e10vq
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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 December 31, 2006
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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ                    Accelerated filer o                    Non-accelerated filer o
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 February 5, 2007
     
Common Stock, par value $0.001 per share   750,956,382
 
 

 


 

STARBUCKS CORPORATION
FORM 10-Q
For the Quarterly Period Ended December 31, 2006
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     21  
Item 4   Controls and Procedures     21  
 
               
 
      PART II. OTHER INFORMATION        
 
               
Item 1   Legal Proceedings     22  
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds     22  
Item 6   Exhibits     22  
Signatures     23  
Index to Exhibits     24  
 EXHIBIT 31.1 CERTIFICATION UNDER SARBANES-OXLEY SECTION 302
 EXHIBIT 31.2 CERTIFICATION UNDER SARBANES-OXLEY SECTION 302
 EXHIBIT 32 CERTIFICATIONS UNDER SARBANES-OXLEY SECTION 906

 


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PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except earnings per share)
(unaudited)
                 
    13 Weeks Ended  
    December 31,     January 1,  
    2006     2006  
Net revenues:
               
Company-operated retail
  $ 2,006,811     $ 1,627,983  
Specialty:
               
Licensing
    253,922       219,150  
Foodservice and other
    94,990       86,959  
 
           
Total specialty
    348,912       306,109  
 
           
Total net revenues
    2,355,723       1,934,092  
 
               
Cost of sales including occupancy costs
    984,823       778,038  
Store operating expenses
    771,967       622,166  
Other operating expenses
    72,538       59,148  
Depreciation and amortization expenses
    110,196       91,288  
General and administrative expenses
    115,228       123,325  
 
           
Subtotal operating expenses
    2,054,752       1,673,965  
 
               
Income from equity investees
    18,753       19,720  
 
           
 
               
Operating income
    319,724       279,847  
Interest and other income, net
    6,439       348  
 
           
 
               
Earnings before income taxes
    326,163       280,195  
Income taxes
    121,211       106,039  
 
           
 
               
Net earnings
  $ 204,952     $ 174,156  
 
           
 
               
Net earnings per common share — basic
  $ 0.27     $ 0.23  
Net earnings per common share — diluted
  $ 0.26     $ 0.22  
Weighted average shares outstanding:
               
Basic
    758,088       767,021  
Diluted
    782,764       792,949  
See Notes to Consolidated Financial Statements.

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STARBUCKS CORPORATION
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
                 
    December 31,     October 1,  
    2006     2006  
    (unaudited)          
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 270,873     $ 312,606  
Short-term investments — available-for-sale securities
    103,184       87,542  
Short-term investments — trading securities
    62,413       53,496  
Accounts receivable, net of allowances of $4,558 and $3,827, respectively
    227,823       224,271  
Inventories
    547,277       636,222  
Prepaid expenses and other current assets
    121,320       126,874  
Deferred income taxes, net
    96,646       88,777  
 
           
Total current assets
    1,429,536       1,529,788  
 
               
Long-term investments — available-for-sale securities
    23,280       5,811  
Equity and other investments
    224,918       219,093  
Property, plant and equipment, net
    2,396,801       2,287,899  
Other assets
    205,724       186,917  
Other intangible assets
    39,469       37,955  
Goodwill
    207,906       161,478  
 
           
 
               
TOTAL ASSETS
  $ 4,527,634     $ 4,428,941  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 275,691     $ 340,937  
Accrued compensation and related costs
    289,005       288,963  
Accrued occupancy costs
    68,033       54,868  
Accrued taxes
    173,949       94,010  
Short-term borrowings
    365,000       700,000  
Other accrued expenses
    209,146       224,154  
Deferred revenue
    422,648       231,926  
Current portion of long-term debt
    765       762  
 
           
Total current liabilities
    1,804,237       1,935,620  
 
               
Long-term debt
    1,746       1,958  
Other long-term liabilities
    282,796       262,857  
 
           
Total liabilities
    2,088,779       2,200,435  
 
               
Shareholders’ equity:
               
Common stock ($0.001 par value) — authorized, 1,200,000,000; issued and outstanding, 757,372,182 and 756,602,055 shares, respectively (includes 3,394,184 common stock units in both periods)
    757       756  
Other additional paid-in-capital
    39,393       39,393  
Retained earnings
    2,349,918       2,151,084  
Accumulated other comprehensive income
    48,787       37,273  
 
           
Total shareholders’ equity
    2,438,855       2,228,506  
 
           
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 4,527,634     $ 4,428,941  
 
           
See Notes to Consolidated Financial Statements.

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STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)
                 
    13 Weeks Ended  
    December 31,     January 1,  
    2006     2006  
OPERATING ACTIVITIES:
               
Net earnings
  $ 204,952     $ 174,156  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
    116,122       97,744  
Provision for impairments and asset disposals
    3,469       3,751  
Deferred income taxes, net
    (21,277 )     (26,291 )
Equity in income of investees
    (9,020 )     (12,451 )
Distributions from equity investees
    18,845       5,769  
Stock-based compensation
    24,363       23,189  
Tax benefit from exercise of stock options
    3,422       110  
Excess tax benefit from exercise of stock options
    (29,618 )     (23,724 )
Net amortization of premium on securities
    213       545  
Cash provided/(used) by changes in operating assets and liabilities:
               
Inventories
    91,293       93,348  
Accounts payable
    (64,241 )     (8,180 )
Accrued taxes
    109,813       127,118  
Deferred revenue
    191,219       134,205  
Other operating assets and liabilities
    38,854       19,573  
 
           
Net cash provided by operating activities
    678,409       608,862  
 
               
INVESTING ACTIVITIES:
               
Purchase of available-for-sale securities
    (148,362 )     (232,000 )
Maturity of available-for-sale securities
    115,165       14,734  
Sale of available-for-sale securities
          76,504  
Acquisition, net of cash acquired
    (47,304 )      
Net purchases of equity, other investments and other assets
    (15,722 )     (4,893 )
Net additions to property, plant and equipment
    (270,547 )     (147,323 )
 
           
Net cash used by investing activities
    (366,770 )     (292,978 )
 
               
FINANCING ACTIVITIES:
               
Proceeds from issuance of common stock
    65,530       44,412  
Excess tax benefit from exercise of stock options
    29,618       23,724  
Net repayments of revolving credit facility
    (335,000 )     (172,000 )
Principal payments on long term debt
    (209 )     (186 )
Repurchase of common stock
    (115,288 )     (134,301 )
 
           
Net cash used by financing activities
    (355,349 )     (238,351 )
 
               
Effect of exchange rate changes on cash and cash equivalents
    1,977       93  
 
           
Net increase/(decrease) in cash and cash equivalents
    (41,733 )     77,626  
 
               
CASH AND CASH EQUIVALENTS:
               
Beginning of period
    312,606       173,809  
 
           
 
               
End of period
  $ 270,873     $ 251,435  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid during the period for:
               
Interest
  $ 8,318     $ 2,918  
Income taxes
  $ 40,570     $ 10,280  
See Notes to Consolidated Financial Statements.

