licensed operations in Germany, which used $11 million, net of cash acquired. In April 2005, the Company acquired substantially all of the assets of Ethos Brands, LLC, a privately held bottled water company based in Santa Monica, California, which used $8 million, net of cash acquired. Partially offsetting these uses of cash, the net activity in the available-for-sale securities portfolio provided $341

22

million for the 39 weeks ended July 3, 2005, which was used to fund a portion of the Company’s common stock share repurchases.

Cash used by financing activities for the 39 weeks ended July 3, 2005, totaled $632 million, which was primarily attributed to the Company’s common stock share repurchases, partially offset by proceeds received from the exercise of stock options and sale of stock under the Company’s employee stock purchase plans. The total remaining amount of shares authorized for repurchase as of July 3, 2005 was 12.6 million. Share repurchases are at the discretion of management and depend on market conditions, capital requirements and such other factors as management may consider relevant.

Store Data

The following table summarizes the Company’s retail store information:

	Net stores opened during the period
	13-week period ended				39-week period ended				Stores open as of
	July 3,		June 27,		July 3,		June 27,		July 3,		June 27,
	2005		2004		2005		2004		2005		2004
United States:
Company-operated Stores		141		99		373		302		4,666		4,081
Licensed Stores		142		84		383		281		2,222		1,703
		283		183		756		583		6,888		5,784
International:
Company-operated Stores (1)		31		29		92		94		1,049		921
Licensed Stores (1)		96		73		254		217		1,734		1,414
		127		102		346		311		2,783		2,335
Total		410		285		1,102		894		9,671		8,119

⁽¹⁾ International store data has been adjusted for the 100% acquisition of the Germany and Singapore licensed operations by reclassifying historical information from Licensed Stores to Company-operated Stores.

Starbucks continues to plan to open approximately 1,500 new stores on a global basis in fiscal 2005. In the United States, Starbucks plans to open approximately 550 Company-operated locations and 525 licensed locations. In International markets, Starbucks plans to open approximately 100 Company-operated stores and 325 licensed stores.

Starbucks plans to open approximately 1,800 new stores on a global basis in fiscal 2006. In the United States, Starbucks plans to open approximately 700 Company-operated locations and 600 licensed locations. In International markets, Starbucks plans to open approximately 150 Company-operated stores and 350 licensed stores.

Contractual Obligations

There have been no material changes during the period covered by this report, outside of the ordinary course of the Company’s business, to the contractual obligations specified in the table of contractual obligations included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Fiscal 2004 Annual Report on Form 10-K/A.

Off-Balance Sheet Arrangement

The Company has unconditionally guaranteed the repayment of certain Japanese yen-denominated bank loans and related interest and fees of an unconsolidated equity investee, Starbucks Coffee Japan, Ltd. (“Starbucks Japan”). The guarantees continue until the loans, including accrued interest and fees, have been paid in full, with the final loan amount due in 2014. The maximum amount is limited to the sum of unpaid principal and interest amounts, as well as other related expenses. These amounts will vary based on fluctuations in the yen foreign exchange rate. As of July 3, 2005, the maximum amount of the guarantees was approximately $9.8 million. Since there has been no modification of these loan guarantees subsequent to the Company’s adoption of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indebtedness of Others,” Starbucks has applied the disclosure provisions only and has not recorded the guarantee on its balance sheet.

23

Product Warranties

Coffee brewing and espresso equipment sold to customers through Company-operated and licensed retail stores as well as equipment sold to the Company’s licensees for use in retail licensing operations are under warranty for defects in materials and workmanship for a period ranging from 12 to 24 months. The Company establishes an accrual for estimated warranty costs at the time of sale, based on historical experience. Product warranty costs and changes to the related accrual were not significant for the 39-week period ended July 3, 2005.

Commodity Prices, Availability and General Risk Conditions

The supply and price of coffee are subject to significant volatility. Although most green 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.

With green coffee commodity costs at relatively low levels in recent years, the Company has used fixed-price purchase commitments in order to secure an adequate supply of quality green coffee, bring greater certainty to the cost of sales in future periods, and ensure a fair and sustainable price to coffee producers. As of July 3, 2005, the Company had $261 million in fixed-price purchase commitments which, together with existing inventory, is expected to provide an adequate supply of green coffee well into fiscal 2006. The Company believes, based on relationships established with its suppliers, the risk of non-delivery on such purchase commitments is remote. During the first few months of fiscal 2005, green coffee commodity prices increased significantly. Since then, commodity prices have moderated but still remain above the historically low levels experienced in recent years. Based on its market experience, the Company believes that fixed-price purchase commitments are less likely to be available on favorable terms when commodity prices are high. The Company therefore expects to return to its previous practice of price-to-be-fixed purchase contracts for green coffee purchases to meet at least some of its demand. The Company believes that, through a combination of fixed-price and price-to-be-fixed contracts it will be able to secure an adequate supply of quality green coffee. However, the use of price-to-be-fixed contracts instead of fixed-price contracts will decrease the predictability of coffee costs in future periods.

Fluid milk prices in the United States, which closely follow the monthly Class I fluid milk base price as calculated by the U.S. Department of Agriculture, rose significantly in fiscal 2004 and remained at high levels during the first half of fiscal 2005. Although the Company’s dairy costs have declined in recent months, the Company’s profitability could be adversely affected should prices increase significantly. Management continues to monitor published dairy prices on the related commodities markets, but cannot predict with any certainty the future prices to be paid for dairy products.

In addition to fluctuating commodity prices, management believes that the Company’s future statements of earnings could be significantly impacted by other factors, such as increased competition within the specialty coffee industry, the Company’s ability to find optimal store locations at favorable lease rates, increased costs associated with opening and operating retail stores and the Company’s continued ability to hire, train and retain qualified personnel, as well as other factors discussed under “Certain Additional Risks and Uncertainties” in the “Business” section of the Company’s Annual Report on Form 10-K/A for the fiscal year ended October 3, 2004.

