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

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

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
			(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ

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 January 26, 2010
	Common Stock, par value $0.001 per share			743.4 million

 

 

STARBUCKS CORPORATION

FORM 10-Q

For the Quarterly Period Ended December 27, 2009

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):			3
Condensed Consolidated Statements of Earnings			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3 Quantitative and Qualitative Disclosures About Market Risk			20
Item 4 Controls and Procedures			20
PART II. OTHER INFORMATION
Item 1 Legal Proceedings			21
Item 1A Risk Factors			21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			21
Item 6 Exhibits			21
Signatures			22
Index to Exhibits
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

STARBUCKS CORPORATION

		13 Weeks Ended
		Dec 27,				Dec 28,
		2009				2008
Net revenues:
Company-operated retail		$	2,292.9			$	2,176.2
Specialty:
Licensing			326.1				334.3
Foodservice and other			103.7				104.7
Total specialty			429.8				439.0
Total net revenues			2,722.7				2,615.2
Cost of sales including occupancy costs			1,145.7				1,196.8
Store operating expenses			896.1				936.6
Other operating expenses			71.9				72.6
Depreciation and amortization expenses			130.6				134.3
General and administrative expenses			136.9				105.2
Restructuring charges			18.3				75.5
Total operating expenses			2,399.5				2,521.0
Income from equity investees			29.4				23.5
Operating income			352.6				117.7
Interest income and other, net			25.1				(6.0	)
Interest expense			(8.2	)			(13.0	)
Earnings before income taxes			369.5				98.7
Income taxes			126.0				34.0
Net earnings including noncontrolling interests			243.5				64.7
Net earnings attributable to noncontrolling interests			2.0				0.4
Net earnings attributable to Starbucks		$	241.5			$	64.3
Earnings per share — basic		$	0.32			$	0.09
Earnings per share — diluted		$	0.32			$	0.09
Weighted average shares outstanding:
Basic			744.2				736.3
Diluted			762.9				739.1

See Notes to Condensed Consolidated Financial Statements.

STARBUCKS CORPORATION

		Dec 27,				Sep 27,
		2009				2009
ASSETS
Current assets:
Cash and cash equivalents		$	1,306.3			$	599.8
Short-term investments — available-for-sale securities			2.5				21.5
Short-term investments — trading securities			47.9				44.8
Accounts receivable, net			263.4				271.0
Inventories			544.9				664.9
Prepaid expenses and other current assets			141.0				147.2
Deferred income taxes, net			277.9				286.6
Total current assets			2,583.9				2,035.8
Long-term investments — available-for-sale securities			78.0				71.2
Equity and cost investments			315.4				352.3
Property, plant and equipment, net			2,482.7				2,536.4
Other assets			310.5				253.8
Other intangible assets			68.6				68.2
Goodwill			262.5				259.1
TOTAL ASSETS		$	6,101.6			$	5,576.8
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	241.9			$	267.1
Accrued compensation and related costs			290.5				307.5
Accrued occupancy costs			182.0				188.1
Accrued taxes			188.8				127.8
Insurance reserves			156.3				154.3
Other accrued expenses			149.6				147.3
Deferred revenue			569.9				388.7
Current portion of long-term debt			0.2				0.2
Total current liabilities			1,779.2				1,581.0
Long-term debt			549.3				549.3
Other long-term liabilities			409.0				389.6
Total liabilities			2,737.5				2,519.9
Shareholders’ equity:
Common stock ($0.001 par value) — authorized, 1,200.0 shares; issued and outstanding, 746.5 and 742.9 shares, respectively (includes 3.4 common stock units in both periods)			0.7				0.7
Additional paid-in-capital			218.4				147.0
Other additional paid-in-capital			39.4				39.4
Retained earnings			3,034.6				2,793.2
Accumulated other comprehensive income			58.2				65.4
Total shareholders’ equity			3,351.3				3,045.7
Noncontrolling interests			12.8				11.2
Total equity			3,364.1				3,056.9
TOTAL LIABILITIES AND EQUITY		$	6,101.6			$	5,576.8

See Notes to Condensed Consolidated Financial Statements.