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STARBUCKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the 13 Weeks Ended December 31, 2006, and January 1, 2006
Note 1: Summary of Significant Accounting Policies
Financial Statement Preparation
The unaudited consolidated financial statements as of December 31, 2006, and for the 13-week periods ended December 31, 2006, and January 1, 2006, have been prepared by Starbucks Corporation (“Starbucks” or the “Company”) under the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the financial information for the 13-week periods ended December 31, 2006, and January 1, 2006, reflects 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 October 1, 2006, is derived from the Company’s audited consolidated financial statements and notes for the fiscal year ended October 1, 2006 (“Fiscal 2006”), included in Item 8 in the Fiscal 2006 Annual Report on Form 10-K (together with Amendment No. 1 to the Fiscal 2006 Annual Report on Form 10-K/A, the “10-K”). The information included in this Form 10-Q should be read in conjunction with management’s discussion and analysis and notes to the financial statements in the 10-K.
The results of operations for the 13-week period ended December 31, 2006, are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending September 30, 2007.
Reclassifications
Certain reclassifications of prior year’s balances have been made to conform to the current format.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006, and the Company will adopt the new requirements in its fiscal first quarter of 2008. The cumulative effects, if any, of adopting FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company has not yet determined the impact, if any, of adopting FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. Starbucks must adopt these new requirements no later than its first fiscal quarter of 2009. Starbucks has not yet determined the effect on the Company’s consolidated financial statements, if any, upon adoption of SFAS 157, or if it will adopt the requirements prior to the first fiscal quarter of 2009.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). The intent of SAB 108 is to reduce diversity in practice for the method companies use to quantify financial statement misstatements, including the effect of prior year uncorrected errors. SAB 108 establishes an approach that requires quantification of financial statement errors using both an income statement and cumulative balance sheet approach. SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 is not currently expected to have a significant impact on the Company’s consolidated financial statements.
Note 2: Acquisition
In October 2006, the Company acquired from H&Q Asia Pacific and other shareholders, 100% equity ownership of High Grown Investment Group (Hong Kong) Limited, which in turn owns 90% of Beijing Mei Da Coffee Co. Ltd. (“Mei Da”), the operator of 61 Starbucks retail stores in Beijing and Tianjin, China, and an authorized licensee of Starbucks Coffee International. Beijing San Yuan Company continues to be a minority shareholder of Mei Da. Due

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to its majority ownership of these operations, Starbucks applied the consolidation method of accounting subsequent to the date of acquisition.
Note 3: Derivative Financial Instruments
Cash Flow Hedges
Starbucks, which includes subsidiaries that use their local currency as their functional currency, enters into cash flow derivative instruments to hedge portions of anticipated revenue streams and inventory purchases. Current forward contracts, which comprise the majority of the Company’s derivative instruments, hedge monthly forecasted revenue transactions denominated in Japanese yen and Canadian dollars, as well as forecasted inventory purchases denominated primarily in U.S. dollars for foreign operations. The Company also has futures contracts to hedge the variable price component for a small portion of its price-to-be-fixed green coffee purchase contracts.
The Company had accumulated net derivative gains of $3.1 million, net of taxes, in other comprehensive income as of December 31, 2006, related to cash flow hedges. Of this amount, $1.8 million of net derivative gains pertain to hedging instruments that will be dedesignated within 12 months and will also continue to experience fair value changes before affecting earnings. No cash flow hedges were discontinued and no ineffectiveness was recognized during the 13-week periods ended December 31, 2006 and January 1, 2006. Current contracts will expire within 33 months.
Net Investment Hedges
Net investment derivative instruments are used to hedge the Company’s equity method investment in Starbucks Coffee Japan, Ltd. as well as the Company’s net investments in its Canadian and United Kingdom subsidiaries, to minimize foreign currency exposure. 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 $3.4 million, net of taxes, in other comprehensive income as of December 31, 2006, related to net investment derivative hedges. Current contracts expire within 30 months.
The following table presents the net gains and losses reclassified from other comprehensive income into the consolidated statements of earnings during the periods indicated for cash flow and net investment hedges (in thousands):
                 
    13 Weeks Ended  
    December 31,     January 1,  
    2006     2006  
Cash flow hedges:
               
Reclassified gains into total net revenues
  $ 308     $ 421  
Reclassified losses into cost of sales
    (1,027 )     (1,636 )
 
           
Net reclassified losses — cash flow hedges
    (719 )     (1,215 )
Net reclassified gains — net investment hedges
    1,337       423  
 
           
Total
  $ 618     $ (792 )
 
           
Note 4: Inventories
Inventories consist of the following (in thousands):
                         
    December 31,     October 1,     January 1,  
    2006     2006     2006  
Coffee:
                       
Unroasted
  $ 273,184     $ 328,051     $ 262,204  
Roasted
    76,357       80,199       53,815  
Other merchandise held for sale
    125,449       146,345       80,539  
Packaging and other supplies
    72,287       81,627       56,092  
 
                 
Total
  $ 547,277     $ 636,222     $ 452,650  
 
                 
As of December 31, 2006, the Company had committed to fixed-price purchase contracts for green coffee totaling $507 million. The Company believes, based on relationships established with its suppliers in the past, the risk of non-delivery on such purchase commitments is remote. Other merchandise held for sale includes, among other

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items, brewing equipment, serveware and tea.
Note 5: Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist of the following (in thousands):
                 
    December 31,     October 1,  
    2006     2006  
Land
  $ 34,708     $ 32,350  
Buildings
    124,340       109,129  
Leasehold improvements
    2,580,388       2,436,503  
Store equipment
    850,075       784,444  
Roasting equipment
    199,854       197,004  
Furniture, fixtures and other
    539,241       523,275  
 
           
 
    4,328,606       4,082,705  
Less: accumulated depreciation and amortization
    (2,076,546 )     (1,969,804 )
 
           
 
    2,252,060       2,112,901  
Work in progress
    144,741       174,998  
 
           
Property, plant and equipment, net
  $ 2,396,801     $ 2,287,899  
 
           
Note 6: Short-term Borrowings
In August 2005, the Company entered into a $500 million unsecured five-year revolving credit facility (the “facility”) with various banks, of which $100 million may be used for issuances of letters of credit. The facility is available for working capital, capital expenditures and other corporate purposes, which may include acquisitions and share repurchases. In August 2006, the Company increased its borrowing capacity under the facility to $1 billion, as provided in the original credit facility. In December of 2006, the Company extended the term of the facility by one year to August 2011. The interest rate for borrowings under the facility ranges from 0.150% to 0.275% over LIBOR or an alternate base rate, which is the greater of the bank prime rate or the Federal Funds Rate plus 0.50%. The specific spread over LIBOR will depend upon the Company’s performance under specified financial criteria.
As of December 31, 2006, the Company had $365 million outstanding, as well as a letter of credit of $12.9 million which reduces the borrowing capacity under the credit facility. As of October 1, 2006, the Company had $700 million outstanding, as well as a letter of credit of $11.9 million. For the 13-week period ended December 31, 2006, the Company had additional borrowings of $24 million under the facility and made principal repayments of $359 million. The weighted average contractual interest rates were 5.5% at both December 31, 2006 and October 1, 2006. The facility contains provisions that require the Company to maintain compliance with certain covenants, including the maintenance of certain financial ratios. As of December 31, 2006 and October 1, 2006, the Company was in compliance with each of these covenants.
Interest expense, net of interest capitalized, was $7.0 million and $2.6 million for the 13 weeks ended December 31, 2006 and January 1, 2006 respectively. For the 13 weeks ended December 31, 2006, $0.8 million of interest expense was capitalized. No interest was capitalized for the 13 weeks ended January 1, 2006.
Note 7: Other Long-term Liabilities
The Company’s other long-term liabilities consist of the following (in thousands):
                 
    December 31,     October 1,  
    2006     2006  
Deferred rent
  $ 218,794     $ 203,903  
Asset retirement obligations
    37,187       34,271  
Minority interest
    13,485       10,739  
Other
    13,330       13,944  
 
           
Total
  $ 282,796     $ 262,857  
 
           
The deferred rent liabilities as of December 31, 2006 and October 1, 2006, represent amounts for tenant improvement allowances, rent escalation clauses and rent holidays related to certain operating leases. The Company amortizes deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of earnings.