Seasonality and Quarterly Results

The Company’s business is subject to seasonal fluctuations. Historically, significant portions of the Company’s net revenues and profits were, and may continue to be 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.

Recently Issued Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS 123. SFAS 123R will require Starbucks to, among other things, measure all employee stock-based compensation awards using a fair value method and record such expense in the Company’s consolidated

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financial statements. The provisions of SFAS 123R, as amended by SEC Staff Accounting Bulletin No. 107, “Share-Based Payment,” are effective no later than the beginning of the next fiscal year that begins after June 15, 2005, and Starbucks will adopt the new requirements in its first fiscal quarter of 2006, using the modified prospective transition method. The adoption of SFAS 123R will reduce the Company’s future net earnings. Management continues to evaluate the impacts of SFAS 123R and related interpretations to quantify the expected financial impacts.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 requires the recognition of a liability for the fair value of a legally-required conditional asset retirement obligation when incurred, if the liability’s fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company has not yet determined the impact of adoption on its consolidated statement of earnings and balance sheet.

In December 2004, the FASB issued Staff Position No. FAS 109-1, “Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004” (“FSP 109-1”). FSP 109-1 states that qualified domestic production activities should be accounted for as a special deduction under SFAS No. 109, “Accounting for Income Taxes,” and not be treated as a rate reduction. The provisions of FSP 109-1 are effective immediately. The Company continues to evaluate the impact of the new Act, which will allow Starbucks to qualify for a benefit beginning in fiscal 2006.

In December 2004, the FASB issued Staff Position No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”). The American Jobs Creation Act allows a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. The Company may elect to repatriate earnings in either fiscal 2005 or fiscal 2006. FSP 109-2 provides accounting and disclosure guidance for the repatriation provision. Although FSP 109-2 is effective immediately, it allows companies additional time beyond the enactment date to evaluate the effects of the provision on its plan for investment or repatriation of unremitted foreign earnings. The Company continues to evaluate the impact of the new Act to determine whether it will repatriate foreign earnings and the impact, if any, this pronouncement will have on its consolidated financial statements. In addition, the U.S. Treasury Department is expected to provide additional clarifying guidance on certain elements of the repatriation provision. Earnings under consideration for repatriation range from $0 to $100 million and the related income tax effects from such repatriation cannot be reasonably estimated at this time. As provided in FSP 109-2, Starbucks has not adjusted its tax expense or deferred tax liability to reflect the repatriation provision.

In November 2004, the FASB issued Statement No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. The provisions of SFAS 151 are effective for fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a significant impact on the Company’s consolidated balance sheet or statement of earnings.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

As of July 3, 2005, the Company had forward foreign exchange contracts that qualify as cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to hedge a portion of anticipated international revenue and product purchases. In addition, Starbucks had forward foreign exchange contracts that qualify as a hedge of its net investment in Starbucks Japan. These contracts expire within 21 months.

Based on the foreign exchange contracts outstanding as of July 3, 2005, a 10% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract as of July 3, 2005, would result in a reduced fair value of these derivative financial instruments of approximately $11.2 million, of which $4.6 million may reduce the Company’s future earnings. Conversely, a 10% appreciation of the U.S. dollar would result in an increase in the fair value of these instruments of approximately $11.7 million, of which $6.3 million may increase the Company’s future earnings. Consistent with the nature of the economic hedges provided by these foreign exchange contracts, increases or decreases in the fair value would be mostly offset by corresponding decreases or increases in the dollar value of the Company’s foreign investment, future foreign currency royalty fee payments and product purchases that would occur within the hedging period.

There has been no material change in the equity security price risk or interest rate risk discussed in Item 7A of the Company’s Fiscal 2004 Annual Report on Form 10-K/A.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are effective, as of the end of the period covered by this Report (July 3, 2005), in ensuring that material information relating to Starbucks Corporation, including its consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended July 3, 2005, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management Report on Internal Controls

At the end of fiscal 2005, Section 404 of the Sarbanes-Oxley Act will require the Company’s management to provide an assessment of the effectiveness of the Company’s internal control over financial reporting, and the Company’s independent registered public accountant will be required to audit management’s assessment. The Company is in the process of performing the system and process documentation, evaluation and testing required for management to make this assessment and for its independent registered public accountant to provide its attestation report. The Company has not completed this process or its assessment, and this process will require significant amounts of management time and resources. In the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On June 3, 2004, two current employees of the Company filed a lawsuit, entitled Sean Pendlebury and Laurel Overton v. Starbucks Coffee Company, in the U.S. District Court for the Southern District of Florida claiming the Company violated requirements of the Fair Labor Standards Act (FLSA). The suit alleges that the Company misclassified its retail store managers as exempt from the overtime provisions of the FLSA and that the managers are therefore entitled to overtime compensation for any week in which they worked more than 40 hours during the past three years. Plaintiffs seek to represent themselves and all similarly situated U.S. current and former store managers of the Company. Plaintiffs seek reimbursement for an unspecified amount of unpaid overtime compensation, liquidated damages, attorney’s fees and costs. Plaintiffs also filed on June 3, 2004 a motion for conditional collective action treatment and court-supervised notice to additional putative class members under the opt-in procedures in section 16(b) of the FLSA. On January 3, 2005, the district court entered an order authorizing nationwide notice of the lawsuit to all current and former store managers employed by the Company during the past three years. The Company filed a motion for summary judgment as to the claims of the named plaintiffs on September 24, 2004. The court denied that motion because this case is in the early stages of discovery, but the court noted that the Company may resubmit this motion at a later date. Starbucks believes that the plaintiffs are properly classified as exempt under the federal wage laws and that a loss in this case is unlikely. Due to the early status of this case, the Company cannot estimate the possible loss to the Company, if any. Trial currently is set for early 2006, and the Company intends to vigorously defend the lawsuit.