STARBUCKS CORPORATION

		13 Weeks Ended
		Dec 27,				Dec 28,
		2009				2008
OPERATING ACTIVITIES:
Net earnings including noncontrolling interest		$	243.5			$	64.7
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			138.2				141.0
Provision for impairments and asset disposals			37.2				65.3
Deferred income taxes			1.0				(1.9	)
Equity in income of investees			(16.3	)			(17.0	)
Distributions of income from equity investees			21.2				16.1
Stock-based compensation			24.3				22.3
Tax benefit from exercise of stock options			5.3				0.3
Excess tax benefit from exercise of stock options			(8.6	)			(5.6	)
Other			(7.3	)			14.1
Cash provided/(used) by changes in operating assets and liabilities:
Inventories			120.7				99.1
Accounts payable			(43.8	)			(41.8	)
Accrued taxes			69.5				42.1
Deferred revenue			180.3				233.6
Other operating assets			38.8				31.3
Other operating liabilities			(35.3	)			29.9
Net cash provided by operating activities			768.7				693.5
INVESTING ACTIVITIES:
Purchase of available-for-sale securities			(9.6	)			(5.2	)
Maturities and calls of available-for-sale securities			21.8				—
Acquisitions, net of cash acquired			(10.6	)			—
Net purchases of equity, other investments and other assets			(1.9	)			(5.3	)
Additions to property, plant and equipment			(99.7	)			(172.6	)
Net cash used by investing activities			(100.0	)			(183.1	)
FINANCING ACTIVITIES:
Proceeds from issuance of commercial paper			—				16,201.4
Repayments of commercial paper			—				(16,474.3	)
Proceeds from short-term borrowings			—				362.0
Repayments of short-term borrowings			—				(512.0	)
Proceeds from issuance of common stock			38.1				7.6
Excess tax benefit from exercise of stock options			8.6				5.6
Principal payments on long-term debt			(6.5	)			(0.2	)
Other			(0.4	)			(0.5	)
Net cash provided/(used) by financing activities			39.8				(410.4	)
Effect of exchange rate changes on cash and cash equivalents			(2.0	)			(13.0	)
Net increase in cash and cash equivalents			706.5				87.0
CASH AND CASH EQUIVALENTS:
Beginning of period			599.8				269.8
End of period		$	1,306.3			$	356.8
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net change in short-term borrowings and commercial paper for the period		$	—			$	(422.9	)
Cash paid during the period for:
Interest, net of capitalized interest		$	—			$	4.3
Income taxes		$	52.2			$	5.3

See Notes to Condensed Consolidated Financial Statements.

STARBUCKS CORPORATION

Note 1: Summary of Significant Accounting Policies

Financial Statement Preparation

The unaudited condensed consolidated financial statements as of December 27, 2009, and for the 13-week periods ended December 27, 2009 and December 28, 2008, have been prepared by Starbucks Corporation (“Starbucks” or the “Company”) under the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial information for the 13-week periods ended December 27, 2009 and December 28, 2008 reflect all adjustments and accruals, which are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods.

The financial information as of September 27, 2009 is derived from the Company’s audited consolidated financial statements and notes for the fiscal year ended September 27, 2009 (“fiscal 2009”), included in Item 8 in the Fiscal 2009 Annual Report on Form 10-K (the “10-K”). The information included in this Quarterly Report on Form 10-Q (the “10-Q”) should be read in conjunction with the footnotes and management’s discussion and analysis to the financial statements in the 10-K.

The Company evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through February 2, 2010, the day the financial statements were issued.

The results of operations for the 13-week period ended December 27, 2009 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending October 3, 2010 (“fiscal 2010”). Additionally, Starbucks 2010 fiscal year will include 53 weeks, with the 53rd week falling in its fourth fiscal quarter.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance on accounting and reporting for noncontrolling interests in subsidiaries. The guidance clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent’s equity. Starbucks adopted the new guidance relating to noncontrolling interests beginning September 28, 2009 on a prospective basis, except for the presentation and disclosure requirements, which were applied retrospectively.

In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities (“VIE”), which will be effective for Starbucks first fiscal quarter of 2011. The new guidance requires a qualitative approach to identify a controlling financial interest in a VIE, and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. The Company is currently evaluating the impact that adoption may have on its consolidated financial statements.

Note 2: Restructuring Charges

In the first quarter of fiscal 2010, the Company closed 19 International stores and two US stores. A total of 894 stores globally have been closed as a part of the Company’s store portfolio rationalization which began in fiscal 2008. The Company expects to complete the remaining closures in fiscal 2010, and will recognize the associated lease exit costs concurrently with the actual closures. Nearly all of the remaining closures are in the International segment.

Restructuring charges by type and reconciliation of the associated accrued liability (in millions):

		Lease Exit								Employee
		and Other				Asset				Termination
		Related Costs				Impairments				Costs				Total
Total expected costs		$	272.7			$	331.8			$	37.0			$	641.5
Expenses recognized in Q1 fiscal 2010			17.3				1.0				—				18.3
Expenses recognized in Q1 fiscal 2009 (1)			40.6				32.4				2.5				75.5
Costs incurred in Q1 fiscal 2010			17.3				1.0				—				18.3

		Lease Exit								Employee
		and Other				Asset				Termination
		Related Costs				Impairments				Costs				Total
Costs incurred in Q1 fiscal 2009 (1)			26.1				32.4				2.5				61.0
Cumulative costs incurred to date			249.4				331.8				36.5				617.7
Accrued liability as of September 27, 2009		$	102.8							$	1.2			$	104.0
Costs incurred in Q1 fiscal 2010, excluding non-cash charges and credits (2)			17.9								—				17.9
Cash payments in Q1 fiscal 2010			(25.9	)							(0.8	)			(26.7	)
Accrued liability as of December 27, 2009		$	94.8							$	0.4			$	95.2

Restructuring charges by reportable segment (in millions):

										Unallocated
		US				International				Corporate				Total
Total expected costs		$	472.5			$	73.0			$	96.0			$	641.5
Expenses recognized in Q1 fiscal 2010			7.9				10.4				—				18.3
Costs incurred during in Q1 fiscal 2010			7.9				10.4				—				18.3
Cumulative costs incurred to date			465.0				56.7				96.0				617.7

Note 3: Acquisitions

On September 30, 2009, Starbucks acquired 100 percent ownership of the Company’s business in France, converting it from a 50% joint venture with Sigla S.A. (Grupo Vips) of Spain to a Company-operated market. Starbucks simultaneously sold its 50% ownership interests in the Spain and Portugal markets to Grupo Vips, converting them to licensed markets.

