1. Annual Report Project Lindsey Berkowitz Susan Crosson ACG2021 10 October 2006

2. Executive Summary Starbucks Corporation, since its start, has been steadily growing every year. Each fiscal year, the company expands its enterprise to more locations around the world and produces new and unique products for consumers. The company’s paramount goal is to become the most respected coffee distributor in the world. In order to fulfill this goal, Starbucks plans to continue to expand, to develop new products, and to discover new and innovative means of distribution. Starbucks is not only concerned with making the most profits but they are also concerned about the wellbeing of their stakeholders, which is what I believe makes the company such a success. Annual Report Fiscal Year 2005

3. Introduction Chief Executive Officer: James L. Donald Location of Home Office: Seattle, Washington Ending Date of Last Fiscal Year: 2 October 2005 Starbucks Corporation is the largest chain of specialty coffee roasters and retailers that has over 10,000 locations world-wide. In addition to coffee, Starbucks also offers a multitude of products that include Tazo  Teas, Ethos  bottled water, Hear Music  CD’s, brewing equipment and a variety of Starbucks brand liqueurs. Starbucks also owns and distributes Seattle’s Best Coffee. In addition to specialty coffee and other beverages, Starbucks serves food items such as pastries and sandwiches. Because of licensing agreements, Starbucks is able to distribute their products in a wide variety of locations within grocery stores, airports, hotels, and university campuses Starbucks has over 10,000 licensed locations in North America, Latin America, Europe, the Middle East, and the Pacific Rim

4. Audit Report Name of the company’s independent auditors: Deloitte and Touche According to Deloitte and Touche, the corporations’ consolidated financial statements were compiled and presented accurately by using the universally accepted accounting process. It was concluded that, from observing the company’s stock market activity that dividends have never been paid on its common stock and that the company has the intention of keeping the use of its retained earnings within the business. In reference to Starbucks Corporate Social Responsibility, the auditors reflect the same ideas that are the basis of the company’s 2005 Fiscal Year CSR Annual Report. These ideas convey that Starbucks, while spearheading the coffee industry, stays committed to building the company while ensuring that benefits reach their stakeholders. Starbucks is not only concerned with generating revenue but their paramount goal is to positively impact the people and places surrounding the company socially, economically, and environmentally.

5. Stock Market Information Most recent price of the company’s stock: $34.05 per share Twelve month trading range of the company’s stock of past two fiscal years: 3 October 2004 HighLow 4th Quarter$23.94$21.29 3rd Quarter 22.09 18.62 2nd Quarter 19.48 16.15 1st Quarter 31.94 23.53 2 October 2005 HighLow 4th Quarter$26.3523.08 3rd Quarter 28.1322.78 2nd Quarter 30.80 24.79 1st Quarter 31.94 23.53 According to the experts, the price per share is projected to increase steadily. This stock is a good investment if the investor is looking for long term activity, but at the moment it looks like selling is the best option for short term activity.

6. Industry Situation and Company Plans Starbucks coffee is a part of the special eateries industry. This particular industry is relatively small in reference to the companies it includes. Companies such as Panera Bread, Caribou Coffee Company and Tim Hortons Inc., examples of other names seen in this industry (www.bizyahoo.com). This industry is one that is relatively elastic being that people’s incomes, tastes and preferences affect the demand of the good. The prosperity of this industry depends somewhat on consumer goods and how badly they want the product. On the flip-sde, the industry, particularly coffee, depends on many other factors that include climate and its affect on the supplies needed to produce coffee.www.bizyahoo.com The outlook on the prosperity of Starbucks for the future is a very positive one. The company has many plans for the next fiscal year and because of the company’s ongoing success, those plans will most likely become a reality. In fiscal 2005, Starbucks expanded their international activity in countries including Jordan, the Bahamas and Ireland. In the upcoming year the company plans for future growth in countries including Brazil, India and Russia that will contribute to the projected opening of 1800 new stores. Starbucks expects a 20% increase in annual net revenue growth for the next 3-5 years. Starbucks, however, does not just focus on financial success. The company strives to build positive partnerships with its suppliers, coffee farmers, customers and surrounding environment.

7. Income Statement The format of the income statement is multi-step: (amounts in millions of dollars) 20052004 Gross Profit$1598.18$1312.64 Income from Operations 780.62 606.59 Net Income 494.47 388.97 There have only been increases in these amounts. If Starbucks uses its retained earnings to build their company and the industry remains the same, the company should continue to prosper.

8. Balance Sheet (amountsin millions of dollars) AssetsLiabilities + Stockholder’s Equity 2005$3514.07$1423.43 + $2090.63 2004 1350.90 916.33 + 2470.21 The asset account for 2005 more than doubled compared to the previous fiscal year. This just confirms that Starbucks is a growing corporation and it has done so significantly in the past year.

9. Statement of Cash Flows The cash flows from operations are more than net income for the past two years The company is growing through investing activities, I.e. buying property, plant and equipment and other long lived assets Starbucks primary source of financing is borrowing. The biggest decrease in the company’s financing activity is the issuance of its stock. Over the past two years, the Starbucks cash has increased steadily. In 2003, the company’s net cash was $99.46 million where in 2005 the company brought in $173.81.

10. Accounting Policies Starbucks Corporation has quite simple accounting policies. These include renting their office space, leasing their many leasing locations, and leasing distribution offices. The company’s paramount goal is to become the most respected coffee distributor in the world. In order to fulfill this goal, Starbucks plans to continue to expand, to develop new products, and to discover new and innovative means of distribution. Topics of notes to financial statements: Description of business Principles of consolidation Fiscal year end Reclassifications Estimates and Assumptions Cash and Cash Equivalents Etc…

11. Liquidity Ratios In millions 2 Oct 20053 Oct 2004 Working Capital -$17.67$604.70 Current Ratio.9856 times1.748 times Receivable Turnover 38.50 times37.76 times Average Days’ Sales Uncollected 9.0009.667 Inventory Turnover 10.205.202 Avg Day’ Inventory on Hand 35.0070.17

12. Profitability Ratio In millions2 Oct 20053 Oct 2004 Profit Margin7.800%7.810% Asset Turnover 2.0011.591 Return on Assets 14.10%11.80% Return on Equity 22.18%15.8%

13. Solvency Ratios In millions2 Oct 20053 Oct 2004 Debt to Equity.081.338

14. Market Strength Ratios In millions2 Oct 20053 Oct 2004 Price/earnings per share $.61$45.5 Dividend Yield0.0