In addition to the lawsuit 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 balance sheet or statement of earnings of the Company.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding repurchases by the Company of its common stock during the 13-week period ended July 3, 2005:

ISSUER PURCHASES OF EQUITY SECURITIES

							Maximum
					Total Number of		Number of Shares
	Total		Average		Shares Purchased		that May Yet Be
	Number		Price		as Part of Publicly		Purchased Under
	of Shares		Paid per		Announced Plans		the Plans or
Period (1)	Purchased		Share		or Programs(2)		Programs (2)
April 4, 2005 — May 1, 2005		5,562,500	$	48.24		5,562,500		16,488,100
May 2, 2005 — May 29, 2005		2,578,500	$	52.45		2,578,500		13,909,600
May 30, 2005 — July 3, 2005		1,299,060	$	52.90		1,299,060		12,610,540
Total		9,440,060	$	50.03		9,440,060

(1)

Monthly information is presented by reference to the Company’s fiscal months during the period covered by this Quarterly Report on Form 10-Q.

(2)

The Company’s share repurchase program is conducted pursuant to authorizations made from time to time by the Company’s Board of Directors. The shares reported in the table are covered by Board authorizations to repurchase shares of common stock as follows: ten million shares, announced March 31, 2003; nine million shares announced on September 23, 2004; and ten million shares announced on May 5, 2005. Shares remaining for repurchase relate only to the authorizations announced on September 23, 2004 and May 5, 2005. Neither of these authorizations has an expiration date.

Item 6. Exhibits

(a) Exhibits:

Exhibit
No.		Description
	10.1	2005 Company-Wide Sub-Plan to the Starbucks Corporation 2005 Long-Term Equity Incentive Plan
	10.2	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
	10.3	Employment Agreement dated May 25, 2005 between Starbucks Corporation and Michael Casey (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 27, 2005)
	10.4	Employment Agreement dated May 25, 2005 between Starbucks Corporation and David A. Pace (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 27, 2005)
	31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

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

	STARBUCKS CORPORATION
August 10, 2005	By:	/s/ MICHAEL CASEY
		Michael Casey
		executive vice president and chief financial officer
		Signing on behalf of the registrant and as principal financial officer

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INDEX TO EXHIBITS

Exhibit
No.		Description
	10.1	2005 Company-Wide Sub-Plan to the Starbucks Corporation 2005 Long-Term Equity Incentive Plan
	10.2	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
	10.3	Employment Agreement dated May 25, 2005 between Starbucks Corporation and Michael Casey (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 27, 2005)
	10.4	Employment Agreement dated May 25, 2005 between Starbucks Corporation and David A. Pace (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 27, 2005)
	31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

E1

EX-10.1

Exhibit 10.1

STARBUCKS CORPORATION

2005 COMPANY-WIDE SUB-PLAN
TO THE
2005 LONG-TERM EQUITY INCENTIVE PLAN

     1. Purpose. The purposes of this Sub-Plan are (i) to assist in the administration and implementation of the Starbucks Corporation 2005 Long-Term Equity Incentive Plan (the “Plan”), by providing additional procedures and guidelines which apply specifically to Partners, and (ii) to encourage ownership of the Common Stock by all Partners. This Sub-Plan is intended to provide an incentive for Partners to exert their maximum efforts to achieve the successful operation of the Company and is intended to assist the Company in attracting and retaining talented personnel by providing an opportunity to benefit from any increased value of the Company, to which such Partners and new personnel will have contributed. This Sub-Plan is intended to link the interests of the Partners with those of the Company’s shareholders. The benefits of this Sub-Plan are not a substitute for compensation otherwise payable to Partners pursuant to the terms of their employment.

     2. Definitions. Capitalized terms used without definition in this Sub-Plan shall have the meanings given such terms in the Plan. To the extent that any term defined herein conflicts with the definition of such term under the Plan, the definition in this Sub-Plan shall control.

     For purposes of this Sub-Plan:

          (a) “Active Status” shall mean for Partners, the absence of any interruption or termination of service as a Partner. Active Status shall not be considered interrupted for a Partner in the case of sick leave, maternity leave, infant care leave, medical emergency leave, military leave, or any other leave of absence properly taken in accordance with the policies of the Company or any applicable Subsidiary as may be in effect from time to time. Whenever a mandatory severance period applies under applicable law with respect to a termination of service as a Partner, Active Status shall be considered terminated upon such Partner’s receipt of notice of termination in whatever form prescribed by applicable law.

          (b) “Award” shall mean any award or benefit granted under this Sub-Plan, including Options, Restricted Stock, and Restricted Stock Units.

          (c) “Award Agreement” shall mean the written or electronic agreement between the Company and a Partner setting forth the terms of the Award.

          (d) “Base Wages,” with respect to an Eligible Partner, means all gross actual base pay (including any applicable shift differentials), whether paid or deferred, but not including overtime, bonuses and commissions, and shall be calculated before deductions for amounts contributed to Company or Subsidiary benefits and/or long-term savings plans. “Base Wages” does not include deferred income at payout, any awards payable under any long-term incentive plan to be adopted by the Company or any Subsidiary, imputed income for life insurance, relocation reimbursement or similar programs. With respect to the entire Company and the Subsidiaries, “Base Wages” means the total amount of Base Wages for all Eligible Partners at a particular time under this Sub-Plan.

          (e) “Beneficial Ownership” shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.