Note 4: Derivative Financial Instruments

Cash Flow Hedges

The Company had net derivative losses of $7.5 million and $3.9 million, net of taxes, in accumulated other comprehensive income as of December 27, 2009 and September 27, 2009, respectively, related to cash flow hedges. Of the net derivative losses accumulated as of December 27, 2009, $2.0 million pertain to hedging instruments that will be dedesignated within 12 months and will also continue to experience fair value changes before affecting earnings. Ineffectiveness from hedges that were discontinued in the first quarter of fiscal year 2010 and 2009 was insignificant. Outstanding contracts will expire within 33 months.

The Company recorded a $6.4 million loss in other comprehensive income and a $1.0 million loss in earnings relating to its cash flow hedges for the 13 weeks ending December 27, 2009. There was no loss recognized in earnings for the 13 weeks ending December 28, 2008.

Net Investment Hedges

The Company had net derivative losses of $18.9 million and $19.8 million, net of taxes, in accumulated other comprehensive income as of December 27, 2009 and September 27, 2009, respectively, related to net investment derivative hedges. Outstanding contracts will expire within 27 months.

The Company recorded a $1.3 million gain in other comprehensive income and no gain in earnings relating to its net investment hedges for the 13 weeks ending December 27, 2009. The Company recorded a $2.8 million gain in earnings for the 13 weeks ending December 28, 2008.

Other Derivatives

To mitigate the translation risk of certain balance sheet items, the Company enters into certain foreign currency forward contracts that are not designated as hedging instruments. These contracts are recorded at fair value, with the changes in fair value recognized in net interest income and other on the consolidated statements of earnings. For the first quarter of fiscal year 2010 and 2009, these forward contracts resulted in a net loss of $2.0 million and a net gain $37.8 million, respectively. These gains and losses were largely offset by

the financial impact of translating foreign currency denominated payables and receivables, which are also recognized in Net interest income and other.

The Company also enters into certain swap and futures contracts that are not designated as hedging instruments to mitigate the price uncertainty of a portion of its future purchases of dairy products and diesel fuel. These contracts are recorded at fair value, with the changes in fair value recognized in Net interest income and other on the consolidated statement of earnings. For the first quarter of fiscal 2010, these swaps and futures contracts resulted in a net gain of $0.6 million.

The Company had the following outstanding derivative contracts as of December 27, 2009, based on notional amounts:

	•		$696 million in foreign exchange contracts
	•		$24 million in dairy contracts
	•		$4 million in diesel contracts

Note 5: Investments

Investments (in millions):

						Gross				Gross
						Unrealized				Unrealized
		Amortized				Holding				Holding				Fair
		Cost				Gains				Losses				Value
December 27, 2009
Short-term investments:
Available-for-sale securities — Corporate debt securities		$	2.5											$	2.5
Trading securities			58.9												47.9
Total short-term investments		$	61.4											$	50.4
Long-term investments:
Available-for-sale securities — State and local government obligations		$	54.8			$	—			$	(1.8	)		$	53.0
Available-for-sale securities — Corporate debt securities			24.2				0.8				—				25.0
Total long-term investments		$	79.0			$	0.8			$	(1.8	)		$	78.0
September 27, 2009
Short-term investments:
Available-for-sale securities — Corporate debt securities		$	2.5											$	2.5
Available-for-sale securities — Government treasury securities			19.0												19.0
Trading securities			58.5												44.8
Total short-term investments		$	80.0											$	66.3
Long-term investments:
Available-for-sale securities — State and local government obligations		$	57.8			$	—			$	(2.1	)		$	55.7
Available-for-sale securities — Corporate debt securities			14.7				0.8				—				15.5
Total long-term investments		$	72.5			$	0.8			$	(2.1	)		$	71.2

The gross unrealized holding losses on the state and local obligations pertain to the Company’s auction rate securities (“ARS”). Starbucks does not intend to sell these securities, nor is it likely it will be required to sell these securities before their anticipated recovery, which may be at maturity.

In the first quarter of fiscal 2010, two of the Company’s ARS were partially called at par value of $2.8 million.

Note 6: Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis (in millions):

						Fair Value Measurements at Reporting Date Using
						Quoted Prices in Active				Significant Other				Significant
		Balance at				Markets for Identical Assets				Observable Inputs				Unobservable Inputs
		Dec 27, 2009				(Level 1)				(Level 2)				(Level 3)
Assets:
Trading securities		$	47.9			$	47.9			$	—			$	—
Available-for-sale securities			80.5				—				27.5				53.0
Derivatives			6.4				—				6.4				—
Total		$	134.8			$	47.9			$	33.9			$	53.0
Liabilities:
Derivatives		$	18.2			$	—			$	18.2			$	—
		Balance at
		Sep 27, 2009
Assets:
Trading securities		$	44.8			$	44.8			$	—			$	—
Available-for-sale securities			92.7				19.0				18.0				55.7
Derivatives			13.2				—				13.2				—
Total		$	150.7			$	63.8			$	31.2			$	55.7
Liabilities:
Derivatives		$	33.2			$	—			$	33.2			$	—

Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis (in millions):

		13 Weeks Ended
		Dec 27, 2009				Dec 28, 2008
Beginning balance		$	55.7			$	59.8
Total reduction in unrealized losses included in other comprehensive income			0.3				2.8
Realized losses recognized in net earnings			(0.2	)			—
Purchases, sales, issuances, calls, and settlements			(2.8	)			—
Transfers in (out) of Level 3			—				—
Ending balance		$	53.0			$	62.6

Level 3 instruments described above are comprised entirely of the Company’s ARS portfolio.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis (in millions)

Effective September 28, 2009, the Company adopted new fair value measurement guidance for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis. These assets and liabilities include items such as property, plant and equipment, goodwill and other intangible assets that are measured at fair value resulting from impairment, if deemed necessary.