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Asset retirement obligations represent the estimated fair value of the Company’s future costs of removing leasehold improvements at the termination of leases related to certain leased stores and administrative facilities.
Minority interest represents the long-term liabilities maintained for the collective ownership interests of minority shareholders for operations accounted for under the consolidation method, but in which Starbucks owns less than 100% of the equity interest.
The other remaining long-term liabilities generally include obligations to be settled or paid for one year beyond each period presented, for items such as guarantees, hedging instruments, donation commitments and the long-term portion of capital lease obligations.
Note 8: Shareholders’ Equity
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 at December 31, 2006.
Under the Company’s authorized share repurchase program, Starbucks acquired 3.6 million shares at an average price of $36.04 for a total cost of $130 million for the 13-week period ended December 31, 2006. Starbucks acquired 4.3 million shares at an average price of $28.10 for a total cost of $121 million during the 13-week period ended January 1, 2006. During fiscal 2006, the Starbucks Board of Directors authorized additional repurchases of 25 million shares of the Company’s common stock, and as of December 31, 2006, there were 17.9 million remaining shares authorized for repurchase. Share repurchases were funded through cash, cash equivalents, available-for-sale securities and borrowings under the revolving credit facility and were part of the Company’s active capital management program.
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  
    December 31,     January 1,  
    2006     2006  
Net earnings
  $ 204,952     $ 174,156  
 
               
Unrealized holding gains/(losses) on cash flow hedging instruments
    5,542       (1,268 )
Unrealized holding gains/(losses) on net investment hedging instruments
    (108 )     1,337  
Unrealized holding gains/(losses) on available-for-sale securities
    78       (44 )
Reclassification adjustment for net gains realized in net earnings for available-for-sale securities
          (10 )
Reclassification adjustment for net losses realized in net earnings for cash flow hedges
    753       1,110  
 
           
Net unrealized gain
    6,265       1,125  
Translation adjustment
    5,249       (3,620 )
 
           
Total comprehensive income
  $ 216,466     $ 171,661  
 
           
The favorable translation adjustment change for the 13-week period ended December 31, 2006, of $5.2 million was primarily due to the weakening of the U.S. dollar against several currencies, such as the euro and British pound sterling, offset in part by strengthening of the U.S. dollar against the Canadian dollar. The unfavorable translation adjustment change for the 13-week period ended January 1, 2006, of $3.6 million was primarily due to the strengthening of the U.S dollar against several currencies, such as the Japanese yen, euro and British pound sterling.

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The components of accumulated other comprehensive income, net of tax, were as follows (in thousands):
                 
    December 31,     October 1,  
    2006     2006  
Net unrealized holding losses on available-for-sale securities
  $ (176 )   $ (254 )
Net unrealized holding losses on hedging instruments
    (229 )     (6,416 )
Translation adjustment
    49,192       43,943  
 
           
Accumulated other comprehensive income
  $ 48,787     $ 37,273  
 
           
As of December 31, 2006, the translation adjustment of $49.2 million was net of tax provisions of $7.8 million. As of October 1, 2006, the translation adjustment of $43.9 million was net of tax provisions of $7.3 million.
Note 9: Stock-Based Compensation
Stock Options
Stock options to purchase the Company’s common stock are granted at prices at or above the fair market value on the date of grant. The majority of options become exercisable in four equal installments beginning a year from the date of grant and generally expire 10 years from the date of grant. Certain options granted prior to October 1, 2006 become exercisable in three equal installments beginning a year from the date of grant. Options granted to non-employee directors generally vest over one year. Nearly all outstanding stock options are non-qualified stock options.
The fair value of stock awards was estimated at the date of grant using the Black-Scholes-Merton option valuation model with the following weighted average assumptions for the 13 weeks ended December 31, 2006 and January 1, 2006:
                 
    Employee Stock Options
13 weeks ended   December 31, 2006   January 1, 2006
Expected term (in years)
    4.7       4.4  
Expected stock price volatility
    29.1 %     28.8 %
Risk-free interest rate
    4.6 %     4.4 %
Expected dividend yield
    0.0 %     0.0 %
 
               
Estimated fair value per option granted
  $ 12.04     $ 9.46  
The assumptions used to calculate the fair value of stock awards granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.
The following summarizes all stock option transactions from October 1, 2006 through December 31, 2006 (no restricted stock, restricted stock units or stock appreciation rights were outstanding for any of these periods):
                                 
            Weighted   Weighted    
            Average   Average   Aggregate
    Shares   Exercise   Remaining   Intrinsic
    Subject to   Price   Contractual   Value
    Options   per Share   Life   (in thousands)
Outstanding, October 1, 2006
    69,419,871     $ 16.83       6.2     $ 1,196,209  
Granted
    10,994,085       36.78                  
Exercised
    (3,956,287 )     13.59                  
Cancelled
    (579,017 )     28.39                  
 
                               
Outstanding, December 31, 2006
    75,878,652       19.80       6.5       1,200,249  
 
                               
 
                               
Exercisable, December 31, 2006
    48,065,980       13.30       5.2       1,063,261  
The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount optionees would have realized if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price on that day. As of December 31, 2006, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $165 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 26 months.

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The Company issues new shares of common stock upon exercise of stock options. As of December 31, 2006, there were 57.9 million shares of common stock available for issuance pursuant to future stock option grants.
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  
    December 31,     January 1,  
    2006     2006  
Net earnings
  $ 204,952     $ 174,156  
 
               
Weighted average common shares and common stock units outstanding (for basic calculation)
    758,088       767,021  
Dilutive effect of outstanding common stock options
    24,676       25,928  
 
           
Weighted average common and common equivalent shares outstanding (for diluted calculation)
    782,764       792,949  
 
           
 
               
Net earnings per common share — basic
  $ 0.27     $ 0.23  
Net earnings per common and common equivalent share — diluted
  $ 0.26     $ 0.22  
Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options (both vested and non-vested) using the treasury stock method. These options are excluded from the computation of earnings per share if their effect is antidilutive. The antidilutive options totaled 5.5 million and 14.7 million for the 13-week periods ended December 31, 2006 and January 1, 2006, 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 December 31, 2006, the maximum amount of the guarantees was approximately $6.0 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.
Starbucks has commitments under which it unconditionally guarantees its proportionate share of certain borrowings of unconsolidated equity investees. The Company’s maximum exposure under these commitments is approximately $9.2 million, excluding interest and other related costs, and these commitments expire between 2007 and 2012. As of December 31, 2006, the Company recorded $3.6 million to “Equity and other investments” and “Other long-term liabilities” on the consolidated balance sheet for the fair value of the guarantee arrangements.
Legal Proceedings
On June 3, 2004, two then-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 each manager therefore is entitled to overtime compensation for any week in which he or she worked more than 40 hours during the three years before joining the suit as a plaintiff, and for as long as they remain a manager thereafter. 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 three years before the suit was filed. 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 was 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