          (f) “Board” shall mean the Board of Directors of the Company.

          (g) “Change of Control” shall mean the first day that any one or more of the following conditions shall have been satisfied:

               (i) the sale, liquidation or other disposition of all or substantially all of the Company’s assets in one or a series of related transactions;

1

               (ii) an acquisition (other than directly from the Company) of any outstanding voting securities by any Person, after which such person (as the term is used for purposes of Section 13(d) or 14(d) of the Exchange Act) has Beneficial Ownership of twenty-five percent (25%) or more of the then outstanding voting securities of the Company, other than a Board approved transaction;

               (iii) during any 36-consecutive month period, the individuals who, at the beginning of such period, constitute the Board (“Incumbent Directors”) cease for any reason other than death to constitute at least a majority of the members of the Board; provided however that except as set forth in this Section 2(g)(iii), an individual who becomes a member of the Board subsequent to the beginning of the 36-month period, shall be deemed to have satisfied such 36-month requirement and shall be deemed an Incumbent Director if such Director was elected by or on the recommendation of or with the approval of at least two-thirds of the Directors who then qualified as Incumbent Directors either actually (because they were Directors at the beginning of such period) or by operation of the provisions of this section; if any such individual initially assumes office as a result of or in connection with either an actual or threatened solicitation with respect to the election of Directors (as such terms are used in Rule 14a-12(c) of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitations of proxies or consents by or on behalf of a Person other than the Board, then such individual shall not be considered an Incumbent Director; or

               (iv) a merger, consolidation or reorganization of the Company, as a result of which the shareholders of the Company immediately prior to such merger, consolidation or reorganization own directly or indirectly immediately following such merger, consolidation or reorganization less than fifty percent (50%) of the combined voting power of the outstanding voting securities of the entity resulting from such merger, consolidation or reorganization.

          (h) “Code” shall mean the Internal Revenue Code of 1986, as amended.

          (i) “Committee” shall mean the Compensation and Management Development Committee appointed by the Board.

          (j) “Common Stock” shall mean the common stock of the Company, par value $0.001 per share.

          (k) “Company” shall mean Starbucks Corporation, a Washington corporation and any successor thereto.

          (l) “Director” shall mean a member of the Board.

          (m) “Disability” shall mean (i) in the case of a Partner whose employment with the Company or a Subsidiary is subject to the terms of an employment or consulting agreement that includes a definition of disability, “Disability” as used in this Sub-Plan shall have the meaning set forth in such employment or consulting agreement during the period that such employment or consulting agreement remains in effect; and (ii) in all other cases, the term “Disability” as used in this Sub-Plan shall have the same meaning as set forth under the Company’s long-term disability plan applicable to the Partner as may be amended from time to time, and in the event the Company does not maintain any such plan with respect to a Partner, a physical or mental condition resulting from bodily injury, disease or mental disorder which renders the Partner incapable of continuing his or her usual and customary employment with the Company or a Subsidiary, as the case may be, for a period of not less than 120 days or such other period as may be required by applicable law.

          (n) “Eligible Partner” shall mean any regular, full-time or part-time Partner who (i) was a Partner as of April 1 in the fiscal year of the Company prior to the date of the Award grant, (ii) is a Partner on the date of the Award grant, and (iii) who has been paid for at least 500 hours (which equates to approximately twenty hours per week on average) between April 1 and the last day of the prior fiscal year or between the first day of the

2

prior fiscal year and March 31 of the fiscal year prior to the date of the Award grant. Officers and members of the Board of Directors of the Company or its Subsidiaries shall not be eligible to participate in this Sub-Plan.

          (o) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          (p) “Fair Market Value” shall mean the closing price per share of the Common Stock on Nasdaq as to the date specified (or the previous trading day if the date specified is a day on which no trading occurred), or if Nasdaq shall cease to be the principal exchange or quotation system upon which the shares of Common Stock are listed or quoted, then such exchange or quotation system as the Company elects to list or quote its shares of Common Stock and that the Committee designates as the Company’s principal exchange or quotation system.

          (q) “Family Member” shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing a Partner’s household (other than a tenant or an employee), a trust in which these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or a Partner) control the management of assets, and any other entity in which these persons (or a Partner) own more than fifty percent (50%) of the voting interests.

          (r) “Misconduct” with respect to a Partner shall mean any of the following:

               (i) any material breach of an agreement between the Partner and the Company or any Subsidiary which, if curable, has not been cured within twenty (20) days after the Partner has been given written notice of the need to cure such breach, or which breach, if previously cured, recurs;

               (ii) any willful unauthorized use or disclosure of confidential information or trade secrets of the Company or any Subsidiary by the Partner;

               (iii) the Partner’s continued willful and intentional failure to satisfactorily perform Partner’s essential responsibilities, provided that the Partner has been given at least thirty (30) days’ written notice of the need to cure the failure and cure has not been effected within that time period, or which failure, if previously cured, recurs;

               (iv) any material failure of the Partner to comply with rules, policies or procedures of the Company or any Subsidiary as they may be amended from time to time, provided that the Partner has been given at least thirty (30) days’ written notice of the need to cure the failure, if such failure is curable, and cure has not been effected within that time period, or which failure, if previously cured, recurs;

               (v) the Partner’s dishonesty, fraud or gross negligence related to the business or property of the Company or any Subsidiary;

               (vi) personal conduct that is materially detrimental to the business of the Company or any Subsidiary; or

               (vii) conviction of or plea of nolo contendere to a felony.

          (s) “Nasdaq” shall mean The Nasdaq Stock Market, Inc.

          (t) “Nonqualified Stock Option” shall mean an Option that does not qualify or is not intended to qualify as an incentive stock option under Section 422 of the Code.