The Company measures certain financial assets, including its equity and cost method investments, at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired.

During the 13 weeks ended December 27, 2009, the Company recognized fair market value adjustments to assets (Level 3) measured at fair value on a non-recurring basis, as follows:

		Carrying value								Carrying
		before				Fair value				value after
		adjustment				adjustment				adjustment
Property, plant and equipment (1)		$	13.9			$	(11.1	)		$	2.8
Equity and cost investments (2)		$	9.6			$	(7.5	)		$	2.1

Fair Value of Other Financial Instruments

The carrying value of cash and cash equivalents approximates fair value because of the short-term nature of those instruments. The estimated fair value of the Company’s $550 million of 6.25% Senior Notes was approximately $586 million and $591 million as of December 27, 2009 and September 27, 2009, respectively.

Note 7: Inventories (in millions)

		Dec 27,				Sep 27,				Dec 28,
		2009				2009				2008
Coffee:
Unroasted		$	289.6			$	381.6			$	310.1
Roasted			76.1				76.7				86.9
Other merchandise held for sale			94.9				116.0				96.9
Packaging and other supplies			84.3				90.6				96.5
Total		$	544.9			$	664.9			$	590.4

As of December 27, 2009, the Company had committed to purchasing green coffee totaling $139 million under fixed-price contracts and an estimated $169 million under price-to-be-fixed contracts. The Company believes, based on relationships established with its suppliers in the past, the risk of non-delivery on these purchase commitments is remote.

Note 8: Property, Plant and Equipment (in millions)

		Dec 27,				Sep 27,
		2009				2009
Land		$	60.2			$	58.2
Buildings			235.5				231.5
Leasehold improvements			3,378.3				3,349.0
Store equipment			1,012.8				1,073.4
Roasting equipment			284.5				282.9
Furniture, fixtures and other			586.1				586.7
Work in progress			138.6				119.2
			5,696.0				5,700.9
Less accumulated depreciation			(3,213.3	)			(3,164.5	)
Property, plant and equipment, net		$	2,482.7			$	2,536.4

Note 9: Debt (in millions)

		Dec 27,				Sep 27,
		2009				2009
Current portion of long-term debt		$	0.2			$	0.2
6.25% Senior Notes (10 year, due Aug 2017)			549.3				549.2
Other long-term debt			—				0.1
Long-term debt			549.3				549.3
Total debt		$	549.5			$	549.5

Note 10: Other Long-term Liabilities (in millions)

		Dec 27,				Sep 27,
		2009				2009
Deferred rent		$	260.1			$	266.0
Unrecognized tax benefits			78.3				55.1
Asset retirement obligations			45.9				43.4
Other			24.7				25.1
Total		$	409.0			$	389.6

Note 11: Equity

Components of equity for the 13 weeks ended December 27, 2009 and December 28, 2008 (in millions):

		Shareholders’				Noncontrolling
		Equity				Interest				Equity
Balance, September 27, 2009		$	3,045.7			$	11.2			$	3,056.9
Net earnings			241.5				2.0				243.5
Unrealized holding losses on cash flow hedging instruments			(4.3	)			—				(4.3	)
Unrealized holding gains on net investment hedging instruments			0.9				—				0.9

		Shareholders’				Noncontrolling
		Equity				Interest				Equity
Reclassification adjustment for net losses realized in net earnings for cash flow hedges			0.7				—				0.7
Translation adjustment			(4.5	)			—				(4.5	)
Comprehensive income			234.3				2.0				236.3
Stock-based compensation expense			24.3				—				24.3
Exercise of stock options			41.9				—				41.9
Sale of common stock			5.1				—				5.1
Net distributions to noncontrolling interests			—				(0.4	)			(0.4	)
Balance, December 27, 2009		$	3,351.3			$	12.8			$	3,364.1
Balance, September 28, 2008		$	2,490.9			$	18.3			$	2,509.2
Net earnings			64.3				0.4				64.7
Unrealized holding gains on available-for-sale securities			2.1				—				2.1
Unrealized holding gains on cash flow hedging instruments			17.6				—				17.6
Unrealized holding losses on net investment hedging instruments			(2.4	)			—				(2.4	)
Reclassification adjustment for net gains realized in net earnings for cash flow hedges			(0.4	)			—				(0.4	)
Translation adjustment			(20.4	)			—				(20.4	)
Comprehensive income			60.8				0.4				61.2
Stock-based compensation expense			22.6				—				22.6
Exercise of stock options			1.6				—				1.6
Sale of common stock			8.7				—				8.7
Net distributions to noncontrolling interests			—				(0.4	)			(0.4	)
Balance, December 28, 2008		$	2,584.6			$	18.3			$	2,602.9

In addition to 1.2 billion shares of authorized common stock with $0.001 par value per share, the Company has authorized 7.5 million shares of preferred stock, none of which was outstanding as of December 27, 2009.