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under the federal wage laws. The Company cannot estimate the possible loss to the Company, if any, and believes that a loss in this case is unlikely. Trial is currently set for August 2007. The Company intends to vigorously defend the lawsuit.
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 alleges that the Company violated the California Labor Code by allowing shift supervisors to receive tips. More specifically, the lawsuit alleges that since shift supervisors direct the work of baristas, they qualify as “agents” of the Company and are therefore excluded from receiving tips under California Labor Code Section 351, which prohibits employers and their agents from collecting or receiving tips left by patrons for other employees. The lawsuit further alleges that because the tipping practices violate the Labor Code, they also are unfair practices under the California Unfair Competition Law. In addition to recovery of an unspecified amount of tips distributed to shift supervisors, the lawsuit seeks penalties under California Labor Code Section 203 for willful failure to pay wages due. Plaintiff also seeks attorneys’ fees and costs. On March 30, 2006, the Court issued an order certifying the case as a class action, with the plaintiff representing a class of all persons employed as baristas in the state of California since October 8, 2000. The size of the class has yet to be determined. The Company cannot estimate the possible loss to the Company, if any. Trial is currently set for May 2007. The Company believes its practices comply with California law, and the Company intends to vigorously defend the lawsuit.
On March 11, 2005, a former employee of the Company filed a lawsuit, entitled James Falcon v. Starbucks Corporation and Does 1 through 100, in the U.S. District Court for the Southern District of Texas claiming that the Company violated requirements of the FLSA. Specifically, the plaintiff claims that the Company misclassified its retail assistant store managers as exempt from the overtime provisions of the FLSA and that each assistant manager therefore is entitled to overtime compensation for any week in which he or she worked more than 40 hours during the three years before joining the suit as a plaintiff, and for as long as they remain an assistant manager thereafter. On August 18, 2005, the plaintiff amended his complaint to include allegations that he and other retail assistant store managers were not paid overtime compensation for all hours worked in excess of 40 hours in a work week after they were re-classified as non-exempt employees in September 2002. In both claims, Plaintiff seeks to represent himself and a putative class of all current and former assistant store managers employed by the Company in the United States from March 11, 2002 until the present. He also seeks, on behalf of himself and the class, reimbursement for an unspecified amount of unpaid overtime compensation, liquidated damages, injunctive relief, and attorney’s fees and costs. On September 13, 2005, the plaintiff filed a motion for conditional collective action treatment and court-supervised notice to all putative class members under the opt-in procedures in section 16(b) of the FLSA. On November 29, 2005, the court entered an order authorizing notice to the class of the existence of the lawsuit and their opportunity to join as plaintiffs. The Company has a policy requiring that all non-exempt partners, including assistant store managers, be paid for all hours worked, including any hours worked in excess of 40 per week. The Company also believes that this policy is, and at all relevant times has been, communicated and followed consistently. Further, the Company believes that the plaintiff and other assistant store managers were properly classified as exempt under the FLSA prior to September 2002. The Company cannot estimate the possible loss to the Company, if any, and believes that a loss in this case is unlikely. No trial date has been set. The Company intends to vigorously defend the lawsuit.
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.

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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   International   Global CPG   Corporate (1)   Total
December 31, 2006
                                       
Net Revenues:
                                       
Company-operated retail
  $ 1,660,263     $ 346,548     $     $     $ 2,006,811  
Specialty:
                                       
Licensing
    113,309       49,864       90,749             253,922  
Foodservice and other
    86,327       8,663                   94,990  
Total specialty
    199,636       58,527       90,749             348,912  
Total net revenues
    1,859,899       405,075       90,749             2,355,723  
Earnings/(loss) before income taxes
    326,738       33,538       41,601       (75,714 )     326,163  
Depreciation and amortization
    81,363       20,465       22       8,346       110,196  
Income from equity investees
          8,024       10,729             18,753  
Net impairment and disposition losses
    2,433       1,034       2             3,469  
 
 
                                       
January 1, 2006
                                       
Net Revenues:
                                       
Company-operated retail
  $ 1,370,687     $ 257,296     $     $     $ 1,627,983  
Specialty:
                                       
Licensing
    96,283       42,309       80,558             219,150  
Foodservice and other
    80,371       6,588                   86,959  
Total specialty
    176,654       48,897       80,558             306,109  
Total net revenues
    1,547,341       306,193       80,558             1,934,092  
Earnings/(loss) before income taxes
    298,482       33,823       42,577       (94,687 )     280,195  
Depreciation and amortization
    67,684       15,009       34       8,561       91,288  
Income from equity investees
    124       7,778       11,818             19,720  
Net impairment and disposition losses
    2,044       1,572             135       3,751  
 
 
(1)   Unallocated corporate includes certain general and administrative expenses, related depreciation and amortization expenses and amounts included in “Interest and other income, net” on the consolidated statements of earnings.
The table below represents information by geographic area (in thousands):
                 
    13 Weeks Ended  
    December 31,     January 1,  
    2006     2006  
Net revenues from external customers:
               
United States
  $ 1,944,684     $ 1,624,867  
Foreign countries
    411,039       309,225  
 
           
Total
  $ 2,355,723     $ 1,934,092  
 
           
No customer accounts for 10% or more of the Company’s revenues. 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 73% of foreign net revenues.

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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 comparable store sales and revenue growth, operating income as a percentage of total net revenues, effective tax rate, cash flow requirements, capital expenditures and commodity costs, 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, ramifications from the war on terrorism, or other international events or developments, 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 Item 1A. “Risks Factors” section of the Starbucks Annual Report on Form 10-K for the fiscal year ended October 1, 2006.
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 for the fiscal year ended October 1, 2006.
General
Starbucks Corporation’s fiscal year ends on the Sunday closest to September 30. Fiscal year 2006 had 52 weeks and the fiscal year ending on September 30, 2007 will also include 52 weeks. All references to store counts, including data for new store openings, are reported net of related store closures.
Management Overview
During the 13 weeks ended December 31, 2006, the Company’s focus on execution in all areas of its business, from U.S. and International Company-operated retail operations to the Company’s specialty businesses, delivered strong financial performance. Management believes that its 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 first quarter 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. Starbucks opened 728 new stores in the 13-week period ended December 31, 2006 and plans to open approximately 2,400 in fiscal 2007. With a presence in 39 countries, serving customers nearly 44 million times per week, management continues to believe that the Company’s long-term goal of approximately 20,000 Starbucks retail locations throughout the United States and at least 20,000 stores in International markets is achievable.
In addition to opening new retail stores, Starbucks works 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 comparable store sales by continuously improving the level of customer service, introducing innovative products and improving speed of service through training, technology and process improvement.
For the 13-week period ended December 31, 2006, global comparable store sales for Company-operated markets increased by 6%. Comparable store sales growth for the remainder of fiscal 2007 is expected to be in the target range of 3% to 7%.