          (u) “Officer” shall mean a Partner serving in a position of vice president or higher of the Company.

3

          (v) “Option” shall mean a Nonqualified Stock Option granted pursuant to this Sub-Plan; no Option granted under this Sub-Plan shall be an incentive stock option within the meaning of Section 422 of the Code.

          (w) “Optionee” shall mean a Partner who has been granted an Option.

          (x) “Partner” shall mean any Person who is a common law employee of, receives remuneration for personal services to, is reflected on the official human resources database as an employee of, and is on the payroll of the Company or any Subsidiary. A Person is on the payroll if he or she is paid from or at the direction of the payroll department of the Company, or any Subsidiary. Persons providing services to the Company, or to any Subsidiary, pursuant to an agreement with a staff leasing organization, temporary workers engaged through or employed by temporary or leasing agencies, and workers who hold themselves out to the Company or a Subsidiary to which they are providing services as being independent contractors, or as being employed by or engaged through another company while providing the services, and Persons covered by a collective bargaining agreement (unless the collective bargaining agreement applicable to the Person specifically provides for participation in this Sub-Plan) are not Partners for purposes of this Sub-Plan and do not and cannot participate in this Sub-Plan, whether or not such Persons are, or may be reclassified by the courts, the U.S. Internal Revenue Service, the U. S. Department of Labor, or other Person as, common law employees of the Company, or any Subsidiary, either solely or jointly with another Person.

          (y) “Person” shall mean a natural person, company, government or political subdivision, agency or instrumentality of a government.

          (z) “Plan” shall mean the Starbucks Corporation 2005 Long-Term Equity Incentive Plan.

          (aa) “Reprice” shall mean the adjustment or amendment of the exercise price of Options previously awarded, whether through amendment, cancellation, replacement of grant or any other means.

          (bb) “Resignation (or Resign) for Good Reason” shall mean any voluntary termination by written resignation of the Active Status of any Partner after a Change of Control because of: (1) a material reduction in the Partner’s authority, responsibilities or scope of employment; (2) an assignment of duties to the Partner inconsistent with the Partner’s role at the Company or Subsidiary prior to the Change of Control; (3) a reduction in the Partner’s base salary or total incentive compensation; (4) a material reduction in the Partner’s benefits, unless such reduction applies to all Partners of comparable rank; or (5) the relocation of the Partner’s primary work location more than fifty (50) miles from the Partner’s primary work location prior to the Change of Control; provided that the Partner’s written notice of voluntary resignation must be tendered within one (1) year after the Change of Control, and shall specify which of the events described in clauses (1) through (5) above resulted in the resignation.

          (cc) “Restricted Stock” shall mean a grant of Shares pursuant to this Sub-Plan.

          (dd) “Restricted Stock Units” shall mean a grant of the right to receive Shares in the future or their cash equivalent (or both) pursuant to this Sub-Plan and may be paid in Shares, their cash equivalent or both.

          (ee) “Retirement” shall mean, with respect to any Partner, voluntary termination of employment after attainment of age fifty-five (55) and at least ten (10) years of credited service with the Company or any Subsidiary (but only during the time the Subsidiary was a Subsidiary), as determined by the Committee in its sole discretion.

          (ff) “Share” shall mean one share of Common Stock, as adjusted in accordance with Section 6 of this Sub-Plan.

          (gg) “Sub-Plan” means this Starbucks Corporation 2005 Company-Wide Sub-Plan to the Plan, including any country-specific rules approved and adopted by the Committee, as such plan and country-specific rules may be amended and restated from time to time.

4

          (hh) “Subsidiary” shall mean, with respect to the Company, a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code and in addition (1) a limited liability company, partnership or other entity in which the Company controls fifty percent (50%) or more of the voting power or equity interests, or (2) an entity with respect to which the Company possesses the power, directly or indirectly, to direct or cause the direction of the management and policies of that entity, whether through the Company’s ownership of voting securities, by contract or otherwise.

     3. Administration of this Sub-Plan.

          (a) Committee. This Sub-Plan shall be administered by the Committee, subject to such terms and conditions as the Committee may prescribe; provided that they are consistent with the terms of the Plan. Notwithstanding anything herein to the contrary, the Committee’s power to administer this Sub-Plan, and actions the Committee takes under this Sub-Plan, shall be limited by the provisions set forth in the Committee’s charter, as such charter may be amended from time to time, and the further limitation that certain actions may be subject to review and approval by either the full Board or a panel consisting of all of the Independent Directors of the Company.

          (b) Authority; Powers. Subject to the express terms and conditions set forth herein and the Plan, the Committee shall have the discretion from time to time:

               (i) to grant Options, Restricted Stock, or Restricted Stock Units to Partners and to determine the terms and conditions of such Awards, including the determination of the Fair Market Value of the Shares and the exercise price, and to modify or amend each Award, with the consent of the Partner when required;

               (ii) to determine the Partners to whom Awards, if any, will be granted hereunder, the timing of such Awards, and the number of Shares to be represented by each Award;

               (iii) to construe and interpret this Sub-Plan and the Awards granted hereunder;

               (iv) to prescribe, amend, and rescind rules and regulations relating to this Sub-Plan or to any sub-plan established under this Sub-Plan, including the form of Award Agreement, and manner of acceptance of an Award, such as correcting a defect or supplying any omission, or reconciling any inconsistency so that this Sub-Plan, any sub-plan established under this Sub-Plan or any Award Agreement complies with applicable law regulations and listing requirements and to avoid unanticipated consequences deemed by the Committee to be inconsistent with the purposes of this Sub-Plan, any sub-plan established under this Sub-Plan or any Award Agreement;