Components of accumulated other comprehensive income, net of tax, were as follows (in millions):

		Dec 27, 2009				Sep 27, 2009
Net unrealized losses on available-for-sale securities		$	(0.7	)		$	(0.8	)
Net unrealized losses on hedging instruments			(26.4	)			(23.7	)
Translation adjustment			85.3				89.9
Accumulated other comprehensive income		$	58.2			$	65.4

Note 12: Employee Stock Plans

As of December 27, 2009, there were 31.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards and employee stock purchase plans (“ESPP”).

Stock-based compensation expense recognized in the consolidated statement of earnings (in millions):

		13 Weeks Ended
		Dec 27, 2009				Dec 28, 2008
Options		$	17.9			$	16.4
Restricted stock units (“RSUs”)			6.4				3.4
ESPP			—				2.5
Total stock-based compensation		$	24.3			$	22.3

Value of awards granted and exercised during the period:

		13 Weeks Ended
		Dec 27, 2009				Dec 28, 2008
Estimated fair value per option granted		$	8.34			$	3.49
Weighted average option grant price		$	22.07			$	8.65
Weighted average price per options exercised		$	11.86			$	5.51
Weighted average RSU grant price		$	22.05			$	8.68

Stock option and RSU transactions from September 27, 2009 through December 27, 2009 (in millions):

		Stock
		Options				RSUs
Options outstanding/Nonvested RSUs, September 27, 2009			63.6				4.4
Options/RSUs granted			14.0				2.3
Options exercised/RSUs vested			(3.0	)			(0.4	)
Options/RSUs forfeited/expired			(2.2	)			(0.3	)
Options outstanding/Nonvested RSUs, December 27, 2009			72.4				6.0
Total unrecognized stock-based compensation expense, net of forfeitures, as of December 27, 2009		$	125			$	70

Note 13: Earnings Per Share

Calculation of net earnings per common share (“EPS”) — basic and diluted (in millions, except EPS):

		13 Weeks Ended
		Dec 27,				Dec 28,
		2009				2008
Net earnings attributable to Starbucks		$	241.5			$	64.3
Weighted average common shares and common stock units outstanding (for basic calculation)			744.2				736.3
Dilutive effect of outstanding common stock options and RSUs			18.7				2.8
Weighted average common and common equivalent shares outstanding (for diluted calculation)			762.9				739.1
EPS — basic		$	0.32			$	0.09
EPS — diluted		$	0.32			$	0.09

Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) and unvested RSUs, using the treasury stock method. Potential dilutive shares are excluded from the computation of earnings per share if their effect is antidilutive. The number of antidilutive options totaled 20.7 million and 62.9 million for the 13-week periods ended December 27, 2009 and December 28, 2008, respectively.

Note 14: Commitments and Contingencies

Guarantees

The following table presents information on unconditional guarantees as of December 27, 2009 (in millions):

										Fair value estimate
		Maximum				Year Guarantee				recorded on
		Exposure				Expires in				Balance Sheet
Japanese yen-denominated bank loans (Starbucks Japan — an unconsolidated equity investee)		$	2.9				2014			$	—	(1)
Borrowings of other unconsolidated equity investees		$	11.0				2010			$	3.0

Legal Proceedings

On October 8, 2004, a former hourly employee of the Company filed a lawsuit in San Diego County Superior Court entitled Jou Chau v. Starbucks Coffee Company. The lawsuit alleged that the Company violated the California Labor Code by allowing shift supervisors to receive tips. On February 28, 2008, the trial court ruled against the Company in the liability phase of the trial and on March 20, 2008 the court ordered the Company to pay approximately $87 million in restitution, plus interest. The Company appealed the decision of the trial court and on June 2, 2009 the California Court of Appeal reversed the trial court’s judgment in its entirety and ruled in favor of Starbucks. The Court of Appeal denied plaintiffs’ petition for rehearing and reaffirmed its ruling on July 2, 2009. The

plaintiffs filed a petition for review with the California Supreme Court on July 13, 2009. The California Supreme Court denied plaintiffs’ petition for review and on December 17, 2009 the trial court entered a final judgment for Starbucks dismissing the case.

On June 30, 2005, three individuals, Erik Lords, Hon Yeung, and Donald Brown filed a lawsuit in Orange County Superior Court, California. The lawsuit alleged that the Company violated the California Labor Code section 432.8 by asking job applicants to disclose at the time of application convictions for marijuana related offenses more than two years old. The California Court of Appeal issued a ruling on December 10, 2008 instructing the trial judge to enter summary judgment against plaintiffs and the California Supreme Court has rejected the plaintiffs’ appeal. The plaintiffs have moved to amend the complaint to add new plaintiffs. Starbucks has opposed this effort and is asking for final dismissal of the case.

The Company is party to various other legal proceedings arising in the ordinary course of its business, but it is not currently a party to any legal proceeding that management believes would have a material adverse effect on the consolidated financial position or results of operations of the Company.