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In licensed retail operations, Starbucks shares operating and store development experience to help licensees improve the profitability of existing stores and build new stores. Internationally, the Company’s strategy is to selectively increase its equity stake in licensed international operations as these markets develop. In October 2006, the Company purchased a 90% stake in its previously-licensed operations in Beijing and Tianjin, China.
The combination of more retail stores, comparable store sales growth of 6% and growth in other business channels in the U.S., International and CPG operating segments resulted in a 22% increase in total net revenues for the 13-week period ended December 31, 2006, compared to the same period of fiscal 2006. The Company expects consolidated total net revenue growth of approximately 20% in fiscal 2007, consistent with its three to five year revenue growth target.
For the 13-week period ended December 31, 2006, operating income as a percentage of total net revenues decreased to 13.6% from a record high 14.5% in the same period of fiscal 2006, due to higher cost of sales including occupancy costs and higher store operating expenses, partially offset by lower general and administrative expenses. For the second half of fiscal 2007, the Company expects modest improvement in operating income as a percentage of total net revenues, compared to the same period in the prior year. Net earnings increased by 18% in the 13-week period ended December 31, 2006, compared to the same period in fiscal 2006.
Results of Operations for the 13 Weeks Ended December 31, 2006 and January 1, 2006
CONSOLIDATED RESULTS
The following table presents the consolidated statements of earnings as well as the percentage relationship to total net revenues of items included in the Company’s consolidated statements of earnings (amounts in thousands):
                                 
    13 Weeks Ended     13 Weeks Ended  
    December 31,     January 1,     December 31,     January 1,  
    2006     2006     2006     2006  
                    As a % of total net revenues  
STATEMENTS OF EARNINGS DATA
                               
Net revenues:
                               
Company-operated retail
  $ 2,006,811     $ 1,627,983       85.2 %     84.2 %
Specialty:
                               
Licensing
    253,922       219,150       10.8       11.3  
Foodservice and other
    94,990       86,959       4.0       4.5  
 
                       
Total specialty
    348,912       306,109       14.8       15.8  
 
                       
Total net revenues
    2,355,723       1,934,092       100.0       100.0  
 
                               
Cost of sales including occupancy costs
    984,823       778,038       41.8       40.2  
Store operating expenses (1)
    771,967       622,166       32.8       32.2  
Other operating expenses (2)
    72,538       59,148       3.0       3.0  
Depreciation and amortization expenses
    110,196       91,288       4.7       4.7  
General and administrative expenses
    115,228       123,325       4.9       6.4  
 
                       
Subtotal operating expenses
    2,054,752       1,673,965       87.2       86.5  
Income from equity investees
    18,753       19,720       0.8       1.0  
 
                       
Operating income
    319,724       279,847       13.6       14.5  
Interest and other income, net
    6,439       348       0.2       0.0  
 
                       
Earnings before income taxes
    326,163       280,195       13.8       14.5  
Income taxes
    121,211       106,039       5.1       5.5  
 
                       
Net earnings
  $ 204,952     $ 174,156       8.7 %     9.0 %
 
                       
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 38.5% for the 13 weeks ended December 31, 2006, and 38.2% for the 13 weeks ended January 1, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 20.8% for the 13 weeks ended December 31, 2006, and 19.3% for the 13 weeks ended January 1, 2006.
Net revenues for the 13 weeks ended December 31, 2006, increased 22% to $2.4 billion from $1.9 billion for the corresponding period of fiscal 2006, driven by increases in both Company-operated retail revenues and specialty operations. Net revenues are expected to grow approximately 20% in fiscal 2007 compared to fiscal 2006.
During the 13-week period ended December 31, 2006, Starbucks derived 85% of total net revenues from its Company-operated retail stores. Company-operated retail revenues increased 23% to $2.0 billion for the 13 weeks ended December 31, 2006, from $1.6 billion for the same period in fiscal 2006. The increase was primarily attributable to the opening of 1,177 new Company-operated retail stores in the last 12 months and comparable store

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sales growth of 6% for the 13 weeks ended December 31, 2006. The increase in comparable store sales was due to a 4% increase in the number of customer transactions and a 2% 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 and a high level of customer satisfaction.
The Company derived the remaining 15% of total net revenues from channels outside the Company-operated retail stores, collectively known as “Specialty Operations.” Specialty revenues, which include licensing revenues and foodservice and other revenues, increased 14% to $349 million for the 13 weeks ended December 31, 2006, from $306 million for the corresponding period of fiscal 2006.
Licensing revenues, which are derived from retail store licensing arrangements, as well as grocery, warehouse club and certain other branded-product operations, increased 16% to $254 million for the 13 weeks ended December 31, 2006, from $219 million for the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from the opening of 1,190 new licensed retail stores in the last 12 months and, to a lesser extent, growth in the licensed grocery and warehouse club business.
Foodservice and other revenues increased 9% to $95 million for the 13 weeks ended December 31, 2006, from $87 million for the corresponding period of fiscal 2006. The increase was primarily attributable to growth in new and existing accounts in the U.S. foodservice business.
Cost of sales including occupancy costs increased to 41.8% of total net revenues for the 13 weeks ended December 31, 2006, compared to 40.2% for the corresponding period of fiscal 2006. The increase was primarily due to higher rent expense, a shift in sales to higher cost products and increased distribution costs.
Store operating expenses as a percentage of Company-operated retail revenues increased to 38.5% for the 13 weeks ended December 31, 2006, from 38.2% for the corresponding period of fiscal 2006. This increase was primarily due to higher payroll expenditures from an increase in the average hourly wage rate for retail store partners.
Other operating expenses (expenses associated with the Company’s specialty operations) increased to 20.8% of total specialty revenues for the 13 weeks ended December 31, 2006, compared to 19.3% in the corresponding period of fiscal 2006. The increase was primarily due to increased payroll-related expenditures to support the growth in U.S. and International licensed stores operations.
Depreciation and amortization expenses increased to $110 million for the 13 weeks ended December 31, 2006, compared to $91 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 1,177 new Company-operated retail stores in the last 12 months. As a percentage of total net revenues, depreciation and amortization expenses were 4.7% for both periods.
General and administrative expenses decreased to $115 million for the 13 weeks ended December 31, 2006, compared to $123 million for the corresponding period of fiscal 2006. This decrease was primarily due to higher charitable contributions in the prior year and higher provisions for incentive compensation due to exceptional performance in the prior year. These were partially offset by increased payroll-related expenditures and higher professional fees in support of continued global growth and systems infrastructure development in the current year. As a percentage of total net revenues, general and administrative expenses decreased to 4.9% for the 13 weeks ended December 31, 2006, from 6.4% for the corresponding period of fiscal 2006.
Income from equity investees decreased 5% to $19 million for the 13 weeks ended December 31, 2006, compared to $20 million for the corresponding period of fiscal 2006. The decrease was primarily due to lower income as a result of lower sales volumes for both the Starbucks Ice Cream Partnership and the North American Coffee Partnership, which produces ready-to-drink beverages, including bottled Frappuccino® coffee drinks and Starbucks DoubleShot® espresso drinks.
Operating income increased 14% to $320 million for the 13 weeks ended December 31, 2006, compared to $280 million for the corresponding period of fiscal 2006. Operating margin decreased to 13.6% of total net revenues for the 13 weeks ended December 31, 2006, compared to 14.5% for the corresponding period of fiscal 2006, primarily due to higher cost of sales including occupancy costs and higher store operating expenses, partially offset by lower general and administrative expenses.
Net interest and other income increased to $6.4 million for the 13 weeks ended December 31, 2006, compared to $0.3 million in the corresponding period of fiscal 2006, primarily due to foreign exchange gains in the current year