               (v) to establish performance criteria (as defined in Section 11(b) of the Plan) for Awards made pursuant to this Sub-Plan or to any sub-plan established under this Sub-Plan in accordance with a methodology established by the Committee, and to determine whether performance goals have been attained;

               (vi) to accelerate or defer (with the consent of the Partner) the exercise or vested date of any Award;

               (vii) to authorize any Person to execute on behalf of the Company any instrument required to effectuate the grant of an Award previously granted by the Committee;

               (viii) to establish sub-plans, procedures, or guidelines for the grant of Awards to Eligible Partners;

               (ix) to make all other determinations deemed necessary or advisable for the administration of this Sub-Plan or any sub-plan established under this Sub-Plan;

5

Provided that, no consent of a Partner is necessary under clauses (i) or (vi) if a modification, amendment, acceleration, or deferral, in the reasonable judgment of the Committee, confers a benefit on the Partner or is made pursuant to an adjustment in accordance with Section 6.

          (c) Effect of Committee’s Decision. All decisions, determinations, and interpretations of the Committee shall be final and binding on all Partners, the Company (including the Subsidiaries), any shareholder and all other Persons.

          (d) Delegation. Notwithstanding anything to the contrary set forth in the Plan, unless otherwise determined by the Board from time to time, the Committee may not delegate the ability to grant any Awards pursuant to this Sub-Plan.

     4. Maximum Annual Option Grant. The Shares issued under this Sub-Plan are Shares reserved for issuance under the Plan. The maximum number of Options an Eligible Partner may receive in any fiscal year of the Company may not exceed that number of Options to purchase Shares having an aggregate Fair Market Value on the date of grant equal to fourteen percent (14%) of such Eligible Partner’s Base Wages for the previous fiscal year. Notwithstanding the foregoing, the Committee, in its sole discretion, may increase the maximum value of shares subject to Awards set forth in the prior sentence from time to time. Upon a change in capitalization, the number of Shares referred to in the first sentence of this Section 4 shall be adjusted pursuant to Section 6.

     5. Procedure for Exercise of Awards; Rights as a Shareholder.

          (a) Procedure. An Award shall be exercised when written, electronic or verbal notice of exercise has been given to the Company, or the brokerage firm or firms approved by the Company to facilitate exercises and sales under this Sub-Plan, in accordance with the terms of the Award by the Person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised has been received by the Company or the brokerage firm or firms, as applicable. The notification to the brokerage firm shall be made in accordance with procedures of such brokerage firm approved by the Company. Full payment may, as authorized by the Committee, consist of any consideration and method of payment allowable under Section 5(b) of this Sub-Plan. The Company shall issue (or cause to be issued) such share certificate promptly upon exercise of the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the share certificate is issued, except as provided in Section 6 of this Sub-Plan.

          (b) Method of Payment. The permissible methods of payment of consideration for any Shares to be issued upon exercise or other required settlement of an Award shall be: (i) with respect to an Option, a request that the Company or the designated brokerage firm conduct a cashless exercise of the Option; and (ii) cash. Notwithstanding anything to the contrary contained in the Plan, payment of the aggregate exercise price of Options by means of tendering previously owned shares of Common Stock shall not be permitted.

          (c) Withholding Obligations. To the extent required by applicable federal, state, local or foreign law, the Committee may and/or a Partner shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise with respect to any Option, Restricted Stock or Restricted Stock Units, or any sale of Shares. The Company shall not be required to issue Shares or to recognize the disposition of such Shares until such obligations are satisfied. These obligations may be satisfied by having the Company withhold a portion of the Shares that otherwise would be issued to a Partner under such Award, such withholding to be done at the minimum tax rate required by applicable law. Notwithstanding anything to the contrary contained in the Plan, the satisfaction of these obligations by tendering previously owned shares of Common Stock shall not be permitted.

          (d) Shareholder Rights. Except as otherwise provided in this Sub-Plan, until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the share certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares subject to the Award, notwithstanding the exercise of the Award.

6

          (e) Non-Transferability of Awards. An Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in exchange for consideration, except that an Award may be transferred (i) by will, or by the laws of descent or distribution applicable to, a deceased Partner, and/or (ii) pursuant to a domestic relations order.

     6. Adjustments to Shares Subject to this Sub-Plan. If any change is made to the Shares by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Shares as a class without the Company’s receipt of consideration, appropriate adjustments shall be made to the number of Shares which are subject to outstanding Awards under this Sub-Plan. The Committee may also make adjustments described in the previous sentence in the event of any distribution of assets to shareholders other than a normal cash dividend. In determining adjustments to be made under this Section 6, the Committee may take into account such factors as it deems appropriate, including the restrictions of applicable law and the potential tax consequences of an adjustment, and in light of such factors may make adjustments that are not uniform or proportionate among outstanding Awards. Adjustments, if any, and any determinations or interpretations, including any determination of whether a distribution is other than a normal cash dividend, made by the Committee shall be final, binding and conclusive. For purposes of this Section 6, conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.”

     7. Expiration of Awards.

          (a) Expiration, Termination or Forfeiture of Awards. Unless otherwise provided in the applicable Award Agreement or any severance agreement, vested Awards granted under this Sub-Plan shall expire, terminate, or otherwise be forfeited as follows:

               (i) ninety (90) days after the date of termination of a Partner’s Active Status, other than in circumstances covered by (ii), (iii), (iv) or (v) below;

               (ii) immediately upon termination of a Partner’s Active Status for Misconduct;

               (iii) twelve (12) months after the date on which a Partner ceased performing services as a result of his or her total and permanent Disability;

               (iv) twelve (12) months after the date of the death of a Partner whose Active Status terminated as a result of his or her death; and

               (v) thirty-six (36) months after the date on which the Partner ceased performing services as a result of Retirement.