Note 15: Segment Reporting

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

		United												Unallocated
		States				International				Global CPG				Corporate				Total
13 Weeks Ended
December 27, 2009
Company-operated retail revenues		$	1,788.3			$	504.6			$	—			$	—			$	2,292.9
Licensing revenues			145.0				71.6				109.5				—				326.1
Foodservice and other revenues			1.6				14.8				87.3				—				103.7
Total net revenues			1,934.9				591.0				196.8				—				2,722.7
Depreciation and amortization expenses			89.7				28.2				1.2				11.5				130.6
Income from equity investees			—				17.0				12.4				—				29.4
Operating income/(loss)			334.5				43.5				67.2				(92.6	)			352.6
Net impairment and disposition losses			22.0				8.9				—				6.3				37.2
December 28, 2008
Company-operated retail revenues		$	1,761.8			$	414.4			$	—			$	—			$	2,176.2
Licensing revenues			150.9				69.1				114.3				—				334.3
Foodservice and other revenues			0.9				12.2				91.6				—				104.7
Total net revenues			1,913.6				495.7				205.9				—				2,615.2
Depreciation and amortization expenses			95.9				25.4				1.5				11.5				134.3
Income from equity investees			0.5				11.9				11.1				—				23.5
Operating income/(loss)			110.8				12.9				74.7				(80.7	)			117.7
Net impairment and disposition losses			30.9				16.4				—				18.0				65.3

The table below reconciles the total of the reportable segments’ operating income to the Company’s consolidated earnings before income taxes (in millions):

Fiscal Quarter Ended		Dec 27, 2009				Dec 28, 2008
Operating income		$	352.6			$	117.7
Interest income and other, net			25.1				(6.0	)
Interest expense			(8.2	)			(13.0	)
Earnings before income taxes		$	369.5			$	98.7

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 statements regarding trends in or expectations relating to the expected effects of the Company’s initiatives and plans, as well as trends in or expectations regarding, earnings per share, revenues, operating margins, comparable store sales, expenses, other financial results, capital expenditures, liquidity, cash flow from operations, free cash flow, anticipated store openings and closings, tax rates, and economic conditions in the US and other international markets 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 the Company’s initiatives, successful execution of internal plans, fluctuations in US and international economies and currencies, the impact of competitors’ initiatives, the effect of legal proceedings, and other risks detailed in Part I Item IA. “Risk Factors” in the Company’s 10-K.

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 condensed consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the 10-K.

General

Starbucks Corporation’s fiscal year ends on the Sunday closest to September 30. All references to store counts, including data for new store openings, are reported net of store closures, unless otherwise noted. Starbucks 2010 fiscal year will include 53 weeks, with the 53rd week falling in its fourth fiscal quarter.

Overview

Starbucks returned to profitable growth in the first quarter of fiscal 2010, despite the economic challenges confronting business and consumers globally. The Company’s financial results for the first quarter of fiscal 2010 reflect solid comparable store sales growth from Company-operated stores and the benefits of operational improvements implemented throughout fiscal 2009. These improvements have focused on rationalizing Starbucks global store portfolio, reducing the Company’s cost structure, improving the customer experience, and delivering relevant product innovation. The cost reduction and related efficiency efforts have driven reduced product costs and store waste as well as in-store labor savings, concurrent with improved customer satisfaction scores.

Starbucks remains committed to maintaining its disciplined operational focus, along with continuing to provide relevant product innovation to its customers. To continue driving profitable growth in a disciplined manner, management expects to increase spending in support of key growth platforms, such as the ongoing expansion of its recently introduced VIA™ Ready Brew coffee (“VIA”), and to increase investments in the existing store portfolio to refresh stores and incorporate innovative new design concepts. The Company also intends to apply the same rigor that enabled Starbucks to transform and improve its US business to its international operations in order to take full advantage of the significant growth opportunities in multiple channels that exist around the world. While Starbucks recent progress is encouraging, management remains acutely aware of the economic uncertainty that still exists for consumers worldwide.

The Company continues to generate strong operating cash flows, providing it with the financial flexibility to continue investments and spending in its core businesses, as well as new stores, innovation and new growth platforms. Starbucks generated $769 million of operating cash flow for the first quarter of fiscal 2010 and finished the period with no short term debt and with $1.4 billion in cash and liquid investments.

Fiscal 2010 — Financial Outlook for the Year

For the full fiscal year 2010, the Company is now targeting mid-single digit revenue growth compared to fiscal 2009, driven by modestly-positive comparable store sales growth, a 53rd fiscal week, and approximately 300 planned net new stores globally. The 300 net new stores will primarily be licensed stores, with approximately 100 stores in the US and approximately 200 stores in international markets.

Given the Company’s current revenue expectations, combined with the year-over-year impact of the operational improvements implemented throughout fiscal 2009 and lower restructuring charges, Starbucks expects significant improvement in its consolidated operating margin in fiscal 2010 compared to the prior year. For the International business, Starbucks expects meaningful improvement in operating margin compared to fiscal 2009, while at the same time investing to capture the significant long term growth opportunities available to Starbucks.

The Company expects cash flow from operations to reach approximately $1.5 billion in fiscal 2010 and capital expenditures to be approximately $500 million. Starbucks will continue to evaluate share repurchases and cash dividends in the future as a means to deploy excess cash generated by the business.