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compared to foreign exchange losses in the prior year.
Income taxes for the 13 weeks ended December 31, 2006, resulted in an effective tax rate of 37.2%, compared to 37.8% for the corresponding period of fiscal 2006. The Company currently estimates that its effective tax rate for fiscal year 2007 will approximate 37%, with quarterly variations.
Net earnings for the 13 weeks ended December 31, 2006, increased 18% to $205 million from $174 million for the same period of fiscal 2006. Diluted earnings per share also increased by 18% to $0.26 for the 13 weeks ended December 31, 2006, compared to $0.22 per share for the comparable period in fiscal 2006.
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 results of operations by segment (in thousands):
United States
                                         
    13 Weeks Ended   13 Weeks Ended
    December 31,   January 1,   %   December 31,   January 1,
    2006   2006   Change   2006   2006
                            As a % of U.S. total net revenues
Net revenues:
                                       
Company-operated retail
  $ 1,660,263     $ 1,370,687       21.1 %     89.3 %     88.6 %
Specialty:
                                       
Licensing
    113,309       96,283       17.7       6.1       6.2  
Foodservice and other
    86,327       80,371       7.4       4.6       5.2  
                 
Total specialty
    199,636       176,654       13.0       10.7       11.4  
                 
Total net revenues
    1,859,899       1,547,341       20.2       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    731,121       587,446               39.3       38.0  
Store operating expenses
    648,377       528,775               34.8 (1)      34.1 (1) 
Other operating expenses
    52,125       44,107               2.8 (2)      2.8 (2) 
Depreciation and amortization expenses
    81,363       67,684               4.4       4.4  
General and administrative expenses
    21,759       21,533               1.2       1.4  
                 
Subtotal operating expenses
    1,534,745       1,249,545               82.5       80.7  
 
                                       
Income from equity investees
          124               0.0       0.0  
                 
Operating income
  $ 325,154     $ 297,920       9.1 %     17.5 %     19.3 %
                 
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 39.1% for the 13 weeks ended December 31, 2006, and 38.6% for the 13 weeks ended January 1, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 26.1% for the 13 weeks ended December 31, 2006, and 25.0% for the 13 weeks ended January 1, 2006.
The United States operating segment (“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 licensed retail stores, foodservice accounts and other initiatives related to the Company’s core business.
United States total net revenues increased 20% to $1.9 billion for the 13 weeks ended December 31, 2006, compared to $1.5 billion for the corresponding period of fiscal 2006.
United States Company-operated retail revenues increased 21% to $1.7 billion for the 13 weeks ended December 31, 2006, compared to $1.4 billion for the corresponding period of fiscal 2006, primarily due to the opening of 928 new Company-operated retail stores in the last 12 months and comparable store sales growth of 6% for the quarter. The increase in comparable store sales was due to a 3% increase in the number of customer transactions and a 3% increase in the average value per transaction.
Total United States specialty revenues increased 13% to $200 million for the 13 weeks ended December 31, 2006,

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compared to $177 million in the corresponding period of fiscal 2006. United States licensing revenues increased 18% to $113 million, compared to $96 million for the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues as a result of opening 758 new licensed retail stores in the last 12 months. United States foodservice and other revenues increased 7% to $86 million, from $80 million in fiscal 2006, primarily due to growth in new and existing foodservice accounts.
United States operating income increased by 9% to $325 million for the 13 weeks ended December 31, 2006, compared to $298 million for the same period in fiscal 2006. Operating margin decreased to 17.5% of related revenues from a record high 19.3% in the corresponding period of fiscal 2006, primarily due to higher cost of sales including occupancy costs and higher store operating expenses. Cost of sales including occupancy costs increased primarily due to a shift in sales to higher cost products, higher rent expense and increased distribution costs. The impact from a shift in sales reflects a growing percentage of sales from food in the past year, which have higher cost of sales compared to core beverage offerings. Store operating expenses increased primarily due to higher payroll expenditures from an increase in the average hourly wage rate for retail store partners. The Company is partially offsetting these wage increases through its October 2006 beverage and whole bean price increase.
International
                                         
    13 Weeks Ended   13 Weeks Ended
    December 31,   January 1,   %   December 31,   January 1,
    2006   2006   Change   2006   2006
                            As a % of International total net revenues
Net revenues:
                                       
Company-operated retail
  $ 346,548     $ 257,296       34.7 %     85.6 %     84.0 %
Specialty:
                                       
Licensing
    49,864       42,309       17.9       12.3       13.8  
Foodservice and other
    8,663       6,588       31.5       2.1       2.2  
                 
Total specialty
    58,527       48,897       19.7       14.4       16.0  
                 
Total net revenues
    405,075       306,193       32.3       100.0       100.0  
 
                                       
Cost of sales including occupancy costs
    200,111       145,428               49.4       47.5  
Store operating expenses
    123,590       93,391               30.5 (1)      30.5 (1) 
Other operating expenses
    14,149       10,440               3.4 (2)      3.4 (2) 
Depreciation and amortization expenses
    20,465       15,009               5.1       4.9  
General and administrative expenses
    21,711       16,187               5.4       5.3  
                 
Subtotal operating expenses
    380,026       280,455               93.8       91.6  
 
                                       
Income from equity investees
    8,024       7,778               2.0       2.5  
                 
Operating income
  $ 33,073     $ 33,516       (1.3 %)     8.2 %     10.9 %
                 
 
(1)   As a percentage of related Company-operated retail revenues, store operating expenses were 35.7% for the 13 weeks ended December 31, 2006, and 36.3% for the 13 weeks ended January 1, 2006.
 
(2)   As a percentage of related total specialty revenues, other operating expenses were 24.2% for the 13 weeks ended December 31, 2006, and 21.4% for the 13 weeks ended January 1, 2006.
The International operating segment (“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, China, Thailand, Australia, Germany, Singapore, Puerto Rico, Chile and Ireland. 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. The Company’s International store base continues to increase rapidly and Starbucks is achieving a growing contribution from established areas of the business while at the same time investing in emerging markets and channels. During the quarter ended December 31, 2006, the Company opened its first stores in Brazil and Egypt. Many of the Company’s International operations are in early stages of development that require a more extensive support organization, relative to the current levels of revenue and operating income, than in the United States. This continuing investment is part of the Company’s long-term, balanced plan for profitable growth.
International total net revenues increased 32% to $405 million for the 13 weeks ended December 31, 2006, compared to $306 million for the corresponding period of fiscal 2006.