          (b) Extension of Term. Notwithstanding subsection (a) above, the Committee shall have the authority to extend the expiration date of any outstanding Option in circumstances in which it deems such action to be appropriate (provided that no such extension shall extend the term of an Option beyond the date on which the Option would have expired if no termination of the Partner’s Active Status had occurred).

     8. Effect of Change of Control. Notwithstanding any other provision in this Sub-Plan or the Plan to the contrary, the following provisions shall apply unless otherwise provided in the most recently executed agreement between the Partner and the Company, or specifically prohibited under applicable laws, or by the rules and regulations of any applicable governmental agencies or national securities exchanges or quotation systems.

          (a) Acceleration. Awards of a Partner shall be Accelerated (as defined in Section 8(b) below) as follows:

               (i) With respect to any Partner, upon the occurrence of a Change of Control described in Section 2(g)(i);

               (ii) With respect to any Partner who Resigns for Good Reason or whose Active Status is terminated within one year after a Change of Control described in Section 2(g)(ii), (iii) or (iv); and

7

               (iii) With respect to any Partner, notwithstanding Section 8(a)(ii) above, upon the occurrence of a Change of Control described in Section 2(g)(iv), but only if in connection with such Change of Control each Award is not assumed or an equivalent award substituted by such successor entity or a parent or subsidiary of such successor entity.

          (b) Definition. For purposes of this Section 8, Awards of a Partner being “Accelerated” means, with respect to such Partner:

               (i) any and all Options shall become fully vested and immediately exercisable, and shall remain exercisable throughout their entire term;

               (ii) any restriction periods and restrictions imposed on Restricted Stock or Restricted Stock Units that are not performance-based shall lapse; and

               (iii) the restrictions and deferral limitations and other conditions applicable to any other Awards shall lapse, and such other Awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original grant.

     9. Grant, Terms and Conditions of Options.

          (a) Designation. Each Option shall be designated in an Award Agreement as a Nonqualified Stock Option.

          (b) Terms of Options. The terms of all Options shall be at the discretion of the Committee.

          (c) Option Exercise Prices.

               (i) The per Share exercise price under an Option shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

               (ii) In no event shall the Board or the Committee be permitted to Reprice an Option after the date of grant without shareholder approval.

          (d) Vesting. Subject to Section 8 and unless otherwise approved by the Committee, each Option granted under this Sub-Plan shall vest and/or become exercisable in annual twenty-five percent (25%) installments commencing on the first anniversary of the date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Options expire. To the extent Options vest and become exercisable in increments, such Options shall cease vesting as of the date of the Optionee’s Disability or termination of such Optionee’s Active Status for reasons other than Retirement or death. In case of such Optionee’s Retirement or death, such Options shall become fully vested and immediately exercisable.

          (e) Exercise. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Committee at the time of grant, and as are permissible under the terms of this Sub-Plan. An Option may not be exercised for a fraction of a Share.

     10. Grant, Terms and Conditions of Stock Awards.

          (a) Designation. Restricted Stock or Restricted Stock Units may be granted either alone, in addition to, or in tandem with other Awards granted under this Sub-Plan. Restricted Stock or Restricted Stock Units may include a dividend equivalent right, as permitted by Section 6. After the Committee determines that it will offer Restricted Stock or Restricted Stock Units, it will advise the Partner in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions, including vesting, if any, related to the offer, including the number of Shares that the Partner shall be entitled to receive or purchase, the price to be paid, if any, and, if

8

applicable, the time within which the Partner must accept the offer. The offer shall be accepted by execution of an Award Agreement or as otherwise directed by the Committee. Restricted Stock Units may be paid as permitted by Section 5(b). The term of each award of Restricted Stock or Restricted Stock Units shall be at the discretion of the Committee.

          (b) Performance Criteria. Restricted Stock and Restricted Stock Units granted pursuant to this Sub-Plan that are intended to qualify as “performance based compensation” under Section 162(m) of the Code shall be subject to the attainment of performance goals relating to the Performance Criteria selected by the Committee and specified at the time such Restricted Stock and Restricted Stock Units are granted.

          (c) Vesting. Subject to Section 8 and unless otherwise approved by the Committee, Restricted Stock or Restricted Stock Units granted under this Sub-Plan shall vest in annual twenty-five percent (25%) installments commencing on the first anniversary of the date of grant. Unless the Committee determines otherwise, the Award Agreement shall provide for the forfeiture of the non-vested Shares underlying Restricted Stock or Restricted Stock Units upon the termination of a Partner’s Active Status. To the extent that the Partner purchased the Shares granted under such Restricted Stock or Restricted Stock Units and any such Shares remain non-vested at the time the Partner’s Active Status terminates, the termination of Active Status shall cause an immediate sale of such non-vested Shares to the Company at the original price per Share paid by the Partner.

     11. Termination and Amendment of this Sub-Plan. This Sub-Plan shall terminate on the date of termination of the Plan and no Award may be granted pursuant to this Sub-Plan thereafter. The Committee may at any time and from time to time amend, modify or suspend this Sub-Plan and all administrative rules, regulations and practices; provided, however, that no such amendment, modification, suspension or termination shall impair or adversely alter any Awards theretofore granted under this Sub-Plan, except with the consent of the Partner, nor shall any amendment, modification, suspension or termination deprive any Partner of any Shares that he or she may have acquired through or as a result of this Sub-Plan.

     12. Non-Exclusivity of this Sub-Plan. The adoption of this Sub-Plan by the Committee shall not be construed as amending, modifying or rescinding the Plan but is intended to serve as a framework for the Committee with respect to grants of Awards to Eligible Partners.