Results of Operations for the 13 weeks Ended December 27, 2009 and December 28, 2008 (in millions)

Financial Highlights for the First quarter of Fiscal 2010 — Consolidated

Consolidated operating income was $353 million for the first quarter of fiscal 2010 compared to $118 million in the prior year period, and the operating margin improved to 13.0% compared with 4.5% in the prior year quarter. The operating margin expansion was driven by the operational efficiencies and cost reduction initiatives implemented throughout fiscal 2009, along with the increase in comparable store sales compared to the prior year. In addition, lower restructuring charges contributed approximately 220 basis points of the increase in operating margin in the first quarter of fiscal 2010 compared to the prior year.

EPS for the first quarter of fiscal 2010 was $0.32, compared to EPS of $0.09 reported in the prior year period, driven primarily by comparable store sales growth and operational improvements made in the business. Restructuring charges impacted EPS by approximately $0.01 per share in the first quarter of fiscal 2010 and by approximately $0.06 in the first quarter of fiscal 2009. In addition, the first quarter of 2010 included an accounting gain equating to approximately $0.02 of EPS related to the Company’s acquisition of controlling interest in its previous joint venture operations in France.

Cash flow from operations increased to $769 million for the first quarter, compared to $694 million produced for the first quarter of fiscal 2009, while capital expenditures declined to $100 million versus $173 million for the previous year period.

Results of Operations Details — Consolidated

Revenues:

		13 Weeks Ended
		Dec 27,				Dec 28,				%
		2009				2008				Change
Company-operated retail		$	2,292.9			$	2,176.2				5.4	%
Specialty:
Licensing			326.1				334.3				(2.5	)
Foodservice and other			103.7				104.7				(1.0	)
Total specialty			429.8				439.0				(2.1	)
Total net revenues		$	2,722.7			$	2,615.2				4.1	%

Net revenues for the first quarter of fiscal 2010 increased compared to the corresponding period of fiscal 2009, driven by increases in Company-operated retail operations.

Starbucks derived 84% of total net revenues from its Company-operated retail stores during the first quarter of fiscal 2010. The US segment contributed approximately 78% of total retail revenues. The increase in consolidated net revenues over the prior year quarter was driven by a 4% increase in comparable store sales and the impact of foreign currency translation related to the weakening of the US dollar against several foreign currencies. US comparable store sales grew 4% during the first quarter of fiscal 2010, due entirely to an increase in the average value per transaction, and International comparable store sales increased 4% during the first quarter of fiscal 2010, driven entirely by an increase in the number of transactions.

The Company derived 16% of total net revenues from channels outside the Company-operated retail stores, collectively known as specialty operations. The decline in specialty revenues in the first quarter of fiscal 2010 was driven by lower licensing revenues in the US packaged coffee business, and lower US foodservice revenue primarily related to continued softness in the hospitality industry.

Expenses:

		13 Weeks Ended
		Dec 27,				Dec 28,				Dec 27,				Dec 28,
		2009				2008				2009				2008
										% of Total
										Net Revenues
Cost of sales including occupancy costs		$	1,145.7			$	1,196.8				42.1	%			45.8	%
Store operating expenses			896.1				936.6				32.9				35.8
Other operating expenses			71.9				72.6				2.6				2.8
Depreciation and amortization expenses			130.6				134.3				4.8				5.1
General and administrative expenses			136.9				105.2				5.0				4.0
Restructuring charges			18.3				75.5				0.7				2.9
Total operating expenses			2,399.5				2,521.0				88.1				96.4
Income from equity investees			29.4				23.5				1.1				0.9
Operating income		$	352.6			$	117.7				13.0	%			4.5	%
Supplemental ratios as a % of related revenues:
Store operating expenses											39.1	%			43.0	%
Other operating expenses											16.7	%			16.5	%

Cost of sales including occupancy costs as a percentage of total revenues decreased for the first quarter of fiscal 2010 due to the implementation of operational initiatives, which resulted in lower product costs and reduced store waste. Lower commodity costs also contributed to the improvement. Store operating expenses as a percentage of Company-operated retail revenues decreased for the first quarter of fiscal 2010 due to initiatives focused on in-store labor efficiencies and the effect of the closure of underperforming Company-operated stores. General and administrative expenses were higher due in part to higher performance-based compensation expenses.

Restructuring charges in both periods include lease exit and related costs primarily associated with the closure of Company-operated stores. These closures were part of the Company’s previously-announced global store portfolio rationalization, most of which was completed in fiscal 2009. Nearly all of the remaining store closures are in the International segment, and are expected to be completed by the end of fiscal 2010. See Note 2 in this 10-Q for additional discussion.

Operating income and net earnings:

		13 Weeks Ended
		Dec 27,				Dec 28,				Dec 27,				Dec 28,
		2009				2008				2009				2008
										% of Total
										Net Revenues
Operating income		$	352.6			$	117.7				13.0	%			4.5	%
Interest income and other, net			25.1				(6.0	)			0.9				(0.2	)
Interest expense			(8.2	)			(13.0	)			(0.3	)			(0.5	)
Earnings before income taxes			369.5				98.7				13.6				3.8
Income taxes			126.0				34.0				4.6				1.3
Net earnings including noncontrolling interests			243.5				64.7				8.9				2.5
Net earnings attributable to noncontrolling interest			2.0				0.4				0.1				—
Net earnings attributable to Starbucks		$	241.5			$	64.3				8.9	%			2.5	%
Effective tax rate including noncontrolling interest											34.1	%			34.4	%

Operating margin increased during the first quarter of fiscal 2010 compared to the prior year quarter due to lower cost of sales including occupancy costs, lower store operating expenses and reduced restructuring charges as a percentage of total sales, as described above.