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International Company-operated retail revenues increased 35% to $347 million for the 13 weeks ended December 31, 2006, compared to $257 million for the corresponding period of fiscal 2006. The increase was primarily due to the opening of 249 new Company-operated retail stores in the last 12 months, comparable store sales growth of 8% for the quarter and favorable foreign currency exchange for both the British pound sterling and Canadian dollar. The increase in comparable store sales resulted from a 6% increase in the number of customer transactions coupled with a 2% increase in the average value per transaction.
Total International specialty revenues increased 20% to $59 million for the 13 weeks ended December 31, 2006, compared to $49 million in the corresponding period of fiscal 2006. The increase was primarily due to higher product sales and royalty revenues from opening 432 new licensed retail stores in the last 12 months and growth in new and existing foodservice accounts.
International operating income decreased slightly to $33 million for the 13 weeks ended December 31, 2006, compared to $34 million in the corresponding period of fiscal 2006. Operating margin decreased to 8.2% of related revenues from 10.9% in the corresponding period of fiscal 2006, primarily due to higher cost of sales including occupancy costs. The increase in cost of sales including occupancy costs was primarily due to accounting corrections totaling $3.4 million, and to rising energy and fuel prices.
Global Consumer Products Group
                                         
    13 Weeks Ended   13 Weeks Ended
    December 31,   January 1,   %   December 31,   January 1,
    2006   2006   Change   2006   2006
                            As a % of CPG total net revenues
Net revenues:
                                       
Specialty:
                                       
Licensing
  $ 90,749     $ 80,558       12.7 %     100.0 %     100.0 %
                 
Total specialty
    90,749       80,558       12.7       100.0       100.0  
                 
Total net revenues
    90,749       80,558       12.7       100.0       100.0  
 
                                       
Cost of sales
    53,591       45,164               59.1       56.1  
Other operating expenses
    6,264       4,601               6.9       5.7  
Depreciation and amortization expenses
    22       34               0.0       0.0  
                 
Subtotal operating expenses
    59,877       49,799               66.0       61.8  
 
                                       
Income from equity investees
    10,729       11,818               11.8       14.7  
                 
Operating income
  $ 41,601     $ 42,577       (2.3 %)     45.8 %     52.9 %
                 
The Global Consumer Products Group (“CPG”) sells a selection of whole bean and ground coffees as well as a selection of premium Tazo ® teas through licensing arrangements in United States and international markets. CPG also produces and sells ready-to-drink beverages which include, among others, bottled Frappuccino ® coffee drinks, Starbucks DoubleShot ® espresso drinks, Discoveries™ products, Starbucks ® superpremium ice creams and Starbucks™ Coffee and Cream Liqueurs through its joint ventures and marketing and distribution agreements.
CPG total net revenues increased 13% to $91 million for the 13 weeks ended December 31, 2006, compared to $81 million for the corresponding period of fiscal 2006. The increase was primarily due to volume growth in both the U.S. and International licensed grocery and warehouse club businesses.
CPG operating income decreased slightly to $42 million for the 13 weeks ended December 31, 2006, compared to $43 million for the corresponding period of fiscal 2006. Operating margin decreased to 45.8% of related revenues, from 52.9% in fiscal 2006, primarily due to higher cost of sales, lower income from the Company’s equity investees and higher other operating expenses. Cost of sales increased primarily due to the timing of sales to the grocery channel. Income from equity investees declined primarily due to decreased sales volumes for the Starbucks Ice Cream Partnership as well as the North American Coffee Partnership, which produces ready-to-drink beverages including Starbucks bottled Frappuccino® coffee drinks and Starbucks Doubleshot® espresso drinks. Other operating expenses increased primarily due to higher marketing expenditures in support of the development and expansion of the ready-to-drink beverages in the Asia-Pacific region.

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Unallocated Corporate
                                         
    13 Weeks Ended   13 Weeks Ended
    December 31,   January 1,   %   December 31,   January 1,
    2006   2006   Change   2006   2006
                            As a % of total net revenues
Depreciation and amortization expenses
  $ 8,346     $ 8,561               0.4 %     0.4 %
General and administrative expenses
    71,758       85,605               3.0       4.5  
                 
Operating loss
  $ (80,104 )   $ (94,166 )     14.9 %     (3.4 %)     (4.9 %)
                 
Unallocated corporate expenses pertain to corporate administrative functions that support but are not specifically attributable to the Company’s operating segments, and include related depreciation and amortization expenses.
Unallocated corporate expenses decreased to $80 million for the 13 weeks ended December 31, 2006, compared to $94 million in the corresponding period of fiscal 2006. The decrease was primarily due to higher charitable contributions in the prior year and higher provisions for incentive compensation due to exceptional performance in the prior year. These were partially offset by increased payroll-related expenditures and higher professional fees in support of continued global growth and systems infrastructure development in the current year. Total unallocated corporate expenses as a percentage of total net revenues was 3.4% for the 13 weeks ended December 31, 2006 and 4.9% for the 13 weeks ended January 1, 2006.
Liquidity and Capital Resources
The following table represents components of the Company’s most liquid assets (in thousands):
                 
    December 31,     October 1,  
    2006     2006  
Cash and cash equivalents
  $ 270,873     $ 312,606  
Short-term investments — available-for-sale securities
    103,184       87,542  
Short-term investments — trading securities
    62,413       53,496  
Long-term investments — available-for-sale securities
    23,280       5,811  
 
           
Total cash, cash equivalents and liquid investments
  $ 459,750     $ 459,455  
 
           
The Company manages its cash and cash equivalents, and liquid investments in order to internally fund operating needs and pay down short-term borrowings.
The Company intends to use its cash and liquid investments, including any borrowings under its $1 billion revolving credit facility, 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 interests in selected equity method investees and licensed operations, particularly in international markets. Depending on market conditions, Starbucks may repurchase shares of its common stock under its authorized share repurchase program. Management believes that strong cash flow generated from operations, existing cash and liquid investments, as well as borrowing capacity under the revolving credit facility, 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 may require additional outside funding.
Other than normal operating expenses, cash requirements for fiscal 2007 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 potential increased investments in International licensees and for additional share repurchases, if any. Management expects capital expenditures to be in the range of $950 million to $1.0 billion in fiscal 2007, primarily driven by new store development and existing store renovations.
Cash provided by operating activities totaled $678 million for the 13 weeks ended December 31, 2006. Net earnings provided $205 million and growth in Starbucks Card balances provided $191 million in deferred revenue. The growth in the balance sheet amount for deferred revenue related to the Starbucks Card was due primarily to the holiday season. In addition, noncash depreciation and amortization expenses further increased cash provided by operating activities by $116 million, and an increase in accrued taxes payable due to the timing of payments provided $110 million.

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Cash used by investing activities for the 13 weeks ended December 31, 2006 totaled $367 million. Net capital additions to property, plant and equipment used $271 million, primarily from opening 358 new Company-operated retail stores and remodeling certain existing stores during the quarter. This amount includes the effect of the net change in non-cash capital accruals totaling $55 million. During the 13 weeks ended December 31, 2006, the Company used $47 million, net of cash acquired, to purchase 90% equity ownership in the Company’s previously licensed operations in Beijing and Tianjin, China. In addition, the net activity in the Company’s portfolio of available-for-sale securities used $33 million.
Cash used by financing activities for the 13 weeks ended December 31, 2006 totaled $355 million. The Company made net repayments under its revolving credit facility of $335 million during the 13 weeks ended December 31, 2006, which consisted of additional gross borrowings of $24 million offset by gross principal repayments of $359 million. Cash used to repurchase shares of the Company’s common stock totaled $115 million. This amount, and the effect of the net change in unsettled trades totaling $15 million from October 1, 2006, together represent the total accrual-based cost of the share repurchase program for the quarter. Share repurchases, up to the limit authorized by the Board of Directors, are at the discretion of management and depend on market conditions, capital requirements and other factors. Approximately 17.9 million shares remained available for repurchase as of December 31, 2006.
Partially offsetting cash used for share repurchases were proceeds of $66 million from the exercise of employee stock options and the sale of the Company’s common stock from employee stock purchase plans. As options granted are exercised, the Company will continue to receive proceeds and a tax deduction; however, the amounts and the timing cannot be predicted.
Store Data
The following table summarizes the Company’s retail store information:
                                 