     13. Partners in Foreign Countries. Without amending this Sub-Plan, the Committee may grant Awards to Partners who are foreign nationals on such terms and conditions different from those specified in this Sub-Plan to achieve the purposes of this Sub-Plan. In furtherance of such purposes, the Committee may make such modifications to this Sub-Plan as may be necessary or advisable to comply with the provisions of the laws in other countries in which the Company or any Subsidiary operates or has employees.

     14. Multiple Award Grants. The terms of each Award grant may differ from other Awards granted under this Sub-Plan at another time. The Committee may also make more than one grant of Awards to a given Eligible Partner during the term of this Sub-Plan.

(Approved by the Compensation and Management Development Committee of the Board of Directors on May 3, 2005)

9

EX-10.2

                                                                    EXHIBIT 10.2

                                [STARBUCKS LOGO]


                              STARBUCKS CORPORATION
                          STOCK OPTION GRANT AGREEMENT

================================================================================

                              PERSONAL INFORMATION

    Partner Name:
    Partner Number:
    Date of Hire/Rehire:
    Eligible Fiscal Year 200_ Base Earnings:
    Grant Value as of _________, 200_:      (based on a grant percentage of __%)
================================================================================

                                GRANT INFORMATION

Congratulations! In consideration of your contributions as a partner, you have
been granted by Starbucks Corporation ("Starbucks" or the "Company") options to
purchase shares of Starbucks Common Stock under the 2005 Company-Wide Sub-Plan
to the Starbucks 2005 Long-Term Equity Incentive Plan (the "Plan"). The general
terms of your grant are as follows:

    Date of Grant:
    Exercise Price Per Share:
    Total Number of Options Granted:
    Vesting:                                    4 years (25% per year)
    Vesting Dates:

Your options are governed by and subject to all of the terms and conditions of
the Plan. The summary information included herein is qualified in its entirety
by the terms and conditions of the Plan. Terms used in this notice without
definition shall have the meanings ascribed to them in the Plan. Exercise of any
portion of the stock options granted hereby constitutes acceptance of all the
terms and conditions of this Stock Option Grant Agreement and the Plan.

Your options will become exercisable in __ annual installments that are as equal
in number as possible, beginning on ___________, 200_. Your options may be
exercised and shares of Starbucks Common Stock purchased on the day your options
become exercisable or on any subsequent date prior to the termination of the
option grant.

This option grant is not an employment contract and while the benefits, if any,
of these options are incident to your employment with Starbucks, the terms and
conditions of your employment and compensation are otherwise wholly independent
of the Plan and this grant.

                                               STARBUCKS CORPORATION




                                               --------------------------------
                                               Howard Schultz, chairman

EX-31.1

                                                                    EXHIBIT 31.1

        CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
      AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James L. Donald, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q for the period ended
      July 3, 2005, of Starbucks Corporation (the "Registrant");

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the Registrant as of, and for, the periods presented in this report;

4.    The Registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant
      and have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            Registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b)    [Reserved] [Paragraph omitted pursuant to SEC Release Nos. 33-8238
            and 34-47986];

      c)    Evaluated the effectiveness of the Registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d)    Disclosed in this report any change in the Registrant's internal
            control over financial reporting that occurred during the
            Registrant's most recent fiscal quarter (the Registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            Registrant's internal control over financial reporting; and

5.    The Registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the Registrant's auditors and the audit committee of the Registrant's
      board of directors (or persons performing the equivalent functions):

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the Registrant's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Registrant's
            internal control over financial reporting.

August 10, 2005                           /s/ JAMES L. DONALD
                                          --------------------------------------
                                          James L. Donald
                                          president and chief executive officer

EX-31.2

                                                                    EXHIBIT 31.2

        CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
      AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Casey, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q for the period ended
      July 3, 2005, of Starbucks Corporation (the "Registrant");

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the Registrant as of, and for, the periods presented in this report;

4.    The Registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant
      and have:

      a)    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            Registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b)    [Reserved] [Paragraph omitted pursuant to SEC Release Nos. 33-8238
            and 34-47986];

      c)    Evaluated the effectiveness of the Registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d)    Disclosed in this report any change in the Registrant's internal
            control over financial reporting that occurred during the
            Registrant's most recent fiscal quarter (the Registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            Registrant's internal control over financial reporting; and

5.    The Registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the Registrant's auditors and the audit committee of the Registrant's
      board of directors (or persons performing the equivalent functions):

      a)    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the Registrant's ability to
            record, process, summarize and report financial information; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Registrant's
            internal control over financial reporting.

August 10, 2005                           /s/ MICHAEL CASEY
                                          --------------------------------------
                                          Michael Casey
                                          executive vice president and chief
                                          financial officer

EX-32.1

                                                                    EXHIBIT 32.1

                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 Quarterly Report of Starbucks Corporation
      ("Starbucks") on Form 10-Q for the period ended July 3, 2005, as filed
      with the Securities and Exchange Commission on August 10, 2005 (the
      "Report"), I, James L. Donald, president and chief executive officer of
      Starbucks, certify, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
      knowledge:

      (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 Starbucks.

      August 10, 2005                    /s/ JAMES L. DONALD
                                         ---------------------------------------
                                         James L. Donald
                                         president and chief executive officer

EX-32.2

                                                                    EXHIBIT 32.2

                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 Quarterly Report of Starbucks Corporation
      ("Starbucks") on Form 10-Q for the period ended July 3, 2005, as filed
      with the Securities and Exchange Commission on August 10, 2005 (the
      "Report"), I, Michael Casey, executive vice president and chief financial
      officer of Starbucks, certify, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
      to my knowledge:

      (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 Starbucks.

      August 10, 2005      /s/ MICHAEL CASEY
                           -----------------------------------------------------
                           Michael Casey
                           executive vice president and chief financial officer