The majority of the increase in net interest income and other for the first quarter of fiscal 2010 compared to the prior year quarter was due to fluctuations in unrealized holding gains/losses on the Company’s trading securities portfolio, which approximates a portion of the Company’s liability under its Management Deferred Compensation Plan (“MDCP”). Gains recorded here are offset by charges to general and administrative expenses as the MDCP liability increases with improved investment performance. Also contributing to the increase was the impact of an accounting gain recorded in the first quarter of fiscal 2010 related to the Company’s acquisition of a controlling interest in its previous joint venture operations in France. In accordance with generally accepted accounting principles, the carrying value of the previously held joint venture interest was adjusted to fair value upon the acquisition of the controlling interest.

Interest expense decreased due to the Company having no short term borrowings outstanding in the current quarter.

The effective income tax rate for the first quarter of fiscal 2010 was 34.1% compared to 34.4% for the same quarter in fiscal 2009. The effective income tax rate for the first quarter of fiscal 2010 benefitted from a permanent book to tax difference as a result of the Company’s acquisition of its previous joint venture operations in France. The effective tax rate for the first quarter of fiscal 2009 benefitted from the relatively low amount of pretax earnings, with a higher proportion of income earned in foreign jurisdictions which have lower tax rates. The Company currently estimates that its effective tax rate for fiscal year 2010 will be in the range of 34% to 35%, with quarterly variations.

Operating Segments

Segment information is prepared on the same basis that the Company’s management reviews financial information for operational decision-making purposes. The following tables summarize the Company’s results of operations by segment:

United States

		13 Weeks Ended
		Dec 27,				Dec 28,				Dec 27,				Dec 28,
		2009				2008				2009				2008
										% of US
										Net Revenues
Total net revenues		$	1,934.9			$	1,913.6
Total operating expenses			1,600.4				1,803.3				82.7	%			94.2	%
Operating income			334.5				110.8				17.3	%			5.8	%

Total US net revenues increased slightly for the first quarter of fiscal 2010 due to higher retail revenues. Company-operated retail revenues increased 2% due to a 4% increase in comparable store sales for the first quarter of fiscal 2010, partially offset by the net closure of 369 underperforming stores over the last 12 months. The 4% increase in comparable store sales consisted entirely of an increase in the average value per transaction, with the Company’s recently introduced VIA driving nearly half of the increase.

Operating margin increased for the first quarter of fiscal 2010 primarily driven by both lower cost of sales including occupancy costs, and store operating expenses as a percentage of total US net revenues. Lower cost of sales including occupancy costs were driven by lower product costs associated with a redesigned food program, in-store programs to reduce waste, and lower commodity costs. Decreased store operating expenses resulted from initiatives focused on in-store labor efficiencies and the effect of Company-operated store closures. Also contributing to the margin expansion were lower restructuring charges due to a smaller number of closures of underperforming stores in the current year as Starbucks completed almost all of its US store rationalization efforts by the end of fiscal 2009.

International

		13 Weeks Ended
		Dec 27,				Dec 28,				Dec 27,				Dec 28,
		2009				2008				2009				2008
										% of International
										Net Revenues
Total net revenues		$	591.0			$	495.7
Total operating expenses			564.5				494.7				95.5	%			99.8	%
Income from equity investees			17.0				11.9				2.9				2.4
Operating income		$	43.5			$	12.9				7.4	%			2.6	%

Total International net revenues increased 19% for the first quarter of fiscal 2010 primarily due to higher retail revenues. Company-operated retail revenue increased 22% mainly due to the strengthening of the Canadian dollar and other currencies relative to the US dollar, the effect of consolidating previous joint venture operations in France, and a 4% increase in comparable store sales. The increase in comparable store sales consisted entirely of a 4% increase in the number of transactions, with the Canada and UK markets driving the large majority of the improvement.

Operating margin increased for the first quarter of fiscal 2010 driven in part by lower cost of sales including occupancy costs as a percentage of total International net revenues, related to programs implemented to reduce product waste, a mix shift to higher-margin products, and increased sales leverage on occupancy costs. Also contributing to the margin expansion were lower store operating expenses as a percentage of total International net revenues, attributable to lower store impairments in the current-year period, and to improved sales leverage. Partially offsetting these improvements were higher restructuring charges, due to increased lease exit and related costs due to a higher number of stores being closed in the current quarter compared to the prior year quarter.

Global Consumer Products Group

		13 Weeks Ended
		Dec 27,				Dec 28,				Dec 27,				Dec 28,
		2009				2008				2009				2008
										% of CPG
										Net Revenues
Total specialty revenues		$	196.8			$	205.9
Total operating expenses			142.0				142.3				72.2	%			69.1	%
Income from equity investees			12.4				11.1				6.3				5.4
Operating income		$	67.2			$	74.7				34.1	%			36.3	%