    Net stores opened during the    
    13-week period ended   Stores open as of
    December 31,   January 1,   December 31,   January 1,
    2006   2006   2006   2006
 
                               
United States:
                               
Company-operated Stores(1)
    282       164       6,010       5,082  
Licensed Stores
    223       198       3,391       2,633  
         
 
    505       362       9,401       7,715  
 
                               
International:
                               
Company-operated Stores(1)
    76       60       1,511       1,262  
Licensed Stores(1)
    147       138       2,256       1,824  
         
 
    223       198       3,767       3,086  
         
 
                               
Total
    728       560       13,168       10,801  
         
 
(1)   International store data has been adjusted for the acquisitions of the Puerto Rico, Hawaii and Beijing operations by reclassifying historical information from Licensed Stores to Company-operated Stores. United States store data was also adjusted to align with the Hawaii operations segment change by reclassifying historical information from International Company-operated stores to the United States.
Starbucks plans to open approximately 2,400 new stores on a global basis in fiscal 2007. In the United States, Starbucks plans to open approximately 1,000 Company-operated locations and 700 licensed locations. In International markets, Starbucks plans to open approximately 300 Company-operated stores and 400 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 2006 Annual Report on Form 10-K.

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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 December 31, 2006, the maximum amount of the guarantees was approximately $6.0 million. Since there has been no modification of these loan guarantees subsequent to the Company’s adoption of Financial Accounting Standards Board (“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 guarantees on its balance sheet.
Commodity Prices, Availability and General Risk Conditions
The Company manages its exposure to various risks within the consolidated financial statements according to an umbrella risk management policy. Under this policy, market-based risks, including commodity costs and foreign currency exchange rates, are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions. Additionally, this policy restricts, among other things, the amount of market-based risk the Company will tolerate before implementing approved hedging strategies and prohibits speculative trading activity.
The Company purchases significant amounts of coffee and dairy products to support the needs of its Company-operated retail stores. The price and availability of these commodities directly impacts the Company’s results of operations and can be expected to impact its future results of operations. For additional details see “Product Supply” in Item 1, as well as “Risk Factors” in Item 1A of the Company’s Form 10-K for the fiscal year ended October 1, 2006.
Seasonality and Quarterly Results
The Company’s business is subject to seasonal fluctuations. Significant portions of the Company’s net revenues and profits are realized during the first quarter of the Company’s fiscal year, which includes the 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax positions. This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the Company will adopt the new requirements in its fiscal first quarter of 2008. The cumulative effects, if any, of adopting FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company has not yet determined the impact, if any, of adopting FIN 48 on its consolidated financial statements.
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. Starbucks must adopt these new requirements no later than its first fiscal quarter of 2009. Starbucks has not yet determined the effect on the Company’s consolidated financial statements, if any, upon adoption of SFAS 157, or if it will adopt the requirements prior to the first fiscal quarter of 2009.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). The intent of SAB 108 is to reduce diversity in practice for the method companies use to quantify financial statement misstatements, including the effect of prior year uncorrected errors. SAB 108 establishes an approach that requires quantification of financial statement errors using both an income statement and a cumulative balance sheet

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approach. SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The adoption of SAB 108 is not currently expected to have a significant impact on the Company’s consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to foreign currency exchange rates, equity security prices and changes in interest rates.
Foreign Currency Exchange Risk
As of December 31, 2006, 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 portions of anticipated international revenue streams and inventory purchases. In addition, Starbucks had forward foreign exchange contracts that qualify as hedges of its net investment in Starbucks Coffee Japan, LTD, as well as the Company’s net investments in its Canadian and U.K. subsidiaries, to minimize foreign currency exposure. These contracts expire within 33 months.
Consistent with the nature of the economic hedges provided by these foreign exchange contracts, increases or decreases in their fair values would be mostly offset by corresponding decreases or increases in the U.S. dollar value of the Company’s foreign investment, future foreign currency royalty fee payments and inventory purchases (i.e. “hedged items”) that would occur within the hedging period. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items.
Based on the foreign exchange contracts outstanding as of December 31, 2006, a 10% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract as of December 31, 2006, would result in a reduced fair value of these derivative financial instruments of approximately $45 million. Of this total, approximately $23 million relates to cash flow hedges of revenue streams and inventory purchases that may in turn reduce the Company’s future net earnings. The remaining $22 million relates to hedges of net investments in foreign operations that may reduce future accumulated other comprehensive income on the consolidated balance sheet since the underlying investments are not expected to be sold in the foreseeable future.
Conversely, a 10% appreciation of the U.S. dollar would result in an increase in the fair value of these instruments of approximately $39 million. Of this total, approximately $21 million relates to cash flow hedges of revenue streams and inventory purchases that may in turn increase the Company’s future net earnings, while the remaining $18 million relates to hedges of net investments in foreign operations that may increase future accumulated other comprehensive income.
Equity Security Price Risk and Interest Rate Risk
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 2006 Annual Report on Form 10-K.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that material information required to be disclosed in the Company’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
During the quarter 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 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 were effective, as of the end of the period covered by this report (December 31, 2006).
During the first quarter of fiscal 2007, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that materially affected or are reasonably likely to materially affect internal control over financial reporting.

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The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits 31.1 and 31.2, respectively, to this Quarterly Report on Form 10-Q.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of Legal Proceedings in Note 11 to the consolidated financial statements included in Item 1 of this Report.
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 December 31, 2006:
ISSUER PURCHASES OF EQUITY SECURITIES
                                 
                    Total Number   Maximum
                    of Shares   Number of
                    Purchased as   Shares that May
    Total   Average   Part of Publicly   Yet Be
    Number of   Price   Announced   Purchased
    Shares   Paid per   Plans or   Under the Plans
Period (1)   Purchased   Share   Programs(2)   or Programs(2)
October 2, 2006 — October 29, 2006
        $             21,488,126  
October 30, 2006 — November 26, 2006
    449,936       36.46       449,936       21,038,190  
November 27, 2006 — December 31, 2006
    3,145,235       35.98       3,145,235       17,892,955  
 
                               
Total
    3,595,171       36.04       3,595,171          
 
                               
 
(1)   Monthly information is presented by reference to the Company’s fiscal months during the first quarter of fiscal 2007.
 
(2)   The Company’s share repurchase program is conducted under authorizations made from time to time by the Company’s Board of Directors. The shares reported in the table are covered by a Board authorization to repurchase 25 million shares of common stock, publicly announced on August 2, 2006. This authorization has no expiration date.
Item 6. Exhibits
(a)   Exhibits:
                         
        Incorporated by Reference
Exhibit                        
Number   Exhibit Description   Form   File No.   Date of First Filing   Exhibit Number   Filed Herewith
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           X
 
                       
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           X
 
                       
32
  Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002           X

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Table of Contents

SIGNATURES
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
 
 
February 9, 2007  By:   /s/ Michael Casey    
    Michael Casey   
    executive vice president, chief financial officer and chief administrative officer

Signing on behalf of the registrant and as principal financial officer 
 

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Table of Contents

         
INDEX TO EXHIBITS
                         
        Incorporated by Reference
Exhibit                        
Number   Exhibit Description   Form   File No.   Date of First Filing   Exhibit Number   Filed Herewith
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           X
 
                       
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           X
 
                       
32
  Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002           X

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